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https://www.courtlistener.com/api/rest/v3/opinions/8493646/ | OPINION
RANDOLPH J. HAINES, Bankruptcy Judge.
The Debtor has asserted exemptions as to community property that state law makes available to his non-filing spouse. The Trustee has objected, asserting that both the Bankruptcy Code and state law only permit an individual to claim exemptions personal to him, and that nondebtors are not entitled to list their own exemptions in a bankruptcy case. The Court sustains the Debtor’s claimed exemptions because the Bankruptcy Code permits states to exempt community property from community debts, and Arizona law permits one spouse to assert the community exemptions on behalf of the community.
Facts
James Anthony Perez (“Debtor” or “Mr. Perez”) filed this Chapter 13 case individually. His wife, Bonnie Perez (“Mrs.Perez”), did not join in the petition, so this is *662not a joint case pursuant to Bankruptcy Code § 302.1 Mr. and Mrs. Perez are in the process of dissolving their marriage, but the dissolution has not been concluded. Nevertheless, even though only one of the spouses filed this case, all of their community property becomes property of the estate.2
In his list of exemptions, the Debtor claimed as exempt both property that Arizona law would permit him to exempt individually, and that Arizona law would permit his spouse to exempt.3 The Trustee objected to the Debtor’s claim of exemption for one car up to a value of $10,000, because Arizona law permits each spouse to exempt an automobile of a value only up to $5,000, and to the Debtor’s claim to exempt two dogs, a wedding ring, clothing and furnishings in his wife’s possession.
There being no material facts in dispute, the parties briefed the issues as a matter of law and the Court took the matter under advisement after oral argument.
Analysis
There is very little law on the precise point at issue here, although there is one bankruptcy court decision directly on point.
In Burman v. Homan (In re Homan), 112 B.R. 356 (9th Cir. BAP 1989), the BAP held that a non-filing wife could not claim an exemption because the Bankruptcy Code vested the right to claim exemptions solely in the filing spouse. For two reasons, that holding does not dictate the result here. First, it is factually distinguishable because it arose in a state that had not opted out of the option for federal exemptions, and the debtor husband had asserted the federal exemptions whereas the non-filing wife attempted to claim the state exemptions. Homan does not appear to have any application where the two exemption options are not available and the spouses do not disagree. Here, only the state exemptions are available, and the non-filing wife has joined the Debtor’s opposition to the Trustee’s objection. Second, Homan involved an attempt by a nondebtor to claim exemptions in a bankruptcy case. Here, the nondebtor wife has not attempted to claim her own exemptions; instead, the Debtor has sought to claim exemptions on behalf of the marital community or on behalf of his non-filing *663wife. Consequently while Homan does stand for the proposition that only the filing spouse can claim exemptions, it does not answer the question whether the filing spouse can claim exemptions assertable by the non-filing spouse in the community property that would otherwise become property of the estate.
The Idaho Bankruptcy Court has, however, addressed this precise question in In re DeHaan, 275 B.R. 375 (Bankr.D.Idaho 2002). That court concluded that the debt- or could not claim exemptions on behalf of his non-filing spouse. The opinion relied primarily on the language of the Code to reach that result. It noted that only an “individual debtor” may claim exemptions pursuant to § 522(b), and that a debtor’s dependent such as a non-filing spouse may assert exemptions pursuant to § 522© only if the debtor fails to claim any exemptions.
While those two conclusions are correct, as is the conclusion that “[t]here is nothing in the Code that allows non-debtors, dependents or otherwise, to assert in the bankruptcy an exemption personal to such non-debtors,” Id. at 381, they do not really answer the question whether the debtor can assert an exemption in community property that state law would permit him to assert on behalf of the community. Nonetheless, that is the conclusion the De-Haan court reached: “Nor is there anything in the Bankruptcy Code that allows the debtor to assert an exemption belonging not to him but, instead, to his non-debtor dependents.” Id.
In fact, the Code may permit a debtor to assert state law exemptions on behalf of a non-filing spouse. While only the debtor may claim the exemptions, in an opt out state the exemptions that the debt- or may claim are to “property that is exempt under ... State or local law .... ” 11 U.S.C. § 522(b)(2)(A). Thus the Bankruptcy Code itself does not limit the Debt- or to claiming exemptions that would be available under state law if he were a single person. Instead, the Code permits the Debtor to claim as exempt any property that “is exempt” under state law. Thus the proper question is whether, under state law, the Debtor could claim that the property “is exempt” from community debts by asserting not only his own, but also his wife’s exemptions.
Under Arizona law, the amount of personal property exemptions of the two spouses is generally double the amount that each spouse could claim as a single person. There is nothing in Arizona law that prohibits one spouse from asserting both exemptions. To the contrary, A.R.S. § 25-215Q) provides that “either spouse may contract debts and otherwise act for the benefit of the community.” Here, there can be no doubt that the filing spouse, in claiming his non-filing spouse’s exemptions, is acting for the benefit of the community. Moreover, this apparently unlimited ability of either spouse to “act for the benefit of the community” is in contrast to the list of just three specific instances when the joinder of both spouses is required to bind or burden the community.4
This Court is not in a position to determine whether there is a sufficient difference in the Idaho community property laws to support the contrary conclusion reached by the DeHaan court.5 It is suffi*664cient to note that this Court disagrees that the DeHaan result is compelled solely by the Bankruptcy Code, without regard to state law. Moreover, although this Court agrees that the DeHaan result is “harsh,” 275 B.R. at 382, this Court disagrees that such harshness is unavoidably compelled by the language of the Code. The harshness arises from the fact that all community property comes into the estate and becomes liable for all community debts, even though only one spouse has filed. Under state law, the non-filing spouse’s exemption would immunize that portion of the community property from payment of community debts, but such property would become liable for those debts under the DeHaan result. The only way for the non-filing spouse to avoid that result would be to file her own bankruptcy, yet state law makes her exemptions equally available to protect property from creditors’ claims both inside and outside of bankruptcy. Consequently the community creditors and the bankruptcy trustee are put in a better position by the DeHaan result than they would be under state law. This is not the purpose of the Bankruptcy Code’s, or the Bankruptcy Act’s, incorporation of state law exemption rights, the purpose of which is to ensure that “the trustee takes in each state whatever would have been available to the creditor[s] if the bankruptcy law had not been passed.” Hanover Nat'l Bank v. Moyses, 186 U.S. 181, 190, 22 S.Ct. 857, 46 L.Ed. 1113 (1902). It would also be contrary to the admonition of the Arizona courts that the exemption laws are to be construed “liberally” to advance the objectives of the statutes to “protect the family from the forced sale” of exempt property.6
The Trustee’s concern for potential abuse does not appear likely to occur. The Trustee hypothesizes that married persons could file separate bankruptcies and then each of them could claim a double set of exemptions. But if the spouses file separately, one of the two cases would have to be filed first. Pursuant to § 541(a)(2)(A), all of the community property would be vested in the estate of that first-filing spouse. The only property that would come into the estate of the second-filing spouse would be her separate property. There would probably be no duplication of exemptions, because the first-filing spouse could not have exempted any of the second spouse’s separate property, which was not property of that estate. It would take a strange and unique set of circumstances for there to be any duplication, although this is theoretically possible.7 In that event, however, creditors or the trustee could object to whichever claim of exemption exceeded the total amount allowed under state law. The Court is confident that Bankruptcy Rule 9011 will preclude attorneys from seeking to claim a double set of exemptions where it might be possible to do so, and in any event that alert trustees can adequately respond to such *665abuses should they occur. See e.g. Flinn v. Morris (In re Steward), 227 B.R. 895 (9th Cir. BAP 1998) (addressing spouses’ conflicting exemption claims in separate bankruptcy cases).
Conclusion
For the foregoing reasons, the Court sustains the Debtor’s exemption claims and denies the Trustee’s objections.
. Unless otherwise noted, all statutory and rule references are to the United States Bankruptcy Code, 11 U.S.C, §§ 101-1330, and the Federal Rules of Bankruptcy Procedure.
. The Bankruptcy Code provides, in pertinent part, that the bankruptcy "estate is comprised of all of the following property, wherever located and by whomever held: ... All interests of the debtor and the debtor's spouse in community property as of the commencement of the case that is — under the sole, equal, or joint management and control of the debtor ....” 11 U.S.C. § 541(a)(2)(A). Arizona community property satisfies this definition because Arizona Revised Statutes ("A.R.S.”) § 25-214(B) provides that the "spouses have equal management, control and disposition rights over their community property and have equal power to bind the community.”
.As permitted by Bankruptcy Code § 522(b)(1), Arizona has opted out of the federal exemptions. A.R.S. § 33-1133(B). Although "only one homestead exemption may be held by a married couple or a single person” pursuant to A.R.S. § 33-1101(B), all of Arizona’s exemptions of personal and intangible property may be claimed by each spouse. A.R.S. § 33-1121.01 provides: "In the case of married persons, each spouse is entitled to the exemptions provided in this article, which may be combined with the other spouse’s exemption in the same property or taken in different exempt property.” Thus, for example, because A.R.S. § 33-1125(8) permits the exemption of "one motor vehicle not in excess of a fair market value of $5,000,” the two spouses together can exempt two vehicles, provided the value of each is less than $5,000, or can exempt one vehicle up to a total value of $10,000.
. A.R.S. § 25-214(C) requires the joinder of both spouses in real property transactions, guarantees and indemnities, and to bind the community after service of a petition for dissolution.
. Such a difference seems unlikely, however, because § 541(a)(2) only brings community *664property into a single spouse’s estate if it is subject to the "equal, or joint management and control of the debtor.” It would seem odd for a community property law to subject community property to the equal and joint management of one spouse and yet preclude that spouse from seeking to exempt community property from community debts by asserting the other spouse's exemption rights.
. Matcha v. Winn, 131 Ariz. 115, 117, 638 P.2d 1361 (1981).
. For example, the spouses could own three automobiles, each of which is worth $5,000. If two of those automobiles were community property, the first-filing spouse could exempt both of them on behalf of the community. If the third vehicle was the separate property of the second-filing spouse, she might then also seek to claim an exemption as to her separate property. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493647/ | Memorandum Opinion in Support of Judgment
JAMES S. STARZYNSKI, Bankruptcy Judge.
This matter came before the Court for an evidentiary hearing on the merits of the complaint (doc 1) and the interlineated amended complaint (doc 12) and the answer (doc 7), and on the briefs and the “Time Line” (doc 36), the chronology of events deemed relevant by the parties. Plaintiff Gonzales (“Trustee”) is represented by Clifford C. Gramer, Jr., Lincoln National Life Insurance Company (“Lincoln”) and Plaintiffs as a group (“Plaintiffs”) by Rodey, Dickason, Sloan, Akin & Robb, P.A. (William J. Arland, III), and defendant United States of America (“IRS” or “Defendant”) by Assistant United States Attorney Jon E. Fisher. This memorandum constitutes findings of fact *722and conclusions of law pursuant to F.R.B.P. 7052.
Jurisdiction:
The Court has jurisdiction of the subject matter and the parties hereto pursuant to 28 U.S.C. §§ 1334 and 157. Defendant denied that this is a core proceeding pursuant to 28 U.S.C. § 157(b). United States of America’s Answer, paragraph 3 at page 4 (doc 7). The Court finds that the relief requested in the complaint is primarily an adjudication of the liens claimed on estate property by Defendant and an adjudication of whether certain property is property of the estate. In consequence, the Court finds that it may hear and determine the matters herein pursuant to 28 U.S.C. § 157(b)(2)(B), (K) and perhaps (E) and (0)((E) and (0) in the sense that Plaintiffs seek a determination that certain property is property of the estate).
Facts:
The Court has relied on the Time Line and the evidence presented at the merits hearing. The evidence consisted of exhibits submitted by each side, and testimony. Although the Trustee’s exhibit book was missing some exhibits at the time of trial, the parties in effect have stipulated to many of the facts so that the Court has been able to make findings of fact sufficient to decide this adversary proceeding. A brief summary of as much of those facts as is needed to decide this adversary is as follows:
1.The IRS obtained a lien against all the Silvers’ personal property by filing liens over a period of several years prior to the Silvers filing their chapter 7 petitions. The liened property included the furniture, household furnishings, antiques, paintings, or other art which are and have been the subject of dispute between the parties (“Art”). (The Art has since been sold. See Memorandum Opinion and Order Granting Trustee’s Motion for Approval of Payment of Expenses of Sale of Property of the Estate (docs 98 and 99 respectively) in the underlying cases, In re Silver; No. 7-96-11879 (“Sale Expenses Order”).)
2. The IRS lien was junior to the lien of Los Alamos National Bank on the Art.
3. The Bank foreclosed on the Art in a state court action (SF 94-904(0), in which the IRS was a party (a fact which apparently no one disputes), thus cutting off the junior IRS liens.
4. ADS Financial Services, an entity owned and controlled by either or both of the Silvers (“ADS”), purchased the Art from the Bank in August 1995.
5. The Silvers filed chapter 7 bankruptcy petitions on May 2,1996.
6. In January 1998, more than a year and half after the Silvers filed their bankruptcy petitions, the IRS filed liens against the various children’s trusts and other Silver entities (specifically, the Silver Children’s Trust, Platinum Group, Caleb Borden Silver Trust, Claude Amanda Silver Trust, and the Dayn Schulman Trust), in their capacity as transferees, alter egos and/or nominees of the Silvers. Time Line, at 7 (doc 36). The newly liened parties did , not include ADS. Indeed, it appears that the IRS has never filed a lien against ADS. Id.
7. In May 1998 the Trustee filed her complaint seeking to avoid transfers to ADS and other entities (specifically, ADSFIN, Platinum Group, Santa Fe Capital, Santa Fe Capital of New Mexico, and Competeré Group) pursuant §§ 548-550 and the state *723fraudulent transfer statute, N.M.S.A.1978 §§ 56-10-14 et Seq (1996 Repl.). The Trustee obtained a judgment on her complaint in September 1998 (complaint, Exhibit A); the judgment included a finding that ADS and other entities were alter egos of the Silvers.
8. The finding in the judgment was that the transfers were “fraudulent, voidable and recoverable under 11 U.S.C. §§ 548-550” and “fraudulent and voidable” under the New Mexico fraudulent transfer statute.
9. The IRS has not argued that this judgment was not binding on everyone who is a creditor of the estates; in fact, the IRS “thanked” the Trustee for pursuing this action and, more important, its argument essentially admits that the property was recovered for the Silver estates (albeit the IRS asserts its lien encumbers the recovered property).
10. The IRS never had physical possession of any of the stock certificates at issue, nor did the books or records of the issuing companies ever list the IRS as the owner of the stock or as having a lien on the stock.
Legal analysis concerning the Art:
1. In summary, the IRS lien was foreclosed out by the Bank’s foreclosure action, the Art then went to ADS free of the IRS lien, the bankruptcy intervened which allowed the Trustee to exercise her bankruptcy avoiding powers (which avoiding powers include (a) the direct bankruptcy avoiding power of § 548 and (b) by incorporation, the state avoiding power of §§ 56-10-14 et seq.), the exercise of that power brought the Art back into the estate, the IRS lien did not attach because the Art was now property of the estate and the lien could not attach post petition. See Sale Expenses Order. U.S. v. Gold (In re Avis), 178 F.3d 718, 723-24 (4th Cir.1999).
2. The IRS never filed a lien against ADS, either as its own entity or as an alter ego of the Silvers, at any time before the Trustee brought the Art into the estates.
3. The IRS argues that Avis is not applicable because that case dealt with an inheritance and not a fraudulent transfer. However, both Avis and this adversary proceeding deal with property brought into the estate after the filing of the petition, and therefore the distinction does not make a difference in the analysis.
4. The cases cited by the IRS are inap-posite because they do not match the factual/legal pattern of this case.
5. For example, in In re Amtron, 192 B.R. 130 (Bankr.D.S.C.1995), the emphasis was on the direct transfer from the debtor to the transferee of the patent rights in question (rather than, as here, a transfer of the assets following a foreclosure), and even more so on the specific language of the South Carolina statute which provided that fraudulent transfer under state law were absolutely void (that is, from the outset of the original transaction). 192 B.R. at 132. Note especially the language in note 2 of the opinion, citing the statute, and the court’s reliance on a “plain reading” of the South Carolina statute. Those two factors do not exist in this case.
6. For another example, Claussen Concrete v. Walker (In re Lively), 74 *724B.R. 238 (S.D.Ga.1987), aff'd wo op. 851 F.2d 363 (11th Cir.1988), the creditor had a valid judgment lien which followed the property into the hands of the fraudulent transferee, which transfer the trustee undid. In that case no foreclosure case had intervened to cut off the property from the lien, as happened here. The IRS would in essence have the Court ignore the fact or the effect of the Bank’s foreclosure action, which the Court will not do.
7. The IRS would also have the Court treat the Trustee’s avoidance judgment as in essence having retroactive effect such that as soon as ADS obtained the property from the Bank (before the Silvers filed their bankruptcy petitions and before the Trustee obtained her judgment), the Art was treated as being property of the Silvers and therefore subject to the IRS lien.
8. The IRS argument raises two considerations:
a. What of a case (unlike this one) in which the property, subject to a lien, is transferred fraudulently and then a bankruptcy petition is promptly filed: should the secured creditor lose its collateral by such a gambit? The Court does not think so, and there would seem to be nothing wrong with the notion in those circumstances that the creditor’s lien follows the property. N. Sanborn, Avoidance Recoveries in Bankruptcy: For the Benefit of the Estate or the Secured Creditor?, 90 Columbia L.R. 1376, 1398-1400 (1990) (“If a creditor can establish a valid, perfected security interest in an asset that had been transferred by the debtor, a comparable entitlement to the recovered property should be respected, but only if such security interest continued to be enforceable against the transferee under non-bankruptcy law. The provisions of sections 550 and 551, requiring that property is recovered or liens are preserved ‘for the benefit of the estate’, together [with] the section 541 definition of ‘property of the estate’, should be interpreted simply as ensuring that these property interests are recovered or preserved but subject to liens.”). But in this case, the IRS did not have a valid continuing perfected security interest in the Art, because that was cut off by the foreclosure sale to the Bank. And that is the difference between this case and cases such as Lively, United States v. Neilson, 986 F.2d 1430, 1992 WL 401598 (10th Cir.1992) (unpublished) (cited by the IRS); In re Figearo, 79 B.R. 914 (Bankr.D.Nev.1987), Official Unsecured Creditors Committee v. Northern Trust Company (In re Ellingsen MacLean Oil Co., Inc.), 98 B.R. 284, 289-291 (Bankr.W.D.Mich.1989), and In re Amtron, Inc., 192 B.R. 130 (Bankr.D.S.C.1995). Compare Research-Planning, Inc. v. Segal (In re First Capital Corporation), 917 F.2d 424 (10th Cir.1990) (en banc) (no constructive trust on funds which were transferred to a good faith transferee prepetition and then recovered by the trustee).
b. Unlike the Georgia statute, the New Mexico statute makes a transfer only voidable, not void, and therefore not void ab initio. The IRS concedes that the fraudulent conveyances at issue must be analyzed under New Mexico law, and that New Mexico law says that fraudulent conveyances are voidable. IRS trial brief at 6. See Del*725gado v. Delgado, 42 N.M. 582, 586, 82 P.2d 909 (1938) (“It is not invariable that an act done in violation of a statutory prohibition is absolutely void.”) See also N.M.S.A. § 56-10-22(A), (B), (D), (E) and (F) (all using the terna “voidable” or a variant thereof, rather than “void” or a variant thereof).
c. And the IRS does not successfully refute or distinguish the argument of the Trustee and Lincoln that the IRS lien does not attach to property that the debtor does not own. 26 U.S.C. § 6321 (lien attaches to all property “belonging” to the debtor). “[T]he taxpayer must have a beneficial interest in any property subject to the lien.” Drye v. United States, 528 U.S. 49, 59 n. 6, 120 S.Ct. 474, 482, 145 L.Ed.2d 466 (1999) (Internal quotation marks and citations omitted.) See also N.M.S.A. § 56-10-20(D) (“... a [fraudulent] transfer is not made until the debtor has acquired rights in the asset transferred .... ”).
d. That is, following the cutoff of the IRS lien by the foreclosure, the Art did not go back to the debtors before it went to ADS. At least so far as the record discloses, see Time Line (doc 36), the IRS lien never attached to the property of ADS.
7. The IRS asserted claims and hens against the Silver’s children’s trusts and related entities, not because it had a direct claim against those entities but because it sought to pursue into their hands property that belonged to the Silvers. More accurately stated, in fight of the Silvers’ fifing of their petitions in 1996, the property being pursued was actually part of the Silvers’ chapter 7 estates. Any claims, including claims supporting the liens, therefore belonged to the Trustee.
8. In general, recoveries by the trustee are for the estate and all its creditors generally, not for one or more specific creditors. Delgado Oil Co. v. Torres, 785 F.2d 857, 861 (10th Cir.1986). And this sort of recovery — a fraudulent transfer action under either § 544 (permitting trustee to recover under state fraudulent transfer statute) or § 549 (bankruptcy fraudulent transfer statute), which were preserved for the benefit of the estate pursuant to § 550 — belongs to the estate pursuant to § 541(a)(3) (or perhaps § 541(a)(7)) and can only be brought by the trustee, even if under state law the creditor could have brought a state fraudulent conveyance action before the bankruptcy petition was filed. See Delgado Oil, at 860-61 (§ 547 preferential transfer recovery).
Legal analysis concerning the stock:
9. The IRS argues that the liens which it had filed and recorded attached to and encumbered the stock. However, those liens were not valid “as against a holder of a security interest in [the stock] who, at the time such interest came into existence [on the date of the petition], did not have actual notice or knowledge of the existence of such lien.” 26 USC § 6323(b)(1)(B). The “notice or knowledge” with which the Bankruptcy Code charges the Trustee is not her knowledge in her individual capacity (that is, what did Yvette Gonzales personally know), but rather what any person in the public is charged with knowing, constructively or otherwise, such as by a fifing in the records of the Secretary of State or the county real estate records, ad*726verse possession, physical possession [for cash or other securities], etc. E.g., Crowder v. Crowder (In re Crowder), 225 B.R. 794 (Bankr.D.N.M.1998). The IRS, to be “perfected” in the stock as against a “good faith purchaser or lien holder”, needed to have seized the stock and to have had “physical possession” of it — that is, to have possession of the stock certificate or perhaps be recorded in the books of the company as the holder of the stock. This the IRS had not done as of the date of the petitions, and when the stock was brought into the Silver estates, the IRS lien could not encumber the stock.
10. The IRS argues that in affirming the trial court’s decision in Straight v. First Interstate Bank of Commerce (In re Straight), 200 B.R. 923, 929-930 (Bankr.D.Wyo.1996), the Tenth Circuit Bankruptcy Appellate Panel held that the Bankruptcy Court concluded that the Debtors were precluded from using § 545(2) from avoiding the IRS tax lien on “securities” because the status of a § 545(2) bona fide purchaser does not qualify sufficiently as a purchaser for full and adequate consideration under § 6323(b). Straight v. First Interstate Bank of Commerce (In re Straight), 207 B.R. 217 (10th Cir. BAP 1997). It is true that the trial court held that the bona fide purchaser status conferred on the Trustee by § 545(2) did not rise to the level of the bona fide purchaser who would give full and adequate consideration to qualify for the exception to the tax hen as provided by § 6323(b), and that the B.A.P. in its decision stated that the trial court had decided the issue on that basis. But the B.A.P. specifically ruled that it did not need to address the bona fide purchaser issue at all because the Debtors (in that case) did not have the authority under § 522(e)(2)(B) to exercise the Trustee’s avoiding powers. In short, the B.A.P. affirmed the result reached by the trial court, not the reasoning. The IRS argument, to the extent it intends to leave the impression that the B.A.P. affirmed the Bankruptcy Court’s reasoning, is simply wrong.
“Other” issues:
11. The Trustee has the obligation to recover assets for the estate to pay claims against the estate, including priority claims such as those of the IRS. The issues of what charges the Court will allow to the Trustee and Lincoln that may reduce the amount of the distribution on priority claims, and what will be the amount of the priority claims, and related issues of distribution, are not the subject of this adversary proceeding but should be decided in the underlying chapter 7 cases.
12. In its answer, Defendant raised four affirmative defenses. The first two were that the complaint named the IRS rather than the United States as the defendant, and that Plaintiffs did not serve the complaint on Defendant’s counsel. Those defenses are mooted respectively by the amending of the complaint by interlineation and by IRS counsel helpfully agreeing that Plaintiffs could effect service by serving counsel.
13. The other two affirmative defenses were respectively laches and that even if Plaintiffs were successful, *727the recovery would be devoted to paying the IRS claim anyway. United States of America’s Answer, at 2-3 (doc 7). The claim of laches is based on the fact that the bankruptcy cases were filed in 1996, that the IRS filed its proofs of claim within about a year of the filings, and this action was brought about 3/é years after the petitions were filed. The Court takes judicial notice of the long and tortuous history of the underlying chapter 7 cases and the related adversary proceedings as disclosed in the files of those cases and adversary proceedings, which included the actions to pursue alter ego claims for the estate and to revoke the debtors’ discharges. The long and tenacious struggle of the Trustee to search out, untangle and recover assets in the course of administering the estates, and the facts that this adversary proceeding was filed less than four years after the filing of the petition and that the IRS has shown no prejudice, show that the Trustee has been sufficiently diligent in pursuing this relief. Similarly, the fourth affirmative defense, to the effect that the IRS will be paid anyway, does not constitute a basis for dismissing the action, especially when that relief was not sought earlier by the IRS. What attorney fees will be awarded to Plaintiffs from the estate will be resolved in the main cases.
Conclusion:
Plaintiffs have asked for several forms of relief. First, they ask that any IRS liens on any and all of the property described in paragraphs 23-25 of the complaint be declared invalid. The property described in paragraphs 23-25 is the “Art” as defined in this memorandum. Those IRS liens were cut off by the Bank foreclosure action and could not reattach because the Art never came back into the ownership of the Silvers before the Silvers filed their petitions. Therefore the Court can and will rule that the IRS liens do not attach to or otherwise encumber the Art.
Plaintiffs ask that any IRS hens filed against the property of the Silvers’ bankruptcy estates after May 2, 1996 (the petition date) be declared void for being in violation of the automatic stay. Included specifically in this request is the property recovered in the fraudulent transfer (alter ego) action (98-1092). The Court can and will so rule.
Plaintiffs ask that any IRS liens against any stock belonging to the estate be declared invalid. The Court can and will so rule with respect to the Xing Technology/RealNetworks stock that was specifically addressed by the parties. However, the Court cannot similarly rule concerning any other stock of the estate in which the IRS claims a lien, should there be any, without knowing whether the facts surrounding such stock match the facts of the RealNet-works stock. Therefore the ruling will be limited to the RealNetworks stock.
Plaintiffs ask for a declaration that “any and all alter ego claims seeking to have any entity or person declared to be the alter ego of David or Jerilyn Silver are property of their respective Chapter 7 estates.” The Court can and will so rule.
Plaintiffs ask for an order invalidating the “IRS alter ego tax liens” on the Silver Children’s Trust, Platinum Group, Caleb Borden Silver Trust, Claude Amanda Silver Trust, and the Dayn Schulman Trust, and ADS as being in violation of the automatic stay. Although the Court is not aware of any IRS alter ego claims against ADS, the Court can and will so rule.
*728Plaintiffs ask for costs and reasonable attorney fees from the IRS. No legal basis has been shown for the award of attorney fees, and so that request for relief will be denied. Costs will be allowed when and if there is compliance with the applicable rules.
Plaintiffs ask for such other and further relief as the court deems just and proper. No other relief is granted to Plaintiffs.
Defendant’s affirmative defenses will be denied, the first two as moot and the second two (laches and the defense that the IRS will be paid anyway) on the merits.
A judgment is will enter with the entry of this memorandum opinion.1
. The Court’s staff attorney has not participated in any aspect of the trial and decision of this adversary proceeding. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493648/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is a motion filed by the plaintiff, 1st Franklin Financial Corporation (hereinafter “1st Franklin”), seeking summary judgment *845against the defendant, Locke D. Barkley, in her capacity as Standing Trustee of the Chapter 13 Estate of Eugene and Arleen Anthony, et al. (hereinafter “Trustee”); a timely response having been filed by the said Trastee; and the court, having considered same, hereby finds as follows, to-wit:
I.
JURISDICTION
The court has jurisdiction of these adversary proceedings pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157, as well as, the General Order of Reference issued by the United States District Court for the Northern District of Mississippi on July 27,1984.
The adversary proceedings filed by 1st Franklin are “core” proceedings as defined in 28 U.S.C. § 157(b)(2)(A), (B), and (0). They are consolidated for the purpose of considering 1st Franklin’s motion for summary judgment.
II.
PROCEDURAL BACKGROUND
The defendant was duly appointed as the Chapter 13 Trustee in each of the twenty-one separate bankruptcy eases that are directly related to the above captioned adversary proceedings. In each case, this court entered an order confirming the debtors’ Chapter 13 debt adjustment plans. In nineteen of the twenty-one cases, 1st Franklin filed proofs of claim which were addressed by the respective confirmation orders. The Trustee also filed motions to allow the claims of 1st Franklin in each case, and separate orders were entered sustaining these motions. This latter proceeding is routinely undertaken by Chapter 13 Trustees in numerous judicial districts. One motion is filed in each case which includes all creditors filing proofs of claim. No hearing is conducted, and a single form order is entered in each case. To illustrate this procedure, a sample copy of a motion and the related order are appended as exhibits to this Opinion.
Subsequently, the Trustee obtained permission to file lawsuits against 1st Franklin on behalf of the twenty-one bankruptcy estates. This permission was specifically subject to any affirmative defenses that might be raised by 1st Franklin. One of the primary purposes of the Trustee’s lawsuits is to augment the respective debtors’ bankruptcy estates through the perceived recovery from 1st Franklin so that the distributions to all of the creditors in the twenty-one cases will be significantly enhanced.
1st Franklin thereafter filed an adversary proceeding in each of the twenty-one eases seeking to enjoin the Trustee from pursuing her causes of action. 1st Franklin has asserted that the Trustee’s intended lawsuits are barred by events that occurred during the administration of the underlying bankruptcy cases, notably the entry of the orders confirming the debtors’ Chapter 13 plans, and the entry of the orders sustaining the Trustee’s motions seeking the allowance of 1st Franklin’s claims. 1st Franklin has affirmatively-raised the defenses of res judicata, judicial estoppel, waiver, and equitable estoppel, denominating these theories collectively as “prior adjudicatory defenses.”
As a part of its complaint, 1st Franklin has also asserted that the Trustee should be compelled to arbitrate the disputes with 1st Franklin as required by the terms of the underlying loan documents executed by the respective debtors. This part of the proceeding has been deferred pending a decision relative to the “prior adjudicatory defenses.”
III.
THE BASIS OF THE TRUSTEE’S CAUSE OF ACTION
The Trustee’s proposed causes of action against 1st Franklin can best be summa*846rized through the sworn affidavit of Thomas Dye Gober, Senior Manager and Director of Fraud Examination and Forensic Accounting at the accounting and consulting firm of Dixon Odom, PLLC. Mr. Gober indicates that 1st Franklin was engaged in deceptive credit insurance transactions that violated the laws of the State of Mississippi and the NAIC Market Conduct Guidelines. In his affidavit, he identifies three separate categories in which the alleged violations occurred, to-wit:
1. Overcharging premiums for credit life insurance — First Franklin repeatedly sold credit life insurance with LEVEL coverage on DECREASING loans. The premium charged for level coverage is twice the premium charged for decreasing coverage. So, as the borrower makes payments on the loan, the amount of indebtedness decreases but the amount of coverage for which the borrower paid premiums remains at the original amount of the loan. It is my opinion that any credit life insurance coverage that is sold in excess of the indebtedness does not qualify as credit life insurance and was therefore sold as regular life insurance. It is likely that the agents representing First Franklin were not licensed to transact such regular life business. Selling level coverage on decreasing loans is onerous, deceptive and profits the seller to the detriment of the borrower.
2. Overcharging premiums for credit disability insurance — First Franklin repeatedly sold credit disability insurance at rates significantly in excess of the maximum rates permitted by law. Although calculated in such a way as to make it difficult to detect such excesses, a careful review of the charges and related laws shows such overcharges. First Franklin repeatedly charged premiums for a full year (or multiples of years) even though the debt was for less than a year (or less than a multiple of a year.) As an example, if the borrower’s loan was for a term of nine months, First Franklin sold credit disability coverage for a full year rather than pro-rating for the nine months. If the loan was for 18 months, First Franklin sold coverage for 24 months. The fact that the coverage was for a term greater than the term of the loan was not disclosed. Selling disability coverage for terms greater than the term of the loan is onerous, deceptive and profits the seller to the detriment of the borrower.
3.Overcharging premiums for credit property insurance by inflating personal property listed — First Franklin repeatedly listed “personal property” items upon which they sold credit property coverage that appeared to have been listed on the loan documents for the sole purpose of justifying the premium charged for credit property coverage. The items appear to be unauditable -with no identifying serial numbers, of minimal market value and perhaps fictitious. Actual examples of such “personal property” listed are “12x12 TAN CARPET,” “12x12 LINOLEUM RUG,” “GOLD ROBE NECKLACE W/NUGGET,” “1-SET OF FUNK AND WAGNER ENCYCLOPEDIAS,” “1 SET COMPTONS ENCYCLOPEDIAS,” “1 BROTHER TYPEWRITER” and “ROD AND REEL WITH TACKLE.” Credit property insurance is expensive and should not be charged based upon property for which the lender needs no coverage. To do so is onerous, deceptive and profits the *847seller to the detriment of the borrower.
Notably, Mr. Gober stated that in his opinion neither an average consumer nor an educated professional could easily detect the manner in which 1st Franklin calculated and applied its overcharges for the aforementioned insurance premiums.
IV.
1st FRANKLIN’S RECITATION OF UNDISPUTED FACTS WITH THE TRUSTEES RESPONSES
The following undisputed facts, posited by 1st Franklin, and the Trustee’s responses were extracted from the respective memoranda submitted by the parties, to-wit:
1. 1st Franklin: Prior to the filing of debtors’ bankruptcy petitions, 1st Franklin had either made a consumer loan to each debtor or was a holder of a consumer loan some other finance company had made to the debtor. In each case, the debtor owed at least a portion of the loan to 1st Franklin as of the dates of the petition date.
Trustee’s Response: Trustee admits the allegations of Fact One.
2. 1st Franklin: Each debtor then filed a Chapter 13 bankruptcy petition. In the schedules the debtor listed 1st Franklin as a creditor. However, nowhere did any debtor list a cause of action against 1st Franklin.
Trustee’s Response: Trustee admits the allegations of Fact Two, but would state that the debtors were unable to list their claims and cause of action against 1st Franklin due to the concealment of such claims by 1st Franklin.
3. 1st Franklin: Each debtor also filed a proposed plan of reorganization which universally adjusted the debt- or-creditor relationship between debtor and all of its creditors, including the debtor-creditor relationship between debtor and 1st Franklin.
Trustee’s Response: Trustee admits the allegations of Fact Three.
4. 1st Franklin: Then, prior to confirmation, 1st Franklin filed a proof of claim in each debtor’s bankruptcy case.
Trustee’s Response: Trustee admits the allegations of Fact Four.
5. 1st Franklin: Each debtor’s plan was confirmed, which confirmation order adjusted the debtor-creditor relationship between debtor and 1st Franklin. In each bankruptcy case, the confirmed plan of reorganization provides that 1st Franklin is to receive less than it was entitled under its contract.
Trustee’s Response: Trustee admits the allegations of Fact Five.
6. 1st Franklin: The Standing Chapter 13 Trustee, Locke Barkley, then filed a motion to allow claims, which motion included the claim filed by 1st Franklin. Sometimes, the motion to allow claims reflects a lower amount than the amount for which 1st Franklin filed its claim. In such cases, the lower amount stated by the Trustee reflected some pre-con-firmation order entered in the bankruptcy case. The motion to allow claims, at least with respect to 1st Franklin’s claim, was granted without objection. In each case where 1st Franklin filed a proof of claim, 1st Franklin’s claim was allowed in some amount. 1st Franklin’s claim was and remains allowed.
Trustee’s Response: Trustee admits the allegations of Fact Six, except the last sentence “1st Franklin’s claim *848was and remains allowed.” The Trustee contests the validity of 1st Franklin’s claim due to the fraudulent insurance charges.
8. 1st Franklin: Long after the confirmation order had been entered and the motion to allow claims had been granted in each debtor bankruptcy, the Trustee filed a motion to be allowed to pursue causes of action on behalf of the bankruptcy estates against 1st Franklin, which motion was granted without prejudice to any defense 1st Franklin chose to assert.
Trustee’s Response: Trustee admits the allegations of Fact Eight and further agrees that the causes of action against 1st Franklin were discovered long after the confirmation order and motion to allow claims were granted by the court.
9. 1st Franklin: The Trustee’s counsel admitted that he determined the existence of the pre-petition causes of action against 1st Franklin solely by reviewing the 1st Franklin contracts attached to the proofs of claim filed by 1st Franklin. Thus, Trustee’s file contains the facts giving rise to each pre-petition cause of action at the time the proof of claim was filed, which in each case occurred pre-confirmation and before the motion to allow claims.
Trustee’s Response: Trustee admits the allegations of Fact Nine and states that the attorney for the Trustee discovered the causes of action against 1st Franklin long after the case was confirmed. The Trustee had no actual or constructive knowledge of the hidden fraud and deceptive business practices that were skillfully practiced by 1st Franklin. Until notified by counsel, the Trustee was unaware that 1st Franklin had:
I. Breached the implied covenant of good faith and fair dealing with the debtors.
II. Violated state statutes.
III. Charged level credit life premiums on decreasing debt.
IV. Rounded up credit disability premiums to a full year term on loan terms of less than twelve months.
V. Charged outrageous credit property insurance premiums on insignificant or non-existent property.
10. 1st Franklin: The Trustee acknowledged at deposition and in pleadings that all the causes of action she seeks to assert arose pre-petition.
Trustee’s Response: Trustee admits the allegations of Fact Ten, but such admission of a pre-petition cause of action does not prohibit the Trustee from trying to right a wrong.
11. 1st Franklin: Each cause of action arose at the time each debtor entered into the pre-petition loan transaction or transactions that are the basis of 1st Franklin’s allowed claim against the debtor.
Trustee’s Response: Trustee denies the allegations of Fact Eleven. Each cause of action accrued when the Trustee received actual knowledge of their existence.
12. 1st Franklin: In some of the cases, prior to confirmation, the bankruptcy court also entered a specific order regarding 1st Franklin’s claim. The terms of these specific orders vary, but most of them expressly allow at least a portion of 1st Franklin’s claim. None of them disallow 1st Franklin’s claim in its entirety.
*849Trustee’s Response: Trustee admits the allegations of Fact Twelve.
V.
THE DISTINCTIONS BETWEEN THE ADMINISTRATION OF A CHAPTER 13 BANKRUPTCY CASE AND A CHAPTER 11 BANKRUPTCY CASE
In its motion for summary judgment, 1st Franklin relies heavily on numerous decisions rendered in Chapter 11 bankruptcy cases to support its position that the “prior adjudicatory defenses” preclude the Trustee’s proposed causes of action. In this context, 1st Franklin has misread the holdings in two Fifth Circuit decisions, Sun Finance Company v. Howard (In re Howard), 972 F.2d 639 (5th Cir.1992) and Simmons v. Saveli (In re Simmons), 765 F.2d 547 (5th Cir.1985), both Chapter 13 cases, which will be discussed more fully hereinbelow. Regardless, in order to better appreciate the differences in the administration of a Chapter 13 bankruptcy case as compared to the administration of a Chapter 11 bankruptcy case, the court would point out the following, to-wit:
1.The volume of cases per chapter filed and pending in the United States Bankruptcy Court for the Northern District of Mississippi reflects the extraordinary workload carried by the two Chapter 13 trustees:
Filed Pending Calendar Year 2002 Per Year 12/31/02
Chapter 13 eases 2,615 7,720
Chapter 11 eases 45 108
Projected for Filed Pending At
Calendar Year 2003 Per Year Year End
Chapter 13 cases 2,499 7,326
Chapter 11 cases 42 118
2.The timing of the filing of a Chapter 13 plan compared to the filing of a Chapter 11 plan:
Chapter 13 The Chapter 13 plan generally must be filed by the debtor, who must be an individual, within 15 days of the filing of the bankruptcy petition. Payments to the Chapter 13 trustee are to commence within 30 days thereafter. (Rule 3015(b), Federal Rules of Bankruptcy Procedure, and § 1326(a) of the Bankruptcy Code.)
Chapter 11 The debtor, who may be an individual, corporation, partnership, etc., has a 120 day exclusivity period to file a plan of reorganization, but this period is often liberally extended. After the expiration of the exclusivity period, any creditor or party in interest may file a Chapter 11 plan. Chapter 11 plans are usually not filed until several months after the bankruptcy case has been filed. Payments to creditors do not commence until after the plan has been confirmed. (Sections 1121(b) and (c) of the Bankruptcy Code.)
3.The timing of plan confirmation: Chapter 13 In the Northern District of Mississippi, in order to expedite distributions to creditors, plans are confirmed before the bar date to file proofs of claim by non-governmental creditors. This bar date occurs 90 days after the first date set for the first meeting of creditors for non-governmental creditors and 180 days after the order for relief for governmental creditors. (Rule 3002(c) Federal Rules of Bankruptcy Procedure.) Within this district, Chapter 13 plans are routinely confirmed within 60 to 90 days after the filing of the bankruptcy petition. There is no requirement that a disclosure statement be approved, and there is no solicitation of votes to obtain acceptances of the plan from the classes of creditors.
*850Chapter 11 The debtor-in-possession or plan proponent must first file and obtain approval of a disclosure statement, setting forth background information about the debtor and the prospects for reorganization, before votes can be solicited for the approval of the Chapter 11 plan. The disclosure statement would necessarily include a listing and a detailed discussion of all causes of action that could be pursued by the debtor-in-possession since they would be considered assets that could potentially augment the bankruptcy estate. On many occasions, obtaining approval of the disclosure statement can require several hearings before the court. Once approval is obtained, ballots are disseminated so that the creditors and other parties in interest might vote to either accept or reject the proposed plan. (Rules 3016, 3017, and 3018, Federal Rules of Bankruptcy Procedure, and § 1125 of the Bankruptcy Code.) Only if sufficient votes accepting the plan are received can the plan be ultimately confirmed. This process can consume months and, in some cases, even years. (Section 1126(c) and (d) of the Bankruptcy Code.)
4. Plan modification post-confirmation: Chapter IS The modification of a Chapter 13 plan post-confirmation is much more flexible than the modification of a confirmed Chapter 11 plan. A Chapter 13 plan may be modified even after the vast majority of plan payments have been made. While only the plan proponent or the reorganized debtor may propose a modification of a Chapter 11 plan, the debtor, the Chapter 13 trustee, or an unsecured creditor may propose a modification of a Chapter 13 plan. (Section 1329(a) of the Bankruptcy Code.) Chapter 11 A Chapter 11 plan cannot be modified after it has been “substantially consummated.” (Section 1127(b) of the Bankruptcy Code.) This means that once payments have been commenced to creditors under the confirmed plan, a subsequent modification is generally precluded. (Section 1101(2) of the Bankruptcy Code.) The modified plan “becomes the plan only if circumstances warrant such modification.” (Section 1127(b) of the Bankruptcy Code.)
5. The timing of the bankruptcy discharge:
Chapter 13 The Chapter 13 discharge does not occur until all payments are made under the plan. The timing of the discharge coincides with the flexibility afforded post-confirmation plan modifications.
Chapter 11 A discharge in a Chapter 11 case usually occurs at the time that the plan is confirmed. This timing coincides with the finality intended for a confirmed Chapter 11 plan.
The foregoing discussion illustrates not only the substantial differences in the number of cases, but also the “fast track” flexible nature of a Chapter 13 case as compared to a Chapter 11 case. These distinctions are particularly significant when considering whether the “prior adjudicatory defenses” should be applied in the same manner in a Chapter 13 case as in a Chapter 11 case. The application of these defenses to the causes of action that the Trustee intends to assert against 1st Franklin will be addressed hereinbelow.
VI.
DISCUSSION OF THE FIFTH CIRCUIT’S SIMMONS AND HOWARD DECISIONS
As mentioned hereinabove, 1st Franklin asserted in its reply memorandum that the Fifth Circuit Court of Appeals had upheld *851the concept of “prior adjudicatory defenses” in the cases of Simmons v. Saveli (In re Simmons), 765 F.2d 547 (5th Cir.1985), and Sun Finance Co. v. Howard (In re Howard), 972 F.2d 639 (5th Cir.1992). 1st Franklin has apparently misread these two decisions.
In Simmons, the creditor, a plumbing contractor, held a pre-petition perfected statutory construction lien which encumbered the debtor’s residence. The creditor timely filed a proof of claim asserting a secured claim, but filed no specific objection to the debtor’s proposed Chapter 13 plan. The plan was thereafter confirmed without objection. The plan, which provided a 10% distribution to unsecured creditors, referred to the creditor’s claim as unsecured and disputed. Much like the cases now before this court, the Chapter 13 trustee filed a motion to allow claims which listed the creditor’s claim as unsecured. Once again, no objection was filed, and a separate order was entered approving the trustee’s motion.
Subsequently, the debtor decided to sell his property, and the resulting title examination revealed the existence of the construction lien. The debtor filed an adversary proceeding in the bankruptcy court seeking to cancel the construction lien. The creditor answered and counterclaimed. The bankruptcy court refused to cancel the creditor’s lien and held that the hen, which was perfected before the bankruptcy filing, was valid and enforceable.
On appeal, the debtor strenuously argued the binding effect of the confirmation order as set forth in § 1327(a) of the Bankruptcy Code. The Fifth Circuit disagreed, concluding that since no objection was filed to the creditor’s claim that his lien passed through the bankruptcy unaffected. In essence, the Fifth Circuit did not give preclusive effect to the confirmation order or to the order sustaining the trustee’s motion to allow claims because no independent objection to the creditor’s proof of claim had been filed.
In Howard, the creditor, Sun Finance Co., Inc., held secured mortgages encumbering two parcels of real property owned by the debtors. The debtors filed a Chapter 13 plan which described the Sun Finance claim as secured, but disputed. The debtors listed, as an asset of the estate, a cause of action against Sun Finance for unfair and deceptive trade practices. The Chapter 13 plan provided that Sun Finance would be paid $500.00, as well as, that the debtors’ cause of action against Sun Finance would be dismissed, all in full compromise of Sun Finance’s secured claim. Sun Finance filed no specific objection to the plan, and the plan was confirmed by the bankruptcy court. When Sun Finance did not receive its anticipated payments, it filed a motion to lift the automatic stay to permit it to foreclose its mortgages. The bankruptcy court refused to lift the automatic stay, holding that the confirmation of the plan was res judicata as to the issues raised in Sun Finance’s motion.
On appeal, the debtors relied on an earlier Fifth Circuit decision, Republic Supply Co. v. Shoaf, 815 F.2d 1046 (5th Cir.1987), in support of their contention that the confirmation of the Chapter 13 plan was res judicata as to the creditor who failed to object to confirmation. Sun Finance relied on the Simmons decision, discussed hereinabove, which essentially held that the claims objection processes set forth in § 502(a) of the Bankruptcy Code superceded the Chapter 13 confirmation provisions found in § 1327(a).
The Shoaf decision involved a Chapter 13 plan which invalidated a guaranty given by a third party to a creditor. That creditor objected to the provision at one hearing, but failed to object to the plan at the final confirmation hearing. Although the *852Fifth Circuit noted that the bankruptcy court was without statutory authority to release the guaranty, it concluded that the plan confirmation was nonetheless res ju-dicata as to the issue of the validity of the plan provision nullifying the guaranty.
The Howard court then quoted from its earlier decision in Simmons to the effect that a “secured creditor with a loan secured by a lien on the assets of a debtor who becomes bankrupt before the loan is repaid may ignore the bankruptcy proceeding and look to the lien for satisfaction of the debt.” The court then concluded that the general applicability of res judica-ta to bankruptcy plan confirmation must yield to the proposition that a secured creditor could remain confident that its secured claim would be protected unless a party in interest objected. The court obviously elected to rely more heavily on its Simmons decision.
See also, In the Matter of Cook (Boyle Mortgage Company, Through Its Servicing Agent Bancplus Mortgage Co. v. Cook), Fifth Circuit Summary Calendar No. 93-7459 decided June 2, 1994, unreported decision. This is another case where the Fifth Circuit, following Simmons and Howard, refused to grant pre-clusive effect to a Chapter 13 confirmation order.
The foregoing discussion reflects that the Fifth Circuit has recognized that there can be exceptions to the preclusive effect generally given to prior confirmation orders. In addition, contrary to the position advanced by 1st Franklin, these decisions show that res judicata effect was not permitted in these Chapter 13 cases.
VII.
RES JUDICATA
The Trustee’s proposed causes of action against 1st Franklin are based on allegations of sophisticated fraud, perpetrated by 1st Franklin through its practice of deceptively charging inflated insurance premiums. These allegations are summarized hereinabove in the extract from Thomas Gober’s affidavit. While the Trustee concedes that the factual information underpinning her allegations was contained in the contract exhibits appended to the proofs of claim filed by 1st Franklin prior to plan confirmation, she contends that she was completely unaware until long after confirmation that those documents contained evidence of the alleged scheme. From the discussion of the administration of a Chapter 13 bankruptcy case, one can see without difficulty that the Trustee had a very limited period of time, from the date that she was appointed as Trustee to the date of the confirmation of the Chapter 13 plans, to discover what 1st Franklin had been doing. The court would mention again the comment of Mr. Gober that in his opinion neither an average consumer nor an educated professional could easily detect the manner in which 1st Franklin had calculated and applied its charges for the insurance premiums. This must be considered also in view of the fact that there are literally thousands of proofs of claim filed in the Chapter 13 cases that are being administered by the Trustee. Thus, while 1st Franklin would like to mechanically apply the preclusive effect of the two orders that were entered in each of the twenty-one bankruptcy cases, this court, as a court of equity, must be concerned with not only the Trustee’s asserted lack of knowledge of any potential causes of action against 1st Franklin, but, additionally, whether she had a reasonable opportunity to even discover the existence of the causes of action.
This court is familiar with the theories of res judicata, equitable estoppel, judicial estoppel, and waiver. Each of these defenses was discussed in Eastover Bank for Savings v. Smith (In re Little), 126 B.R. 861 (Bankr.N.D.Miss.1991). In Little, this *853court, addressing the issue of res judicata, quoted from the Fifth Circuit’s decision in Southmark Properties v. Charles House Corp., 742 F.2d 862 (5th Cir.1984), as follows:
Because appellants’ present claim and the prior judgment involve the same principal transaction, appellants’ claim is barred by res judicata, if the procedural system available to appellants in the reorganization proceedings permitted appellants to raise that claim in those proceedings ... .Appellants do not assert that they lacked such an opportunity and they clearly did not. Appellants had an “absolute and unlimited” right to be heard in the reorganization proceedings. (emphasis added)
Id. at 871.
The court continued its reasoning as follows:
If Southmark had violated the terms of its mortgage agreement with appellants, and had committed various fraudulent and unlawful acts with respect thereto, as appellants now allege, appellants had ample opportunity to raise those facts as a defense to Southmark’s claim, and to request that the trustee assert whatever cause of action the debtor possessed in that regard against Southmark. Appellants instead chose to forego any objections to the assertion of Southmark’s secured claim, or the sale of the Charles House property to Southmark. As a result, South-mark’s interest was recognized by the trustee and Southmark was allowed to bid in its mortgage debt for the property, without opposition. As the Supreme Court stated in Brown v. Felsen, 442 U.S. 127, 131, 99 S.Ct. 2205, 2209, 60 L.Ed.2d 767 (1979), “[r]es judicata prevents litigation of all grounds for, or defenses to, recovery that were previously available to the parties, regardless of whether they were asserted or determined in the prior proceeding.” Appellants cannot now undo a judicial decree which they had a full opportunity to contest, and chose not to. (emphasis added)
Id. at 872.
Concerning the application of res judica-ta, this court is also familiar with the Fifth Circuit decisions in Howe v. Vaughan (In re Howe), 913 F.2d 1138 (5th Cir.1990); Eubanks v. F.D.I.C., 977 F.2d 166 (5th Cir.1992); and Bank of Lafayette v. Baudoin (In re Baudoin), 981 F.2d 736 (5th Cir.1993), as well as, the Ninth Circuit Bankruptcy Appellate Panel decision in In re Heritage Hotel Partnership I, 160 B.R. 374 (9th Cir.BAP1993), all cited by 1st Franklin. While all of these decisions were applicable to Chapter 11 cases, with the exception of Baudoin (a Chapter 7 case), they each recognized, like South-mark Properties, that the party, against whom res judicata was being asserted, had a full and fair opportunity to raise the issue earlier, but chose not to do so.
In considering 1st Franklin’s motion for summary judgment, this court must accept the Trustee’s position that she did not have knowledge of any potential causes of action against 1st Franklin prior to the orders being entered confirming the debtors’ Chapter 13 plans or sustaining her motions to allow 1st Franklin’s claims. 1st Franklin takes the position that the Trustee’s lack of knowledge is immaterial to its assertion of res judicata, particularly since the Trustee had 1st Franklin’s proofs of claim available which ultimately revealed the premium overcharges. While 1st Franklin’s position on this point may be “technically” correct, it completely ignores the proposition, articulated in the decisions cited hereinabove, that a party must have had an opportunity to raise the issue. If this court adopted 1st Franklin’s position, the Chapter 13 Trustee would have had to *854discover, investigate, and file a lawsuit to redress a complex undisclosed scheme within only a few short months. This is a fraction of the time allowed by the applicable statute of limitations. The other choice would be to delay confirmation for protracted periods of time to allow the Trustee to make appropriate investigations to the detriment of numerous creditors who would prefer receiving plan distributions much sooner than later. This approach would not be very practical or logical because in the vast majority of cases there would be no concealed predatory lending practice. Considering the timing factors in the factual scenario before this court, precluding the Trustee’s proposed causes of action against 1st Franklin because of the entry of the confirmation orders and the orders allowing 1st Franklin’s claims would exact an extraordinarily inequitable result.
VIII.
EQUITABLE ESTOPPEL, JUDICIAL ESTOPPEL, AND WAIVER
Concerning the theories of equitable estoppel and judicial estoppel, in Little, this court quoted Oneida Motor Freight, Inc. v. United Jersey Bank, 848 F.2d 414 (3rd Cir.1988), cert. denied, 488 U.S. 967, 109 S.Ct. 495, 102 L.Ed.2d 532 (1988), as follows:
We are also mindful of the equitable concept of judicial estoppel. This doctrine, distinct from that of equitable es-toppel, applies to preclude a party from assuming a position in a legal proceeding inconsistent -with one previously asserted. Judicial estoppel looks to the connection between the litigant and the judicial system while equitable estoppel focuses on the relationship between the parties to the prior litigation. Scarano v. Central Railroad Co., 203 F.2d 510 (3rd Cir.1953); USLIFE Corp. v. U.S. Life Insurance Co., 560 F.Supp. 1302 (N.D.Tex.1983).
We conclude that Oneida’s failure to list its claim against the bank worked in opposition to preservation of the integrity of the system which the doctrine of judicial estoppel seeks to protect. Although we stop short of finding that, as the bank urges, Oneida’s prior silence is equivalent to an acknowledgement that it did not have a claim against the bank, we agree that its current suit speaks to a position clearly contrary to its Chapter 11 treatment of the bank’s claim as undisputed.
Id. at 419.
The Fifth Circuit expressly recognized the doctrine of judicial estoppel in Ergo Science, Inc. v. Martin, et al, 73 F.3d 595 (5th Cir.1996), where the court stated as follows:
Viewed in this light, the issue is more akin to judicial estoppel. The doctrine of judicial estoppel prevents a party from asserting a position in a legal proceeding that is contrary to a position previously taken in the same or some earlier proceeding. United States v. McCaskey, 9 F.3d 368, 378 (5th Cir.1993), cert. denied, 511 U.S. 1042, 114 S.Ct. 1565, 128 L.Ed.2d 211 (1994). We recognize the applicability of this doctrine in this circuit because of its laudable policy goals. The doctrine prevents internal inconsistency, precludes litigants from “playing fast and loose” with the courts, and prohibits parties from deliberately changing positions based upon the exigencies of the moment.
73 F.3d 595 at 598.
See also, In the Matter of Coastal Plains, Inc., 179 F.3d 197 (5th Cir.1999), and Hall v. GE Plastic Pacific PTE Ltd., et al, 327 F.3d 391 (5th Cir.2003).
*855Judicial estoppel was recently applied by the Eleventh Circuit in DeLeon v. Comear Industries, Inc., 321 F.3d 1289 (11th Cir.2003), to preclude a Chapter 13 debtor’s post-bankruptcy cause of action against a former employer for discrimination and retaliation. The court determined that the debtor knew about the claim before filing bankruptcy and possessed a motive to conceal the claim from the court in order to reduce the payments to the estate’s creditors. While this decision is absolutely correct, the facts differ radically from the scenario involving the Trustee herein and 1st Franklin.
The court’s analysis of the issue of res judicata is also appropriate when considering the theories of equitable estoppel, judicial estoppel, and waiver. The trustee’s complete lack of knowledge of the potential causes of action against 1st Franklin at the time of the entry of the confirmation orders and the orders allowing 1st Franklin’s claims evidences that the Trustee is not intentionally taking an inconsistent position insofar as this court or 1st Franklin are concerned. Likewise, she did not knowingly waive the causes of action against 1st Franklin. Consequently, the theories of judicial estoppel, equitable es-toppel, and waiver do not prohibit the Trustee from asserting her complaints.
IX.
CLAIMS RECONSIDERATION PURSUANT TO § 502(j) OF THE BANKRUPTCY CODE
No one knows exactly what the admissible evidence will eventually establish in the trial of the Trustee’s proposed causes of action. Regardless, in deciding 1st Franklin’s motion for summary judgment, the court has only the pleadings, the sworn affidavit, and the written memoran-da to consider. In this limited context are the allegations, posited by the Trustee, that 1st Franklin engaged in a deceptive, surreptitious scheme to defraud the Chapter 13 debtors by charging inflated insurance premiums. If these allegations can indeed be substantiated, 1st Franklin would be culpable for filing fraudulent claims in this court. As such, these claims can be reconsidered pursuant to § 502(j) of the Bankruptcy Code, a provision not cited by either of the parties hereto in their memoranda. This section provides as follows:
(j) A claim that has been allowed or disallowed may be reconsidered for cause. A reconsidered claim may be allowed or disallowed according to the equities of the case. Reconsideration of a claim under this subsection does not affect the validity of any payment or transfer from the estate made to a holder of an allowed claim on account of such allowed claim that is not reconsidered, but if a reconsidered clam is allowed and is of the same class as such holder’s claim, such holder may not receive any additional payment or transfer from the estate on account of such holder’s allowed claim until the holder of such reconsidered and allowed claim receives payment on account of such claim proportionate in value to that already received by such other holder. This subsection does not alter or modify the trustee’s right to recover from a creditor any excess payment or transfer made to such creditor.
According to In re Coffman, 271 B.R. 492 (Bankr.N.D.Tex.2002), courts, including the Fifth Circuit, have likened the “cause” standard set forth in § 502(j) with the substantive requirements of Rule 9024 of the Federal Rules of Bankruptcy Procedure and Rule 60(b) of the Federal Rules of Civil Procedure. These rules are set forth as follows:
*856Rule 60(b), Federal Rules of Civil Procedure
(b) Mistakes; Inadvertence; Excusable Neglect; Newly Discovered Evidence; Fraud, Etc. On motion and upon such terms as are just, the court may relieve a party or a party’s legal representative from a final judgment, order, or proceeding for the following reasons; (1) mistake, inadvertence, surprise, or excusable neglect; (2) newly discovered evidence which by due diligence could not have been discovered in time to move for a new trial under Rule 59(b); (3) fraud (whether heretofore denominated intrinsic or extrinsic), misrepresentation, or other misconduct of an adverse party; (4) the judgment is void; (5) the judgment has been satisfied, released, or discharged, or a prior judgment upon which it is based has been reversed or otherwise vacated, or it is no longer equitable that the judgment should have prospective application; or (6) any other reason justifying relief from the operation of the judgment. The motion shall be made within a reasonable time, and for reasons (1), (2), and (3) not more than one year after the judgment, order, or proceeding was entered or taken. A motion under this subdivision (b) does not affect the finality of a judgment of suspend its operation. This rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, or to grant relief to a defendant not actually personally notified as provided in Title 28, U.S.C. § 1655, or to set aside a judgment for fraud upon the court. Writs of coram nobis, coram vobis, audita quere-la, and bills of review and bills in the nature of a bill of review, are abolished, and the procedure for obtaining any relief from a judgment shall be by motion as prescribed in these rules or by an independent action.
Rule 9024. Relief from Judgment or Order
Rule 60 F.R. Civ. P. applies in cases under the Code except that (1) a motion to reopen a case under the Code or for the reconsideration of an order allowing or disallowing a claim against the estate entered without a contest is not subject to the one year limitation prescribed in Rule 60(b), (2) a complaint to revoke a discharge in a chapter 7 liquidation case may be filed only within the time allowed by § 727(e) of the Code and (3) a complaint to revoke an order confirming a plan may be filed only within the time allowed by § 1144, § 1230, or § 1330.
If indeed, 1st Franklin filed fraudulent proofs of claim previously in the aforementioned twenty-one bankruptcy cases, then those claims can be reconsidered pursuant to § 502(j) of the Bankruptcy Code in keeping with the “cause” requirements specified by Bankruptcy Rule 9024 and Rule 60(b), Federal Rules of Civil Procedure. This, in effect, would allow the court to abrogate the effects of the confirmation orders and the orders previously allowing 1st Franklin’s claims. See, In re International Yacht and Tennis, Inc., 922 F.2d 659 (11th Cir.1991), In re Zieder, 263 B.R. 114 (Bankr.D.Ariz.2001), In re Hernandez, 282 B.R. 200 (Bankr.S.D.Tex.2002), and In re Knappen, 281 B.R. 714 (Bankr.D.N.M.2002).
X.
CONCLUSION
For the reasons cited hereinabove, the court is of the opinion that the motion for summary judgment filed by 1st Franklin is not well taken. It will be overruled by a separate order entered contemporaneously herewith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493650/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
This proceeding is before the Court on the Trustee’s Motion for Summary Judgment on Counts XVII, XVIII, and XXVIII, the Defendant’s Response, the Trustee’s Motion to Strike Portions of Defendant’s Response, and the Motion for Leave to Withdraw Motion for Summary Judgment.
The central issue in this proceeding is whether there was a landlord/tenant relationship or a sharecropping relationship. At the time the Debtor filed his petition for relief pursuant to Chapter 7 of the Bankruptcy Code, the Debtor had provided labor for crops growing on land owned by the Defendant, Drennan Joint Venture. With the approval of the Court, the Trustee hired Greg Leach to harvest all of the growing crops. Mr. Leach harvested the crops and delivered them to Ramsey grain elevator. Ramsey paid the Trustee for the Debtor’s one-half share of the crops; Ramsey paid the Defendant directly the sum of $2,212 for its one-half share of the crops.
It is undisputed that the oral agreement between the Defendant and the Debtor provided that the Debtor would provide labor and one-half of the expense for the crop and would receive one-half of the crops. The Defendant controlled the buildings on the property, had a right of possession, and furnished the supplies for its share of the crops.
A sharecropping operation is one wherein the landowner and the cropper combine their efforts and resources to produce crops. As the Court explained in In re Hilligoss, 69 B.R. 781, 782-83 (Bankr.C.D.Ill.1986):
A sharecropper is an employee rather than a tenant. “A tenant has an interest in the land and has a right of property in the crop. A cropper has no such interest and works in consideration of receiving a portion of the crop for his labor.” Estate of Flowers, 95 Ill.App.3d 333, 336, 50 Ill.Dec. 899, 420 N.E.2d 216, 218 (1981). Whether a landlord-tenant relationship or a sharecropping arrangement is created is a question of fact. *872Illinois has long recognized that cropshare arrangements do not necessarily create landlord-tenant relationships. The supreme court so stated in the early case of Alwood v. Ruckman (1859), 21 Ill. 200, stating that the intention of the parties controls and that the agreement may create either a landlord-tenant relationship or a tenancy in common in the crop.
Id. at 334, 420 N.E.2d at 218.
“Where one leases land to another for the purpose of raising a single crop, of which the land owner is to have one part for his rent and the cultivator the remaining part for his pay, the question whether the relation of landlord and tenant exists or the two are tenants in common depends on the intention of the parties, which is usually to be inferred from the circumstances, of which the possession is, in general, determining.”
Wheeler v. Sanitary District, 270 Ill. 461, 469-470, 110 N.E. 605, 609 (1915), citing Alwood v. Ruckman, 21 Ill. 200 (1859).
In affirming Hilligoss, the Seventh Circuit recognized that intent was normally implied rather than express, and set forth the following factors to consider in assessing the parties’ intent:
(1) who lived on the premises; (2) who controlled the buildings; (3) who had the right to possession; (4) who furnished supplies; (5) who divided the crop; (6) the length of the agreement; (7) the extent of the landowner’s control over the operation; and (8) the words used in the agreement, if written.
In re Hilligoss, 849 F.2d 280, 283 (7th Cir.1988).
This Court found a sharecropping relationship existed in Hilligoss because the debtor did not have exclusive possession, the landowner had control of the buildings, each party paid for one-half of the expenses and received one-half of the crops, and the crops were divided in the field. 69 B.R. at 783. The Trustee admits that the first four factors from Hilligoss are present in this case, but distinguishes Hilligoss because the crops in this case were not divided in the field. The Trustee argues that this is the most critical element from Hilligoss. The Court believes that Hilligoss is factually distinguishable from this case on this point. In Hilligoss, the landowner took possession of the crops growing upon its land around the petition date, and then entered into an agreement with the Trustee to harvest them itself. The landowner then delivered the debtor’s half of the crops to the elevator in the Trustee’s name. 69 B.R. at 783. In this case, the Defendant was not given notice of the petition or of the hearing on the Trustee’s petition to hire Mr. Leach to harvest the crops. Under these circumstances, the failure to divide the crops in the field is not determinative.
Based upon the foregoing, the Court finds that the Debtor and the Defendant had a sharecropping relationship. Therefore, the Defendant does not have a landlord’s lien upon the crops that can be set aside by the Trustee under § 545. Moreover, because the Defendant retained a one-half interest in the growing crops from planting through harvest, there was no lien to avoid under § 544 and no post-petition transfer to be avoided under § 545.
The Trustee’s Motion to Withdraw her Motion for Summary Judgment is not based on the discovery of genuine issues of material fact. Rather, it is based on what she terms the Defendant’s “ridiculous” request in its Response to the Motion for Summary Judgment for the return of the $2,212 which the Trustee has from the Debtor’s share of the crops. No authority is cited by the Defendant to support this request. The law is clear that a debtor in *873a sharecropping arrangement has an ownership interest in one-half of the crops. Hilligoss, supra, 69 B.R. at 783. The Court does not need to conduct a trial to arrive at this holding.
For the foregoing reasons, the Trustee’s Motion for Summary Judgment is denied. The Trustee’s Motion to Strike Portions of Defendant’s Response is allowed, and the Trustee’s Motion to Withdraw Motion for Summary Judgment is denied.
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
See written Order.
ORDER
For the reasons set forth in an Opinion entered this day,
IT IS HEREBY ORDERED that judgment is entered in favor of Drennan Joint Venture and against the Trustee on Count XVII.
IT" IS FURTHER ORDERED that judgment is entered in favor of Drennan Joint Venture and against the Trustee on Count XVIII.
IT IS FURTHER ORDERED that judgment is entered in favor of Drennan Joint Venture and against the Trustee on Count XXVIII.
IT IS FURTHER ORDERED that the Trustee’s Motion to Strike the Defendant’s request for the turnover of $2,212 from the Trustee be and is hereby allowed.
IT IS FURTHER ORDERED that the Trustee’s Motion for Leave to Withdraw Motion for Summary Judgment be and is hereby denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494062/ | MEMORANDUM OF DECISION
JIM D. PAPPAS, Bankruptcy Judge.
Background
Chapter 13 Debtors David and Lidia Hess claim an exemption under Idaho Code § ll-604(l)(c)1 in the $7,500 settlement proceeds they received from a medical malpractice claim. Scheds. B, C, Docket No. 1. Debtors’ confirmed Chapter 13 plan provides that such proceeds will be distributed to their creditors unless the funds are deemed exempt and not disposable income. Order Confirming Plan at 2, Docket No. 31. The Chapter 13 Trustee, L.D. Fitzgerald, objects to Debtors’ claim of exemption arguing that the money is not reasonably necessary for Debtors’ support. *884He contends the money constitutes disposable income that should go to creditors. Obj., Docket No. 65.2 The Court conducted an evidentiary hearing concerning this matter on August 24, 2005, and took the matter under advisement. Docket No. 73. This Memorandum constitutes the Court’s findings of fact and conclusions of law. Fed. R. Bankr.P. 7052; 9014.
Facts
In November 2003, Debtor David Hess3 was a security officer working at the Idaho National Engineering and Energy Lab. According to Schedule J, Mr. Hess earned $1,887 in net wages each month. Mrs. Hess received $1,300 from the State of Idaho for caring for her disabled adult son. The couple has one other child, Mrs. Hess’s daughter, who was sixteen at the time of filing. Debtors budget a modest and unremarkable amount of monthly expenses for a family of four. At the time the bankruptcy case was commenced, Mr. Hess was paying $250 per month in child support, however, that payment was anticipated to end in 2004. Based on these projections, Debtors had $510 in disposable income.
Since filing their original schedules in 2003, Debtors have suffered financial hardships and incurred additional expenses. Their income has declined because approximately nine months ago, Mr. Hess’s employer demoted him.4 Mrs. Hess’s income has remained about the same.
As for their expenses, while Mr. Hess no longer pays child support, most of Debtors’ other monthly expenses have increased, and they have new, additional bills. They owe $1,558 in federal income taxes and $683 in state income taxes for 2004. The Internal Revenue Service is garnishing Mr. Hess’s wages in the amount of $50 per month under a repayment agreement. Debtors incurred unexpected medical expenses, including hospitalization for Mrs. Hess, resulting in $1,500 in bills not covered by insurance. They are paying these costs monthly at the rate of $150. Debtors’ automobiles required new tires, for which they owe Les Schwab $1,200 and are making monthly payments of $75.
Debtors’ daughter is now eighteen but remains at home because she anticipates attending the local college, causing an increase in Debtors’ car insurance bill to $318 per month. Debtors’ transportation costs have increased, primarily because of the increase in gasoline prices. And Debtors’ home is in a poor state of repair. A concrete driveway needs resurfacing so their son can safely walk outside; they need to replace broken windows; and corroded plumbing pipes are causing rust in their drinking water.
*885Finally, the State recently conducted an annual inspection of their home to ensure it was safe and adequate for their disabled son. Debtors were informed that their son’s basement bedroom needs a window of sufficient size to egress in case of an emergency. Debtors anticipate it will cost $1,600 to enlarge the opening and replace the window. If they fail to do so, Mrs. Hess will not be allowed to continue earing for her son and will lose the income she receives for that purpose.
Debtors claim the entire $7,500 in settlement proceeds as exempt. Docket No. 63.
Disposition
A. Exemption Standards.
As discussed above, under Debtors’ confirmed Chapter 13 plan, all proceeds recovered from the malpractice settlement must be distributed to creditors unless they are deemed exempt and not disposable income. In Idaho, citizens are restricted to the exemptions allowed under state law. 11 U.S.C. § 522(b)(1); Idaho Code § 11-609. Idaho Code § 11-604(l)(e) grants debtors an exemption in “proceeds of insurance, a judgment, or a settlement, or other rights accruing as a result of bodily injury of the individual” to the extent that the money is “reasonably necessary” for the support of a debtor and his dependant. As the objecting party, Trustee bears the burden of proof to show the exemption is not proper. Fed. R. Bankr.P. 4003(c). However, once Trustee presents “sufficient evidence to rebut the prima facie validity of the exemption, the burden shifts to a debtor to demonstrate that the exemption is proper.” In re Nielsen, 97.4 I.B.C.R. 107, 107 (Bankr.D.Idaho 1997).5 It is well established that “the nature and extent of exemptions is determined as of the date that the bankruptcy petition is filed,” In re Moore, 269 B.R. 864, 868 (Bankr.D.Idaho 2001), and that exemption statutes are liberally construed in favor of the debtor, In re Steinmetz, 01.1 I.B.C.R. 28, 28 (Bankr.D.Idaho 2001).
By introducing evidence of Debtors’ income and budget at the time of filing the petition, establishing that Debtors’ monthly expenses decreased with the elimination of the child support payments, and that they were currently able to meet their monthly bills, Trustee adequately rebutted the prima facie validity of Debtors’ exemption claim. Therefore, Debtors must show by a preponderance of the evidence that the settlement proceeds are reasonably necessary for their family’s support.
B. Debtors Have Shown That the Settlement Money is Reasonably Necessary.
Idaho Code § 11-604(2) defines what is reasonably necessary for a debtor’s support as that amount “required to meet the present and anticipated needs of the [debtor] and his dependents, as determined by the court after consideration of the [debtor’s responsibilities and all the present and anticipated property and income of the [debtor], including that which is exempt.” The Court recently held that when referring to a debtor’s “present and anticipated needs,” the Court must look at what those needs were as of the date Debtors filed for bankruptcy. In re Lopez, Case No. 03-40205, 2005 WL 4705289, *4 (Bankr.D.Idaho Sept. 19, 2005). Debtors’ “anticipated needs” include those that were reasonably foreseeable at that time. See In re Lopez, 2005 WL 4705289 at *5 (discussing the expenses related to the debtor’s medical condition that they were aware of at the time they filed for bank*886ruptcy). The same analysis applies in examining Debtors’ present and anticipated income.
At the time Debtors filed their bankruptcy petition two years ago, Mr. Hess earned almost $1,900 per month, while his wife received $1,300 in nontaxable income. Debtors could not reasonably anticipate their income would decline in any dramatic fashion. Debtors were aware that Mr. Hess’s obligation to pay support would terminate, which would free up $250 per month. They also knew their daughter would turn eighteen, and could either leave the house to attend college or, if she chose to stay home, be expected to contribute some income toward the monthly expenses.
But despite the optimistic income projections, Debtors’ original monthly budget left little room for any significant increase in expenses. This was unfortunate. A family budget by its nature must be fluid, not static, and a realistic budget must accommodate a family’s evolving and reasonably anticipated needs. Many of Debtors’ original projected monthly expenses are conspicuously inadequate to account for the inevitable yearly cost of living increases.
The most glaring shortfall is Debtors’ commitment of only $50 monthly to home maintenance. In light of their home’s condition, that amount was unrealistic. Surely, Debtors were aware they would need to make significant home repairs over time. Debtors could have foreseen the need to increase the size of their son’s bedroom window as he matured so he could use it, if necessary, for an escape route as required by the State. The driveway surface has been deteriorating to the extent their son can no longer safely navigate it. And Debtors should have known their old plumbing would have to be updated. All these types of major repairs were reasonably foreseeable by Debtors at the time of filing, and not accounted for in their budget projections.
Realistically, Debtors’ only current hope of meeting their financial needs is by access to the settlement money.
Conclusion
Under these facts and the standard established in the exemption statute, the Court concludes that the malpractice settlement proceeds are reasonably necessary to meet Debtors’ present and anticipated needs when viewed at the time of filing. Trustee’s objection to Debtors’ claim of exemption will be denied by separate order.
. The statute allows an exemption in “proceeds of insurance, a judgment or a settlement, or other rights accruing as a result of bodily injury of the individual ...” to the extent the money is "reasonably necessary for the support of [the individual] and his dependents.” Idaho Code § 11 — 604(l)(c).
. Although not filed until June 28, 2005, some eighteen months after Debtors' § 341(a) meeting, Trustee’s objection is not time-barred by Fed. R. Bankr.P. 4003(b), which requires that an objection to an exemption be filed within "30 days after the meeting of creditors ... or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.” Here, because Debtors amended Schedule C on June 15, 2005, Docket No. 63, Trustee’s objection is timely.
. Debtor Lidia Estacio had filed her own bankruptcy petition under Chapter 7 of the Code on May 3, 2002. It was converted to a Chapter 13 case on December 17, 2003. Docket Nos. 1, 16, Bankr.Case No. 02-40818. At some time between the two bankruptcy filings, David and Lidia married. On January 30, 2004, the Court granted David's request to consolidate his Chapter 13 case with that of Lidia’s. Docket Nos. 14, 21.
.Mr. Hess did not substantiate just how much his income declined as a result of this demotion. He testified that he earns about $20,000 less per year, resulting in a weekly loss of $150 or $200, but he did not produce any past or current pay statements. However, there was no evidence offered to show Mr. Hess’s estimates were incorrect.
. Trustee is incorrect when he argues that debtors carry the initial burden to show that an exemption is proper. It is only after the objecting party has presented sufficient proof that the burden shifts to the debtor to explain why the exemption is properly claimed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484305/ | Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn. (2022 NY Slip Op 06481)
Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn.
2022 NY Slip Op 06481
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
JOSEPH A. ZAYAS
WILLIAM G. FORD
JANICE A. TAYLOR, JJ.
2021-00085
(Index No. 609721/20)
[*1]In the Matter of Incorporated Village of Floral Park, respondent,
vFloral Park Police Benevolent Association, appellant.
Pitta LLP, New York, NY (Stephen McQuade of counsel), for appellant.
Ryan, Brennan & Donnelly, LLP, Floral Park, NY (John E. Ryan of counsel), for respondent.
DECISION & ORDER
In a proceeding pursuant to CPLR article 75 to permanently stay arbitration, the Floral Park Police Benevolent Association appeals from an order of the Supreme Court, Nassau County (Antonio I. Brandveen, J.), dated November 25, 2020. The order granted the petition and denied the motion of the Floral Park Police Benevolent Association pursuant to CPLR 3211(a)(7) to dismiss the petition for failure to state a cause of action and pursuant to NYCRR 130-1.1 to impose sanctions against the petitioner.
ORDERED that the order is modified, on the law, by deleting the provision thereof granting the petition, and substituting therefor a provision denying the petition; as so modified, the order is affirmed, with costs to the appellant.
The Floral Park Police Benevolent Association (hereinafter the PBA) filed a grievance alleging that its members, who worked during the early days of the COVID-19 pandemic, were entitled to additional compensation for that work from the Incorporated Village of Floral Park pursuant to article V, § 4 of the collective bargaining agreement (hereinafter CBA) executed by the Village and the PBA. After the grievance was denied in the first three steps of the grievance procedure set forth in the CBA, the PBA demanded arbitration. The Village thereafter commenced this proceeding pursuant to CPLR article 75 to permanently stay the arbitration, and the PBA moved pursuant to CPLR 3211(a)(7) to dismiss the petition and pursuant to NYCRR 130-1.1 to impose sanctions against the Village. In an order dated November 25, 2020, the Supreme Court granted the petition and denied the PBA's motion. The PBA appeals.
In determining whether a dispute between a public sector employer and an employee is arbitrable, "a court must first ask whether there is any statutory, constitutional or public policy prohibition against arbitration of the grievance, and if there is no prohibition against arbitration, the court must then examine the CBA to determine if the parties have agreed to arbitrate the dispute at issue" (Matter of City of New Rochelle v Uniformed Fire Fighters Assn., Inc., Local 273, I.A.F.F., 206 AD3d 727, 728 [internal quotation marks omitted]; see Matter of City of Johnstown [Johnstown Police Benevolent Assn.], 99 NY2d 273, 278; Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn., 131 AD3d 1240, 1241). Where the relevant arbitration provision is [*2]broad, a court "should merely determine whether there is a reasonable relationship between the subject matter of the dispute and the general subject matter of the CBA" (Matter of Board of Educ. of Watertown City School Dist. [Watertown Educ. Assn.], 93 NY2d 132, 143; see Matter of City of New Rochelle v Uniformed Fire Fighters Assn., Inc., Local 273, I.A.F.F., 206 AD3d at 728; Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn., 131 AD3d at 1242). If such a relationship exists, "the court should rule the matter arbitrable, and the arbitrator will then make a more exacting interpretation of the precise scope of the substantive provisions of the CBA, and whether the subject matter of the dispute fits within them" (Matter of Board of Educ. of Watertown City School Dist. [Watertown Educ. Assn.], 93 NY2d at 143; see Matter of City of New Rochelle v Uniformed Fire Fighters Assn., Inc., Local 273, I.A.F.F., 206 AD3d at 728).
Here, the Village's petition was grounded on its contention that the dispute in this case is not arbitrable because article V, § 4 of the CBA provides for additional compensation when the mayor of the Village declares "a holiday for Village employees due to an emergency," and no such declaration was made by the mayor here. The petition further asserted that arbitration would be against public policy because the "members of the PBA are seeking to extract a benefit to which they clearly are not entitled and which is not contained in their contract." These contentions are without merit, since the applicability of article V, § 4 of the CBA does not affect the arbitrability of the dispute, but only the merits of the dispute, and the merits are to be determined by the arbitrator and not by the courts (see Matter of City of Johnstown [Johnstown Police Benevolent Assn.], 99 NY2d at 279; Matter of Board of Educ. of Watertown City School Dist. [Watertown Educ. Assn.], 93 NY2d at 142-143; Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn., 131 AD3d at 1242). Moreover, the Village cites to no public policy that would prohibit the arbitrator from determining this dispute as to whether the mayor did or should have declared a state of emergency in response to the COVID-19 pandemic. Since there is no prohibition against arbitration in this matter, the remaining consideration is whether, under the terms of the CBA, the parties have agreed to arbitrate the instant dispute. The relevant arbitration provisions of the CBA are broad, as they permit PBA members to demand arbitration of any grievance that remains unresolved following completion of step three of the grievance procedure, define the term "grievance" as "any claimed violation, misinterpretation or inequitable application of this Agreement," and exclude from the definition of "grievance" only disciplinary matters and matters that may be pursued before an administrative agency (see Matter of Incorporated Vil. of Floral Park v Floral Park Police Benevolent Assn., 131 AD3d at 1242). Moreover, there is a reasonable relationship between the subject matter of the dispute, which involves compensation for work performed during a specific time period pursuant to a provision of the CBA, and the general subject matter of the CBA (see id.; see also Matter of City of Johnstown [Johnstown Police Benevolent Assn.], 99 NY2d at 279-280; Matter of Board of Educ. of Watertown City School Dist. [Watertown Educ. Assn.], 93 NY2d at 143). Thus, the dispute between the parties is arbitrable.
Accordingly, the Supreme Court should have denied the petition to permanently stay arbitration. The court, however, did not improvidently exercise its discretion in declining to impose sanctions against the Village pursuant to 22 NYCRR 130-1.1.
The PBA's remaining contention is without merit.
BARROS, J.P., ZAYAS, FORD and TAYLOR, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484308/ | Matter of Ash (2022 NY Slip Op 06478)
Matter of Ash
2022 NY Slip Op 06478
Decided on November 16, 2022
Appellate Division, Second Department
Per Curiam.
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
HECTOR D. LASALLE, P.J.
MARK C. DILLON
COLLEEN D. DUFFY
BETSY BARROS
FRANCESCA E. CONNOLLY, JJ.
2022-00638
[*1]In the Matter of Sylvia G. Ash, admitted as Sylvia Gwendolyn Ash, an attorney and counselor-at-law. Grievance Committee for the Second, Eleventh, and Thirteenth Judicial Districts, petitioner; Sylvia G. Ash, respondent. (Attorney Registration No. 2000099)
Motion by the Grievance Committee for the Second, Eleventh, and Thirteenth Judicial Districts to strike the respondent's name from the roll of attorneys and counselors-at-law, pursuant to Judiciary Law § 90(4), upon her conviction of a felony. The respondent was admitted to the Bar at a term of the Appellate Division of the Supreme Court in the Second Judicial Department on May 22, 1985, under the name Sylvia Gwendolyn Ash.
Diana Maxfield Kearse, Brooklyn, NY (David W. Chandler of counsel), for petitioner.
Morrison & Foerster LLP, New York, NY (Nathan D. Reilly of counsel), for respondent.
PER CURIAM.
OPINION & ORDER
On December 13, 2021, in the United States District Court for the Southern District of New York, before the Honorable Lewis A. Kaplan, the respondent was convicted, upon a jury verdict, of (1) conspiracy to obstruct justice, in violation of 18 USC § 371 (count 1 of the indictment); (2) obstruction of justice, in violation of 18 USC §§ 1512(c) and 2 (count 3 of the indictment); and (3) making a false statement to federal officers, in violation of 18 USC § 1001 (count 4 of the indictment).
There is no record of the respondent advising this Court or the Grievance Committee for the Second, Eleventh, and Thirteenth Judicial Districts of her convictions within 30 days thereof, as required by Judiciary Law § 90(4)(c) and 22 NYCRR 1240.12(a), respectively.
The Grievance Committee now moves to strike the respondent's name from the roll of attorneys and counselors-at-law pursuant to Judiciary Law § 90(4) based upon her conviction of a felony. By letter dated April 6, 2022, the respondent belatedly reports her convictions and indicates that she consents to her disbarment as sought by the Grievance Committee.The Federal Indictment and Convictions
According to the indictment underlying the respondent's convictions, the federal government was investigating a former chief executive officer (hereinafter the CEO) of the Municipal Credit Union (hereinafter MCU), regarding his receipt of millions of dollars from MCU. In or around January 2018, the respondent agreed to sign a false and misleading memorandum in [*2]order to impede, obstruct, and influence the federal investigation. On or about March 1, 2018, the respondent falsely stated to a special agent with the United States Attorney's Office for the Southern District of New York (hereinafter the special agent) that after the respondent became the chair of the board of directors of MCU, MCU's then general counsel informed her that the CEO had the option under his employment contract to receive monetary payments to obtain long-term disability insurance, instead of having MCU purchase such insurance for the CEO. On or about July 9, 2018, the respondent further falsely stated to the special agent that she discussed with the then general counsel the CEO's interest in receiving monetary payments in lieu of a long-term disability insurance policy.
From at least in or around January 2018 to in or around July 2018, the respondent concealed and deleted text messages and email messages, and wiped data from an Apple iPhone to seek to destroy and impair the availability of evidence, including evidence that had been requested from her by federal grand jury subpoenas. The respondent also made false and misleading statements to federal law enforcement officers in connection with the federal investigation of the CEO and others.
On or about June 8, 2018, in a telephone interview with the United States Attorney's Office for the Southern District of New York, the respondent falsely stated that she did not have responsive records to a subpoena served on her on or about March 13, 2018.
Based on the above, the respondent was convicted of conspiracy to obstruct justice, obstruction of justice, and making a false statement to federal officers, as specified above.The Grievance Committee's Motion to Strike
Pursuant to Judiciary Law § 90(4)(a), "[a]ny person being an attorney and counsellor-at-law who shall be convicted of a felony as defined in paragraph e of this subdivision, shall upon such conviction, cease to be an attorney and counsellor-at-law." Judiciary Law § 90(4)(e) provides that:
"[f]or purposes of this subdivision, the term felony shall mean any criminal offense classified as a felony under the laws of this state or any criminal offense committed in any other state, district, or territory of the United States and classified as a felony therein which if committed within this state, would constitute a felony in this state."
A felony committed in another jurisdiction need not be a mirror image of a New York felony, but it must have "essential similarity" (Matter of Margiotta, 60 NY2d 147, 150).
The Grievance Committee asserts, inter alia, that this Court has previously held that the federal felony of obstruction of justice, in violation of 18 USC § 1512(c), is essentially similar to the New York felony of tampering with physical evidence under Penal Law § 215.40(2) (see Matter of Servider, 175 AD3d 61). Therefore, the Grievance Committee contends, upon the respondent's federal felony conviction of obstruction of justice, she was automatically disbarred under Judiciary Law § 90(4), the motion to strike is a mere formality of recording the existing fact of disbarment, and the respondent has no right to a hearing.
We conclude that the respondent's conviction of obstruction of justice, in violation of 18 USC §§ 1512(c) and 2, constitutes a felony within the meaning of Judiciary Law § 90(4)(e). As such, upon her conviction of that crime, the respondent was automatically disbarred and ceased to be an attorney pursuant to Judiciary Law § 90(4)(a).
Accordingly, the Grievance Committee's unopposed motion to strike the respondent's name from the roll of attorneys and counselors-at-law, pursuant to Judiciary Law § 90(4), is granted to reflect the respondent's disbarment as of December 13, 2021.
LASALLE, P.J., DILLON, DUFFY, BARROS, and CONNOLLY, JJ., concur.
ORDERED that the Grievance Committee's motion to strike the name of the respondent, Sylvia G. Ash, admitted as Sylvia Gwendolyn Ash, from the roll of attorneys and counselors-at-law, pursuant to Judiciary Law § 90(4), is granted; and it is further,
ORDERED that pursuant to Judiciary Law § 90(4)(a), the respondent, Sylvia G. Ash,
admitted as Sylvia Gwendolyn Ash, is disbarred, effective December 13, 2021, and her name is stricken from the roll of attorneys and counselors-at-law, pursuant to Judiciary Law § 90(4)(b); and [*3]it is further,
ORDERED that the respondent, Sylvia G. Ash, admitted as Sylvia Gwendolyn Ash, shall comply with the rules governing the conduct of disbarred or suspended attorneys (see 22 NYCRR 1240.15); and it is further,
ORDERED that pursuant to Judiciary Law § 90, the respondent, Sylvia G. Ash,
admitted as Sylvia Gwendolyn Ash, is commanded to desist and refrain from (1) practicing law in any form, either as principal or as agent, clerk, or employee of another, (2) appearing as an attorney or counselor-at-law before any court, Judge, Justice, board, commission, or other public authority, (3) giving to another an opinion as to the law or its application or any advice in relation thereto, and (4) holding herself out in any way as an attorney and counselor-at-law; and it is further,
ORDERED that if the respondent, Sylvia G. Ash, admitted as Sylvia Gwendolyn Ash, has been issued a secure pass by the Office of Court Administration, it shall be returned forthwith to the issuing agency, and the respondent shall certify to the same in her affidavit of compliance pursuant to 22 NYCRR 1240.15(f).
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484306/ | Matter of Elizabeth C. (Karen T.) (2022 NY Slip Op 06480)
Matter of Elizabeth C. (Karen T.)
2022 NY Slip Op 06480
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
ANGELA G. IANNACCI, J.P.
ROBERT J. MILLER
LINDA CHRISTOPHER
BARRY E. WARHIT, JJ.
2021-05298
(Docket Nos. N-22473-19, N-22474-19)
[*1]In the Matter of Elizabeth C. (Anonymous). Administration for Children's Services, petitioner-respondent;
andKaren T. (Anonymous), appellant, et al., respondent. (Proceeding No. 1)
In the Matter of Melanie T. (Anonymous). Administration for Children's Services, petitioner-respondent; Karen T. (Anonymous), appellant, et al., respondent. (Proceeding No. 2)
Elliot Green, Brooklyn, NY, for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York, NY (Devin Slack and Kevin Osowski of counsel; Teodora Cupac on the brief), for petitioner-respondent.
Twyla Carter, New York, NY (Dawne A. Mitchell and Polixene Petrakopoulos of counsel), attorney for the child Elizabeth C.
Lewis S. Calderon, Jamaica, NY, attorney for the child Melanie T.
DECISION & ORDER
In related proceedings pursuant to Family Court Act article 10, the mother appeals from an order of the Family Court, Queens County (Margaret Morgan, J.), dated June 30, 2021. The order denied the mother's motion pursuant to Family Court Act § 1061 to modify an order of fact-finding and disposition of the same court dated August 28, 2020, so as to grant a suspended judgment, vacate the finding of neglect, which was entered upon her consent to the entry of an order of fact-finding without admission pursuant to Family Court Act § 1051(a), and dismiss the petitions insofar as asserted against her.
ORDERED that the order is affirmed, without costs or disbursements.
In December 2019, the petitioner commenced these related proceedings pursuant to Family Court Act article 10, alleging, inter alia, that the mother abused and neglected the subject children. The mother subsequently consented to the entry of a finding of neglect without admission against her pursuant to Family Court Act § 1051(a). In an order of fact-finding and disposition dated August 28, 2020, the Family Court entered a finding of neglect against the mother and, inter alia, directed her to complete certain services. In June 2021, the mother moved pursuant to Family Court Act § 1061 to modify the order of fact-finding and disposition so as to grant her a suspended [*2]judgment, vacate the finding of neglect against her, and dismiss the petitions insofar as asserted against her. In an order dated June 30, 2021, the court denied the motion. The mother appeals.
Family Court Act § 1061 provides that, for good cause shown, a court may set aside, modify, or vacate any order issued in the course of a child protective proceeding (see Matter of Jessiah K. [Shakenya P.], 207 AD3d 724; Matter of Jveya J. [Ebony W.], 194 AD3d 937, 938). "The statute expresses the strong Legislative policy in favor of continuing Family Court jurisdiction over the child and family so that the court can do what is necessary in the furtherance of the child's welfare" (Matter of Jveya J. [Ebony W.], 194 AD3d at 938 [internal quotation marks omitted]; see Matter of Princess A.E. [Shaleyah E.], 193 AD3d 855; Matter of Arielle A.D. [Keith D.], 192 AD3d 1019, 1020). "As with an initial order, the modified order must reflect a resolution consistent with the best interests of the children after consideration of all relevant facts and circumstances, and must be supported by a sound and substantial basis in the record" (Matter of Alisah H. [Syed H.], 168 AD3d 842, 844 [internal quotation marks omitted]; see Matter of Boston G. [Jennifer G.], 157 AD3d 675, 677).
Here, the Family Court providently exercised its discretion in denying the mother's motion to modify the order of fact-finding and disposition so as to, inter alia, vacate the finding of neglect given, among other things, the serious and prolonged nature of the mother's conduct (see Matter of Jessiah K. [Shakenya P.], 207 AD3d at 725; Matter of Alisah H. [Syed H.], 168 AD3d at 844; Matter of Azimjon A. [Adolat K.], 161 AD3d 849, 850). Moreover, the mother failed to demonstrate that modifying the order of fact-finding and disposition and vacating the finding of neglect served the best interests of the children (see Matter of Alisah H. [Syed H.], 168 AD3d at 844).
IANNACCI, J.P., MILLER, CHRISTOPHER and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484312/ | HSBC Bank USA, N.A. v Martin (2022 NY Slip Op 06471)
HSBC Bank USA, N.A. v Martin
2022 NY Slip Op 06471
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
JOSEPH J. MALTESE
PAUL WOOTEN
LARA J. GENOVESI, JJ.
2019-14097
(Index No. 10479/13)
[*1]HSBC Bank USA, N.A., appellant,
vCindy Martin, respondent, et al., defendants.
Duane Morris LLP, New York, NY (Brett L. Messinger of counsel), for appellant.
Young Law Group, PLLC, Bohemia, NY (Daniel G. Eugene of counsel), for respondent.
DECISION & ORDER
In an action to foreclose a mortgage, the plaintiff appeals from an order of the Supreme Court, Queens County (David Elliot, J.), dated September 13, 2019. The order, insofar as appealed from, denied those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendant Cindy Martin, to strike that defendant's second affirmative defense, for leave to enter a default judgment against the remaining defendants, and for an order of reference.
ORDERED that the order is modified, on the law, by deleting the provision thereof denying that branch of the plaintiff's motion which was for leave to enter a default judgment against the defendants other than Cindy Martin, and substituting therefor a provision granting that branch of the motion; as so modified, the order is affirmed insofar as appealed from, with costs to the defendant Cindy Martin.
The defendant Cindy Martin (hereinafter the defendant) executed a note in the amount of $416,000, which debt was secured by a mortgage on real property located in Jamaica, Queens. The plaintiff commenced this action to foreclose the mortgage against the defendant, among others, by filing a summons and complaint on or about May 28, 2013. The defendant timely answered the complaint. By stipulation, the parties agreed that the plaintiff would file an amended complaint, which the defendant would be permitted to answer.
On May 11, 2017, the plaintiff filed a supplemental summons and amended complaint. The amended complaint alleged, inter alia, that the defendant was in default on her mortgage payments as of June 1, 2007. The defendant interposed an answer to the amended complaint asserting, among other things, the affirmative defense that the plaintiff did not comply with RPAPL 1304. The plaintiff subsequently moved, inter alia, for summary judgment on the complaint insofar as asserted against the defendant, to strike her affirmative defense alleging noncompliance with RPAPL 1304, for leave to enter a default judgment against the remaining defendants, and for an order of reference. In an order dated September 13, 2019, the Supreme Court denied those branches of the plaintiff's motion, and the plaintiff appeals.
"In a residential foreclosure action, a plaintiff moving for summary judgment must [*2]tender sufficient evidence demonstrating the absence of material issues as to its strict compliance with RPAPL 1304" (HSBC Bank USA, N.A. v Bermudez, 175 AD3d 667, 669 [internal quotation marks omitted]). "RPAPL 1304(1) provides that, 'at least ninety days before a lender, an assignee or a mortgage loan servicer commences legal action against the borrower . . . , including mortgage foreclosure, such lender, assignee or mortgage loan servicer shall give notice to the borrower.' The statute further provides the required content for the notice and provides that the notice must be sent by registered or certified mail and also by first-class mail to the last known address of the borrower" (Citibank, N.A. v Conti-Scheurer, 172 AD3d 17, 20; see RPAPL 1304[2]). "Proper service of RPAPL 1304 notice on the borrower or borrowers is a condition precedent to the commencement of a foreclosure action, and the plaintiff has the burden of establishing satisfaction of this condition" (Wells Fargo Bank, N.A. v Moran, 168 AD3d 1128, 1129). "By requiring the lender or mortgage loan servicer to send the RPAPL 1304 notice by registered or certified mail and also by first-class mail, the Legislature implicitly provided the means for the plaintiff to demonstrate its compliance with the statute, i.e., by proof of the requisite mailing, which can be established with proof of the actual mailings, such as affidavits of mailing or domestic return receipts with attendant signature, or proof of a standard office mailing procedure designed to ensure that items are properly addressed and mailed, sworn to by someone with personal knowledge of the procedure" (Everbank v Greisman, 180 AD3d 758, 760).
Here, the plaintiff failed to demonstrate, prima facie, that it strictly complied with the mailing requirements of RPAPL 1304. The affidavit of Daniel Delpesche, a contract management coordinator for the plaintiff's attorney-in-fact, Ocwen Loan Servicing, LLC (hereinafter Ocwen), did not make the requisite showing that Delpesche was familiar with Ocwen's mailing practices and procedures, and "therefore did not establish proof of a standard office practice and procedure designed to ensure that items are properly addressed and mailed" (U.S. Bank N.A. v Fisher, 169 AD3d 1089, 1092; see Ocwen Loan Servicing, LLC v Sirianni, 202 AD3d 702; U.S. Bank N.A. v Krakoff, 199 AD3d 859; Heartwood 2, LLC v DeBrosse, 197 AD3d 1152; U.S. Bank N.A. v Pickering-Robinson, 197 AD3d 757). Accordingly, the Supreme Court properly denied those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendant, to strike the defendant's second affirmative defense, and for an order of reference.
However, the Supreme Court should have granted that branch of the plaintiff's motion which was for leave to enter a default judgment against the remaining defendants. Contrary to the court's determination, since the remaining defendants defaulted in appearing and answering the complaint, they were not entitled to service of additional papers in the action, including the amended complaint, which did not assert any new or additional claims for relief (see CPLR 2103, 3012[a]; NYCTL-1 Trust v. Liberty Bay Realty Corp., 21 AD3d 1013, 1014).
The plaintiff's remaining contention need not be reached in light of our determination.
DILLON, J.P., MALTESE, WOOTEN and GENOVESI, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484315/ | Goldfarb v New York & Presbyt. Hosp. (2022 NY Slip Op 06470)
Goldfarb v New York & Presbyt. Hosp.
2022 NY Slip Op 06470
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
ROBERT J. MILLER
LINDA CHRISTOPHER
BARRY E. WARHIT, JJ.
2020-04088
(Index No. 510225/17)
[*1]Hadas Goldfarb, appellant,
vNew York and Presbyterian Hospital, respondent, et al., defendant.
Aron Law, PLLC, Brooklyn, NY (Joseph H. Aron of counsel), for appellant.
Epstein Becker & Green, P.C., New York, NY (John Houston Pope of counsel), for respondent.
DECISION & ORDER
In an action, inter alia, to recover damages for employment discrimination on the basis of religion in violation of the New York State Human Rights Law and the New York City Human Rights Law, the plaintiff appeals from an order of the Supreme Court, Kings County (Katherine Levine, J.), dated November 8, 2017. The order denied the plaintiff's motion to impose sanctions against the defendant New York and Presbyterian Hospital and its attorney, and to deem certain denials in that defendant's answer to the amended complaint to be admissions.
ORDERED that the order is affirmed; and it is further,
ORDERED that on the Court's own motion, the parties to the appeal are directed to show cause before this Court why an order should or should not be made and entered imposing sanctions and/or costs, if any, including appellate counsel fees, upon the plaintiff's counsel, Aron Law, PLLC, pursuant to 22 NYCRR 130-1.1(c) as this Court may deem appropriate, by uploading an affirmation or affidavit on that issue, with proof of service thereof, through the digital portal on this Court's website, on or before December 1, 2022; and it is further,
ORDERED that the Clerk of this Court, or her designee, is directed to serve a copy of this order to show cause upon the parties to this appeal, via email, to the email address provided to this Court, or, if no email address is provided, by regular mail; and it is further,
ORDERED that one bill of costs is awarded to the defendant New York and Presbyterian Hospital.
The plaintiff commenced this action against the defendants, New York and Presbyterian Hospital (hereinafter the hospital) and City of New York, inter alia, to recover damages for employment discrimination on the basis of religion in violation of the New York State Human Rights Law and the New York City Human Rights Law. Subsequently, the plaintiff moved to impose sanctions against the hospital and its attorney, and to deem certain denials in the hospital's answer to the amended complaint to be admissions on the ground that the hospital had asserted false denials in its answer. In an order dated November 8, 2017, the Supreme Court denied the plaintiff's motion. The plaintiff appeals. We affirm.
"To the extent the portions of [an] answer constitute improper denials, they may be deemed admissions" (Gilberg v Lennon, 193 AD2d 646; see Majerski v City of New York, 193 AD3d 715, 718; Patrick M. Connors, Practice Commentaries, McKinney's Cons Laws of NY, CPLR C3018: 3). Here, in support of her motion, the plaintiff failed to establish that any of the challenged denials in the hospital's answer to the amended complaint were improper in form such that they may be deemed admissions (see CPLR 3018[a]; 3026; see also Matter of Robinson v DiNapoli, 172 AD3d 1513, 1515; cf. Majerski v City of New York, 193 AD3d at 718-719). Further, the record does not support a finding that the hospital's conduct was frivolous (see 22 NYCRR 130-1.1; Sassower v Gannett Co., Inc., 109 AD3d 607, 608). Accordingly, the Supreme Court properly denied the plaintiff's motion to impose sanctions against the hospital and its attorney, and to deem certain denials in the hospital's answer to the amended complaint to be admissions.
In addition, since the plaintiff has raised arguments on this appeal that appear to be "completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law" (22 NYCRR 130-1.1[c][1]), and/or were undertaken primarily to harass or maliciously injure another (see id. § 130-1.1[c][1], [2]), the appeal may be frivolous (see Patouhas v Patouhas, 172 AD3d 1221, 1222). Accordingly, we direct the submission of affirmations or affidavits on the issue of whether, and in what amount, costs or sanctions, including reimbursement to the hospital for reasonable attorneys' fees in connection with this appeal, should or should not be imposed upon the plaintiff's counsel, Aron Law, PLLC.
DILLON, J.P., MILLER, CHRISTOPHER and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484314/ | HSBC Bank USA, N.A. v Cupid (2022 NY Slip Op 06472)
HSBC Bank USA, N.A. v Cupid
2022 NY Slip Op 06472
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
COLLEEN D. DUFFY, J.P.
JOSEPH J. MALTESE
LINDA CHRISTOPHER
JANICE A. TAYLOR, JJ.
2019-13131
(Index No. 9875/08)
[*1]HSBC Bank USA, National Association, etc., respondent,
vCynthia Cupid, appellant, et al., defendants.
Leila Rose-Gordon, Elmont, NY, for appellant.
Hinshaw & Culbertson LLP, New York, NY (Melisa Zukic and Schuyler B. Kraus of counsel), for respondent.
DECISION & ORDER
In an action to foreclose a mortgage, the defendant Cynthia Cupid appeals from an order of the Supreme Court, Queens County (Robert J. McDonald, J.), entered May 31, 2019. The order, insofar as appealed from, granted those branches of the plaintiff's motion which were to confirm the referee's report and for a judgment of foreclosure and sale, and denied the cross motion of the defendant Cynthia Cupid pursuant to CPLR 5015(a)(4) to vacate an order of the same court (Pam B. Jackman-Brown, J.) dated July 21, 2017, granting the plaintiff's motion, inter alia, for an order of reference, and to dismiss the complaint insofar as asserted against her for lack of personal jurisdiction, and pursuant to CPLR 3215(c) to dismiss the complaint insofar as asserted against her as abandoned.
ORDERED that the order entered May 31, 2019, is affirmed insofar as appealed from, with costs.
In April 2008, Fremont Investment & Loan (hereinafter Fremont) commenced this action against the defendant Cynthia Cupid (hereinafter the defendant), among others, to foreclose a mortgage on property located in Cambria Heights. In May 2008, the defendant allegedly was served pursuant to CPLR 308(4), and she failed to answer the complaint. In an order dated September 13, 2008, the Supreme Court granted Fremont's motion, inter alia, for an order of reference. On December 3, 2008, the court issued a judgment of foreclosure and sale. Thereafter, in 2009, 2010, and 2015, the defendant filed three separate orders to show cause, seeking, inter alia, to vacate the judgment of foreclosure and sale, each alleging that she was not properly served. The court declined to sign two of the orders to show cause, and the defendant withdrew the third.
In July 2015, Fremont moved, inter alia, to vacate the order dated September 13, 2008, and the judgment of foreclosure and sale, for an order of reference, and to amend the caption to substitute HSBC Bank USA, National Association (hereinafter HSBC), as the plaintiff. In an order dated July 21, 2017, the Supreme Court granted the motion. In November 2018, HSBC moved, inter alia, to confirm the referee's report and for a judgment of foreclosure and sale. The defendant cross-moved pursuant to CPLR 5015(a)(4) to vacate the order dated July 21, 2017, and to dismiss the complaint insofar as asserted against her for lack of personal jurisdiction, and pursuant to CPLR 3215(c) to dismiss the complaint insofar as asserted against her as abandoned. In an order [*2]entered May 31, 2019, the court, inter alia, granted those branches of HSBC's motion and denied the defendant's cross motion. The defendant appeals.
"Service of process upon a natural person must be made in strict compliance with the statutory methods of service set forth in CPLR 308" (Wells Fargo Bank, N.A. v Heaven, 176 AD3d 761, 762; see Washington Mut. Bank v Murphy, 127 AD3d 1167, 1174). Service under CPLR 308(4) may be effected "by affixing the summons to the door of either the actual place of business, dwelling place or usual place of abode within the state of the person to be served and by either mailing the summons to such person at his or her last known residence or by mailing the summons by first class mail to the person to be served at his or her actual place of business" (CPLR 308[4]; see Feinstein v Bergner, 48 NY2d 234, 240). Attempted service "is invalid if the service address is not, in fact, the defendant's actual place of business, dwelling place, or usual place of abode" (Everbank v Kelly, 203 AD3d 138, 147). "Ordinarily, a process server's affidavit of service establishes a prima facie case as to the method of service and, therefore, gives rise to a presumption of proper service" (Wells Fargo Bank, NA v Chaplin, 65 AD3d 588, 589; see U.S. Bank N.A. v Dass, 200 AD3d 1003, 1004).
Here, the Supreme Court properly determined that the affidavit of service demonstrated, prima facie, that the defendant was properly served with the summons and complaint pursuant to CPLR 308(4) by affixing a copy of the summons and complaint to the door of her dwelling place, and by mailing a copy of the summons and complaint to her last known residence (see Rattner v Fessler, 202 AD3d 1011, 1014; Citimortgage, Inc. v Weaver, 197 AD3d 1087, 1088; PHH Mtge. Corp. v Johnson, 190 AD3d 990, 991; Deutsche Bank Natl. Trust Co. v White, 110 AD3d 759, 760). Contrary to the defendant's contention, she failed to rebut that prima facie showing. Several documents in the record indicate that the address where service was effected was her residence at the relevant time, rather than the mortgaged property, as claimed by her, and the defendant did not substantiate her claim that the mortgaged property was her residence at the relevant time (see Kokolis v Wallace, 202 AD3d 948, 950; Rabinowitz v Rabinowitz, 137 AD3d 884, 885; Scarano v Scarano, 63 AD3d 716, 716). Moreover, contrary to the defendant's contention, under the circumstances, the process server's attempts to serve the defendant at her residence at different times on four different days, including two Saturdays, satisfied the due diligence requirement for service pursuant to CPLR 308(4) (see Wilmington Trust Co. v Gewirtz, 193 AD3d 1110, 1112; Wells Fargo Bank, N.A. v Cherot, 102 AD3d 768, 768).
Further, contrary to the defendant's contention, she was not entitled to dismissal of the complaint insofar as asserted against her pursuant to CPLR 3215(c). That statute provides that "[i]f the plaintiff fails to take proceedings for the entry of judgment within one year after [a] default, the court shall not enter judgment but shall dismiss the complaint as abandoned, without costs, upon its own initiative or on motion, unless sufficient cause is shown why the complaint should not be dismissed" (id.). "Where proceedings are taken within the statutory one-year period, any delays occasioned in the prosecution of the action beyond that year are irrelevant to CPLR 3215(c)" (Citibank, N.A. v Kerszko, 203 AD3d 42, 49). Here, Fremont timely moved for an order of reference and a judgment of foreclosure within one year of the defendant's default, and thus, any subsequent delays that ensued in the prosecution of the action are "irrelevant to CPLR 3215(c)" (id. at 49).
The parties' remaining contentions either are without merit or need not be reached in light of our determination.
DUFFY, J.P., MALTESE, CHRISTOPHER and TAYLOR, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484318/ | Ethington v H & M Hennes & Mauritz, L.P. (2022 NY Slip Op 06467)
Ethington v H & M Hennes & Mauritz, L.P.
2022 NY Slip Op 06467
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
ROBERT J. MILLER
DEBORAH A. DOWLING
BARRY E. WARHIT, JJ.
2021-04552
(Index No. 512898/20)
[*1]Brigitte Ethington, appellant,
vH & M Hennes & Mauritz, L.P., respondent.
Kahn Gordon Timko & Rodriques, P.C., New York, NY (Tyler C. Garvey and Nicholas I. Timko of counsel), for appellant.
Marshall Dennehy Warner Coleman & Goggin, P.C., Purchase, NY (R. David Lane, Jr., of counsel), for respondent.
DECISION & ORDER
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Kings County (Lawrence Knipel, J.), dated May 20, 2021. The order, insofar as appealed from, granted that branch of the defendant's motion which was to compel the plaintiff to respond to demand 14 in the defendant's demand for a bill of particulars.
ORDERED that the order is affirmed insofar as appealed from; and it is further,
ORDERED that on the Court's own motion, the parties to the appeal are directed to show cause before this Court why an order should or should not be made and entered imposing sanctions and/or costs, if any, including appellate counsel fees, upon the plaintiff's counsel, Kahn Gordon Timko & Rodriques, P.C., pursuant to 22 NYCRR 130-1.1(c) as this Court may deem appropriate, by uploading an affirmation or affidavit on that issue, with proof of service thereof, to NYSCEF, on or before December 7, 2022; and it is further,
ORDERED that the Clerk of this Court, or her designee, is directed to serve a copy of this order to show cause upon the parties to this appeal, via upload to NYSCEF; and it is further,
ORDERED that one bill of costs is awarded to the defendant.
In the complaint, the plaintiff alleged that she sustained personal injuries resulting from a fall in a department store owned and operated by the defendant. In demand 14 in its demand for a bill of particulars, the defendant sought information regarding, inter alia, whether the plaintiff notified the defendant or anyone on its behalf of the accident. Although that demand is not expressly authorized under CPLR 3043(a) (see Mahr v Perry, 74 AD3d 1030, 1031; Feraco v Long Is. Jewish-Hillside Med. Ctr., 97 AD2d 498, 498), the Supreme Court providently exercised its discretion, pursuant to CPLR 3043(c), by compelling the plaintiff to provide a response to demand 14 (see Twiddy v Standard Mer. Transp. Servs., 162 AD2d 264, 265). The plaintiff's contention that demand 14 in the demand for a bill of particulars constituted interrogatories, and that, therefore, the defendant waived its right to depose the plaintiff is completely without merit (see CPLR 3130[1]).
In addition, since the plaintiff has raised arguments on this appeal that appear to be "completely without merit in law and cannot be supported by a reasonable argument for an extension, modification or reversal of existing law" (22 NYCRR 130-1.1[c][1]), and/or were undertaken primarily to delay or prolong the resolution of the litigation (see 22 NYCRR 130-1.1[c][1], [2]), the appeal may be frivolous (see Patouhas v Patouhas, 172 AD3d 1221, 1222). Accordingly, we direct the submission of affirmations or affidavits on the issue of whether, and in what amount, costs or sanctions, including reimbursement to the defendant for reasonable attorneys' fees in connection with this appeal, should or should not be imposed upon the plaintiff's counsel, Kahn Gordon Timko & Rodriques, P.C.
BARROS, J.P., MILLER, DOWLING and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484316/ | Fuentes v Fisher (2022 NY Slip Op 06469)
Fuentes v Fisher
2022 NY Slip Op 06469
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
FRANCESCA E. CONNOLLY, J.P.
ANGELA G. IANNACCI
WILLIAM G. FORD
HELEN VOUTSINAS, JJ.
2020-04230
(Index No. 613927/18)
[*1]Maria Fuentes, appellant,
vCarol Fisher, respondent (and a third-party action).
Cannon & Acosta, LLP, Huntington Station, NY (June Redeker of counsel), for appellant.
Bruno, Gerbino, Soriano & Aitken, LLP, Melville, NY (Susan B. Eisner of counsel), for respondent.
DECISION & ORDER
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Suffolk County (William B. Rebolini, J.), dated May 4, 2020. The order granted the defendant's motion for summary judgment dismissing the complaint.
ORDERED that the order is affirmed, with costs.
The plaintiff commenced this action to recover damages for personal injuries she allegedly sustained when she slipped and fell on a staircase inside premises owned by the defendant and leased to the third-party defendant. The defendant moved for summary judgment dismissing the complaint, arguing, inter alia, that she did not breach any duty to plaintiff. The Supreme Court granted the defendant's motion. The plaintiff appeals.
"An out-of-possession landlord is not liable for injuries that occur on its premises unless the landlord has retained control over the premises and has a 'duty imposed by statute or assumed by contract or a course of conduct'" (Casson v McConnell, 148 AD3d 863, 864, quoting Alnashmi v Certified Analytical Group, Inc., 89 AD3d 10, 18). Here, where the complaint sounds in common-law negligence and the plaintiff does not allege the violation of a statute, the defendant demonstrated her prima facie entitlement to judgment as a matter of law dismissing the complaint by establishing that she was an out-of-possession landlord who was not bound by contract or course of conduct to maintain the premises (see Santos v 786 Flatbush Food Corp., 89 AD3d 828, 829). In opposition, the plaintiff failed to raise a triable issue of fact. Accordingly, the Supreme Court properly granted the defendant's motion for summary judgment dismissing the complaint.
CONNOLLY, J.P., IANNACCI, FORD and VOUTSINAS, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484317/ | Fair v City of Mount Vernon (2022 NY Slip Op 06468)
Fair v City of Mount Vernon
2022 NY Slip Op 06468
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
JOSEPH J. MALTESE
PAUL WOOTEN
LARA J. GENOVESI, JJ.
2019-11394
(Index No. 68901/17)
[*1]Larry Fair, appellant,
vCity of Mount Vernon, et al., respondents, et al., defendants.
Akin Law Group, PLLC, New York, NY (Robert D. Salaman of counsel), for appellant.
Bond, Schoeneck & King, PLLC, Garden City, NY (Richard S. Finkel and Jacqueline A. Giordano of counsel), for respondents City of Mount Vernon, Richard Thomas, and Ralph Uzzi.
Coughlin & Gerhart, LLP, Binghamton, NY (Paul J. Sweeney, Steven L. Foss, and Devin M. Dilts of counsel), for respondent Neil Carretta.
DECISION & ORDER
In an action, inter alia, to recover damages for employment discrimination on the basis of race in violation of the New York State Human Rights Law (see Executive Law § 296), the plaintiff appeals from an order of the Supreme Court, Westchester County (Charles D. Wood, J.), dated September 5, 2019. The order granted the motion of the defendants City of Mount Vernon, Richard Thomas, and Ralph Uzzi, and the separate motion of the defendant Neil Carretta, for summary judgment dismissing the complaint insofar as asserted against each of them.
ORDERED that the order is affirmed, with one bill of costs to the respondents appearing separately and filing separate briefs.
The plaintiff, an African-American male, was employed by the Mount Vernon Department of Public Works. The plaintiff commenced the instant action on November 13, 2017, against the City of Mount Vernon, Mayor Richard Thomas, Commissioner Ralph Uzzi, Neil Carretta, Jacene Thomas, and Preston Thomas, alleging, inter alia, that he was subjected to racial discrimination, a hostile work environment, and retaliation in violation of the New York State Human Rights Law (hereinafter NYSHRL). Following motion practice, the complaint was dismissed insofar as asserted against the defendants Jacene Thomas and Preston Thomas and several of the causes of action were dismissed as to the remaining defendants, leaving only (1) the first cause of action alleging employment discrimination in violation of the NYSHRL against the City, Commissioner Uzzi, and Carretta, except to the extent that it was premised on the denial of overtime and overtime pay, (2) the second cause of action, alleging a hostile work environment in violation of the NYSHRL against the City, Commissioner Uzzi, and Carretta, and (3) the third cause of action, alleging retaliation in violation of the NYSHRL against the City, Commissioner Uzzi, and Carretta, and against Mayor Thomas to the extent that it alleged that Mayor Thomas aided and abetted the alleged retaliatory conduct. Thereafter, the City, Mayor Thomas, and Commissioner Uzzi jointly moved, and Carretta separately moved, for summary judgment dismissing the remaining causes of [*2]action in the complaint insofar as asserted against each of them. In an order dated September 5, 2019, the Supreme Court granted the defendants' separate motions, finding that the plaintiff failed to serve a timely notice of claim, which was a condition precedent to commencing this action. The plaintiff appeals.
Contrary to the plaintiff's contention, the filing of a notice of claim was a condition precedent to the maintenance of this action against the remaining defendants (see Seifullah v City of New York, 161 AD3d 1206; Scopelliti v Town of New Castle, 210 AD2d 308; see also Blackmon v City of Syracuse, 185 AD3d 1505; Matter of Farrell v City of Kingston, 156 AD3d 1269). In contrast to General Municipal Law §§ 50-e(1) and 50-i(1), the Mount Vernon City Charter section 265 broadly requires the filing of a notice of claim as a condition precedent to a "civil action . . . of any name or nature whatsoever, . . . arising at law or in equity," which includes the plaintiff's causes of action pursuant to the NYSHRL (see Executive Law § 296). Accordingly, the plaintiff's reliance upon Margerum v City of Buffalo (24 NY3d 721) is misplaced.
Therefore, the Supreme Court properly granted the defendants' separate motions for summary judgment dismissing the complaint insofar as asserted against each of them.
The plaintiff's remaining contentions are either without merit or academic in light of our determination.
DILLON, J.P., MALTESE, WOOTEN and GENOVESI, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484320/ | Cross v Town of Hempstead (2022 NY Slip Op 06465)
Cross v Town of Hempstead
2022 NY Slip Op 06465
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
VALERIE BRATHWAITE NELSON, J.P.
REINALDO E. RIVERA
CHERYL E. CHAMBERS
DEBORAH A. DOWLING, JJ.
2019-12241
(Index No. 606522/15)
[*1]Kanzada Cross, appellant,
vTown of Hempstead, respondent.
Sacks and Sacks, LLP, New York, NY (Scott N. Singer of counsel), for appellant.
Berkman, Henoch, Peterson, Peddy & Fenchel, P.C., Garden City, NY (Randy S. Nissan and Peter Sullivan of counsel), for respondent.
DECISION & ORDER
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Nassau County (James P. McCormack, J.), entered October 10, 2019. The order granted the defendant's motion for summary judgment dismissing the complaint.
ORDERED that the order is affirmed, with costs.
In 2015, the plaintiff commenced this action to recover damages for personal injuries she allegedly sustained when she slipped and fell on ice in a municipal parking lot owned and maintained by the defendant, Town of Hempstead. In her bill of particulars, the plaintiff alleged, inter alia, that the Town "created the condition." After issue was joined, the Town moved for summary judgment dismissing the complaint. In an order entered October 10, 2019, the Supreme Court granted the Town's motion. The plaintiff appeals.
"A municipality that has enacted a prior written notification law may avoid liability for a defect or hazardous condition that falls within the scope of the law if it can establish that it has not been notified in writing of the existence of the defect or hazard at a specific location" (Torres v Incorporated Vil. of Rockville Ctr., 195 AD3d 974, 975; see Amabile v City of Buffalo, 93 NY2d 471, 474). "Such [prior written] notice is obviated where the plaintiff demonstrates that the municipality 'created the defect or hazard through an affirmative act of negligence' or that a 'special use' conferred a benefit on the municipality" (Groninger v Village of Mamaroneck, 17 NY3d 125, 127-128, quoting Amabile v City of Buffalo, 93 NY2d at 474).
Here, in moving for summary judgment dismissing the complaint, the Town "met its burden of establishing that it did not receive prior written notice of the icy condition, thereby shifting . . . the burden of demonstrating either that a question of fact existed in that regard or that one of the Amabile exceptions applied" (Groninger v Village of Mamaroneck, 17 NY3d at 129; see Yarborough v City of New York, 10 NY3d 726, 728; O'Sullivan v City of Long Beach, ___ AD3d ___, 2022 NY Slip Op 05700 [2d Dept]; Smith v City of New York, ___ AD3d ___, 2022 NY Slip Op 05226 [2d Dept]). In opposition, the plaintiff failed to raise a triable issue of fact as to whether the Town's snow removal operations affirmatively created the alleged icy condition that caused the plaintiff to fall (see Groninger v Village of Mamaroneck, 17 NY3d at 129; Smith v City of New York, ___ AD3d [*2]___, 2022 NY Slip Op 05226). Accordingly, the Supreme Court properly granted the Town's motion for summary judgment dismissing the complaint.
BRATHWAITE NELSON, J.P., RIVERA, CHAMBERS and DOWLING, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484325/ | Birmingham v Linden Plaza Hous. Co. (2022 NY Slip Op 06460)
Birmingham v Linden Plaza Hous. Co.
2022 NY Slip Op 06460
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
ROBERT J. MILLER
DEBORAH A. DOWLING
BARRY E. WARHIT, JJ.
2020-06095
(Index No. 7517/14)
[*1]Maiya Birmingham, etc., appellant,
vLinden Plaza Housing Co., et al., respondents.
William Schwitzer & Associates, P.C., New York, NY (Howard R. Cohen and Travis Wong of counsel), for appellant.
Quintairos Prieto Wood & Boyer, P.A., New York, NY (Tanya M. Branch and Jyoti M. Halsband of counsel), for respondent Linden Plaza Housing Co.
O'Connor O'Connor Hintz & Deveney, LLP, Melville, NY (Eileen Baumgartner of counsel), for respondent Fine Fare Supermarket.
DECISION & ORDER
In an action to recover damages for personal injuries, the plaintiff appeals from an order of the Supreme Court, Kings County (Lorna J. McAllister, J.), dated June 18, 2020. The order, insofar as appealed from, granted those branches of the defendants' separate motions which were for summary judgment dismissing the amended complaint insofar as asserted against each of them.
ORDERED that the appeal from so much of the order as granted that branch of the motion of the defendant Linden Plaza Housing Co. which was for summary judgment dismissing the amended complaint insofar as asserted against it is dismissed, as the plaintiff is not aggrieved by that portion of the order (see CPLR 5511; Mixon v TBV, Inc., 76 AD3d 144); and it is further,
ORDERED that the order is affirmed insofar as reviewed, without costs or disbursements.
In May 2014, Alethea Rea Haynie (hereinafter the decedent) commenced this action to recover damages for personal injuries, alleging that she was injured by a security gate located on property owned by the defendant Linden Plaza Housing Co. (hereinafter Linden Plaza) and subleased to the defendant Fine Fare Supermarket (hereafter Fine Fare). In April 2016, while this action was pending, the decedent died from causes unrelated to the alleged incident. After the administrator of the decedent's estate was substituted as the plaintiff, Fine Fare and Linden Plaza separately moved, inter alia, for summary judgment dismissing the amended complaint insofar as asserted against each of them. The plaintiff opposed Fine Fare's motion, but did not oppose Linden Plaza's motion. In an order dated June 18, 2020, the Supreme Court, among other things, granted those branches of the defendants' separate motions which were for summary judgment dismissing the amended complaint insofar as asserted against each of them. The plaintiff appeals.
The appeal from so much of the order as granted that branch of Linden Plaza's motion which was for summary judgment dismissing the amended complaint insofar as asserted against it [*2]must be dismissed. As the plaintiff did not oppose that branch of Linden Plaza's motion, she is not aggrieved by the order to the extent that it granted that branch of the motion (see CPLR 5511; Ponce-Francisco v Plainview-Old Bethpage Cent. School Dist., 83 AD3d 683, 684; Mixon v TBV., Inc., 76 AD3d at 156-157; Giraldo v Morrisey, 63 AD3d 784, 785).
The Supreme Court properly granted that branch of Fine Fare's motion which was for summary judgment dismissing the amended complaint insofar as asserted against it. Fine Fare met its burden of establishing its prima facie entitlement to judgment as a matter of law by demonstrating, through the affidavits of two employees, that it did not create or have actual or constructive notice of any dangerous condition with respect to the security gate on the property (see Gordon v American Museum of Natural History, 67 NY2d 836, 837; Palladino v Monadnock Constr., Inc., 163 AD3d 698, 698). In opposition, the plaintiff failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320, 324). Contrary to the plaintiff's contention, the photograph which she submitted in opposition to Fine Fare's motion was unauthenticated and therefore did not constitute evidentiary proof in admissible form (see Morales v City of New York, 278 AD2d 293, 293; see also Rogriguez v Sheridan One Co., LLC, 177 AD3d 801, 802). Furthermore, Fine Fare's motion was not premature (see Suero-Sosa v Cardona, 112 AD3d 706, 708; Cajas-Romero v Ward, 106 AD3d 850, 852).
BARROS, J.P., MILLER, DOWLING and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484326/ | Beecher v County of Nassau (2022 NY Slip Op 06459)
Beecher v County of Nassau
2022 NY Slip Op 06459
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
ANGELA G. IANNACCI
REINALDO E. RIVERA
PAUL WOOTEN, JJ.
2020-06099
(Index No. 607415/18)
[*1]Daniel Beecher, respondent,
vCounty of Nassau, appellant, et al., defendant.
Thomas A. Adams, County Attorney, Mineola, NY (Robert F. Van der Waag of counsel), for appellant.
Dell & Dean, PLLC (Joseph G. Dell and Mischel & Horn, P.C., New York, NY [Scott T. Horn and Andrew J. Fisher], of counsel), for respondent.
DECISION & ORDER
In an action to recover damages for personal injuries, the defendant County of Nassau appeals from an order of the Supreme Court, Nassau County (Thomas Feinman, J.), entered May 1, 2020. The order denied that defendant's motion for summary judgment dismissing the complaint insofar as asserted against it.
ORDERED that the order is affirmed, with costs.
On April 30, 2017, the plaintiff allegedly was injured when he tripped on a pothole in a crosswalk in Floral Park. In June 2018, the plaintiff commenced this action to recover damages for personal injuries against, among others, the County of Nassau. The plaintiff alleged, inter alia, that the County created the alleged defect by improperly repairing the roadway. Thereafter, the County moved for summary judgment dismissing the complaint insofar as asserted against it. In an order entered May 1, 2020, the Supreme Court denied the County's motion, finding that the County failed to eliminate triable issues of fact as to whether it created the alleged defect. The County appeals.
"'A municipality that has enacted a prior written notice provision may not be subjected to liability for injuries caused by a dangerous condition which comes within the ambit of the law unless it has received prior written notice of the alleged defect or dangerous condition, or an exception to the prior written notice requirement applies'" (Dejesus v Town of Mamaroneck, 189 AD3d 1172, 1172, quoting Seegers v Village of Mineola, 161 AD3d 910 [internal quotation marks omitted]). "To establish prima facie entitlement to judgment as a matter of law, the defendant municipality must show, prima facie, the lack of prior written notice; once the defendant establishes that it lacks prior written notice, the burden then shifts to the plaintiff to demonstrate either that a question of fact exists in that regard or that one of the exceptions applies" (Vaisman v Village of Croton-on-Hudson, __AD3d__, __, 2022 NY Slip Op 05885, *2 [2d Dept]; see Smith v City of New York, __AD3d__, 2022 NY Slip Op 05226 [2d Dept]). Insofar as relevant to this appeal, "an exception to the prior written notice laws exists where the municipality creates the defective condition through an affirmative act of negligence" (Piazza v Volpe, 153 AD3d 563, 564).
Here, the County established, prima facie, that it did not have prior written notice of the alleged defect (see Thompson v Nassau County, 200 AD3d 823, 825; Loghry v Village of Scarsdale, 149 AD3d 714, 715-716). However, in opposition, the plaintiff raised a triable issue of fact as to whether the County affirmatively created the alleged defect (see Boorman v Town of Tuxedo, 204 AD3d 742, 743; Pluchino v Village of Walden, 63 AD3d 897).
The County's remaining contentions are without merit.
Accordingly, the Supreme Court properly denied the County's motion for summary judgment dismissing the complaint insofar as asserted against it.
DILLON, J.P., IANNACCI, RIVERA and WOOTEN, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484332/ | Ahmed v Fernando (2022 NY Slip Op 06453)
Ahmed v Fernando
2022 NY Slip Op 06453
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
VALERIE BRATHWAITE NELSON
CHERYL E. CHAMBERS
LILLIAN WAN, JJ.
2019-12901
(Index No. 506052/17)
[*1]Ove Ahmed, et al., respondents,
vJose Fernando Garzon, et al., appellants.
Camacho Mauro Mulholland, LLP, New York, NY (Eric S. Malinowski of counsel), for appellants.
Monteleone & Siegel, PLLC, Mineola, NY (Jarad L. Siegel of counsel), for respondents.
DECISION & ORDER
In an action to recover damages for personal injuries, etc., the defendants appeal from an order of the Supreme Court, Kings County (Devin P. Cohen, J.), dated August 28, 2019. The order granted the plaintiffs' motion for summary judgment on the issue of liability.
ORDERED that the order is affirmed, with costs.
Ove Ahmed was crossing a street at an intersection in Queens, inside of a crosswalk and with a pedestrian crossing signal in her favor, when she was struck by a van owned by the defendant Amity Hosiery Co., Inc., and operated by its employee, the defendant Jose Fernando Garzon. Ahmed, and her husband suing derivatively, commenced this personal injury action against the defendants. Following discovery, the plaintiffs moved for summary judgment on the issue of liability. In an order dated August 28, 2019, the Supreme Court granted the motion. The defendants appeal.
"A plaintiff in a negligence action moving for summary judgment on the issue of liability must establish, prima facie, that the defendant breached a duty owed to the plaintiff and that the defendant's negligence was a proximate cause of the alleged injuries" (Tsyganash v Auto Mall Fleet Mgt., Inc., 163 AD3d 1033, 1033-1034; see Rodriguez v City of New York, 31 NY3d 312). "To be entitled to partial summary judgment a plaintiff does not bear the . . . burden of establishing . . . the absence of his or her own comparative fault" (Rodriguez v City of New York, 31 NY3d at 324-325). "A pedestrian who has the right of way is entitled to anticipate that motorists will obey the traffic laws that require them to yield" (Huang v Franco, 149 AD3d 703, 703).
Here, the plaintiffs established their prima facie entitlement to judgment as a matter of law on the issue of liability. The evidence submitted by the plaintiffs established that Ahmed stopped and looked both ways before entering the crosswalk within which she was walking, with the pedestrian signal in her favor, when Garzon failed to yield the right-of-way and struck Ahmed with the van he was operating (see Vehicle and Traffic Law §§ 1111[a][1]; 1112[a]; Maliakel v Morio, 185 AD3d 1018, 1019; Wray v Galella, 172 AD3d 1446, 1448).
In opposition, the defendants failed to raise a triable issue of fact as to Garzon's negligence. Contrary to the defendants' contention, Garzon's deposition testimony did not raise a triable issue of fact as to whether Ahmed was actually in the crosswalk at the time of the accident (see Fernandez v American United Transp., Inc., 177 AD3d 704, 707; Burnett v Reisenauer, 107 AD3d 656, 656).
The plaintiffs' request for certain affirmative relief is not properly before this Court, since the plaintiffs did not cross-appeal from the order dated August 28, 2019 (see Hecht v City of New York, 60 NY2d 57, 61-62; U.S. Bank N.A. v Dickenson, 176 AD3d 891, 892).
BARROS, J.P., BRATHWAITE NELSON, CHAMBERS and WAN, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484333/ | IN THE SUPREME COURT OF APPEALS OF WEST VIRGINIA
September 2022 Term FILED
November 16, 2022
No. 22-0081 released at 3:00 p.m.
EDYTHE NASH GAISER, CLERK
SUPREME COURT OF APPEALS
OF WEST VIRGINIA
In Re K. L.
Appeal from the Circuit Court of Ohio County
The Honorable Jason A. Cuomo, Judge
Case No. 20-CJA-91 JAC
VACATED AND REMANDED
Submitted: November 1, 2022
Filed: November 16, 2022
John M. Jurco, Esq. Patrick Morrisey, Esq.
St. Clairsville, Ohio Attorney General
Attorney for Petitioner-Father K. L. Andrea Nease Proper, Esq.
Assistant Attorney General
David A. Mascio, Esq. Charleston, West Virginia
Weirton, West Virginia Attorneys for West Virginia
Guardian ad Litem for Infant K. L. Department of Health and Human
Resources
JUSTICE WOOTON delivered the Opinion of the Court.
JUSTICE ARMSTEAD dissents and reserves the right to file a separate opinion.
SYLLABUS BY THE COURT
1. “‘When this Court reviews challenges to the findings and conclusions
of the circuit court, a two-prong deferential standard of review is applied. We review the
final order and the ultimate disposition under an abuse of discretion standard, and we
review the circuit court’s underlying factual findings under a clearly erroneous standard.’
Syl. [Pt. 1], McCormick v. Allstate Ins. Co., 197 W. Va. 415, 475 S.E.2d 507 (1996).” Syl.
Pt. 1, In re S. W., 236 W. Va. 309, 779 S.E.2d 577 (2015).
2. “Where it appears from the record that the process established by the
Rules of Procedure for Child Abuse and Neglect Proceedings and related statutes for the
disposition of cases involving children adjudicated to be abused or neglected has been
substantially disregarded or frustrated, the resulting order of disposition will be vacated
and the case remanded for compliance with that process and entry of an appropriate
dispositional order.” Syl. Pt. 5, In re Edward B., 210 W. Va. 621, 558 S.E.2d 620 (2001).
i
WOOTON, Justice:
This is an appeal from the Circuit Court of Ohio County’s January 4, 2022,
order terminating petitioner-father K. L.’s (hereinafter “petitioner”) parental rights to infant
K. L. 1 Upon the filing of an abuse and neglect petition alleging medical neglect,
educational neglect, and substance abuse, petitioner stipulated to medical and educational
neglect and was adjudicated neglectful on that sole basis. During the underlying
proceedings, petitioner either tested negative for illegal substances or refused to drug
screen, denying any substance abuse disorder. He maintained this denial throughout the
proceedings despite having admitted to prior occasional use, being arrested in possession
of methamphetamine, and being twice found in possession of synthetic urine subsequent
to adjudication—once during a drug screening.
At disposition, after finding that the Department of Health and Human
Resources (hereinafter “DHHR”) had not established that petitioner had a substance abuse
disorder, the circuit court ordered a post-dispositional improvement period. Petitioner
continued to refuse to drug screen, purportedly on the basis that no court order yet required
him to do so. The circuit court terminated petitioner’s parental rights, citing his failure to
1
Because this case involves minors and sensitive matters, we follow our
longstanding practice of using initials to refer to the children and the parties. See, e.g.,
State v. Edward Charles L., 183 W. Va. 641, 645 n.1, 398 S.E.2d 123, 127 n.1 (1990). All
references to “K. L.” refer to the subject infant, as petitioner-father is referred to as
“petitioner” herein.
1
participate in the post-dispositional improvement period and finding that there was no
reasonable likelihood the conditions of abuse and neglect could be substantially corrected.
Petitioner appeals, citing a litany of errors but arguing primarily that the circuit court erred
by terminating his parental rights on a basis—presumed substance abuse—upon which he
was not adjudicated.
Upon careful review of the briefs, the appendix record, the arguments of the
parties, and the applicable legal authority, we conclude that the circuit court’s termination
of petitioner’s parental rights is erroneously based upon a condition of abuse and neglect
upon which petitioner was never adjudicated. We further find that the circuit court’s
purported reliance on petitioner’s violation of his post-dispositional improvement period
likewise fails to support termination because the implementation of the improvement
period did not comport with West Virginia Code § 49-4-610(3) (2015). We therefore
vacate that portion of the dispositional order terminating petitioner’s parental rights and
remand for further proceedings consistent with this opinion.
I. FACTS AND PROCEDURAL HISTORY
In August 2020, DHHR received a referral regarding K. L. which alleged that
petitioner and K. L.’s mother, D. L., were using and selling drugs, as well as failing to send
K. L. to school. An in-home safety plan was initiated requiring drug screening and adult
life skills and parenting classes. Petitioner and D. L. failed to comply with the safety plan
2
and DHHR received yet another referral regarding continued drug use; the second referral
also alleged that petitioner accidentally shot himself in the home. DHHR further
discovered that K. L. suffers from Russell-Silver Syndrome, a genetic growth disorder, and
had not been regularly attending doctor’s appointments.
On October 14, 2020, a petition was filed against both parents alleging
medical and educational neglect, as well as substance abuse. The petition alleged that D.
L. tested positive for methamphetamines and that both parents admitted to
methamphetamine use but characterized themselves as merely “weekend users.” Petitioner
waived his preliminary hearing and multi-disciplinary team (“MDT”) meetings ensued.
During these meetings, petitioner denied having a substance abuse issue and admitted only
to prior, infrequent use on weekends when playing in a band. Prior to adjudication, it
appears that petitioner and D. L. drug screened four to five times a week and were negative,
with one exception where D. L.’s screening returned a false positive.
At adjudication on January 20, 2021, the parents stipulated to medical and
educational neglect, i.e. failure to schedule regular pediatrician and specialist visits and
failure to enroll K. L. in school or take proper steps to undertake home schooling; D. L.
also admitted to a single positive drug screen. DHHR “reserved the right to produce
evidence at a future hearing of any matter not admitted,” per the adjudicatory order and,
during the adjudicatory hearing, discussed its desire that petitioner and D. L. continue to
drug screen due to “concerns” about their “past history[.]” The circuit court directed the
3
parties to have an MDT meeting and reach agreed terms for continued drug screening and
other services.
On February 24, 2021, petitioner was arrested and charged with possession
of methamphetamine; he pled guilty to a misdemeanor charge of simple possession.
Shortly thereafter, Child Protective Services (“CPS”) was advised by K. L.’s kinship
placement that petitioner and D. L. were utilizing “Quick Fix,” a synthetic urine product,
to pass their drug screens. On March 9, 2021, petitioner was again stopped by police and
discovered with synthetic urine in his possession. On March 15, 2021, petitioner was found
with synthetic urine during a search at the drug screening facility. Petitioner screened only
once from that point, alleging that he was embarrassed by having to pull his pants fully
down to screen. The screening facility apparently offered DNA swab testing as a
complement to the urine screening, which would alleviate this concern; however, petitioner
continued to refuse to screen. 2
On March 25, 2021, petitioner filed a written motion for an improvement
period; however, the motion was later orally withdrawn at the hearing on the motion with
little to no explanation. In discussing the potential disposition of the case, the circuit court
noted that petitioner was adjudicated for “[s]omething other than drug usage,” and the
prosecutor responded that “we’ve reserved to [sic] right to produce evidence, and we’ve
2
The DNA swab would apparently allow petitioner to send in his urine sample,
which could then be matched to the DNA swab to ensure the sample belonged to petitioner.
4
gained evidence since [adjudication] about involvement with drug activity and such.”
(Emphasis added). The court then inquired further:
THE COURT: Do you feel you have enough in the
petition regarding drug usage to dispose of the case based upon
drug usage as causing the abusive and neglectful situation?
Because I didn’t get the sense that the petition was couched in
that language, and I was concerned that at disposition I would
not be able to consider drug usage substantively because of
that.
MS. GEYER: Well, there’s substance abuse issues that
impair their judgement [sic] and ability to parent their children.
That is actually stated in the petition.
(Emphasis added).
Dispositional hearings were held on October 1 and October 8, 2021; neither
petitioner nor D. L. testified. Multiple witnesses were called, testifying to 1) petitioner’s
arrest and plea to methamphetamine possession; 2) petitioner’s traffic stop where synthetic
urine was discovered; 3) the drug screen where petitioner was discovered with synthetic
urine; 4) petitioner’s drug treatment assessment wherein he denied a substance abuse
disorder; 5) petitioner’s unauthorized contact with K. L. and a confrontation involving the
kinship placement resulting in a protective order being entered; 6) petitioner’s admission
to the kinship placement that he had a “supplier”; and 7) petitioner’s refusal to drug screen.
However, the visitation supervisor testified that petitioner conducted himself
properly during visits with K. L., interacted appropriately with him, and appeared to have
a good relationship and substantial bond with him. She testified that on occasional visits
5
she had concerns about petitioner’s glassy eyes and avoidance of eye contact but could not
establish intoxication. The CPS worker testified that K. L. was very intelligent and mature
for his age and that any educational and/or medical neglect had been rectified since K. L.
had been in DHHR custody. 3 She further testified to DHHR’s early intention in the case
to reunify K. L. with his parents, as K. L. loved and desired to be reunified with them. She
indicated that termination was recommended only because there was a “drug issue” that
had not been “acknowledged” or addressed. The kinship placement confirmed that
petitioner and K. L. had a strong bond, that K. L. missed his parents, and was happy when
with them.
During the first of the two dispositional hearings, the circuit court expressed
interest in hearing from K. L., given the testimony regarding his maturity and intelligence.
However, when the second dispositional hearing resumed the court heard testimony from
K. L.’s therapist, who indicated that K. L. was extremely protective of his parents and
3
As to the medical neglect, it seems apparent that K. L. did not suffer from any
acute, untreated medical conditions, but rather was not following up regularly with
pediatricians and/or specialists to monitor his genetic condition. As to the educational
neglect, K. L. was enrolled in school after removal, but both parents insisted he was being
informally homeschooled through workbooks, were unaware it was necessary to
coordinate homeschooling through the board of education, and that K. L. was simply not
at grade level.
6
harbored much guilt about his removal and his success in foster care. The court never
interviewed K. L. thereafter. 4
While discussing dispositional options, the circuit court indicated that it did
not believe sufficient evidence had been produced to support termination. The court further
found that DHHR had not proven that petitioner had a drug problem based on the evidence
introduced: “I’m still not convinced that you’ve proven they have a drug problem that
interferes with their ability to parent.” In response to the prosecutor’s concerns regarding
petitioner’s refusal to acknowledge a drug issue and request an improvement period in that
regard, the court again reiterated that petitioner had not been adjudicated for substance
abuse. 5
With the agreement of the parties, the circuit court then determined that a
post-dispositional improvement period pursuant to West Virginia Code § 49-4-604(e)
4
The record indicates that, although an order was issued for K. L.’s attendance at
the second dispositional hearing, his case worker was found deceased in her home that day
and K. L. did not attend as a result.
5
The court further remarked “I was waiting for evidence of what’s in the petition,
and I haven’t gotten a whole lot.” When the prosecutor stated “[t]hey were already
adjudicated,” the court remarked, “Not for drug use.” In further response to the
prosecutor’s insistence that petitioner had failed to admit to a substance abuse problem, the
court stated, “But you don’t have evidence that he was using drugs.” When the prosecutor
countered that he was arrested for possession of methamphetamine, the court replied,
“That’s not using.” In response to the prosecutor’s representation that petitioner admitted
to personal use during an MDT meeting, the court noted that no one had testified to any
outright admission by petitioner of personal use.
7
(2020) 6 would be the most appropriate disposition given that the educational and medical
neglect had been rectified. The court expressed concern that only through returning K. L.
to the home could there be a meaningful assessment of whether petitioner and D. L. had
made improvement in the areas in which they had been adjudicated. However, the court
agreed that continued allegations of drug use made it imperative that efforts be made to
ensure that K. L. could be safely returned to the home. In that regard, the prosecutor
indicated that petitioner and D. L. “wouldn’t agree to some of the things that we wanted
them to do,” but relented, “if the [c]ourt would impose some things for the dispositional
agreement [sic] period, I think we can feel safe.” (Emphasis added). The court stated that
the parties should “figure out what those terms are” but agreed they should “start with the
drug screening first and make sure that’s not an issue[.]”
The circuit court then inquired more specifically of petitioner’s willingness
to undergo the DNA swab and drug screening, asking, “[D]o you agree with that, first of
all?” Petitioner replied, “Yeah, that’s fine. That was never proposed to us at an MDT.”
The court replied that “if after talking to your attorneys or whatever and you don’t oppose
that, then let’s do that then.” The court then directed the parties “to have an MDT and
hammer out the terms.” 7 The dispositional order entered following the hearing indicated
6
See discussion, infra.
7
The prosecutor further stated, “I think that we can get the MDT together soon, we
can draft agreed orders. If we can have them sign off on those, like I think you like to have
them sign off on those terms[.]"
8
that “[t]he [c]ourt questioned whether the Respondents were agreeable to DNA testing, and
they did so agree[,]” but “an MDT is needed to develop terms.” The order itself, however,
ordered nothing more than the parties to return for a status hearing.
When the parties reconvened for a status hearing on December 17, 2021, the
court was advised that since the last hearing, neither petitioner nor D. L. had drug screened.
Petitioner’s counsel explained that petitioner did not want to do so until he was ordered by
the court. However, the guardian ad litem insisted that “it was clear at the 10/8/21 hearing
that [petitioner and D. L.] were to drug test as of that day and have not.” (Emphasis added).
The court agreed. 8
The circuit court terminated petitioner and D. L.’s parental rights, finding
that petitioner “failed to participate in a Post-Disposition[al] Improvement Period by failing
to drug screen” and that, as a result, there was no reasonable likelihood the conditions of
abuse/neglect could be corrected in the near future. DHHR and the guardian ad litem both
supported termination and this appeal followed. 9
8
The guardian ad litem stated, “But it was, at least in my opinion, it was pretty d*mn
clear that they were going to drug test that day and they were to start drug testing.” The
circuit court replied, “Oh, there’s no doubt in my mind.”
9
D. L. did not file an appeal. No part of this opinion is to be read as affecting the
court’s termination of D. L.’s rights in the January 4, 2022, order.
9
II. STANDARD OF REVIEW
As is well-established,
“[w]hen this Court reviews challenges to the findings
and conclusions of the circuit court, a two-prong deferential
standard of review is applied. We review the final order and
the ultimate disposition under an abuse of discretion standard,
and we review the circuit court’s underlying factual findings
under a clearly erroneous standard.” Syl. [Pt. 1], McCormick
v. Allstate Ins. Co., 197 W. Va. 415, 475 S.E.2d 507 (1996).
Syl. Pt. 1, In re S. W., 236 W. Va. 309, 779 S.E.2d 577 (2015). With these standards in
mind, we proceed to the parties’ arguments.
III. DISCUSSION
Petitioner raises seven assignments of error that collectively assert errors at
the outset of the proceedings, including K. L.’s emergency removal, and at disposition. As
to his first three assignments of error, petitioner complains that DHHR failed to comply
with West Virginia Code § 49-4-303 (2015) in its emergency removal of K. L. and other
statutory provisions. As to disposition, petitioner claims the circuit court erred by
terminating his parental rights 1) based on an issue—substance abuse—which was not the
subject of his adjudication; 2) in lieu of a lesser “disposition 5” 10 ; and 3) without
considering the wishes of K. L. We will address each in turn.
10
West Virginia Code § 49-4-604(c)(5) permits the court to “commit the child
temporarily to the care, custody, and control of the department, a licensed private child
welfare agency, or a suitable person who may be appointed guardian by the court.”
10
A. EMERGENCY REMOVAL
Petitioner first asserts two specific violations of West Virginia Code § 49-4-
303 in removing K. L. from the home: 1) DHHR’s failure to obtain a ratification order
following the emergency removal of K. L.; and 2) DHHR’s failure to file the petition within
two judicial days of the removal. Petitioner claims K. L. was removed from the home on
an emergency basis on October 8, 2020, without subsequent ratification, and that the
petition was not filed until October 14, 2020—two days after the limitation on emergency
custody had expired. DHHR appears not to dispute the absence of a ratification order but
argues that petitioner waived any defect in the removal. 11
DHHR further argues that
because the record does not reflect when K. L. was removed, the alleged failure to file the
petition within two judicial days cannot be established.
West Virginia Code § 49-4-303 provides that if a child is removed from the
home on an emergency basis,
the worker shall forthwith appear before a circuit judge or
referee of the county where custody was taken and immediately
11
At oral argument, contrary to repeated references to the “emergency removal of
the child” in its brief, counsel for DHHR claimed that there was no emergency removal
because the parents agreed to a kinship placement, obviating the necessity of an emergency
removal and ratification. However, like the actual date of K. L.’s removal, the appendix
record is equally devoid of information supporting DHHR’s newfound position about the
timing and circumstances surrounding his removal.
We further caution DHHR that, to the extent it failed to comply with the
requirements of West Virginia Code § 49-4-303 in its removal of K. L. from the home, our
conclusion that this issue is moot and/or was waived in this particular matter should not be
read as condoning lack of strict compliance with these requirements, which remain of
paramount importance.
11
apply for an order. . . . This order shall ratify the emergency
custody of the child pending the filing of a petition. . . .
....
. . . If the emergency taking is ratified by the judge or referee,
emergency custody of the child or children is vested in the
department until the expiration of the next two judicial days, at
which time any child taken into emergency custody shall be
returned to the custody of his or her parent or guardian or
custodian unless a petition has been filed and custody of the
child has been transferred under section six hundred two of this
article.
(Emphasis added). DHHR is correct that the appendix record does not reflect the date of
K. L.’s emergency removal; however, ordinarily the ratification order itself—which
DHHR did not obtain—would provide evidence of that date. We therefore accept for
purposes of this issue petitioner’s representation that K. L. was removed from the home on
an emergency basis on October 8.
However, we find that petitioner’s failure to take action to enforce the
provisions of West Virginia Code § 49-4-303 and have K. L. returned to the home, as well
as the ensuing proceedings, during which petitioner stipulated to allegations of neglect,
have rendered errors surrounding K. L.’s emergency removal moot. See In re B. N., No.
16-1098, 2017 WL 2230138, at *2 n.2 (W. Va. May 22, 2017) (memorandum decision)
(“Having failed to properly bring the issue [seeking return of removed child] before this
Court when it was a ‘live’ controversy, and in light of the intervening termination of his
parental rights, the issue has been rendered moot[.]”). Further, petitioner’s “Waiver of
Preliminary Hearing” provides that he “acknowledges that [] removal of the child was
12
necessary pursuant to applicable law and hereby consents to same.” That acknowledgment,
coupled with the initial and preliminary hearing orders in which the circuit court found that
there was “imminent danger” necessitating K. L.’s removal, renders these assignments of
error meritless. 12 See also In re R. Y., No. 16-1125, 2017 WL 5037071, at *5 (W. Va. Nov.
2, 2017) (memorandum decision) (finding no error in failure to obtain ratification where
court mitigated violation of statutory procedures by subsequently finding removal was
necessary to protect child).
12
We likewise dispense with petitioner’s contention that the initial orders in the case
were statutorily defective. Petitioner claims that certain language required by West
Virginia Code §§ 49-4-601(e)(5) (2019) and 602(b) (2015) was absent, specifically 1)
notice that the proceedings “can result in the permanent termination of [] parental rights”;
and 2) findings regarding whether “continuation in the home” is contrary to the child’s best
interests and whether “reasonable efforts” were made by DHHR to prevent removal and
facilitate return of the child. See also W. Va. R. P. Child Abuse & Neglect Proc. 20 (“The
notice of hearing shall specify the time and place of the first hearing, the right of parties to
counsel, and the fact that the proceeding can result in the permanent termination of parental,
custodial or guardianship rights.”) and W. Va. R. P. Child Abuse & Neglect Proc. 16(e)
(requiring removal order to contain same findings as required in preliminary hearing order
under W. Va. Code § 49-4-602(b)(1)-(5)).
As to the notice of potential termination of parental rights, the petition itself asks
the court to enter a disposition “which may include an Order whereby the parental and
custodial rights and responsibilities of [petitioner] shall be terminated.” This is
undoubtedly sufficient to provide petitioner notice that his parental rights may be
terminated. As to the “continuation in the home” and “reasonable efforts” language, we
find that in reading the initial order and preliminary hearing order collectively, this
language is substantially present. See “Initial Order” (finding that “[t]here are no
reasonable alternatives to removing the infant child [and] . . . [t]he danger presented . . .
creates an emergency situation making efforts to avoid removing the infant child . . .
unreasonable and impossible”) and “Preliminary Hearing Order” (finding that DHHR “has
made reasonable efforts to preserve the family and prevent removal of the child; however,
under the circumstances the DHHR had no choice but to remove custody of the child[.]”).
We therefore find no merit to this assignment of error.
13
B. TERMINATION BASED UPON SUBSTANCE ABUSE
Petitioner’s primary assignment of error asserts that the circuit court
erroneously terminated his parental rights on the basis of substance abuse—a matter upon
which he was not adjudicated abusive or neglectful. Petitioner’s concerns are well-placed,
as substance abuse appears to have been the primary issue discussed and in contention
throughout the proceedings and particularly at disposition, yet he neither stipulated to
substance abuse nor was he adjudicated on that basis.
DHHR counters that substance abuse was alleged in the petition and
remained a persistent concern throughout the proceedings; it submits that “evidence of drug
use was introduced at the two day dispositional hearing to no objection[.]” DHHR
contends that petitioner was therefore properly terminated on this basis because he would
neither “acknowledge his substance abuse issue nor seek [] treatment for it[.]”
Petitioner argues that the instant case mirrors the termination this Court
reversed in In re Lilith H., 231 W. Va. 170, 744 S.E.2d 280 (2013). In Lilith H., the abuse
and neglect petition alleged a single instance of violence between the respondent father and
his father-in-law; the respondent parents were adjudicated exclusively on the basis of the
fight with the father-in-law and their failure to protect the children from being exposed to
the fight. Id. at 175, 744 S.E.2d at 285. At disposition, however, the testimony “centered
exclusively around the allegedly contentious relationship between [the parents],” rather
than the father-in-law, against whom the parents had sought a domestic violence protective
14
order and eliminated continued contact. Id. at 176, 744 S.E.2d at 286 (footnote omitted).
The circuit court terminated both parents’ rights based on their failure to address their
internal domestic violence and the mother’s refusal to leave the father as a result of
domestic violence. Id. at 177-78, 744 S.E.2d at 287-88.
The Court reversed, observing that petitioners’ contentious relationship
“overwhelmed” the evidence at disposition and “formed the sole basis of the court’s
termination of their parental rights. Yet, at no time did the circuit court [adjudicate them
as abusive/neglectful due to domestic violence].” Id. at 181, 744 S.E.2d at 291. The Court
found it to be “plain error” for the circuit court to “terminate[] the parental rights on the
basis of allegations and issues which were never properly made subject of the
adjudication.” Id. at 180, 744 S.E.2d at 290.
The Lilith H. Court explained that the failure to adjudicate the parents on
matters upon which termination was based allowed “troubling allegations [to] wholly
elude[] . . . commensurate attention” during the proceedings—a fundamental prerequisite
to the goal of reunification of families. Id. at 181, 744 S.E.2d at 291. Recognizing the
dynamic nature of issues underlying abuse and neglect proceedings, the Lilith H. Court
reminded circuit courts of “their authority, if not obligation, to compel newly-discovered
or developed abuse and neglect allegations to be made part of a petition” through
15
amendment of the petition lest those issues remain “unaddressed.” Id. at 182, 744 S.E.2d
at 292 (some emphasis added). 13
Similarly, in the instant case, petitioner’s alleged substance abuse was
essentially the sole focus of the proceedings below and the core underpinning of the circuit
court’s termination of his parental rights, yet he was not adjudicated as abusive or
neglectful on that basis. The prosecutor conceded that “we’ve reserved to [sic] right to
produce evidence, and we’ve gained evidence since [adjudication] about involvement with
drug activity and such”; however, DHHR never amended the petition and/or sought to
reopen adjudication to establish substance abuse. (Emphasis added). Further, the court
expressly recognized that it would be hamstrung at disposition in its ability to consider
Rule 19(b) of the West Virginia Rules of Procedure for Child Abuse and Neglect
13
Proceedings provides:
Amendments After the Adjudicatory Hearing.—If new
allegations arise after the final adjudicatory hearing, the
allegations should be included in an amended petition rather
than in a separate petition in a new civil action, and the final
adjudicatory hearing shall be re-opened for the purpose of
hearing evidence on the new allegations in the amended
petition.
See also Syl. Pt. 5, In re Randy H., 220 W.Va. 122, 640 S.E.2d 185 (2006) (“To facilitate
the prompt, fair and thorough resolution of abuse and neglect actions, if, in the course of a
child abuse and/or neglect proceeding, a circuit court discerns from the evidence or
allegations presented that reasonable cause exists to believe that additional abuse or neglect
has occurred or is imminent which is not encompassed by the allegations contained in the
Department of Health and Human Resource’s petition, then pursuant to Rule 19 of the
Rules of Procedure for Child Abuse and Neglect Proceedings [1997] the circuit court has
the inherent authority to compel the Department to amend its petition to encompass the
evidence or allegations.”).
16
substance abuse because petitioner had not been adjudicated on that basis, making clear its
belief that DHHR had not proven that petitioner suffered from a substance abuse problem
by clear and convincing evidence. While certainly substance abuse was alleged in the
petition, petitioner quite deliberately declined to stipulate to those allegations and DHHR
made no effort to ensure that this alleged condition of abuse and/or neglect was properly
adjudicated.
In fact, DHHR’s contention that petitioner was properly terminated for
failure to “acknowledge” his substance abuse problem merely highlights the deficiency in
the proceedings. Had petitioner been adjudicated as having a substance abuse problem
which led to the “conditions of neglect or abuse,” the circuit court would have been
statutorily authorized to find that his refusal to acknowledge the problem was evidence that
there was “no reasonable likelihood the conditions of neglect or abuse can be substantially
corrected in the near future.” See W. Va. Code § 49-4-604(c)(6); In re: Charity H., 215
W. Va. 208, 217, 599 S.E.2d 631, 640 (2004) (quoting W. Va. Dept. of Health and Human
Res. ex rel. Wright v. Doris S., 197 W.Va. 489, 498, 475 S.E.2d 865, 874 (1996)) (“‘[I]n
order to remedy the abuse and/or neglect problem, the problem must first be acknowledged.
Failure to acknowledge the existence of the problem, i.e., the truth of the basic allegation
pertaining to the alleged abuse and neglect or the perpetrator of said abuse and neglect,
results in making the problem untreatable[.]’” (Emphasis added)). However, at no time
17
was substance abuse legally determined to constitute a “condition[] of neglect or abuse”
requiring acknowledgment or correction as pertained to petitioner. 14
The Court’s insistence upon proper adjudication of the issues underlying
abuse and neglect is not a “hollow formality.” In re A. P.-1, 241 W. Va. 688, 695, 827
S.E.2d 830, 837 (2019). Rather, this Court has made clear that defects in adjudication
implicate the due process protections afforded to parents and that proper adjudication is a
jurisdictional prerequisite to continuation of the proceedings. See id. at 694, 827 S.E.2d at
836 (“‘The two-stage [adjudicatory and dispositional] process supports the constitutional
protections afforded to parents in permanent child removal cases—constitutional rights
guaranteed by the Due Process Clause of the Fourteenth Amendment.’” (quoting In re K.
14
Further, as discussed infra, prior to termination, the circuit court ordered a post-
dispositional improvement period pursuant to West Virginia Code § 49-4-604(e). The
language of that statute similarly evidences that the period of improvement must be
designed to address the conditions of abuse and neglect upon which adjudication was
based:
The court may, as an alternative disposition, allow the
parents or custodians an improvement period not to exceed six
months. During this period the court shall require the parent to
rectify the conditions upon which the [abuse and neglect]
determination was based. The court may order the child to be
placed with the parents, or any person found to be a fit and
proper person, for the temporary care of the child during the
period. At the end of the period, the court shall hold a hearing
to determine whether the conditions have been adequately
improved and at the conclusion of the hearing shall make a
further dispositional order in accordance with this section.
Id. § 49-4-604(e) (emphasis added).
18
H., No. 18-0282, 2018 WL 6016722, at *5 (W. Va. Nov. 16, 2018)); Syl. Pt. 1, State v. T.
C., 172 W. Va. 47, 303 S.E.2d 685 (1983) (“In a child abuse and neglect hearing, before a
court can begin to make any of the dispositional alternatives under W. Va. Code, 49-6-5,
it must hold a hearing under W. Va. Code, 49-6-2, and determine ‘whether such child is
abused or neglected.’ Such a finding is a prerequisite to further continuation of the case.”).
For the same reasons that we have established that disposition may not ensue
absent an adjudication of abuse and/or neglect, termination of parental rights may not be
fundamentally premised on conditions of abuse and/or neglect upon which a parent has not
been properly adjudicated. The record makes abundantly clear that petitioner’s termination
presumed a substance abuse disorder which was never proven and therefore was not the
subject of his adjudication.
C. POST-DISPOSITIONAL IMPROVEMENT PERIOD
The foregoing notwithstanding, we observe that the circuit court’s order
terminating petitioner’s parental rights is couched in terms of his “failure to participate” in
his post-dispositional improvement period—a statutorily-recognized basis upon which this
Court regularly affirms termination of parental rights. See W. Va. Code § 49-4-604(c)(6)
and (d)(1)-(3) (permitting termination of parental rights where “no reasonable likelihood
that the conditions of neglect or abuse can be substantially corrected in the near future”
including failure to respond to or follow through with recommended treatment or refusal
19
to cooperate in development of family case plan). 15 As a result, we find it necessary to
further examine the post-dispositional improvement period imposed by the circuit court.
Petitioner denies that his failure to drug screen constitutes a refusal to
participate in his post-dispositional improvement period because he had not yet been
ordered to do so. Petitioner contends that, contrary to the circuit court’s directive, no MDT
meeting to develop terms for the improvement period was ever held; proposed
improvement period terms were only received nine days before the termination hearing;
and he never received a family case plan. DHHR fails to dispute these assertions, arguing
generally that petitioner verbally agreed to drug screen during the dispositional hearing and
thereafter failed to do so in violation of his improvement period. The guardian ad litem
puts a finer point on petitioner’s alleged failure, asserting that “it is transcribed and in the
Court Order . . . that both parents would go to the Lee Day Report Center and drug screen
immediately following the October 8, 2021, [dispositional] hearing.” (Emphasis added).
15
West Virginia Code § 49-4-604(d)(3) further provides that “no reasonable
likelihood the conditions of abuse/neglect can be corrected” may be found where the parent
ha[s] not responded to or followed through with a reasonable
family case plan or other rehabilitative efforts of social,
medical, mental health, or other rehabilitative agencies
designed to reduce or prevent the abuse or neglect of the child,
as evidenced by the continuation or insubstantial diminution of
conditions which threatened the health, welfare, or life of the
child[.]
(Emphasis added). As the circuit court found, the conditions alleged in the petition which
threatened the health and welfare of K. L. were medical and educational neglect, which
had been rectified following K. L.’s removal from the home.
20
To the contrary, however, the requirement to drug screen that day is neither in the transcript
nor the dispositional hearing order. 16
West Virginia Code § 49-4-610(3) governs the post-dispositional
improvement periods and provides, in pertinent part:
(3) Post-dispositional improvement period. -- The court may
grant an improvement period not to exceed six months as a
disposition pursuant to section six hundred four of this article
when:
....
(B) The respondent demonstrates, by clear and convincing
evidence, that the respondent is likely to fully participate in the
improvement period and the court further makes a finding, on
the record, of the terms of the improvement period;
....
(E) The order granting the improvement period shall require
the department to prepare and submit to the court an
individualized family case plan in accordance with section four
hundred eight of this article.
(Emphasis added). Per subsection (E)’s requirement of submission of a family case plan
compliant with West Virginia Code § 49-4-408 (2015), that statute provides, in pertinent
part:
16
The guardian ad litem’s brief further makes representations about “numerous
attempts” to compel petitioner to drug screen and to review the “Post Dispositional Plan of
Improvement”; he further represents that petitioner “reviewed the Post Dispositional Plan
on the phone with his Counsel . . . on November 1, 2021.” However, there is no evidence
of these efforts contained anywhere in the appendix record, nor does the plan itself appear
in the record.
21
The department shall convene a multidisciplinary
treatment team, which shall develop the case plan. . . . The case
plan may be modified from time to time to allow for flexibility
in goal development, and in each case the modifications shall
be submitted to the court in writing. . . . The court shall
examine the proposed case plan or any modification thereof,
and upon a finding by the court that the plan or modified plan
can be easily communicated, explained and discussed so as to
make the participants accountable and able to understand the
reasons for any success or failure under the plan, the court shall
inform the participants of the probable action of the court if
goals are met or not met.
(Emphasis added).
In ordering the post-dispositional improvement period, the circuit court
neither orally nor in its dispositional order identified the terms of the improvement period.
Rather, the court directed the parties to “figure out what those terms are” and “to have an
MDT and hammer out the terms.” The court agreed generally that before K. L. was
returned to the home the parties should “start with the drug screening first,” and inquired
of petitioner’s willingness to undergo the DNA swab. However, despite petitioner’s
expressed willingness, the court encouraged petitioner to discuss it further with his counsel:
“[I]f after talking to your attorneys or whatever and you don’t oppose that, then let’s do
that then.” (Emphasis added). Thereafter, there is no indication in the record that an MDT
meeting was conducted, that terms were reached, submitted to the court, or ordered by the
court before petitioner’s parental rights were terminated.
22
The record further contains no family case plan required under the post-
dispositional improvement period as contemplated by West Virginia Code § 49-4-
610(3)(E). 17 Rule 37 of the West Virginia Rules of Procedure for Child Abuse and Neglect
Proceedings provides that where an improvement period is ordered as an alternative
disposition, “the court shall order the Department to submit a family case plan within thirty
(30) days of such order containing the information required by W. Va. Code §§ 49-4-408
and 49-4-604.” However, the dispositional order itself was not entered until over two
months after the dispositional hearing in violation of Rule 36 of the Rules of Procedure for
Child Abuse and Neglect Proceedings (“The court shall enter a disposition order, including
findings of fact and conclusions of law, within ten (10) days of the conclusion of the
hearing.”). It contained no requirement that a family case plan be submitted as required
by West Virginia Code § 49-4-610(3)(E) and the circuit court terminated petitioner’s
parental rights within eleven days of entry of the order. As this Court has cautioned,
[t]he procedural and substantive requirements of West Virginia
Code § 49-4-601 et seq., the Rules of Procedure for Child
Abuse and Neglect, and our extensive body of caselaw are not
mere guidelines. . . . The time limitations and standards
contained therein are mandatory and may not be casually
17
The only family case plan contained in the appendix record was prepared prior to
the dispositional hearing where the improvement period was ordered, is unsigned by the
parties and their attorneys, is designated an “original” child case plan, and reflects only one
MDT meeting on May 17, 2021—months before the dispositional hearing. The plan is
fairly described as pro forma and cursory, with the lone reference to services or treatment
stating: “Service/Service Provider: Drug screens, substance abuse evaluation, substance
abuse treatment.” Sections for referral dates, dates of participation, goals, beginning and
completion dates, as well as frequency are left blank. The transcripts of the various
hearings reveal no substance abuse treatment plan aside from an evaluation conducted early
in the proceedings during which petitioner denied a substance abuse disorder.
23
disregarded or enlarged without detailed findings
demonstrating exercise of clear-cut statutory authority.
In re J. G., 240 W. Va. 194, 204, 809 S.E.2d 453, 463 (2018).
Our caselaw further makes clear that failure to comply with amorphous
improvement period requirements cannot form the basis of a termination of parental rights,
and that the failure to prepare a family case plan containing clear requirements designed to
rectify conditions of abuse or neglect is reversible error. See In re Desarae M., 214 W. Va.
657, 665, 591 S.E.2d 215, 223 (2003) (finding lower court committed reversible error in
failing to require a family case plan as mandated by statute); State ex rel. W.Va. Dep’t of
Hum. Servs. v. Cheryl M., 177 W. Va. 688, 356 S.E.2d 181 (1987), superceded by statute
on other grounds as stated in State ex rel. Virginia M. v. Virgil Eugene S. II, 197 W. Va.
456, 461 n.9, 475 S.E.2d 548, 553 n.9 (1996) (same); In re K. B., No. 18-0255, 2018 WL
6119921, at *1 (W. Va. Nov. 21, 2018) (memorandum decision) (vacating termination
finding that “[a]lthough . . . terms were provided by the circuit court, the DHHR never filed
a case plan memorializing the goals for petitioner’s improvement”).
In Desarae M., the Court explained that even where terms of a family case
plan were laid upon the record, the absence of the plan itself was reversible error,
explaining, “[w]ithout a family case plan, the individuals seeking to assist a parent are
limited in their ability to formulate distinct goals, methods of achieving such goals, or
means by which success will be judged.” 214 W. Va. at 663, 591 S.E.2d at 221. The Court
24
acknowledged that it was “tempting to circumvent the statutory requirement by focusing
upon . . . the absence of clear indication that the [parent] is capable of improvement even
given a concise family case plan, or the recalcitrance of the [parent]” but that the statutory
requirements must be followed regardless. Id. at 664, 591 S.E.2d at 222. The Court
reiterated that the family case plan provides “a means of measuring progress and effort[]
[and] of dealing promptly with failure to provide or avail oneself of services[.]” Id.; see
also Cheryl M., 177 W. Va. at 693-94, 356 S.E.2d at 186-87 (stating that family case plan
“is designed to foreclose a natural parent from being placed in an amorphous improvement
period where there are no detailed standards by which the improvement steps can be
measured. It also provides a meaningful blueprint that the [DHHR] can monitor and which
will also give the court specific information to determine whether the terms of the
improvement period were met.”).
Particularly germane to the instant case, the Deserae Court rejected the
“mere recital of goals” as sufficient to replace a family case plan as such ambiguity would
only “lead to uncertainty regarding whether the failure to achieve one or more of the goals
arises from mere obstinacy, the lack of . . . services to the family, or some other cause or
circumstances.” Id. Therefore, DHHR’s insistence that petitioner had a “clear path” to
reunification is belied by the complete absence of identifiable and certain terms for his
improvement period including the necessity, initiation, and frequency of drug screening.
Moreover, despite DHHR’s insistence that petitioner failed to “address” his alleged
substance abuse issue, at no time was anything more than drug screening discussed; drug
25
screening is mere detection, not treatment. DHHR’s failure to establish a substance abuse
problem through adjudication substantially impaired its ability to require petitioner to
actually address this alleged problem through treatment. 18 In that regard, the deficiencies
in both phases of the proceedings provided petitioner countless opportunities to evade what
DHHR now claims to be the root cause of the conditions of abuse and neglect. It is well-
established that
[w]here it appears from the record that the process
established by the Rules of Procedure for Child Abuse and
Neglect Proceedings and related statutes for the disposition of
cases involving children adjudicated to be abused or neglected
has been substantially disregarded or frustrated, the resulting
order of disposition will be vacated and the case remanded for
compliance with that process and entry of an appropriate
dispositional order.
Syl. Pt. 5, In re Edward B., 210 W. Va. 621, 558 S.E.2d 620 (2001).
We do not suggest that drug screening may only be required in cases where
adjudication is based upon substance abuse. In this case, we find that petitioner’s failure
to drug screen was an improper basis for termination—not because he was not adjudicated
as having a substance abuse issue—but because it was not properly incorporated into the
terms of petitioner’s improvement period and a statutorily required family case plan.
18
As indicated, the only drug treatment-related service identified in the appendix
record is a drug abuse evaluation conducted by the screening facility, during which
petitioner denied a substance abuse disorder. The record reflects no further efforts by
DHHR to seek to require petitioner to enroll in a substance abuse treatment program or
rehabilitation facility.
26
Finally, we wish to make clear that this Court is not ignorant of, nor
unconcerned with, petitioner’s patently obvious efforts to avoid drug screening. We agree
that the specter of substance abuse looms heavily over the proceedings below, as evidenced
by the petition itself, the testimony adduced, and petitioner’s brazen resistance to drug
screening and possession of synthetic urine. However, it is the predominance of these
issues which should have compelled a more stringent adherence to the adjudicatory process
and the statutory requirements such as to eliminate any lack of clarity as to the conditions
of abuse and neglect involved and the requirements placed upon petitioner to correct them.
Because of these failures, the abuse and neglect process has failed to meaningfully address
the alleged issues underlying this case and, as a result, K. L. has thus far been deprived of
potential reunification with a father with whom he indisputably has a significant bond. In
that regard, the proceedings have unfortunately “fail[ed] of their essential purpose.” Lilith
H., 231 W. Va. at 180, 744 S.E.2d at 290.
Based upon the foregoing, we conclude that the circuit court erred in
terminating petitioner’s parental rights based upon 1) issues which were not the subject of
petitioner’s adjudication; and 2) failure to comply with an improvement period which was
not properly implemented in accordance with statutory requirements. 19 We therefore
19
Petitioner also assigns as error the circuit court’s failure to interview K. L. prior
to termination, after previously having indicated its intention to do so. West Virginia Code
§ 49-4-604(c)(6)(C) provides that the court “shall” consider the wishes of a child fourteen
or older or “otherwise of an age of discretion as determined by the court” regarding
termination. K. L., then nine years old, was not of the requisite age to mandate
(continued . . .)
27
vacate that portion of the circuit court’s January 4, 2022, order as to petitioner’s parental
rights, and remand for further proceedings as to petitioner including but not limited to
reopening of adjudication, amendment of the subject petition, and/or implementation of a
post-dispositional improvement period which comports with the requirements of West
Virginia Code § 49-4-610(3), as appropriate in light of our ruling herein. 20
IV. CONCLUSION
Therefore, for the reasons set forth herein, we vacate the January 4, 2022,
order of the Circuit Court of Ohio County as to its termination of petitioner’s parental rights
and remand for further proceedings consistent with this opinion.
Vacated and remanded.
consideration of his wishes; however, the guardian ad litem recommended the court speak
with K. L., indicating that conversing with him was “like [you’re] talking to a mature
teenager[.]” The court agreed; however, upon determining that a post-dispositional
improvement period would be ordered in lieu of termination, it found that speaking with
K. L. was unnecessary at that time.
In light of our remand of this matter, we find it unnecessary to further address this
assignment of error as well as petitioner’s contention that the court’s termination order was
inadequate, and that he was entitled to a “disposition 5,” i.e. a legal guardianship pursuant
to West Virginia Code § 49-4-604(c)(5).
20
By way of Rule 11 update, the parties advise that petitioner has been arrested for
possession of a controlled substance during the pendency of this appeal. Obviously, on
remand, the circuit court may consider any intervening developments in determining the
manner in which to proceed that best protects and serves the interests of K. L. See W. Va.
R. App. P. 11(j).
28 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484327/ | Bank of N.Y. Mellon v Rose (2022 NY Slip Op 06457)
Bank of N.Y. Mellon v Rose
2022 NY Slip Op 06457
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
REINALDO E. RIVERA
CHERYL E. CHAMBERS
DEBORAH A. DOWLING, JJ.
2019-09051
(Index No. 63161/15)
[*1]Bank of New York Mellon, etc., respondent,
vAnthony Rose, etc., et al., appellants, et al., defendants.
Pascazi Law Offices PLLC, Fishkill, NY (Michael S. Pascazi of counsel), for appellants.
Gross Polowy, LLC, Williamsville, NY (Stephen J. Vargas of counsel), for respondent.
DECISION & ORDER
In an action, inter alia, to foreclose a mortgage, the defendants Anthony Rose and Robert Rose appeal from an order of the Supreme Court, Westchester County (Lawrence H. Ecker, J.), dated June 17, 2019. The order, insofar as appealed from, denied the cross motion of the defendant Anthony Rose pursuant to CPLR 3211(a)(10) to dismiss the complaint insofar as asserted against him for failure to join a necessary party and denied that branch of the motion of the defendants Anthony Rose and Robert Rose which was pursuant to 22 NYCRR 130-1.1 to impose sanctions against the plaintiff or the plaintiff's counsel and the referee.
ORDERED that the appeal by the defendant Robert Rose from so much of the order as denied the cross motion of the defendant Anthony Rose pursuant to CPLR 3211(a)(10) to dismiss the complaint insofar as asserted against him for failure to join a necessary party is dismissed, as the defendant Robert Rose is not aggrieved by that portion of the order (see CPLR 5511; Mixon v TBV, Inc., 76 AD3d 144, 156-157); and it is further,
ORDERED that the order is affirmed insofar as appealed from by the defendant Anthony Rose and insofar as reviewed on the appeal by the defendant Robert Rose; and it is further,
ORDERED that one bill of costs is awarded to the plaintiff.
Ann Rose was the owner of the subject property when she died in 2003. Her will bequeathed the subject property equally to her sons, the defendants Anthony Rose and Robert Rose (hereinafter together the defendants), and named the defendants as the co-executors of her estate (hereinafter the estate).
In August 2015, the plaintiff commenced this action against, among others, the defendants, in their individual capacities, to foreclose a mortgage encumbering the subject property. The estate was not named as a defendant. The Supreme Court issued an order and judgment of foreclosure and sale on June 2, 2017. The action was automatically stayed when Robert Rose filed a bankruptcy petition on July 25, 2017 (see Wells Fargo Bank, N.A. v Malik, 203 AD3d 1110, 1112).
After the stay was lifted on February 4, 2019, the plaintiff moved to extend the time [*2]to conduct the referee's sale of the subject property. Anthony Rose cross-moved pursuant to CPLR 3211(a)(10) to dismiss the complaint insofar as asserted against him for failure to join the estate as a necessary party. In addition, the defendants moved, inter alia, pursuant to 22 NYCRR 130-1.1 to impose sanctions against the plaintiff or the plaintiff's counsel and the referee who was appointed to conduct the sale of the subject property. In an order dated June 17, 2019, the Supreme Court, among other things, denied Anthony Rose's cross motion and that branch the defendants' motion. The defendants appeal.
The Supreme Court properly denied Anthony Rose's cross motion pursuant to CPLR 3211(a)(10) to dismiss the complaint insofar as asserted against him for failure to join the estate as a necessary party. Pursuant to RPAPL 1311(1), "necessary defendants" in a mortgage foreclosure action include, among others, "[e]very person having an estate or interest in possession, or otherwise, in the property as tenant in fee, for life, by the curtesy, or for years, and every person entitled to the reversion, remainder, or inheritance of the real property, or of any interest therein or undivided share thereof, after the determination of a particular estate therein." Under the instant circumstances, the estate was not a necessary party to this mortgage foreclosure action, since, "'[g]enerally, title to real property devised under the will of a decedent vests in the beneficiary at the moment of the testator's death and not at the time of probate'" (US Bank Trust, N.A. v Gaines, 189 AD3d 1312, 1313, quoting Matter of Raccioppi, 128 AD3d 838, 840).
The defendants' remaining contentions are without merit.
BARROS, J.P., RIVERA, CHAMBERS and DOWLING, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484328/ | BCB Community Bank v Zazzarino (2022 NY Slip Op 06458)
BCB Community Bank v Zazzarino
2022 NY Slip Op 06458
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
FRANCESCA E. CONNOLLY, J.P.
LINDA CHRISTOPHER
PAUL WOOTEN
LILLIAN WAN, JJ.
2020-03234
2020-07013
2020-08533
(Index No. 607110/19)
[*1]BCB Community Bank, etc., respondent,
vLouis Zazzarino, etc., et al., appellants, et al., defendants.
William Yurus, Hawthorne, NY, for appellants.
Forchelli Deegan Terrana, LLP, Uniondale, NY (Richard A. Blumberg and Danielle B. Gatto of counsel), for respondent.
DECISION & ORDER
In an action, inter alia, pursuant to RPAPL article 15 for a judgment declaring that a tax deed to certain real property dated March 22, 2019, is null and void, that the plaintiff's mortgage on the subject real property is in full force and effect, and that the defendants Louis Zazzarino and T11 Funding do not have absolute and unencumbered title to the subject real property, the defendants Louis Zazzarino and T11 Funding appeal from (1) an order of the Supreme Court, Nassau County (Leonard D. Steinman, J.), entered February 19, 2020, (2) an order of the same court entered August 3, 2020, and (3) a judgment of the same court entered October 22, 2020. The order entered February 19, 2020, granted the plaintiff's motion, in effect, for summary judgment on the complaint and denied the cross motion of the defendants Louis Zazzarino and T11 Funding for summary judgment dismissing the complaint insofar as asserted against them. The order entered August 3, 2020, denied those defendants' motion for leave to renew and/or reargue their prior cross motion for summary judgment dismissing the complaint insofar as asserted against them and their opposition to the plaintiff's prior motion, in effect, for summary judgment on the complaint. The judgment entered October 22, 2020, insofar as appealed from, declared the tax deed dated March 22, 2019, void ab initio, directed the Nassau County Clerk to cancel, vacate, and remove the tax deed, declared the defendant Forest Glen Realty, LLC, the fee owner of the subject property, and declared the plaintiff's mortgage on the subject property to be in full force and effect.
ORDERED that the appeal from the order entered February 19, 2020, is dismissed, as the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d 241, 248); and it is further,
ORDERED that the appeal from so much of the order entered August 3, 2020, as denied that branch of the motion of the defendants Louis Zazzarino and T11 Funding which was for leave to reargue is dismissed, as no appeal lies from an order denying reargument (see Tarlo v 270 Fifth St. Corp., 201 AD3d 837, 838); and it is further,
ORDERED that the appeal from so much of the order entered August 3, 2020, as [*2]denied that branch of the motion of the defendants Louis Zazzarino and T11 Funding which was for leave to renew is dismissed, as the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d at 248); and it is further,
ORDERED that the judgment is affirmed insofar as appealed from; and it is further,
ORDERED that one bill of costs is awarded to the plaintiff.
Initially, the appeal from the order entered February 19, 2020, and the appeal from so much of the order entered August 3, 2020, as denied that branch of the motion of the defendants Louis Zazzarino and T11 Funding which was for leave to renew, must be dismissed because the right of direct appeal therefrom terminated with the entry of judgment in the action (see Matter of Aho, 39 NY2d at 248). However, the issues raised on the appeals from the orders are brought up for review and have been considered on the appeal from the judgment (see id.).
In 2010, the defendant Forest Glen Realty, LLC (hereinafter Forest Glen), executed a note in the sum of $1.75 million in favor of Indus American Bank (hereinafter Indus), predecessor entity to the plaintiff, BCB Community Bank. The note was secured by a mortgage on certain real property located in the City of Glen Cove, Nassau County (hereinafter the subject property). The mortgage required Forest Glen to pay all real estate taxes for the subject property.
On June 19, 2015, the defendant T11 Funding purchased tax lien certificates for unpaid real estate taxes referable to the subject property.
In April 2018, Indus merged with the plaintiff. On November 21, 2018, T11 Funding mailed a notice to redeem by certified mail, return receipt requested, to Indus at 1536 Oak Tree Road, Iselin, New Jersey, 08830, and at 1640 Vauxhall Road, Suite 2C, Union, New Jersey 07083. The notice to redeem was also mailed to "BCB Indus American Bank" at 1630 Oak Tree Road, Edison, New Jersey, 08820.
Thereafter, as the subject property was not redeemed during the prescribed redemption period, the Treasurer of the City of Glen Cove issued a tax deed dated March 22, 2019, conveying the property to T11 Funding.
On May 23, 2019, the plaintiff commenced this action against Louis Zazzarino and T11 Funding (hereinafter together the T11 defendants), among others, pursuant to RPAPL article 15, seeking, inter alia, a judgment declaring the tax deed null and void and that the plaintiff's mortgage is in full force and effect. The complaint alleged, among other things, that T11 Funding failed to properly serve the plaintiff with the notice to redeem.
On August 16, 2019, the plaintiff moved, in effect, for summary judgment on the complaint. In support, the plaintiff submitted, inter alia, the affidavit of Rita Mungioli, its assistant general counsel, who stated that all of the addresses listed for the plaintiff on the notice to redeem were invalid, as the plaintiff did not maintain branches or offices at 1536 Oak Tree Road or at 1640 Vauxhall Road at the time the notice to redeem allegedly was served. The mailings addressed to those two addresses were both returned as undeliverable; the envelope for each of them was marked "Return to Sender" and "Not Deliverable as Addressed." Regarding the copy of the notice to redeem mailed to "BCB Indus American Bank" at 1630 Oak Tree Road, Mungioli stated that this branch was just one of 28 branches in New York and New Jersey, and unrelated to the mortgage at issue. While, apparently an employee at the branch had signed for the notice, they would have no understanding of the legal significance. She stated that "[h]ad the Notice to Redeem been sent to corporate headquarters, [which address was ascertainable from an internet search], it would have been appropriately addressed."
The T11 defendants opposed the plaintiff's motion, and cross-moved for summary judgment dismissing the complaint insofar as asserted against them. In an affirmation in support of the cross motion, the T11 defendants noted that the 1536 Oak Tree Road address was listed as [*3]Indus's address on the mortgage at issue, and that the 1640 Vauxhall Road address was listed as Indus's address by the Nassau County Clerk's Office.
In an order entered February 19, 2020, the Supreme Court granted the plaintiff's motion and denied the T11 defendants' cross motion. The Supreme Court found, inter alia, that under the circumstances, where two of the mailings were returned as undeliverable, and where T11 Funding was "aware of the BCB-Indus connection," as evidenced by the third mailing addressed to BCB Indus American Bank, at a "random bank branch," due process required T11 Funding to ascertain the address of the plaintiff's headquarters, which it reasonably could have done.
On May 6, 2020, the T11 defendants moved, inter alia, for leave to renew their prior cross motion for summary judgment dismissing the complaint insofar as asserted against them and their opposition to the plaintiff's prior motion, in effect, for summary judgment on the complaint. In support of that branch of their motion which was for leave to renew, the T11 defendants submitted an affidavit from Zazzarino, wherein he stated for the first time that he ascertained the third mailing address "to 'BCB Indus American Bank', at 1630 Oak Tree Road Edison NJ 0582 [sic] as a result of a GOOGLE search of the address of the record owner of the subject mortgage 'INDUS AMERICAN BANK.'"
In an order entered August 3, 2020, the Supreme Court, inter alia, denied that branch of the T11 defendants' motion which was for leave to renew.
In a judgment entered October 22, 2020, the Supreme Court, inter alia, declared the tax deed to be void ab initio, directed the Nassau County Clerk to cancel, vacate, and remove the tax deed, declared Forest Glen the fee owner of the subject property, and declared the plaintiff's mortgage to be in full force and effect.
The T11 defendants appeal.
The Supreme Court properly granted the plaintiff's motion, in effect, for summary judgment on the complaint, and properly denied the T11 defendants' cross motion for summary judgment dismissing the complaint insofar as asserted against them. "An elementary and fundamental requirement of due process in any proceeding which is to be accorded finality is notice reasonably calculated, under all the circumstances, to apprise interested parties of the pendency of the action and afford them an opportunity to present their objections" (Mullane v Central Hanover Bank & Trust Co., 339 US 306, 314; see Matter of 149 Glen St. Corp. v Jefferson, 140 AD3d 742, 742-743). This principle applies to the notice to redeem that must be given prior to the issuance of a tax deed to a lienholder (see e.g. Matter of 149 Glen St. Corp. v Jefferson, 140 AD3d at 742-743; 89 Pine Hollow Rd. Realty Corp. v American Tax Fund, Foothill, 41 AD3d 771, 774; Temple Bnai Shalom of Great Neck v Village of Great Neck Estates, 32 AD3d 391, 392-393). In making a determination as to whether notice is "reasonably calculated," the unique information about an intended recipient must be considered, "regardless of whether a statutory scheme is reasonably calculated to provide notice in the ordinary case" (Jones v Flowers, 547 US 220, 230; see Matter of Skolnick, 108 AD3d 720, 723). The means used to give a constitutionally required notice "'must be such as one desirous of actually informing the absentee might reasonably adopt'" (Jones v Flowers, 547 US at 229, quoting Mullane v Central Hanover Bank & Trust Co., 339 US at 315; see Mac Naughton v Warren County, 20 NY3d 252, 257).
Here, the T11 defendants mailed copies of the notice to redeem to the addresses that were on record for Indus at 1536 Oak Tree Road and 1640 Vauxhall Road. However, those mailings were returned as "Not Deliverable as Addressed," and thus the T11 defendants were made aware that mailing the notice to redeem to these addresses would not provide the plaintiff with actual notice. The fact that the T11 defendants addressed the third mailing to "BCB Indus American Bank" indicates that they were aware, at the very least, of some connection between the plaintiff and Indus. The notice sent to "BCB Indus American Bank" was sent to a bank branch unconnected with the mortgage at issue, as opposed to the plaintiff's corporate headquarters. The Supreme Court properly noted that "[j]ust as T11 Funding was able to obtain the address of a BCB bank branch, it could [*4]reasonably have ascertained the address of BCB's headquarters by viewing BCB's website or New York Department of Financial Services' public records." Thus, under the circumstances, the means selected by the T11 defendants for providing notice to the plaintiff were not reasonably calculated to inform the plaintiff of the right to redeem the outstanding tax lien and to afford it an opportunity to do so (see Matter of 149 Glen St. Corp. v Jefferson, 140 AD3d at 743; Orra Realty Corp. v Gillen, 46 AD3d 649, 651; cf. Matter of Roslyn Jane Holdings, LLC v Jefferson, 144 AD3d 1041, 1043).
The Supreme Court also properly denied that branch of the T11 defendants' motion which was for leave to renew, since Zazzarino failed to provide a reasonable justification for his failure to include the information in his affidavit with the information submitted in opposition to the plaintiff's original motion and in support of the T11 defendants' original cross motion (see CPLR 2221[e]; Sterling Natl. Bank v Alan B. Brill, P.C., 186 AD3d 515, 519; Cioffi v S.M. Foods, Inc., 129 AD3d 888, 891). In any event, the T11 defendants' submission in support of renewal would not have changed the prior determination (see Byun Sik Chu v Kerrigan, 154 AD3d 731, 732).
The plaintiff's remaining contentions regarding alleged additional defects in the notice to redeem are academic in light of our determination.
CONNOLLY, J.P., CHRISTOPHER, WOOTEN and WAN, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484334/ | FILED
November 16, 2022
released at 3:00 p.m.
EDYTHE NASH GAISER, CLERK
No. 22-0081, In re K.L. SUPREME COURT OF APPEALS
OF WEST VIRGINIA
ARMSTEAD, Justice, dissenting:
There is ample evidence in the record supporting the termination of
Petitioner’s parental rights. The Petition included allegations of Petitioner’s drug use,
during the proceeding DHHR specifically reserved the right to introduce evidence of
Petitioner’s drug use, Petitioner acceded to the requirement of DNA drug testing by
agreeing to it during the dispositional hearing, and he thereafter refused to test pursuant to
his agreement. Termination of his parental rights was proper for failing to comply with the
terms of his post-dispositional improvement period. Therefore, I respectfully dissent.
In its opening paragraph, the majority opinion acknowledges that the Petition
in this matter contained allegations of Petitioner’s substance abuse. As noted therein,
Petitioner was never adjudicated on this allegation, having stipulated only to the allegations
of educational and medical neglect. The majority opinion goes on to say:
During the underlying proceedings, petitioner either tested
negative for illegal substances or refused to drug screen,
denying any substance abuse disorder. He maintained this
denial throughout the proceedings despite having admitted to
prior occasional use, being arrested in possession of
methamphetamine, and being twice found in possession of
synthetic urine subsequent to adjudication—once during a drug
screening.
1
Following his stipulation, Petitioner moved for and was granted a post-dispositional
improvement period. On the record at the dispositional hearing, there was a long
discussion about the requirement for drug testing:
MS. GEYER: I appreciate that, but can we start with the drug
screening first and make sure that’s not an issue?
THE COURT: Yeah.
MS. GEYER: And I don’t disagree that if in fact they’re able
to successfully complete drug screens and have that not be an
issue – if it is an issue, we want them to get therapy or treatment
for it. I don’t want them to ignore a drug problem and put a
child back there. If it’s not a problem, then certainly we would
be – because that was the step we were gonna [sic] take, but
we just need the drug issues addressed, too.
THE COURT: And I can tell you now based on what heard,
you both are gonna [sic] need to be patted down every time,
every time.
MS. GEYER: Your Honor, can we just do the DNA testing,
because that’s a swab in the mouth, and then they can match
that up. That’s when they stopped doing it, when we were
going to institute the DNA testing. They do a swab one time,
they observe one time. At the same time they do that swab they
do an observed urine, and then they never have to observe them
because they can match that DNA up with a urine sample every
time. So[,] then we know it’s their urine, we don’t have any
issues with them bringing in synthetic urine, we don’t have to
question that. That was what we proposed at the one MDT.
But then when [the mother] went that day and they were gonna
do the swab, she refused.
THE COURT: Well, I’ll say this. And I imagine it’s probably
true in your case, given what I have heard about your opinion
of government. If you oppose that – do you agree with that,
first of all?
2
[PETITIONER]: Yeah, that’s fine. That was never proposed to
us at an MDT.
MR. NORMAN: They were asked to do the DNA test before,
like almost immediately preceding the MDT, and then we
came into the MDT and they said, hey, we have this DNA test.
THE COURT: Well, if after talking to your attorneys or
whatever and you don’t oppose that, then let’s do that then.
That will keep you from having to be searched, I suppose,
every time.
….
THE COURT: All right. What I don’t want you guys to be
afraid to do, is if you have a drug problem and you’re using
drugs, don’t be afraid of a positive test. Just because you have
a positive test doesn’t mean I’m going to terminate your
parental rights. I don’t want you to think that. The positive
test gives us a baseline to say here’s what they’re using and
maybe here’s how much they’re using, and from there we can
figure out how we try to help you remedy that problem, and if
you don’t end up remedying then you need to worry.
Once it’s positive and once we tell you here’s what you
need to try to do in order to get off of it, and then you don’t
follow those recommendations, then you gotta [sic] worry
about it. But don’t worry about, you know, a bunch of positive
tests – not a bunch, but at least the initial positive test and even
a couple, to hopefully try to get you off. But if it’s bad, you
know, you may have to go to crisis unit, the whole works, I
don’t know, if you want your kid back. Okay.
3
Documenting the hearing in which the improvement period was granted, the
circuit court order states:
WHEREUPON, the Court engaged in a discussion with
counsel about the evidence presented and the appropriate
disposition. The Court noted that [Petitioner] withdrew [his]
Motions for Post-Adjudicatory Improvement Periods and
questioned Post-Disposition Improvement Periods. Counsel
for all parties indicated there would be no objection to Post-
Disposition Improvement Periods, but the DHHR requested
that [Petitioner] drug screen first to determine what additional
services are needed to address the drug issues and requested
DNA testing given the concerns with synthetic urine. The
Court questioned whether [Petitioner was] agreeable to DNA
testing, and [he] did so agree.
(emphasis added). The circuit court then granted a post-dispositional improvement period.
Clearly, the circuit court order memorialized that Petitioner agreed to DNA drug testing as
a condition of that improvement period. As the majority opinion notes, following this
order, Petitioner refused to drug screen on the grounds that the circuit court never ordered
him to drug screen. Petitioner was also arrested for possession of controlled substances
during the course of the proceedings below and was found to be in possession of synthetic
urine. Accordingly, the circuit court terminated Petitioner’s parental rights on the grounds
that he failed to comply with the terms of the post-dispositional improvement period.
The majority opinion, in my view, incorrectly concludes that the circuit court
improperly terminated Petitioner’s parental rights. However, a proper application of
applicable West Virginia law to the facts present here demonstrates the termination of
4
Petitioner’s parental rights should be affirmed. Our law requires a circuit court, when
granting a post-disposition improvement period to, “make[] a finding, on the record, of the
terms of the improvement period.” W. Va. Code § 49-4-610 (3)(B) (2015). Following the
grant of the improvement period herein, Petitioner became “responsible for the initiation
and completion of all terms of the improvement period.” W. Va. Code § 49-4-610(4)(A).
Here, the majority opinion essentially finds that the Petitioner was relieved of this
responsibility. However, Petitioner acquiesced to the requirement of DNA drug testing by
agreeing to it at the dispositional hearing, as memorialized in the court order.
Petitioner maintains that he was not required to drug test because the circuit
court directed that the terms of the drug testing were to be included in the family case plan
and that no such plan was developed. This argument is unpersuasive. The circuit court’s
statements during the hearing granting the Petitioner a post-dispositional improvement
period as well as the circuit court’s order granting such improvement period clearly
directed the Petitioner to participate in drug testing. The absence of a family case plan
setting forth the details of such testing does not relieve Petitioner from participating in drug
testing in which he was not only directed to participate but agreed to do on the record before
the circuit court. See In re: C.A. & R.A.-1, No. 16-0470, 2016 WL 4987285, at *3 (W.
Va. Sept. 19, 2016) (memorandum decision) (“We cannot find that the Rules of Procedure
for Child Abuse and Neglect Proceedings or the related statutes have been substantially
5
disregarded or frustrated” where a case plan was not developed but abusing parent knew
what was expected of him.); In re P.P., No. 22-0168, 2022 WL 4355450, at *2 (W. Va.
Sept. 20, 2022) (memorandum decision) (DHHR’s filing of case plan five months late did
not substantially disregard the process where “petitioner was aware of the steps necessary
to remedy the conditions of abuse and neglect.”); In re E.K., No. 20-0150, 2020 WL
5653378, at *3 n.4 (W. Va. Sept. 23, 2020) (memorandum decision) (“Here, petitioner
testified that she remembered attending a multidisciplinary treatment meeting where the
terms of the family case plan were formulated and that she was fully aware of the terms of
her improvement period. Petitioner does not argue that the lack of a formal recitation of
the terms of her case plan prejudiced her. Although we agree that the DHHR's failure to
file a family case plan is problematic, we find that petitioner was fully aware of her
requirements under the agreed upon case plan and, therefore, the Rules of Procedure for
Child Abuse and Neglect Proceedings and related statutes were not
so substantially disregarded or frustrated as to warrant vacation of the resulting
dispositional order.”). The Petitioner cannot credibly assert that he did not know that he
was required to drug test. Indeed, the record before us could certainly lead to the
conclusion that the Petitioner’s objection to drug testing was not a result of confusion over
whether such testing was required, but instead results from the discovery that Petitioner
possessed synthetic urine.
6
Accordingly, when the circuit court terminated Petitioner’s parental rights, it
did not do so based upon drug use impacting the ability to parent. Instead, it did so based
upon Petitioner’s failure to comply with the terms of the improvement period:
The Court did consider the evidence presented at the
Disposition Hearing, as well as [Petitioner’s] refusal to drug
screen since, and the parties’ positions and arguments; and did
and does FIND that [Petitioner has] failed to participate in a
Post-Disposition Improvement Period by failing to drug
screen; ORDER any Post-Disposition Improvement Period
terminated; FIND that there is no reasonable likelihood that the
conditions of abuse and neglect will be substantially corrected
in the near future, []and FIND it is in the best interest and
necessary for the welfare of the child [K.L.] for the
[Petitioner’s] parental rights to be TERMINATED.
Termination of parental rights based upon Petitioner’s failure to comply with the
requirement of drug testing was well within the circuit court’s discretion. “It is within the
court’s discretion to grant an improvement period ... [and] it is also within the court’s
discretion to terminate the improvement period ... if the court is not satisfied that the
[parent] is making the necessary progress.” Syl. Pt. 2, In re Lacey P., 189 W.Va. 580, 433
S.E.2d 518 (1993); See also In re B.C., No. 12-0395, 2012 WL 4069561, at *4 (W. Va.
Sept. 7, 2012) (memorandum decision) (“[T]he circuit court noted that
petitioner’s improvement period was revoked because of his failure to participate in the
services” and subsequently terminated parental rights.); In re Z.M., No. 14-0283, 2014 WL
4799387, at *2 (W. Va. Sept. 22, 2014) (memorandum decision) (Petitioner father
“exhibit[ed] noncompliance with the circuit court’s orders when he refused to test for drugs
7
at the dispositional hearing. This evidence supports the circuit court’s findings and
conclusions that there is no reasonable likelihood that the conditions of neglect or abuse
can be substantially corrected and that termination is necessary for the children's welfare.”);
In re S.M., No. 13-0943, 2014 WL 629535, at *2 (W. Va. Feb. 18, 2014) (memorandum
decision) (no reasonable likelihood conditions of abuse and neglect could be corrected in
the near future when parent refused to submit to drug screens.”); In re C.L., No. 21-0926,
2022 WL 1506014, at *3 (W. Va. May 12, 2022) (memorandum decision) (failing to
submit to drug screens, among other factors, are grounds for termination of parental rights).
Because Petitioner failed to comply with the terms of the improvement period requiring
drug testing, it was entirely proper for the circuit court to terminate Petitioner’s parental
rights in this matter.
For the foregoing reasons, I respectfully dissent.
8 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484329/ | Asamblea De Iglesias Christianas, Inc. v DeVito (2022 NY Slip Op 06456)
Asamblea De Iglesias Christianas, Inc. v DeVito
2022 NY Slip Op 06456
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
ROBERT J. MILLER
LINDA CHRISTOPHER
BARRY E. WARHIT, JJ.
2020-03517
(Index No. 522506/18)
[*1]Asamblea De Iglesias Christianas, Inc., et al., respondents,
vJason DeVito, et al., defendants, Jin Hu, et al., appellants.
Abrams Garfinkel Margolis Bergson, LLP, New York, NY (Robert J. Bergson, Andrew W. Gefell, and Jonathan D. Hauptman of counsel), for appellants.
Hayes Law Practice, LLC (Pollack, Pollack, Isaac & DeCicco, LLP, New York, NY [Brian J. Isaac and Christopher J. Soverow], of counsel), for respondents.
DECISION & ORDER
In an action, inter alia, to recover damages for tortious interference with contractual relations and fraud, the defendants Jin Hu and Jin Hu & Associates, PLLC, appeal from an order of the Supreme Court, Kings County (Richard Velasquez, J.), dated February 10, 2020. The order, insofar as appealed from, denied those defendants' motion pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them.
ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and the motion of the defendants Jin Hu and Jin Hu & Associates, PLLC, pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them is granted.
The plaintiff Juan Castillo allegedly entered into a contract to purchase from the defendant 249 58th Street Corp., and its president, the defendant Jason DeVito (hereinafter together the DeVito defendants), certain property located in Brooklyn. The contract was later amended to, among other things, name Assembly of Christian Churches, Inc., as the purchaser. Subsequently, the plaintiffs allegedly discovered that the property had been sold to the defendant 249 58, LLC (hereinafter 58, LLC). Thereafter, the plaintiffs commenced this action. As relevant here, the complaint asserted causes of action alleging tortious interference with contractual relations and fraud against the defendants Jin Hu and Jin Hu & Associates, PLLC (hereinafter together the Jin Hu defendants), the attorney and law firm that allegedly represented the DeVito defendants in connection with the transaction to sell the property to 58, LLC. The Jin Hu defendants moved pursuant to CPLR 3211(a)(7) to dismiss the complaint insofar as asserted against them. In an order dated February 10, 2020, the Supreme Court, among other things, denied their motion. The Jin Hu defendants appeal.
"On a motion pursuant to CPLR 3211(a)(7) to dismiss for failure to state a cause of action, the court must accept the facts alleged in the complaint as true, accord the plaintiff the benefit of every possible favorable inference, and determine only whether the facts as alleged fit within any cognizable legal theory" (Shah v Exxis, Inc., 138 AD3d 970, 971; see Goshen v Mutual Life Ins. Co. of N.Y., 98 NY2d 314, 326). "Moreover, the court may consider affidavits submitted by the plaintiff [*2]to remedy any defects in the complaint, and upon considering such an affidavit, the facts alleged therein must also be assumed to be true" (Benjamin v Yeroushalmi, 178 AD3d 650, 653; see Janusonis v Carauskas, 137 AD3d 1218, 1219).
The elements of a cause of action alleging tortious interference with contractual relations are: "(1) the existence of a contract between plaintiff and a third party; (2) defendant's knowledge of the contract; (3) defendant's intentional inducement of the third party to breach or otherwise render performance impossible; and (4) damages to plaintiff" (Kronos, Inc. v AVX Corp., 81 NY2d 90, 94; see Nero v Fiore, 165 AD3d 823, 825). "Although on a motion to dismiss the allegations in a complaint should be construed liberally, to avoid dismissal of a tortious interference with contract claim a plaintiff must support his [or her] claim with more than mere speculation. A cause of action alleging tortious interference with contractual relations must be dismissed where the allegations in support of the cause of action are devoid of a factual basis and are vague and conclusory" (Palmieri v Perry, Van Etten, Rozanski & Primavera, LLP, 200 AD3d 785, 787-788 [internal quotation marks and citation omitted]).
Further, "[i]nasmuch as the relationship created between an attorney and his client is that of principal and agent, an attorney is not liable for inducing his [or her] principal to breach a contract with a third person, at least where he [or she] is acting on behalf of his principal within the scope of his [or her] authority" (Burger v Brookhaven Med. Arts Bldg., 131 AD2d 622, 624 [citation omitted]). "Absent a showing of fraud or collusion, or of a malicious or tortious act, an attorney is not liable to third parties for purported injuries caused by services performed on behalf of a client or advice offered to that client" (id.; see Doo v Berger, 227 AD2d 435, 436).
Here, the allegations in the complaint regarding the conduct of the Jin Hu defendants were impermissibly vague and conclusory (see Hart v Scott, 8 AD3d 532; see also Palmieri v Perry, Van Etten, Rozanski & Primavera, LLP, 200 AD3d at 788). Additionally, the complaint failed to sufficiently allege that the Jin Hu defendants acted outside the scope of their authority as counsel for the DeVito defendants or engaged in any conduct that could make them liable to the plaintiffs (see Burger v Brookhaven Med. Arts Bldg., 131 AD2d 622, 624; Kline v Schaum, 174 Misc 2d 988, 990 [App Term, 2d Dept]; cf. Pancake v Franzoni, 149 AD2d 575, 575-576). Moreover, the papers submitted in opposition failed to remedy the defects in the complaint (see Hart v Scott, 8 AD3d at 532). Therefore, the Supreme Court erred in denying that branch of the Jin Hu defendants' motion which was to dismiss the cause of action alleging tortious interference with contractual relations insofar as asserted against them.
The Supreme Court also erred in denying that branch of the Jin Hu defendants' motion which was to dismiss the cause of action alleging fraud insofar as asserted against them. "The required elements of a common-law fraud claim are a misrepresentation or a material omission of fact which was false and known to be false by [the] defendant, made for the purpose of inducing the other party to rely upon it, justifiable reliance of the other party on the misrepresentation or material omission, and injury" (Ambac Assur. Corp. v Countrywide Home Loans, Inc., 31 NY3d 569, 578-579 [internal quotation marks omitted]). "When a plaintiff brings a cause of action based upon fraud, 'the circumstances constituting the wrong shall be stated in detail'" (Sargiss v Magarelli, 12 NY3d 527, 530, quoting CPLR 3016[b]). In this case, the complaint failed to properly plead all of the requisite elements of fraud against the Jin Hu defendants with sufficient particularity (see CPLR 3016[b]; Pinkesz Mut. Holdings, LLC v Pinkesz, 198 AD3d 693, 697; Cruciata v O'Donnell & McLaughlin, Esqs., 149 AD3d 1034, 1035; see also Christ the Rock World Restoration Church Intl., Inc. v Evangelical Christian Credit Union, 153 AD3d 1226, 1230). The papers submitted in opposition failed to remedy the defects in the complaint.
Accordingly, we reverse the order insofar as appealed from.
DILLON, J.P., MILLER, CHRISTOPHER and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484330/ | Alicea v Medjugorje Realty, LLC (2022 NY Slip Op 06455)
Alicea v Medjugorje Realty, LLC
2022 NY Slip Op 06455
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
ANGELA G. IANNACCI, J.P.
PAUL WOOTEN
DEBORAH A. DOWLING
LILLIAN WAN, JJ.
2018-14101
2018-14828
(Index No. 31809/09)
[*1]Marco Antonio Alicea, et al., plaintiffs-respondents,
vMedjugorje Realty, LLC, et al., defendants- respondents, Imperial Elevator Corporation, defendant fifth-party plaintiff-appellant-respondent, New Cingular Wireless, PCS, LLC, et al., defendants third-party plaintiffs-respondents-appellants; Odyssia Global Communications, third-party defendant/fourth-party plaintiff/fifth-party defendant-respondent; Preferred Builders, Inc., fourth-party defendant/fifth-party defendant-respondent.
Gallo Vitucci Klar, LLP, New York, NY (Stephen A. Denburg and Kimberly A. Ricciardi of counsel), for defendant fifth-party plaintiff-appellant-respondent.
Landman Corsi Ballaine & Ford, P.C., New York, NY (James M. Woolsey III and Stephen Jacobs of counsel), for defendants third-party plaintiffs-respondents-appellants.
Gary S. Alweiss (Shayne, Dachs, Sauer & Dachs, LLP, Mineola, NY [Jonathan A. Dachs], of counsel), for plaintiffs-respondents Marco Antonio Alicea and Nicole Alicea.
Scott Baron & Associates, P.C., Howard Beach, NY (Elliot Skydel of counsel), for plaintiff-respondent Jeffrey Drummond.
Margaret G. Klein & Associates (Mischel & Horn, P.C., New York, NY [Scott T. Horn and Lauren E. Bryant], of counsel), for defendants-respondents Medjugorje Realty, LLC, and MGA Realty, LLC.
Kevin P. Westerman, Elmsford, NY (Jonathan R. Walsh of counsel), for defendants-respondents J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc.
McCarthy & Associates, Melville, NY (Michael D. Kern and David Weiser of counsel), for third-party defendant/fourth-party plaintiff/fifth-party defendant-respondent.
Gerber Ciano Kelly Brady, LLP, White Plains, NY (Laura Ashley Martin and Patrick [*2]B. Omilian of counsel), for fourth-party defendant/fifth-party defendant-respondent.
In a consolidated action to recover damages for personal injuries, etc., (1) the defendant fifth-party plaintiff appeals, and the defendants third-party plaintiffs cross-appeal, from an order of the Supreme Court, Kings County (David B. Vaughan, J.), dated September 11, 2018, and (2) the defendant fifth-party plaintiff appeals from a judgment of the same court dated October 26, 2018. The order, insofar as appealed from by the defendant fifth-party plaintiff, (a) denied that branch of its motion which was for summary judgment dismissing the complaint and all cross claims insofar as asserted against it, (b) granted those branches of the motion of the defendants third-party plaintiffs, and the separate motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., which were for summary judgment dismissing the complaint insofar as asserted against each of them and the cross claims asserted against each of them by the defendant fifth-party plaintiff, and (c) granted those branches of the motion of the third-party defendant/fourth-party plaintiff/fifth-party defendant and the separate motion of the fourth-party defendant/fifth-party defendant which were for summary judgment dismissing the fifth-party complaint insofar as asserted against each of them. The order, insofar as cross-appealed from by the defendants third-party plaintiffs, (a) denied that branch of their motion which was for summary judgment on their cross claim for contractual indemnification with respect to attorneys' fees and costs incurred in the defense of this action, asserted against the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., and granted that branch of the motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., which was for summary judgment dismissing that cross claim, and (b) denied that branch of the defendants third-party plaintiffs' motion which was for summary judgment on the third-party cause of action for contractual indemnification, and granted that branch of the motion of the third-party defendant/fourth party plaintiff/fifth-party defendant which was for summary judgment dismissing that third-party cause of action. The judgment, insofar as appealed from, upon the order dated September 11, 2018, in effect, dismissed the fifth-party complaint insofar as asserted against the fourth-party defendant/fifth-party defendant.
DECISION & ORDER
By order to show cause dated October 21, 2021, the parties to the appeal and cross appeal from the order dated September 11, 2018, were directed to show cause before this Court why an order should or should not be made and entered dismissing the appeal by the defendant fifth-party plaintiff from so much of the order as granted that branch of the motion of the fourth-party defendant/fifth-party defendant which was for summary judgment dismissing the fifth-party complaint insofar as asserted against it, in effect, on the ground that the right of direct appeal from that portion of the order terminated upon entry of the judgment. By decision and order on motion of this Court dated April 13, 2022, the Court's motion was held in abeyance and referred to the panel of Justices hearing the appeals and cross appeal for determination upon the argument or submission thereof.
Upon the order to show cause and the papers filed in response thereto, and upon the argument of the appeals and cross appeal, it is
ORDERED that the motion to dismiss the appeal by the defendant fifth-party plaintiff from so much of the order as granted that branch of the motion of the fourth-party defendant/fifth-party defendant which was for summary judgment dismissing the fifth-party complaint insofar as asserted against it is granted; and it is further,
ORDERED that the appeal by the defendant fifth-party plaintiff from so much of the order as granted that branch of the motion of the fourth-party defendant/fifth-party defendant which was for summary judgment dismissing the fifth-party complaint insofar as asserted against it is dismissed; and it is further,
ORDERED that the appeal by the defendant fifth-party plaintiff from so much of the order as granted those branches of the motion of defendants third-party plaintiffs, and the separate motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., which were for summary judgment dismissing the complaint insofar as asserted against each of them is dismissed; and it is further,
ORDERED that the order is modified, on the law, (1) by deleting the provision thereof denying that branch of the motion of the defendants third-party plaintiffs which was for summary judgment on their cross claim for contractual indemnification with respect to attorneys' fees and costs incurred in the defense of this action, asserted against the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., and substituting therefor a provision granting that branch of the defendants third-party plaintiffs' motion, and (2) by deleting the provision thereof granting that branch of the motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., which was for summary judgment dismissing that cross claim and substituting therefor a provision denying that branch of the motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc.; as so modified, the order is affirmed insofar as cross-appealed from by the defendants third-party plaintiffs and insofar as reviewed on the appeal by the defendant fifth-party plaintiff; and it is further,
ORDERED that the judgment is affirmed insofar as appealed from; and it is further,
ORDERED that one bill of costs is awarded to the plaintiffs, the defendants Medjugorje Realty, LLC, MGA Realty, LLC, J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc., the defendants third-party plaintiffs, the third-party defendant/fourth party plaintiff/fifth-party defendant, and the fourth-party defendant/fifth-party defendant, appearing separately and filing separate briefs, payable by the defendant fifth-party plaintiff, one bill of costs is awarded to the third-party defendant/fourth party plaintiff/fifth-party defendant, payable by the defendants third-party plaintiffs, and one bill of costs is awarded to the defendants third-party plaintiffs, payable by the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc.
The appeal by the defendant fifth-party plaintiff, Imperial Elevator Corporation (hereinafter Imperial), from so much of the order as granted that branch of the motion of the fourth-party defendant/fifth-party defendant, Preferred Builders, Inc. (hereinafter Preferred), which was for summary judgment dismissing the fifth-party complaint insofar as asserted against it must be dismissed because the right of direct appeal therefrom terminated with the entry of a judgment in the action in favor of Preferred (see Matter of Aho, 39 NY2d 241, 248). The issues raised on the appeal from that portion of the order are brought up for review and have been considered on the appeal from the judgment (see CPLR 5501[a][1]).
Further, Imperial's appeal from so much of the order as granted those branches of the motion of the defendants third-party plaintiffs, New Cingular Wireless PCS, LLC, Bechtel Corporation, and Bechtel Construction Operations Incorporated (hereinafter collectively the Bechtel defendants), and the separate motion of the defendants J.A. Lee Electric, Inc., and J.A. Lee Construction, Inc. (hereinafter together the J.A. Lee defendants), which were for summary judgment dismissing the complaint insofar as asserted against each of them must be dismissed on the ground that Imperial is not aggrieved by those portions of the order (see id. § 5511; Mixon v TBV, Inc., 76 AD3d 144).
On June 1, 2007, the plaintiffs Marco Antonio Alicea and Jeffrey Drummond allegedly were injured in an elevator accident on premises owned by the defendants Medjugorje Realty, LLC, and MGA Realty, LLC (hereinafter together the Medjugorje defendants). Prior to the accident, the Medjugorje defendants entered into a contract with Imperial in which Imperial agreed to maintain, inspect, and service the subject elevator, including the motor room on the roof of the building. The Bechtel defendants owned and managed telecommunications equipment installed on the roof of the subject building. In 2003, the Bechtel defendants contracted with Odyssia Global Communications (hereinafter Odyssia) to perform project management services in connection with the installation of communications equipment at the premises. Odyssia in turn contracted with Preferred to perform the installation work. In 2005, the Bechtel defendants contracted with the J.A. Lee defendants for the installation of certain upgraded equipment at the premises.
In 2009, Marco Antonio Alicea, and his wife suing derivatively, commenced an action, and Drummond commenced a separate action, inter alia, to recover damages for personal injuries against the Medjugorje defendants, Imperial, the Bechtel defendants, and the J.A. Lee defendants. The actions were consolidated by order dated June 2, 2010. Marco Antonio Alicea, his [*3]wife, and Drummond (hereinafter collectively the plaintiffs) alleged that the Bechtel defendants and the J.A. Lee defendants were negligent in the installation of the telecommunications equipment in that they created an abundance of brick dust in the motor room which contaminated the operating mechanism for the subject elevator. The plaintiffs further alleged that the Medjugorje defendants and Imperial were negligent in failing to remove, clean, or otherwise remedy the condition, and in failing to maintain the elevator in a reasonably safe working condition. The Medjugorje defendants, Imperial, the Bechtel defendants, and the J.A. Lee defendants asserted cross claims against each other, inter alia, for contribution and indemnification. The Bechtel defendants then commenced a third-party action against Odyssia, Odyssia commenced a fourth-party action against Preferred, and Imperial commenced a fifth-party action against Odyssia and Preferred, all seeking contribution and indemnification.
After the completion of discovery, Imperial, the Bechtel defendants, and the J.A. Lee defendants separately moved, inter alia, for summary judgment dismissing the complaint and all cross claims insofar as asserted against each of them. Odyssia separately moved, among other things, for summary judgment dismissing the third-party complaint, and the fifth-party complaint insofar as asserted against it, and Preferred separately moved, inter alia, for summary judgment dismissing the fourth-party complaint, and the fifth-party complaint insofar as asserted against it. By order dated September 11, 2018, the Supreme Court, among other things, denied Imperial's motion, granted those branches of the motions of Odyssia and Preferred which were for summary judgment dismissing the fifth-party complaint insofar as asserted against each of them, granted those branches of the motions of the Bechtel defendants and the J.A. Lee defendants which were for summary judgment dismissing Imperial's cross claims against each of them, denied those branches of the Bechtel defendants' motion which were for summary judgment on their cross claims against the J.A. Lee defendants, and their third-party claims against Odyssia, for contractual indemnification with respect to attorneys' fees and costs incurred in defending this action, granted that branch of the motion of the J.A. Lee defendants which was for summary judgment dismissing the Bechtel defendants' cross claims for such indemnification, and granted that branch of Odyssia's motion which was for summary judgment dismissing the Bechtel defendants' third-party claims for such indemnification. Thereafter, a judgment was entered upon the order, in effect, dismissing the fifth-party complaint insofar as asserted against Preferred. Imperial appeals from the order and the judgment and the Bechtel defendants cross-appeal from the order.
"An elevator company which agrees to maintain an elevator in safe operating condition may be liable to a passenger for failure to correct conditions of which it has knowledge or failure to use reasonable care to discover and correct a condition which it ought to have found" (Fajardo v Mainco El. & Elec. Corp., 143 AD3d 759, 762 [internal quotation marks omitted]; see Rogers v Dorchester Assoc., 32 NY2d 553, 559; Carter v Nouveau Indus., Inc., 187 AD3d 702, 703). "Further, a party who enters into a contract to render services may be said to have assumed a duty of care—and thus be potentially liable in tort—to third persons . . . where the contracting party has entirely displaced the other party's duty of safe maintenance" (Carter v Nouveau Indus., Inc., 187 AD3d at 703 [internal quotation marks omitted]).
Imperial's elevator inspection and maintenance contract required it to "maintain, inspect and service" the subject elevator, to use "reasonable care to maintain the elevator in proper and safe operating condition," and to keep the subject elevator in reasonable working order. Furthermore, the maintenance contract required Imperial to "regularly and systematically examine, clean, lubricate and furnish lubricants for the machine, motor and controller parts," and to "adjust equipment for proper operation." Imperial failed to demonstrate, prima facie, that it did not owe a duty to the plaintiff in light of the terms of its elevator inspection and maintenance contract (see Fajardo v Mainco El. & Elec. Corp., 143 AD3d at 762).
Imperial also failed to demonstrate, prima facie, either that there was no defect in the elevator that it "ought to have found" or that it "use[d] reasonable care to discover and correct" such a defect (id. [internal quotation marks omitted]). Specifically, Imperial failed to eliminate triable issues of fact as to whether it failed to use reasonable care to discover and correct a dust condition that it ought to have found during its monthly cleaning and servicing of the elevator, motor room, [*4]and operating mechanisms.
Accordingly, the Supreme Court properly denied that branch of Imperial's motion which was for summary judgment dismissing the complaint and all cross claims insofar as asserted against it, regardless of the sufficiency of the opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853).
The Supreme Court properly granted those branches of the motions of Odyssia and Preferred which were for summary judgment dismissing the fifth-party complaint insofar as asserted against each of them. Contrary to Imperial's contention, Odyssia and Preferred demonstrated, prima facie, that Preferred's work at the subject premises, supervised by Odyssia, did not create any dust condition in the elevator motor room that contributed to the happening of the accident. Deposition testimony of witnesses from Preferred, Odyssia, and the Bechtel defendants established that there was no debris or brick dust left in the motor room after Preferred completed its installation of the telecommunications equipment.
In opposition, Imperial failed to raise a triable issue of fact, including as to its speculative assertion, unsupported by any evidence, that a dust condition affecting the elevator components four years after completion of Preferred's work could have been caused by Preferred's alleged failure to seal holes it cut into the wall of the elevator's motor room.
"A contract that provides for indemnification will be enforced as long as the intent to assume such a role is sufficiently clear and unambiguous" (Bradley v Earl B. Feiden, Inc., 8 NY3d 265, 274 [internal quotation marks omitted]). "A court must also be careful not to interpret a contracted indemnification provision in a manner that would render it meaningless" (id. at 274). "When the intent is clear, an indemnification agreement will be enforced even if it provides indemnity for one's own or a third party's negligence" (id. at 275).
Here, in the contract between the J.A. Lee defendants and the Bechtel defendants, the J.A. Lee defendants agreed to defend and indemnify the Bechtel defendants against any and all "suits" or "claims . . . of whatsoever kind or nature in connection with or incidental to the performance of this subcontract, . . . in any manner directly or indirectly caused, occasioned or contributed to in whole or in part or claimed to be caused, occasioned or contributed to in whole or in part, by reason of any act, omission, fault, or negligence whether active and passive of [the J.A. Lee defendants]." Under the terms of the contract, the right to a defense and indemnification was triggered by mere claims of negligence against the J.A. Lee defendants. The Bechtel defendants established, prima facie, that claims were made that the J.A. Lee defendants' work caused the plaintiffs' injuries, thereby triggering the defense and indemnification provision of the contract. While the J.A. Lee defendants' duty to defend and indemnify ended upon the granting of that branch of the Bechtel defendants' motion which was for summary judgment dismissing the complaint and all cross claims insofar as asserted against them, the J.A. Lee defendants are still responsible for the costs incurred by the Bechtel defendants in defending this action to that point (see id.).
In opposition, the J.A. Lee defendants failed to raise a triable issue of fact (see Alvarez v Prospect Hosp., 68 NY2d 320, 324-325). Thus, the Supreme Court should have granted that branch of the Bechtel defendants' motion which was for summary judgment on their cross claim for contractual indemnification to the extent they sought attorneys' fees and defense costs incurred in this action, and should have denied that branch of the J.A. Lee defendants' motion which was for summary judgment dismissing the Bechtel defendants' cross claim for contractual indemnification to that extent.
The Supreme Court properly denied that branch of the Bechtel defendants' motion which was for summary judgment on their third-party claim against Odyssia for contractual indemnification, and properly granted that branch of Odyssia's motion which was for summary judgment dismissing the Bechtel defendants' third-party claim for contractual indemnification asserted against it. The terms of the indemnification provision in the contract between the Bechtel defendants and Odyssia are identical to the terms contained in the indemnification provision in the [*5]contract between the Bechtel defendants and the J.A. Lee defendants. However, unlike with the J.A. Lee defendants, the plaintiffs did not assert any claim that their injuries were caused by Odyssia's work. Thus, the Bechtel defendants failed to establish, prima facie, that the indemnification provision in their contract with Odyssia was triggered.
The parties' remaining contentions either are without merit or need not be reached in light of our determination.
IANNACCI, J.P., WOOTEN, DOWLING and WAN, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484324/ | Boyd v Assanah (2022 NY Slip Op 06461)
Boyd v Assanah
2022 NY Slip Op 06461
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
BETSY BARROS, J.P.
JOSEPH A. ZAYAS
WILLIAM G. FORD
JANICE A. TAYLOR, JJ.
2019-06371
(Index No. 500352/19)
[*1]Jonathan Boyd, et al., respondents,
vUlric Assanah, appellant.
Alter & Barbaro, Brooklyn, NY (Bernard M. Alter of counsel), for appellant.
Tiffany A. Liston, New York, NY (Matthew Longobardi of counsel), for respondents.
DECISION & ORDER
In an action for declaratory and injunctive relief, the defendant appeals from an order of the Supreme Court, Kings County (Carl J. Landicino, J.), dated February 21, 2019. The order granted the plaintiffs' motion for a preliminary injunction and directed each plaintiff to post an undertaking in the amount of only $25.
ORDERED that the order is affirmed, with costs.
The plaintiffs are all residents of a building in Brooklyn that is owned by the defendant (hereinafter the subject premises). In October 2018, the defendant served a notice of termination of the tenancy in the subject premises upon the plaintiffs, among others.
In January 2019, the plaintiffs commenced this action against the defendant seeking declarations, inter alia, that the subject premises are rent stabilized, that the plaintiffs are rent-stabilized permanent tenants, that the plaintiffs are entitled to leases in their names, and that the legal regulated rent for each plaintiff is $215 a month, and seeking a permanent injunction enjoining the defendant from evicting the plaintiffs except to the extent permitted by the Rent Stabilization Code. The plaintiffs moved for a preliminary injunction enjoining the defendant and his agents from commencing an eviction proceeding against them except to the extent that any such eviction proceeding asserted as a ground for eviction the nonpayment of rent or any ground authorized by the Rent Stabilization Code, from removing or evicting any of the plaintiffs without a court order, from harassing or retaliating against any of the plaintiffs, from removing any of the plaintiffs' property from their dwelling unit unless such plaintiff has been duly evicted by and pursuant to a court order, and from communicating with the plaintiffs concerning this action, except through their counsel. The Supreme Court granted the plaintiffs' motion and fixed an undertaking for each plaintiff in the amount of $25. The defendant appeals.
Generally, the decision to grant or deny a preliminary injunction lies within the sound discretion of the Supreme Court (see Congregation Erech Shai Bais Yosef, Inc. v Werzberger, 189 AD3d 1165, 1166-1167; Matter of Goldfarb v Ramapo, 167 AD3d 1009, 1010). "'Absent unusual or compelling circumstances, appellate courts are reluctant to disturb that determination'" (Congregation Erech Shai Bais Yosef, Inc. v Werzberger, 189 AD3d at 1167, quoting Cong. Machon Chana v Machon Chana Women's Inst., Inc., 162 AD3d 635, 637). "To be entitled to a preliminary [*2]injunction, a movant must establish (1) a probability of success on the merits, (2) a danger of irreparable injury in the absence of an injunction, and (3) a balance of the equities in the movant's favor" (Congregation Erech Shai Bais Yosef, Inc. v Werzberger, 189 AD3d at 1166-1167 [internal quotation marks omitted]; see GG Acquisitions, LLC v Mount Olive Baptist Church of Manhasset, 178 AD3d 1023, 1024).
Here, the Supreme Court properly determined that the plaintiffs established a probability of success on the merits, a danger of irreparable injury, and that the equities favor them. Contrary to the defendant's contentions, the threat of eviction can constitute a danger of irreparable injury (see Masjid Usman, Inc. v Beech 140, LLC, 68 AD3d 942, 943; Jiggets v Perales, 202 AD2d 341, 342; Chrysler Realty Corp. v Urban Inv. Corp., 100 AD2d 921, 923; see also Jones v State Farm Fire & Cas. Co., 189 AD3d 1565, 1567-1568), and the granting of the preliminary injunction here did not improperly award the plaintiffs the ultimate relief sought in this action (see Jones v State Farm Fire & Cas. Co., 189 AD3d at 1568).
Contrary to the defendant's contention, the Supreme Court did not err in setting a nominal undertaking. "The fixing of the amount of an undertaking is a matter within the sound discretion of the Supreme Court, and its determination will not be disturbed absent an improvident exercise of that discretion" (Ujueta v Euro-Quest Corp., 29 AD3d 895, 896; see Olympic Ice Cream Co., Inc. v Sussman, 151 AD3d 872, 874). Here, in light of the plaintiffs' asserted indigence, the court providently exercised its discretion in fixing the amount of the undertaking at $25 for each plaintiff (see Pouncy v Dudley, 27 AD3d 633, 635).
The defendant's remaining contentions are without merit.
BARROS, J.P., ZAYAS, FORD and TAYLOR, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484269/ | Wells Fargo Bank, N.A. v Pane (2022 NY Slip Op 06516)
Wells Fargo Bank, N.A. v Pane
2022 NY Slip Op 06516
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
FRANCESCA E. CONNOLLY, J.P.
ANGELA G. IANNACCI
WILLIAM G. FORD
HELEN VOUTSINAS, JJ.
2020-08114
(Index No. 609423/15)
[*1]Wells Fargo Bank, N.A., etc., respondent,
vSalvatore Pane, et al., defendants, Sophia Antonella 2009, LLC, appellant.
Young Law Group, PLLC, Bohemia, NY (Justin Pane and Daniel G. Eugene of counsel), for appellant.
DECISION & ORDER
In an action to foreclose a mortgage, the defendant Sophia Antonella 2009, LLC, appeals from an order of the Supreme Court, Suffolk County (Denise F. Molia, J.), dated March 2, 2020. The order, insofar as appealed from, granted those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendant Sophia Antonella 2009, LLC, to strike that defendant's answer, and for an order of reference, and referred the matter to a referee to ascertain and compute the amount due to the plaintiff.
ORDERED that the order is reversed insofar as appealed from, on the law, with costs, and those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendant Sophia Antonella 2009, LLC, to strike that defendant's answer, and for an order of reference are denied.
On May 23, 2006, Salvatore Pane executed a note in the sum of $191,200 in favor of U.S.A. Mortgage Bankers of America, Inc. The note was secured by a mortgage on residential property in Medford (hereinafter the premises). The mortgage was later assigned to the plaintiff. By quitclaim deed dated June 23, 2011, Pane conveyed the premises to the defendant Sophia Antonella 2009, LLC (hereinafter the defendant). Pane died on November 15, 2014.
On September 1, 2015, the plaintiff commenced this action against the defendant, among others, to foreclose the mortgage. The defendant interposed an answer dated October 16, 2015. In September 2019, the plaintiff moved, inter alia, for summary judgment on the complaint insofar as asserted against the defendant, to strike the defendant's answer, and for an order of reference. In support of its motion, the plaintiff submitted, among other things, the affidavit of
Elizabeth Gonzales, a "Default Document Manager" with Carrington Mortgage Services, LLC, the plaintiff's loan servicer and attorney-in-fact. Gonzales averred therein, based on her review of "the business records," that Pane failed to make the required payments due on April 1, 2014, and thereafter. The defendant opposed the motion, arguing that the plaintiff failed to submit admissible evidence of the alleged payment default. In an order dated March 2, 2020, the Supreme Court, inter alia, granted those branches of the plaintiff's motion which were for summary judgment on the complaint insofar as asserted against the defendant, to strike its answer, and for an order of reference, and referred the matter to a referee to ascertain and compute the amount due to the plaintiff. The defendant appeals.
"In moving for summary judgment in an action to foreclose a mortgage, a plaintiff establishes its prima facie case through the production of the mortgage, the unpaid note, and evidence of default" (Tri-State Loan Acquisitions III, LLC v Litkowski, 172 AD3d 780, 782; see BNH Milf, LLC v Milford St. Props., LLC, 192 AD3d 960, 962). "The plaintiff has the burden of [*2]establishing its prima facie entitlement to summary judgment by proof in admissible form" (Emigrant Bank v Cohen, 205 AD3d 103, 112; see Tri-State Loan Acquisitions III, LLC v Litkowski, 172 AD3d at 782). "'Among other things, a plaintiff can establish a default by submission of an affidavit from a person having personal knowledge of the facts, or other evidence in admissible form'" (Wells Fargo Bank, N.A. v Gross, 202 AD3d 882, 885, quoting Bank of N.Y. Mellon v DeLoney, 197 AD3d 548, 549).
Here, the plaintiff failed to establish, prima facie, Pane's default in payment under the note. In her affidavit, Gonzales did not demonstrate that she had personal knowledge of the alleged default. Moreover, she failed to identify the entity whose business records she reviewed and did not aver that she was familiar with that entity's record-keeping practices and procedures (cf. Nationstar Mtge., LLC v Koznitz I, LLC, 208 AD3d 500, 502). Further, Gonzales did not identify the records she relied upon in order to attest to the default, and did not attach them to her affidavit (see U.S. Bank N.A. v Ramanababu, 202 AD3d 1139, 1141-1142; Deutsche Bank Natl. Trust Co. v McGann, 183 AD3d 700, 702). Thus, Gonzales's assertions regarding the alleged default constituted inadmissible hearsay and lacked probative value (see Wells Fargo Bank, N.A. v Gross, 202 AD3d at 885; Bank of N.Y. Mellon v DeLoney, 197 AD3d at 550). Although the plaintiff submitted an additional affidavit by Gonzales along with the payment history for the subject loan with its reply papers, a party moving for summary judgment cannot meet its prima facie burden by submitting evidence for the first time in reply (see U.S. Bank N.A. v Kahn Prop. Owner, LLC, 206 AD3d 850, 851; Citibank, N.A. v Yanling Wu, 199 AD3d 43, 58).
Since the plaintiff failed to meet its prima facie burden, those branches of its motion which were for summary judgment on the complaint insofar as asserted against the defendant, to strike its answer, and for an order of reference should have been denied without regard to the sufficiency of the defendant's opposition papers (see Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853; Citibank, N.A. v Yanling Wu, 199 AD3d at 58).
CONNOLLY, J.P., IANNACCI, FORD and VOUTSINAS, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484254/ | Filed 11/16/22 In re S.R. CA2/3
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
In re S.R., A Person Coming B316021
Under the Juvenile Court Law.
(Los Angeles County
LOS ANGELES COUNTY Super. Ct. No. 19CCJP04919A)
DEPARTMENT OF CHILDREN
AND FAMILY SERVICES,
ORDER MODIFYING
Plaintiff and Respondent, OPINION
[NO CHANGE IN JUDGMENT]
v.
B.S.,
Defendant and Appellant.
THE COURT:
It is ordered that the opinion filed herein on November 15,
2022, be modified as follows:
1. On page 1, the superior court number is corrected to
read 19CCJP04919A.
[There is no change in the judgment.]
_____________________________________________________________________
RICHARDSON (ANNE K.), J.* LAVIN, Acting P.J. EGERTON, J.
* Judge of the Los Angeles County Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
2
Filed 11/15/22 In re S.R. CA2/3 (unmodified opinion)
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION THREE
In re S.R., A Person Coming B316021
Under the Juvenile Court Law.
(Los Angeles County
LOS ANGELES COUNTY Super. Ct. No. 19CJP04919A)
DEPARTMENT OF CHILDREN
AND FAMILY SERVICES,
Plaintiff and Respondent,
v.
B.S.,
Defendant and Appellant.
APPEAL from an order of the Superior Court of Los
Angeles County, Lisa A. Brackelmanns, Juvenile Court Referee.
Affirmed.
Suzanne M. Nicholson, under appointment by the Court of
Appeal, for Defendant and Appellant.
Dawyn R. Harrison, Acting County Counsel, Kim Nemoy,
Assistant County Counsel, and Aileen Wong, Deputy County
Counsel, for Plaintiff and Respondent.
________________________
B.S. (mother) appeals from the juvenile court’s order
terminating parental rights over her three-year-old daughter,
S.R., pursuant to Welfare and Institutions Code1 section 366.26.
Mother contends the juvenile court and the Los Angeles County
Department of Children and Family Services (DCFS) failed to
comply with the inquiry and notice provisions of the Indian Child
Welfare Act of 1978 (ICWA) (25 U.S.C. § 1901 et seq.) and related
California law. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
I. The Dependency Proceedings
On August 2, 2019, DCFS filed a section 300 petition on
behalf of then one-month-old S.R. The petition, as later
amended, alleged that mother had a history of domestic violence
with S.R.’s alleged father, J.F., and another male companion;
that mother had a history of mental and emotional problems;
that mother and J.F. had a history of substance abuse, including
cocaine and marijuana; that S.R.’s older half-sibling was a prior
dependent of the court and had received permanent placement
services based on mother’s substance abuse; and that S.R. had a
positive toxicology screen for marijuana at birth. On August 5,
2019, S.R. was detained from mother and placed in foster care.
At the adjudication hearing held on October 15, 2020, the
juvenile court sustained the amended petition under section 300,
subdivisions (b) and (j) based on mother’s history of substance
abuse, mental and emotional problems, and domestic violence
with an unrelated male companion. The counts related to J.F.
were dismissed following a paternity test that showed he was not
1 Unless otherwise stated, all further statutory references
are to the Welfare and Institutions Code.
2
S.R.’s biological father. At the disposition hearing held on
November 16, 2020, the court declared S.R. a dependent of the
court, removed the child from mother’s custody, and ordered the
bypass of reunification services pursuant to section 361.5,
subdivision (b)(10).
After several continuances, the section 366.26 permanency
planning hearing for S.R. was held on October 26, 2021. The
juvenile court found by clear and convincing evidence that the
child was adoptable, and that no exception to the termination of
parental rights applied. The court terminated parental rights
over S.R. and transferred care, custody and control of the child to
DCFS for adoptive planning and placement. S.R.’s foster
parents, with whom she had been placed since being detained
from mother, were identified as her prospective adoptive parents.
Mother filed a timely notice of appeal from the order
terminating her parental rights.
II. The ICWA Investigation and Findings
At the August 5, 2019 detention hearing, mother filed a
Parental Notification of Indian Status form (Judicial Council
Form ICWA-020) indicating that she may have Indian ancestry
through the “Blackfoot” tribe. Upon inquiry by the juvenile court,
mother stated that her “Blackfoot” ancestry was on her father’s
side of the family but she did not know if anyone was a registered
tribal member. The court ordered DCFS to investigate mother’s
claim.
On October 7, 2019, DCFS mailed a first set of ICWA
notices for S.R. to the Blackfeet Tribe of Montana, the Bureau of
Indian Affairs, and the Secretary of the Interior. The social
worker certified that she sent the notices via registered or
certified mail with return receipt requested. However, no proofs
3
of mailing or return receipts were filed with the court. The
notices included mother’s married name, current and former
addresses, and date and place of birth. The notices also listed the
names, current addresses, dates of birth, and places of birth of
S.R’s maternal grandparents, as well as the names, dates of
birth, and places of birth of one set of S.R.’s maternal great-
grandparents. For each individual identified in the notices, the
box for “Tribe or Band, and Location” was marked “Does not
apply,” and the box for “Tribal membership or enrollment
number” was marked “Unknown.” The section on “Other relative
information” was left blank except for the boxes in that section
labeled “Tribe[,] band and location,” which were marked “Does
not apply.” On the section for “Indian Custodian Information,”
however, the “Tribe or Band, and Location” was identified
as “Blackfeet Tribe of Montana.”
The Blackfeet Tribe responded in a letter dated December
10, 2019 that S.R. was not listed on the tribal rolls. The letter
also stated, “As of August 30, 1962, our blood quantum
requirement for enrollment is 1/4 Blackfeet blood. The above
children is/are not eligible for enrollment, and the child(ren)
is/are not domiciled on the Blackfeet Indian reservation.” The
letter, however, added, “If you are able to gather more
information on the ancestry of the parents, please contact me
again and I will review the tribal rolls.”
On December 18, 2019, DCFS spoke to S.R.’s maternal
grandfather, G.R., who provided further information regarding
the relatives on his side of the family with Indian ancestry. G.R.
reported his family is from Honduras but his grandmother was
affiliated with the “Blackfoot” tribe. G.R. also stated he had
received documentation indicating that he “in fact is Blackfoot”
4
but did not have such documentation in his possession. G.R.
provided the names, dates of birth, and cities and states of
residence for S.R.’s other set of maternal great-grandparents,
As.R. and An.R. According to G.R., As.R. resided in Mandeville,
Louisiana, and An.R. resided in Dallas, Texas. G.R. also
provided the name, approximate date of birth, approximate date
of death, and place of death for S.R.’s maternal great-great-
grandmother, and the name, approximate date of death, and
place of death for the child’s maternal great-great-grandfather.
On December 20, 2019, DCFS mailed a second set of ICWA
notices to the Bureau of Indian Affairs and the Secretary of the
Interior. There is no indication in the record, however, that these
second notices were sent to any tribe. The second notices added
mother’s maiden name, but otherwise included the same
biographical information as the first notices regarding mother,
the maternal grandparents, and one set of the maternal great-
grandparents. The second notices also added the name and date
of birth of S.R.’s other maternal great-grandmother, As.R., and
the name, date of birth, and country of birth of the other
maternal great-grandfather, An.R.. The notices did not, however,
include the places of residence of As.R. and An.R. , even though
G.R. had provided this information to DCFS. On the section
for “Indian Custodian Information,” the “Tribe or Band, and
Location” was again identified as “Blackfeet Tribe of Montana.”
In a response dated January 7, 2020, the Bureau of Indian
Affairs stated that it had received the ICWA notice for S.R., and
that the notice contained insufficient information to determine
tribal affiliation.
On February 18, 2020, DCFS mailed a third set of ICWA
notices to the Bureau of Indian Affairs and the Secretary of the
5
Interior, but not to any tribe. DCFS also filed certified mail
receipts for the notices sent to the Bureau of Indian Affairs and
the Secretary of Interior. The third notices contained the same
biographical information as the second notices regarding mother,
the maternal grandparents, and both sets of maternal great-
grandparents, again omitting the latter set of great-
grandparents’ places of residence as provided by G.R. The
“Blackfeet Tribe of Montana” was again named as the relevant
tribe in the “Indian Custodian Information” section.
On July 22, 2020, DCFS mailed a fourth set of ICWA
notices to the Bureau of Indian Affairs and the Secretary of the
Interior, but not to any tribe. Certified mail receipts for the
notices sent to the Bureau of Indian Affairs and the Secretary of
Interior were filed with the court. The fourth notices included
the same biographical information as the second and third
notices regarding mother, the maternal grandparents, and both
sets of maternal great-grandparents. These notices, however,
added that the maternal grandmother denied any tribal
membership, and that the maternal grandfather, G.R., claimed
membership in the Blackfeet Tribe. The section on “Other
relative information” was again left blank except for the boxes
labeled “Tribe[,] band and location,” which were all marked “Does
not apply.” Like the prior notices, the fourth notices identified
the “Blackfeet Tribe of Montana” as the relevant tribe in the
“Indian Custodian Information” section.
In a last minute information report filed on July 30, 2020,
DCFS indicated that, on July 24, 2020, the social worker sent an
email to the ICWA coordinator for the Blackfeet Tribe regarding
S.R.’s ICWA eligibility. According to DCFS, it had not received
any further responses about the child’s ICWA status, and mother
6
had reported that she did not have any additional information
about her family’s tribal affiliation apart from that provided by
the maternal grandfather.
In a last minute information report filed on October 14,
2020, DCFS informed the court that, due to an oversight, it
had neglected to send the fourth set of notices to the Blackfeet
Tribe. DCFS also stated that it had re-generated the notices
to include the Blackfeet Tribe of Montana, and had sent a fifth
set of notices via certified mail on October 1, 2020. As further
reported by DCFS, the notice to the tribe arrived at the post office
in Browning, Montana on October 10, 2020, and was available for
pick up as of that date. On October 8, 2020, the social worker
attempted to call the tribe’s ICWA coordinator, but the call went
unanswered and the social worker was unable to leave a
voicemail message. On October 13, 2020, the social worker also
emailed the tribe’s ICWA coordinator to further inquire about
S.R.’s eligibility status, but had not received a response.
Certified mail receipts were filed for the notices sent to the
Blackfeet Tribe of Montana, Bureau of Indian Affairs, and the
Secretary of Interior, which confirmed that these notices were
mailed on October 1, 2020.
At the October 15, 2020 adjudication hearing, the juvenile
court found that ICWA did not apply to this case.2 At the
2 At the adjudication hearing, the court granted J.F.’s
request to be dismissed from the case based on the paternity
test results showing that he was not S.R.’s biological father.
Although DCFS conducted due diligence as to other alleged
fathers identified by mother, none of them appeared in
the proceedings, and therefore, no inquiry could be made as to
S.R.’s possible Indian ancestry on her paternal side.
7
November 16, 2020 disposition hearing, counsel for DCFS noted
the court previously had found that ICWA did not apply, and that
the alleged father, J.F., was no longer a part of the case. In
response, the court stated it “agree[d] with all those previous
prior findings that the court made on ICWA notice and
paternity.”
DISCUSSION
On appeal, mother argues that both the juvenile court and
DCFS failed to comply with the inquiry and notice requirements
of ICWA and related California law. Mother specifically asserts
that the evidence was insufficient to support the court’s finding
that ICWA did not apply because DCFS failed to conduct an
adequate further inquiry into mother’s claim of Indian ancestry,
and failed to properly notice the relevant tribe. In response,
DCFS contends that it satisfied its duty of further inquiry by
interviewing the maternal grandfather and sending multiple sets
of ICWA notices, and that any defects in notice were harmless
because there was no reason to know S.R. was an Indian child.
We conclude there was substantial evidence to support the
juvenile court’s finding that ICWA did not apply because DCFS
fulfilled its duty of inquiry, and based on such inquiry, there was
no reason to know S.R. was an Indian child. We further conclude
mother cannot show error in DCFS’s alleged failure to properly
notice the tribe because there was no reason to know S.R. was
an Indian child, and thus, ICWA notice was not required.
I. ICWA Inquiry and Notice Requirements
ICWA provides that “[i]n any involuntary proceeding in
a [s]tate court, where the court knows or has reason to know
that an Indian child is involved, the party seeking the foster care
placement of, or termination of parental rights to, an Indian child
8
shall notify the parent or Indian custodian and the Indian child’s
tribe” of the pending proceedings and the right to intervene. (25
U.S.C. § 1912(a).) Similarly, California law requires notice to
the child’s parent or Indian custodian and the child’s tribe if
there is reason to know that an Indian child is involved in the
proceeding. (§ 224.3, subd. (a).) An “ ‘Indian child’ ” is defined as
“any unmarried person who is under age eighteen and is either
(a) a member of an Indian tribe or (b) is eligible for membership
in an Indian tribe and is the biological child of a member of an
Indian tribe.” (25 U.S.C. § 1903(4); § 224.1, subd. (a).)
Both juvenile courts and child protective agencies “have
an affirmative and continuing duty to inquire whether a child for
whom a petition under Section 300 . . . may be or has been filed,
is or may be an Indian child.” (§ 224.2, subd. (a); see In re Isaiah
W. (2016) 1 Cal.5th 1, 14 [“juvenile court has an affirmative and
continuing duty in all dependency proceedings to inquire into a
child’s Indian status”].) Such duty generally “ ‘can be divided
into three phases: the initial duty to inquire, the duty of further
inquiry, and the duty to provide formal ICWA notice.’ ” (In re
Y.W. (2021) 70 Cal.App.5th 542, 552.)
California law provides that the duty to inquire “begins
with the initial contact” (§ 224.2, subd. (a)) and requires the
juvenile court and child protective agency to ask all relevant
involved individuals whether the child is or may be an Indian
child (§ 224.2, subds. (a)-(c)). If a child is placed in the agency’s
temporary custody, the agency must inquire whether the child is
an Indian child by asking a nonexclusive group that includes the
child, the parents, and extended family members. (§ 224.2, subd.
(b)). At the first appearance of each party, the court must inquire
whether the appearing party knows or has reason to know that
9
the child is an Indian child. (§ 224.2, subd. (c).) The court also
must instruct the parties to inform the court if they subsequently
receive information that provides reason to know the child is
an Indian child. (Ibid.)3
If the juvenile court or the child protective agency “has
reason to believe that an Indian child is involved in a proceeding,
but does not have sufficient information to determine that there
is reason to know that the child is an Indian child,” the court or
social worker “shall make further inquiry regarding the possible
Indian status of the child . . . as soon as practicable.” (§ 224.2,
subd. (e).) “[R]eason to believe” means the court or social worker
has information “suggesting that either the parent of the child or
the child is a member or may be eligible for membership in an
Indian tribe.” (§ 224.2, subd. (e)(1).) “Further inquiry includes,
but is not limited to . . . [i]nterviewing the parents, Indian
custodian, and extended family members,” and “[c]ontacting
the tribe or tribes and any other person that reasonably can be
expected to have information regarding the child’s membership,
citizenship status, or eligibility.” (§ 224.2, subd. (e)(2)(A),(C).)
3 There is “reason to know” a child is an Indian child when:
a person having an interest in the child informs the juvenile court
the child is an Indian child; the residence of the child, the child’s
parents, or the child’s Indian custodian, is on a reservation or in
an Alaskan Native village; a participant in the proceeding, officer
of the court, Indian tribe or organization, or agency informs the
court it has discovered information indicating the child is an
Indian child; the child gives the court reason to know that the
child is an Indian child; the court is informed that the child is or
has been a ward of a tribal court; or the court is informed either
the parent or the child possesses an identification card indicating
membership or citizenship in an Indian tribe. (§ 224.2, subd. (d).)
10
Both federal and state law set forth specific requirements
for providing ICWA notice once there is reason to know that an
Indian child is involved in the proceeding. Under the applicable
federal regulations, the juvenile court must ensure that the party
seeking a foster care placement or termination of parental rights
promptly send notice to the child’s tribe, the child’s parents, and
if applicable, the child’s Indian custodian. (25 C.F.R. § 23.111(a)-
(c) (2022).) California law likewise requires that ICWA notice be
sent to the child’s parents or legal guardian, the Indian
custodian, if any, and the child’s tribe. (§ 224.3, subd. (a); see
Cal. Rules of Court, rule 5.481(c)(1) [“[i]f it is known or there is
reason to know that an Indian child is involved . . ., the social
worker . . . must send Notice of Child Custody Proceeding for
Indian Child (form ICWA-030) to the parent or legal guardian
and Indian custodian of an Indian child, and the Indian child’s
tribe”].) Both federal and state law further require that the
notices be sent by registered or certified mail with return receipt
requested (25 C.F.R. § 23.111(c); § 224.3, subd. (a)(1)), and that
copies of the notices, along with any return receipts or other
proofs of services, be filed with the court (25 C.F.R. § 23.111(a)(2);
§ 224.3, subd. (c)).
“If the [juvenile] court makes a finding that proper and
adequate further inquiry and due diligence . . . have been
conducted and there is no reason to know whether the child is an
Indian child, the court may make a finding that [ICWA] does not
apply to the proceedings, subject to reversal based on sufficiency
of the evidence.” (§ 224.2, subd. (i)(2).) A finding that ICWA does
not apply thus “ ‘ “implies that . . . social workers and the court
did not know or have a reason to know the children were Indian
children and that social workers had fulfilled their duty of
11
inquiry.” ’ ” (In re Josiah T. (2021) 71 Cal.App.5th 388, 401.) We
generally review the juvenile court’s ICWA findings under the
substantial evidence test, “ ‘ “which requires us to determine if
reasonable, credible evidence of solid value supports the court’s
order.” ’ ” (Ibid.) “ ‘ “[W]e do not consider whether there is
evidence from which the [juvenile] court could have drawn a
different conclusion but whether there is substantial evidence to
support the conclusion that the court did draw.” ’ ” (In re Q.M.
(2022) 79 Cal.App.5th 1068, 1080.)
II. Substantial evidence supported the juvenile court’s
finding that ICWA did not apply to the proceedings
In this case, mother’s statements in her ICWA-20 form
and at her first court appearance, indicating that she may have
“Blackfoot”4 ancestry on the paternal side of her family, triggered
DCFS’s duty to conduct further inquiry into S.R.’s possible Indian
ancestry. DCFS does not contend otherwise, nor could it since
the juvenile court ordered it to investigate mother’s claim at the
August 5, 2019 detention hearing. (See, e.g., In re T.G. (2020)
58 Cal.App.5th 275, 292 [mother’s ICWA-20 form declaring her
belief she had Cherokee ancestry “unquestionably provided
4 “[T]here is frequently confusion between the Blackfeet
tribe, which is federally recognized, and the related Blackfoot
tribe, which is found in Canada and thus not entitled to notice of
dependency proceedings. When Blackfoot heritage is claimed,
part of the [a]gency’s duty of inquiry is to clarify whether the
parent is actually claiming Blackfoot or Blackfeet heritage so
that it can discharge its additional duty to notice the relevant
tribes.” (In re L.S. (2014) 230 Cal.App.4th 1183, 1198.) Here,
it appears DCFS believed ancestry was claimed through the
Blackfeet tribe because the agency identified the Blackfeet Tribe
of Montana as the relevant tribe in the ICWA notices it sent.
12
reason to believe Indian children might be involved in these
dependency proceedings and triggered the Department’s duty
to make further inquiry”]; In re A.M. (2020) 47 Cal.App.5th 303,
322 [mother’s statement that she believed she may have Indian
ancestry with the Blackfeet and Cherokee tribes but was not
registered “was sufficient to require further inquiry, as the
juvenile court ordered”].)
Rather, the parties dispute whether the evidence was
sufficient to support a finding by the juvenile court that DCFS
adequately discharged its duty to further inquire into S.R.’s
possible Indian ancestry. DCFS argues that it satisfied its
duty of further inquiry because it interviewed the maternal
grandfather, G.R., about his Indian heritage and sent a total of
five sets of ICWA notices, each of which included the maternal
grandfather’s name, current address, date of birth, and country
of birth. Mother asserts, however, that DCFS’s inquiry was
insufficient because there were several other known extended
family members of whom no inquiry was ever made. Mother
specifically identifies the maternal grandmother, a maternal
aunt, and the maternal great-grandparents, As.R. and An.R.,
as additional relatives that DCFS should have interviewed.
Based on the record before us, we conclude the juvenile court
reasonably could find that DCFS conducted an adequate further
inquiry into S.R.’s possible Indian ancestry, and that, based on
such inquiry, there was no reason to know S.R. was an Indian
child. The court’s finding that ICWA did not apply accordingly
was supported by substantial evidence.
In response to the information provided by mother about
her family’s “Blackfoot” ancestry, DCFS conducted an adequate
further inquiry by interviewing the maternal grandfather, G.R.,
13
and by contacting the Bureau of Indian Affairs, the Secretary of
the Interior, and the Blackfeet Tribe of Montana to investigate
mother’s claim. In his interview with DCFS, G.R. reported that
his now-deceased grandmother, the child’s maternal great-great-
grandmother, was affiliated with the “Blackfoot Tribe,” and that
G.R. previously had documentation indicating that he “in fact is
Blackfoot.” G.R. provided biographical information about the
child’s maternal great-grandparents, As.R. and An.R., including
their names, dates of birth, and cities and states of residence.
G.R. also provided biographical information about the child’s
maternal great-great-grandparents, including the great-great-
grandmother’s married name, approximate date of birth,
approximate date of death, and city and state of death.
The fifth set of ICWA notices that DCFS prepared and sent
to the Blackfeet Tribe on October 1, 2020 included identifying
information about mother, the maternal grandparents, and both
sets of maternal great-grandparents. The notices also indicated
that the maternal grandfather, G.R., was claiming membership
in the Blackfeet Tribe. In addition, the social worker reported
that she emailed the Blackfeet Tribe’s ICWA coordinator on two
separate occasions to further inquire about S.R.’s eligibility for
membership in the tribe. Apart from its initial letter indicating
that S.R. was not listed on the tribal rolls, the Blackfeet Tribe
did not respond to any of DCFS’s further inquiries.
Mother contends that DCFS did not satisfy its duty of
further inquiry because it failed to make any inquiry of either
the maternal grandmother or a maternal aunt, both of whom
were known to DCFS during the proceedings. The record reflects,
however, that DCFS must have asked the maternal grandmother
about her Indian ancestry because the ICWA notices specifically
14
stated that the maternal grandmother had denied any tribal
membership. The record further reflects that mother solely
had identified her father’s side of the family as having Indian
ancestry, and as discussed, DCFS interviewed the maternal
grandfather, G.R., about his tribal affiliation. While it appears
DCFS did not make any inquiry of the maternal aunt, there is no
indication that this relative might have possessed information
about the maternal grandparents’ Indian ancestry that was
different from, or in addition to, that provided by the maternal
grandparents themselves. Rather, based on the ICWA-related
inquiries made to both the maternal grandmother and the
maternal grandfather, DCFS reasonably could have concluded
that no further meaningful information about S.R.’s Indian
ancestry could be obtained from the maternal aunt. (See In re
Darian R. (2022) 75 Cal.App.5th 502, 510 [where parents and
paternal aunt denied Indian ancestry, record did not support
“unvarnished contention” that additional interviews of extended
family members would have “meaningfully elucidated the
children’s Indian ancestry”]; In re D.S. (2020) 46 Cal.App.5th
1041, 1053 [even if child’s great-grandmother was person
reasonably expected to have information regarding the child’s
Indian status, social services agency could reasonably conclude
from its contact with child’s aunt “that no further inquiry was
needed because there was no further information of value to
obtain from this third party”].)
Mother also claims DCFS failed to conduct an adequate
further inquiry because it did not make any effort to contact the
maternal great-grandparents, As.R. and An.R., even though it
had information about where they lived. The record reflects,
however, that the maternal grandfather, G.R., solely provided
15
DCFS with each great-grandparent’s name, date of birth, and city
and state of residence. There is no indication that G.R. gave a
current address, telephone number, or other contact information
for these individuals. Rather, the juvenile court reasonably could
have inferred from the record that, if G.R. had an available
means of contacting either of the maternal great-grandparents,
DCFS would have obtained such information from him and
included it in its reports. As this court has observed, “[w]hile we
believe it reasonable in many cases to require DCFS to follow up
on leads provided by the parents, we cannot ask the agency to
. . . interview individuals for whom no contact information has
been provided.” (In re Q.M., supra, 79 Cal.App.5th at p. 1082;
see In re A.M., supra, 47 Cal.App.5th at p. 323 [“ICWA does not
obligate the court or [child protective agency] ‘to cast about’ for
investigative leads”]; In re Charlotte V. (2016) 6 Cal.App.5th 51,
58 [speculative to assume that relatives interviewed by child
protective agency had detailed information about direct lineal
ancestors because they “were very forthcoming about [the child’s]
Indian ancestry” and “[p]resumably, they would have provided
that information if it was known”].)
Moreover, based on the information provided by G.R. about
the family’s tribal affiliation, the juvenile court reasonably could
have found that DCFS fulfilled its duty of inquiry, and that there
was no reason to know S.R. was an Indian child. While G.R.
stated that he previously had received documentation showing
that he “in fact is Blackfoot,” he did not indicate whether he was
a registered member of the tribe. He also did not provide any
information suggesting that either S.R. or the child’s mother was
a member of the tribe or was eligible for membership in the tribe.
(§ 224.1, subd. (e)(1).) Further inquiry is necessary to help the
16
juvenile court or the child protective agency “determine whether
there is reason to know a child is an Indian child.” (§ 224.2, subd.
(e)(2).) However, there is reason to know a child is an Indian
child only when one of six statutory criteria is met —e.g., (1) the
court has been advised that the child is an Indian child, (2) the
child’s or parent’s residence is on a reservation, (3) any
participant in the proceeding informs the court that it has
discovered information indicating the child is an Indian child,
(4) the child gives the court reason to know that he or she is an
Indian child, (5) the child is or has been a ward of a tribal court,
or (6) either parent or the child possess an identification card
indicating membership or citizenship in an Indian tribe. (§ 224.2,
subd. (d).) Here, none of the information provided by G.R. gave
DCFS or the juvenile court a reason to know S.R. was an Indian
child. Accordingly, on this record, there was sufficient evidence
for the court to conclude that an adequate further inquiry had
been made.
III. DCFS was not required to provide notice to the tribe
In addition to arguing that DCFS failed to satisfy its duty
of inquiry, Mother also asserts that DCFS did not properly notice
the relevant tribe because the ICWA notices that it sent to the
Blackfeet Tribe omitted certain biographical information about
S.R.’s maternal family. Mother further argues that the ICWA
notices were defective because DCFS did not file return receipts
for the notices as required by section 224.3, subdivision (c), and
the juvenile court did not wait 10 days after the tribe’s receipt of
the fifth set of notices to determine whether ICWA applied as
required by section 224.3, subdivision (d). Mother’s arguments
regarding notice lack merit, however, because notice to the tribe
was not required in this case.
17
ICWA notice is required only if, after initial and further
inquiries, there is “reason to know” that an Indian child is
involved in the proceeding. (§§ 224.2, subd. (f), 224.3, subd. (a).)
As we have described, there is “reason to know” a child is an
Indian child if any one of six statutory criteria is met. (§ 224.2
subd. (d).) In this case, because none of the criteria were met,
the duty to provide ICWA notice was never triggered. (See In re
Q.M., supra, 79 Cal.App.5th at p. 1084 [rejecting mother’s claim
that notices to tribes failed to provide complete information for
direct lineal ancestors because there was no reason to know the
child was an Indian child, and thus, ICWA notice was not
required]; In re Austin J. (2020) 47 Cal.App.5th 870, 887 [juvenile
court did not err in failing to ensure notice was provided in
accordance with ICWA because statements by maternal family
that children may have Cherokee ancestry did not provide reason
to know an Indian child was involved in the proceeding].) Any
deficiencies in the notices sent by DCFS, therefore, were legally
irrelevant. (In re Q.M., at p. 1084.)
18
DISPOSITION
The section 366.26 order terminating parental rights over
S.R. is affirmed.
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
RICHARDSON (ANNE K.), J.*
We concur:
LAVIN, Acting P. J.
EGERTON, J.
*Judge of the Los Angeles Superior Court, assigned by the
Chief Justice pursuant to article VI, section 6 of the California
Constitution.
19 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484283/ | People v Porter (2022 NY Slip Op 06500)
People v Porter
2022 NY Slip Op 06500
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
COLLEEN D. DUFFY, J.P.
ROBERT J. MILLER
DEBORAH A. DOWLING
BARRY E. WARHIT, JJ.
2019-11417
[*1]The People of the State of New York, respondent,
vDeshone Porter, appellant. (S.C.I. No. 6270/18)
Patricia Pazner, New York, NY (Anna Kou of counsel), for appellant.
Eric Gonzalez, District Attorney, Brooklyn, NY (Leonard Joblove and Diane R. Eisner of counsel; Lauren Slattery on the memorandum), for respondent.
DECISION & ORDER
Appeal by the defendant, as limited by his motion, from a sentence of the Supreme Court, Kings County (Raymond Rodriguez, J.), imposed September 12, 2019, upon his plea of guilty, on the ground that the sentence was excessive.
ORDERED that the sentence is affirmed.
Contrary to the defendant's contention, the record demonstrates that he knowingly, voluntarily, and intelligently waived his right to appeal (see People v Thomas, 34 NY3d 545; People v Lopez, 6 NY3d 248). The defendant's valid waiver of his right to appeal precludes appellate review of his contention that the sentence imposed was excessive (see People v Lopez, 6 NY3d at 255-256).
DUFFY, J.P., MILLER, DOWLING and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484292/ | People v Curtis (2022 NY Slip Op 06491)
People v Curtis
2022 NY Slip Op 06491
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
FRANCESCA E. CONNOLLY, J.P.
ANGELA G. IANNACCI
PAUL WOOTEN
LILLIAN WAN, JJ.
2019-03283
(Ind. No. 227/18)
[*1]The People of the State of New York, respondent,
vCyril Curtis, appellant.
Warren S. Hecht, Forest Hills, NY, for appellant.
Thomas E. Walsh II, District Attorney, New City, NY (Jacob B. Sher of counsel), for respondent.
DECISION & ORDER
Appeal by the defendant, as limited by his motion, from a sentence of the County Court, Rockland County (Larry J. Schwartz, J.), imposed March 5, 2019, upon his plea of guilty, on the ground that the sentence was excessive.
ORDERED that the sentence is affirmed.
The sentence imposed was not excessive (see People v Suitte , 90 AD2d 80).
CONNOLLY, J.P., IANNACCI, WOOTEN and WAN, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484298/ | People v Cabot (2022 NY Slip Op 06487)
People v Cabot
2022 NY Slip Op 06487
Decided on November 16, 2022
Appellate Division, Second Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on November 16, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Second Judicial Department
MARK C. DILLON, J.P.
ROBERT J. MILLER
LINDA CHRISTOPHER
BARRY E. WARHIT, JJ.
2019-02485
(Ind. No. 9987/17)
[*1]The People of the State of New York, respondent,
vJacob Cabot, appellant.
Patricia Pazner, New York, NY (Joshua M. Levine of counsel), for appellant.
Eric Gonzalez, District Attorney, Brooklyn, NY (Leonard Joblove, Jean M. Joyce, and Julieanne Yanez of counsel), for respondent.
DECISION & ORDER
Appeal by the defendant from a judgment of the Supreme Court, Kings County (Deborah A. Dowling, J.), rendered January 3, 2019, convicting him of criminal possession of a firearm, upon his plea of guilty, and imposing sentence.
ORDERED that the judgment is affirmed.
The defendant contends that the Supreme Court should have granted those branches of his omnibus motion which were to suppress physical evidence and his statements to law enforcement officials. However, the defendant withdrew all motions, both pending and decided, as a condition of his plea of guilty. By withdrawing those motions, the defendant waived his right to seek appellate review of the court's suppression ruling (see People v Abney, 10 AD3d 617, 618; People v Jones, 288 AD2d 322; People v Lyle, 221 AD2d 475; see also People v King, 115 AD3d 986, 987; cf. People v Burbridge, 194 AD3d 831, 832).
DILLON, J.P., MILLER, CHRISTOPHER and WARHIT, JJ., concur.
ENTER:
Maria T. Fasulo
Clerk of the Court | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484335/ | NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________
No. 22-1453
___________
ARTHUR SCOTT PRELLE,
Appellant
v.
UNITED STATES OF AMERICA, By Arthur Scott Prelle; CHIEF EXECUTIVE
OFFICER OF NEW JERSEY; TREASURER OF THE STATE OF NEW JERSEY;
UNITED STATES DEPARTMENT OF TREASURY;
TRUSTEES FOR RE789806284US-0022
____________________________________
On Appeal from the United States District Court
for the District of New Jersey
(D.C. Civil Action No. 3:16-cv-05447)
District Judge: Honorable Michael A. Shipp
____________________________________
Submitted Pursuant to Third Circuit LAR 34.1(a)
November 1, 2022
Before: MCKEE, HARDIMAN, and PORTER, Circuit Judges
*
(Opinion filed: November 16, 2022)
_________
OPINION **
_________
*
Judge McKee assumed senior status on October 21, 2022.
**
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does not
constitute binding precedent.
PER CURIAM
Arthur Scott Prelle, proceeding pro se, appeals an order of the United States
District Court for the District of New Jersey granting the defendants’ motions to dismiss
his second amended complaint. For the following reasons we will affirm.
As noted by the District Court, Prelle’s submissions are “far from a paragon of
clarity.” D.Ct. ECF No. 102 at 2. In his initial pleadings, Prelle made confusing and
convoluted allegations appearing to assert the creation of a trust by virtue of his birth and
the issuance of his birth certificate by the State of New Jersey. Prelle alleged that the
“obligor/trustee Chief Executive Officer of ‘New Jersey, State Of’ [had] failed its duties
of any response or accounting” for the alleged trust and had “usurped [the] rights of
beneficiary to said trust(s)[.]” D.Ct. ECF No. 11 at 20. Prelle further alleged that the
Treasurer of the United States had “wrongly converted” certain “property made by and
certified by the full faith and credit of the United States of America . . . for the benefit of
complainant Arthur.” Id. at 5. Prelle sought a wide-range of relief, including but not
limited to an unspecified judgment in “gold dollars as defined by the ‘The Coinage Act’
of April 2, 1792,” a finding that former President Barack Obama lacks United States
citizenship, and an order rescinding and revoking laws granting rights to gay and/or
transgender citizens. Id. at 34-37.
On motion of the defendants, the District Court dismissed the amended complaint
without prejudice, finding that it failed to provide a “short and plain statement of the
2
claim showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). The District
Court provided Prelle “one final opportunity to amend his pleading and address the
deficiencies identified” by the court. D.Ct. ECF No. 102 at 6.
Prelle filed a second amended complaint, D.Ct. ECF No. 111, and the defendants
again moved to dismiss. The District Court granted the motion, finding that the second
amended complaint “still runs afoul of Rule 8(a).” D.Ct. ECF No. 121 at 3. The District
Court noted that “the factual allegations remain incomprehensible,” and that Prelle
pointed to “no law or statute, state or federal, that entitles him to any relief from
Defendants.” D.Ct. ECF No. 121 at 3-4. Finding that any further amendment would be
futile, the District Court dismissed the second amended complaint with prejudice. Id. at
4. Prelle filed a timely notice of appeal.
We have jurisdiction under 28 U.S.C. § 1291. We review the District Court’s
dismissal of a complaint for failure to comply with the requirements of Rule 8 for an
abuse of discretion. In re Westinghouse Sec. Litig., 90 F.3d 696, 702 (3d Cir. 1996).
Federal Rule of Civil Procedure 8(a)(2) requires “a short and plain statement of the claim
showing that the pleader is entitled to relief.” Fed. R. Civ. P. 8(a)(2). Each averment
must be “simple, concise, and direct.” Fed. R. Civ. P. 8(d)(1). “Taken together,” Rules
8(a) and 8(d)(1) “underscore the emphasis placed on clarity and brevity by the federal
pleading rules.” Westinghouse, 90 F.3d at 702. A complaint must contain sufficient
clarity “‘to avoid requiring a district court or opposing party to forever sift through its
pages in search’ of the nature of the plaintiff’s claim[.]” Glover v. FDIC, 698 F.3d 139,
3
147 (3d Cir. 2012) (quoting Jennings v. Emry, 910 F.2d 1434, 1436 (7th Cir. 1990)).
While a court should liberally construe the pleadings of a pro se plaintiff, the complaint
must still comply with the pleading requirements of Rule 8. See Mala v. Crown Bay
Marina, Inc., 704 F.3d 239, 245 (3d Cir. 2013) (noting that “pro se litigants still must
allege sufficient facts in their complaint to support a claim”).
We conclude that the District Court did not abuse its discretion in dismissing
Prelle’s second amended complaint under Rule 8. Prelle’s second amended complaint,
replete with antiquated legal language often associated with the “sovereign-citizen”
movement, remains mostly incomprehensible. It again lacked a “short and plain”
statement of Prelle’s claims against the defendants and was insufficient “to give the
adverse part[ies] fair notice of the claim[s] asserted so as to enable [them] to answer and
prepare for trial.” Salahuddin v. Cuomo, 861 F.2d 40, 42 (2d Cir. 1988). Further,
Prelle’s blanket assertions and conclusory allegations regarding the defendants’
interference in a trust inuring to his benefit do not constitute well-pleaded factual
allegations and are insufficient, by themselves, to establish a claim to relief that rises
above the speculative level. See Renfro v. Unisys Corp., 671 F.3d 314, 320 (3d Cir.
2011). Under these circumstances, the District Court also did not err in denying Prelle
further leave to amend. See Grayson v. Mayview State Hosp., 293 F.3d 103, 108 (3d Cir.
2002).
4
Accordingly, we will affirm the judgment of the District Court. 1
1
To the extent that Prelle is appealing the District Court’s denial of his motions to seal,
we discern no abuse of discretion in the District Court’s decisions. See In re Cedent
Corp., 260 F.3d 183, 197 (3d Cir. 2001) (providing that review of an order denying a
motion to seal is for abuse of discretion). To the extent Prelle’s submissions to this Court
seek any additional relief, his requests are denied.
5 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484349/ | RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0241p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
EDWARD RENDER,
│
Plaintiff-Appellant, │
> No. 21-2851
│
v. │
│
FCA US, LLC, │
Defendant-Appellee. │
│
┘
Appeal from the United States District Court for the Eastern District of Michigan at Port Huron.
No. 3:19-cv-12984—Robert H. Cleland, District Judge.
Argued: June 1, 2022
Decided and Filed: November 16, 2022
Before: SUHRHEINRICH, MOORE, and CLAY, Circuit Judges.
_________________
COUNSEL
ARGUED: Eric Stempien, STEMPIEN LAW, PLLC, Livonia, Michigan, for Appellant. Terry
Bonnette, NEMETH LAW, P.C., Detroit, Michigan, for Appellee. ON BRIEF: Eric Stempien,
STEMPIEN LAW, PLLC, Livonia, Michigan, for Appellant. Terry Bonnette, Nicholas
Huguelet, NEMETH LAW, P.C., Detroit, Michigan, for Appellee.
CLAY, J., announced the judgment, delivered the opinion of the court, in which
SUHRHEINRICH and MOORE, JJ., joined, with respect to the retaliation claim, and delivered
an opinion with respect to the interference claim. MOORE, J. (pp. 23–30), wrote a separate
opinion, in which SUHRHEINRICH, J., joined, concurring in part in J. Clay’s majority opinion,
and delivered the opinion of the court with respect to the interference claim.
No. 21-2851 Render v. FCA US, LLC Page 2
_________________
OPINION
_________________
CLAY, Circuit Judge. Plaintiff Edward Render (“Render”) sued his former employer,
FCA US, LLC (“FCA”), under the Family Medical Leave Act (“FMLA”), 29 U.S.C. §§ 2601, et
seq., alleging that FCA wrongfully denied him FMLA medical leave in violation of 29 U.S.C.
§ 2615(a)(1), and that FCA retaliated against him for requesting FMLA leave in violation of
29 U.S.C. § 2615(a)(2). FCA moved for summary judgment on both claims, which the district
court granted. Render v. FCA US LLC, No. 19-12984, 2021 WL 3085401, at *9 (E.D. Mich.
July 20, 2021). For the reasons set forth below, we REVERSE the district court’s order and
REMAND for further proceedings.
I. BACKGROUND
A. Factual Background
Edward Render started working for FCA on January 3, 2013, as an assembly line worker
at FCA’s Trenton Engine Complex. Eventually he moved into a more specialized position
cutting cranks for engines. FCA originally terminated his employment on September 14, 2015,
for attendance infractions. But Render filed a grievance through his union representative
challenging his termination. Ultimately, FCA conditionally reinstated him on April 10, 2017 and
Render agreed to a one year probationary period. Under the terms of his Conditional
Reinstatement Letter, FCA could terminate him if he incurred two unexcused tardies or one
unexcused absence during his probationary period.
On October 24, 2017, about six months after his reinstatement, Render applied for
intermittent FMLA leave. Sedgwick, FCA’s third party leave administrator, replied on October
26, 2017, asking Render to provide medical documentation to support his request. Render’s
doctor then submitted a medical certification form on November 9, 2017. His doctor noted that
he needed intermittent FMLA leave to manage his major recurrent depression and
moderate/generalized anxiety disorder. The medical certification form noted that Render was
unable to perform “[a]ny/all duties related to [his] job during [a] flare-up of symptoms.” (Med.
No. 21-2851 Render v. FCA US, LLC Page 3
Certification Form, R. 22-14, Page ID #190.) Render therefore requested up to three to four days
of intermittent leave per month to manage his flare-ups. Sedgwick responded with a second
letter on November 14, 2017, with the subject “Approval of Intermittent Employee Medical
Leave.” (Nov. 14 Sedgwick Letter, R. 22-15, Page ID #191.) The letter conditionally approved
Render’s request and noted that he could take up to four FMLA leave days per month. However,
the letter also noted that Sedgwick would “review [his] eligibility as of [his] first day absent to
determine if [he] met all eligibility requirements” at the time he used his leave. (Id.)
The letters from Sedgwick gave Render conflicting instructions about how to call in to
use his intermittent FMLA leave days. The first letter from Sedgwick (asking Render for more
medical documentation) gave the following instructions:
As a reminder, you are required to report all absences and tardiness in accordance
with FCA’s mandatory Call-in Procedure. A failure to properly report any
absence or tardy from work may result in disciplinary action, up to and including
discharge. The Call-in number to report all absences is as follows: 1-800-810-
[xxxx]. Absences and tardiness can be reported 24 hours, 7 days/week.
In addition, you must contact the FCA Service Center at 1-888-322-[xxxx] to
confirm your first day of absence. You will be advised of your eligibility
determination within 5 business days (absent extenuating circumstances) of
receiving notice of your first day of absence.
(Oct. 24 Sedgwick Letter, R. 22-13, Page ID #180–81.) But Sedgwick’s second letter
(approving Render’s request for intermittent FMLA leave) gave different instructions:
Actions Required:
1. First Date Absent Notification: Contact Sedgwick at the number listed below
on the date of your first FMLA-related absence or tardy. . . .
3. Intermittent Absence Time Reporting - Since you have requested
intermittent leave, you are required to report all absences and tardiness in
accordance with FCA’s mandatory Call-in Procedure. A failure to properly report
any absence or tardy from work may result in disciplinary action, up to
and including discharge. The Call-in number to report all absences is as follows:
1-800-810-[xxxx]. Absences and tardiness can be reported 24 hours,
7 days/week.
(Nov. 14 Sedgwick Letter, R. 22-15, Page ID #191–92.) The letter did not list any other phone
number besides the 1-800 number in the “Actions Required” list. Seven paragraphs down from
No. 21-2851 Render v. FCA US, LLC Page 4
these instructions, the letter included a closing note stating that, “If you have questions, require
additional information, or experience a change in your circumstances, please contact the FCA
Service Center at 1-888-322-[xxxx] . . . to speak with a Customer Service Representative.” (Id.
at Page ID #192.)
FCA’s human resources representative, LaVonda Mitchell, gave contradictory statements
at her deposition about how employees were required to report FMLA absences. Generally,
employees must report an absence or tardy by calling FCA at the 1-800 number listed in
Sedgwick’s letters. At first, Mitchell said that there is not a separate call-in line for people who
are using FMLA leave. Therefore, employees wishing to use FMLA leave simply needed to call
the 1-800 number and report their absence. But Mitchell’s summary of the proper procedures
changed after she saw the letters that Sedgwick sent to Render. At that point in her deposition,
she said that employees had to make two calls: one to FCA (the 1-800 number) and one to
Sedgwick. Still, Mitchell did not know how employees were supposed to contact Sedgwick, and
she did not know if the 1-888 number belonged to Sedgwick or to FCA.
Render believed that, to use his FMLA leave, he simply had to call the 1-800 number and
report his absence. He “didn’t realize there was a second number.” (Render Dep., R. 22-2, Page
ID #144.) He “thought what [FCA and Sedgwick] would do is just have [him] call one number,
and they . . . would go from there.” (Id.)
After his reinstatement in April 2017, Render was tardy three times and absent twice. He
incurred an unexcused tardy on September 6, 2017—before he had applied for FMLA leave.
After Sedgwick approved his intermittent leave request, he was absent on December 6 and 7,
2017. On December 6, Render called in absent. FCA produced a transcript of this call, which
documented the following exchange with someone from “FCA Group Attendance:”
THE OPERATOR: And are you calling in absent or tardy?
MR. RENDER: Absent.
THE OPERATOR: Absent due to what?
MR. RENDER: I’m having a flare-up. I don’t feel good at all. . . .
THE OPERATOR: Absent due to what?
MR. RENDER: Oh, I gotta go to the doctor. I don’t feel good, flare – I’m having
flare-ups.
No. 21-2851 Render v. FCA US, LLC Page 5
THE OPERATOR: So illness?
MR. RENDER: Yes.
(Call Tr., R. 22-16, Page ID #194.) The operator gave Render a confirmation number and told
him to call back if he needed more time. Although FCA had a record of this call, Sedgwick did
not.
Render was again absent on December 7. Although he said that he called the 1-800
number again to report his absence, FCA did not have any call records from that day. However,
Sedgwick’s case notes indicated that Render did call in on December 7. But there is no
transcript of this call. Render recalled telling the operator that he “was calling in for FMLA – to
use an FMLA day.” (Render Dep., R. 22-2, Page ID #143.)
On December 8, 2017, Render called in tardy. FCA produced a transcript of this call.
This time, he told the operator that he had “been sick the last few days.” (Call Tr., R. 22-16,
Page ID #196.) The operator asked whether the tardy was “personal” or “other,” to which
Render responded “Yeah personal – or other.” (Id.) Like on December 6, Sedgwick’s notes did
not indicate that Render called in tardy on December 8.
Finally, Render called in tardy again on January 5, 2018. When asked why, Render said
he was “having a flare-up right now, and [he didn’t] feel good at all.” (Call Tr., R. 22-16, Page
ID #198–99.) The operator then said, “I put other reasons, in the comments I put sick, . . . is that
right?” (Id. at Page ID #199.) Render confirmed that was correct. Each of these absences and
tardies was marked by FCA as “MISU,” meaning miscellaneous unexcused.
At his deposition, Render said that he used the word FMLA each time he called in. He
admits, however, that he never specifically mentioned that he was suffering from anxiety and
depression related illnesses in any of his calls. Render explained that he “was embarrassed” and
he “didn’t want to tell them what [he] was really going through.” (Render Dep., R. 22-2, Page
ID #150.)
At this point, the record gets muddled with documents and testimony about what
happened next. Render’s case file with Sedgwick includes several entries about his call-ins. In
the days after each absence, Sedgwick’s notes indicated “Review Pending.” Render called
No. 21-2851 Render v. FCA US, LLC Page 6
Sedgwick on December 8 and spoke with a Sedgwick employee, Joseph Moore. According to
Moore’s notes from this call, Render called in on December 7, but not on December 6 or 8.
Whereas FCA’s records indicated that Render called in on December 6 and 8, but not on
December 7. The record does not include any depositions from Sedgwick employees to explain
the case notes.
After returning to work on December 8, Render talked to one of his supervisors
(identified only as “J.R.”) about his absences. J.R. approached Render and said that he “noticed
[Render] took FMLA.” (Render Dep., R. 22-2, Page ID #146.) Based on that comment, Render
assumed that everything was fine and his FMLA had been approved. But, a few days later,
another one of Render’s supervisors, LaToya Bradford, approached Render and told him that he
had missed some days but that she did not see those absences in the system. Render showed
Bradford the confirmation numbers he received when he called in, but Bradford said that she
could not use those numbers. Bradford told Render to try calling again to see if they had any
different confirmation numbers. Render did as Bradford instructed, called again, and received
the same confirmation numbers. Render did not specify what phone number he called at this
time “because [he] just had the number . . . on the phone that said FMLA.” (Id. at Page ID
#145.) Shortly thereafter, Bradford told Render that a human resources representative, Mitchell,
wanted to speak with him. Mitchell said that FCA’s systems showed that Render was off
between December 6 and 8, but that FCA “d[idn’t] have a record of it.” (Id. at Page ID #144.)
Mitchell did not recognize the confirmation numbers that Render provided, but she said that she
would call Sedgwick and get back to Render about his absences. But Mitchell never followed up
with Render.
By December 8, Mitchell knew that Render was claiming FMLA leave to cover his
tardies and absences. Knowing this, Mitchell emailed a Sedgwick employee, Skylar Brum, on
December 11. Mitchell asked whether Render was “FMLA approved or not?” (Sedgwick Case
Notes, R. 24-13, Page ID #382.) Mitchell wrote:
[Render] claims calling FMLA absent for 12-6-17 and 12-7-17. For 12-7-17, I
don’t even show a call-in. In addition, he claims calling FMLA tardy for 12-8-17.
None of his calls show FMLA.
Please let me know . . . .
No. 21-2851 Render v. FCA US, LLC Page 7
(Id.) Brum responded stating that:
This claim is contingently approved with no absences coded as FMLA. I do see
absences in [his timesheet] for 12/06, 12/07 and 12/08/2017 with time lost
however they are coded as MISU.
(Id. at Page ID #381.) Mitchell asked Sedgwick for more details on December 20, saying that
she “[j]ust needed to clarify as [Render] is up for termination due to these absences.” (Sedgwick
Case Notes, R. 22-18, Page ID #209.) Sedgwick replied that “due to the employee absences not
being coded under FMLA in [FCA’s timesheet system] [Sedgwick] can’t apply them to the
claim.” (Id.) Mitchell then reached out to FCA’s attendance manager, Shawn Searcy, who
looked at the call recordings from the days Render was absent. Searcy told Mitchell that Render
“did not say FMLA on the call.” (Mitchell Dep., R. 22-3, Page ID #166.) Mitchell then
contacted FCA’s FMLA administrator, Anne Stebbins. Mitchell gave Stebbins a summary of
Render’s case, and Stebbins “confirmed that there was no FMLA approved.” (Id.) Mitchell then
consulted with her supervisor and concluded that Render should be terminated.
On January 11, 2018, Render was called into a meeting with Bradford, J.R., and Mitchell.
Mitchell told Render that FCA was terminating him for violating his Conditional Reinstatement
Letter. The alleged violation was that Render had incurred three tardies and two absences.
Specifically, Mitchell pointed to his tardies on September 6, 2017, December 8, 2017, and
January 5, 2018, and his absences on December 6 and 7, 2017. Mitchell gave him a Notice of
Discharge and escorted him out of the building.
B. Procedural Background
Render filed his Complaint on October 10, 2019. He brought two FMLA claims against
FCA: interference and retaliation. See 29 U.S.C. § 2601, et seq. After the close of discovery,
FCA moved for summary judgment on both claims. The district court granted FCA’s motion
and entered judgment in favor of FCA. Render, 2021 WL 3085401, at *9. Specifically, the
district court found that Render had not made out a prima facie FMLA interference claim
because he did not give sufficient notice to FCA before his absences and tardies in December
2017 and January 2018. Id. at *7–*9. It then found that, because Render had not properly
requested FMLA leave, his retaliation claim likewise failed because he could not show that he
No. 21-2851 Render v. FCA US, LLC Page 8
had engaged in protected activity and that FCA knew about that protected activity. Id. at *9.
Render timely appealed.
II. DISCUSSION
A. Standard of Review
“We review the district court’s grant of summary judgment de novo.” Kirilenko-Ison v.
Bd. of Edu. of Danville Indep. Schs., 974 F.3d 652, 660 (6th Cir. 2020) (quoting George v.
Youngstown State Univ., 966 F.3d 446, 458 (6th Cir. 2020)). Summary judgment is proper “if
the movant shows that there is no genuine dispute as to any material fact and the movant is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(a). “A dispute of a material fact is
genuine so long as ‘the evidence is such that a reasonable jury could return a verdict for the non-
moving party.’” Kirilenko-Ison, 974 F.3d at 660 (quoting Jackson v. VHS Detroit Receiving
Hosp., Inc., 814 F.3d 769, 775 (6th Cir. 2016)).
“When evaluating a motion for summary judgment, this Court views the evidence in the
light most favorable to the party opposing the motion.” Id. (citing Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 587 (1986)). “This includes drawing ‘all justifiable
inferences’ in the nonmoving party’s favor.” Id. (quoting George, 966 F.3d at 458). Moreover,
“[i]n reviewing a summary judgment motion, credibility judgments and weighing of the evidence
are prohibited.” Id. (quoting Biegas v. Quickway Carriers, Inc., 573 F.3d 365, 374 (6th Cir.
2009)).
B. Analysis
The FMLA provides that “an eligible employee shall be entitled to a total of 12 work
weeks of leave during any 12-month period . . . [b]ecause of a serious health condition that
makes the employee unable to perform the functions of [his] position.” 29 U.S.C.
§ 2612(a)(1)(D). If an employee is approved for a period of FMLA leave, then the employer
must “restore[] . . . the employee to the position of employment held by the employee when the
leave commenced” and the period of FMLA leave “shall not result in the loss of any employment
benefit accrued prior to the date on which the leave commenced.” Id. § 2614(a)(1)–(2).
No. 21-2851 Render v. FCA US, LLC Page 9
“This court recognizes two distinct theories for recovery under the FMLA: (1) the ‘entitlement’
or ‘interference’ theory arising from 29 U.S.C. § 2615(a)(1); and (2) the ‘retaliation’ or
‘discrimination’ theory arising from 29 U.S.C. § 2615(a)(2).” Hoge v. Honda of Am. Mfg., Inc.,
384 F.3d 238, 244 (6th Cir. 2004). Render brought claims under each theory.
1. FMLA Interference Claim
Render first alleges that FCA interfered with his FMLA rights “by refusing to classify
[his] absences appropriately as FMLA leave.” (Pl. Br. at 9.) The FMLA prohibits employers
from “interfer[ing] with, restrain[ing], or deny[ing] the exercise of or the attempt to exercise, any
right provided under this subchapter.” 29 U.S.C. § 2615(a)(1). Examples of unlawful
interference include “refusing to authorize FMLA leave” when the employee is eligible and
counting FMLA leave under no-fault attendance policies. 29 C.F.R. § 825.220(b)–(c). “Under
the FMLA interference theory, ‘[i]f an employer interferes with the FMLA-created right to
medical leave . . . , a violation has occurred, regardless of the intent of the employer.’” Marshall
v. The Rawlings Co. LLC, 854 F.3d 368, 384 (6th Cir. 2017) (quoting Seeger v. Cincinnati Bell
Tel. Co., LLC, 681 F.3d 274, 282 (6th Cir. 2012)).
To make out a claim for FMLA interference, a plaintiff must show that “(1) he was an
eligible employee, (2) [the] defendant was a covered employer, (3) he was entitled to leave under
the FMLA, (4) he gave [the] defendant notice of his intent to take leave, and (5) the defendant
denied him FMLA benefits or interfered with FMLA rights to which he was entitled.” Harris v.
Metro Gov’t of Nashville & Davidson Cnty., 594 F.3d 476, 482 (6th Cir. 2010). There is no
dispute that Render was an eligible employee, that FCA was a covered employer, or that Render
was entitled to FMLA leave because of his serious medical condition. The parties dispute only
the fourth element, notice. If Render notified FCA that he intended to use his intermittent FMLA
leave, then there would be no dispute that FCA denied this request. The notice requirement
raises two issues in this case, the first focuses on whether Render complied with federal
regulatory requirements for giving notice while the second asks whether he sufficiently followed
FCA’s internal notice requirements.
No. 21-2851 Render v. FCA US, LLC Page 10
a. Regulatory Requirements
There are three provisions in the federal regulations that dictate how employees must
notify their employers of their intent to take FMLA leave. First, 29 C.F.R. § 825.301(b) gives
general instructions to all employees who want to designate leave as FMLA leave. In relevant
part, it provides that:
An employee giving notice of the need for FMLA leave does not need to
expressly assert rights under the Act or even mention the FMLA to meet his or
her obligation to provide notice, though the employee would need to state a
qualifying reason for the needed leave and otherwise satisfy the notice
requirements set forth in § 825.302 or § 825.303 depending on whether the need
for leave is foreseeable or unforeseeable.
Employees must therefore comply with this broader provision and one of the two specific
provisions that give detailed instructions to employees depending on whether the need for leave
was foreseeable or unforeseeable. Before turning to the ultimate question—whether Render
gave sufficient notice—we must address two preliminary issues.
The first issue is whether intermittent leave, like Render’s, falls within the foreseeable
leave provision (29 C.F.R. § 825.302) or the unforeseeable leave provision (29 C.F.R.
§ 825.303). The parties seemingly agree that intermittent FMLA leave is unforeseeable. Both
therefore cite and rely on § 825.303 to provide the applicable notice requirement. The district
court agreed and applied the unforeseeable leave regulation. Render, 2021 WL 3085401, at *5–
*6. But the regulation on unforeseeable leaves never mentions intermittent leave. See 29 C.F.R.
§ 825.303. In contrast, the regulation governing foreseeable leaves includes specific procedures
that apply to requests for intermittent leave. Id. § 825.302(a), (f). Thus, contrary to the
concurrence filed herein, based on the clear language of these regulations, intermittent leave is
treated as a type of foreseeable leave. See id. § 825.302. This may seem counterintuitive, since
the point of intermittent leave is that an employee is asking for approved FMLA leave for
unexpected and unpredictable absences. But, as this Court has explained, “[i]ntermittent leave is
leave taken in separate blocks of time for a single qualifying reason.” Festerman v. Cnty. of
Wayne, 611 F. App’x 310, 314 (6th Cir. 2015) (quoting Adams v. Honda of Am. Mfg., Inc.,
111 F. App’x 353, 355 (6th Cir. 2004)). Foreseeability thus turns on whether the qualifying
No. 21-2851 Render v. FCA US, LLC Page 11
reason, i.e., the illness or medical condition, was foreseeable. In intermittent leave cases, the
qualifying reason is known in advance, even if it is unclear when the condition will flare up and
require time off. In this case, Render’s depression and anxiety were known, and flare ups were
foreseeable, even if Render could not predict precisely when he would need to take FMLA leave
days. Render was therefore required to comply with the foreseeable leave regulation, 29 C.F.R.
§ 825.302.
The next issue is whether Render had to give notice when he first applied for intermittent
FMLA leave or on each day that he sought to use that leave. The parties also agree on this
question; they both focus on whether Render’s call-ins on December 6, 7, and 8, 2017, and on
January 5, 2018, satisfied the notice requirement. Again, both parties miss the mark when
reading these regulations. The regulation for foreseeable leaves provides that: “Whether FMLA
leave is to be continuous or is to be taken intermittently . . . notice need only be given one time,
but the employee shall advise the employer as soon as practicable if dates of scheduled leave . . .
were initially unknown.” 29 C.F.R. § 825.302(a) (emphasis added). Therefore, Render did not
need to give formal “notice” each and every time he called in to use his FMLA leave. Rather,
the regulation indicates that he needed to meet the notice requirement when he first sought
approval for intermittent leave because this was when FCA first learned about his qualifying
condition. See 29 C.F.R. § 825.301(b) (explaining that the notice rules only require an employee
to “state a qualifying reason for the needed leave”).
When applying for intermittent FMLA leave in the fall of 2017, Render arguably had to
comply with the heightened notice requirements for employees who have previously received
FMLA leave:
When an employee seeks leave for the first time for a FMLA-qualifying reason,
the employee need not expressly assert rights under the FMLA or even mention
the FMLA. When an employee seeks leave due to a FMLA-qualifying reason, for
which the employer has previously provided FMLA-protected leave, the employee
must specifically reference the qualifying reason for leave or the need for FMLA
leave. In all cases, the employer should inquire further of the employee if it is
necessary to have more information about whether FMLA leave is being sought
by the employee, and obtain the necessary details of the leave to be taken.
No. 21-2851 Render v. FCA US, LLC Page 12
29 C.F.R. § 825.302(c) (emphasis added). Render testified that, before his first termination and
reinstatement, he had previously received FMLA leave from FCA. However, he did not say
whether that prior leave was for the same qualifying condition (depression and anxiety). It is
therefore unclear whether he would fall within the heightened notice requirements for a repeat
applicant or whether he was applying for leave based on a different condition, which would
subject him to a lower notice standard. See 29 C.F.R. § 825.302(c). Even under the more
exacting standard, Render’s intermittent leave request provided sufficient notice.
There is no dispute that Render contacted Sedgwick on October 24, 2017, and
specifically referenced his need for FMLA leave. In response, Sedgwick asked Render for a
medical certification form, which Render submitted on November 9, 2017. The medical
certification form listed Render’s qualifying reason as major recurrent depression and moderate/
generalized anxiety disorder. Therefore, his formal FMLA approval process satisfied the one-
time notice requirement for intermittent leave. See 29 C.F.R. § 825.302(a). Render’s subsequent
calls on the days he wanted to use his leave did not need to “specifically reference either the
qualifying reason for leave or the need for FMLA leave.” Id. § 825.302(b). Render was under
no obligation to cite the reason for his absence with such specificity because he had already
given FCA formal notice of his qualifying condition.
Having previously given proper notice of his FMLA qualifying reason, Render merely
had to advise FCA of his schedule change on days that he wanted to use his intermittent leave.
See 29 C.F.R. § 825.302(a). On December 6—his first absence—he told the operator: “I’m
having a flare-up. I don’t feel good at all.” (Call Tr., R. 22-16, Page ID #194.) Although there
is no transcript of his call on December 7, Render testified that he told the operator that he “was
calling in for FMLA – to use an FMLA day.” (Render Dep., R. 22-2, Page ID #143.) Then on
December 8, when he called in tardy, Render referenced his earlier calls saying that he had “been
sick the last few days.” (Id. at Page ID #196.) Finally, when he called in tardy on January 5, he
said that he was “having a flare-up right now, and [he didn’t] feel good at all.” (Call Tr., R. 22-
16, Page ID #198–99.) This was sufficient to satisfy the regulatory requirements to use FMLA
leave because he had already given formal notice of his qualifying condition, and these calls
sufficiently advised his employer of his anticipated absences.
No. 21-2851 Render v. FCA US, LLC Page 13
Even if the notice requirement applied to his subsequent calls, Render argues that his use
of the term “flare-up” when he called in on three of the four days was sufficient to notify FCA
that he was trying to use his approved intermittent FMLA leave. While this Court has not
interpreted what “specifically reference” requires, Render’s reference to “flare-ups” would be
sufficient because his FMLA medical documentation repeatedly referenced his “flare-ups” of
depression and anxiety as the basis for his FMLA request. Referencing symptoms and language
that is used in an employee’s medical certification forms would be sufficient even if the notice
requirements applied to each call-in. See Evans v. Coop. Response Ctr., Inc., 996 F.3d 539, 549
(8th Cir. 2021). In Evans, 996 F.3d at 549, the Eighth Circuit applied the unforeseeable leave
notice requirements in § 825.303(b) and concluded that an employee did not give sufficient
notice when she called in to use her previously approved intermittent leave.1 Even if intermittent
leave fell within the unforeseeable regulation, which requires more than just “calling in sick,”
naming a symptom of the qualifying condition would be sufficient. See id. (finding that
employee failed to give proper notice during call-ins because “[t]he only notice she provided . . .
indicat[ed that] she lost her voice, had a slight fever, and had bodyaches, which were not listed as
symptoms of her reactive arthritis in her FMLA certification forms” (emphasis added)); see also
Germanowski v. Harris, 854 F.3d 68, 73–74 (1st Cir. 2017). When he called in absent, Render
used identical language to that found in his FMLA certification forms. That was sufficient to
meet his notice burden under any of the applicable regulations.
b. FCA Policy Requirements
FCA next argues that Render’s notice was nonetheless insufficient because it did not
comport with FCA’s internal policies. The FMLA leave regulations provide that “[a]n employer
may require an employee to comply with the employer’s usual and customary notice and
procedural requirements for requesting leave, absent unusual circumstances.” 29 C.F.R.
1
FCA asks this Court to do the same. It argues that the more onerous unforeseeable leave provisions found
in 29 C.F.R. § 825.303 apply to Render. While mirroring most of the language from the foreseeable regulation,
§ 825.303 goes one step further and adds that “[c]alling in ‘sick’ without providing more information will not be
considered sufficient notice to trigger an employer’s obligations under the [FMLA].” 29 C.F.R. § 825.303(b).
However, as previously discussed, Render’s intermittent leave requests falls within the foreseeable leave regulations
in § 825.302, and this additional language does not apply to him. And, as discussed below, even if the unforeseeable
leave provision applied, Render has nonetheless satisfied the notice requirements found in that regulation.
No. 21-2851 Render v. FCA US, LLC Page 14
§ 825.302(d). For example, employers may require an employee to contact a specific person to
report their absences. Id.
On November 14, 2017, Sedgwick sent Render a letter conditionally approving his
request for intermittent FMLA leave. In a section titled “Actions Required,” the letter gave
Render list of instructions, starting with “[c]ontact Sedgwick at the number listed below on the
date of your first FMLA-related absence or tardy.” (Nov. 14 Sedgwick Letter, R. 22-15, Page ID
#191 (emphasis added).) That bullet point did not give a phone number. Under the third item in
the list, the letter told Render to “report all absences and tardiness in accordance with FCA’s
mandatory Call-in Procedure” by calling the 1-800 number. (Id. at Page ID #192 (emphasis
added).) The list ended there. No additional phone numbers were listed in the “Actions
Required” section. Seven paragraphs later, in the final paragraph, the letter said: “If you have
questions, require additional information, or experience a change in your circumstances, please
contact the FCA Service Center at 1-888-[xxx].” (Id. (emphasis added).) FCA argues that
Render failed to follow these instructions.2 Specifically, it faults Render for failing to call both
Sedgwick and FCA in advance of each tardy and absence.
In general, employers can establish call-in procedures, and they may deny FMLA leave if
an employee fails to follow those instructions. See 29 C.F.R. § 825.302(d); Alexander v. Kellogg
USA, Inc., 674 F. App’x 496, 500 (6th Cir. 2017); Perry v. Am. Red Cross Blood Servs., 651 F.
App’x 317, 328 (6th Cir. 2016). Accordingly, FCA could adopt a policy requiring employees to
call both Sedgwick and the FCA call-in line to report an FMLA absence. But an employee
cannot be faulted for failing to comply with company policy if the policy was unclear or the
employee lacked notice of the policy. See Clements v. Prudential Protective Servs., 556 F.
App’x 392, 396 (6th Cir. 2014) (finding employee met the notice element when employer’s “lack
2
Sedgwick had sent a different letter on October 26, 2017, asking Render to complete a medical
certification form. That letter was not his FMLA approval letter, and it gave different call-in instructions. The
October 26 letter told Render that he needed to “report all absences and tardiness in accordance with FCA’s
mandatory Call-in Procedure” by calling the 1-800 number. (Oct. 24 Sedgwick Letter, R. 22-13, Page ID #181.)
The next paragraph stated, “[i]n addition, you must contact the FCA Service Center at 1-888-[xxx].” (Id. (emphasis
added).) The letter did not mention anything about contacting Sedgwick directly. On appeal, FCA points only to
the November 14 approval letter and argues that Render failed to comply with those instructions. Because it does
not allege that Render failed to comply with the differing instructions in the October 26 letter, we will not consider
the instructions in the earlier letter. We note, however, that FCA gave their employees conflicting instructions on
how to use FMLA leave.
No. 21-2851 Render v. FCA US, LLC Page 15
of communication led to the confusion” about employee’s FMLA obligations and based on “the
failure of [the] defendant to give its employees notice of how to proceed”); Alexander, 674 F.
App’x at 496 (employer could deny FMLA leave after human resources reminded the employee
of the call-in requirements, the employee still failed to comply, and the employee did not
otherwise “allege[] ignorance of [the employer’s] internal notice requirement”); Perry, 651 F.
App’x at 320, 328 (employer could deny FMLA leave because employee “was on notice that she
needed to call [the third party leave administrator], and it [was] undisputed that she did not do
so”).
In this case, Sedgwick’s letter was so confusing that even Mitchell, who worked in
FCA’s human resources department, could not decipher what it was asking employees to do.
Mitchell initially testified that all employees had to do was call FCA at the 1-800 number. Only
after reading Sedgwick’s letter to Render did she say that employees had to call both the FCA
call-in line and Sedgwick. But when asked which phone number belonged to Sedgwick,
Mitchell could not tell. Indeed, the letter said that both phone numbers belonged to FCA. (See
Nov. 14 Sedgwick Letter, R. 22-15, Page ID #190–91 (identifying 1-800 number as FCA’s Call-
in number and the 1-888 number as the FCA Service Center).) The letter did not clearly identify
a phone number for Sedgwick despite telling employees to “[c]ontact Sedgwick” at the “number
listed below.” (Id.) The only other phone number listed below was the “FCA Service Center” 1-
888 number, and that number was buried at the end of the letter, wholly apart from the list of
explicit instructions about the call-in procedure. These mangled instructions were so unclear that
even Mitchell could not figure out what they meant.
Understandably, Render did not follow these confusing instructions to a tee. He believed
that he simply had to call the 1-800 number and report his absence. He “didn’t realize there was
a second number.” (Render Dep., R. 22-2, Page ID #144.) We cannot fault him for failing to
call both FCA and Sedgwick when (1) the list of instructions only gave one phone number (the
one he called), and (2) the letter did not clearly list a phone number for Sedgwick. Moreover,
Render took other steps to ensure that he properly reported his FMLA days. In the days
immediately following his absences, he told two different supervisors that his absences were
FMLA days, and he followed up with Mitchell to ensure that his absences were properly coded.
No. 21-2851 Render v. FCA US, LLC Page 16
Mitchell admitted that, by December 8, she knew that Render was claiming FMLA leave
between December 6 and December 8. Based on these facts, a jury could find that Render gave
proper notice of his intent to take FMLA leave. He has therefore made out a prima facie
interference claim.
FCA suggests that the analysis should not stop there because the burden shifting
framework set out in McDonnell Douglas Corp. v. Green, 411 U.S. 792 (1973), applies to
Render’s interference claim. Under McDonnell Douglas, once an employee makes out a prima
facie interference claim, then the burden shifts to the employer to provide a legitimate
nondiscriminatory reason for the alleged interference. Demyanovich v. Cadon Plating &
Coatings, L.L.C., 747 F.3d 419, 427 (6th Cir. 2014) (citing Donald v. Sybra, Inc., 667 F.3d 757,
761–62 (6th Cir. 2012)). If the employer does so, then the burden shifts back to the employee to
show that the proffered reason is pretextual. Id. (citing Donald, 667 F.3d at 761–62).
There remains some confusion over when McDonnell Douglas applies to interference
claims. As a starting point, McDonnell Douglas applies only when the employee relies on
circumstantial evidence to make his case. Wallace v. Edward W. Sparrow Hosp. Ass’n, 782 F.
App’x 395, 401 (6th Cir. 2019) (citing Donald, 667 F.3d at 762); Tillman v. Ohio Bell Tel. Co.,
545 F. App’x 340, 348 (6th Cir. 2013) (per curiam) (citing Seeger, 681 F.3d at 283). For
example, this Court has applied the burden shifting framework when an employee alleged that
his employer interfered with his FMLA rights by terminating him because employers can
terminate employees for many reasons—only some of which amount to FMLA interference. See
Demyanovich, 747 F.3d at 431. But when an employee shows that his employer denied him
FMLA benefits to which he was entitled, that is direct evidence of interference, and McDonnell
Douglas does not apply. See Travers v. Cellco P’ship, 579 F. App’x 409, 414 (6th Cir. 2014)
(“To recover on an interference claim, [the employee] must establish that the employer denied
the employee FMLA benefits to which she was entitled.” (citing Wysong v. Dow Chem. Co., 503
F.3d 441, 447 (6th Cir. 2007))); Festerman, 611 F. App’x at 314 (“[U]nlawful interference
occurs when an employer refuses to authorize leave for a qualified employee.” (citing George v.
Russell Stover Candies, Inc., 106 F. App’x 946, 949–50 (6th Cir. 2004)); Hurtt v. Int’l Servs.,
No. 21-2851 Render v. FCA US, LLC Page 17
Inc., 627 F. App’x 414, 424 (6th Cir. 2015) (describing denial of FMLA leave as “literal[]
interfere[nce]”).
In this case, Render has shown that he was entitled to FMLA benefits, and a jury could
find that FCA wrongfully denied him FMLA leave. Accordingly, the McDonnell Douglas
burden shifting framework does not apply. Because Render has pointed to sufficient facts to
make out a prima face interference claim, the district court erred in granting FCA’s motion for
summary judgment.
2. FMLA Retaliation Claim
Render next alleges that FCA “retaliated against [him] by discharging him for using
FMLA leave.” (Pl. Br. at 9.) Under the FMLA, employers are prohibited from “discharg[ing] or
in any other manner discriminat[ing] against any individual for opposing any practice made
unlawful by this subchapter.” 29 U.S.C. § 2615(a)(2). Unlike Render’s interference claim, his
retaliation claim is analyzed under the McDonnell Douglas burden shifting framework because
he relies on circumstantial evidence of retaliation. See Demyanovich, 747 F.3d at 432; Nieves v.
Envoy Air, Inc., 760 F. App’x 421, 427 (6th Cir. 2019) (citing Skrjanc v. Great Lakes Power
Serv. Co., 272 F.3d 309, 315 (6th Cir. 2001)). Under this framework, if Render can establish a
prima facie retaliation claim, then the burden shifts to FCA to show that it had “a legitimate,
nondiscriminatory reason” for terminating him. Nathan v. Great Lakes Water Auth., 992 F.3d
557, 573 (6th Cir. 2021) (quoting Donald, 667 F.3d at 761). If FCA does so, the burden shifts
back to Render to show that FCA’s given reason was pretextual. Id. (citing Donald, 667 F.3d at
761–62).
a. Prima Facie Case
To make out a prima facie case, Render must show that:
(1) [he] was engaged in an activity protected by the FMLA; (2) the employer
knew that [he] was exercising [his] rights under the FMLA; (3) after learning of
the employee’s exercise of FMLA rights, the employer took an employment
action adverse to [him]; and (4) there was a causal connection between the
protected FMLA activity and the adverse employment action.
No. 21-2851 Render v. FCA US, LLC Page 18
Redlin v. Grosse Pointe Public Sch. Sys., 921 F.3d 599, 616 (6th Cir. 2019) (quoting Donald,
667 F.3d at 761).
After finding that Render did not properly request leave, the district court dismissed his
retaliation claim out of hand because Render did not engage in any protected activity and,
therefore, FCA could not have known about any protected activity. Render, 2021 WL 3085401,
at *9. The district court erred in coming to this conclusion. For the same reasons as discussed
above, Render alleges sufficient facts to support a finding that he properly requested FMLA
leave, and that FCA knew of this request. At the summary judgment stage, that satisfies the first
two elements of his retaliation claim. See Festerman, 611 F. App’x at 319 (employee engages in
protected activity and employer has knowledge when employee gives sufficient notice of his
intent to take FMLA leave); Basch v. Knoll, Inc., 619 F. App’x 457, 461 (6th Cir. 2015) (finding
that protected activity begins when employee requests intermittent leave and provides
certification of a qualifying medical reason).
FCA’s arguments to the contrary are meritless. It suggests that it did not know that
Render was asserting his rights under the FMLA because it “was aware only that Render claimed
his absences were for FMLA-qualifying reasons, not that they were in fact for FMLA-qualifying
reasons.” (Def. Br. at 32 (emphasis in original).) However, FCA knew Render was engaging in
protected activity when he first applied for intermittent leave in October 2017. See Basch, 619 F.
App’x at 461. Even if FCA were right that the protected activity began when Render went to use
his FMLA leave, FCA’s argument still misses the mark. Employers are charged with knowing
about FMLA protected activity as soon as an employee requests leave, even if it turns out the
employee was not entitled to benefits. It is the request that is protected activity. Demyanovich,
747 F.3d at 433 (“By asking . . . for FMLA leave, [the employee] both engaged in protected
activity and made his employer aware of it.”). Even if FCA did not know that Render was using
his intermittent FMLA leave at the time of his absences, the issue is whether it knew about his
protected activity before it terminated him. In this case, even if Mitchell was unaware that
Render asked to use his leave on December 6, she admitted that she knew he was claiming
FMLA protection by December 8, over a month before she terminated him. The district court
No. 21-2851 Render v. FCA US, LLC Page 19
therefore erred in concluding that Render’s retaliation claim failed because he could not establish
the first two elements of a prima facie case.
As to the third element, there is no dispute that Render’s termination was an adverse
employment action. The final prima facie element is causation. Redlin, 921 F.3d at 616 (quoting
Donald, 667 F.3d at 761). In their discussion of causation, both parties focus on whether FCA
properly terminated Render under the terms of his Conditional Reinstatement Letter. Although
that issue is relevant when asking whether FCA had a legitimate nondiscriminatory reason for
terminating Render, it is not germane to the prima facie causation element. The causation
element often turns on the temporal proximity between the protected activity and the adverse
employment action. See Judge v. Landscape Forms, Inc., 592 F. App’x 403, 409 (6th Cir. 2014).
Indeed, “the causal connection between the protected activity and the adverse employment action
necessary for a prima facie case of retaliation can be established solely on the basis of close
temporal proximity.” Id. (citing Seeger, 681 F.3d at 283–84). The parties do not discuss
temporal proximity in connection to their causation arguments but the record provides ample
evidence showing that Render can satisfy this requirement. We have “found sufficient evidence
of a causal connection where the time between when . . . the employee requested leave and the
employee’s termination was two to three months.” Id. (citing Clark v. Walgreen Co., 424 F.
App’x 467, 473 (6th Cir. 2011)). Whether we measure this time from the moment Render first
sought intermittent FMLA leave on October 24, 2017, or from the date he first sought to use that
leave on December 6, 2017, both dates fall within three months of his termination on January 11,
2018. Thus, Render has provided sufficient evidence to establish his prima facie case at this
stage.
b. Nondiscriminatory Reason
Because Render has established a prima facie retaliation claim, the burden shifts to FCA
to articulate a legitimate nondiscriminatory reason for the adverse employment action. See
Nathan, 992 F.3d at 573 (quoting Donald, 667 F.3d at 761). FCA argues that it terminated
Render for “excessive, unexcused absences and tardies in violation of his Conditional
Reinstatement Letter.” (Def. Br. at 32–33.) Terminating an employee for unexcused absences
No. 21-2851 Render v. FCA US, LLC Page 20
that violated company policy is a sufficient nondiscriminatory reason to meet FCA’s burden.
See Wallace, 782 F. App’x at 403.
c. Pretext
The burden then shifts back to Render to show that FCA’s given reason was pretextual.
See Nathan, 992 F.3d at 573 (quoting Donald, 667 F.3d at 761). “[A] plaintiff may meet his or
her burden to ‘demonstrate pretext by showing that the proffered reason (1) has no basis in fact,
(2) did not actually motivate the defendant’s challenged conduct, or (3) was insufficient to
warrant the challenged conduct.’” Judge, 592 F. App’x at 410 (quoting Dews v. A.B. Dick Co.,
231 F.3d 1016, 1021 (6th Cir. 2000)).
FCA argues that Render cannot show pretext because FCA investigated Render’s
absences and tardies before it terminated him, and it concluded that Render had not properly
requested FMLA leave for those days. It points to several actions that Mitchell took before she
ultimately terminated Render. First, on December 8, after Mitchell learned that Render thought
his absences were FMLA, Mitchell emailed Sedgwick to ask whether he had approved FMLA
leave. Sedgwick told Mitchell that Render’s claim was “contingently approved with no absences
coded as FMLA,” and noted that his absences and tardies on December 6, 7, and 8 were coded as
“MISU” meaning miscellaneous unexcused. (Sedgwick Case Notes, R. 24-13, Page ID #381;
Mitchell Dep., R. 22-3, Page ID #164.) Mitchell followed up on December 18, and Sedgwick
again advised her that “[t]he claim is still contingently approved with no absences coded as
FMLA.” (Sedgwick Case Notes, R. 24-13, Page ID #378–79.) Second, Mitchell called FCA’s
attendance manager, Shawn Searcy, who looked at the call recordings from the days Render was
absent. FCA says that Searcy told Mitchell that “Render had not requested FMLA leave when
he called the absences in.” (Def. Br. at 33.) But all Searcy told Mitchell was that Render “did
not say FMLA on the call.” (Id.) Third, Mitchell contacted FCA’s FMLA administrator, Anne
Stebbins. Mitchell gave Stebbins a summary of Render’s case, and Stebbins “confirmed that
there was no FMLA approved.” (Mitchell Dep., R. 22-3, Page ID #166.) Finally, Mitchell
consulted with her supervisor before jointly deciding whether termination was the proper action
given Render’s absences and tardies.
No. 21-2851 Render v. FCA US, LLC Page 21
In response, Render argues that FCA’s proffered reason—unexcused absences—had no
basis in fact because his absences were incorrectly coded as unexcused. The record indicates
that the operator who answered Render’s call-ins was responsible for initially coding the request.
As discussed above, Render said enough on those calls to allow a jury to find that the operator
erred in marking his absences and tardies as “MISU.” See supra Part A. Sedgwick then used the
information from the operator to determine that Render was not seeking FMLA leave to cover
his absences. When Render called Sedgwick to sort out the error, Sedgwick told him that “he
need[ed] to talk to someone in HR to have [the absences and tardies] recoded as FMLA as
[Sedgwick] only go[es] by what comes over from the plant.” (Sedgwick Case Notes, R. 24-13,
Page ID #375) So, Render went to Mitchell. Mitchell admitted that she had the power to
manually recode the absences as FMLA. But she never did. Viewing the facts in the light most
favorable to Render, Mitchell failed to catch the many errors that were made in the process of
marking Render’s absences as “MISU.” Even though she had the power to fix those errors,
Mitchell did not recode Render’s absences. Instead, she terminated him. A jury could find that
Mitchell’s errors were the only thing giving her a reason to terminate Render, given that his
absences would have otherwise been excused. Indeed, the record shows that Mitchell terminated
Render even though she knew that he was trying to use his FMLA days and that he was already
conditionally approved for intermittent FMLA leave. Still, she refused to recode the absences as
FMLA. A jury could thus find that the proffered reason had no basis in fact.
As a last resort, FCA points to the “honest belief” rule to rebut Render’s pretext
arguments. Where, as here, an employee provides evidence that the proffered reason had no
basis in fact, the employer may still be able to defeat a retaliation claim under the “honest belief”
rule. See Tillman, 545 F. App’x at 349. “‘[A]s long as an employer has an honest belief in its
proffered non-discriminatory reason,’ the employee cannot establish pretext simply because the
reason is ultimately shown to be incorrect.” Id. (quoting Majewski v. Automatic Data
Processing, Inc., 274 F.3d 1106, 1117 (6th Cir. 2001)). At this point, Render has provided
ample evidence indicating that FCA wrongfully designated his absences as unexcused when they
should have been coded as FMLA. And Mitchell admitted that she terminated Render even
knowing that he qualified for FMLA leave and that he was trying to use his approved leave to
cover his absences and tardies in December and January. Render thus raised sufficient facts
No. 21-2851 Render v. FCA US, LLC Page 22
showing that FCA’s nondiscriminatory reason was pretextual. Accordingly, the district court
erred in granting FCA’s motion for summary judgment on this claim.
III. CONCLUSION
For these reasons, we REVERSE the district court’s order granting FCA’s motion for
summary judgment and REMAND for further proceedings.
No. 21-2851 Render v. FCA US, LLC Page 23
_____________________________
OPINION/CONCURRENCE
_____________________________
KAREN NELSON MOORE, Circuit Judge, concurring. Judge Clay’s thoughtful lead
opinion captures our majority position as to Render’s retaliation claim, but not as to his
interference claim. Judge Suhrheinrich and I write separately to explain our majority position on
Render’s interference claim. Although Judge Suhrheinrich and I agree with the lead opinion that
the district court erred in granting FCA’s motion for summary judgment on Render’s
interference claim, we take a different path to reach that conclusion. In our view, the leave at
issue should be analyzed under the regulation governing employee notice for unforeseeable
leave, 29 C.F.R. § 825.303, not the regulation governing employee notice for foreseeable leave,
29 C.F.R. § 825.302. This opinion details that view and sets forth the majority position with
respect to Render’s interference claim.
I. BACKGROUND
Like many Americans, Render has struggled with mental-health issues. Aware that these
issues might affect his attendance record at work, Render notified his employer, FCA US, LLC
(FCA), of the matter. Render provided FCA with a medical certification attesting that he
suffered from “major recurrent” depression and “moderate/generalized anxiety disorder”; that
symptoms of these conditions could “flare up”; that these flare ups may occur between three-to-
four times a month, though he did not know when; and that he would be unable to work if they
did. R. 22-14 (Med. Certification at 2) (Page ID #190). When these symptoms arose in late
2017 and early 2018, Render called in to take leave under the Family and Medical Leave Act
(FMLA or Act), 29 U.S.C. §§ 2601–54, stating that he was taking leave under the Act, that he
would be absent or tardy because he was having a “flare up,” and that the leave was a
continuation of the leave he had taken in recent days. R. 22-16 (Telephonic Tr. at 2:13–25,
4:10–19, 6:25–7:5) (Page ID #194, 196, 198–99); R. 22-2 (Render Dep. at 88:10–21) (Page ID
#143). We address in this opinion whether Render provided sufficient notice of his intent to take
leave under the FMLA.
No. 21-2851 Render v. FCA US, LLC Page 24
II. ANALYSIS
“The FMLA entitles qualifying employees to up to twelve weeks of unpaid leave each
year if, among other things, an employee has a ‘serious health condition that makes the employee
unable to perform the functions of the position of such employee.’” Walton v. Ford Motor Co.,
424 F.3d 481, 485 (6th Cir. 2005) (quoting 29 U.S.C. § 2612(a)(1)(D)). For employees with a
serious health condition, the FMLA provides three options for leave: “(1) one block of leave of
twelve weeks or fewer; (2) intermittent leave, which means ‘leave taken in separate periods of
time due to a single illness or injury . . . and may include leave of periods from an hour or more
to several weeks’; and (3) reduced leave schedule, a plan under which the employer reduces the
employee’s normal work hours, usually to a part-time basis.” Hoffman v. Pro. Med Team, 394
F.3d 414, 418 (6th Cir. 2005) (citing, inter alia, 29 U.S.C. §§ 2612(a)(1), 2611(9)); see also 29
C.F.R. §§ 825.102, 825.202, 825.203. The parties do not dispute that Render has a serious
medical condition and that his leave was intermittent.
If an employer like FCA either interferes with, or retaliates against, an employee like
Render who is taking one of these forms of leave, then that employee may have a valid claim
under the FMLA against the employer. See Donald v. Sybra, Inc., 667 F.3d 757, 761 (6th Cir.
2012) (listing elements for prima facie interference and retaliation claims). That is, there may be
a valid interference or retaliation claim if the employee properly alerted the employer to the need
for leave. See id.; see also Munoz v. Selig Enterprises, Inc., 981 F.3d 1265, 1276–77 (11th Cir.
2020). Gauging the adequacy of the notice that Render provided is at the center of this case.
A. Regulatory Requirements
1. Applicable Law
We begin by considering whether Render complied with the notice provisions of the
pertinent regulations promulgated by the United States Department of Labor, the agency
responsible for administering the FMLA. See 29 U.S.C. § 2654. At the outset, these regulations
create a fork in the road. Before determining what qualifies as adequate notice, employees
seeking to take FMLA leave must determine “whether the need for leave is foreseeable or
unforeseeable.” 29 C.F.R. § 825.301(b) (emphasis added). Section 825.301 does not provide
No. 21-2851 Render v. FCA US, LLC Page 25
further guidance on how to determine the foreseeability of “the need for leave.” Instead, it
directs employees and employers (and courts) to consult two other regulations for an answer:
§ 825.302 and § 825.303.
Section 825.302 details the notice requirements that an employee must follow when the
requested FMLA leave is “foreseeable.” What counts as “foreseeable” has been subject to
disagreement because this term, like “unforeseeable,” is not defined in either the FMLA or its
implementing regulations. White v. Beltram Edge Tool Supply, Inc., 789 F.3d 1188, 1196 (11th
Cir. 2015). That said, although “[c]ourts usually speak in terms of whether the need for leave
itself was foreseeable,” the FMLA “is a bit more specific” regarding the word’s meaning. Id.
(collecting cases). It premises foreseeability on one of four events: (1) an “expected birth,”
(2) an expected placement for adoption or foster care, (3) a planned medical treatment of the
employee or certain family members, or (4) a planned medical treatment of a covered
servicemember. 29 U.S.C. § 2612(e); see also White, 789 F.3d at 1196. Those scenarios are
reflected in 29 C.F.R. § 825.302(a), which requires that if an employee’s proposed leave arises
from one of those four situations, then the employee must provide thirty days notice unless doing
so “is not practicable.”
In any event, the notice requirements for foreseeable leave aim to provide clarity about
when the leave will be taken in several ways. The notice must detail “the anticipated timing and
duration of the leave.” 29 C.F.R. § 825.302(c). “Whether FMLA leave is to be continuous or is
to be taken intermittently or on a reduced schedule basis, notice need only be given one time, but
the employee shall advise the employer as soon as practicable if dates of scheduled leave change
or are extended, or were initially unknown.” Id. § 825.302(a). Finally, in the cases of
intermittent leave or a reduced leave schedule, the employer and employee must try “to work out
a schedule for such leave that meets the employee’s needs without unduly disrupting the
employer’s operations, subject to the approval of the health care provider.” Id. § 825.302(f).
“When the approximate timing of the need for leave is not foreseeable,” on the other
hand, an employee must turn to the next section in the regulations. Id. § 825.303(a) (emphasis
added). Unlike its nearby counterpart, 29 C.F.R. § 825.303 does not provide an exhaustive list of
conditions that trigger its notice provisions. Instead, the sole example to be found here is that of
No. 21-2851 Render v. FCA US, LLC Page 26
an employee whose child is afflicted with asthma and has a severe attack, causing the employee
to miss work to take the child to the emergency room. Id. This example is instructive: whereas
§ 825.302 (foreseeable leave) emphasizes the ability to schedule the leave and limits its
requirements to scenarios in which that is possible, § 825.303 (unforeseeable leave) stresses the
opposite—that the “approximate timing” for the leave was unknowable in advance. Id.
Sections 825.302 and 825.303 of the regulations thus create two poles of predictability.
To illustrate how these work in practice, consider two hypothetical employees. Both employees
need to request FMLA leave. The first employee must take time off every Monday, Wednesday,
and Friday to receive dialysis. The second employee, too, must periodically take time off. But
this employee must do so because they suffer from chronic migraines. The timing of these
episodes is difficult to predict, though they unfortunately can occur a couple of times a month.
What determines where each employee falls on the foreseeability spectrum? The
intermittent nature of leave does not dictate its predictability. Such leave could fall on either
end. Compare Acker v. General Motors, L.L.C., 853 F.3d 784, 786, 789 (5th Cir. 2017)
(employee who was approved for intermittent leave because of acute iron-deficiency anemia had
to comply with § 825.303), and Norton v. LTCH, 620 F. App’x 408, 409, 410–11 (6th Cir. 2015)
(employee who was approved for intermittent leave because of vestibular migraines had to
comply with § 825.303), and Millea v. Metro-N. R.R. Co., 658 F.3d 154, 159, 161–62 (2d Cir.
2011) (employee who was approved for intermittent leave based on suffering from “severe post-
traumatic stress disorder” that resulted in “unpredictable panic attacks and exhaustion” had to
comply with § 825.303), with 29 C.F.R. § 825.302 (discussing intermittent leave when
foreseeable due to an enumerated scenario).
Nor does the fact that a medical condition was known before the need for leave arose
necessarily answer the question. As some of the cases cited above show, an employee can
inform their employer of a medical condition and still need to follow § 825.303’s requirements
for unforeseeable leave when symptoms of that condition arise. See Acker, 853 F.3d at 786, 789;
Norton, 620 F. App’x at 409, 410–11; Millea, 658 F.3d at 159, 161–62; see also White, 789 F.3d
at 1196–97.
No. 21-2851 Render v. FCA US, LLC Page 27
Rather, the key factor for determining foreseeability is whether the timing of the leave
was anticipated. That is why in both 29 U.S.C. § 2612(e) and 29 C.F.R. § 825.302 the focus is
on events that would lead to planned absences like a scheduled surgery, and why in 29 C.F.R.
§ 825.303 the focus is on events that are difficult to plan like an asthma attack. This is also why
other provisions of the regulations identify the ability to pinpoint—or at least approximate—a
date as the touchstone of foreseeability. For example, in discussing the consequences of
inadequate notice, one section of the regulations notes how “knowledge that an employee would
receive a telephone call about the availability of a child for adoption at some unknown point in
the future would not be sufficient to establish the leave was clearly foreseeable 30 days in
advance.” 29 C.F.R. § 825.304(b). In short, the difference between foreseeable and
unforeseeable leave is the difference between knowing and not knowing when leave will be
needed before the time comes to request it.
This principle resolves our hypotheticals. On the one hand, the dialysis patient’s request
for leave is a paradigmatic instance of foreseeable intermittent leave. The times when this
employee will be absent are known in advance and the employee and employer could establish a
schedule. On the other hand, the chronic-migraine sufferer’s request for leave is an example of
unforeseeable intermittent leave. The employee’s potential need for leave was anticipated, but
the timing of this leave was unknown because the flare ups of symptoms do not adhere to a
schedule.
That principle also resolves the present issue. Employees with known health conditions
that result in “a sudden, acute flareup” of symptoms must follow 29 C.F.R. § 825.303, not 29
C.F.R. § 825.302, when requesting leave. Munoz, 981 F.3d at 1276. Render was one such
employee. Like the employee with chronic migraines, Render’s mental-health issues meant that
he was likely to miss at least several days of work a month. R. 22-14 (Med. Certification at 2)
(Page ID #190). When these absences would occur, however, was unpredictable. That makes
the leave unforeseeable and makes § 825.303 the applicable notice regulation.
No. 21-2851 Render v. FCA US, LLC Page 28
2. Contents of the Notice
That leaves the issue of whether Render provided FCA with adequate notice under
§ 825.303. Here, a reasonable jury could find that Render gave sufficient notice of his need to
take FMLA leave on December 6, 7, and 8, 2017, and on January 5, 2018. See Kirilenko-Ison v.
Bd. of Educ. of Danville Indep. Schools, 974 F.3d 652, 660 (6th Cir. 2020).
Revised by the Department of Labor in 2009, this section of the regulations requires that
an employee provide different levels of notice depending on the employee’s history of taking
FMLA leave with the employer. Section 825.303(b) explains that:
When an employee seeks leave for the first time for a FMLA-qualifying reason,
the employee need not expressly assert rights under the FMLA or even mention
the FMLA. When an employee seeks leave due to a qualifying reason, for which
the employer has previously provided the employee FMLA-protected leave, the
employee must specifically reference either the qualifying reason for leave or the
need for FMLA leave.
29 C.F.R. § 825.303(b). Either way, an employee “[c]alling in ‘sick’ without providing more
information will not be considered sufficient notice to trigger an employer’s obligations under
the Act,” though an “employer will be expected to obtain any additional required information
through informal means.” Id. Once before a court, the adequacy of an employee’s notice is “an
intensely factual determination.” Donald, 667 F.3d at 761.
With less context, some of Render’s four call-ins could be viewed as providing
insufficient notice. Although Render referenced the FMLA during his December 7, 2017 call-
in,1 he did not do so during his call-ins on December 6, 2017 and January 5, 2018, opting instead
to say that he was suffering from “flare ups.” R. 22-2 (Render Dep. at 88:10–21) (Page ID
#143); R. 22-16 (Telephonic Tr. at 2:13–25, 6:25–7:5) (Page ID #194, 198–99). As the district
court noted, a “flare up” just means “a sudden appearance or worsening of the symptoms of a
disease or condition.” Render v. FCA US LLC, No. 19-12984, 2021 WL 3085401, at *7 (E.D.
Mich. July 20, 2021) (quoting Webster’s Third International Dictionary, Unabridged (2020)).
The term does not by itself indicate what these symptoms or the underlying disease or condition
1
Sedgwick’s records could at this stage be reasonably read as indicating that Render called in on December
7, 2017 despite there being no transcript of the call. See R. 24-13 (Sedgwick Case Note at 9) (Page ID #382).
No. 21-2851 Render v. FCA US, LLC Page 29
are. Standing alone, an employee reporting that they were having a “flare up” could be the
equivalent of calling in “sick,” which 29 C.F.R. § 825.303(b) explicitly provides “will not be
considered sufficient notice to trigger an employer’s obligations under the Act.” The same is
true of Render’s call from December 8, 2017, during which he merely reported having been
“sick the last few days,” referencing his calls from December 6 and 7. R. 22-16 (Telephonic Tr.
4:10–19) (Page ID #196).
But there is more to this story. Nothing in 29 C.F.R. § 825.303(b) commands that we
overlook pertinent background. On the contrary, other circuits have indicated that courts should
consider the employer’s knowledge when assessing the adequacy of notice for unforeseeable
leave, even under the revised regulations. See Munoz, 981 F.3d at 1270, 1276–77 (holding
emails referencing symptoms coupled with employer’s knowledge of underlying health
conditions constitute sufficient notice under § 825.303(b)); Germanowski v. Harris, 854 F.3d 68,
73–74 (1st Cir. 2017) (placing email that called in “sick” in broader context to conclude that the
message arguably provided adequate notice under § 825.303(b)); cf. Evans v. Coop. Response
Ctr., Inc., 996 F.3d 539, 545, 549 (8th Cir. 2021) (holding that employee failed to provide
adequate notice under § 825.303(b) when she did not mention symptoms listed in her FMLA
certification forms). Given that employers are under a duty to inquire further about the nature of
the leave requested, a previously submitted medical certification listing symptoms is relevant to
evaluating what can be reasonably gleaned from an employee’s call-in. See 29 C.F.R.
§§ 825.301(a), 825.303(b).
Before making any of his calls, Render provided FCA with such a certificate. See R. 22-
14 (Med. Certification) (Page ID #189–90). This document informed the company that Render
would be unable to work when the symptoms of his depression and anxiety were acute. Id. at 2
(Page ID #190). More importantly, the certificate alerted FCA that Render would be unable to
work when these symptoms “flare[d] up.” Id. It also noted that these flare ups could occur
three-to-four times a month. Id.
Therefore, when Render called in on three consecutive days in December 2017
specifically referencing either his symptoms flaring up, or the FMLA, or, by the last day, his
previous two days out and his subsequent need to be late to work, it would be reasonable to
No. 21-2851 Render v. FCA US, LLC Page 30
conclude that he put FCA on notice that he was referring to his FMLA-qualifying condition.
R. 22-16 (Telephonic Tr. at 2:13–25, 4:9–19) (Page ID #194, 196); R. 22-2 (Render Dep. at
88:10–21) (Page ID #143). The same is true for the January 5, 2018 call, during which Render
also identified a flare up of his symptoms as the reason for his tardiness. R. 22-16 (Telephonic
Tr. at 7:4–5) (Page ID #199). At the very least, FCA knew that Render had been requesting
FMLA leave during the December call-ins by the day of the last leave request because he
reinformed the company that he had been doing so. See, e.g., R. 24-13 (Sedgwick Case Note at
9) (Page ID #382); R. 22-3 (Mitchell Dep. at 39:1–5) (Page ID #163). On this record, we hold
that a reasonable jury could conclude that Render provided adequate notice of his need for
unforeseeable FMLA leave each time that he called in.
B. FCA Policy Requirements
We conclude by addressing whether Render has come forward with sufficient evidence of
his compliance with FCA’s internal leave policies. As above, we hold that the regulation
governing unforeseeable leave provides the applicable law. See 29 C.F.R. § 825.303. Although
the lead opinion addresses the issue under the regulation applicable to foreseeable leave, both
paths lead to the same result. Whether the leave is foreseeable or unforeseeable, an employee
must comply (absent unusual circumstances) with his or her employer’s “usual and customary”
leave policies. See 29 C.F.R. §§ 825.302(d), 825.303(c). For the reasons stated in the lead
opinion, a reasonable jury could find that Render provided sufficient notice of his intent to take
FMLA leave under FCA’s internal leave policies. Accordingly, Render established a prima facie
claim of interference under the FMLA, and the district court erred in granting FCA’s motion for
summary judgment.
III. CONCLUSION
We hold that Render was required to comply with the requirements for unforeseeable
leave under 29 C.F.R. § 825.303. Under the circumstances, a reasonable jury could find that
Render provided sufficient notice under § 825.303 to trigger FCA’s obligations under the
FMLA. We therefore reverse the district court’s judgment and remand for further proceedings
based on these grounds and those otherwise provided in the lead opinion. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484336/ | USCA4 Appeal: 21-4553 Doc: 29 Filed: 11/15/2022 Pg: 1 of 4
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-4553
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
JOSE SOTO-RAMIREZ,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of Virginia, at Big
Stone Gap. James P. Jones, Senior District Judge. (2:20-cr-00012-JPJ-PMS-1)
Submitted: October 24, 2022 Decided: November 15, 2022
Before DIAZ and THACKER, Circuit Judges, and TRAXLER, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
ON BRIEF: Juval O. Scott, Federal Public Defender, Charlottesville, Virginia, Nancy C.
Dickenson-Vicars, Assistant Federal Public Defender, OFFICE OF THE FEDERAL
PUBLIC DEFENDER, Abingdon, Virginia, for Appellant. Christopher R. Kavanaugh,
United States Attorney, Roanoke, Virginia, Jennifer R. Bockhorst, Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Abingdon, Virginia, for
Appellee.
Unpublished opinions are not binding precedent in this circuit.
USCA4 Appeal: 21-4553 Doc: 29 Filed: 11/15/2022 Pg: 2 of 4
PER CURIAM:
Following a jury trial, Jose Soto-Ramirez was convicted of possession of a
prohibited object by an inmate, in violation of 18 U.S.C. § 1791(a)(2), (d)(1)(B). Soto-
Ramirez appeals his conviction, asserting that the district court plainly erred in giving a
limiting jury instruction. We affirm.
At trial, the district court instructed the jury that it could not consider “[t]he fact that
Mr. Soto-Ramirez was an inmate and thus had been previously convicted of a crime” as
evidence that he was guilty of the charged offense. Soto-Ramirez contends that this
instruction erroneously relieved the Government of its burden of proving every element of
the offense beyond a reasonable doubt. As Soto-Ramirez concedes, because he did not
object to the jury instruction in the district court, our review is for plain error. See United
States v. Gillespie, 27 F.4th 934, 940 (4th Cir. 2022), cert. denied, No. 21-8089, 2022 WL
4653160 (U.S. Oct. 3, 2022).
“On plain-error review, the defendant rather than the Government bears the burden
of proof.” United States v. Said, 26 F.4th 653, 660 (4th Cir. 2022) (internal quotation
marks omitted). To meet this burden, Soto-Ramirez “must show that an error (1) was
made, (2) is plain, and (3) affects substantial rights.” United States v. Miller, 41 F.4th 302,
310 (4th Cir. 2022) (cleaned up).
In order to convict Soto-Ramirez, the Government was required to prove that he
was an inmate of a prison and that he possessed a prohibited object that was designed or
intended to be used as a weapon. 18 U.S.C. § 1791(a)(2), (d)(1)(B). Soto-Ramirez does
not dispute that the district court properly instructed the jury as to the elements of the
2
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offense. However, he argues that the limiting instruction improperly relieved the
Government of its burden of proving the element that he was an inmate.
“The Constitution gives a criminal defendant the right to demand that a jury find
him guilty of all the elements of the crime with which he is charged.” United States v.
Gaudin, 515 U.S. 506, 510 (1995); see United States v. Lindberg, 39 F.4th 151, 159 (4th
Cir. 2022). Here, although the district court correctly instructed the jury that, in order to
convict Soto-Ramirez of the § 1791 offense, it was required to find that he was an inmate,
the limiting instruction created the potential for jury confusion by instructing the jury that
it could not consider as evidence of his guilt “the fact that Mr. Soto-Ramirez was an inmate
and thus had been previously convicted of a crime.” Even if this was error that was plain,
however, we conclude that Soto-Ramirez failed to establish that the error affected his
substantial rights.
“For an error to prejudice a defendant sufficiently to affect substantial rights, it must
have affected the outcome of the district court proceedings.” Gillespie, 27 F.4th at 940
(cleaned up). Where the district court omits an element of the offense from the jury
instructions and the defendant contests the omitted element, a defendant is not prejudiced
if “there is [no] evidence upon which a jury could have reached a contrary finding.” United
States v. Brown, 202 F.3d 691, 701 (4th Cir. 2000). Here, the court did not omit from the
jury instructions the requirement that the jury must find that Soto-Ramirez was an inmate,
but it gave a limiting instruction that could have confused the jury as to whether it must
find that element of the offense because the limiting instructing referred to the “fact” of
Soto-Ramirez’s status as an inmate. However, the evidence at trial, through three
3
USCA4 Appeal: 21-4553 Doc: 29 Filed: 11/15/2022 Pg: 4 of 4
corrections officers, showed that the incident occurred at USP Lee, a federal penitentiary.
Two of the corrections officers referred to Soto-Ramirez as “Inmate Soto-Ramirez” in their
testimony. Furthermore, the incident report—prepared by one of the corrections officers
and introduced into evidence—reflected that the incident occurred at USP Lee. The
incident report identified Soto-Ramirez as an “inmate” and listed his prison identification
number. Nothing presented at trial contradicted this evidence. Because there was no
evidence upon which the jury could have concluded that Soto-Ramirez was not an inmate,
Soto-Ramirez cannot meet the burden of showing that the outcome of the trial would have
been different if the district court had not given the limiting instruction. Therefore, Soto-
Ramirez failed to demonstrate that any error affected his substantial rights.
Accordingly, we affirm the criminal judgment. We dispense with oral argument
because the facts and legal contentions are adequately presented in the materials before this
court and argument would not aid the decisional process.
AFFIRMED
4 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484340/ | USCA4 Appeal: 21-4190 Doc: 50 Filed: 11/15/2022 Pg: 1 of 24
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-4190
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
AMINTA A. SMITH, a/k/a Ashley Smith, a/k/a Angel Smith,
Defendant - Appellant.
Appeal from the United States District Court for the Western District of North Carolina, at
Charlotte. Max O. Cogburn, Jr., District Judge. (3:18-cr-00107-MOC-DCK-1)
Argued: September 16, 2022 Decided: November 15, 2022
Before GREGORY, Chief Judge, and NIEMEYER and THACKER, Circuit Judges.
Affirmed in part, reversed in part, and remanded by unpublished per curiam opinion.
ARGUED: Melissa Susanne Baldwin, FEDERAL DEFENDERS OF WESTERN
NORTH CAROLINA, INC., Charlotte, North Carolina, for Appellant. Amy Elizabeth
Ray, OFFICE OF THE UNITED STATES ATTORNEY, Asheville, North Carolina, for
Appellee. ON BRIEF: Anthony Martinez, Federal Public Defender, FEDERAL
DEFENDERS OF WESTERN NORTH CAROLINA, INC., Charlotte, North Carolina, for
Appellant. Dena J. King, United States Attorney, Caryn D. Finley, Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Charlotte, North Carolina,
for Appellee.
USCA4 Appeal: 21-4190 Doc: 50 Filed: 11/15/2022 Pg: 2 of 24
Unpublished opinions are not binding precedent in this circuit.
2
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PER CURIAM:
Aminta Smith (“Appellant”) was convicted of 20 counts of aiding and assisting in
the filing of false tax returns in violation of 26 U.S.C. § 7206(2), and three counts of filing
false tax returns in violation of 26 U.S.C. § 7206(1). In this appeal, Appellant challenges
the sufficiency of the evidence supporting her convictions, the district court’s admission of
non-expert summary witness testimony, two of her supervised release conditions, and the
district court’s judgment ordering immediate payment of restitution.
For the reasons below, we affirm the district court’s denial of Appellant’s motion
for judgment of acquittal, admission of the summary witness testimony, and imposition of
the supervised release condition prohibiting Appellant from seeking any extension of
credit, unless authorized to do so in advance by the probation officer. However, we reverse
and remand the imposition of the supervised release condition requiring Appellant to
refrain from going to places where she knows controlled substances are illegally sold, used,
or distributed and the order of immediate payment of restitution.
I.
Appellant’s convictions stem from her involvement in three tax preparation
businesses between 2010 and 2015. Specifically, in October 2009, Appellant started a tax
preparation business known as Touch by Angels Tax Service (“TATS”). In order to be
able to file returns electronically, a tax preparation business must have an Electronic Filing
Identification Number (“EFIN”), which identifies the company to the Internal Revenue
Service (“IRS”). In January 2010, the IRS received Appellant’s application for an EFIN
for TATS, in which she listed herself as the owner. The application also listed Benjamin
3
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Smith (“Smith”) 1 as an alternate contact for the business. A month later, the IRS found
Appellant unsuitable and denied her request for an EFIN for TATS.
After Appellant’s EFIN application for TATS was denied, Smith obtained EFINs
for two tax businesses: (1) Touch by Angels Accounting Services (“TAAS”) and (2) Smith
Tax & Insurance Group, LLC (“Smith Tax & Insurance”). In 2011 and 2012, Appellant
received W-2’s 2 from TAAS. From 2013 through 2015, Appellant received W-2’s from
Smith Tax & Insurance. On each of Appellant’s W-2’s, she listed her occupation as a tax
preparer.
On March 18, 2019, a federal grand jury returned a 23-count superseding
indictment, in which Appellant was charged with 20 counts of aiding and assisting in the
filing of false tax returns, in violation of 26 U.S.C. § 7206(2), and three counts of filing
false tax returns, in violation of 26 U.S.C. § 7206(1) in connection with her involvement
with TATS, TAAS, and Smith Tax & Insurance.
Counts one through 20 are based on Appellant’s preparation of her clients’ tax
returns. In short, counts one through 20 allege that Appellant assisted her clients in filing
false tax returns in an effort to maximize their refunds. Counts 21 and 22 are based on
Appellant’s 2013–2014 personal tax returns. Specifically, counts 21 and 22 allege that
1
To clarify, throughout this opinion, references to “Smith” will mean Benjamin
Smith and not Appellant.
2
A W-2 is a form that taxpayers receive from their employers. This document
reports the employee’s annual wages, taxes withheld, as well as other deductions, to the
IRS for a specific tax year.
4
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Appellant’s tax returns are false because she underreported her income and failed to report
the gross receipts for her tax business on a Schedule C of her tax return. 3 Count 23 is also
based on Appellant’s personal tax return but differs from counts 21 and 22 inasmuch as it
only alleges that Appellant underreported her total income. This is so because Appellant
did attach a Schedule C to her 2015 tax return, which reported $150 of gross receipts for
TATS during the 2015 tax year.
At trial, the Government presented evidence demonstrating that Appellant prepared
false tax returns for five individuals from 2011 to 2014. Appellant’s former tax clients
uniformly testified that their tax returns either: (1) included wages for places they never
worked; (2) claimed credits for education expenses from colleges they did not attend or
expenses they did not incur; or (3) included business income for businesses that did not
exist or for amounts that were not provided to Appellant. As a result of these tactics,
Appellant’s former clients received inflated refunds, ranging from $2,775 to $9,515 per tax
year.
Appellant also prepared her own tax returns. The charges against Appellant relative
to her personal tax returns are rooted in the Government’s contention that she failed to
report her tax business on her 2013 and 2014 tax returns and underreported the income she
received from her tax business on her 2013, 2014, and 2015 tax returns. At trial, the
Government offered evidence in support of its theory that Appellant was the actual owner
Per the testimony adduced at trial, a Schedule C is a tax form that a business uses
3
to report income or losses to the IRS. This form is required if the business only has one
owner.
5
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of all three tax businesses -- namely, TATS, TAAS, and Smith Tax & Insurance -- even
though Smith was listed as the sole owner of TAAS and Smith Tax & Insurance.
Specifically, the Government called IRS Service Center Representative, Kristy
Morgan (“Morgan”), who testified about the IRS’s requirements for obtaining an EFIN.
Morgan also testified that Smith Tax & Insurance was listed as a company associated with
Appellant’s application for an EFIN for TATS. On this point, Morgan explained that Smith
Tax & Insurance was listed in the “doing business as” column of Appellant’s EFIN
application for TATS.
The Government also called IRS Special Agent Nicholas Pompei (“Agent
Pompei”), who interviewed Appellant as part of the criminal investigation. Notably, Agent
Pompei testified that when he asked Appellant about her employment, she told him that
she had been the sole owner of TATS since 2009.
The jury also heard from Meshawn Jean-Louis (“Jean-Louis”), who is a Problem
Resolution Specialist in Santa Barbara Bank and Trust’s (“Santa Barbara”) tax products
group. Santa Barbara is a bank that the IRS uses to disburse refunds to taxpayers. Jean-
Louis testified that Santa Barbara’s records indicated that at different time periods, both
Appellant and Smith were listed as the contact for the EFINs associated with TAAS and
Smith Tax & Insurance. During Jean-Louis’s testimony, the Government introduced
evidence detailing the tax preparation fees earned by TAAS between 2011 and 2012 and
by Smith Tax & Insurance from 2013 through 2015.
The Government’s last witness at trial was IRS Agent Teresa Archie (“Agent
Archie”), who testified as a non-expert summary witness. Prior to her testimony, Agent
6
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Archie sat through all of the testimony and evidence presented in the Government’s case-
in-chief. Initially, Agent Archie testified about two of Appellant’s former clients’ tax
returns. During this line of questioning, Agent Archie explained that if the tax returns
included false information with respect to income, it would affect the IRS’s ability to
calculate the correct tax due for those tax years. At this point, counsel for Appellant
objected that “we [do not] need [Agent Archie] to just regurgitate what the jury has already
heard through another witness or to opine on the ultimate issues in the case.” J.A. 271. 4
After hearing from the parties, the district court expressed some concern with the
line of questioning, stating, “I think most of what you’re doing is fine. I don’t have any
problem with it. It may be a couple of times she’s getting over the line. Obviously it’s
going to false information which is going to impair the Internal Revenue Service.” J.A.
272–273. Counsel for Appellant interjected and offered:
I think this might be cured if we just get a limiting instruction,
that, to the extent that her testimony conflicts with the
testimony or other evidence that has come in earlier, that the
jury is to regard the testimony from the other witnesses as the
evidence.
Id. at 273.
Hearing no objection from the Government, the court gave the limiting instruction.
Having suggested the limiting instruction, Appellant did not object to it and never objected
again to the testimony of Agent Archie. At the conclusion of the trial, the court also gave
a jury instruction on summary witnesses, which stated:
4
Citations to the “J.A.” refer to the Joint Appendix filed by the parties in this appeal.
7
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Charts and summaries prepared by various witnesses were
admitted into evidence and were shown to you during the trial
for the purpose of explaining facts that are allegedly contained
in books, records, or other documents which may or may not
also be in evidence in the case. You may consider the charts
and summaries as you would any other evidence admitted
during the trial and give them such weight or importance, if
any, as you feel they deserve.
J.A. 370. Appellant did not object to this jury instruction.
Agent Archie also testified about the Earned Income Tax Credit (“EITC”). 5
Specifically, Agent Archie testified that all of the clients referenced in the indictment
received the maximum or near the maximum level for the EITC during the relevant time
period. After reviewing several charts detailing where each client fell with respect to the
maximum EITC, Agent Archie noted that false items on Appellant’s clients’ returns would
affect their EITC.
The last topic Agent Archie covered during her testimony was the personal tax
returns of Appellant and Smith. First, Agent Archie reviewed the Government’s
demonstrative exhibit 145, which is a summary chart establishing that while Smith Tax &
Insurance earned more than $300,000 in tax preparation fees from 2013 to 2015, Appellant
did not report a Schedule C business on her 2013 or 2014 tax returns. The chart also
indicates that Appellant reported only $150 in business income on a Schedule C attached
to her 2015 tax return. Next, Agent Archie testified about 2015 bank records offered into
5
As explained at trial, the EITC is a tax credit for lower income individuals or
families with qualifying children. This credit can be applied towards tax liability and if
there is leftover credit, it increases the amount of refund that a taxpayer would receive.
8
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evidence by the Government, which indicated that Appellant was the sole signatory
authority on the Smith Tax & Insurance bank account where the preparer fees were
deposited. Further, Agent Archie testified that Appellant paid for personal expenses using
funds from Smith Tax & Insurance’s bank account and repeatedly transferred money from
the tax business account to her personal account. And Agent Archie testified that in March
2015, Smith Tax & Insurance issued a check to Smith for “biweekly pay,” which noted on
the memo line that it was “okay per Aminta Smith.” J.A. 285. On redirect, Agent Archie
testified that Smith’s tax returns were prepared by an individual named “A. Smith,” which
presumably was Appellant. Agent Archie also testified that Smith did not report a Schedule
C business on his 2013 or 2014 tax returns, nor did he file a tax return for 2015 or 2016.
Ultimately, Appellant was convicted on all counts. Following the verdict, Appellant
filed a motion for judgment of acquittal with respect to counts 21–23, arguing that the
Government failed to present sufficient evidence to establish that Appellant was required
to report business income (or loss) in 2013 and 2014 (counts 21 and 22), or that Appellant
underreported her gross receipts in 2015 (count 23). The district court denied the motion.
In doing so, the district court explained that with respect to counts 21 and 22, the
Government introduced “more than sufficient evidence for a reasonable juror to find that
these three businesses -- [TATS], [TAAS], and Smith Tax [&] Insurance -- were different
in name only and all reflected the same preparation business, for which [Appellant] was
the owner and which she should have reported on her 2013 and 2014 tax returns.” J.A.
445. As for count 23, the district court concluded, “The Government met its burden of
proving that [Appellant] underreported gross receipts or sales from her tax preparation
9
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business.” Id. at 450. In determining that there was sufficient evidence to support the
jury’s verdict on count 23, the district court emphasized that “The evidence of the flow of
money and [Appellant’s] dominion and control over the funds is further proof that she was
the owner of the tax preparation business, no matter what nominee name it went by.” Id.
at 451.
At sentencing, the district court imposed a sentence of 30 months of imprisonment,
which was below the Sentencing Guidelines range of 41 to 51 months, to be followed by a
one year term of supervised release, with the standard conditions of supervised release
adopted by the Western District of North Carolina. Appellant raised several objections to
the standard conditions. However, only the following two supervised release conditions
are relevant to this appeal: (1) Appellant shall not go to a place where she knows controlled
substances are illegally sold, used, or distributed; and (2) Appellant shall not seek any
extension of credit, unless authorized to do so in advance by the probation officer. The
district court overruled Appellant’s objections to these conditions.
Lastly, before finalizing its sentence, the district court ordered Appellant to pay
$171,017 in restitution to the IRS. The district court entered a written judgment
memorializing its sentence, which stated that payment of restitution was due immediately.
Appellant timely filed a notice of appeal in which she challenges the district court’s
denial of her motion for judgment of acquittal with respect to counts 21 through 23, the
district court’s admission of Agent Archie’s summary witness testimony, two of her
supervised release conditions, and the district court’s judgment ordering immediate
payment of restitution.
10
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II.
In considering Appellant’s challenge to the sufficiency of the evidence, “we review
the district court’s denial of [a] [d]efendant’s motion for judgment of acquittal de novo.”
United States v. Kimble, 855 F.3d 604, 613 (4th Cir. 2017). In doing so, “we ask whether,
after viewing the evidence in the light most favorable to the prosecution, any rational trier
of fact could have found the essential elements of the crime beyond a reasonable doubt.”
United States v. Millender, 970 F.3d 523, 528 (4th Cir. 2020) (emphasis in original)
(internal quotation marks omitted); see also United States v. Haas, 986 F.3d 467, 477 (4th
Cir. 2021) (“Reversal for insufficient evidence is reserved for the rare case where the
prosecution’s failure is clear.” (internal quotation marks omitted)).
As for Appellant’s quarrel with the district court’s admission of Agent Archie’s
testimony, “[w]e review evidentiary rulings for an abuse of discretion, affording substantial
deference to the district court.” United States v. White, 810 F.3d 212, 227 (4th Cir. 2016).
However, “[w]hen a criminal defendant fails to object to the district court’s evidentiary
rulings at trial, we review for plain error.” United States v. Walker, 32 F.4th 377, 394 (4th
Cir. 2022).
Lastly, with respect to Appellant’s objections to the district court’s imposition of
certain supervised release conditions, “[w]e ordinarily review conditions of supervised
release for abuse of discretion.” United States v. Boyd, 5 F.4th 550, 554 (4th Cir. 2021).
11
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III.
A.
Appellant first argues that the evidence presented at trial was insufficient to sustain
her convictions for filing false personal tax returns (counts 21–23). 6 To obtain a conviction
for filing false tax returns, the Government is required to prove “that the document in
question was false as to a material matter, that the defendant did not believe the document
to be true and correct as to every material matter, and that [s]he acted willfully with the
specific intent to violate the law.” Kawashima v. Holder, 565 U.S. 478, 483 (2012)
(internal citations omitted). Appellant contends that the Government failed to prove that
her tax returns contained a material falsehood with the specific intent to violate the law.
When examining the materiality requirement, we have explained, “[u]nder §
7206(1) the test of materiality is whether a particular item must be reported in order that
the taxpayer estimate and compute [her] tax correctly.” United States v. Aramony, 88 F.3d
1369, 1384 (4th Cir. 1996) (quoting United States v. Null, 415 F.2d 1178, 1181 (4th Cir.
1969)). Counts 21 through 23 are based on Appellant’s conduct during the 2013–2015
calendar years. The Government’s evidence concerning this time frame focuses on Smith
Tax & Insurance. For example, Appellant’s W-2’s established that during the 2013, 2014,
and 2015 calendar years, she provided tax return preparation services for Smith Tax &
Insurance. In addition, the Santa Barbara records detailing the tax preparation fees earned
6
Appellant did not appeal the district court’s denial of the motion for judgment of
acquittal with regard to counts one through 20.
12
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in 2013, 2014, and 2015, all refer to one entity -- Smith Tax & Insurance. Accordingly, in
this case, materiality turns on two issues: (1) whether Appellant was required to report the
business income from Smith Tax & Insurance on a Schedule C attached to her tax returns;
and (2) whether her failure to report such income rendered her tax returns materially false.
1.
Starting with the reporting issue, as noted above, at trial, the Government called IRS
Service Center Representative Morgan, who testified that if a business has one owner, it
should report its income and any deductions on a Schedule C. In addition, Morgan testified
about the IRS’s “suitability” requirements for obtaining an EFIN as well as Appellant’s
application for an EFIN for TATS, which was rejected by the IRS. Morgan also testified
that after the IRS denied Appellant’s application for an EFIN for TATS, an individual with
the same last name as Appellant, Benjamin Smith, obtained EFINs for the tax businesses
where Appellant worked, that is, for TAAS and Smith Tax & Insurance. Lastly, Morgan
testified that Smith Tax & Insurance was listed as a company associated with Appellant’s
application for an EFIN for TATS. To put a fine point on the association between these
two purportedly different companies, Morgan explained that Smith Tax & Insurance was
listed in the “doing business as” column of Appellant’s EFIN application for TATS.
In addition, when asked about her employment, Appellant admitted to Agent
Pompei that she was the sole owner of TATS, which she started in October 2009. And
although the Government only presented bank records for the 2015 calendar year, those
records revealed that Appellant was the sole signatory authority on the bank account where
the preparer fees were deposited for Smith Tax & Insurance and that Appellant regularly
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transferred money from the tax business account to her personal account. Finally, the
Government presented evidence which casts doubt on any suggestion that Smith was more
than a mere nominee for TAAS and Smith Tax & Insurance. Specifically, the Government
presented testimony establishing that Smith did not report a Schedule C business on his
2013 or 2014 tax returns, there is no record of Smith filing a tax return in 2015 or 2016,
and Smith’s tax returns were prepared by an individual named “A. Smith.”
All told, there is sufficient evidence supporting the jury’s conclusion that Appellant
was required to report the income from Smith Tax & Insurance on a Schedule C to her tax
returns. Indeed, Appellant’s statement that she has been the sole owner of a tax business
since 2009 coupled with the evidence indicating that the purported owner of Smith Tax &
Insurance, Benjamin Smith, did not report a Schedule C business during the relevant time
period is sufficient for the jury to conclude that Appellant was the sole owner of all three
iterations of the tax businesses at issue, and thus, was required to report the income from
those businesses on a Schedule C to her tax returns -- yet she did not do so.
2.
Turning to the question of whether this omission rendered Appellant’s tax returns
materially false, there is no dispute that Appellant did not report any business income from
Smith Tax & Insurance on her 2013, 2014, or 2015 tax returns. It is also undisputed that
Smith Tax & Insurance received over $300,000 in fees for Appellant’s work during that
time period. Having already determined that there is sufficient evidence to support an
inference that Appellant was the actual owner of Smith Tax & Insurance, we also conclude
that Appellant’s failure to report Smith Tax & Insurance’s business income on a Schedule
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C to her tax returns rendered her tax returns materially false. See United States v.
Holland, 880 F.2d 1091, 1096 (9th Cir. 1989) (stating “any failure to report income is
material”), cited with approval in Aramony, 88 F.3d at 1385.
3.
As for the willfulness requirement, here, there is substantial evidence from which a
jury could infer that Appellant intentionally falsified her personal tax returns. On this
point, the Government presented evidence indicating that the manner in which Appellant
falsified her clients’ tax returns is instructive on the issue of how she falsified her own tax
returns. Specifically, as noted above, Appellant’s former tax clients testified at trial that
their tax returns: (1) listed wages for places they never worked; (2) claimed credits for
education expenses from colleges they did not attend or expenses they did not incur; and
(3) listed income for businesses that did not exist or for amounts that were not provided to
Appellant. This testimony established that Appellant repeatedly included false line items
on her clients’ tax returns in order to maximize their tax refunds.
Yet Appellant maintains that the Government has not established that she engaged
in a pattern of falsifying tax returns because “[i]t is not a ‘pattern’ to commit different acts
for different benefits.” Appellant’s Reply Br. at 11. According to Appellant, this is so
because under the Government’s theory she “underreported her personal income to avoid
paying taxes on her personal returns and . . . overreported income on clients’ returns to
maximize their Earned Income Tax Credit.” Id. (emphases supplied). This is a distinction
without a difference. The evidence supports the Government’s theory of the case --
namely, that Appellant used her experience as a tax preparer to game the system.
15
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Consequently, it makes sense that her methods to achieve the desired result -- i.e., to avoid
tax liability and/or maximize tax refunds -- would depend upon the circumstances. This
evidence, coupled with Appellant’s experience as a tax preparer, is sufficient for the jury
to infer that Appellant willfully falsified her personal tax returns. See United States v.
Diamond, 788 F.2d 1025, 1030 (4th Cir. 1986) (finding the defendant’s education and
professional experience relative to tax matters supported trial court’s conclusion that he
intended to file false returns).
Accordingly, because there is substantial evidence establishing that Appellant
intentionally filed false personal tax returns, the district court did not err in denying
Appellant’s motion for judgment of acquittal on counts 21–23.
B.
Appellant next lodges two challenges to the district court’s admission of Agent
Archie’s testimony. In doing so, Appellant argues generally that Agent Archie’s testimony
should have been excluded. In addition, Appellant contends that Agent Archie’s testimony
usurped the province of the jury.
1.
Appellant first argues that the district court erred by overruling her objection to
Agent Archie’s testimony. As noted above, at trial, counsel for Appellant objected that
“we [do not] need [Agent Archie] to just regurgitate what the jury has already heard
through another witness or to opine on the ultimate issues in the case.” J.A. 271. At the
outset, we must first address whether Appellant waived her objection to Agent Archie’s
testimony. If we answer that question in the affirmative, we need not reach the merits of
16
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the district court’s ruling on the objection. See United States v. Robinson, 744 F.3d 293,
298 (4th Cir. 2014) (“when a claim is waived, it is not reviewable on appeal, even for plain
error”). Here, Appellant argues that her request for a limiting instruction did not waive her
objection to Agent Archie’s testimony because she never explicitly withdrew her objection.
In support of this proposition, Appellant cites United States v. Rodriguez, in which
the First Circuit said, “[a] party who identifies an issue and then explicitly withdraws it[]
has waived the issue.” 311 F.3d 435, 437 (1st Cir. 2002). Appellant also focuses on her
counsel’s statement that a limiting instruction might cure her objection to Agent Archie’s
testimony, which in her view suggests that the defense preserved its objection to the
testimony.
While we have cited Rodriguez for the proposition that when a party has explicitly
withdrawn an objection, it is waived for the purposes of appeal, see Robinson, 744 F.3d at
298, this is not to say that explicit withdrawal is the only way that a party can waive an
objection, or that explicit withdrawal is required for waiver. In contrast, there is support
for the argument that a party may waive an objection without explicitly withdrawing it. In
United States v. Robinson, we held that the defendant’s choice to proceed with sentencing
constituted waiver because he “consciously abandoned” his objection to the drug-quantity
calculation by choosing to continue with sentencing using only the evidence before the
court at that time rather than postponing the matter to allow the parties to gather evidence
relevant to his objection. Id. Here, Appellant’s conscious abandonment of her objection
is more apparent than in Robinson.
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Indeed, it was Appellant, not the court or the Government, who introduced the idea
of a limiting instruction as a possible resolution to her objection. Appellant contends that
the district court overruled her objection to Agent Archie’s testimony when it stated, “I
don’t have any problem with it.” Appellant’s Opening Br. at 15 (citing J.A. 272).
However, a balanced reading of the record establishes that the district court’s comment
was not a ruling on the objection but instead was made as part of the dialogue on the
objection. As noted above, after stating that it did not have any problem with most of the
testimony, the court explained, “It may be a couple of times she’s getting over the line.
Obviously it’s going to false information which is going to impair the Internal Revenue
Service.” J.A. 272. In response, the prosecutor offered to ask the question a different way
and Appellant’s counsel offered a solution by way of a curative instruction. The court then
fashioned the limiting instruction with the help of the parties. And it is undisputed that
Appellant did not object to the limiting instruction, nor did Appellant object to the jury
instructions on summary witnesses. Accordingly, we conclude that Appellant withdrew
her objection to Agent Archie’s testimony by proposing a curative instruction before the
district court ruled on the objection, and, as such, she waived this issue by neither objecting
to the curative instruction that was given nor objecting again to the testimony.
Moreover, the limiting instruction given at the time of Agent Archie’s testimony
clearly instructed the jury that they were permitted to determine what weight, if any, to
give Agent Archie’s summary testimony. This, coupled with the final jury instruction as
to summary witnesses, was sufficient to cure any potential issues with Agent Archie’s
testimony.
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Beyond that, any error relative to the objection was harmless because “[w]ithout
evidence to the contrary, we follow the presumption that the jury obeyed the limiting
instructions.” United States v. Johnson, 54 F.3d 1150, 1161 (4th Cir. 1995).
2.
Next, Appellant argues for the first time on appeal that the district court erred by
permitting Agent Archie to draw an impermissible inference that Smith Tax & Insurance’s
tax preparation fees could be attributed to her personally. Specifically, the question and
answer Appellant contests is:
Q: I’m now showing you Demonstrative Exhibit 145. What
does this chart show?
A: The green bars show the amount of total fees earned
according to Santa Barbara records by Aminta Smith. The
little red bars you have 0, 0, and 150, are the amounts that Ms.
Smith reported on her Schedule C of her tax return.
J.A. 281. According to Appellant, this testimony usurped the province of the jury by
drawing an impermissible inference that the gross receipts of Smith Tax & Insurance are
attributable to Appellant. As explained above, the Government’s demonstrative exhibit
145 is a summary chart, which established that Smith Tax & Insurance earned more than
$300,000 in preparer fees from 2013 to 2015 but Appellant did not report a Schedule C
business on her 2013 or 2014 tax returns, and only reported $150 in business income on a
Schedule C to her 2015 tax return.
At trial, the Government sought permission to publish several demonstrative
exhibits -- including demonstrative exhibit 145 -- which it maintained would assist Agent
Archie in her testimony and the jury’s understanding of it. As to demonstrative exhibit
19
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145, the district court specifically asked “[d]oes the defense – has the defense seen and do
you object to any of these?” J.A. 276. To which counsel for Appellant replied, “I don’t
think so. Let me just verify. No objection.” Id. (emphasis supplied). Because Appellant
did not object to either the demonstrative exhibit or the testimony, we review for plain
error. See United States v. Walker, 32 F.4th 377, 394 (4th Cir. 2022) (“When a criminal
defendant fails to object to the district court’s evidentiary rulings at trial, we review for
plain error.”). “To prevail under this standard, a defendant must show that (1) there was
error (2) that was plain and (3) affected substantial rights, and that (4) the error seriously
affected the fairness, integrity or public reputation of judicial proceedings.” United States
v. Johnson, 945 F.3d 174, 177 (4th Cir. 2019) (alterations adopted and internal quotation
marks omitted). “A plain error normally affects a defendant’s substantial rights if the error
was prejudicial, meaning that it affected the outcome of the district court proceedings.”
Walker, 32 F.4th at 394 (internal quotation marks omitted).
Here, the trial court did not err by failing to strike Agent Archie’s testimony, sua
sponte, with respect to demonstrative exhibit 145. A review of the contested question and
answer reveals that Agent Archie did not make any inferences in connection with the
summary chart. Instead, Agent Archie highlighted what the jury could see for themselves
on the chart. Accordingly, Agent Archie’s testimony is squarely within the parameters of
Federal Rule of Evidence 611(a), which allows parties to use summaries or charts “to
facilitate the presentation and comprehension of evidence already in the record.” United
States v. Oloyede, 933 F.3d 302, 311 (4th Cir. 2019) (“Rule 611(a) charts are not evidence
themselves; they are used merely to aid the jury in its understanding of the evidence that
20
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has already been admitted, by, for example, revealing inferences drawn in a way that would
assist the jury.”(alterations adopted and internal quotation marks omitted)).
In any event, even if the district court did err in failing to strike this testimony sua
sponte, any such error was harmless. See United States v. Caldwell, 7 F.4th 191, 204 (4th
Cir. 2021) (“An error is harmless if it’s highly probable that it did not affect the judgment.”)
(quoting United States v. Burfoot, 899 F.3d 326, 340 (4th Cir. 2018)). As explained above,
the jury was presented ample evidence from which it could conclude that Appellant was
required to report the gross receipts from Smith Tax & Insurance on a Schedule C to her
tax returns but failed to do so (counts 21 through 23). The jury also heard from Appellant’s
former clients who described Appellant’s pattern of reporting false information on their tax
returns (counts 1 through 20). Because there is sufficient evidence -- untethered to
demonstrative exhibit 145 -- supporting the jury’s verdict, we conclude that it is highly
probable that any error with respect to demonstrative exhibit 145 did not affect the
judgment.
C.
Lastly, Appellant argues that the district court erred by failing to adequately respond
to her objections to certain supervised release conditions imposed at sentencing.
Specifically, Appellant takes issue with two supervised release conditions: (1) Appellant
shall not go to a place where she knows controlled substances are illegally sold, used, or
distributed (the “Drug Condition”); and (2) Appellant shall not seek any extension of credit,
unless authorized to do so in advance by the probation officer (the “Credit Condition”).
21
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“District courts have a duty to explain the sentences they impose.” United States v.
McMiller, 954 F.3d 670, 675 (4th Cir. 2020); see also United States v. Boyd, 5 F.4th 550,
557 (4th Cir. 2021) (“courts are expected to make individualized assessments based on the
facts before them and explain sentences in a way that allows for meaningful appellate
review and promotes the perception of fair sentencing” (internal quotation marks omitted)).
“Failure to provide such an explanation constitutes procedural error.” McMiller, 954 F.3d
at 676. And, “a court may only impose conditions that (1) are reasonably related to the
goals of deterrence, public protection, and rehabilitation; (2) affect no greater deprivation
of liberty than is reasonably necessary to achieve those goals; and (3) are consistent with
any pertinent policy statements issued by the Sentencing Commission.” Boyd, 5 F.4th at
557.
1.
Starting with the Drug Condition, Appellant asserts that the district court erred in
imposing this condition because it is unconstitutionally vague and Appellant does not have
a history of drug use. As to the vagueness argument, we conclude that the district court
adequately explained its reasoning for rejecting this argument. Specifically, the court noted
that this condition is not unconstitutionally vague because it is limited to circumstances
where Appellant knowingly goes to places where she knows substances are sold,
distributed, or administered.
Although we conclude that the district court did not err in rejecting Appellant’s
argument that the Drug Condition is unconstitutionally vague, we conclude that the record
evidence establishes that the district court erred in imposing this condition because
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Appellant does not have a history of drug use. Indeed, the lack of support for the imposition
of the Drug Condition is confirmed by the fact that the district court sustained Appellant’s
objection to a supervised release condition which required drug testing on the basis that it
was inapplicable given that Appellant does not have a history of drug use. And yet, because
the district court imposed the Drug Condition, perhaps there is some reason for this
inconsistency. But at this point, because there is nothing in the record which suggests that
the Drug Condition reasonably relates to Appellant’s history and characteristics or the
goals of deterrence, protection of the public, and rehabilitation, and thus, we conclude that
the district court abused its discretion by imposing the Drug Condition. See Boyd, 5 F.4th
at 559 (noting that when a district court fails to address a defendant’s nonfrivolous
objections head on, “we will vacate the sentence and remand for resentencing unless
context makes the court’s reasons for rejecting the nonfrivolous objections patently
obvious”).
2.
Turning to the Credit Condition, Appellant objected to this condition on the ground
that it is inconsistent with the Sentencing Guidelines, which only recommend this condition
when a defendant is not in compliance with a payment plan. In overruling Appellant’s
objection, the district court explained that this condition is necessary given the large
amount of restitution Appellant owes combined with the fact that this provision is only in
effect for one year. Because there is no dispute that Appellant is obligated to pay more
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than $170,000 in restitution 7 and the record reflects that Appellant was unable to pay a fine
at sentencing, we conclude that the district court did not abuse its discretion in imposing
this condition.
IV.
For the reasons set forth above, we affirm the district court’s denial of Appellant’s
motion for judgment of acquittal, admission of the summary witness testimony, and
imposition of the supervised release Credit Condition. However, as to the Drug Condition
and order of immediate payment of restitution, we reverse and remand for further
proceedings consistent with this opinion.
AFFIRMED IN PART, REVERSED IN PART, AND REMANDED
7
The parties agree that the district court erred by ordering immediate payment of
restitution. The parties also agree that the appropriate remedy is to modify or amend the
judgment to correct the error. Thus, we vacate the district court’s order requiring
immediate payment of restitution and remand the case with instructions to modify the
judgment so that Appellant does not owe restitution until she begins her term of supervised
release.
24 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484342/ | USCA4 Appeal: 21-2104 Doc: 41 Filed: 11/15/2022 Pg: 1 of 23
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-2104
BLENHEIM CAPITAL HOLDINGS LTD.; BLENHEIM CAPITAL PARTNERS
LTD.,
Plaintiffs - Appellants,
v.
LOCKHEED MARTIN CORPORATION; AIRBUS DEFENCE AND SPACE
SAS,
Defendants - Appellees,
and
DEFENSE ACQUISITION PROGRAM ADMINISTRATION; REPUBLIC OF
KOREA,
Defendants.
Appeal from the United States District Court for the Eastern District of Virginia, at
Alexandria. Liam O’Grady, Senior District Judge. (1:20-cv-01608-LO-JFA)
Argued: September 16, 2022 Decided: November 15, 2022
Before GREGORY, Chief Judge, and NIEMEYER and THACKER, Circuit Judges.
Affirmed by published opinion. Judge Niemeyer wrote the opinion, in which Chief Judge
Gregory and Judge Thacker joined.
USCA4 Appeal: 21-2104 Doc: 41 Filed: 11/15/2022 Pg: 2 of 23
ARGUED: Hamish P.M. Hume, BOIES, SCHILLER & FLEXNER, LLP, Washington,
D.C., for Appellants. Marc Laurence Greenwald, QUINN EMANUEL URQUHART &
SULLIVAN, LLP, New York, New York; Brian T. McLaughlin, CROWELL & MORING
LLP, Washington, D.C., for Appellees. ON BRIEF: Samuel C. Kaplan, Jesse M.
Panuccio, BOIES, SCHILLER & FLEXNER, LLP, Washington, D.C., for Appellants.
Lyndsay A. Gorton, CROWELL & MORING LLP, Washington, D.C., for Appellee
Lockheed Martin Corporation.
2
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NIEMEYER, Circuit Judge:
Blenheim Capital Holdings Ltd. and Blenheim Capital Partners Ltd.,
Guernsey-based companies (collectively, “Blenheim”), commenced this action against
Lockheed Martin Corporation, Airbus Defence and Space SAS, and the Republic of Korea
and its Defense Acquisition Program Administration (the last two, collectively, “South
Korea”), alleging that the defendants conspired to “cut it out” as the broker for a large,
complex international military procurement transaction. * Under the terms of the
transaction, South Korea would acquire 40 F-35 fighter planes — valued at roughly $7
billion — manufactured by Lockheed and a “Next-gen” military satellite — valued at over
$3 billion — manufactured by Airbus and equipped with capabilities for “integration with
the F-35 fighter planes.” South Korea would pay $7 billion for the F-35s and $150 million
toward the cost of the military satellite, with the remaining value of the satellite serving as
an “offset” to effectively reduce South Korea’s costs and thus “sweeten” the transaction.
Further, the $150 million payment by South Korea was to be paid to Lockheed and passed
on to Blenheim in installments, which Blenheim would use as capital to procure the
financing for the purchase of three satellites from Airbus. One of these satellites would be
the military satellite for South Korea, and the other two would be retained by Blenheim,
which it would operate, leasing their transmission capacity to earn income to pay for the
satellite production and financing costs and provide Blenheim with “a total profit of at least
*
For purposes of this appeal, when referring to Lockheed, we include its divisions,
subsidiaries, and affiliated companies, as alleged by Blenheim in its complaint; and when
referring to Airbus, we likewise include its affiliated companies, as alleged.
3
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$500 million.” The entire transaction was subject to the approval and supervision of the
U.S. government.
For reasons that are vigorously disputed by the parties, Lockheed terminated the
brokerage arrangement with Blenheim and restructured the transaction to be a “direct
procurement” between Lockheed, Airbus, and South Korea, again with the approval and
supervision of the U.S. government. Blenheim was left to bear the costs it had incurred in
designing and working on the transaction, and it was also denied the prospects for profit
from owning and operating two satellites.
In its first amended complaint, Blenheim alleged that the defendants (1) tortiously
interfered with its brokerage arrangement and its prospective business expectations;
(2) conspired to do so; (3) were unjustly enriched; and (4) conspired to violate federal and
state antitrust laws. For subject matter jurisdiction, it relied on federal question jurisdiction
under 28 U.S.C. § 1331, based on its federal antitrust claim, and on the Foreign Sovereign
Immunities Act of 1976, 28 U.S.C. §§ 1330(a), 1604, 1605(a)(2), and 28 U.S.C. § 1367
(supplemental jurisdiction) for its tort claims.
The district court granted the defendants’ motions to dismiss under Federal Rules
of Civil Procedure 12(b)(1) and 12(b)(6). With respect to the tort claims, it concluded that
it lacked subject matter jurisdiction by reason of the Foreign Sovereign Immunities Act
because South Korea was presumptively immune from jurisdiction under the Act and had
not been engaged in “commercial activity,” which is excepted from the immunity from
jurisdiction conferred by the Act. And on the antitrust claim, it held that the action was
barred by both the applicable four-year statute of limitations and the Foreign Trade
4
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Antitrust Improvements Act of 1982, which requires that anticompetitive conduct have a
sufficient effect on domestic or import commerce to be subject to U.S. antitrust laws.
Finding no reversible error in the district court’s analysis, we affirm.
I
According to Blenheim’s complaint, Blenheim “specializes in developing,
structuring, and modeling international ‘offset’ transactions, which are often part of
government procurements.” “Offset” transactions are those in which the supplier in a
procurement contract provides a collateral “sweetener” to the procuring government to
reduce the procuring government’s cost in the transaction. Offset transactions are
“common in defense procurements.”
Beginning in 2011, Blenheim worked with Lockheed to structure an offset
transaction that would secure the sale of 40 F-35 fighter planes to South Korea after South
Korea “accelerated its plans to enhance stealth-fighter capabilities in response to public
outcry over North Korean aggression.” The F-35 is a fifth-generation fighter plane
manufactured by Lockheed for the U.S. government, and it represents the state-of-the-art
in such military equipment and includes classified technology. Because of the F-35’s high
cost, Lockheed and Blenheim recognized that South Korea would require an offset
transaction. Following much work, Blenheim proposed and the relevant parties accepted,
with the approval of the U.S. Department of Defense, the terms of an offset transaction in
which (1) Lockheed would provide South Korea with 40 F-35 planes with a value of
roughly $7 billion; (2) Blenheim would arrange to have Airbus manufacture three satellites,
5
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one of which — a military satellite designed with “Next-gen” capabilities, including
“integration with the F-35 fighter planes” — would be provided to South Korea, with the
other two to be retained by Blenheim to operate; (3) South Korea would pay for the 40 F-
35s and contribute $150 million toward the cost of the military satellite, which had an offset
value of “more than $3.1 billion,” effectively reducing South Korea’s overall cost by
almost one-half; (4) the $150 million payment would be transferred (via the U.S.
Department of Defense) to Lockheed and then in installments to Blenheim for the purpose
of obtaining financing for the cost of the satellites; (5) Blenheim would then operate the
two satellites provided to it, leasing their transmission capacity to generate income to pay
for all three satellites and to provide it with an estimated profit of $500 million.
Blenheim thus functioned as a broker in the transaction in accordance with the terms
of an “International Brokerage Agreement” between it and Lockheed. Because the
transaction involved highly sensitive military equipment designed and manufactured for
the U.S. military, it could be accomplished only as a “Foreign Military Sale,” requiring
approval and control by the U.S. Department of Defense. Indeed, negotiations for the
transaction took place in the offices of the U.S. Department of Defense, including the
Pentagon, because the negotiations “involved classified information.” The statutes and
regulations governing the sale of the F-35s to South Korea required all aspects of the
transaction to be approved and managed by the U.S. government, including the U.S.
government’s receipt and disbursal of all monies in the manner agreed, including even the
$150 million that South Korea paid to Lockheed for payment to Blenheim.
6
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Blenheim’s complaint alleged that, beginning sometime in 2015, Lockheed and
Airbus (and later on, South Korea) conspired to “cut Blenheim out” of the offset
transaction. Lockheed’s motivation for doing so, according to Blenheim, was that
Lockheed became concerned that carrying out the transaction would position Blenheim to
compete with a division of Lockheed that was in the market for satellite transmission
capacity. The complaint thus alleged that Lockheed, in furtherance of the conspiracy,
delayed paying Blenheim the installments of the $150 million that it had received from
South Korea via the U.S. Department of Defense. Lockheed made the first payment of $45
million on June 15, 2016 — which was after its due date — and then made no further
payments. And finally, by letter dated October 6, 2016, it terminated Blenheim’s role as
the broker in the offset transaction. The letter stated:
This letter will serve as formal notice by Lockheed Martin Oversees
Corporation and its affiliates (“LMOC”) to Blenheim Capital Partners and its
affiliates (“Blenheim”) of the immediate termination of International Broker
Agreement LMOC-07-51 between LMOC and Blenheim dated October 26,
2007, including all amendments, exhibits, appendices, and attachments
thereto (the “IBA”).
As discussed at length in previous written communications, Blenheim has
materially breached the IBA (and relevant appendices and exhibits thereto).
Such material breaches remain uncured. Accordingly, pursuant to Section
11.B. of the IBA, the IBA is terminated for cause.
The complaint alleged that Lockheed, Airbus, and South Korea then restructured
the offset transaction, cutting Blenheim out of it, such that Lockheed agreed to provide 40
F-35s to South Korea and Airbus agreed to provide the military satellite. The U.S.
Department of Defense approved the restructured transaction, and the military satellite for
South Korea was launched from Cape Canaveral on July 20, 2020.
7
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Blenheim commenced this action on December 31, 2020, alleging that the
defendants (1) tortiously interfered with its International Brokerage Agreement and
prospective business expectancies; (2) conspired to do so; and (3) were unjustly enriched.
And by its first amended complaint, filed on May 21, 2021, Blenheim added claims under
federal and state antitrust laws.
In response, the defendants filed motions to dismiss under Federal Rules of Civil
Procedure 12(b)(1) (lack of subject-matter jurisdiction) and 12(b)(6) (failure to state a
claim), contending, first, that the district court lacked jurisdiction over Blenheim’s tort
claims by reason of the Foreign Sovereign Immunities Act and, second, that the complaint
failed to state antitrust claims because they were barred by the applicable four-year statute
of limitations and, in any event, failed to satisfy the requirements of the Foreign Trade
Antitrust Improvements Act. The district court agreed with the defendants’ positions and,
by order dated September 30, 2021, dismissed Blenheim’s first amended complaint.
From the district court’s order, Blenheim filed this appeal, contending (1) that the
offset transaction or the separate brokerage agreement was “commercial activity” and
therefore was excepted from the immunity conferred by the Foreign Sovereign Immunities
Act; (2) that the antitrust claims “accrued” within four years of its original complaint and
that its first amended complaint adding the antitrust claims related back to the filing date
of the original complaint; and (3) that its antitrust claims satisfied the requirements of the
Foreign Trade Antitrust Improvement Act based on the alleged anticompetitive conduct’s
sufficient effect on U.S. commerce.
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II
Blenheim contends first that the district court erred in dismissing its tort claims
against South Korea for lack of subject-matter jurisdiction under the Foreign Sovereign
Immunities Act (“FSIA”), 28 U.S.C. §§ 1330, 1602–1611, because the basis for its claims
was “commercial activity” by South Korea, which is excepted from the immunity conferred
by the Act.
The FSIA provides that “a foreign state shall be immune from the jurisdiction of the
courts of the United States and of the States except as provided in sections 1605 to 1607 of
this chapter.” 28 U.S.C. § 1604 (emphasis added); see also id. § 1330 (providing district
courts with original jurisdiction over foreign states “not entitled to immunity under
§§ 1605-1607”). Blenheim contends, however, that its claims fall within the exception
relating to “commercial activity” as set forth in § 1605(a)(2). That section provides:
A foreign state shall not be immune from the jurisdiction of courts of the
United States or of the States in any case — in which the action is based:
upon a commercial activity carried on in the United States by the
foreign state; or
upon an act performed in the United States in connection with a
commercial activity of the foreign state elsewhere; or
upon an act outside the territory of the United States in connection
with a commercial activity of the foreign state elsewhere and that act
causes a direct effect in the United States.
28 U.S.C. § 1605(a)(2) (emphasis added) (reformatted for clarity). And “commercial
activity,” which is the subject of each exception, is defined as:
either a regular course of commercial conduct or a particular commercial
transaction or act. The commercial character of an activity shall be
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determined by reference to the nature of the course of conduct or particular
transaction or act, rather than by reference to its purpose.
Id. § 1603(d).
Blenheim’s argument thus raises, at its core, the question of whether its tort claims
are based on “commercial activity,” as excepted from the immunity from jurisdiction
conferred by § 1604.
As a general principle, the subject-matter jurisdiction of a district court is a question
of law for the court, not the jury, to decide. When a defendant files a motion under Rule
12(b)(1) challenging subject-matter jurisdiction and relying simply on the allegations of
the complaint, the court must take the jurisdictional facts alleged as true — as in the case
of a motion filed under Rule 12(b)(6) — and determine, as a matter of law, whether the
court has jurisdiction. See Kerns v. United States, 585 F.3d 187, 192 (4th Cir. 2009). But
if the defendant disputes the facts alleged for jurisdiction, providing the court with
contradicting facts, the court “may go beyond the complaint, conduct evidentiary
proceedings, and resolve the disputed jurisdictional facts.” Id.
Under the FSIA, a foreign state is “presumptively immune” from the jurisdiction of
U.S. courts, Saudi Arabia v. Nelson, 507 U.S. 349, 355 (1993), and when the foreign state
asserts immunity from jurisdiction under the Act, the “focus shifts” to whether the plaintiff
has demonstrated an exception to such immunity, a question of law, Wye Oak Tech., Inc.
v. Republic of Iraq, 666 F.3d 205, 212 (4th Cir. 2011) (quoting Phoenix Consulting Inc. v.
Republic of Angola, 212 F.3d 36, 40 (D.C. Cir. 2000). We review the district court’s ruling
on FSIA jurisdiction de novo, see BAE Sys. Tech. Sol. & Servs., Inc. v. Republic of Korea’s
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Def. Acquisition Program Admin., 884 F.3d 463, 473 (4th Cir. 2018), although we review
the court’s underlying findings of fact under the clear error standard. Here, however, the
governing facts are those of the complaint, which we accept as true for purposes of our
analysis.
In this case, when the defendants asserted a lack of jurisdiction under the FSIA,
Blenheim contended that the conduct alleged in the complaint was based on “commercial
activity,” as excepted from immunity from jurisdiction under § 1605(a)(2). Focusing
mostly on its obligation under the transaction to procure the military satellite for South
Korea, it now asserts:
Blenheim’s claims are principally based upon the commercial transaction
that provided a military satellite to South Korea as an “offset” for the F-35
purchase. This transaction was implemented through commercial contracts
executed solely by South Korea and Lockheed (to deliver the satellite and
related services to South Korea), and by Lockheed with Airbus SAS (to
supply the satellite to Lockheed). The U.S. government was not a party to
those contracts, and was not permitted to be a party to those contracts.
* * *
The U.S. government never took title to the satellite, and thus did not act as
an intermediary for this “offset” in the way it did for the F-35s. The district
court’s conclusion with respect to the F-35 sale is therefore inapplicable to
the satellite piece of the transaction.
* * *
Blenheim’s claims are based principally upon the procurement and financing
of the satellite purchase, which was clearly commercial activity.
Blenheim argues that, following the FSIA’s directive to consider the “nature” of the
activity, the offset transaction was commercial because it simply involved “the purchase
and sale of goods.” It argues further that it is irrelevant whether the goods being purchased
could only be purchased by sovereigns for sovereign purposes, “such as military equipment
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acquired for national defense,” or whether they were “sold through the [Foreign Military
Sales] Program.”
The defendants do not deny Blenheim’s characterization of the offset transaction as
the sale of goods to South Korea, but they contend that Blenheim’s argument is framed at
too general a level. Rather, they argue, the inquiry must focus on whether the activity was
of a type “exclusively reserved to sovereigns.” When the inquiry is so directed, they
maintain, it becomes clear that the sale of the F-35s and the military satellite, as a “Foreign
Military Sale,” could only be made between sovereigns exercising sovereign authority. As
they argue:
In [a Foreign Military Sale], the sovereign has no privity of contract with the
private contractor. . . . In fact, the foreign sovereign effectively delegates
control to the U.S. Government, from negotiating terms with the
manufacturer’s price and more, and it cannot directly sue the contractor for
its performance. . . . [Foreign Military Sales] transactions are also subject to
various national security and defense policies, and the foreign sovereign must
meet a host of conditions. . . . Indeed, the [Arms Export Control Act]
conditions [Foreign Military Sales] on a finding by the President that such
sale will strengthen the security of the United States and promote peace.
At the outset, we agree with the defendants’ observation that Blenheim’s definition
of commercial activity is made at too general a level, such that it would essentially
encompass every purchase or sale of goods involving a foreign sovereign. We conclude
that not every purchase of goods by a sovereign is “commercial activity.” Some by their
nature are, and some are not. Nonetheless, the issue is somewhat different. As the Supreme
Court has pointed out, it is “whether the particular actions that the foreign state performs”
are “the type of actions by which a private party engages in trade or commerce.” Republic
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of Argentina v. Weltover, Inc., 504 U.S. 607, 614 (1992) (first emphasis added) (cleaned
up).
The FSIA defines “commercial activity” as “a regular course of commercial
conduct” or a “particular commercial transaction.” 28 U.S.C. § 1603(d). But it does not
define “commercial.” Rather, it provides only interpretative guidance, stating:
The commercial character of an activity shall be determined by reference to
the nature of the course of conduct or particular transaction or act, rather
than by reference to its purpose.
Id. (emphasis added). The Supreme Court observed, “If this is a definition, it is one
distinguished only by its diffidence; as we observed in our most recent case on the subject,
it ‘leaves the critical term “commercial” largely undefined.’” Nelson, 507 U.S. at 359
(quoting Weltover, 504 U.S. at 612). But the Court nonetheless undertook to define the
term, beginning with its initial observation that Congress intended the immunity to apply
to “sovereign or public acts (jure imperii)” and not to acts that are “private or commercial
in character (jure gestionis).” Id. at 360. It then concluded:
[A] state engages in commercial activity . . . where it exercises only those
powers that can also be exercised by private citizens, as distinct from those
powers peculiar to sovereigns. Put differently, a foreign state engages in
commercial activity . . . only where it acts in the manner of a private player
within the market.
Id. (emphasis added) (cleaned up); see also Weltover, 504 U.S. at 614. Thus, when the
sovereign engages in a transaction peculiar to sovereigns — one in which private parties
cannot engage — it is engaged in sovereign activity that is not excepted from the immunity
conferred by the FSIA, even if it involves the purchase of goods.
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Applying this test to the offset transaction in which Blenheim was a participant and
from which it was subsequently “cut out,” we conclude that South Korea was engaged in
conduct peculiar to sovereigns and therefore was not engaged in “commercial activity” as
excepted from the immunity from jurisdiction conferred by the FSIA.
We begin with the observation that the F-35s and the coordinating military satellite
— the subjects of the offset transaction — involved highly advanced technology and that
the sale of F-35s was restricted as a Foreign Military Sale and therefore could only be made
with the approval and supervision of the U.S. government, and then only to a friendly
country. It was also subject to controlling considerations of national security and public
policy. While the satellite was manufactured by Airbus, a foreign company outside the
United States, it was nonetheless to be designed with next-generation capabilities that
included the capability of engaging with the F-35s, and its inclusion in the offset transaction
was subject to the United States’ approval and supervision. Indeed, the money for the
satellite had to be paid to the United States and only then was disbursed by it, as provided
by the terms of the approved transaction.
Foreign Military Sales cannot be made except in compliance with the Arms Export
Control Act, 22 U.S.C. § 2751 et seq., which requires approval of sales by the President of
the United States and certification to Congress. And the President can approve such a
transaction only if, among other things, (1) the President finds that the defense articles “will
strengthen the security of the United States and promote world peace”; (2) the country to
whom the articles are to be provided agrees “not to transfer title to, or possession of” them
without the consent of the President; and (3) the country receiving the goods agrees to
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“maintain the security” of them. Id. § 2753(a). Moreover, private parties participating in
Foreign Military Sales are subject to criminal penalties if they are not appropriately
registered and licensed. Id. § 2778(b), (c).
In this case, the nature of the offset transaction was a military procurement by South
Korea from the United States of military items manufactured by Lockheed and Airbus,
which was subject to plenary U.S. government control in furtherance of a policy of
“international defense cooperation among the United States and those friendly countries to
which it is allied by mutual defense treaties.” 22 U.S.C. § 2751. And transactions such as
the offset transaction in this case can be approved “only when they are consistent with the
foreign policy interests of the United States.” Id. It is clear that a private party could not
engage in such a procurement, whether as buyer or seller. Such activity, by its nature,
involves the transfer of military assets only to sovereigns and then only in furtherance of
U.S. public policy and mutual military cooperation between countries. Moreover, it is not
activity directed or influenced by the market but rather by the President’s and Congress’s
judgment on national security concerns. Foreign Military Sales “reflect[] the national
security interests of the United States,” Sec’y of State for Defence v. Trimble Navigation
Ltd., 484 F.3d 700, 707 (4th Cir. 2007), and therefore have a special contract structure that
does not permit designation of the transaction as a “commercial activity.”
Indeed, apart from the Arms Export Control Act, the entire procurement activity and
transaction in this case was inherently sovereign activity. Activities such as creating and
maintaining armed forces and obtaining for them arms and other tools of war — supplied
only by sovereigns and to sovereigns in furtherance of mutual defense arrangements — are
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peculiarly sovereign activities. And while the activity here did not involve the creation of
armed forces, it did involve providing them with F-35s that can only be obtained from the
U.S. government and only provided to a friendly government. Moreover, the sale of F-35s
to South Korea was conditioned on the U.S. government’s determination that the
transaction would advance goals related to foreign relations and national defense. Even
the F-35s’ manufacturer cannot engage in that activity, much less other private parties.
Thus, the activity at issue in this case was not the type that could be pursued by private
citizens or corporations. A sovereign “engages in commercial activity . . . only where it
acts in the manner of a private player within the market.” Nelson, 507 U.S. at 360 (cleaned
up). It follows that South Korea was not engaged in “commercial activity” within the
meaning of the FSIA.
Blenheim seeks to avoid this conclusion by arguing that the harm to it was isolated
to its arrangement with Airbus for the manufacture and sale of three satellites, two of which
Blenheim would have operated itself. It thus seeks to break out its contract benefits from
the offset transaction as a whole in order to argue that the satellite transaction was
commercial because a private person or corporation could purchase satellites from Airbus.
But this argument ignores Blenheim’s own characterization of the transaction. The
complaint described South Korea as having an indispensable role. It also described the
satellite as satisfying South Korea’s needs and military specifications, which were
classified. Moreover, it alleged that the offset transaction, including Blenheim’s
arrangement with Airbus for the manufacture of the satellites, was complicated, integrating
many components and parties and requiring Blenheim’s expertise to design it. Blenheim’s
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arrangement with Airbus was a necessary and integral part of the procurement by South
Korea of the F-35s. As Blenheim alleged, it designed the entire transaction as an integrated
offset deal, in which “all four major stakeholders” would benefit — South Korea,
Lockheed, Airbus, and Blenheim. It also alleged that the U.S. Department of Defense
“play[ed] a major role in the sales” and was an “essential player.” Indeed, Blenheim’s
particular arrangement with Airbus for the purchase of the satellites was also regulated by
the United States. As Blenheim alleged, “[E]ven though sovereigns demand offsets as a
‘sweetener’ for defense procurements from foreign suppliers, in the U.S. [Foreign Military
Sales] context, those sovereigns end up footing the bill for the offset with all monetary
transactions flowing through the Pentagon.” (Emphasis added).
Blenheim relies on two district court cases to argue that even taking the offset
transaction as an integrated activity involving South Korea, the offset transaction by its
nature was commercial activity. In the first case, Virtual Def. & Dev. Int’l, Inc. v. Republic
of Moldova, 133 F. Supp. 2d 1 (D.D.C. 1999), Moldova was seeking to sell Russian-made
MiG fighter planes “to bolster its weakening economy.” Id. at 2. The MiGs were being
sold on the open market, drawing interest from Iran, to the alarm of the United States.
Moldova then entered into a contract with Virtual Defense as broker to help it find a buyer
that the United States would approve. The MiGs were thereafter purchased by the United
States, and Virtual Defense then sued Moldova for its commission on the transaction. The
district court concluded that the transaction was an open market transaction in which any
private entity could have participated and was therefore “commercial” for purposes of the
FSIA. Id. at 4. It explained:
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In the instant case, Moldova acted as a private participant in the market when
i[t] engaged in discussions with Virtual regarding the sale of the MiGs and
when it eventually sold the MiGs to the United States. The mere fact that the
goods sold by Moldova were MiG-29 planes does not change the nature of
Moldova’s actions. Accordingly, the court concludes that the relevant
actions of Moldova constitute commercial activities within the definition
espoused in the FSIA.
Id. The transaction in Virtual Defense is clearly distinct from the highly regulated offset
transaction in this case involving South Korea’s procurement of F-35s and a related
military satellite. While Virtual Defense did involve the sale of technically advanced
military aircraft, the structure of the transaction was nothing more than an ordinary
commercial sale by Moldova, without any regulatory oversight. Indeed, the United States
became involved precisely because the MiGs were being sold on the open market, and
possibly to Iran.
The second case relied on by Blenheim, Simon v. Republic of Hungary, 443 F. Supp.
3d 88 (D.D.C. 2020), likewise does not significantly advance Blenheim’s argument. While
Simon concluded that the Foreign Military Sale involved there was commercial activity, it
did so by analyzing the transaction at issue as one “like a contract to buy army boots,” id.
at 110 (cleaned up), which stands in sharp contrast to the goods being procured here and
the circumstances of the procurement. Moreover, the court’s reasoning gave scant
attention to the manner in which Foreign Military Sales transactions are structured and
regulated.
At bottom, we conclude that the offset transaction in this case was not the type of
activity in which a private party could have participated and that South Korea did not act
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in the manner of a private party in its procurement of the F-35s and the military satellite.
See Nelson, 507 U.S. at 360 (quoting Weltover, 504 U.S. at 614).
Because we conclude that the offset transaction was not commercial activity as
excepted from the immunity from jurisdiction conferred in the FSIA, we affirm the district
court’s conclusion that it lacked jurisdiction over Blenheim’s tort claims. See 28 U.S.C.
§§ 1604, 1367.
III
With respect to Blenheim’s antitrust claims, the district court dismissed them based
on both the applicable four-year statute of limitations and its conclusion that they were
barred by the Foreign Trade Antitrust Improvements Act (“FTAIA”), 15 U.S.C. § 6a.
Blenheim contends that both rulings were in error.
On the limitations ruling, the district court concluded that Blenheim’s claims
“accrued” on October 6, 2016, when, as alleged in the complaint, Lockheed sent Blenheim
a letter giving it “formal notice . . . of the immediate termination of the [International
Brokerage Agreement]” between Lockheed and Blenheim. While Blenheim commenced
this action on December 31, 2020, more than four years after the October 2016 date, it
contends that it had challenged the October 2016 letter as invalid because Lockheed did
not have cause to terminate the arrangement and that the agreement was actually terminated
only when Lockheed responded to that challenge in January 2017 with a no-cause 30 days’
notice of termination, which was within the four-year period before Blenheim filed its
original complaint. Blenheim also argues that its injury “was not complete” until the
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restructuring of the offset transaction was completed and the military satellite was actually
launched in 2020, thus deferring or extending to 2020 when its action accrued.
The Clayton Act, under which Blenheim brought its federal antitrust claim, creates
a private cause of action for “any person who shall be injured in his business or property
by reason of anything forbidden in the antitrust laws.” 15 U.S.C. § 15(a) (emphasis added).
And § 15b provides that such actions “shall be forever barred unless commenced within 4
years after the cause of action accrued.” Id. § 15b. The Virginia statute, on which
Blenheim brings its state antitrust claim, provides similarly. See Va. Code Ann. §§ 59.1-
9.12(b), 59.1-9.14.
An antitrust action “accrues” “when a defendant commits an act that injures a
plaintiff’s business.” Zenith Radio Corp. v. Hazeltine Research, Inc., 401 U.S. 321, 338
(1971) (emphasis added). “Thus, if a plaintiff feels the adverse impact of an antitrust
conspiracy on a particular date, a cause of action immediately accrues to him to recover all
damages incurred by that date and all provable damages that will flow in the future from
the acts of the conspirators on that date.” Id. at 339; see also GO Computer, Inc. v.
Microsoft Corp., 508 F.3d 170, 177 (4th Cir. 2007) (noting that “a cause of action generally
accrues when a defendant commits an act that causes economic harm to a plaintiff”).
Of course, a defense based on the statute of limitations is ordinarily raised as an
affirmative defense, see Fed. R. Civ. P. 8(c), and the burden of establishing that affirmative
defense rests on the defendant, see Goodman v. Praxair, Inc., 494 F.3d 458, 464 (4th Cir.
2007). Therefore, the limitations defense cannot usually be addressed on a motion to
dismiss under Rule 12(b)(6), which challenges only the legal sufficiency of the complaint,
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not usually affirmative defenses that the defendant can assert to the complaint. “But in the
relatively rare circumstances where facts sufficient to rule on an affirmative defense are
alleged in the complaint, the defense may be reached by a motion to dismiss filed under
Rule 12(b)(6).” Id.; see also Richmond, Fredericksburg & Potomac R.R. v. Forst, 4 F.3d
244, 250 (4th Cir. 1993). In this case, the defendants relied solely on the allegations of the
complaint in moving to dismiss the antitrust claims as untimely. Accordingly, to review
the district court’s ruling granting that motion, we must turn to the complaint.
Blenheim’s complaint alleged, as relevant to when its antitrust causes of action
accrued, that “from 2012 through 2016 Blenheim Capital devised and structured an
innovative offset deal,” as described in detail. After Blenheim had “conceived, modeled,
and begun the implementation” of the offset transaction, Lockheed, Airbus, and South
Korea “conspired to cut Blenheim out of the deal,” and they thus “benefitted from years of
work and effort by Blenheim . . . to maximize their own advantages and profits.” The
complaint alleged further that the defendants “agreed to proceed with a restructured
transaction that cut out Blenheim in late 2016” (emphasis added), thus misappropriating
Blenheim’s “years of effort” on the offset transaction and leaving it with nothing in return.
In addition, the complaint alleged that while South Korea had paid Lockheed $150 million,
which Lockheed was to pay to Blenheim in installments as seed money to finance the
satellites, Lockheed paid Blenheim only one installment of $45 million, leaving $105
million unpaid. According to the complaint, by late 2016, Blenheim had paid $20 million
of the $45 million to Airbus as commitment for the financing, which never occurred. And
Blenheim was cut out from the transaction because, as alleged, Lockheed became
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concerned that “Blenheim would become a competitor . . . for the sale and leasing of
satellite capacity.” In furtherance of the conspiracy, “on October 6, 2016, [Lockheed]
provided Blenheim with a purported ‘formal notice . . . of the immediate termination’ of
the [International Brokerage Agreement] for cause.” Thereafter, “[h]aving conspired to
cut Blenheim out of the offset transaction, Lockheed, Airbus, and South Korea proceeded
with the military satellite procurement and worked to obtain the necessary approvals . . . to
do so. On July 20, 2020, the satellite was launched from Cape Canaveral, Florida. . . .
Though the launch was the fruit of Blenheim’s labors, it received nothing.”
Not only do the complaint’s allegations place October 6, 2016, as the date when
Blenheim was cut out of the offset transaction, they also describe how, as of that date,
Blenheim was injured in its business and property and Lockheed, Airbus, and South Korea
were enriched by the product of Blenheim’s years of work and effort, seizing the fruits and
denying Blenheim the benefits of the deal. Indeed, as of that time, October 6, 2016,
Blenheim had already paid $20 million to Airbus as a finance commitment, for which it
received nothing because of the October 6, 2016 termination. Finally, as the complaint
alleged, Blenheim was also denied, as of that date, the benefit of procuring satellites and
obtaining a profit from their operation. Indeed, the complaint stated dramatically that after
October 6, 2016, Blenheim “received nothing.” Under these circumstances, we conclude
that Blenheim’s cause of action accrued on October 6, 2016, when Blenheim felt the
“adverse impact of [the] antitrust conspiracy.” Zenith Radio Corp., 401 U.S. at 339.
Blenheim argues that it was not injured until January 2017 because it was only then
that Lockheed legally terminated the brokerage agreement. But the question of whether
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Lockheed’s October 2016 termination of the brokerage agreement caused Blenheim injury
does not depend on whether that termination was legal. The complaint alleges clearly that
Lockheed’s October 2016 termination, whether legal or illegal, cut Blenheim out of the
transaction and thus deprived it of its anticipated benefits.
Also, Blenheim’s alternative argument that the accrual date of its action was
extended until the restructured offset transaction was complete, i.e., when the satellite was
launched in 2020, lacks legal support. The fact that some damages were to accrue in the
future does not extend the accrual date. See Zenith Radio Corp., 401 U.S. at 339. As the
Supreme Court noted, to recover future damages, the plaintiff still must “sue within the
requisite number of years from the accrual of the action,” when it first felt “the adverse
impact of [the] antitrust conspiracy.” Id. Because Blenheim felt adverse impacts
immediately upon Lockheed’s October 2016 termination of the brokerage agreement, the
date of the satellite launch is not relevant to the date when the cause of action accrued.
Accordingly, we affirm the district court’s ruling that Blenheim’s antitrust claims
are barred by the applicable four-year statute of limitations.
While the district court also concluded, indeed persuasively, that the FTAIA barred
Blenheim’s antitrust claims because the anticompetitive conduct alleged did not
sufficiently affect U.S. domestic or import commerce, we do not address that issue in light
of our ruling affirming dismissal on the basis of the statute of limitations.
The judgment of the district court is, accordingly,
AFFIRMED.
23 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484347/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0461n.06
No. 21-2657
UNITED STATES COURT OF APPEALS FILED
FOR THE SIXTH CIRCUIT Nov 16, 2022
DEBORAH S. HUNT, Clerk
)
JOSEPH MICHAEL McINTYRE,
)
Petitioner-Appellant, ) ON APPEAL FROM THE
) UNITED STATES DISTRICT
v. ) COURT FOR THE WESTERN
) DISTRICT OF MICHIGAN
JAMES R. SCHIEBNER, Warden, )
Respondent-Appellee. ) OPINION
)
Before: GIBBONS, GRIFFIN, and STRANCH, Circuit Judges.
GRIFFIN, Circuit Judge.
Accused of arson and home invasion in Michigan state court, Joseph McIntyre presented
only an insanity defense—he admitted entering houses and setting fires but claimed that he could
not control the urges he felt to do so. During closing argument, the assistant county prosecutor
told the jury that McIntyre would “skate” or “get off” on the charges if they found him not guilty
by reason of insanity. She also compared him to foot fetishists and child pornographers, arguing
that an odd urge does not render a person legally insane. Defense counsel did not object to these
statements, and the jury convicted McIntyre on all counts. He appealed to the Michigan Court of
Appeals, arguing that the prosecutor’s statements violated his right to a fair trial under the Due
Process Clause of the Fourteenth Amendment. The court found the unobjected-to statements
concerning, but not plainly erroneous. On habeas review, we find this claim to be procedurally
defaulted. Accordingly, we affirm the district court’s judgment denying McIntyre’s petition for
habeas corpus.
No. 21-2657, McIntyre v. Schiebner
I.
Petitioner Joseph McIntyre was tried and convicted of eight counts of arson and three
counts of first-degree home invasion. The Michigan Court of Appeals summarized the facts of the
case as follows:
Eleven fires occurred in Grand Rapids, mostly on the southeast side of town and in
garages, between July 18, 2010, and October 17, 2010. A task force was created to
apprehend the arsonist. Shortly after its creation, the task force received an
anonymous tip that defendant was the arsonist. After receiving the tip, task force
members interviewed friends and members of defendant’s family and then placed
him under surveillance. In the early morning hours of October 17, 2010, task force
members watched as defendant left his house and followed him to a home on 32nd
Street in Grand Rapids. After defendant drove from the location, police officers
moved in to the location and discovered a fire which had been set in an undetached
garage. Defendant was stopped a short time later and taken into custody. He
confessed to setting the fires, except for two of them, but claimed that he was insane
at the time of the fires.
People v. McIntyre, No. 308394, 2014 WL 667633, at *1 (Mich. Ct. App. Feb. 18, 2014) (per
curiam). We presume that these facts are correct, absent a showing of clear and convincing
evidence to the contrary. 28 U.S.C. § 2254(e)(1); see Hodgson v. Warren, 622 F.3d 591, 598 (6th
Cir. 2010).
The focus of this appeal is the prosecutor’s closing argument. Early in her closing
argument, the prosecutor said “[t]he only way he skates on this, gets off of this, is if the defense
has proven its burden to prove by a preponderance that he is legally insane.” She went on to argue
that “if he is found legally insane at the time of his offenses, it excuses his crimes. . . . Finding
someone legally insane means he’s not held responsible. Not responsible for his actions. That’s
what it’s saying. And his crimes go unpunished. That is the effect.” Later on, the prosecutor
reiterated this theme: “If he is mentally ill, as defined by the statute, it should be clear. It should
be obvious. Those are the people entitled to this defense. Entitled to a walk. Treatment. Not
punishment. It ain’t him.” We refer to these comments as the “punishment” comments.
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No. 21-2657, McIntyre v. Schiebner
Defense counsel did not object to the punishment comments, but in response requested the
following:
Your Honor, during the prosecutor’s closing argument, basically it included that
there would be no – that Mr. McIntyre’s conduct would go unpunished unless the
jury found him guilty, basically. It didn’t say guilty, guilty but mentally ill, but
basically that – that – that there wouldn’t be any consequence if he were found not
guilty by reason of insanity. And I know that in my response to that I noted
[Michigan Model Criminal Jury Instruction] 3.13; penalty – it is the duty of the
judge to fix the penalty within the limits provided by the law, that the limits
provided by the law on that verdict would include continued court oversight, that
it’s not as though he’s going unpunished.
***
[I]t’s our request that since that issue has been raised that there be an instruction
from the Court on what would happen with the – with a not guilty by reason of
insanity, rather than just leaving it out there that Mr. McIntyre would walk out of
the court tomorrow if he were found not guilty by reason of insanity because that
just is not my understanding of the state of the law.
The trial court denied the request but instructed the jury that “[p]ossible penalties should not
influence your decision, it is the duty of the judge to fix the penalty within limits provided by law.”
The prosecutor’s closing statement also compared McIntyre to someone who gets
“enjoyment out of things that you think are weird”:
People like feet, I hear. You know? Some people have a foot fetish. Really? Is
there anything much uglier than a foot? But, you know, people get enjoyment out
of feet. People get enjoyment out of pornography. Some get enjoyment out of
kiddie porn. Does that sound fun to you? Does that sound enjoyable or exciting to
you? Looking at little kids naked or doing stuff with each other? It does to some
people. It doesn’t make them legally insane, it just means they’re different from
you. Weird? Yeah. Different? Yeah. Odd? You bet. But it doesn’t make them
legally insane.
We refer to these comments as the “comparison” comments. No objection was made or curative
instruction requested regarding these comments.
McIntyre appealed his convictions and sentence. Among other issues, he raised the
prosecutorial misconduct claim that is the subject of this habeas appeal. McIntyre, 2014 WL
-3-
No. 21-2657, McIntyre v. Schiebner
667633, at *12. The Michigan Court of Appeals concluded that the claim was unpreserved because
trial counsel “did not object to the alleged improper statements.” Id. As a consequence, it reviewed
only for plain error. Id. While the punishment comments were “of concern,” the Michigan Court
of Appeals could not “find, on an examination of the whole of [the prosecutor’s] statements, that
they constituted plain error.” Id. at *13. The Court of Appeals also concluded that the comparison
comments, when viewed in context, were “not plainly erroneous.” Id. at *14. And in any event,
the Michigan Court of Appeals held, even if the prosecutor’s comments were erroneous, they did
not affect the outcome of trial, given the instruction about penalties given to the jury. Id. Thus,
they did not prejudice McIntyre and he was not entitled to relief. Id. The Michigan Supreme
Court denied leave to appeal. People v. McIntyre, 852 N.W.2d 625 (Mich. 2014) (mem.).
McIntyre filed a timely petition for habeas corpus in district court. The magistrate judge
issued a report and recommendation finding that the petition was meritless but granting a
certificate of appealability regarding the claim of prosecutorial misconduct during closing
arguments. Over McIntyre’s objection, the district court adopted that report and recommendation.
McIntyre timely appealed.
II.
Although the district court resolved McIntyre’s claim on the merits, we begin and end with
the Warden’s argument (which he also advanced in the district court) that the claim is procedurally
defaulted. See Smith v. Ohio Dep’t of Rehab. & Corr., 463 F.3d 426, 436 (6th Cir. 2006) (“We
may affirm on any grounds supported by the record, even though they may be different from the
grounds relied on by the district court.”) (brackets and citation omitted). Federal courts “may not
review federal claims that were procedurally defaulted in state courts.” Theriot v. Vashaw, 982
F.3d 999, 1003 (6th Cir. 2020) (citation omitted). Whether a claim is procedurally defaulted is a
-4-
No. 21-2657, McIntyre v. Schiebner
question we review de novo. Hodges v. Colson, 727 F.3d 517, 529 (6th Cir. 2013). In conducting
our review, we look to the last reasoned state-court decision. Theriot, 982 F.3d at 1003. Here,
that is the Michigan Court of Appeals’ decision.
The Warden argues that McIntyre’s claim is procedurally defaulted because the Michigan
Court of Appeals properly applied its own procedural bar, the contemporaneous-objection rule.
That rule requires parties to “raise objections at a time when the trial court has an opportunity to
correct the error, which could thereby obviate the necessity for further legal proceedings[.]”
People v. Grant, 520 N.W.2d 123, 130 (Mich. 1994); see also Mich. R. Evid. 103(a). When a
defendant does not timely object to a claim of constitutional error, the Michigan courts will review
that claim only for plain error.1 See People v. Carines, 597 N.W.2d 130, 137–39 (Mich. 1999).
That is how the Michigan Court of Appeals treated McIntyre’s prosecutorial-misconduct claim.
“[W]hen a state court decline[s] to address a prisoner’s federal claims because the prisoner
had failed to meet a state procedural requirement[,] . . . the state judgment rests on independent
and adequate state procedural grounds,” and we cannot review those federal claims. Coleman v.
Thompson, 501 U.S. 722, 729–30 (1991). To determine whether a claim has been defaulted by a
prisoner’s “failure to observe a state procedural rule,” we “must go through a complicated
analysis.” Maupin v. Smith, 785 F.2d 135, 138 (6th Cir. 1986). “First, the court must determine
that there is a state procedural rule that is applicable to the petitioner’s claim and that the petitioner
failed to comply with the rule.” Id. “Second, the court must decide whether the state courts
actually enforced the state procedural sanction.” Id. “Third, the court must decide whether the
1
The parties discuss the contemporaneous-objection rule and plain error almost
interchangeably, as if they are both the procedural rule. While they go hand in hand, only the
contemporaneous-objection rule is a procedural rule, and application of the plain-error standard of
review is merely the consequence of failing to comply with the rule. Thus, in this opinion, we
refer to the rule as the contemporaneous-objection rule.
-5-
No. 21-2657, McIntyre v. Schiebner
state procedural forfeiture is an ‘adequate and independent’ state ground on which the state can
rely to foreclose review of a federal constitutional claim.” Id. To overcome this bar, the petitioner
must demonstrate “that there was cause for him to not follow the procedural rule and that he was
actually prejudiced by the alleged constitutional error.” Id. (internal quotation marks omitted).
On the first question, the parties agree that the contemporaneous-objection rule is generally
applicable but disagree as to whether McIntyre complied with it. We find it useful to consider
separately the punishment comments and the comparison comments. There is no question that
defense counsel failed to object to the comparison comments. But McIntyre argues that defense
counsel did object to the punishment comments after the prosecutor finished her closing argument.
We disagree.
The Michigan Court of Appeals found that defense counsel did not object to the
punishment comments, and in any event, he did not raise the issue contemporaneously. See
McIntyre, 2014 WL 667633, at *12. Absent a showing that this finding of fact is clearly erroneous,
we must accept it as true. Hodgson, 622 F.3d at 598. Nothing in the record permits us to set these
facts aside—defense counsel neither objected to the prosecutor’s statements nor argued their
impropriety to the trial court; rather, all he did was “request that since that issue has been raised
that there be an instruction from the Court on [punishment.]” This request for an unspecific jury
instruction is not an objection. McIntyre is bound by the Michigan Court of Appeals’
determination that there was no objection, let alone a contemporaneous one. He therefore failed
to comply with the relevant state procedural rule.
The parties agree that the Michigan Court of Appeals enforced the procedural rule against
McIntyre (the second Maupin question), see McIntyre, 2014 WL 667633, at *12, and its “decision
to employ plain error review to otherwise abandoned arguments does not excuse [McIntyre’s]
-6-
No. 21-2657, McIntyre v. Schiebner
default,” Williams v. Burt, 949 F.3d 966, 973 (6th Cir. 2020). And, as McIntyre’s counsel
conceded at oral argument (retreating from his briefing), this procedural bar is an adequate and
independent state ground (the third Maupin question). See, e.g., Bickham v. Winn, 888 F.3d 248,
252 (6th Cir. 2018). The state court’s application of such a procedural bar would “[o]rdinarily . . .
be adequate to foreclose review” of McIntyre’s claim. Lee v. Kemna, 534 U.S. 362, 376 (2002).
But exceptional cases exist, “in which exorbitant application of a generally sound rule
renders the state ground inadequate to stop consideration of a federal question.” Id. McIntyre
argues that this is such a case, claiming that application of the contemporaneous-objection rule
“unfairly penalizes [him] and constitutes an exorbitant penalty in the circumstances of this case.”
In support of this position, he cites Gibbs v. Huss, in which we concluded that enforcement of the
contemporaneous-objection rule against a defendant might be inadequate to foreclose review of a
public trial claim. 12 F.4th 544, 554 (6th Cir. 2021). But Gibbs is factually distinguishable: Gibbs
did not object when the trial court closed voir dire to the public, but he may not have been aware
of the courtroom’s closure. Id. at 553. We concluded that there is no obligation for a defendant
to object to a situation of which he is unaware, so in the unique circumstances that case presented,
the state could not rely on the “general adequacy of the contemporaneous-objection rule.” Id.
Unlike in Gibbs, McIntyre’s counsel was aware of the alleged error at the time it happened.
Therefore, Gibbs and its analysis of Michigan’s contemporaneous-objection rule are inapposite,
and the “general adequacy of the contemporaneous-objection rule” applies. Id.
McIntyre also argues that trial counsel’s failure to object “would serve no purpose because
it would have brought the jury’s attention to the prosecutor[’]s statements.” This, he argues in a
single paragraph, would “impose an exorbitant cost” on him and should not bar habeas review.
But he does not explain how enforcing the contemporaneous-objection rule would impose an
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No. 21-2657, McIntyre v. Schiebner
“exorbitant” cost on him. We decline to address this skeletal argument. See, e.g., Vander Boegh
v. EnergySolutions, Inc., 772 F.3d 1056, 1063 (6th Cir. 2014).
Michigan’s contemporaneous-objection rule is an adequate and independent state ground.
The state court’s application of this rule to McIntyre’s claim renders it procedurally defaulted.
McIntyre has not developed his argument that he has cause and prejudice to excuse the default, so
we cannot review his claim.
III.
For these reasons, the judgment of the district court is affirmed.
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-4597
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
DEXTER JAMAL WILLIAMS, a/k/a Baby D,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of North Carolina, at
Raleigh. Richard E. Myers, II, Chief District Judge. (5:20-cr-00250-M-1)
Submitted: October 31, 2022 Decided: November 15, 2022
Before THACKER and HARRIS, Circuit Judges, and TRAXLER, Senior Circuit Judge.
Dismissed in part and affirmed in part by unpublished per curiam opinion.
ON BRIEF: James W. Kilbourne, Jr., ALLEN STAHL & KILBOURNE, PLLC,
Asheville, North Carolina, for Appellant. David A. Bragdon, Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Raleigh, North Carolina,
for Appellee.
Unpublished opinions are not binding precedent in this circuit.
USCA4 Appeal: 21-4597 Doc: 29 Filed: 11/15/2022 Pg: 2 of 6
PER CURIAM:
Dexter Jamal Williams appeals his convictions and 168-month sentence imposed
following his guilty plea to Hobbs Act robbery (Count 1), in violation of 18 U.S.C. §§ 2,
1951, and brandishing a firearm in furtherance of a crime of violence (Count 2), in violation
of 18 U.S.C. §§ 2, 924(c). Williams’ counsel has filed a brief pursuant to Anders v.
California, 386 U.S. 738 (1967), stating that there are no meritorious issues for appeal but
questioning: (1) whether aiding and abetting Hobbs Act robbery is a predicate crime of
violence supporting Williams’ § 924(c) conviction; and (2) whether Williams’ sentence
(a) is procedurally unreasonable, (b) was tainted by a partial closure of the sentencing
hearing that violated his right to a public trial, (c) was supported by unreliable witness
testimony, (d) failed to satisfy the need to avoid unwarranted sentencing disparities, and
(e) unreasonably relied upon a finding that Williams’ offense conduct was violent.
Williams was notified of his right to file a pro se supplemental brief but has not done so.
The Government moves to dismiss the appeal pursuant to the appeal waiver in the plea
agreement, which Williams opposes. We dismiss in part and affirm in part.
We review the enforceability of an appeal waiver de novo. United States v. McLeod,
972 F.3d 637, 640 (4th Cir. 2020). “When the government seeks to enforce an appeal
waiver and has not breached the plea agreement, we will enforce the waiver if it is valid
and if the issue being appealed falls within its scope.” United States v. Beck, 957 F.3d 440,
445 (4th Cir. 2020).
“A ‘valid’ appeal waiver is one entered by the defendant knowingly and
intelligently, a determination that we make by considering the totality of the
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USCA4 Appeal: 21-4597 Doc: 29 Filed: 11/15/2022 Pg: 3 of 6
circumstances.” United States v. Boutcher, 998 F.3d 603, 608 (4th Cir. 2021). “Generally
though, if a district court questions a defendant regarding the waiver of appellate rights
during the [Fed. R. Crim. P.] 11 colloquy and the record indicates that the defendant
understood the full significance of the waiver, the waiver is valid.” United States v. McCoy,
895 F.3d 358, 362 (4th Cir. 2018) (internal quotation marks omitted).
Williams does not contest the validity of the waiver, and our review of the record
confirms that he knowingly and voluntarily waived his right to appeal. Thus, we will
enforce the waiver to bar all issues within its scope.
Counsel asserts that the waiver does not preclude Williams’ appeal, both because
specific issues he raises cannot validly be waived and because the waiver’s language is too
ambiguous to permit its application to Williams’ appeal. Addressing first the waiver’s
language, we interpret plea agreements by “look[ing] to the plain language of the
agreement, construing it in the ordinary sense,” and apply[ing] principles of contract law
to ensure that each party receives the benefit of the bargain.” Boutcher, 998 F.3d at 608
(internal quotation marks omitted). “Because plea agreements necessarily implicate a
defendant’s constitutional rights, we analyze those agreements with a greater degree of
scrutiny than we would evaluate a contract in a civil context.” Id. When the language of
the plea agreement is ambiguous, we construe it against the Government. United States v.
Under Seal, 902 F.3d 412, 417-18 (4th Cir. 2018). However, we will decline to “create an
ambiguity where none legitimately exists.” United States v. Tate, 845 F.3d 571, 575 (4th
Cir. 2017).
3
USCA4 Appeal: 21-4597 Doc: 29 Filed: 11/15/2022 Pg: 4 of 6
Here, we find no ambiguity in the waiver’s plain language. Counsel asserts that the
waiver does not apply because it bars only those appeals challenging both the conviction
and the sentence, while Williams appeals only his sentence. Counsel’s contention is belied
by the arguments raised in the Anders brief and the response in opposition to the motion to
dismiss. We likewise reject counsel’s assertion that the waiver exempts challenges to a
sentence as “groundless.” Instead, the waiver’s broad language squarely encompasses the
defects that counsel seeks to assert.
Turning to the scope of the appeal waiver, Williams’ waiver does not preclude him
from challenging the validity of his guilty plea. See McCoy, 895 F.3d at 364. Before
accepting a guilty plea, the district court must conduct a plea colloquy in which it informs
the defendant of, and determines that the defendant understands, the rights he is
relinquishing by pleading guilty, the charge to which he is pleading, and the maximum and
any mandatory minimum penalties he faces. Fed. R. Crim. P. 11(b)(1); United States v.
DeFusco, 949 F.2d 114, 116 (4th Cir. 1991). The district court also must ensure that the
plea is voluntary and not the result of force, threats, or promises ancillary to the plea
agreement, Fed. R. Crim. P. 11(b)(2), and “that there is a factual basis for the plea,” Fed.
R. Crim. P. 11(b)(3).
Because Williams did not seek to withdraw his guilty plea or otherwise object to the
plea hearing in the district court, we review the adequacy of the Rule 11 colloquy for plain
error. United States v. Sanya, 774 F.3d 812, 815 (4th Cir. 2014); see United States v.
Harris, 890 F.3d 480, 491 (4th Cir. 2018) (describing standard). Our review of the record
confirms that the district court complied with Rule 11, ensuring that the plea was knowing,
4
USCA4 Appeal: 21-4597 Doc: 29 Filed: 11/15/2022 Pg: 5 of 6
voluntary, and supported by an independent factual basis. We therefore conclude that
Williams’ guilty plea is valid.
Next, as counsel observes, “a defendant who waives his right to an appeal does not
subject himself to being sentenced entirely at the whim of the district court.” United States
v. Marin, 961 F.2d 493, 496 (4th Cir. 1992). Thus, even a valid appeal waiver will not
preclude a defendant from raising issues on appeal that “fall within the narrow class of
claims that we have allowed a defendant to raise on direct appeal despite a general waiver
of appellate rights.” United States v. Lemaster, 403 F.3d 216, 220 n.2 (4th Cir. 2005); see
United States v. Copeland, 707 F.3d 522, 530 (4th Cir. 2013) (generally describing limited
class of claims exempted from appeal waivers).
Counsel argues that several of the claims raised in the Anders brief fall within the
limited class of nonwaivable claims exempted from valid appeal waivers. We are
unpersuaded. First, counsel asserts that Williams’ challenge to his § 924(c) conviction is
nonwaivable because we will “refuse to enforce an otherwise valid waiver if to do so would
result in a miscarriage of justice.” United States v. Johnson, 410 F.3d 137, 151 (4th Cir.
2005) (internal quotation marks omitted). However, Williams cannot make “[a] proper
showing of actual innocence . . . sufficient to satisfy the miscarriage of justice
requirement.” United States v. Adams, 814 F.3d 178, 182 (4th Cir. 2016) (internal
quotation marks omitted); see United States v. Mathis, 932 F.3d 242, 266 (4th Cir. 2019)
(holding that Hobbs Act robbery is categorically crime of violence under force clause of
§ 924(c)); United States v. Ali, 991 F.3d 561, 574 (4th Cir.) (“[A]iding and abetting a crime
of violence is also categorically a crime of violence.”), cert. denied, 142 S. Ct. 486 (2021).
5
USCA4 Appeal: 21-4597 Doc: 29 Filed: 11/15/2022 Pg: 6 of 6
Next, counsel argues that Williams’ challenges to the district court’s explanation
and reliance on unreliable witness testimony are not subject to waiver under Marin. To the
contrary, such routine claims of procedural error fall well outside the narrow class of
nonwaivable claims. We also conclude that Williams’ challenge to the temporary closure
of the sentencing hearing falls within the waiver’s broad compass. See United States v.
Shehadeh, 962 F.3d 1096, 1102 (9th Cir. 2020).
In accordance with Anders, we have reviewed the entire record in this case and have
found no meritorious grounds for appeal that would fall outside the scope of the appeal
waiver. Accordingly, we deny the Government’s motion to dismiss in part, affirm as to all
nonwaivable issues, grant the Government’s motion to dismiss in part, and dismiss as to
all remaining issues.
We deny counsel’s motion to withdraw from representation. This court requires
that counsel inform Williams, in writing, of the right to petition the Supreme Court of the
United States for further review. If Williams requests that a petition be filed, but counsel
believes that such a petition would be frivolous, then counsel may move in this court for
leave to withdraw from representation. Counsel’s motion must state that a copy thereof
was served on Williams.
We dispense with oral argument because the facts and legal contentions are
adequately presented in the materials before this court and argument would not aid the
decisional process.
DISMISSED IN PART,
AFFIRMED IN PART
6 | 01-04-2023 | 11-16-2022 |
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UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 22-6403
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
CHRISTOPHER LAMONT STEWARD,
Defendant - Appellant.
Appeal from the United States District Court for the Eastern District of Virginia, at
Newport News. Arenda L. Wright Allen, District Judge. (4:14-cr-00075-AWA-TEM-1)
Submitted: October 31, 2022 Decided: November 15, 2022
Before WYNN and DIAZ, Circuit Judges, and MOTZ, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
Christopher Lamont Steward, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit.
USCA4 Appeal: 22-6403 Doc: 9 Filed: 11/15/2022 Pg: 2 of 3
PER CURIAM:
Christopher Lamont Steward appeals the district court’s order denying his motion
for compassionate release. We affirm.
When deciding whether to reduce a defendant’s sentence under 18 U.S.C.
§ 3582(c)(1)(A), a district court generally proceeds in three steps. United States v. High,
997 F.3d 181, 185-86 (4th Cir. 2021). First, the court determines whether “extraordinary
and compelling reasons” support a sentence reduction. 18 U.S.C. § 3582(c)(1)(A)(i); High,
997 F.3d at 186. Second, the court considers whether a reduction is consistent with any
applicable policy statements issued by the Sentencing Commission. 18 U.S.C.
§ 3582(c)(1)(A)(ii); High, 997 F.3d at 186. Third, if the court finds that extraordinary and
compelling reasons warrant relief, the court must consider the § 3553(a) sentencing factors
“in deciding whether to exercise its discretion to reduce the defendant’s term of
imprisonment.” High, 997 F.3d at 186; 18 U.S.C. § 3582(c)(1)(A).
District courts enjoy broad discretion in deciding whether extraordinary and
compelling circumstances justify a compassionate release sentence reduction. United
States v. Kibble, 992 F.3d 326, 330 (4th Cir.), cert. denied, 142 S. Ct. 383 (2021). “In the
context of the COVID-19 outbreak, courts have found extraordinary and compelling
reasons for compassionate release when an inmate shows both a particularized
susceptibility to the disease and a particularized risk of contracting the disease at his prison
facility.” United States v. Feiling, 453 F. Supp. 3d 832, 841 (E.D. Va. 2020) (citing cases).
The inmate must show at least “that the risk of contracting COVID-19 in a prison is higher
than the risk outside the prison and that the inmate’s preexisting medical condition
2
USCA4 Appeal: 22-6403 Doc: 9 Filed: 11/15/2022 Pg: 3 of 3
increases that individual’s risk of experiencing a serious, or even fatal, case of COVID-
19.” High, 997 F.3d at 185.
We conclude that the district court did not abuse its discretion in denying
compassionate release by finding that Steward did not show extraordinary and compelling
reasons for his release. The court carefully weighed the evidence and concluded that
compassionate release was not warranted.
Accordingly, we affirm the district court’s order. We dispense with oral argument
because the facts and legal contentions are adequately presented in the materials before this
court and argument would not aid the decisional process.
AFFIRMED
3 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484348/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0459n.06
Case No. 21-4190
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
Nov 16, 2022
JOSE WILLIAN GARCIA-DOMINGUEZ, )
DEBORAH S. HUNT, Clerk
)
Petitioner,
)
) ON PETITION FOR REVIEW
v.
) FROM THE UNITED STATES
) BOARD OF IMMIGRATION
MERRICK B. GARLAND, Attorney General,
) APPEALS
Respondent. )
) OPINION
____________________________________/
Before: GUY, WHITE, and LARSEN, Circuit Judges.
RALPH B. GUY, JR., Circuit Judge. Petitioner, a native and citizen of El Salvador,
entered the United States unlawfully, conceded inadmissibility, and seeks review of the decision
denying his applications for asylum and withholding of removal. Concluding that the petition has
not identified anything that compels a contrary result, the petition for review is denied.
I.
In March 2014, petitioner Jose Willian Garcia-Dominguez entered the United States by
crossing the border into Texas without a valid entry document and was taken into custody the same
day. Although petitioner initially indicated that he was not afraid to return to El Salvador, he stated
in a later credible fear interview that he was afraid of harm from gang members if he were to return
to El Salvador. After the Department of Homeland Security (DHS) initiated removal proceedings
Case No. 21-4190, Garcia-Dominguez v. Garland
in April 2014, petitioner conceded inadmissibility and applied for asylum, withholding of removal,
and protection under the Convention Against Torture (CAT).
In February 2019, at a merits hearing before an Immigration Judge (IJ), Garcia-Dominguez
testified that he was a member of the ARENA (Alianza Republicana Nacionalista) political party
and had passed out flyers in support of the ARENA party approximately seven times. Petitioner
conceded that he received no threats while passing out flyers supporting the ARENA party. He
was first threatened on February 2, 2014, while serving as a watchman for an election and checking
voting identification documents. While performing those duties, another watchman who supported
the FMLN (Frente Farabundo Marti para la Liberacion Nacional) political party asked petitioner
to let MS-13 gang members vote for FMLN without proper identification. When petitioner
refused, two gang members threatened him and then left. Security came and escorted petitioner
home.
A few days later, petitioner received a phone call warning him to let the MS-13 gang
members vote or else he would be killed. The caller also said petitioner would be forgiven if he
joined the gang. Petitioner believed that the caller wanted him to join the MS-13 gang because he
lived in an area controlled by the rival MS-18 gang. On February 10, 2014, petitioner made a
report of those threats to the police and his report was processed. A few days later, on February
13, 2014, armed gang members appeared at petitioner’s house, stating that they knew about the
police report and that they wanted to kill him. Petitioner, who was in another town at the time,
testified that he believed corrupt police told the gang that he had made the report. Petitioner left
El Salvador the next day.
Petitioner believed he would not be safe from MS-13 anywhere in El Salvador because of
police corruption. He also feared harm from MS-13 if he were to return to El Salvador, explaining
-2-
Case No. 21-4190, Garcia-Dominguez v. Garland
that he had nightmares about being killed in El Salvador. Petitioner acknowledged that members
of his family remained in El Salvador and had not been bothered by MS-13 gang members. He
also acknowledged that the FMLN party took third place and that the ARENA party took second
place in the most recent election.
The IJ’s oral decision noted inconsistencies in petitioner’s testimony but declined to make
an adverse credibility determination. The IJ found petitioner’s proposed social groups are not
legally cognizable, and the Board of Immigration Appeals (BIA) agreed. Specifically, the first
proposed group—Salvadoran citizens that are members of the ARENA political party who refused
to let MS-13 gang members vote for the FMLN party and report the election fraud to the police—
lacked the necessary social distinction. The second proposed group—Salvadoran citizens who
live in the MS-18 gang territory and refuse to join the MS-13 gang—lacked particularity. Further,
the IJ and BIA found petitioner had not established a nexus between the claimed persecution and
either his political opinion or the proposed social groups. Finally, the IJ determined, and the BIA
agreed, that petitioner failed to show that the Salvadoran authorities were or would be unable or
unwilling to control the MS-13 gang members. Accordingly, the BIA affirmed the IJ’s denial of
asylum and withholding of removal and deemed petitioner to have abandoned any challenge to the
denial of protection under the CAT. This court has jurisdiction to review the BIA’s decision under
8 U.S.C. § 1252.1
II.
When, as here, “the BIA reviews the immigration judge’s decision and issues a separate
opinion, rather than summarily affirming the immigration judge’s decision, we review the BIA’s
1
Petitioner does not contest the finding that he abandoned the claim for relief under the CAT, so
we need not determine whether that claim was administratively exhausted. See Hassan v.
Gonzales, 403 F.3d 429, 432 (6th Cir. 2005).
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Case No. 21-4190, Garcia-Dominguez v. Garland
decision as the final agency determination.” Khalili v. Holder, 557 F.3d 429, 435 (6th Cir. 2009).
The court also reviews the immigration judge’s decision to the extent that the reasoning is adopted
by the BIA. Id. (citing Patel v. Gonzales, 470 F.3d 216, 218 (6th Cir. 2006)). “Questions of law
are reviewed de novo,” id., and “findings of fact are conclusive unless any reasonable adjudicator
would be compelled to conclude to the contrary,” 8 U.S.C. § 1252(b)(4)(B).
In the end, the BIA’s determination on the requested relief will be upheld if it is supported
by substantial evidence. See Cruz-Guzman v. Barr, 920 F.3d 1033, 1035 (6th Cir. 2019); Kukalo
v. Holder, 744 F.3d 395, 399-400 (6th Cir. 2011). Substantial evidence “means—and means
only—‘such relevant evidence as a reasonable mind might accept as adequate to support a
conclusion.’” Biestek v. Berryhill, 139 S. Ct. 1148, 1154 (2019) (quoting Consol. Edison Co. of
N.Y. v. NLRB, 305 U.S. 197, 229 (1938)). That is, we may reverse only if the decision was
“manifestly contrary to law,” 8 U.S.C. § 1252(b)(4)(C), such that “the evidence ‘not only supports
a contrary conclusion, but indeed compels it,’” Haider v. Holder, 595 F.3d 276, 281 (6th Cir. 2010)
(quoting Ouda v. INS, 324 F.3d 445, 451 (6th Cir. 2003)).
A.
To be eligible for asylum at the discretion of the Attorney General, the applicant must
establish that he is a “refugee.” 8 U.S.C. § 1158(b)(1)(A)-(B)(i); see also Cruz-Guzman, 920 F.3d
at 1035-36. A refugee is an alien who is “unable or unwilling to return to . . . [their] country
because of [past] persecution or a well-founded fear of [future] persecution on account of race,
religion, nationality, membership in a particular social group, or political opinion.” 8 U.S.C.
§ 1101(a)(42)(A); see also 8 C.F.R. § 1208.13(b); Bonilla-Morales v. Holder, 607 F.3d 1132, 1136
(6th Cir. 2010). Petitioner must show that the protected ground—here, a social group or political
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Case No. 21-4190, Garcia-Dominguez v. Garland
opinion—“was or will be at least one central reason for persecuting” him. Umaña-Ramos v.
Holder, 724 F.3d 667, 671 (6th Cir. 2013) (quoting 8 U.S.C. § 1158(b)(1)(B)(i)).
Garcia-Dominguez relied on both past persecution and fear of future persecution on
account of membership either in one of the two proffered social groups or on account of his
political opinion. Persecution is “the infliction of harm or suffering by the government, or persons
the government is unwilling or unable to control, to overcome a characteristic of the victim.”
Bonilla-Morales, 607 F.3d at 1136 (quoting Al-Ghorbani v. Holder, 585 F.3d 980, 997 (6th Cir.
2009)). Petitioner was threatened with harm or death on three occasions: when he refused to allow
MS-13 gang members to vote; in a phone call if he did not let them vote or join MS-13 himself;
and to family members at his home a few days after he made a police report about that call.
Petitioner argues these threats suffice for past persecution, but neither the IJ nor the BIA
made a determination in that regard. Persecution generally “requires more than a few isolated
incidents of verbal harassment or intimidation.” Singh v. Ashcroft, 398 F.3d 396, 401 (6th Cir.
2005) (quoting Mikhailevitch v. INS, 146 F.3d 384, 390 (6th Cir. 1998)). But, because there is no
agency determination in that regard, we assume without deciding that persecution was established.
See Gonzales v. Thomas, 547 U.S. 183, 186 (2006); Hernandez-Perez v. Whitaker, 911 F.3d 305,
318 (6th Cir. 2018). Nonetheless, petitioner is not entitled to relief for other reasons.
First, petitioner offered no evidence to show that either of the two groups he proposes is
perceived as a distinct group by Salvadoran society. Zaldana Menijar v. Lynch, 812 F.3d 491, 498
(6th Cir. 2015); Umaña-Ramos, 724 F.3d at 674. A “particular social group” must satisfy three
requirements: “(1) immutability (members must share an immutable characteristic),
(2) particularity (the group has discrete and definable boundaries), and (3) social distinction
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Case No. 21-4190, Garcia-Dominguez v. Garland
(society actually perceives the purported group as a distinct class of persons).” Cruz-Guzman, 920
F.3d at 1036; see also Umaña-Ramos, 724 F.3d at 671.
The BIA found that the group defined as “Salvadoran citizens who live in one gang’s
territory and refuse to join MS-13” is not cognizable. “This court has already rejected the claim
that individuals targeted to join MS-13 qualify as a socially distinct group.” Cruz-Guzman, 920
F.3d at 1036; see also Lopez Sosa v. Barr, 780 F. App’x 307, 308 (6th Cir. 2019) (rejecting claim
that “individuals who refuse to join gangs make up a ‘particular social group’”). The group also
lacks particularity because it includes everyone who is not part of MS-13, so it is too broad to
constitute a particular social group. See Castro v. Holder, 530 F. App’x 513, 517 (6th Cir. 2013)
(discussing Matter of S-E-G-, 24 I&N Dec. 579, 584-88 (BIA 2008)).
Likewise, the group defined as “Salvadoran citizens that are members of the ARENA
political party who refuse to let MS-13 gang members vote for the FLMN party and report the
election fraud to the police” lacks social distinction. Petitioner argues that BIA was wrong to
conclude as much because MS-13 was aware that he made a police report, but the “persecutors’
perception is not itself enough to make a group socially distinct.” Menijar, 812 F.3d at 499
(quoting Matter of W-G-R-, 26 I&N Dec. 208, 218 (BIA 2014)). To the extent that petitioner
points to his actions as an election watchman, there was no evidence that Salvadoran society
perceives individuals who report election fraud as constituting a particular or distinct social group.
See Miguel-Jose v. Garland, 852 F. App’x 885, 889-90 (6th Cir. 2021) (finding “no evidence that
the social group of witnesses to crime warrants unique status in Guatemalan society”).
Second, petitioner argues that he established persecution on account of his political opinion
because he was threatened when he did not allow MS-13 gang members to commit voter fraud.
However, the IJ found that petitioner was threatened by the MS-13 gang members because “he
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Case No. 21-4190, Garcia-Dominguez v. Garland
interfered with their efforts to vote improperly in order to increase their influence and power . . .
rather than on account of his membership in either of his proffered social groups or his political
opinion.” The BIA agreed, adding that the IJ’s finding was supported by evidence that petitioner
was not threatened “during the 5 months he engaged in public activities for the ARENA party prior
to the February 2014 election and . . . only began receiving threats after he refused to let the gang
members vote without proper documentation.” “[T]he mere existence of a generalized ‘political’
motive” does not establish that persecution is on account of political opinion. INS v. Elias-
Zacarias, 502 U.S. 478, 482 (1992); see also Ruzi v. Gonzales, 441 F.3d 611, 615-16 (8th Cir.
2006). The evidence does not compel the conclusion that petitioner’s own political opinion (i.e.,
support for the ARENA party) was a reason for the gang members’ threats.
Further, because Garcia-Dominguez claimed persecution by non-governmental actors, he
had to show that his persecutors, e.g., the MS-13 gang members, are “either aligned with the
government or that the government is unwilling or unable to control” them. Juan Antonio v. Barr,
959 F.3d 778, 793 (6th Cir. 2020) (citing Khalili, 557 F.3d at 436). Whether the government is
unwilling or unable to control his persecutors is determined from the overall context, looking to
both “(1) the government’s response to an asylum applicant’s persecution and (2) general evidence
of country conditions.” K.H. v. Barr, 920 F.3d 470, 476 (6th Cir. 2019). The IJ found, and the
BIA agreed, that Garcia-Dominguez had failed to make this showing, emphasizing that petitioner
was escorted home after the first threats from MS-13 gang members who were not allowed to vote
without proper identification and that petitioner’s report to the police concerning the threats from
MS-13 gang members was processed. This evidence contradicted petitioner’s claim that the
government was unable or unwilling to control his persecutors. As for evidence that gang members
went to petitioner’s home when he was not there and threatened to kill him for making the police
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Case No. 21-4190, Garcia-Dominguez v. Garland
report, those threats were not reported and petitioner left El Salvador the next day. This court has
upheld the BIA’s “rejection of a claim that the government was unable or unwilling to control a
private party in part because the asylum applicant did not notify the government of the abuse.”
Ortiz v. Garland, 6 F.4th 685, 690 (6th Cir. 2021) (citing cases).
Nor was this showing met by petitioner’s generalized assertions of police corruption or his
unsubstantiated belief that corrupt police must have informed MS-13 gang members that he made
the police report. The BIA considered evidence of country conditions showing that “the
Salvadoran authorities actively work to combat gangs in the country.” Petitioner argues that there
was evidence that gangs in El Salvador operate with impunity and that credible news reports
suggest agreements between officials supporting the FMLN party and MS-13 gang members. Yet,
the U.S. State Department’s 2017 Human Rights Report and 2018 Crime & Safety Report observed
efforts have been made to prosecute gang-related crimes and corruption. See, e.g., Galdamez v.
Lynch, 630 F. App’x 608, 610 (6th Cir. 2015) (noting El Salvador’s efforts to control the gangs);
see also Rosa-Mejia v. Garland, 854 F. App’x 9, 13-14 (6th Cir. 2021) (finding “unable or
unwilling” showing not made where police offered assistance and “the Salvadorian government
had taken steps to curb gang violence amongst the police”).
Because the evidence does not compel a contrary conclusion, the BIA’s decision to deny
petitioner’s application for asylum is supported by substantial evidence. See Haidar, 595 F.3d at
281; Koulibaly v. Mukasey, 541 F.3d 613, 620 (6th Cir. 2008) (“[T]he court may not reverse the
Board’s determination simply because [it] would have decided the matter differently.” (quoting
Ouda, 324 F.3d at 451)).
-8-
Case No. 21-4190, Garcia-Dominguez v. Garland
B.
Withholding of removal is mandatory if an alien shows that their “life or freedom would
be threatened in that country because of the alien’s race, religion, nationality, membership in a
particular social group, or political opinion.” 8 U.S.C. § 1231(b)(3)(A); see also Khalili, 557 F.3d
at 435. Although the nexus required is more lenient than for asylum, the petitioner must meet “a
more stringent burden [with respect to persecution] than what is required on a claim for asylum.”
Urbina-Mejia v. Holder, 597 F.3d 360, 365 (6th Cir. 2010) (quoting Liti v. Gonzales, 411 F.3d
631, 640 (6th Cir. 2005)). Where, as here, petitioner has not developed any distinct argument
challenging the denial of withholding of removal, the claim may be deemed abandoned. See De
Morales v. Barr, 799 F. App’x 364, 367 (6th Cir. 2020).
To the extent that petitioner’s asylum arguments apply, “eligibility for withholding of
removal requires that the risk of [future] persecution be on account of a statutorily protected
ground.” Umaña-Ramos, 724 F.3d at 674. Because petitioner did not establish that any
persecution he might face would be on account of his membership in a statutorily protected social
group or because of his political opinion, the BIA’s decision to deny withholding of removal was
also supported by substantial evidence.
III.
Accordingly, Garcia-Dominguez’s petition for review is DENIED.
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https://www.courtlistener.com/api/rest/v3/opinions/8484339/ | USCA4 Appeal: 22-4051 Doc: 24 Filed: 11/15/2022 Pg: 1 of 4
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 22-4051
UNITED STATES OF AMERICA,
Plaintiff - Appellee,
v.
CHRISTOPHER RON HILL,
Defendant - Appellant.
Appeal from the United States District Court for the Middle District of North Carolina, at
Greensboro. William L. Osteen, Jr., District Judge. (1:10-cr-00081-WO-1)
Submitted: November 3, 2022 Decided: November 15, 2022
Before NIEMEYER, AGEE, and DIAZ, Circuit Judges.
Dismissed by unpublished per curiam opinion.
ON BRIEF: Seth A. Neyhart, LAW OFFICE OF SETH A. NEYHART, Durham, North
Carolina, for Appellant. Veronica Lynn Edmisten, Special Assistant United States
Attorney, OFFICE OF THE UNITED STATES ATTORNEY, Greensboro, North
Carolina, for Appellee.
Unpublished opinions are not binding precedent in this circuit.
USCA4 Appeal: 22-4051 Doc: 24 Filed: 11/15/2022 Pg: 2 of 4
PER CURIAM:
Christopher Ron Hill began serving a five-year term of supervised release in July
2018. In August 2021, the probation officer filed a petition alleging that Hill violated the
terms of his supervised release by committing another federal, state, or local crime, and
using a controlled substance. Although the district court found Hill had violated the terms
of his supervised release by using a controlled substance, the court decided not to revoke
Hill’s supervised release; instead, it continued him on supervision but modified the
conditions of his supervision to include participation in a location monitoring home
detention program. Hill seeks to appeal this order.
While this appeal was pending, Hill committed additional violations of his
supervised release. This time, the district court revoked Hill’s supervision and sentenced
him to 29 months’ imprisonment, but ordered no additional terms of supervision. Hill has
not appealed this order.
On appeal, counsel has filed a brief pursuant to Anders v. California, 386 U.S. 738
(1967), conceding that there are no meritorious issues for review, but questioning whether
the district court erred in failing to allow Hill to allocute, disregarding Hill’s participation
in substance abuse programs in imposing the new condition, allowing the probation officer
to begin enforcing the location monitoring home detention condition before the entry of a
written order, and considering the probation officer’s testimony. Counsel also suggests
that this appeal is now moot because Hill is no longer subject to the home detention
condition. We agree and dismiss this appeal as moot.
2
USCA4 Appeal: 22-4051 Doc: 24 Filed: 11/15/2022 Pg: 3 of 4
Before addressing the merits of an appeal, we must first consider whether it presents
“a live case or controversy . . . since mootness goes to the heart of the Article III jurisdiction
of the courts.” Castendet-Lewis v. Sessions, 855 F.3d 253, 260 (4th Cir. 2017). “If an
event occurs while a case is pending on appeal that makes it impossible for the court to
grant any effectual relief whatever to a prevailing party, the appeal must be dismissed.”
Incumaa v. Ozmint, 507 F.3d 281, 286 (4th Cir. 2007) (cleaned up). That is because
“federal courts have no authority to give opinions upon moot questions . . . or to declare
principles or rules of law which cannot affect the matter in issue in the case before it.” Id.
(internal quotation marks omitted).
Although the procedural posture of this case is unusual, the district court did not
intend to revoke Hill’s supervised release at the December 2021 hearing or in its January
2022 written order. Instead, it continued Hill’s term of supervised release but imposed an
additional condition of supervised release—the location monitoring home detention
program. Hill violated the terms of this program (and committed other violations),
prompting a new round of revocation proceedings. The district court then revoked Hill’s
supervised release and imposed no additional term of supervision. Thus, Hill is no longer
subject to the home detention condition he sought to challenge, and that condition will not
be reimposed upon his release from his current term of imprisonment. Even if we were to
consider the home detention condition to constitute a term of imprisonment, this appeal is
still moot because Hill is no longer serving that sentence. See United States v. Hardy, 545
F.3d 280, 284-85 (4th Cir. 2008).
3
USCA4 Appeal: 22-4051 Doc: 24 Filed: 11/15/2022 Pg: 4 of 4
In accordance with Anders, we have reviewed the entire record in this case and have
found no grounds upon which we have jurisdiction. We therefore dismiss this appeal as
moot. This court requires that counsel inform Hill, in writing, of the right to petition the
Supreme Court of the United States for further review. If Hill requests that a petition be
filed, but counsel believes that such a petition would be frivolous, then counsel may move
in this court for leave to withdraw from representation. Counsel’s motion must state that
a copy thereof was served on Hill.
We dispense with oral argument because the facts and legal contentions are
adequately presented in the materials before this court and argument would not aid the
decisional process.
DISMISSED
4 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484345/ | NOT RECOMMENDED FOR PUBLICATION
File Name: 22a0460n.06
Case No. 22-3100
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
FILED
) Nov 16, 2022
TERRY CASKEY, DEBORAH S. HUNT, Clerk
)
Plaintiff - Appellee, )
)
v. ON APPEAL FROM THE UNITED
)
STATES DISTRICT COURT FOR THE
)
NATHAN FENTON, et al., SOUTHERN DISTRICT OF OHIO
)
Defendants - Appellants. )
OPINION
)
)
Before: COLE, GIBBONS, and BUSH, Circuit Judges.
JULIA SMITH GIBBONS, Circuit Judge. Terry Caskey filed a complaint under 42 U.S.C.
§ 1983 against the City of Columbus and Officers Nathan Fenton and Charles R. Harshbarger.
Caskey alleged seizure without probable cause and malicious prosecution against the officers, as
well as a state law claim of malicious prosecution against the officers and the city. The district
court granted summary judgment for the City of Columbus but denied summary judgment for
Fenton and Harshbarger, concluding that there were genuine issues of material fact that made it
improper to grant qualified immunity at the summary judgment stage. Fenton and Harshbarger
appeal the denial of summary judgment on qualified immunity grounds. We affirm.
I.
On November 11, 2018, Fenton and Harshbarger (“the officers”) were on patrol, driving a
prisoner transport vehicle (“PTV”) on the streets of Columbus, Ohio. Harshbarger was driving,
with Fenton in the passenger seat. The officers spotted a blue Nissan Altima (“Altima”), license
No. 22-3100, Caskey v. Fenton
plate HDU2365, stopping at the intersection ahead of them. The officers observed that one of the
Altima’s brake lights was not working. The driver did not signal to turn, but then quickly turned
at the intersection. At that point, the officers flashed their lights and briefly activated their sirens
“in order to conduct a traffic stop for the traffic violations of . . . Failing to Signal and . . . Motor
Vehicle Lights.” DE 57-1, Arrest Information Report, PageID 565. However, the vehicle did not
pull over. Id. The Altima slowed down for the next intersection, making a right-hand turn.
The parties dispute what happened next. The officers assert that, as the Altima was turning
right, they observed that the driver was “an older male, white, short hair and medium build,” whom
they later identified as Caskey. Id. However, Caskey claims that this is not possible as his
roommate, Robert Taliaferro, was driving that night, not Caskey. Taliaferro is 30 years younger
than Caskey, taller, and has darker hair. Caskey further argues that the officers could not have
seen the driver of the car at all, given the dark night and the officers’ distance from the vehicle.
The dashcam footage, though grainy, shows a dark night, with the driver’s seat of the Altima not
visible in the footage at any point, even in the timeframe where the officers allegedly saw Caskey’s
features most clearly.
Next, the officers reported that the Altima “quickly accelerate[d] into the furthest left hand
lane of vehicles . . . in order to flee from the officers.” Id. However, the footage does not show
any such rapid acceleration. Instead, the footage shows the Altima crossing over into the furthest
left-hand lane. At this point, the officers turned off their lights and sirens to end the pursuit but
continued to observe the Altima. They report that the Altima continued driving dangerously:
causing another car to “slam on its brakes . . . almost caus[ing] an accident” and then speeding
onto the highway at a rate of “around 90 [mph] in a 55 mph zone . . . during which there was a
heavy flow of traffic.” Id. at 566. Caskey characterizes the footage as less extreme. He argues
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No. 22-3100, Caskey v. Fenton
that the video shows the other car referenced by the officers slowing down and braking but does
not show a near accident as described in the report.
After ending the pursuit, the officers looked up the vehicle information and found that the
Altima was registered to Terry Caskey. They then pulled up Caskey’s photograph in the Ohio
Law Enforcement Gateway (“OHLEG”) and determined that he was “the same older male, white,
short hair and medium build they witnessed driving.” DE 57-1, Arrest Information Report, PageID
565. Caskey claims that the officers lied and relied solely on the OHLEG photo to establish
probable cause for his arrest. Later that night, Fenton prepared and submitted the police report,
which contained a request that a Franklin County Grand Jury indict Caskey for failure to comply
with an order or signal of a police officer.
The Franklin County Prosecutor’s Office presented the police report to a grand jury, and
the grand jury indicted Caskey. The officers did not testify before the grand jury. Instead, a police
liaison testified, basing his testimony on the arrest information provided in the officers’ report.
After the grand jury found probable cause and indicted Caskey, the County Prosecutor’s Office
requested issuance of a warrant on the indictment. On Thanksgiving Day 2018, Caskey was
arrested at his home by two unnamed police officers. He was incarcerated for five days and then
released on his own recognizance.
Upon returning home, Caskey confronted Taliaferro about the night of November 11, 2018,
and Taliaferro allegedly admitted to driving the Altima that night. Caskey recorded the
conversation with Taliaferro in two videos and submitted those videos, via his attorney, to the
Franklin County Prosecutor’s Office. Days later, Taliaferro moved out, and he and Caskey have
had no subsequent contact.
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No. 22-3100, Caskey v. Fenton
On December 17, 2018, Caskey entered a not guilty plea. Four months later, the case was
dismissed due to “insufficient evidence to prove identification.” DE 58-7, Entry, PageID 664.
When asked in his civil deposition about any costs associated with dismissal of his case, Caskey
was at first unsure about whether he had to pay any court costs and then recalled paying court costs
to achieve dismissal of the case. Caskey later filed a motion to supplement the record to clarify
that he erred in his deposition testimony and had not paid anything to achieve dismissal. To
support this claim, he submitted his entire criminal file to demonstrate that there is no indication
that he paid costs to achieve dismissal of his case.
Caskey sued Fenton and Harshbarger under 42 U.S.C. § 1983 for seizure without probable
cause and malicious prosecution. He also brought a malicious prosecution claim against the
officers under Ohio state law.1
Following discovery, both parties produced expert reports related to a central issue in the
case: whether Fenton and Harshbarger could see the face of the car’s driver. Caskey’s expert,
James Sobek, took pictures of cars at the intersection where the officers claimed they saw Caskey
driving to demonstrate that a driver could not have been seen from the officers’ location. He
asserted that the photographs were an approximate recreation of the circumstances under which
the officers claimed to have seen Caskey. Caskey also produced photos taken by a professional
photographer, Jim Shively, of a Nissan Altima from approximately the distance the officers sat
behind the Altima to demonstrate that the driver could not be seen. Fenton and Harshbarger’s
rebuttal expert, Officer David Cornute, refuted the evidence provided by Sobek, concluding that
more illumination of the Altima existed than claimed by Sobek and that the scene was bright
1
Caskey also sued the City of Columbus for the state law malicious prosecution claim under a
respondeat superior theory of liability, but the district court granted summary judgment for the
City and dismissed the City from the case.
-4-
No. 22-3100, Caskey v. Fenton
enough for the officers to positively identify Caskey on November 11, 2018. Cornute also asserted
that Sobek’s underlying assumptions about the location of the lights on the PTV were incorrect,
leading to an erroneous conclusion about what the officers could see.
Caskey moved for summary judgment to deny the officers qualified immunity and the
officers moved for summary judgment to dismiss the claims based on their assertions of qualified
immunity. The officers argued that they were shielded by qualified immunity because Caskey
(1) failed to create a genuine issue of material fact for any constitutional rights violation and
(2) produced no fact pattern similar enough for the rights alleged to be “clearly established.” The
district court disagreed, determining that qualified immunity would not be appropriate at this stage
because, for each claim, a jury could find that Caskey’s rights were violated and those rights were
clearly established at the time of the violation. The district court also denied the parties’ cross-
motions for summary judgment because it concluded there were genuine issues of material fact
that needed to be resolved by a jury.
Fenton and Harshbarger now appeal the denial of their summary judgment motion.
II.
The denial of summary judgment is not normally a final appealable order under 28 U.S.C.
§ 1291, but a summary judgment denial of qualified immunity is immediately appealable “to the
extent that it turns on an issue of law.” Mitchell v. Forsyth, 472 U.S. 511, 530 (1985). Although
the district court framed its opinion as denying summary judgment because of genuine issues of
material fact, “[t]he district court’s characterization of the basis for its ruling is not dispositive.”
Stoudemire v. Mich. Dep’t of Corr., 705 F.3d 560, 564 (6th Cir. 2013) (citation omitted). Even
where the defendant tries to impermissibly rely on disputed facts on appeal, this court can ignore
the defendant’s attempts to dispute the facts and instead resolve any purely legal disputes. Est. of
-5-
No. 22-3100, Caskey v. Fenton
Carter v. City of Detroit, 408 F.3d 305, 310 (6th Cir. 2005). Therefore, this court has jurisdiction
to review the legal issues at the heart of this case, even where the officers have relied on disputed
facts.
“Where jurisdiction is appropriate, we review de novo the denial of summary judgment on
the basis of qualified immunity.” Est. of Hill ex rel. Hill v. Miracle, 853 F.3d 306, 312 (6th Cir.
2017) (citation omitted). Summary judgment should be granted when there is no genuine dispute
of material fact, and the movant is entitled to judgment as a matter of law. Fed. R. Civ. P. 56(a).
When reviewing a summary judgment determination, we view the facts and reasonable inferences
in the light most favorable to the nonmoving party. See Matsushita Elec. Indus. Co. v. Zenith
Radio Corp., 475 U.S. 574, 587 (1986). When there is video footage of an incident, we view the
facts “in the light depicted by the videotape.” Scott v. Harris, 550 U.S. 372, 381 (2007).
Generally, when a district court denies summary judgment because there are genuine issues
of material fact controlling the qualified immunity inquiry, there can be no interlocutory appeal of
that factual determination. Johnson v. Jones, 515 U.S. 304, 313 (1995). However, there is an
outer limit to that rule. Appellate review of whether a genuine dispute of material fact exists is
appropriate when the district court’s determination is so contradicted by the record that it is
“blatantly and demonstrably false,” see Bishop v. Hackel, 636 F.3d 757, 769 (6th Cir. 2011)
(citation omitted), and no jury could agree with it. See Scott, 550 U.S. at 380.
III.
The officers make both factual and legal challenges to the district court’s denial of qualified
immunity. Because the same factual arguments underpin all three of Caskey’s claims, we begin
with whether the key facts of Caskey’s case are beyond the possible findings of any reasonable
jury. We then address the officers’ qualified immunity arguments for each claim.
-6-
No. 22-3100, Caskey v. Fenton
A.
A defendant who invokes a qualified immunity defense “may not appeal a district court’s
summary judgment order insofar as that order determines whether or not the pretrial record sets
forth a ‘genuine’ issue of fact for trial.” Johnson, 515 U.S. at 319-20; Wysong v. City of Heath,
260 F. App’x 848, 853 (6th Cir. 2008) (“[A] court of appeals, when hearing a qualified immunity
case on interlocutory review, does not have jurisdiction to disagree with a district court’s decision
that the record contains a factual dispute that must be resolved at trial.”). The only exception is
when the plaintiff’s version of events is so blatantly contradicted by the record, such as in a video
recording, that no reasonable jury could have believed her. Scott, 550 U.S. at 380.
The factual question for this court is whether, given the record evidence (including the
dashcam footage), Caskey’s version of events is so demonstrably false that no jury could agree
with him. The officers claim Caskey’s allegations are mere speculation, and the district court
therefore erred when determining that there was a genuine issue of material fact regarding key
facts underpinning Caskey’s claims. CA6 R. 20, Appellant Br., at 15, 18. These disputed facts
are: first, whether the officers made a positive identification of the Altima’s driver on November
11, 2018, and second, whether the officers knowingly or with reckless disregard for the truth made
false statements in the report. But if Caskey’s story is not blatantly contradicted by the record,
then we must defer to the district court’s determination that a genuine issue of material fact exists.
We address these key factual allegations in turn.
First, Caskey alleges that the officers could not see the driver’s seat of the Altima on the
night of November 11, 2018, to positively identify the driver. Here, Caskey’s version of events is
not contradicted by the record. In fact, the record somewhat supports it. At all times, the officers
were driving behind the Altima. The sun had set two hours before they spotted it. The officers
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No. 22-3100, Caskey v. Fenton
claim that they saw the driver when the Altima was making a right-hand turn, which meant that
the structure of the car shrouded him in shadow and placed him even further from the officers
trailing behind. Caskey’s experts and the photographic recreations they produce cast significant
doubt on the officers’ claim that they could positively identify the person driving the Altima.
Perhaps if the dashcam footage showed the face or even outline of the driver the record would
directly contradict Caskey’s claim that the officers could not see the driver. However, that is not
the record before us. We therefore defer to the district court’s determination that a genuine dispute
of material fact exists as to whether Fenton and Harshbarger positively identified the driver of the
Altima and, drawing the facts in the light most favorable to Caskey, assume that they could not.
Caskey’s next claim is that the officers knowingly or with reckless disregard for the truth
gave false information in their report. This claim is also not blatantly contradicted by the record.
It is not the role of this court to determine whether the officers lied. See Johnson, 515 U.S. at
316-17. Instead, we evaluate whether the claim that the officers lied is wholly contradicted by the
record. Because, as discussed above, it is possible that a jury could find that the officers did not
actually see the face of the driver, it is possible that jurors could conclude that the officers acted
with deliberate or reckless disregard for the truth regarding the driver’s identity when completing
their report. Furthermore, the discrepancies between the arrest report’s description of the events
of November 11, 2018, and the dashcam’s depiction of that night could lead a jury to believe that
the officers embellished the truth in multiple ways. For example, the officers reported that the
Altima “quickly accelerate[d] into the furthest left hand lane of vehicles . . . in order to flee from
the officers.” DE 57-1, Arrest Information Report, PageID 565. However, the footage does not
necessarily reflect such rapid acceleration. The officers also reported that the Altima caused
another car to “slam on its brakes . . . almost caus[ing] an accident.” DE 57-1, Arrest Information
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No. 22-3100, Caskey v. Fenton
Report, PageID 566. Instead, the video shows the other car slowing down and braking, but not the
near accident described in the report. It is possible that a reasonable jury would disregard these
observations and determine that the officers reported the events truthfully, but given the record,
we cannot say that it is the only conclusion they could reach.
Caskey’s version of events is not blatantly contradicted by the record. We therefore defer
to the district court’s determination that there exists a genuine dispute of material fact regarding
these key facts and draw inferences in the light most favorable to Caskey. For purposes of
determining whether Caskey’s constitutional rights were violated and whether those rights were
clearly established, we assume the officers could not see the driver of the Altima and made false
statements in their report with either knowing or reckless disregard for the truth. With these facts
settled, we now turn to his constitutional claims.
B.
Under the doctrine of qualified immunity, government officials are shielded from civil
liability unless their conduct violates clearly established constitutional rights. Harlow v.
Fitzgerald, 457 U.S. 800, 818 (1982). A defendant is entitled to summary judgment on qualified
immunity grounds unless the facts, taken in the light most favorable to the plaintiff, would allow
a reasonable juror to find that the defendant violated a constitutional right and that that right was
clearly established. Webb v. United States, 789 F.3d 647, 659 (6th Cir. 2015).
1.
We begin with the constitutional prohibition on seizure without probable cause, sometimes
called “false arrest.” A person’s Fourth Amendment rights are violated when he or she is seized
without probable cause or pursuant to a judicial determination of probable cause premised on an
officer’s material misrepresentations to the court. Gregory v. City of Louisville, 444 F.3d 725, 758
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No. 22-3100, Caskey v. Fenton
(6th Cir. 2006). When a grand jury makes a finding of probable cause, the plaintiff must show
that the officers who created the report (1) “knowingly and deliberately, or with reckless disregard
for the truth, made false statements or omissions that created a falsehood” and (2) “such statements
or omissions were material, or necessary, to the finding of probable cause.” Sykes v. Anderson,
625 F.3d 294, 305 (6th Cir. 2010) (internal quotation marks and citation omitted). A constitutional
violation has occurred if the falsehoods were necessary to the finding of probable cause, but not if
probable cause could have been independently established. See id.; Hill v. McIntyre, 884 F.2d
271, 275 (6th Cir. 1989).
Drawing the facts in the light most favorable to Caskey, Fenton and Harshbarger created a
report with false statements knowingly and deliberately or with reckless disregard for the truth.
As discussed above, Caskey alleges that Fenton and Harshbarger did not see features of the driver
of the Nissan Altima on November 11, 2018, and instead relied on the photo of Caskey they found
in OHLEG later that evening to manufacture the claim that Caskey was the driver they had seen.
If these false statements were necessary to the finding of probable cause, then Caskey has alleged
a constitutional violation of seizure without probable cause.
“Probable cause is defined as reasonable grounds for belief, supported by less than prima
facie proof but more than mere suspicion.” United States v. McClain, 444 F.3d 556, 562 (6th Cir.
2005) (quoting United States v. Ferguson, 8 F.3d 385, 392 (6th Cir. 1993)). “The belief of guilt
must be particularized with respect to the person to be . . . seized.” Maryland v. Pringle, 540 U.S.
366, 371 (2003). Determining probable cause is a “totality-of-the-circumstances approach” where
we consider whether the facts and circumstances that the officers were aware of at the time were
sufficient to believe that the individual committed an offense. Sykes, 625 F.3d at 306.
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No. 22-3100, Caskey v. Fenton
The differences in the reasonable suspicion and probable cause standards are noted in the
vehicle registration context. In Kansas v. Glover, 140 S. Ct. 1183 (2020), the Supreme Court
established that running the plates of a car and finding that the owner has a suspended license
creates a “commonsense inference” that the registered owner is likely the driver and “g[ives] rise
to reasonable suspicion,” allowing for a traffic stop. Id. at 1188. The Court explained that
reasonable suspicion is a “less demanding standard” than probable cause, so it can be established
“with information that is different in quantity or content,” such as commonsense inferences. Id.
The Supreme Court implicitly asserts in Glover what seems a natural conclusion: determining the
registered owner of a vehicle has committed a crime, without information confirming or negating
that the owner is the driver, can be grounds for reasonable suspicion, but not for probable cause.
Cf. McClain, 444 F.3d at 563 (“Speculation does not equate to probable cause.”).
Applying the probable cause standard to Caskey’s case reveals obvious deficiencies. The
probable cause determination made by the grand jury was premised entirely on the officers’ police
report. Absent the allegedly false statement that the officers saw the driver, the only remaining
fact to support probable cause is the fact that the car was registered to Caskey. But knowing that
the car was registered to Caskey provides reasonable suspicion that Caskey was the driver, not
probable cause that he committed a traffic violation. Because the report could not independently
support a finding of probable cause without including the allegedly false statements, Caskey has
shown that the officers’ false statements “were material, or necessary, to the finding of probable
cause.” Sykes, 625 F.3d at 305. Moreover, the officers agreed in their motion for summary
judgment that, “[i]f Defendant Officers had not verified the identification of the driver, they know
there would be no probable cause as to who was the driver.” DE 58, Mot. Summ. J., PageID 635.
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No. 22-3100, Caskey v. Fenton
Drawing the facts in the light favorable to Caskey, probable cause did not exist to support his
indictment and subsequent arrest.2
Fenton and Harshbarger raise a final challenge to Caskey’s claim of seizure without
probable cause regarding causation. The officers argue that they cannot be held liable for Caskey’s
seizure because they were not involved in the decision to seek the indictment on a warrant and
were not the officers who physically arrested Caskey. They explain that the chain of causation
between their report and Caskey’s arrest was broken by intervening actions taken by the grand jury
in indicting Caskey and the Franklin County Prosecutor’s Office in seeking the indictment on a
warrant, not on a summons. Although Fenton and Harshbarger wrote and submitted a police report
that “respectfully request[ed] the Grand Jury to indict” Caskey, they argue that they never
specifically requested that the indictment include the issuance of a warrant. According to them,
the Franklin County Prosecutor’s Office unilaterally decided to seek a warrant without input from
either officer. Assuming as we must that the officers made a report without probable cause that
led to a grand jury indictment of Caskey, we now examine whether the officers also needed to be
involved in the decision to issue a warrant for Caskey’s arrest to establish liability.
In law, “a man is responsible for the natural consequences of his acts.” Monroe v. Pape,
365 U.S. 167, 187 (1961) (Frankfurter, J., dissenting); Jones v. City of Chicago, 856 F.2d 985, 993
2
The officers urge a finding of probable cause because police officers are often forced to make
“split-second judgments” and courts must avoid substituting “personal notions of proper police
procedure for the instantaneous decision of the officer at the scene.” CA6 R. 20, Appellant Br., at
17-18. They contend that Caskey’s experts used “controlled,” “sanitized” circumstances to
demonstrate that the officers could not see the Altima’s driver, but that, under the threat of
“potential danger,” the officers’ eyesight could perform more effectively. Id. at 20. These
arguments stretch reason. Furthermore, the officers recorded their observations of the
identification of the driver after the officers had ended their pursuit—not in a split-second, urgent
scenario. Requiring truthful police reports without intentional or reckless falsehoods does not hold
officers to an overly sanitized or purely theoretical standard.
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No. 22-3100, Caskey v. Fenton
(7th Cir. 1988) (Posner, J.). Police officers are no exception to that rule: “[T]hey cannot escape
liability by pointing to the decisions of prosecutors or grand jurors . . . to confine or prosecute [the
plaintiff]. They cannot hide behind the officials whom they have defrauded.” Sykes, 625 F.3d at
317 (citing Jones, 856 F.2d at 994). Indeed, when a police officer makes a false or misleading
statement, he “may be liable for consequences caused by reasonably foreseeable intervening
forces.” Id. at 316 (citing Higazy v. Templeton, 505 F.3d 161, 177 (2nd Cir. 2007)). As Sykes
implies, decisions of prosecutors are a natural kind of “reasonably foreseeable intervening force”
even after an officer hands them the reins of an investigation. “[T]he chain of causation need not
be considered broken . . . if [the officer] deceived the subsequent decision maker, or could
reasonably foresee that his misconduct would contribute to an independent decision that results in
a deprivation of liberty.” Id. (quoting Higazy, 505 F.3d at 177) (alterations omitted).
A grand jury indictment resulting from a police report does not change the calculus.
“Police officers cannot, in good faith, rely on a judicial determination of probable cause [to absolve
them of liability] when that determination was premised on an officer’s own material
misrepresentations to the court.” Gregory, 444 F.3d at 758. False or misleading statements have
consequences, and the officers who make them must bear responsibility. The chain of causation
is not broken by “a prosecutor’s decision to charge, a grand jury’s decision to indict, a prosecutor’s
decision not to drop charges but proceed to trial—none of these decisions will shield a police
officer who deliberately supplied misleading information that influenced the decision.” Jones, 856
F.2d at 985.
A prosecutor’s decision to seek an indictment on a warrant rather than a summons runs
parallel to these examples. Such a decision is reasonably foreseeable by police officers,
particularly when they seek the indictment of a person whom they claim created a danger to the
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No. 22-3100, Caskey v. Fenton
public. Taking the facts as Caskey presents, the officers provided misleading, incorrect, or
intentionally false information in their report, which formed the entire basis for the grand jury
indictment, thereby creating an unbroken chain of causation between their misrepresentations and
Caskey’s arrest.
When officers knowingly, deliberately, or recklessly make false statements necessary to
establish probable cause for an arrest, they are liable for seizure without probable cause under
42 U.S.C. § 1983. The record supports a finding that Fenton and Harshbarger at least recklessly
made false statements that were necessary to the grand jury’s finding of probable cause. The
officers encouraged a grand jury indictment and knew it was possible that the indictment, if
returned, could be issued on a warrant. Therefore, a reasonable jury could conclude that Fenton
and Harshbarger seized Caskey without probable cause, in violation of Caskey’s Fourth
Amendment rights.
2.
Finding a possible constitutional violation, we turn to whether the constitutional right was
“so clearly established when the acts were committed that any officer in the defendant’s position,
measured objectively, would have clearly understood that he was under an affirmative duty to have
refrained from such conduct.” Bouggess v. Mattingly, 482 F.3d 886, 894 (6th Cir. 2007) (citation
omitted). Finding a right to be “clearly established” demands more than constitutional generalities.
Although there are rare, “obvious” cases where a right is “clearly established” without a body of
case law behind it, usually we require similar factual cases to put the officer on notice of the right.
Brosseau v. Haugen, 543 U.S. 194, 199 (2004). Courts should not define clearly established law
at a high level of generality, but the law does not require a case directly on point for a right to be
clearly established. Kisela v. Hughes, 138 S.Ct. 1148, 1152 (2018). “[J]ust as a court can
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No. 22-3100, Caskey v. Fenton
generalize too much, it can generalize too little. If it defeats the qualified-immunity analysis to
define the right too broadly . . . it defeats the purpose of § 1983 to define the right too narrowly.”
Hagans v. Franklin Cty. Sheriff’s Off., 695 F.3d 505, 508-09 (6th Cir. 2012). Regardless of the
standard of generality required to make seizure without probable cause “clearly established,”
Caskey meets it.
Officers lying about the basis for probable cause is the kind of “obvious” rights violation
that does not demand a catalog of factually similar cases. “[A] reasonable police officer would
know that fabricating probable cause, thereby effectuating a seizure, would violate a suspect’s
clearly established Fourth Amendment right to be free from unreasonable seizures.” Spurlock v.
Satterfield, 167 F.3d 995, 1006 (6th Cir. 1999); Webb v. United States, 789 F.3d 647, 667 (6th Cir.
2015). It has long been the practice of this court to define the right to be free from seizure without
probable cause at a high level of generality. See, e.g., Radvansky v. City of Olmsted Falls, 395
F.3d 291, 310 (6th Cir. 2005) (declining to review other cases for factual similarity and finding
that the right to be free from arrest without probable cause is clearly established when an officer
arrests someone without probable cause); Courtright v. City of Battle Creek, 839 F.3d 513, 522-23
(6th Cir. 2016) (same); D.D. v. Scheeler, 645 F. App’x 418, 427 (6th Cir. 2016) (same). The lack
of a precise factual match requirement in this context makes sense for several reasons. First, the
underlying motivation for rights to be clearly established is to put officers on notice of the contours
of wrongful conduct. See Anderson v. Creighton, 483 U.S. 635, 640 (1987). Asking officers to
only report what they have seen, observed, or learned, and to refrain from intentionally lying or
recklessly stating falsehoods to establish probable cause does not offend this principle by providing
inadequate guidance. An officer does not need to be on notice of a specific kind of lie he is
prohibited from telling. Additionally, “[s]ome personal liberties are so fundamental to human
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No. 22-3100, Caskey v. Fenton
dignity as to need no specific explication in our Constitution in order to ensure their protection
against government invasion.” Brannum v. Overton Cnty. Sch. Bd., 516 F.3d 489, 499 (6th Cir.
2008); see also Mathis & Sons, Inc. v. Kentucky Transp. Cabinet, 738 F. App’x 866, 869-70 (6th
Cir. 2018) (applying this principle to a § 1983 claim of racial discrimination). Seizure without
probable cause, where the seizure is effected because of deliberately or recklessly made falsehoods
by government officials, is the rare, “obvious” kind of claim where the conduct is so wrong that
the general rule clearly establishes the right.
Even if the law required factual similarity for seizure without probable cause, it exists here.
In Stillwagon v. City of Delaware, we found a clearly established seizure without probable cause
when a police officer in Columbus had insufficient information at the time of the arrest to support
probable cause and he instead made false statements and purposeful omissions to paint a picture
of felonious assault related to a road rage traffic incident-turned-fight. 747 F. App’x 361, 370 (6th
Cir. 2018). This situation bears remarkable similarity to the present case where two Columbus
police officers allegedly had insufficient information about the identity of the driver committing
traffic violations to establish probable cause, instead making false statements to develop probable
cause for the indictment of the car’s registered owner. If a jury agrees with Caskey on the facts,
then Fenton and Harshbarger’s deliberate or reckless false statements constitute a violation of
Caskey’s clearly established right against seizure without probable cause as illustrated in
Stillwagon.
Fenton and Harshbarger fail to successfully assert a different view of what must be “clearly
established” to prove liability. They argue Caskey must show a case where “officers that observe
an individual fleeing from them in a dangerous manner, who stopped pursuing in order to avoid
harm to themselves and the community, then believed they positively identified the individual, and
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No. 22-3100, Caskey v. Fenton
requested an indictment, has violated that individual’s rights.” CA6 R. 20, Appellant Br., at 22.
The officers’ proposed standard fails in two ways. First, the scenario they portray does not take
the facts in the light most favorable to Caskey, as required at the summary judgment stage.
Matsushita Elec. Indus. Co., 475 U.S. at 587. Second, their requested scenario reaches a level of
specificity that defies the Supreme Court’s instruction that factual scenarios need not be identical
to put officers on notice of the rights violation caused by their conduct. Kisela, 138 S.Ct. at 1152.
The officers also argue that they avoid liability because Caskey has not made “a substantial
showing” that the officers made false statements recklessly or deliberately. They argue that prior
cases of false arrest and malicious prosecution claims relied on stronger evidence—what they
deem a “substantial showing”—that the officers had made false statements deliberately or
recklessly. However, the officers misconstrue the height of this requirement. We have explained
that a “substantial showing” of a deliberate or reckless falsehood requires that plaintiffs support
their claims with “an offer of proof.” Butler v. City of Detroit, 936 F.3d 410, 418 (6th Cir. 2019).
As discussed above, there is more than enough evidence here for a jury to conclude that the officers
deliberately or recklessly lied in their report. Because a reasonable jury could find that the officers
seized Caskey without probable cause, and that violation was “clearly established” under our
precedent, we affirm the district court’s denial of summary judgment.
C.
Turning to Caskey’s § 1983 malicious prosecution claim, we return to qualified immunity’s
two-prong test and begin with the constitutional violation.
1.
The Fourth Amendment guarantees the right to be free from unjust prosecution. Jackson
v. City of Cleveland, 925 F.3d 793, 820 (6th Cir. 2019). This separate, constitutionally cognizable
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No. 22-3100, Caskey v. Fenton
claim is “entirely distinct” from the claim of false arrest or seizure without probable cause. Sykes,
625 F.3d at 308 (citation omitted). The tort of malicious prosecution remedies injuries associated
not with the absence of legal process, but with the wrongful institution of legal process. Id. There
are four elements to a malicious prosecution claim under § 1983: (1) a criminal prosecution was
initiated against the plaintiff and the defendant “made, influenced, or participated in the decision
to prosecute”; (2) there was a lack of probable cause for the criminal prosecution; (3) as a
consequence of a legal proceeding, the plaintiff suffered a deprivation of liberty apart from the
initial seizure; and (4) the criminal proceeding was resolved in the plaintiff’s favor. Id. at 308-09.
Despite the name, “malice” is not required to show malicious prosecution under § 1983. Id. at
309. Here, the third element is conceded by the officers, so we only consider the first, second, and
fourth elements.
The first element of malicious prosecution “is met when an officer ‘could reasonably
foresee that his misconduct would contribute to an independent decision that results in a
deprivation of liberty’ and the misconduct actually does so.” Jackson, 925 F.3d at 820 (citing
Sykes, 625 F.3d at 316). In a closely analogous case, this court held that an officer who made
“affirmative misrepresentations and omissions in his arrest-warrant application and investigative
report” which “clearly led to the Plaintiffs’ arrests” had participated or influenced the decision to
prosecute and could be held liable for malicious prosecution. Sykes, 625 F.3d at 314. In Sykes,
subsequent acts taken by independent decisionmakers like the prosecutor’s office did not alter this
conclusion because the officer “reasonably could have foreseen that by providing false information
to the prosecution that bore directly on whether there was probable cause to believe that the
Plaintiffs committed a crime, his misconduct could result in not only the Plaintiffs’ initial seizure
but also their eventual incarceration.” Id. at 314-15. Furthermore, providing false information
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No. 22-3100, Caskey v. Fenton
essential to the determination of probable cause can constitute “participating in” or “influencing”
the decision to prosecute even when the officers do not testify at the grand jury hearing or at trial.
See generally, Jackson, 925 F.3d at 825-27.
Applying the first element to Caskey’s case is straightforward. We have concluded that a
reasonable jury could determine that the officers gave false information in their report which was
necessary to the probable cause determination by the grand jury and Caskey’s subsequent arrest.
We have further concluded that it would be reasonably foreseeable to a police officer that making
false statements amounting to probable cause and then seeking an indictment based on those
falsehoods could result in an independent decisionmaker, like the prosecutor, seeking an
indictment on a warrant. Because the decision to indict on a warrant was a reasonably foreseeable
outcome from the alleged misconduct and resulted in a deprivation of Caskey’s liberty, the record
supports a finding that Fenton and Harshbarger participated in or influenced the decision to
prosecute Caskey.
Second, the record could support a finding that probable cause did not exist to prosecute
Caskey. A grand jury indictment creates a presumption of probable cause for purposes of
malicious prosecution. King v. Harwood, 852 F.3d 568, 587-88 (6th Cir. 2017). However, that
presumption is rebutted by a showing that “(1) a law-enforcement officer, in the course of setting
a prosecution in motion, either knowingly or recklessly made false statements . . . ; (2) the false
statements and evidence . . . [were] material to the ultimate prosecution of the plaintiff; and (3) the
false statements . . . [did] not consist solely of grand-jury testimony or preparation for that
testimony.” Id. All three prongs are satisfied here: the record supports conclusions that (1) Fenton
and Harshbarger knowingly or recklessly made false statements which were (2) necessary and
material to the indictment of Caskey, as probable cause could not have existed without them, and
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No. 22-3100, Caskey v. Fenton
(3) the allegedly false statements were contained in the police report, not just in the grand jury
testimony. See id. at 591 (explaining that false statements made in “laying the groundwork for an
indictment” are more than just preparation for grand jury testimony). Thus, a reasonable jury could
find there was no probable cause for Caskey’s criminal prosecution.
The fourth and final element of malicious prosecution is also satisfied because the criminal
proceeding was resolved in the plaintiff’s favor. “To demonstrate a favorable termination of a
criminal prosecution for purposes of the Fourth Amendment claim under § 1983 for malicious
prosecution, a plaintiff need only show his prosecution ended without a conviction.” Thompson
v. Clark, 142 S.Ct. 1332, 1335 (2022). Here, the officers acknowledge that, under the Supreme
Court’s newly articulated standard in Thompson, the dismissal of Caskey’s case meets the
definition of favorable termination.
Satisfying every factor, Caskey presented evidence to establish a constitutional violation
of malicious prosecution. However, the heart of the officers’ appeal on this claim is that the
violation was not clearly established at the time of Caskey’s arrest and prosecution and therefore
should be disregarded. We take up that issue now.
2.
Although the right to be free from malicious prosecution is clearly established, it is narrow.
Coffey v. Carroll, 933 F.3d 577, 591 (6th Cir. 2019). “A police officer violates a suspect’s clearly
established right to freedom from malicious prosecution under the Fourth Amendment only when
his deliberate or reckless falsehoods result in arrest and prosecution without probable cause.”
Johnson v. Moseley, 790 F.3d 649, 655 (6th Cir. 2015) (citation and quotation marks omitted).
Thus, a plaintiff must assert that an officer has participated in his prosecution by making deliberate
or reckless falsehoods where the officers and the prosecutor would have lacked probable cause
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No. 22-3100, Caskey v. Fenton
absent those falsehoods. Id. at 654-55; Miller v. Maddox, 866 F.3d 386, 395-96 (6th Cir. 2017).
After all, “[t]he specifics of the case only matter[] with respect to assessing the viability of the
malicious prosecution claim under the standard for summary judgment, not as a means of narrowly
defining the right at issue.” Jones v. Clark Cnty., 959 F.3d 748, 767 (6th Cir. 2020); see also
Gregory, 444 F.3d at 749-50; Spurlock, 167 F.3d at 1005. Furthermore, it has been “clearly
established” since before 1975 that “an officer need not testify” before a grand jury or at trial to
“participate in” or “influence” the decision to prosecute. Jackson, 925 F.3d at 826-27.
It is clearly established that officers violate the Constitution by knowingly or recklessly
making false statements that form probable cause for the plaintiff’s arrest and prosecution.
Gregory, 444 F.3d at 758-59 (finding a clearly established malicious prosecution claim where an
officer made factual omissions and testified in a preliminary hearing that the plaintiff fit the suspect
description given by a witness, despite the plaintiff’s several physical differences). In Caskey’s
case, it was therefore clearly established in November 2018 that the right to be free from malicious
prosecution extends to deliberate or reckless falsehoods that result in arrest and prosecution
without probable cause. See id. This standard includes deliberate falsehoods as well as omissions
and inconsistencies that evince a reckless disregard for the truth. The officers’ alleged behavior
reaches at least the kind of reckless disregard for the truth demonstrated in Gregory. This means
Fenton and Harshbarger were on notice that reckless or deliberate falsehoods providing probable
cause are actionable as a constitutional violation when they could reasonably and foreseeably lead
to arrest and prosecution.
Finally, the officers argue that the prosecutor’s dismissal of Caskey’s case was not clearly
established as “favorable termination” at the time of his arrest and prosecution. Newly articulated
in Thompson v. Clark, 142 S.Ct. 1332 (2022), the modern “favorable termination” standard
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No. 22-3100, Caskey v. Fenton
requires only that the plaintiff’s prosecution end without a conviction. Id. at 1335. However, the
officers contend that this precedent is too recent to be “clearly established” at the time of the facts
at issue in this case and therefore we must apply the “favorable termination” standard that existed
in 2018.
The officers are correct that Thompson contradicts this court’s approach, though
nonprecedential, that existed at the time of Caskey’s case. See Ohnemus v. Thompson, 594 F.
App’x 864, 867 (6th Cir. 2014); Jones, 939 F.3d at 763-65 (confirming the Ohnemus rule and its
reasoning in 2020); see also Restatement (Second) of Torts § 660. But the officers’ argument is
flawed in two ways: first, the rule in Thompson did not need to be “clearly established” at the time
of this case for its rule to apply; and second, even under our old standard, Caskey has shown
favorable termination.
The standard for favorable termination did not need to be “clearly established” at the time
of the wrongful conduct in order to support a malicious prosecution claim because it does not relate
to a government actor’s conduct subject to qualified immunity protections. The requirement that
a violation be “clearly established” exists to put government officials on notice of wrongful
conduct and protect officers acting in discretionary roles. District of Columbia v. Wesby, 138 S.
Ct. 577, 589-90 (2018). When determining whether a right is clearly established, we ask whether
the law was “sufficiently clear that every reasonable official would understand what he is doing is
unlawful.” Id. at 589 (emphasis added, quotation marks and citation omitted). When measuring
the moment when that right needed to be clearly established, we look at the state of the law “at the
time of the officer’s conduct.” Id.; Reichle v. Howards, 566 U.S. 658, 664 (2012). “This ‘clearly
established’ standard protects the balance between vindication of constitutional rights and
government officials’ effective performance of their duties by ensuring that officials can
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No. 22-3100, Caskey v. Fenton
reasonably anticipate when their conduct may give right to liability for damages.” Reichle, 566
U.S. at 664 (quotation marks and citation omitted).
In the context of malicious prosecution, the fourth element of “favorable termination”
involves no conduct or facet of conduct by officers because any actions have already occurred by
the time we consider how the prosecution concluded. It creates no additional notice for officers to
describe how the legal process must terminate to give rise to a malicious prosecution claim.
Buttressing this point is the question of when the element of favorable termination would have
needed to be established. There is no clear answer. The favorable termination element of
malicious prosecution need not be “clearly established” in order to bring a § 1983 claim.
Further, application of Thompson supports this view. In the wake of Thompson, sister-
circuits have applied its new, broader standard to cases where dismissal occurred under an older,
different standard, with no indication that the wrongful termination element fails to have been
“clearly established” at the time of conduct. See Coello v. DiLeo, 43 F.4th 346, 354 (3rd Cir.
2022); Smith v. City of Chicago, No. 19-2725, 2022 WL 2752603 (7th Cir. July 14, 2022). Nor
did the Supreme Court in Thompson make any indication that its new standard would fail the
“clearly established” prong on remand. 142 S. Ct. at 1341.
Even if our pre-Thompson standard applied, the officers’ argument would still fail.
Thompson abrogated and expanded the Sixth Circuit’s approach to the issue of favorable
termination. Before Thompson, and at the time of Caskey’s case, the rule (albeit nonprecedential)
was that “termination must go to the merits of the accused’s professed innocence for the dismissal
to be ‘favorable.’” Ohnemus, 594 F. App’x at 867. Determination of whether a termination was
favorable was a legal determination to be made by the trial court, unless factual disputes
surrounded the dismissal of the case. Id. at 866. The district court engaged in a factual inquiry to
- 23 -
No. 22-3100, Caskey v. Fenton
determine whether the circumstances of a case’s dismissal indicated that the plaintiff was innocent
of the charges. Id. at 867. These circumstances included a “one-sided,” “unilateral decision of the
prosecutor to drop charges,” id. at 867, or when “conviction has, in the natural course of events,
become impossible or improbable.” Restatement (Second) of Torts § 660(a) cmt. d; see Ohnemus,
594 F. App’x at 867 (relying on § 660); Jones, 959 F.3d at 764 (same). Furthermore, it is generally
not a favorable termination if the defendant “bought peace” by paying a sum in exchange for
dismissal of criminal charges as a part of a deal or compromise. Ohnemus, 594 F. App’x at 867.
Here, the district court (performing its analysis pre-Thompson) correctly determined that
Caskey established a genuine dispute of material fact as to whether the prosecutor’s decision to
dismiss the charges was indicative of innocence. Drawing the facts in the light favorable to
Caskey, the record shows the prosecutor sought dismissal due to “insufficient evidence to prove
identification,” and Caskey claims that he shared with a prosecutor a video of Robert Taliaferro
admitting that he was the driver of the Altima on November 11, 2018. While competing evidence
exists about whether Caskey paid court costs associated with dismissal, this court does not balance
facts. We fulfill our role by concluding that the district court properly determined that a genuine
issue of material fact existed as to whether the circumstances surrounding the dismissal of
Caskey’s charges were indicative of innocence and whether Caskey paid court costs.
Under the facts pled, the district court correctly denied the officers’ motion for summary
judgment on Caskey’s § 1983 malicious prosecution claim.
IV.
Finally, we address Fenton and Harshbarger’s argument concerning Caskey’s state-law
malicious prosecution claim. The officers argue that there is no genuine issue of material fact for
each element of Caskey’s Ohio malicious prosecution claim and that the prosecution was not
- 24 -
No. 22-3100, Caskey v. Fenton
terminated in Caskey’s favor under Ohio law. The elements of Ohio malicious prosecution overlap
substantially with the elements of its constitutional counterpart. Both require an absence of
probable cause and the termination of proceedings in the plaintiff’s favor, but Ohio’s malicious
prosecution law separately demands malice in instituting the prosecution. Trussel v. Gen. Motors
Corp., 559 N.E.2d 732, 734 (Oh. 1990). The officers claim that Caskey has failed to create a
genuine issue of material fact as to each of these three elements, but this argument is no more
convincing in the state-law context than in the § 1983 context. For two of these elements, we have
already shown there to be a genuine issue of material fact. The third element, malice, “may be
inferred from proof of lack of probable cause,” Rogers v. Barbera, 164 N.E.2d 162, 166 (Oh.
1960), which we have already determined a reasonable jury could find here.
The officers next argue that Caskey fails to show “favorable termination” for Ohio
malicious prosecution. However, the officers agree that that the standard for “favorable
termination” under Ohio law is the same as the pre-Thompson “favorable termination” standard in
the Sixth Circuit. See Ash v. Ash, 651 N.E.2d 945 (Oh. 1995) (“A proceeding is ‘terminated in
favor of the accused’ only when its final disposition indicates that the accused is innocent.”) (citing
Restatement (Second) of Torts § 660(a)). Therefore, our conclusion above that a reasonable jury
could find favorable termination for Caskey under his § 1983 malicious prosecution claim applies
equally to his state law claim.
Lastly, Fenton and Harshbarger suggest that the state-law violation was not “clearly
established” under Ohio immunity law. However, at no point in the appellate briefs or district
court record do the officers address the issue of Ohio’s immunity statute, much less provide
argument as to its legal application in this case. We therefore decline to address the issue here.
- 25 -
No. 22-3100, Caskey v. Fenton
V.
For the foregoing reasons, we affirm the district court’s denial of summary judgment for
Officers Fenton and Harshbarger on all three of Caskey’s constitutional claims.
- 26 - | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484343/ | USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 1 of 6
PUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-1496
ANA GLORIA SANTOS-DE JIMENEZ; A.J.,
Petitioners,
v.
MERRICK B. GARLAND, Attorney General,
Respondent.
On Petition for Review of an Order of the Board of Immigration Appeals.
Argued: September 13, 2022 Decided: November 15, 2022
Before AGEE, RICHARDSON, and RUSHING, Circuit Judges.
Petition for review dismissed by published opinion. Judge Rushing wrote the opinion, in
which Judge Agee and Judge Richardson joined.
ARGUED: Christopher J. Fernandez, K&L GATES LLP, Charlotte, North Carolina, for
Petitioners. Susan Bennett Green, UNITED STATES DEPARTMENT OF JUSTICE,
Washington, D.C., for Respondent. ON BRIEF: Brian M. Boynton, Principal Deputy
Assistant Attorney General, Linda S. Wernery, Assistant Director, Office of Immigration
Litigation, UNITED STATES DEPARTMENT OF JUSTICE, Washington, D.C., for
Respondent.
USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 2 of 6
RUSHING, Circuit Judge:
Ana Gloria Santos-de Jimenez and her minor daughter, natives and citizens of
Guatemala, petition for review of the final order of the Board of Immigration Appeals
dismissing their appeal from the immigration judge’s order denying Santos’s application
for asylum and withholding of removal. Petitioners filed their petition for review with this
Court one day after the deadline set by 8 U.S.C. § 1252(b)(1). They contend that Federal
Rule of Appellate Procedure 26(c) extends the filing period by three additional days
because the Board served the order by mail. We conclude that Rule 26(c) does not apply
to petitions for review governed by Section 1252(b)(1). Because the petition was untimely,
we lack jurisdiction and dismiss the petition.
The Immigration and Nationality Act (INA) requires that a petition for judicial
review of a final order of removal “must be filed not later than 30 days after the date of the
final order of removal.” 8 U.S.C. § 1252(b)(1). This time limit is “mandatory and
jurisdictional” and is “not subject to equitable tolling.” Stone v. INS, 514 U.S. 386, 405
(1995) (internal quotation marks omitted). The Board entered its final order of removal in
this case on March 29, 2021, the date stamped on the order itself. See 8 U.S.C.
§ 1101(a)(47)(B)(i). Petitioners therefore had until April 28, 2021, to file their petition for
review. But Petitioners filed their petition on April 29, one day outside the statutory time
limit.
Rule 26(c) did not afford Petitioners three additional days to file. By its terms, Rule
26(c) applies “[w]hen a party may or must act within a specified time after being served.”
Section 1252(b)(1) calculates the time for filing a petition for review from “the date of the
2
USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 3 of 6
final order of removal,” not the date the order was served. Petitioners observe that an
immigration regulation requires the Board to serve copies of its decisions on the affected
parties. See 8 C.F.R. § 1003.1(f). The Board’s obligation to serve the parties, however,
does not alter the statutory time limit for filing a petition for review, which Congress set to
run from “the date of the final order of removal,” not the date of service. In other provisions
of the INA, Congress has imposed timelines that run from service of a document. See, e.g.,
8 U.S.C. §§ 1252(b)(3)(C), 1229(b)(1). But Section 1252(b)(1) makes no mention of
service, and we must construe this judicial review provision “with strict fidelity to [its]
terms.” Stone, 514 U.S. at 405. We therefore conclude that Rule 26(c) does not enlarge
the time to file a petition for review governed by Section 1252(b)(1).
Our sister circuits agree with this conclusion. All three courts of appeals to consider
the question expressly have held that Rule 26(c) does not apply to extend the time to file a
petition for review. See Ramos-Lopez v. Lynch, 823 F.3d 1024, 1027 (5th Cir. 2016)
(reasoning that Rule 26(c) does not apply because “Section 1252(b)(1) does not mention
‘service,’” rather “the trigger date for filing is the ‘date of the final order of removal’”);
Nahatchevska v. Ashcroft, 317 F.3d 1226, 1227 (10th Cir. 2003) (same); Haroutunian v.
INS, 87 F.3d 374, 377 (9th Cir. 1996) (reaching the same conclusion under a prior version
of the statute). Several other courts of appeals have dismissed petitions filed one or two
days after the 30-day deadline, calculated from the date of the Board’s final order, without
applying or directly addressing Rule 26(c). See, e.g., Lin v. U.S. Att’y Gen., 677 F.3d 1043,
1045–1046 (11th Cir. 2012); Sankarapillai v. Ashcroft, 330 F.3d 1004, 1006 (7th Cir.
2003); Malvoisin v. INS, 268 F.3d 74, 75–76 (2d Cir. 2001). We have done the same in
3
USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 4 of 6
unpublished decisions. See, e.g., Yanez-Reyes v. Garland, No. 21-1072, 2022 WL 738615,
at *1 (4th Cir. Mar. 11, 2022); Lenga v. Holder, 547 Fed. App. 328, 329 (4th Cir. 2013).
Petitioners urge us to break from this uniform authority. In support, they cite
decisions holding that the time to file a petition for review begins to run when the Board
“‘mail[s] its decision to petitioner’s [or his counsel’s] address of record.’” Zaluski v. INS,
37 F.3d 72, 73 (2d Cir. 1994) (quoting Ouedraogo v. INS, 864 F.2d 376, 378 (5th Cir.
1989)); see Martinez-Serrano v. INS, 94 F.3d 1256, 1258–1259 (9th Cir. 1996)
(“adopt[ing] the rule in Zaluski and Ouedraogo”); Campbell v. Att’y Gen., 844 Fed. App.
546, 549 (3d Cir. 2021) (quoting a case quoting Martinez-Serrano). Unlike in those cases,
Petitioners do not dispute that the Board mailed its final order to them on the same day it
was entered or that they received the order in time to file a timely petition for review.
Rather, Petitioners contend that those decisions—which did not address Rule 26(c)—
establish that service triggers the time to file a petition.
We reject Petitioners’ argument. As an initial matter, the cases on which they rely
involved Section 1252(b)(1)’s repealed predecessor statute or relied on those earlier
decisions without acknowledging the intervening statutory amendment. See 8 U.S.C.
§ 1105a(a)(1) (1994) (repealed by Illegal Immigration Reform & Immigrant Responsibility
Act of 1996 (IIRIRA), Pub. L. No. 104-208, § 306(b), 110 Stat. 3009-546, 3009-612
(1996)). Before it was repealed, Section 1105a(a)(1) provided that the time for filing a
petition for review ran from “the date of the issuance of the final deportation order.” Courts
analyzing that statutory text concluded “that ‘the date of issuance’ is the date the final
deportation order was mailed to the correct address.” Martinez-Serrano, 94 F.3d at 1258.
4
USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 5 of 6
Whatever ambiguity “issuance” or other prior versions of the repealed statute may have
presented, but see Nowak v. INS, 94 F.3d 390, 392 (7th Cir. 1996) (rejecting Zaluski and
Ouedraogo as inconsistent with the Supreme Court’s later decision in Stone), Congress
eliminated it in 1996 by changing the deadline for filing a review petition to “30 days after
the date of the final order of removal.” IIRIRA § 306(a)(2), 110 Stat. at 3009-608. When
a noncitizen appeals to the Board, the “date of the final order of removal” unambiguously
means the date the Board enters its final order affirming the immigration judge’s decision
or dismissing the appeal. See 8 U.S.C. §§ 1101(a)(47)(B), 1252(b)(1). *
In any event, the same circuits that issued the decisions in Ouedraogo and Martinez-
Serrrano have also held that Rule 26(c) does not extend the deadline for filing a petition
for review because the statute does not refer to service. See Ramos-Lopez, 823 F.3d at
1027; Haroutunian, 87 F.3d at 377. Thus, in determining the application of Rule 26(c),
these courts have been unwilling to go beyond the plain language of the filing-period
statute.
We too are bound by the plain language of the statute Congress enacted. Because
Section 1252(b)(1) calculates the time to file a petition for review from “the date of the
final order of removal,” and not from service of that order, Rule 26(c) does not apply. The
petition for review was therefore untimely, depriving us of jurisdiction to consider it on the
*
Petitioners and the Attorney General agree that a would-be petitioner who misses
the filing deadline because she did not receive timely notice of the Board’s decision may
move the Board to reissue its prior order so that a timely petition for review can be filed.
See, e.g., Matter of Antolin Bustos-Hernandez, 2019 WL 4054073, at *1 (BIA July 10,
2019) (unpublished) (granting motion to reissue). It appears that the Board treats a motion
to reissue as a motion to reopen. See Coyt v. Holder, 593 F.3d 902, 904 n.1 (9th Cir. 2010).
5
USCA4 Appeal: 21-1496 Doc: 48 Filed: 11/15/2022 Pg: 6 of 6
merits. See Stone, 514 U.S. at 405. Accordingly, we grant the Attorney General’s motion
to dismiss the petition.
DISMISSED
6 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484344/ | RECOMMENDED FOR PUBLICATION
Pursuant to Sixth Circuit I.O.P. 32.1(b)
File Name: 22a0242p.06
UNITED STATES COURT OF APPEALS
FOR THE SIXTH CIRCUIT
┐
UNITED STATES OF AMERICA,
│
Plaintiff-Appellee, │
> No. 21-3636
│
v. │
│
LEE JONES, │
Defendant-Appellant. │
┘
Appeal from the United States District Court for the Northern District of Ohio at Youngstown.
No. 4:20-cr-00750-1—Dan A. Polster, District Judge.
Argued: November 1, 2022
Decided and Filed: November 16, 2022
Before: McKEAGUE, THAPAR, and READLER, Circuit Judges.
_________________
COUNSEL
ARGUED: Jack Millman, JONES DAY, New York, New York, for Appellant. Rebecca C.
Lutzko, UNITED STATES ATTORNEY’S OFFICE, Cleveland, Ohio, for Appellee.
ON BRIEF: Jack Millman, JONES DAY, New York, New York, for Appellant. Rebecca C.
Lutzko, UNITED STATES ATTORNEY’S OFFICE, Cleveland, Ohio, for Appellee.
_________________
OPINION
_________________
THAPAR, Circuit Judge. Lee Jones pled guilty to being a felon in possession of a
firearm, but the district court did not ensure that his plea was knowing and voluntary. Thus, we
vacate Jones’s sentence.
No. 21-3636 United States v. Jones Page 2
I.
The police pulled Jones over for a traffic violation. What began as a routine traffic stop
soon spiraled out of control. Ignoring the officers’ repeated demands that he step out of the car,
Jones rolled up his window, sped off, crashed the car, and then ran until the police arrested him.
The police seized an AR-15 and a handgun from the wrecked car. Jones was charged as a felon
in possession of a firearm. See 18 U.S.C. § 922(g)(1). He pled guilty without a plea agreement.
Jones appeals because of how the district court explained the Sentencing Guidelines at
the change-of-plea hearing. First, the district court informed Jones of the maximum statutory
penalties he faced. Jones immediately claimed he “didn’t understand” because he “thought [his]
guideline was something different.” R. 28, Pg. ID 135. But the court hadn’t discussed the
Sentencing Guidelines yet, just the statutory maximums. Eventually, the court did reach the
Guidelines. The court asked Jones if he had discussed the Guidelines with his lawyer. Jones
said he had. The government claimed the Guidelines called for 21 to 27 months’ imprisonment.
Jones’s lawyer argued the correct range was 12 to 18 months. The district court said it would
have to decide between the parties’ proposals. At the time, no one recognized the problem with
this statement. Without a plea agreement that specified the sentencing range, the court was not
bound by the parties’ Guidelines calculations. See Fed. R. Crim. P. 11(c)(1)(C). But Jones was
unaware of that possibility. At the end of the hearing, the court informed Jones that the
Probation Office would prepare a presentence investigation report (“PSR”), which the court
would “use at sentencing.” R. 28, Pg. ID 146.
When the PSR recommended 46 to 57 months’ imprisonment, Jones was understandably
confused. He hadn’t realized the district court could sentence him to more time than the
government originally requested. He claimed that if he had known, he would have fought the
charge or taken a plea deal. The court recognized that if it hadn’t told Jones it could sentence
him above the government’s recommendation, it should have. So the court informed Jones that
even though it was rather late in the proceedings, he could move to withdraw his guilty plea. But
the court warned it might deny the motion, and if it did, Jones would lose credit he received for
accepting responsibility and pleading guilty. All the while, the government remained silent.
When the government finally did speak, it asked for a sentence of 57 months—much more than
No. 21-3636 United States v. Jones Page 3
the 21-to-27-month range it referenced at the change-of-plea hearing. Ultimately, Jones went
through with his guilty plea, and the court sentenced him to 57 months’ imprisonment.
II.
Federal Rule of Criminal Procedure 11 ensures that defendants’ guilty pleas are knowing
and voluntary. See United States v. Catchings, 708 F.3d 710, 716 (6th Cir. 2013). The
government concedes Jones’s plea did not meet this standard. We agree. The district court
should have warned Jones that it would decide his sentence irrespective of the parties’
Guidelines calculations. See Fed. R. Crim. P. 11(b)(1)(M); cf. United States v. Austin, 830 F.
App’x 460, 464 (6th Cir. 2020) (holding there was no Rule 11 violation because the court said it
would independently decide the sentence, despite the parties’ recommendations). That leaves the
question of remedy.
Jones argues the error makes him eligible for resentencing to no greater than 27 months’
imprisonment—the maximum the government referenced at the change-of-plea hearing. His
opening brief clearly and cogently explained why he believed he was entitled to that remedy.
The government responded with a single sentence asserting he was not entitled to that remedy,
without citation or any explanation, in the conclusion of its brief. It later supplemented that
sentence with a Rule 28(j) letter advising us of a decision issued four years ago. This is an
obvious forfeiture. The government failed to develop any argument against Jones’s proposed
remedy. But the government’s error doesn’t automatically entitle the defendant to whatever
remedy he seeks. As the Supreme Court has explained, courts have an independent obligation to
get the law right in criminal cases. Young v. United States, 315 U.S. 257, 258–59 (1942). In
Young, the government confessed error, but the Supreme Court accepted that confession only
after independently reviewing the alleged errors. Id. at 259–61. The Court warned that “the
proper administration of the criminal law cannot be left merely to the stipulation of parties.” Id.
at 259 (citations omitted). Young is about a stipulation, but it applies just as forcefully to
forfeiture. For example, a court could not sentence a defendant to less than the statutory
No. 21-3636 United States v. Jones Page 4
minimum just because the government failed to object. In short, the government’s forfeiture
does not allow the court to order a remedy that is contrary to law.1
Of course, not every forfeiture would result in a remedy that is contrary to law, but here it
would. Jones asks us to cap the sentencing court’s discretion at 27 months. But there’s only one
way a defendant can cap the district court’s sentence: a binding plea agreement. See Fed. R.
Crim. P. 11(c)(1)(C). And Jones didn’t obtain one, so we have no basis for limiting the district
court’s sentencing discretion.
The Federal Rules of Criminal Procedure provide an elaborate process before the district
court accepts a binding plea agreement. In most cases, district courts should review the PSR
first. See Fed. R. Crim. P. 11(c)(3)(A); United States v. Cota-Luna, 891 F.3d 639, 647 (6th Cir.
2018). After performing that review, district courts can even reject pleas outright. Cota-Luna,
891 F.3d at 651 (Kethledge, J., concurring in the judgment). That’s because the court must
ensure the sentence serves the public interest and satisfies the statutory sentencing factors. See
18 U.S.C. § 3553(a). The remedy Jones requests would short-circuit that whole process. It
would deprive the district court of sentencing discretion without the coordinate procedural
protections the plea process usually affords. In effect, Jones asks us to impose a binding plea
agreement—even though he didn’t obtain one—just because the district court erred. That’s not a
remedy a court, charged with the proper administration of the criminal law, can award.
So what remedy is available? Because Jones’s plea was unknowing in violation of Rule
11, he may “plead anew.” McCarthy v. United States, 394 U.S. 459, 472 (1969), superseded on
other grounds by rule, Fed. R. Crim. P. 11(h); United States v. Tunning, 69 F.3d 107, 115 (6th
Cir. 1995) (discussing the available remedies for Rule 11 violations). Thus, the proper remedy is
to vacate Jones’s plea and remand for him to plead anew.
1
In some cases, the law won’t be clear. Courts facing difficult legal questions with uncertain answers need
not attempt to figure it all out themselves without the parties’ assistance. See Brenay v. Schartow, 709 F. App’x
331, 337 (6th Cir. 2017) (“[I]t is not for the court to search the record and construct arguments. Parties must do that
for themselves.” (citation omitted)). In those situations, courts can appropriately hold the government to its
forfeiture.
No. 21-3636 United States v. Jones Page 5
Jones resists this conclusion. He argues that even though “precedent does not compel” us
to order resentencing, we should in this case. Reply Br. 9. But Jones’s argument invokes our
habeas jurisprudence, where we possess “broad discretion in crafting remedies for constitutional
errors.” Ruelas v. Wolfenbarger, 580 F.3d 403, 410 (6th Cir. 2009) (cleaned up). For example,
in a habeas case we ordered a state prisoner to be resentenced without vacating his guilty plea.
See Hart v. Marion Corr. Inst., 927 F.2d 256, 259 (6th Cir. 1991). That makes sense. Because
of federalism and comity, we grant the least disruptive remedies possible to redress constitutional
violations in state courts. But Jones entered his plea in federal court, where Rule 11 applies.
And McCarthy prescribes the remedy for this Rule 11 violation: The defendant may “plead
anew.” 394 U.S. at 472. So Jones’s appeal to our habeas caselaw falls flat.
Jones also relies on our unpublished opinion in United States v. Smagola, 390 F. App’x
438 (6th Cir. 2010). True, Smagola ordered resentencing rather than vacating a federal
defendant’s plea. Id. at 444. But Smagola is unpublished and unpersuasive. It ignores the
distinction between guilty pleas entered in state and federal court. Because Smagola is
unpublished and disregards this important principle of federalism, we need not follow it.
In short, the proper remedy for an unknowing plea entered in violation of Rule 11 is
allowing the defendant to plead anew. If the government had argued that here, that’s the remedy
we would order. But because the government forfeited any objection to Jones’s proposed
remedy, we grant the closest remedy the law permits. We can’t strip the district court of its
sentencing discretion absent a binding plea agreement. But we can give the district court the
option of resentencing Jones to no more than 27 months or allowing him to plead anew. In
making that decision, the district court may consider any of the relevant sentencing factors,
including post-sentencing rehabilitation. See Pepper v. United States, 562 U.S. 476, 490–91
(2011). This choice preserves the district court’s discretion and comports with the Supreme
Court’s decision in McCarthy.
* * *
We vacate the district court’s sentence and remand for further proceedings consistent
with this opinion. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492972/ | ORDER ALLOWING COMPENSATION TO ATTORNEY FOR CHAPTER 13 DEBTOR
STEVEN H. FRIEDMAN, Bankruptcy Judge.
THIS CAUSE came on to be heard on May 18, 1999, upon the Application for Compensation of Debtor’s Attorney, filed by Brad Culverhouse, Esquire. The hearing was conducted pursuant to Local Rule 2016—1(B)(2) and the “Chapter 13 Fee Guidelines” in effect for the United States Bankruptcy Court for the Southern District of Florida. In his Application, Mr. Culverhouse (“Applicant”) seeks total compensation in the amount of $5,129.83, together with reimbursement of expenses in the amount of $75.00. Applicant received a pre-petition retainer from the debtor in the amount of $1,359.83 and seeks to have a balance of $3,780.00 paid to him under the debtor’s Fifth Amended Plan, which was confirmed by this Court on April 28, 1999.1 The Court, having carefully considered the pending fee application, and for the reasons set forth below, finds that reasonable aggregate compensation for Brad Culverhouse, Esquire is $3,125.00 plus aggregate reimbursement of expenses in the amount of $27.40. After deducting the pre-petition retainer paid by the debt- or, the chapter 13 trustee is authorized and directed to pay the balance of the fee due to Applicant, in the amount of $1,765.17, together with the allowed reimbursement of expenses of $27.40, pursuant to the terms of the confirmed Fifth Amended Chapter 13 Plan.
The allowance of compensation represents a 39% reduction in the amount sought by Applicant. In general, the Court finds that the reduction in compensation is warranted due to the excessive amount of time unnecessarily expended resulting from counsel’s inefficient representation. In addition, upon proper analysis by Applicant, it should have been evident that this case should have been administered as a chapter 7 liquidation proceeding, rather than as a chapter 13 proceeding.
FACTORS GOVERNING ANALYSIS OF FEE REQUESTS
The various factors generally recognized as governing the analysis by a federal court of a fee request are set forth in Pennsylvania v. Delaware Valley Citizens’ Council for Clean Air, 478 U.S. 546, 562-66, 106 S.Ct. 3088, 92 L.Ed.2d 439 (1986); Blum v. Stenson, 465 U.S. 886, 897-901, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984); Hensley v. Eckerhart, 461 U.S. 424, 429-40, 103 S.Ct. 1933, 76 L.Ed.2d 40 (1983); Norman v. Housing Auth. of Montgomery, 836 F.2d 1292, 1298-1302 (11th Cir.1988); American Benefit Life Ins. Co. v. Baddock, 544 F.2d 1291, 1298-1301 (5th Cir.1977); and, Johnson v. Georgia Highway Express, Inc., 488 F.2d 714, 717-19 (5th Cir.1974). As noted in American Benefit, 544 F.2d at 1299, the twelve factors established in Johnson are applicable to bankruptcy cases:
(1) The time and labor required;
(2) The novelty and difficulty of the questions;
*761(3) The skill requisite to perform the legal service properly;
(4) The preclusion of other employment due to acceptance of the case;
(5) The customary fee;
(6) Whether the fee is fixed or contingent;
(7) Time limitations imposed by the client or other circumstances;
(8) The amount involved and the result obtained;
(9) The experience, reputation, and ability of the attorneys;
(10) The “undesirability” of the case;
(11) The nature and length of the professional relationship with the client;
(12) Awards in similar cases.
Johnson, 488 F.2d at 717-19.
The Eleventh Circuit, in Norman, 836 F.2d at 1298-99, further delineated that the lodestar approach adopted by the United States Supreme Court was designed to produce an objective estimate of the value of a lawyer’s services. Under this approach, the court establishes a lodestar by multiplying the hours reasonably expended by a reasonable hourly rate, which is the prevailing market rate for similar services by similarly-skilled lawyers in the same community. See id. at 1299. In computing the lodestar, the court may employ the twelve Johnson factors. See id. at 1299-1300. Once the lodestar is determined, the court should make adjustments for results obtained, if necessary. See id. at 1302.
CONSIDERATION OF FACTORS
(1) The Time and Labor Required: Applicant’s fee application (Court Paper No. 40) reflects that Applicant purportedly expended an aggregate of 37.05 hours in his representation of the Debtor.2 The Court has carefully reviewed the time entries of Applicant and determines that a reasonable amount of time expended would have been no more than 12.50 hours.
The Court, in analyzing the instant fee application, notes that among the services provided by Applicant are those falling within the general categories of Client Conferences, Preparation of Bankruptcy Schedules, and Preparation of Chapter 13 Plan. Applicant has charged a total of 17 hours for the referenced services. The foregoing include 4.6 hours for the client conferences. Considering the straightforward nature of this case and this Court’s conclusion that the case should have been filed as a chapter 7 Liquidation rather than as a Chapter 13 Adjustment of Debts of an Individual with Regular Income, the Court finds that the 4.6 hours expended by Applicant in conferences with the debtor is excessive to the extent of 2.6 hours.
In addition, Applicant seeks compensation for 12.4 hours in preparing the chapter 13 plan. The only unusual aspect of this case is that the debtor operated a business, a sole proprietorship known as Designersmarx, manufacturing cabinets. The debtor listed an extensive inventory of tools and supplies, and the debtor listed 26 unsecured creditors, virtually all of which appear to have been incurred in the operation of the debtor’s business. The debtor’s schedules, statements, and chapter 13 plan are otherwise unremarkable, notwithstanding the fact that Applicant prepared and filed five chapter 13 plans, the last of which ultimately was confirmed. As support for the Court’s conclusion that this case should have proceeded as a chapter 7 Liquidation and that the filing of the successive chapter 13 plans was thus unnecessary, the Court notes that the debtor proposed to sell, and did sell, his business tools and his 1992 GMC truck used in his business, during the administration of this estate and that the debtor moved to Connecticut. Since the debtor’s chapter 13 *762plan provides for the liquidation of virtually all of his assets (aside from his motorcycle, the value of which was established under 11 U.S.C. § 1322(b)(2) at $5,400, reducing the claim of secured creditor American Honda Finance Corp. from $8,004.88), only marginal benefit was obtained by the debtor in having his case administered under chapter 13 rather than under chapter 7. Had counsel for the debtor aggressively negotiated with American Honda concerning the value of the motorcycle, much of the effort expended by Applicant could have been avoided. The Court concludes that Applicant should have been required to expend no more than 4 hours in preparing the debtor’s schedules and, further, that compensation for preparation of the various chapter 13 plans is totally unwarranted.
(2) Novelty and Difficulty of Questions Presented: There were no novel or difficult issues presented by this case, aside from the disposition of the debtor’s motorcycle. A chapter 7 trustee could have liquidated the debtor’s business tools and truck, and Applicant could have negotiated for the reaffirmation (under 11 U.S.C. § 524(c)) or revaluation of the obligation due to American Honda Finance Corp. The priority claims owing to the Internal Revenue Service, Florida Department of Revenue, and the Newtown, Connecticut Tax Collector could just as easily have been paid following a chapter 7 liquidation as through a chapter 13 plan, thereby relieving the debtor of liabilities which otherwise might have been non-disehargeable. Aside from payment of these potentially non-dischargeable obligations, the only cognizable benefit achieved by administering this case as a chapter 13 proceeding was the debtor’s ability to value his motorcycle via his chapter 13 plan. Considering the absence of novel or difficult issues, the aggregate compensation ($5,129.83) sought by Applicant is excessive.
(3) Skill Requisite to Perform Leyal Service Properly: Applicant has practiced law in excess of twenty years, specializing in the field of bankruptcy. He clearly possesses the knowledge and skills requisite to properly represent this debtor. However, with such knowledge and skill, he should have known that a chapter 7 filing would have been significantly more economical than a chapter 13 filing.
(4) Preclusion of Other Employment Due to Acceptance of this Case: The Court is unaware that Applicant was precluded from accepting other employment as a result of his acceptance of this case. Applicant appears frequently before this Court and regularly attends hearings in various of his cases on any given day before the undersigned judge.
(5) Customary Fee: The $5,129.83 fee sought by Applicant is well in excess of the fee customarily charged by attorneys to represent chapter 13 debtors in this District. Such fees generally range between $1,500 and $2,500, and pursuant to the “Chapter 13 Fee Guidelines,” any attorney seeking to charge a fee in excess of $2,500 for representing a chapter 13 debtor must file a fee application.
(6) Fixed or Continyent Fee: Pursuant to the Amended Chapter 13 Disclosure of Compensation (CP.ll), the $5,129.83 fee was “fixed” by way of agreement between Applicant and the debtor, subject only to the confirmation of the debtor’s chapter 13 plan and to consideration by this Court.
(7) Time Limitations Imposed by Client: The Court is unaware of any such limitations.
(8) Amount Involved and Result Obtained: Unlike most chapter 13 cases filed in this District, this case did not involve a proposed curing or waiving of a default under a home mortgage, which typically results in preservation of thousands of dollars in home equity to the debtor’s benefit. Rather, the only equity “preserved” by this debtor consists of his interest in his motorcycle, which was valued by the Court at $5,400 (as opposed to the $8,004.88 obligation owed to American Honda Finance Corp.). Although a positive result, this *763does not justify the fee requested by Applicant.
(9) Experience, Reputation and Ability of Attorney: Applicant certainly possesses more experience than most attorneys regularly representing chapter 13 debtors in this Court, and Applicant is certainly capable of adequately representing a chapter 13 debtor. Given such experience, Applicant should have been able to more efficiently represent this chapter 13 debtor than he did sub judice.
(10) Undesirability of Case: Given the debtor’s apparent ability to pay a reasonable fee, the Court is unaware of any information which would have rendered Applicant’s representation of the debtor “undesirable.”
(11) Nature and Lenyth of Professional Relationship: This consideration is not a factor vis-a-vis the fee award in the instant case, since representation of chapter 13 debtors is customarily limited in nature to the case at issue.
(12) Awards in Similar Cases: As noted above, awards in chapter 13 cases in this District generally range between $1,500 and $2,500.
Based upon consideration of the foregoing factors, the Court finds that a reasonable amount of time expended in this case should have been no more than 12.5 hours and that a reasonable hourly rate should have been no more than $250. Multiplication of these two figures yields a lodestar of $3,125. As the results obtained by Applicant were unexceptional, the Court finds it unnecessary to adjust the lodestar. Thus, the total compensation allowed to Applicant is $3,125, and any additional compensation is hereby disallowed.
Applicant also seeks reimbursement of expenses in the aggregate amount of $75.00 Applicant’s itemization of his expenses consists of the following:
—Telefax transmissions: 8/4/98 and 12/10/98 $12.00
—Pro-rated travel: Fort Pierce to West Palm Beach, for various hearings $15.40
Total $27.40
Applicant apparently seeks to assess the debtor a “flat charge” for expenses, when at best, Applicant is only entitled to request $27.40. Applicant cannot receive reimbursement for expenses in excess of those actually incurred. Accordingly, the Court allows reimbursement of expenses in the amount of $27.40. The Chapter 13 Trustee is authorized to disburse the balance of $1,792.57 due Applicant pursuant to the terms of the confirmed chapter 13 plan.
. Based upon a computation error, it appears that the actual net amount of additional compensation sought by Applicant equals $3,845.00, rather than $3,780.00. In addition, while it is the fifth amended plan which ultimately was confirmed by this Court, no third amended plan was filed with the Court. Thus, in actually, it is the debtor’s fourth amended chapter 13 plan that ultimately was confirmed on April 28, 1999.
. In actuality, the aggregate amount of time purportedly expended by Applicant, based upon his time itemization, equals 35.90 hours. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492973/ | REASONS FOR ORDER
JERRY A. BROWN, Bankruptcy Judge.
This matter came before the court on October 21, 1998 on the objection of Wil*899bur J. Babin, Jr., Trustee1 and the objection of James B. Thompson, Jr.2 to the third amended proof of claim filed by the Internal Revenue Service.3 At the hearing, the parties advised the court that the objections had been settled in part, and that additional time was needed to get final approval of the settlement from the IRS. On January 6, 1999, the court heard and granted the motion for approval of settlement filed by the trustee and the IRS.4 The parties settled all of the objections except the portion involving the issue of tolling as to a part of the IRS’s claim. The court finds that the IRS is not entitled to equitable tolling of the provisions of 11 U.S.C. § 507(a)(8).
I. Factual Background
The debtor, Offshore Diving & Salvaging, Inc., filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the Southern District of Texas on April 15, 1991. The order confirming the debtor’s first amended plan was signed on May 17, 1998, and docketed on May 20,1993.
The debtor filed the pending case, as a Chapter 11, on August 18, 1995. The case was converted to a Chapter 7 proceeding on April 10,1996.
In the pending case, the IRS filed an original proof of claim, an amended proof of claim, and a second amended proof of claim. The trustee’s objection to the IRS’s second amended proof of claim came on for trial. On June 26, 1998, the court issued reasons for order and an order disallowing the secured claim of the IRS, and giving the IRS additional time to file an amended proof of claim that reclassified the amounts into the priorities set forth in 11 U.S.C. § 507(a)(8).5
The trustee then filed an objection to the third amended proof of claim. All of the objections raised have been resolved, except the issue of whether the three year period of 11 U.S.C. § 507(a)(8)(D) was tolled during the prior bankruptcy filing.
At issue are five periods of employment withholding taxes assessed on 7/02/90, 9/03/90, 12/03/90, 12/17/90, and 3/25/91, more than three years prior to the fifing of the pending bankruptcy case.6
The parties have stipulated that: (1) if the court rules in favor of the trustee on the tolling issue, the priority portion of the IRS claim will be allowed in the amount of $521,417.05, and (2) if the court rules in favor of the IRS, the priority portion of the claim will be allowed in the amount of $661,011.93.7
II. Analysis
The relevant terms of 11 U.S.C. § 507(a)(8)(D) provide that taxes due within three years of the fifing of the bankruptcy petition are entitled to priority.8
The IRS argues that the three year limit ordinarily imposed by Section 507(a)(8)(D) was tolled while the previously pending bankruptcy case prevented the IRS from collecting the outstanding taxes. The IRS submits that the three year period was extended by two years and one month, the period between the debtor’s petition date in the Texas case and the date of plan confirmation, plus an additional six months provided for by 26 U.S.C. § 6503(b).
The trustee objects to the third amended proof of claim because it includes taxes *900assessed in 1990 and 1991 as priority taxes. The trustee submits that the cutoff date for classifying priority claims versus general unsecured claims should be August 18, 1992, three years prior to the bankruptcy filing on August 18,1995. The trustee contends that any taxes due under a tax return due to be filed after August 18, 1992 should be classified as priority, and any taxes due to be filed before that date should be classified as general unsecured.
The IRS cites the case of In re Waugh,9 and some 16 other cases in support of its position. The IRS submits that courts have consistently held that the three-year period of Section 507(a)(8) is suspended during the period when the taxing authority was prevented from collecting taxes due to the prior bankruptcy.10 The IRS apparently believes that tolling is warranted in all cases in which there is a prior bankruptcy.
This is not the law in the Fifth Circuit. The IRS did not cite the case of In re Quenzer,11 the only Fifth Circuit case that addresses the tolling issue under Section 507. In Quenzer, the Fifth Circuit held that 11 U.S.C. § 108(c) suspends only those limitation periods imposed under non-bankruptcy law and non-bankruptcy proceedings and could not be used, upon a debtor’s filing of successive bankruptcy petitions, to toll priority periods for the collection of taxes during a prior Chapter 7 bankruptcy proceeding. As an alternative position, the IRS argued that the periods should be equitably tolled under the provisions of 11 U.S.C. § 105(a), which allow the bankruptcy court to issue any order “necessary or appropriate to carry out the provisions” of Title 11. The Fifth Circuit stated that equitable considerations are “fact driven”, and that “[f]ull development and examination of the facts and the relative positions of the parties are imperative in the exercise of the court’s equitable powers.”12 Therefore, because the record had no fact findings by the lower courts, the Fifth Circuit refused to consider the alternative argument of the IRS under Section 105(a).
There have been no other decisions by the Fifth Circuit on the equitable tolling issue under Section 507. Consequently, it is clear that Section 108(c) may not be used to toll the three year period of Section 507. The Fifth Circuit has not determined whether the use of Section 105(a) to equitable toll the Section 507 time limitation is proper. The 16 decisions cited by the IRS do not arise in the Fifth Circuit, and are not persuasive to the court because this court is required to follow the Fifth Circuit case of In re Quenzer.
The lower court decisions in the Fifth Circuit since the Quenzer decision have allowed the use of Section 105(a), under certain circumstances, to extend the tolling limitation of Section 507(a)(8). For example, in the case of In re Blakely,13 the court permitted equitable tolling under Section 105(a) when the priority period expired during the pendency of a Chapter 13 case, which was then dismissed, and a new Chapter 7 case was filed 14 days later seeking discharge of the taxes. Similarly, the case of In re Clark,14 allowed equitable tolling when four out of five of the debtor’s bankruptcy filings were made shortly after receipt of an IRS collection notice or shortly after an IRS officer had the case.
The district court in the case of United States v. Gilmore15 affirmed the bankrupt*901cy court’s determination that it had the equitable power under Section 105(a) to toll the three year period of Section 507(a)(8)(D). The court did not permit equitable tolling, however, because the IRS had not affirmatively requested equitable tolling, had not filed an adversary proceeding, and had itself acted in an inequitable manner by proceeding to collect the unpaid taxes without properly raising the issue of their dischargeability with the bankruptcy court.16
This court agrees with the majority view that the court has the equitable powers under Section 105(a) to toll the three year time limitation of' Section 507(a)(8) in appropriate cases.17 Following Quenzer, the court must consider the facts and the relative positions of the parties in determining whether to exercise these equitable powers.
The IRS bears the burden of showing it is entitled to equitable relief.18 The Gilmore decision held that the correct way to request equitable tolling under Section 105(a) is to file an adversary proceeding.19 However, because the debtor did not raise an objection to the failure of the IRS to file an adversary proceeding, the court will go ahead and consider whether the IRS is entitled to equitable tolling under Section 105(a).
The IRS did not cite to any facts in support of its position, but simply presumed that tolling is warranted.
The debtor points out that prior to the first bankruptcy filing on April 15, 1991, the IRS had assessed all delinquent tax periods and filed a lien. The debtor contends that any collection activity by the IRS would have returned negligible amounts because there were two mortgages that primed the lien of the IRS. Thus, the debtor argues that the IRS benefitted from the initial filing, because the debtor operated under the supervision of the bankruptcy court and was prevented from alienating any of its assets. Further, the confirmed plan of reorganization in the first bankruptcy provided for a 100% payout of the IRS’s priority claim. The IRS does not contest these statements.
The debtor waited two years and three months after confirmation of the first plan before filing the second bankruptcy. There is no indication that there was any fraud or ill practices by the debtor to stymie collection of the tax debt. Under the present facts, the IRS has failed to show it is entitled to equitable tolling of the Section 507(a)(8)(D) limitations.
An order will be entered accordingly.
. PL 307.
. PI. 318.
. Proof of Claim # 266.
. PI. 355.
. PL 282.
. See Proof of Claim # 266.
. Pl. 355.
. 11 U.S.C. § 507(a)(8)(D).
. 109 F.3d 489 (8th Cir. 1997).
. Pi. 266, Post-Trial Brief of the United States at 5-6.
. 19 F.3d 163 (5th Cir. 1993).
. Quenzer, 19 F.3d at 165.
. 219 B.R. 722 (Bankr.S.D.Miss.1998).
. 184 B.R. 728, 731 (Bankr.N.D.Tex.1995).
. 226 B.R. 567, 571 (E.D.Tex.1998).
. 226 B.R. at 574.
. See United States v. Gilmore, 226 B.R. at 571.
. In re Gilmore, 198 B.R. 686 (Bankr.E.D.Tex.1996), affirmed, United States v. Gilmore, 226 B.R. 567 (E.D.Tex.1998); In re Clark, 184 B.R. at 730.
. United States v. Gilmore, 226 B.R. at 575. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492975/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW RE: SANCTIONS
WHITNEY RIMEL, Bankruptcy Judge.
A hearing was held on March 25, 1999, on the court’s order to show cause why Mercury Air Group, Inc. (“Mercury”), and its counsel, McBreen, McBreen & Kopko (together with Mercury, “Respondents”), should not be sanctioned under Fed. R.Bankr.P. 9011(b). Brian Hogan, Esq., appeared on behalf of the Respondents. Hilton Ryder, Esq., submitted a declaration and Michael Wilhelm, Esq., appeared on behalf of the Debtor. Patrick Jennings, Esq., of the U.S. Department of Justice, Tax Division, submitted a declaration on behalf of the Internal Revenue Service. This memorandum constitutes the court’s findings of fact and conclusions of law as required by Fed.R.Bankr.P. 7052 and Fed. R.Civ.P. 52. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(A) and (G).
The court issued its order to show cause as a result of Mercury’s motion to modify the automatic stay filed November 13, 1998 and heard December 16, 1998. Mercury sought to modify the automatic stay not on its own behalf but on behalf of the Internal Revenue Service (“IRS”) to allow the IRS to foreclose on its tax hens against the Debtors. Mercury, in its motion, offered to pay the IRS $218,000 in full payment of the IRS’s liens against the Debtor provided the IRS was granted relief from stay and provided the IRS delivered to Mercury all rights in and to the Debtor’s contract with the Army Proving Ground in Yuma, Arizona, prior to January 31, 1999. Mercury contended that talks with the IRS led it to believe that the IRS would be receptive to its proposal.1
Mercury’s grounds for relief were that the Debtor’s plan as proposed was not feasible,2 that the Debtor’s business is not viable, and that Mercury’s deal with the IRS would be better than the Chapter 11 plan for all creditors, including the IRS. Mercury’s motion went into detail in supporting its claim that each class of creditors would fare better under its proposal.
The IRS and the Debtor both opposed the motion. The IRS opposed the motion on a number of grounds. First, the IRS stated that Mercury lacks standing to lift the automatic stay on the IRS’s behalf. The IRS argued that a party in interest must demonstrate that it is seeking to further its own interests in seeking a modification of stay, and relief from stay would merely allow Mercury the same opportunity as any other entity to purchase the Debtor’s assets at a tax hen sale. “[A]n *87asset seized by the government must be sold at a public auction under statutory rules of procedure set forth in 26 U.S.C. § 6335.” The IRS also maintained that “[Mercury] is not authorized to litigate on behalf of the United States for any reason. See e.g. 28 U.S.C. § 516, expressly reserving the conduct of litigation in which an agency of the United States is interested to officers of the Department of Justice.”
The Debtor’s opposition stated that it was adequately protecting the IRS pursuant to an agreement between the Debtor and the IRS and that Mercury misrepresented the Debtor’s proposed plan, its business prospects, and the likely return to creditors under Mercury’s proposal. The Debtor also contended that Mercury had been told by the United States Attorney’s Office, and knew at the time it filed its motion, that the Debtor’s contracts with the Department of Defense were neither transferrable nor assignable pursuant to 41 U.S.C. § 15. The Debtor accused Mercury of attempting to “cherry-pick[ ] what it considers the one good contract” among the Debtor’s several refueling contracts with various military bases and sought sanctions pursuant to Rule 9011.
On December 16, 1998, the motion to modify stay was heard by the court. The court gave the Respondents an opportunity to withdraw the motion after Mr. Hogan explained that the purpose of the motion had been simply to attempt to persuade the IRS to join with or acquiesce in the motion. However, the Respondents did not withdraw the motion.
The court found there was no cause shown for granting relief from the automatic stay and indicated that the motion appeared to be an impermissible attempt to propose an alternative plan of reorganization without going through the formal plan proposal process provided by Chapter 11. The court stated that it would issue an order to show cause why sanctions should not be imposed against the Respondents pursuant to Rule 9011.
The court’s order to show cause (“OSC”) was issued on January 26, 1999.3 The OSC ordered the Respondents to show why they should not be sanctioned for the following:
• Presenting legal claims unwarranted by existing law or by any nonfrivo-lous argument for the extension, modification, or reversal of existing law or establishment of law (Rule 9011(b)(2)); and
• Presenting factual assertions without evidentiary support or the likelihood of evidentiary support after a reasonable opportunity for further investigation and discovery (Rule 9011(b)(3)).
• In particular, (a) the notice of hearing on the motion states that the hearing is “pursuant to order” of the court, which [it] was not; (b) the moving party sought relief from stay on behalf of the United States, not on behalf of itself, and therefore lacked standing; (c) the motion was served on all creditors, despite Federal Rule of Bankruptcy Procedure 4001(a); and (d) the motion appears to be a proposal for an alternate plan of reorganization (or liquidation) without the procedural protections of the confirmation process.
In response to the OSC, the Respondents submitted two pleadings, one before the OSC was issued and one after. The Respondents argued that the language indicating that the motion had been set “by order of the court” was “inartfully worded” but not a deliberate attempt to mislead the court or other parties.
The Respondents addressed the standing issue by acknowledging that only the United States could levy on the IRS’s tax lien and that Mercury brought the motion *88simply to “elicit the assistance and cooperation of the United States,” but the United States chose not to pursue Mercury’s desired course of action. ■ The Respondents insisted that the court had the ability to grant Mercury’s motion by virtue of the “very flexible” definition of “cause” in Bankruptcy Code section 362(d)(1) and the “inherent powers of the bankruptcy court,” presumably Bankruptcy Code section 105. The Respondents claim that neither the IRS nor the Debtor attacked the central premise of Mercury’s motion — that is, that the bankruptcy court could have granted the relief requested — and that, therefore, the Respondents had raised a claim “warranted by existing law or by non-frivolous argument for the extension, modification or reversal of existing law or the establishment of new law” and permitted under Rule 9011.
The Respondents maintained that their service of the motion on all creditors was an oversight which resulted in no substantial harm. No additional creditors not entitled to notice under Rule 4001 responded to Mercury’s motion.
In answering the court’s statement that “the motion appears to be a proposal for an alternate plan of reorganization (or liquidation) without the procedural protections of the confirmation process,” the Respondents insisted that they held no improper purpose in bringing the motion and that “Mercury never had, nor did it claim, any authority beyond merely suggesting to the United States and this Court that it might be prudent, given the circumstances prevailing at the time, to lift the automatic stay to provide relief initially to the United States, but also to the other creditors.”
This court has the inherent power to sanction pursuant- to Fed.R.Bankr.P. 9011 and Bankruptcy Code section 105(a). Rule 9011(a) requires “[e]very petition, pleading, written motion, and other paper, except a list, schedule, or statement, or amendments thereto, [to] be signed by at least one attorney of record in the attorney’s individual name.”
Under Rule 9011(b), “[b]y presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(1) it is not being presented for any improper purpose, such as to harass or to cause unnecessary delay or needless increase cost of litigation; (2) the claims, defenses, and other legal contentions therein are warranted by existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law; (3) the allegations and other factual contentions have evidentiary support or, if specifically so identified, are likely to have evidentiary support after a reasonable opportunity for further investigation or discovery; and (4) the denials of factual contentions are warranted on the evidence or, if specifically so identified, are reasonably based on a lack of information or belief.”
“There can be little doubt that bankruptcy courts have the inherent power to sanction vexatious conduct presented before the court. The inherent power is recognized in the statutory grant Congress has provided the bankruptcy courts” in section 105(a). In re Rainbow Magazine, Inc., 77 F.3d 278, 284 (9th Cir.1996). Section 105(a) provides:
The court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
*89Mercury purchased a minimal claim from a stationery store in April 1998 and soon after obtained authorization to examine the Debtor pursuant to Fed.R.Bankr.P. 2004 and modification of the automatic stay to speak with government officials. Mercury also sought (and obtained) leave to file an alternative plan, but never did so. Instead, Mercury, through its counsel, filed a motion which, by itself, would provide no benefit to Mercury if it was granted. However, Mercury included in the motion a proposal which bore a suspicious resemblance to an alternative plan, complete with an analysis of the supposed benefit each class of claimants would receive in the event relief were granted and the IRS agreed to Mercury’s proposal. The motion was served on all creditors— an expense few creditors wish to undertake when not required to do so.
But the Respondents do not even attempt to show how Mercury had standing to bring this motion; instead, they insist that the United States could have brought this motion, that the United States could levy on the Debtor’s assets, and the court could have granted relief from stay. Notably, the Respondents did not respond to the United States’ assertion that only the Department of Justice may litigate on the United States’ behalf. If the United States desires relief from stay, it is the United States’ prerogative to seek that relief.
The only evidence presented in support of Mercury’s motion was a single page from the Debtor’s monthly operating reports; a copy of what appears to be the IRS’s proof of claim; and the declaration of Seymour Kahn, Mercury’s chairman of the board. The Kahn declaration is the only indication that Mercury and the IRS even discussed the Debtor and/or its assets, and the statements supposedly made by IRS employees were stricken as hearsay. Therefore, Mercury had no competent evidence that it, or any other party, was entitled to relief from stay.
The court finds that the Respondents presented their motion without standing to bring the motion, without competent evidence, and without a proper purpose. Their position was not supported by “existing law or by a nonfrivolous argument for the extension, modification, or reversal of existing law or the establishment of new law.” Sanctions are therefore in order.
The Debtor and the United States submitted declarations outlining the time spent and fees accrued in responding to the Respondents’ motion. The Debtor seeks $1,125 in attorneys’ fees (4.5 hours at $250 per hour) and $34.03 in expenses, while the United States seeks $1,798..60 in “fees” (17 hours at $105.80 per hour, which includes salary, benefits, and overhead) and $25 in expenses. The Debtor’s counsel itemized his time, whereas the United States’ counsel did not. Nonetheless, the court finds that both fee requests are reasonable and awards sanctions to the Debt- or in the amount of $1,159.03 and to the United States in the amount of $1,823.60. The Respondents are jointly and severally liable for the payment of these sanctions.
A separate order shall issue.
. The Debtor objected to statements allegedly made to Mercury officials by IRS employees on hearsay grounds, and the court sustained the Debtor's objections.
. The Debtor confirmed an amended plan on March 25, 1999.
. A hearing on the court’s order to show cause was held on January 21, 1999, as scheduled by the court at the December 16, 1998, hearing. The hearing was continued to March 25, 1999, because the court had not issued the OSC as of the January 21 hearing. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492976/ | ORDER AND JUDGMENT
PUSATERI, Chief Judge.
Creditor Greenpoint Credit Corporation, Inc. (“Greenpoint”), appeals the bankruptcy court’s decision determining that under Oklahoma law, a manufactured home is a “vehicle” so that a lien on the home is perfected by having it noted on the title to the home. The court held that such a lien is not automatically perfected under the Uniform Commercial Code (“UCC”) even if the home is a “consumer good” under Article 9 of the UCC. For the reasons stated below, we affirm.
I. Background
In November 1998, the debtor bought a two-piece manufactured or mobile home, commonly known as a “double-wide,” from an Oklahoma dealer and apparently arranged to have it placed on property in Oklahoma. In the record, the home is referred to interchangeably as a “manufactured home” and a “mobile home”; we see no need to distinguish between the terms in this appeal. The dealer financed the sale and took a security interest in the home, but immediately assigned its rights to Greenpoint. Neither the dealer nor Greenpoint took any steps to perfect the security interest until over two months later, when Greenpoint submitted a lien entry form to a motor license agent of the Oklahoma Tax Commission. The debtor filed for bankruptcy about six weeks after that.
The trustee sued under 11 U.S.C. § 547 to avoid as a preference the perfection of the lien accomplished through the lien entry form. Greenpoint conceded its lien could be avoided unless the security interest was automatically perfected under Article 9 of the Oklahoma UCC as soon as it was granted. The bankruptcy court ruled in favor of the trustee.
II. Discussion
The premise of Greenpoint’s argument on appeal is simple: perfection of the lien on the home was governed by Article 9 of the UCC because the home is a “consumer good,” not a “vehicle” for which perfection would be governed by provisions outside the UCC. Section 9-302 of the Oklahoma UCC provides in pertinent part:
(1) A financing statement must be filed to perfect all security interests except the following:
(d) A purchase money security interest in consumer goods except for a *103vehicle as provided in paragraph (i) of this subsection; or ...
(i) A security interest in a vehicle as defined in Section 1110 of Title 47 of the Oklahoma Statutes for which a certificate of title may be properly issued by the Oklahoma Tax Commission, except as otherwise provided for in Section 1110 of Title 47 of the Oklahoma Statutes.
Okla.Stat.Ann. tit. 12A, § 9-302(l)(d) & (i) (1998 Supp.). Subsection (i) was added to the statute in 1984, see 1984 Okla.Sess. Laws, ch. 76, § 50, p. 258, 303 (eff. Nov. 1, 1984), and subsection (d) was added the next year, see 1985 Okla.Sess.Laws, ch. 98, § 1, p. 296, 296 (eff. May 28, 1985). The substance of each subsection has remained the same since it was added. Greenpoint contends the home was covered by subsection (d) and did not fit within the exception established in subsection (i) because it is not a “vehicle.”
However, § 1110 of title 47 of the Oklahoma Statutes provides in pertinent part:
A. 1.... [A] security interest, as defined in Section 1-201 of Title 12A of the Oklahoma Statutes, in a vehicle as to which a certificate of title may be properly issued by the Oklahoma Tax Commission shall be perfected only when a lien entry form, and the existing certificate of title, if any, or application for a certificate of title and manufacturer’s certificate of origin containing the name and address of the secured party and the date of the security agreement and the required fee are delivered to the Commission or to a motor license agent.... The filing and duration of perfection of a security interest, pursuant to the provisions of Title 12A of the Oklahoma Statutes, including, but not limited to, Section 9-302 of Title 12A of the Oklahoma Statutes, shall not be applicable to perfection of security interests in vehicles as to which a certificate of title may be properly issued by the Commission, except as to vehicles held by a dealer for sale or lease.... In all other respects Title 12A of the Oklahoma Statutes shall be applicable to such security interests in vehicles as to which a certificate of title may be properly issued by the Commission.
E. The priority of a valid security interest in a manufactured home, including without limitation a mobile home or sectional home, perfected pursuant to this section, shall not be affected by reason of the manufactured home becoming a fixture or otherwise being permanently attached to real property after the date of perfection of the security interest. A security interest in a manufactured home perfected pursuant to this section shall have priority over a conflicting interest of a mortgagee or other lien encumbrancer, or the owner of the real property upon which the manufactured home became affixed or otherwise permanently attached.
Okla.Stat.Ann. tit. 47, § 1110(A)(1) & (E) (1998 Supp.) (emphasis added). Subsection (E) was added to the statute in 1988. See 1988 Okla.Sess.Laws, ch. 167, § 2, p. 723, 728 (eff. May 24, 1988). The substance of the portions quoted above has not changed since, not even in an amendment that took effect on November 1, 1999. See 1999 Okla.Sess.Laws, ch. 92, § 3, pp. 401, 404-07. The emphasized portions of subsection (E) clearly state that liens on manufactured or mobile homes can be perfected under the statute. Consequently, such homes must be “vehicles” covered by § 1110 and perfection of liens on them is excluded from the UCC by § 9-302(l)(i). Greenpoint simply ignores subsection (E) and makes arguments concerning other statutes that leave more room for doubt on the question whether the Oklahoma legislature intended for manufactured or mobile homes to be “vehicles” under § 1110; the creditor offers no other possible meaning for the emphasized portions of subsection (E). Consequently, we conclude we must reject Greenpoint’s as*104sertion that such homes are not “vehicles” under these statutes.
In the past, at least two cases applying Oklahoma law have ruled that manufactured or mobile homes are “vehicles” covered by § 1110 or its predecessor. Shelter America Corp. v. Ray, 800 P.2d 743, 745-46 (Okla.App.1990) (lien on mobile home properly perfected in 1981 as lien on vehicle); In re Gray, 40 B.R. 429, 431-34 (Bankr.W.D.Okla.1984) (predecessor to § 1110 applied to manufactured or mobile home). Despite Greenpoint’s argument to the contrary, we see no changes made to § 9-302 or § 1110 that should alter the conclusion reached in these Oklahoma Decisions.
III. Conclusion
For the reasons stated, the bankruptcy court’s decision is hereby AFFIRMED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492977/ | ORDER ON APPLICATION FOR ALLOWANCE OF FEES OF JONATHAN W. LUBELL AND MORRISON COHEN SINGER & WEINSTEIN (Doc. #484) AND DEBTOR’S OBJECTION TO ALLOWANCE AND COUNTERCLAIM (Doc. #497)
ALEXANDER L. PASKAY, Chief Judge.
THIS IS a yet to be confirmed Chapter 11 case and the matters under consideration are the Third Interim Application for Alowance of Fees of Jonathan W. Lubell and Morrison Cohen Singer & Weinstein as Special Counsel for the Debtor (Application) and the Debtor’s Objections to Third Interim Application for Alowance of Fees and Application for Alowance of Unauthorized Fees and Costs of Jonathan W. Lubell and Morrison Cohen Singer & Weinstein and Counterclaim (Objection). The Application and the Objection were scheduled for a properly noticed hearing at which time this Court heard argument of counsel for the respective parties. Having considered the relevant part of the record, this Court now finds and concludes as follows:
THIRD INTERIM APPLICATION BY LUBELL AND MORRISON COHEN SINGER & WEINSTEIN, P.A.
Approximately five or six years prior to the commencement of this Chapter 11 case, the Debtor engaged the services of Attorney Jonathan W. Lubell (Lubell), supposedly an expert in First Anendment related matters. Lubell was employed to sue the Times Publishing Company (d/b/a St. Petersburg Times) (St. Pete Times) on behalf of the Debtor and its principal, Dr. Alfred O. Bonati (Dr. Bonati). Dr. Bonati and this Debtor claimed to have been libeled in a series of articles published in the St. Petersburg Times which were injurious to the Debtor’s business and reputation in the community.
In 1992, Lubell on behalf of the Debtor and Dr. Bonati, filed suit against the St. Pete Times for defamation and other claims, in the Sixth Judicial Circuit in and for Pasco County, Florida, Case No. 92-5840-CA.
In October 1996, Dr. Bonati, individually, filed his Petition for Relief under Chapter 11 of the Bankruptcy Code. In December 1996, the Debtor filed it’s Petition for Relief also under Chapter 11. On March *13719, 1997, this Court granted the Debtor’s Amended Application to Employ Lubell and his firm, nunc pro tunc to January 2, 1997.
Lubell’s First Interim Fee Application sought $41,299.00 in fees and $5,488.25 as reimbursement of expenses. On August 6, 1997, this Court awarded $36,510.00 for fees and $4,669.89 for expenses. The allowance covered the time period of January 2, 1997 through March 31, 1997. Lu-bell’s Second Interim Application for Fees and Expenses sought a fee allowance of $4,774.00 and $606.48 for reimbursement of expenses for the period of April 1, 1997, to June 20, 1997. This Court awarded Lubell $3,500.00 for fees and $278.90 for reimbursement of expenses.
The Application under consideration is for the period of July 1, 1997, through September 30, 1998. In the first component of the Application, Lubell seeks an allowance for legal services rendered in the sum of $26,208.50 and $13,783.86 for reimbursement of expenses in connection with the St. Pete Times litigation. The fee sought is based on 54.4 hours performed by Lubell at a billing rate of $325.00 per hour, plus 46.10 hours performed by an associate billed at the rate of $185.00 per hour.
The lawsuit against the St. Pete Times was dismissed by the Pasco County Circuit Court Judge in January 1998, for failure to prosecute, pursuant to Fla.R.Civ.P. 1.420(3). The record is clear that the services rendered during the subject time period did not produce any meaningful benefit to the estate and the amount sought is grossly excessive.
In the second component of the Application, Lubell seeks an allowance of $6,823.50 as fees and reimbursement of $979.67 in expenses in connection with non-insurance and dischargeability matters. The fee amount sought is based on 20.7 hours performed by Lubell at a billing rate of $325.00 and .40 hours performed by an associate at a billing rate of $240.00. These fees and costs are in connection with claims against the Debtor and Dr. Bonati for alleged medical malpractice. It appears that Lubell withdrew from the malpractice litigation in August 1998 and is no longer rendering legal services to the Debtor in this case.
OBJECTION BY THE DEBTOR
Considering the objections seriatim, the Debtor contends that Lubell committed legal malpractice and, therefore, is not entitled to any fee whatsoever in connection with the Pasco County Circuit Court litigation. The fact that the Debtor and Dr. Bonati claim to have a counterclaim against Lubell has no relevance on the only issue before this Court at this time. The only matter under consideration is the Application.
This in turn brings into focus the ultimate issue which is the reasonable amount of fees to be awarded to Lubell as compensation for the services rendered to the estate. The Debtor contends that the hourly rate charged for Lubell and for an associate is not reasonable and not in accordance with the standard of the legal community in this Division. There is no question that the prevailing rate charged in Tampa by bankruptcy practitioners is considerably lower than the rates charged in the Application. On the other hand, this Court is also satisfied that the rates charged are consistent or close to the prevailing New York billing rates. Thus, if one applies the prevailing New York rates, a proposition not without support, the reasonableness of the amount sought for the services must still be judged by taking into account the extent and scope of the services rendered and the value of the services and the benefits produced by the services under consideration. As noted earlier, the Complaint against the St. Pete Times produced no results whatsoever. Lubell’s participation in the Amerati suit in the U.S. District Court was secondary *138as the main laboring oar was in the hands of Summers, the special counsel retained by the Debtor to defend the malpractice part of the lawsuit. Based on the foregoing, this Court is satisfied that the reasonable amount of compensation shall not be more than $15,000.
As to the expenses incurred, the schedule of expenses lists $7,634.26 in professional fees paid by Lubell for “local appeal counsel.” This record is devoid of any evidence that this Court ever authorized Lubell to hire and pay local counsel. Employment of professionals in bankruptcy is governed by Section 327 of the Bankruptcy Code and by Federal Rule of Bankruptcy Procedure 2014. It is elementary that neither the Code nor the Rules authorizes the employment and payment to professionals without express authorization by the court. The Schedule also describes an expense as “database” search without any further explanation. It is utterly impossible to evaluate the propriety of this expense item. Equally, the description of the items of secretarial overtime, undated unspecified travel is deficient and cannot be reimbursed because the overtime is considered overhead and even if it is not, there is nothing in this record to show why the overtime was necessary and what was the hourly rate and the time spent. Lastly, the Application charges twice for the same transcript.
Considering the Third Interim Application and the Debtor’s Objection to same, together with the relevant portion of the record, this Court is satisfied that the Debtor’s Objection should be sustained in part and overruled in part. The reasonable amount of compensation for the services rendered by Lubell and his firm during the time period involved should be $15,000.00.
The proper amount to be awarded for reimbursement of expenses should be $3,738.47. This Court is specifically disallowing the following items from the request for reimbursement of expenses:
Professional fees for “local appeal counsel” $ 7,634.26
Secretarial overtime 477.04
Database search 1,265.82
Undated, unspecified travel 806.35
Duplicate charge for Transcript 842,49
Total $11,025.06
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Objection to the Application is sustained in part and overruled in part. The Application is hereby approved and a reasonable value for services rendered during the relevant time period by the Applicant is hereby determined to be $15,000.00 and the reasonable cost allowance for compensable expenses incurred during the relevant time period is hereby determined to be $3,738.47. Therefore, the Applicant is entitled to an administrative expense in the amount of $18,738.47 pursuant to § 503(b), to be paid pursuant to § 507(a) of the Bankruptcy Code. It is further
ORDERED, ADJUDGED AND DECREED that this Court’s ruling on the Third Interim Application and the Debt- or’s Objection shall have no preclusive effect whatsoever on any claims the Debtor may have against Special Counsel. It is further
ORDERED, ADJUDGED AND DECREED that the Debtor shall not pay any amounts allowed in connection with the Third Interim Application until such time as any claims against Special Counsel have been determined by a court of competent jurisdiction. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492978/ | DECISION ON CROSS-MOTIONS FOR SUMMARY JUDGMENT
BURTON PERLMAN, Bankruptcy Judge.
Defendant, debtor A & S Galleria Real Estate, Inc., filed a Chapter 11 case in this court, which was jointly administered with that of Federated Department Stores. Defendant owns real property located in White Plains, New York (the “subject property”). Defendant’s bankruptcy case was filed on January 15, 1990. The case was administered and closed in June, 1996. On August 12, 1997, plaintiff here, the City of White Plains, New York, filed a motion for allowance of an administrative expense for the city and school taxes for the fiscal year 1990-91. The motion of the city was denied in this court, and that decision was affirmed by the District Court on September 13, 1999.
The City of White Plains, plaintiff herein, also filed this adversary proceeding. Plaintiff here seeks to have the court recognize that plaintiff has a lien on the subject property, on account of unpaid taxes for 1990-91. According to plaintiff, it acquired an interest in the property pre-petition, which was subsequently perfected. Defendant has filed a cross-motion for *342summary judgment. In it, defendant argues that plaintiffs lien interest was perfected only post-petition, and is therefore invalid as violative of § 362(a)(4). In response, plaintiff urges that perfection post-petition is permitted, notwithstanding the automatic stay of § 862(a)(4), by § 362(b)(3).
While the considerations relevant to decision on the issue of whether the City of White Plains was entitled to administrative expense as contended in its earlier motion are not here relevant, the facts to be considered here are in large part those recounted by the District Court in its decision of September 13,1999:
The State of New York sets March 1 of each year as the taxable status date for real property, unless the city or town has established a different date. N.Y. Real Prop. Tax Law § 302(1). By charter, White Plains has established January 1 as the taxable status date for real property: “Real property in the city shall be assessed according to its condition and ownership as of January first of each year.” Charter § 74(b). According to White Plains, this provision means that the owner of the property on January 1 is liable for the taxes due for that year based on its January 1 status, even if after that date the owner sells the property or it is destroyed.
Also on January 1 of each year, the assessor establishes a value for each parcel of property and enters it into a set of books known as the tentative assessment roll. Charter § 74(c). After the tentative assessment roll is established and published, property owners have an opportunity to make challenges to the values assessed. After any changes are made and certified, the final assessment role is filed with the city clerk by March 1. Charter § 74(h). By May 30 of each year, the city adopts a budget and levies a tax based on the taxable property which is sufficient to balance the budget. Charter §§ 65(B) and (D). One-half of the tax levied is due on July 1 and the remainder is due on the following January 1. Charter § 84.
School taxes are calculated based on the latest final assessment role of the city or town. N.Y. Real Prop. Tax Law § 1302(1). The taxable status date for the school tax is the taxable status date adopted by the city or town. Id. § 1302(3). After a school tax has been approved at a district meeting, the school authorities issue a levy, and a school tax roll is prepared and a warrant annexed for collection. Id. § 1306(1). The tax is payable in installments of one-half of the total amount of tax on the following July 31 and January 31.
In the instant case, White Plains established its tentative assessment roll for the city property tax on January 1, 1990. On January 15, 1990, A & S Galleria filed its voluntary petition for reorganization under Chapter 11 of the Bankruptcy Code. On March 1, 1990, the final assessment roll was approved and filed with the city. On May 21, 1990, the Common Council of White Plains approved its budget for the fiscal year July 1, 1990 to June 30, 1991 and determined a tax rate to be applied to the final assessment roll. On June 18, 1990, the city school board approved a tax levy for the fiscal year July 1, 1990 to June 30, 1991 and the necessary school tax roll and warrant were prepared.
# Hi #
For present purposes, the foregoing must be supplemented with reference to other provisions of applicable law. After the taxable status date passed, the city assessor published the assessment between January 3 and January 8, 1990. All complaints concerning assessments were to be heard before February 15, 1990. Charter § 74(d) and (e). A “correct and complete” assessment role, finalizing the value of property, was filed March 1, 1990. Charter § 74(h). The amount of real estate taxes to be levied were determined *343when plaintiff passed its budget on May 21, 1990. Real estate taxes then became due and payable, one-half on July 1, 1990 and one-half on January 2, 1991. Real estate taxes did not become a lien until so due and payable. Charter § 84. A similar procedure applied to 1990 school taxes pursuant to New York Real Property Tax Law (“RPTL” § 1302). The school taxes became a lien when plaintiffs board of education on June 18, 1990 determined the amount of school-tax. RPTL § 1312. Regarding water charges, plaintiffs Charter provides that they are a lien from the date when water is furnished. Charter § 200. Plaintiff is unable to determine when defendant used the water as to which a lien is asserted.
Given these facts, this court must decide whether any claim of lien interest is barred by § 362(a)(4), or whether plaintiff is the holder of a valid lien interest by reason of § 362(b)(3) and § 546(b)(1)(A).
The statutes here pertinent are:
§ 362. Automatic stay
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title, or an application filed under section 5(a)(3) of the Securities Investor Protection Act of 1970, operates as a stay, applicable to all entitles, of—
(4) any act to create, perfect, or enforce any lien against property of the estate;
(b) The filing of a petition under section 301, 302, or 303 of this title, or of an application under section 5(a)(3) of the Securities Investor Protection Act of 1970, does not operate as a stay—
* * * * * *
(3) under subsection (a) of this section, of any act to perfect, or to maintain or continue the perfection of, an interest in property to the extent that the trustee’s rights and powers are subject to such perfection under section 546(b) of this title or to the extent that such act is accomplished within the period provided under, section 547(e)(2)(A) of this title;
§ 546. Limitations on avoiding powers
(b)(1) The rights and powers of a trustee under sections 544, 545, and 549 of this title are subject to any generally applicable law that — ■
(A) permits perfection of an interest in property to be effective against an entity that acquires rights in such property before the date of perfection;
To succeed here, plaintiff must show that it had an “interest in property” of which nonbankruptcy law would permit perfection “effective against an entity that acquires rights in such property before the date of perfection.” 11 U.S.G. § 546(b)(1)(A).
In the matter at hand, the “entity” in question would be the debtor-in-possession, which became the proprietor of the property upon the filing of the bankruptcy case, which was before the date of perfection. Thus, a limitation is imposed upon the rights of a trustee, or debtor-in-possession, in asserting his avoiding powers under the strong-arm section, § 544, or in connection with statutory liens under § 545, or in pursuit of avoidable post-pétition transactions under § 549. In each of these instances, if perfection of an interest acquired before the date of perfection is permissible pursuant to state law even though post-petition, then the holder of the interest will prevail over the trustee or debtor-in-possession. While § 546(b)(1) does not specify that the interest in question must be obtained pre-petition, in the case at hand, that must be the case. This is so because here, the “entity that acquires rights in ... property before the date of perfection” is the debtor-in-possession, and only on the date of the filing of *344the bankruptcy did there come into being a debtor-in-possession.
The very question presented has been considered by two Courts of Appeal, and they have reached opposite conclusions. After careful consideration, we have reached the conclusion that the court in Makoroff v. City of Lockport, 916 F.2d 890 (3rd Cir.1990), is the more convincing. In Makoroff, the Economic Development Administration of the United States and the Farmers’ Home Administration, both represented by the United States, held recorded mortgages on real property in the city of Lockport, County of Niagra, in the state of New York. The city and county asserted that they held tax liens on the subject real property for unpaid city, school and county taxes, by reason of which they stood ahead of the U.S. agencies in rights to proceeds from the sale of the subject real estate. The Court of Appeals affirmed the decisions below that the city and county tax liens were void because they had been created in violation of the automatic stay, 11 U.S.C. § 362(a)(4). The U.S. agencies prevailed in the litigation.
The court first discussed § 362(a)(4) and § 362(b)(3) and the implications of the reference to § 546(b) therein. In the course of that discussion, the court said:
The paradigm section 546(b) ease would arise in a state which has adopted the Uniform Commercial Code (“U.C.C.”). Under various sections of the U.C.C., a perfected security interest relates back to either the filing of a financing statement or the date that the security interest attaches. See, e.g., H.R.Rep. No. 595, 95th Cong., 1st Sess. 371-72 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327-28; S.Rep. No. 989, 95th Cong., 2d Sess. 86-87 (1978); reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872-73.1 Where a state law allows a creditor to perfect his security interest within a certain period of time after the security interest attaches, section 546(b) allows the creditor to complete the steps required under the state law for perfection. Without section 546(b), a creditor could not perfect his security interest without violating the automatic stay, even if all that remained was a ministerial act.
The purpose of this exception to the rule of the automatic stay is to “protect, in spite of the surprise intervention of [the] bankruptcy petition, those whom State law protects” by allowing them to perfect an interest they obtained before the bankruptcy proceedings began. H.R.Rep. No. 595, 95th Cong., 1st Sess. 371 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327; S.Rep. No. 989, 95th Cong., 2d Sess. 86 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872; see also Parr Meadows, 880 F.2d at 1546.
*345Makoroff, 916 F.2d at 892. We think this excerpt of significance for its insight into a proper interpretation of the word “interest” in § 546(b)(1)(A).
In the course of its decision, the Makoroff court dealt with two arguments advanced by the city. The court rejected the first argument, that the city held the requisite “interest” by reason of an ever-present interest in all property within its jurisdiction, a position which had been adopted by the Fourth Circuit in Maryland Nat'l, Bank v. Mayor of Baltimore, 723 F.2d 1138 (4th Cir.1983). In rejecting this, the Makoroff coart said:
Although the City and County may have an ever-present expectation of collecting taxes on all property within their jurisdiction, they do not have a property interest in a particular piece of real estate until they take the affirmative acts necessary to fix the amount of the tax due and to acquire a lien to the extent of that amount. For instance, city taxes do not become a lien until notice of a tax assessment has been published.
(citation omitted). Makoroff, 916 F.2d at 894.
The court in Makoroff then dealt with the second position of the city and county. A taxable status date is mandated by New York state law. In Makoroff, the pertinent taxable status date was prior to the date of the bankruptcy filing, and it was that date that the city and county asserted gave them the “interest” required by § 546(b)(1)(A). The city and county then said that they perfected their interest into a lien subsequent to the date of bankruptcy-
The court rejected this position after reviewing various New York authorities, saying:
We believe that the tax status date is an arbitrary date chosen solely for ease in tax administration. Immediately following that date, the taxing entity still possessed no more than an expectation that taxes will be collected with respect to a particular property.... Calling such an expectation an interest in property” before the amount of the tax is established and a perfectible lien created, stretches the scope of that phrase far beyond its commonly understood meaning. Rather we conclude that the City or County acquires an “interest in property” only when it has performed the statutory acts necessary to give rise to a perfectible lien. Here, each of those acts was performed after Guterl filed its petition in bankruptcy. Accordingly, neither the City nor the County falls within the section 546(b) exception to the automatic stay.
Makoroff, 916 F.2d at 895-96.
The very same question presented to the Makoroff court is that which is before us here and we reach the same conclusion. We hold that the determination of taxable status creates no such interest, as is required by § 546(b)(1)(A), about which it could properly be said that subsequent acts perfected the interest into a lien. Rather the lien is created when the pertinent statute says that the tax becomes a lien. In the present case, the charter of plaintiff White Plains provides that real estate taxes do not become a lien until due and payable, in the present instance one-half on July 19,1990 and one-half on January 2, 1991. Conceptually, there is no prior interest such as a security agreement or mortgage which can be perfected into a lien. The lien here is a creature of statute and is not the result of perfection. Plaintiffs lien having been obtained in contravention of § 362(a)(4), it is void.
In reaching this conclusion, we are not unmindful of Lincoln Sav. Bank, FSB v. Suffolk County Treasurer (In re Parr Meadows Racing Association, Inc.), 880 F.2d 1540 (2nd Cir.1989). Indeed, the Ma-koroff court was fully cognizant of Parr Meadows and declined to follow it. (There was a dissent in Makoroff, but that was based solely upon a belief that the Third Circuit should defer to the Second because New York is within the Second Circuit.) In Parr Meadows, the crux of the decision for present purposes is the statement that *346the actions necessary before a lien arises under New York law, represent merely a “completion of the taxation process and the perfection of the county’s interest in the property.” This court cannot find this to be a valid proposition. Parr Meadows, 880 F.2d at 1547. The charter here, and similar provisions in other taxing authorities in New York, state when a lien arises. Only if one does not give words their plain meaning can it be said that there was something which later became a lien. In no way is it possible to see in the analysis of a taxable assessment date something akin to a security interest or mortgage which can be perfected by recording. Moreover, we subscribe to the rationale of both the Makoroff court and the court in Watervliet Paper Co., Inc. v. City of Watervliet (In re Shoreham Paper Co.), 117 B.R. 274, 282 (Bankr.W.D.Mich.1990), that there is nothing in the New York law which says or can be construed to say that the lien relates back to a date earlier than the date the taxes become due and payable.
The motion of defendant for summary judgment is granted and that of plaintiff denied. The complaint will be dismissed.
. [Footnote 1 in decision at p. 892.]
Under U.C.C. § 9-301(2), for example, a secured creditor may perfect a purchase-money security interest within ten days after the debtor has come into possession of the collateral, even if the creditor has not previously filed a financing statement. Once the secured creditor’s interest is perfected by filing, his priority relates back to the date when his security interest attached, provided that filing occurs within ten days of attachment. Accordingly, the purchase-money security interest thus perfected will defeat a non-purchase-money security interest that was perfected after the debtor took possession of the purchase-money collateral (assuming that the non-purchase-money security interest does not itself relate back to a time before the debtor took possession of the purchase-money collateral).
Under section 546(b), perfection of a purchase-money security interest under U.C.C. § 9-301(2) would defeat a hypothetical judicial lien creditor on the date of the petition in bankruptcy. In other words, the automatic stay under section 362(b)(3) does not forbid the creditor from talcing steps to perfect a purchase-money security interest after the petition is filed. Such a perfection of a lien is not considered the creation of a lien under the U.C.C.H.R. Rep. No. 595, 95th Cong., 1st Sess. 371-72 (1977), reprinted in 1978 U.S.Code Cong. & Admin.News 5963, 6327-28; S.Rep. No. 989, 95th Cong., 2d Sess. 86-87 (1978), reprinted in 1978 U.S.Code Cong. & Admin.News 5787, 5872-73. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492979/ | MEMORANDUM OPINION ON MOTIONS FOR SUMMARY JUDGMENT ON COMPLAINT TO DETERMINE DISCHARGEABILITY OF STUDENT LOAN DEBT
BENJAMIN COHEN, Bankruptcy Judge.
The matters before the Court are motions for summary judgment filed by the *501United States Department of Education (“USDE”) and the Nebraska Student Loan Program (“NSLP”), the remaining defendants.1 After notice, a hearing was held on March 10, 1999. Ms. Kimberly B. Glass, the debtors’ attorney; Mr. Leon Kelly, the government’s attorney; and Mr. Mark Williams, the attorney for NSLP, appeared.
The matters were submitted on the parties’ Joint Stipulation of Facts and on Mr. White’s deposition, submitted by the defendants along with documents identified as exhibits to that deposition.
I. Contentions
Mr. White contends that student loan debts owed to USDE and NSLP should be discharged in his Chapter 7 bankruptcy pursuant to former section 523(a)(8)(B) of the Bankruptcy Code because excepting them from his discharge will impose an undue hardship on him. 11 U.S.C. 523(a)(8)(B).2 USDE and NSLP disagree and have moved for summary judgment on all issues. This Court’s review must begin there.3
II. Summary Judgment Standard
The standards in this Circuit for addressing a summary judgment motion are outlined in the decisions of the Eleventh Circuit Court of Appeals decision in Fitzpatrick v. City of Atlanta, 2 F.3d 1112 (11th Cir.1993). This Court has applied those standards in deciding the pending matters.4
*502III. Findings of Fact
The Court adopts the parties’ written stipulation of facts as its findings of fact. No other findings are needed as the parties have agreed, in writing, that:
1.Mr. White is indebted to the Nebraska Student Loan Program (NSLP) on three notes executed by him on July 16, 1992, July 16, 1992, and September 20, 1993, in the respective amounts of $7,500.00 (Loan 1), $4,000.00 (Loan 2), and $1,260.00 (Loan 3). Pursuant to the Loans, Debtor received initial disburse-merits totaling $12,760.00. As of October 7, 1998, Debtor owed NSLP $14,896.06, plus accruing interest.
2. Mr. White is indebted to the United States Department of Health and Human Services (USHHS) for a HEAL loan in the amount of $6,577.94 as of September 24, 1998, plus accruing interest. The HEAL loan is nondischargeable pursuant to 42 U.S.C. § 292.
3. Mr. White is indebted to the United States Department of Education (USDE) for loans from the William D. *503Ford Federal Direct Loan Program in the amount of $34,479.26 as of October 18,1998, plus accruing interest.
4. The loans from NSLP described in paragraph 1 and the loans from the USDE described in paragraph 3 are “educational loans” within the meaning of 11 U.S.C. § 523(a)(8).
5. None of the educational loans due to NSLP or the USDE first became due more than 7 years before the date of the filing of the petition.
6. Mr. White graduated from Oral Roberts University with a bachelor’s degree in biology.
7. Upon graduating from college, Mr. White applied and was accepted to medical school at the University of Alabama in Birmingham School of Medicine. Mr. White’s goal was to become a medical doctor.
8. Mr. White entered medical school in the fall quarter of 1992.
9. While in medical school, Mr. White was reimbursed for some tuition and living expenses by the U.S. Navy under the Armed Forces Health Professions Scholarship Program. In order to cover the expenses and tuition that were not reimbursed by the Navy, Mr. White took the above described educational loans.
10. In the spring of 1994, Mr. White was diagnosed as suffering from narcolepsy.
11. Due to the difficulties caused by his condition, Mr. 'White’s grades suffered and he was dismissed from school more than once but each time was reinstated and required to repeat certain course work.
12. After attending medical school for seven non-consecutive quarters, Mr. White was dismissed from medical school following the spring quarter of 1996 was this time denied reinstatement.
13. At that time, while looking for employment, Mr. White began working from his home doing computer graphic design. Mr. White does not have a degree in computer graphic design but has taught himself the techniques.
14. For one year Mr. White attempted to make a living working from his home while looking for employment. He made a total of $3,400.00 from his home-based business.
15. In July 1997, Mr. White accepted a job as a graphic designer with Tra-deshow and Marketing where he is presently employed at an annual salary of $20,000.00. His monthly net income at the time of filing was $1334.60.
16. After various deferments and forbearance agreements ranging from 46 to 64 months, Mr. White’s loans from NSLP were in “repayment” for five months at the time the bankruptcy petition was filed. Mr. White made four payments.
17. The first payment on Mr. White’s loan from USDE was due on March 14, 1997. A forbearance was then granted until March 14,1998. Payments were then established at $402.20 per month. Mr. White made one payment after this date of $200.00.
18. The USDE William D. Ford Loan Program offers a variety of flexible payment plans which would allow payment tailored to Mr. White’s income and circumstances.
19. In late March or early April of 1998, Mr. White’s vehicle, a 1991 Mitsubishi Eclipse ceased operating. Mr. White had already paid several hundred dollars for repairs to the vehicle over the past several months. Mr. White was unable to purchase a vehicle so he leased a 1998 Nissan Pathfinder at $274.11 per month. The lease is joint with his wife. Ms. White drives a 1992 BMW 325 upon which the monthly payments are $264.42.
20. Mr. White filed for relief under Chapter 7 of the Bankruptcy Code on May 15,1998.
*50421.At the time of the filing of the petition, Mr. White and his wife rented an apartment for $695.00 per month. Mr. White’s share of the rent was $347.50 per month. After Mr. White filed his petition for relief, Mr. White’s wife purchased a house for $148,000.00. Ms. White used her own money as a down payment on the house and the deed to the house is in only her name. The mortgage payment is $1044.64 per month. By agreement with his wife, Mr. White’s share of the monthly mortgage payment is the same as he was contributing toward the rent, i.e. $347.50.
22. Mr. White’s wife is a self-employed optometrist. Her monthly income varies depending on the number of clients serviced during the month. She has been licensed as an optometrist for less than two years. She estimates her gross monthly income will average approximately $8,500.00. From this amount, she spends approximately $500.00 per month in overhead and pays approximately $3,200.00 in taxes. Ms. White nets approximately $4,800.00 per month.
23. Mr. and Ms. White would testify that their monthly living expenses as a total and as allocated between each of them are as follows:
EXPENSE ITEMS PLAINTIFF’S EXPENSES SPOUSE’S EXPENSES TOTAL HOUSEHOLD
mortgage $374.50 $697.14 $1,044.64
auto loan $274.00 $264.42 $538.42
auto insurance $47.24 $75.62 $122.86
utilities $67.50 $67.50 $135.00
health insurance $0.00 $159.00 $159.00
disability insurance $0.00 $101.30 $101.30
food $200.00 $125.00 $325.00
gas $156.00 $156.00 $312.00
medication $150.00 $20.00 $170.00
medical expenses $35.00 $10.00 $45.00
telephone $30.00 $60.00 $90.00
student loans ? $950.52 $950.52
tithe $133.50 $450.00 $583.50
toiletries $30.00 $50.00 $80.00
clothing $30.00 $50.00 $80.00
TOTAL $1,500.74 $3,236.50 $4,737.24
The Defendants do not stipulate that the above-allocation of expenses is either accurate or appropriate.
24.Mr. White still suffers from narcolepsy and is under a doctor’s care for that condition. He takes two different medications that help with his condition but do not cure it. There is no cure for narcolepsy. The condition results in a diminished state of arousal and requires the person to take frequent breaks or naps in order to function. With medication, the need for naps or breaks is lessened but not eliminated. Mr. White will always have to work where he can control his hours and work at his own pace. These requirements would make it impossible for Mr. White to maintain some jobs. His current job allows him to work at his own pace, even allowing him to take naps at the office when needed. He has been able to work a regular workweek and has received good performance reviews at his current job.
*50525. Mr. White’s salary at his present job is at its maximum level except for periodical “cost of living” raises and small bonuses. Mr. White recently received a raise in pay that increased his yearly gross income to $22,000.00. This resulted in an increase in his take-home pay of approximately $70.00 per month, from $1334.00 to $1404.00.
26. Mr. White would testify as follows: “Other than similar, irregular increases, Mr. White does not expect to receive any substantial increase in pay from his current employment. Mr. White’s salary is average or above average for similar' positions in the industry. Mr. White does not have the necessary educational background to obtain a higher level position. Mr. White has also looked for employment opportunities related to his biology degree and has been unable to locate one for which he would be qualified that would even match his present salary. In order to achieve a better paying job, Mr. White would need to obtain either a degree in computer graphic design or to obtain his teaching certificate. Mr. White does not anticipate being able to do either of these things anytime in the near future.” The Defendants do not stipulate to the accuracy of this testimony.
27. Ms. White estimates that her current gross annual income is approximately $102,000.00. Ms. White is unable to estimate how her income will differ in the future. Her income is somewhat dependent upon the economy. Her income could either increase or decrease in the future.
28.Ms. White is not indebted on any of the loans to either NSLP or USDE. All of the loans from NSLP were taken out before she and Mr. White married in August 1995. Some of the loans making up the USDE indebtedness were taken out prior to Mr. White’s marriage. Some may have been taken out after August 1995.
Joint Stipulation of Facts, filed March 8, 1999 (Proceeding No. 27).
IV. Burdens of Proof
A. Standard Burdens of Proof in Student Loan Dischargeability Proceedings
A creditor seeking to have a student loan debt declared nondischargeable has the initial burden of proof at trial under all section 523(a)(8) proceedings. To satisfy that burden the creditor must prove: (1) the existence of a debt; (2) for an educational loan; (3) made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution; (4) that first became due less than seven years prior to the date of the bankruptcy.5 If the creditor meets that initial burden, the burden shifts to the debtor to prove, if the debtor so alleges, the undue hardship exception allowed by section 523(a)(8)(B).
*506B. Additional Burdens of Proof Where Motions for Summary Judgment Are Filed in Student Loan Dis-chargeability Proceedings
Where the same creditor seeks summary judgment, the burdens of proof are partially different. Under Fitzpatrick and pursuant to section 523(a)(8), the first burden for the creditor, (like the general burden under section 523(a)(8)) is to prove, by credible evidence that would support a directed verdict on the issue at trial, the existence of a debt that falls within the parameters of section 523(a)(8), that is, a debt for an educational loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, that first became due less than seven years prior to the date of the bankruptcy.
If the creditor satisfies that burden, and the debtor has claimed relief under the undue hardship provision of section 523(a)(8), the creditor must satisfy a second, and quite different, burden of proof. That is, the creditor must prove that there is an absence of evidence to support the defendant’s claim of undue hardship or alternatively the creditor must present affirmative evidence demonstrating that the debtor will be unable to prove undue hardship claim at trial.
C. General Standards of Proof for Summary Judgment Motions
Of course, in addition to the burdens discussed above, there is the general standard (whether in the bankruptcy context or not) that all who seek summary judgment must meet, that is, do “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” Fitzpatrick at 1115.6
V. Issues and Conclusions of Law
This Court has considered the interaction of the above three standards in addressing the pending matters.
A. Have USDE and NSLP Proved the Existence of Debts?
Yes. The parties’ stipulation of facts proves the existence of debts that fall within the parameters of section 523(a)(8). These debts are educational loans made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution, that first became due less than seven years prior to the date of the bankruptcy. Consequently, as a matter of law, the Court finds that the moving parties have satisfied their initial burdens of proof, as to both dischargeability and summary judgment.
B. Have USDE and NSLP Shown the Lack of Any Genuine Issues of Material Fact as to Matters on Which They Carry the Burden of Proof?
Yes. The debtor stipulated to the existence of a debt to USDE in the amount of $34,479.26, plus interest accruing after October 18, 1998, and to the existence of debts to NSLP totaling $14,896.06, plus interest accruing after October 7, 1998, which, absent “undue hardship,” are non-dischargeable under section 523(a)(8). Consequently, no issues of material fact exist, regarding the existence of debts owed to USDE and NSLP which qualify for non-dischargeability under section 523(a)(8) and the amount of those debts. Consequently, as a matter of law, the Court finds that the moving parties have met the general standards of proof required of all summary judgment movants.
*507C. Have USDE and NSLP Shown Either an Absence of Evidence of Undue Hardship or Presented Affirmative Evidence that the Debtor Will Be Unable to Prove Undue Hardship?
Yes. As explained below, the defendants have satisfied the second burden of proof criteria required when a summary judgment motion is filed in a student loan dischargeability proceeding.
1. Legal Framework
This Court has adopted the test described by the Court of Appeals for the Second Circuit in Brunner v. New York State Higher Edu. Serv. Corp., 831 F.2d 395, 396 (2nd Cir.1987) to determine whether repayment of a student loan will impose an undue hardship on a debtor. Under Brunner, a debtor must demonstrate: (1) that he cannot maintain, based on current income and expenses, a “minimal” standard of living for himself and his dependents if forced to repay the loan; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loan; and, (3) that the debtor has made a good faith effort to repay the loan. See this Court’s opinions in O’Flaherty v. Nellie Mae, Inc. (In re O’Flaherty), 204 B.R. 793, 796 (Bankr.N.D.Ala.1997) and Halverson v. Pennsylvania Higher Education Assistance Agency (In re Halverson), 189 B.R. 840, 844 (Bankr.N.D.Ala.1995). Presumably, where a creditor seeks summary judgment, the same factors apply.
2. “Application” of Brunner
At the hearing on this proceeding, the obvious point of disagreement between the debtor and the defendants was whether the Court should consider the debtor’s wife’s income when deciding the issue of undue hardship. The debtor insisted that the correlation between Ms. White’s income and Mr. "White’s actual lifestyle, (which is mostly dependant on his wife’s ample income), must be ignored, and the question of undue hardship must be answered based on the theoretical lifestyle that Mr. White might be forced to lead if he was not married or if his present wife did not share her income with him. The defendants insisted that Ms. White’s income should be considered.
Under Brunner, the key question is whether or not Mr. White can pay his student loans and maintain a minimal lifestyle. To make that determination, the Court has analyzed the issue with and without considering Ms. White’s income. Legally however, the Court finds that Ms. White’s income should be included.
a. Mr. White’s Ability to Maintain a Minimal Lifestyle on His Income Alone
The Court is aware that the debtor’s monthly payment on the USDE loan is $402.00; however, the Court has not been provided the amount of the monthly payment on the NSLP loan. And, neither USDE nor NSLP has told the Court what repayment period is applicable to either’s particular loan. Nevertheless, useable information necessary to make “undue hardship” calculations can be extrapolated from statutorily prescribed minimum requirements applicable to student loans.
According to the documents supplied to the Court, each of the loans involved in this case are direct Stafford loans. The least generous repayment period available to borrowers of such direct student loans made after July 1, 1994 (here the USDE loan) is 10 years. 34 C.F.R. § 685.208(b). And the borrower may not be required to pay more than 8.25 percent interest per annum on the amounts borrowed. 20 U.S.C. § 1087e(b)(l). The monthly payment amount which the USDE asserts is owed by the debtor is commensurate with a 10 year repayment schedule at an interest rate which is less than 8.25 percent.
For the two direct student loans made to Mr. White by NSLP after July 1, 1988, but before October 1, 1992, the applicable *508rate of interest is 8 percent for the first 4 years of the repayment period and 10 percent during the remainder of the repayment period. 20 U.S.C. § 1077a(d). For the direct student loan made by NSLP to Mr. White after October 1, 1992, but before July 1, 1994, the applicable rate of interest may not exceed 9 percent. 20 U.S.C. § 1077a(e). The applicable repayment periods for the respective NSLP loans cannot, by law, be less than 5 years nor more than 10 years. 20 U.S.C. § 1078(b)(9)(A). Assuming the maximum interest rate applicable to any of the NSLP loans, 10 percent, the maximum monthly payment that could be required from Mr. White to NSLP, assuming the minimum 5 year repayment period, would be $271.11. Adding that amount to the $402.00 which Mr. White is obligated pay to USDE each month would bring the total of Mr. White’s monthly student loan payments to $673.11.
Mr. White’s net wages after deduction for taxes are $1,404.00 monthly.7 Deducting $673.11 from that amount would leave Mr. White with a monthly surplus of $730.89 to pay living expenses.
According to the United States Department of Health and Human Services Poverty Guidelines, the poverty threshold is met by a family of one with pre-tax annual income of $8,240 or less. Annual Update of the HHS Poverty Guidelines, 64 Fed.Reg. 13428 (1999). If this Court adopted these guidelines as a bright line test of “minimal standard of living,” as have some courts, Mr. White’s annual pretax income of $20,000.00 would be almost two and a half times the poverty threshold for a single person and greater than the poverty threshold for a family of five ($19,-520).8
From a different standpoint, deducting the debtor’s projected monthly student loan obligations from his net pay, would leave Mr. White with an annual surplus of $8,770.68 on which to live. Whether he could provide life’s necessities for himself on that amount is a matter of proof, for which Mr. WTiite would carry the burden at trial.
b. Mr. White’s Ability to Maintain a Minimal Lifestyle on the Couple’s Combined Income
Section 523(a)(8)(B) requires consideration of a debtor’s actual circumstances, not the theoretical. In actuality, Mr. White’s necessities are supplied for the most part by his wife who could easily support them both, without any contribution from Mr. White. With this support, Mr. White’s lifestyle is quite comfortable and far from “minimal.” The only question then is: Should the Court consider Ms. White’s income? The answer is yes, according to the overwhelming weight of legal authority.
*509“[Cjourts have routinely considered the income of a debtor’s spouse when determining whether the debtor’s household income and expenses are in such a dire condition that a discharge of student loans is warranted.” Mitchell v. United States Department of Education (In re Mitchell), 210 B.R. 105, 108 (Bankr.N.D.Ohio 1996), citing Ipsen v. Higher Educ. Assistance Foundation (In re Ipsen), 149 B.R. 583 (Bankr.W.D.Mo.1992), citing In re Velis, 123 B.R. 497, 512 (D.N.J.1991). In fact, the vast majority of the reported opinions in which the dischargeability of a student loan debt owed by a married debtor was at issue, the courts have considered the earnings of both the debtor and his or her spouse for the purpose of evaluating the quality of the debtor’s lifestyle.9
*510This Court agrees, and finds as a matter of law that Ms. White’s income should be considered in deciding whether Mr. White is able to pay his student loans and maintain a minimal lifestyle.
The debtor disagrees and argues that the Court should not consider Ms. White’s income because the Court should consider only the potential lifestyle that could exist for a debtor if the debtor’s spouse chooses not to support the debtor or if the couple separates or divorces, not the couples’ current, actual lifestyle. The Court must disagree.
Couples not only provide financial support to one another, but each partner has a legal obligation, enforceable between them, to support one another to the extent of individual capabilities. Family law concepts of alimony and separate maintenance are based on those obligations.10 And where there is a claimed inability of one spouse to provide the necessaries of life, public assistance and welfare laws presume spousal support and specifically condition the receipt of such benefits on the recipient.11
In the bankruptcy context, section 523, by its terms, plainly considers the impact of the exception of a student loan debt from discharge on both the debtor and his or her dependents. A family member can be a dependent of, or a provider for, the debtor. Either way, the family member’s very existence impacts the quality of the debtor’s lifestyle, maybe adversely, maybe favorably. For example, if Mr. White’s situation were reversed and Ms. White were the debtor in this case seeking to discharge student loans, would not Ms. White, in furtherance of that effort, be quick to claim Mr. White’s dependence?
In resolving similar issues under the Bankruptcy Code, courts have recognized the rights of spouses to mutual financial support. For example, for purposes of determining whether or not, under section *511523(a)(15)(A), the benefit to a debtor of discharging a non-support obligation arising from a divorce outweighs the detriment such discharge would have on the debtor’s former spouse, courts have considered both the income and expenses of the debtor’s new spouse and the income and expenses of the debtor’s former spouse’s new spouse.12 And courts have taken into consideration the income and expenses of the debtor’s spouse in determining whether or not a debtor is devoting all of his or her disposable income to the fulfillment of a Chapter 13 plan, as is required for confirmation under section 1325(b)(1)(B).13
But the debtor counters by arguing that even if Ms. White’s income is considered, that income should be considered only to the extent of Ms. White’s agreed share of the Whites’ combined living expenses. If not, the debtor argues further, Ms. White will, in effect, be forced to help shoulder Mr. White’s student loan debt by being required to pay more than her fair share of living expenses, while that portion of Mr. White’s income which ordinarily would be devoted to the payment of his share of living expenses is diverted to student loan creditors.14 The debtor concludes that since the family’s combined living expenses are high (and Mr. White’s entire salary is *512presently consumed by his agreed share of their living expenses) any diversion for the benefit of student loan creditors would penalize Ms. White.
Again, the Court disagrees. The baseline from which to measure is a “minimal lifestyle.” The debtor’s argument is based on the Whites’ actual lifestyle, which is a very comfortable lifestyle, rather than the “minimal” lifestyle envisioned by Brunner. What Mr. White’s “fair share” of a comfortable lifestyle is not relevant to the Brunner■ equation.15
*514The Bankruptcy Code requires this Court to determine only a debtor’s actual standard of living and what adverse impact, if any, repayment by the debtor of his or her student loan obligations will have on that standard of living, and whether that impact will cause that standard to drop below a minimal lifestyle. In this case, the debtor’s standard of living, both quantitatively and qualitatively, is good. He and his wife, according to the figures supplied by the debtor, have a net income of approximately $6,200.00 each month and spend only $4,737.24 on monthly “living expenses.” They live in a nice home and drive relatively new and expensive automobiles. They can afford to eat well and wear decent clothing. They can afford to pay their utility bills and maintain their home. They can afford to have adequate life, health, and automobile insurance. They do not appear to want for any necessities or for many of the conveniences of modern life. And, they have substantial discretionary money left over each month to set aside for household projects, savings, investments or recreation. The slight change in this actual lifestyle that will be caused by requiring the debtor to pay his student loans could never be considered equal to a similar change that might force a much less fortunate debtor below a “minimal” lifestyle.
VI. Conclusion
In regard to the general issue of dis-chargeability, while payment of Mr. White’s student loan obligations will intrude into the Whites’ discretionary income, that payment will have no significant impact on Mr. White’s current lifestyle, which is far, far above the “minimal” required to meet the Brunner test. And repayment by Mr. White of his student loan obligations, under his present circumstances, will present no significant hardship to either him or his wife, much less an undue hardship.
In regard to the motions for summary judgment, the defendants have proven that there is no evidence to support Mr. White’s claim of undue hardship. The facts contained in the parties’ joint stipulation affirmatively demonstrate that Mr. White will be unable to prove his undue hardship claim at trial. Summary judgment must accordingly be granted in favor of the defendants, the United States Department of Education and the Nebraska Student Loan Program.
In regard to the ultimate issue, this Court must conclude that the debts owed to the movant-defendants may not be excepted from the prohibition against discharge provided for in 11 U.S.C. § 523(a)(8).
. A default judgment was entered on April 28, 1999 in favor of the debtor and against the third defendant Citibank Student Loan Corporation. The debtor’s complaint also listed Sallie Mae as a defendant for certain loans, but the debtor alleged that, “The Nebraska Student Loan Program is presently servicing those loans.” Therefore, this Court has assumed that the debt owed to NSLP is the same as that alleged to be owed to Sallie Mae and has not considered Sallie Mae as an actual defendant.
. The current undue hardship subsection of section 523 is "(a)(8)” only. The prior subsection included the designation (a)(8)(B). The substance is the same. Only the numbers have changed. See also note 5 below.
. In paragraph 2 of the parties’ joint stipulation, the debtor agreed that the separate "HEAL” debt owed to USDE in the amount $6,577.94, plus interest accruing after September 24, 1998, is, by virtue of 42 U.S.C. § 292, not dischargeable in this bankruptcy case. Consequently, only the non-HEAL loans owed to USDE and NSLP are addressed in this opinion.
. Writing for the court, Circuit Judge R. Lanier Anderson, III, explained:
A. Introduction
Under Fed.R.Civ.P. 56(c), a moving party is entitled to summary judgment if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law. The substantive law applicable to the case determines which facts are material. The district court should resolve all reasonable doubts about the facts in favor of the non-movant, and draw all justifiable inferences in his or her favor.
In Adickes v. S. H. Kress & Co., 398 U.S. 144, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970), the Supreme Court instructed the federal courts to employ a two-part framework of shifting burdens to determine whether, as regards a given material fact, there exists a genuine issue precluding summary judgment. The operation of this framework was modified significantly in Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The current framework is set out below.
B. Movant’s Initial Burden
The movant's initial burden consists of a responsibility to inform the court of the basis for its motion and to identify those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which it believes demonstrate the absence of a genuine issue of material fact. The nature of this responsibility varies, however, depending on whether the legal issues, as to which the facts in question pertain, are ones on which the movant or the non-movant would bear the burden of proof at trial.
1. For Issues on Which Movant Would Bear Burden of Proof at Trial
As interpreted by this court sitting en banc, Celotex requires that for issues on which the movant would bear the burden of proof at trial, that party must show affirmatively the absence of a genuine issue of *502material fact: it must support its motion with credible evidence that would entitle it to a directed verdict if not controverted at trial. In other words, the moving party must show that, on all the essential elements of its case on which it bears the burden of proof at trial, no reasonable jury could find for the non-moving party. If the moving party makes such an affirmative showing, it is entitled to summary judgment unless the non-moving party, in response, comes forward with significant, probative evidence demonstrating the existence of a triable issue of fact.
2. For Issues on Which Non-Movant Would Bear Burden of Proof at Trial
For issues, however, on which the non-movant would bear the burden of proof at trial, the moving party is not required to support its motion with affidavits or other similar material negating the opponent's claim in order to discharge this initial responsibility. Instead, the moving party simply may show, that is, point out to the district court — that there is an absence of evidence to support the non-moving party's case. Alternatively, the moving party may support its motion for summary judgment with affirmative evidence demonstrating that the non-moving party will be unable to prove its case at trial.
C. Non-Movant's Responsibility Once Movant Satisfies Initial Burden
If the party moving for summary judgment fails to discharge the initial burden, then the motion must be denied and the court need not consider what, if any, showing the non-movant has made. If, however, the movant carries the initial summary judgment burden in one of the ways discussed above, responsibility then devolves upon the non-movant to show the existence of a genuine issue as to the material fact.
1. For Issues on Which Movant Would Bear Burden of Proof at Trial
For issues on which the movant would bear the burden of proof at trial, the non-movant, in order to avoid summary judgment, must come forward with evidence sufficient to call into question the inference created by the movant's evidence on the particular material fact. Only if after introduction of the non-movant's evidence, the combined body of evidence presented by the two parties relevant to the material fact is still such that the movant would be entitled to a directed verdict at trial — that is, such that no reasonable jury could find for the non-movant — should the movant be permitted to prevail without a full trial on the issues.
2. For Issues on Which Non-Movant Would Bear Burden of Proof at Trial
For issues on which the non-movant would bear the burden of proof at trial, the means of rebuttal available to the non-mov-ant vary depending on whether the movant put on evidence affirmatively negating the material fact or instead demonstrated an absence of evidence on the issue. Where the movant did the former, then the non-movant must respond with evidence sufficient to withstand a directed verdict motion at trial on the material fact sought to be negated. Where the movant did the latter, the non-movant must respond in one of two ways. First, he or she may show that the record in fact contains supporting evidence, sufficient to withstand a directed verdict motion, which was overlooked or ignored by the moving party, who has thus failed to meet the initial burden of showing an absence of evidence. Second, he or she may come forward with additional evidence sufficient to withstand a directed verdict motion at trial based on the alleged evidentiary deficiency.
2 F.3d at 1115-1117 (for the sake of clarity and brevity, internal quotation marks, citations, footnotes, indentations, brackets, and ellipses have been omitted).
. This seven-year provision has been removed from the Bankruptcy Code. The court in Andersen v. UNIPAC-NEBHELP (In re Andersen), 179 F.3d 1253, 1255 n. 3 (10th Cir.1999) explains:
Prior to October 1998, § 523(a)(8) provided that educational loans were not dischargea-ble unless, (A) the loan first became due more than seven years before the date of the filing of the petition (the "seven-year rule”), or (B) excepting the debt from discharge would impose an undue hardship. However, The Higher Education Amendments of 1998, Pub.L. No. 105 § 244, § 971, 112 Stat. 1581, 1837 (1998), eliminated § 523(a)(8)’s "seven-year rule” in all cases filed after October 7, 1998, leaving only the undue hardship exception to non-dischargeability. While this amendment does not affect the present case, it does tend to support the argument that Congress has sought to progressively restrict the cases in which educational debts will be discharged.
Id. However, Mr. White's Chapter 7 bankruptcy case was filed prior to the effective date of the amendments to section 523(a)(8) contained in the Act. Section 971(b) of that act made the amendments to 523(a)(8) effective only with respect to bankruptcy cases commenced after the date of enactment. Consequently the seven-year provision still applies here.
. In that regard, "The substantive law applicable to the case determines which facts are material.” Id.
. Mr. White, it seems, does not contend that his narcolepsy makes him unemployable or that it prevents him from being employed at his present level of employment. He argues simply that the narcolepsy limits his earning potential by preventing him from obtaining more profitable employment. Since there is presently no evidence before the Court that contradicts Mr. White’s contention, this Court will conduct the analysis under Brunner based solely on Mr. White's present income and assume for the sake of that analysis that Mr. White's income will not increase appreciably over the applicable repayment periods of his student loans.
. Poverty, of course, is not a prerequisite to section 523(a)(8)(B) dischargeability and it might well be argued that the poverty threshold represents a less than "minimal” standard of living. On the other hand, the argument could be made that the poverty threshold provides an objective starting point for determining a "minimal” standard of living.
For convenience some courts recognize the United States Department of Health and Human Services Poverty Guidelines as the level of a "minimum standard of living” and recognize an annual income above or below that as exceeding or falling below the "minimum standard of living.” This Court disagrees as it cannot accept that a standard of living in poverty is an acceptable standard of living, below which there are levels of less comfort.
. See United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108, 1112-1113 (9th Cir.1998); Rice v. United States (In re Rice), 78 F.3d 1144, 1150 (6th Cir.1996); In re Rose, 227 B.R. 518, 525 (W.D.Mo.1998), aff'd in part and remanded in part, 187 F.3d 926 (8th Cir.1999); Virginia State Educ. Assistance Auth. v. Dillon, 189 B.R. 382, 385 (W.D.Va.1995); United States v. Rice, 182 B.R. 759, 760 (N.D.Ohio 1994), aff'd, 78 F.3d 1144 (6th Cir.1996); United States v. Kephart, 170 B.R. 787, 792 (W.D.N.Y.1994); Roe v. The Law Unit (In re Roe), 226 B.R. 258, 263 (Bankr.N.D.Ala.1998); Pinkham v. United States (In re Pinkham), 224 B.R. 728, 733 (Bankr.E.D.Mo.1998); Lebovits v. Chase Manhattan Bank (In re Lebovits), 223 B.R. 265, 268 (Bankr.E.D.N.Y.1998); Coats v. New Jersey Higher Educ. Assistance Auth. (In re Coats), 214 B.R. 397, 401 (Bankr.N.D.Olda.1997); Student Loan Marketing Ass'n v. Zierden-Landmesser (In re Zierden-Landmesser), 214 B.R. 300, 304 (Bankr.M.D.Pa.1997); Mitchell v. United States Dep’t of Educ. (In re Mitchell), 210 B.R. 105, 108 (Bankr.N.D.Ohio 1996); Steuber v. United States Dep’t of Educ. (In re Steuber), 200 B.R. 31, 35-36 (Bankr.W.D.Mo.1996); Skaggs v. Great Lakes Higher Educ. Corp. (In re Skaggs), 196 B.R. 865, 867 (Bankr.W.D.Okla.1996); Vazquez v. United Student Aid Funds, Inc. (In re Vazquez), 194 B.R. 677, 679 (Bankr.S.D.Fla.1996); Dillon v. Virginia State Educ. Auth. (In re Dillon), 191 B.R. 658, 659 (Bankr.W.D.Va.1994), rev’d on other grounds, 189 B.R. 382 (W.D.Va. 1995); Halverson v. Pennsylvania Higher Educ. Assistance Agency (In re Halverson), 189 B.R. 840, 842 (Bankr.N.D.Ala.1995); Fox v. Student Loan Marketing Ass'n (In re Fox), 189 B.R. 115, 119 (Bankr.N.D.Ohio 1995); Goranson v. Pennsylvania Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52, 54 (Bankr. W.D.N.Y.1995); Barrows v. Illinois Student Assistance Comm’n (In re Barrows), 182 B.R. 640, 646 (Bankr.D.N.H.1994); Garrett v. New Hampshire Higher Educ. Assistance Found. (In re Garrett), 180 B.R. 358, 363 (Bankr.D.N.H.1995); Wilson v. Missouri Higher Educ. Loan Auth. (In re Wilson), 177 B.R. 246, 249 (Bankr.E.D.Va.1994); Rice v. United States Dep’t of Health & Human Services (In re Rice), 171 B.R. 989, 993 (Bankr.N.D.Ohio 1993), aff'd in part and rev'd in part on other grounds, 182 B.R. 759 (N.D.Ohio 1994), aff'd, 78 F.3d 1144 (6th Cir.1996); Cooper v. Nebraska Student Loan Program, Inc. (In re Cooper), 167 B.R. 966, 968 (Bankr.D.Kan.1994); Sands v. United Student Aid Funds, Inc. (In re Sands), 166 B.R. 299, 307 (Bankr.W.D.Mich. 1994); Sallie Mae v. Plotkin (In re Plotkin), 164 B.R. 623, 625 (Bankr.W.D.Ark.1994); Matthews v. United States (In re Matthews), 150 B.R. 11, 14 (Bankr.W.D.Pa.1992); Ipsen v. Higher Educ. Assistance Found. (In re Ipsen), 149 B.R. 583, 585. (Bankr.W.D.Mo.1992); Koch v. Pennsylvania Higher Educ. Assistance Agency (In re Koch), 144 B.R. 959, 962 (Bankr.W.D.Pa.1992); Saburah v. United States Dep’t of Educ. (In re Saburah), 136 B.R. 246, 255 (Bankr.C.D.Cal.1992); Emnett v. United States (In re Emnett), 127 B.R. 599, 602 (Bankr.E.D.Ky.1991); Correll v. Union Nat’l Bank of Pittsburg (In re Correll), 105 B.R. 302, 308 (Bankr.W.D.Pa.1989); Coleman v. Higher Educ. Assistance Found. (In re Coleman), 98 B.R. 443, 452 (Bankr.S.D.Ind.1989); Childs v. Higher Educ. Assistance Found. (In re Childs), 89 B.R. 819, 820 (Bankr.D.Neb.1988); Carter v. Higher Educ. Assistance Found. (In re Carter), 77 B.R. 25, 27 (Bankr.W.D.Pa.1987); Hines v. United States (In re Hines), 63 B.R. 731, 737 (Bankr.D.S.D.1986); Marion v. Pennsylvania Higher Educ. Assistance Agency (In re Marion), 61 B.R. 815, 817 (Bankr.W.D.Pa.1986); Moorman v. Higher Educ. Assistance Auth. (In re Moorman), 44 B.R. 135, 136 (Bankr.W.D.Ky.1984); Richardson v. Ohio (In re Richardson), 32 B.R. 5, 7 (Bankr.S.D.Ohio 1983); Albert v. Ohio Student Loan Comm’n (In re Albert), 25 B.R. 98, 101 (Bankr.N.D.Ohio 1982); Hartung v. University of Akron (In re Hartung), 24 B.R. 850, 852 (Bankr.N.D.Ohio 1982); Ford v. New York State Higher Educ. Services Corp. (In re Ford), 22 B.R. 442, 446 (Bankr.W.D.N.Y. 1982); Lezer v. New York State Higher Educ. Services Corp. (In re Lezer), 21 B.R. 783, 789 (Bankr.N.D.N.Y.1982); United States v. Brown (In re Brown), 18 B.R. 219, 222 (Bankr.D.Kan.1982); Johnson v. Graceland *510College (In re Johnson), 17 B.R. 95, 99 (Bankr.W.D.Mo.1981); Connecticut Student Loan Found., Inc. v. Bagley (In re Bagley), 4 B.R. 248, 249 (Bankr.D.Ariz.1980); Pennsylvania Higher Educ. Assistance Agency v. James (In re James), 4 B.R. 115, 119 (Bankr.W.D.Pa. 1980); Vermont Student Assistance Corp. v. Ewell (In re Ewell), 1 B.R. 311, 313 (Bankr.D.Vt.1979); In re Garcia, 1 B.R. 253, 254 (Bankr.S.D.Fla.1979).
. Code of Ala.1975, § 30-2-51(a) provides that "[i]f either spouse has no separate estate or if it is insufficient for the maintenance of a spouse, the judge, upon granting a divorce, at his or her discretion, may order to a spouse an allowance out of the estate of the other spouse, taking into consideration the value thereof and the condition of the spouse's family.” "The purpose of alimony is to preserve, insofar as possible, the economic status quo of the parties as it existed during the marriage.” Madden v. Madden, 399 So.2d 304, 305 (Ala.Civ.App.1981). Although originally based on the common law duty of a husband to support his wife, the Alabama alimony statute, subsequent to the decision of the Supreme Court of the United States in Orr v. Orr, 440 U.S. 268, 99 S.Ct. 1102, 59 L.Ed.2d 306 (1979), now permits an award of alimony to either spouse. Orr v. Orr, 374 So.2d 895, 897 (Ala.Civ.App.1979), cert. denied, 374 So.2d 898 (Ala.1979). See Elliott v. Elliott, 410 So.2d 74 (Ala.Civ.App.1982) (upholding trial court’s award of alimony to husband).
And even absent a divorce, in the event of separation or abandonment, one spouse may seek separate maintenance, in equity, from the other. Ex parte Hale, 246 Ala. 40, 45, 18 So.2d 713, 718 (1944). See McWilliams v. McWilliams, 370 Pa.Super. 595, 537 A.2d 35 (1988) (reversing trial court's refusal to award separate maintenance to needy husband); Nolan v. Nolan, 117 Misc.2d 24, 457 N.Y.S.2d 172 (N.Y.Fam.Ct.1982) (directing wife to pay $100 in support to unemployed, destitute husband).
. See, for example, Code of Ala.1975, § 38-4-4, entitled "Reduction, cancellation or continuance of assistance grant when recipient becomes possessed of income or resources,” provides that "[i]f at any time the recipient of public assistance, or the husband or wife of such recipient, shall become possessed of any income or resources in excess of that owned or being received at the date of the application, it shall be the duty of the recipient immediately to notify the county department of the facts in the case. The county department, upon the notification or upon otherwise learning the facts, shall, after investigation, continue, reduce or cancel the amount of the grant as the facts may warrant.” (Emphasis added).
. See In re Crosswhite, 148 F.3d 879, 889 (7th Cir.1998); Gamble v. Gamble (In re Gamble), 143 F.3d 223, 226 (5th Cir.1998); In re Leonard, 231 B.R. 884, 888 (E.D.Pa.1999); Beasley v. Adams (In re Adams), 200 B.R. 630, 633-634 (N.D.Ill.1996); Hart v. Molino (In re Molino), 225 B.R. 904, 910 (6th Cir. BAP 1998); Turner v. McClain (In re McClain), 227 B.R. 881, 885-886 (Bankr.S.D.Ind.1998); Killeen v. Whittaker (In re Whittaker), 225 B.R. 131, 143-144 (Bankr.E.D.La.1998); Halper v. Halper (In re Halper), 213 B.R. 279, 284 (Bankr.D.N.J.1997); Fitzsimonds v. Haines (In re Haines), 210 B.R. 586, 590-591 (Bankr.S.D.Cal.1997); Crossett v. Windom (In re Windom), 207 B.R. 1017, 1022 (Bankr.W.D.Tenn.1997); Duet v. Richards (In re Richards), 207 B.R. 266, 267 (Bankr.M.D.Fla.1997); Shellem v. Koons (In re Koons), 206 B.R. 768, 773 (Bankr.E.D.Pa.1997); Carlisle v. Carlisle (In re Carlisle), 205 B.R. 812, 819-820 (Bankr.W.D.La.1997); Cleveland v. Cleveland (In re Cleveland), 198 B.R. 394, 398 (Bankr.N.D.Ga.1996); Morris v. Morris (In re Morris), 197 B.R. 236, 244 (Bankr.N.D.W.Va.1996); Samayoa v. Jodoin (In re Jodoin), 196 B.R. 845, 855 (Bankr.E.D.Cal.1996), aff'd, 209 B.R. 132 (9th Cir. BAP 1997); Celani v. Celani (In re Celani), 194 B.R. 719, 721 (Bankr.D.Conn.1996); In re Smither, 194 B.R. 102, 108 (Bankr.W.D.Ky.1996); Gantz v. Gantz (In re Gantz), 192 B.R. 932, 936-937 (Bankr.N.D.Ill.1996); Hill v. Hill (In re Hill), 184 B.R. 750, 755 (Bankr.N.D.Ill.1995); Comisky v. Comisky (In re Comisky), 183 B.R. 883, 884 (Bankr.N.D.Cal.1995).
. See In re Kull, 12 B.R. 654, 659 (S.D.Ga. 1981), aff'd, Kitchens v. Georgia Railroad Bank & Trust Co. (In re Kitchens), 702 F.2d 885 (11th Cir.1983); In re Botlorff, 232 B.R. 171, 173 (Bankr.W.D.Mo.1999); In re Sexton, 230 B.R. 346, 351 (Bankr.E.D.Tenn.l999); In re Cardillo, 170 B.R. 490, 492 (Bankr.D.N.H. 1994); In re Schnabel, 153 B.R. 809, 818 (Bankr.N.D.Ill.1993); In re Harmon, 118 B.R. 68, 69 (Bankr.E.D.Mich.1990); In re Belt, 106 B.R. 553, 563 (Bankr.N.D.Ind.1989); In re Rose, 101 B.R. 934, 943 (Bankr.S.D.Ohio 1989); In re Saunders, 60 B.R. 187, 188 (Bankr.N.D.Ohio 1986); In re Kern, 40 B.R. 26, 28-29 (Bankr.S.D.N.Y.1984); In re Sellers, 33 B.R. 854, 857 (Bankr.D.Colo.1983).
. The debtor cites, in support of that argument, this Court’s opinion in In re Attanasio, 218 B.R. 180 (Bankr.N.D.Ala.1998), which involved section 707(b) of the Bankruptcy Code. In that case, this Court determined, among many other things, that, for purposes of making 707(b) determinations, the income of a non-debtor spouse should be considered only to the extent of one-half of actual living expenses. The opinion read in part:
No legal basis exists in or out of bankruptcy for confiscating the income of a non-debtor for the payment of the debts of a debtor, or for otherwise directing how a non-debtor spends his hard earned cash. Furthermore, section 707(b), according to its plain language, mandates dismissal if granting a debtor relief would be a substantial abuse of Chapter 7, not if the debtor's non-debtor mate could aid and assist a debtor in paying his creditors or shoulder more than his or her share of the family living expenses so that the debtor can pay his debts. Therefore, it is difficult to understand why some bankruptcy courts believe that the appropriate figure to be used in measuring the ability to pay for purposes of 707(b) is the combined income of the debt- or and his non-debtor spouse or mate minus combined family living expenses, without regard to how much income each party contributes.
*512Of course, a court should assume that each party to a relationship, to the extent of his or her income, shares equally in paying the family living expenses and attribute at least one-half of the family living expenses to the debtor and the other half to the non-debtor spouse. The appropriate measure of the debtor’s ability to pay for purposes of 707(b) would then be the debtor's sole income minus his one-half share of the family living expenses, unless of course he is the sole or primary provider for the family unit, in which case all or most of the living expenses must be deducted from his income to determine his ability to pay. A non-debtor should not be forced to shoulder more than his or her half of the family living expenses and a debtor should not be forced to shoulder less than his or her half of the family living expenses.
Congress expressed no intention that 707(b) should effect a non-debtor in any fashion or that any non-debtor should be required to tighten his or her belt in order to assist the debtor in paying his debts. Furthermore, there is no indication that section 707(b) dismissal should depend on the fortuity of who the debtor is married to, whether or not that person works, and what amount that person earns. Therefore, bankruptcy courts should not gerrymander the combined income of a debtor and his mate in a fashion which in effect requires a non-debtor to contribute to the payment of debts which he or she did not incur.
218 B.R. at 234-235.
That analysis is not appropriate here. The standards used for making 707(b) substantial abuse determinations are not readily applied to student loan dischargeability determinations since that section and section 523(a)(8)(B) have no relation to one another and have different purposes. Each must be construed in a manner most likely to effectuate the purpose of that section. And although questions that arise under each statute require an analysis of a debtor’s financial circumstances, there is no other similarity.
Unless all debts are considered de facto non-dischargeable, and section 523 is considered mere surplusage, the threshold for Chapter 7 relief under 707(b), as envisioned by Congress, must be less stringent than that required for the discharge of otherwise non-dischargeable debts under 523(a)(8)(B). Section 707(b) addresses a debtor’s right to seek the discharge of debts that Congress has said can be discharged. Under section 707(b) the door to bankruptcy is barred only to those whose participation would constitute a substantial abuse. On the other hand, section 523(a)(8)(B) is an avenue around the debts that Congress has mandated should not be discharged. That avenue was purposely made difficult and narrow to prevent the discharge of such debts except in extraordinary circumstances.
No “undue hardship” language appears in 707(b), that is, the statute does not require dismissal of a Chapter 7 case unless a debtor cannot repay all of his or her debt without undue hardship. The section 707(b) threshold does not require a minimal lifestyle as the price of a Chapter 7 discharge. On the other hand, section 523(a)(8)(B), according to Brun-ner, requires a minimal lifestyle as the price of the discharge of a student loan. Consequently, a construction of section 523(a)(8)(B) which may place a greater emphasis on the contributions of a non-debtor spouse than is placed on the same contribution under section 707(b), is warranted.
. If the argument has any merit, it must be within the context of determining Mr. and Mrs. White’s contributions to the common fund, in relative proportion to their distinct incomes. If Mr. White, after payment of student loan debt, can only contribute $730.89 each month to the common marital fund, should not Ms. White's contribution be three times that amount, or $2,536.50, since her paycheck is more than three times larger than Mr. White's? Taken within that context, the debtor’s argument would lead to the same conclusion as that otherwise reached by the Court herein, that is, Mr. White can repay his student loan obligations and afford at least a minimal lifestyle while doing so.
Can anyone seriously argue that Mr. and Mrs. White could not live a relatively comfortable lifestyle on $2,923.56 a month? That figure would result in an annual disposable (after-tax) income of $35,082.72. According to the latest census report, the average disposable personal income per capita in the state of Alabama in 1995 was $16,657. Doubling that figure for a couple in which each spouse earns an income comes to $33,314. Table No. 700, Disposable Personal Income Per *513Capita in Current and Constant (1992) Dollars by State: 1980 to 1995, Statistical Abstract of the United States 1996 454 (Bureau of the Census, U.S. Dept. of Commerce, 1996). The average annual expenditures, including personal taxes, by consumer units consisting of husbands and wives only was $36,198.00 in 1994. Table No. 706, Average Annual Expenditures of All Consumer Units, by Type of Household Unit: 1994, Statistical Abstract of the United States 1996 459 (Bureau of the Census, U.S. Dept. of Commerce, 1996). Using the theoretical pro rata living expense contribution analysis, the Whites would be able to enjoy more or less an average lifeslyle even if Mr. White has to repay his student loans.
And even if this Court were to consider only this reduced theoretical figure, rather than the much higher amount that represents the Whites’ actual combined income, this Court would find that the Whites’ financial condition is so much better than the many whose circumstances warrant discharges of student loans. The reported cases, demonstrate this enormous difference. See United Student Aid Funds, Inc. v. Pena (In re Pena), 155 F.3d 1108 (9th Cir.1998) (1 child; $1,748 monthly income; $9,000 student loans); Cheesman v. Tennessee Student Assistance Corp. (In re Cheesman), 25 F.3d 356 (6th Cir.1994) (2 children; $1,143 monthly income; $14,000 student loans), cert. denied, 513 U.S. 1081, 115 S.Ct. 731, 130 L.Ed.2d 634 (1995); Brown v. Salliemae Servicing Corp. (In re Brown), 227 B.R. 540 (Bankr.S.D.Cal.1998) (2 children; paying $404 a month in additional child support; $3,561 in monthly income; $96,000 in student loan debt); Lebovits v. Chase Manhattan Bank (In re Lebovits), 223 B.R. 265 (Bankr.E.D.N.Y. 1998) (7 children; $4,700 monthly income; $40,000 in student loans); Rose v. United States Department of Educ. (In re Rose), 215 B.R. 755 (Bankr.W.D.Mo.1997) (2 children; $1,750 in monthly income; $105,000 in student loan debt), aff'd in part and remanded in part, 227 B.R. 518 (W.D.Mo.1998), aff'd in part and remanded in part, 187 F.3d 926 (8th Cir.1999); Coats v. New Jersey Higher Educ. Assistance Auth. (In re Coats), 214 B.R. 397 (Bankr.N.D.Okla.1997) (3 children; $4,218 monthly income, including social security and child support; $39,000 student loans); Hornsby v. Tennessee Student Assistance Corp. (In re Hornsby), 201 B.R. 195 (Bankr.W.D.Tenn.1995) (3 children; $2,556 in monthly income; $33,000 in student loan debt), rev'd, 144 F.3d 433 (6th Cir.1998); Derby v. Student Loan Servs. (In re Derby), 199 B.R. 328 (Bankr.W.D.Pa.1996) (2 children; $500 in monthly income; $17,000 in student loan debt); Taylor v. Illinois Student Assistance Comm’n (In re Taylor), 198 B.R. 700 (Bankr.N.D.Ohio 1996) ($1,083 monthly income; $34,000 student loans); Harris v. Unipac Serv. Corp. (In re Harris), 198 B.R. 190 (Bankr.W.D.Va.1996) (2 children; $2,480 monthly income; $50,000 student loans); Skaggs v. Great Lakes Higher Educ. Corp. (In re Skaggs), 196 B.R. 865 (Bankr.W.D.Okla. 1996) (3 children; $3,000 monthly income; $47,000 student loans); Vazquez v. United Student Aid Funds, Inc. (In re Vazquez), 194 B.R. 677 (Bankr.S.D.Fla.1996) (1 child; $915 monthly income, all from social security and welfare; $7,000 student loan); Dillon v. Virginia State Educ. Auth. (In re Dillon), 191 B.R. 658 (Bankr.W.D.Va.1994) (2 children; $1,192 monthly income), rev’d, 189 B.R. 382 (W.D.Va. 1995); Elebrashy v. Student Loan Corp. (In re Elebrashy), 189 B.R. 922 (Bankr.N.D.Ohio 1995) ($1,213 monthly income; $77,000 student loans); Pichardo v. United Student Aid Funds, Inc. (In re Pichardo), 186 B.R. 279 (Bankr.M.D.Fla.1995) ($578 monthly income; $10,000 student loans); Goranson v. Pennsylvania Higher Educ. Assistance Agency (In re Goranson), 183 B.R. 52 (Bankr.W.D.N.Y.1995) (2 children; $1,250 monthly income; $23,000 student loans); Lindberg v. American Credit and Collection, Student Loan Servicing Center (In re Lindberg), 170 B.R. 462 (Bankr.D.Kan.1994) (4 children; $1,500 monthly income, including food stamps; $10,000 student loans); Cooper v. Nebraska Student Loan Program, Inc. (In re Cooper), 167 B.R. 966 (Bankr.D.Kan.1994) (3 children; $2,600 monthly income; $8,000 student loans); Sallie Mae v. Plotkin (In re Plotkin), 164 B.R. 623 (Bankr.W.D.Ark.1994) ($466 monthly income, all from social security disability payments; $7,000 student loans); Correll v. Union Nat’l Bank of Pittsburg (In re Corrett), 105 B.R. 302 (Bankr.W.D.Pa.1989) (3 cases) (1 child; $896 in monthly income; and $3,000 in student loans) ($250 monthly income plus food stamps and public assistance; $2,000 in student loans) (4 children; $1,693 monthly income; $2,000 in student loans); Zobel v. Iowa College Aid Comm’n (In re Zobel), 80 B.R. 950 (Bankr.N.D.Iowa 1986) (2 children; $700 monthly income, all from public assistance; $2,000 student loans); Kincaid v. ITT Educ. Servs., Inc. (In re Kincaid), 70 B.R. 188 (Bankr.W.D.Mo.1986) (2 children; $ 4,000 student loan debt); Turner v. Detroit and Northern Savings (In re Turner), 69 B.R. 62 (Bankr.D.Minn.1986) (4 children; $1,200 monthly income; $27,000 student loan); Wilcox v. United States (In re Wilcox), 57 B.R. 479 (Bankr.M.D.Ga.1985) ($640 monthly income; $2,000 student loans); Feenstra v. New York State Higher Educ. Servs. Corp. (In re Feenstra), 51 B.R. 107 (Bankr.W.D.N.Y.1985) (4 children; $1,664 in monthly income; $2,000 in student loan debt); *514Washington v. Virginia State Educ. Assistance Auth. (In re Washington), 41 B.R. 211 (Bankr.E.D.Va.1984) (1 child; $800 in monthly income; and $7,000 in student loans); Bennett v. Commerce Bank of Independence (In re Bennett), 38 B.R. 392 (Bankr.W.D.Mo.1984) (4 children; $697 monthly income; $7,000 student loans); Dockery v. Merchants & Planters Bank (In re Dockery), 36 B.R. 41 (Bankr.E.D.Tenn.1984) (2 children; living on social security disability benefits; $5,000 student loans); Dresser v. University of Maine (In re Dresser), 33 B.R. 63 (Bankr.D.Me.1983) (paying $80 month child support; $1,000 monthly income; $24,000 student loans); Carter v. Kent State Univ. (In re Carter), 29 B.R. 228 (Bankr.N.D.Ohio 1983) (4 children; $1,238 monthly income; $9,000 student loans); Siebert v. United States Dep’t of Health, Educ. and Welfare (In re Siebert), 10 B.R. 704 (Bankr.S.D.Ohio 1981) (2 children; $443 monthly income). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492982/ | ORDER ON TRUSTEE’S MOTION TO COMPEL TURNOVER OF 1998 INCOME TAX REFUND (Doc. No. 28)
ALEXANDER L. PASKAY, Chief Judge.
This is the Chapter 7 case of Francisco Xavier and Carmen Perez Meza (Debtors). The Motion under consideration is a Motion to Compel Turnover of the Debtors’ 1998 Tax Return, filed by Traci Strickland (Trustee). The Trustee seeks turnover of a pro-rated portion of the Debtor’s 1998 income tax refund, including a pro-rata share of the Debtors’ earned income credit (“EIC”) for 1998. This Court reviewed the Trustee’s Motion and the record, heard argument of counsel, and now finds as follows:
The Debtors’ filed a Chapter 7 Petition on June 1, 1998. The Debtors’ Chapter 7 case was closed on February 26, 1999. In 1999, the Debtors received an unscheduled income tax refund in the amount of $4,738.00 for the 1998 fiscal year. This $4,738.00 represented a refund due the Debtors for overpayment of federal income taxes in 1998, plus a “credit” based on the Debtors’ entitlement to an EIC for the 1998 taxable year. In June 1999, the Trustee moved to reopen the case and compel turnover of a five-month pro-rated share of the 1998 refund totaling $1,968.40, as property of the estate.
As support for the proposition that the five-month EIC is property of the Debtors’ bankruptcy estate, the Trustee relies on the blanket authority of a series of cases that hold EIC is property of the estate, similar to an income tax refund, “sufficiently rooted in the prebankruptcy past.” See e.g., Kokoszka v. Belford, 417 U.S. 642, 647, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) (citations omitted); In re Trudeau, 237 B.R. 803, 805 (9th Cir. BAP 1999); In re Johnston, 222 B.R. 552, 554 (6th Cir. BAP 1998). While this may be an accurate statement of the law relating to an “earned” EIC, there is a fundamental distinction between an earned EIC and the facts in this case, where the Debtors had no cognizable interest in the EIC at the commencement of this Chapter 7 case.
The right to an EIC is determined by 26 U.S.C. § 32. To qualify for an EIC under 26 U.S.C. § 32(c)(1), an individual must meet a two-prong test. To meet the first prong of this test, the individual must be married or head of a household. To meet the second prong of this test, the individual must have a child “with the same principal place of abode as the individual for more than one-half of the taxable year.” Taxable year is defined in 26 U.S.C. § 32(e) as a period not less than twelve months. Thus, the plain language of the EIC Statute requires that a child live in the same household as the individual for six months as a prerequisite for eligibility.
It is undisputed that on June 1, 1998, the date the Debtors filed a Chapter 7 Petition, the Debtors’ were ineligible for an EIC because the Debtors’ child resided with them for only five months, one month short of the statutory prerequisite. Thus, the Debtors had no cognizable interest in the EIC at the time of filing. Because the Trustee may not assert greater rights than the Debtor has on the date of commencement of a Chapter 7 case, the Trustee may not compel turnover of property the Debt- or was otherwise ineligible to receive.
In view of the foregoing, this Court is satisfied that the Debtor did not have an interest in the EIC sufficient to qualify as property of the estate on June 1, 1998.
Accordingly, it is
*540ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion to Compel Turnover of the Debtors’ 1998 Income Tax Refund be, and the same is hereby, denied in part.
It is further
ORDERED, ADJUDGED AND DECREED that the Trustee’s Motion to Compel Turnover of the pro-rata share of the 1998 Income Tax Refund attributable to overpayment of federal income tax is granted, and the Debtor shall remit this amount to the Trustee, payable over ten months following the date of this Order.
It is further
ORDERED, ADJUDGED AND DECREED that the portion of the Debtors’ 1998 Income Tax Refund attributable to the Debtors’ EIC is not property of the estate, and not subject to administration by the Trustee. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492983/ | MEMORANDUM OF DECISION
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The matter before the court is a pleading of Citicorp Credit Services, Inc. (“Citi-corp”), treated as a motion to revoke an order which the court, ex parte, entered on December 2, 1999, changing the location of a Bankruptcy Rule 20041 examination of David L. Martin, Jr., the debtor, from Stamford, Connecticut to Hartford, Connecticut. The debtor had filed a Chapter 7 case in this court on October 13, 1999.2 The court, ex parte, had entered an order on November 22, 1999, granting Citicorp’s motion seeking a Rule 2004 examination of the debtor and, as requested by the motion,3 directing the debtor, a resident of Bloomfield, Connecticut, to appear at the Stamford, Connecticut law offices of Citi-corp’s counsel.4
II.
At the hearing on Citicorp’s motion, no testimony was proffered, but the parties advanced the following arguments as to the most appropriate location for the debt- or’s examination. The debtor emphasized the hurtful burden placed upon him to retain counsel to travel to Stamford when Citicorp chose not to attend the creditors’ meeting and question the debtor in Hartford. Citicorp argued the policy of the Bankruptcy Code is to place all attendant costs on the petitioner who seeks a discharge from debt5 and further suggested *611that, in the absence of a local district or bankruptcy rule, the court should not place limits on Citicorp’s reasonable choice of location within the district.
III.
The court concludes that the most reasonable resolution in dealing with each party’s concerns is to adopt the provisions of the Connecticut Superior Court Rules6 which establish limits on places of deposition in state-court matters. Connecticut practitioners are familiar with such provisions, and they reflect the considered wisdom of the state-court judges. Accordingly, the court, pursuant to the discretion contained in Rule 2004(d), will enter the amended order attached to this memorandum. It is
SO ORDERED.
EXHIBIT
AMENDED ORDER FOR EXAMINATION
Upon the motion of Citicorp Credit Services, Inc. dated November 22, 1999, filed pursuant to Bankruptcy Rule 2004, requesting the examination .of the Debtor, David L. Martin, Jr., within the scope of the matters outlined in Bankruptcy Rule 2004(b), it is
ORDERED:
(1) That the movant may examine the Debtor.
(2) That the Debtor shall appear for such examination at any place designated by the movant provided it is a place within the county of the debtor’s residence, or within 30 miles of such residence, or within Hartford County, or at a place mutually agreed upon by Debtor and movant.
Dated at Hartford, Connecticut, this 4th day of January, 2000. /s/
ROBERT L. KRECHEVSKY
UNITED STATES BANKRUPTCY JUDGE
. Fed.R.Bankr.P.2004(a). Examination on Motion. On motion of any party in interest, the court may order the examination of any entity.
. All cases in which the debtor resides or has its principal place of business in Hartford, Tolland or Windham Counties are assigned to the Hartford Division of the U.S. Bankruptcy Court, District of Connecticut.
. Fed.R.Bankr.P.2004(d) provides:
(d) Time and Place of Examination of Debt- or. The court may for cause shown and on terms as it may impose order the debtor to be examined under this rule at any time or place it designates, whether within or without the district wherein the case is pending.
Stamford is located in Fairfield County, in the southwestern corner of the State of Connecticut, approximately 80 miles from Hartford.
. Citicorp's motion asserted the debtor "may have engaged in credit card abuse with respect to Citicorp’s debt.” Motion at 2.
. Fed.R.Bankr.P.2004(e) requires that "lawful mileage and witness fee” be tendered "an entity other than a debtor" to attend a Rule 2004 examination where the place of exami*611nation is under 100 miles from the debtor’s residence. (Emphasis added.) See also United States v. Kras, 409 U.S. 434, 93 S.Ct. 631, 34 L.Ed.2d 626 (1973) (Congress can constitutionally bar a debtor from obtaining a discharge from debt, if debtor does not pay the court filing fee, even if debtor submits an uncontested in forma pauperis petition.)
. Section 13-29(a) provides:
(a) Any party who is a resident of this state may be compelled by notice as provided in Section 13-27(a) to give a deposition at any place within the county of such party's residence, or within thirty miles of such residence, or at such other place as is fixed by order of the judicial authority. A plaintiff who is a resident of this state may also be compelled by like notice to give a deposition at any place within the county where the action is commenced or is pending.
Conn. Practice Book § 13-29(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492985/ | *767
Order Denying Motion For Protective Order
DENNIS MONTALI, Bankruptcy Judge.
On January 7, 2000, this court held a hearing on the motion for protective order filed by Interactive Network, Inc. (“Debt- or”). In this motion, Debtor seeks an order quashing the deposition subpoenas of Marshall L. Small, Esq. (“Small”) and J. Robert Nelson, Esq. (“Nelson”), both of whom are partners at Morrison & Foer-ster, LLP, the law firm serving as Debt- or’s general bankruptcy counsel. David R. Lockton (“Lockton”), whose attorneys issued the subpoenas, filed an opposition to Debtor’s motion for protective order. Pending resolution of other separate issues relating to stock options claimed by Lock-ton, the court is temporarily granting the motion with respect to Small. With respect to Nelson, however, the court will deny the motion for protective order.
Lockton contends that Nelson is a percipient witness on issues relating to Debtor’s objections to his proof of claim. In particular, Lockton wants to depose Nelson regarding (1) Nelson’s knowledge of TCI’s purported intention to retain ownership of Debtor’s patents, an alleged event of default triggering acceleration of amounts due to Lockton; (2) Nelson’s conversations with Lockton, upon which Lockton bases his claims of waiver and estoppel by Debt- or; (3) Nelson’s knowledge regarding the ratification of Lockton’s employment agreement by Debtor’s board of directors; (4) Nelson’s knowledge of and lack of objection to Lockton’s compensation arrangement; and (5) Nelson’s knowledge of Lockton’s services to and activities on behalf of Debtor (which is relevant to reasonableness of Lockton’s compensation).
Nelson is not litigation, trial or bankruptcy counsel in this contested matter. His services as attorney which are relevant to the proposed discovery were rendered apart from and prior to the claims litigation. Lockton wants to depose Nelson as a fact witness, and concedes that any discovery of Nelson is subject to Debt- or’s right to claim available privileges. As such, this court will follow the liberal approach to discovery directed at attorneys adopted in Johnston Development Group, Inc. v. Carpenters Local Union No. 1578, 130 F.R.D. 348, 352 (D.N.J.1990) (“deposition of the attorney may be ‘both necessary and appropriate’ where the attorney may be a fact witness, such as an ‘actor or viewer’, rather than one who ‘was not a party to any of the underlying transactions *768giving rise to the action’ ”). Under these circumstances, this court is not inclined to follow Shelton v. American Motors Corp., 805 F.2d 1323 (8th Cir.1986), which involved an attorney who was not a witness to the underlying transaction and was actual trial counsel.
Most significantly, Debtor has refused to stipulate that it will not call Nelson as a fact witness at trial, and has specifically stated that it may call him as a rebuttal witness. In essence, Nelson’s testimony may be relevant to the prosecution of Debtor’s objection to Lockton’s claim. As such, the deposition of Nelson is both “necessary and appropriate,” especially where he is a “fact witness.” Johnston, 130 F.R.D. at 352; see also American Casualty Co. v. Krieger, 160 F.R.D. 582, 588 (S.D.Cal.1995). In cases where an attorney’s conduct may be the basis of a claim or defense (i.e., the basis of Lockton’s claims of waiver), “there is little doubt that the attorney may be examined as any other witness.” Johnston, 130 F.R.D. at 352.
As noted by the Krieger court, neither the federal rules of procedure nor the federal rules of evidence prohibit taking the deposition of any opposing party’s attorney. “In fact, Rule 30(a) of the Federal Rules of Civil Procedure permits a party to take the testimony of ‘any person’ by deposition, without leave of court. The Rule sets forth certain exceptions to this provision, none of which exempt a party’s attorney from being subject to deposition.” Krieger, 160 F.R.D. at 585. Nevertheless, “it is appropriate to require the party seeking to depose an opposing party’s attorney to establish a legitimate basis for requesting the deposition, and to demonstrate that the deposition will not otherwise prove overly disruptive or burdensome.” Id. at 588. In this case, Nelson is a fact witness to the transactions underlying this contested matter, but is not litigation counsel in this matter. Since Debtor has indicated that it may call Nelson as a witness at trial, Lockton has shown a legitimate basis for deposing Nelson, and has satisfied this court that the deposition will not be disruptive or burdensome. In fact, in light of Debtor’s reservation of Nelson as a possible trial witness, it would be unduly burdensome and disruptive to prohibit Nelson’s deposition.
At this time, the court will not place any limits on the scope, timing or duration of Nelson’s deposition. Any disputes regarding these matters or questions of privilege may be resolved by an emergency telephonic conference with the court. See ¶ 3 of this court’s scheduling order signed on October 28, 1999. Therefore, in light of the foregoing, it is hereby
ORDERED that Debtor’s motion for protective order with respect to the deposition of Nelson is DENIED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492986/ | *794Opinion On Objection to Amended Plan In Chapter IS (Systems and Services Technologies, Inc. (SST))
RODNEY R. STEELE, Chief Judge.
The question presented by the objection here is whether the debtor can modify his Chapter 13 plan pre-confirmation to treat an otherwise secured creditor on a 1995 Suzuki Sidekick as altogether unsecured under a plan paying zero percent to unsecured creditors, where the vehicle was stolen and stripped between filing of the bankruptcy and the date of confirmation.
Findings
Debtor filed this Chapter 13 case on May 19, 1999. His plan was to pay SST $9500 at 11% with Specified monthly payments of $260 in satisfaction of his secured debt on a 1995 Suzuki Sidekick Title 11 U.S.C. § 1325(a)(5)(B). Unsecureds were to receive zero percent on their claims. The meeting of creditors was set for June 17, 1999. Confirmation was set for June 28,1999.
On June 9,1999 one Ricky Calhoun, who is represented to be a repairman at Pritch-ard, Alabama, reported to the police at 8:35 a.m. “that he came to work and saw his gate open. Once entering he noticed the vehicle missing”.
On June 17, 1999 Debtor filed amended schedules and an amended plan, reporting the loss of the vehicle and proposing to surrender it to SST. Title 11 U.S.C. § 1325(a)(5)(C). Debtor moved the court to buy another vehicle. The plan remained at zero percent to unsecureds. Debtor certified service of this amendment on SST.
No objections were filed by SST at the meeting of creditors, and on June 30, 1999 the order of confirmation entered providing for zero percent to unsecureds, and surrender of the vehicle to SST. Debtor was authorized to purchase another vehicle.
On July 1, 1999 SST filed this objection to the amended plan, asserting that the theft was not substantiated, that the debt- or could not deliver the vehicle, so could not use Section 1325(a)(5)(C) and that there was no insurance to cover the lost vehicle. SST sought treatment as a fully secured creditor.
The stripped vehicle was recovered and towed to a wrecker yard in Pritchard, Alabama.
Conclusions
The plan was properly confirmed as amended.
The theft has been substantiated by the police report. There is some question why the vehicle was in Pritchard for repair while the debtor was in Montgomery. But there is no showing that the Debtor was guilty of any fraud, or improper conduct in the loss of the vehicle.
The vehicle has been recovered and is available to SST. It is probably of nominal value, and may not be worth recovery by SST.
The argument by SST that since the vehicle cannot be recovered, the Debtor cannot use Section 1325(a)(5)(C) in treating SST under the plan is undercut by the recovery. But this issue is met by the holding in In re Wanda Sue Alexander; U.S.B.C.E.D. Arkansas, 1998, 225 B.R. 665. There Judge Scott, in a similar case, where confirmation had not occurred before the loss of the vehicle (there by the Debtor’s “absconding” husband) found that the Debtor was not at fault in being unable to deliver the car. The creditor still had his remedies, though they might not have much worth.1 Here there is a possibility of some insurance recovery, in which the Debtor has offered to assist.
. Judge Scott cites In re Gabor, 155 B.R. 391 U.S.B.C.N.D.W.V.1993 and In re Elliott, 64 B.R. 429 U.S.B.C.W.D.Mo.1986, which treat similar absconding cases. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492988/ | DECISION AND ORDER
ROSS W. KRUMM, Chief Judge.
The matter before the court for decision arises as a result of the debtor’s objection to Claim No. 12 of the Internal Revenue Service (herein IRS). The issue involves priority status asserted by the IRS in its proof of claim for non-trust fund FICA and FUTA taxes. For the reasons stated in this decision and order, the court overrules the objection and allows the priority status asserted by IRS in Claim No. 12.
Facts:
Both parties agree that the facts are not in dispute. The debtor filed his Chapter 13 proceeding on March 5, 1999. On June 4, 1999, the IRS filed an amended claim in the amount of $47,831.35. Of this sum, $34,833.96 was claimed as an unsecured priority claim and $12,997.37 was a general unsecured claim. The years of asserted tax liability are 1995 through 1998.
Debtor filed an objection to the proof of claim which states:
The Federal Unemployment Tax, FUTA, is not a trust fund tax nor a tax measured by the income of the debtor and is therefore not entitled to priority treatment. Only the trust portion of the FICA tax is entitled to priority treatment. Interest on unpaid taxes should be accorded priority treatment on a pro rata basis with that portion of that tax accorded priority treatment. The total tax liability due priority treatment is $26,884.48.
Law and Discussion:
The relevant bankruptcy code sections for determination of the issue of the priority claim for FUTA and non-trust fund FICA taxes are 11 U.S.C. § 507(a)(8)(D)1 and 11 U.S.C. § 507(a)(3)(A)2.
The debtor points to the reference in section 507(a)(8)(D) to paragraph 3 of section 507 and argues that the taxes must be related to wages, salaries, or commissions earned by the debtor within ninety (90) days before the date of the filing of his petition or the date of the cessation of the debtor’s business, whichever first occurs. The sole basis for the debtor’s objection to the non-trust fund FICA tax claim and the FUTA claim is that the wages of the debt- or were earned more than ninety (90) days before the cessation of business or the filing of the debtor’s petition. In Re Pierce, 935 F.2d 709, 711 (5th Cir.1991) holds that unemployment tax obligations are entitled to priority treatment under the Bankruptcy Code and that there is no “temporal basis” for applying 11 U.S.C. § 507(a)(3) to 11 U.S.C. § 507(a)(8)(D). With respect to priority treatment to be accorded non-trust fund portions of FICA taxes, In re Paulson, 152 B.R. 46, 48 (Bankr.W.D.Pa.1992) stands for the propo*94sition that non-trust fund FICA taxes are eligible for priority treatment under 11 U.S.C. § 507(a)(8)(D).
This court finds that the reference in 11 U.S.C. § 507(a)(8)(D) to paragraph 8 of 11 U.S.C. § 507 is intended to describe the kind of wages which are to be included in that section and not the time periods for which those wages were classified as a priority. In short, the ninety (90) day period of time before the date of the filing of the petition or the date of the cessation of the debtor’s business is not a consideration in determining the applicability of 11 U.S.C. § 507(a)(8)(D). Also, the debtor has attempted to draw a distinction between Chapter 7 cases and Chapter 13 cases in order distinguish Pierce. The court finds no merit in such a distinction. Pierce is equally applicable in Chapter 13 proceedings.
Conclusion:
For the reasons stated, it is
ORDERED:
That debtor’s objection to Claim No. 12 be, and it hereby is OVERRULED and Claim No. 12 is ALLOWED.
. § 507. Priorities, (a) The following expenses and claims have priority in the following order: (8) Eighth, allowed unsecured claims of governmental units, only to the extent that such claims are for — (D) an employment tax on a wage, salary, or commission of a kind specified in paragraph (3) of this subsection earned from the debtor before the date of the filing of the petition, whether or not actually paid before such date, for which a return is last due, under applicable law or under any extension, after three years before the date of the filing of the petition.
. § 507. Priorities, (a) The following expenses and claims have priority in the following order: (3) Third, allowed unsecured claims, but only to the extent of $4,300 for each individual or corporation, as the case may be, earned within 90 days before the date of the filing of the petition or the date of the cessation of the debtor’s business, whichever occurs first, for — (A) wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492989/ | MEMORANDUM OPINION
JACK B. SCHMETTERER, Bankruptcy Judge.
This adversary proceeding relates to the bankruptcy petition filed by Debtor Ralph R. Farbman (“Debtor”) under Chapter 7 of the Bankruptcy Code, 11 U.S.C. § 101 et seq. After several aborted pleading efforts, Plaintiff Bell Auto Leasing, Inc. (“Bell”) has filed its third amended complaint (“Complaint”) requesting that a debt assertedly owed by Debtor to Bell be found nondischargeable under the Bankruptcy Code, 11 U.S.C. § 523(a)(6). Debt- or has moved to dismiss based on two grounds: (1) that Bell’s allegations are not against Debtor in his personal capacity but rather against Northwest Highway Auto Group, Ltd. (“Northwest”), a corporation in which Debtor was president and (2) that there has been no pleading of an injury to Bell or to property in which Bell has an interest as required under § 523(a)(6).
Debtor discussed Bell’s citations, but has chosen to cite no other authority in support of its motion, except that he questions whether Bell can properly do business under an assumed name, not an issue relevant to the instant motion.
As discussed below, Bell has stated a claim for relief and its Third Amended Complaint will not be dismissed.
JURISDICTION
Jurisdiction lies under 28 U.S.C. § 1334 and 28 U.S.C. § 157. This matter has been referred here by Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. Venue is proper under 28 U.S.C. *138§ 1409. This matter constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(I).
ALLEGATIONS OF THE COMPLAINT
Debtor was the President of Northwest, which was incorporated on or about May 1, 1996 but was dissolved on or about October 1, 1997 (after the events took place that are complained of) for failure to file an annual report and pay its franchise tax. While incorporated, Northwest was licensed by the State of Illinois to sell and lease motor vehicles and was engaged in the business of selling and leasing motor vehicles at retail.
At all times mentioned here, Bell was an Illinois Corporation duly organized and existing under laws of the State of Illinois, and was engaged in the business of leasing motor vehicles. Its principal office and place of business is located in Northbrook, Illinois. A Mr. Robert Doppelt (“Dop-pelt”) is its President.
In July 1997, Doppelt authorized Debtor to sell Bell’s 1996 Dodge Avenger, YIN 483AU52N4TE56325 for which Bell owned and possessed the Illinois Certificate of Title (“Title”). Debtor and Bell agreed that Debtor would take possession of the car in order to sell it, while Bell retained possession of the Title. Debtor and Bell further agreed that when Debtor sold the car, Debtor would pay Bell $16,000 from the sale proceeds, and Bell would then surrender the auto Title to Debtor who would then be able to transfer title pursuant to the sale.
On August 18, 1997, Debtor sold the car to Michael J. Schultz (“Schultz”) at which time Northwest and Schultz entered into a Bill of Sale and a Retail Installment Contract (“Contract”). Debtor signed the Bill of Sale and the Contract on behalf of Northwest as its President. At the time of that sale, Debtor gave Schultz possession of the car but not Title to it since Bell still held the Title.
On the same day that Debtor sold the car to Schultz, Long Beach Acceptance Corporation (“LBAC”) purchased and took an assignment of the Contract. Debtor, acting on behalf of Northwest, executed the assignment to LBAC. Debtor then signed a draft drawn on LBAC’s bank account to obtain payment from LBAC for the Contract, identified as Draft No. 0058345 in the amount of $18,116.47 dated August 18, 1997. Debtor signed that draft as drawer and named his company Northwest as the payee. The reverse side of the draft stated:
“For value received, the payee, by the endorsement hereof, warrants that ... the payee will, immediately upon receipt of this instrument, supply Long Beach Acceptance Corp. with the original Certificate of Title to said motor vehicle with a first and prior lien in the name, of Long Beach Acceptance Corp. noted thereon, and that at the time of sale of said motor vehicle, the payee [Northwest] had the right to transfer absolute and unencumbered Title thereto.”
Debtor deposited the draft in an account at North Shore Community Bank & Trust on or before August 29, 1997, but he did so without endorsing it. Bell alleges that Debtor intentionally did not endorse the draft because he knew endorsing the draft would constitute a breach of the warranty language on the back of the LBAC draft. Bell also alleges that Debtor knew that under the agreement between Bell and Debtor, Debtor could not obtain the Title from Bell unless Debtor paid Bell $15,000 from the proceeds of the sale which Debt- or allegedly “had no intention of paying” Bell. LBAC honored the draft and Northwest apparently received payment of the $18,116.67.
On September 2, 1997, Doppelt and Debtor had lunch and Doppelt asked Debt- or if he had the $15,000 for Bell from the sale of the car. Debtor allegedly falsely represented to Doppelt over that lunch meeting that he had not received any money from sale of the car despite the fact that he had three days earlier signed and deposited the draft drawn on LBAC’s bank *139in payment of the Contract from the sale of the car.
After Schultz purchased the car, he went to the Secretary of State’s office to apply for license plates and was informed that he could not get license plates for the car without the Title. Schultz then contacted the Debtor and asked for the Title. Debtor informed Schultz that he did not have the Title and that he had sold the Contract to LBAC.
Schultz then contacted LBAC and requested the auto Title. On or about October 20, 1997, Schultz returned the car to LBAC. LBAC accepted the car and also agreed “not to enforce [its] contractual agreement due to apparent fraud on behalf of Northwest Auto Sales.”
Sometime after October 20, 1997, based on an agreement between LBAC and Bell in settlement of litigation between them, LBAC sold the car and equally divided the net proceeds from the sale between LBAC and Bell. The net proceeds from that sale of the car was $8,500 and LBAC and Bell each received $4,250.
No funds were ever received by Bell from Debtor despite Debtor’s receipt of the draft from LBAC and the payment thereof. Debtor never provided Bell with any explanation regarding why Debtor did not pay Bell the $15,000.
Although Doppelt authorized Debtor to sell the car, that authorization was given because Debtor was to pay Bell $15,000 from proceeds of any sale. After Debtor sold the car to Schultz, Bell alleges that it retained a “property interest” of $15,000 in the proceeds of the car sale. According to Bell it was caused harm by the “sale of the car” by Debtor to Schultz because pursuant to Illinois law under 810 ILCS 5/2-403(2), Bell entrusted the car to Debtor and Debtor was authorized to transfer to Schultz all rights that Bell had to the car, even though Bell still held the car’s Title.
Bell alleges that Debtor as a principal and a controlling person of a motor vehicle dealership (Northwest), knew that Bell would be immediately harmed by the sale to Schultz if Debtor did not pay Bell its $15,000 “property interest” which “Debtor had no intention of paying.”
Bell requests a finding of willful and malicious injury by Debtor to Bell’s “property interest” in the car sale proceeds, and seeks judgement that Debtor’s indebtedness to Bell constitutes a nondischargeable debt pursuant to 11 U.S.C. § 523(a)(6). Bell also seeks a money judgment against Debtor for the $15,000 plus prejudgment and post judgment interest and costs and expenses as provided by law.
STANDARDS FOR MOTION TO DISMISS
Federal Rule of Civil Procedure 12(b)(6) is incorporated by reference in Federal Rule of Bankruptcy Procedure 7012. When presented with a motion to dismiss for failure to state a claim, the court accepts all well pleaded factual allegations of the complaint as true and draws all reasonable inferences therefrom in favor of the plaintiff. Evans v. Lederle Laboratories, 167 F.3d 1106, 1108 (7th Cir.1999). If a complaint contains allegations from which the trier may reasonably infer that evidence on the necessary elements of proof will be adduced at trial, the complaint may not be dismissed. Sidney S. Arst Co. v. Pipefitters Welfare Educ. Fund, 25 F.3d 417, 421 (7th Cir.1994). “Further, the court has a duty to consider whether a plaintiffs allegations could provide relief under any available legal theory.” Id. The complaint need not support a viable claim only under the particular legal theory pleaded by the plaintiff. Id. To survive a motion to dismiss, a plaintiff need not identify the correct legal theory if some theory is viable. Cass v. American Properties, Inc., 861 F.Supp. 55, 57 (N.D.Ill.1994). Thus, a court will grant a motion to dismiss only if it “appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief’. Sidney S. Arst Co., 25 F.3d at 421.
*140
DISCUSSION
The essence of Bell’s Complaint can be summarized in a few sentences: Bell entered into an oral contract with Debtor for him to sell Bell’s car on behalf of Bell. After selling the car, Debtor was to collect the sale proceeds for Bell, remit $15,000 of those proceeds to Bell and retain any surplus for himself. Debtor sold the car and the dealership he controls collected the proceeds, but the proceeds were not remitted to Bell, contrary to the agreement.
An agency relationship was pleaded
It can be concluded that, although Bell never uses the terms “principal” and “agent” in describing its relationship with Debtor, it has essentially alleged the creation of an agency relationship between Bell and Debtor. Under Illinois law, to determine whether an agency relationship exist, the court must consider two factors: (1) whether the alleged principal has the right to control the manner and method in which the agent performs his services and (2) whether the alleged agent has the power to affect legal relations of the principal. Chemtool Inc. v. Lubrication Techs. Inc., 148 F.3d 742, 745 (7th Cir.1998). An agency relationship does not require an express appointment and acceptance. American Envtl., Inc. v. 3-J Co., 222 Ill.App.3d 242, 248, 164 Ill.Dec. 733, 738, 583 N.E.2d 649, 654 (2d Dist.1991). Based on allegations in its Complaint that Bell authorized Debtor to sell the car and Debtor was responsible for collecting the proceeds and remitting them to Bell, Bell has sufficiently alleged an agency relationship. See Cumis Ins. Soc’y, Inc. v. Peters, 983 F.Supp. 787 (N.D.Ill.1997)(Allegations that parties had agreement pursuant to which one party bestowed the responsibility for collecting money and asserting claims on its behalf on other party and required that the other party account for the money collected, sufficiently alleged an agency relationship to prevent dismissal of complaint).
The Complaint does plead an injury to Bell and its property under § 523(a)(6).
Section 523(a)(6) of the Bankruptcy Code excepts from discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity.” (Emphasis supplied.)
Debtor bases his motion to dismiss, in part, on argument that Bell never suffered any injury to its property because it never had an interest in proceeds from the car sale, but rather its property interest lay only in the car itself. As shown below, Bell’s property interest was converted. Moreover, because § 523(a)(6) is written in the disjunctive, Bell need not suffer an injury to its property to state a claim under § 523(a)(6) but can suffer an injury to itself.
The oral agreement between Bell and Debtor provided that Bell would be paid $15,000 from the proceeds. Instead of receiving $15,000 from Debtor, pursuant to the contract, Bell received only $4,250 from LB AC when LB AC and Bell agreed to sell the car and split the proceeds after Debtor’s conduct came to light. It is inarguable that Bell’s receipt of only $4,250 from the LBAC re-sale when it should have received $15,000 from Debtor after the original sale constituted an “injury to another entity” (namely Bell) under the statute.
In order to determine the parties’ rights in proceeds for purposes of the “injury to property of another entity” provision of § 523(a)(6), Illinois law on agency must be looked to. Butner v. U.S., 440 U.S. 48, 54-55, 99 S.Ct. 914, 917-18, 59 L.Ed.2d 136 (1979)(Congress has left determination of property rights in assets of the bankrupt to the states.)
When Debtor as agent sold Bell’s car, the sale proceeds were collected by Debtor for the benefit of its principal Bell. An agent does not own property transferred to it or to an agency owned by it for *141the benefit of the principal. Just Pants v. Bank of Ravenswood, 136 Ill.App.3d 543, 547, 91 Ill.Dec. 49, 53, 483 N.E.2d 331, 335 (1st Dist.1985). An agent who collects money on behalf of the principal does not become the owner of such money. Kearney v. Webb, 278 Ill. 17, 20-21, 115 N.E. 844, 845-6 (1917). Thus, neither Debtor nor the company he controlled became owner of sale proceeds, but rather those proceeds were the property of Bell to the extent of the promised $15,000. See In re Greenfield, 171 B.R. 848, 858 (Bankr.N.D.Ill.1994)(Property held by a debtor as agent does not become property of the estate, as it belongs to someone else usually the principal.) Moreover, when Debtor sold the car without turning the proceeds over to Bell, and misrepresented that he had not received the proceeds when Bell requested them, Debtor’s authority to sell pursuant to the agreement was arguably used to effect a wrongful conversion of Bell’s property then consisting of the $15,000 due Bell. Metalexport Co. v. Gerv-O-Ral Processing Corp., 365 F.2d 178 (7th Cir.1966)(under consignment agreement whereby consignee was permitted to place goods in premises of another who was agent of consignee, when agent sold goods without turning the proceeds over to consignor, agent’s rightful possession became a wrongful conversion.)
A conversion is any unauthorized act, which deprives an owner of property permanently or for an indefinite time. In re Thebus, 108 Ill.2d 255, 259, 91 Ill.Dec. 623, 625, 483 N.E.2d 1258, 1260 (1985). “The subject of conversion is required to be an identifiable object of project of which the plaintiff was wrongfully deprived.” Id., 108 Ill.2d at 260, 91 Ill.Dec. at 625, 483 N.E.2d at 1260. Money may be the subject, but it must be capable of being described as a specific chattel. Id. Here, Bell has alleged the conversion of the first $15,000 which Debtor received from sale of Bell’s car, and which belonged to Bell.
A corporate officer can be held personally liable for corporate tortious conduct participated in.
Debtor’s second argument in support of his motion to dismiss is that Bell’s allegations lie if at all against his company Northwest and not against him personally. However, the law is well settled that corporate officers and directors may be held personally liable for conversions by the corporation if they have actively participated therein. Eggert v. Weisz, 839 F.2d 1261, 1264 (7th Cir.1988). See Lobato v. Pay Less Drug Stores, Inc., 261 F.2d 406, 408-09 (10th Cir.1958)(If a corporate officer directs or participates actively in the commission of a tortious act he may be held personally liable to a third person for injuries resulting therefrom.); McMillan v. Firestone, 26 B.R. 706, 714 (Bankr.S.D.Fla.1982)(“[A]n officer, director or shareholder of a corporation will not be shielded by the corporate form from liability for tort, including fraud, in which he himself is involved.”)
Bell’s current complaint alleges that Debtor signed a draft drawn on LBAC’s bank account to obtain payment from LBAC for the Contract. Debtor deposited the draft in a Northwest bank account but later misrepresented to Bell that he had not received proceeds from sale of the car. Thus, even if Bell’s allegations show the money was transferred to Northwest, Bell has sufficiently alleged Debtor’s active participation in the conversion to state a possible cause of action for personal liability on Debtor’s part.
Bell has stated a cause of action under 11 U.S.C. § 523(a)(6) for willful and malicious injury.
Having determined that Bell has alleged a property interest in the sale proceeds, and that Debtor can be held personally liable for conversion even though acting as one in control of a company, it must now be determined whether Bell has sufficiently alleged that the conduct of Debtor *142causing the injury was willful and malicious as required under § 523(a)(6).
The Supreme Court recently addressed the proper interpretation of the term “willful” under the discharge exception in § 523(a)(6) in Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). That opinion held that § 523(a)(6) does not encompass acts done intentionally that happen to cause injury, but rather refers to acts done with the actual intent to cause injury. Id., 523 U.S. 57, 118 S.Ct. at 977. As such, nondischargeability requires deliberate or intentional injuries, not recklessly or negligently inflicted injuries. Id.
The Supreme Court did not in Kawaauhau define the scope of the term “intent” used in the opinion to describe willful conduct. However, recent opinions have found that either a showing of subjective intent to injure the creditor or a showing of a debtor’s subjective knowledge that injury is substantially certain to result from his acts can establish the requisite intent required in Kawaauhau. See In re Markowitz, 190 F.3d 455 (6th Cir.1999); In re Budig, 240 B.R. 397 (D.Kan.1999); In re Kidd, 219 B.R. 278 (Bankr.D.Mont.1998).
In its Complaint, Bell pleads that Debt- or never intended to pay it from the sale of the car. Debtor, as would anyone, had to have been substantially certain that an intentional failure to ever pay the $15,000 that the parties agreed to would cause injury to Bell.
Moreover, the term “malicious” under § 523(a)(6) means in conscious disregard for one’s duty or without just cause or excuse. In re Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994). Ill will or specific intent to do harm is not required. In re Arlington, 192 B.R. 494 (Bankr.N.D.Ill.1996). As an alleged agent, Debt- or’s selling of its principal’s property without remitting the proceeds collected on its behalf, and misrepresenting to its principal that it had not received the proceeds could be found to be in conscious disregard of Debtor’s duties.
CONCLUSION
For reasons stated, the Complaint of Bell has stated a claim under § 523(a)(6) and its Complaint will not be dismissed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492992/ | OPINION
DAVID A. SCHOLL, Bankruptcy Judge.
A. INTRODUCTION
Barring reversals and/or remands of this decision or of our last previous so-called “Supplemental Opinion” presently only reported as In re Main, Inc., 242 B.R. 574 (Bankr.E.D.Pa.1999) (“Main X”), this may be the last in our long series of decisions arising out of the related Chapter 7 bankruptcy cases of Main, Inc. (“Main”), formerly the owner of the Philly Rock Bar and Grill (“Philly Rock”), and its principal, Eric J. Blatstein (“Blatstein”). The entire sequence is recited in our immediate prior decisions of September 22, 1999, and September 17, 1999, appearing at 239 B.R. 281, 284-85 (“Main VIII”) and 239 B.R. 59, 62-67 (“Main IX”). This will reflect the end of a significant body of legal and judicial work, much of which the subject matter would not appear to justify, but is necessary because of the inability of the parties to settle virtually any aspects of their disputes.
The instant Opinion addresses basically one legal issue: the proper remedy when a husband is found to have engaged in actual fraud by conveying his income, all of which has now apparently been spent at his direction, to his wife. We find, in the instant circumstances, where the wife has not been found to engage in any fraud, the *293only appropriate remedy is a judgment against the husband for the amount conveyed, as opposed to a judgment against the wife or against the husband/wife en-tireties entity, jointly and severally, for this amount. We also herein determine that the amount of the income transferred which is property of Blatstein’s bankruptcy estate is $1,533,428.65, and we therefore proceed to enter judgment in favor of the Trustee and against Blatstein only in that amount.
B. PROCEDURAL AND FACTUAL HISTORY
On September 3, 1999, the Third Circuit Court of Appeals (“the Ct.App.”) in an Opinion reported as In re Blatstein, 192 F.3d 88 (3rd Cir.1999) (“Blatstein IV”),1 affirmed in part and reversed in part a decision issued by the United States District Court for the Eastern District of Pennsylvania (“the Dist.Ct.”) on September 23, 1998, reported at 226 B.R. 140 (“Blatstein II ”). In so doing, Blatstein TV upheld our previous findings in In re Main Inc., 213 B.R. 67, (“Main II ”), modified in part, 1997 WL 626544 (Bankr.E.D.Pa. Oct. 7,1997) (“Main III ”), aff'd in part & rev’d & remanded in part sub nom. Blatstein II, reinstated as to issues remanded, 1998 WL 778017 (Bankr.E.D.Pa. Nov. 4, 1998) (“Main IV”), aff'd as to issues remanded, 1999 WL 689715 (E.D.Pa. Sept. 3, 1999) (“Blatstein III”), Blatstein II aff'd. in part and rev’d in part as to issues not remanded, Blatstein TV, that Blatstein did not fraudulently transfer shares of corporations owned with his wife, LORI J. BLATSTEIN (“Lori,” with Blatstein, “the Blatsteins”), to Lori because these shares were at all times already in Lori’s name. 192 F.3d at 96. Similarly, the Ct.App. affirmed our prior refusal in Main II to engage in “reverse piercing” of the corporate veils of the Blatsteins’ corporate entities. Id. at 101, referencing Main II, 213 B.R. at 89-90.
Nonetheless, Blatstein TV disapproved the portion of our analyses and findings in Main II and Main III that dealt with Blatstein’s earned income transfers into Lori’s Mellon PSFS and Gruntal Money Market accounts. The Ct.App. critique of our conclusions on this point were as follows, 192 F.3d at 97-98:
We reject ... the bankruptcy court’s conclusions with respect to Blatstein’s income transfers to Lori’s personal bank accounts. Unquestionably, Lori would have been entitled to dividends from the corporations. So we would uphold transfers of that nature. But the bankruptcy court held that [Blatstein’s] income checks constituted income of that character because the checks “were not the same as paychecks from a third-party employer,” but instead “could be viewed as distributions of dividends or equity from the corporations ...” Main III, 1997 WL 626544, at *6 (emphasis added).
We reject this conclusion. First, the payments were made by the corporations only to Blatstein and not to [Lori]. Furthermore, the form of payments reflected reality as Blatstein undoubtedly operated the business. In fact, as Arch Street pointed out in its brief and again at oral argument, Blatstein treated his paychecks as wages or Schedule C sole-proprietorship income on his tax returns and not as dividends or distributions to a shareholder. Br. at 45. Likewise, the corporations treated the payments as wages or commissions and not as distributions to a shareholder.
Our conclusion that Blatstein’s income was earned income leads us to consider the bankruptcy court’s finding that he deposited his income into Lori’s accounts because his credit and reputation with banks was poor, and because he *294“was trying to keep the funds from being seized or frozen by the IRS or other taxing authorities, pursuant to a tax lien, in light of the personal income taxes which he owed to the IRS.” Main II, 213 B.R. at 94. The bankruptcy court further noted that “taxes were paid from [the Gruntal] Account, and therefore no fraud on the IRS or other taxing authorities appears to have been effected.” Id. These findings are significant because, notwithstanding the bankruptcy court’s contrary conclusion, they clearly demonstrate that despite the payment of some taxes, Blatstein intended to defraud the Internal Revenue Service, one of his creditors.
Accordingly, the Ct.App. remanded the case to the Dist.Ct. for further proceedings consistent with its Opinion. On October 15,1999, the Dist.Ct. in turn remanded the matter to us for further proceedings consistent with Blatstein TV.
Pursuant thereto, we entered, as part of an Order on November 1, 1999, which also set forth the briefing schedule in Main X, a directive to the parties to simultaneously submit opening briefs by December 17, 1999, and reply briefs by December 31, 1999, addressing these remanded' issues. Both parties complied with these deadlines in rendering their respective submissions.
In his opening brief the trustee of Blat-stein’s case, Michael J. Kaliner (“the Trustee”), by his special counsel who is also special counsel to Trustee Miller in the Main case, argued that Blatstein fraudulently transferred in excess of $3.2 million to Lori between 1994 and 1997. The Trustee maintained that judgment should be entered against the Blatsteins, jointly and severally, in this amount, plus interest. Finally, he contended that he is entitled to equitable remedies, apparently an injunction to prevent that Blatsteins from any further dispositions and encumbrances of their assets until his judgment was satisfied.
The Blatsteins, on the other hand, asserted that no deposits were made into accounts of Lori prior to October 3, 1995, and therefore the income of Blatstein prior to October 3, 1995, should not be considered by this court. In addition, they claim that applicable limitations bars claims based on earlier income. They also claimed that any transfers on or after December 16, 1996, should not be considered by this court, as same were not property of the Trustee’s estate. The Blatsteins further maintained that no judgment" should be entered against Lori. Finally, they averred that the Trustee is not entitled, in any event, to a joint and several judgment against them, nor to any equitable relief.
In fulfilling our duty to respond to the specific mandate outlined by the CtApp. in Blatstein IV, we must first ascertain (1) the applicable time-frame for which the monies transferred by Blatstein to Lori may be set aside; and (2) what sums Blat-stein actually transferred to Lori during the applicable time-frame.
In his brief, the Trustee argued that between 1994 and 1997 Blatstein earned $3,246,335.70 and fraudulently transferred these entire sums into Lori’s possession. According to the Trustee, in the year 1994 alone Blatstein received a total dollar amount of $395,365.91 in income which was transferred to Lori. This total amount claimed by the Trustee is broken down by us in TABLE 1 below as follows:
TABLE 1
1994 EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE TRUSTEE
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. W-2 wage $ 26,300.00
2. Schedule C sole proprietorship income
Delawareeo — $106,124
Main — $ 26,817
Pier 63 —$ 66,000 $196,941.00
3. Pier 53 $140,000.00
4. Checks not recorded on Main’s general ledger $ 16,024.91
5. Cash payouts not recorded on Main’s books $ 17,100.00
TOTAL DOLLAR AMOUNT TRANSFERRED $395,365.91
*295Next, the Trustee maintained that, for 1995, Blatstein’s total amount of income consisted of $1,222,588.79, all of which was transferred to Lori. This total amount is broken down by us in TABLE 2 as follows:
TABLE 2
1995EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE TRUSTEE
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1.W-2 wages
Main —$146,900
Delawareeo — $146,900 $ 293,800.00
2.Schedule C sole proprietorship income
Main —$195,302 $ 195,302.00'-
3.Unreported management fees paid by
Delawareeo $ 8,600.00
4.Unreported management fees paid by
Engine 46 $ 13,349.00
5.Monies transferred to the Gruntal
Money Market Account $ 711,537.79
TOTAL DOLLAR AMOUNT TRANSFERRED $1,222,588.79
Next, the Trustee contended that, for the year 1996, Blatstein’s earned income monies totaled $971,829.00. According to the Trustee, Blatstein placed the overwhelming majority of these monies into the Gruntal Money Market account, and put other funds into Lori’s Mellon PSFS account. This total amount claimed is broken down in TABLE 3 by us as follows:
TABLE 3
1996EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE TRUSTEE
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. W-2 wages
Waterfront —$558,288 $558,288.00
2. Schedule C sole proprietorship income $413,541.00
TOTAL DOLLAR AMOUNT TRANSFERRED $971,829.00
Finally, the Trustee noted that, in 1997, Blatstein received a total amount of $656,-552.00 in income, all of which was transferred into Lori’s Mellon PSFS and Grun-tal Money Market accounts. This amount is broken down again as follows in TABLE 4 below:
TABLE 4
1997EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE TRUSTEE
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. W-2 wages Waterfront —$306,552 $306,552.00
2. Schedule C sole proprietorship income $350,000.00
TOTAL DOLLAR AMOUNT TRANSFERRED $656,552.00
To support these arguments and figures, the Trustee relied solely on (1) Blatstein’s income tax returns and schedules for the years under scrutiny; (2) the Trustee’s Report utilized by Trustee Miller in Main X. See 242 B.R. 574, 577-85; (3) reports of the transactions in Lori’s Gruntal Money Market account from October 3, 1995, through February 29, 1999; (4) reports of the transactions in Lori’s Mellon PSFS account from November 11, 1995 through January 31, 1997; and (5) evidence and testimony adduced by Trustee Miller in this and the related adversary proceedings.
In making these arguments and supporting his dollar figures, the Trustee contended that he is entitled to a judgment equal to Blatstein’s total income and not merely the latter’s paychecks deposited in Lori’s accounts in and after October 1995. In support of this argument, the Trustee observed that, from December 1992 through December 1996, Blatstein transferred his tdtal income (earned income paychecks, sole proprietorship income, and commissions) to Lori. He relied on the Blatstein IV holding to claim that we must enter a judgment in his favor equal to Blatstein’s total income, regardless of whether Lori deposited it in her accounts. In a similar manner, the Trustee contended that he is also entitled to a judgment for Blatstein’s post-petition transfers. To support this contention, the Trustee noted that (1) 12 Pa.C.S. § 5104 of the Pennsylvania Uniform Fraudulent Transfer Act (PUFTA) entitled them to pursue and recover Blatstein’s fraudulent transfers made after Blatstein filed for bankruptcy; and (2) because Blatstein was denied a *296discharge, his claims against the Blatsteins under the PUFTA should extend past his bankruptcy filing.
The Blatsteins, on the other hand, contended that we can only consider the amounts transferred by Blatstein into Lori’s Mellon PSFS and Gruntal Money Market accounts during the four-year period under scrutiny. According to the Blat-steins, for 1994, the monies transferred by Blatstein into Lori’s Mellon PSFS account was not $395,365.91, as alleged by the Trustee, but nothing, as the account was not yet opened. The Blatsteins thus rely on the fact that, in 1994, neither of the Blatsteins, including Lori, maintained any bank accounts due to Blatstein’s financial difficulties.
Next, the Blatsteins observed that, in 1995, the income transferred by Blatstein into Lori’s personal accounts was not $1,222,588.79, but $12,800.00. This total dollar amount itemized by the Blatsteins is set down by us in TABLE 5 as follows:
TABLE 5 ‘
1995EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE BLATSTEINS
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. Monies transferred to the Mellon PSFS account $12,800.00
2. Monies transferred to the Gruntal Money Market account $ 0.00
TOTAL DOLLAR AMOUNT TRANSFERRED $12,800.00
The Blatsteins further argued that, for 1996, the earned income monies transferred by Blatstein into Lori’s personal accounts was $296,598.95, instead of the $971,829.00 claimed by the Trustee. The amount claimed by the Blatsteins is itemized by us in TABLE 6 as follows:
TABLE 6
1996EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE BLATSTEINS
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. Monies transferred to the Mellon PSFS account $177,588.43
2. Monies transferred to the Gruntal Money Market account $119,010.52
TOTAL DOLLAR AMOUNT TRANSFERRED $296,598.95
Next, the Blatsteins asserted that, for 1997, the income transferred amounted to $6,038.42, not $656,552.00, as claimed by the Trustee. The amount was itemized by the Blatsteins is reflected by us as follows in TABLE 7 below:
TABLE 7
1997EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN AS CLAIMED BY THE BLATSTEINS
NATURE OF EARNED INCOME DOLLAR MONIES RECEIVED AMOUNT
1. Monies transferred to the Mellon PSFS account $6,038.42
2. Monies transferred to the Gruntal Money Market account $ 0.00
TOTAL DOLLAR AMOUNT TRANSFERRED $6,038.42
In addition to these arguments and lowered dollar amount figures, the Blatsteins argued that we should not consider evidence of any transfers prior to October 3, 1995. They claimed that the Trustee offered no evidence of income transfers into Lori’s accounts predating that date. Alternatively, the Blatsteins averred that, even if the Trustee could point to any such other evidence in the record, the statute of limitations under the PUFTA reaches back only to transfers occurring on or after February 1, 1994, citing 12 Pa.C.S. § 5109. Furthermore, the Blatsteins maintained that any earned income received by Blat-stein after the filing date is not property of his estate recoverable by the Trustee. In support of this argument, the Blatsteins rely on 11 U.S.C. § 541. Further, they observed that no intent to defraud any creditor after the filing date was ever introduced by the Trustee at trial.
*297C. DISCUSSION
1. The Trustee’s Claims After February 1, 1991, Are Not Barred by Limitations, But There Is No Evidence of Transfers of Income by Blatstein to Lori Prior to October 3, 1995.
We believe that the Trustee’s position that his claims stretching back to 1994 for monies fraudulently transferred are not barred by limitations is correct. A trustee’s power to avoid transfers of an interest of the debtor in property that an unsecured creditor could avoid under the PUF-TA is provided by 11 U.S.C. § 544(b), which reads in pertinent part as follows:
(b)(1) ... the trustee may avoid any transfer of an interest of the debtor in property or any obligation incurred by the debtor that is voidable under applicable law by a creditor holding an unsecured claim that is allowable under section 502 of this title ...
If the applicable non-bankruptcy law statute of limitations has not expired prior to the filing of a bankruptcy petition, a trustee may bring an avoidance action under the powers bestowed upon the trustee by § 544(b) within the time-frame imposed by 11 U.S.C. § 546(a). In re Ambulatory Medical & Surgical Health Care, Inc., 187 B.R. 888, 901 (Bankr.W.D.Pa.1995); In re Sverica Acquisition Corp., 179 B.R. 457, 466 (Bankr.E.D.Pa.1995); In re Topcor, Inc., 132 B.R. 119, 123-24 (Bankr.N.D.Tex.1991). See also 4 COLLIER ON BANKRUPTCY, ¶544.03[2], at 544-22 to 544-23 (15th ed. rev.1999). Section 546 merely provides that an action must be brought within two years after the appointment of a trustee, which clearly is satisfied here.
Thus, the only limitation which could bar the Trustee’s claims arises from PUFTA’s four-year statute of limitations. 12 Pa.C.S. § 5109(2). We find that most of the pre-petition transactions referenced by the Trustee were within the limitations period as of the date that Blatstein’s bankruptcy petition was filed. Compare Main X, 242 B.R. 574, 583-84 (claims as which limitations had already expired as of the date of the filing of the petition were barred).
Despite these findings, we further note that limitations would bar any claims prior to February 1, 1994. Our reasoning for this conclusion arises from the fact that Pennsylvania adopted PUF-TA effective February 1, 1994. See In re Meinen, 232 B.R. 827, 840 (Bankr.W.D.Pa.1999); and R. Ridge & E. McGlone, A Practitioner’s Guide to Pennsylvania’s Newly Adopted Uniform Fraudulent Transfer Act, 99 DICK.L.REV. 117 (1994). Prior to that date, the state law which related to fraudulent conveyances was the Pennsylvania Uniform Fraudulent Conveyance Act, which had a statute of limitations of only two years. 42 Pa.C.S. § 5524(3); In re Frascatore, 98 B.R. 710, 718 (Bankr.E.D.Pa.1989); and In re Penn Packing Co., 42 B.R. 502, 505 (Bankr.E.D.Pa.1984). PUFTA does not specifically address whether it is to be applied retroactively, but the normative rule regarding the effect of statutes is that they are applied prospectively only. Cf. In re Fleet, 122 B.R. 910, 915 (Bankr.E.D.Pa.1990) (addressing New Jersey’s enactment of a law comparable to PUFTA).
However, this discussion of limitations becomes largely academic when we focus upon precisely what earned income Blatstein was held by the Ct.App. in Blat-stein IV to have fraudulently transferred. The only sums referenced are amounts transferred by him into “Lori’s personal bank accounts.” 192 F.3d at 96-97. The only such accounts were Lori’s Mellon PSFS and Gruntal Money Market accounts. The Trustee contended that he was entitled to a judgment equal to Blat-stein’s total income from the beginning of the applicable limitations period, which we hold is February 1, 1994, forward, and not merely on account of Blatstein’s income transferred into Lori’s personal bank accounts.
*298We find no merit in this position. In Blatstein IV, the Ct.App. plainly stated that it was ruling only that Blatstein acted with intent to defraud his creditors when he transferred his earned income into Lori’s bank accounts. 192 F.3d at 97. At no time did Blatstein IV suggest, or even infer, that the Trustee would be entitled to a judgment referencing Blatstein’s total income for any applicable period. To the contrary, Blatstein IV held only that, by transferring earned income paychecks into Lori’s personal bank accounts, Blatstein defrauded his creditors. Id. at 88. As a result, only the transfer of Blatstein’s earned income which was transferred into Lori’s account was found by the Ct.App. to constitute a fraudulent conveyance in contravention to PUFTA. These deposits did not commence until the earliest of the accounts was opened and the first deposits were made on October 3, 1995. The time-period for which we must calculate of the income fraudulently transferred by Blat-stein to Lori therefore cannot pre-date October 3,1995.
2. The Trustee Cannot Recover Blat-stein’s Post-Petition Income Deposits Because Such Funds Are Not Property of His Estate.
The Trustee argued that he is entitled to recover post-petition income of Blatstein transferred to Lori after his Chapter 7 bankruptcy filing on December 19, 1996, calculating funds so transferred into 1997. The Blatsteins, however, point out that post-petition earnings of Blatstein are not property of his estate. See 11 U.S.C. §§ 541(a)(1), (a)(6); Turner v. Avery, 947 F.2d 772, 774 (5th Cir.1991); In re Weisberg, 218 B.R. 740, 751-52 (Bankr.E.D.Pa.1998): and 5 COLLIER, supra, ¶ 541.17, at 541-67. The Trustee countered by arguing that the Trustee was among the creditors defrauded by Blatstein and, as the estate’s representative of all of his creditors, he should be accorded a priority over individual creditors in pursuing Blat-stein’s post-petition earnings.
In making these arguments, we believe that the Trustee has confused his rights against Blatstein with his remedies for actions taken which were violative of his rights. At this point, we are measuring his rights. In so doing, we can only accord the Trustee rights in response to Blat-stein’s fraudulent transfer of property of his estate. The arguments made by the Trustee address only potential measures by the Trustee to enforce his rights after these rights are established.
We also note that the Trustee’s power to invoke PUFTA under 11 U.S.C. § 544 is limited, by § 544(a), to the rights of hypothetical creditors “as of the commencement of the case.” Numerous cases have held that, since a trustee’s § 544(b) rights are subject to the limitations set forth in § 544(a), post-petition transfers in violation of state law cannot be reached by a Chapter 7 trustee. See In re Centennial Textiles, Inc., 227 B.R. 606, 610 (Bankr.S.D.N.Y.1998); In re Mushroom Transportation Co., 227 B.R. 244, 259-60 (Bankr.E.D.Pa.1998); In re Metropolitan Cosmetic Reconstructive Surgery, P.A., 125 B.R. 556, 557 (Bankr.D.Minn.1991); and In re Sattler’s, Inc., 73 B.R. 780, 790 (Bankr.S.D.N.Y.1987).
As a result, we conclude that it is only income earned by Blatstein which was transferred into Lori’s accounts after they were opened on October 3, 1995, through the filing of Blatstein’s bankruptcy case on December 16, 1996, which the Trustee may recover. We will now turn to computing precisely what earned income Blatstein actually transferred into Lori’s Mellon PSFS and Gruntal Money Market accounts during this period.
3. Blatstein Transferred $1,538,4.28.65 Into Lori’s Accounts During the Pertinent Period.
We note that the computations of the amounts which Blatstein IV held were fraudulently conveyed are computed very differently by the parties in their respective briefs. We find that the Trustee’s brief offered grossly inflated numbers. *299Some of the dollar figures presented by the Trustee were already discarded by us in the Main X opinion, see, e.g., 242 B.R. 574, 582-85, while others were not reflective of any type of transfer. Moreover, they greatly exceed the $2 million figure for which the Trustee sought judgment from the Dist. Ct., prior to the remand to this court. We are therefore presented again with an ever-upward moving target of amounts claimed by the Trustees from the Blatsteins. Compare Main X, 242 B.R. at 578.
The calculations in the Blatsteins’ brief, on the other hand, we find to be no more accurate than those of the Trustee. The Blatsteins not only present highly deflated numbers, but also they fail to show all of the actual transactions at issue.
Our rigorous analysis of the evidence submitted reveals that Blatstein transferred a total dollar amount of $1,533,-428.65 into Lori’s Mellon PSFS and Gruntal Money Market accounts between October 3, 1995, and December 19, 1996. Our study of the pertinent records shows that, between November 24, 1995, and December 22, 1995, there were eight (8) deposits made into Lori’s Mellon PSFS account for a total dollar amount of $15,-478.26. The record also reflects that, between October 3, 1995, and December 29, 1995, a total of twelve (12) deposits were made into Lori’s Gruntal Money Market account for a dollar value of $711,537.79. These transactions are itemized in TABLE 8 below as follows:
TABLE 8
1995 EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN
TRANSACTION DATE MELLON PSFS TRANSACTION DATE GRUNTAL MONEY MARKET
11/24/95 $ 150.00 10/03/95 $500,000.00
11/30/95 $ 100.00 10/06/95 $ 5,500.00
12/04/95 388.00 10/17/95 8,570.00
12/06/95 $ 4,100.00 10/27/95 $ 2,000.00
12/18/95 $ 800.00 10/31/95 $ 4,500.00
12/18/95 $ 8,700.00 11/06/95 $ 3,700.00
12/21/95 340.26 11/16/95 $ 1,400.00
12/22/95 $ 900.00 11/20/95 71,667.79
11/28/95 $ 4,200.00
12/18/95 $ 8,300.00
12/27/95 $100,000.00
12/29/95 $ 1,700.00
TOTAL $15,478.26 TOTAL $711,537.79
TOTAL DOLLAR AMOUNT $727,016.05
Further, we find that between January 2, 1996, and December 13, 1996, a total of thirty-three (33) deposits were made into Lori’s Mellon PSFS account by Blatstein, for a total figure of $174,192.73. The record further shows that between January 4, 1996, through December 2, 1996, there were thirty-three (33) deposits into Lori’s Gruntal Money Market account, a total of $632,219.87. These transactions are itemized as follows:
TABLE 9
1996 EARNED INCOME MONIES TRANSFERRED BY BLATSTEIN
TRANSACTION MELLON PSFS TRANSACTION GRUNTAL MONEY DATE DATE MARKET
01/02/96 $ 400.00 01/04/96 $200,000.00
*300TRANSACTION DATE MELLON PSFS TRANSACTION DATE GRUNTAL MONEY MARKET
01/02/96 $ 5,800.00 01/16/96 3,500.00
01/16/96 $ 8,700.00 01/16/96 $ 25,000.00
01/18/96 $ 1,300.00 01/22/96 $ 500.00
01/20/96 $ 4,260.00 01/25/96 $100,000.00
01/29/96 $ 5,001.06 02/01/96 $ 550.00
02/05/96 5,054.75 02/07/96 2,840.00
02/15/96 5,021.27 02/20/96 $ 7,400.00
02/17/96 5,560.67 02/28/96 $ 2,500.00
02/24/96 5,670.16 03/09/96 $ 3,800.00
03/01/96 5,681.53 03/11/96 $ 80,600.00
03/11/96 5,627.84 03/15/96 20,627.84
03/25/96 5,593.84 03/25/96 $ 65,000.00
04/08/96 5,593.84 03/29/96 $ 500.00
04/19/96 5,593.84 03/29/96 5,593.84
05/03/96 5,593.84 04/12/96 5,593.84
05/13/96 5,593.84 04/30/96 5,593.84
05/28/96 5,593.84 05/16/96 5,593.84
06/07/96 5,647.53 05/31/96 $ 5,593.84
06/07/96 $ 500.00 06/14/96 5,593.84
06/20/96 5,593.84 06/28/96 5,593.84
07/08/96 5,595.67 07/02/96 5,493.49
07/19/96 5,595.67 07/15/96 5,595.67
07/29/96 5,595.67 09/02/96 $ 5,000.00
08/09/96 5,595.67 09/05/96 5,595.67
09/09/96 5,595.67 09/05/96 5,595.67
09/13/96 5,595.67 09/27/96 5,595.67
09/24/96 5,595.67 10/18/96 $ 8,040.73
10/07/96 5,595.67 10/28/96 8,436.64
10/15/96 $ 5,595.67 10/28/96 $510,441.66
11/13/96 $ 6,816.67 11/15/96 $ 6,816.64
11/26/96 6,816.67 11/15/96 $ 6,816.64
12/13/96 $ 6,816.67 12/02/96 6,816.67
TOTAL $174,192.73 TOTAL $632,219.87
TOTAL DOLLAR AMOUNT $806,412.60
We therefore find that the total amount fraudulently conveyed to Lori by Blatstein amounted to $1,533,428.65.
4. The Trustee Is Entitled to a Judgment Against Blatstein Only for This Sum of $1,538,4-28.65.
We next pass on to determine (1) whether a judgment should be entered against Lori for the income fraudulently received by her in her accounts; (2) whether judgment should be entered, jointly and severally, against the Blat-steins; and (3) whether further equitable remedies are warranted.
The Trustee contended that judgment should be entered against Lori for the income received. In support of this contention, the Trustee relied on the remedial provisions embodied in 12 Pa.C.S. § 5108(b) of PUFTA. Next, the Trustee maintained that he was also entitled to a judgment against Blatstein himself for the income Blatstein fraudulently transferred to his wife, citing, e.g., Rupp v. Markgraf 95 F.3d 936, 941 (10th Cir.1996); and *301Bonded Financial Services, Inc. v. European American Bank, 838 F.2d 890, 893 (7th Cir.1988).
Further, the Trustee vigorously asserted that judgment should be entered, jointly and severally, against the Blatsteins. To support this assertion, the Trustee argued mainly that “equity and justice” required such a judgment because a judgment against only one or the other of Blatstein and Lori would be difficult to collect. The request for a judgment against Lori was based on 11 U.S.C. § 550. The request for a joint judgment was based upon, citations to, inter alia, Elliott v. Kiesewetter, 98 F.3d 47, 56-57 (3rd Cir.1996); First National Bank of Marietta v. Hoffines, 429 Pa. 109, 117, 239 A.2d 458, 463-64 (1968); Taylor v. Kaufhold, 379 Pa. 191, 195-96, 108 A.2d 713, 715-16 (1954); Coscia v. Hendrie, 427 Pa.Super. 585, 590, 629 A.2d 1024, 1026 (1993); and Garden State Standardbred Sales Co. v. Seese, 417 Pa.Super. 15, 23, 611 A.2d 1239, 1243 (1992).
Further, the Trustee averred that he was entitled to equitable remedies to aid his collection efforts. In support of this position, the Trustee cited 12 Pa.C.S. § 5107(a), under which PUFTA grants a court equitable power to enjoin the further transfers, dispositions, or encumbrances of fraudulently-conveyed assets. Finally, the Trustee concluded that the Blatsteins are liable for interest on the money they fraudulently transferred, citing Rizzo v. Haines, 520 Pa. 484, 509-10, 555 A.2d 58, 70 (1989).
The Blatsteins countered that judgment should not be entered against Lori. In support of this contention, the Blatsteins note that Lori has no Lability to the Trustee under the PUFTA and cite 12 Pa.C.S. §§ 5104, 5108(b)(1); and In re Foxcroft Square Co., 184 B.R. 671, 674 (E.D.Pa.1995). Next, they argued that the Trustee was not entitled, in any event, to a joint and several judgment against them.
In support of this argument, the Blat-steins correctly observed that the Trustee was unable to locate any authority which would impose joint and several liability on the transferor and transferee of a fraudulent conveyance. They noted that the cases cited by the Trustee involved fraudulent transfers from a spouse into an en-tireties entity for the purpose of thereby rendering collection of a judgment more difficult. Although in many of these cases, the fraud was found to have been perpetrated by only one individual spouse, the transferee was the entireties entity, which is not the case here.
Further, the Blatsteins maintained that the Trustee was not entitled to equitable remedies. The Blatsteins claimed that the only offending actions found to be fraudulent by Blatstein IV involved the transfer of monies, which can be remedied by a money judgment against the appropriate liable party. Finally, the Blatsteins concluded that the Trustee was not entitled to prejudgment interest on any judgment, observing that the Rizzo case cited in support of this claim involved a very distinct legal malpractice claim.
We find that the Blatsteins’ position with respect to Lori’s liability is correct on these facts. Section 550(a) of the Code governs a trustee’s recovery of a fraudulent conveyance. It provides in relevant part as follows:
§ 550. Liability of transferee of avoided transfer
(a) Except as otherwise provided in this section, to the extent that a transfer is avoided under section 544 ... of this title, the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property, from—
(1) the initial transferee of such transfer or the entity for whose benefit such transfer was made ...
In the instant case, it is undisputable that the income at issue were transferred into Lori’s personal bank accounts. How*302ever, in order for Lori to be liable under § 544(b) of the Bankruptcy Code and §§ 5104, 5108(b) of PUFTA for these fraudulent conveyances, she must be found to be an “initial transferee” of the property conveyed under § 550(a)(1). We find that she is not. As noted by the Ct.App. in Blatstein, 192 F.3d at 98,
by failing to place the burden on Lori to prove that she gave reasonable consideration, the [bankruptcy] court did not adopt the more plausible interpretation of the facts: that Blatstein retained control over the funds despite transferring them to his wife. Lori ... used the funds both for her benefit and that of her husband for such purposes as paying their joint debts and putting aside money for their children’s college educations. These payments suggest that Blatstein’s conveyances were in title only, and that instead of giving her husband consideration in the form of payments of his debts, Lori merely was using the money where Blatstein directed her to use it. (emphasis added).
In Bonded, supra, a bank received a check, payable to the bank’s order, with a note directing the bank to deposit the check into a customer’s account. The funds were eventually used to pay off the outstanding balance on the customer’s loan from the bank. The trustee claimed the bank was the initial transferee of the funds because it was the payee of the check. The Bonded court, however, held that the bank was not the initial transferee, but became a transferee only when the account was debited to pay off the loan. As noted by the court in Bonded, 838 F.2d at 893,
[although the Bankruptcy Code does not define “transferee,” and there is no legislative history on the point, we think the minimum requirement of status as a “transferee” is dominion over the money or other asset, the right to put the money to one’s own purposes. When A gives a check to B as agent for C, then C is the “initial transferee;” the agent may be disregarded. The perspective had impressive support under, the 1898 Code, e.g., Mayo v. Pioneer Bank & Trust Co., 270 F.2d 823, 830 (5th Cir.1959) (disregarding corporate forms in order to identify the entity with control over the assets), and has been employed under the 1978 Code as well, e.g., In re Colombian Coffee Co., 75 B.R. 177, 178-79 (S.D.Fla.1987), affirming 64 B.R. 585 (Bankr.S.D.Fla.1986). See also, In re Auto-Pak, Inc., 73 B.R. 52 (D.D.C.1987) (treating the IRS as a mediate rather than initial transferee when the money is washed through a second corporation’s account); In re Jorges Carpet Mills, Inc., 50 B.R. 84 (Bankr.E.D.Tenn.1985) (similar).
See also G. Smith & F. Kennedy, Fraudulent Transfers and Obligations: Issues of Current Interest, 43 S.C.L.REV. 709, 720 (1992).
Similarly, the court in In re Chase & Sanborn Corp., 848 F.2d 1196, 1199, (11th Cir.1988), thusly attempted to arrive at a definition of “transferee” by referring to the “control test” used to determine whether a debtor is in “possession” of funds:
The test articulated by our court is a very flexible, pragmatic one; in deciding whether debtors had controlled property subsequently sought by their trustees, courts must “look beyond the particular transfers in question to the entire circumstance of the transactions.” In re Chase & Sanborn Corporation, 813 F.2d [1177,] at 1181-82 [(11th Cir.1987)].
The control test, then, as adopted by this circuit, simply requires courts to step back and evaluate a transaction in its entirety to make sure that their conclusions are logical and equitable concepts underlying the bankruptcy law. See, Bank of Marin v. England, 385 U.S. 99, 103, 87 S.Ct. 274, 277, 17 L.Ed.2d 197 (1966) (noting that “equitable principles govern the exercise of bankruptcy jurisdiction”); In re Chase & Sanborn Corporation, 835 F.2d 1341, 1349 (11th Cir.1988); [In re Colombian *303Coffee Co., Inc.,] 75 B.R. [177] at 179-80 ... [T]he general approach ... applies regardless of whether a court is attempting to determine whether a debtor controlled the transferred funds or a defendant gained control over the funds transferred to it.
As noted by the court, “we are not creating new law, or even expanding on the existing doctrine ... [bjankruptcy courts considering the question of whether a defendant is an initial transferee have traditionally evaluated that defendant’s status in light of the entire transaction.” Id. Accordingly, the court went on to note it would be “inequitable” to allow recovery against an entity merely because it had “technically ... received the funds ...,” if the entity had “never actually controlled the funds.” Id. at 1200.
Applying the “control test” to this case, the logical conclusion is that Lori cannot be considered an “initial transferee” at all. This is because Lori lacked “dominion” over the monies in question. Bonded, supra, 888 F.2d at 893. As noted by the Ct.App. in Blatstein TV, Lori was merely a pawn who used the monies deposited into her accounts where Blatstein directed her to do so. 192 F.3d at 98. As a result, per the Ct.App.’s analysis, Blat-stein retained control over the monies despite nominally transferring them to Lori. Id. An entity does not have “dominion over the money” until it is, in essence, “free to invest the whole [amount] in lottery tickets or uranium stocks.” Bonded, supra, 838 F.2d at 894. See also, In re Baker & Getty Financial Services, Inc., 974 F.2d 712, 722 (6th Cir.1992); Lippi v. City Bank, 955 F.2d 599, 611 (9th Cir.1992); In re Bullion Reserve of North America, 922 F.2d 544, 549 (9th Cir.1991); In re Columbia Data Products, 892 F.2d 26, 28 (4th Cir.1989); In re Harbour, 845 F.2d 1254, 1256-58 (4th Cir.1988); In re Richmond Produce Co., 151 B.R. 1012, 1021 (Bankr.N.D.Cal.1993), aff'd 195 B.R. 455 (N.D.Cal.1996). In light of this analysis, the Trustee cannot prevail against Lori.
We note that we are not dealing here with realty or other property which was transferred to Lori and remains in her possession as its transferee. Rather, we are dealing with money which apparently has long since been spent. The only real issue is who should be liable, in monetary terms, for the passage of the funds at issue into Lori’s accounts. It is difficult to see why Lori, who was, as noted, found to have been a mere pawn in Blatstein’s transfer schemes, should be liable therefor. We reiterate that we have not found fraud of any kind to have been perpetrated by Lori, and we detect no language in Blatstein TV which holds to the contrary on this point.
We also note that the payees of the income to Blatstein were corporations co-owned by the Blatsteins. See Blatstein IV, 192 F.3d at 96. As a co-owner of these corporations, Lori had at least some claim of entitlement to the funds paid to Blat-stein by these corporations, which would negate the notion that her mere receipt of Blatsteins’s income implicated her in Blat-stein’s frauds.
We also find that the Blatsteins’ position with respect to the joint and several liability arguments presented by the Trustee is correct. As the Blatsteins correctly observed, the trustee failed to cite any authority which, as a special penalty for the fraud and to render a judgment more easily collectible, would impose joint and several liability on an innocent nominal transferee simply because she was an instrument of the fraud. The instant factual setting, which we continue to believe does not reflect fraudulent transfers in the classic sense, compare the scenarios referenced at pages 303-304 infra, is a poor candidate for the first decision in history holding a transferor and transferee of a fraudulent conveyance jointly and severally liable on “equitable” or any other grounds.
We recognize that the remedy of a judgment against Blatstein alone is apparently perceived by the Trustee as a hollow one, *304due to Blatstein’s lack of personal assets. However, the remedy is the function of the nature of the transaction in issue. The transfers which the Ct.App. found to be fraudulent were transfers from one possibly judgment-proof person (Blatstein) to another (Lori). It is difficult to see how such transfers served the classic purpose of a fraudulent conveyance, ie., transferring assets out of an entity vulnerable to loss of its assets into another not perceived as so vulnerable.
We do not have to look far to find examples of such a classic fraudulent conveyance and see how the transaction at issue is different. The transfer of'Philly Rock out of Main, which Blatstein perceived as vulnerable to liquidation by his creditors and Trustee Miller, to a new entity not perceived as so vulnerable, ie., Columbusco, Inc., was a classic fraudulent conveyance. Framing a remedy, ie., re-transfer of Philly Rock to the Main Trustee, was therefore fairly easy to accomplish. See also In re Martin’s Aquarium, Inc., 225 B.R. 868 (Bankr.E.D.Pa.1998), final dispensation, 1999 WL 172782 (Bankr.E.D.Pa. March 24, 1999) (seizure of valuable aspect of debtor’s business by its principal remedied by reconveyance of the asset taken and monetary damages against the principal for his profits in making wrongful use of the asset taken).
The hollowness of the Trustee’s remedy is therefore a function of the nature of the transactions at issue. Far from being classic fraudulent conveyances, it is difficult to perceive any clear judgment-evading consequences from the transfer from Blatstein to Lori. The hollow remedy is thus befitting the hollow transactions which they challenge. We perceive no equity in allowing the Trustee to, without supporting authority, artificially utilize these transactions to obtain a windfall which they would not otherwise support. We are not inclined to do so just because the Trustee’s special counsel put a great deal of effort, which we find frankly excessive, into this matter.
At this end point in this long sequence of decisions, we also must point out that the number of opinions written to date in these matters is an indication that few issues have been resolved consensually, despite numerous efforts, by particular the Dist. Ct., to facilitate settlements. This phenomena strongly suggests that the thrust of the Trustees’ actions has been to litigate these matters to their farthest extent, rather than to settle them. The Trustees have the duty, in administration of these estates, to prevent further proliferation of litigational excesses in yet further appeals. This court has only one weapon at its disposal to control such excesses: its rulings on fee applications. We urge the parties to keep this in mind, as well as the public interest served by resolving controversies.
5. The Trustee Is Not Entitled to Any Further Relief.
The only issues remaining to be addressed are the Trustee’s demands for pre-judgment interest and equitable relief. Pre-judgment interest is generally allowable only when a party defendant is liable to pay a sum “ascertainable by computation” at the outset of the litigation. See In re Repco Products Corp., 100 B.R. 184, 202-03 (Bankr.E.D.Pa.), aff'd, C.A. No. 89-5514 (E.D.Pa. Sept. 8, 1989).
The sum at issue in this litigation is, as we noted at page 299 supra, an ever-upward moving target. Moreover, we found that the Trustee’s figure of what was claimed to be at issue was less than half the amount at which we ultimately fixed the Trustee’s damages.
The Rizzo case cited by the Trustee does support the principle that prejudgment interest may also be awarded if, in the discretion of the court, such an award is necessary to compensate a party from whom funds have been wrongfully procured or withheld. 520 Pa. at 509, 555 A.2d at 70. However, the funds in issue, although found to have been wrongfully *305transferred, were not wrongfully procured or withheld from the Trustee. The rights of the Trustee were less than clear, since this court and the Dist.Ct. refused to find any fraudulent transfers. In such circumstances, enhancement of the Trustee’s judgment by adding pre-judgment interest is unwarranted.
As to the Trustee’s request for equitable remedies and prejudgment interest claims, we decline to grant them. The Blatsteins correctly point out that the actions at issue here, although found to be fraudulent in Blatstein IV, were rather technical determinations found, by the Ct.App., to involve the transfer of funds to defraud, principally, the Internal Revenue Service (“the IRS”). The IRS, though not known to be shy in enforcing its rights, has never joined the Trustees in their seemingly endless pursuit of the Blatsteins. As we noted in Main X, 242 B.R. at 592, the penalties imposed upon the Blatsteins to date are sufficiently substantial that they have begun to exceed those justified by the wrongdoings at issue. As we noted at page 304 swpra, excesses by the Trustees appear to be the recent rule of the day. Further equitable relief to the Trustee is not justified in these circumstances.
Therefore, the sole appropriate remedy for the Trustee is a judgment in the amount of the fraudulent transfers at issue against the only party found to have participated a fraud in the transfers in issue, as prescribed by 12 Pa.C.S. § 5107(a)(1) of PUFTA, ie., Blatstein. We will consequently award a judgment in the amount of $1,533,428.65 in favor of the Trustee against Blatstein only.
D. CONCLUSION
An order which is consistent with the conclusions which we have reached in this Opinion follows.
. For the sake of uniformity, we have retained all of the designations of the various prior Opinions which appear in Main X even though many of the prior decisions are not themselves referenced herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492993/ | REASONS FOR ORDER
JERRY A. BROWN, Bankruptcy Judge.
This matter came on for hearing on October 20, 1999 on the motion of Southern Style Success, Inc. (“Southern Style”) for allowance of payment of administrative expenses.1 The trustee, W. Terrence Brown (“trustee”) and HCR Medical Receivable Funding Corporation-1 (“HCR”) opposed the motion. The court took the matter under advisement, and the parties have filed supplemental memoranda. For the reasons stated below, the motion is denied.
I. Background
On February 23, 1998, the debtors filed voluntary petitions for relief under Chapter 11. The six different eases were consolidated for joint administration because all were home health care agencies with identical management and ownership, and with many of the same creditors. John M. Herring signed each of the petitions on behalf of the debtors.
The same day the voluntary petitions were filed, the debtors filed an emergency joint motion for authority to enter into an amended and restated healthcare receivables purchase agreement with HCR, and requested an expedited hearing on the motion.2 At the emergency hearing held on February 26, the court signed an interim order authorizing the debtors to enter into the agreement with HCR, and set a final hearing for March 16, 1998.3 The court approved the motion for authority at the final hearing, and the order was entered on March 17, 1998.4
The order approving the agreement with HCR made it clear that HCR would purchase the receivables only upon the conditions contained in the order and the agreement. The debtors acknowledged that *357they could not otherwise obtain sufficient credit necessary to conduct their business. The order includes language giving HCR a superpriority lien, and ordered that any indebtedness arising after the petition date “shall have priority in payment over any other obligations now in existence or incurred hereafter by the Debtors, and over all administrative expenses or charges against property of the kind specified in Bankruptcy Code §§ 503(b), 506(c), 507(a), and 507(b), .. .”.5
The parent company for each of the debtors is Home Care Center, Inc., which was owned in part by Mr. Herring. During the summer of 1998, Home Care Center, Inc. was sold to Professional Management Providers, Inc., a wholly owned subsidiary of ComTech Consolidation Group, Inc. Mr. Herring, who is also the president of Southern Style, testified that as part of the sale, the debtors entered into leases with Southern Style for five properties that were owned by Southern Style. The leases, dated October 1, 1998, were between Success Southern Style as lessor, and “Golden Age Home Care Center” as lessee.6 Mr. Herring testified that the debtors occupied the buildings owned by Southern Style for six months, from October 1998 to April 1999, and that the total amount owed on the leases is $158,354. Southern Style seeks an order from the court awarding it administrative expenses in that amount, and ordering the debtors to pay the funds forthwith.
II. Analysis
HCR and the trustee assert several arguments as to why Southern Style is not entitled to an award of administrative expenses. The court need only address the first argument.
HCR contends that the agreement it entered into with the debtors and the court order awarding a superpriority lien in HCR’s favor prevent Southern Style from recovering on its claim. The trustee contends that there were considerable administrative claims in this case, but that any available funds must go to HCR, leaving no money left over for Southern Style.
The issue is whether the order giving HCR a superpriority status is valid against Southern Style.
Southern Style argues that it did not receive notice of the order, and that the failure to receive notice is a violation of due process.
The court disagrees. Apparently Southern Style did not receive a copy of the motion at the time it was filed on February 23, 1998, and was not noticed with a copy of the order giving HCR a superpriority lien. Southern Style was clearly aware of the motion, however, because Mr. Herring, president of Southern Style was also the vice president of the debtors. In his position as vice president of the debtors, he had signed the bankruptcy petitions on behalf of the debtors. The debtors’ emergency joint motion for authority to enter into the agreement with HCR was filed contemporaneously with the debtors’ petitions. The court is convinced that Mr. Herring was aware of the motion, the order, and the relief sought. This knowledge is imputable to Southern Style, a corporation of which Mr. Herring was the president.7
Furthermore, even if Southern Style did not have notice of the order, it is still bound by the order. At least one court has upheld a super-priority claim against parties that did not receive notice.8 *358The order approving the agreement between HCR and the debtors was docketed in the debtors’ bankruptcy case on March 17, 1998. The order is a matter of record, and is available for review by the public. The rents that Southern Style seeks payment of were incurred from October 1988 to April 1999. If Southern Style had reviewed the record, they would have found the order docketed on March 17, 1998. The court finds that subsequent creditors who seek an administrative claim in a Chapter 11 bankruptcy should review the bankruptcy record, and are on constructive notice of orders that are in the record. A review of the record in this case would have revealed the superpriority status granted to HCR from the beginning of the case.
Because Southern Style is bound by the order giving HCR superpriority status, the court need not consider the remaining arguments made by HCR and the trustee.
. PI. 252.
. PI. 8.
. PL 17 and 18.
. PI. 26.
. Pl. 26 at 4.
. Ex. M-l through M-5. There is no legal entity named "Golden Age Home Care Center”.
. In re Anderson, 196 B.R. 839 (Bankr.W.D.Mo.1996)(‘ll is a well established princi-pie that ‘The knowledge of a director, officer, sole shareholder or controlling person of a corporation is imputable to that corporation.' ”)
.In re Mutschler, 45 B.R. 494 (Bankr.D.N.D.1984). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492995/ | DECISION AND ORDER DENYING DEFENDANTS’ MOTION TO DISMISS
WILLIAM A. CLARK, Bankruptcy Judge.
The court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 157 and 1334, and the standing General Order of Reference entered in this District. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This matter is before the court on the Debtors-Defendants’ Motion to Dismiss [Adv. Doc. # 6-1] and the Plaintiffs’ Memorandum in Opposition to Defendants’ Motion to Dismiss [Adv. Doc. # 7-1].
PROCEDURAL AND FACTUAL BACKGROUND
On August 16, 1999, Debtors Angela R. and James L. Colston (“Debtors”) filed a voluntary bankruptcy petition under Chapter 7 of the Bankruptcy Code. The court-ordered deadline for a creditor to file an adversary complaint to determine the dischargeability of a debt owed by the Debtors was set for December 6, 1999. Creditors John K. Stipancich and Amy L. Stipancich (“Creditors”) filed their adversary complaint on the last day, December 6, 1999. However, the Creditors did not pay the required $150.00 fee to file the adversary complaint until December 7, 19991, a day after the court-ordered deadline. On January 5, 2000, the Debtors filed a motion to dismiss the Creditors’ *771complaint based on the Creditors’ untimely payment of the filing fee.
CONCLUSIONS OF LAW
The Debtors request dismissal of the Creditors’ complaint under Federal Rule of Civil Procedure 12 incorporated into bankruptcy adversary proceedings by Bankruptcy Rule of Civil Procedure 7012. The Debtors assert that dismissal of the complaint is warranted because the Creditors failed to pay the required filing fee before the court-ordered deadline for filing an adversary complaint. The court disagrees with the Debtors’ argument.
The term “filed” for the purpose of filing complaints “means that the pleadings ‘are placed in the possession of the Clerk of the Court.’ ” Maroski v. Futrell (In re Futrell), 69 B.R. 378, 381 (Bankr.W.D.La.1987) (quoting Wright and Miller, §§ 1052 and 1153). A complaint, timely filed with the clerk’s office, is not rendered untimely by the late payment of the filing fee after the deadline. Colorado National Bank-Aurora v. Caballer (In re Caballer), 120 B.R. 575, 576 (Bankr.D.Colo.1990) (holding that the “critical act was the filing of the complaint, not the payment of the fee”); Church Charity Foundation of Long Island v. Spearman (In re Spearman), 68 B.R. 25, 26-27. (Bankr.E.D.N.Y.1987); Security Pacific Financial Corp. v. Bade (In re Bade), 87 B.R. 78, 79 (Bankr.D.Neb.1988); Kirkley v. Emory (In re Emory), 219 B.R. 703, 709 (Bankr.D.S.C.1998).
In this case, the Creditors completed the critical act of “filing” their complaint with the clerk’s office by the deadline of December 6, 1999. The court holds that the timely filed complaint is not rendered untimely by the Creditors’ late payment of the filing fee. The Debtors’ motion to dismiss is DENIED.
It is so ordered.
. Although a delay in docketing led the Debtors to believe that the filing fee was paid by the Creditors on December 14, 1999, the original receipt filed in the bankruptcy case file *771indicates that the filing fee was actually paid on December 7, 1999. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492996/ | MEMORANDUM ON PEARSON LEASING & FINANCIAL CORPORATION’S MOTION FOR SUMMARY JUDGMENT
RICHARD S. STAIR, Jr., Chief Judge.
This adversary proceeding was commenced by the Plaintiff Chapter 7 Trustee’s filing of a Complaint on July 19, 1999, seeking to avoid and recover pursuant to 11 U.S.C.A. §§ 547(b) and 550(a) (West 1993) alleged preferential transfers made to or for the benefit of the Defendants.1 Before the court is a Motion for Summary Judgment filed by the Defendant Pearson Leasing & Financial Corporation (Pearson Leasing) on September 2, 1999. Pearson Leasing grounds its request for summary judgment on its contention that the Trustee will not be entitled to recover any avoided transfer from it because it was a mere conduit and not an initial transferee of the alleged preferential transfers. The record before the court consists of the Affidavit of Tim Pearson, President of Pearson Leasing, filed by Pearson Leasing with its Motion for Summary Judgment on *773September 2, 1999, and copies of four equipment leases and assignments attached to the Response and Memorandum in Opposition to Summary Judgment filed by the Plaintiff on December 1, 1999.2
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(F) (West 1993).
I
Pursuant to Fed.R.CivP. 56(c), summary judgment is appropriate when “ ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.’ ” Canderm Pharmacal, Ltd. v. Elder Pharm., Inc., 862 F.2d 597, 601 (6th Cir.1988) (quoting Fed.R.Civ.P. 56(c)). The moving party may discharge its burden by demonstrating that the non-moving party has failed to establish an essential element of that party’s case for which he or she bears the ultimate burden of proof at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). The moving party need not support its motion with affidavits or other materials negating the opponent’s claim. See id. at 2553. Although the moving party has the initial burden, that burden may be discharged by a “showing” to the trial court that there is an absence of evidence in support of the non-moving party’s case. See id. at 2554 (emphasis in original).
After the moving party has carried its initial burden of showing that there are no genuine issues of material fact in dispute, the burden shifts to the non-moving party to present specific facts demonstrating that there is a genuine issue for trial. SeeMatsuskita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986). In order to defeat the motion for summary judgment, the non-moving party must present probative evidence that supports its complaint. See Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2510-11, 91 L.Ed.2d 202 (1986). The non-moving party’s evidence is to be believed, and all justifiable inferences are to be drawn in that party’s favor. See id. at 2513. The court determines whether the evidence requires submission to a jury or whether one party must prevail as a matter of law because the issue is so one-sided. See id. at 2512.
II
Resolution of Pearson Leasing’s Motion for Summary Judgment is not dependent on the court’s prior resolution of the Plaintiffs preference action under § 547(b). Rather, the issue is whether the Plaintiff, assuming her success in avoiding the disputed transfers, could, as a matter of law, recover the avoided transfers from Pearson Leasing as “the initial transferee of such transferís] or the entity for whose benefit such transferís] [were] made.” 11 U.S.C.A § 550(a)(1).
III
The Debtor leased various items of equipment from Pearson Leasing under the terms of three Master Lease Agree*774ments dated December 4, 1995, March 4, 1996, and January 7, 1997. Each Master Lease Agreement provided for a thirty-six month lease term, required the Debtor to make monthly rental payments of $707.50, $1,954.25, and $10,108.19, respectively, and contained a provision that
This Lease, title to the Equipment and/or any rents or other sums due or to become due hereunder may be transferred or assigned by [Pearson Leasing] without prior notice to or the consent of [the Debtor] and in such event [Pearson Leasing’s] transferee or assignee shall have all the rights, privileges and remedies of [Pearson Leasing] under this Lease.
On or about the same day each Master Lease Agreement was executed, Pearson Leasing also executed a written Assignment of Lease by which it sold and assigned its interest under the respective Master Lease Agreements as follows: The December 4, 1995 Master Lease Agreement was assigned to Valley Bank;3 the March 4, 1996 Master Lease Agreement was assigned to BankFirst; and the January 7, 1997 Master Lease Agreement was assigned to First National Bank and Trust Company. Each Assignment of Lease is identical and recites in material part that the assignor, Pearson Leasing, assigns to the respective assignee, “its entire right, title and interest in and to that certain [Master] Lease Agreement ... entered into by and between [Pearson Leasing] and [the Debtor] ... together with [Pearson Leasing’s] right to receive all rent and other monies thereunder.... ”
Subsequent to the execution of each Assignment of Lease, Pearson Leasing served as the collection and processing agent for the holders of the Master Lease Agreements, Valley Bank, BankFirst, and First National Bank and Trust Company. Tim Pearson states in his Affidavit that under Pearson Leasing’s agreements with these Defendants, Pearson Leasing was responsible for collecting the monthly rental payments from the Debtor, for forwarding these payments to the respective Defendants, and for paying applicable taxes to the Tennessee Department of Revenue and that Pearson Leasing did not have the right to put the Debtor’s monthly rental payment funds to its own use.
On March 20, 1997, and on May 13, 1997, the Debtor, by check, made payments of $10,108.19 each to Pearson Leasing in satisfaction of two monthly rental payments under the January 7, 1997 Master Lease Agreement assigned to First National Bank and Trust Company. On March 20, 1997, and May 13, 1997, the day it received each payment from the Debtor, Pearson Leasing, by its check, remitted the entire amount of each rental payment to First National Bank and Trust Company.
On April 9, 1997, the Debtor, by check, made a payment of $3,646.86 to Pearson Leasing in satisfaction of monthly rental payments of $707.57 due under the December 4, 1995 Master Lease Agreement assigned to Valley Bank, $1,954.25 due under the March 4, 1996 Master Lease Agreement assigned to BankFirst, $909.96 due under the June 25, 1992 Master Lease Agreement assigned to Union Planters Bank,4 and a $75.08 tax obligation owing the Tennessee Department of Revenue. On April 9, 1997, the day it received the $3,646.86 payment from the Debtor, Pearson Leasing, by its checks, made payments of $707.57 to Valley Bank, $1,954.25 to BankFirst, $909.96 to Union Planters Bank, and $75.08 to the Tennessee Department of Revenue.
The Debtor commenced its bankruptcy case by the filing of a voluntary petition under Chapter 11 on May 23, 1997. The Chapter 11 case was converted to Chapter *7757 on July 22, 1998, upon motion of the Debtor.
IV
The Plaintiff contends that she is entitled to avoid the March 20, 1997, and May 18, 1997 payments of $10,108.19 and the April 9, 1997 payment of $3,646.86 as preferential transfers and that she is entitled to recover the avoided transfers from Pearson Leasing pursuant to 11 U.S.C.A. § 550(a)(1). Pearson Leasing argues that it had no dominion or control over the lease payments transferred to it; that it was not the initial transferee of such transfers; and that it is therefore entitled to a summary judgment dismissing the Plaintiffs action.
V
Pursuant to 11 U.S.C.A. § 550(a)(1), a transfer of property that has been avoided by the trustee under 11 U.S.C.A. § 547(b) as a preference may be recovered from “the initial transferee of such transfer or the entity for whose benefit such transfer was made.” The Sixth Circuit has held that “[a]n initial transferee is one who receives money from a person or entity later in bankruptcy, and has dominion over the funds.” First Nat’l Bank of Barnesville v. Rafoth (In re Baker & Getty Fin. Servs., Inc.), 974 F.2d 712, 722 (6th Cir.1992). The Second, Fourth, Fifth, Seventh, Ninth, Tenth, and Eleventh Circuit Courts of Appeal have also established a “dominion” or “control” test in determining whether a party is an “initial transferee” under § 550(a)(1). See Christy v. Alexander & Alexander of New York, Inc. (In re Finley, Rumble, Wagner, Heine, Underberg, Manley, Myerson & Casey), 130 F.3d 52 (2d Cir.1997); Malloy v. Citizens Bank of Sapulpa (In re First Sec. Mortg. Co.), 33 F.3d 42 (10th Cir.1994); Security First Nat’l Bank v. Brunson (In re Coutee), 984 F.2d 138 (5th Cir.1993); Danning v. Miller (In re Bullion Reserve of N. Am.), 922 F.2d 544 (9th Cir.1991); Lowry v. Security Pac. Bus. Credit, Inc. (In re Columbia Data Prods., Inc.), 892 F.2d 26 (4th Cir.1989); Nordberg v. Societe Generate (In re Chase & Sanborn Corp.), 848 F.2d 1196 (11th Cir.1988); Bonded Fin. Servs., Inc. v. European Am. Bank, 838 F.2d 890 (7th Cir.1988).
A defendant does not become a mere conduit by assigning to another its right to payment from the debtor. See Columbia Data Prods., Inc., 892 F.2d at 28-9; Erie Marine Enters., Inc. v. Nationsbank, N.A. (In re Erie Marine Enters., Inc.), 216 B.R. 529, 536 (Bankr.W.D.Pa.1998). In Erie Marine Enterprises, Inc., the court determined that an assignor was an initial transferee. See Erie Marine Enters., Inc., 216 B.R. at 536. The assign- or had received its payment from the debt- or and then paid the funds to the assignee. See id. Rejecting the assignor’s argument that it had become a mere conduit, the court explained that the funds were not earmarked for the assignee and that the business relationship ran between the debtor and the assignor rather than between the debtor and the assignee. See id. The court stated:
When [the assignor] received the funds, it had complete dominion and control over the monies and the Debtor retained no interest or control. [The assignor] was free to elect how to use the funds. [It] elected to honor its agreement with the [assignee].
Id.
Here, the court cannot find that Pearson Leasing was a mere conduit because it was the party who had a direct business relationship with the Debtor. Although each Master Lease Agreement provides for its potential assignment by Pearson Leasing, nothing in the record presently before the court evidences that the Debtor participated in, or was even aware of, the assignments to Valley Bank, First National Bank and Trust Company, and BankFirst. The Debtor’s monthly rental obligation under each Master Lease Agreement was to Pearson Leasing. *776“When a creditor receives money from its debtor to pay a debt, the creditor is not a mere conduit.” Columbia Data Prods., Inc., 892 F.2d at 28.
Pearson Leasing contends that it did not exercise dominion and control over the disputed payments and thus cannot be an initial transferee. The court disagrees. As between the Debtor and Pearson Leasing, Pearson Leasing exercised complete dominion and control over the monthly rental payments received pursuant to the three Master Lease Agreements and could do as it pleased with the proceeds from these payments. The fact that Pearson Leasing by each Assignment of Lease assigned its right to receive the rent to Valley Bank, First National Bank and Trust Company, and BankFirst, is of no consequence. Pearson Leasing’s obligations to these Defendants arose under agreements independent of the three Master Lease Agreements executed with the Debtor. Nothing in the record evidences that the Debtor had been instructed to make the monthly rental payments to the Defendant assignees of Pearson Leasing’s interest in the Master Lease Agreements nor did the Debtor earmark the lease payments for the respective assignees. Once the payments were made to Pearson Leasing, the Debtor had fulfilled its obligations under each Master Lease Agreement.
Alternatively, Pearson Leasing contends that the Plaintiffs Complaint should be dismissed as it participated in all disputed transactions in good faith and without knowledge of the Debtor’s impending bankruptcy. This argument is merely an extension of the “mere conduit” argument previously advanced by Pearson Leasing which the court has determined has no application.
For the reasons stated herein, Pearson Leasing’s Motion for Summary Judgment will be denied.
. Union Planters Bank was dismissed as a party Defendant at the Plaintiff's request pursuant to the Pretrial Order entered on December 14, 1999.
. The leases and assignments, three of which are material to the pending summary judgment motion, are not properly authenticated. Pursuant to Fed.R.Civ.P. 56(c), incorporated into this adversary proceeding by Fed. R.Bankr.P. 7056, documents such as these, if they are not part of the "pleadings, depositions, answers to interrogatories, and admissions on file,” can enter the record only as attachments to an appropriate affidavit to constitute a basis for summary judgment. See Fed.R.Civ.P. 56(e) (“Sworn or certified copies of all papers or parts thereof referred to in an affidavit shall be attached thereto or served therewith.”). However, because Pearson Leasing has not objected to the Plaintiffs failure to comply with Rule 56(e), the court will consider the leases and assignments. See Investors Credit Corp. v. Batie (In re Batie), 995 F.2d 85, 89 (6th Cir.1993) (Debtor who failed to object to the manner in which financial statements were entered into the record in support of adverse party’s motion for summary judgment waived his objection that the documents were not hied in compliance with Rule 56(e)).
. First American National Bank is the successor in interest to Valley Bank. The Plaintiff has not, however, substituted First American National Bank as the proper party Defendant.
. See supra note 1, at 772. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492997/ | ORDER
JAMES G. MIXON, Bankruptcy Judge.
The issue before the Court is whether to authorize payment of attorneys fees from property of the estate to attorneys who did not receive prior court approval before filing a cause of action belonging to the estate..
Rick Welch (Welch) and Arkansas General Agency, Inc. (AGA) are debtors in separate, pending chapter 7 cases. Welch owns the stock in AGA. The cases were originally filed under the provisions of chapter 11 on February 21, 1996, but were converted to chapter 7 by order filed April 23,1996.
Frederick S. Wetzel, III and John T. Lee are the duly appointed and acting trustees in the AGA and Welch cases, respectively. Wetzel was appointed May 9, 1996, and Lee was appointed April 18, 1996.
The facts are not in dispute. Welch, individually and as a representative of AGA, believed a cause of action arising pre-petition existed in favor of both debtors against Midland Risk Insurance Company (Midland). However, neither cause of action was originally scheduled as an asset on the schedules of either AGA or Welch. On September 28,1998, the schedules were amended to reflect the cause of action valued at $5,396,000.0o.1
In early 1999, Welch hired James O. Cox and Ronald W. Metcalf, attorneys, to represent Welch, individually, and AGA in a suit against Midland. Metcalf had rep*804resented Welch and AGA several years ago. Neither Cox nor Metcalf was bankruptcy counsel in the chapter 11 cases.
In February 1999, Cox and Metcalf filed a civil action in Federal District Court for the Western District of Arkansas against Midland seeking substantial money damages. Neither of the trustees had authorized the filing of this civil action nor had Cox and Metcalf been authorized by this Court to represent the estate.
On March 3, 1999, the debtor Welch, individually and on behalf of AGA, filed motions to compel the trustees to abandon the cause of action against Midland, and a hearing on the motion was held in Ft. Smith, Arkansas on March 23, 1999. At the conclusion of the hearing, the Court ordered the trustees to either hire Metcalf and Cox as special counsel, hire other counsel to represent the estate and pursue the claim against Midland, reach a compromise with Midland, or abandon the cause of action. The Order provided further that if the trustees failed to take any action within 60 days the cause of action would be abandoned.
Thereafter, the trustees reached a compromise settlement with Midland for $20,-000.00 in each case. The settlement was approved over the objection of the debtor in each case, represented by Cox and Met-calf.
On August 2,1999, Cox and Metcalf filed an application for attorney’s fees based on a contingent fee agreement with Welch regarding the Midland cause of action. Metcalf and Cox argue that because their actions benefitted the estate to the extent that each estate received a $20,000.00 settlement, they are entitled to a fee even though they have never been employed by the estate by order of this Court as required- by bankruptcy law. Wetzel, the trustee in AGA, Colonia Insurance Company, and the United States Trustee objected to the fee request.
DISCUSSION
An attorney is not entitled to compensation from the estate in a case under chapter 7 unless prior thereto the court enters an order approving the employment of the attorney. 11 U.S.C. § 327(a) (1994); Fed. R. Bankr.P.2014(a); 3 Collier on Bankruptcy ¶ 327.03 (Lawrence P. King et al. eds., 15th ed. rev.1999).
The fact that the services rendered may have benefitted the estate is not grounds to ignore the requirements of the Bankruptcy Code. Presumably, most cases in which fees are denied because the attorney’s employment was never authorized involve benefits that ultimately accrue to the estate through the attorney’s efforts. See, e.g., In re Grabill Corp., 983 F.2d 773, 776 (7th Cir.1993) (finding that law firm that was denied approval to represent chapter 11 debtor would also be denied legal fees accruing from working with debtor’s subsequent attorney to the benefit of the estate); Canatella v. Towers (In re Alcala), 918 F.2d 99, 102-103 (9th Cir.1990) (holding that attorney who, without prior court approval, pursued debtor’s prepetition cause of action that was property of estate was not entitled to fee when cause was settled in favor of the estate); In re Westside Creek Ltd. Partnership, 93 B.R. 177, 179 (Bankr.E.D.Ark.1988)(ruling that even though law firm performed services between the filing of the chapter 11 debtor’s petition and order approving firm’s representation some three months later, firm would not be compensated for work during that period).
Numerous cases support the conclusion that legal work performed without the required court approval will usually not be compensated. See, e.g., Snyder v. Dewoskin (In re Mahendra), 131 F.3d 750, 756 (8th Cir.1997) (attorney for chapter 7 debt- or was not due fees from estate for post-petition services when attorney did not seek permission to be employed by estate), cert. denied, 523 U.S. 1107, 118 S.Ct. 1678, 140 L.Ed.2d 815 (1998); In re Grabill Corp., 983 F.2d 773, 777 (7th Cir.1993) *805(attorneys found ineligible to serve were not entitled to compensation for work performed for debtor); Canatella v. Towers (In re Alcala), 918 F.2d 99, 104 (9th Cir.1990) (attorney who pursued debtor’s pre-petition cause of action without being retained by trustee was not entitled to fee from the estate when cause was later settled); Lavender v. Wood Law Firm, 785 F.2d 247, 248 (8th Cir.1986) (debtor-in-possession’s attorney must give notice to creditors and receive court approval before being compensated); In re Lagasse, 228 B.R. 223, 224 (Bankr.E.D.Ark.1998) (if a professional is paid from estate funds, pri- or approval is required); In re Westside Creek Ltd. Partnership, 93 B.R. 177, 179 (Bankr.E.D.Ark.1988) (debtor-in-possession’s attorneys were denied fees accruing before the order approving the firm’s employment); In re Jackson, 60 B.R. 593, 600-601 (Bankr.W.D.Ark.1986) (attorney for chapter 11 debtor may only be paid from property of the estate after proper application, notice, and hearing).
When Cox and Metcalf filed the civil action without authority from the Court, their intent was not to benefit the estate, but to benefit the debtor individually. These attorneys, particularly Cox who is an experienced bankruptcy attorney, were aware of the Code requirements and the proper procedure available to them. Although the Court will credit Cox and Metcalfs testimony that they acted in good faith, initiating litigation in the debtors’ names under the circumstances in this ease can only be construed as an officious act. Counsel are not entitled to compensation from the estate because they are not authorized to represent the estate.
IT IS SO ORDERED.
. The two attorneys requesting legal fees from the estate assert that the cause of action arose post-petition. However, this assertion is inconsistent with the September 28, 1998 filing of the amended schedule listing the cause as an asset of the estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492998/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
THOMAS E. BAYNES, Jr., Bankruptcy Judge.
THIS CAUSE came on for final eviden-tiary hearing on the Motion to Determine Applicability of Discharge Injunction, Supplemental Injunction and Third-Party Injunction, and, in the Alternative, Application for Leave to File Late Filed Administrative Claim filed by Frederick & Wanda Horrocks (collectively “Claimants”) in the above captioned case. The Court, having considered arguments by counsel, the entire record of this case, testimony of live witnesses, and all other relevant evidence, enters the following findings of fact and conclusions of law. See F.R. Civ. P. 52; Fed. R. Bankr.P. 7052.
HISTORY OF THIS REORGANIZATION CASE
The Celotex Corporation and Carey Canada, Inc. (collectively “Debtor”) filed voluntary petitions for relief under 11 U.S.C. §§ 1101, et seq. on October 12, 1990. The Debtor’s Chapter 11 Plan of Reorganization was confirmed by this Court on December 6, 1996. See In re Celotex Corp., et al., 204 B.R. 586 (Bankr.M.D.Fla.1996). The Confirmation Order and the accompanying findings of fact and conclusions of law, with one unrelated change, were affirmed, adopted, and issued by the United States District Court. (In re Celotex Corp., et al, No. 96-2220-CIV-21, slip op. at 8-9 (M.D.Fla. March 4, 1997); Debtor’s Ex. 17; see 11 U.S.C. § 524(g)).
Following confirmation, this Court entered an Order Establishing Bar Date for Filing Administrative Claims and Approving Form of Confirmation Notice on *176March 7, 1997. That Order set a bar date for administrative expense claims.1 The Order requires claimants to file their request for administrative expenses “no later than 4:30 p.m. on July 15, 1997, or be forever barred from asserting or receiving payment for such Administrative Claim.” (Debtor’s Ex. 19).
In the same March 7, 1997 Order, this Court approved the procedures and the actual form of the Notice of Entry of Order Confirming the Plan of Reorganization for the Celotex Corporation and Carey Canada, Inc. (See id. and attach.; Debtor’s Ex. 16). The notice procedures for all bar dates were extensive; a product of negotiations among the Debtor, the three official committees,2 the Legal Representative for Unknown Asbestos Bodily Injury Claimants, and other interested parties. Designed to reach all creditors, whether known or unknown, notice was given through direct communication as well as publication notice.3
On April 20, 1998, the Claimants filed the Motion at issue in this opinion. The Motion seeks a determination that their administrative expense claim may be filed after the bar date. In support of the Motion, Claimants argue their failure to file the claim in a timely manner is the result of excusable neglect. Alternatively, the Claimants seek a declaration that their claim is not barred by the various injunctions arising from the Confirmation Order.
ORIGIN OF THE CLAIM
Fred Horrocks resides in Marquette, Michigan, and works as an over the road semi truck driver for a living.4 On October 1, 1996, he went to a plant owned by the Debtor in Lagro, Indiana to pick up a load of mineral wool for shipment to another plant in L’anse, Michigan.5 While at the plant in Lagro, Mr. Horrocks fell from the top of his loaded truck while attempting to cover the mineral wool load with a tarp for the trip.6 An ambulance was called. Mr. Horrocks was taken to a local hospital for treatment and was released a couple of hours later.7 A Celotex employee picked Mr. Horrocks up at the hospital and brought him back to the plant.8 Upon arriving back at the plant, Mr. Horrocks left with his load and drove to the L’anse plant to deliver the mineral wool.9
On April 1, 1997, the Claimants contacted attorney John R. Johnston at his office in Wabash, Indiana.10 The attorney assisted the Claimants in determining whether they had a case against the Debtor for personal injury and began gathering evidence to support the claim.11 In early February 1998, the Claimants met with Mr. Johnston again, and he sent a demand letter to the Debtor on February 3, 1998.12 Later that same month, the Debtor sent a *177reply informing Mr. Johnston of the bankruptcy case and directing him to contact Debtor’s counsel.13 The record is clear this was the first time the Claimants or their counsel heard of the existence of Debtor’s bankruptcy case.14
THE EXCUSABLE NEGLECT ISSUE
When a party in litigation fails to act in a timely manner, the Court has some discretion over whether to permit the act in spite of the delay.15 The Claimants ask this Court to find that their failure to file a timely claim was the result of excusable neglect, and to allow their claim as if it were timely filed. See Fed. R. Bankr.P. 9006(b)(2). The Supreme Court articulated the standard for determining excusable neglect under Rule 9006(b)(2) in Pioneer Investment Services, Co. v. Brunswick Associates Ltd. Partnership, 507 U.S. 380, 395, 113 S.Ct. 1489, 123 L.Ed.2d 74 (1993).
In Pioneer, a proof of claim was filed twenty days after the bar date in a Chapter 11 case. Id. at 384, 113 S.Ct. 1489. The delay was attributable to the claimant’s bankruptcy counsel, who inadvertently overlooked the bar date order. Id. In holding the facts justified a finding of excusable neglect, the Supreme Court examined the following factors before allowing the late filed claim: “the danger of prejudice to the debtor, the length of the delay and its potential impact on judicial proceedings, the reason for the delay, including whether it was within the reasonable control of the movant, and whether the movant acted in good faith.” Id. at 395,113 S.Ct. 1489.
The Pioneer Court determined the combination of the claimants’ good faith and the lack of prejudice to the debtor and the lack of impact on the judicial proceeding formed a basis for allowing the claim. Id. However, the Supreme Court stated, “[t]o be sure, were there any evidence of prejudice to petitioner or to judicial administration in this case, or any indication at all of bad faith, we could not say the Bankruptcy Court abused its discretion in declining to find the neglect to be ‘excusable.’ ” Id. The Court now examines the facts of the instant case using the Pioneer standard.
ANALYSIS
On the subject of the reason for delay, the Claimants assert they were gathering information for their personal injury claim. They did not want to send a demand letter to the Debtor until all of the evidence was together. Given these circumstances, the Court finds the reason for the delay was at all times in the reasonable control of the Claimants.16
While the delay was in Claimants’ control, there is nothing in the record to suggest the motive for the delay in filing was in bad faith. There is no evidence Claimants held back their claim for some strategic purpose, or to intentionally ignore the Court’s deadline. See Pioneer, 507 U.S. at 387-88, 113 S.Ct. 1489.17 The *178Court finds the acts of the Claimants and their counsel were in good faith.
The Court now turns to the danger of prejudice to the Debtor. The instant case is not the average bankruptcy reorganization case. To date, there are well over 600,000 claims filed in this case, totaling over $500,000,000,000.00.18 In a case of this size it is fair to say that one additional claim appears to be a proverbial ‘drop’ in a veritable sea of claims.
The bulk of the claims involved are for asbestos related personal injury claims. Under the reorganization plan, the Asbestos Settlement Trust (“Trust”) took over the assets of the bankruptcy estate, liquidating and paying all the asbestos claimants from the profits of the continuing business. See Celotex, 204 B.R. at 602-04, 619-20. Additionally, under the Agreement Regarding Disputed Claims, the Trust is obligated to indemnify any costs incurred by the Debtor in litigating disputed nonasbestos claims such as the one at issue in this case.19
Under the terms of Confirmation, administrative claims of the type in question in the instant case receive almost dollar for dollar on the amount of a claim.20 For this reason, the bar dates are an integral part of this reorganization. The bar dates allowed a moment in time where the numerous factions in this case came together and agreed to the treatment of their claims. Each time this Court allows a late filed administrative claim, it potentially affects those who hold timely filed claims by further reducing the funds available to pay timely filed claims, thus changing postcon-firmation claims treatment.21 The Court finds this fact prejudices the Debtor’s ability to effectively carry out its plan of reorganization as it was confirmed.
The Claimants delayed eighteen months from the date of the incident before filing their claim against the Debtor. In that time, this case confirmed a reorganization plan that provides for the particular treatment of certain classes of claims. As noted above, allowing late filed claims, particularly administrative claims, affects that treatment.
The Claimants assert there is no harm in allowing their single claim. However, as of the date of this hearing there are approximately eighty other similarly situ*179ated claimants in this case.22 Of those eighty, twenty, or one fourth, are currently in litigation with the estate in an attempt to have their claims allowed.23 These circumstances raise a very real concern about setting precedents with respect to granting exceptions to the bar dates.
As noted before, the mere filing of a single claim in this case would hardly be noticed. However, if the Court permits exceptions to the bar dates in this case based on this reasoning, the estate could potentially face additional claims; claims involving lawsuits that must be defended at the expense of the Trust. The Court finds the potential for additional litigation presents an impediment to the effective judicial administration of this case. Specifically, allowing late filed claims potentially impairs the process of adjudicating other claims, incurs additional costs, and prevents closure of litigation.
In review, the Court finds the delay was in the control of the Claimants at all times, and that the Claimants delayed a minimum of nine months and a maximum of eighteen from the date of the injury until the proof of claim was filed. The Court finds the noticing procedures are legally sufficient, and rejects the argument that the delay was only from the time the Debtor replied to the demand letter. Despite the delay, the Court finds the Claimants have at all times acted in good faith. Nevertheless, the danger of prejudice to the Debtor and the effect of the delay on the judicial administration of this case leads this Court to conclude that the neglect involved here is not excusable.
The Eleventh Circuit Court of Appeals recently reviewed a prior application of the Pioneer factors by this Court. See Sunset Vine Tower v. Celotex Corp., No. 99-10828, slip op. at 11-13, 196 F.3d 1262 (11th Cir. Sept. 24, 1999). In affirming this Court’s denial of motions similar to the Claimants’ motion,24 the Sunset/Bokay Court states “[t]he bankruptcy court ... correctly placed primary importance on ‘prejudice to the nonmoving party’ and ‘the interest of efficient judicial administration’....” Id. at 12 (quoting Advanced Estimating Sys. v. Riney, 77 F.3d 1322, 1325 (11th Cir.1996)). As in Sunset/Bokay, this Court again places the emphasis on the prejudice to the Debtor and to the efficient judicial administration of this case, and denies the Claimants’ Motion. Further, the Court finds no reason in the record to grant Claimants’ alternative request for relief as to do so would have the same effect as allowing the late filed claim.
Accordingly, it is
ORDERED, ADJUDGED, AND DECREED that the Motion to Determine Applicability of Discharge Injunction, Supplemental Injunction and Third-Party Injunction, and, in the Alternative, Application for Leave to File Late Filed Administrative Claim filed by Frederick & Wanda Horrocks be, and the same is hereby, denied.
. See Fed. R. Bankr.P. 3003(c).
. The three official committees are: Asbestos Health Claimants Committee; Trade Creditors Committee; Asbestos Property Damage Claimants Committee.
. The Debtors used the services of Rust Consulting, Inc. and Public Communications, Inc. to accomplish the extensive noticing requirements. (Debtor’s Ex. 19).
. (Tr. at 53)(Test. of Frederick T. Horrocks).
. Id. at 54.
. Id. at 61.
. Id. at 63.
. Id.; (Dep. Tr. at 8)(Test of David Larrowe)(Jan. 25, 1999).
. (Tr. at 64)(Test. of F. Horrocks). The Court notes there is a fair amount of testimony in the record regarding Mr. Horrocks alleged personal injury. There are the expected conflicts in the evidence concerning specific events. The Court finds it unnecessary to determine the specific facts of the evening’s events, or to decide the issues of causation and liability, in order to rule on the issue at hand.
. (Tr. at 89-90)(Test. of John R. Johnston).
. Id. at 94-95.
. Id. at 95; (Debtor's Ex. 21).
. (Tr. at 107)(Test. of Johnston); (Debtor’s Ex. 22).
. Id.; (Tr. at 67-68)(Test. of F. Horrocks); (Tr. at 83)(Test. of W. Horrocks).
. This Court may, "on motion made after the expiration of the specified time period[,] permit the act [filing of the claim] to be done where the failure to act [file] was the result of excusable neglect.” Fed. R. Bankr.P. 9006(b)(2).
. The Court notes there is evidence in the record that Mr. Horrocks delayed five months before contacting Mr. Johnston, and that the last official diagnosis supporting the claim came in May 1997, at least two months before the bar date, and approximately eight months before they notified the Debtor of their claim.
.The Court is satisfied Claimants in this case had no actual knowledge the Debtor was in bankruptcy until they received a letter in response to their demand. However, at the close of Claimants' case, this Court granted a motion by the Debtor pursuant to Fed. R.Civ.P. 52(c) on the issue of sufficiency of the notice given to alert the public to the administrative bar date. For the reasons stated in open court, this Court finds the noticing procedures undertaken in this case were sufficient as a matter of law.
*178The Court further finds the Claimants were not entitled to individual notice in this case. Fifteen months passed between Mr. Horrock's accident at the Celotex plant in Lagro, Indiana and the sending of the demand letter to Celotex. The evidence offered to support the Claimants' assertion that Debtor should have known of the potential of their lawsuit and, thus, given them individual notice of the existence of the bankruptcy case, is not sufficiently persuasive to warrant an exception to the noticing procedures utilized in this case.
.The Court notes this total involves both Debtors, Celotex Corporation and Carey-Canada, Inc., and that some of the claims are filed by' single claimants separately against each entity. However, the Court also notes a single claim for asbestos property damage may be a municipal claim involving large sums of money. See, e.g., Claim No. 6994 filed by The City of New York for $559,110,-620.00; Claim No. 7659 filed by Los Angeles Unified School District for $38,421,206.07; Claim No. 6922 filed by the School District of Philadelphia for $5,169,393.00.
. (See Debtor’s Ex. 13).
. (Tr. at 171)(Tesl. of George M. Wood). General nonasbestos claims receive a 90% distribution. Id.; Celotex, 204 B.R. at 600. In contrast, asbestos personal injury claims receive a proposed 12% distribution. Celotex, 204 B.R. at 600. The amount of the personal injury distribution is subject to the continued financial success of the Trust, and may go below the proposed 12%.
. The Claimants assert there is $15,000,-000.00 set aside by the Debtor for the purpose of paying administrative expenses. The Court finds this characterization of these funds is inaccurate. (Tr. at 174-5)(Test. of Wood). The funds in question were given to the Debt- or by the Trust for ease of administration during the initial set up of the Trust, and approximately $14,500,000.00 of this amount has already been disbursed to pay attorneys’ fees and costs. Id.
. Id. at 177-8.
. Id.
. The Court notes one distinction between the Sunset/Bokay claimants and the Claimants in the instant case. Counsel for the Sunset/Bokay claimants were aware of both the Debtor's bankruptcy and the bar date, but chose not to file a claim because they did not have sufficient evidence to do so prior to the bar dale. Id. at 4-5. While it may be tempting to see this distinction as a difference, this Court finds this fact does not change the analysis. The parties in each case acted in good faith; this fact is not disputed. However, to make the Claimants’ lack of knowledge significant, notice must be insufficient. As this Court ruled the notice of the bar date is sufficient as a matter of law, this distinction is insignificant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8492999/ | DECISION DENYING APPLICATION BY DEBTOR FOR AN ORDER DEEMING MOTIONS ABANDONED
DOROTHY EISENBERG, Bankruptcy Judge.
This matter is before the Court pursuant to an application by Howard I. Wein-stein (the “Debtor”) for an order declaring motions made by James W. Keen and United Sheet Metal (the “Creditors”) (1) to extend the Creditors’ time to file a complaint objecting to dischargeability, and (2) to vacate the automatic stay abandoned for failure to comply with Local Rule 9072-1 of the Bankruptcy Court for the Eastern District of New York. Based on the facts of this case as set forth herein and pursuant to Local Rule 100-1 (c), which specifically authorizes the Court to modify or suspend any of the Local Rules “in the interest of justice or for cause,” the Court denies the application.
FACTS
On October 27, 1998, the Debtor filed a voluntary petition for relief under Chapter 7 of the United States Bankruptcy Code. The Creditors are listed as Creditors on Schedule “F” of the Debtor’s petition. The Creditors’ claim arose in connection with an arbitration action which was commenced prior to the commencement of this Chapter 7 case and was pending before the National Association of Securities Deals (“NASD”) in Fort Lauderdale, Florida (the “Arbitration Action”). The Creditors retained counsel located in Florida to represent them in the Debtor’s case, and subsequently retained local counsel to represent them as well. Local New York counsel is not familiar with this Court’s practice.
By application dated January 6, 1999, the Creditors sought the entry of an order pursuant to Section 362 of the Bankruptcy *190Code granting the Creditors relief from the automatic stay (the “Lift Stay Motion”) to enable the Creditors to continue with the prosecution of the Arbitration Action. On January 22, 1999, the Creditors timely served and filed a motion pursuant to Bankruptcy Rule 4004 for an Order extending the Creditors’ time to object to the discharge of the Debtor until the completion of the Arbitration Action. On March 5, 1999, the Creditors served an amended motion (the “Amended Dischargeability Motion”) which did not change the facts alleged, but clarified their requested relief to indicate that the Creditors were not seeking to extend their time to object to the discharge of the Debtor, but were seeking to extend their time to object to the dischargeability of the debt which might arise in connection with the Arbitration Action. The Debtor opposed the Amended Dischargeability Motion and a hearing was held on March 30, 1999. At ■ the March 30, 1999 hearing, the Court reserved decision on the Amended Dis-chargeability Motion and directed the parties to file supplemental pleadings.
On June 16, 1999, this Court entered a decision (the “June Decision”) which granted the relief requested by the Creditors in the Amended Dischargeability Motion. In addition, this Court granted the Creditors’ Lift Stay Motion to enable the Creditors to continue with the Arbitration Action. At the end of the June Decision, the Court directed the Creditors to settle an order consistent with the June Decision. No order was settled pursuant to the Order of the Court and no order has been entered thereon. According to an affirmation filed by counsel to the Creditors dated January 24, 2000, counsel to the Creditors did not timely submit an order to the Court as it was counsel’s understanding that the Court would undertake to prepare a separate order. Counsel to the Creditors avers that it is customary in his practice in Florida for the Court to enter a separate order upon a memorandum decision or for the Court to direct a party to submit an order. Counsel did not understand the language in the June Decision to constitute a directive by the Court to settle an order.
On or about October 23, 1999, the Court Clerk contacted local counsel to the Creditors and advised the Creditors to settle an order in accordance with the June Decision. On October 25, 1999, a proposed order was settled on the Debtor’s counsel who did not submit a counter order or separate order. On October 30, 1999, counsel to the Creditors filed the proposed order with the Court and on November 10, 1999, the order was signed by the Court (the “November Order”).
On November 18, 1999, the Debtor filed a motion under Bankruptcy Rule 9023 to amend the November Order for the purpose of seeking a full hearing on the issue of the relief from the automatic stay (the “Motion to Amend”). Although the Debt- or did acknowledge in his papers in support of the Motion to Amend that the Order was not submitted in a timely fashion in compliance with Local Rule 9072-1, he did not seek dismissal of the Amended Dischargeability Motion under this Rule. In fact, his papers are completely devoid of any argument regarding such request.
At the hearing on January 20, 2000, the Debtor orally raised to this Court for the first time the argument that the failure of the Creditors to submit a timely order memorializing the June Decision should result in the dismissal of the Amended Dischargeability Motion. The Court reserved on this issue and directed that additional papers be filed by both parties.
DISCUSSION
At the outset, the Court notes that the issue of whether the failure of the Creditors to submit a timely order mandates dismissal of the Amended Dischargeability Motion was not addressed in Debtor’s Motion to Amend the Court’s November, 1999 Order. In fact, counsel to the Debtor unfairly castigated local counsel to the Creditors for failing to address this issue, *191despite the fact that it was raised for the first time at the hearing.
Local Bankruptcy Rules for the Eastern District of New York 9072-1 provides:
If, following a trial, hearing or decision in an adversary proceeding or a contested matter, the Judge directs a party to settle an order, judgment or decree, the parties shall, within fifteen (15) days of the judge’s direction, file a proposed order, judgment or decree with the clerk upon not less than five (5) days’ notice to all parties to the adversary proceeding or contested matter ... if the Order is not timely submitted or settled, the matter shall be deemed abandoned.
Local Bankruptcy Rule 9072-1.
Rule 1001 — (c) provides that:
In the interest of justice or for cause, a judge may modify or suspend requirements set forth in these rules.
Local Bankruptcy Rule 1001 — 1(c).
The scope of Local Rule 1001-l(c) is all encompassing and covers every provision contained in the Local Rules. Therefore, under the Local Rules themselves, the Court is permitted to suspend the fifteen (15) day requirement set forth in Local Rule 9072-1. The Court finds that in the interest of justice, such suspension is warranted.
In this case, counsel for the Creditors does not practice regularly before this Court and in fact practices in Florida. Counsel for the Creditors claims that he did not interpret the language at the end of the June Decision as a directive that he settle an appropriate order, and that he expected the Court to prepare the order. Given that counsel is not familiar with this Court’s practice or with the bankruptcy practice of the Eastern District of New York in general, the Court finds that cause exists for suspension of the deadlines set forth in Local Rule 9072-1. In addition, as a matter of course, this Court’s Chambers mails notices to parties who fail to settle or submit orders within thirty days after the hearing date to notify them that their matter will be dismissed unless they file an appropriate order within twenty days of the notice date. Therefore, this Court regularly affords parties an extension of time to comply with the rules in the event they are not familiar with Local Rule 9072-1. This is done to prevent motions with merit from being unintentionally abandoned. In cases where the Court renders a written decision, the Court does not automatically send out notices of dismissal to the party in question upon their failure to comply with Local Rule 9072-1. Given the fact that the Court believes there was no intent to abandon the creditors’ motion and that there would be serious adverse effect upon the creditors’ rights in this case without any prejudice to the Debtor for failing to settle the Order sooner, the Court finds that the failure of the Creditors to timely settle their order was excusable and Local Rule 9072-1 should be suspended.
In addition to having the express authority under Rule 1001 — 1(c) to suspend Local Rule 9072-1 in this case, the Court notes that the Court of Appeals for the Second Circuit recognizes that it is within the discretion of the Bankruptcy Court to depart from the strict letter of a local rule. Somlyo v. J. Lu-Rob Enters., 932 F.2d 1043 (2nd Cir.1991). Therefore, this Court has the authority to suspend Local Rule 9072-1 in this case in its discretion even if Local Rule 1001 — 1(c) did not apply.
The Bankruptcy Courts have inherent power to decide when a departure from its Local Rules should be excused or overlooked, and their inherent discretion to depart from the letter of the Local Rules extends to every Local Rule regardless of whether a particular Local Rule specifically grants the judge the power to deviate from the Rule.
Spielfogel v. Bambu Sales, Inc. (In re Spielfogel), 237 B.R. 555, 561 (E.D.N.Y.1999) (citations omitted).
The Court finds that the exercise of its discretion to suspend the application of *192Local Rule 9072-1 is appropriate given the particular facts of this case. In addition, if this Court were to enforce Local Rule 9072 in this case, the Creditors would have no recourse against a Debtor who may have defrauded them of hundreds of thousands of dollars. Such a result would work an injustice on the Creditors, and would not be appropriate or equitable. The Court also notes that upon receiving a telephone call from a Court Clerk, counsel to the Creditors quickly filed the November Order with the Court.
CONCLUSION
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(g).
2. The Creditors’ failure to comply with the letter of Local Rule 9072 is hereby suspended pursuant to Local Rule 1001-l(c) in the interest of justice and for cause.
3. A hearing on the remainder of the Debtor’s Motion to Amend the November Order will be held on March 16, 2000 at 10:00 a.m.
4. Simultaneously herewith the Court will enter an Order suspending Local Rule 9072 and finding that the Creditors’ contested motion has not been abandoned. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493001/ | *332ORDER
PAUL J. KILBURG, Chief Judge.
This matter came on for hearing on December 10, 1999. Attorney Eric Lam appeared for the Trustee, Renee Hanra-han. Attorney Anthony Epping appeared for the Defendant, Arcadia Financial Ltd. (“Arcadia”). The Court heard oral argument and took the matter under advisement. The time for briefs has now passed and this matter is ready for resolution. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).
*333STATEMENT OF THE CASE
Arcadia claims it properly perfected its interest in a 1998 Dodge Stratus (the “Car”) by delivering an application for notation of its interest on the Car’s certificate of title to the Linn County Treasurer. The Trustee claims Arcadia’s interest was not perfected until it was noted on the Car’s title. Arcadia and Trustee have both moved for summary judgment on the matter.
FINDINGS OF FACT
On March 2, 1999, Debtor Gary Scott granted Arcadia a security interest in the Car. Debtor took possession of the Car on March 2, 1999. Arcadia delivered an application for notation of its interest on the Car’s certificate of title to the Linn County Treasurer on March 19, 1999. The Treasurer noted Araeadia’s interest on the title of the Car on March 25, 1999.
Debtor filed for relief under Chapter 7 of the Code on May 24, 1999. Trustee filed a motion to avoid Arcadia’s interest in the Car. Both parties moved for summary judgment.
CONCLUSIONS OF LAW
The party seeking to avoid a transfer as a preference bears the burden of establishing the prima facie elements of a preference under § 547(b). 11 U.S.C. § 547(g); In re Bullion Reserve, 836 F.2d 1214, 1215-16 (9th Cir.), cert. denied, 486 U.S. 1056, 108 S.Ct. 2824, 100 L.Ed.2d 925 (1988). Once the elements of § 547(b) are established, the transferee must establish the necessary elements of any defense by a preponderance of the evidence. 11 U.S.C. § 547(g); In re Gateway Pacific Corp., 153 F.3d 915, 917 (8th Cir.1998).
Standard for Summary Judgment
Summary judgment is appropriate when there is no “genuine issue as to any material fact” between the parties. Bankr.R.P. 7056; Fed.R.Civ.P. 56; Barker v. Sac Osage Elec. Co-op., Inc., 857 F.2d 486, 487-88 (8th Cir.1988). In this case, there is no genuine issue of material fact and judgment is appropriate as a matter of law.
Avoidance of Arcadia’s Interest
A debtor’s prepetition transfer is avoidable as a preference if it results in the creditor receiving more than it would in. a liquidation, and is made: 1) to or for the benefit of a creditor; 2) for or on account of antecedent debt; 3) while the debtor was insolvent; and 4) to a noninsider on or within ninety days of the filing of the debtor’s bankruptcy petition. 11 U.S.C. § 547(b); In re Wade, 219 B.R. 815, 818-19 (8th Cir. BAP 1998). The secured party may prevent avoidance if it establishes that the interest secures new value given to enable the debtor to acquire the property subject to the security interest. 11 U.S.C. § 547(c)(3)(A). This defense only applies if the creditor perfects its interest within twenty days from the date the debtor receives possession of the property. 11 U.S.C. § 547(c)(3)(B).
The parties agree that the prima facie elements of a preference are satisfied in this case. Arcadia asserts, however, that it is entitled to the “enabling loan” defense of § 547(c)(3). The parties dispute whether Arcadia perfected its interest in the Car within the required twenty days, but agree that the other elements of the “enabling loan” defense are established.
Because the chronology of events is crucial in this case, a brief description follows. Debtor granted Arcadia a security interest in the Car on March 2, 1999. Debtor also took possession of the Car on March 2, 1999. On March 19, 1999, Arcadia delivered the apphcation for notation of its interest on the Car’s title to the Linn County Treasurer. On March 22, 1999, the twenty-day grace period provided in § 547(c)(3) expired. On March 25, 1999, the Treasurer noted Arcadia’s interest on the Car’s title. As a result, if delivery of the apphcation for notation on the Car’s certificate of title perfected Arcadia’s interest, it is entitled to § 547(c)(3) protection. If Arcadia’s interest was perfected *334only when the interest was noted on the Car’s title, Arcadia is not entitled to § 547(c)(3) protection.
For purposes of § 547, an interest is perfected when the secured party, has completed all the steps necessary under state law to prevent a judgment creditor from obtaining a superior interest. 11 U.S.C. § 547(e)(1)(B); Fidelity Financial Services, Inc. v. Fink, 522 U.S. 211, 212-13, 118 S.Ct. 651, 139 L.Ed.2d 571 (1998). Although federal law determines the time within which a creditor must perfect its interest, state law determines the steps necessary to complete that perfection. Fink, 522 U.S. at 213 n. 1, 118 S.Ct. 651. The Court must determine whether Arcadia took the necessary steps, under Iowa law, to perfect its interest within 20 days from the date Debtor took possession of the Car.
Section 321.50(1) of the Iowa Code provides that “[a] security interest in a vehicle ... is perfected by the delivery to the county treasurer ... of an application for certifícate of title which lists the security interest....” The statute does not mention notation in paragraph one, dealing with the secured party’s rights in the vehicle Indeed, the statute only mentions “notation” in paragraphs describing the county treasurer’s duty to note the interest on the vehicle’s title. See Iowa Code §§ 321.50(2) and (3).
Admittedly, some courts which have interpreted similar language have concluded that the language of the statute establishes that the respective legislatures intended an interest to be perfected upon delivery of the application. See In re Locklin, 151 B.R. 384, 387 (Bankr.N.D.Miss.1992); In re Farnham, 57 B.R. 241, 244-48 (Bankr.D.Vt.1986). The court in Locklin interpreted a certifícate of title statute that provided: “A secured interest is perfected by the delivery to the department of the existing certifícate of title, if any, an application for a certificate of title containing the name and address of the lien holder ... and the required fee.” Locklin, 151 B.R. at 387.
However, this court is not allowed to interpret this statute on a clean slate. It is bound by the interpretation placed upon it by the Iowa Supreme Court. If this Court is able to glean the result which the Iowa Court would render, it must apply that result. Inconsistent interpretations made by other courts are not dispositive. In interpreting Section 321.50, the Iowa Supreme Court has stated that “[a] written application for certificate of title or for notation of the security interest is required to establish a security interest in a motor vehicle. The security interest is then perfected by notation upon the certificate of title.” Blessing v. Norwest Bank Marion, 429 N.W.2d 142, 144 (Iowa 1988) (emphasis added); see also Security Savings Bank of Marshalltown v. United States, 440 F.Supp. 444, 446 (S.D.Iowa 1977) (tax lien prevails over security interest in vehicle that was proceeds, but was not noted on the title within ten days); Schultz v. Security National Bank, 583 N.W.2d 886, 889 (Iowa 1998) (stating that, except in a contest between the buyer and the seller, “unless an interest is noted on the certificate of title, it cannot be valid.”).
While it is arguable that certain of these findings were dicta in the sense that they were not necessary to the Court’s ultimate conclusion, they nevertheless directly address the issue and resolve it in an unambiguous manner. It is significant that the conclusion reached in Blessing by the Iowa Supreme Court has recently been reaffirmed in Schultz when it held that an interest in a vehicle is not valid until it is noted on the title. Schultz, 583 N.W.2d at 889.
These unambiguous and consistent rulings lead this Court to conclude that the Iowa Supreme Court would not find Arcadia’s lien enforceable against a judgment creditor until it is noted on the Car’s title. Pursuant to the foregoing, this Court finds that Arcadia’s interest was perfected on March 25, 1999. Debtor took possession *335of the Car on March 2, 1999. The interest was perfected more than twenty days after debtor took possession of the Car. Therefore, Arcadia is not entitled to the “enabling loan” defense of § 547(c)(3).
WHEREFORE, for the reasons set forth herein, Trustee’s Motion for Summary Judgment is GRANTED.
FURTHER, Arcadia Financial’s Motion for Summary Judgment is DENIED.
FURTHER, Arcadia Financial’s lien in the Car is avoided and preserved for the benefit of Debtor’s bankruptcy estate. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493002/ | ORDER
JAMES J. BARTA, Chief Judge.
The hearing on the Trustee’s objection to the Debtor’s claim of a homestead exemption was called on June 10, 1999. The Trustee appeared in person and presented oral argument and other evidence on the record. The Debtor appeared in person and by Counsel and presented testimony, oral argument and other evidence on the record. On consideration of the record as a whole, the Court announced certain determinations and orders from the bench.
The Debtor commenced this case by filing a petition for relief under Chapter 13 on August 18, 1994. On the Schedule C in the Chapter 13 case, the Debtor claimed a homestead exemption under Section 513.475 Revised Statutes of Missouri, 1994 (“RSMO”) in certain real estate titled to. the Debtor and his non-debtor spouse. A second amended Chapter 13 repayment plan was confirmed by an Order dated January 17,1996.
On February 10,1999, the Debtor filed a motion to convert the Chapter 13 case to a case under Chapter 7. The pleading was not entered immediately however, because the Debtor failed to pay the fee required for conversion. After the fees were paid on March 9, 1999, the Court entered an Order dated March 15, 1999, that granted the Debtor’s motion to convert. In the Chapter 7 Schedule C, the Debtor claimed a homestead exemption in the same real property that was claimed as exempt in the Chapter 13 case.
The evidence has established that for approximately one year prior to the date of this hearing, the Debtor did not reside in the real property claimed as exempt; and that the Debtor did not reside in this real property at the time of the hearing in this matter. During the pendency of the *349Chapter 13 case, the Debtor and his non-debtor spouse experienced marital difficulties that resulted in a “Stipulation of Parties” order dated March 3, 1999. Debtor’s Exhibit No. 1. The Stipulation was signed by a Commissioner of the Family Court Division of the Circuit Court of St. Charles County, Missouri. In the Stipulation, the Debtor and his non-debtor spouse agreed that, “The home shall be listed for sale and sold at a price agreed to by the parties. Closing shall be not before the end of the current Chapter 13 plan. The Chapter 13 is expected to end in January 2000 and shall not be extended.” Debtor’s Exhibit No. 1, ¶ 8. By agreement, the Debtor’s spouse was entitled to occupy the home until ten days after the end of the semester; and the Debtor was entitled to occupy the home thereafter until it was sold. Although the Debtor testified that when he entered into the agreed Stipulation, he intended to complete his payments under the Chapter 13 plan, the record reflects that approximately three weeks prior to the date of the Stipulation, he had attempted to file the motion to convert the Chapter 13 case to a Chapter 7 case. The Debtor testified further that he intended to use the real property as his homestead until such time as repairs could be made and the property sold as agreed in the dissolution proceeding. According to the information presented at this hearing, it appears that there would be no equity in the value of the Debtor’s interest in this real property that would be available to the Debtor’s creditors in the Chapter 7 case if the homestead exemption is allowed.
The Debtor’s interest in the real property was property of the Chapter 13 estate when the original petition was filed on August 18, 1994. No objection was presented to the Debtor’s claim of a homestead exemption in the Chapter 13 case.
The Eighth Circuit has held that it is the date of conversion from a Chapter 13 case to a Chapter 7 case that determines what exemptions a debtor may be allowed in the converted Chapter 7 case. In re Lindberg, 735 F.2d 1087 (8th Cir.1984). The Lindberg opinion was entered prior to the 1994 amendments to Section 348. These amendments limited property of the converted Chapter 7 ease to that property of the estate as of the date of filing of the petition, that remains in the possession of or is under the control of the debtor on the date of conversion. 11 U.S.C. § 348(f)(1)(A). The amendments provided further that valuations of property and of allowed secured claims shall apply in the converted case. 11 U.S.C. § 348(f)(1)(B). The Lindberg decision was based in part on the possibility that a debtor in a case converted from Chapter 13 to Chapter 7 would be unable to claim an exemption in property acquired during the pendency of the Chapter 13 case if exemptions were determined as of the petition date. Section 348(1)(A) of the amended statute was intended to remove that possibility in cases filed after the effective date of the 1994 amendments. • At least two courts have decided that so much of the Eighth Circuit’s opinion that fixed the conversion date as the exemption date has been superseded by the 1994 amendments. See Matter of Baker, 154 F.3d 534 (5th Cir.1998); In re Ferretti, 230 B.R. 883 (Bankr.S.D.Fla.1999).
Although no Court sitting in an Eighth Circuit matter has yet published an opinion that determined that the Lindberg decision no longer controls the date of exemptions in a case converted from Chapter 13 to Chapter 7, it is virtually assured that such a conclusion will result. In the matter being considered here, however, that specific question is not ripe for determination because this case was filed on August 18, 1994, approximately six weeks before the effective date of the 1994 amendments. The decision in this case therefore, is controlled by the Lindberg opinion, and the Debtor’s exemptions are to be determined as of the date of conversion from Chapter 13 to Chapter 7.
*350In a Chapter 13 case, property of the Chapter 13 estate consists of the property specified in section 541 and all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or converted to a case under Chapter 7, 11, or 12 of Title 11; and earnings from services performed by the debtor after the commencement of the case but before the case is closed, dismissed, or converted to a case under Chapter 7, 11, or 12. 11 U.S.C. § 1306(a). Furthermore, except as may be provided in a confirmed plan or in an order confirming a plan, a Chapter 13 debtor shall remain in possession of all property of the estate. 11 U.S.C. § 1306(b). According to the law in the Eighth Circuit that was applicable here on the date of the commencement of this case, upon conversion of a Chapter 13 case to a case under Chapter 7, “.... the property of the estate consists of all property in which the debtor has an interest on the date of conversion.” Lind-berg, at 1090. In the matter being considered here, the property of the Chapter 7 estate included the Debtor’s interest in the real property as it existed on the date of conversion, at the value as it existed on the date of conversion, and subject the Debt- or’s claim of exemption to the extent of the Debtor’s standing and ability to claim an exemption as of the date of conversion.
An individual debtor may exempt from •property of the estate, certain property listed in the Federal or State exemption statutes. 11 U.S.C. § 522(b). A debtor in a Chapter 13 case may claim property as exempt from the bankruptcy estate if for no practical reason other than to assist in the determination of feasibility of the proposed plan. 11 U.S.C. §§ 103(a) and 1325. Similarly, a debtor in a Chapter 7 case may claim property as exempt from further administration in the bankruptcy estate.
In the circumstances presented here, as of the date of filing the original Chapter 13 petition, the Debtor held an interest in real property with his non-debtor spouse as tenants by the entirety. In the Chapter 13 Schedules filed as required by Rule 1007(b), the Debtor claimed a homestead exemption in his interest in the real property under section 513.475, Revised Statutes of Missouri. In part, Section 513.475 provides that a debtor may exempt from attachment and execution a dwelling house “which is or shall be used by such person as a homestead”. Section 513.475(1) (RSMO 1994). No objection was filed and, to the extent recognized in a Chapter 13 case, the exemption was allowed. 11 U.S.C. § 522(Z). The Debtor’s Schedule A in the Chapter 13 case indicated that the total fair market value of the real property was $89,000.00.
In response to the Court’s order of conversion dated March 15, 1999, the Debtor filed Chapter 7 Schedules and a Statement of Affairs on March 31, 1999. Rule 1019, Federal Rules of Bankruptcy Procedure (“FRBP”). On Schedule C in the Chapter 7 case, the Debtor claimed a homestead exemption in the same real property, listing the current market value without deducting exemptions as $108,-800.00. The Court finds and concludes however, that as of the date of conversion to Chapter 7, the Debtor was not entitled to claim the homestead exemption in this real estate because it was not used as his homestead and was not to be used as his homestead, but rather was to be repaired and sold as agreed to in the dissolution proceeding. The Debtor had not lived in the real estate for approximately one year prior to the date of conversion, and nothing in the record indicates that he intended to establish a homestead there. The Debt- or’s marriage was being dissolved, and the property was to be sold. Section 513.435.1 (RSMO). The Trustee has established that the Debtor is not entitled to the homestead exemption in the real property.
This same determination would be made even if this case were subject to the 1994 amendments to Section 348, because Congress recognized that under certain eir-*351cumstances, property of the converted Chapter 7 estate should include property acquired after the commencement of the Chapter 18 case.
If the debtor converts a case under chapter 18 of this title to a case under another chapter under this title in bad faith, the property in the converted case shall consist of the property of the estate as of the date of conversion.
11 U.S.C. § 348(f)(2).
On consideration of the entire record in this matter, the Court further finds and concludes that the conversion of this ease from Chapter 13 to Chapter 7 was in bad faith. A review of the record indicates that the Chapter 13 Petition was filed on August 18, 1994; the Debtor’s Second Amended Plan was confirmed on January 17, 1995; the Debtor experienced difficulty in making house payments outside the plan as exhibited in a motion for relief from the stay filed on October 26, 1996 (the motion was eventually withdrawn); a second motion for relief from the stay was filed on July 1, 1998, alleging a failure to make payments outside the plan; and that the Debtor entered into a stipulation for payment of the mortgage note on July 31, 1998.
On March 2, 1999, the Debtor was granted relief from the stay to continue the proceeding to dissolve his marriage. On March 3, 1999, the Bankruptcy Court entered a separate order that granted relief from the stay to the mortgagee because the Debtor had failed to make the mortgage payments as agreed in the earlier stipulation. Also on March 3, 1999, the Debtor executed the Stipulation in the state court, stating that the Chapter 13 Plan was expected to end in January, 2000. The Debtor executed this Stipulation with the knowledge that he had not made payments to the holder of the deed of trust on the real property, and with the knowledge that he had filed a motion to convert the Chapter 13 case to a Chapter 7 case on February 10, 1999, and that the Order of Conversion would have been entered but for the fact that the required filing fee had not been paid. Conversion of the case does not appear to have been a bankruptcy decision, but rather an act that was intended to affect the non-bankruptcy dissolution proceeding. In these circumstances, the conversion was in bad faith, and the Debt- or’s full interest in the real property as of the date of conversion would become property of the estate. For the reasons set out above, the Debtor would then not be entitled to claim a homestead exemption in the property.
IT IS ORDERED that this matter is concluded; and that the Chapter 7 Trustee’s objection to the Debtor’s claim of exemption in certain real property is sustained; and that the Debtor’s claim of a homestead exemption in said property is not allowed; and that the Trustee is to continue his administration of the real property described by the Parties in this matter; and that all other requests are denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493700/ | FEDERMAN, Bankruptcy Judge.
Appellant United Taconite, L.L.C. (United) filed a motion to enforce a sale order approving a sale of virtually all of the assets of debtor Eveleth Mines, L.L.C. (Eveleth). United appeals the order of the bankruptcy court denying it that relief. Appellee the Department of Revenue for the State of Minnesota (MDOR) cross-appeals on the issue of whether the bankruptcy court had jurisdiction to enter the order in response to United’s motion. We find that the Tax Injunction Act barred the bankruptcy court from exercising jurisdiction. We, therefore, remand with instructions that the bankruptcy court abstain.
FACTUAL BACKGROUND
On May 1, 2003, Eveleth, a mining company engaged in the production of taconite, filed a Chapter 11 bankruptcy petition.1 On May 16, 2003, all mining operations ceased. On October 29, 2003, the bankruptcy court established bid procedures for the sale of substantially all of Eveleth’s assets. On November 7, 2003, Eveleth and United filed the Asset Purchase Agreement (the Agreement) with the bankruptcy court. On November 26, 2003, after notice and a hearing, the court entered an order that, in part, approved the sale of all or substantially all of Evel-eth’s assets free and clear of interests (the Sale Order). More specifically, the Sale Order provided as follows:
The Buyer shall not assume, and shall be deemed not to have assumed, ... (viii) any taconite production tax attributable to taconite ore or iron sulfides mined by Debtor, to the mining of such taconite ore or iron sulfides by Debtor, or to the iron ore concentrate produced by Debtor that has been or may in the future be assessed by a Taxing authority for any period pursuant to Minn Stat. §§ 298.24-298.27.2
On December 3, 2003, Eveleth and United closed the sale. United agreed to pay cash in the amount of $3 million and to assume approximately $40 million in liabilities. United began production immediately upon closing the sale, and produced 78,162 tons of taconite prior to January 1, 2004.
*686On January 30, 2004, United completed its 2003 Minnesota Taconite Production Tax Forms and filed them with MDOR. On February 13, 2004, MDOR notified United that it must pay the sum of $335,921 for its portion of the 2003 Taconite Production Tax.
On February 17, 2004, United, by motion, asked the bankruptcy court to enter an order “specifically enjoining forever ... any action to collect from [United] any tax attributable to or calculated based, in whole or part, on [the] Debtor’s operations ....”3 On March 17, 2004, the court held a hearing at which MDOR raised the issue of subject matter jurisdiction. The court offered the parties an opportunity to brief that issue and took the matter under advisement. On July 30, 2004, the court found that it had jurisdiction to interpret the Sale Order, and that the Tax Injunction Act did not bar it from exercising that jurisdiction. Nevertheless, the court went on to hold that United is not entitled to an order directing the state courts as to how its tax liability should be determined. United appeals the portion of the decision denying its motion to enforce the Sale Order, and MDOR appeals the portion finding that the court had jurisdiction.
STANDARD OF REVIEW
The question of subject matter jurisdiction is subject to de novo review.4 When subject matter jurisdiction is at issue, we are required to reach the jurisdictional question before turning to the merits.5
DISCUSSION
We begin with a brief description of how MDOR assesses the Taconite Production Tax. Minnesota imposes a tax on “taconite ... and upon the mining and quarrying thereof, and upon the production of iron ore concentrate therefrom, and upon the concentrate so produced.”6 Each taconite producing facility is assessed this tax in lieu of property taxes.7 The total taconite tax for any given year is calculated by using a three-year' average of the total production at a facility.8 The averaging method is used to stabilize the tax receipts.
United objected to the averaging method. It claims it purchased the assets of Eveleth free and clear of any production tax calculated on Eveleth’s production. It claims that it began production on December 3, 2003, therefore, the average production for the years 2001 and 2002, for purposes of the three-year average, should be zero. Based on United’s argument, MDOR should have assessed it the sum of $54,792 as Taconite Production Tax for 2003, not $335,921. It arrived at this calculation by assuming its average production for 2003 was 26,054 tons (the 78,162 tons produced in 2003 by United after the closing plus zero tons for 2001 and 2002 equals average tonnage of 26,054). The per-ton tax is $2,103 resulting in a liability of $54,792. This same method of calculation, using zero production for 2002 and only United’s production for 2003 would have a significant impact on United’s tax bills for 2004 and 2005 as well. United argues that MDOR’s formula would exceed the proper tax owed under its interpreta*687tion of the Sale Order by more than $5.4 million over the relevant three-year period.
MDOR argued in a post-trial brief that the bankruptcy court did not have subject matter jurisdiction to enforce the Sale Order because this is a dispute between two non-debtor parties that has no impact on the bankruptcy estate. Alternatively, MDOR claims that, even if the bankruptcy court retained jurisdiction to interpret its own order, the Tax Injunction Act barred it from exercising that jurisdiction.
We begin with the jurisdictional issues. Bankruptcy courts’ jurisdiction flows from 28 U.S.C. § 1334, which vests jurisdiction in the district courts, and 28 U.S.C. § 157(a), which authorizes district courts to refer bankruptcy cases to the bankruptcy court. Section 1334 reads in relevant part as follows:
(a) Except as provided in subsection (b) of this section, the district court shall have original and exclusive jurisdiction of all cases under title 11.
(b) Notwithstanding any Act of Congress that confers exclusive jurisdiction on a court or courts other than the district courts, the district courts shall have original, but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title ll.9
Section 28 U.S.C. § 157(a) reads as follows:
(a) Each district court may provide that any or all cases under title 11 and any or all proceedings arising under title 11 or arising in or related to a case under title 11 shall be referred to the bankruptcy judges for the district.
Both sides agree that the bankruptcy court had jurisdiction to enter the Sale Order. Since section 363 of the Bankruptcy Code (the Code) specifically authorizes the court to approve sales of a debtor’s property, such orders come within the court’s jurisdiction over “all civil proceedings arising under title 11 ....”10 The crux of United’s jurisdictional argument is that since the court had jurisdiction to enter the Sale Order, it must also have jurisdiction to interpret and enforce that order. There is ample precedent for this position, including our own.11 In NWL Holdings, Inc. v. Eden Center (In re Ames Department Stores, Inc.),12 the court had entered an order assigning debtor’s leasehold interest, and a dispute later arose between the debtor’s assignee and the landlord over interpretation of the terms of the lease. Although the debtor was not involved in the dispute, and not affected by the outcome, the bankruptcy court found it had jurisdiction, holding that a proceeding “arises in” a bankruptcy ease when it involves efforts to “implement, gain the fruits of, and to enforce an order of the bankruptcy court.”13 Since United’s motion to enforce the Sale Order arose in a proceeding under title 11, and since United seeks to gain the fruits of enforcement of that Order, we conclude that the bankruptcy court correctly determined that it had jurisdiction to consider the motion. There are, however, limits to the court’s power to exercise that jurisdiction.
*688The Tax Injunction Act provides that a district court, or a bankruptcy court by referral, “shall not enjoin, suspend or restrain the assessment, levy or collection of any tax under State law where a plain, speedy and efficient remedy may be had in the courts of such state.”14 The Tax Injunction Act does not mention jurisdiction, because it is a rule of abstention.15 As the court in Clark explains, when “courts have said that the Tax Injunction Act deprives a federal court of jurisdiction to hear state tax matters, they were using jurisdiction for shorthand for power or authority to grant relief.”16 The court goes on to distinguish the subtle difference between lack of jurisdiction to decide a matter, and lack of power to grant relief:
When a court lacks power to grant relief, the effect is the same as if the court lacked jurisdiction, and vice versa. But a court may possess jurisdiction while lacking the authority to use it. Jurisdiction is a prerequisite to, not the equivalent of, a court’s authority to grant relief.17
Thus, the issue is not whether the bankruptcy court has jurisdiction to enforce the Sale Order, but whether it should have abstained from exercising that jurisdiction because the Tax Injunction Act requires deference to state tax procedures.
United contends that the Tax Injunction Act is not applicable because numerous provisions of the Code authorize bankruptcy courts to routinely adjudicate the rights of state taxing authorities. For example, United points out that section 1146(c) of the Code specifically grants authority to bankruptcy courts to prevent the imposition of certain state mortgage registration taxes.18 In State of Florida, Department of Revenue v. T.H. Orlando Ltd, et al (In re T.H. Orlando, Ltd.),19 the debtor owned three hotels threatened by foreclosure when it filed for Chapter 11 relief. One lender agreed to satisfy the mortgage for a reduced amount provided Kissimmee Lodge, Ltd. (Kissimmee), a hotel adjacent to debtor’s hotels, would also refinance its mortgage with the same lender. Kissim-mee agreed, and under that arrangement the court confirmed debtor’s Plan of Reorganization.20 That plan, as authorized by section 1146 of the Code, provided that the recording of the refinancing documents would not be subject to Florida’s mortgage registration tax. After the plan was consummated the Florida Department of Revenue (FDOR) assessed a stamp tax and an intangible tax against Kissimmee in conjunction with the refinancing. Kissimmee paid the tax and then filed suit in state court seeking declaratory relief. FDOR removed the proceeding to the bankruptcy court. On appeal, the court held that “the adjudication of substantive entitlements created by bankruptcy law falls squarely within the core jurisdiction of the bankruptcy courts.”21 In confirming the plan *689the court had granted Kissimmee, the non-debtor, an exemption from state tax, which section 1146(c) specifically authorizes the bankruptcy court to grant. Thus, the bankruptcy court had the specific authority to enter its order, and the more general Tax Injunction Act did bar it from enforcing that order. No such specific authority exists here.
United next argues that section 505(a) of the Code grants the bankruptcy court jurisdiction to determine the amount of the tax MDOR can impose on a non-debtor. Section 505(a) does permit the bankruptcy court to determine the amount of tax assessed:
(a)(l)Except as provided in paragraph (2) of this subsection, the court may determine the amount or legality of any tax, any fine or penalty relating to a tax, or any addition to tax, whether or not previously assessed, whether or not paid, and whether or not contested before and adjudicated by a judicial or administrative tribunal of competent jurisdiction.22
That power, however, is limited to the tax liabilities of debtors.23 Thus, section 505(a) does not encompass the adjudication of United’s tax liability.24 Indeed, the court in In re Huckabee Auto Co., found that the adjudication of a third party’s tax liability falls outside a bankruptcy court’s jurisdiction, even if imposition of the tax liability would adversely affect the debtor’s reorganization,25 which is not the case here.
United cites several other Code sections as examples of provisions that enable bankruptcy courts to interfere in the state tax process. These include the imposition of an automatic stay on taxing authorities,26 the granting of a higher priority to certain creditors than is accorded to tax claims,27 the determination that tax claims are dischargeable,28 and the issuance of injunctions to prevent state courts from collecting discharged tax debts.29 As with 1146(c) and 505(a), however, none of these provisions is applicable here.
The blending of the Tax Injunction Act and the Code was considered by the Ninth Circuit in Goldberg v. Ellett (In re Ellett).30 There, a Chapter 13 debtor sought a declaratory judgment that his prepetition state tax debt had been discharged in his bankruptcy case, as well as an injunction prohibiting the state from collecting such tax. In holding that the bankruptcy court had jurisdiction to enter the injunction against the state, the Circuit *690Court held that “the general dictates of the [Tax Injunction] Act do not defeat the specific powers Congress has bestowed on the federal courts under the Bankruptcy Code.”31 United argues that section 363(f) of the Code, which authorizes the court to approve sales of a debtor’s assets, can be used to defeat the provisions of the Tax Injunction Act. We disagree, since nothing in that section provides for a specific grant of jurisdiction to determine the tax liability of a nondebtor.32
United’s motion is captioned as a motion to enforce the bankruptcy court’s Sale Order. Nonetheless, in order to accord United the relief it sought, the bankruptcy court would have been forced to order MDOR to restrain the manner in which it assessed and collected United’s Taconite Production Tax. Thus, the substance of the relief sought triggers the Tax Injunction Act. The Tax Injunction Act is “a vehicle to limit drastically federal district court jurisdiction to interfere with so important a [state] concern as the collection of taxes.”33 Once the Tax Injunction Act is triggered, the federal court may only exercise its jurisdiction if it finds that a plain, speedy and efficient remedy cannot be had in the state court. Here, the bankruptcy court so found, so we now turn to the basis for that determination.
As the bankruptcy court recognized, application of the Tax Injunction Act turns on the procedural safeguards provided by the state courts.34 A state court remedy is plain, speedy, and efficient, within the meaning of the statute, if it provides a taxpayer with a full hearing and a judicial determination at which it may raise any and all constitutional objections to the tax.35 The phrase “plain, speedy, and efficient” must be narrowly construed.36 The burden rests on the taxpayer, here United, to show facts sufficient to overcome the restraint of the Tax Injunction Act.37 A state law remedy is plain, speedy, and efficient if it provides for an appeal from the determinations of the state agency by any dissatisfied party.38 The bankruptcy court held that Minnesota’s system for reviewing tax assessments is not plain, speedy, and efficient, concluding that there is uncertainty as to whether the Minnesota courts would appropriately consider the impact of the Sale Order on the determination of United’s tax liability. In so holding, the court also noted that the matter was already before it, and so it could rule more quickly than the state court. But, the state remedy need only be “ ‘plain, speedy and efficient,’ ” it need not be plainer, speedier and more efficient than an alternative forum.”39 And judicial economy does not itself justify federal ju*691risdiction.40 We, therefore, must consider whether the bankruptcy court correctly found that Minnesota could not provide United with a plain, speedy, and efficient tax assessment process that is capable of adequately considering the impact of the Sale Order.
Minnesota’s Tax Court has jurisdiction to hear “all questions of law and fact arising under the tax law of Minnesota.”41 If a constitutional issue is raised, the Tax Court must first transfer that issue to the state district court, which-may decide the issue or refer it back to the Tax Court for decision.42 This process is called the “Erie Transfer Procedure.” Pursuant to the Erie Transfer Procedure, the Tax Court transfers a case raising a constitutional issue to the state district court, a court of general jurisdiction.43 The district court may retain the case, or may return it to the Tax Court. After such a transfer, the Tax Court acquires the general jurisdiction of the district court to decide issues beyond its original jurisdiction.44 There is, therefore, a procedure in Minnesota to assure that both the Tax Court and the district court have jurisdiction to decide all issues raised.
Decisions of the Tax Court are accorded the same finality and deference as those of the state district courts.45 A taxpayer may obtain review of a decision of the Tax Court, as a matter of right, by the Minnesota Supreme Court, without first seeking review by the Minnesota Court of Appeals,46 And, ultimately, any federal question presented to the Minnesota Supreme Court is subject to review by the United States Supreme Court.47
United points out that the United States Supreme Court has held that “uncertainty surrounding a state-court remedy lifts the [Tax Injunction Act] bar to federal-court jurisdiction.”48 In Rosetvell, the court held that an Illinois remedy, which required owners contesting their property taxes to pay such taxes under protest and, if successful, to obtain a refund without interest in two years is, nevertheless, a plain, speedy, and efficient remedy. The taxpayer had contended that the state’s assessment procedure deprived her of equal protection and due process secured by the Fourteenth Amendment of the United States Constitution.49 In holding that the Illinois procedure was plain, speedy, and efficient, the Court noted that under the Illinois procedure, there was no question that the state court would hear and decide any federal claim.50 By contrast, in Hillsborough v. Cromwell,51 the *692Court had held that protection of federal rights was uncertain because the State Board of Tax Appeals had no right to pass on constitutional questions, the allowance of a writ of certiorari to the Board from the New Jersey Supreme Court was only discretionary, and the refusal of a writ was not judicially reviewable by the Court of Error and Appeals.52 United, however, bears the burden of proving that the Minnesota procedure is not plain, speedy, and efficient. United does not argue that it would be prohibited from asking the state court to consider the Sale Order in making its determination. Instead, United argues that it is “anything but certain whether Minnesota courts will give proper deference to the effect of the § 363 sale and the specific terms of the sale order at issue....”53 A taxpayer’s lack of confidence in the state court process is not, however, the standard to be applied. We find that the bankruptcy court incorrectly held that the Minnesota tax appeal procedures are not plain, speedy, and efficient. We conclude, therefore, that the Tax Injunction Act bars the bankruptcy court from granting the relief sought by United.
We remand with instructions for the bankruptcy court to enter an order abstaining in favor of the Minnesota courts.
. On May 15, 2003, Thunderbird Mining Company also filed for Chapter 11 relief. The cases are being jointly administered.
. Appellant’s Appendix, Ex. B, Sale Order at ¶ F(viii), pg. 9-10.
. Appellant's Appendix, pg. 1.
. Hoffman v. Bullmore (In re Nat’l Warranty Insurance Risk Retention Group), 384 F.3d 959, 962 (8th Cir.2004).
. In re Hechinger Investment Co. of Delaware, Inc., 335 F.3d 243, 249 (3rd Cir.2003).
. Minn.Stat. Ann. § 298.24 (2002).
. Id. at § 298.25.
. Id. at § 298.24(l)(d).
. 28 U.S.C. § 1334(a) and (b).
. 28 U.S.C. § 1334(b). See also 28 U.S.C. § 157(b)(2)(N).
. Koehler v. Grant (In re Grant), 213 B.R. 567, 569 (8th Cir. BAP 1997) (holding that a court retains jurisdiction, after the case is closed, to enter contempt sanction for violation of a previous order). See also, Williams v. Citifinancial Mortgage Co. (In re Williams), 256 B.R. 885, 892 (8th Cir. BAP 2001).
. 317 B.R. 260 (Bankr.S.D.N.Y.2004).
. Id. at 269.
. 28 U.S.C. § 1341.
. Bank of New England Old Colony, N.A. v. Clark, 796 F.Supp. 633, 637 (D.R.I.1992), affirmed, 986 F.2d 600 (1st Cir.1993).
. Id. at 637 (emphasis eliminated).
. Id.
. That section provides that "the issuance, transfer, or exchange of a security, or the making or delivery of an instrument of transfer under a plan confirmed under section 1129 of this title, may not be taxed under any law imposing a stamp tax or similar tax.” 11 U.S.C. § 1146(c).
. 391 F.3d 1287, 2004 WL 2711888 (11th Cir. Nov. 30, 2004).
. Id. at 1292, 2004 WL 2711888 at *2-3.
. Id. at 1292, 2004 WL 2711888 at *4-5.
. 11 U.S.C. § 505(a).
. United States v. Huckabee Auto Co. (In re Huckabee Auto Co.), 783 F.2d 1546, 1549 (11th Cir.1986) (holding that the “jurisdiction of the bankruptcy courts encompasses determinations of the tax liabilities of debtors who file petitions for relief under the bankruptcy laws. It does not, however, extend to the separate liabilities of taxpayers who are not debtors under the Bankruptcy Code”).
. Id. See also State of Florida, Department of Revenue v. T.H. Orlando Ltd., et al. (In re T.H. Orlando, Ltd.), 391 F.3d 1287, 1292, 2004 WL 2711888 *3 (11th Cir. Nov. 30, 2004) (where the court distinguished between the bankruptcy court's jurisdiction to decide whether a non-debtor is entitled to an exemption for a stamp tax or similar tax, which is specifically provided for by the Code, and the lack of jurisdiction to decide a non-debtor's liability for employment taxes, which is not specifically provided for by the Code).
. Huckabee Auto Co., 783 F.2d at 1549.
. 11 U.S.C. § 362(a)(6).
. 11 U.S.C. § 507(a).
. 11 U.S.C. § 523(a)(1).
. 11 U.S.C. § 524.
. 254 F.3d 1135 (9th Cir.2001).
. Id. at 1148.
. See 11 U.S.C. § 363(f).
. Rosewell v. LaSalle Nat'l Bank, 450 U.S. 503, 522, 101 S.Ct. 1221, 1234, 67 L.Ed.2d 464 (1981).
. California v. Grace Brethren Church, 457 U.S. 393, 411, 102 S.Ct. 2498, 2509, 73 L.Ed.2d 93 (1982).
. Hawaiian Telephone Co. v. State Dept. of Labor and Indus. Relations, 691 F.2d 905, 912 (9th Cir.1982).
. Amos v. Glynn County Board of Tax Assessors, 347 F.3d 1249, 1255 (11th Cir.2003) (citing California v. Grace Brethren Church, 457 U.S. at 413, 102 S.Ct. at 2510).
. Id.
. Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 514, 101 S.Ct. 1221, 1230, 67 L.Ed.2d 464 (1981).
. Ashton v. Cory, 780 F.2d 816, 821 (9th Cir.1986).
. Lawrence E. Miller v. Kendra (In re Lemco Gypsum, Inc.), 910 F.2d 784, 789 (11th Cir.1990).
. Minn.Stat. Ann. § 271.01, subd. 5 (2002).
. Wilson v. Comm'r of Revenue, 619 N.W.2d 194, 199 (Minn.2000); Erie Mining Co. v. Comm’r of Revenue, 343 N.W.2d 261, 264 (Minn.1984).
. Minn.Stat. Ann. § 484.01 (2002).
.. Wilson, 619 N.W.2d at 199; Erie, 343 N.W.2d at 264.
. McCannel, et al v. Hennepin County (In re McCannel), 301 N.W.2d 910, 919 (Minn.1980).
. Minn.Stat. Ann. § 271.10, subd. 1 (2002).
. 28 U.S.C. § 1257(a).
. Rosewell v. LaSalle Nat’l Bank, 450 U.S. 503, 517, 101 S.Ct. 1221, 1231, 67 L.Ed.2d 464 (1981) (quoting Hillsborough v. Cromwell, 326 U.S. 620, 625-626, 66 S.Ct. 445, 449, 90 L.Ed. 358 (1946)).
. 450 U.S. at 510, 101 S.Ct. at 1228.
. 450 U.S. at 517, 101 S.Ct. at 1231.
. 326 U.S. 620, 66 S.Ct. 445, 90 L.Ed. 358 (1946).
. 326 U.S. at 625-26, 66 S.Ct. at 449.
. Reply Brief of United at pg. 9. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493702/ | MEMORANDUM IN SUPPORT OF ORDER GRANTING IN PART AND DENYING IN PART TRUSTEE’S MOTION FOR SUMMARY JUDGMENT AND DENYING DEFENDANT FOOD MARKETING GROUP’S CROSS-MOTION FOR SUMMARY JUDGMENT
JAMES S. STARZYNSKI, Chief Judge.
These dueling motions for summary judgment raise, among other issues, the question of whether a chapter 11 debtor in possession’s postpetition overpayment for goods to a creditor vendor can be offset by the creditor’s administrative reclamation claim. The Court finds that, at least where as in this case it is likely that the estate is administratively insolvent, no offset may be allowed. The Court also denies the creditor’s recoupment defense against the Trustee’s prepetition preference claim and the Trustee’s postpetition claim for overpayment.
On February 8, 2001, Furr’s Supermarkets, Inc. (“Furrs”)1 filed a chapter 11 ease and operated as a debtor in possession until December 19, 2001, when it converted to a chapter 7 case and Ms. Gonzales was appointed as the case trustee (“Trustee”). The Trustee filed a First Amended Complaint (doc 18) pursuant to § 5422 which sought from Food Marketing Group (“FMG”) (1) the recovery of prepet-ition preferential transfers in the amount of $366,125.31 (increased to $370,967.17 in the motion for summary judgment) after deduction of subsequent new value, and (2) the recovery of $46,936.19 (reduced to $26,737.35 in the motion for summary judgment) in postpetition overpayments to FMG. FMG filed a Second Amended Answer (doc 28) which mostly denied the allegations of the complaint and raised, as to the preferential transfer claim, the affirmative defenses of contemporaneous exchange for new value, ordinary course of business, and subsequent new value (subsections 547(c)(1), (c)(2) and (c)(4) respectively), and also asserted an affirmative defense of recoupment as to the prepetition and postpetition transactions and set-off as to the postpetition transactions.
The Trustee has moved for summary judgment (doc 37 — corrected image doc 53) for the prepetition and postpetition sums, including asking for judgment on the affirmative defenses. FMG has cross moved for summary judgment on the affirmative defenses, doc 40, and filed a brief in support of its cross motion for summary judgment and opposing the Trustee’s motion for summary judgment. Doc 42. The Trustee has responded and replied (docs 45 and 46 respectively) and FMG has replied (doc 49).
Having considered the pleadings, motions, affidavits and other evidentiary materials submitted by the parties, the Court will grant the Trustee judgment in the amount of $370,967.17 for the prepetition transfer and will overrule the defenses raised by FMG to the prepetition liability except for the ordinary course of business defense. That one defense will be reserved for trial. The Court will also grant judgment to the Trustee for $26,737.35, *4representing the amount of postpetition overpayments to FMG by Furrs during the chapter 11 phase of the case (what the parties have termed the “Account Balance”), but will not allow FMG to net out the Account Balance against the larger sum of $76,307.15 (see Scott Affidavit, doc. 43, ¶ 33) that the estate owes to FMG on a § 546(c) reclamation claim. The issue of prejudgment interest, not addressed by the motions, will also be reserved for trial.
ANALYSIS
Summary Judgment Standards
The Bankruptcy Code provides for summary judgment through the Federal Rule of Bankruptcy Procedure 7056, which adopts the Federal Rule of Civil Procedure 56. Pursuant to Rule 56(c), the court should grant summary judgment when after consideration of the record it determines that “there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law.” Fed.R.Civ.P. 56(c). “By its very terms, this standard provides that the mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment; the requirement is that there be no genuine issue of material fact.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986) (emphasis deleted).
The party moving for summary judgment has the burden of establishing that summary judgment is appropriate. Wolf v. Prudential Ins. Co. of America, 50 F.3d 793, 793 (10th Cir.1995). However, once the moving party has supported its motion, then it is incumbent upon the adverse party to show that there are material facts in dispute. Fed.R.Civ.P. 56(e). The adverse party may not rely solely on its pleadings but must “set forth specific facts showing that there is a genuine issue for trial.” Id.
Trustee’s § 547(b) Prima Facie Case
The Trustee’s motion, including particularly the Kefauver affidavit, make clear that Furrs made payments to FMG in the amount of $370,967.17 within the ninety-day preference period. Even though FMG’s second amended answer to the first amended complaint denied the various elements that make up a preferential transfer,3 FMG’s responding brief (doc 42) and the supporting affidavits, particularly those from Messrs Lipovich and Bullock, do not really dispute that those transfers took place. Pursuant to Rule 56(e), a simple denial is not enough to show that an issue is controverted. Once a fact issue has been established by the moving party, the adverse party must go beyond the pleadings to show that it is controverted. Fed.R.Civ.P. 56(e); see also Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The Trustee made the requisite factual showing on the elements for her § 547(b) case, and FMG failed to controvert that showing.
*5The parties do dispute whether there was an “agreement” between them, and what that agreement was. FMG, a vendor of food products known in the industry as a “diverter”4, insists that the parties agreed that when Furrs purchased products from FMG, it would pay for them within thirty days after delivery, a time period that was standard in the industry for diverters. Furrs argues that there was no continuing agreement and that in any event payments to FMG were outside the industry standard of payment on delivery or within a day of delivery. These arguments go to the ordinary course of business defense, but not to the issue of whether the transfers were made. Thus, there is no factual question that the transfers took place. The trustee is entitled to judgment on her § 547(b) complaint.
FMG’s Ordinary Course of Business Defense
Given that FMG bears the burden of proof on the § 547(c) issues, § 547(g), it follows that once the Trustee has established a prima facie § 547(b) case, FMG bears the burden of showing that there is no material issues of fact as to each of the three elements of the ordinary course of business defense and that it is entitled to judgment on that defense. See Gonzales v. DPI Food Products Co. (In re Furrs Supermarkets, Inc.), 296 B.R. 33, 40 (Bankr.D.N.M.2003)(Failure of creditor to meet any of the three requirements of § 547(c)(2) results in denial of the defense.) (Citing Clark v. Balcor Real Estate Finance, Inc. (In re Meridith Hoffman Partners), 12 F.3d 1549, 1553 (10th Cir.1993) cert. denied 512 U.S. 1206, 114 S.Ct. 2677, 129 L.Ed.2d 812 (1994)).
Section 547(c)(2)5 defines the three elements of the defense, including the third element that the transfer was made according to ordinary business terms. The Trustee argues that diverters ordinarily insist on immediate cash payments — in effect, payment on delivery or within no more than one day of delivery— relying in large part on what seems to be clear and lengthy testimony from the deposition of FMG’s expert Richard Bullock, Exhibit J to the Motion for Summary Judgment (doc 37/53), and on the affidavit of Colleen Johnson. Exhibit M to Trustee’s Response to Cross-Motion for Summary Judgment (doc 45). FMG argues that ordinary business terms include extending credit up to as much as thirty days after delivery, submitting in support thereof affidavits of Messrs Eder and Lipovich as well as of Mr. Bullock, who asserts in his affidavit that he was quoted from his deposition out of context.6 Given the op*6posing affidavits, and even though the Court is skeptical of Mr. Bullock’s “clarifying” affidavit, no summary judgment can issue for Plaintiff on the § 547(c)(2)(C) defense.
Other Affirmative Defenses to the Pre-petition Transfers
FMG has not argued the contemporaneous exchange of new value and subsequent new value defenses (§ 547(c)(1) and (c)(4)), presumably recognizing the inapplicability of the first defense to these facts and acknowledging the Trustee’s application of the second defense in her initial accounting for what is owed. Nor has FMG strongly argued that the doctrine of recoupment applies to allow it to net out against the prepetition transfer balance the amounts it is owed postpetition on its reclamation claim. (It has raised this argument only fleetingly, and then only as part of its defense to the Trustee’s recovery of postpetition overpayments.) Such a defense would be unavailing in any event, for two reasons.
First, § 547(c) is the exclusive list of defenses available to preferential transfers. See In re Milwaukee Cheese Wisconsin, Inc., 112 F.3d 845, 848 (7th Cir.1997) (“ ‘[A] bankruptcy court is a court of equity’ is not a mantra that makes the Bankruptcy Code dissolve.”). Section 547(c) makes no mention of recoupment, so it cannot serve as a defense. The fact that various courts have applied the recoupment doctrine to allow or require that a debtor’s postpetition payments be applied to a - debtor’s prepetition debts does not justify extension of that doctrine to preference law.7
Second, for the recoupment doctrine to apply, FMG must demonstrate the existence of an agreement between it and Furrs such that the transactions at issue that gave rise to the competing claims were so closely related that the one claim was “essentially a defense” to the other claim. Ashland Petroleum Company v. Appel (In re B & L Oil Company), 782 F.2d 155, 157 (10th Cir.1986). But even if there was an agreement between Furrs and FMG, it was only to have Furrs pay at a certain time for whatever product it purchased. There was no obligation as such to buy or sell, or for FMG to supply product or for Furrs to look to FMG for product. Compare, for example, the following cases cited in B & L Oil, 782 F.2d at 157; Waldschmidt v. CBS, Inc. (In re Waldschmidt), 14 B.R. 309, 314 (M.D.Tenn.1981) (advance royalties to a musician on recording contract could be recouped from postpetition record sales); In re Midwest Service and Supply Co., 44 B.R. 262, 265 (D.Utah 1983) (overpayment of progress payments prepetition could be recouped when contract performance continued postpetition); and In re Yonkers Hamilton Sanitarium, Inc., 22 B.R. 427, 433 (Bankr.S.D.N.Y.1982), aff'd 34 B.R. 385 (S.D.N.Y.1983) (prepetition Medicare overpayments could be recouped from postpetition payments to estate which continued to operate under the contract). So in reality the parties’ arrangement was little different than a customer pin-chasing an item from K-Mart, or ordering an item from Lands End and paying when it arrives. It is not enough merely that the claims at issue arise out of the same con*7tract; something more must be shown. Conoco, Inc. v. Styler (In re Peterson Distributing, Inc.), 82 F.3d 956, 960-61 (10th Cir.1996). As is elaborated in more detail below, FMG has made no such showing. Thus its recoupment defense to the Trustee’s prepetition preference claim must be denied.
Trustee’s Claim to Recover Postpetition Overpayments
The parties do not dispute that after the filing of the petition, Furrs and FMG continued to deal with each other, resulting in an overpayment by Furrs of $26,737.35. Thus, the Court finds that FMG owes the estate the $26,737.35, subject to any netting out that may be applicable.
FMG’s Defenses of Recoupment and Set-off to Postpetition Overpayments
FMG states and the Trustee does not dispute that FMG has a reclamation claim against the estate for $76,317.15 representing the value of products that were shipped to Furrs on credit prior to the filing of the petition but which were not returned by Furrs despite demand therefor by FMG pursuant to a nonbankruptcy right of reclamation. See § 546(c). Furrs did not return the goods, nor did the Court grant FMG a lien to secure repayment of the amount owed. In consequence, FMG now has a claim against the estate of the same priority as a § 503(b) administrative claim. § 546(c)(2)(A).8 Because the reclamation occurred during the chapter 11 phase of the case, the resulting claim has the status of a chapter 11 administrative claim. Chapter 11 administrative claims are inferior to chapter 7 administrative expenses. § 726(b). The Account Balance — the $26,737.35 owed by FMG to the estate — is also a chapter 11 obligation. Thus FMG seeks to net out the two claims using either recoupment or setoff. For the reasons set out below, the Court declines to permit that netting out under either theory.
Recoupment
“[A] creditor properly invoking the recoupment doctrine can receive preferred treatment even though setoff would not be permitted. A stated justification for this is that when the creditor’s claim arises from the same transaction as the debtor’s claim, it is essentially a defense to the debtor’s claim against the creditor rather than a mutual obligation, and application of the limitations on setoff in bankruptcy would be inequitable.”
In re B & L Oil Company, 782 F.2d at 157. (Citations and internal quotation marks omitted.) See also Davidovich v. Welton (In re Davidovich), 901 F.2d 1533 (10th Cir.1990); In re Peterson Distributing, Inc., 82 F.3d 956.
In B & L Oil, pursuant to a division order, Ashland paid, indeed mistakenly overpaid, B & L for two deliveries of oil, after which B & L filed a chapter 11 petition. Ashland then continued to take *8deliveries of oil from B & L until it had recouped postpetition most of the overpay-ments but refused to pay for the deliveries. The Tenth Circuit noted that the “cleavage in time” effected by the filing of the petition precluded setoff of the two debts. 782 F.2d at 158. But the court did allow Ashland to net out the claims by recoupment. Id. at 157. The court explained that recoupment could be invoked in the bankruptcy context when the transactions at issue that gave rise to the competing claims were so closely related that the one claim was “essentially a defense” to the other claim. Id. In consequence the Code’s narrow limitations on netting out claims as expressed in § 553 (prepetition setoff) could be avoided. Id. However, the court also stated that, on the facts before it, Ashland’s overpayment was not “essentially a defense” to the postpetition claim against Ashland but was analogous to cases in which recoupment had been applied. Id. at 158-59. The court then held that Ashland could still net out the claims because the relationship was similar to an executory contract and the estate should not be able to obtain the benefit of the contract without also carrying the burdens, and that what had happened was a “classic case of unjust enrichment”.9 Id. at 159. See also United States v. Midwest Service and Supply Co., Inc. (In re Midwest Service and Supply Co., Inc.), 44 B.R. 262, 265-66 (D.Utah 1983) (Debtor in possession postpetition continued to perform under the contracts with the government, thereby effectively assuming the contract, which justified the use of the recoupment doctrine).10
In Conoco, Inc. v. Styler (In re Peterson Distributing, Inc.), 82 F.3d 956 (10th Cir.1996), Peterson had incurred approximately $245,000 of prepetition debt to Conoco for product delivered but not paid for. Peterson had also delivered to Conoco approximately $69,000 of Conoco credit card invoices, pursuant to an agreement whereby Conoco would accept qualifying credit card invoices and then debit Peterson’s checking account in the amount of the qualifying invoices. However, only about $23,000 of the credit card invoices were eligible to be used as payment before Peterson filed its chapter 11 petition; the *9remainder ($46,000) became available as payment postpetition. Conoco argued that Peterson’s product purchases and the parties’ credit card agreement constituted a single transaction justifying the application of the recoupment doctrine, relying heavily on. B & L Oil. The court ruled that the arrangements between the parties did not constitute a “single transaction”, nor were they an executory contract, and that allowing the recoupment would effectively give Conoco a security interest in the $46,000 to the obvious detriment of the estate and the unjust enrichment of Conoco. 82 F.3d at 959-63. The court also quickly dismissed Conoco’s claim to set off any more than the $23,000.
Although the foregoing cases on recoupment, together with the following cases focusing on setoff (In re Davidovich, 901 F.2d 1533, and Zions First National Bank, N.A. v. Christiansen Brothers, Inc. (In re Davidson Lumber Sales, Inc.), 66 F.3d 1560 (10th Cir.1995)) are somewhat contradictory, their collective broad outline provides a reliable enough standard for a decision.
To begin with, although there is no provision for it in the Code, courts apply recoupment in bankruptcy cases. E.g., B & L Oil; In re Yonkers Hamilton Sanitarium Inc., 22 B.R. 427, 432-35 (Bankr.S.D.N.Y.1982) (applying recoupment doctrine as not governed by §§ 553 and 362); Anes v. Dehart (In re Anes), 195 F.3d 177, 182 (3rd Cir.1999).
To employ recoupment, the parties’ claims must arise out of the “same transaction”. It is not enough merely that the claims arise out of the same contract; something more is required. Peterson Distributing, 82 F.3d at 960-61, citing B & L Oil, 782 F.2d at 157-58. But see B & L Oil, 782 F.2d at 158-59 (claims need not arise out of same transaction to justify recoupment-like relief).
In the instant case, Furrs and FMG continually dealt with each other, buying and selling goods respectively. FMG has filed affidavits from Mr. Scott (doc 43) and Messrs Eder, Bullock and Lipovich describing the “oral agreement” for the purchase of goods from FMG by Furrs. Exhibits G, H and I in support of FMG’s opposition to the Trustee’s summary judgment motion and FMG’s motion for summary judgment (docs 40 and 42). All those affidavits focus strongly on the payment terms allegedly agreed to by the parties but provide no evidence of the “same transaction” needed to support a recoupment claim. In other words, even accepting at face value the factual assertions of the affidavits, they prove little more than there was an agreement which the parties adhered to when they dealt with each other.11 All of these sales and purchases were essentially independent transactions; either party was free to cease buying from or selling to the other at any time and neither party would have (or at any rate should have) felt there had been any breach of contractual obligations.
At the same time, B & L Oil suggests or states that the claims need not arise out of the same transaction for the creditor to get the benefit of a recoupment-type of ruling. B & L Oil, 782 F.2d at 158-59. Contra Peterson Distributing, 82 F.3d at 960-61. However, in B & L Oil, the Tenth Circuit emphasized the executory contract nature of the division order out of which all the transactions had arisen, which justi*10fied granting “recoupment-style” relief. And Peterson Distributing, 82 F.3d 956, the Circuit’s most recent statement on the subject of recoupment, emphasizes that re-coupment “is only applicable to claims that are so closely intertwined that allowing the debtor to escape its obligation would be inequitable notwithstanding the Bankruptcy Code’s tenet that all unsecured creditors share equally in the debtor’s estate.” Id. at 960. In the instant case, nothing tied one transaction to the next or to the one before it in such a way that it would have been unfair to one party or the other to permit one transaction and not require another. Nothing like the equivalent of a division order or dissolution agreement connected the two parties and generated the transactions.
Another important principle is that the doctrines of recoupment and set-off should not be used, or at least used only sparingly, in derogation of the fundamental tenets of the Bankruptcy Code. E.g., In re Peterson Distributing, 82 F.3d at 959-60. Of course, disregarding at least one fundamental tenet of the Bankruptcy Code (the cleavage in time) is precisely what B & L Oil permitted, to the detriment of the estate. 782 F.2d at 159. However, the Tenth Circuit’s emphasis on the division order being in the nature of an executory contract allowed the court to bridge that cleavage, since the assumption of an executory contract essentially converts prepetition debt into postpetition administrative expense. § 365(g). The Tenth Circuit also found that the circumstances of B & L Oil presented a classic case of unjust enrichment. Id. In addition to the fact that in the instant case there was no overarching agreement or contract that united the series of sales (much less an assumption of any such contract), there were also no circumstances which constituted what would ordinarily pass for unjust enrichment. Thus there is no reason to override those deep distinctions inherent in the Code.12
SETOFF
Section 553(a) provides that, with certain exceptions not applicable here, the Bankruptcy Code does not affect the right of a creditor holding a prepetition claim against the estate from setting off that claim against a prepetition debt it owes to the estate.13 Nevertheless, “[s]etoff in bankruptcy is neither automatic nor mandatory; rather, its application rests within the sound discretion of the bankruptcy court. 5 Collier on Bankruptcy ¶ 553.02[3] (15th ed. rev.2003).” United States v. Myers (In re Myers), 362 F.3d 667, 672 (10th Cir.2004) (concerning prepetition *11claims). There is no provision in the Code which addresses postpetition setoffs. In re Davidson Lumber Sales, Inc., 66 F.3d at 1569. In the instant case, because permitting the setoff (or, for that matter, re-coupment) would probably permit FMG to collect a greater amount of its claim than other administrative claimants, the setoff cannot be allowed.
The concept and right of setoff has been acknowledged for centuries. E.g., Gratiot v. United States, 40 U.S. 336, 370, 15 Pet. 336, 10 L.Ed. 759 (1841) (“It is but the exercise of the common right, which belongs to every creditor, to apply the unappropriated moneys of his debtor, in his hands, in extinguishment of the debts due to him.”); see generally McCoid, Setoff: Why Bankruptcy Priority?, 75 Va. L.Rev. 15, 19 (1989) (“Setoff in English bankruptcy practice dates at least to the late seventeenth century.”). All the nineteenth century bankruptcy acts permitted offset of prepetition claims, Carr v. Hamilton, 129 U.S. 252, 256, 9 S.Ct. 295, 32 L.Ed. 669 (1889); New York County National Bank v. Massey, 192 U.S. 138, 146, 24 S.Ct. 199, 48 L.Ed. 380 (1904). Although the earlier cases, relying on an English case decided by Lord Mansfield14, attributed the right of setoff to “natural justice and equity”, e.g., Carr v. Hamilton, 129 U.S. at 255-56, 9 S.Ct. 295, later courts simply recognized the overwhelming prevalence of setoff in the commercial world, e.g., Studley v. Boylston National Bank of Boston, 229 U.S. 523, 528, 33 S.Ct. 806, 57 L.Ed. 1313 (1913) and characterized setoff as “grounded on the absurdity of making A pay B when B owed A.” Id., cited in Citizens Bank of Maryland v. Strumpf 516 U.S. at 18, 116 S.Ct. 286.15 And these cases, English and American, occurred in a bankruptcy context. So, for example, it was obvious to the court in New York County National Bank v. Massey, 192 U.S. at 146-47, 24 S.Ct. 199, that if prepetition debts could be setoff postpetition by statute, a setoff that occurred prepetition could not constitute a preference in violation of section 68a of the Act. See also Scott v. Armstrong, 146 U.S. 499, 510-511, 13 S.Ct. 148, 36 L.Ed. 1059 (1892) (“The equity of equality among creditors is either found inapplicable to such set-offs or yields to their superior equity,” in the context of an insolvent bank.).16
*12The problem with all these analyses, other than the ones based strictly on what the statute allowed, is that the “ability to set off has the same effect as an unrecaptured preference and is as valuable to a creditor as a security interest in part of the debtor’s estate.... [I]t is at odds with the principle of creditor equality.” McCoid, 75 Va. L.Rev. at 18. For a bankruptcy court, the issue of the setoff of prepetition claims is resolved by statute; section 553(a) permits setoffs and no further inquiry in required. “We are to interpret statutes, not to make them.” New York County National Bank v. Massey, 192 U.S. at 147, 24 S.Ct. 199. But there is no statute that addresses the setoff of postpetition claims.
The Tenth Circuit has issued two decisions which deal explicitly with the setoff of postpetition claims.17 In In re Davidovich, 901 F.2d 1533, Davidovich and Wel-ton dissolved their law partnership and agreed to a formula for dividing the partnership assets. The parties then arbitrated their disputes under the formula, and the arbitration committee ruled that each party owed the other certain sums under the dissolution agreement. Before the arbitration was complete, Davidovich filed a chapter 7 petition. The Tenth Circuit ruled that the postpetition arbitration award dealt with the parties’ prepetition claims against each other, and therefore Welton could reduce the estate’s claim against him either by setoff (§ 553) or by recoupment.
Setoff under section 553 is permitted because both claims arose before Davi-dovich filed for bankruptcy, are between the same parties acting in the same capacity and are otherwise valid and enforceable.... An offset [netting out] is similarly available under the doctrine of recoupment because both debts arise out of a single integrated transaction, the binding arbitration proceeding before the Committee, such that it would be inequitable for Davidovich to enjoy the benefits of that transaction without meeting its [sic] obligations [citing B & L Oil Co.].
Id. at 1537-38. (Other citations omitted.) Contra, Sechuan City, Inc. v. North American Motor Inns, Inc. (In re Sechuan City, Inc.), 96 B.R. 37, 44-45 (Bankr.E.D.Pa.1989) (damages for violation of automatic stay could not be set off by administrative rent claim).
On the other hand, the Tenth Circuit did not permit the netting out, by offset or recoupment, of a claim against the estate for a separate real estate partnership obligation that Welton (and others) had advanced for Davidovich, partly because the alleged claim arose after the filing of the petition. 901 F.2d at 1538. See also New York City Shoes, Inc. v. McCarthy, 115 B.R. 64, 65-66 (E.D.Pa.1990) (failure to timely file an administrative claim for rent precluded assertion of postpetition rent claim as a preference defense).
*13In In re Davidson Lumber Sales, Inc., 66 F.3d 1560, the bank had obtained a lien on the postpetition accounts receivable of the chapter 11 estate. Christiansen, a general contractor, bought materials post-petition on credit from Davidson. Davidson obtained the materials from two of its suppliers but, in a return to prepetition form, did not pay the suppliers for the materials. One of the suppliers filed a lien against the project, and Christiansen, having contracted with the owner of the project to deliver the project free of liens, paid the supplier directly. The bank sued the general contractor for the amount of the account receivable.
Interpreting Utah law, the Tenth Circuit utilized setoff to uphold a judgment for the general contractor, ruling that the right of setoff trumped the bank’s security interest. 66 F.3d at 1565-66. The court also ruled that the direct payment to the supplier did not violate the several Bankruptcy Code sections cited by the bank. The court explained that the case law (and legislatures) had over time established an independent obligation in circumstances like these from the general contractor to the supplier, justifying the direct payment from Christiansen to the supplier that never became property of the estate and bypassed Davidson and the bank. Id. at 1566-69. The court went on to explain that denying setoff in these circumstances would not benefit the estate, but only provide a “windfall” to the secured creditor. Id. at 1569-70. And the court faulted the bank for failing to protect its postpetition lien on the accounts receivable by giving notice under the Uniform Commercial Code. Id. at 1570-71.
As for postpetition setoff, Davidson Lumber clearly allows such a thing even in the absence of an explicit or implicit Code provision. 66 F.3d at 1569.18 But the court made clear in Davidson Lumber that the payment in question would not have been used for the estate’s reorganization. Id. at 1570. Rather, the payment would have passed directly through the estate to the bank, and it would have constituted a windfall to the bank.19 Id. at 1568 and n. 10. In the instant case, the payment will go the estate. And although Furrs is no longer “reorganizing” as was the case in Davidson Lumber, see id. at 1569-1570, and in Baker v. Gold Seal Liquors, Inc., 417 U.S. 467, 471, 94 S.Ct. 2504, 41 L.Ed.2d 243 (1974) (railroad reorganization under § 77 of the Bankruptcy Act, 11 U.S.C. § 205 (49 Stat. 911 (Aug. 27, 1935))), it still has a considerable stake in complying with the Code and its priorities, specifically in ensuring prorated payments of chapter 11 administrative claims. In consequence, these are not the “appropriate circumstances” for a postpetition set-off, 66 F.3d at 1569, which might well give FMG a greater percentage distribution on its administrative claim.
Because Davidovich, 901 F.2d 1533, deals only with the setoff of prepetition *14claims and with recoupment (which the Court has already found to be inapplicable supra), it provides no support for FMG’s position. Even if it is conceded that post-petition setoff rights are preserved in the Code, as FMG argues in its cross motion for summary judgment, at 23-24, determining what property rights the parties have (which may well be determined by state law, Butner v. United States, 440 U.S. 48, 54 n. 9, 99 S.Ct. 914, 918 n. 9, 59 L.Ed.2d 136 (1979)) is a different inquiry than the distinctly “federal” question of ensuring the smooth administration of the estate.20
Further, what FMG seeks to do is to reduce the funds available for payment of chapter 11 expenses by in effect asserting it holds a secured claim on a portion of the estate’s postpetition collections. It may not get paid more than other creditors of the same class by elevating itself into the position of a holder of a secured claim by asserting setoff, In re Myers, 362 F.3d at 672 n. 5 (citing Farmers Home Administration v. Buckner (In re Buckner), 66 F.3d 263, 265 n. 3 (10th Cir.1995)), or recoupment, Peterson Distributing, 82 F.3d at 960, at least where there likely will not be enough to pay all those administrative claims in full.
A common thread in many of the recoupment and setoff cases is the courts’ desire for “equity” or “fairness”.
“The right of setoff is one which is grounded in fairness. It would be unfair to deny a creditor the right to recover an established obligation while requiring the creditor to fully satisfy a debt to a debtor. Hence, the right of setoff is universally recognized. 4 Collier on Bankruptcy 15th Ed. ¶ 553.02 (1986).”
Turner v. United States (In re G.S. Omni Corporation), 835 F.2d 1317, 1318 (10th Cir.1987), cited in In re Davidovich, 901 F.2d at 1539. See also In re G.S. Omni Corp., 835 F.2d at 1318; Peterson Distributing, 82 F.3d at 960 (“the ‘same transaction’ analysis [for recoupment] involved an examination of the parties’ equities”). But what is “equitable” or “fair” to the creditor must be measured against the language of the statute and the policies embodied therein, including the policies of equal distribution to creditors and payment of administration expenses. Sections 506(a) and 553(a) explicitly permit prepetition offsets even though such offsets run counter to the Code’s overall goal of equal distribution. But recoupment as a non-statutory exception to the statute should be narrowly construed. Id. at 960-61. And there is no reason not to apply the same standard to postpetition setoffs.21
To be clear, FMG is entitled to its administrative claim and to distribution thereon. But the orderly way to address that problem is to have FMG return the preferences and the Account Balance to the estate and then receive back its (admittedly pro rata) share of the distribution *15on its administrative claim. Although § 502(d) does not mandate this result, Beasley Forest Products, Inc. v. Durango Georgia Paper Company (In re Durango Georgia Paper Company), 297 B.R. 326 (Bankr.S.D.Ga.2003) (analyzing and resolving the opposing rulings on this subject), the same result is nevertheless dictated by the fact that this case is likely administratively insolvent and by the important bankruptcy policies of equal distribution to creditors and of paying administrative expenses as fully or at least as equally as possible. The result also complies with the policy of narrowly applying the doctrines of setoff and recoupment in derogation of fundamental bankruptcy policies. Thus, even if it were the case that the postpetition purchases and sales between the parties constituted a “single transaction” for purposes of the recoupment doctrine, FMG would not be allowed to net out the Account Balance against the reclamation claim.
Were setoff truly a matter of equity and fairness, there might be more reason to allow it to override the policies of the bankruptcy Code. But since those words— equity and fairness — are little more than remnants of outmoded judicial doctrines or pleading (or forum) requirements ritually repeated by various courts, there is no reason to apply the doctrine to the detriment of bankruptcy policies.
. The founder of the chain was Roy Furr. At some point, long after Mr. Furr's death, the chain began to drop the apostrophe from its name.
. Unless otherwise indicated, all chapter and rule references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1330 and to the Federal Rules of Bankruptcy Procedure, Rule 1001-9036.
. Section 547(b) provides:
Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A)on or within 90 days before the date of the filing of the petition; or
(B)between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
. A diverter is an alternative supplier of product to retailers. A diverter buys products from the manufacturer or from retailers, either of whom may have excess product, at a discount or in a region where the products are more plentiful and then resells the products to its purchaser. The purchaser is able to obtain the product from the diverter when it would otherwise not be able to obtain it at all, or for less than the retailer would be able to obtain the product from the manufacturer. Deposition of Richard Bullock, page 12, line 17 through page 14 line 21.
. Section 547(c)(2) provides:
The trustee may not avoid under this section a transfer—
12) to the extent such transfer was—
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
(C) made according to ordinary business terms.
. The Bullock affidavit is Exhibit H to FMG’s memorandum in opposition to Plaintiff's motion for summary judgment and in support of cross motion for summary judgment (doc 42); the Eder affidavit is Exhibit G, and the Lipo-*6vich affidavit is Exhibit I. All the affidavits say that terms up to 30 days are normal. (The Bullock affidavit says it has his expert report annexed as Exhibit 1; it is not annexed but that does not make a difference.)
. Whether the doctrine of recoupment should even be recognized in bankruptcy cases is itself questionable. See below at pages 12-18.
. Trustee asserts that FMG’s reclamation claim "is essentially a pre-petition claim”. Trustee's motion for summary judgment, at 21. Doc 37/53. The Trustee does not submit any authority for her position. The claim arises from prepetition deliveries not paid for but (postpetition) not returned to FMG. The Court assumes without deciding that the reclamation claim is entitled to postpetition administrative treatment given what seems to be the clear language of § 546(c)(2)(A) ("... if the court ... grants the claim of such seller priority as a claim of a kind specified in section 503(b) of this title....”). The Court finds that for purposes of these motions for summary judgment it is not necessary to decide this issue because the Court has determined that the postpetition claims may not be netted out, nor may FMG's postpetition claims be netted out against the Trustee’s preference claim.
. B & L Oil is an oddity among bankruptcy cases for several reasons. One is that the "unjust enrichment” which triggered the special creditor treatment in this case did not result from any misbehavior, much less fraud, on the part of the debtor. Nothing in the facts recited in the case suggests that the overpayment to the debtor was due to anything more than the creditor’s negligence, a not unusual occurrence between creditors and debtors engaged in commerce with each other. What was unusual was the court’s response to the creditor's problem. Relying on an equitable doctrine derived from a long antiquated pleading system, 782 F.2d at 157, see In re Davidovich, 901 F.2d at 1537, the court overrode both the "cleavage in time" distinction which permeates the Bankruptcy Code and bankruptcy practice, B & L Oil, 782 F.2d at 158, and "the basic bankruptcy principle of equal distribution to creditors”, In re Peterson Distributing, Inc., 82 F.3d at 959, in order to permit the creditor to net out its unsecured prepetition claim against a deliberately incurred postpetition obligation to the estate. And by allowing the netting out, the court also deprived the estate of some of its postpetition cash flow, ordinarily the lifeblood of a newborn chapter 11 estate. Finally, the decision essentially allowed the creditor the benefit of the estate assuming the contract without the estate having elected § 365 treatment of the contract., 782 F.2d at 159. The B & L Oil court suggested that the recoupment doctrine "perhaps should be narrowly construed”, 782 F.2d at 158, a suggestion explicitly adopted in In re Peterson Distributing, Inc., 82 F.3d at 959-60.
. "The court finds that Midwest elected to continue its participation under the contracts and in so doing it assumed the burdens of contractual provisions regarding overpay-ments.” Id. at 265.
. The Trustee disputes (see generally Dunlap affidavit, attached to Trustee's Response (doc. 45)) what if any agreement existed between the parties; therefore, to the extent it turns out to be relevant (as it may be for purposes of the ordinary course of business defense, § 547(c)(2)), this is treated as a disputed issue of fact.
. This decision is not contrary to In re Communication Dynamics, Inc., 300 B.R. 220 (Bankr.Del.2003), holding that when the debtor’s secured lender had given notice of the lender’s security interest in accounts receivable to the creditor who had purchased equipment from the debtor, the doctrine of recoupment would allow tire creditor to net out the account payable against the creditor's claim against the debtor, whereas if setoff had been applicable, the creditor would have had to pay the account payable to the lender. Communication Dynamics was essentially a dispute between two creditors and did not involve any fundamental bankruptcy policy.
. "Although no federal right of setoff is created by the Bankruptcy Code, 11 U.S.C. § 553(a) provides that, with certain exceptions, whatever right of setoff otherwise exists is preserved in bankruptcy.’’ Citizens Bank of Maryland v. Strumpf 516 U.S. 16, 18, 116 S.Ct. 286, 289, 133 L.Ed.2d 258 (1995). The facts of that case make it clear that the Supreme Court was speaking of the offset of prepetition claims. For example, the court cited the part of § 542(b) which excuses payment to the estate of any obligation which may be offset under § 553. Id. Section 553(a) limits the right of offset to prepetition debts.
. Carr v. Hamilton, 129 U.S. at 255, 9 S.Ct. 295, relies on 2 Story, Equity Jur. § 1433, which in turn cites Green v. Farmer, 4 Burr. 2214, 1 Wm Bl. 651, 98 E.R. 154 (1768).
. The early English statutes permitting setoff in bankruptcy cases were apparently necessitated by the courts of law insisting that two opposing lawsuits be filed to resolve such disputes, Carr v. Hamilton, 129 U.S. at 256, 9 S.Ct. 295. Compare Studley v. Boylston National Bank of Boston, 229 U.S. at 528, 33 S.Ct. 806 ("[T]he defendant, to avoid a circuity of action, may interpose his mutual claim by way of defense, and if it exceeds that of the plaintiff, may recover for the difference.’').
. Section 68a of the bankruptcy act of 1898 provides that “in all cases of mutual debts or mutual credits between the estate of a bankrupt and a creditor the account shall be stated and one debt shall be set off against the other, and the balance only shall be allowed or paid.” The object of this provision is to permit, as its terms declare, the statement of the account between the bankrupt and the creditor, with a view to the application of the doctrine of set-off between mutual debts and credits. The provision is permissive rather than mandatory, and does not enlarge the doctrine of set-off, and cannot be invoked in cases where the general principles of set-off would not justify it. Black, Bankr.544; In re Kyte, 182 F. 166 (M.D.Pa.1910). The matter is placed within the control of the bankruptcy court, which exercises its discretion in these cases upon the general principles of equity. Hitchcock v. Rollo, 3 Biss. 276, F.Cas. No. 6,535, 12 F.Cas. 231. The section was taken almost literally from § 20 of the act of 1867 [14 Stat. at L. 526, chap. 176], In Sawyer v. Hoag, 17 Wall. 610, 21 L.Ed. 731, in considering that section of the act of 1867, this court *12said: "This section was not intended to enlarge the doctrine of set-off or to enable a party to make a set-off in cases where the principles of legal or equitable set-off did not previously authorize it." While the operation of this privilege of set-off has the effect to pay one creditor more than another, it is a provision based upon the generally recognized right of mutual debtors, which has been enacted as part of the bankruptcy act, and when relied upon should be enforced by the court. New York County Nat. Bank v. Massey, 192 U.S. 138, 24 Sup.Ct. 199, 48 L.Ed. 380.
Cumberland Glass Mfg. Co. v. De Witt, 237 U.S. 447, 454-55, 35 S.Ct. 636, 639, 59 L.Ed. 1042 (1915).
. The Tenth Circuit dismissed a third case that would have dealt with setoff of postpetition claims on jurisdictional grounds. Farmers Home Administration v. Buckner (In re Buckner), 66 F.3d 263, 265 (10th Cir.1995).
. FMG states without supporting argument or authority that its Account Balance constitutes a lien against the estate pursuant to § 506. Cross motion for summary judgment at 25 n. 1. However, § 506(a) explicitly refers to § 553, which deals only with the effect of the setoff of prepetition claims, and thus is not applicable to FMG's arguments for post-petition setoff. The procedure and authority for obtaining a lien against estate assets post-petition is set out in § 364.
. This analysis by the court is also questionable. Given that the postpetition receivables of the estate were the consideration received by the bank for a postpetition loan tó the estate, it is hard to see why receipt of the payment would be a windfall to the bank, unless the court’s use of that term was a further chastisement of the bank for its failure to protect itself by a UCC notice. See In re Davidson Lumber Sales, Inc., 66 F.3d at 1570-71.
. FMG quotes In re Davidson Lumber Sales, Inc., 66 F.3d at 1569, for the proposition that courts generally allow setoff of postpetition debts even though the Code does not address that situation. Other than this, neither party has explicitly argued the issue of whether the doctrines of recoupment or postpetition setoff are contrary to, or an unwarranted addition to, the Code, an issue not addressed in Davidson Lumber Sales. For that reason, and in light of the disposition of these motions, the Court does not address that issue, but rather assumes that both are permissible.
. "Generally, a right to setoff is not affected by bankruptcy.” Farmers Home Administration v. Buckner (In re Buckner), 218 B.R. 137, 145 (10th Cir. BAP 1998), app. dismissed 66 F.3d 263 (10th Cir.1995). This case dealt with the offset of prepetition claims, and therefore was covered by the explicit provisions of the statute. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493704/ | *163MEMORANDUM OF DECISION ON MOTIONS FOR CONTEMPT AND SANCTIONS
JEFFERY P. HOPKINS, Bankruptcy Judge.
This matter is before the Court on two motions for contempt and sanctions filed by Thomas J. Geygan, Sr., the chapter 7 trustee (“Trustee”). The Trustee filed one motion (Doc. 48) against the Debtors (“Debtor Motion”) and another motion (Doc. 47) against attorney Bruce L. Green-berger and the law firm of Macey, Chern & Diab (“MCD Motion”), counsel for the Debtors. By his motions, the Trustee seeks sanctions related to the Debtors’ refusal to turn over property of the estate upon demand. In particular, the Trustee contends that the Debtors and their counsel should be sanctioned pursuant to Fed. R. Bankr.P. 9011 for filing frivolous pleadings in response to his turnover motion. Because the Debtors’ attorneys advanced an unwarranted legal position in two separate pleadings, the MCD Motion will be GRANTED and the Debtor Motion will be DENIED.
Facts
As of the filing of the petition, the Debtors’ schedules reflected: (1) Richard Dunn’s ownership of a 1998 Ford F150 valued at $6,000; and (2) a lien on the vehicle securing a $3,000 claim in favor of Ford Motor Credit (“Ford”). Pursuant to an amended Schedule C, the Debtors claimed a $1,000 exemption on the vehicle.
A representative of Ford attended the meeting of creditors held on June 25, 2003. The Ford representative advised the Trustee that the outstanding balance on Ford’s claim was $2,448. Later that same day the Trustee inspected the vehicle. Based upon the NADA value, the Trustee believed that the vehicle could be worth as much as $7400.
The Trustee mailed a June 25, 2003 letter to counsel, making an offer to compromise his interest in the vehicle. Hearing no response, the Trustee mailed a July 2, 2003 letter requesting turnover of the vehicle. On July 8, 2003, the Trustee received a telephone message from counsel, presenting a counteroffer for $2,500. The Trustee immediately sent another letter to counsel, rejecting the counteroffer and requesting turnover. On July 23, 2003, counsel informed the Trustee that the Debtors intended to fight turnover because the resulting dividend to unsecured creditors would be inconsequential.
On July 24, 2003, the Trustee filed and served a motion for turnover (“Turnover Motion”) (Doc. 24). The Debtors filed a response (“Turnover Response”) (Doc. 27), whereby they: (1) disputed the Trustee’s valuation; (2) attached their own appraisal, reflecting that the vehicle was worth “up to $6,000”; (3) asserted that turnover “would not substantially affect the creditors in this matter”; and (4) “ask[ed] the Court to be permitted to retain possession of the [vehicle] during the pendency of this action as the debtor/husband needs this vehicle as the parties are now separated and it is his only transportation!.]”
In addition to the Turnover Response, the Debtors filed a motion to compel abandonment (Doc. 30) (“Abandonment Motion”). The Abandonment Motion states:
[A]fter all Trustee fees, attorney fees and cost of sale, no significant amount will remain which will be applied to the unsecured debt. After all of these costs stated, the amount left for unsecured creditors will be approximately $1,300.00, with the total unsecured debt in the amount of $47,975.00. Therefore, less than 3% of the unsecured debt will be paid. This seems to be an unnecessary sale of a vehicle in order to produce *164an insignificant pay out to the unsecured debt.
A hearing on the Turnover Motion was held on September 22, 2003. At the hearing, Mr. Greenberger made the following-statements:
Our concern wasn’t that Mr. Geygan wasn’t entitled to ... some equity in the vehicle. We just disagreed with the valuation he was using.
I have even today checked Kelly Blue Book and found that the valuation today though would be $7,000.
At this point we would be happy to turn the vehicle over and get it over with at this point based on what we’ve heard here in court today.
Based upon the foregoing, the Court entered an order (Doc. 35) granting the Turnover Motion and thus mooting the Abandonment Motion. Thereafter, the Trustee filed the instant motions presently before the Court.
Law
Rule 9011 sanctions are appropriate if a pleading is not “warranted by existing law or a good faith argument for the extension or modification, or reversal of existing law.” In re Downs, 103 F.3d 472, 481 (6th Cir.1996). Courts have concluded that a legal position is unwarranted-under Rule 9011-only if it has no chance of success under existing precedent. In re Tamojira, Inc., 197 B.R. 815, 820 (Bankr.E.D.Va.1995); In re HBA East, Inc., 101 B.R. 411, 415 (Bankr.E.D.N.Y.1989). Thus, the issue before the Court is whether the Turnover Response and the Abandonment Motion had any chance of success under controlling precedent.
The concepts of turnover and abandonment work in a complementary manner.1 In the Sixth Circuit, “[a]n order compelling abandonment is the exception, not the rule.” In re K.C. Machine & Tool Co., 816 F.2d 238, 246 (6th Cir.1987). “Abandonment should not be ordered where the benefit of administering the asset exceeds the cost of doing so.” Id.
The case of In re Sowers, 97 B.R. 480 (Bankr.N.D.Ind.1989) bears significant similarity to the facts of this case. In Solvers, the debtor was scheduled to receive a lump sum payment from a 401(k) plan upon separation from her employer. Six weeks after the separation, the debtor filed a chapter 7 petition and the trustee requested turnover of the funds. Counsel for the debtor conceded that the funds constituted estate property but nonetheless required the trustee to commence an action for turnover because, among other reasons, the funds would not provide a meaningful distribution to creditors. When the trustee filed a complaint for turnover, counsel for the debtor-notwithstanding his prior concession-opposed the relief on the basis that the funds were not property of the estate. The court ruled in the trustee’s favor. Thereafter, the trustee filed a motion for sanctions against the debtor and counsel.
*165Finding no basis in law or fact for the debtor’s opposition, the court sanctioned counsel pursuant to Fed. R. Bankr.P. 9011. The court stated:
It should be emphasized that the relationship between a trustee and a debtor is not supposed to be adversarial. The duties imposed by § 521 are affirmative obligations. A trustee is not required to play detective or to chase the debtors into court to gain their cooperation. Indeed, the concept of cooperation with and surrender to the trustee connote the need for willing assistance....
In this instance, because of counsel’s attitude, he transformed what should have been an amicable and cooperative] relationship into an adversarial one.... As a result, the Trustee’s administration of the bankruptcy estate and fulfillment of her obligations under the Bankruptcy Code has needlessly become more time consuming, difficult, and expensive than it should have been.
Sowers, 97 B.R. at 487. Under these circumstances, the court concluded that only the attorney should be sanctioned and not the client. Id. at 484. Pursuant to Rule 9011, counsel for the debtor was required to: (1) pay all of the trustee’s fees and expenses incurred subsequent to the filing of the baseless pleading; and (2) pay into the court the attorney fee he received for his services in connection with the case.2
Analysis
In the Turnover Response, the Abandonment Motion and the hearing on the Turnover Response, not once did the Debtors and their counsel contend that the cost of administering the vehicle would yield nothing for the estate. To the contrary, both the Turnover Response and the Abandonment Motion concede that liquidation of the vehicle would generate net proceeds for the estate. Instead of applying the K.C. Machine standard, the Debtors’ pleadings are based upon the argument that their position is justified if the net proceeds would satisfy only a small percentage of the total unsecured claims.3 Consequently, the Court concludes that both the Turnover Response and the Abandonment Motion violate Rule 9011. Under these circumstances, however, the Court agrees with Sowers that the Debtors should not be sanctioned for the unwarranted legal position advanced by their attorneys.
As evidence of his damages, the Trustee submitted his time records related to his efforts to obtain turnover of the vehicle. See MCD Motion at Ex. A. The records begin with the June 25, 2003 letter offer to compromise. Because the Trustee seeks relief under Rule 9011 only, sanctions for fees prior to the filing of the unwarranted pleadings are inappropriate. See Sowers, 97 B.R. at 487 (Rule 9011 violation does not occur until the offending paper is filed and there can be no Rule 9011 sanctions for time spent prior to that point). The Turnover Response was filed on August 6, 2003. The Abandonment Motion was filed on September 15, 2003. *166Subsequent to the filing of these pleadings, the Trustee incurred legal expenses in the amount of $2,290.4 After reviewing the itemized description for each legal service performed, the Court concludes that there is nothing unreasonable about the Trustee’s legal expenses.
Pursuant to the MCD Motion, the Trustee also seeks the additional sanction of disgorgement of attorney’s fees earned by counsel for the Debtors in this case. The Disclosure of Compensation and the Statement of Financial Affairs reflect that the Debtors paid their attorneys $800 for their services. See Doc. 1. Like the Sowers court, this Court believes that disgorgement is appropriate to fulfill the deterrent purposes of Rule 9011. See Sowers, 97 B.R. at 488-89.
Conclusion
For the foregoing reasons, the MCD Motion will be GRANTED and the Debtor Motion will be DENIED. A $2,290.00 judgment shall be entered against Bruce L. Greenberger and the law firm of Macey, Chern & Diab, jointly and severally5, in favor of the Trustee, Thomas J. Geygan, Sr. Additionally, Macey, Chern & Diab shall be directed to pay its $800.00 attorney fee to the Clerk of Court and file a certification to this effect.
. Turnover is governed by 11 U.S.C. § 542(a), which provides in material part:
[A]n entity ... in possession ... of property that the trustee may use, sell, or lease under section 363 of this title ... shall deliver to the trustee ... such property ... unless such property is of inconsequential value or benefit to the estate.
Abandonment is governed by 11 U.S.C. § 554(b), which provides in material part:
On request of a party in interest ... the court may order the trustee to abandon any property of the estate that is burdensome to the estate or that is of inconsequential value and benefit to the estate.
. Pursuant to 28 U.S.C. § 1927, the Sowers court also awarded the trustee the fees and expenses she incurred in preparing and litigating the turnover motion up to the filing of the debtor’s response that violated Rule 9011. In the instant case, the Trustee did not assert § 1927 as a basis for relief.
. This position is troublesome in at least two regards. First, it ignores the benefit to administrative and other priority claimants. Second, as was the case in this proceeding, the trustee is likely to seek turnover well in advance of the claims bar date. The Debtors' approach would enable debtors to hold off a trustee until the expiration of the bar date while the asset in question is likely depreciating with each passing day.
. This figure is derived as follows:
Thomas J. Geygan, Sr. 4.9 hours
Gregg Stout 9.5 hours
@ $225/hour = $1,102.50
@ $ 125/hour = $1,187,50
$2,290.00
. Fed. R. Bankr.P. 9011(c)(1)(A) provides: "Absent exceptional circumstances, a law firm shall be held jointly responsible for violations committed by its partners, associates, and employees.'' | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493705/ | MEMORANDUM
TIMOTHY J. MAHONEY, Chief Judge.
Hearing was held in Omaha, Nebraska, on October 12, 2004, regarding Filing No. 22, Objection to Exemptions, filed by Trustee Thomas D. Stalnaker and Filing No. 30, Resistance, filed by the debtors. Joseph Badami appeared for the debtors and Thomas Stalnaker appeared as Chapter 7 trustee. This memorandum contains findings of fact and conclusions of law required by Federal Rule of Bankruptcy Procedure 7052 and Federal Rule of Civil Procedure 52. This is a core proceeding as defined by 28 U.S.C. § 157(b)(2)(B).
The daughter of the debtors was killed in an automobile accident. The debtors employed the services of an attorney to prosecute a cause of action against the driver of the vehicle. Prior to filing suit, the matter was settled. Sheryl A. Diers, one of the debtors herein and mother of the decedent, was appointed as personal representative of the estate of the decedent and applied to the County Court of Dodge County, Nebraska, for “Leave to Settle Claim for the Wrongful Death” of her daughter. A court order provided that two insurance companies had agreed to make lump-sum settlements to the estate of the decedent as a “full satisfaction of the *168wrongful death claims that the Personal Representative of the estate ... ha[d]” against either of the companies.
The funds were received by Mr. and Mrs. Diers.
In June 2004, the debtors filed this voluntary petition under Chapter 7 of the Bankruptcy Code. They included in Schedule C the remaining $9,500 of the wrongful death settlement payment and claimed that amount as exempt under the Nebraska statutes.
The Chapter 7 trustee has filed an objection to the claimed exemption on the grounds that the debtors are not “dependents” under Neb.Rev.Stat. § 25-1563.02 as construed by In re Borgmann, 176 B.R. 172 (Bankr.D.Neb.1994). The debtors have resisted the objection.
Counsel for the debtors and counsel for the trustee have each filed well-written briefs, and counsel for the debtors has attached the court order approving the settlement and an affidavit of the attorney who represented Mrs. Diers in her capacity as personal representative. The court order and the affidavit are admitted into evidence.
The statutory provision in question with regard to the exemption of the funds is Neb.Rev.Stat. § 25-1563.02, which provides in relevant part as follows:
(1) ... [A]ll proceeds and benefits, including interest ..., which are paid either in a lump sum or are accruing under any structured settlement ... which lump-sum settlement or periodic payments are made as compensation for personal injuries or death, shall be exempt ... from all claims of creditors of the beneficiary or the beneficiary’s surviving dependents ....
As pointed out by the debtors, the language of this subsection provides that a debtor may take an exemption in the wrongful death payment only if: (1) his or her right to receive a payment is on account of the death of an individual; (2) he or she was a beneficiary of the settlement; or (3) he or she is the beneficiary’s surviving dependent. There is no question that the payment was received on account of the death of the decedent. There is also no question that the debtors are not surviving dependents of the decedent. The question then becomes whether the debtors are beneficiaries of the settlement.
In Nebraska, there are two types of causes of action which vest in and can be brought only by the personal representative of a decedent’s estate. One is governed by Neb.Rev.Stat. § 25-1401 et seq.1 and Neb. Rev. Stat § 25-3222. Those two statutory provisions allow a cause of action held by a person who is fatally injured to be prosecuted by the personal representative of the decedent. The cause of action is referred to as a “survival action.” See *169Rhein v. Caterpillar Tractor Co., 210 Neb. 321, 314 N.W.2d 19 (1982); Murray v. Omaha Transfer Co., 95 Neb. 175, 145 N.W. 360 (1914). In other words, when a person is injured by the negligent act of another, a cause of action accrues to the injured person and his or her death does not extinguish that cause of action. Eli’s, Inc. v. Lemen, 256 Neb. 515, 591 N.W.2d 543 (1999). A survival action is not a new cause of action but is a continuation in the deceased’s personal representative of the cause of action which accrued to the deceased under the common law. Webster v. City of Hastings, 59 Neb. 563, 81 N.W. 510 (1900). The purpose of the survival action is to recover the loss to the decedent’s estate resulting from the tort. See Murray, supra (when plaintiff dies from injuries for which he brought suit, administrator is entitled to recover for benefit of estate what plaintiff would have been entitled to if he had survived).
In contrast, Neb.Rev.Stat. §§ 30-809 & -810 provide a cause of action, not to the decedent and the decedent’s estate, but to a personal representative of the decedent for the exclusive benefit of the widow or widower and next of kin.3
Under the law of Nebraska, an action brought under Sections 30-809 and 30-810 is referred to as a wrongful death action. See Stevenson v. Richardson County, 9 F.R.D. 437 (D.Neb.1949) (this section was created not as an administrable asset of the decedent’s estate generally, but rather for the direct and exclusive benefit of the widow or widower and next of kin); Mabe v. Gross, 167 Neb. 593, 94 N.W.2d 12 (1959) (“next of kin” means the class of persons nearest in degree of blood surviving the deceased).
Returning now to the issue of whether the lump-sum settlement received by the parents of the decedent is exempt under Neb.Rev.Stat. § 25-1563.02, we have guidance from an opinion by Judge Minahan in the matter of In re Borgmann, 176 B.R. 172 (Bankr.D.Neb.1994). In that case, the debtors, parents of a decedent killed in an automobile collision, received a lump-sum settlement paid after the personal representative of the daughter’s estate filed an action against the other driver involved in the automobile accident. Before the bankruptcy case was filed, the personal representative distributed the net proceeds of the litigation to the debtors. At the time the bankruptcy case of the debtors was filed, there remained $15,000 of the settlement proceeds.
*170The debtors claimed the $15,000 was exempt pursuant to Section 25-1563.02. The Chapter 13 trustee objected to the claimed exemption.
The opinion is silent with regard to what the lawsuit claimed. One cannot determine from the opinion whether the action filed by the personal representative was one under § 25-1401 et seq. or under §§ 30-809 & -810. In addition, neither of those statutes is referenced in the opinion.
Judge Minahan, construing Section 25-1563.02 alone, determined that “[t]he decedent’s estate settled its claim for wrongful death, and the estate received the settlement proceeds. On these facts, I conclude that the ‘beneficiary’ of the settlement proceeds was the decedent’s estate.” Borgmann at 174. Judge Minahan further found:
The debtors had an indirect economic interest in the wrongful death litigation and received the economic benefit of the settlement. However, the debtors’ receipt of economic benefit from the settlement does not qualify them as statutory “beneficiaries” under § 25-1563.02 because the language of the statute rebuts this conclusion....
... If the term “beneficiary” were read to include persons who receive indirect economic benefit from a settlement, the phrase “the beneficiary’s surviving dependents ...” would become unnecessary surplusage. The words of limitation “or the beneficiary’s surviving dependents” require that the term “beneficiary” be read narrowly as referring only to the injured party or, if deceased, the injured party’s estate. Therefore the debtors are not “beneficiaries” as that term is used in § 25-1563.02.
... Since the debtors in this case do not qualify as beneficiaries or as surviving dependents of the beneficiary, the proceeds of the wrongful death settlement are not exempt from claims of the debtors’ creditors under § 25-1563.02.
Borgmann at 174-75.
The Borgmann analysis is not controlling in this case. First, in this case, no lawsuit was filed. Second, apparently neither counsel for the debtors nor counsel for the trustee nor the court considered the wrongful death and/or survivorship statutes.
The legislative history of Section 25-1563.02, as amended in 1993, added lump-sum settlements to the types of benefits which would be exempt from claims of creditors. However, there is nothing in the legislative history that differentiates benefits received as a lump-sum settlement under the “survivorship” statutory provisions from benefits received in a lump-sum settlement under the “wrongful death” statutory provisions. Those two different “wrongful death” statutes were on the statute books at the time Section 25-1563.02 was amended. Had the legislature intended to exclude benefits of lump-sum settlements resulting from personal injury or death under one statutory section or the other, the legislature had the perfect opportunity to do so when it added the “lump-sum” provisions to Section 25-1563.02.
Under both wrongful death statutory provisions, the cause of action when there is a death involved must be brought by the personal representative of the estate of the decedent. Therefore, the fact that a lump-sum settlement is negotiated by or awarded to the personal representative is not significant with regard to whether or not the debtors are “indirect beneficiaries” as indicated in Borgmann, supra, or whether they are the actual direct beneficiaries as defined under Sections 30-809 & -810.
In conclusion, because the legislature has not prohibited the holders of causes of *171action under Section 25-1401 et seq. or Sections 30-809 and -810 from exempt status under Section 25-1563.02 and because there is no evidence before this court with regard to the type of cause of action which was settled, except for the order of the probate court which provided that the settlement was “in full satisfaction of the wrongful death claims that the Personal Representative of the estate herein has against [the insurance companies]” and that “said sum set forth above shall be a full and complete compromise and settlement of all claims of whatsoever nature which the estate of Katie Irene Diers has against” the insurance companies and the driver of the vehicle, I find that the funds resulting from the lump-sum settlement still in possession of the debtors are exempt under Section 25-1563.02.
. § 25-1401. Causes of action which survive.
In addition to the causes of action which survive at common law, causes of action for mesne profits, or for an injury to real or personal estate, or for any deceit or fraud, shall also survive, and the action may be brought, notwithstanding the death of the person entitled or liable to the same.
§ 25-1402. Actions which abate by death of defendant.
No action pending in any court shall abate by the death of either or both the parties theretof]
. § 25-322. Substitution of parties; death; disability; transfer of interest.
An action does not abate by the death or other disability of a party ... if the cause of action survive or continue. In the case of the death or other disability of a party, the court may allow the action to continue by or against his representative or successor in interest....
. § 30-809. Wrongful death; action authorized.
Whenever the death of a person ... is caused by the wrongful act, neglect, or default of any person ... and the act, neglect, or default is such as would, if death had not ensued, have entitled the person injured to maintain an action and recover damages in respect thereof, then, and in every such case, the person who ... would have been liable if death had not ensued, is liable in an action for damages, notwithstanding the death of the person injured, and although the death was caused under such circumstances as amount in law to felony.
§ 30-810. Action for wrongful death;...
Every such action ... shall be brought by and in the name of the person's personal representative for the exclusive benefit of the widow or widower and next of kin. The verdict or judgment should be for the amount of damages which the persons in whose behalf the action is brought have sustained. The avails thereof shall be paid to and distributed among the widow or widower and next of kin in the proportion that the pecuniary loss suffered by each bears to the total pecuniary loss suffered by all such persons. A personal representative shall not compromise or settle a claim for damages ... until the court ... shall first have consented to and approved the terms thereof.... Such amount shall not be subject to any claims against the estate of such decedent. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484358/ | 11/16/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 22-0205
No. DA 22-0205
STATE OF MONTANA,
Plaintiff and Appellee,
v.
MICHAEL ANTHONY GOMEZ,
Defendant and Appellant.
ORDER
Upon consideration of Appellant’s motion for extension of time,
and good cause appearing,
IT IS HEREBY ORDERED that Appellant is granted an extension
of time to and including December 21, 2022, within which to prepare,
file, and serve Appellant’s opening brief on appeal.
Electronically signed by:
Mike McGrath
Chief Justice, Montana Supreme Court
November 16 2022 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484359/ | 11/16/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 22-0363
No. DA 22-0363
STATE OF MONTANA,
Plaintiff and Appellee,
v.
JOSHEPH EDWARD KNOWLES,
Defendant and Appellant.
ORDER
Upon consideration of Appellant’s motion for extension of time,
and good cause appearing,
IT IS HEREBY ORDERED that Appellant is granted an extension
of time to and including December 21, 2022, within which to prepare,
file, and serve Appellant’s opening brief on appeal.
Electronically signed by:
Mike McGrath
Chief Justice, Montana Supreme Court
November 16 2022 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484360/ | 11/16/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 22-0450
No. DA 22-0450
STATE OF MONTANA,
Plaintiff and Appellee,
v.
BARRY SCOTT DORTON,
Defendant and Appellant.
ORDER
Upon consideration of Appellant’s motion for extension of time,
and good cause appearing,
IT IS HEREBY ORDERED that Appellant is granted an extension
of time to and including December 21, 2022, within which to prepare,
file, and serve Appellant’s opening brief on appeal.
.
Electronically signed by:
Mike McGrath
Chief Justice, Montana Supreme Court
November 16 2022 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484362/ | IN THE SUPREME COURT OF PENNSYLVANIA
IN RE: : NO. 230
:
FINANCIAL INSTITUTIONS APPROVED : DISCIPLINARY RULES DOCKET
AS DEPOSITORIES FOR FIDUCIARY :
ACCOUNTS :
:
:
ORDER
PER CURIAM
AND NOW, this 16th day of November, 2022, it is hereby Ordered that the financial
institutions named on the attached list are approved as depositories for fiduciary accounts
in accordance with Pa.R.D.E. 221. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484364/ | FINANCIAL INSTITUTIONS APPROVED AS DEPOSITORIES
OF TRUST ACCOUNTS OF ATTORNEYS
Bank Code A. 21 Community Bank (PA)
371 Community Bank, NA (NY)
595 Abacus Federal Savings Bank 132 Community State Bank of Orbisonia
2 ACNB Bank 380 County Savings Bank
613 Allegent Community Federal Credit Union 536 Customers Bank
375 Altoona First Savings Bank
376 Ambler Savings Bank
532 AMERICAN BANK (PA) Bank Code D.
615 Americhoice Federal Credit Union
116 AMERISERV FINANCIAL 339 Dime Bank (The)
648 Andover Bank (The) 27 Dollar Bank, FSB
377 Apollo Trust Company
Bank Code E.
Bank Code B.
500 Elderton State Bank
558 Bancorp Bank (The) 567 Embassy Bank for the Lehigh Valley
485 Bank of America, NA 541 Enterprise Bank
662 BANK OF BIRD-IN-HAND 28 Ephrata National Bank
415 Bank of Landisburg (The) 601 Esquire Bank, NA
664 BankUnited, NA 340 ESSA Bank & Trust
501 BELCO Community Credit Union
673 BENCHMARK FEDERAL CREDIT UNION
652 Berkshire Bank Bank Code F.
663 BHCU
5 BNY Mellon, NA 629 1st Colonial Community Bank
392 Brentwood Bank 158 1st Summit Bank
495 Brown Brothers Harriman Trust Co., NA 31 F & M Trust Company – Chambersburg
658 Farmers National Bank of Canfield
Bank Code C. 205 Farmers National Bank of Emlenton (The)
34 Fidelity Deposit & Discount Bank (The)
654 CACL Federal Credit Union 583 Fifth Third Bank
618 Capital Bank, NA 661 First American Trust, FSB
675 CENTRE 1ST BANK, A DIVISION OF OLD 643 First Bank
DOMINION NATIONAL BANK 174 First Citizens Community Bank
136 Centric Bank 191 First Columbia Bank & Trust Company
394 CFS BANK 539 First Commonwealth Bank
623 Chemung Canal Trust Company 674 First Commonwealth Federal Credit Union
599 Citibank, NA 504 First Federal S & L Association of Greene
238 Citizens & Northern Bank County
561 Citizens Bank, NA 525 First Heritage Federal Credit Union
206 Citizens Savings Bank 42 First Keystone Community Bank
576 Clarion County Community Bank 51 First National Bank & Trust Company of
591 Clearview Federal Credit Union Newtown (The)
23 CNB Bank 48 First National Bank of Pennsylvania
223 Commercial Bank & Trust of PA 426 First Northern Bank & Trust Company
604 First Priority Bank, a division of Mid Penn Bank 72 JUNIATA VALLEY BANK (THE)
592 FIRST RESOURCE BANK
657 First United Bank & Trust
408 First United National Bank Bank Code K.
151 Firstrust Savings Bank
416 Fleetwood Bank 651 KeyBank NA
175 FNCB Bank 414 Kish Bank
647 FORBRIGHT BANK
291 Fox Chase Bank
241 Franklin Mint Federal Credit Union Bank Code L.
639 Freedom Credit Union
58 Fulton Bank, NA 78 Luzerne Bank
Bank Code G. Bank Code M.
499 Gratz Bank (The) 361 M & T Bank
498 Greenville Savings Bank 386 Malvern Bank, NA
510 Marion Center Bank
387 Marquette Savings Bank
Bank Code H. 81 Mars Bank
367 Mauch Chunk Trust Company
244 Hamlin Bank & Trust Company 511 MCS (Mifflin County Savings) Bank
362 Harleysville Savings Bank 641 Members 1st Federal Credit Union
363 Hatboro Federal Savings 555 Mercer County State Bank
463 Haverford Trust Company (The) 192 Merchants Bank of Bangor
606 Hometown Bank of Pennsylvania 671 Merchants Bank of Indiana
68 Honesdale National Bank (The) 610 Meridian Bank
350 HSBC Bank USA, NA 294 Mid Penn Bank
364 HUNTINGDON VALLEY BANK 276 MIFFLINBURG BANK & TRUST COMPANY
605 Huntington National Bank (The) 457 Milton Savings Bank
608 Hyperion Bank 596 MOREBANK, A DIVISION OF
BANK OF PRINCETON (THE)
484 MUNCY BANK & TRUST COMPANY (THE)
Bank Code I.
669 Industrial Bank Bank Code N.
365 InFirst Bank
557 Investment Savings Bank 433 National Bank of Malvern
526 Iron Workers Savings Bank 168 NBT Bank, NA
668 Inspire FCU 347 Neffs National Bank (The)
434 NEW TRIPOLI BANK
15 NexTier Bank, NA
Bank Code J. 636 Noah Bank
638 Norristown Bell Credit Union
70 Jersey Shore State Bank 666 Northern Trust Co.
127 Jim Thorpe Neighborhood Bank 439 Northumberland National Bank (The)
488 Jonestown Bank & Trust Company 93 Northwest Bank
659 JPMorgan Chase Bank, NA
Bank Code O. 462 Slovenian Savings & Loan Association of
Franklin-Conemaugh
653 OceanFirst Bank 486 SOMERSET TRUST COMPANY
489 OMEGA Federal Credit Union 633 SSB Bank
94 Orrstown Bank 122 Susquehanna Community Bank
Bank Code P. Bank Code T.
598 PARKE BANK 143 TD Bank, NA
584 Parkview Community Federal Credit Union 656 TIOGA FRANKLIN SAVINGS BANK
40 Penn Community Bank 182 Tompkins Vist Bank
540 PennCrest Bank 660 Top Tier FCU
419 Pennian Bank 577 Traditions Bank
447 Peoples Security Bank & Trust Company 609 Tristate Capital Bank
99 PeoplesBank, a Codorus Valley Company 672 Truist Bank
556 Philadelphia Federal Credit Union 640 TruMark Financial Credit Union
448 Phoenixville Federal Bank & Trust 467 Turbotville National Bank (The)
665 Pinnacle Bank
79 PNC Bank, NA
449 Port Richmond Savings Bank Code U.
667 Premier Bank
354 Presence Bank 483 UNB Bank
451 Progressive-Home Federal Savings & Loan 481 Union Building and Loan Savings Bank
Association 634 United Bank, Inc.
637 Provident Bank 472 United Bank of Philadelphia
456 Prudential Savings Bank 475 United Savings Bank
491 PS Bank 600 Unity Bank
232 Univest Bank & Trust Co.
Bank Code Q.
Bank Code V.
107 QNB Bank
560 Quaint Oak Bank 611 Victory Bank (The)
Bank Code R. Bank Code W.
452 Reliance Savings Bank 119 WASHINGTON FINANCIAL BANK
220 Republic First Bank d/b/a Republic Bank 121 Wayne Bank
631 WELLS FARGO BANK, NA
553 WesBanco Bank, Inc.
Bank Code S. 494 West View Savings Bank
473 Westmoreland Federal S & L Association
153 S & T Bank 476 William Penn Bank
316 Santander Bank, NA 272 Woodlands Bank
460 Second Federal S & L Association of 573 Woori America Bank
Philadelphia 630 WSFS (Wilmington Savings Fund Society), FSB
646 Service 1st Federal Credit Union
458 Sharon Bank
Bank Code X. PLATINUM LEADER BANKS
The HIGHLIGHTED ELIGIBLE INSTITUTIONS are
Bank Code Y. Platinum Leader Banks – Institutions that go above
and beyond eligibility requirements to foster the
IOLTA Program. These Institutions pay a net yield at
Bank Code Z. the higher of 1% or 75 percent of the Federal Funds
Target Rate on all PA IOLTA accounts. They are
committed to ensuring the success of the IOLTA
Program and increased funding for legal aid.
IOLTA EXEMPTION
Exemptions are not automatic. If you believe you
qualify, you must apply by sending a written request
to the IOLTA Board’s executive director: 601
Commonwealth Avenue, Suite 2400, P.O. Box 62445,
Harrisburg, PA 17106-2445. If you have questions
concerning IOLTA or exemptions from IOLTA, please
visit their website at www.paiolta.org or call the IOLTA
Board at (717) 238-2001 or (888) PAIOLTA.
October 2022 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484352/ | NONPRECEDENTIAL DISPOSITION
To be cited only in accordance with FED. R. APP. P. 32.1
United States Court of Appeals
For the Seventh Circuit
Chicago, Illinois 60604
Submitted October 25, 2022 *
Decided November 16, 2022
Before
DIANE S. SYKES, Chief Judge
DIANE P. WOOD, Circuit Judge
MICHAEL B. BRENNAN, Circuit Judge
No. 22-1101
ALERDING CASTOR, LLP, Appeal from the United States District
Plaintiff-Appellee, Court for the Southern District of Indiana,
Indianapolis Division.
v.
No. 1:16-cv-02453-JPH-MJD
PAUL FLETCHER and CAROLE
WOCKNER, James P. Hanlon,
Defendants-Appellants. Judge.
ORDER
Carole Wockner and Paul Fletcher did not pay Alerding Castor, a law firm, for
its legal work in representing them. The firm sued its former clients and, after a jury
trial, obtained a judgment against them. Wockner and Fletcher contend on appeal that
the district judge made three reversible errors—awarding prejudgment interest,
ignoring their rights to some discovery, and excluding some of their evidence at trial.
*
We have agreed to decide the case without oral argument because the briefs and
record adequately present the facts and legal arguments, and oral argument would not
significantly aid the court. FED. R. APP. P. 34(a)(2)(C).
No. 22-1101 Page 2
We affirm. First, Indiana law authorized prejudgment interest here. Second, the judge
reasonably handled their discovery requests, which sought duplicative information
from the firm. Third, the judge reasonably excluded at trial evidence that Fletcher and
Wockner had never properly disclosed earlier.
Background
Wockner and Fletcher hired Alerding Castor to represent them in a forgery case.
(For simplicity, we refer to the clients as “Wockner” and the law firm as “Alerding.”)
Wockner lost the case. After Wockner refused to pay Alerding, the firm sued her in
Indiana court for breach of contract, seeking over $100,000 in fees. Wockner removed
the suit to federal court based on diversity jurisdiction and filed counterclaims.
Discovery bogged down. Wockner asked Alerding to produce the “timesheets”
of all employees who worked on the forgery case. Alerding responded that it had
already produced all documents responsive to this request: its invoices listing how long
employees worked on tasks and when they did those tasks. (Wockner does not contest
that Alerding produced those invoices.) Wockner responded with motions to compel,
and Alerding replied that, beyond the invoices, the timesheets that Wockner requested
do not exist. A magistrate judge denied the motions, reasoning that Wockner’s mere
belief that Alerding kept other records was not enough to entitle her to relief.
The discovery dispute over timesheets continued. Wockner objected to the
district judge, see FED. R. CIV. P. 72, about the magistrate judge’s denial of her motion to
compel. The district judge overruled her objections because, he said, another pending
motion to compel before the magistrate judge obviated the first one. (By this time,
however, the magistrate judge had resolved that other motion.) Wockner then asked the
magistrate judge to amend pretrial deadlines so the district judge could order Alerding
to produce its timesheets. The magistrate judge denied these requests because, as he
saw it, the district judge had rejected Wockner’s objections regarding the motion to
compel. Later, after the district judge revisited Wockner’s objections to the rulings on
the motions to compel, the judge accepted the magistrate judge’s rationale that the
motions lacked merit. The district judge also entered partial summary judgment for
Alerding on Wockner’s counterclaims.
The case went to trial on Alerding’s contract claim, and discovery issues
resurfaced in two ways. First, several of Alerding’s witnesses described how the firm
uses billing software to record and bill time. This led Wockner to revive (to no avail) her
belief that unproduced timesheets existed. Second, midway through trial, Wockner first
No. 22-1101 Page 3
revealed that she had a recording of a phone call with an Alerding attorney. She argued
that the call proved the attorney had lied at trial about an estimate he had once given to
Wockner describing the prospects of her forgery case and its anticipated legal fees.
Alerding objected, saying Wockner had not timely produced this recording.
To resolve the objection about the undisclosed recording, the district judge asked
Wockner two questions. First, he asked, “[H]ow long have you known about this
recording?” Rather than answer “how long,” Wockner asserted why she delayed
revealing it: “I didn’t know where it was. It’s -- my son, my son --.” The judge warned
her that her answer was nonresponsive and that she needed to tell him “how long”:
THE COURT: [A]nswer this question or I’m going to sanction you. When
did you find out about the recording? …
MS. WOCKNER: I didn’t know I had it. I did not know because I don’t
know how to use my tablet, a lot of the apps. My son sets everything up
for me on my tablet.
THE COURT: Okay. You have not answered my question … .
Second, the judge asked Wockner whether she considered this recording responsive to
any of Alerding’s discovery requests, and Wockner reiterated her previous response:
THE COURT: … [W]as this covered by the written discovery requests
served on you by the plaintiffs in this case?
MS. WOCKNER: Was I asked? By whom? In a discovery request?
THE COURT: By the plaintiffs in a written discovery request. Would this
have been responsive, is this responsive to a written discovery request?
MS. WOCKNER: Not that I knew at the time because I didn’t know I had
it and -- I did not know I had it. And I didn’t know what the -- I did not
know -- I knew I had a conversation with him, but I didn’t know that I
had it on a recording that was saved on my tablet that I don’t know how
to use. My son found it for me just a couple weeks ago when he was
trying to take off the apps on it so that we could use it.
Deeming Wockner’s answers nonresponsive, he excluded the recording from evidence.
No. 22-1101 Page 4
The trial ended the next day. The jury found Wockner liable, and it awarded
Alerding just under $70,000 in damages. The judge entered judgment for Alerding and
assessed approximately $30,000 in prejudgment interest.
Wockner filed postjudgment motions. First, she argued that the judge incorrectly
assessed prejudgment interest: In her view, it was not available as a matter of law and
the judge should have tolled interest attributable to pandemic-related delays in the trial
date. Second, she moved for relief from judgment. See FED. R. CIV. P. 60(b)(3). Insisting
that Alerding ignored its discovery obligations, she argued that evidence from trial
proved that Alerding lied when it said that it did not keep timesheets. Finally, she
contended, the judge erred in excluding her phone recording. The judge rejected these
arguments.
Analysis
On appeal, Wockner first maintains that the district judge erred by assessing
prejudgment interest. She contends first that the law forbids it in this case. Under
Indiana law (which applies in this diversity action), prejudgment interest is improper
when a trier of fact cannot readily determine the value of the plaintiff’s injury. BRC
Rubber & Plastics, Inc. v. Cont'l Carbon Co., 981 F.3d 618, 635 (7th Cir. 2020); Care Grp.
Heart Hosp., LLC v. Sawyer, 93 N.E.3d 745, 757 (Ind. 2018). Wockner contends that this
rule was offended when the jury had to decide how many hours the firm worked on her
forgery case. Because the jury found Wockner liable for fewer hours than Alerding
sought, she concludes that the value of Alerding’s injury was not readily ascertainable.
But Wockner focuses on the wrong issue—liability for unpaid hours—rather
than the value of those hours. Prejudgment interest is appropriate when the trier of fact
uses judgment to determine what the plaintiff lost so long as the trier of fact can readily
decide the value of that loss. BRC Rubber, 981 F.3d at 635–36; Five Star Roofing Sys., Inc. v.
Armored Guard Window & Door Grp., Inc., 191 N.E.3d 224, 240 (Ind. Ct. App. 2022). Here,
the jury permissibly used its judgment to decide how many hours of unpaid work
Alerding performed. This determined the scope of liability, and juries may use
judgment when deciding if and to what extent a party is liable. Five Star, 191 N.E.3d
at 240.
Once the jury permissibly used its judgment to determine the scope of Wockner’s
liability, it did not have to use improper judgment to calculate the value of that liability.
The value was a simple mathematical calculation of hours worked multiplied by an
hourly rate. True, the jury had to decide if the rate (and the subsequent total) was
No. 22-1101 Page 5
reasonable. Even so, a dispute over an hourly rate “does not alter the fact that” it is
readily ascertainable, because fee determinations are guided by known standards of
value. Cmty. State Bank Royal Ctr. v. O'Neill, 553 N.E.2d 174, 177–78 (Ind. Ct. App. 1990);
see BRC Rubber, 981 F.3d at 636 (observing that decisions about the reasonableness of
damages does not preclude prejudgment interest). And even if the jury had to use some
judgment to decide the value of Wockner’s liability, Indiana law gives a judge
“considerable play in the joints” (to which we defer) to award prejudgment interest.
BRC Rubber, 981 F.3d at 635; Meridian Mut. Ins. Co. v. Majestic Block & Supply, Inc.,
1 N.E.3d 173, 182 (Ind. Ct. App. 2013). Thus, the judge did not err by awarding
prejudgment interest.
Wockner next argues that the judge should have tolled prejudgment interest
because emergency orders during the COVID-19 pandemic delayed the case. For
support, she cites only Denman v. St. Vincent Medical Group, Inc., 176 N.E.3d 480 (Ind. Ct.
App. 2021), transfer denied, 180 N.E.3d 942 (Ind. 2022), but that case is distinguishable.
First, it held only that a court may not toll postjudgment interest despite pandemic-
related delays. See id. at 503. Second, it suggested in dicta that in a tort case
prejudgment interest might be inappropriate if pandemic concerns delayed the
proceedings. It reasoned that prejudgment interest in tort cases incentivizes settlement,
and that incentive vanishes when a delay is beyond the parties’ control. See id. at 500,
505; see also Kosarko v. Padula, 979 N.E.2d 144, 150 (Ind. 2012). But this is a contract
dispute, where prejudgment interest serves a different goal—compensating plaintiffs
for the lost use of their money. See DeGood Dimensional Concepts, Inc. v. Wilder,
135 N.E.3d 625, 637 (Ind. Ct. App. 2019); see also BRC Rubber, 981 F.3d at 634. The cause
of the delay is irrelevant to that goal; therefore, tolling here was not required.
That brings us to the discovery dispute over the timesheets, the production of
which the district judge refused to compel because of the absence of any evidence that
Alerding maintained them. Wockner believes it “unfathomable” that Alerding does not
keep the timesheets for each employee. The judge, she contends, abused his discretion
by not compelling their production or ordering relief from judgment based on
Alerding’s “fraud” in denying their existence See FED. R. CIV. P. 37(a)(3)(B)(iv), 60(b)(3).
As support, she relies on trial testimony that, she says, shows that the firm’s employees
enter their hours into software that the firm used to generate invoices.
But the testimony that Wockner cites does not support her contentions. It shows,
at most, that Alerding’s employees entered their time using software which stores that
data electronically. Alerding can (and did) use the software to format the data into
No. 22-1101 Page 6
invoices and produce them to Wockner. Even if the software could generate new
documents in a format that corresponds to “timesheets” for each employee, Wockner
offers no evidence that reformatting data into these employee-specific timesheets would
show information not already in the invoices. Thus, the district judge did not abuse his
discretion when refusing to order Alerding to create new documents that would have
been duplicative. See FED. R. CIV. P. 26(b)(2)(C)(i), 34(b)(2)(E)(iii). For the same reason,
Wockner did not supply clear and convincing evidence of fraud that compelled the
judge to award the “extraordinary” remedy of relief from judgment under
Rule 60(b)(3). Fields v. City of Chicago, 981 F.3d 534, 558 (7th Cir. 2020).
Finally, Wockner argues that the judge abused his discretion by excluding
Wockner’s recording of the phone call with an Alerding attorney. She insists that the
judge did not give her a chance to explain her delay in producing it because, she thinks,
the judge asked vague questions and cut her off. In particular, she believes that the
question, “[H]ow long have you known about this recording?” was unclear; the judge,
she says, might have been referring to either the recording or its evidentiary value.
The judge did not abuse his discretion. First, he was appropriately skeptical of
Wockner’s midtrial revelation because a party’s failure to include evidence in its pretrial
disclosures generally results in the evidence’s exclusion. See FED. R. CIV. P. 37(c)(1).
Also, the judge’s “how long have you known” question reasonably sought to determine
if Wockner’s delay in revealing the recording after she learned about it “was
substantially justified or … harmless.” Id. But Wockner refused to answer, and her
excuse—the question could have referred either to the recording or its value—is
unavailing. The judge’s question began with “how long.” Thus, the answer called for a
unit of time. Yet Wockner refused to state the length of her delay—even after the judge
warned her that she was evading his question—arguing only that her delay was
justified. The judge also reasonably concluded that Wockner inadequately responded to
his second question (“[W]as this covered by the written discovery requests … ?”).
Rather than give a yes-or-no answer, Wockner again deflected by denying that she
knew she had the recording. Because Wockner did not adequately answer either
question meant to resolve whether she might be conducting a trial by ambush, the
judge permissibly excluded evidence not disclosed until the middle of trial. See Morris
v. BNSF Ry. Co., 969 F.3d 753, 764–66 (7th Cir. 2020) (judge did not abuse discretion by
excluding three witnesses disclosed less than a month before trial).
We have considered Wockner’s other arguments, but she has not developed
them enough to require discussion. Therefore, we AFFIRM. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484355/ | 2022 IL App (1st) 181664-U
No. 1-18-1664
Order filed November 16, 2022
Third Division
NOTICE: This order was filed under Supreme Court Rule 23 and is not precedent except in the
limited circumstances allowed under Rule 23(e)(1).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
FIRST DISTRICT
______________________________________________________________________________
THE PEOPLE OF THE STATE OF ILLINOIS, ) Appeal from the
) Circuit Court of
Plaintiff-Appellee, ) Cook County.
)
v. ) No. 15 CR 18817
)
ANDRE GREEN, ) Honorable
) Alfredo Maldonado,
Defendant-Appellant. ) Judge, presiding.
JUSTICE GORDON delivered the judgment of the court.
Presiding Justice McBride and Justice Reyes concurred in the judgment.
ORDER
¶1 Held: We affirm defendant’s convictions for unlawful use or possession of a weapon by
a felon over his contentions that the court erred in denying his motions for (1) a
hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978) and (2) a mistrial.
¶2 Following a jury trial, defendant Andre Green was found guilty of six counts of unlawful
use or possession of a weapon by a felon (UUWF) (720 ILCS 5/24-1.1(a) (West 2014)) and
sentenced to a total of 14 years’ imprisonment. The weapons and ammunition had been recovered
following execution of a search warrant. On appeal, defendant contends the trial court erred by (1)
No. 1-18-1664
denying his motion for a hearing pursuant to Franks v. Delaware, 438 U.S. 154 (1978), challenging
the complaint for the search warrant and (2) denying his motion for a mistrial where a State’s
witness referred to defendant as the “target” of the search warrant. We affirm.
¶3 On February 23, 2018, defendant was found guilty of six counts of UUWF predicated upon
possessing firearms (counts I-III), and ammunition (counts IV-VI) recovered by police on October
28, 2015, following execution of a search warrant.
¶4 The circuit court had issued the search warrant on October 27, 2015. On that day, Chicago
police officer Daniel Conway appeared before the issuing judge and presented “John Doe” and a
complaint for a search warrant for defendant, also known as “Dre,” and the first floor of a two-flat
building on the 11000 block of South Lowe Avenue (Lowe address). Conway requested seizure of
firearms, ammunition, and proof of residency documents which, based on information from Doe,
he had probable cause to believe were located on the premises or defendant’s person. Conway, as
the complainant, signed and swore to the complaint before the judge, as did Doe using his “J. Doe”
alias.
¶5 In the complaint, Conway averred that Doe informed him that, in the previous 48 hours,
Doe visited an individual named “Dre” in a first-floor apartment at the Lowe address, a grey two-
flat building. In the living room, Dre showed Doe several firearms, including a .45-caliber
semiautomatic handgun, which Doe knew was real due to its weight and his familiarity with similar
firearms. Doe also observed two rifles “standing up in the corner behind a couch in the living
room.” Doe knew “Dre” for approximately 15 years and visited him at the Lowe address on
multiple occasions during the past month.
¶6 Following a database search, police officers and agents of the Bureau of Alcohol, Tobacco,
Firearms, and Explosives (ATF) identified defendant as “Dre” residing at the Lowe address. Doe
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No. 1-18-1664
identified defendant as “Dre” from a photograph shown him by Conway and ATF agents. A
criminal history check for defendant revealed a felony conviction for aggravated possession of a
stolen motor vehicle.
¶7 On October 27, 2015, police took Doe to the Lowe address and Doe identified the building
where he observed the firearms. Police and ATF agents observed the building was a grey two-flat
building. Doe appeared before the judge for questioning and swore to the contents of the complaint.
Doe’s criminal history, “including possible pending investigations if any,” was presented to the
judge, who signed the search warrant at 6:42 p.m. that day.
¶8 Prior to trial, on October 4, 2016, defendant filed a motion for a Franks hearing. In the
motion, defendant argued that “a false statement or statements were knowingly and intentionally,
or with reckless disregard for the truth, included in the sworn Complaint/Affidavit,” and were
necessary for the finding of probable cause. Specifically, defendant challenged the statements that
Doe was inside the Lowe address within 48 hours of the swearing of the complaint and issuance
of the search warrant on October 27, 2015, and was taken to identify the building on that date.
¶9 Defendant alleged that the only individual “who could possibly” be Doe was a man named
Charles Davis Jr. Defendant claimed that Davis was the only person who entered the Lowe address
in the 10 days prior to execution of the search warrant on October 28, 2015, aside from defendant,
defendant’s wife Cerita Cole, and her minor son. Davis’s last entry was “sometime right before
October 18, 2015.”
¶ 10 According to defendant, Chicago police records confirmed that Davis was arrested on
October 19, 2015, booked into the Cook County Department of Corrections (CCDOC) on October
20, 2015, and released on November 17, 2015. Davis’s only “exits” from CCDOC were for court
appearances on November 9 and 17, 2015. Defendant posited that Doe, i.e., Davis, therefore could
-3-
No. 1-18-1664
not have been inside the Lowe address within 48 hours of the issuance of the search warrant on
October 28, 2015, and thus the assertions in the complaint were false, and knowingly, intentionally,
or recklessly made.
¶ 11 Defendant attached his affidavit, the complaint for the search warrant, the search warrant,
and records for Davis, including an arrest report, complaint for preliminary examination, booking
records and authorized exits from CCDOC, and an order releasing Davis from custody on
November 17, 2015.
¶ 12 In his affidavit, defendant averred that the Lowe address belonged to his late father, who
passed away on July 17, 2015. Since then, “very few people” were allowed inside because personal
property belonging to defendant’s father and late aunt was still present. Defendant’s aunt, a
Chicago police officer, kept her firearm cleaning kit and police badges there.
¶ 13 In the 10 days prior to the execution of the search warrant, the only people to enter the
building were defendant, his wife Cole, her seven-year-old son, and Davis. Defendant had known
Davis since 1997 and knew he was arrested on October 19, 2015. Defendant’s attorney showed
him Davis’s records, so he knew that Davis was booked into CCDOC on October 20, 2015, and
was not released from custody until November 17, 2015.
¶ 14 On April 10, 2017, defendant filed an amended Franks motion, which was substantially
the same as the initial motion, but additionally requested that the identity of the informant be
disclosed to the defense or in camera to the court. Defendant attached his updated affidavit, as
well as the same documents supporting the original motion.
¶ 15 On May 15, 2017, the State filed a motion to strike or deny defendant’s Franks motion,
arguing that it omitted allegations of deliberate falsehood or reckless disregard for the truth by the
-4-
No. 1-18-1664
police as opposed to the “nongovernmental informant.” Defendant filed a reply brief arguing that
he alleged falsehoods by officers and the informant.
¶ 16 On July 14, 2017, the court heard arguments from the parties. Defendant argued that the
complaint contained allegations known to be false or with reckless disregard for the truth,
including that, within 48 hours of the issuance of the search warrant, Doe had been at the Lowe
address and was taken there again by police. According to defendant, Davis, the only possible
informant, was in custody during the relevant period of time.
¶ 17 The State contended that defendant was “on a fishing expedition” to discover the identity
of Doe, and did not expressly allege that the police officers knew that the information contained
in the search warrant was false or displayed reckless disregard for the truth. Additionally, Doe
appeared before a judge, who had the opportunity to question Doe about the veracity of the
complaint before issuing the warrant.
¶ 18 The court stated that defendant was engaged in “spear fishing” regarding the identity of the
informant. Defendant’s affidavit was the only evidence regarding the identity of Doe, and thus
amounted to a “mere denial” of the facts in the complaint. Additionally, defendant had not
presented evidence that the police officers knew that the information in the complaint was false or
included that information with a reckless disregard for the truth. The court continued the matter so
that defendant could obtain an affidavit from defendant’s wife or other additional material in
support of his motion.
¶ 19 On September 18, 2017, defendant filed a memorandum of law in support of his amended
motion for a Franks hearing. Defendant relied upon United States v. Glover, 755 F. 3d 811 (7th
Cir. 2014), to argue that a Franks hearing was necessary. According to defendant, the sworn
complaint supporting the warrant contained no information regarding the credibility of Doe, except
-5-
No. 1-18-1664
for the notation that Doe’s “criminal history including possible pending investigations if any has
been presented and made available” to the court.
¶ 20 On November 9, 2017, the court reopened argument on defendant’s motion. Defendant
argued that, under Glover, which was factually similar, he was entitled to a Franks hearing because
the sworn complaint supporting the search warrant lacked information regarding Doe’s credibility.
The State contended that the court should stand by its previous ruling because defendant’s affidavit
merely denied the facts in the complaint, and Glover was nonprecedential and distinguishable. 1
¶ 21 The court denied defendant’s motion, finding that defendant’s theory that only one person
was in the building within 10 days of the warrant’s execution relied solely upon his own affidavit,
and defendant did not show that the officer who presented the sworn complaint for the search
warrant lied or acted with a reckless disregard for the truth. The court commented that it was not
bound by Glover, which also was distinguishable on the facts.
¶ 22 At trial, Chicago police detective Thomas Beebe testified that on October 28, 2015, he
worked with an ATF task force in executing a search warrant at the Lowe address. When Beebe
arrived, he observed defendant, whom he identified in court, on the front porch with Cole and other
officers. Inside the residence, Beebe recovered a bag containing shotgun shells of various sizes
and .45-caliber bullets, a loaded 20-gauge shotgun, a loaded semiautomatic .45-caliber pistol, more
shotgun shells, a men’s leather jacket containing a loaded .45-caliber magazine in the pocket, and
a loaded 12-gauge shotgun. Beebe also observed an unopened envelope from a healthcare provider
1
The State also made a proffer that the informant was someone other than Charles Davis Jr. and
Officer Conway remembered presenting the informant’s criminal history to the judge and the judge
questioning Doe about the facts alleged in the warrant. Defendant objected. The court did not consider the
proffer in ruling on defendant’s motion.
-6-
No. 1-18-1664
addressed to defendant, a photocopy of defendant’s driver’s license, and defendant’s Social
Security card.
¶ 23 At trial, Beebe identified the firearms and ammunition, which he testified showed no signs
of deterioration or age, and documents recovered from the residence. Beebe also identified
photographs and narrated a video showing the interior of the address, taken on the day of the
search. 2 On cross-examination, Beebe stated that he knew that officers detained defendant as they
observed him exit from the door that led to the second floor unit. Beebe observed women’s items
in the first floor premises and did not take any of the men’s clothes from that unit. None of the
items in the unit were tested for DNA. Beebe did not know the age of the recovered firearms.
¶ 24 Chicago police officer Jeffrey Edwards testified that he helped execute the search warrant
on October 28, 2015. Beforehand, Edwards communicated with surveillance officer Larron
Alexander. When Edwards walked toward the front of the building, he observed defendant, whom
he identified in court, exit from the doorway that led to the second-floor unit. Edwards informed
defendant and, later, Cole, that officers were executing a search warrant, and briefly detained them.
¶ 25 Edwards discovered four pieces of proof of residence and a holster, which Beebe
recovered. Edwards asked defendant about the second-floor unit. Defendant responded that it was
occupied by his father before he passed away. Defendant consented in writing to a search of the
second floor. The consent form was entered into evidence. On cross-examination, Edwards stated
that Alexander observed defendant before Edwards did.
¶ 26 Alexander testified that he conducted surveillance from a parked vehicle near the residence
on October 28, 2015. He observed “defendant, the target of the search warrant, outside with a
2
None of the exhibits are in the record on appeal.
-7-
No. 1-18-1664
couple of dogs.” The State asked Alexander whether he saw that person in court, and Alexander
responded, “I do.”
¶ 27 Defendant interjected and the court addressed the attorneys in a sidebar. The following
exchange occurred:
“THE COURT: What are you doing?
[THE STATE]: I don’t know. I didn’t have a lot of time to prep him today prior to
testifying. Judge, I’m sorry I did not expect that to come out at all.
***
Judge, like I said, is there a way we can admonish the witness—
THE COURT: No, I think admonishment—
[THE STATE]: With my witness just to reaffirm that the word target does not come
out any more.
THE COURT: He is on the stand. I don’t know how you’re going to do that.
***
This is what we’re going to do. What he said so far is target. You haven’t asked
him for an in-court identification.
[DEFENSE COUNSEL]: He did say—
THE COURT: Yes, flat out he hasn’t connected all those dots yet.
***
What I’m saying, he hasn’t connected the dots yet who the target was or made an
in-court identification. The trouble is if he does finish that, I think it’s pretty obvious.”
¶ 28 Proceedings resumed, and the State asked Alexander whether the individual he observed
at the residence was in court. Alexander responded affirmatively. Defendant again interjected and
the court called another sidebar, where the following colloquy occurred:
-8-
No. 1-18-1664
“THE COURT: I told you not to bring out his identification. You just did it.
[THE STATE]: Judge, I’m sorry.
THE COURT: I told you not to do it because he has not connected the dots.
[DEFENSE COUNSEL]: I’m going to speak with [defendant]. And I have a motion
to make after I speak with [defendant], but I need to consult him before I make this motion.
THE COURT: I understand.
[THE STATE]: Judge, I’m sorry. I didn’t understand. I thought I was able to ask
him if he saw the defendant out front and go into this residence. That’s the whole reason
I’m calling him.
THE COURT: I understand. The problem is now that you’ve identified this target,
we heard other testimony about this dog, all that stuff. I’m saying the connection is here.
You’ve done it. You’ve connected the dots. I’m going to let you finish with this witness.
You can go ahead. My only issue, my problem, as I told you before, is without in-court
identification, the loop was not made. It may be now.
***
[THE STATE]: I didn’t understand. I just figured I would not ask him any
questions at that point that he would ever say the word target again. I did not realize, and
I wouldn’t have done it, that I was not able to make an in-court identification of the
defendant. That’s the reason I’m calling him.
THE COURT: The only person we heard out there—actually, I take that back,
two people we’ve heard in this trial is the defendant and his girlfriend. So that’s it. And
we’ve heard the testimony about these dogs and stuff like that. The reason I was telling
-9-
No. 1-18-1664
you to not make an in-court identification is because you have potential of closing that
loop and connecting all those dots for the jury to figure out who this target it.
***
I will let you finish. You will get the in-court identification. You will finish this
witness.”
¶ 29 Alexander then identified defendant, in court, as the person he saw that day standing with
dogs. Defendant entered the building using a door that led to the first-floor residence and, later,
exited the building from a door that led to the second-floor residence. Afterward, the search
warrant was executed.
¶ 30 Out of the presence of the jury, defense counsel moved for a mistrial. He argued that
Alexander’s testimony identifying defendant as the “target” of the search warrant was “too
prejudicial” and could not be cured by a jury instruction, which would only “highlight” the
testimony. The State argued that the court should admonish the jury to disregard Alexander’s use
of the word “target,” and instruct Alexander not to repeat the word in his testimony.
¶ 31 The court denied the motion, noting that Alexander identified defendant as the target only
once. The court agreed with the State that “target” is a term of art, and Alexander’s testimony did
not completely prejudice defendant and deprive him of a fair trial. The court agreed with the
defense that a curative instruction would only highlight the issue. Before trial resumed, the court
admonished Alexander not to use the term again in his testimony.
¶ 32 During cross-examination, Alexander did not refer to the content of the search warrant.
¶ 33 The State entered a certified record from the Illinois Secretary of State and a vehicle title
reflecting that defendant purchased a vehicle in December 2015 and registered it in his name at
the Lowe address.
- 10 -
No. 1-18-1664
¶ 34 The State then introduced four stipulations. Fingerprint specialist Charles Kubilus would
testify that he examined the firearms and discovered no latent fingerprint ridges usable for
comparison. ATF firearm and tool mark examiner Kristin Gerber would testify that she examined
the firearms and determined they were in normal operating condition. The parties further stipulated
that the .45-caliber handgun was shipped from Colt on December 8, 1917, the 20-gauge shotgun
was manufactured sometime after 1962, and the 12-gauge shotgun was manufactured after 1972.
Lastly, the parties stipulated that defendant had been convicted of a felony.
¶ 35 Defendant testified that his father lived downstairs in the first floor unit at the Lowe address
and passed away on July 17, 2015. Defendant resided there intermittently, most recently for two
to three weeks in 2014. Defendant then moved “[d]own the street” to the home of his girlfriend,
Tracy Johnson, through the date of the search. During that time, defendant renovated the upstairs
of the Lowe address and his “ex-wife,” Cole, lived in the first-floor apartment with her son.
Defendant and Cole divorced in 2009. Defendant’s father’s possessions were “all over the whole
building.” Defendant’s late aunt was a Chicago police officer, and her bag containing a firearm
cleaning kit was “[u]pstairs in the kitchen” on the date of the search. That day, defendant was
“finishing the bathroom” of the second-floor unit.
¶ 36 On cross-examination, defendant stated that only Cole and her son lived at the Lowe
address at the time of the search. Defendant agreed that he previously averred that he entered the
building during October 2015 with Cole, to whom he was married at the time he executed the
affidavit, and her son. When the State asked defendant about his relationship with Cole, defendant
denied that Cole was his wife when he prepared the affidavit for the motion for a Franks hearing,
and stated that he lived with Johnson during that time. Defendant only went to the Lowe address
two to three times per week, and never entered the first-floor apartment. He identified documents
- 11 -
No. 1-18-1664
showing his residence as the Lowe address, but stated he was living elsewhere. The dogs in the
residence belonged to Cole’s friends. Defendant did not know whose firearms were confiscated
pursuant to the search.
¶ 37 The jury found defendant guilty of six counts of UUWF.
¶ 38 Defendant filed a motion and amended motion for a new trial, arguing in relevant part that
the court erred in denying his Franks motion and his motion for a mistrial.
¶ 39 The court denied the motion for a new trial, commenting that it gave defendant ample
opportunity to explore the issues raised in his Franks motion and that his trial testimony “kind of
undercuts” statements in his affidavit supporting his Franks motion. Additionally, the court
concluded that it did not err in denying defendant’s motion for a mistrial. Alexander’s reference
to defendant as the “target” of the search warrant was “relatively fleeting” and not understood by
the jury, so defendant was not prejudiced.
¶ 40 After a hearing, the court sentenced defendant to terms of 14 years’ imprisonment on
counts I-III and 6 years’ imprisonment on counts IV-VI, all to be served concurrently. The court
denied defendant’s motion to reconsider sentence.
¶ 41 On appeal, defendant first argues that the trial court erred by denying his motion for a
Franks hearing where he made the requisite substantial preliminary showing that the complaint
for a search warrant contained false information and omitted information that was “relevant and
critical” to assessing the credibility and reliability of Doe.
¶ 42 Franks provides a defendant the right, under limited circumstances, to a hearing to
challenge the veracity of an affidavit supporting a search warrant. People v. Voss, 2014 IL App
(1st) 122014, ¶ 16. Under Franks, where the defendant makes a substantial preliminary showing
that the affiant-officer for the warrant affidavit made a false statement knowingly and intentionally,
- 12 -
No. 1-18-1664
or with reckless disregard for the truth, and the allegedly false statement was necessary to the
finding of probable cause, a court must hold a hearing. People v. Chambers, 2016 IL 117911, ¶ 35
(citing Franks, 438 U.S. at 155-56). A defendant’s preliminary burden must be sufficiently
rigorous to preclude automatic hearings in every case, but not so onerous as to be unachievable.
People v. Lucente, 116 Ill 2d 133, 152 (1987). Thus, a substantial preliminary showing is proof
somewhere between mere denials and proof by a preponderance of the evidence. Chambers, 2016
IL 117911, ¶ 41; Lucente, 116 Ill. 2d at 152.
¶ 43 The focus of the inquiry is the statements made in the affidavit, here the sworn
complaint, by the affiant-officer. Chambers, 2016 IL 117911, ¶ 36; Lucente, 116 Ill 2d at 149.
However, “if an informant is the source of false statements, a defendant may still be entitled to a
hearing to show that the officer acted recklessly in using the information received as a basis for
the search warrant.” Lucente, 116 Ill 2d at 152. Affidavits supporting a search warrant are
presumed valid. Chambers, 2016 IL 117911, ¶ 35. “Thus, the ‘challenger's attack must be more
than conclusory and must be supported by more than a mere desire to cross-examine. There must
be allegations of deliberate falsehood or of reckless disregard for the truth, and those allegations
must be accompanied by an offer of proof.’ ” Id. (quoting Franks, 438 U.S. at 171). This court
reviews de novo the denial of a defendant’s motion for a Franks hearing. Id. ¶ 79.
¶ 44 This court has identified 10 non-exhaustive factors that a court may consider in reviewing
the trial court’s decision:
“(1) whether defendant’s motion is supported by affidavits from interested parties or
disinterested third persons;
(2) whether defendant has available any objective evidence to corroborate the affidavits
such as records of hours worked or receipts for travel or other activities;
- 13 -
No. 1-18-1664
(3) whether the information in the affidavits, accepted as true, renders it impossible for the
confidential informant’s testimony to be true;
(4) whether the matters asserted by defendant are in the nature of an alibi or a general denial
that he engaged in the conduct giving rise to probable cause;
(5) whether the information supporting probable cause is the result of a police investigation
or information supplied by an informant or other confidential source;
(6) if probable cause is based on information from a confidential source, whether the
warrant affiant took steps to corroborate that information;
(7) the facial plausibility of the information provided by the confidential source;
(8) whether the affiant had any prior experience with the confidential source that would
enhance the source’s reliability;
(9) whether there exist any circumstances that should counsel against believing the
information provided by the confidential source; and
(10) whether the confidential source appeared before the issuing magistrate who had the
opportunity to examine the source and assess his or her credibility.” (Citations omitted.)
Voss, 2014 IL App (1st) 122014, ¶ 22 (compiling cases).
¶ 45 In this case, the trial court did not abuse its discretion in denying defendant’s motion for a
Franks hearing.
¶ 46 The only affidavits defendant attached in support of his motion were his own self-serving,
uncorroborated affidavits, averring that in the 10 days prior to the execution of the search warrant,
the only person who entered the Lowe address other than defendant, Cole, and Cole’s minor son
was Davis, whom defendant knew was arrested on October 19, 2015. Although CCDOC records
- 14 -
No. 1-18-1664
attached to the motion showed Davis was in custody during the relevant time period in October
2015, they did not demonstrate that Davis was, in fact, Doe. See id. ¶ 24 (where the defendant did
not provide any objective evidence to corroborate the affidavits from interested parties, the court
did not abuse its discretion in denying the motion for a Franks hearing).
¶ 47 Further, defendant did not allege facts showing that Conway knowingly, intentionally, or
recklessly made a false statement in his sworn complaint supporting the arrest warrant. See People
v. Creal, 391 Ill. App. 3d 937, 944 (2009) (finding the affidavits from interested parties did not
establish that the police officer intentionally lied or exhibited a reckless disregard for the truth in
the warrant complaint regarding the informant’s statements, and thus did not support defendant’s
motion for a Franks hearing). Defendant’s affidavits were, in essence, uncorroborated denials of
Doe’s statements that he was in the Lowe residence multiple times in late October 2015 and, on
one of those occasions, defendant showed him weapons.
¶ 48 Nor did defendant make any showing that Conway recklessly disregarded the truth by
relying on Doe’s statements. Doe’s account to Conway was not facially implausible. Moreover,
Conway took steps to corroborate Doe’s statements before presenting Doe to the court in support
of the search warrant. Police and ATF agents used computer databases to confirm that a “Dre”
lived at the Lowe address as Doe claimed. Conway and ATF agents identified defendant as Dre
and then showed defendant’s photo to Doe, who identified it as depicting Dre, the man who showed
him the firearms. Police also took Doe to the Lowe address, where he identified the building where
Dre showed him the firearms. Police and ATF agents confirmed the gray two-flat building matched
the earlier description Doe provided. Lastly, Conway presented Doe to the issuing judge who had
the opportunity to examine him and access his credibility, and Doe swore to the complaint before
the judge. See Creal, 391 Ill. App. 3d at 944 (finding relevant that the informant personally
- 15 -
No. 1-18-1664
appeared before the circuit judge and signed an affidavit swearing to the truth of the complaint).
In sum, under the Voss factors, defendant’s motion, affidavits, and supporting documents do not
establish the substantial preliminary showing required for a Franks hearing.
¶ 49 Defendant also contends that, pursuant to Glover, a Franks hearing was warranted because
the sworn complaint in support of the search warrant omitted information regarding the
informant’s credibility.
¶ 50 Although Glover is nonbinding upon this court, we find it instructive; however, it is
distinguishable. See Werderman v. Liberty Ventures, LLC, 368 Ill. App. 3d 78, 84 (2006) (state
courts are not bound to follow decisions of the federal district courts or circuit courts of appeal).
Although nonbinding, federal decisions can be considered persuasive authority and followed if the
state court believes the federal analysis is reasonable and logical. Id.
¶ 51 In Glover, the Seventh Circuit found that the police officer’s affidavit supporting a search
warrant lacked any information about the informant’s credibility, which was “insurmountable” and
“undermine[d] the deference [the reviewing court] would otherwise give the decision of the
magistrate to issue the search warrant.” 755 F. 3d at 816. The informant, “Doe,” had been an
informant for the Chicago police for six years and had received payment for providing information
to the police. Id. at 815. He had been affiliated with a gang, used aliases when questioned by police,
and had fourteen criminal convictions, four for crimes committed while he was working as an
informant. Id. Doe appeared before a magistrate in support of the search warrant, but none of this
background information was included in the officer’s affidavit supporting the warrant. Id.
¶ 52 The Seventh Circuit found “the complete omission of known, highly relevant, and
damaging information about Doe’s credibility—his criminal record, especially while serving as an
informant; his gang activity; his prior use of aliases to deceive police; and his expectation of
- 16 -
No. 1-18-1664
payment *** impaired the neutral role of the magistrate deciding whether to issue the warrant.”
Id. at 817. The omission of the informant’s criminal background and financial motive created no
meaningful opportunity for the magistrate to exercise discretion to draw inferences about the
informant. Id. at 817-18.
¶ 53 Unlike in Glover, the sworn complaint supporting the search warrant here did not omit
information regarding informant Doe’s credibility. Rather, Conway averred in the complaint that
Doe’s criminal history, “including possible pending investigations if any,” had been presented to
the judge. Conway’s affidavit is presumed valid (Chambers, 2016 IL 117911, ¶ 35) and defendant
made no showing that Conway did not in fact present Doe’s criminal history to the judge. Thus,
unlike the magistrate in Glover, the court here had a meaningful opportunity to both question Doe
about his criminal history when he appeared before the court and to exercise discretion to draw
inferences about his credibility from that criminal history. Further, unlike the defendant in Glover,
defendant here made no showing Conway knew of any damaging information regarding Doe’s
credibility and withheld it from the judge. Thus, the circuit court did not abuse its discretion in
denying defendant’s motion for a Franks hearing on the basis of Glover.
¶ 54 Next, defendant contends that the trial court abused its discretion when it denied his motion
for a mistrial where State’s witness Officer Alexander prejudicially referred to defendant as the
“target” of the search warrant, and the prejudice was compounded when the State elicited
Alexander’s in-court identification of defendant.
¶ 55 A trial court should grant a motion for mistrial if “an error of such gravity” occurred during
the proceedings that it “infected the fundamental fairness of the trial, such that continuation of the
proceeding would defeat the ends of justice.” People v. Bishop, 218 Ill. 2d 232, 251 (2006). “Our
standard of review for motions for mistrial is whether the trial court abused its discretion; a court’s
- 17 -
No. 1-18-1664
decision will not be disturbed unless defendant was prejudiced by the testimony.” People v.
McDonald, 322 Ill. App. 3d 244, 250 (2001). An abuse of discretion exists where “the trial court’s
ruling is arbitrary, fanciful, unreasonable, or where no reasonable person would take the view
adopted by the trial court.” People v. Caffey, 205 Ill. 2d 52, 89 (2001).
¶ 56 The existence of a search warrant can be properly admitted for the limited purpose of
explaining the conduct of police officers during an investigation. People v. Virgin, 302 Ill. App.
3d 438, 445 (1998); People v. Janis, 240 Ill. App. 3d 805, 811 (1992). However, the introduction
of the contents of a search warrant may prejudice a defendant where the evidence is inadmissible
hearsay, improperly bolsters the credibility of a witness as a prior consistent statement, or is argued
by the State as evidence of guilt. Janis, 240 Ill. App. 3d at 811.
¶ 57 Defendant does not contend that Alexander’s identification of defendant as the “target” of
the search warrant was inadmissible hearsay. Rather, he contends that Alexander’s description of
defendant as the “target” of the search warrant, in conjunction with his in-court identification of
defendant, “indicated to the jury that the police knew well before they went and secured the search
warrant that the defendant unlawfully possessed the firearms and ammunition.” He asserts the
testimony informed the jury “that a judge approved a search warrant that was focused on the
defendant,” which “raise[d] in their minds the question of whether they could possibly rule
inconsistently with a judicial officer, were they to acquit the defendant.”
¶ 58 The record, however, does not support defendant’s contentions. First, neither party filed a
motion in limine to preclude any mention of the search warrant or description of defendant as the
“target” of the search warrant. See People v. Rivera, 182 Ill. App. 3d 33, 38 (1989) (finding the
trial court properly denied the defendant’s motion in limine to bar testimony that police had a
search warrant authorizing the search of premises and defendant's person as the evidence was
- 18 -
No. 1-18-1664
properly admitted for the limited purpose of explaining the conduct of the police officers). Second,
as the circuit court noted, Alexander’s single reference to defendant as the “target” of the search
warrant was fleeting. See People v. Canet, 218 Ill. App. 3d 855, 861 (1991) (finding no error where
references to a search warrant were “so crucially intertwined” with the arrest to form a chain of
relevant circumstances and the testimony concerned the formal procedure of police officers in
executing the search warrant before they could perform a search of the defendant and an
apartment). Third, the State did not make any reference to Alexander’s identification of defendant
as the target of the search warrant before the jury. It neither attempted to use the testimony as a
prior consistent statement to bolster the credibility of a witness nor argued it as evidence of
defendant’s guilt. Thus, under the Janis factors, defendant suffered no prejudice from Alexander’s
testimony.
¶ 59 Lastly, even if Alexander’s testimony was improper, the prompt sustaining of an objection,
combined with a limiting instruction to the jury, is often sufficient to cure an evidentiary error. See
People v. Risper, 2015 IL App (1st) 130993, ¶ 46. Here, the court promptly addressed defendant’s
objections to the testimony, ordering the State to make sure Alexander did not again refer to
defendant as the target of the search warrant and did not identify defendant as such in court.
Further, defendant rejected a curative instruction to the jury to disregard Alexander’s use of the
word “target” because he contended it would only have highlighted the alleged error. See People
v. Montes, 2020 IL App (2d) 180565, ¶ 45 (“Under the invited error doctrine, a defendant cannot
complain of error that he or she induced the trial court to make, or to which he or she consented.”).
¶ 60 In sum, even if Alexander’s minimal reference to defendant as the target of the search
warrant was error, the alleged error was not of such gravity that it “infected the fundamental
fairness of the trial, such that the continuation of the proceeding would defeat the ends of justice.”
- 19 -
No. 1-18-1664
Bishop, 218 Ill. 2d at 251. Thus, the court did not abuse its discretion in denying defendant’s
motion for a mistrial.
¶ 61 Accordingly, we affirm the judgment of the circuit court of Cook County.
¶ 62 Affirmed.
- 20 - | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484354/ | SUPERIOR COURT
OF THE
STATE OF DELAWARE
Sussex County Courthouse
ROBERT H. ROBINSON, JR. 1 The Circle, Suite 2
JUDGE Georgetown, DE 19947
Telephone: (302) 856-5264
Submitted: November 10, 2022
Decided: November 16, 2022
Robert C. McDonald, Esquire Kenneth M. Doss, Esquire
Silverman McDonald & Friedman Daniella C. Spitelli-Sarnecky, Esquire
1010 N. Bancroft Parkway, Suite 22 Casarino Christman Shalk Ransom &
Wilmington, DE 19805 Doss, P.A.
Attorney for Plaintiffs 1007 N. Orange Street, Suite 1100
Wilmington, DE 19899
Attorneys for Defendant
Re: Jennifer Zadnik-Snider & Aaron Snider v. Kathleen A. Kelly
C.A. No.: S20C-01-017 RHR
Dear Counsel:
Pending before the court is Defendant, Kathleen A. Kelly’s (“Kathleen)1,
Motion for Summary Judgment. For the following reasons, Kathleen’s Motion is
GRANTED.
1
I refer to individuals using their first names because several individuals share a last name. I intend
no familiarity or disrespect.
I. Background
Kathleen, at all times relevant, owned a single-family home located at 38
Ronzetti Avenue, Selbyville, Delaware 19975, which she used as a rental property
(the “Rental Property”).2 Plaintiffs, Jennifer Zadnik-Snider (“Jennifer”) and Aaron
Snider (“Aaron”) (together, “Plaintiffs”), are married and they reside in Ocean City,
Maryland.3
On or about May 20, 2018, Jennifer, a potential renter, met Kathleen at the
Rental Property to tour the home and determine if it would accommodate her
family.4 During the tour, Jennifer inquired whether the home had an attic, which it
did.5 The two then went into the small bedroom located on the second floor that
houses an enclosure in the ceiling that leads to the attic.6 Kathleen pulled down the
pull string suspended from a board connected to a stair system, which then caused
the stairs to unfold down from the ceiling.7 Kathleen proceeded to walk up the stairs
2
Compl. ¶ 4 (D.I. 1).
3
Id. ¶ 1.
4
Id. ¶ 3.
5
Def. Kathleen A. Kelly’s Mot. for Summ. J., Ex. B at 68:23-69-10 (hereinafter “J. Zadnik-Snider
Dep.”).
6
Id.
7
Id. at 68:23-71:2.
2
into the attic, turned on the light, and descended the stairs.8 As Jennifer ascended the
stairs, the system broke loose from the ceiling, and Jennifer fell to the floor.9
After the complaint was filed, Jennifer, Aaron, Jennifer’s son, Joseph Zadnik
(“Joseph”), Kathleen, and Kathleen’s son, Tyler Kelly (“Tyler”) were deposed.
Jennifer testified that she did not observe anything wrong with the stairs and that
they did not give rise to concern when Kathleen had gone up them just moments
prior to the accident.10 Jennifer also stated that, immediately following the accident,
Kathleen expressed shock that the staircase fell, apologized to Jennifer for what
happened, and stated that she had no idea how it could have occurred.11 When asked
whether Kathleen knew or should have known of the condition of the stairs, Jennifer
responded that she did not have any information to infer that Kathleen knew anything
about the installation being defective and opined that had Kathleen known of the
condition, she would not have let Jennifer use the stairs. 12 While Jennifer testified
that she recalled Kathleen mentioning another couple who had recently divorced
were the tenants prior to the vacancy, Jennifer stated that nothing she observed
8
J. Zadnik-Snider Dep. at 68:23-69:10; see also Def. Kathleen A. Kelly’s Mot. for Summ. J., Ex.
D at 5:24-6:16 (hereinafter “K. Kelly Dep.”).
9
Whether actual injury occurred is undisputed. J. Zadnik-Snider Dep. at 68:23-69:10; see also K.
Kelly Dep. at 5:24-6:16.
10
J. Zadnik-Snider Dep. at 77:20-78:19, 83:8-84:10.
11
Jennifer also recalls Kathleen saying that she had used the stairs many times and nothing of
concern ever happened. Id. at 91:22-92:15.
12
Id. at 111:7-112:3.
3
suggested any alterations had been made.13
Following the accident, Jennifer remained interested in renting the Rental
Property and she brought Joseph and Aaron back later the same evening so they
could see the house for themselves.14 Joseph and Aaron both recalled going into the
room where Jennifer had fallen and observed the staircase lying on the floor and the
hole which remained in the ceiling where the stair system was once attached.15 They
also testified that Aaron opined (while at the Rental Property) that there were not
enough screws to hold the stair system in place and that the screws seemed to be
smaller than what would be necessary to support the system.16 However, Aaron
acknowledged that he is not a carpenter and does not have specialized knowledge to
form an opinion as to the proper number or size of the screws used to attach the stair
system.17 They also both recollected that Kathleen made a generalized statement
about a “nasty divorce” and an “ex-husband [who] may have booby-trapped [the
stair system].”18 When asked about whether Kathleen knew for certain or had reason
13
Id. at 73:13-74:4, 106:15-107:3.
14
Id. at 94:22-95:7.
15
Def. Kathleen A. Kelly’s Mot. for Summ. J., Ex. F (hereinafter “Joseph Snider Dep.”) at 15:5-
24; Pls.’ Am. Opp’n to Def.’s Mot. for Summ. J., Ex. B (hereinafter “A. Snider Dep.”) at 33:4-20,
43:19-44:2.
16
Joseph Snider Dep. at 19:21-23; A. Snider Dep. at 36:17-20.
17
A. Snider Dep. at 42:18-43:13.
18
The record is unclear as to whether the allegation is that Kathleen’s ex-husband may have
tampered with the attic following their divorce, or if a previous tenant’s husband may have
tampered with it after their divorce. Joseph Snider Dep. at 21:13-22:17; A. Snider Dep. at 35:6-8.
See also J. Zadnik-Snider Dep. at 73:9-22.
4
to believe that the accident could have happened, Aaron and Joseph both responded
in the negative, stating Kathleen was “shocked” when this occurred and “that she
had no reason to believe that anything like [the accident] would have happened….”19
Aaron went so far as to say in his deposition that “[Kathleen] was going off of maybe
what could have happened that would have led to [the accident]” and not
acknowledging that she knew of any potential problems before the accident.20
Kathleen and Tyler also testified consistently that they were not aware of any
preexisting issues with the stair system and that they had not made any changes to
the system.21 Kathleen stated that she had used the stair system in the past, but it
never caused her any problems.22 She was also unaware of any tenants having issues
with the system prior to the accident.23
II. The Motion for Summary Judgment
In their complaint, Jennifer alleges that her injuries were proximately caused
by Kathleen’s negligence, and Aaron claims the injuries Jennifer sustained has
caused the loss of consortium. On August 10, 2022, Kathleen filed the pending
motion for summary judgment. Kathleen argues that Jennifer and Aaron fail to
19
Joseph Snider Dep. at 22:17-23:14; see also A. Snider Dep. at 46:19-47:7.
20
Joseph Snider Dep. at 22:18-23:8.
21
K. Kelly Dep. at 16:22-17:23, 18:4-20:4; Def.’s MSJ, Ex. E (hereinafter “T. Kelly Dep.”) at
6:19-22, 9:10-10:11.
22
K. Kelly Dep. at 18:4-9.
23
Id. at 19:9-13.
5
provide evidence to support their claim that Kathleen breached the duty of care she
owed to Jennifer and Aaron.
Kathleen argues that the mere fact Jennifer was injured when the stairs
collapsed is not enough to show breach of duty. Kathleen also maintains that
Plaintiffs’ failure to produce an expert witness to opine on why the access stairs
collapsed and to whom fault is attributable also supports granting the motion because
both issues require specialized knowledge beyond that of a lay juror under Delaware
Rules of Evidence Rule 702.
Plaintiffs argue that the stairway used was in plain view and easily accessible
for reasonable inspection. Jennifer and Aaron contend that the comments made by
Kathleen about the possibility of someone tampering with the attic stairs called for
an inspection of the system before allowing Jennifer to climb the stairway.
Additionally, Plaintiffs argue that expert testimony is only required when a complex
or technical issue is beyond the normal understanding of a lay jury and that such is
not the case here.
A. Standard of Review
When considering a motion for summary judgment, the court’s role is to
examine the record to determine whether genuine issues of material fact exist “but
not to decide such issues.”24 Summary judgment may be granted only if, when
24
Merrill v. Crothall-Am., Inc., 606 A.2d 96, 99-100 (Del. 1992).
6
viewing the facts in the light most favorable to the non-moving party, there is no
genuine issue of fact and the moving party is entitled to relief as a matter of law.25
Summary judgment will not be granted when it appears a more thorough inquiry into
the facts is necessary in order to establish a clear application of the law to the case.26
The burden is on the defendant to provide support negating the plaintiff’s claim that
material issues of fact exist.27 If the defendant’s motion is “supported by such a
showing, the burden will shift to a non-moving party to demonstrate that there are
material issues of fact.”28 In order to survive summary judgment, the plaintiff’s claim
must be supported by more than mere speculation and the court “must decline to
draw an inference for the non-moving party if the record is devoid of facts upon
which the inference reasonably can be based.”29
B. Discussion
I find after a thorough review of the briefings, full consideration of the record,
and oral argument, that there is no genuine issue of material fact and that Kathleen
is entitled to relief as a matter of law. While it is clear that Jennifer sustained injuries
from her fall at Kathleen’s Rental Property on May 20, 2018, only speculation or
25
Moore v. Sizemore, 405 A.2d 679, 680 (Del. 1979); Super. Ct. Civ. R. 56.
26
Ebersole v. Lowengrub, 180 A.2d 467, 470 (Del. 1962).
27
Id.
28
Moore, 405 A.2d at 680-81 (internal quotation marks omitted).
29
Pazuniak Law Off., LLC v. PI-Net Int’l, Inc., 2016 WL 3916281 at *2 (Del. Super. July 7, 2016)
(citing In re Asbestos Litig., CIV.A. 01C-11-239, 2007 WL 1651968 at *16 (Del. Super. May 31,
2007) (No inferences can “be based on surmise, speculation, conjecture, or guess, or on
imagination or supposition.”).
7
conjecture support an inference that Kathleen was aware of—or should have been
aware of—any defect in the stair system. Moreover, the record is devoid of any
evidence that suggests that, even if Kathleen had seen a defect, she would have
recognized the danger based upon her knowledge and experience.30
The Restatement (Second) of Torts § 343 sets forth the law establishing
liability of a property owner adopted by Delaware courts.31 Liability is imposed upon
an occupier of property for the physical harm caused to a business invitee by a
condition on the land if (i) he knew of it or (ii) if by the exercise of reasonable care,
he would have discovered the condition and, realizing that it involved an
unreasonable risk of harm to the business invitee, failed to provide adequate
warning.32
In Hamm v. Ramunno, 33 the Court addressed whether the landowner was
liable for the injuries caused by a latent defect. The analysis centered around the
following question: “whether or not the landowner should have known by reasonable
care of the latent defect which caused the injury.”34 The defendant owned a house
30
See Hamm v. Ramunno, 281 A.2d 601, 603 (Del. 1971) (holding that liability was not imposed
on an occupier of land where the defendant did not know of the condition which caused the
plaintiff’s injury, there was no reasonable way in which he could have found the existence of the
condition and, even if the defendant could have seen the defect, the matter required expert
knowledge which the defendant did not have).
31
Id. See Restatement (Second) of Torts § 343(1965).
32
Hamm, 281 A.2d 601, 603 (Del. 1971).
33
281 A.2d 601 (Del. 1971).
34
Id. at 603.
8
and hired the plaintiff, a carpenter experienced in light carpentry, to complete a
renovation project.35 Before hiring the plaintiff, the defendant had personally made
structural changes to the particular room where the plaintiff sustained injuries.36 One
of the project’s requirements was to remove the ceiling beam which was previously
at the juncture of the ceiling and the rear wall of the subject room.37 When the
plaintiff began working on the wall and cut down the few remaining studs, the ceiling
beam collapsed and injured the plaintiff.38 “Neither the plaintiff and his assistant nor
the defendant realized that the ceiling joists were not fastened to the roof rafters; nor
could this fact have been ascertained without demolition work to permit the
examination of any connection between the ceiling joists and the roof rafters.”39
Ultimately, the Court decided that there was no breach by the defendant of his duty
to warn the plaintiff because the facts made clear that: (i) “the defendant did not
know of the condition which caused the plaintiff’s injury,” and (ii) “that there was
no reasonable way in which he could have found the existence of the condition.”40
35
Id. at 602.
36
The defendant removed two sidewalls and a substantial portion of the room’s rear wall. He also
installed temporary two-by-four supports extending from the floor level up to the roof rafters, but
they did not support the ceiling beam. Id.
37
Id.
38
It took only two to five minutes from the time plaintiff cut the remaining studs from the rear
wall and began prying the ceiling beam out of the plaster for the beam and the plaster ceiling to
collapse. Id.
39
Neither the plaintiff nor the defendant did any additional work to determine the condition of the
ceiling prior to the plaintiff beginning their work. Id. at 603.
40
Id. at 603.
9
The Hamm Court also held that defendant could not be liable for plaintiff’s injuries
because, had the defendant actually seen any defect, he would not have known or
recognized the danger of its existence.41
I find that the facts and ruling in Hamm are applicable here. Jennifer, Aaron,
and Joseph agree that Kathleen was confounded that the stair system collapsed.
Kathleen and Tyler both testified that they never had any issues with the stair system
and that Kathleen had used the stairs in the past with no issues. Immediately prior to
the accident, Kathleen ascended the stairs to turn on the attic lights for Jennifer, and
both Jennifer and Kathleen testified that nothing about the stair system seemed
abnormal or gave cause for concern. Moreover, Katheen stated none of her prior
tenants ever reported issues with the stair system. Even in Hamm, where the
defendant knew of the alterations made to the room before the plaintiff began his
work, the Court upheld the lower court’s decision to grant the directed verdict in the
defendant’s favor. Because there was no reasonable way the defendant would have
known of the unreasonable condition and, even with reasonable inspection, would
not have appreciated the latent defect, there was no breach of the requisite duty of
care. Such is true in the present case.
With regard to Kathleen’s alleged opinion that someone tampered with the
stair system, I do not find this off-hand comment sufficient to submit the case to a
41
Id. at 604.
10
jury. Aaron, Joseph, and Jennifer recall Kathleen making a comment to this effect;
however, none of their recollections are entirely consistent. The record contains no
evidence that Kathleen should have been on notice of any defect and warned Jennifer
before she climbed the stairs. There is no evidence that there were any other
tampering incidents at the Rental Property. There is also nothing to suggest that even
if Kathleen had taken further steps to inspect the stair system, she would have
discovered the latent defect and would have provided Jennifer with an adequate
warning. Notably, Kathleen ascended the stairs just moments prior to Jennifer
without issue. Kathleen also testified that the home had been inspected annually,
because inspections were required to rent the property, and no issue with the stair
system was ever flagged. Kathleen stated that when she had the stair system replaced
after the accident, her maintenance man told her there did not seem to be any issues
with the screws that were used to fasten the system into the ceiling. In sum, I
conclude the mere statement that the stair system might have been tampered with,
standing alone, is not enough for me to make a reasonable inference that Kathleen
should have been aware of the defect and should have provided Jennifer an adequate
warning.
III. Conclusion
I find, as a matter of law, Jennifer cannot meet her burden of proof that
Kathleen breached her requisite duty of care. Therefore, it is unnecessary to address
11
the parties’ arguments as it relates to the need to produce expert testimony. In the
same vein, the claim for loss of consortium need not be discussed. Defendant’s
Motion for Summary Judgment is GRANTED.
IT IS SO ORDERED.
Sincerely,
/s/Robert H. Robinson, Jr.
Judge
cc: All counsel of record (by File & ServeXpress)
12 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484353/ | Filed 11/16/22
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
THE PEOPLE,
Plaintiff and Respondent,
A164777
v.
WILLIAM ERIK MONROE, (Solano County Super. Ct.
No. VCR162572)
Defendant and Appellant.
In 2005, defendant William Monroe was sentenced to a 31 year four
month prison term, which term included seven enhancements: three firearm
enhancements totaling 12 years eight months, three one-year prior prison
term enhancements, and a five-year prior serious felony enhancement. In
2020, Monroe filed a petition for relief under 2017 legislation granting the
trial court discretion to strike the firearm enhancements, and when in 2021
further legislation provided for resentencing to strike the one-year prior term
enhancements, Monroe filed a second petition seeking relief under that
statute as well. The trial court resentenced Monroe and struck the three one-
year enhancements, but concluded it was without jurisdiction to strike the
firearm enhancements. Monroe contends that this was error, and that he is
also eligible for relief under 2018 legislation granting the trial court
discretion to strike the five-year prior serious felony enhancement. The
Attorney General concedes that Monroe is eligible for relief with respect to
the firearm enhancements, but not with respect to the five-year prior serious
felony enhancement. We conclude that Monroe is eligible for relief with
respect to both the firearm enhancements and the prior serious felony
enhancement, and we reverse and remand for resentencing.
BACKGROUND
The Crime, Sentence, and Appeal
In September 2003, Monroe was convicted by a jury of residential
robbery in the first degree (Pen. Code, § 211)1 (count 1), two counts of false
imprisonment by violence (§ 236) (counts 2 & 3), and possession of a firearm
by a felon (§ 12021, subd. (a)(1)) (count 4).2 The jury also found true
enhancements for personal use of a firearm on count 1 (§12022.53, subd. (b))
and on counts 2 and 3 (§ 12022.5, subd. (a)), and a subsequent bench trial
found true allegations of four prior prison terms (§ 667.5, subd. (b)), and one
prior strike conviction for robbery (§ 667, subd. (a)(1)). (See People v. Monroe
(May 24, 2006, A109587) [nonpub. opn.].)
On February 24, 2005, the trial court sentenced Monroe to a 31 year
four month prison term, calculated as follows: eight years for the robbery;
two consecutive one year four month terms for the two counts of false
imprisonment; 10 years for the firearm enhancement on count 1 (§ 12022.53,
subd. (b)); two one year four month terms for the two firearm enhancements
on counts 2 and 3 (§ 12022.5, subd. (a)); one year each for the three prior
prison term enhancements (§ 667.5, subd. (b)); and five years for the prior
robbery conviction (§ 667, subd. (a)(1)). The trial court stayed the sentence on
count 4.
1 Further statutory references are to the Penal Code.
2The facts of the underlying offenses are not relevant to this appeal,
and thus we do not discuss them.
In 2006, we affirmed Monroe’s conviction on direct appeal. (See
People v. Monroe, supra, A109587.)
Senate Bill No. 620 and Monroe’s First Motion
In 2017, the Legislature passed Senate Bill No. 620 (2017–2018 Reg.
Sess., Stats. 2017, ch. 682, §§ 1 & 2, eff. Jan. 1, 2018), granting trial courts
the discretion to strike firearm enhancements imposed under
section 12022.53 “in furtherance of justice” under section 1385.
On November 13, 2020, Monroe, acting in propria persona, filed a
“SB620 Motion for Resentencing Pursuant to Penal Code 1385,” asking that
the trial court “exercise its judicial discretion to strike or dismiss Penal Code
sections 12022.5 and 12022.53 enhancements relating to firearms.”
On November 17, at a hearing at which Monroe was not present, the
trial court appointed counsel to represent Monroe.
On August 9, 2021, again at a hearing at which Monroe was not
present, the trial court relieved Monroe’s counsel and appointed another
attorney to represent him.
Senate Bill No. 1393
Meanwhile, in October 2018, the Governor signed Senate Bill No. 1393
(2017−2018 Reg. Sess., Stats. 2018, ch. 1013, §§ 1–2), which took effect on
January 1, 2019 and grants trial courts discretion to strike five-year serious
felony enhancements (§ 667, subd. (a)(1)) under section 1385 “in furtherance
of justice.”
Senate Bill No. 483 and Monroe’s Second Motion
In October of 2021, the Governor signed Senate Bill No. 483
(2019−2020 Reg. Sess., Stats. 2021, ch. 728, § 3), effective on January 1, 2022,
which added section 1171.1 to the Penal Code, subdivision (a) of which
declares: “Any sentence enhancement that was imposed prior to January 1,
2020, pursuant to subdivision (b) of Section 667.5, except for any
enhancement imposed for a prior conviction for a sexually violent offense . . .
is legally invalid.” As will be discussed in further detail, Senate Bill No. 483
also provides a procedure for defendants serving sentences that include such
enhancements to be resentenced.
On October 28, 2021, before any hearing or ruling on Monroe’s motion
under Senate Bill No. 620, Monroe, in propria persona, filed a document
titled “SB-483 Recall of Sentence Enhancement One Year Prison Prior,”
seeking to have the trial court strike his three one-year prison prior
enhancements (§ 667.5, subd. (b)) pursuant to Senate Bill No. 483.
On November 29, the trial court relieved Monroe’s second attorney.
The next day, the trial court appointed a third attorney to represent Monroe.
The Trial Court Decision
A hearing on both motions was held on January 4, 2022. Defense
counsel was present, but Monroe was not. In response to the trial court
asking how long defense counsel needed to prepare for the two motions, she
stated: “I have not had the opportunity to look at the prison prior, but I have
had the opportunity to look at the motion to strike the gun enhancement and
I do not believe the Court has jurisdiction.” The trial court then agreed:
“With regard to the motion to exercise my discretion, pursuant to [section]
1385, with regard to the weapon enhancement, this Court has no jurisdiction
to do that. I’m going to deny that motion.” The trial court continued the case
to January 18 as to the motion to strike the prior prison term enhancements.
On January 18, the matter was continued again to February 14.
On February 2, Monroe filed a motion for reconsideration, again in
propria persona. He stated that he had never spoken with any of the three
attorneys appointed to represent him. However, Monroe indicated that his
current counsel had sent him a letter dated December 29 “stating that SB620
does not apply to my situation due to being final, with case law,” case law
which, Monroe’s motion said, nevertheless “stated plainly [that] ‘the new
authority to strike or dismiss the enhancement extends to any resentencing
that may occur under any other law.’ ” Because his motion under Senate Bill
No. 483 was a “resentencing matter,” Monroe argued that “SB620 can and
should be added and addressed.”
At the hearing on February 14, the prosecutor agreed that the three
one-year prison priors should be stricken under Senate Bill No. 483, and the
trial court did so, resentencing Monroe to a term of 28 years four months.
With respect to the motion for reconsideration, defense counsel stated
“Unfortunately, Your Honor, the law is the law and there was nothing I could
do.” The trial court responded:
“THE COURT: I agree with you. So I’m going to deny the motion to
reconsider, but I have granted the motion with regard to the prison priors.”
In other words, to put it in Senate Bill language, the trial court granted
Monroe relief under Senate Bill No. 483 but held he was not eligible to be
considered for relief under Senate Bill No. 620.
Monroe—again acting propria persona—filed a notice of appeal.
DISCUSSION
Monroe, now represented by appellate counsel, argues that he was
denied the effective assistance of counsel, and that he is entitled to remand
for resentencing so that the trial court can consider whether to exercise its
discretion under Senate Bill No. 620 to strike the firearm enhancements. He
also argues that on remand, the trial court should consider whether to
exercise its discretion to strike the five-year serious felony enhancement
under Senate Bill No. 1393. We conclude that Monroe was entitled to have
the trial court consider whether to exercise its discretion under both Senate
Bill No. 620 (which the Attorney General concedes) and Senate Bill No. 1393
as part of his resentencing pursuant to Senate Bill No. 483.
Senate Bill No. 483 added section 1171.1 to the Penal Code, which was
subsequently renumbered without substantive change as section 1172.75.
(Stats. 2022, ch. 58, § 12, eff. June 30, 2022.) Section 1172.75, subdivision (a)
provides that “[a]ny sentence enhancement that was imposed prior to
January 1, 2020, pursuant to subdivision (b) of Section 667.5, except for any
enhancement imposed for a prior conviction for a sexually violent offense . . .
is legally invalid.” (§ 1172.75, subd. (a).) Once the California Department of
Corrections and Rehabilitation identifies those persons “currently serving a
term for a judgment that includes an enhancement described in
subdivision (a)” to the sentencing court, “the court shall recall the sentence
and resentence the defendant.” (§ 1172.75, subds. (b) & (c).)
The resentencing “shall result in a lesser sentence than the one
originally imposed . . . unless the court finds by clear and convincing evidence
that imposing a lesser sentence would endanger public safety.” (§ 1172.75,
subd. (d)(1).) In resentencing, “[t]he court shall apply the sentencing rules of
the Judicial Council and apply any other changes in law that reduce
sentences or provide for judicial discretion so as to eliminate disparity of
sentences and to promote uniformity of sentencing.” (§ 1172.75, subd. (d)(2).)
“The court may consider postconviction factors, including, but not limited to,
the disciplinary record and record of rehabilitation of the defendant while
incarcerated, evidence that reflects whether age, time served, and diminished
physical condition, if any, have reduced the defendant’s risk for future
violence, and evidence that reflects that circumstances have changed since
the original sentencing so that continued incarceration is no longer in the
interest of justice.” (§ 1172.75, subd. (d)(3).) “Unless the court originally
imposed the upper term, the court may not impose a sentence exceeding the
middle term unless there are circumstances in aggravation that justify the
imposition of a term of imprisonment exceeding the middle term, and those
facts have been stipulated to by the defendant, or have been found true
beyond a reasonable doubt at trial by the jury or by the judge in a court trial.”
(§ 1172.75, subd. (d)(4).) The court “shall appoint counsel” for the
resentencing. (§ 1172.75, subd. (d)(5).)
We have not found, nor have the parties cited, any cases discussing the
scope of the relief available under section 1172.75, subdivision (d)(2) at a
resentencing under Senate Bill No. 483. However, there is no dispute that
Monroe was entitled to resentencing under section 1172.75, and the plain
terms of subdivision (d)(2) required that at that resentencing, the trial court
“shall apply . . . any other changes in law that reduce sentences or provide for
judicial discretion so as to eliminate disparity of sentences and to promote
uniformity of sentencing.” (§ 1172.75, subd. (d)(2).) Senate Bills Nos. 620
and 1393 were such changes in the law, and the Attorney General does not
contend otherwise.
The Attorney General concedes that the trial court erred in denying
relief under Senate Bill No. 620 because it was already resentencing Monroe
pursuant to Senate Bill No. 483, but asserts that this is because the authority
to strike the firearm enhancements under Senate Bill No. 620 expressly
applies “to any resentencing that may occur pursuant to any other law.”
(§ 12022.53, subd. (h); cf. People v. Johnson (2019) 32 Cal.App.5th 938, 942
[failure to obtain collateral relief through habeas corpus meant defendant
had not shown he was “eligible for ‘resentencing . . . pursuant to any other
law.’ (§ 12022.53, subd. (h))”].) We accept his concession and agree that this
is an additional reason that Monroe was eligible for relief under Senate Bill
No. 620.
With respect to Senate Bill No. 1393, the Attorney General first argues
that Monroe has forfeited his argument because he did not present it to the
trial court, based on the rule that “any failure on the part of a defendant to
invite the court to dismiss under section 1385 following [People v. Superior
Court (Romero) (1996) 13 Cal.4th 497] waives or forfeits his or her right to
raise the issue on appeal.” (People v. Carmony (2004) 33 Cal.4th 367, 375–
376; see People v. Scott (1994) 9 Cal.4th 331, 352–353.) Monroe disagrees
that there has been any forfeiture, and also argues that if the claim is
forfeited, his counsel was ineffective in failing to raise the issue. No
satisfactory explanation for counsel’s failure to request that the trial court
strike the section 667, subdivision (a)(1) enhancement pursuant to Senate
Bill No. 1393 is apparent from the record—indeed, the record indicates, and
respondent concedes, that Monroe’s counsel was affirmatively mistaken
regarding the availability of relief under Senate Bill No. 620 as part of
Monroe’s resentencing under Senate Bill No. 483. To forestall Monroe’s
ineffective assistance of counsel claim, we decline to find forfeiture under the
circumstances of this case. In any event, we may reach the merits of
Monroe’s argument even if it has been forfeited. (See People v. Williams
(1998) 17 Cal.4th 148, 161–162, fn. 6 [“An appellate court is generally not
prohibited from reaching a question that has not been preserved for review
by a party. [Citations.] Indeed, it has the authority to do so”].)
On the merits, the Attorney General argues that Monroe is not eligible
for relief under Senate Bill No. 1393 because he was not “legally eligible for
its benefits in the first instance given that his conviction was already final
prior to its effective date,” and—unlike in the case of Senate Bill No. 620—
“no other provision of law conferred further authority on the trial court to
exercise its discretion to strike the prior serious felony enhancement in final
cases.”
We reject both of these arguments. Senate Bill No. 483 assumes the
defendant’s conviction is final because it provides for recall of the sentence
and resentencing. (See § 1172.75, subd. (c); Stats. 2021, ch. 728, § 1 [stating
legislative intent that Senate Bill No. 483 apply “to all persons currently
serving a term of incarceration in jail or prison for these repealed sentence
enhancements”].) The fact that Monroe was not independently eligible for
the benefits of Senate Bill No. 1393 because his conviction was already final
does not change this. (See People v. Cepeda (2021) 70 Cal.App.5th 456, 464
[concluding that resentencing under section 1170, subdivision (d)(1) allows
the trial court to apply Senate Bill No. 1393 to judgments that are already
final even though defendant could not “fil[e] his own Senate Bill [No.] 1393
motion in the trial court”].) Senate Bill No. 620—like Senate Bill No. 1393—
does not apply independently to judgments that are final, but the Attorney
General concedes that Senate Bill No. 620 nevertheless applies once
resentencing is triggered by Senate Bill No. 483. (See People v. Hernandez
(2019) 34 Cal.App.5th 323, 326 [“Senate Bill No. 620 . . . does not apply
retroactive[ly] to cases that became final”]; People v. Johnson (2019)
32 Cal.App.5th 938, 941–942 [same].) So too with Senate Bill No. 1393.
As noted, the Attorney General argues relief is not available under
Senate Bill No. 1393 because Senate Bill No. 620 provides that the authority
it grants extends “to any resentencing that may occur pursuant to any other
law,” whereas Senate Bill No. 1393 contains no such provision. But this is
simply a second and additional reason that Senate Bill No. 620 applies in this
case. (See People v. Pillsbury (2021) 69 Cal.App.5th 776, 786 [concluding this
language is an “additional[]” reason that Senate Bill No. 620 applies to a
resentencing under section 1170, subdivision (d)(1)].) And if section 1172.75,
subdivision (d)(2) applied only to ameliorative legislation that expressly
applied whenever resentencing occurred under any other law,
subdivision (d)(2) would be unnecessary surplusage—a construction of the
statute that should be avoided. (See People v. Valencia (2017) 3 Cal.5th 347,
357 [“we generally must ‘accord[] significance, if possible, to every word,
phrase and sentence in pursuance of the legislative purpose,’ and have
warned that ‘[a] construction making some words surplusage is to be
avoided’ ”].)
Finally, we reject the Attorney General’s argument that Monroe is not
entitled to a full resentencing on remand because his judgment of conviction
was final and the prior prison term enhancements have already been
stricken, such that no enhancements are being stricken on review. (See
People v. Buycks (2018) 5 Cal.5th 857, 893 [“when part of a sentence is
stricken on review, on remand for resentencing ‘a full resentencing as to all
counts is appropriate, so the trial court can exercise its sentencing discretion
in light of the changed circumstances’ ”].) By its plain terms, section 1172.75
requires a full resentencing, not merely that the trial court strike the newly
“invalid” enhancements. For example, section 1172.75 subdivision (d)(1)
creates a presumption that the resentencing “shall result in a lesser sentence
than the one originally imposed,” subdivision (d)(3) expressly requires the
court to consider “post conviction factors, including . . . evidence that reflects
that circumstances have changed since the original sentencing,” and
subdivision (d)(4) guides the trial court in selecting among the lower, middle,
and upper term on each count.
In short, Monroe was entitled to, but did not receive, a full resentencing
under the terms of section 1172.75, including the application of “any other
changes in law that reduce sentences or provide for judicial discretion,” in
particular the changes made by Senate Bill Nos. 620 and 1393. To correct
this error, remand for a full resentencing in compliance with section 1172.75
is necessary.
DISPOSITION
The sentence is vacated and the matter is remanded for resentencing
consistent with section 1172.75 and with the views expressed in this opinion,
including for the trial court to exercise its discretion under Senate Bill
No. 620 and Senate Bill No. 1393.
_________________________
Richman, Acting P. J.
We concur:
_________________________
Miller, J.
_________________________
Van Aken, J. *
People v. Monroe (A164777)
*Judge of the San Francisco Superior Court, Judge Christine Van Aken,
sitting as assigned by the Chief Justice pursuant to article VI, section 6 of the
California Constitution.
Trial Court: Solano County Superior Court
Trial Judge: Honorable Stephanie Grogan
Jones
Attorney for Plaintiff and Rob Bonta, Attorney General of
Respondent, People of the State California; Lance E. Winters,
of California: Chief Assistant Attorney General;
Jeffrey M. Laurence, Senior
Assistant Attorney General; Rene
A. Chacon, Supervising Deputy
Attorney General; Julia Y. Je,
Deputy Attorney General
Attorney for Defendant and Law Offices of Russo & Prince,
Appellant, William Erik Monroe: Leslie Prince, under appointment
by the Court of Appeal, for
Defendant and Appellant. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484357/ | 2022 IL App (2d) 210510-U
No. 2-21-0510
Order filed November 16, 2022
NOTICE: This order was filed under Supreme Court Rule 23(b) and is not precedent
except in the limited circumstances allowed under Rule 23(e)(l).
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
166 SYMPHONY WAY, LLC and ) Appeal from the Circuit Court
THE HAIGHT COMPANY, ) of Kane County.
)
Plaintiffs-Appellees/Cross-Appellants, )
)
v. ) No. 18-CH-72
)
U.S. PROPERTY INVESTMENTS )
GROUP, LLC, ) Honorable
) Kevin T. Busch,
Defendant-Appellant/Cross-Appellee. ) Judge, Presiding.
______________________________________________________________________________
PRESIDING JUSTICE BRENNAN delivered the judgment of the court.
Justices McLaren and Jorgensen concurred in the judgment.
ORDER
¶1 Held: We affirm the trial court’s findings preserving the easement. We reverse and
remand as to attorney fees. Affirmed in part; reversed and remanded in part.
¶2 In 1987, plaintiffs, 166 Symphony Way and The Haight Company (collectively referred to
as HC) entered into a land swap and easement agreement with the former owners of the
neighboring property now owned by defendant, U.S. Property Investment Group, LLC (USP). The
easement ran with the land. HC, the dominant tenant, would have access to a 20-foot-wide lane
running along the eastern wall of its building such that HC could, among other things, access its
2022 IL App (2d) 210510-U
delivery door. In 2014, USP purchased the neighboring property and became the owner of the
servient estate. The parties soon began to disagree as to the proper use of the easement. HC’s
position was that it used the easement as it always had, and USP was looking for any reason to
terminate the easement. USP’s position was that HC, coincidently, increased its use of the
easement due to the wedding business that it had started simultaneously to USP’s purchase.
¶3 HC filed a four-count complaint in chancery court. HC sought the removal of barriers
placed by USP over a curb cut that HC used to access the easement (count I). HC also sought the
withdrawal of USP’s recordings of termination of the easement, which USP had filed based on its
belief that HC had violated paragraphs 8 (concerning insurance), 6(a) (concerning blocking the
easement), and 6(b) (concerning misuse of the easement so as to constitute a nuisance or violation
of law or ordinance) of the written easement agreement (counts II and III). HC asked that the court
eliminate the apparent discretion afforded to USP in paragraph 7 of the easement agreement to
unilaterally terminate the easement. Last, HC alleged a prescriptive easement over a curb cut,
which it used to access the easement.
¶4 USP filed a counter-complaint, pleading three counts for declaratory judgment of
termination, based on allegations HC had violated paragraphs 8, 6(a), and 6(b). In the alternative,
it pleaded breach of contract, again alleging HC had violated paragraphs 8, 6(a), and 6(b).
¶5 The trial court conducted a bench trial and ruled in favor of HC, with some qualifications.
It determined that there had been no material breach of paragraphs 8, 6(a), and 6(b) and declared
all recordings of termination null and void. It also ordered that USP remove barriers to accessing
the easement from the curb cut, but in a manner different to that requested by HC. The court
determined that HC had the right to access the easement over the curb cut, because access in that
manner had been contemplated by the original parties to the agreement. The court stated that, in
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the alternative, if the original parties had not contemplated the right to access the easement over
the curb cut, that right had been acquired by prescriptive easement. The court also ordered that,
moving forward, USP could not make a unilateral decision that the easement had been terminated
and would, instead, need to obtain the written agreement of the parties or a court order. Finally,
in addressing attorney fees, the court referenced both the agreement’s fee-shifting provision and
its indemnification clause in determining that, in effect, each party pay its own fees.
¶6 USP appeals, challenging the trial court’s findings in relation to preserving the easement.
HC cross-appeals, arguing that the trial court erred in not awarding it attorney fees. For the reasons
that follow, we affirm the trial court’s ruling preserving the easement, and reverse and remand as
to the question of attorney fees. Affirmed in part; reversed and remanded in part.
¶7 I. BACKGROUND
¶8 Plaintiffs, referred to collectively as HC, include: (1) 166 Symphony Way, LLC, the sole
owner of which is Linda Haight, and which owns the 166 Symphony building; and (2) The Haight
Company, the owners of which are Linda’s adult children, Doree Haight, John Haight, and Kari
Goodmay, and which leases some but not all of the space in the 166 Symphony building.
Defendant, USP, the owners of which are Bogdan and Sandra Stanek, purchased the real estate
located at 220 Spring Street in April 2014. A portion of the 220 Spring property is subject to a
1987 easement agreement.
¶9 A. The 1987 Written Easement Agreement
¶ 10 The relevant terms of the 1987 Written Easement Agreement are as follows. Paragraph
2(a) defines the easement as a driveway easement, and provides:
“(a) ‘Driveway Easement’ shall mean the non-exclusive right and easement,
exercisable in common with all others having like right, including [Grantor’s successor,
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USP] *** at all times without fee or charge; to pass and repass, with or without a vehicle
of any description, over and along Parcel C [the 20-foot-wide lane running alongside the
166 Symphony building] for driveway purposes and for the purpose of access, ingress and
egress to and from Parcel B [the 166 Symphony building] to the public right-of-ways ***;
provided, however, that such easement rights may be exercised only for such purposes as
are reasonably associated with or incidental to the lawful use of Parcel B [the 166
Symphony building].” (Emphases added.)
¶ 11 Paragraph 3 provides in part that the Grantor’s successors [USP] have
“the right to relocate said Driveway Easement to such other locations on Parcel A [the
remainder of USP’s parking lot that is not already part of the easement] as Grantor [or its
successor] may determine providing that such relocation does not materially deprive
Grantee [HC] of access to the Entry Doors.”
¶ 12 Paragraph 6 further restricts use of the easement as follows:
“6. Restriction on Use of Driveway Easement. *** [N]either Grantee nor Grantee’s
Permitted Users shall make use of Parcel C in such a way as to:
(a) Block, impede, or impair the use of Parcel C by Grantor or Grantor’s
authorized agents, or use said Parcel C for the storage of any property; or
(b) Create any public or private nuisance or violate any laws, ordinances, or
regulations of any applicable governmental body, or otherwise injure the reputation
of Parcel A or Parcel C.”
¶ 13 Paragraph 7 addresses the Grantor’s rights in the event of a breach:
“7. Breach.
(a) In the event of a breach of any of the provisions hereof by Grantee or its
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Permitted Users, which breach is not cured within 7 days following written notice
thereof by the Grantor to the Grantee, or immediately upon the giving by the
Grantor to the Grantee of the third notice in any consecutive twelve (12) month
period of the occurrence of a breach hereof by Grantee, Grantor shall have the right,
at its election to:
(i) Terminate the rights of Grantee hereunder by recording a
declaration of such termination with the office of the Recorder of Deeds of
Kane County, Illinois; or
(ii) Procure an order from any court of competent jurisdiction
awarding Grantor damages incurred by reason of such breach and/or
enjoining Grantee from any further breach of this Agreement.”
¶ 14 Paragraph 8 addresses indemnification and requires that the Grantee name the Grantor as
an additional insured:
“8. Indemnification. Grantees for itself and its successors and assigns (collectively
the ‘Indemnitors’) does hereby agree to forever indemnify, defend, and hold Grantor,
Grantor’s heirs, successors and assigns (collectively the ‘Indemnitees’) harmless from and
against any and all liability and expense (including reasonable attorney’s fees) incurred by
Indemnitees and arising out of or in connection with any claim, demand, suit, or other
action for any injury, loss or damage alleged to have occurred as a result of or arising in
connection with the use or enjoyment by Grantee or Grantee’s Permitted Users of a
Driveway Easement on Parcel C. Grantee shall at all times maintain with a reputable
insurance company licensed to do business in the State of Illinois a policy or policies of
insurance insuring against liability for personal injury or property damage having a
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combined single limit of $1,000,000: such policy of insurance shall expressly name
indemnitees as additional insureds and proof thereof (and of all renewals thereof) shall be
deposited with indemnitees.” (Emphases added.)
¶ 15 Finally, paragraph 9(c) sets forth a fee-shifting provision:
“(c) in any action or proceeding between the parties arising out of or in connection
with this Agreement or the breach or enforcement thereof, the party prevailing in such
proceeding shall be entitled to recover his/its costs and expenses (including reasonable
attorney fees) from the non-prevailing party.” (Emphasis added.)
¶ 16 B. Physical Description of the Easement
¶ 17 With these terms in mind, we describe the physical space at issue. The front door of HC’s
building (166 Symphony Way) faces south and opens onto Symphony Way. HC’s building is long
and narrow. The front door of USP’s building (220 Spring) faces east and opens onto Spring
Street. USP’s building is L-shaped, with the western-most wall directly abutting a portion of HC’s
building’s east wall. The result is a U-shaped open space facing Symphony Way. USP owns the
entirety of the opening.
¶ 18 However, this U-shaped opening contains an easement which runs alongside HC’s building
on its east wall. The easement is 20 feet wide. HC’s building has a delivery door on the east wall,
at approximately the mid-point of the wall, and vehicles access the delivery door via the easement.
There is a freight elevator on the other side of the delivery door.
¶ 19 The parties refer to HC’s building as Parcel B. They refer to the easement as Parcel C.
They refer to the remainder of the opening as Parcel A.
¶ 20 There are obstacles to entering the easement straight on from Symphony Way. Looking
into the opening from Symphony Way, there is a curb and sidewalk directly in front of the 20-foot
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easement. Additionally, there is a utility pole located just at the western edge of the easement. A
few feet east of that, there is a village lamppost. However, a few feet east of the lamppost there is
a curb cut, allowing for easy access into the opening. Historically, HC’s vehicles entered the
easement from the curb cut, even though the curb cut was located to the east of the easement.
Vehicles entering from the curb cut would then drive over to the easement, without lingering in
Parcel A (aside for a few outlying instances, to be discussed below).
¶ 21 HC and USP dispute just how difficult it is for a vehicle to enter over the curb and sidewalk
directly into the 20-foot easement. USP maintains that it is not difficult, whereas HC maintains
that it is. HC would like to preserve the 20-foot easement alongside the east wall and access it
over the cub cut. It urges that use of the curb cut, though not mentioned in the easement agreement,
was contemplated by original parties to the agreement. In the alternative, it urges, as set forth in
count IV of its complaint, that it has acquired use of the curb cut by prescriptive easement.
¶ 22 C. Notice and Pleadings
¶ 23 The Staneks’ displeasure with HC’s use of the easement began immediately upon their
purchase in 2014. From 2014 to 2016 Sandra Stanek sent HC at least 10 notice letters, telling HC
not to park or place construction material, such as drywall, in the easement. On December 20,
2017, pursuant to paragraph 8 of the easement agreement, Sandra sent a notice letter informing
HC that USP had not received proof that HC maintained insurance naming USP as an additional
insured. On January 5, 2018, pursuant to paragraph 7, USP recorded a termination of the easement
based on its belief that HC had violated paragraph 8. The January 5, 2018, recording also
referenced HC’s parking practices (later characterized as delivery trucks idling in the easement
while they dropped off goods at the delivery door) which purportedly violated the easement
agreement (though USP failed to reference paragraph 6(a) by number). USP asserted that these
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violations constituted a material breach of the agreement.
¶ 24 In June 2018 and the months that followed, Sandra sent at least nine notice letters
complaining of violations of 6(b) in that HC’s guests misused the easement as a place to perform
photoshoots and engaged in lewd behavior such as urination and vomiting. On November 27,
2018, with guests continuing to urinate and vomit in the easement and parking lot area, Sandra
recorded a second termination of easement.
¶ 25 On May 2, 2019, HC filed the operative complaint in chancery court. HC pleaded four
counts. In counts II and III, HC sought, inter alia, to have USP’s January 2018 and November
2018 recordings of termination declared null and void. It argued that it did not materially breach
paragraphs 8, 6(a), and 6(b) so as to warrant the termination of the easement. Further, it asked the
court to read paragraph 7 in a manner so as to prevent USP from unilaterally terminating the
easement at its whim.
¶ 26 In counts I and IV, HC sought continued use of the curb cut to access the easement. In
count I, HC pleaded that USP had a duty to allow it to access the easement and, by putting up a
fence (and other obstacles) along the curb cut, USP had blocked HC’s safe and reasonable access
to the easement. In count IV, HC pleaded that its actions, as well as the actions of its vendors and
customers, in using the curb cut to access the easement, “were ‘adverse’ insofar as they were
undertaken without authority for the same being given by [USP’s predecessors] *** [and] in an
uninterrupted [manner] for over 20 years.” Though not expressly stated, count IV is, in a sense,
an alternative to count I. That is, if the easement agreement did not contemplate that HC would
use the curb cut to access the easement, if the successive owners of 220 Spring never granted HC
permission to do so, and if HC simply acted, in an open and uninterrupted manner, in accordance
with its one-sided belief that it had a right to do so, then HC had acquired a prescriptive easement.
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¶ 27 On March 6, 2020, USP filed a counter-complaint, pleading three counts for declaratory
judgment of termination, based on allegations HC had violated paragraphs 8, 6(a), and 6(b). In
the alternative, it pleaded breach of contract, again alleging HC had violated paragraphs 8, 6(a),
and 6(b).
¶ 28 On February 25, 2020, while the lawsuit was pending, USP recorded its third termination.
The document acknowledged that the January 5, 2018, and November 27, 2018, terminations were
the subject of a lawsuit filed by HC. As such, to the extent that those terminations were invalid,
USP purported in the February document to terminate the easement due to alleged violations of
paragraph 6(b) (concerning misuse of the easement so as to constitute a nuisance or violation of
law or ordinance). According to USP, HC used the easement in violation of section 4.14.2 of the
Americans with Disabilities Act (ADA), 42 U.S.C. §12102, Accessibility Guidelines for Buildings
and Facilities (Appendix A to Part 1191, section 4.12.2) (providing that a “service entrance shall
not be the sole [ADA] accessible entrance unless it is the only entrance to the building or facility”).
As will be discussed below, the trial court would determine that HC’s ADA compliance was not
relevant to an alleged misuse of the easement under paragraph 6(b).
¶ 29 On April 20, 2021, USP filed a fourth recording of termination, alleging a violation of the
Fire Code. USP was apparently concerned that fire trucks would not have adequate access to the
sprinkler system from the easement. USP filed the document after discovery in the case was closed
and just days before testimony was to begin. The trial court learned about the fourth termination
in a round-about way, after testimony in the case had nearly concluded. USP informed the court
that it sought to bar certain evidence from HC. That evidence included testimony or a report from
the fire chief, which HC expected to provide that HC was not, in fact, in violation of the Fire Code.
USP argued that the Fire Code violation was not relevant to the instant case. Instead, it had
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recorded the termination in the event that it was not successful in the instant suit. HC argued that
USP’s very act of recording the fourth termination demonstrated that USP would continue to file
frivolous recordings of termination absent a requirement that it first obtain a court order before
filing a recording of termination. The trial court agreed that USP’s act of recording the fourth
termination was relevant to the question of USP’s good faith or lack thereof: “I share [HC’s]
dismay a little bit because I disagree with [USP] that this is not an issue before this court. One of
the primary allegations [HC] has raised is that your clients have acted in a manner to wholly
frustrate and undermine [its] enjoyment and use of the easement.”
¶ 30 D. Pre-Trial Evidentiary Rulings
¶ 31 Prior to the start of trial, the trial court ruled on two motions in limine relevant here: HC’s
motion in limine to bar evidence of an unpermitted air conditioning unit resting on the easement
and HC’s motion in limine to bar evidence of the alleged ADA violation referenced in USP’s third
recording of termination.
¶ 32 As to the air conditioning issue, HC moved in limine to bar “[a]ny reference, evidence[,]
or argument concerning any alleged permitting violations or other issues surrounding the
installation of or maintenance of [HC’s air conditioning] system or any other construction done at
the premises insofar as the Defendant has provided no evidence in discovery relative to such
issues.”
¶ 33 USP argued that it had evidence to show that the air conditioner was installed without a
proper permit. The air conditioner was a 2014 model. USP submitted a Freedom of Information
Act (FOIA) request to the City of Elgin, which responded that it had no permit on file for the air
conditioner after 2014. USP’s offer of proof provided that, if allowed, it would introduce the
following evidence in support of a paragraph 6(b) violation: (1) from approximately 2005 until
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2014, HC used and stored an air conditioning unit on the easement; (2) 2004 and 2014 plats of
survey that do not show an air conditioning unit on the easement; and (3) a 2014 FOIA response
from the City of Elgin stating that it had no permit on file for an air conditioning unit in the
easement area.
¶ 34 The trial court granted HC’s motion. It explained: “I do not believe that if it were shown
that the HVAC unit was installed without a city permit, that that would entitle [USP] to terminate
the easement.”
¶ 35 As to the alleged ADA violation, HC moved in limine to bar USP from introducing any
evidence that its door and surrounding configuration was not ADA compliant. USP moved, in
turn, to bar HC from introducing “any reference, evidence[,] or argument suggesting that the ADA
door and its configuration was approved by the City of Elgin (including any of its departments or
agencies) or otherwise complied with the requirements of the ADA.” (Emphasis added.)
¶ 36 HC argued: “[W]e certainly have a permit. *** [I]f the court were to allow ADA testimony
that the door was not properly constructed, I would certainly rebut [that testimony with] evidence
that the City granted us a permit.” And, “[In any event], my clients have a new ADA door which
comes out to the sidewalk and no longer touches the easement anyway, so it’s kind of a moot point
moving forward.” Finally, “[USP’s argument is] that people used the easement to get to the ADA
non-compliant door, but at some level, even if that’s true, so what? The use of the easement is not
in violation of anything. If the door itself is not compliant, the Department of Justice can do
something about it.”
¶ 37 USP responded that “the ADA access at issue is not simply the door. But rather the route
one takes from the public way to the ADA accessible door.” That route included the easement
and, according to USP, the slope to access the door was not ADA compliant.
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¶ 38 The trial court disagreed with USP: “I think your argument, while clever, is misplaced.
The act of using the easement has to be the violation of law. The only act of using the easement
is traversing of the easement.” The court granted HC’s motion in limine.
¶ 39 As such, heading into trial, the issues were whether: (1) HC materially breached the
easement agreement, including paragraph 8 (proof of insurance), paragraph 6(a) (delivery vehicle
practices), and 6(b) (guest behavior including photoshoots, urinating, and vomiting); (2) whether
HC could continue to access the easement via the curb cut; (3) correspondingly, whether USP
should remove the barriers to entry over the curb cut; and (4) whether USP should be prohibited
from unilaterally terminating the easement. The court would also consider whether HC was
entitled to attorney fees pursuant to paragraph 9(c).
¶ 40 E. Trial
¶ 41 1. The Haight Family:
Linda Haight, Doree Haight, Kari Goodmay, and John Haight
¶ 42 Linda Haight testified that she and her husband, who passed away in 2010, purchased the
HC building some time between 1984 and 1987. Originally, HC owned the U-shaped opening at
issue in this case (the easement and parking lot, Parcels C and A). However, HC and the owners
of the 220 Spring Building performed a land swap. HC granted the owners of 220 Spring Parcels
C and A. The owners of 220 Spring granted HC land on the other side of the HC building, not at
issue here. Though HC no longer had ownership of Parcels C and A, HC and the owners of 220
Spring entered into an easement agreement. The easement ran along the east side of the HC
building and enabled HC to access the delivery door. Other than the easement agreement, there
were no other written or oral agreements concerning Parcels C and A. Since 1987, there have been
three owners of the 220 Spring building. The first, an original party to the easement agreement
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(who did not testify at trial) was “loud and friendly.” Linda never had a conversation with the first
owner about the curb cut. The second, Denise Braun, was quiet but amicable. Linda never met
Denise Braun. The third was USP.
¶ 43 Linda testified to certain aspects of the easement that had existed since its inception. HC’s
vehicles had always used the curb cut to access the easement at a diagonal. The curb, sidewalk,
utility pole, and streetlamp had always stood as obstacles to a direct entry onto the easement. An
air conditioning unit had always rested in the easement. Over the years it had been replaced with
an updated model of the same size. In addition, a concrete ramp leading to a foot-traffic door,
which stood beside the delivery door, had always existed in the easement.
¶ 44 Linda testified that HC had used the easement as a parking lot. HC’s tenants parked along
the easement. Painted white lines on the HC building’s east wall can still be seen, and these lines
delineated parking spots. Typically, five to six cars per day occupied the parking spots. This
parking pattern occurred from 1987 to 2014. In 2014, USP bought 220 Spring and, separately, HC
began to renovate its building to be used as a wedding venue.
¶ 45 Doree Haight testified that, when her parents purchased 166 Symphony in 1987, she was
11 years old. She and her siblings were at the building nearly every day. There has always been
an air conditioning unit and a cement ramp resting in the easement. Cars always parked along the
easement wall and in the parking lot. It could be a full parking lot or it could be as few as eight
cars. Between 1994 and 2002, she lived away from home. However, she witnessed the same
parking patterns when she visited. In the early 2000s as certain tenants left the building, fewer
cars parked. However, between 2010 and 2013, HC hosted an annual art fair, which lasted one
week and had as many as 100 patrons, many of whom parked in the easement. HC also hosted
seasonal farmers’ markets, again allowing patrons to park in the easement.
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¶ 46 Doree testified that, in 2016, Bogdan placed a fence over the curb cut area. Before that, he
blocked vendors “all the time” with a big truck or cement blocks. All the time meant three or four
days per week. This began within months of USP’s purchase of 220 Spring. On more than one
occasion, Bogdan blocked in a vendor after the vendor had already entered the easement. One
vendor was blocked in for three to four hours. Doree had to call the police.
¶ 47 Doree testified to an encounter with Bogdan while clearing snow with a mini-snowblower.
Doree was shoveling along the easement. Bogdan physically blocked her with his body, and she
could not proceed. He told her that, if she continued shoveling, then he would prefer that she
shovel along the diagonal from the easement door to the gate (over the curb cut). He further
threatened that, if she continued shoveling, then he hereby relocated the easement to be only the
diagonal. She told Bogdan that he could not simply relocate the easement without notice and he
responded that, yes, he could. She tried to ignore him and press on shoveling, but “he just stood
right in front of me. Every which way I turned, he would just step in front of me[.]” Doree gave
up and went inside.
¶ 48 Doree testified regarding HC policies to keep guests out of the easement and parking lot.
Doree kept an iPad in her office which surveilled the area in hopes of stopping guests from going
into the easement area. She also had placed “Do Not Enter” and “Property Under Surveillance”
signs near the easement, but Bogdan moved the signs, believing them to be on his property. She
moved the signs to the sidewalk.
¶ 49 Kari Goodmay testified that she spent time at the 166 Symphony building as a young child.
She recalled playing on, and jumping off, the air conditioning unit and concrete ramp. Kari now
worked for HC, handling event planning, finance, and attorney correspondence.
¶ 50 Kari e-mails vendors with instructions in advance of their arrival. Prior to the instant
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lawsuit, vendors typically idled in the easement for 20 to 30 minutes. Since the lawsuit, Kari has
instituted fast-delivery policies. Now, the vendors arrive one at a time, leave their engines running,
and stay no more than 15 minutes when loading and unloading. (Doree had testified consistent
with Kari on this point, though she estimated that the vendors took 10 minutes when loading and
unloading).
¶ 51 Kari took measures to prevent guests from gathering to take pictures, smoking, urinating,
and vomiting. Beginning in 2017, Kari instructed brides and grooms that their guests were not
permitted in the easement and parking lot area. The couples would sign a contract to that effect.
She is not aware of any photoshoots occurring after 2016 or 2017. She acknowledged that HC’s
website contained picture(s) from an old photoshoot that had taken place on the easement. She
had posted the picture to congratulate the couple on their anniversary, not to advertise use of the
easement as a place to take photos. She hired at least one, if not two, security guards per wedding
event. Usually, one is stationed at the front door and one is stationed on the roof. She has
instructed the security guards to keep guests off of the easement and parking lot area. The security
guards were unable to prevent every instance of misuse, so, in 2019, she placed stanchions in front
of the easement entrance. The stanchions helped but did not totally prevent the misuse. As a final
measure, she has decided to ban any guest who is caught urinating or vomiting in the easement
and parking lot area.
¶ 52 Kari acknowledged that, as of December 20, 2017, USP had not received proof that HC
had renewed its insurance policy naming USP as an additional insured. However, up until that
date, she had thought that the insurance company had sent USP a copy of the policy. Her insurance
agent had previously told her that the insurance company would do so. Kari had no reason to
question her agent’s representation because, in reading the policy herself, she saw that the policy
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named USP as an additional insured and set forth USP’s correct business address. Further, she
had seen 2014 documents reflecting correspondence between Sandra Stanek and the insurance
company, so she was confident that the insurance company and USP knew how to contact one
another.
¶ 53 John Haight also testified that he spent time at the building as a young child and, as he
grew older, his father taught him how to maintain the building. He recalled the air conditioning
unit being present on the easement from his earliest childhood days. In 2014, HC replaced the air
conditioning unit with a newer unit of the same size.
¶ 54 John also recalled that tenants used to park along the wall of the easement. The remnants
of white stripes painted on the wall delineated parking spaces. Typically, 5 to 10 cars per day
parked in those spaces.
¶ 55 John testified to a 2014 encounter with Bogdan. John parked alongside the easement door
as he had been doing for the last 15 years, since he was a young man first beginning to work at the
building. Bogdan approached and told him to move his car or he would have it towed. There was
no conversation or neighborly interaction. John moved his car.
¶ 56 John acknowledged that HC had not been wholly successful in preventing its guests from
passing through the easement to urinate in the parking lot. HC had not hired a guard to stand watch
directly in front of the easement.
¶ 57 2. Testimony of HC Staff and Vendors:
Lauren Schroeder, Toby Eshelman, James Walsh and Mark Link
¶ 58 Lauren Schroeder testified that she is employed by HC as an events manager. There was
a period of time prior to 2019 when USP locked the gate over the curb cut, causing HC’s vendors
to traverse the easement by foot. Since USP reopened the gate, HC has practiced a fast delivery
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procedure for its vendors. HC sends its vendors an e-mail in advance of the event, instructing
them to call HC staff prior to arrival. HC staff will then open the gate. The staff makes sure that
only one vendor arrives at a time, that the vendors keep their vehicles running, and that the vendors
leave as soon as they are done unloading. Each vendor usually makes two trips, one to unload and
one to pack up. However, vendors with many items may make as many as four trips. No single
trip lasts longer than 15 minutes. Vendors using the easement include caterers, DJs, and, less
frequently, florists and alcohol vendors. (Doree had testified that, since 2017, HC procured its
own alcohol, which it brought in through the front door, not the easement door.)
¶ 59 Toby Eshelman testified that he is employed as a bartender for HC. Even after USP
reopened the gate over the curb cut, Eshelman witnessed Bogdan block in vendors, making it
difficult to get out. Bogdan’s actions turned a 4-point turn into a 17-point turn for HC’s vendors.
Eshelman estimates that it takes most vendors 6 to 10 minutes to unload and 12 minutes to pack
up. He encourages vendors with smaller deliveries to use the front door rather than the easement
door.
¶ 60 James Walsh and Mark Link each testified that they own catering companies that
frequently serve HC. Walsh testified that, when USP locked the gate over the curb cut, he had to
park in the street, unload on the sidewalk, and walk the catering supplies and food up the easement
on dollies. He does not feel comfortable driving his vehicle over the curb. When the gate was
reopened, in approximately 2018, he received fast delivery instructions. Walsh confirmed the
policy as testified to by Schroeder. He further testified that a manager with a clip board usually
observes him load and unload. It usually takes him 5 to 7 minutes to unload hot food. A different
truck comes with the china. It takes him 7 to 9 minutes to pack up equipment following an event.
HC has told him from the beginning to respect the neighbors (USP). He does not park in USP’s
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lot. Instead, upon entering the area from the curb cut, he performs an S-curve which allows him
to pull alongside HC’s easement.
¶ 61 Link also testified that, when USP locked the gate over the curb cut, he had to enter the
easement on foot from the sidewalk. He has also tried the front door, but that is less ideal due to
the stairs. The easement door makes his duties as a vendor “appreciably easier,” because there is
a freight elevator 20 feet on the other side of it. Even after USP reopened the gate, Bogdan blocked
him in. In another instance, Bogdan confronted him while he was parked in front of the easement
door, telling him that this was his private property. Link estimated that, absent any issue, it takes
him 10 minutes to unload his vehicle and 15 minutes to pack up.
¶ 62 3. 220 Spring’s Former Owners and Tenants:
Denise Braun, Edward Miller, and James Zavacki
¶ 63 Denise Braun testified that she owned 220 Spring from 1995 or 1997 to 2014. Her husband
passed away in 2002. From 1995 to 2002, her husband monitored the property. From 2002 to
2014, she monitored the property, visiting it a few times per month. There had always been one
or two vehicles parked in the easement. Her husband was fine with it, and she was fine with it.
She knew there was an easement, but she never looked into its terms. She knew the Haight family
name, but she did not know them personally. She recalled one interaction with a Haight family
member. She was standing in the curb cut area, talking on her cell phone. A male member of the
Haight family sought to drive in over the curb cut to access the easement. Braun stepped aside
and waved him in. She did not mind him using the curb cut to access the easement because she
wanted to be a good neighbor and it was no bother. When she sold the property in 2014, she
informed the Staneks at closing that the Haights used the curb cut to access the easement and that
they parked their vehicles in the easement. She also told the Staneks that she “never had a
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problem” with that practice.
¶ 64 Edward Miller testified that he helped manage 220 Spring from 2011 to 2014. He was on-
site approximately once per month and more frequently during the fall. He occasionally saw one
vendor in the easement area. He saw as many as 8 to 10 cars per day parked in the easement.
¶ 65 James Zavacki testified that he was a tenant at 220 Spring from 1997 to 2005. He ran a
cheese processing plant. He could see the 166 Symphony building from his office window, and
he characterized the activity level in the easement and parking lot as “near non-existent.”
¶ 66 4. USP Owners: Bogdan Stanek and Sandra Stanek
¶ 67 Bogdan Stanek testified that he and his wife purchased 220 Spring in 2014. He was looking
for a warehouse to store equipment for one of his businesses, Castle Party Rental. He investigated
the property for several years before purchasing it. He drove by the property at all times of the
day. It was always very quiet, and he did not see vehicles parking in the easement.
¶ 68 At the time Bogdan purchased the property, he knew there was an easement agreement.
He believed the easement to include only the 20 feet running immediately east of the 166
Symphony Way building. However, during the 2014-2015 timeframe, building remodelers parked
all over the easement and parking lot. He would politely ask the contractors to leave his property,
but they continued to stage their building projects on the easement. He pointed to USP’s
photographic exhibits of what appears to be men working on flower boxes and of drywall material
leaned against the 166 Symphony building. In 2017, a Binny’s truck parked in the USP parking
lot in front of a USP loading door. This prevented him from accessing the door. Also, when cars
parked on the easement, it made it difficult for him to access the easement for use as a driveway.
From 2015 to 2019, HC guests gathered on the easement for hour-long photoshoots. This
happened approximately twice per weekend during that timeframe. Also, wedding guests used the
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easement to urinate and vomit. He occasionally saw a guest exit out of the easement door and
urinate or vomit in the easement or the parking lot. Most of the time, however, guests entered the
easement from the front sidewalk and urinated or vomited in the parking lot. He estimated that he
saw guests urinate on the easement itself 3 times in the four-year period and on the parking lot 12
times in the four-year period. During the 2019 to 2021 timeframe, he saw a contractor’s van parked
in the easement several times for “30, 40, 60 minutes.” One vehicle parked for as long as 78
minutes. In addition, on several occasions, a cleaning crew parked in the easement, arriving in the
middle of the night and leaving at 6 a.m.
¶ 69 Bogdan denied using his truck to block the curb cut. He admitted that he put up concrete
blocks to block the curb cut, but that was because he was concerned that taller delivery trucks
would hit the utility power lines if they drove over the curb cut. He expected HC’s delivery trucks
to drive over the curb and alongside the 166 Symphony building, even though the telephone pole
made for a somewhat narrow opening.
¶ 70 When HC filed the lawsuit, Bogdan removed the concrete blocks in front of the curb cut,
giving delivery trucks 40 feet to enter. In fact, if he were to lose the instant lawsuit, he would like
to relocate the easement to run in a diagonal from the curb cut to the easement door. He
acknowledged that this was the same route that HC sought in its prescriptive easement, except that
it would not include the portion of the original easement running alongside the 166 Symphony
building between Symphony Way and the easement door.
¶ 71 Sandra Stanek testified consistent with Bogdan. She did, however, acknowledge that
Braun told her at closing that HC parked in the easement area. She did not record a termination
based on 2014 to 2016 activities, because, early on, she hoped to work things out. As to HC’s
wedding guests, she was concerned that their activities could diminish the value of her property
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and increase her liability. Although she did not point to a time frame, she believed that guests took
photographs while standing on the easement on a weekly basis. During the 2015 to 2020
timeframe, she believed guests urinated in the easement and parking lot area at least several times
per year. She personally witnessed them and also had photographic evidence.
¶ 72 In addition, Sandra testified to the notice letters that she drafted and sent to HC. Relevant
here, on December 20, 2017, Sandra notified HC that it had not deposited proof of insurance. As
the parties agreed, on December 22, 2017, HC’s attorney’s secretary received the notice. On
December 31, 2017, HC’s attorney retired from the practice of law. On January 3, 2018, a different
attorney at HC’s law firm responded to USP’s notice. The January 3, 2018, letter provided the
proof of insurance. (As would become relevant to the prescriptive easement issue, the January 3,
2018, letter also informed USP that USP was the one acting against the terms of the easement
agreement as contemplated by the original drafters to the agreement when USP blocked access to
the easement via the curb cut.) However, on January 5, 2018, having not yet received the response,
Sandra caused USP’s termination of the easement to be recorded with the Kane County Recorder
of Deeds. Sandra agreed that, by January 8 or 9, 2018, USP received HC’s letter and proof of
insurance. It did not, however, take action to revoke its termination.
¶ 73 In closing, HC asserted that certain language in the agreement encouraged conflict between
the parties. It caused USP to believe that it had the unilateral right to terminate the easement just
by filing a piece of paper and a right to relocate the easement just by declaring it so (as when Doree
was trying to shovel). HC argued that these results were against public policy favoring the
continuation of easements and were also absurd. HC acknowledged that the court could not rewrite
the contract, but it asked the court to interpret the contract in a manner consistent with public policy
and so as to avoid the absurd result witnessed mid-trial with USP recording its fourth, unfounded
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termination. In HC’s view, this would require the court to interpret the contract so as to provide
HC with some method to adjudicate the termination prior to its recording.
¶ 74 USP responded that the termination provision unambiguously allowed USP to terminate
the easement without court approval. Separately, USP offered a concession. Should the court
terminate the easement, USP would allow HC to keep the air conditioning unit on the premises
until the end of its mechanical life and it would allow contractors to enter the easement to maintain
it.
¶ 75 F. Trial Court’s Order
¶ 76 The trial court entered a nine-page written order. It evaluated each parties’ credibility:
“Linda Haight, *** the only party and witness to the creation and execution of the easement[,] ***
testified credibly about the circumstances under which it was created, its purpose, and the
understandings of the parties as evidenced by their actions and use of the premises.” In contrast,
“[t]he Staneks, as owners of USP, were not as forthright or believable in their testimony.”
¶ 77 The trial court particularly noted USP’s bad faith:
“They obviously are displeased with owning a servient property, and they clearly
hope to terminate the easement. This fact is evident in everything they have done and in
their testimony. The Staneks[’] initial installation of the fence and closing the gate was a
clear interference with HC’s rights under the easement. The parking of trucks [and]
placement of concrete curb blocks interfered as well. The Staneks’ animus for their
neighbors is so pronounced that Mrs. Stanek attempted to serve a new notice of termination
upon HC during the trial.
None of the Staneks’ explanations for what they did is justified. They were merely
to frustrate and harass HC. If they were truly concerned about protecting their parking lot
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[Parcel A], they could have sat down with the owners of HC and worked out reasonable
ways to address their concerns.”
¶ 78 The trial court made a preliminary determination that the easement agreement was
ambiguous because the agreement purported to create an easement appurtenant, yet it contained a
termination provision. In the court’s view, the general rule that easements appurtenant terminate
when the original purpose for the easement ceases to exist (McCann v. R.W. Dunteman Co., 242
Ill. App. 3d 246 (1993)) was inconsistent with a provision allowing for termination in the event
that the agreement’s terms were breached. The trial court also determined that the easement
agreement was ambiguous, because it did not delineate exactly how a vehicle was supposed to
access the easement, yet it would be absurd to expect a vehicle to drive over the curb and between
the building wall and utility pole, as opposed to over a designated curb cut just east of the easement.
¶ 79 The trial court next determined that the easement agreement’s provision for termination in
the event of a breach meant in the event of a material breach: “[E]vents that may result in
termination must be those that are material to the intent of the parties. They cannot be merely
technical, but must effect the purpose of the agreement.” The court found no material breach as
to any of the provisions at issue, paragraph 8, paragraph 6(a), and paragraph 6(b). As to paragraph
8, which requires HC to maintain insurance naming USP as an additional insured, the court wrote:
“[Paragraph 8] requires HC to insure and indemnify USP against liability arising
from HC’s use of Parcel C. The important material term is the insurance and
indemnification. Not the proof thereof. While HC is required to submit proof of insurance,
given the fact that such insurance was in place at all relevant times, whether or not proof
was timely deposited is a non-issue. No [material] breach occurred.”
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¶ 80 As to paragraph 6(a), which prohibits HC from impeding USP’s use of the easement, the
trial court wrote:
“Paragraph 6(a) prohibits HC from impeding USP’s use of the lot or storing
property in the designated easement area. This provision must relate to permanent
violations of this type, and they must affect USP’s enjoyment of its property. Temporary
parking of vehicles accessing 166 [Symphony] via the easement was contemplated ***[.]
*** The only party affecting the other’s rights to use the easement was USP repeatedly
placing trucks and obstructions in the lot and in the easement to frustrate and prevent HC’s
access.”
The court determined that HC could continue its current “parking” practice of allowing large
delivery vehicles to idle in the easement while delivering items to the easement door. The court
did, however, determine that paragraph 6(a) precluded HC from parking on the easement for long
periods of time, as it had in the early years.
¶ 81 As to paragraph 6(b), which prohibits HC from using the easement in a manner that
constitutes a nuisance or violation of law or ordinance, the court wrote:
“[T]he parties recognized a need to prevent the misuse of Parcel C, and further to
prevent a slander on title to Parcel A. The instances raised by USP amount to neither.
[As to public urination and vomiting], [m]any of [HC’s] patrons committed acts
that are likely violations of law ***. Nevertheless, these are the acts of the patrons, not
that of HC. *** These patrons were not ‘permitted users’ of Parcel C when they [performed
these acts].
Similarly, the court determined that HC did not authorize the photoshoots. It further noted, “[T]his
activity in no way injures the reputation of Parcel A.”
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¶ 82 The court addressed its decision to exclude evidence of alleged ADA, air conditioning unit,
and sprinkler system non-compliance: “Whether or not an emergency sprinkling system or a
concrete ramp is fully up to Code has nothing to do with the use of the easement. *** Furthermore,
these types of minor issues cannot equate to the type of misuse contemplated by the parties at
creation.” (Emphasis in original.)
¶ 83 The court resolved the ambiguity as to how HC was to access the easement by determining
that HC could continue to access the easement via the curb cut. The primary basis for its decision
was that the original parties to the agreement contemplated use of the curb cut, and to interpret the
agreement otherwise would lead to an absurd result. Without use of the curb cut, drivers would
risk damage to their vehicles by driving over a curb and navigating around a utility pole and would
violate the Vehicle Code by driving over a sidewalk. The court found in the alternative that, if the
original parties did not contemplate the use of curb cut, then HC acquired a prescriptive easement
over the same.
¶ 84 The trial court granted HC’s request that USP remove barriers to entering the easement via
the curb cut, with modification. The court did not require USP to remove the fence and gate over
the curb cut. Instead, USP could leave the gate latched from the inside, but not locked, so that
HC’s permitted users could use the curb cut to access the easement. The court did order USP to
remove all concrete blocks, as they pose unreasonable navigation hazards within the easement and
parking lot. USP was also to refrain from parking its vehicles in a manner so as to obstruct access
to the curb cut. The court ordered HC to erect, at its expense, a fence and gate from the front
eastern edge of its building to the western edge of USP’s fence. The fence was to have a pedestrian
gate for purposes of ingress and egress to the easement. The gate was to be latched in a way that
prohibits unauthorized access from Symphony Way to the easement. Thus, the entire U-shaped
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opening would be fenced in, and the fence would have two gates: one providing entrance directly
into the 20-foot easement for foot traffic and one providing entrance over the curb cut for vehicular
traffic.
¶ 85 The trial court declined to read the agreement to allow for USP to unilaterally terminate
the easement, apparently accepting HC’s argument that allowing as much would violate public
policy and perpetuate the absurd results witnessed and discussed at trial. After noting that there
had been no material breach of the easement and that USP’s recordings of termination were null
and void, the court noted that, moving forward: “[B]oth parties are permanently enjoined from
altering, modifying, or terminating the easement without prior written agreement, or leave of
court.”
¶ 86 Finally, the trial court addressed the question of attorney fees. The court entered a two-
part order, the second part of which effectively canceled out the first:
“D. Pursuant to paragraph 9 of the easement [agreement], [HC], as the prevailing
party, are awarded their reasonable attorney fees incurred by them to prosecute this action.
***
F. Regarding [USP’s] [request for] indemnification [based on paragraph 8 of the
easement agreement], the court finds that, pursuant to its equitable powers, [USP] is
entitled to reimbursement from [HC] for the full amount of any judgement for [HC’s]
attorney’s fees entered against [USP] in accordance with paragraph D above. Apart from
that, parties to [bear] their own costs.”
This appeal followed.
¶ 87 II. ANALYSIS
¶ 88 USP appeals the first five of the trial court’s findings: (1) the court’s finding of no material
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breach of easement agreement paragraphs 8, 6(a), and 6(b); (2) the court’s reiterated basis for
excluding evidence of other alleged 6(b) violations, such as the air conditioning unit and ADA
compliance; (3) the court’s order that HC was permitted to use the curb cut to access the easement;
(4) the court’s corresponding order that USP remove barriers to entry; and (5) the court’s
determination that USP could not unilaterally terminate the easement. For the reasons that follow,
we reject USP’s arguments and affirm on these five issues.
¶ 89 HC cross-appeals, arguing that the fee-shifting provision entitled it to attorney fees and the
indemnification provision could not serve to cancel out the fee-shifting provision. For the reasons
that follow, we agree with HC’s argument and reverse and remand for the trial court to determine
a proper attorney fee award.
¶ 90 We first address principles of law common to several of the claims. When interpreting the
terms of an easement, courts utilize standard contract interpretation principles. See La Salle
National Trust v. Village of Westmont, 264 Ill. App. 3d 43, 67 (1994). The best indicator of intent
is the plain language of the document. Gallagher v. Lenart, 226 Ill. 2d 208, 233 (2007). The
document must be considered as a whole, giving effect to every word, clause, and sentence, and
with each provision construed in connection with the other relevant provisions of the document.
Palm v. Holocker, 2018 IL 123152, ¶ 21 (interpreting a statute); Standlee v. Bostedt, 2019 IL App
(2d) 180325, ¶ 55 (interpreting a restrictive covenant). We will not interpret a document so as to
lead to an absurd result. Foxfield Realty v. Kubala, 287 Ill. App. 3d 519, 524 (1997). Interpreting
the terms of an easement presents a question of law, which we review de novo. Avery v. State
Farm Mutual Auto Insurance Co., 216 Ill. 2d 100, 129 (2005).
¶ 91 Once the terms of the contract are understood, however, whether a breach has occurred is
a question of fact, the answer to which may be reversed only if it is against the manifest weight of
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the evidence. Mohanty v. St. John Heart Clinic, S.C., 225 Ill. 2d 52, 72 (2006). Here, the trial
court determined that a breach means a material breach. Again, the court stated: “[E]vents that
may result in termination must be those that are material to the intent of the parties. They cannot
be merely technical, but must effect the purpose of the agreement.” We agree with the trial court
on this point, as it is consistent with common law. In general, only a material breach by one party
will justify the non-performance of the other. William Blair & Co., LLC v. FI Liquidation Corp.,
358 Ill. App. 3d 324, 346 (2005). Determining whether a material breach occurred
“is a complicated question of fact involving an inquiry into such matters as whether the
breach worked to defeat the bargained-for objective of the parties or caused
disproportionate prejudice to the non-breaching party, whether custom and usage considers
such a breach to be material, and whether the allowance of reciprocal non-performance by
the non-breaching party will result in his accrual of an unreasonable or unfair advantage.”
(Internal quotation marks omitted.) William Blair, 358 Ill. App. 3d at 346 (quoting Sahadi
v. Continental Illinois National Bank & Trust Co. of Chicago, 706 F. 2d 193, 196 (7th Cir.
1983)).
In addition, a material breach warranting the recission or termination of the contract is one that is
so significant that, had it been known in advance, the agreement would not have been made. CC
Disposal, Inc. v. Veolia ES Valley View Landfill, Inc., 406 Ill. App. 3d 783, 790 (2010).
¶ 92 Thus, we reject USP’s opening position that this case presents a pure question of law.
Instead, it was for the trial court to weigh the evidence and determine, according to the principles
set forth in William Blair, whether a breach occurred. We also reject USP’s opening position that
any technical non-compliance would justify a termination of the easement. The agreement does
not so provide and, moreover, such an interpretation would go against general principles of
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contract interpretation and general policy favoring the preservation of easements. See William
Blair, 358 Ill. App. 3d at 346; McCann, 242 Ill. App. 3d at 258 (public policy favors the
preservation of easements).
¶ 93 We would note, for context, that the instant case was filed in a court of chancery, where
the dominant consideration is equity. See Continental Casualty Co. v. Commonwealth Edison Co.,
286 Ill. App. 3d 572, 577-82 (1997). Generally, courts of chancery award equitable relief and
courts of law award damages. See id. at 579. However, every circuit court is vested with equitable
powers and “that equitable relief is available even where a case is pending in the Law Division.”
Id. at 578. “The character or nature of the court and the relief available to a plaintiff are derived
from the substance of the claim before it.” Id. at 579. By way of example, an action for breach of
contract is a classic action at law. Id. An action for an injunction, in contrast, invokes the court’s
equitable powers. TIG Insurance Co. v. Canel, 389 Ill. App. 3d 366, 370 (2009). Finally, an action
for a declaratory judgment is not strictly legal or equitable but “take[s] [its] character from the
nature of the relief declared.” Continental Casualty, 286 Ill. App. 3d at 578.
¶ 94 Here, HC filed its action in a court of chancery and, generally, sought equitable relief: the
preservation of the easement, the removal of barriers to the easement, the right to access the
easement via the curb cut, and an end to USP’s alleged abuses in filing frivolous terminations.
USP filed a counter action in the same court of chancery, seeking declaratory judgment and,
alternatively, breach of contract. While the character of USP’s breach of contract action in
particular is one of law, we remain cognizant that the trial court ultimately viewed the case
consistent with HC’s approach. Thus, the overall character of the proceedings, consistent with the
chancery court in which they were filed, was equitable in nature.
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¶ 95 There is one preliminary issue with which we agree with USP. That is, we disagree with
the trial court that an easement agreement creating an easement appurtenant cannot also contain a
termination provision. An easement appurtenant merely means that “one terminus is on the land
of the party claiming the easement, who is considered the owner of the ‘dominant estate’ ***;
[and] the only essential element is that it inhere in or concern the land of that party.” Heritage
Standard Bank and Trust Co. v. Trustees of Schools of Township No. 37 North, 84 Ill. App. 3d
653, 656 (1980); see also 527 S. Clinton v. Westloop Equities, LLC, 2014 IL App (1st) 131401,
¶¶ 29-30, 35 (enforcing the termination provision of an express easement appurtenant).
Nevertheless, the trial court’s inaccurate comment in this regard does not undercut the entirety of
its ruling.
¶ 96 Also, our review of the trial court’s decisions regarding the alleged breaches does not
depend on its initial finding that the easement agreement was ambiguous. The question of whether
the easement agreement is ambiguous most directly impacts the curb cut issue, which we discuss
in greater detail below. Briefly, whether we look to the parties’ past practices because the
agreement is unclear as to how HC is to access the easement or because interpreting the contract
to require delivery vehicles to navigate over a curb and between a utility pole would be absurd, the
result is the same. We now turn to the trial court’s specific findings.
¶ 97 A. Paragraph 8: Proof of Insurance
¶ 98 As to this issue, paragraph 8 provides in relevant part:
“8. Indemnification. ***. Grantee shall at all times maintain with a reputable
insurance company licensed to do business in the State of Illinois a policy or policies of
insurance insuring against liability for personal injury or property damage having a
combined single limit of $1,000,000: such policy of insurance shall expressly name
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indemnitees as additional insureds and proof thereof (and of all renewals thereof) shall be
deposited with indemnitees.” (Emphasis added.)
¶ 99 USP concedes that HC at all relevant times maintained the appropriate insurance policy
naming USP as an additional insured. USP instead argues that HC failed to deposit proof with
USP that it maintained said insurance policy and that HC’s failure to do so constitutes a material
breach of the easement agreement. USP contends that the requirement that HC deposit proof of
insurance was not a mere technicality, because, without proof of insurance, USP was subjected to
constant worry that HC and the actions of its guests created a liability for it.
¶ 100 For the reasons that follow, however, the trial court’s finding of no material breach was not
against the manifest weight of the evidence. The parties do not dispute that, on December 20,
2017, USP sent HC’s attorney written notice that it had not received the proof of insurance. On
December 22, 2017, the Friday before Christmas Eve, HC’s attorney’s receptionist received the
notice. Four business days later, on December 31, 2017, HC’s attorney retired from the practice
of law. Two business days after that, on January 3, 2018, a different attorney at the same firm
answered USP’s notice. She provided USP with a copy of the insurance policy showing USP as
an additional insured. On January 5, 2018, having not yet received HC’s response, USP recorded
its termination of the easement. On January 8 or 9, 2018, USP received HC’s January 3, 2018,
letter and copy of the insurance policy.
¶ 101 Moreover, Kari Goodmay testified that, prior to December 20, 2017, she believed that the
insurance company had mailed USP a copy of the insurance policy. She recalled her insurance
agent informing her that a copy of the policy would be mailed to USP. She did not question her
insurance agent’s representation, because, in reading the insurance policy herself, she saw that the
policy named USP as an additional insured and set forth USP’s address.
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¶ 102 The court reasonably determined that the most important aspect of paragraph 8’s insurance
requirement was that HC maintain the appropriate insurance. Nevertheless, accepting for the sake
of argument that requiring proof of the same was more than a mere technicality, the court was not
required to find a material breach under this set of facts. The easement agreement does not specify
whether the seven-day cure period includes weekends and holidays. If the seven-day cure period
does include weekends and holidays, then USP’s decision to send notice over the Christmas and
New Year’s holidays—as well as its decision to record the termination without calling to inquire
whether HC planned to respond—is consistent with the trial court’s finding that USP looked for
any reason to terminate the easement. If the seven-day period does not include weekends and
holidays, then HC arguably satisfied USP’s request within the seven-day period, which would have
ended January 4, 2018, when it responded on January 3, 2018. In sum, the court reasonably found
HC to have materially complied with paragraph 8, because: HC maintained the appropriate
insurance; HC believed that the insurance company had sent USP proof of insurance; and, upon
learning that was not the case, HC responded within six business days to USP’s request, despite
the challenging circumstance that the seven days at issue fell on either side of two major holidays
and the retirement of HC’s attorney.
¶ 103 B. Paragraph 6(a): Blocking the Easement
¶ 104 Paragraph 6(a) provides:
“6. Restriction on Use of Driveway Easement. *** [N]either Grantee nor Grantee’s
Permitted Users shall make use of Parcel C in such a way as to:
(a) Block, impede, or impair the use of parcel C by Grantor or Grantor’s
authorized agents, or use said Parcel C for the storage of any property[.]”
¶ 105 USP appears to concede that the original parties to the easement agreement contemplated
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that HC and its permitted users could drive in a vehicle to deliver goods to the delivery door.
Indeed, paragraph 2(a) of the easement provides that HC will be permitted to traverse the easement
“with or without a vehicle of any description *** for driveway purposes and for the purpose of
access, ingress and egress to and from Parcel B [the 166 Symphony building.]” Rather, USP
argues that the original parties to the easement agreement did not contemplate the degree to which
HC would burden the easement with said use. It notes that the dominant estate cannot alter its use
of the easement in such a way as to unduly increase the burden on the servient estate. McCann,
242 Ill. App. 3d at 255.
¶ 106 The instant case is distinguishable from McCann, where the owners of the dominant estate
increased traffic on the easement in order to access two additional parcels of property. Id. at 256.
The McCann court expressly distinguished its facts from a situation where the increased burden is
due to the normal development of the original property. Id. Here, any increase in burden was due
to the normal development of the original property. USP agreed at oral argument that HC uses
166 Symphony in a manner consistent with zoning ordinances. And, for the reasons that follow,
the trial court was not required to find that the increased burden, if any, was so extreme as to
warrant termination of the easement.
¶ 107 Six witnesses testified in support of HC’s position that there was a history of parking in the
easement, such that HC’s present “parking” practice of vendor loading and unloading represented
a comparatively lower burden on the easement. The four Haights testified that their tenants had
always parked on the easement, with Linda and John going so far as to reference the painted
parking notches on the east wall. Collectively, the Haights recalled the parking burden to be 5 to
10 cars per workday from approximately 1987 to the early 2000s. In the early 2000s, tenant
occupancy was lower, but, in 2010, the 166 Symphony building became host to an annual art fair
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and a seasonal farmers’ market, once again inviting multiple cars to park in the easement. Braun
confirmed that, between 1995 and 2014, vehicles parked in the easement. Also, Miller observed
that, between 2011 and 2014, as many as 10 vehicles at one time would park on the easement.
¶ 108 To be sure, Zavacki, a tenant at 220 Spring from 1995 to 2005, characterized the activity
at 166 Symphony as near non-existent. Also, Sandra and Bogdan Stanek testified that, between
2011 and 2014 when they were deciding whether to purchase 220 Spring, they observed very little
activity on the easement. However, the trial court expressly found Linda to be more credible than
the Staneks and was free to credit her testimony regarding the historical use of the easement.
¶ 109 Other evidence supports that HC did not presently burden the easement so as to constitute
a breach of paragraph 6(a). As HC acknowledges, in 2014, during the initial conversion of the
wedding venue space and florist shop, vendors and renovators did park for longer periods of time.
Construction materials, such as drywall, were leaned up against the wall of 166 Symphony. And,
in 2017, there was one occasion where a Binny’s delivery truck parked for more than one hour in
USP’s parking lot, blocking USP’s access to its loading door. Per Kari, between 2014 and 2018,
vendors may have taken as long as 20 to 30 minutes to load and unload. However, following
complaints by USP, HC instituted new protocol. HC now instructs its vendors to arrive one at a
time, be as quick as possible, and keep their engine running. Multiple witnesses testified that it
has been successful in this measure.
¶ 110 We also acknowledge that Bodgan testified that, in the 2019 to 2021 timeframe, he
witnessed HC’s workers parking for over 30 minutes and, on one occasion, for 78 minutes. Also,
a cleaning crew arrived in the middle of the night, parked on the easement, and did not leave until
6 a.m. Still, on the whole, the evidence supports the trial court’s determination that HC’s current
use of the easement to load and unload vendor vehicles is consistent use of the easement as
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contemplated by the original parties. This is particularly true where the court also found that the
Staneks lacked credibility and that the Staneks, in fact, blocked and impeded HC’s use of the
easement. The court’s finding that HC’s current parking practices did not constitute a material
breach of paragraph 6(a) of the easement agreement was not against the manifest weight of the
evidence.
¶ 111 C. Paragraph 6(b): Misuse
¶ 112 Paragraph 6(b) provides:
“6. Restriction on Use of Driveway Easement. *** [N]either Grantee nor Grantee’s
Permitted Users shall make use of Parcel C in such a way as to:
***
(b) Create any public or private nuisance or violate any laws, ordinances, or
regulations of any applicable governmental body, or otherwise injure the reputation
of Parcel A or Parcel C.”
¶ 113 USP complains of the following statement by the trial court regarding public urination and
vomiting: “[T]hese are the acts of the patrons, not that of HC. *** These patrons were not
‘permitted users’ of Parcel C when they [performed these acts]. *** [T]here is no evidence that
HC encouraged or approved of the conduct.”
¶ 114 The complained of quote does not, as USP suggests, show that the trial court rewrote the
contract to ignore the plain meaning of the term “permitted user.” Rather, the complained of quote
is in the nature of a factual finding. We afford deference to the trial court’s factual findings, and
we presume that the court was referring to Kari’s testimony that HC implemented a policy of
revoking a person’s guest status if the person is caught urinating or vomiting in the easement or
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parking lot. The evidence supports both the complained of quote and the court’s overall
determination of no material breach under paragraph 6(b).
¶ 115 The parties agree that the urinating and the vomiting, as opposed to the photoshoots,
presents the bigger problem. Doree testified that, since USP complained, all prospective couples
are required to sign a contract agreeing not to take photographs in or otherwise use the easement
area. Similarly, Kari testified that she is not aware of any photoshoots occurring since 2016 or
2017 when tensions heightened between HC and USP. The trial court credited Doree and Kari’s
testimony. Also, the trial court was not required to find that the photoshoots ever were a nuisance
to USP to a degree as would warrant terminating the easement. In any event, the trial court did
not err in declining to terminate an easement in 2021 based on a problem that had largely resolved
itself by 2017.
¶ 116 In contrast to the photoshoots, HC acknowledged that guests continued to enter the
easement from the sidewalk and proceed to urinate or vomit, either in the easement itself or in the
parking lot. However, Doree testified that, since HC had been notified of the problem, HC has
taken measures to prevent it and the situation has improved. Doree put up a “do not enter sign”
beside the easement. She also put up a sign informing persons that the area was under surveillance,
but Bogdan, believing the signs to be on USP property, moved them. She placed a surveillance
camera near the area, which was linked to an iPad in her office. She also asked a security guard
or a manager to guard the area. Kari testified that she placed stanchions between the east wall of
HC’s building and the western edge of USP’s fence. According to Kari, the stanchions improved
but did not completely resolve the problem.
¶ 117 Under these circumstances, the trial court was not required to find a material breach of
paragraph 6(b) so as to warrant the termination of the easement agreement. The court reasonably
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balanced HC’s efforts to improve the situation against USP’s “harassing” and unhelpful behavior.
Sandra agreed that she did not notify HC that its guests were urinating and vomiting in the parking
lot until June 2018, after HC filed the instant lawsuit to protect its right to the easement. As the
trial court noted, had USP been willing to work with HC, the parties could have solved the problem
by, as the trial court ordered, fencing in the entire entrance to the U-shaped opening, with gates for
HC’s true permitted users to pass. Mindful that it is the trial court that must decide whether a
breach is of a character that warrants termination of an easement, that public policy favors the
preservation of the easement, that HC made efforts to correct the problem, and that the court was
able to issue the remedy of completely enclosing the U-shaped area, the trial court’s finding of no
material breach of paragraph 6(b) is not against the manifest weight of the evidence.
¶ 118 D. The Trial Court’s Exclusion of Evidence
¶ 119 USP challenges the court’s decision, following a hearing on HC’s motion in limine, to
exclude evidence that the air conditioning unit was unpermitted and that the easement door and
entrance area was non-ADA compliant. USP cites no case law in support of its position, nor does
it provide the standard of review for evidentiary rulings. See Ill. S. Ct. R. 341(h)(7) (eff. Oct. 1,
2020). “The failure to cite relevant authority violates Rule 341 and can cause a party to forfeit
consideration of the issue.” (Emphasis added.) Kic v. Bianucci, 2011 IL App (1st) 100622, ¶ 23.
We nevertheless proceed in the analysis and determine that USP has, for other reasons, forfeited
its claim regarding the air conditioning unit, and has failed to present a compelling argument
regarding the exclusion of the ADA evidence.
¶ 120 We review a trial court’s ruling on a motion in limine for an abuse-of-discretion. Ford v.
Grizzle, 398 Ill. App. 3d 639, 646 (2010). Also, “[i]t is the function of the trial court to determine
the admissibility and relevance of evidence, and its ruling will not be disturbed absent an abuse of
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discretion.” Id. A trial court abuses its discretion where no reasonable person would take its view.
Id. Even if the trial court abuses its discretion in excluding evidence, however, reversal is not
required unless the party who sought to admit the evidence suffers substantial prejudice.
Neuhengen v. Global Experience Specialists, Inc., 2018 IL App (1st) 160322, ¶ 157. The burden
of showing substantial prejudice, such that the result of the proceeding would have been different,
is on the party who sought to have the evidence admitted. Id.
¶ 121 1. Air Conditioning Unit
¶ 122 USP argues that “[a]lthough the circuit court allowed testimony on this matter from [HC’s]
witnesses, the [court] excluded evidence and argument by [USP] that no air conditioning unit had
been present in the Easement as of 2004, and that the City of Elgin had no record of any permit
being on file for the air conditioning unit that [HC] subsequently placed on the Easement.”
(Emphasis in original.) It reasons that, if it had been able to show that no air conditioning unit had
been present on the easement as of 2004, then it could have countered the trial court’s
determination that the original parties to the agreement had contemplated that the air conditioning
unit would rest on the easement and it could have shown that HC violated paragraph 6(a)
concerning blocking the easement.
¶ 123 USP has forfeited this argument. Issues not raised below are forfeited. Wells Fargo Bank,
N.A. v. Maka, 2017 IL App (1st) 153010, ¶ 24. Also, failure to make an adequate offer of proof
forfeits the claim on appeal. Turgeon v. Commonwealth Edison Co., 258 Ill. App. 3d 234, 240-41
(1994).
¶ 124 Here, HC moved in limine to bar evidence that the air conditioning system did not have a
city permit. The motion in limine spoke to paragraph 6(b) concerning ordinance violations, not
paragraph 6(a) concerning blocking the easement. USP’s subsequent offer of proof likewise
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centered on paragraph 6(b), not paragraph 6(a). See supra ¶ 33. The trial court was not asked to
consider the admissibility of evidence that the air conditioning unit was not an original part of the
easement and, thus, USP cannot now argue that the trial court abused its discretion in excluding
the evidence for that purpose.1
¶ 125 Forfeiture aside, even if USP’s evidence had been admitted to show that HC violated
paragraph 6(a), USP’s evidence would not have contradicted HC’s witness testimony that an air
conditioner had rested on the easement since before 1987. USP admitted that there was an air
conditioner on the property from approximately 2005 onward, even though the 2014 plat of survey
did not show it. Thus, it can be inferred that the plats of survey do not reliably depict whether air
conditioning units rest on the easement. That the 2004 plat of survey depicts no air conditioning
unit does not create a strong inference that there was, in fact, no air conditioning unit in 2004.
Also, USP offered no evidence to suggest, one way or the other, whether there was an air
conditioning unit on the easement between 1987 and 2003. Finally, we note that, in its closing
argument, USP stated that, should the easement be terminated, it would agree to grandfather-in the
air conditioning unit for the remainder of its mechanical life. Said concession suggests that the air
conditioning unit does not actually present an obstacle to USP in navigating the easement and
supports the trial court’s view that USP sought any basis to terminate the easement.
¶ 126 2. ADA Compliance
1
In its reply brief, USP argues that, had the court admitted the excluded evidence, it would
have been able to establish a 6(b) violation. However, arguments raised for the first time in a reply
brief are forfeited. See Ill. S. Ct. R. 341(h)(7); People ex rel. Village of Vernon Hills v. Village of
Lincolnshire, 283 Ill. App. 3d 266, 271 (1996).
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¶ 127 USP argues the trial court misinterpreted paragraph 6(b) of the easement agreement when
it excluded evidence supporting an ADA violation. USP’s primary allegation had been that the
easement door violated the ADA because HC was using the door both as a service entrance and as
an ADA entrance. The trial court determined that the primary allegation was not relevant, because
the door was separate from the easement. It stated at the hearing on the motion in limine that “[t]he
act of using the easement has to be the violation of law. *** The fact that the door itself does not
comply with the ADA doesn’t transform the traversing of the easement to be a *** violation of
any ordinance or law.” USP notes that paragraph 6(b) does not provide that the “act of using the
easement has to be the violation of the law.” Rather, it provides “neither [HC] nor [its] Permitted
Users shall make use of [the easement] in such a manner as to *** violate any laws, ordinances,
or regulations.” (Emphasis added.) USP urges that even if using the easement to get to the door
is not a violation of law, HC has, nevertheless, “made use of” the easement so as to violate the
law, because it allows its users to walk over the easement up to an allegedly non-compliant
entrance. USP further notes that it is not just the entrance that is non-compliant, but also the
surrounding area, such as the easement’s slope.
¶ 128 USP focuses on a specific statement made by the trial court at the hearing on the motion in
limine to the exclusion of another, broader point set forth in the court’s final written order. There,
the trial court determined that many of USP’s alleged violations of the easement agreement were
minor points, brought up merely to harass HC. The court provided: “Whether or not *** a concrete
ramp is fully up to Code has nothing to do with the use of the easement. ***. Furthermore, these
types of minor issues cannot equate to the type of misuse contemplated by the parties at creation.”
(Emphasis added.)
¶ 129 USP has not made any argument as to why the trial court, after sitting through the evidence
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in the case, abused its discretion when assessing that an improperly graded ramp is not the type of
misuse that would warrant a termination of the easement and that USP’s complaints, generally,
amounted to harassment. Indeed, USP did not allege an ADA violation until HC attempted to
explain, in an earlier pleading, that USP’s act of blocking the easement created an inconvenience
for its disabled guests. Similarly, USP does not address certain points raised by HC at hearing on
the motion in limine, such as that HC had obtained an ADA permit for its easement entrance and,
in any case, it had since moved its ADA entrance to the front door, so as to demonstrate that the
result in this proceeding might have been different had the court allowed the evidence. Under
these circumstances, we cannot find that the trial court abused its discretion.
¶ 130 E. HC’s Access to the Easement Over the Curb Cut
¶ 131 USP challenges the trial court’s holding that HC can continue to use the curb cut to access
the easement, as well as its corollary order to allow HC access through the gate over the curb cut.
However, USP does not challenge the trial court’s primary basis for its holding—that the original
parties to the easement agreement contemplated that HC would use the curb cut to access the
easement. Instead, it focuses on the trial court’s alternate basis for its holding—that, if the original
parties to the agreement did not contemplate that HC would use the curb cut to access the easement,
then HC gained that privilege by prescriptive easement. HC responds only to USP’s challenge to
the trial court’s alternate basis, leaving the trial court’s primary basis untouched.
¶ 132 Again, the trial court determined that the easement agreement was ambiguous as to how
HC was to access the easement. There were obstacles to direct access, but a curb cut just east of
the easement made for easy access. The court found that the original parties to the agreement
intended for HC to access the easement via the curb cut. We quote the trial court’s explanation
for context:
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“[Just as the original parties to the easement agreement contemplated that an air
conditioning unit would rest on the easement], it is equally clear that the parties to the
easement’s creation contemplated that the easement would be accessed via the only curb
cut to and from Symphony [Way] and the parking lot. That curb cut is located several feet
east of the eastern boundary of the easement.
It is true that the easement references only the 20 feet immediately east of 166.
However, the street curb, city parkway, [sidewalk], and telephone pole situated in and south
of the easement’s southernmost boarder, renders access directly from the easement’s south
border illegal and impracticable. USP argues that it is possible to maneuver some vehicles
over and onto the southern boundary. This argument misses the point, ignores the Illinois
Vehicle Code and the clear intent of the original parties.
First, 625 ILCS 5/11-1412.1 [of the Vehicle Code] prohibits driving upon a
sidewalk except upon a permanent or duly authorized temporary driveway. Such as the
curb cut. Secondly, the easement allows vehicular traffic of ‘any description’ to access the
easement. A vehicle of ‘any description’ could range from a small sub-compact car to a
semi-trailer. The parties certainly did not intend to force HC to drive over the sidewalk
and curb. Nor did it intend to limit access only to vehicles nimble and small enough to
maneuver the sidewalk, curb, and telephone pole. Lastly, [Linda’s] testimony definitively
established that the curb cut was always used for vehicular traffic to and from the area
adjacent to 166 ***.”
¶ 133 Additional evidence supported the trial court’s findings. One of the vendors, Walsh,
testified that he was afraid that he would damage the bottom of his vehicle were he to drive over
the sidewalk to enter the easement head-on. Linda testified that the sidewalk, curb, and telephone
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pole had always stood as obstacles to entering the 20-foot-wide easement head-on. The current
photographic evidence depicted the same constellation of obstacles as existed in 1987. Our review
of the photographic evidence confirms the reasonableness of the trial court’s determination that it
would be difficult, if not dangerous, for certain vehicles to navigate the curb, sidewalk, and narrow
opening.
¶ 134 Basic principles in contract interpretation also support the trial court’s finding. We agree
that it would be absurd to interpret the easement agreement as requiring the parties to violate the
Vehicle Code and risk damage to larger vehicles and to the telephone pole. See Foxfield, 287 Ill.
App. 3d at 524 (a contract should not be interpreted to lead to an absurd result). Where a contract
is unclear as to a matter, the original parties’ past performance on the contract is indicative of their
intent. Standlee, 2019 IL App (2d) 180325, ¶ 56. Here, as Linda testified, HC accessed the
easement from the curb cut from the inception of the easement agreement.
¶ 135 Silence as to “essential particulars” in a contract may create an ambiguity authorizing the
trial court to turn to parole evidence. Farnsworth v. Lamb, 6 Ill. App. 3d 785, 789 (1972). Here,
HC was granted an easement for use by “vehicles of any description,” but the agreement was silent
as to how the vehicles were to access the easement. As stressed by the trial court, accessing the
easement straight on from the street would require drivers to violate the Vehicle Code. Thus, the
trial court properly turned to parole evidence, such as the parties’ past use, to determine the access
point intended by the original parties to the agreement.
¶ 136 This case is distinguishable from the case USP cited at oral argument, La Salle, 264 Ill.
App. 3d at 67-68 (citing Abbott v. Amoco Oil Co., 249 Ill. App. 3d 774, 785 (1993)), for the
proposition that a court may not rewrite the parties’ contract or add terms. In La Salle, the court
held that the agreement was not ambiguous merely because it was silent on the question of
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residential development. Id. at 67-68. In support, it noted that the agreement expressly precluded
industrial development. Id. at 68. If the parties to the agreement wished to exclude residential
development, they would have so provided. Id. The La Salle agreement’s silence as to residential
development did not constitute an essential missing term in the same way that the instant
agreement’s silence as to how vehicles may access the easement constitutes an essential missing
term. The parties in La Salle were free to allow or preclude residential development. The parties
to the instant agreement could not preclude access to the easement—an easement cannot exist
without an access point. Having determined that the evidence and the law support the primary
basis for the trial court’s ruling, our analysis could end here.
¶ 137 Nevertheless, we briefly discuss the trial court’s alternate basis for designating the curb cut
as the access point to the easement—a prescriptive easement. The trial court did not provide an
explanation for its alternate basis, but it essentially reasoned that if the original parties to the
agreement did not contemplate the curb cut as the access point, then Linda simply acted according
to a one-sided belief that she had a right to access the easement via the curb cut. The court’s
implied finding is that such action is consistent with one who is claiming the right to use the land
rather than one who is acting according to the permission of another.
¶ 138 To establish a prescriptive easement, a party’s use must be open, uninterrupted, continuous,
exclusive, and adverse for a period of 20 years. Nationwide Financial, LP v. Pobuda, 2014 IL
116717, ¶¶ 28, 45. Here, the element of adverse use, as opposed to permissive use, is the only
element in real dispute. The trial court’s determination of whether the use is adverse or permissive
is one of fact, not to be disturbed unless it is against the manifest weight of the evidence. Wehde
v. Regional Transportation Authority, 284 Ill. App. 3d 297, 311 (1996).
¶ 139 The element of adversity is synonymous with a claim of right. Nationwide, 2014 IL
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116717, ¶ 44. The party seeking the easement must have enjoyed the land under such
circumstances as would indicate he or she had taken it as of right. Id. “It is not essential that there
should be proof that the claimant of an easement made any oral declaration of a claim of right, but
it will suffice if the facts show that he acted so as to indicate that he did claim the right to such
use.” Id. Further, the use must be with the knowledge or acquiescence of the owner, but without
the owner’s permission. Light v. Steward, 128 Ill. App. 3d 587, 595 (1984). Permission, in turn,
may be established by written or oral license or may be inferred from the surrounding
circumstances. Id. at 591. Use that originates from a neighborly relationship can indicate
permissive use, but evidence that the parties were “on pretty good terms,” “never had any
problems” with one another, and waved at one another while using the land is generally insufficient
to establish the same. Schultz v. Kant, 148 Ill. App. 3d 565, 571-72 (the friendly wave was
discussed with reference to the open element). These sorts of behaviors fall in the category of
acquiescence rather than permission. See id. 572-73.
¶ 140 USP points to the following evidence that the prior owners of 220 Spring gave
“permission” to use the curb cut: (1) Braun’s testimony that she had “no problem” with HC using
the curb cut; (2) Braun’s answer of “yes” to USP’s attorney’s question as to whether she gave HC
permission to use the curb cut; and (3) HC’s attorney’s January 3, 2018, letter, which provided
that the original owner had “allowed” HC to use the curb cut. First, this court in Schultz held that
evidence that the owner had “no problem” with the claimant’s use is insufficient to establish
permission. Id. at 572. Moreover, neither a lay witness nor an attorney can testify to a legal
conclusion. See McHale v. Kiswani Trucking Inc., 2015 IL App (1st) 132625, ¶ 98. As such, the
trial court was not required to afford great weight to this evidence.
¶ 141 In addition, the cases that USP cites for the proposition that an extension of neighborly
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courtesy is more consistent with permission than with adverse use are distinguishable. See Deboe
v. Flick, 172 Ill. App. 3d 673, 676 (1988) (owner gave express permission); Castle v. Yenerich, 95
Ill. App. 3d 39, 44 (1981) (original use of the path was established by a person who was “like one
of the family” and was continued by a person who had asked express permission); Piper v. Warren,
61 Ill. App. 2d at 464-66 (1965) (where two residential driveways abutted one another and the
predecessors in title occasionally used each other’s driveway but were overall careful to stay on
their own side, the plaintiff’s use of a portion of the neighbor’s driveway was merely an extension
of neighborly courtesy and did not show the plaintiff’s adverse use). Clearly, Deboe and Castle
are inapposite to the extent that they involve periods of use by express permission. Piper, and
certain periods in Castle, provide examples of a more intimate neighborly courtesy—occasional
use by residential neighbors or use by “one of the family”—than described in Schultz or than shown
in the instant case.
¶ 142 Here, the trial court reasonably determined that Linda’s use of the curb cut was in the
character of one claiming the right to use the land rather than one acting according to the owner’s
permission to use the land. The evidence shows that Linda never asked permission to use the curb
cut. She never wrote or spoke to the prior owners of 220 Spring about use of the curb cut. She
never wrote or spoke to Braun at all. That the first owner of 220 Spring may have had a friendly
personality and that Braun had “no problem” with HC’s use of the curb cut and even waved a
member of the Haight family into the lot, does not show permissive use per se. See Schultz, 148
Ill. App. 3d at 571-72. Thus, the court’s alternate determination—that if the agreement did not
contemplate use of the curb cut as an access point, then Linda simply claimed it as of right—was
not against the manifest weight of the evidence.
¶ 143 F. USP’s Power to Terminate
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¶ 144 USP argues that the trial court exceeded its authority when it ordered that “both parties are
enjoined from altering, modifying[,] or terminating the easement without prior written agreement[]
or leave of the court.” USP contends that this order runs contrary to the termination procedure
agreed upon by the original parties to the easement agreement as set forth in paragraph 7. Again,
paragraph 7 provides:
“7. Breach.
(a) In the event of a breach of any of the provisions hereof by Grantee or its
Permitted Users, which breach is not cured within 7 days following written notice
thereof by the Grantor to the Grantee, or immediately upon the giving by the
Grantor to the Grantee of the third notice in any consecutive twelve (12) month
period of the occurrence of a breach hereof by Grantee, Grantor shall have the right,
at its election to:
(i) Terminate the rights of Grantee hereunder by recording a
declaration of such termination with the office of the Recorder of Deeds of
Kane County, Illinois; or
(ii) Procure an order from any court of competent jurisdiction
awarding Grantor damages incurred by reason of such breach and/or
enjoining Grantee from any further breach of this Agreement.” (Emphasis
added.)
¶ 145 Paragraph 3 provides in relevant part:
“Grantor [USP, reserves the] right to relocate said Driveway Easement to such
other locations on [its property] as [it] may determine[,] providing that such relocation does
not materially deprive Grantee [HC] of access to the Entry Doors [onto the easement].”
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(Emphasis added.)
¶ 146 USP notes that the court “cannot alter, change[,] or modify existing terms of a contract, or
add new terms or conditions to which the parties do not appear to have assented.” Thompson v.
Gordon, 241 Ill. 2d 428, 459 (2011). Further, courts will not rewrite a contract to suit one of the
parties. Schweihs v. Davis et al., 344 Ill. App. 3d 493, 499 (2003). USP argues that the court did
just that when it ordered that, contrary to the procedure set forth in paragraphs 7 and 3, neither
party could terminate or relocate the easement without prior agreement or leave of the court.
¶ 147 HC argues, as it did at trial, that a contract should not be interpreted so as to defeat public
policy or lead to an absurd result. Indeed, the courts will not enforce a provision of a contract that
is against public policy. See American Federation of State, County and Municipal Employees,
AFL-CIO v. Department of Central Management Services, 173 Ill. 2d 299, 307 (1996); In re
Marriage of Iqbal, 2014 IL App (2d) 131306, ¶ 34. Public policy does not favor the termination
of easements. McCann, 242 Ill. App. 3d at 258. Further, all contracts carry an implied covenant
of good faith and fair dealing. Reserve at Woodstock, LLC v. City of Woodstock, 2011 IL App (2d)
100676, ¶ 42. The question of whether a party acted with good faith and fair dealing becomes
particularly relevant when, as here, the contract vests one party with a great deal of discretion. See
id.; Northern Trust Co. v. VIII South Michigan Associates, 276 Ill. App. 3d 355, 367 (1995). “Good
faith between contracting parties requires that a party vested with contractual discretion must
exercise that discretion reasonably, not arbitrarily, capriciously, or in a manner inconsistent with
the reasonable expectations of the parties.” See Continental Mobile Telephone Co. v. Chicago
SMSA L.P., 225 Ill. App. 3d 317, 324 (1992). Courts have used the implied covenant of good faith
and fair dealing as an interpretive tool. See Anderson v. Burton Associates, 218 Ill. App. 3d 261,
267 (1991). When used as an interpretive tool, the question is whether the actions of the defendant
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were outside that contemplated by the parties such that the contract should not be interpreted to
allow for such actions. Abbott, 249 Ill. App. 3d at 783. Finally, we are mindful that this case was
decided in a court of chancery, with the dominant concern being equity. For the reasons that
follow, we agree with the approach urged by HC and taken by the trial court.
¶ 148 The trial court reasonably determined that to allow USP to so easily terminate the
agreement would be against public policy favoring the preservation of easements. The court
witnessed first-hand USP’s frivolous filings in USP’s mid-trial fourth termination, and the court
was free to conclude that USP used paragraph 7 “in a manner inconsistent with the reasonable
expectations of the [original] parties.” See Continental Mobile, 225 Ill. App. 3d at 324. In court’s
view, USP acted in a harassing manner and with an aim to terminate the easement rather than to
cooperate. The court stated that USP’s actions in blocking and terminating the easement were not
justified and were merely to “frustrate and harass” HC.
¶ 149 The evidence supported the trial court’s findings. Doree testified to an instance wherein
Bogdan harassed her while she was shoveling snow. Doree attempted to shovel the easement when
Bogdan stood in front of her snow blower and would not let her proceed. He spontaneously
declared the easement relocated. USP also placed concrete barriers and/or a fence with a locked
gate across the same curb cut area. Doree testified that USP blocked in vendor vehicles after they
were already in the easement and that, in one instance, she had to call the police to allow the vendor
to exit.
¶ 150 As the trial court found, USP recorded terminations without fair attempts to problem solve
with HC. USP filed its first termination based on HC’s alleged failure to deposit proof that it
maintained an insurance policy naming USP as an additional insured. As discussed, it did so near
two major holidays and without placing a phone call to see whether HC planned to respond to its
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written notice. USP filed its second termination based on the allegedly lewd actions of HC’s
guests. USP had not complained of these actions in the four years prior, supporting the trial court’s
finding that USP acted with an aim to terminate the easement rather than cooperate. USP filed its
third termination concerning an alleged ADA violation, the evidence of which was ultimately
barred. USP filed its fourth termination concerning an alleged Fire Code violation during the
instant trial, prompting the trial court to note: “The Staneks’ animus for their neighbors is so
pronounced that Mrs. Stanek attempted to serve a new notice of termination upon HC during the
trial.”
¶ 151 Under these circumstances, the trial court properly interpreted the agreement in an
equitable manner consistent with public policy, in avoidance of an absurd result, and so as to
prevent further abuse by USP.
¶ 152 G. Cross-Appeal: Attorney Fees
¶ 153 In its cross-appeal, HC contends that the trial court erred in interpreting the contract to
allow for the indemnification provision to cancel out the fee-shifting provision. Again, the court
entered a two-part order, the second part of which effectively canceled out the first:
“D. Pursuant to paragraph 9 of the easement [agreement], [HC], as the prevailing
party, are awarded their reasonable attorney fees incurred by them to prosecute this action.
***
F. Regarding [USP’s] [request for] indemnification [based on paragraph 8 of the
easement agreement], the court finds that, pursuant to its equitable powers, [USP] is
entitled to reimbursement from [HC] for the full amount of any judgement for [HC’s]
attorney’s fees entered against [USP] in accordance with paragraph D above. Apart from
that, parties to [bear] their own costs.”
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2022 IL App (2d) 210510-U
The trial court reasoned elsewhere in its decision:
“USP *** seeks indemnification pursuant to paragraph 8 of the easement.
Paragraph 8 does provide USP defense and indemnification for ‘any and all liability and
expense’ arising in ‘connection with the use or enjoyment by [HC]’ of the easement.
However, requiring HC to fully defend and indemnify USP in an action brought by HC
[against USP] to enforce its rights to the easement would be counterintuitive and
inequitable. Besides, had USP actually wanted such defense, they should have tendered
the claim to HC’s insurer. They did not. Nevertheless, that does not necessarily resolve
the issue. The language in paragraph 8 is broad and all encompassing. Certainly, the court
should have discretion to apply paragraph 8 equitably. Such as offsetting any monetary
judgment suffered by USP herein.”
¶ 154 The general rule is that each party pay its own attorney fees. Powers v. Rockford Stop-N-
Go, Inc., 326 Ill. App. 3d 511, 515 (2001). Parties to a contract may alter the general rule by
including a fee-shifting provision. Id. Fee-shifting provisions are strictly construed and enforced
at the discretion of the trial court. Id. The trial court has broad discretion in awarding attorney
fees. Timan v. Ourada, 2012 IL App (2d) 100834, ¶ 29. A trial court abuses its discretion when
its decision is based on a misapplication of law or when no reasonable person would take its view.
In re Marriage of Burns and Lifferth, 2019 IL App (2d) 180715, ¶ 24; Grizzle, 398 Ill. App. 3d at
646.
¶ 155 We first determine that the fee-shifting provision entitles HC to attorney fees. Paragraph
9(c) of the easement agreement provides:
“(c) in any action or proceeding between the parties arising out of or in connection
with this Agreement or the breach or enforcement thereof, the party prevailing in such
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2022 IL App (2d) 210510-U
proceeding shall be entitled to recover his/its costs and expenses (including reasonable
attorney fees) from the non-prevailing party.” (Emphasis added.)
¶ 156 In the context of a fee-shifting provision, the “prevailing party” is one who is successful
on any significant issue and achieves some benefit in bringing the suit. Timan, 2012 IL App (2d)
100834, ¶ 29. The prevailing party need not win every single issue, nor receive the full judgment
amount requested. Id. When a case involves multiple claims and both parties have won and lost
on various claims, such that the case is essentially a “draw,” it may be inappropriate to award
attorney fees. Powers, 326 Ill. App. 3d at 515.
¶ 157 Timan and Powers together illustrate the bounds of a trial court’s discretion in applying a
fee-shifting provision. In Timan, the plaintiff prevailed on a significant issue, its breach of contract
claim. Timan, 2012 IL App (2d) 100834, ¶ 30. The plaintiff did not prevail on a second significant
issue, its recission claim (an equitable remedy). Id. The trial court determined that the plaintiff
nevertheless qualified as a prevailing party. Id. It did, however, limit the plaintiff’s attorney fee
award to 40% of that requested, specifically acknowledging that plaintiff had not prevailed on the
recission issue. Id. The appellate court deemed the trial court’s approach reasonable and affirmed
the award. Id.
¶ 158 In Powers, the landlord prevailed on one issue, involving the tenant’s damage to property.
Powers, 326 Ill. App. 3d at 514-15. The trial court valued the damage at $875. Id. The landlord
did not prevail on any of its other claims, one of which was the tenant’s alleged environmental
contamination. Id. The trial court nevertheless deemed the plaintiff the prevailing party and
awarded the plaintiff $37,918 pursuant to the fee-shifting agreement. Id. at 515. The appellate
court reversed the fee award, explaining:
“Although plaintiff successfully obtained a judgment for damages resulting from
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2022 IL App (2d) 210510-U
the installation of pay telephones, this issue was not significant relative to either the value
of the remaining claims, their complexity, or the time devoted to the other issues at trial.
When value, complexity, and time are considered, the most significant issue was the
environmental contamination. However, the trial court’s ruling on this issue did little more
than maintain the status quo. Defendant prevailed on the remaining issues. Therefore, we
determine that the trial court abused its discretion when it determined that plaintiff was a
prevailing party for the purposes of a fee-shifting agreement. [Citation.] Because plaintiff
did not prevail on a significant issue, he was not entitled to any attorney fees.” Id. at 517-
18.
¶ 159 Here, like the plaintiff in Timan and unlike the plaintiff in Powers, HC prevailed on
significant issues. The trial court’s findings favored HC overall: USP was ordered to remove
barriers to the easement, USP’s recordings of termination were declared null and void, the
easement was preserved, the entrance route over the curb cut was preserved, and USP was
prohibited from unilaterally terminating the easement in the future. We acknowledge that USP
enjoyed small victories: the court ordered that HC pay to complete the fence line from the east
wall of its building to the western edge of USP’s existing fence, and the court noted that this should
help solve the one remaining problem that HC had, as of yet, failed to remedy—trespassers using
the easement to urinate and vomit. However, per Timan, that the court has criticized or ruled
against HC on these smaller points speaks not to HC’s entitlement to a fee award but to the
reasonableness of the fee award.
¶ 160 We next determine that the indemnification provision does not cancel out the fee-shifting
provision. Paragraph 8 of the easement agreement provides:
“8. Indemnification. Grantees for itself and its successors and assigns (collectively
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2022 IL App (2d) 210510-U
the ‘Indemnitors’) does hereby agree to forever indemnify, defend, and hold Grantor,
Grantor’s heirs, successors and assigns (collectively the ‘Indemnitees’) harmless from and
against any and all liability and expense (including reasonable attorney’s fees) incurred by
Indemnitees and arising out of or in connection with any claim, demand, suit, or other
action for any injury, loss or damage alleged to have occurred as a result of or arising in
connection with the use or enjoyment by Grantee or Grantee’s Permitted Users of a
Driveway Easement on Parcel C. Grantee shall at all times maintain with a reputable
insurance company licensed to do business in the State of Illinois a policy or policies of
insurance insuring against liability for personal injury or property damage having a
combined single limit of $1,000,000: such policy of insurance shall expressly name
indemnitees as additional insureds and proof thereof (and of all renewals thereof) shall be
deposited with indemnitees.”
¶ 161 The court has a duty to harmonize a contract’s various provisions and will not read one
provision so as to render another provision superfluous. Standlee, 2019 IL App (2d) 180325, ¶ 55.
In this case, if paragraph 8 were read to provide a basis to cancel out the attorney fee-shifting
provision in a suit between the parties, then the fee-shifting provision would be rendered
superfluous in all suits in which HC prevails. HC, if ever it prevailed in a suit against USP so as
to be awarded attorney fees, would be subject to indemnify USP for that same fee award. We
cannot read paragraph 8 in this manner.
¶ 162 Even the trial court recognized that, technically, the paragraph 8 indemnification provision
could not be applied to require HC to indemnify USP for the very attorney fees that USP had been
ordered to pay to HC. The court acknowledged that this would be “counterintuitive and
inequitable.” Moreover, USP had not invoked the indemnification clause by tendering a claim to
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2022 IL App (2d) 210510-U
HC’s insurer. Indeed, it would seem to us that the indemnification provision was more suited to
personal injury or property damage claims filed by a third party, not an action in equity to
determine the rights between the parties to an easement agreement. No, it appears that the trial
court looked to the indemnification clause as a source of equity and discretion when awarding
attorney fees. However, equity and discretion are already the starting point when considering
attorney fees. See, e.g., In re Estate of Callahan, 144 Ill. 2d 32, 43-44 (1991). And, the fee-
shifting provision here already allows only reasonable fees: “[T]he party prevailing in such
proceeding shall be entitled to recover his/its costs and expenses (including reasonable attorney
fees) from the non-prevailing party.” (Emphasis added.) Thus, to whatever degree the court was
reluctant to award attorney fees generated by conflicts in which HC was not wholly blameless
(such as its guests’ behavior and the completion of the fence), the fee-shifting permits it to do so.
¶ 163 USP’s arguments to the contrary do not persuade us. USP essentially argues that HC was
not, in fact, the prevailing party. For the reasons stated, supra ¶ 159, this argument fails. USP
also stresses that, in general, the trial court is afforded great discretion in issuing attorney fees.
However, neither this court nor HC disagrees with this point. See, e.g., Callahan, 144 Ill. 2d at
43-44. In fact, as we have recognized, the instant proceedings have occurred in chancery, a venue
which elevates the equitable powers of the court.
¶ 164 Nevertheless, the trial court abused its discretion by misinterpreting the contract to allow
for the indemnification provision to cancel out the fee-shifting provision. The original parties to
the agreement chose to include a fee-shifting provision, and the trial court may not simply
disregard it. It is only with great caution that a court of equity may reform a contract, and it may
do so only to correct a mistake where there is no doubt as to the original parties’ intent. See
Kolkovich v. Tosolin, 19 Ill. App. 3d 524, 528 (1974). Here, there is no indication that the original
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2022 IL App (2d) 210510-U
parties included the fee-shifting provision by mistake. In fact, the fee-shifting provision serves to
chill the very behavior for which the trial court chastised USP—unjustified allegations of breach,
which, in mass, have amounted to harassment. While the fee-shifting provision controls the
question of attorney fees in a lawsuit between the parties, the trial court is not necessarily required
to award the prevailing party the whole of its attorney fees. We remand the cause for the trial court
to determine a reasonable fee award.
¶ 165 III. CONCLUSION
¶ 166 For the reasons stated, we affirm the trial court’s ruling on the issues pertaining to USP’s
appeal. We reverse the trial court’s decision as to attorney fees and remand for the trial court to
determine HC’s reasonable fee award.
¶ 167 Affirmed in part; reversed in part and remanded.
- 56 - | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484356/ | NOTICE 2022 IL App (4th) 220206
This Order was filed under
FILED
Supreme Court Rule 23 and is NO. 4-22-0206 November 16, 2022
not precedent except in the Carla Bender
limited circumstances allowed 4th District Appellate
under Rule 23(e)(1).
IN THE APPELLATE COURT Court, IL
OF ILLINOIS
FOURTH DISTRICT
CITY OF GENESEO, an Illinois ) Appeal from the
Municipal Corporation, ) Circuit Court of
Plaintiff and Counterdefendant-Appellee, ) Henry County
v. ) No. 20CH36
PYROTEM PROPERTIES, LLC, THE FARMERS )
NATIONAL BANK OF PROPHETSTOWN, )
DEAN RESSER, UNKNOWN OWNERS and )
NON-RECORD CLAIMANTS, )
Defendants )
) Honorable
(Pyrotem Properties, LLC, and Dean Resser, ) Terrence M. Patton,
Defendants and Counterplaintiffs-Appellants). ) Judge Presiding.
PRESIDING JUSTICE KNECHT delivered the judgment of the court.
Justices Turner and Bridges concurred in the judgment.
ORDER
¶1 Held: The section 2-619 dismissal of the property owner’s counterclaims and the
summary-judgment order in the city’s favor were improper as (1) the property
owner was not time-barred from seeking damages from the city, which
demolished the owner’s property under the fast-track statute (65 ILCS 5/11-31
1(e) (West 2018)); and (2) the Local Governmental and Governmental
Employees Tort Immunity Act (Tort Immunity Act) (745 ILCS 10/2-201 (West
2018)) does not immunize the city from the property owner’s wrongful
demolition claim.
¶2 In February 2020, pursuant to the “fast track” provisions of the Illinois Municipal
Code (Municipal Code) (65 ILCS 5/11-31-1(e) (West 2018)), the City of Geneseo (City)
demolished the building at 602 North Center Street, Geneseo, Illinois (Property). After the City
petitioned to enforce the demolition lien on the Property, defendants Pyrotem Properties, LLC,
and Dean Resser (defendants) contested the petition, asserting various defenses and
counterclaims. Defendants argued, in part, the City failed to provide the notice required by
section 11-31-1(e) and the City had not properly determined the property “was open and vacant”
or “constituted an immediate and continuing hazard to the community.”
¶3 In a motion to dismiss (735 ILCS 5/2-619.1 (West 2020)) and a motion for
summary judgment, the City asserted, because it complied with the “fast track” provisions’
notice requirements and defendants did not object within the 30-day deadline of section
11-31-1(e), defendants were time-barred from challenging the propriety of its findings regarding
the condition of the building. The City further asserted defendants’ counterclaims of trespass and
conversion were barred by the Tort Immunity Act.
¶4 The circuit court agreed with the City’s contentions and granted both the motion
to dismiss and summary judgment in the City’s favor. Defendants appeal, contending its claims
were not barred. We agree with defendants and reverse and remand.
¶5 I. BACKGROUND
¶6 Defendant Pyrotem Properties, LLC (Pyrotem Properties), was the record owner
of the Property. Defendant Dean Resser was the sole member and manager of Pyrotem
Properties. The City demolished the Property in February 2020.
¶7 Before the Property was demolished, the City sent a “Notice to Remediate,” dated
October 17, 2019, by certified mail, return receipt requested, and first-class mail to defendants.
The City also mailed notices under the same procedure to the former registered agent for
Pyrotem Properties as well as to its lienholders. Pyrotem Properties was identified as the “Deed
Owner.”
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¶8 The Notice to Remediate indicates it was sent pursuant to the fast-track provision
of the Municipal Code. The notice states the Property was determined to be “open and vacant”
and “constitute[d] an immediate and continuing hazard to the community.” Attached is an
inspection report, detailing the reasons the property was deemed a hazard. These reasons include,
among others, violations of city ordinances regarding weed removal, the sealing of windows, and
pest infestation. The notice further indicates the City intended to “demolish, repair, or enclose
the building(s), and remove any garbage, debris, or other hazardous, noxious, or unhealthy
substances or materials on the Property, if that action is not taken by the Property owner or
owners.” If those improvements were not made “within 30 days of mailing this notice,”
according to the notice to remediate, “or within 30 days of the last day of publication of the
notice, whichever is later, [the City] will have the power to demolish, repair, or enclose the
building(s) or to remove any garbage, debris, or other hazardous, noxious, or unhealthy
substances or materials on the Property.”
¶9 As stated above, with no objection filed in a circuit court, the Property was
demolished. In April 2020, the City filed a demolition lien on the Property.
¶ 10 On May 15, 2020, the City petitioned the circuit court to foreclose its demolition
lien on the Property. In support of its request for a foreclosure, the City asserted the “Property
has been vacant and abandoned for an extended period of time” and the owners had “been
unresponsive to all notices and mailings sent regarding the Property.” The City asserted it
continued to accrue costs in maintaining and safeguarding the Property. The City requested the
following relief, in part: a judgment of foreclosure and sale, possession of the Property,
attorneys’ fees, costs, and expenses, and an order authorizing a sale by public auction.
¶ 11 In January 2021, defendants filed their answer, affirmative defenses, and
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counterclaims. Two affirmative defenses were asserted: (1) at the time of demolition, “the
improvements were not open and vacant and an immediate and continuing hazard to the
community;” and (2) the City unlawfully demolished the property as it failed to comply with
section 11-31-1(e)’s requirements.
¶ 12 Defendants asserted four counterclaims, seeking relief for the wrongful
demolition of the Property. In count I, defendants asserted a civil action for deprivation of rights
(see 42 U.S.C. § 1983 (2018)). According to count I, defendants, between October 1, 2019, and
February 15, 2020, received no notice from the City regarding issues with the property or the
improvements thereon. As a result of the failure to provide notice, defendants maintained they
were denied their rights to procedural due process, resulting in financial damages. Relying in part
on the same facts, defendants asserted a claim to quiet title (count II) and claims for conversion
(count III) and trespass (count IV). In the claim to quiet title, defendants sought a declaration the
demolition lien is null and void. For the conversion and trespass counts, defendants argued the
City’s conduct resulted in the unlawful demolition of the improvements and conversion of the
personal property within it.
¶ 13 On December 21, 2021, the City moved to dismiss defendants’ counterclaims and
defenses and for summary judgment on its petition to foreclose the demolition lien. In support of
its motions, the City averred, since at least 2005, the Property had been in violation of its codes,
leading the City’s building inspector to determine the building on the Property was open and
vacant and an immediate and continuing hazard to the community. The City stated utilities had
not been connected to the building since 2005 and the bathroom was not up to code since July
2012. The City further stated the building was overrun with weeds, broken windows, and pests
and the front entrance to the building was overgrown with trees and weeds. The City cited
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multiple notices to the Property’s owner in 2013 and 2014 regarding violations of city ordinances
for weeds.
¶ 14 According to the City, it provided the requisite notice of the fast-track statute.
First, on October 16, 2019, the City posted the requisite notice at the front of the building on the
Property. Second, the City not only ordered a title search but also completed a title-insurance
commitment to ascertain the service list for the Notice to Remediate. Although Resser was not
on the title commitment as an owner or lienholder, the City included Resser on the service list.
One day after posting notice, the City sent the Notice to Remediate by certified mail, return
receipt request, and by first-class mail to those on that list. On October 22, 23, and 24, 2019,
notice was published in a local newspaper.
¶ 15 Despite the various means of providing notice, Pyrotem Properties did not file an
objection or remedy the hazards on its property within the statutory 30-day period preceding the
authorized demolition. Neither defendant claimed the certified-mail notice.
¶ 16 As a result of the statutory notice and defendants’ failure to object or repair the
building within 30 days, the City argued, defendants can no longer challenge the sufficiency of
the “open and vacant” and continuing-hazard findings. The City argued it was empowered by
statute to demolish the hazardous building, remove any debris, secure removal costs, and bring
the foreclosure action. The City maintained the Notice to Remediate, which was posted, mailed,
published, and recorded, is an affirmative matter that defeats all of defendants’ counterclaims
and its motion to dismiss under section 2-619 should be granted. See 735 ILCS 5/2-619(a)(9)
(West 2018).
¶ 17 Regarding defendants’ tort counterclaims, the City argued it is immune under
section 2-201 of the Tort Immunity Act (745 ILCS 10/2-201 (West 2018)). The City maintained
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its building inspector, Rick Mills, was an employee who held a position in the determination of
policy or involved the exercise of discretion and engaged in both a determination of policy and
the exercise of discretion in performing the acts about which defendants complain.
¶ 18 In response to the City’s motions, defendants emphasized facts showing they did
not receive notice before the demolition, the building was not “open and vacant” or a continuing
hazard to the community, and the City’s motive in the demolition was to sell the Property to a
hospital. Defendants asserted Resser learned of the demolition of the Property from a coworker
after the demolition occurred. Resser first learned of the building inspector’s determinations
when he was personally served with a copy of the City’s petition to foreclose on the demolition
lien. According to defendants, the City last inspected the interior of the Property in July 2012,
seven years before the decision to pursue a fast-track demolition was made. After that July 2012
inspection, Mills issued a letter stating the inspections revealed no violations in the interior.
Defendants stated the deposition testimony of Mills and the City Administrator JoAnn
Hollenkamp established the city council, not Mills, made the decision to demolish the Property.
Defendants attached a September 2019 email between the City and the Hammond-Henry
Hospital CEO regarding options on how to acquire the Property, including through a fast-track
demolition. Defendants further noted most of the information and photos in the Inspection
Report attached to the Notice to Remediate were taken in 2012 and in the September 2019 email,
the condition of the Property was not discussed.
¶ 19 Defendants further argued no language in the fast-track statute creates a
statute-of-limitations based on the filing of a Notice to Remediate and it should not be read to bar
claims for wrongful demolition. Defendants further argued the facts show Mills did not make the
decision to demolish the Property. That decision was made by the city council and was,
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therefore, not barred by the Tort Immunity Act.
¶ 20 At the February 7, 2022, hearing on the motions, the circuit court dismissed the
defenses and counterclaims and granted the City’s motion for summary judgment. The court did
so upon finding defendants’ claims time-barred and foreclosed by the Tort Immunity Act:
“I do agree with [the City] that this comes down to notice.
There is a reason the statute requires notice. And the reason is to—
so the defendants, the owners of the property, or the people who
have interest, know that if they disagree with the City’s claim of
the violations, and the unsafe conditions of the property, that they
need to do something about it. That the City is ready to start taking
action. And if you don’t take action within that 30 days, then you
have waived it, there is no other reason for the notice provision. So
for me it comes down to notice.
The statutory requirements of notice, I believe, were met in
this case. And I agree with [the City] that the City went beyond
what they are required to do. I understand [defendants’] argument,
that they, under the particular facts of this case, they should have
done more. But this statutory notice scheme is in the statute and I
don’t find grounds to hold that unconstitutional, either in general
or as applied to this case. If they had wanted—if this—if the
legislature had wanted the City or the municipality to provide
personal service to the owners and interest holders on the
Fast-Track Statute, they could have put it in there. They didn’t.
-7-
The law is that when you send something by certified mail,
*** when you’re required to provide notice by mail, either
certified or first class, the act of mailing it, service is then
complete. And the City went and they found every address they
possibly could and they sent notice to all of them. So I find that
they did, in fact, comply with the statutory notice requirements.
That what they did did not violate the substantive or due[-]process,
or procedural due[-]process rights of either Pyrotem Properties or
Dean Resser.
Now, having [gotten] that notice in the mail, the posting
outside the property and the publishing in the paper, the defendants
had a period of time to do something and they didn’t. So I do
believe that the counterclaims and affirmative defenses, that wasn’t
an open—I forget the exact language and I hesitate to paraphrase,
because I don’t want to get it wrong. But that the—the affirmative
defenses, that the property wasn’t in violation of the codes, wasn’t
unsafe, those are all time[-]barred.
Again, as I said, allowing those to be filed later, after the
petition to foreclose the lien has been filed, that renders the notice
requirements of the fast-track demolition a nullity, no purpose to it.
And I do find that on the trespass and—I’m sorry, let me get to it.
Conversion, the trespass that the City does have tort immunity. So
I’m going to grant their motion to dismiss. Having done that, that
-8-
unfortunately, for the defendants, wipes out pretty much all their—
well, not even pretty much, all the defenses to this action.
Regarding the petition to foreclose the lien, I don’t find any
genuine issue of material fact that can be raised at this point in
time. And that being the case, that makes this an appropriate case
for summary judgment. So I am going to grant summary judgment
in favor of the City.”
On February 17, 2022, the court entered a written order adopting its oral findings.
¶ 21 On March 11, 2022, the circuit court entered an order, pursuant to Illinois
Supreme Court Rule 304(a) (eff. Mar. 8, 2016), no just reason exists for delaying the appeal of
the February 2022 orders.
¶ 22 This appeal followed.
¶ 23 II. ANALYSIS
¶ 24 On appeal, defendants argue the circuit court erred by granting the section 2-619
motion to dismiss and summary judgment for multiple reasons, including (1) the City failed to
comply with the first step of the fast-track statute, finding the property to be open and vacant and
an immediate and continuing hazard to the community, and therefore lacked authority to
demolish the Property; (2) the Notice to Remediate is not an “affirmative matter” barring the
defenses and counterclaims as the fast-track statute does not bar judicial review of the City’s
actions; and (3) the Tort Immunity Act does not bar their claims. We review section 2-619
dismissals and summary-judgment orders de novo. See Van Meter v. Darien Park District, 207
Ill. 2d 359, 368, 799 N.E.2d 273, 278 (2003) (discussing section 2-619 motions); Jackson v.
Graham, 323 Ill. App. 3d 766, 774, 753 N.E.2d 525, 532 (2001) (discussing summary-judgment
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orders).
¶ 25 Defendants’ first argument challenges the City’s conclusions the property was
“open and vacant” and an immediate and continuous hazard. The circuit court, however, did not
examine the merits of the City’s conclusions regarding the Property’s condition. Instead, the
court’s order found dismissal and summary-judgment proper because of defendants’ failure to
object within 30 days of the last posted notice and because the claims were barred by the Tort
Immunity Act. We turn to defendants’ arguments that address those findings.
¶ 26 A. The Fast-Track Provision of Section 11-31-1
¶ 27 The purpose of section 11-31-1 is to provide municipalities a quick and effective
means to remove “unused and dilapidated structures that present danger and blight.” City of
McHenry v. Suvada, 396 Ill. App. 3d 971, 986-87, 920 N.E.2d 1173, 1187 (2009). Subsection (a)
provides a process by which a municipality seeking to take action must apply for a court order
before repairing or demolishing a building. 65 ILCS 5/11-31-1(a) (West 2018). In contrast,
subsection (e), the fast-track provision, allows a municipality to take similar action without a
court order when a building, three stories or less in height, is “open and vacant and an immediate
and continuing hazard to the community.” Id. § 11-31-1(e). Once a corporate official makes that
determination, certain notice requirements must be met, including notice by certified mail,
publication, and a sign posted on the property. Id.
¶ 28 Under section 11-31-1’s fast-track provision, once notice is provided, any
lienholder or owner of the subject property may take action either by demolishing, repairing, or
enclosing the property, removing the unhealthy substances or materials, or by filing an objection
in the circuit court. Id. (“Any person or persons with a current legal or equitable interest in the
property objecting to the proposed actions of the corporate authorities may file his or her
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objection in an appropriate form in a court of competent jurisdiction.”). If an owner or lienholder
has not taken such action within 30 days of the last publication notice or the mailing of the
certified-mail notice, whichever is later, the municipality has the power to demolish the building:
“If the building is not demolished, repaired, or enclosed, or
the garbage, debris, or other hazardous, noxious, or unhealthy
substances or materials are not removed, within 30 days of mailing
the notice to the owners of record, the beneficial owners of any
Illinois land trust having title to the property, and all lienholders of
record in the property, or within 30 days of the last day of
publication of the notice, whichever is later, the corporate
authorities shall have the power to demolish, repair, or enclose the
building or to remove any garbage, debris, or other hazardous,
noxious, or unhealthy substances or materials.” Id.
¶ 29 Defendants contend nothing in the statutory language of section 11-31-1(e)
forecloses a challenge in a circuit court, particularly when there is evidence showing defendants
did not learn of the demolition or the City’s intent to demolish the property until after the
building had been demolished. The City argues, however, there is no purpose for the 30-day
notice period other than to give municipalities full authority to proceed when no objection is
filed or appropriate action taken.
¶ 30 The question of whether section 11-31-1(e) bars defendants’ counterclaims and
defenses is a matter of statutory interpretation, a question of law that we review de novo. Smith v.
Waukegan Park District, 231 Ill. 2d 111, 115, 896 N.E.2d 232, 235 (2008). Our main task in
interpreting statutory language is to ascertain and effectuate legislative intent. Monson v. City of
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Danville, 2018 IL 122486, ¶ 14, 115 N.E.3d 81. The statutory language, afforded its plain and
ordinary meaning, is the most reliable indicator of that intent. Id. In this undertaking, we view
words and phrases not in isolation but with consideration to other relevant provisions in the
statute. Id. We are mindful “[i]t is improper for a court to read exceptions, limitations, or
conditions into the statute that conflict with clearly expressed legislative intent.” McIlvaine v.
City of St. Charles, 2015 IL App (2d) 141183, ¶ 17, 40 N.E.3d 798.
¶ 31 We find no language in section 11-31-1(e) that bars unlawful-demolition actions
after the 30-day period expires, even if the municipality complies with the notice procedure.
Although the municipality is given the authority to demolish property, it is only given the
authority to do so without first securing a court order when the property is found “open and
vacant” and an immediate and continuing hazard to the community. There is no language giving
the municipality unchecked power or immunity to demolish a building when a property owner
fails to receive notice of that municipality’s intent. Such an interpretation is inconsistent with
another provision of the Municipal Code, section 1-4-7. 65 ILCS 5/1-4-7 (West 2018). Section
1-4-7 expressly provides municipalities are liable for injuries resulting from “actionable
wrong[s]” even when the destruction “is pursuant to valid statutes”:
“The municipality shall be liable for any injury occasioned by
actionable wrong to property by the removal, destruction or
vacation, in whole or in part, of any unsafe or unsanitary building,
by any municipal officer *** charged with authority to order or
execute such removal, destruction or vacation, if such removal,
destruction or vacation is pursuant to valid statutes, ordinances or
regulations, and if such officer, board or employee as acted in good
- 12 -
faith, reasonable care and probable cause.” Id.
¶ 32 To find defendants’ counterclaims and defenses time-barred is to read a limitation
into section 11-31-1(e) that is not there and that would conflict with other provisions of the
Municipal Code. The circuit court thus erred in finding defendant’s challenge to the City’s
demolition of its property barred by the failure to assert that challenge within 30 days of the last
publication notice.
¶ 33 B. Tort Immunity Act
¶ 34 Defendants next challenge the circuit court’s order finding their claims for
conversion and theft are barred by the Tort Immunity Act. Defendants argue the City incorrectly
asserts the actions of Building Inspector Mills are protected under section 2-201 of the Tort
Immunity Act, as, according to defendants, Mills denied making the decision to demolish the
Property and the City’s administrator testified the city council made the decision.
¶ 35 The “[Tort Immunity Act] protects local public entities and their employees from
liability arising from governmental operations.” Monson, 2018 IL 122486, ¶ 15. Its purpose “is
to prevent the dissipation of public funds on damage awards in tort cases.” Id. “Unless a specific
immunity provision in the [Tort Immunity Act] applies, a public entity is liable in tort to the
same extent as a private party.” Id. Because the Tort Immunity Act “is in derogation of the
common law, it must be construed strictly against the public entity seeking immunity.” Id. In the
absence of an applicable immunity provision, “municipalities are liable in tort to the same extent
as private parties.” Van Meter, 207 Ill. 2d at 368-69. Section 2-201 of the Tort Immunity Act, the
basis for the City’s motion to dismiss, provides the following: “Except as otherwise provided by
Statute, a public employee serving in a position involving the determination of policy or the
exercise of discretion is not liable for an injury resulting from his act or omission in determining
- 13 -
policy when acting in the exercise of such discretion even though abused.” 745 ILCS 10/2-201
(West 2018).
¶ 36 We find the circuit court erroneously determined defendants’ counterclaims of
conversion and trespass were barred by the Tort Immunity Act. We do so not because of the
rationale provided by defendants but because section 2-101 of the Tort Immunity Act expressly
excludes actions against municipalities for damages caused by the removal or destruction of
buildings by their employees. That section states, in part, “Nothing in this Act affects the
liability, if any, of a local public entity or public employee, based on: *** Section 1-4-7 of the
‘Illinois Municipal Code[.]’ ” 745 ILCS 10/2-101(e) (West 2018). As stated above, section 1-4-7
of the Municipal Code “imposes liability on municipalities for injuries to third persons
occasioned by the removal or destruction of buildings by public employees[.]” Ballinger v. City
of Danville, 2012 IL App (4th) 110637, ¶ 14, 966 N.E.2d 594. The Tort Immunity Act thus
excludes municipalities from its protections in actions for wrongful demolition of property. See
id. ¶¶ 14-17; see also Harvest Church of Our Lord v. City of East St. Louis, 407 Ill. App. 3d 649,
655, 943 N.E.2d 1230, 1235 (2011) (“[S]ection 2-101(e) of the Tort Immunity Act excludes the
plaintiff’s wrongful-demolition action from the provisions of the Tort Immunity Act.”).
¶ 37 We recognize this argument was not raised in the circuit court and, therefore,
could be deemed forfeited. See Ballinger, 2012 IL App (4th) 110637, ¶ 13. While defendants did
not rely on section 1-4-7 of the Municipal Code in conjunction with section 2-101(e) of the Tort
Immunity Act, defendants disputed the Tort Immunity Act barred their claims. Regardless, as the
forfeiture rule does not affect jurisdiction, we may consider an otherwise forfeited issue “ ‘in
furtherance of [our] responsibility to provide a just result and to maintain a sound and uniform
body of precedent[.]’ ” Id. (quoting Illinois State Chamber of Commerce v. Filan, 216 Ill. 2d
- 14 -
653, 664, 837 N.E.2d 922, 930 (2005)). To maintain a uniform body of precedent regarding the
Tort Immunity Act’s inapplicability to wrongful-demolition claims (see id. ¶¶ 14-17) and to
provide a just result, we find the Tort Immunity Act does not bar defendants’ conversion and
trespass claims.
¶ 38 III. CONCLUSION
¶ 39 We reverse the circuit court’s judgment and remand for further proceedings.
¶ 40 Reversed and remanded.
- 15 - | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493033/ | MEMORANDUM
ROBERT J. WOODSIDE, Chief Judge.
Procedural History
On March 31, 1998, Ole Michael Baker (Debtor) filed a Petition in Chapter 7. On April 6, 1998, he initiated the instant adversary action to compel turnover of property to the estate pursuant to 11 U.S.C. § 547(a). After Commercial Credit Plan Consumer Discount Company (CCPC) filed an objection to the Complaint, Debtor amended it, and then CCPC filed an answer. After a conference with me, the parties agreed that there were no issues of material fact and that the matter could be decided on summary judgment. The parties then filed stipulations of fact and cross motions for summary judgment. Briefs have been filed, and the matter is now ready for decision. I have jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. The matter is core pursuant to 28 U.S.C. § 157(b)(2)(E).
*266
Factual Findings
In October, 1997, Debtor borrowed some $4,000.00 from CCPC. Debtor gave back a security interest in certain personalty.
In conjunction with the loan, Debtor purchased life, disability, and unemployment insurance contracts as part of the security agreement.
The “Disclosure Statement, Note and Security Agreement” which Debtor signed in conjunction with the loan provided as follows:
Borrower may cancel any of the optional insurance products ... at any time.... If any insurance ... is terminated for any reason, Borrower authorizes and directs that the insurer deliver the premium refund, if any to the Lender, which may at its option apply it to the unpaid balance of the loan or return it to Borrower.
At the time he filed his bankruptcy Petition, Debtor requested termination of the insurance. The unearned premiums amounted to some $919.97. The insurance was terminated and the unearned premiums were returned to CCPC, who then applied them to the loan.
Discussion
In the matter now before me, part of the loan that the Debtor received went to pay premiums to insure that the loan debt would be paid in the event of Debtor’s disability or death. The insurance premiums were paid “up front” but were only “earned” by the insurer periodically. If Debtor canceled the insurance, the Security Agreement allowed CCPC to collect the unearned premiums to help repay the principal. The question now before me is whether the as-yet unearned premiums from the loan should be paid back from the insurance company to the Debtor or to CCPC. In other words, did the unearned premiums become part of the estate on the date of the Petition such that Debtor may exempt them,1 or did they go directly to CCPC under the contract, or did they become property of the estate and then pass to CCPC as part of a security interest.
Summary Judgment is a procedural device used to avoid unnecessary trial by allowing a court to dispose of a case when the pleadings and discovery products are sufficient to eliminate any genuine issue of material fact. In re Miller, 154 B.R. 987 (Bankr.N.D.Fla.1993). Summary judgment should be granted only when the moving party has shown the absence of genuine issues of material fact even while considering the evidence with all doubts resolved in favor of the non-moving party. Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir.1997). I find no genuine issues of material fact in the instant dispute. The parties have essentially agreed that none exist and that the issue is one purely of law.
In re Remcor, 186 B.R. 629 (Bankr.W.D.Pa.1995) dealt with an issue similar to the instant one. In that case, debtor Rem-cor had entered into an insurance premium finance agreement with Premium Financing Specialists, Inc. (PFS), whereby PFS agreed to advance a portion of the premium due on Remcor’s automobile and liability insurance policies. After Remcor filed its bankruptcy petition, PFS was granted relief from the stay in order to cancel the policies. PFS later moved for modification of the lift-stay order so that it might apply the refunded premiums to the principal debt. The motion was opposed by Sunbeam Corp. which held a prepetition blanket lien against all of Remcor’s assets, and ATC Environmental, Inc., which held a postpetition superpriority lien against all of Remcor’s assets.
The finance agreements at issue, which were prepared by PFS, contained the following terms:
*267The named Insured:
1. Assigns to PFS as security for the total amount payable hereunder all unearned premiums and loss payments which may become payable under the policies listed above, as to all of which insured gives PFS a security interest.
Remcor, at 631.
The issue for the Court to resolve in that case was whether the unearned premiums were the property of PFS, Sunbeam or ATC. To answer that issue, the Court first decided whether the UCC applied to require PFS to perfect its interest. The Court concluded that it did not; “except for proceeds and priorities to proceeds, Article 9 of the UCC does not apply to the transfer of an interest in any policy of insurance.” Id., at 634.
The Court next asked “Is PFS’ interest subordinate to the interest of ATC”. Id. The Court concluded that it was not, because ATC’s lien did not attach to the unearned premiums, because such premiums “did not become property of the estate.” Id., at 636. The Court cited Estate of Lellock v. Prudential Ins. Co. of America, 811 F.2d 186 (3rd Cir.1987) (which Debtor also cites) which held that a life insurance policy that a debtor had absolutely assigned to a creditor prior to filing for bankruptcy was not property of the estate.” Remcor, at 636. The Remcor Court concluded that “the circumstances of this case compel a similar conclusion with respect to the unearned insurance premiums debtor assigned to PFS”. Id., at 636.
Thus, the only issue to resolve in the instant matter is whether Debtor had made an absolute assignment of the premiums to the lender.
Pennsylvania law recognizes both legal and equitable assignments. Brager v. Blum, 49 B.R. 626, 629 (E.D.Pa.1985). A legal assignment is a transfer of property, a right or interest from one person, the assignor, to another, the assignee, which transfers the entire interest in the thing assigned unless it is qualified. Huff v. Nationwide Insurance Company, 167 B.R. 63, 60 (W.D.Pa.1992), citing, In re Purman’s Estate, 358 Pa. 187, 190, 56 A.2d 86, 88 (1948). To effect a legal assignment, the assignor must at the time of the assignment have a present intent to transfer or divest himself of his rights. Id., citing, Brager v. Blum, supra, and Melnick v. Pennsylvania Co. for Banking & Trusts, 180 Pa.Super. 441, 119 A.2d 825, 826 (1956).
I find that the above-quoted provision of the Security Agreement amply demonstrates that an assignment was intended. That provision gives CCPC full discretion over the disposition of the refunded premiums. It reserves no rights in the Debtor to voice his desires as to that disposition. The parties have not stipulated any facts which indicate that CCPC was required to follow any particular rules or guidelines in deciding whether to apply the premiums to the loan balance or not. The parties have not stipulated any facts indicating that CCPC’s use of the funds was in any way limited.
Essentially, what Debtor is arguing is that CCPC’s “option” to give the funds to the Debtor was the equivalent of the “right” of the Debtor to receive them. Debtor is incorrect. What Debtor had was a right to receive funds at CCPC’s option, not a right to such option himself. In signing the loan documents as written, Debtor in fact relinquished any and all rights to the funds.
In his brief, Debtor’s attorney also raises, for the first time, the issue of whether CCPC’s acceptance of the unpaid premiums upon Debtor’s cancellation of the insurance was a preference. Debtor did not raise this issue in any form whatsoever in his Complaint. Therefore, even under the rules for “notice pleading” set forth in Fed.R.Civ.P. 8(a), CCPC did not have adequate notice to defend this issue.
For these reasons, I conclude that the Debtor has not proven that turnover of the funds is required. Therefore, the Com*268plaint will be dismissed. An appropriate order will be entered.
. I note that the Debtor never claimed an interest in these policies on his schedules, and that he similarly filed no claim of exemption over them. For this reason, as well as the reasons set forth in the body of this Memorandum, I need not address the exemption issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493034/ | MEMORANDUM
ROBERT J. WOODSIDE, Chief Judge.
Procedural History
On March 17, 1998, Dean R. Webber -and Linda K. Webber (Debtors) filed a Petition in Chapter 7. On March 23,1998, they initiated the instant adversary action to compel turnover of property to the estate pursuant to 11 U.S.C. § 547(a). After Commercial Credit Plan Consumer Discount Company (CCPC) filed an objection to the Complaint, Debtors amended it, and then CCPC filed an answer. After a conference with me, the parties agreed that there were no issues of material fact and *269that the matter could be decided on summary judgment. The parties then filed stipulations of fact and cross motions for summary judgment. Briefs have been filed, and the matter is now ready for decision. I have jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. The matter is core pursuant to 28 U.S.C. § 157(b)(2)(E).
Factual Findings
In March, 1997, Debtors borrowed some $4,657.14 from CCPC and gave back a security interest in some personalty.
Using proceeds from the loan, Debtors purchased insurance contracts to ensure repayment of the loan.
The “Disclosure Statement, Note and Security Agreement” which Debtors signed in conjunction with the loan provided as follows:
Borrower may cancel any of the optional insurance products ... at any time.... If any insurance ... is terminated for any reason, Borrower authorizes and directs that the insurer deliver the premium refund, if any to the Lender, which may at its option apply it to the unpaid balance of the loan or return it to Borrower.
At the time they filed their bankruptcy Petition, Debtors requested termination of the insurance. The insurance was terminated and the unearned premiums were returned to CCPC, who then applied them to the loan.
Discussion
In the matter before me, part of the loan that the Debtors received went to pay premiums to insure that the loan debt would be repaid. The premiums were paid “up front” but were only “earned” by the insurer periodically. If Debtors canceled the insurance, the Security Agreement allowed CCPC to collect the unearned premiums to help repay the principal. The question now before me is whether the as-yet unearned premiums from the loan should be paid back from the insurance company to the Debtors or to CCPC. In other words, did the unearned premiums become part of the estate on the date of the Petition such that Debtors may exempt them,1 or did they go directly to CCPC under the contract, or did they become property of the estate and then pass to CCPC as part of a security interest.
Summary Judgment is a procedural device used to avoid unnecessary trial by allowing a court to dispose of a case when the pleadings and discovery products are sufficient to eliminate any genuine issue of material fact. In re Miller, 154 B.R. 987 (Bankr.N.D.Fla.1993). Summary judgment should be granted only when the moving party has shown the absence of genuine issues of material fact even while considering the evidence with all doubts resolved in favor of the non-moving party. Kornegay v. Cottingham, 120 F.3d 392, 395 (3d Cir.1997). I find no genuine issues of material fact in the instant dispute. The parties have essentially agreed that none exist, and that the issue is one purely of law.
In re Remcor, 186 B.R. 629 (Bankr.W.D.Pa.1995) dealt with an issue similar to the instant one. In that case, debtor Rem-cor had entered into an insurance premium finance agreement with Premium Financing Specialists, Inc. (PFS), whereby PFS agreed to advance a portion of the premium due on Remcor’s automobile and liability insurance policies. After Remcor filed its bankruptcy petition, PFS was granted relief from the stay in order to cancel the policies. PFS later moved for modification of the lift-stay order so that it might apply the refunded premiums to the principal debt. The motion was opposed by Sunbeam Corp. which held a prepetition blanket lien against all of Remcor’s assets, and ATC Environmental, Inc., which held a postpetition superpriority lien against all of Remcor’s assets.
*270The finance agreements at issue, which were prepared by PFS, contained the following terms:
The named Insured:
1. Assigns to PFS as security for the total amount payable hereunder all unearned premiums and loss payments which may become payable under the policies listed above, as to all of which insured gives PFS a security interest.
Remcor, at 631.
The issue for the Court to resolve in that case was whether the unearned premiums were the property of PFS, Sunbeam or ATC. To answer that issue, the Court first decided whether the UCC applied to require PFS to perfect its interest. The Court concluded that it did not; “except for proceeds and priorities to proceeds, Article 9 of the UCC does not apply to the transfer of an interest in any policy of insurance.” Id., at 634.
The Court next asked “Is PFS’ interest subordinate to the interest of ATC”. Id. The Court concluded that it was not, because ATC’s lien did not attach to the unearned premiums, because such premiums “did not become property of the estate.” Id., at 636. The Court cited Estate of Lellock v. Prudential, 811 F.2d 186 (3rd Cir.1987) (which Debtor also cite) which “held that a life insurance policy that a debtor had absolutely assigned to a creditor prior to filing for bankruptcy as security for a loan was not property of the estate.” Remcor, at 636. The Remcor Court concluded that “the circumstances of this case compel a similar conclusion with respect to the unearned insurance premiums debtor assigned to PFS”. Id.
Thus, the only issue to resolve in the instant matter is whether Debtors had made an absolute assignment of the premiums to the lender.
Pennsylvania law recognizes both legal and equitable assignments. Brager v. Blum, 49 B.R. 626, 629 (E.D.Pa.1985). A legal assignment is a transfer of property, a right or interest from one person, the assignor, to another, the assignee, which transfers the entire interest in the thing assigned unless it is qualified. Huff v. Nationwide Insurance Company, 167 B.R. 53, 60 (W.D.Pa.1992), citing, In re Purman’s Estate, 358 Pa. 187, 190, 56 A.2d 86, 88 (1948). To effect a legal assignment, the assignor must at the time of the assignment have a present intent to transfer or divest himself of his rights. Id., citing, Brager v. Blum, supra, and Melnick v. Pennsylvania Co. for Banking & Trusts, 180 Pa.Super. 441, 119 A.2d 825, 826 (1956).
I find that the above-quoted provision of the Security Agreement amply demonstrates that an assignment was intended. That provision gives CCPC full discretion over the disposition of the refunded premiums. It reserves no rights in the Debtors to voice their desires as to that disposition. The parties have not stipulated any facts which indicate that CCPC was required to follow any particular rules or guidelines in deciding whether to apply the premiums to the loan balance or not. The parties have not stipulated any facts indicating that CCPC’s use of the funds was in any way limited.
Essentially, what Debtors are arguing is that CCPC’s “option” to give the funds to the Debtors was the equivalent of the “right” of the Debtors to receive them. Debtors are incorrect. What Debtors had was a right to receive funds at CCPC’s option, not a right to such option themselves. In signing the loan documents as written, Debtors in fact relinquished any and all rights to the funds.
In his brief, Debtor’s attorney also raises, for the first time, the issue of whether CCPC’s acceptance of the unpaid premiums upon Debtor’s cancellation of the insurance was a preference. Debtor did not raise this issue in any form whatsoever in his Complaint. Therefore, even under the rules for “notice pleading” set forth in Fed.R.Civ.P. 8(a), CCPC did not have adequate notice to defend this issue.
*271For these reasons, I conclude that the Debtors have not proven that turnover of the funds is required. Therefore, the Complaint will be dismissed. An appropriate order will be entered.
. I note that the Debtor never claimed an interest in these policies on his schedules, and that he similarly filed no claim of exemption over them. For this reason, as well as the reasons set forth in the body of this Memorandum, I need not address the exemption issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484363/ | FINANCIAL INSTITUTIONS WHO HAVE FILED AGREEMENTS TO BE APPROVED
AS A DEPOSITORY OF TRUST ACCOUNTS AND TO PROVIDE DISHONORED CHECK REPORTS IN
ACCORDANCE WITH RULE 221, Pa.R.D.E.
New
675 Centre I" Bank, aDivision of Old Dominion Bank
Name Change
660 Clarion FCU — Change to 660 Top Tier FCU
518 Standard Bank, PASB — Change to 27 Dollar Bank, FSB
670 Investors Bank — Change to 561 Citizens Bank
Platinum Leader Change
631 Wells Fargo Bank, NA - Add
675 Centre I" Bank, aDivision of Old Dominion Bank - Add
Correction
Removal
October 2022 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484341/ | USCA4 Appeal: 22-1611 Doc: 12 Filed: 11/15/2022 Pg: 1 of 2
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 22-1611
ROBERT HARRISON KALK,
Plaintiff - Appellant,
v.
QUINTEN MILLER, Sheriff - Buncombe County North Carolina, in his Individual
and Official Capacities; JEFFREY LITTRELL, Captain - Buncombe County North
Carolina, in his Individual and Official Capacities; BUNCOMBE COUNTY
SHERIFF’S DEPARTMENT,
Defendants - Appellees.
Appeal from the United States District Court for the Western District of North Carolina, at
Asheville. Max O. Cogburn, Jr., District Judge. (1:22-cv-00019-MOC-WCM)
Submitted: October 25, 2022 Decided: November 15, 2022
Before AGEE and QUATTLEBAUM, Circuit Judges, and FLOYD, Senior Circuit Judge.
Affirmed by unpublished per curiam opinion.
Robert Harrison Kalk, Appellant Pro Se. Curtis William Euler, BUNCOMBE COUNTY
ATTORNEY’S OFFICE, Asheville, North Carolina, for Appellees.
Unpublished opinions are not binding precedent in this circuit.
USCA4 Appeal: 22-1611 Doc: 12 Filed: 11/15/2022 Pg: 2 of 2
PER CURIAM:
Robert Harrison Kalk appeals the district court’s order granting Appellees’ motion
to dismiss his 42 U.S.C. § 1983 complaint. We have reviewed the record and find no
reversible error. Accordingly, we affirm the district court’s order. Kalk v. Miller, No.
1:22-cv-00019-MOC-WCM (W.D.N.C. May 6, 2022). We dispense with oral argument
because the facts and legal contentions are adequately presented in the materials before this
court and argument would not aid the decisional process.
AFFIRMED
2 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484366/ | USCA11 Case: 22-10312 Date Filed: 11/16/2022 Page: 1 of 3
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 22-10312
Non-Argument Calendar
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
JESUS TIJERINA GARZA,
a.k.a. Guero,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 3:11-cr-00138-TJC-LLL-2
USCA11 Case: 22-10312 Date Filed: 11/16/2022 Page: 2 of 3
2 Opinion of the Court 22-10312
____________________
Before WILLIAM PRYOR, Chief Judge, NEWSOM and BRASHER, Cir-
cuit Judges.
PER CURIAM:
Jesus Tijerina Garza appeals pro se the denial of his motion
for compassionate release. 18 U.S.C. § 3582(c)(1)(A). The district
court ruled that Garza failed to identify an extraordinary or com-
pelling reason to reduce his sentence, U.S.S.G. § 1B1.13, and, in the
alternative, that the statutory sentencing factors weighed against
granting his motion, 18 U.S.C. § 3553. We affirm.
We review the denial of a motion for compassionate release
for abuse of discretion. United States v. Harris, 989 F.3d 908, 911
(11th Cir. 2021). “A district court abuses its discretion if it applies
an incorrect legal standard, follows improper procedures in making
the determination, or makes findings of fact that are clearly erro-
neous.” Id. at 911 (quoting Cordoba v. DIRECTV, LLC, 942 F.3d
1259, 1267 (11th Cir. 2019)). “When review is only for abuse of dis-
cretion, it means that the district court had a ‘range of choice’ and
that we cannot reverse just because we might have come to a dif-
ferent conclusion had it been our call to make.” Id. at 912.
A district “court may not modify a term of imprisonment
once it has been imposed” except in specified circumstances. 18
U.S.C. § 3582(c); see United States v. Jones, 962 F.3d 1290, 1297
(11th Cir. 2020). Section 3582(c), as amended by the First Step Act,
gives the district court discretion to “reduce the term of
USCA11 Case: 22-10312 Date Filed: 11/16/2022 Page: 3 of 3
22-10312 Opinion of the Court 3
imprisonment . . . after considering the factors set forth in section
3553(a) to the extent that they are applicable” if a reduction is war-
ranted for “extraordinary and compelling reasons” and “is con-
sistent with applicable policy statements issued by the Sentencing
Commission.” 18 U.S.C. § 3582(c)(1)(A). The district court may
deny a motion to reduce on either ground. See United States v.
Tinker, 14 F.4th 1234, 1237–38 (11th Cir. 2021).
We need not address whether the statutory sentencing fac-
tors weighed in favor of reducing Garza’s sentence because we can
affirm on the alternative ground that he failed to establish an ex-
traordinary and compelling reason to justify an early release. Garza
argued that his age of 63 and medical conditions of diabetes, high
cholesterol, hypertension, obesity, and hypertensive heart disease
increased his chance of medical complications from COVID-19.
But the district court found that Garza submitted “no evidence that
[his] medical conditions [were] terminal” or that they substantially
diminished his ability to care for himself in prison and that he was
too young to qualify for relief based on his age. See U.S.S.G.
§ 1B1.13 cmt. n.1(A)&(B). The district court also reasonably disre-
garded Garza’s concerns about the detrimental effects of COVID-
19 because he had contracted that virus in January 2021 and recov-
ered without complication and he had received both doses of the
Moderna vaccine. The district court did not abuse its discretion by
denying Garza’s motion for compassionate release.
We AFFIRM the denial of Garza’s motion for compassion-
ate release. | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484367/ | Cite as 2022 Ark. App. 466
ARKANSAS COURT OF APPEALS
DIVISION II
No. CR-22-257
KIAH DANNER OPINION DELIVERED NOVEMBER 16, 2022
APPELLANT
APPEAL FROM THE HOT SPRING
COUNTY CIRCUIT COURT
V. [NO. 30CR-18-106]
STATE OF ARKANSAS HONORABLE CHRIS E WILLIAMS,
APPELLEE JUDGE
AFFIRMED
ROBERT J. GLADWIN, Judge
Kiah Danner appeals the Hot Spring County Circuit Court’s revocation of her
probation on six counts of second-degree forgery. On appeal, she contends that the trial
court erred in finding that she willfully violated her probation by (1) testing positive for
marijuana; (2) failing to report; (3) failing to obtain substance-abuse treatment; and (4) failing
to pay restitution, fines, and costs. We affirm.
In order to revoke probation or a suspended imposition of sentence, the trial court
must find by a preponderance of the evidence that the defendant has inexcusably violated a
condition of the probation or suspension. Parker v. State, 2022 Ark. App. 315, at 3. To
sustain a revocation, the State need only show that the defendant committed one violation.
Id. We will not reverse the trial court’s findings unless they are clearly against the
preponderance of the evidence. Id. at 4. “Evidence that would not support a criminal
conviction in the first instance may be enough to revoke probation or a suspended sentence.”
Siddiq v. State, 2016 Ark. App. 422, at 2, 502 S.W.3d 537, 539; Ark. Code Ann. § 16-93-
308(d) (Repl. 2016). Questions of witness credibility and the weight given to testimony are
for the trial court, and this court defers to the trial court’s determinations. Stuebinger v. State,
2022 Ark. App. 217.
On April 25, 2018, Danner was charged with six counts of second-degree forgery. On
June 27, Danner negotiated a guilty plea for eight years’ probation, restitution, fines, fees,
and costs. The conditions of her probation precluded her from committing a criminal
offense punishable by imprisonment; drinking alcohol; using, selling, or possessing any
controlled substance; or leaving the State of Arkansas without permission. The conditions
obligated her to submit to any rehabilitative, medical, counseling, or psychiatric programs
required by her probation officer; participate in Narcotics Anonymous or Alcoholics
Anonymous as required; report to a day-reporting center and subject herself to programs as
required; be truthful to Arkansas Community Corrections officers or staff; pay $35
supervision fee by the tenth day of each month; pay the restitution, costs, and/or fine in the
amount of $825 in regular monthly payments of $100 beginning July 26, 2018; and pay
$2200 (court cost of $150; fines of $1500; DNA fee of $250; public defender fee of $300) in
regular monthly installments beginning July 26. Under “Special Conditions,” Danner was
required to pay all of her fees, fines, or restitution prior to release from supervision, and it
was required that “[r]estitution must be paid first.”
2
On October 18, 2021, the State moved to revoke Danner’s probation. An attached
violation report reflects that (1) Danner had tested positive for marijuana on June 28, August
27, and November 29, 2018; February 12, May 13, August 13, September 27, October 28,
and December 31, 2019; October 5 and December 28, 2020; February 2, April 26, June 7,
July 28, and September 29, 2021; (2) Danner failed to report to her probation officer as
instructed on November 20 and 28, 2018, and September 22, 2021; (3) Danner was
sanctioned for her positive drug tests and given a referral to Ouachita Behavioral Health
(“OBH”) on December 31, 2019, and April 26, 2021, and she failed to provide proof of
attendance; (4) on October 28, 2019, and October 5, 2020, Danner was instructed to attend
NA meetings and provide proof of attendance, and she had not; (5) Danner had not made
any restitution payments, and she still owed $825; and (6) Danner was delinquent on her
fines, and as of September 29, 2021, she owed $1990.
At the December 14 revocation hearing, Probation Officer Tiffani Childers testified
to the facts as alleged by the State’s petition, including that Danner tested positive for
marijuana sixteen times before October 2021. She said that as of the hearing date, Danner
owed $440 on restitution, with her last payment being made on November 15, 2021, after
the revocation petition was filed, and that Danner still owed $1960 in fines. Childers said
that Danner forgot about the restitution and had been making some fine payments. On
cross-examination, she testified that she had received a letter from OBH on November 15,
2021, which states that Danner receives from it “consistent” medical, mental, emotional,
and behavioral health treatment. The letter states that Danner completed her assessment
3
on July 15, 2021. Childers said that Danner received a medical-marijuana card in October
2021.
Danner testified that she was “positive” for marijuana since 2018 because she had
“some issues with [her] depression, [her] PTSD, and other issues.” She said that her son had
been shot, her mother-in-law had died, and she had to “be in the community” with the
people who killed her mother-in-law. She said that anytime she did not or could not report
due to work, she called her probation officer to let her know ahead of time. She said that
when she tested positive for drugs, she was told to go to OBH for treatment, and she
identified the letter from OBH. She explained that she was delinquent on restitution
because she had assumed the restitution was included with her fines and that her probation
officer was strict about probation fees and fines. Restitution was not brought to her attention
until her office visit on October 6, 2021, and she had paid on it since then and now owes
$400. She apologized for what she did wrong, admitted that she had smoked marijuana
sometimes before she got the medical-marijuana card, and said that she struggled with her
finances.
The trial court ruled that Danner had violated her probation by smoking marijuana
before she was in possession of the medical-marijuana card; failed to report to probation
three different times; failed to provide proof of substance-abuse treatment after being
sanctioned on September 29, 2021; and still owes $1960 in fines and costs. Danner was
sentenced to ten years’ imprisonment, and she filed a timely notice of appeal.
4
Danner argues that the trial court erred in each of its findings that she had willfully
violated her probation. She contends that she admitted what she had been told by the
probation officer—that she flunked the drug test. She asserts that the tests had been done
with “cups” that are “drug screens” and “not actual drug tests” and that the “cups” are “quite
often faulty.” She argues that fundamental fairness dictates that the tests should be
confirmed by actual drug testing. She contends, therefore, that her probation should not be
revoked on testimony and without confirmation by scientific testing.
We hold that a positive drug test constitutes sufficient evidence of a violation. See,
e.g., Sivils v. State, 2021 Ark. App. 198, at 5, 623 S.W.3d 138, 141. Regardless, Danner
admitted using marijuana and tried to justify her use by explaining that she used it to treat
her issues with PTSD. She bolstered her defense by producing her medical-marijuana card,
even though this card was obtained after sixteen positive drug tests. Because the State is only
required to prove one violation of the terms and conditions of a defendant’s probation in
order to support a revocation, it is not necessary for us to consider Danner’s other arguments
regarding the trial court’s findings that she violated the terms and conditions of her
probation by failing to report, complete and provide proof of drug treatment, and make
payments on restitution, fines, and fees. See Lanfair v. State, 2013 Ark. App. 51.
Affirmed.
ABRAMSON and MURPHY, JJ., agree.
Gregory Crain, for appellant.
Leslie Rutledge, Att’y Gen., by: Christopher R. Warthen, Ass’t Att’y Gen., for appellee.
5 | 01-04-2023 | 11-16-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493035/ | MEMORANDUM OF OPINION AND ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
Richard A. Baumgart (the Trustee) seeks authorization to assume and assign certain leases of real property pursuant to 11 U.S.C. § 365(d)(4). Objections to such relief were filed by Bedlyn, Inc. (Bedlyn) and by Kmart Corporation” (Kmart). Upon a full hearing with due notice to all entitled parties, the following factual findings and conclusions of law are rendered:
The leases in issue are of real property located at 5367 Northfield Road in Bedford Heights, Ohio (the Bedford Lease) and at 7400 Ridge Road in Brooklyn, Ohio (The Brooklyn Lease). On October 5, 1999, this Court entered an order allowing the Trustee until January 2, 2000 to assume, assign or reject the subject leases pursuant to § 365(d)(4). Subsequently, upon motion of the Trustee, that period was extended to February 29, 2000. Thusly, the present motion was filed timely. The latter motion also requested a further extension with an effective date of April 1, 2000, which was granted.
Objections to the Trustee’s motions were duly considered. Kmart, as subles-sor of the Brooklyn lease, objected on the following basis: (1) Empire Interiors, Inc./Empire Furniture of Mentor, Ltd. (the Debtor) is controlled by the Debtor’s principal, Ray Salupo; (2) the Debtor continually failed to fulfill its sublease obligation, owing prepetition arrearages of $177,237.90; (3) the Trustee has failed to provide adequate assurance of future performance; (4) the trustee failed to indicate that he will compensate Kmart for its pecuniary loss resulting from the Debtor’s prepetition breaches; (5) there is no indication that the Trustee properly marketed the leases to insure the highest return; and (6) the Debtor asserted vague defenses regarding the cure amount under its sublease with Kmart.1 Subsequently, Kmart withdrew part of its objection relative to adequate assurance of future performance, upon condition that the Trustee pay Kmart unspecified April and May, 2000 charges. Kmart also has withdrawn the part of its objection which alleged that the Trustee failed to properly market the Brooklyn Lease. The balance of Kmart’s objection remains for Court determination.
Under 11 U.S.C. § 365(a) of the Code, a trustee is empowered in the following manner:
Except as provided in sections 765 and 766 of this title and in subsections (b), (c) and (d) of this section, the trustee, subject to the court’s approval may assume or reject any executory contract or unexpired lease of the debtor. (Emphasis added).
Herein, it is undisputed between the parties that the Brooklyn lease is executory in *311nature. It is further not in dispute that certain prepetition arrearages are owed to Kmart under the lease ($177,237.90). Subsection (b) of § 365 addresses cure requirements where a prepetition default has occurred on an executory contract or unexpired lease:
(b)(1) If there has been a default in an executory contract or unexpired lease of the debtor, the trustee may not assume such contract or lease unless, at the time of assumption of such contract or lease, the trustee—
(A) cures, or provides adequate assurance that the trustee will promptly cure, such default;
(B) compensates, or provides adequate assurance that the trustee will promptly compensate, a party other than the debtor to such contract or lease, for any actual pecuniary loss to such party resulting from such default; and
(C) provides adequate assurance of future performance under such contract or lease.
(2) Paragraph (1) of this subsection does not apply to a default that is a breach of a provision relating to—
(A) the insolvency or financial condition of the debtor at any time before the closing of the case;
(B) the commencement of a case under this title;
(C) the appointment of or taking possession by a trustee in a case under this title or a custodian before such commencement; or
(D) the satisfaction of any penalty rate or provision relating to a default arising from any failure by the debtor fo perform nonmonetary obligations under the executory contract or unexpired lease.
As noted above, Kmart no longer challenges the adequacy of performance requirement which § 365(b)(1) imposes upon the Trustee. It does, however, continue to object to the subject motion on the basis that the Trustee has failed to indicate that he will pay Kmart unspecified pecuniary losses due to the Debtor’s breaches. Additionally, Kmart continues to object on the basis that the Debtor has “informally asserted vague defenses to the cure amount due under the Kmart lease”. Kmart’s objections are unsupported by any authority, statutory or otherwise. Indeed, Kmart makes no reference to any aspect of § 365 or any other statutory authority. Thusly, its objection is without merit.
Subsection (d) of § 365 was enacted as a limitation on the Trustee’s ability to assume and assign executory contracts and unexpired leases. It provides greater clarity to parties who are in contractual or lease relationships with the debtor as to their status vis-a-vis the estate. See, In re Cannonsburg Envtl. Assocs., 72 F.3d 1260, 1266 (6th Cir.1996). More specific to the present motion, the legislative purpose of § 365(d) is “to relieve the burden placed on nonresidential real property lessors during the period between a tenant’s bankruptcy petition and assumption or rejection of a lease.” See, In re Koenig Sporting Goods, Inc., 203 F.3d 986 (6th Cir.2000), citing, In re Pudgie’s Dev. of N.Y., 239 B.R. 688, 692 (S.D.N.Y.1999); 130 Cong.Rec. 58894-95 (daily ed. June 19, 1994).
In pertinent part, the Trustee’s Motion to assume and assign the Leases clearly provides (Para. No. 11) that, based upon a pending offer to purchase and subject to court approval, sufficient cash will be on hand to cure all prepetition lease defaults. Such substantial funds would certainly be beneficial to the Debtor’s estate and is in the best interest of creditors. Once such offer is approved, Kmart and other parties in interest would have their respective allowed claims applied to the proceeds of sale for satisfaction. The amount of the pending offer is $250,000.00 for the purchase of both leases. (See Motion at Para. No. 9).
*312Further, the subject motion makes no mention of any defenses respecting a cure of any arrearages owed Kmart, as alleged. Thusly, any reference to any informal assertions which may have been made in this regard by any agents of the Debtor are not persuasive or applicable to a disposition of the present motion, as the Trustee is the estate’s only representative. Thusly, the objection of Kmart is overruled.
Bedlyn’s objection is premised with regard to the Bedford lease only. Essentially, Bedlyn argues that it acquired the Bedford lease from the Debtor on or about August 30, 1999, prior to the Debtor’s bankruptcy filing. As such, Bedlyn objects to the Trustee’s motion to assume and assign the Bedford lease as there remains no leasehold interest beneficial to the Debtor’s estate for the Trustee to assume and assign. Bedlyn further objects to that prong of the Trustee’s motion which seeks a further extension of the time by which the Trustee could assume or assign the Bedford lease, on the basis that he has had more than sufficient time to accomplish that objective. Lastly, Bedlyn objects on the basis that the Trustee is reposed with only a possessory interest in the Bedford leasehold.
On April 27, 2000, this Court issued its Opinion, Order, and Judgment, which effectively determined that the purported interest in the Bedford lease acquired by Bedlyn was nothing more than an avoidable prepetition transfer pursuant to 11 U.S.C. § 548(a)(2). Thusly, Bedlyn acquired no interest in the Bedlyn lease which is superior to the estate’s interest in the Bedford leasehold, and Bedlyn’s objection to the Trustee’s motion to assume and assign is overruled.
Accordingly, the Trustee’s motion to assume and assign is hereby granted. The objections of Kmart and Bedlyn are, respectively, overruled.
IT IS SO ORDERED.
. On April 28, 2000, Kmart filed a partial withdrawal of its objection to the Trustee’s motion to assume and assign the Brooklyn Lease. Kmart has made no challenge to the assumption and assignment of the Bedford Lease. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493036/ | *628ORDER ON MOTIONS FOR SUMMARY JUDGMENT
PAUL M. GLENN, Bankruptcy Judge.
THIS CASE came before the Court to consider the Plaintiffs Motion for Summary Judgment filed by Lauren P. Johnson Greene, as Chapter 7 Trustee; the Motion for Summary Judgment filed by the Defendant, Robert P. Rosin; the Motion for Summary Judgment filed by the Defendant, Alexander P. Rosin; and the Motion for Summary Judgment filed by the Defendant, Michael Rosin. The Defendants, Robert Rosin, Alexander Rosin, and Michael Rosin, are brothers of the Debtor, Simon Rosin.
Each of the Motions relates to a Complaint to Avoid Transfers and for Declaratory Relief filed by Lauren P. Johnson Greene (the Trustee), as Chapter 7 Trustee for the estate of Simon Rosin. Essentially, the Trustee asserts that the Debtor transferred his interest in certain property to the Defendants prior to the filing of his bankruptcy petition, and that such transfers are voidable or ineffective as against the Trustee.
The Complaint contains ten counts. In Count I, the Trustee seeks to avoid a transfer from the Debtor to Michael Rosin pursuant to § 547 of the Bankruptcy Code. In Counts II, III, and IV, the Trustee seeks to avoid the transfers to Michael, Robert, and Alexander, respectively, pursuant to § 544 of the Bankruptcy Code and Florida Statute § 695.01(1). In Counts V, VI, and VII, the Trustee seeks a declaratory judgment that Quitclaim Deeds executed by the Debtor in favor of Robert, Alexander, and Michael, respectively, were ineffective to transfer the Debtor’s expectancy interest in property owned by his mother at the time that the documents were executed. In Counts VIII, IX, and X, the Trustee seeks a declaratory judgment that, even if the instruments executed by the Debtor did transfer an interest in property, such transfers were ineffective as against the Trustee.
Generally, the Defendants assert that the transfers are not voidable because the Defendants paid the Debtor money in consideration for the transfers, with the result that the transfers represent contemporaneous exchanges for value. Additionally, the Defendants assert that filing the transfer documents in the public records was not required to perfect the transfers, because the written assignments signed by the Debtor were automatically perfected at the time that they were executed pursuant to Florida Statute § 679.302(l)(c). Consequently, the Defendants contend that the Trustee may not avoid the transfers pursuant to § 544 of the Bankruptcy Code.
The Trustee does not attempt to avoid the transfers as they relate to personal property bequeathed by Elsie Rosin to the Debtor, but only as they relate to the real property.
All of the parties assert that there is no genuine issue as to any material fact and that they are entitled to a judgment as a matter of law.
Background
Elsie P. Rosin was the mother of the Debtor and the Defendants. Prior to her death in 1992, Mrs. Rosin owned in excess of 335 acres in DeSoto County, Florida.
On May 28, 1986, the Debtor executed an instrument entitled Quit Claim Deed to Michael A. Rosin. The instrument states that the Debtor quitclaims to Michael Rosin all of his right, title, and interest in “any real estate that I own now or may own in the future in DeSoto County, Florida.” The instrument further provides that the Debtor assigned and transferred to Michael Rosin all right, title, and interest that he may have in “any real or personal property together with any inheritance that he might receive from Elsie P. Rosin.” Finally, the instrument provides that the “consideration hereof is to secure repayment of that certain note dated May 28, 1986 from Grantor to Grantee in the amount of $33,000.”
*629On October 30, 1989, the Debtor executed an Assignment of Interest, Legacy and/or Expectancy in Estate. This Assignment provides that the Debtor sells, assigns, and transfers to Robert P. Rosin “one-half of all my claim and expectancy which I may inherit, acquire or which may or shall come into my possession and ownership as an heir at law of Elsie P. Rosin and/or a devisee or otherwise in the Last Will and Testament of Elsie P. Rosin ... in and to that certain parcel of real property” in DeSoto County, Florida, as legally described in the Assignment. In the Affidavit of Robert P. Rosin filed in this case, Robert Rosin states that this assignment “was in exchange for $75,000.00” and that he actually paid the Debtor the sum of $75,000.00.
Also on October 30, 1989, the Debtor executed an Assignment of Interest, Legacy and/or Expectancy in Estate to Alexander P. Rosin. This Assignment is identical in form to the Assignment to Robert Rosin, and assigns to Alexander Rosin one-half of the Debtor’s expectancy in the real property that the Debtor may acquire as an heir of Elsie P. Rosin. In the Affidavit of Alexander Rosin filed in this case, Alexander Rosin states that he “paid $75,000 cash to or on behalf of Simon Rosin in exchange for said assignment and quit claim deed.”
On December 15, 1989, the Debtor executed a Quitclaim Deed to Alexander Rosin. In this Quitclaim Deed, the Debtor quitclaimed to Alexander Rosin all of the Debtor’s right, title, and interest in certain DeSoto County real property as legally described in the document. This Quitclaim Deed was recorded in the public records of DeSoto County, Florida on January 12,1990.
On December 22, 1989, the Debtor executed a Quitclaim Deed to Robert Rosin. This Quitclaim Deed is similar in form to the Quitclaim executed in favor of Alexander Rosin a week earlier, and quitclaims to Robert Rosin all of the Debtor’s interest in real property located in DeSoto County. The legal description of the property in the Quitclaim to Robert Rosin appears to include an additional parcel not included in the Quitclaim to Alexander Rosin. The Quitclaim Deed to Robert Rosin was recorded in the public records of DeSoto County on April 16,1990.
Elsie P. Rosin died on October 10,1992, and her Last Will and Testament was admitted to probate on October 26, 1992.
The Quit Claim Deed executed by the Debtor to Michael Rosin on May 28, 1986, was recorded in the public records of De-Soto County on March 8,1993.
The Debtor filed a petition under chapter 11 of the Bankruptcy Code on September 13, 1993. The case subsequently was converted to a case under chapter 7.
On October 29, 1996, the Circuit Court for Sarasota County, Florida entered an Amended Final Judgment in the probate case of the estate of Elsie P. Rosin. The probate case had continued in the Circuit Court pursuant to authorization from this Court. The Amended Final Judgment contains the following findings:
1. Certain real property located in De-Soto County (described on Exhibit A to the Amended Final Judgment) was devised by Elsie Rosin to Michael Rosin, Simon Rosin, and Alexander Rosin in equal shares. Simon Rosin divested himself of his expectancy in the property by various instruments and no longer has an interest in the property. By stipulation, title to the described property is vested in Alexander Rosin and Michael Rosin in undivided equal shares.
2. Certain other real property located in DeSoto County (described on Exhibit B to the Amended Final Judgment) is part of the residue of Elsie Rosin’s estate and was devised to Michael Rosin, Simon Rosin, Robert Rosin, and Alexander Rosin in equal shares. Simon Rosin divested himself of his expectancy, and title to this property is now held by Michael Rosin (1/2 interest), Alexander *630Rosin (1/4 interest), and Robert Rosin (1/4 interest).
3. The Amended Final Judgment does not eliminate any rights of the Trustee in the bankruptcy proceedings, and is expressly subject to the Bankruptcy Court’s determination of the parties’ respective property interests.
Instruments
The instruments which are the basis for the challenges by the Trustee in this case are summarized as follows:
Date Instrument
May 28,1986 Quit Claim Deed to Michael Rosin Recorded — March 8,1998
October 30,1989 Assignment to Robert Rosin
October 30,1989 Assignment to Alexander Rosin
December 15,1989 Quitclaim Deed to Alexander Rosin Recorded' — January 12,1990
December 22,1989 Quitclaim Deed to Robert Rosin Recorded — April 16,1990
The Debtor executed two separate instruments (an assignment and a quitclaim deed) in favor of Robert Rosin, and two separate instruments (an assignment and a quitclaim deed) in favor of Alexander Rosin. By their terms, these instruments relate only to certain real property located in DeSoto County. The Debtor executed only one instrument (entitled Quit Claim Deed) in favor of Michael Rosin, and this instrument refers to the Debtor’s interest in both real property and personal property-
The Trustee asserts, generally, that the quitclaim deeds did not transfer any interest in property, that the assignments are voidable pursuant to Section 544 of the Bankruptcy Code and Florida Statute § 695.01(1) because they were not recorded in the public records of DeSoto County, and that any transfer by the quitclaim deed to Michael Rosin is avoidable because the deed was recorded within one year prior to the filing of the Debtor’s bankruptcy petition. The Trustee contends that an expectancy interest in a future probate estate is not transferrable by quitclaim deed as a matter of law, and that any such transfers, whether by quitclaim or assignment, were ineffectual as against the Trustee.
The Defendants generally assert that the transfers represent contemporaneous exchanges for new value, were made in the ordinary course of business, and were made more than one year prior to the filing of the Debtor’s bankruptcy petition. Additionally, the Defendants assert that the Assignments of Interest, Legacy and/or Expectancy in Estate were valid and automatically perfected as of the date of execution pursuant to Florida Statute § 679.302(l)(c).
Section 544 of the Bankruptcy Code provides:
§ 544. Trustee as lien creditor and as successor to certain creditors and purchasers
(a) The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by-
(3) a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
Chapter 695 of the Florida Statutes is entitled “Record of Conveyances of Real Estate.” Section 695.01(1), as contained in Chapter 695 and cited by the Trustee, provides:
695.01 Conveyances to be recorded.—
(1) No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effec*631tual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law.
Since the Assignments were not recorded pursuant to Florida Statute § 695.01(1), the Trustee contends that they are voidable pursuant to § 544(a)(3) of the Bankruptcy Code.
The Trustee also asserts that the transfers evidenced by the Quitclaim Deeds were ineffective from their inception. The Trustee cites Van Pelt v. Clarke, 476 So.2d 746 (Fla. 1st DCA 1985) to support her claim that the quitclaim deeds executed by the Debtor were ineffective to convey the Debtor’s interest in the DeSoto County real property, because that interest did not exist at the time that the quitclaim deeds were executed. In Van Pelt, a daughter executed a quitclaim deed with respect to property then owned by her father. Upon her father’s death, the daughter learned that his will contained no devise of the property, and ownership of the property was determined by a statute which provided for her father’s surviving spouse to receive a life estate, and her father’s lineal descendants (including the daughter) to receive the vested remainder. The District Court of Appeal held:
... At the time the quitclaim deed was executed, Van Pelt held absolutely no interest in the property and, therefore, the quitclaim deed could have in no way effectively conveyed the interest she acquired upon her father’s death.
While it is true a quitclaim deed may be used to transfer an inchoate or incomplete interest, that interest must be in existence at the time the deed is executed.
Consequently, the Trustee contends that the quitclaim deeds at issue in this case did not convey any interest in real property to the Defendants because the Debtor had not acquired any interest in the property at the time that the quitclaims were executed. The Trustee claims that Florida Statute § 732.514 provides further support for this contention:
732.514 Vesting of devises. The death of the testator is the event that vests the right to devises unless the testator in his will has provided that some other event must happen before a devise shall vest.
This section is contained in the chapter of the Florida Statutes entitled “Probate Code: Intestate Succession and Wills.” Since the Debtor’s mother was not deceased at the time that the conveyance documents were executed, the Trustee claims that the Debtor had no vested interest to transfer.
Finally, the Trustee contends that the Quitclaim Deed executed in favor of Michael Rosin is voidable as a preferential transfer pursuant to Section 547(b) of the Bankruptcy Code. Section 547(b) provides:
§ 547. Preferences
(b) Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between ninety days and one year before the date of the filing of the petition, if such creditor at the time of such transfer was an insider; and
(5)that enables such creditor to receive more than such creditor would receive if—
(A) the case were a case under chapter 7 of this title;
(B) the transfer had not been made; and
*632(C) such creditor received payment of such debt to the extent provided by the provisions of this title.
The Quit Claim Deed to Michael Rosin was executed on May 28, 1986, but was not recorded until March 8, 1993. The Trustee contends that the recordation of the Deed on March 8, 1993, constituted a transfer of the Debtor’s interest in the property, that Michael Rosin is an “insider” with respect to the Debtor, and that the transfer occurred within one year prior to the filing of the Debtor’s bankruptcy petition on September 13, 1993. Consequently, the Trustee asserts that the transfer is voidable pursuant to Section 547(b).
The Defendants assert that the transfers were effective, contemporaneous exchanges for new value made in the ordinary course of the Debtor’s financial affairs. The Defendants also contend that their interest in the property is superior to that of the Trustee by virtue of Florida Statute § 679.302(l)(c). Chapter 679 of the Florida Statutes is entitled “Uniform Commercial Code: Secured Transactions.” Section 679.102 sets forth the scope of Chapter 679:
679.102 Policy and subject matter of chapter.
(1) Except as otherwise provided in s. 679.104 on excluded transactions, this chapter applies:
(a) To any transaction (regardless of its form) which is intended to create a security interest in personal property or fixtures including goods, documents, instruments, general intangibles, chattel paper, or accounts; and also
(b) To any sale of accounts or chattel paper.
Section 679.104 provides in part:
679.104 Transactions excluded from chapter.
This chapter does not apply:
(10) Except to the extent that provision is made for fixtures in s. 679.313, to the
creation or transfer of an interest in or lien on real estate, including a lease or rents thereunder.
Section 679.302, as cited by the Defendants in this case, provides in part:
679.302 When filing is required to perfect security interest; security interests to which filing provisions of this chapter do not apply.
(1) A financing statement must be filed to perfect all security interests except the following:
(c)A security interest created by an assignment of a beneficial interest in a decedent’s estate.
The Defendants contend, therefore, that the interest transferred by the Debtor pursuant to the assignments is governed by Chapter 679 of the Florida Statutes, and is a “beneficial interest in a decedent’s estate” within the meaning of Florida Statute § 679.302. Specifically, the Defendants rely on In re Cowsert, 14 B.R. 335 (Bankr. S.D.Fla.1981) for the proposition that a beneficial interest such as an expectancy is a “general intangible” subject to chapter 679 of the Florida Statutes.
Principles
I. An “expectancy,” or a possibility that an apparent heir will inherit property from an ancestor, is not an interest in property in Florida.
The property interests recognized in Florida are identified and described in Chapter 13 of LESLIE A. JEFFRIES, REDFEARN WILLS AND ADMINISTRATION IN FLORIDA § 13-1 (6th ed.1986). “By estate is meant the quantity of interest which an owner has in property, whether real or personal.” The recognized estates are generally described, and the divisions, limitations, and qualifications of estates, including estates in possession and estates in expectancy, are defined and described in the treatise. See also 22 Fla.*633Jur.2d, Estates, Powers, and Restraints §§ 1-4.
The possibility that an apparent heir or devisee will receive propérty by descent or devise from an ancestor does not constitute an estate recognized in Florida. A descendant has no present or future interest in property owned by an ancestor, absent some conveyance. Generally, future interests follow limited or qualified present estates, and even estates on condition and executory estates follow limited or qualified present estates. Although there is a possibility that a descendant may inherit property from an ancestor, it is only a possibility. This possibility has some similarities to an executory interest, but “[a]n executory interest is to be distinguished from a ‘mere possibility,’ such as the expectancy of an heir apparent.” 28 Am.Jur.2d Estates § 337.
The California Supreme Court has stated a precaution with reference to California law which is also applicable in Florida:
In using the term ‘expectancy’ in real property law, however, a careful distinction must be made between those instances where it is used in relation to ‘expectant estates’ or future interests [citation omitted] and those in which it is used to refer to a ‘mere possibility, such as the expectancy of an heir apparent.’
Silva, et al. v. Lucas, et al. (In re Estate of Ferry), 55 Cal.2d 776, 13 Cal.Rptr. 180, 361 P.2d 900 (Cal.1961) (in banc). In California, a statute provides that an apparent heir has no interest in the property of his or her parent.1 While there is no similar statutory provision in Florida, cases confirm that an apparent heir has “absolutely no interest in the property” of his or her parent. Van Pelt v. Estate of Clarke, 476 So.2d 746, 747 (Fla. 1st DCA 1985).
II. An expectancy can be assigned in Florida.
At common law, an heir’s expectancy that he would succeed to an ancestor’s estate could not be assigned. The expectancy was regarded as a mere possibility rather than an existing interest, and its assignment was disfavored for public policy reasons aimed at protecting both the heir and the ancestor. 6 Am.Jur.2d Assignments § 55. In some circumstances, a grantor of title with warranties was held to be estopped to claim a title later acquired by inheritance. The assignment or conveyance of an estate later inherited was also enforceable if confirmed or ratified after the death of the ancestor. 6 Am. Jur.2d Assignments § 55.
Courts of equity, however, have generally upheld assignments of expectancies by prospective heirs. Although such an assignment may be closely scrutinized, it is enforceable in equity, provided the assignment was fairly obtained and based on sufficient consideration. 6 Am.Jur.2d Assignments § 58. Further, where one heir of a living ancestor transfers his interest to another heir, the assignment is enforceable in equity, if entered fairly and supported by adequate consideration. 6 Am. Jur.2d Assignments § 65. See, for example, Sgambelluri v. Nelson, 480 F.2d 619 (9th Cir.1973).
Courts of equity are not uniform as to the theory upon which the enforcement of such an assignment is based.
The courts which recognize the general rule that equity may enforce the assignment of an expectancy are not entirely agreed as to the theory upon which the enforcement of such an assignment is based. It has been frequently declared that such an assignment is enforced in equity, not as a grant of a present right or interest, but rather as an executory contract to convey, which will be specifically enforced when the property is acquired. ' Other courts assert that the assignee of an expectancy has something more than a mere right in contract, that he has *634something in the nature of an estate or interest, and that the assignment creates an equitable charge which arises immediately upon the property coming into existence; and some courts proceed upon the theory of estoppel in pais.
6 Am.Jur.2d Assignments § 58. Further, There appears to be a tendency on the part of courts with both legal and equitable jurisdiction to fail to distinguish between the doctrines of legal estoppel and the equitable doctrine recognizing the validity of assignments of expectancies.
6 Am. Jur.2d Assignments § 57.
In Florida, an expectancy may be assigned, and the possibility of inheriting property from an ancestor may be assigned. Courts have looked to the Florida Supreme Court’s decision in Richardson v. Holman, 160 Fla. 65, 33 So.2d 641 (1948), as the statement of Florida’s policy on the assignment of uncertain interests. Confirming the assignability of a possibility of reverter, the court stated:
In fine, the right of contract so rigidly canalized by the common law, has, by the constitution and statutes, been liberalized till at the present any citizen who is sui juris may enter into any contract that is not illegal, fraudulent, immoral or contrary to public policy. Under the common law a right of action, choses in action, future or contingent interests, possible and existing estates or interests, were not assignable, but all of these are now assignable by statute or in equity.
Richardson, 33 So.2d at 644 (emphasis supplied).
Approximately two years after Florida’s Supreme Court stated in Richardson, supra, that uncertain future interests are assignable, it decided In re Ruch’s Estate, 48 So.2d 289 (Fla.1950). The facts in Ruch’s Estate are only briefly described, but it appears that a possible beneficiary of an estate had, in consideration of an amount paid to him, executed an agreement by which he “released and relinquished” to a third party all of his interest in a testator’s estate, and also had executed a quitclaim deed by which he conveyed to the third party all the interest which he may have had in certain real property which was owned by the testator. The Supreme Court affirmed the denial of the heir’s request for distribution of the property from the testator’s estate, because prior to the testator’s death the heir had, for valuable consideration, released and relinquished all of his right, title and interest in the estate. The Court did not base its holding on the conveyance by the quitclaim deed, but based its conclusion on the “contract of release and relinquishment.” In re Ruch’s Estate, 48 So.2d at 290.
Florida Courts of Appeal have also upheld assignments of uncertain future interests. See, for example, Fort Lauderdale & Southern Development Corp. v. Beach Boys Plaza, Inc., 539 So.2d 560, 561 (Fla. 4th DCA 1989) (“The written assignment ... was a valid transfer of an uncertain future interest in property, properly executed by the parties for valuable consideration, delivered and accepted.”) and Giles v. Sun Bank, N.A., 450 So.2d 258, 260 (Fla. 5th DCA 1984) (An assignment is effective to operate as a transfer of a right or chose in action as long as the parties’ intention is clear and consideration was provided.) See also 4 Fla.Jur.2d Assignments § 5.
III. A quitclaim deed, without more, is not effective to convey an expectancy.
Generally, a quitclaim deed conveys only such interest as the grantor possessed at the time that the deed was executed, and the grantor does not affirm or warrant that he has any particular interest or estate in the property subject to the deed. 23 Am.Jur.2d Deeds § 352.
A quitclaim deed operates as a transfer of any right that the grantor may have, either at law or in equity; and where, at the time of the quitclaim, the *635grantor has a title or interest, whether particularly designated in the deed or not, which, though inchoate and incomplete as a legal title or interest, is nevertheless of such a character as to pass to the grantee under the granting clause, the subsequent confirmation or completion of that title or interest will inure to the benefit of the grantee....
Although a future interest, if vested, will pass by a quitclaim deed, the grant- or is not estopped, if it was merely contingent at the time of the quitclaim deed, to assert the title which later vests unless the quitclaim purports to release all future, contingent, and possible interests or covenants to warrant and defend the premises.
23 Am.Jur.2d Deeds, § 353.
The Trustee cites Van Pelt, supra, to support her position that a quitclaim deed cannot be used to convey an expectancy. The Trustee relies on the court’s statement in Van Pelt that the grantor in that case had no interest in the property at the time that the quitclaim deed was executed, and therefore had no interest to convey. Van Pelt, 476 So.2d at 747. It appears from Van Pelt that a quitclaim deed, without more, does not convey an expectancy. Specifically, the quitclaim deed in Van Pelt did not contain provisions clearly expressing Van Pelt’s intent to assign or convey any expectancy or any interest which Van Pelt might later inherit from her father, and the court held that the interest which she later inherited upon her father’s death was not conveyed by the earlier quitclaim. It should be noted that the court further stated that “a mere quitclaim or release by deed is not an estoppel upon the releasor as to any after-acquired interest.” Van Pelt, 476 So.2d at 747.
Accordingly, it appears that a quitclaim, without an expression of the intent to convey an expectancy, does not convey property which a person may possibly inherit in the future and does not estop the trans-feror from inheriting the property. Regardless of the title of the instrument, however, it appears that an instrument may be effective to assign or to release and relinquish a possible future right to inherit property, as long as the document clearly expresses the intent to do so, is fair, and is supported by consideration.
IV. Recording an assignment of an expectancy is not required by Fla. Stat. § 695.01.
Florida Statutes § 695.01 requires that a conveyance or transfer of an interest in real property must be recorded to be effective against creditors or subsequent purchasers for value and without notice.
695.01 Conveyances to be recorded.
(1) No conveyance, transfer, or mortgage of real property, or of any interest therein, nor any lease for a term of 1 year or longer, shall be good and effectual in law or equity against creditors or subsequent purchasers for a valuable consideration and without notice, unless the same be recorded according to law;
As set forth above, an expectancy of an apparent beneficiary is not an interest in real property, and the conveyance or assignment of the expectancy conveys “absolutely no interest in the property.” Van Pelt, 476 So.2d at 747. Such an assignment does not affect or encumber the owner’s title to the property. The Florida Supreme Court discussed the recording statute in Braddy & Hale Fishery Co. v. Thomas, 93 Fla. 326, 112 So. 55, 56 (1927):
It cannot be questioned that this provision of the law has reference only to such a conveyance, transfer, mortgage, or ‘interest’ in real estate as carries with it the full title or some valuable interest therein, and has no reference whatever to void conveyances, mortgages, or transfers that in no wise affect the title or right in the real estate covered thereby.
*636The provisions of Fla.Stat. § 695.01 do not require that an assignment of an expectancy be recorded.
V. In Florida, an assignee of an interest in an estate may require the personal representative of the estate to distribute the assigned interest directly to the assignee.
In Trak Microwave Corporation v. Medaris Management, Inc., 236 So.2d 189 (Fla. 4th DCA 1970), a Florida Court of Appeal considered the enforceability of an assignment of an uncertain future contractual interest as against the assignor. Although Trak dealt with an assignment of income from a possible future contract, rather than an expectancy of a possible beneficiary of an estate, the court in that case cited the Florida Supreme Court’s decision in Richardson v. Holman, 160 Fla. 65, 33 So.2d 641 (1948), as the statement of Florida’s policy on the assignment of uncertain future interests. Based on Richardson, the court in Trak concluded that the assignment at issue “is valid because it offends no statute, announced rule of public policy, or constitutional provision.” Trak, 236 So.2d at 193. The court in Trak continued:
The difficult problem is whether or not the assignment can be enforced against a third person not a party thereto, i.e., the debtor, Trak, after Trak has paid to the assignor (Ladoniczki) the funds allegedly assigned. The resolution of this issue depends upon the distinction between an assignment of a right to receive funds and a promise by the assign- or to make an assignment of funds when they come into being at some unspecified time in the future under a contract not in existence at the time of the assignment. ... The Florida Supreme Court has said, .. The true test of an equitable assignment is whether the debtor [the obligor of the assigned obligation] would be justified in paying the debt to the person claiming as assign-
id. (Emphasis supplied.) In Trak, the court ultimately concluded that the assignment at issue did not create in the assign-ee the right to collect from debtor on the assigned obligation.
An assignee of an interest in an estate in Florida may require the personal representative of the estate to distribute the assigned interest directly to the assignee. In re Francis’ Estate, 153 Fla. 360, 14 So.2d 803 (1943). “Where an assignment is recognized, the assignee is, by the assignment, vested with all the rights of the assignor, and may assert them in his own name....” In re Francis’ Estate, 14 So.2d at 808 (quoting 3 Woerner, American Law of Administration § 563 (3d ed.)). “Where an heir or distributee assigns his interest in an unsettled estate, the effect is to divest him of his title or right and vest such title or right in the assignee, but the assignment cannot in any way effect the condition of the estate or the rights of the administrator.” In re Francis’ Estate, 14 So.2d at 808 (quoting 18 C.J. § 171, and also referring to 26 C.J.S., Descent and Distribution, § 76).
This conclusion is consistent with the Florida Probate Code, which provides that competent interested persons may alter the interests to which they are entitled under a will or under the laws of intestacy. (Fla.Stat. § 733.815, Private agreements among distributees.)
The Court concludes that an expectancy of a possible heir or devisee is assignable in Florida and enforceable in equity, provided that the assignment is fair and satisfies the court’s equitable considerations, and also provided that the assignment is supported by sufficient consideration.
VI. Property of a decedent is subject to the needs of the decedent’s estate, and an instrument from the personal representative is evidence that a distributee has succeeded to estate assets.
The death of the testator is the event *637that vests the right to devises2 or the right to intestate property.3 The personal representative of the decedent’s estate has the right to possession or control of all real and personal property except the homestead4 for the payment of expenses of administration, taxes, claims, devises, and distribution.5 No personal representative may be compelled to pay any devise or surrender any land to any beneficiary for 5 months6, and until other requirements are satisfied.7
Under the common law, the title to real estate descended to the heir upon the death of the owner intestate, and to the devisee upon the death of the owner testate. [Footnote omitted.] This common law rule has been changed by the probate laws of Florida to the extent that the title vests as aforesaid, but the right of possession passes to the personal representative, [footnote omitted] and the realty, as well as the personalty, becomes assets in the hands of the personal representative. [Footnote omitted.] The personal representative may sell the real estate in the same manner as he may sell personal property for the payment of the debts of the deceased and other claims and charges against the estate. [Footnote omitted.]
As the personal representative has the possession of the real estate and of the personal property during the administration, the heirs, legatees, or devisees are not entitled to the possession until the assent of the personal representative has been obtained. [Footnote omitted.]
LESLIE A. JEFFRIES, REDFEARN WILLS AND ADMINISTRATION IN FLORIDA § 12-14 (6th ed.1986).
An assignee of an interest in an estate in Florida is “vested with all of the rights of the assignor,” and may require the personal representative of the estate to distribute the assigned interest directly to the assignee, when it is appropriate for the property to be distributed from the estate. In re Francis’ Estate, 153 Fla. 360, 14 So.2d 803 (1943).
An instrument transferring assets from a personal representative is conclusive evidence that the distributee has succeeded to the interest of the estate in the distributed assets.
733.811 Distribution; right or title of distributee. Proof that a distributee has received an instrument transferring assets in kind or payment in distribution or possession of specific property from a personal representative is conclusive evidence that the distributee has succeeded to the interest of the estate in the distributed assets, as against all persons interested in the estate ...
VII. The assignment of an expectancy is a transfer for the purposes of the Bankruptcy Code’s avoidance provisions.
State law defines property interests. Butner v. United States, 440 U.S. 48, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Under Florida law, an expectancy is not a property interest. Van Pelt, supra. However, Florida law also provides that the assignment of an expectancy is enforceable, and that where an assignment is recognized, the assignee is vested with all the rights of the assignor and may assert them in his own name. In re Francis’ Estate, supra.
The Bankruptcy Code defines transfers for the purposes of the trustee’s avoiding powers. The definition of transfer is broad, and includes “every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting *638with property or with an interest in property-”11 U.S.C. § 101(54). It is clear that after the death of an ancestor, the assignment of a beneficial interest in the decedent’s estate is a transfer of an interest in property. In re Brajkovic, 151 B.R. 402 (Bankr.W.D.Tx.1993). Similarly, although an assignment of an expectancy prior to the death of an ancestor does not convey an interest in property, it is effective to transfer to the assignee any right that the assignor may ever have to inherit the property assigned, and upon the death of the ancestor or testator the assignee is vested with the interest which otherwise would have vested in the assignor. It is a mode, although certainly a conditional mode, of disposing of or parting with property or an interest in property.
The purpose of the avoidance provisions of the Bankruptcy Code is to prevent a debtor from preferring one creditor over other creditors. Treating the assignment of the expectancy as a transfer for the purpose of analyzing the Trustee’s avoiding powers is consistent with this purpose.
VIII. If the assignment of the expectancy was given as security for a debt, the Uniform Commercial Code applies and the right transferred to the assignee is a general intangible. Filing is not required to perfect a security interest in the assigned right, but the security interest is perfected when it attaches.
Although the assignment of the expectancy does not transfer any real or personal property of the assignor’s ancestor, the assignment transfers to the as-signee the right, if any, to receive the assignor’s inheritance at the death of the ancestor.
If the assignment is given as security for payment or performance of an obligation, Florida’s Uniform Commercial Code applies8 and the right assigned is a general intangible.9
A security interest is perfected when it has attached and when all of the applicable steps required for perfection have been taken.10
A security interest attaches when it becomes enforceable against the debtor with respect to the collateral.11 Attachment occurs as soon as all of the following events have taken place: (a) the collateral is in the possession of the secured party or the debtor has signed a security agreement; (b) value has been given; and (c) the debt- or has rights in the collateral.12
A financing statement must be filed to perfect non-possessory security interests, with certain exceptions. One of the exceptions applies to a security interest created by an assignment of a beneficial interest in a decedent’s estate.13 No case law has developed under Fla.Stat. § 679.302(l)(c) to furnish guidance with respect to the intent and scope of the subsection. The Comments to the section state:
A new paragraph (l)(c) exempts from filing rules security interests created by assignments of beneficial interests in trusts and estates, because these assignments are not ordinarily thought of as subject to this Article, and a filing rule might operate to defeat many assignments.
*639Further comment is provided in 1 Peter F. Coogan et al., Secured Transactions under the Uniform Commercial Code § 3.03, at n 3, (1997):
... [L]awyers customarily think of trust and estate assignments as belonging to the law of trusts and estates rather than personal property security law. To prevent them from being trapped by Article 9 coverage, the 1972 amendments to the Code specify that a financing statement need not be filed to perfect assignments of a beneficial interest in a trust or a decedent’s estate. U.C.C. § 9-302(l)(c). They remain subject to the Article 9 rules dealing with attachment, priority and foreclosure.
The Court concludes that this exception applies to the assignment of an expectancy as well as to the assignment of a beneficial interest in a decedent’s estate, and that filing is not required to perfect a security interest in the assignment of an expectancy.
Application
I. The instruments.
On October 30, 1989, the Debtor executed two documents entitled “Assignment of Interest, Legacy and/or Expectancy in Estate” to Robert P. Rosin and to Alexander P. Rosin, respectively. Pursuant to these documents, the Debtor assigned to Robert and to Alexander the Debtor’s expectancy regarding certain real property in DeSoto County which was then owned by his mother and which he might inherit from his mother.
Shortly after the assignments were executed, on December 15, 1989, and on December 22, 1989, the Debtor executed quitclaim deeds to Robert and to Alexander, respectively. The quitclaim deeds were recorded on January 12, 1990, and on November 16, 1990, respectively. The quitclaim deeds purported to convey only the interest which the Debtor had in the De-Soto County real property at the time of the deeds, and they did not contain an assignment or expression of intent to transfer any interest which the Debtor might subséquently receive from his mother.
On May 28, 1986, the Debtor executed an instrument entitled “QuiNClaim Deed” in favor of Michael A. Rosin. The instrument was recorded on March 8, 1993. By this instrument, the Debtor quit claimed to Michael all of the Debtor’s interest in any real estate that he owned “now or may own in the future” in Desoto County, Florida. Additionally, in the instrument the Debtor also “assign[ed] and transfer[red] to Michael A. Rosin all claims, rights, title and interest that he may have in any real or personal property together with any inheritance that he might receive from Elsie P. Rosin.” The instrument also contains the provision that “[t]he consideration hereof is to secure repayment of that certain note dated May 28, 1986 from Grantor to Grantee in the amount of $33,-000.00. This deed shall be null and void upon repayment of said note.”
The quitclaim deeds to Robert and to Alexander did not convey any interest in property. At the time that the documents were executed, the Debtor had no interest in the property to convey, and the quitclaim deeds did not express an intent to transfer any interest that the Debtor might acquire in the future.
The assignments to Robert and to Alexander, however, assigned to each of them one-half of the Debtor’s expectancy regarding certain real property which he might inherit from his mother. Further, the Quit Claim Deed to Michael contained both a quitclaim conveyance and an assignment of any inheritance that the Debtor might receive from his mother. There is no disagreement that these instruments were executed and delivered in exchange for substantial consideration which was paid to the Debtor -at the time that the documents were executed. There is no allegation that the assignments effected by the instruments were unfair, inequitable, *640or the product of overreaching, and there is no allegation that the assignments were illegal, fraudulent, immoral, or '■contrary to public policy.
Further, the state probate court has found that the Debtor divested himself of his interest in the property by various instruments.
The Court concludes that the Assignments to Robert and to Alexander, and the instrument entitled Quit Claim Deed to Michael, all of which contained assignments of the Debtor’s expectancy with respect to property which he might inherit from his mother, were supported by consideration and were not inequitable, and are therefore enforceable assignments.
The remaining issues raised by the parties, therefore, are whether the assignments to the Defendants are voidable under § 544(a)(3) because the assignments were not recorded in the public records pursuant to Fla.Stat. § 695.01(1), and whether the assignment to Michael Rosin is voidable under § 547 because the assignment to him was not recorded until March 8,1993.
II. The motions for summary judgment as to all defendants; 11 U.S.C. § 544, and Fla.Stat. § 695.01.
Section 544(a)(3) of the Bankruptcy Code, on which the Trustee relies, generally provides that a trustee may avoid any transfer of property of the debtor that is voidable by a bona fide purchaser of real property from the debtor, against whom applicable law permits such transfer to be perfected, at the time of the commencement of the case.
The Trustee argues that the assignments were required to be recorded to be perfected against a bona fide purchaser pursuant to Fla.Stat § 695.01. However, as discussed above, the recordation of the assignments is not required by Fla.Stat. § 695.01, since the assignments did not convey an interest in the property. Such a conveyance of real property or an interest in real property is a prerequisite to the applicability of § 695.01.
The Defendants argue that the assignments were automatically perfected since filing is not required by the Uniform Commercial Code. The Uniform Commercial Code is not applicable to the assignments to Robert and Alexander, however, because those assignments were not given as security for an obligation.14 The assignment to Michael was given as security for an obligation. The security interest in the assigned right attached when the assignment was executed, since the assignment was in writing and constituted the security agreement, value was given, and at that time the Debtor was able to transfer his rights in the expectancy.
For the analysis of the Trustee’s rights to avoid the assignments under § 544(a)(3), the Court must evaluate whether a bona fide purchaser of real property from the Debtor at the time of the commencement of the Debtor’s case could avoid the assignments to the Defendants.
The rights to succeed to a decedent’s property are determined in the administration of the decedent’s estate, and the personal representative surrenders or distributes the property as appropriate.
At the time of the commencement of the Debtor’s bankruptcy case, no instrument surrendering or distributing real property from the personal representative of the estate of Elsie Rosin had been executed to evidence that the Debtor had succeeded to any interest in estate assets. At the time of the commencement of the case, any purchaser from the Debtor of real property which had been owned by Elsie Rosin at *641her death would acquire the property subject to the administration of Elsie Rosin’s estate and the proper distribution of the assets of that estate.
In fact, the Debtor had assigned his expectancy in his mother’s estate prior to her death. The assignments were valid, and the state probate court determined that the Debtor had “divested himself of his expectancy in the property.” Where an assignment is recognized, the assignee is, by the assignment, vested with all the rights of the assignor, and may assert them in his own name. In re Francis’ Estate, 14 So.2d at 808. Accordingly, at the death of Elsie Rosin, the assignees were vested with the property devised to the Debtor. The Debtor could not require the personal representative to distribute the property to him. Consequently, no purchaser of such property from the Debt- or at the time of the commencement of the Debtor’s bankruptcy case could require the personal representative to distribute the property to such purchaser.
Accordingly, the assignments by the Debtor are not voidable under § 544(a)(3) of the Bankruptcy Code and Fla.Stat. § 695.01.
III. The motions for summary judgment as to Michael Rosin; 11 U.S.C. § 547.
In Count I of the Complaint, the Trustee seeks to avoid the transfer from the Debtor to Michael Rosin pursuant to § 547 of the Bankruptcy Code because the assignment to him was not recorded until March 8,1993.
Generally, § 547 provides that a trustee may avoid any transfer of an interest of a debtor in property that was made (1) to a creditor, (2) on account of an antecedent debt, (3) while the debtor was insolvent, (4) within one year before the date of the filing of the bankruptcy petition, if the creditor was an insider of the debtor, and (5) that enables the creditor to receive more that the creditor would receive if the transfer had not been made and the creditor received payment of the debt under Chapter 7.
Section 547(e)(2) provides that a transfer is made at the time such transfer takes effect between the transferor and the transferee, if such transfer is perfected within 10 days. The Trustee asserts that the transfer was perfected and therefore was made when the assignment was recorded, which was within one year of the filing of the bankruptcy petition. Michael Rosin asserts that the transfer was perfected and therefore was made when the assignment was executed, and that the assignment was a contemporaneous exchange for new value.
Sections 547(e)(1)(A) and 547(e)(1)(B) define when transfers of real and of personal property are perfected.
As discussed above, the assignment of the expectancy was not a transfer of real property, and § 547(e)(1)(A) therefore does not apply to the transfer.
Section 547(e)(1)(B) provides that a transfer of property other than real property is perfected when a creditor on a simple contract cannot acquire a judicial lien that is superior to the interest of the transferee. Prior to the death of Elsie Rosin, a judicial lien on property of the Debtor would not have attached to property of Elsie Rosin or to the Debtor’s expectancy because the expectancy is not a property interest. After the death of Elsie Rosin, a judicial lien on property of the Debtor would not attach to any of Elsie Rosin’s property which was devised to the Debtor because the Debtor had assigned his expectancy prior to his mother’s death, any interest he assigned vested in the assignee upon his mother’s death, the as-signee was entitled to distribution from the decedent’s estate, and the Debtor was not entitled to receive any property from his mother’s estate. The assignment was effective when it was executed, regardless of when the Debtor’s mother died.
*642For purposes of § 547, the transfer of the Debtor’s expectancy to Michael was perfected and therefore was made when the assignment was executed.
The Trustee also argues that the assignment to Michael Rosin should be treated as a mortgage and that, pursuant to Fla. Stat. § 95.281, the lien of a mortgage terminates five years after the date of maturity of the obligation secured by a mortgage. Fla.Stat. § 95.281 provides:
95.281 Limitations; instruments encumbering real property.
(1) The lien of a mortgage or other instrument encumbering real property, herein called mortgage, ... shall terminate after the expiration of the following periods of time:
(a) If the final maturity of an obligation secured by a mortgage is ascertainable from the record of it, 5 years after the date of maturity.
As discussed above, the Debtor’s assignment to Michael does not convey or encumber real property. Accordingly, the limitations period prescribed in Fla.Stat. § 95.281 does not apply.
The Court concludes that the assignment from the Debtor to Michael was effective when it was executed, and was perfected at the time of execution within the meaning of § 547(e)(1)(B) of the Bankruptcy Code. The Court further concludes that the assignment to Michael was intended by the Debtor and by Michael to be a contemporaneous exchange for new value given to the Debtor, and was in fact a substantially contemporaneous exchange. Accordingly, the Trustee may not avoid the assignment as a preferential transfer under § 547 of the Bankruptcy Code.
Conclusion
For the reasons expressed above, the Court concludes that the motion for summary judgment by the Trustee as to Counts V and VI should be granted, since the quitclaim deeds from the Debtor to Robert Rosin and to Alexander Rosin did not convey any property, but should be denied in all other respects. For the same reasons, the motions for summary judgment by Robert Rosin, Alexander Rosin, and Michael Rosin should be granted.
Accordingly:
IT IS ORDERED that:
1. The Plaintiffs Motion for Summary Judgment filed by Lauren P. Johnson Greene, as Chapter 7 Trustee, is granted with respect to Counts V and VI, and denied with respect to all other counts.
2. The Motion for Summary Judgment filed by the Defendant, Robert P. Rosin, is granted, and a separate judgment will be entered in favor of the Defendant, Robert P. Rosin, and against the Plaintiff.
3. The Motion for Summary Judgment filed by the Defendant, Alexander P. Rosin, is granted, and a separate judgment will be entered in favor of the Defendant, Alexander P. Rosin, and against the Plaintiff.
4. The Motion for Summary Judgment filed by the Defendant, Michael Rosin, is granted, and a separate judgment will be entered in favor of the Defendant, Michael Rosin, and against the Plaintiff.
. Cal.Civ.Code, § 700. Future interests; possibilities. A mere possibility, such as the expectancy of an heir apparent, is not to be deemed an interest of any kind.
. Fla.Stat. § 732.514.
. Fla.Stat. § 732.101(2).
. Fla.Stat. § 733.607.
. Fla.Stat. § 733.608.
. Fla.Stat. § 733.801.
. Fla.Stat. § 733.802.
. Florida's Uniform Commercial Code is applicable to security interests in personal property (Fla.Stat. § 679.102(1)), and to security interests created by contracts, including assignments (Fla.Stat. § 679.102(2)).
. Fla.Stat. § 679.106.
. Fla.Stat. § 679.303.
. Fla.Stat. § 679.203(2).
. Fla.Stat. § 679.203.
. Fla.Stat. § 679.302(l)(c). It should be noted that while the Uniform Commercial Code excepts the assignment of a beneficial interest in a decedent’s estate from the filing requirements of the UCC, it does not except these assignments from the application of the UCC entirely.
. Florida’s Uniform Commercial Code is applicable to security interests in personal property, and to security interests created by contracts, including assignments. Fla.Stat. § 679.102. A security interest is an interest in personal property or fixtures which secures payment or performance of an obligation. Fla.Stat. § 679.201. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493037/ | ORDER DENYING PLAINTIFF’S MOTION FOR PARTIAL SUMMARY JUDGMENT
PAUL M. GLENN, Bankruptcy Judge.
THIS CASE came on for hearing on Janice Gotch’s Motion for Partial Summary Judgment against the United States of America.
Janice Gotch (the “Plaintiff’) filed a single count Complaint to Determine Extent, Validity and Priority of Interests in Real Property Owned by or For the Benefit of the Debtor. Named as defendants were Sheldon G. Wald (the “Debtor”), Robert R. Frank, as Trustee, Terry R. Smith, Chapter 13 Trustee, and the United States of America (“USA”). The Plaintiff is the former spouse of the Debtor. In the Complaint, the Plaintiff alleges that the Debtor owned a 45% interest in certain real property at the time of their divorce and that she was awarded one-half of the proceeds from the sale of the property if the Debtor were to sell his interest. She alleges that the Debtor conveyed his interest in the property to Frank in 1991, but that he did not pay her any proceeds derived from this transfer. She acknowledges that Frank, the Chapter 13 Trustee, and the USA may have some interest in the property, but claims that their interests are inferior to any interest she has in the property. As a result, she requests the Court to enter judgment in her favor determining that she holds and controls an absolute ownership interest in 22 $ percent of the property by virtue of the divorce proceedings and the Debtor’s alleged transfer of his interest in the property. She also requests the Court to determine that her interest is superior to the interests of all the defendants in the property.
The USA filed an Answer denying the allegations in the complaint, asserting that the Plaintiffs interest in the property was the interest of a judgment lien holder, and stating that its tax lien has priority over the Plaintiffs lien because the Plaintiffs hen is no longer valid.
*644The Chapter 13 Trustee did not file an answer and on January 23, 1997, the Clerk of the Court entered a default against him.
The Debtor and Frank filed an Answer admitting that the Debtor transferred his interest in the property to Frank, that the Debtor did not pay the Plaintiff any proceeds derived from the transfer, that the Debtor continues to maintain the full beneficial use and ownership of his interest in the real property, and that the USA has a lien on the real property. The Debtor and Frank, however, are without knowledge as to the priority of the USA’s hen.
The Plaintiff filed a Motion for Partial Summary Judgment stating there is no genuine issue as to any material fact and that she is entitled to the entry of a judgment in her favor against the USA because she owns and holds equitable title to 22 1/2% of the real property and that her interest is superior to the interest of the USA as to her portion of the real property. She states that her equitable interest in the real property was effectuated and perfected by the recording of the Final Judgment with the Debtor retaining the right to all income from the real property for so long as he owned the property. She asserts that the recording of the Final Judgment gave constructive notice to all subsequent interest holders that she holds equitable title, and not a claim or lien, to the real property. The Plaintiff relies on the cases of Flammer v. Jay, 150 B.R. 474 (Bankr.M.D.Fla.1993), Paterson v. Brafman, 530 So.2d 499 (Fla. 3d DCA 1988), Bauer v. Kaplan, 233 So.2d 430 (Fla. 3d DCA 1970), and First Federal Savings & Loan Ass’n of Miami v. Fisher, 60 So.2d 496 (Fla.1952), to support the proposition that dispositions of property in a divorce decree effectuate a transfer of equitable title to the property at the time of entry of the decree notwithstanding that a future act may have been required by one of the spouses. Moreover, she asserts that since she has an interest in the property “akin to a remainder with all income directed to the Debtor until sale of the property,” her claim is not in the nature of a lien.
The USA filed an Opposition to Plaintiffs Motion for Partial Summary Judgment. The USA states that the Plaintiffs motion should be denied because the recording of the Final Judgment in this case did not effectuate a transfer of equitable title to the Plaintiff. The USA argues that unlike the facts in the cases cited by the Plaintiff, the Separation Agreement did not direct a conveyance or transfer of property. The Separation Agreement merely entitles the Plaintiff to one-half the proceeds of the sale of the real property if the property is sold. It does not require the Debtor to sell the property, execute a conveyance or do anything with respect to his property interest. Therefore, she has a claim or lien on one-half the proceeds, if and when there are any proceeds.
The USA further claims that because the lien created by the Final Judgment is no longer valid since 20 years have expired since the date of the entry of the Final Judgment, the Plaintiff has no superior interest to the federal tax lien. In addition, the USA argues that this adversary proceeding is time barred because it was not commenced within 20 years of the entry of the Final Judgment.
Undisputed Facts
The marriage between the Debtor and the Plaintiff was dissolved on July 12, 1973, by a Final Judgment of Dissolution entered by the Circuit Court of DeSoto County, Florida. The Final Judgment adopted and incorporated by reference a Separation Agreement executed by the Debtor and the Plaintiff. Among other things, the Separation Agreement dealt with the division of marital property. At the time of the divorce, the Debtor owned a 45% interest in real property located at 2700 South Tamiami Trail, Sarasota, Florida. Pursuant to the Separation Agreement, the Debtor agreed to convey certain real property (the former marital residence) to the Plaintiff, the Plaintiff agreed to convey certain real property (real prop*645erty in Venice, Florida) to a corporation owned by the Debtor, and parties agreed that in the event the Debtor sold the real property located at 2700 South Tamiami Trail (the Tamiami Trail Property), the Debtor would pay one-half of the proceeds to the Plaintiff. The parties also agreed that all instruments of transfer and all documents of ownership as in the opinion of counsel for the Plaintiff may be required to accomplish and record the ownership of the Plaintiff of these shall be delivered to the Plaintiff at the time of the execution of the Settlement Agreement.
7. Division of Real Property.
(a) The Husband will convey to the Wife, by deed executed, acknowledged and delivered at the time of the execution of this Agreement, the property which was the former home of the parties and in which the Wife now resides, subject to the outstanding mortgage thereon and subject to all covenants and restrictions of record.
(b) The real property located in Venice, Florida, now in the names of both the Husband and Wife, being the only property owned in Venice, Florida, a more complete description being attached hereto and made a part hereof and marked Schedule A, will be conveyed to a corporation of which the Husband will be the sole owner, by the Wife by deed executed, acknowledged and delivered at the time of the execution of this Agreement, subject to the outstanding mortgages thereon and subject to all covenants and restrictions of record.
(c) The Husband owns 45 per cent of the real property and building located at 2700 South Tamiami Trail, Sarasota, Florida, a more complete description being attached hereto and made a part hereof and marked Schedule B. The said property is subject to a Joint Venture Agreement, a copy of which has been furnished to the Wife, between the Husband and J. Martin Ross, D.D.S. and Gerald A. Ewing, D.D.S., dated the 30th day of December, 1966. The Husband agrees that in the event he shall sell his present interest in the said property, he will pay to the Wife one-half of the proceeds of the said sale received by him for his present 45 per cent interest, or if the said property is converted into a condominium, the Wife shall be entitled to one-half of the net proceeds realized from the sale by the Husband from the condominium purchasers. This provision shall be deemed part of the property settlement provided for herein between the Husband and Wife and shall survive the dissolution of the marriage, notwithstanding the fact that the payment shall be later made. The aforesaid proceeds shall be paid to the Wife regardless of whether the Wife has remarried or not. All other income from the said property from any sources whatsoever, other than from the sale of the said 45 per cent interest, shall belong to the Husband. Any monies paid to the Wife hereunder shall be deemed payment for any interest which she may have had in this property, legally or equitably, at the time of payment and shall be deemed income to the Wife as the sale of a capital asset to the extent of any monies paid to her hereunder, less one-half the cost basis to the Husband.
(d)All instruments of transfer and all documents of ownership, as in the opinion of counsel for the Wife may be required to accomplish and record the ownership of the Wife of the foregoing items, shall be delivered to the Wife at the time of the execution of this Agreement.
The Final Judgment, incorporating the terms of the Settlement Agreement, was entered on July 12, 1973 and recorded in the public records of Sarasota County on April 4,1974.
On March 1, 1991, the Debtor conveyed his interest in the Tamiami Trail Property to Robert R. Frank as Trustee by quit claim deed. The quit claim deed was re*646corded in the public records of Sarasota County.
On June 21, 1991, the Internal Revenue Service recorded a federal tax lien against the Debtor’s interest in the property. The federal tax lien was renewed by a rerecording on June 28,1995.
The Debtor filed a voluntary petition for relief pursuant to Chapter 13 of the Bankruptcy Code on July 23,1996.
Discussion
Rule 1.570 of the Florida Rules of Civil Procedure provides:
Rule 1.570 Enforcement of Final Judgments
(c) Performance of an Act. If judgment is for the performance of a specific act or contract:
(1) the judgment shall specify the time within which the act shall be performed. If the act is not performed within the time specified, the party seeking enforcement of the judgment shall make an affidavit that the judgment has not been complied with within the prescribed time and the clerk shall issue a writ of attachment against the delinquent party....
(d) Vesting Title. If the judgment is for a conveyance, transfer, release, or acquittance of real or personal property, the judgment shall have the effect of a duly executed conveyance, transfer, release, or acquittance that is recorded in the county where the judgment is recorded. A judgment under this subdivision shall be effective notwithstanding any disability of a party.
Section 61.075(4), Florida Statutes, provides:
61.075 Equitable distribution of marital assets and liabilities.
(4) The judgment distributing assets shall have the effect of a duly executed instrument of conveyance, transfer, release, or acquisition which is recorded in the county where the property is located when the judgment or a certified copy of the judgment is recorded in the official records of the county in which the property is located.
Under the Florida Rules of Civil Procedure, there are two ways by which real property can be conveyed pursuant to a final judgment. The judgment can require a party to execute a conveyance, or the judgment shall have the effect of a duly executed conveyance itself, if properly recorded. See Fla.R.Civ.P. 1.570(c) & (d); Williams v. Shuler, 551 So.2d 585, 586-7 (Fla. 1st DCA 1989).
Additionally, in a dissolution of marriage, a judgment distributing assets shall have the effect of a duly executed instrument of conveyance, if properly recorded. See Fla.Stat. § 61.075(4); Hadden v. Cirelli, 675 So.2d 1003 (Fla. 5th DCA 1996).
In this case, the Final Judgment, which incorporates the Separation Agreement, does not contain terms necessary to provide the Plaintiff with an ownership interest in the Tamiami Trail Property. First, the Final Judgment does not require the Debtor to convey the property, and does not provide a specific period of time within which the property must be conveyed. Second, the Final Judgment does not itself convey title to or vest title in the Plaintiff. Finally, even if Fla.Stat. § 61.075(4) were to apply,1 the Final Judgment does not distribute the property to the Plaintiff.
The Final Judgment describes the Debt- or as the owner of the Tamiami Trail Property, and the provisions of the agreement and judgment are characteristic with continued ownership of the property by the Debtor. The Final Judgment recognizes that the property is subject to the terms of another agreement. It provides *647that the Debtor retains full control over his interest in the property, and the Debt- or receives all income of whatever nature from the property.
The Final Judgment requires the Debt- or to make a payment to the Plaintiff when he sells his interest in the Tamiami Trail Property. If the Debtor sells his interest in the property, he must pay the Plaintiff one-half of the proceeds received by him for his interest. If the property is converted into a condominium, the Plaintiff is entitled to one-half of the net proceeds realized from the sale by the Debtor of the condominium units.
Finally, although the Final Judgment requires the Debtor to convey certain real property to the Plaintiff and requires the Plaintiff to convey certain real property to a corporation owned by the Debtor, it does not require the Debtor to convey the Tam-iami Trail Property or any interest in the Tamiami Trail Property to the Plaintiff. It requires only that the Debtor make payment to the Plaintiff if he sells the property in question. All necessary instruments of conveyance were to be delivered at the time of the execution of the Settlement Agreement, and it appears that no instrument of conveyance was delivered for the Tamiami Trail Property. Additionally, the Final Judgment provides that any monies paid to the former wife shall be deemed payment for “any interest which she may have had in the property,” and not payment for “her interest in the property.”
The Plaintiff contends that she has an interest in the property because the judgment provides that proceeds paid to her “shall be deemed income to the Wife as the sale of a capital asset to the extent of any monies paid to her hereunder, less one-half the cost basis to the Husband.” This provision addresses tax treatment, but in view of the other provisions of the Final Judgment, it does not operate to convey title to or distribute the real estate asset to the Plaintiff.
The Plaintiff has cited four cases to support her argument that the Final Judgment which was recorded served to transfer title to her. In each of those cases, however, the final judgment clearly directed a conveyance. In First Federal Savings & Loan Ass’n of Miami v. Fisher, 60 So.2d 496 (Fla.1952), the agreement between the parties was approved in the final decree of divorce, and in the applicable circumstances the agreement provided that “the defendant’s interest in the house shall be conveyed.... ” In Bauer v. Kaplan, 233 So.2d 430 (Fla. 3d DCA 1970), a warranty deed had been executed and delivered pursuant to a divorce decree which included a property settlement agreement. In In re Flammer, 150 B.R. 474 (Bankr.M.D.Fla.1993), the judgment directed Mr. Flammer to effectuate the appropriate transfers by executing all documents necessary to transfer title on each parcel of real property awarded to his former wife within 30 days from the date of the judgment. Finally, in Paterson v. Brafman, 530 So.2d 499 (Fla. 3d DCA 1988), the former wife was ordered to convey the home to the former husband.
In Hadden v. Cirelli, 675 So.2d 1003 (Fla. 5th DCA 1996), the court states that “courts have recognized certain additional circumstances where the entry of a dissolution judgment conveys title to real property .... A final dissolution judgment can transfer a party’s interest in real property when the language of the judgment specifically operates to transfer an interest or recognizes an existing interest.” Id. at 1005. As the Hadden court concluded in the case before it, and as this Court concludes today, “[t]hese cases are factually distinguishable because the language in the dissolution judgments was self-executing; that is, the language either actually transferred a property interest from one spouse to the other, or declared that one spouse held a superior interest in the property prior to the dissolution of marriage.”
*648In this case,'the judgment did not require the former husband to execute a conveyance of the Tamiami Trail Property, and the judgment itself did not convey title to or distribute the Tamiami Trail Property to the Plaintiff. Accordingly, the Plaintiff has no ownership interest in the Tam-iami Trail Property.
Further, it does not appear that the Plaintiff has a lien on the Tamiami Trail Property. “A judgment establishing liability but not determining or fixing any monetary amount of damages does not constitute a cognizable lien pursuant to Section 55.10, Florida Statutes (1979). It is simply an expectancy.” Perez v. Pearl, 411 So.2d 972 (Fla. 3d DCA 1982). Additionally, the judgment cannot be a lien on the property because over 20 years have passed since the date of its entry, and in Florida “no judgment, order, or decree of any court shall be a lien upon real or personal property within the state after the expiration of 20 years from the date of the entry of such judgment, order or decree.” Fla.Stat. § 55.081. Accordingly, whatever lien might have been created by the Final Judgment expired 20 years from July 12,1973.
The Court concludes that the Plaintiff has no ownership interest in the Tamiami Trail Property and no lien on that property, and the Plaintiffs motion for partial summary judgment should be denied.
Accordingly,
IT IS ORDERED that Janice Gotch’s Motion for Partial Summary Judgment is denied.
. It appears that Fla.Stat. § 61.075(4) may not apply to the case before the Court, since the Final Judgment in this case was entered in 1973 and the statute was enacted in 1994. See Hadden v. Cirelli, 675 So.2d 1003, 1005 (Fla. 5th DCA 1996). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493038/ | FINDINGS OF FACT, CONCLUSIONS OF LAW, AND MEMORANDUM OPINION
PAUL M. GLENN, Bankruptcy Judge.
THIS CASE came before the Court for a final evidentiary hearing on a Complaint Objecting to Discharge filed by the United States Trustee. In the complaint, the U.S. Trustee objects to the entry of a discharge of the Debtor, Leo H. Fieser, Jr., pursuant - to 11 U.S.C. § 727(a)(2)(A). The Debtor answered the Complaint and denied the material allegations.
Background
In September, 1996, the Debtor obtained cash advances in the approximate amount of $148,000 from twenty-two different credit card companies, and used the entire cash proceeds to satisfy the mortgage encumbering his homestead. At the time, *650the Debtor was employed by the United ■ States Postal Service and had an excellent credit history. The Debtor testified that at the time of his actions to obtain the cash advances from his credit cards, he was concerned that he might have cancer. In addition, the Debtor testified that he had two prior heart attacks and cardiac surgeries, in 1985 and 1994. The Debtor testified that he realized that when he obtained cash advances from the credit cards in a certain amount, he was entitled to obtain credit life insurance in an equal amount without a physical examination or health questions. The Debtor contended that his actions in procuring cash proceeds from his credit cards, purchasing the credit life insurance, and satisfying his homestead mortgage, were to provide a homestead free and clear of liens for his wife in the event of his death. The Debtor testified that after he had obtained the cash advances and paid the mortgage, he learned that he did not have a hfe-threatening illness.
The Debtor also testified that when he obtained the cash advances, he was the subject of an internal investigation by his employer. The investigation resulted in disciplinary action against the Debtor which caused the loss of some pay. The Debtor testified that subsequently, as a result of a union grievance, the disciplinary action was overturned and the Debtor received all back pay.
In March, 1997, the Debtor retired from the Postal Service, at age 63, and remains unemployed.
In May, 1997, the Debtor filed this Chapter 7 case. At the time of filing his bankruptcy petition, the Debtor had no material assets other than his homestead, which was then free and clear of any Mens. The'Chapter 7 trustee has filed a Report of No Distribution.
Discussion
The U.S. Trustee requests that the Court deny the Debtor’s discharge pursuant to § 727(a)(2)(A) of the Bankruptcy Code, which provides:
11 U.S.C. § 727. Discharge
(a) The court shall grant the debtor a
discharge, unless—
(2) the debtor, with intent to hinder, delay, or defraud a creditor or an officer of the estate charged with custody of property under this title, has transferred ...
(A) property of the debtor, within one year before the date of the fifing of the petition ...
To prevail in this objection to discharge, the plaintiff must prove four elements: (1) that a transfer occurred; (2) that the property transferred was the property of the Debtor; (3) that the transfer was made within one year of the date of the fifing of the petition; and (4) the Debtor had the intent at the time of the transfer to hinder, delay, or defraud a creditor. See In re Ingersoll, 106 B.R. 287, 292 (Bankr.M.D.Fla.1989), aff'd 124 B.R. 116 (M.D.Fla.1991), and Marine Midland Bank v. Mollon, 160 B.R. 860, 864 (M.D.Fla.1993).
The Debtor acknowledges that the payments of cash which he made to the mortgagee to pay the debt secured by his homestead were transfers of his property and occurred within one year of the fifing of the petition. The sole issue is whether the Debtor had the intent to hinder, delay, or defraud a creditor.
At the trial on the U.S. Trustee’s complaint, the objector Trustee has the burden of proving the objection. Fed.R.Bankr.P. 4005. The objection must be proven by a preponderance of the evidence. See Farouki v. Emirates Bank International, Ltd., 14 F.3d 244 (4th Cir.1994); In re Beaubouef, 966 F.2d 174 (5th Cir.1992); In re Adams, 31 F.3d 389 (6th Cir.1994), cert. denied, 513 U.S. 1111, 115 S.Ct. 903, 130 L.Ed.2d 786 (1995); In re Serafini, 938 F.2d 1156 (10th Cir.1991). Cf. Grogan v. Garner, 498 U.S. 279, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991).
*651Intent must be actual intent, not constructive, but may be ascertained from the totality of the circumstances. Mahon v. Milam, 172 B.R. 371, 374 (Bankr.M.D.Fla.1994), citing Future Time, Inc. v. Yates, 26 B.R. 1006 (Bankr.M.D.Ga.1983), aff'd 712 F.2d 1417 (11th Cir.1983). See also In re Groff, 216 B.R. 883 (Bankr.M.D.Fla.1998). A creditor, or the U.S. Trustee in this instance, is not required to elicit an actual admission of intent from the debtor. See, Ingersoll, supra. The determination of the Debtor’s intent in this matter is analyzed in the context of both his testimony and his actions.
There are many explanations of motivation or intent from debtors as to their pre-petition actions in cases objecting to discharge. Such motivations to account for transfers of assets range from taking care of spouses or ex-spouses financially (See In re Gipe, 157 B.R. 171 (Bankr.M.D.Fla.1993)), to gambling and spending for other nonrecoverable expenses (See In re Reed, 700 F.2d 986, 993 (5th Cir.1983)).
In this case, the Court concludes that the Debtor never intended to repay the credit card debts in full, and that he transferred the funds to satisfy his mortgage with an intent to defraud the credit card issuers.
Evidence in this case includes the Debt- or’s unrefuted actions in obtaining cash advances from twenty-two credit cards and, using that cash to satisfy the mortgage on his exempt homestead. From the testimony, the Court concludes that the Debtor had general knowledge that credit card debts were dischargeable in bankruptcy and that his homestead was exempt. At the time he obtained the cash advances and paid his mortgage, the Debtor was the subject of a disciplinary investigation at his employment. The Debtor retired six months after obtaining the cash advances and paying the mortgage. The Debtor filed the voluntary Chapter 7 petition eight months after obtaining the cash advances and paying the mortgage.
While the Debtor also may have been concerned that he had a terminal illness, the credit life insurance was only one method of payment. The Debtor later learned that he was not terminally ill, and yet did not make arrangements to repay the debt. Rather, he filed the Chapter 7 case and sought to discharge the debt. The Court concludes that the Debtor never intended to pay the credit card debts in full from anything other than ■ possible credit life insurance proceeds. The totality of circumstances reveals Debtor’s intention to hinder, delay, or defraud his creditors at the time of his actions.
Several cases cited by the Debtor in his post-trial memorandum stand for the proposition that “exemption planning” allows a debtor to convert non-exempt assets to exempt assets in the year prior to filing a bankruptcy petition, without losing his discharge. Several cases stand for the proposition that pre-bankruptcy planning is permissible. See In re Barrett, 156 B.R. 529 (N.D.Tex.1993) and In re Carey, 938 F.2d 1073 (10th Cir.1991). However, in such cases, the debtors were converting their currently owned non-exempt property into exempt property. In fact, the court in Carey, supra, distinguished Patricia Carey’s actions of transferring non-exempt assets to exempt assets with the statement that “[s]he did not obtain credit to purchase exempt property.” (In re Carey, 938 F.2d at 1078).
Generally, courts recognize that the conversion of non-exempt assets to exempt assets is not in itself fraud. A court must conclude that such transfer was accomplished with the intent to delay, hinder, or defraud a creditor to justify the denial of the discharge:
In this respect, 11 U.S.C. § 727(a)(2) is absolute: the discharge shall be denied a debtor who has transferred property with intent to defraud his creditors. The legislative history of the exemption section ... does not mean that conversion is never fraudulent as to creditors, but simply that ... mere con*652version is not to be considered fraudulent unless other evidence proves actual intent to defraud creditors. While pre-bankruptcy conversion of nonexempt into exempt assets is frequently motivated by the intent to put those assets beyond the reach of creditors, which is, after all, the function of an exemption, evidence of actual intent to defraud creditors is required to support a finding sufficient to deny a discharge. For example, evidence that the debtor, on the eve of bankruptcy, borrowed money that was then converted into exempt assets would suffice to support a finding of actual intent to defraud. Only if such a finding is made may a discharge be denied.
In re Reed, 700 F.2d 986, 991 (5th Cir.1983). As described above, in this case the Court finds that the Debtor had an intent to defraud the card issuers.
The Debtor also emphasizes the fact that the U.S. Trustee brought this case against the Debtor and that not one of the twenty-two credit card companies which are owed the debts became involved with this case. However, the statute provides that the U.S. Trustee has the authority to object to a debtor’s discharge (11 U.S.C. § 727(c)(1)), even when a creditor may deem it unreasonable to bring an action against a debtor.
Conclusion
The Court finds that Debtor had the intent to hinder, delay, or defraud his creditors at the time of his actions in obtaining cash advances and satisfying the mortgage on his exempt property, that these actions occurred within one year of filing his bankruptcy petition, and that the Debtor’s discharge should be denied pursuant to 11 U.S.C. § 727(a)(2)(A).
The Court will enter a separate Final Judgment in favor of the Plaintiff and against the Debtor, Leo H. Fieser, Jr. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493039/ | ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon the plaintiffs Motion for Summary Judgment, filed on April 27, 2000, to which the defendant debtor responded on May 5, 2000. The debtor disputes none of the facts of this case but argues that they do not fall within any of the nondisehargeability provisions pleaded by the United States.
While the debtor was a supply technician with the Arkansas Army National Guard, the Office of the Inspector General and the Federal Bureau of Investigation conducted an investigation regarding misuse of government property. During the investigation, not only was military equipment and property discovered at the debt- or’s farm, the use of eighteen semi-trailers were required to remove the property. On February 25, 1993, the debtor pleaded guilty to charges of theft of government property in violation of 18 U.S.C. § 641. Specifically, the debtor pleaded guilty to the charge that he,
did unlawfully take and knowingly convert1 to his own use military property and equipment of the United States and the Arkansas National Guard, removing same to his personal residence.
In 1993, the Department of the Army found that the debtor was liable to the United States in the amount of $158,-864.00. When the United States sought a judgment from the United States District Court for the obligation, the defendant filed his petition under chapter 7 of the Bankruptcy Code.
The complaint in this action seeks a determination that the obligation owed to the United States is nondischargeable pursuant to section 523(a)(2), (a)(4), and (a)(6). Since the uncontroverted facts of this case fall so clearly within the ambit of section 523(a)(4) and (a)(6),2 the Court does not address the causes of action under section 523(a)(2). The Bankruptcy Code provides in pertinent part:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt-
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.* * *
(6) for willful and malicious injury by the debtor to another entity or to the property of another entity. * * *
11 U.S.C. § 523(a)(4), (a)(6).
Collateral estoppel applies to preclude relitigation of issues arising in dis-*807chargeability determinations. See Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991)(“We now clarify that collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).”); Johnson v. Miera (In re Miera), 926 F.2d 741 (8th Cir.1991).
In order to apply collateral estop-pel, four elements must be present:
(1) the issue sought to be precluded must be the same as that involved in the prior action;
(2) the issue must have been litigated in the prior action;
(3) the issue must have been determined by a valid and final judgment; and
(4) the determination must have been essential to the prior judgment.
Miera, 926 F.2d at 743 (8th Cir.1991).
There is no question that each of these elements is met as to both paragraphs 523(a)(4) and (a)(6). The defendant pleaded guilty to theft of government property and was accordingly convicted of that crime. Further, the elements of that conviction and those under section 524(a)(4) are virtually identical. Under Arkansas law, larceny is the felonious taking of goods or things personal of another from any place without consent, with the felonious intent to permanently deprive the owner. Ackerson v. United States, 185 F.2d 485 (8th Cir.1950); Blackshare v. State, 94 Ark. 548, 128 S.W. 549 (1910); Bridges v. State, 257 Ark. 527, 519 S.W.2d 756 (1975) (discussing and distinguishing embezzlement and larceny). The modern Arkansas provision governing larceny, conversion, embezzlement and theft generally,3 provides:
A person commits theft of property if he:
(1) Knowingly takes or exercises unauthorized control over, or makes an unauthorized transfer of an interest in, the property of another person, with the purpose of depriving the owner thereof; or
(2) Knowingly obtains the property of another person, by deception or by threat, with the purpose of depriving the owner thereof.
Ark.Code Ann. § 5-36-103 (Mitchie 1997). Admitting to the charge of taking property of the United States in violation of its rights falls clearly within the ambit of section 523(a)(4), see In re Jacobs, 243 B.R. 836 (Bankr.M.D.Fla.2000), and a judgment of conviction having been entered as to that charge, the debtor is precluded from relitigating the issue.4
Similarly, the elements of the admitted crime also fall within the ambit of section 523(a)(6) for willful and malicious injury to the property of another. Indeed, damages arising from a debtor’s fraud, theft, or conversion have been held to constitute a willful and malicious injury under section 523(a)(6). Mercantile Bank of Arkansas v. Speers (In re Speers), 244 B.R. 142 (Bankr.E.D.Ark.2000)(Mixon, J.)(“In misappropriating the sale proceeds in which he had no legal or equitable interest, the Debtor acted with malice in harming the Bank’s property just as if he were a bank robber or an embezzler.”); Chrysler Credit Corp. v. Perry Chrysler Plymouth, 783 F.2d 480, 486 (5th Cir.1986). Having been convicted of theft, the debt is nondis-chargeable pursuant to section 523(a)(6). See Sunco Sales, Inc. v. Latch (In re Latch), 820 F.2d 1163, 1166 & n. 1 (11th Cir.1987)(“It is clear, then, that the definition of willful and malicious under the bankruptcy statute is fairly covered by the *808requirement of criminal intent in the civil theft statute.”).
ORDERED that the United States Motion for Summary Judgment, filed on April 27, 2000, is granted. A separate judgment shall be entered.
IT IS SO ORDERED.
. A conversion is the exercise of dominion over properly in violation of the rights of the owner or person entitled to possession. Quality Motors v. Hays, 216 Ark. 264, 225 S.W.2d 326 (1949).
. In any event, it appears that under Arkansas law, a false pretense is deemed to be larceny. Central Sur. Fire Corp. v. Williams, 213 Ark. 600, 211 S.W.2d 891 (1948). Thus, it appears that if larceny exists, so does false pretense.
. The common law and statutory offenses relating to misappropriations of property or services have been consolidated into the single offense of theft under Arkansas law. Mercantile Bank of Arkansas v. Speers (In re Speers), 244 B.R. 142, 145 (Bankr.E.D.Ark.2000)(Mixon, X).
. This Court also finds that, even were collateral estoppel not applied, the plaintiffs demonstrated as a factual matter, and the defendant freely, admits, that he stole property of the United States. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493040/ | ORDER
RALPH B. KIRSCHER, Bankruptcy Judge.
In this adversary proceeding the Plaintiff, Patricia Trunnels (“Patricia”), seeks an exception to the discharge of the Defendants/Debtors William M. Schmidt (“Bill”) and Gareth G. Schmidt (“Gareth”), in the sum of $714,014.85 for fraud or defalcation under 11 U.S.C. § 523(a)(4). Gareth served as Trustee of the Gagle Family Trust (the “Trust”), a trust established by Roy H. and Myrtle Gagle, the parents of Patricia, Gareth and Janet Clifton, who are sisters. For the reasons set forth below, Judgment is entered for Gareth and Bill based on the Trust provision that provides that the Trustors “may at any time withdraw any properties of the trust”, and on Montana’s Trust Code; Patricia’s Complaint is dismissed.
Patricia filed her Complaint on August 9, 1999, seeking exception from Debtors’ discharge under § 523(a)(4)1 of $148,560.97 plus interest of $565,453.88. Bill and Gareth filed their answer on January 7, 2000, denying any wrongdoing or that they owe Patricia any debt arising from the Trust. After due notice, trial of this cause was held at Butte on February 25, 2000. Patricia appeared represented by counsel David J. Wing (‘Wing”), and testified. Defendants appeared represented by attorney Gregory W. Duncan (“Duncan”), and both Bill and Gareth testified. Also testifying were Patricia’s daughter Pam *16Gosney (“Pam”)2, Kermit Mueller (“Mueller”), Thomas Clifton (“Tom”), and Janet Clifton (“Janet”) who is Patricia’s and Gareth’s sister. Wing stipulated to the admission of all of Defendants’ exhibits, Exhibits (“Ex.”) A through N, inclusive. In addition to Defendants’ exhibits, Plaintiffs’ Exhibits (“Ex.”) 1, 2, 3, 5, 9, 16, 18, and 42 were admitted. Some of Plaintiffs’ and Defendants’ Exhibits are duplicative and reference in this Order to an exhibit may be to either or both exhibits. At the close of the evidence the Court granted the parties ten (10) days to submit simultaneous briefs, and took the matter under advisement.
Patricia’s brief was filed on March 6, 2000. Defendants’ brief was filed late, on March 13, 2000, prompting Patricia to file a motion to strike Defendants’ brief. Defendants responded by filing a motion for extension of time3. The parties’ post-trial motions have no effect in deciding the merits of this matter, and both are denied4.
This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157. This is a core proceeding to determine dischargeability of particular debts under 28 U.S.C. § 157(b)(2)(I) and § 523(a)(4). This Order contains the Court’s findings of fact and conclusions of law pursuant to F.R.B.P. 7052.
FACTS
Roy Gagle (“Roy”) and Myrtle Gagle (“Myrtle”) (together the “Gagles”) were the parents of Patricia, Gareth and Janet. Roy was employed by the Montana Highway Department as a road and materials engineer. The Gagles lived in a home in Helena during the 1960’s, where they acquired real and personal property assets, including unimproved city lots, antiques, artwork, and savings. The Gagles were interested in avoiding the expenses of probate of their estate. In addition, they wished to ensure that their three daughters receive equal shares of the assets remaining after their deaths. Furthermore, they were interested in ensuring that they would have a place to live with family members when they could no longer completely care for themselves, without losing their independence or becoming a burden to their family.
To accomplish these purposes, the Ga-gles established the Gagle Family Trust by executing a Trust Indenture, Ex. 1, on May 4, 1964. Ex. 2 is Gagles’ attorney Peter Meloy’s description of Gagles’ estate plan dated April 8, 1964, which was sent to all three daughters. Ex. 2 explains:
(1) All of the properties owned or to be owned by Roy and Mrs. Gagle shall be *17kept for their use and benefit so long as either shall live.
(2) The properties will be conveyed presently to [Gareth] as Trustee to be held until the death of the survivor of Roy and Mrs. Gagle and then to be segregated into three equal portions (except that Roy and Mrs. Gagle shall leave a list as to personal items to go to their children), one for each of their children.
(3) On the death of the survivor of Roy and Myrtle the trust properties shall be distributed equally to you three children, or your share shall go to your children if you be deceased.
(4) Roy and Myrtle shall use a joint bank account with Gareth being named on the account.
Gagles established the Trust the following month in May of 1964. Among the terms of Ex. 1, Section II is the dispositive provision for purposes of this adversary proceeding. Section II states the Trust is revocable at any time by either Roy or Myrtle and further provides: “The Trus-tors, or either of them, may at any time withdraw any properties of the trust and with the acceptance of the Trustee, may add properties to the trust.” (Emphasis added). The Court finds that this provision effectively grants the Trustors Roy and Myrtle, during their joint and individual lives, virtually complete control over the disposition of the Trust property5.
Section III provides: “All of the income from the trust properties shall be paid to the Trustors or the survivor of them. In the event of the incapacity of the Trustors or either of them, the Trustee may make payments to or for the benefit of such incapacitated Trustor.” Gareth was named the Trustee, but upon the death of the surviving Trustor (Myrtle), Patricia and Janet were included as Trustees. Ex. 1, Section IV.A. That section also provides that if Gareth is unable or unwilling to serve as Trustee, then Bill would replace her.
As Trustee, Gareth had legal title to all properties held by the Trustee, and had authority to pay Trust expenses from Trust property. Section VIII provides that the Trust be construed under Montana law, and that Gareth “shall receive reasonable compensation for services to be paid out of income from the trust properties.” Ex. 1.
Roy suffered a stroke in 1965 which left him partially paralyzed. He retired from the Highway Department in 1966. Roy continued to live with Myrtle in their Helena home until he died in 1973. During this period Roy and Myrtle utilized some of their unimproved real property for purposes of arranging their future affairs. On February 3, 1967, they drafted and signed Ex. 36, a letter to Patricia, Gareth, and Janet, to explain their intentions. With respect to certain unimproved real property Roy and Myrtle owned, Ex. 3 provides in pertinent part:
We felt they [the “Lots on the Hill”] were there, maybe to help in our “old age”! You will all remember 4 or 5 years ago we with the help of Peter J. Meloy, attorney ... set up a trust arrangement. This was done to gather up loose ends and to organize our “Estate” to avoid usual probate procedures, etc. This made Gerry “trustee”. You’ll remember the letter you got at the time ... It in no way deprives any of the 3 of *18you equal shares of what is left after we are gone. Neither does it deprive us of the right to do as we please with any of our assets while we are here.
An opportunity has arrived for us to take advantage of some of the lots... it is as follows: We, Daddy Roy & I want it understood we want and intend to live here at 1725-5th as long as we are together ... which we intend to be for a long time. However, in the event one of us is left or if it beqame impossible to stay here we would like to know we would have a comfortable loving place to finish out the years left to us. With this is mind we are planning a way for the lots to help us now. Patty & Janet both know Gerry & Bill have been planning an addition to their home at 1029 State. But after much thinking they found when they have added 3 or 4 thousand to the house they will still have only 3 bedrooms, 1 bath and nowhere for “Old Fathers and Mothers”. The idea has grown among us all. If we could exchange a few lots or several lots, for a well planned separate “apartment” for the “Last Leaf Ga-gle”.. .we could look forward to a separate, dignified way to “live with a Daughter”. Not having to be in each others hair. To this end we have given permission, yes urged, Kermit Mueller, Bill Schmidt and Gareth Gagle Schmidt.. .(Gareth to be arbiter)... to Sell, Price to be set by the above 3... enough of the lots to “buy” such an apartment for us. We have placed no particular restrictions on how this will be handled in detail (being glad of the shifted responsibility of making the lots do the most for us). We trust to their love for us and their understanding of our needs to work out satisfaction all around. Bill has agreed to keep careful account of all transactions involving the lots.. .this to explain any questions that may arise in the future. At the proper time Kermit will build for Bill and Gerry, on a lot already picked out, a home. In the “corner” of this home will be one for us that we hope, never to have to use. This we feel is the very best insurance we can have. This all is with my.. .Myrtle Gagle’s and Roy Ga-gle’s approval' — (names signed by them individually).
Ex. 3 (Emphasis added).
On May 28,1968, Roy and Myrtle signed Ex. G, a statement by which they both stated their intention to give to Bill and Gareth several lots of real property in the Corbin Addition to the City of Helena, plus cash in the amount of $7,872.23 as gifts and to file gift tax returns for such gifts. Ex. G. Exhibits E and F are gift tax returns for the tax year 1968 showing these gifts in the total amount of $10,-972.23.
Between 1968 and 1970, Mueller built a home for Bill and Gareth on real property given to them by Roy and Myrtle located at 424 Tamarack in Helena. Additional improvements on this property included the apartment envisioned by Roy and Myrtle in Ex. 3. Myrtle was consulted during the course of construction of the apartment. The cost of the apartment construction was slightly more than $20,000. Bill and Gareth moved into the house on Tamarack upon completion, but despite completion of the attached apartment Myrtle continued to live in her own house for eight years after Roy’s death. Myrtle occasionally stayed in the Tamarack apartment during holidays, but preferred to live in her own home, wanting to not be a burden until absolutely necessary.
In addition to gifts to Bill and Gareth, it is not disputed that Myrtle made numerous gifts throughout her life out of Trust property to other family members. For example, on September 30, 1973, Myrtle gifted to Tom and Janet Clifton the sum of $15,000 described as “cancellation of account receivable for funds advanced to” the Cliftons. Ex. J. That gift was to enable the Cliftons to purchase a lot on which to build their house in Colorado. The Cliftons built Myrtle an apartment in *19their house like the apartment in Bill and Gareth’s house. Tom testified that Myrtle never claimed an ownership interest in her apartment in their Colorado house, although she knew she could live in that apartment if she chose.
Bill worked as a Certified Public Accountant (“CPA”) in Helena at Galusha, Higgins & Galusha until he retired as president in the early 1980’s. As a CPA he had clients located near Yellowstone Park. After retirement Bill took a position as a stockbroker with D.A. Davidson in Bozeman, Montana. •
As Schmidts contemplated moving to Bozeman, Myrtle did not want to be left behind without family in Helena. She also wished to spend more time with her granddaughter Pam, Patricia’s daughter, with whom she was very close. Pam owned real property and a home near Bozeman in the Gallatin Canyon, near where Myrtle was raised on a farm. Schmidts had been involved with the planning of Pam’s Galla-tin Canyon house, and they discussed the idea of moving to the Gallatin Canyon with Pam before raising the idea with Myrtle. For her part, Pam was interested in obtaining Myrtle’s collection of Wedgwood china. Pam and her husband offered to exchange some of their Gallatin Canyon property for Myrtle’s Wedgwood collection, and Myrtle agreed.
Ex. 5 is a letter from Bill explaining the exchange. Pam testified her Gallatin Canyon property had a value of $25,000. On March 24, 1981, Myrtle signed a gift tax return, Ex. K, describing a gift of the Wedgewood collection valued at $21,961.50 to Pam as of September 30, 19807. Myrtle received Pam’s Gallatin Canyon property and gifted it to Bill and Gareth in 1981, valued at $25,000.00, together with a gift of $28,811.92 in cash. Ex. L is a gift tax return signed by Myrtle on April 14, 1982, evidencing these gifts. After Bill earned his stockbroker’s license, Mueller built the Schmidts their home on the Gallatin Canyon property, including a separate apartment for Myrtle. Bill testified that he and Gareth could not afford to build the Galla-tin Canyon home on their own, and that it was designed so that they could take care of Myrtle, who had become the driving force behind the move to the Gallatin Canyon. Bill and Gareth withdrew over $80,-000 out of their retirement and profit sharing funds in 1982 to pay for the Gallatin Canyon home.
Bill and Gareth had discussed Myrtle’s desire to live with them as she became more dependent on Gareth for her transportation and care. Myrtle wanted to “put her house together” with the Schmidts, to avoid being a burden and to retain her independence. In return for Schmidts’ agreement to combine their homes and care for her, Myrtle decided to use her Trust property to contribute to the costs of the homes and apartments, and in that context Myrtle gifted land, cash and debt forgiveness to the Schmidts and Cliftons. As Myrtle stated to her daughters in 1967, she was glad to shift the responsibility for making her property do the most for her. Ex. 3. Undoubtedly, Myrtle’s desire to be free from responsibility of ownership was reinforced after her attorney sent her Ex. 9 dated May 28, 1982, explaining two quit claim deeds and an assignment of contract proceeds for the sale of her home in Helena8.
Myrtle sold her Helena house to Rick Hill for $65,000 by contract for deed in preparation for her move to Gallatin Canyon. Myrtle contributed much of the contract proceeds to refinance Schmidts’ Gallatin Canyon home and reduce their payments. Ex. N is a gift tax return *20signed by Myrtle on March 7, 1983, showing she gifted a $55,000 contract receivable from Rick Hill and an additional $5,082.82 in cash to Bill and Gareth in January of 1982. All of that gift9 went into the Gallatin Canyon home and apartment.
Myrtle’s apartment in the Gallatin Canyon home had separate phone and utility meters, and a separate kitchen. While living in the Gallatin Canyon home with Bill and Gareth, Myrtle enjoyed relatively good health10, although she became diabetic. She hired a cleaning lady, but did much of her own housework. Myrtle sometimes dined with the Debtors, but she would regularly write Gareth checks for food. Other times Myrtle would prepare her own meals in her own kitchen, or Gareth would take her leftovers. Gareth or Pam would provide Myrtle with transportation when she needed to go to town. Gareth taught Myrtle how to drive during this period so she could be more independent.
Pam testified that Myrtle knew that she was not listed as an owner of the Gallatin Canyon property on the deed, and approved because she did not want the responsibility or liability of ownership. In 1984, Pam moved away from Gallatin Canyon, but retained her property there.
In 1987, Schmidts and Myrtle moved to a house on Heritage Drive in Bozeman, Montana and put the Gallatin Canyon home on the market. The Gallatin Canyon home sold for $250,000.00, of which Schmidts received $72,023.62 in cash on October 1, 1987. Ex. 42. In Bozeman, Myrtle again had a separate living area in the basement. She paid $7,000 in Trust funds to have her own kitchen installed and for other remodeling. She continued to write monthly checks to the Debtors on the Trust account for living expenses, utility bills, food, and transportation, in amounts generally running from $345 to $500 per month. She lived with Bill and Gareth until 1990. During this period Patricia would visit Myrtle two or three times each year when she had 3-day weekends.
Gareth developed breast cancer, and could no longer care for Myrtle. After Myrtle, Bill, Gareth and Patricia spent a Christmas together on the West Coast visiting family members, Myrtle decided to move closer to Patricia. She moved to Vancouver, Washington in December of 1990. She had planned to live there with Patricia, but became ill with shingles and moved into the Cascade Inn Retirement Center (“Cascade Inn”) in Vancouver, a retirement facility with several levels of care. Bill and Gareth moved to Vancouver to be near Myrtle and to help with her care as the need arose. At the Cascade Inn Myrtle lived in a 1 bedroom unit with a kitchen for six years until she died on August 3,1996.
Upon Myrtle’s death, Patricia and Janet became co-Trustees with Gareth pursuant to the terms of Ex. 1. Gareth asked Janet’s husband Tom, who is also a CPA, to prepare an accounting for the Trust. Tom testified that he examined the Trust accounts and traced the Trust’s assets and proceeds. Tom concluded that all Trust property was accounted for, and nothing was missing.
All three Trustees: Gareth, Janet and Patricia11, met at Schmidts’ house in Vancouver shortly after Myrtle’s death, and executed Ex. 16, dated August 10, 1996. Ex. 16 states that Bill provided the Trustees with a report showing the Trust balance sheet and income and expense statement as of Myrtle’s death. Ex. 16 *21disposes of certain properties, including loans owing to the Trust by family members. One such loan was an installment note owed by Bill and Gareth in the sum of $15,419.16. Ex. 16 states: “Patricia and Janet decided that it was their wish to cancel their portion of this obligation in recognition of the many years of Gareth’s care for their Mother, following Roy’s death in 1973, both in Helena and the years in Gallatin Canyon & Bozeman and the subsequent move to Vancouver.” Remaining unclaimed antiques and knickknacks were relinquished to Patricia and Pam. Ex. 16 closes by stating, directly above Patricia’s signature: “The arrangements as set forth ... above are acceptable to us as part of our responsibilities as Trustees of the Roy and Myrtle Gagle Revocable Trust dated 5/4/64.”
Shortly after Ex. 16 was signed by all three sisters, Patricia questioned the accounting of Trust properties. Patricia remembered Roy telling her that the estate would have substantial assets which all three (3) sisters would share equally after he and Myrtle were gone. While Patricia knew of the Trust money and property which went into the Gallatin Canyon house, she had no idea of the amount of the gifts. Roy and Myrtle had told Bill, Gareth and Janet not to share information on their gifts with other family members. Patricia believes that all the Trust property which went into the apartments in Bill and Gareth’s houses remained Trust property.
In a moment of pique, Bill responded to Patricia’s questions with Ex. 18, a comparison of what Bill and Gareth considered was the value of care they provided for Myrtle for the period from 1982 to 1990 ($151,200.00) with the value of the gifts Myrtle gave to Gareth and Bill ($120,-895.26), and Bill’s estimate of the value of the 32 years of accounting work he provided to Roy and Myrtle without pay ($12,-800). Ex. 18 places the value of care provided to Gareth for 108 months at the rate of $1,400.00 per month. It concludes by stating the Trust owes Bill and Gareth a balance of $43,104.74. However, both Bill and Gareth testified that they did not actually charge Myrtle for their care, and did not expect payment because of the quid pro quo understanding they had with Myrtle that they would care for her in return for her gifts of Trust property in contribution to their homes in Helena, Gal-latin Canyon and Bozeman.
Patricia sued Bill and Gareth in Case No. 97-2-01324-4 in Superior Court of Washington for Clark County, in Patricia Trunnels v. William and Gareth Schmidt (the “Washington litigation”). She filed her complaint for accounting and removal of trustee on March 25, 1997, asking that a constructive trust be imposed upon all of Schmidts’ assets until the extent of Trust property is determined. Patricia also requested she be appointed Trustee of the Trust and that all prior Trustees be removed12.
Bill and Gareth opposed Patricia’s lawsuit, and incurred over $80,000 in legal fees defending against it. After the superior court announced its intention to enter summary judgment for Patricia, Bill and Gareth filed their Chapter 7 petition on May 17, 1999 in the U.S. Bankruptcy Court for the District of Montana. Their address as listed on their petition is 128 Humbolt Loop, in Helena, Montana.
Debtors listed Patricia on Schedule F with two unsecured claims, one in the sum of $1.00 and the other in the sum of $679,-201.00 from the Washington litigation. On Schedule B they list $1.00 value for Gareth’s lé interest as beneficiary of the Trust.
Patricia filed two motions to modify stay in the Schmidts’ Chapter 7 case: One motion requested the authority to proceed in the Washington litigation to remove Debtors as Trustees of the Trust, which was granted13; and the second motion request*22ed the turnover of Trust property, which was granted to the extent such property was in the Debtors’ possession or control. Patricia filed her dischargeability complaint in this adversary proceeding on August 9, 1999. A Discharge of Debtors was entered on August 10,1999.
DISCUSSION
Patricia’s Complaint seeks exception from discharge pursuant to § 523(a)(4), alleging Bill and Gareth violated their fiduciary duties and committed fraud, defalcation, undue influence and coercion14 in taking Trust assets. Bill and Gareth contend that Patricia failed to prove defalcation or wrongdoing by them, and that Myrtle’s gifts to them were part of their quid pro quo with Myrtle to provide her housing near family in her later years according to her wishes. This family dispute arose because less Trust property remained after Myrtle’s death than Patricia expected, given Myrtle’s gifts of Trust property to Bill and Gareth and the Clif-tons15.
Exceptions to discharge should be strictly construed against an objecting creditor and in favor of a debtor in order to effectuate the fresh start policy afforded by the Bankruptcy Code. Moore v. United States Department of Education, et al, 17 Mont. B.R. 106, 108 (Bankr.Mont.1998); In re Klapp, 706 F.2d 998, 999 (9th Cir.1988). The standard of proof for the dischargeability exceptions under § 523(a) is by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 661, 112 L.Ed.2d 755 (1991); Donath v. Sage, 15 Mont. B.R. 40, 43 (Bankr.Mont.1995).
Section 523(a)(4) excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” Nondischargeability of liability under Section 523(a)(4) requires a determination of (1) the existence of a fiduciary relationship; and (2) acts of defalcation. F.D.I.C. v. Jackson, 133 F.3d 694, 702 (9th Cir.1998); In re Chavez, 140 B.R. 413, 422 (Bankr.W.D.Tex.1992). The facts establish a fiduciary relationship between Gareth and Roy and Myrtle, during their joint and individual lives. A fiduciary relationship occurred between Gareth, Patricia and Janet upon Myrtle’s death, as she was the survivor trustor of this revocable trust. Ex. 1 establishes that Gareth was sole Trustee of the Trust, and Myrtle, as the person holding the power to revoke, held all rights afforded a beneficiary. Montana Code Annotated (“Mont.Code Ann.”) § 72-33-701. Patricia’s rights as a beneficiary arose at Myrtle’s death. However, Bill was not named a trustee of the Trust by Ex. 1 except in the event Gareth was unable or unwilling to serve. No evidence establishes Bill’s role as a trustee or fiduciary. The evidence does establish that Bill provided financial and accounting services to Gareth, Myrtle and Roy.
The existence of a fiduciary relationship is determined under federal law, but with reference to state law. F.D.I.C. v. Jackson, 133 F.3d at 703; Lewis v. Scott, 97 F.3d 1182, 1185 (9th Cir.1996). *23Contentions are made that the Washington litigation may have either a res judicata effect (claims preclusion) or a collateral estoppel effect (issue preclusion) on whether Bill was a fiduciary. Neither doctrine applies in this proceeding given the status of the Washington litigation at the time Schmidts filed their bankruptcy case. No orders, findings, conclusions or judgments are before the Court as exhibits upon which either doctrine could be applied. See generally Robinson v. First Wyoming Bank, N.A., 274 Mont. 307, 318, 909 P.2d 689, 696 (1995)(“Collateral estoppel bars an action ... when: (1) the issue presented in a later action has been decided in a prior adjudication; (2) a final judgment in the action was issued; and (3) the party against whom collateral estoppel is asserted was a party to the previous litigation. [HKM Assoc. v. Northwest Pipe Fittings, 272 Mont. 187, 192, 900 P.2d 302, 305 (1995) ] (citing Berlin v. Boedecker, 268 Mont. 444, 453, 887 P.2d 1180, 1185 (1994)).”); and Raymond v. Pickering (In re Pickering), 14 Mont. B.R. 282, 284-86, 182 B.R. 268, 270-72 (Bankr.Mont.1995)(This case criticizes the decision in Berlin v. Boedecker).
Patricia’s Washington litigation simply did not reach a “stage at which issue preclusion is appropriate”. Pickering, 14 Mont. B.R. at 285-86, 182 B.R. at 271 (quoting Restatement (Second) of Judgments, § 27, p. 262 (1982)). Therefore, neither res judicata nor collateral estoppel applies to any of the issues in this case, including whether Bill is a fiduciary.
Patricia does not cite any Montana law under which Bill becomes a fiduciary to the Trustors or beneficiaries. He was married to the Trustee, Gareth, and if she was unwilling or unable to serve as Trustee he was to replace her. Ex. 1, part IV.A. Gareth’s unwillingness or inability to serve did not occur. Bill provided accounting services to Roy and Myrtle, in-eluding preparing their tax returns, without compensation for 34 years. However, Patricia cites no Montana law making Bill a fiduciary for providing gratuitous accounting services and advice. Montana law regulates public accountants at Mont. Code Ann. § 37-50-101, et seq. However, the Court can find no section making Bill a fiduciary by virtue of his gratuitous accounting services and advice provided to Roy, Myrtle and Gareth, which could be deemed equivalent to the Arizona state law making a corporate director a fiduciary of the corporation16 in F.D.I.C. v. Jackson, 133 F.3d at 703, or to the California law imposing fiduciary obligations on a real estate broker who collected rents in that capacity in In re Niles, 106 F.3d 1456, 1459 (9th Cir.1997).
For purposes of § 523(a)(4), any fiduciary relationship must arise from an express or technical trust that was imposed before and without reference to wrongdoing that allegedly caused the debt. Niles, 106 F.3d at 1459; Lewis v. Scott, 97 F.3d at 1185 (citing Ragsdale v. Haller, 780 F.2d 794, 796 (9th Cir.1986)). Patricia failed to establish that a fiduciary relationship between Bill, Roy, Myrtle or the beneficiaries arose from an express or technical trust that was imposed before and without reference to the gift transfers that form the basis of Patricia’s defalcation claim. Indeed, Patricia’s argument that Bill is a fiduciary is based entirely by reference to his gratuitous accounting services, advice, and preparation of gift tax returns to Roy, Myrtle and Gareth. Under Lewis and Ragsdale v. Haller the trust must arise without reference to such “wrongdoing”. The Court concludes that Patricia failed to prove the existence of a fiduciary relationship between Bill and the Trustors or beneficiaries which is the first requirement under § 523(a)(4). F.D.I.C. v. Jackson, 133 F.3d at 702. Having failed to establish the first F.D.I.C. v. Jackson *24requirement, Patricia’s § 523(a)(4) non-dischargability complaint against Bill must be dismissed for failure to establish that he was a fiduciary.
Turning to Gareth, she is a fiduciary as Trustee under Ex. 1. Patricia satisfied her burden of proof that Gareth was a fiduciary of the Trust to whom funds had been entrusted; the burden shifts to Gareth to render a full accounting for all funds received by her for Myrtle’s benefit and then for the beneficiaries after Myrtle’s death. Niles, 106 F.3d at 1461-62.
In the Ninth Circuit, defalcation for purposes of § 523(a)(4) includes any behavior by a fiduciary, including innocent, negligent, and intentional defaults of fiduciary duty resulting in failure to provide a complete accounting. F.D.I.C. v. Jackson, 133 F.3d at 703; Lewis, 97 F.3d at 1186; Lewis v. Short (In re Short), 818 F.2d 693, 694 (9th Cir.1987); Woodworking Enters., Inc. v. Baird (In re Baird), 114 B.R. 198, 204 (9th Cir. BAP 1990). Lewis held that “[a]n individual may be liable for defalcation without having the intent to defraud.” F.D.I.C. v. Jackson, 133 F.3d at 703, Lewis, 97 F.3d at 1187; see also Kaufman v. Tallant (In re Tallant), 207 B.R. 923, 929 (Bankr.E.D.Cal.1997) (“If the relationship between the debtor and the creditor falls within this [fiduciary] provision, then the slightest defalcation will render the resulting debt nondischargeable.” (citing Lewis, 97 F.3d at 1186)); see also In re Briles, 228 B.R. 462, 467 (Bkrtcy.S.D.Cal. 1998).
The Court concludes that Gareth satisfied her burden of accounting for all Trust properties. Ex. 16, 18, E, F, G, H, I, J, K, L, and N list and account for Trust properties gifted by Roy and/or Myrtle to her children and grandchildren. In addition to Bill’s thorough and complete accounting shown by those exhibits, Gareth asked Tom Clifton, who is also a CPA, to prepare an accounting for the Trust. Tom testified that he reviewed the Trust records and traced Trust assets and proceeds, including the gift tax returns: Tom concluded that a full accounting of the Trust property was established through the Trust records and nothing was missing. Patricia offered no expert or accounting testimony to the contrary. No dispute exists that Myrtle spent Trust assets on her living expenses, gifts and loans. Therefore, based on the exhibits and Bill’s and Tom’s testimony, which this Court finds credible, the Court concludes that Gareth has satisfied her duty to provide a complete accounting of all Trust property received by her as Trustee. F.D.I.C. v. Jackson, 133 F.3d at 703; Lewis, 97 F.3d at 1187. Indeed, Pam and Patricia demonstrated in their testimony that the Schmidts provided them with gift tax returns and reports from which a full accounting of the gifts of Trust property by Myrtle was readily discernible17.
The essence of this family dispute is over the propriety and size of Myrtle’s gifts of Trust property. Patricia feels that her share of the Trust assets were depleted. Roy had told her that substantial assets would be remaining in the Trust for all three sisters to share equally. Undoubtedly, Patricia was surprised and disappointed to learn that Myrtle had spent a large portion of Trust assets, including gifts to Bill and Gareth for the construction of her living apartments in Helena, Gallatin Canyon and Bozeman. However, Ex. 1 gave Myrtle the right “at any time to withdraw any properties” of the Trust. The fact that Myrtle withdrew and gifted Trust property to Bill and Gareth, as well as to Janet, Tom and other family members, does not constitute defalcation or bad faith by Gareth.
Moreover, the Trust Code, contained in Title 72 of the Montana Code Annotated (“Mont.Code Ann.”), chapters 33 through *2536, provides several provisions germane to this Court’s consideration of the issues submitted by the parties:
Except to the extent that the trust instrument otherwise provides or when the joint action of the trustor and all beneficiaries is required, during the time that the person holding the power to revoke the trust is competent:
(1) the person holding the power to revoke, and not the beneficiary, has the rights afforded beneficiaries under chapters 33 through 36;
(2) the duties of the trustee are owed to the person holding the power to revoke.
Mont.Gode Ann. § 72-33-701.
Section 72-34-513 of the Trust Code further provides, in pertinent part:
... a trustee of a revocable trust is not liable to a beneficiary for any act performed or omitted pursuant to written directions from the person holding the power to revoke made when the person is competent, including a person to whom the power to direct the trustee is delegated.
Section 72-34-514 provides:
(1) Except as provided in subsections (2) and (3), a beneficiary may not hold the trustee liable for an act or omission of the trustee as a breach of trust if the beneficiary consented to the act or omission before or at the time of the act or omission.
(2) The consent of the beneficiary does not preclude the beneficiary from holding the trustee liable for a breach of trust in any of the following circumstances:
(a) whenever the beneficiary was under an incapacity at the time of the consent or of the act or omission;
(b) whenever the beneficiary at the time consent was given did not know of his rights and of the material facts that the trustee knew or should have known and that the trustee did not reasonably believe that the beneficiary knew; or
(c)whenever the consent of the beneficiary was induced by improper conduct of the trustee.
(3)Whenever the trustee has an interest in the transaction adverse to the interest of the beneficiary, the consent of the beneficiary does not preclude the beneficiary from holding the trustee liable for a breach of trust under any of the circumstances described in subsection (2) or whenever the transaction to which the beneficiary consented was not fair and reasonable to the beneficiary.
One additional statutory provision provides:
(1) Except as provided in subsection (2), if the trustee, in breach of trust, enters into a transaction that the beneficiary may at his option reject or affirm, and the beneficiary affirms the transaction, the beneficiary may not thereafter reject it and. hold the trustee liable for any loss occurring after the trustee entered into the transaction.
(2) The affirmance of a transaction by the beneficiary does not preclude the beneficiary from holding a trustee liable for a breach of trust if, at the time of the affirmance, any of the following circumstances existed:
(a) the beneficiary was under an incapacity;
(b) the beneficiary did not know of his rights and of the material facts:
(i) that the trustee knew or reasonably should have known; and
(ii) that the trustee did not reasonably believe that the beneficiary knew;
(c) the affirmance was induced by improper conduct of the trustee; or
(d) the transaction involved a bargain with the trustee that was not fair and reasonable.
In reviewing the record, the transactions and alleged breaches of fiduciary duties occurred during Myrtle’s lifetime while she held the powers to revoke the trust, to withdraw assets and to add assets. Conse*26quently, Myrtle, under Mont. Code Ann. § 72-33-701 and as the successor trustor, in this revocable trust had the rights afforded the beneficiaries under the Trust Code, and not the subsequently named beneficiaries, i.e., those individuals named in Article VI of Ex. 1. The testimony, and exhibits submitted at the trial in this adversary proceeding further confirmed and established Myrtle’s involvement in the transactions through written directive satisfying § 72-34-513, through consent satisfying § 72-34-514 and through affirmation satisfying § 72-34-516. The evidence establishes that Myrtle was competent, was not suffering any incapacity at the time of the transactions involved in this litigation, was properly informed, and was not induced to complete a transaction or gift by improper conduct of the trustee.
Patricia’s Complaint alleges that Roy and Myrtle “explained to several witnesses” their purpose in creating the Trust included having “the trust assets grow in equity by investing in real estate.” Complaint, ,¶ 7. However, the record does not contain any witness testimony or evidence showing such an intent by Roy and Myrtle to invest Trust assets in real estate solely for growth. Two exhibits, in fact, confirm the purpose and objective of the Trust to be administrative and not solely growth related. See Ex. 2, Letter from Attorney Meloy to three daughters, dated April 8, 1964(“The object of the above planning is to avoid the time and costs of probate as well as inheritance taxes.”); and Ex. 3, Letter from Myrtle to three daughters, dated February 3, 1967(“This was done to gather up loose ends and to organize our ‘Estate’ to avoid usual probate procedures, etc.”). Even Pam testified that Myrtle did not want the responsibility of ownership of real property, just as Gareth testified. The Court finds that Gareth’s testimony that Myrtle never discussed with Schmidts her having ownership interests in the Schmidt’s homes is credible, and that Patricia failed to prove that any of the gifts of Trust property by Myrtle to Bill and Gareth were for the purposes of the Trust acquiring ownership interests in Schmidts’ homes.
Patricia argues that the attorneys’ references in Ex. 2 and in Ex. 9 that the Trust properties “shall be kept”, and “as your contribution toward the cost of your new residence” show that Myrtle and Roy intended to have ownership interests in their apartments. The Court does not agree. Such references are taken out of context. Patricia’s theory is that any property which came into the Trust remained Trust property even after she gifted it to Bill and Gareth, or to Tom and Janet. Such a theory conflicts with the gift tax returns admitted into evidence, and conflicts with the testimony of Bill, Gareth, Mueller, Tom and Janet that Myrtle’s transfers of Trust property were intended as gifts.
Patricia cites Commissioner v. Wemyss, 324 U.S. 303, 306, 65 S.Ct. 652, 89 L.Ed. 958 (1944), as support for her contention that the gift tax returns “do not by themselves establish that the transfers were gifts.” More evidence than just the gift tax returns are contained in the record. The gifts evidenced therein are corroborated by Bill and Gareth’s testimony, by the testimony of Tom, Janet, and Mueller, each of whom testified that Myrtle’s transfers of real property and cash to Bill and Gareth were gifts. See Ex. 3, 7, G. As Janet is a beneficiary of the Trust, Janet and Tom’s testimony corroborating Myrtle’s transfers to Bill and Gareth as gifts carries more weight given the benefit Janet would receive from any recovery in this case by Patricia.
Furthermore, the Supreme Court in Commissioner v. Wemyss did not hold that gift tax returns were not evidence of donative intent. It held that, for ascertainment of gift tax purposes, Congress dispensed with the “elusive state of mind” that is the test of “donative intent”, and replaced it with a test deeming it a gift where property is transferred for less than adequate and full consideration in money or money’s worth. 324 U.S. at 306, 65 *27S.Ct. at 654. Under the Commissioner v. Wemyss test the gifts shown in gift tax returns Exhibits E, F, H, I, J, L, and N were almost certainly gifts at the time, as they were exchanged for no more than Schmidts’ present care or promise of future care, which may be, in this proceeding, considered “less than adequate and full consideration in money or money’s worth”18. To avoid any issue with the Internal Revenue Service over whether the transactions were gifts or not, Bill prepared gift tax returns and Myrtle and Roy, prior to his death, signed and filed the returns. Thus, the test in Commissioner v. Wemyss, if applicable in this case at all, supports a finding that Myrtle’s transfers to Bill and Gareth were gifts.
Pam and Patricia both insist that the gifts from Roy and/or Myrtle to Bill and Gareth were not “out and out gifts”. However, their opinions are contradicted by Roy’s and Myrtle’s own statements on their gift tax returns. Ex. E, F, G, H, I, L, and N. The terms of the Trust gave Roy and Myrtle the right “at any time to withdraw any properties of the trust”. _ Ex. 1. Roy and Myrtle, pursuant to the their reserved powers under the Trust, withdrew real property and cash from the Trust and gifted them to Bill and Gareth, Ex. 1, Section II. Roy and Myrtle’s own statements in Ex. G establish that Pam’s and Patricia’s testimony that Roy and Myrtle did not intend the gifts as “out and out gifts” is not grounded in fact: “It is my intention that this Lot be a gift to Bill M. and Gareth G. Schmidt, in addition of cash transfered [sic] out of the trustee savings account on this day.” Patricia contends that the gift tax returns are not evidence of donative intent. Even if that were true, Ex. G is not a gift tax return. Patricia testified that she “does not agree” with Ex. G, but it was admitted into evidence by stipulation, without objection. The Court finds that Ex. G is uncontro-verted and conclusive evidence of Roy’s and Myrtle’s intent that the property and cash set forth in Ex. E and F were gifts.
Patricia might argue that Ex. K, the gift tax return covering the gift by Myrtle to Pam of Wedgewood china, shows that the gifts to Debtors were not intended as a gift because Myrtle in fact exchanged her Wedgwood china for the lot on which the Gallatin Canyon home was built19. Even if Ex. G did not conclusively prove that Roy and Myrtle intended the transfers in Ex. E and F as gifts, this argument still fails. Just as Myrtle exchanged her Wedgwood china for the Gallatin Canyon real property with Pam, her gifts to Bill and Gareth could be construed as in exchange for their care and accommodation of Myrtle’s desire for independent living arrangements with her family. Either way, Patricia failed to show that Gareth and Bill committed defalcation in a fiduciary capacity by accepting gifts of Trust property from Roy and Myrtle.
Roy’s and Myrtle’s gifts of Trust property to Bill and Gareth to build apartments for them were their “insurance” of a “comfortable loving place” to live with family. Ex. 3. All witnesses agreed that Myrtle was strong willed, competent and independent. As Myrtle explained to her daughters, the Trust did not “deprive us of the right to do as we please with any of our assets while we are here.” Ex. 3. The beneficiaries under Ex. 1 were to have “equal shares of what is left after we are gone.” Ex. 3.
A case involving a similar family situation is In re Beeman, 225 B.R. 522, 526-27 (Bankr.N.H.1998). The court in Beeman *28held that the plaintiff failed to prove a defalcation by a preponderance of the evidence where certain improvements and additions made to a mother’s residence were made at the mother’s insistence and for her health and comfort. 225 B.R. at 527. Likewise in the instant proceeding, the apartment additions in Schmidts’ homes in Helena, Gallatin Canyon and Bozeman were paid for at Myrtle’s insistence through gifts of Trust property to assure her independent living while near family20. The Court concludes that Bill and Gareth’s acceptance of gifts from Myrtle does not constitute defalcation or bad faith, because the evidence shows that Myrtle had the right to do as she pleased with Trust assets under Ex. 1, and the gifts were at her insistence to preserve her living quarters.
Patricia cites several sections from Montana’s Trust Code which she contends Gareth breached and which she argues establishes Gareth’s defalcation and bad faith, including: MontCode Ann. § 72-84-104 (duty to deal impartially with two or more beneficiaries); § 72-34-105 (duty to avoid conflict of interest); § 72-34-107 (duty to take control of and preserve trust property); § 72-34-110 (duty to keep trust property separate and identified); and § 72-34-124 (general duty to report information to beneficiaries). These statutory duties are important; however, the application of these duties must consider the limitations set forth in MontCode Ann. § 72-33-701. The trustee, in a revocable trust, owes such duties to the person holding the power to revoke. Until Myrtle’s death or incompetency, she held the power to revoke and Gareth owed her duties to Myrtle, not to any other named beneficiaries in the Trust. See MontCode Ann. § 72-33-701. Consequently, as discussed above, a trustee of a revocable trust is not liable to a beneficiary when the trustee is following written directions, has the consent or has an affirmation from the person holding the power to revoke. See Mont.Code Ann. §§ 72-34-513, 72-34-514, and 72-34-516 (The evidence does not establish any circumstances imposing liability under the cited statutes.). Ironically, Gareth may have been liable to Myrtle if Gareth had not followed the directions of her mother under Mont. Code Ann. § 72-34-517, unless incompetency had been established. Myrtle’s right to do as she wished with Trust property was embodied in the Trust Indenture. Ex. 1, 3.
CONCLUSIONS OF LAW
1. This Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. §§ 1334 and 157.
2. This is a core proceeding to determine dischargeability of a particular debt under 28 U.S.C. § 157(b)(2)(I) and 11 U.S.C. § 523(a)(4).
3. The Plaintiff failed to establish that any final judgment or order on the merits was entered in the Washington litigation, and is thus not entitled to res judicata or collateral estoppel treatment of the Washington superior court’s announced intent to enter summary judgment.
4. Plaintiff failed to show by a preponderance of the evidence that Defendant Bill Schmidt had a fiduciary relationship with Roy and Myrtle Gagle, or with the beneficiaries, as required under § 523(a)(4).
5. Defendant Gareth Schmidt has satisfied her burden of proof under § 523(a)(4) to provide a complete accounting of all Trust funds received by her for Plaintiffs benefit, and that she complied with her fiduciary duty to account for all questioned transactions. F.D.I.C. v. Jackson, 133 F.3d at 703; In re Niles, 106 F.3d at 1462. Defendants have shown by a preponderance of the evidence that the terms of the Trust permitted the Trustors to do as they *29wished with assets of the Trust, and that the Trustors gifted Trust assets to family members in order to provide a “comfortable loving place to finish out [their] years” with family members.
6. Plaintiff has failed her burden under § 523(a)(4) of showing by a preponderance of the evidence that Gareth committed fraud or defalcation while acting in a fiduciary capacity.
7. Gareth owed her duties as a trustee to Myrtle, the person holding the power to revoke in the revocable trust identified as Ex. 1 and dated May 4, 1964. Mont.Code Ann. § 72-33-701. Given written directions, consent and affirmation from Myrtle for the transactions at issue in this proceeding, Gareth has no liability to the beneficiaries, i.e. Patricia Trunnels, Janet Clifton and Gareth Schmidt. Mont. Code Ann. §§ 72-34-513, 72-34-514, and 72-34-516. The circumstances imposing liability under these statutory provisions do not exist in this proceeding.
IT IS ORDERED Judgment shall be entered for the Defendants/Debtors Bill Schmidt and Gareth Schmidt dismissing Plaintiffs § 523(a)(4) dischargeability Complaint; and Patricia Trunnels’ individual and trustee claims against the Debtors Bill and Gareth Schmidt arising from the Gagle Family Trust are dischargeable and discharged pursuant to 11 U.S.C. § 523(a)(4).
. Section 523(a)(4) excepts from discharge any debt "for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.”
. Pam testified on rebuttal after Defendant's case-in-chief. Then, Bill testified on surrebut-tal.
. Duncan opposed Plaintiff's motion to strike, arguing that Defendants’ brief simply addressed the matters presented at trial and that he believed that the rule for counting time under F.R.B.P. 9006(a), which includes weekends and holidays when a period is 8 or more days, was the same as Fed.R.Civ.P. Rule 6(a), which excludes weekends when a period is less than 11 days. Duncan’s excuse is no excuse. A person who has consulted with an attorney “can be charged with constructive knowledge of the law's requirements.” Stallcop v. Kaiser Foundation Hospitals, 820 F.2d 1044, 1050 (9th Cir.1987). Duncan is charged with knowledge of the applicable rules. However, his failure to timely file Defendants' brief does not change the result in this case, because as explained below Myrtle Gagle’s expenditures and dispositions of Trust property were authorized by the Trust.
. Duncan's brief argues the elements of fraud in addition to defalcation, while Wing's trial brief and supplemental brief do not argue and thus abandon the theory of fraud, and instead are limited to defalcation and breach of statutory trustee's duties. Duncan's brief misstates the applicable standard of proof as clear and convincing evidence. Beyond that, Duncan's brief simply argues that Plaintiff failed to prove her case. Ultimately, the burden of persuasion is, in every case, upon the plaintiff. It is within the Court’s discretion whether or not to strike Defendants’ brief as untimely. Exercising my discretion, the parties’ post-trial motions are each denied.
. If the Trustee was unwilling to comply with Roy and Myrtle's wishes, Section II provided that the Trust "may at any time be revoked” by Roy or Myrtle. Pam testified that Gareth had an obligation to advise Myrtle and prevent her from taking property out of the Trust if it was not in her best interests, based upon the terms of Pam's own trust. However, the terms of Pam's trust are totally irrelevant to the Gagle Family Trust and the Trustee’s duties under Ex. 1. Nowhere in Ex. 1 does it state that the Trustee has an obligation to advise the Gagles or prevent them from taking or withdrawing properties from their Trust. Indeed, it specifically states the Gagles “may at any time withdraw any properties of the trust”.
. Also Defendant’s Ex. D.
. As rebuttal witnesses, Pam and Bill disputed the propriety of filing a gift tax return for the exchange of land for china. That dispute is not relevant to Patricia’s § 523(a)(4) adversary proceeding.
. The attorney stated: "I know that your immediate reaction to this volume of paper will be 'is all this really necessary'. I assure you that it is necessary to carry out your current plan.”
. There is no allegation or evidence that Myrtle or Roy were ever mentally incompetent when they made any of their gifts.
. Patricia testified that Myrtle had several operations between 1982 and 1990, but always recovered.
. Patricia testified that she did not read Ex. 16, but signed it anyway because it was just a partial plan to get Myrtle's estate settled.
. Janet, who was a co-Trustee upon Myrtle’s death, was not named as a party-defendant.
. Debtors moved for relief from the Order granting Patricia’s first motion on the *22grounds that Bill was not a Trustee. The Court denied that motion.
. Patricia's briefs address defalcation and breach of statutory trust duties. They do not address theories of fraud, undue influence or conversion, and therefore the Court deems those theories abandoned and unproven with no support in the record. There is no dispute that Myrtle was strong-willed and independent, and made her own decisions to gift or spend Trust property. Likewise, the Complaint’s allegations that Defendants sold Trust assets to friends at terms disfavorable to the Trust are unsupported by any evidence, contradicted by Mueller's testimony, and were not argued in either of Patricia’s briefs and are thus deemed abandoned and unproven.-
. Patricia testified that Myrtle did not gift $15,000.00 to the Cliftons to build her an apartment in their Colorado house. However, Janet and Tom both testified she did, and Ex. J corroborates their testimony and demonstrates how uninformed Patricia was about Myrtle’s gift giving.
. One Montana case construing the fiduciary relationship of a majority shareholder of a close corporation for a minority shareholder is Daniels v. Thomas, Dean & Hoskins, Inc., et al., 246 Mont. 125, 136-37, 804 P.2d 359, 365-66 (1990).
. Janet and Bill both testified that Roy and Myrtle told them not to tell Patricia or other family members about the gifts they made. Patricia and Pam both testified they learned about the amount of the gifts in the course of the Washington litigation.
. In comparison, Ex. K, the gift tax return for the Wedgwood collection given to Pam, might be'deemed not a gift since Pam exchanged the Wedgwood collection for the Gallatin property and they had somewhat comparable values. The court can envision situations where present care or promises of future care may constitute adequate consideration.
. Ex. 5 shows that Bill recommended that Pam's Gallatin Canyon property be conveyed from Myrtle into the Trust.
. Pam and Patricia both testified as to Myrtle’s insistence that she pay her own way and not be a burden on her family. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493041/ | ORDER DENYING EXEMPTION
J. CRAIG WHITLEY, Bankruptcy Judge.
This matter came on for hearing before the undersigned on May 11, 2000, upon the Trustee’s Objection to Debtor’s Claim of Exemptions. Based on said hearing and the official Court file, the Court makes the following:
FINDINGS OF FACT
The few facts before the Court are undisputed. The Debtor filed for relief under Chapter 7 of the United States Bankruptcy Code on February 16, 2000. The Debtor’s schedules listed a gross monthly income of $1,350.50. This amount included $562.50 listed as a “Surviving Spouse” payment.
As originally filed, the Debtor’s claimed exemptions did not include any reference to Surviving Spouse income. The Debtor subsequently amended her petition and claimed the proceeds of a survivor benefits policy with Met Life as exempt under NCGS § 58-58-165. The Debtor’s late husband established the group insurance policy with Met Life and named the Debt- or as beneficiary.
The Trustee challenges the claimed exemption on the grounds that § 58-58-165 does not afford exempt status to group insurance proceeds in the hands of a beneficiary.
CONCLUSIONS OF LAW
North Carolina General Statutes § 58-58-165 states, in pertinent part:
No policy of group insurance, nor the proceeds thereof, when paid to any employee or employees thereunder, shall be liable to attachment, garnishment, or other process, or to be seized, taken, appropriated or applied by any legal or equitable process or operation of law, to pay any debt or liability of such employee, or his beneficiary, or any other person who may have a right thereunder, either before or after payment;
The Trustee maintains that only group insurance proceeds “paid to any employee or employees thereunder” are protected from creditors’ claims under this provision. Since the benefits in this case are paid directly to the Debtor as beneficiary, she is precluded from claiming the exemption under the Trustee’s interpretation of the statute. The Debtor, on the other hand, points out that § 58-58-165 protects group benefits from seizure to pay the debts of an employee “or his beneficiary.” Thus, she argues, her benefits are exempt under the plain language of the statute.
The contradictory text of § 58-58-165 supports either party’s reading. However, the undersigned agrees with the analysis in In re Heins, 83 B.R. 504 (Bankr.S.D.Ohio 1988). There, when interpreting a nearly identical exemption statute,1 the court stated that the correct inquiry is whether the claimant “is of the" class intended to be protected by the insurance exemption provisions.” Id. at 505.
The debtor in Heins was the beneficiary of a group life policy established by his step-father. The step-father died prior to the bankruptcy filing, and the debtor attempted to exempt the entire benefits amount he received from the insurance company. In reviewing Ohio’s group insurance exemption provisions, the bank*110ruptcy court noted a legislative policy of protecting an insured debtor and his or her dependents from attempts by creditors of the insured debtor to pursue the policy proceeds in satisfaction of their claims.
However, the court distinguished the situation where a group policy beneficiary becomes a debtor, and attempts to exempt the same funds from the collection efforts of his or her creditors. The court stated:
Despite the phrase- ... indicating that liabilities of the beneficiary may not be paid out of the proceeds of a life insurance policy, we do not believe that the legislature intended to give the same protection to a beneficiary who becomes a debtor as it did to an insured who becomes a debtor.
Id. at 505-06; See also Nader, Exemptions, 16 Ohio St.L.J. 63, 68-69 (1955) (stating that insurance and annuities are generally exempt from claims of insured’s creditors, but that the same protection does not extend to beneficiaries).
This Court has found only one case interpreting the North Carolina statute, but that opinion is entirely consistent with the analysis in Heins. In First National Bank of Shelby v. Dixon, 38 N.C.App. 430, 248 S.E.2d 416 (1978), the defendant was the beneficiary of two insurance policies established by her late husband. Pursuant to state and federal law, the insurance proceeds were included in the decedent’s gross estate for tax purposes. The plaintiff bank, as estate administrator, then brought a declaratory judgment action to determine if the defendant was liable for any portion of the taxes incurred by the insurance proceeds. The defendant argued inter alia that the funds were exempt under the predecessor of § 58-58-165 (NCGS § 58-213).
The Court of Appeals found that the exemption applied only to obligations of the insured decedent:
The proceeds of the policies in the case before us, although derived from group life insurance programs, were not paid to the decedent, but to his wife. No levy or execution of these proceeds is sought to satisfy any obligation of the decedent; therefore, this statute is not applicable to this case.
Id. at 436, 248 S.E.2d at 420 (emphasis added).
Based on the foregoing authorities, this Court holds that § 58-58-165 protects group insurance proceeds from claims by creditors of the insured employee only. The group policy proceeds in the present case are paid to the Debtor rather than the insured party. The Debtor also seeks to protect the proceeds from her own creditors, instead of the creditors of her late spouse. As a result, the Met Life group policy naming the Debtor as beneficiary and any proceeds therefrom are not exempt as to creditors of the Debtor.
THEREFORE, IT IS ORDERED: the Debtor’s claim of exemption under NCGS § 58-58-165 is hereby DISALLOWED.
. The statute at issue in Heins stated:
No policy of group insurance, nor the proceeds thereof, when paid to any employee thereunder, is liable to attachment, garnishment, or other process, or to be seized, taken, appropriated, or applied by any legal or equitable process or operation of law, to pay any liability of such employee, his beneficiary, or any other person who may have a right thereunder, either before or after payment.
Ohio Rev.Code Ann. § 3917.05. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493043/ | ORDER
JOHN E. WAITES, Bankruptcy Judge.
THIS MATTER comes before the Court upon a Motion for Relief from 11 U.S.C. § 362(d)1 Automatic Stay and a Motion for Relief from Co-Debtor Stay under § 1301(d) filed by Wachovia Bank, N.A. (“Wachovia”) on January 7, 2000. Debtor filed a Return to Motion for Relief from Co-Debtor Stay and a Return to Motion for Relief from the Automatic Stay on January 20, 2000 and January 21, 2000 respectively. Having considered the pleadings, testimony of the parties, and arguments of counsel, the Court makes the following findings of fact and conclusions of law regarding the motions.
FINDINGS OF FACTS
1.Wachovia is 'the holder of a secured claim against Debtor for the sum of approximately $13,683.10 by virtue of a note dated November 10, 1995 (the “Note”). Wachovia’s claim is secured by a second mortgage lien on a parcel of real property located in the County of Sumter, State of South Carolina.
2. The Note is signed by Debtor and Alvin S. Alston. The Property that secures the Note is owned solely by Alvin S. Alston.
3. The Property has a fair market value of approximately $85,500.00. In addition to the mortgage lien in favor of Wa-chovia, the property is also subject to a first mortgage lien in the amount of approximately $65,000.00.
4. Debtor filed for relief under Chapter 13 of the Bankruptcy Code on December 30, 1999. Prior to the instant case, Debtor filed several other petitions under Title 11. Debtor filed a Chapter 13 petition on October 30, 1997 (“Case 1”), which was dismissed on July 14, 1998. On July 17, 1998, Debtor filed a Chapter 7 petition and received a discharge on October 29, 1998 (“Case 2”). On March 23, 1999, Debtor filed another Chapter 13 case, which was dismissed with prejudice for a period of 180 days by an order filed June 16, 1999 (“Case 3”).
5. Following the dismissal of Case 3, Wachovia commenced a foreclosure action against the Property in the Sumter County Court of Common Pleas, bearing the caption Wachovia Bank, vs. Igreta Ragin and Alvin Alston, Case # 99-CP-43-934-W (“Foreclosure Action”). The Foreclosure Action resulted in the issuance of a Master’s Report and Master Decree of Foreclosure and Sale entered December 15, 1999, finding that Wachovia was entitled to judgment against Mr. Alston and Debtor and the sale of the Property in realization of the mortgage lien. A public sale of the Property was advertised and scheduled for January 4, 2000 in Sumter County. However, the filing of Debtor’s Chapter 13 petition on December 30, 1999 stayed the sale.
*120CONCLUSIONS OF LAW
Section 1301(c)(1) provides in pertinent part:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided by subsection (a) of this section with respect to a creditor, to the extent that — •
(1) As between the debtor and the individual protected under subsection (a) of this section, such individual received the consideration for the claim held by such creditor.
“[W]hen the chapter 13 debtor is in reality the cosigner on the obligation, a creditor should be granted leave to seek recovery from the party who received the benefit of the transaction.” 8 Collier on Bankruptcy, ¶ 103.03[2][a] (15th ed. rev.1997). In this case, the Note clearly shows that Alvin Alston was a recipient of the loan proceeds. Mr. Alston did not file a response to the motion or appear at the hearing to deny receipt of or use of the borrowed funds. Furthermore, neither the return filed by Debtor nor the testimony of Debtor disputed the fact that Mr. Alston received use of the borrowed funds.
The testimony at the hearing was in dispute regarding the number of delinquent payments due on the Note. However, testimony of both Debtor and the representative of Wachovia revealed that there were a substantial number of delinquent payments. Debtor further testified that she had an agreement with Mr. Alston that she would make the loan payments and attempt to cure the delinquency on the loan.
Debtor’s history of serial filings indicates that she has attempted to utilize the protection of the bankruptcy system over the last few years in an effort to shield Mr. Alston from the adverse consequences of the loan default. Debtor’s efforts to restructure her financial obligations through the bankruptcy process have proven unsuccessful to date and have materially delayed efforts by Wachovia to enforce its rights against Mr. Alston and the Property.
In addition to the relief granted under § 1301(c), Wachovia is also entitled to a modification of the automatic stay for purposes of completing the Foreclosure Action. Since Mr. Alston is the sole owner of the property the estate does not have a legal interest in the property to protect; see § 541 (property of the estate includes “all legal or equitable interests of the debt- or in property as of the commencement of the case”); however, Debtor is a party to the Foreclosure Action under state law. Consequently, there is sufficient “cause” under § 362(d)(1) to modify the stay to allow the Foreclosure Action to be completed in accordance with state law. See, e.g. In re Holmes, C/A No. 99-08796-B (Bankr.D.S.C.11/19/99). Wachovia is entitled to have the state court establish a deficiency balance through the state court process of holding open the foreclosure sale for a deficiency bid. However, the determination of the deficiency balance will not prejudice any rights that debtor may have to challenge such claim in the bankruptcy court. Further, the automatic stay will remain in effect to stay entry of a personal deficiency judgment by the state court against Debtor until either the dismissal of this Chapter 13 case or further order from this Court.
Based upon the foregoing Findings of Fact and Conclusion of Law, it is therefore;
ORDERED that the co-debtor stay of § 1301 is modified to permit Wachovia to exercise its non-bankruptcy state law remedies against Alvin Alston and the Property.
IT IS FURTHER ORDERED that the automatic stay of § 362 is hereby modified to permit Wachovia to prosecute the Foreclosure Action against Debtor in accordance with applicable state law and thereby establish its deficiency claim, if any, against Debtor. However, the automatic stay will remain in effect to stay the entry *121of a personal deficiency judgment against Debtor until further order from this Court or dismissal of the Chapter 13 case.
AND IT IS SO ORDERED.
. Further references to the Bankruptcy Code shall be by section number only. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493045/ | MEMORANDUM OPINION1
JUDITH K. FITZGERALD, Chief Judge.
Before the court is the Debtors’ Motion to Determine Secured Status of the third mortgage against its property held by West View Savings Bank. The parties agree that there is a first mortgage held by PNC and a second mortgage held by First Union Mortgage Company. In addition, the parties agree that there are several tax liens against the property. The tax liens and first and second mortgages prime the third mortgage. The parties have stipulated for purposes of this hearing that the total value of the liens against the property with priority over West View’s is $112,215.15.
Debtors contend that their property is worth $105,000.00 and produced an expert appraiser, Shannon Ingersoll, who so testified. West View Savings Bank produced an appraiser, William Yoder, who testified that the value of the property is between $150,000.00 and $155,000.00. The experts agree that the condition of this property is not up to par. In addition to the appraisers’ reports and testimony, the court also heard testimony from Debtor June Elser. Ms. Elser explained that there are some repairs needed to portions of the property. For example, most of the wallpaper is old and some trim has been missing from the walls in different rooms of the house since it was built. The parties were in the process of making modifications to the interior when, according to Ms. Elser, they ran out of money. As a result, there are partially built walls in the foyer, a cabinet that was removed and not replaced in the main floor powder room, and some painting and similar work that must be completed to put the house in A-l condition. The parties agree that the Debtors made some repairs and modernized the property to a *266certain degree. For example, the bedrooms occupied by the parties’ two sons are in relatively good condition, although one has holes in the walls that are covered with pictures and the carpeting in one is the original. Ms. Elser testified that Debtors installed a new bathroom in the basement. The house is “all electric” and there is no gas service. Everything in the house is original since Debtors moved in in January 1985 with few exceptions. One exception is a relatively new dishwasher.
There are, however, some major issues that the Debtors must address in order to put their property into prime marketable condition. For example, there was evidence that sewage backs up through a drain in the floor and fills up a portion of the parties’ basement. Ms. Elser explained that when there is no electricity to the pump (and this occurs when there is a short circuit due to dampness), the sewage is not pushed away from the house. This phenomenon is explained by Ms. Elser as the result of the method by which the leach bed was installed: the leach bed is behind and above the house, toward the backyard. The sewage must be pumped upward at a 45 degree angle. When the pump fails the sewage simply comes up into the house as it is not pumped to the leach bed. The sewage has flooded into the basement on several occasions, leaving behind dampness which has not been corrected, mold on the walls, damp insulation, damaged flooring and interior trim, an inoperable water softener tank due to corrosion from the sewage, and assorted other damages. Debtors had purchased the water softener to stop discoloration from their well water. Debtors are serviced with well water and a septic system, not from public utility service.
An even more significant problem with marketability of this house is that it has no operable central heating or air conditioning system. The house, which is located at 302 Ridgeway Drive in Baden, Economy Borough, Beaver County, Pennsylvania, is heated by use of a wood burning fireplace in the living room and a cast iron stove that uses propane gas. Debtors obtained estimates to replace the inoperable furnace that ranged from $3,500.00 to about $5,500.00. They cannot afford the replacement. In addition, there was a central air conditioning system which is also now inoperable. The main unit sits outside. It has rusted and has leaks in so many places that it will not hold the freon needed for cooling.
The house is in disrepair in other respects. Ms. Elser testified that there is a lot of moisture inasmuch as there are two springs, one on either side of her home. This contributed to the decay of the rear wooden deck. She also testified that only half of the stove works and that the kitchen countertops move. Debtors installed vinyl peel and stick tiles on the kitchen floor but they are pulling apart because the work was never finished. Pantry doors are missing because they were metal that rusted and they are warped. In the family room there is a hole in the carpet from coal falling out of the fireplace and burning the rug. The carpet is also stained and matted. The commode in the powder room leaks. In the living room the walls do not fit together properly. The floor around the fireplace is warped. The interior brick is pulling away from the wall. Caulking and grout are missing around the bathtub in the children’s bathroom on the second floor. Fixtures are stained. The commode does not function properly and must be plunged with each use. Carpets throughout are worn. In the foyer by the front door the floor is pulling away. The coat closet has no doors because they were corroded metal that Debtors removed.
The appraisers testified that the property is in “fair” or “below average” condition. The court credits Ms. Ingersoll’s testimony that not many houses on the market show the degree of deferred maintenance that this one does and that the typical buyer would pass up a house in this condition if *267another comparably sized house that did not need so much work was available.
This house, which was described by Debtors’ expert as a pre-fabricated home, and by creditors’ expert as pre-cut, was purchased by Debtors and installed on the lot. Debtors moved into the house in January, 1985. The house has settled, and the settling has led to additional damage to the property. The evidence showed that the stairs leading up to the house from the street are not properly attached and are loose. Neighbors refuse to use them. Debtors built an exterior deck. However, they did not use wolmanized lumber and, as a result, since its installation in 1987, the deck has decayed and is unsafe for a person to stand on. Debtors have not torn it down because they use it as a place for their dog to exercise outdoors.
The experts varied significantly in the types of comparable homes used to assess value. Based on the comparability of the homes chosen, the court finds that the homes selected by Ms. Ingersoll are more comparable than those selected by Mr. Yoder. Ms. Ingersoll testified that the condition of Debtors’ house in terms of marketability is below average. She referred to the “principle of substitution” and used a definition stated in the HUD Handbook “Valuation Analysis for Home Mortgage Insurance”. See Trial Exhibit 45C. The Appraisal Terminology section of the HUD Handbook describes the principle of substitution as follows:
A valuation principle that states that a prudent purchaser would pay no more for real property than the cost of acquiring an equally desirable substitute on the open market. The Principle of Substitution presumes that the purchaser will consider the alternatives available to him, that he will act rationally, or prudently on the basis of his information about those alternatives, and that time is not a significant factor. Substitution may assume the form of the purchase of an existing property, with the same utility, or of acquiring an investment which will produce an income stream of the same size with the same risk as that involved in the property in question.
Trial Exhibit 45C. Debtor’s expert, William Yoder, used a definition of the principle of substitution from the National Association of Independent Fee Appraisers which provides:
When two or more commodities of similar utility are available, the one with the lowest price will receive the greatest demand. The principle of substitution is applicable to the valuation of real estate, since no person is justified in paying more for property than the cost of buying land and reconstructing a similar building without undue delay.
Trial Exhibit 45C. We find that the principle of substitution advocated by Ms. In-gersoll more accurately reflects what a typical prudent buyer would do in the circumstances of this case, and that the lowest price would not be the controlling factor when a buyer would have to incur the expense and inconvenience of the numerous repairs identified by these parties.
Ms. Ingersoll testified concerning the comparable properties she chose in formulating her appraisal. The Debtors’ house is prefabricated and prefabricated houses usually are of lesser quality than custom built houses. She tried to choose similar construction which would have similar appeal to a buyer. That is, she chose properties that had two stories and two and one-half baths. She identified properties with similar design, appeal and quality by using descriptions in the multi-list and then personally visually inspecting them. The comparables that she chose were similar in use, size, style, location, and room count. The condition of the comparables, however, were superior to Debtors’ and had new or newer roofs, operable furnaces, and central air conditioning. Some of the comparables had newer carpeting, kitchens, and windows. With respect to Debtors’ property, she adjusted for the extra bath, the lack of central heating and the absence of air conditioning, the cost to fix *268or replace the inoperable furnace and the inconvenience of making the necessary repairs. Her opinion was that a typical buyer would not have purchased the Debtors’ house for what they would have paid for the comparables. The comparables were valued between $102,700 and $109,200 and all were stated to be in superior condition to Debtors’.
As further description of the market area and examples of available properties, Ms. Ingersoll also provided photographs and multi-list descriptions of houses that were on the market at the time of trial. Property at 138 Oakhaven Drive had been listed at $120,000 but reduced to $118,000 and was described as closely resembling Debtors’ house but with updates, gas heat, central air and public water and sewer. The property at 395 Freedom Street, listed at $129,900, had oil heat, central cooling, and public water and sewer and is described in the multi-list as “well-kept”. The property at 111 Walnut Drive, listed at $134,900, has been updated with gas heat, central air and public water and sewer. Debtors’ property uses a well and septic system. Exhibit 45B is a Supplemental Addendum to Ms. Ingersoll’s report. It states that in the year 2000 the municipality (Economy Borough in Beaver County) will require all houses using wells and septic systems to tap into the public water supply and sewer system. The estimated cost for water tap-in is $3,500 and for sewer tap-in is $6,500. Ms. Ingersoll’s supplemental report states that these costs will have to be considered in marketing the house if it is to be sold.
William Yoder testified for West View Savings Bank. He identified the house as “pre-cut” and not pre-fabricated because the walls were completed on site. He testified that the difference between his appraisal and Ms. Ingersoll’s is based on the different socio-economic makeup in the residential subdivisions each used. He testified that Ms. Ingersoll used an incorrect lot value which lowered the value of the property. Of the comparables Mr. Yoder used, the property at 1 Krepps Road, which sold for $161,250 in January of 1999, is not in Debtors’ plan but is located seven miles away. Mr. Yoder also used a house located at 204 Fernwood Drive in Bradford Park which is an area with more expensive houses. It sold in November of 1998 for $175,000. The third comparable used by Mr. Yoder is located at 134 Mary Reed Road. It sold in November of 1998 for $159,900.
Ms. Ingersoll testified that she also considered the Fernwood Drive property but rejected it as a comparable because it was larger than Debtors’ house, custom built, had better curb appeal, and was the subject of a sale in 1998 which she felt was too long ago. She also testified that if Debtors’ house were in the Bradford Park area it was not likely that a buyer would pay more for it just because of the location. With respect to the Mary Reed Road property Ms. Ingersoll testified that she had not used it because it was only five years old, had over 300 more square feet than Debtors’ house, was in a new plan and had superior appeal.
Mr. Yoder testified that there are different strata of properties. Those selling for less than $120,000 are small split entries and those selling for more than $150,000 have eight rooms, 2% baths and two stories. He agreed that if the court finds that Debtors’ house fits more with the smaller houses Ms. Ingersoll’s compara-bles should be used. He also testified regarding physical depreciation and the effective age of Debtors’ property and concluded that the “cost of cure” would be between $5,000 and $7,000. This estimate is not realistic in light of the fact that a new furnace alone would cost between $3,500 and $5,500.
The court finds Ms. Ingersoll’s appraisal more realistic than Mr. Yoder’s. The com-parables she used more closely resemble Debtors’ house with respect to size and type of neighborhood. Further, her explanation of typical buyer behavior, in light of the condition of Debtors’ house, is persua*269sive. The court concludes that the value of Debtors’ house is at the lower end of the price scale. Inasmuch as we accept Ms. Ingersoll’s appraisal, we find that Debtors’ property is worth at most $105,000. Inasmuch as the parties stipulated that the total amount of the liens with priority over West View Savings Bank’s is $112,215.15, West View’s mortgage is wholly unsecured.
. This Memorandum Opinion constitutes the court’s findings of fact and conclusions of law. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493046/ | MEMORANDUM OPINION
STEVEN A FELSENTHAL, Bankruptcy Judge.
Isaac Lasky moves the court for the allowance of an administrative expense under 11 U.S.C. § 503(b)(1) to be paid by the bankruptcy estate of Phones for All, Inc., the Chapter 11 debtor in possession. Phones for Al and its Official Committee of Unsecured Creditors oppose the motion. The court conducted an evidentiary hearing on the motion on April 27, 2000.
The determination of an administrative expense to be paid by a bankruptcy estate constitutes a core matter over which this court has jurisdiction to enter a final judgment. 28 U.S.C. §§ 157(b)(2)(A) and 1334. This memorandum opinion contains the court’s findings of fact and conclusions of law. Bankruptcy Rules 7052 and 9014.
In this motion, Lasky requests payment of employment severance benefits as an administrative expense. Phones for Al and Lasky entered into an employment contract on April 1, 1999. Under the agreement, Lasky agreed to assume the position of Phones for Al’s executive vice president for a base annual salary of $165,-000 to be paid in equal monthly installments. Phones for Al also agreed to pay Lasky a semi-annual bonus and to reimburse his out of pocket expenses. Phones for Al and Lasky further agreed that La-sky would receive severance pay in the *428event of the termination of his employment without cause, to be paid commencing on the date of his termination and continuing until April 1, 2002. The employment agreement, in section VII D(3), specifically provides:
Good Reason or Early Termination by the Company. In the event of Early Termination or Termination for Good Reasons, Employee shall be entitled to Severance Pay commencing on the date of termination and concluding for the remainder of the Term of the Employment (see Section I, April 1, 2002), or twelve (12) months, whichever is greater (the “Severance Period”) ... the Company shall pay Employee Severance Pay for the Severance Period at the annual rate of Employee’s Base Salary plus the prior semi-annual period’s bonus, annualized, at the time of termination.
Sahagen Consulting Group, L.L.C., an entity affiliated with the debtor’s equity holder, guaranteed the employment agreement.
When Lasky reported for work, Phones for All assigned him the positions of president and chief executive officer. Lasky did not request additional or different compensation because of that assignment. Rather, he worked under and Phones for All paid him pursuant to their employment agreement.
Phones for All filed its petition for relief under Chapter 11 of the Bankruptcy Code on November 18, 1999. Effective December 8, 1999, Phones for All terminated Lasky’s employment. The parties agree that Lasky satisfactorily performed his employment obligations and that Phones for All terminated his employment without cause. Phones for All paid Lasky his base salary, both before and after the filing of the bankruptcy petition.
Lasky contends that his employment termination triggered section VII D(3) of the employment contract, entitling him to severance pay of $432,601.65. Because Phones for All terminated his employment post-petition, Lasky claims the severance benefit must be paid as an administrative expense under § 503(b)(1). Phones for All and the creditors’ committee contend, however, that the debtor paid Lasky his post-petition wages and that his severance benefits amount to a pre-petition claim against the bankruptcy estate.
Section 503(b)(1) provides that administrative expenses include “the actual, necessary costs and expenses of preserving the estate, including wages, salaries, or commissions for services rendered after the commencement of the case.... ” Lasky contends that because of his post-petition termination, his severance benefits constitute wages or salary to be paid as an administrative expense. The court must determine whether “wages” or “salaries” under § 503(b)(1) include severance benefits. To answer that issue, the court must read the Bankruptcy Code in its entirety giving meaning to each of its provisions. United Savings Ass’n of Texas v. Timbers of Inwood Forest Associates, Ltd., 484 U.S. 365, 370-72, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988). The court must recognize that where Congress has specifically included a provision in one section of the Code but not another, a court cannot read that provision into the other section. See Immigration and Naturalization Service v. Cardoza-Fonseca, 480 U.S. 421, 432, 107 S.Ct. 1207, 94 L.Ed.2d 434 (1987).
Under the priorities of the Bankruptcy Code, 11 U.S.C. § 507, the bankruptcy estate pays administrative expenses under § 503(b) before the payment of pre-petition claims against the estate. 11 U.S.C. § 507(a)(1). Section 507 then assigns priorities to unsecured pre-petition claims. Section 507(a)(3)(A) provides third priority for up to $4,300 for “wages, salaries, or commissions, including vacation, severance, and sick leave pay earned by an individual” within 90 days before the filing of the bankruptcy petition. The Code expressly includes severance pay within wages, salaries and commissions for priori*429ty unsecured wage claims but does not expressly include severance pay within wages, salaries and commissions for administrative expenses. The court may not read the Code to render the express language of § 507(a)(3)(A) superfluous or unnecessary. Woodfork v. Marine Cooks & Stewards Union, 642 F.2d 966, 970-71 (5th Cir.1981). Rather, the court must read the Code to give meaning to each provision. To do so, the court infers that Congress intended to include severance pay within wages for unsecured priority wage claims but not for administrative expense wage claims. The court therefore reads the Code to not include severance pay within wages, salaries and commissions entitled to an administrative expense.
This reading fulfills the Code’s scheme. The Code classifies claims derived from pre-petition unsecured contracts generally at the same priority, to share pro rata in the bankruptcy estate. Within that class of claims, however, Congress provides priorities based on matters of public policy determined in the legislative process. But, to deliver the payments to those creditors as so classified and prioritized, Congress has determined that the bankruptcy estate must first pay its expenses of administration. Congress has narrowly defined those expenses, as here relevant, by including wages earned post-petition but without pre-petition contractual severance benefits.
Lasky has a claim against the bankruptcy estate under the Code’s scheme based on pre-petition rights under the employment agreement. Under the agreement, he obtained a right to the severance pay upon entry of the agreement, conditioned upon a termination without cause. Lasky testified that he negotiated for that benefit as a condition to accepting employment. He further testified that he negotiated the guarantee to assure payment should a termination occur. Thus, upon entry of the contract, Lasky obtained a conditional right to payment. A conditional right to payment constitutes a claim under the Code. 11 U.S.C. § 101(5)(A). As just analyzed, a bankruptcy estate pays claims after payment of administrative expenses. As the Code classifies Lasky’s contractual right as a claim against the bankruptcy estate, he may not receive his severance benefits as an administrative expense. In re T & T Roofing and Sheet Metal, Inc., 156 B.R. 780, 782 (Bankr.N.D.Tex.1993).
With the filing of the bankruptcy petition, Phones for All continued to employ Lasky, until terminating his employment on December 8, 1999. After the debtor terminated Lasky’s employment and following the filing of this motion, Phones for All moved to reject the employment agreement under 11 U.S.C. § 365. If the employment agreement constitutes an execu-tory contract, if rejected by the debtor, the Code provides that Lasky may file a rejection claim, which may include his severance benefits. 11 U.S.C. §§ 365(a) and 502(g). If the employment agreement does not constitute an executory contract, then, as analyzed above, Lasky held a claim against the estate upon the filing of the petition. For purposes of the priority of his severance claim, the post-petition termination only triggers the pre-petition right to payment, placing the matter squarely within the Code’s definition of a claim.
This statutory scheme notwithstanding, courts have recognized that severance benefits derived from pre-petition contracts may, nevertheless, become administrative expense wages. Except for the Second Circuit, those cases involve contractual arrangements where the terminated employee earned his severance pay post-petition or where the debtor gave the severance benefit in lieu of other benefits or rights operating post-petition. See, e.g., In re Public Ledger, Inc., 161 F.2d 762 (3rd Cir.1947); In re Jeannette Corp., 118 B.R. 327 (Bankr.W.D.Pa.1990); In re Allegheny Int'l, Inc., 118 B.R. 276 (Bankr.W.D.Pa.1990); In re Miami General Hospital, Inc., 89 B.R. 980 (Bankr.S.D.Fla.1988); In re St. Louis Globe-Democrat, Inc., 86 B.R. 606 (Bankr.E.D.Mo.1988). Here, Lasky *430earned his severance benefit when he entered the agreement, pre-petition. The Second Circuit has held that severance pay which arises out of the termination of an employee during a bankruptcy is an administrative expense entitled to priority. In re W.T. Grant Co., 620 F.2d 319, 320-21 (2nd Cir.1980); In re Unishops, Inc., 553 F.2d 305, 308 (2nd Cir.1977); Straus-Du-parquet, Inc. v. Local Union No. 3 Int’l Brotherhood of Electrical Workers, 386 F.2d 649, 651 (2nd Cir.1967). The Court-has explained that severance pay is compensation for the hardship which all employees, regardless of their length of service, suffer when they are terminated and that it is therefore earned when the employees are dismissed. But the Second Circuit has further observed: “it appears to be the general rule that when severance pay, like vacation pay, represents compensation for the employee’s past services, it is not an administrative expense entitled to priority.” Trustees of Amalgamated Ins. Fund v. McFarlin’s, Inc., 789 F.2d 98, 104 (2nd Cir.1986).
Under Lasky’s contract, he earned his severance benefit when he entered the contract. He receives the severance compensation for that prior act. The act occurred pre-petition. Under the terms of this contract, the Second Circuit would therefore apparently consider the severance pay to have been earned pre-petition and thus not be entitled to administrative expense priority.
Whether or not severance benefits fit within the statutory requirement of wages or salaries, § 503(b)(1)(A) also requires that to qualify as an administrative expense, the payment of the severance compensation must benefit Phones for All’s estate and its creditors. “[Ajctual, necessary costs and expenses of preserving the estate,” § 503(b)(1), requires that the expense benefit the estate and its creditors. NL Indus. Inc. v. GHR Energy Corp., 940 F.2d 957, 966 (5th Cir.1991). To meet this test, the expense must arise from a transaction with the debtor and the services supplied must enhance the ability of the debtor’s business to function as a going concern. In re TransAmerican Natural Gas Corp., 978 F.2d 1409, 1416 (5th Cir.1992).
Until his termination, Lasky performed his functions as the debtor’s president and chief executive officer. That work enhanced the debtor’s ability to function as a going concern. But, for that work, Lasky received his base salary of $165,000 annually, paid in equal monthly installments. Lasky produced no evidence that suggests that the debtor induced Lasky to continue working post-petition by offering severance compensation. Phones for All did not commit to nor represent to Lasky that it would assume his employment agreement pursuant to § 365 of the Bankruptcy Code. Lasky did not testify nor did he produce any evidence that suggests that he would not have continued to work, but for his severance benefit. To the contrary, he testified that he insisted on the severance benefit as a condition to employment pre-petition in the first place. Consequently, the debtor had already received the benefit derived by the severance compensation when Lasky commenced his employment, which was pre-petition. Indeed, Lasky obtained a guaranty from an entity affiliated with the debtor’s equity holder. As a result, Lasky did not rely on the bankruptcy estate, post-petition, to pay him severance compensation in the event of termination. Under these facts and circumstances, the severance provision of his employment agreement did not actually impact his decision to continue to work post-petition.
Payment of a severance benefit of $432,-601.65 does not further benefit nor add to the benefit derived from Lasky’s services post-petition and compensated by his base salary. Even if the severance compensation may be construed as wages or salary under § 503, Lasky has failed to establish a benefit to the estate and its creditors from the severance compensation not already obtained from and compensated by his base salary.
*431Like other unsecured creditors in this case, Lasky may assert his pre-petition contractual right to payment and may be able to include a portion as an employee priority claim to be paid from the bankruptcy estate with the other unsecured creditors. Like many of those creditors who have provided goods and services to Phones for All post-petition, Lasky has been compensated for the actual services rendered post-petition. More, he may not receive.
For purposes of completeness, should an appellate court conclude that Lasky’s severance compensation should be included as administrative expense wages either as a matter of statutory construction or based on the facts of this case and further conclude that the severance compensation benefits the estate, then this court would find that the severance pay should be prorated to the portion attributable to work performed for Phones for All as a debtor in possession. See, e.g., In re Jartran, Inc., 732 F.2d 584 (7th Cir.1984); In re Health Maintenance Foundation, 680 F.2d 619 (9th Cir.1982); In re Mammoth Mart, Inc., 536 F.2d 950 (1st Cir. 1976); In re Public Ledger, 161 F.2d 762 (3rd Cir.1947). Lasky worked for the debtor in possession from November 18, 1999, to December 8, 1999. Payment of his entire contractual benefit of $432,-601.65 is completely out of proportion to the benefits derived in that limited period of time of service, post-petition. Indeed, payment of the entire sum would harm the creditors by depleting beyond a pro rata assessment their distributions from the estate. Meanwhile, Lasky enjoys the benefit of a third party guarantee of his severance compensation. Consequently, the court would pro-rate the severance compensation for the period of time he actually worked for the debtor in possession. Ac-eordingly, for purposes of complete findings, the court would award, on a prorated basis, $10,776.57 as an administrative expense for severance compensation for Lasky.1
Based on the foregoing, the court will enter an order denying the motion for the allowance and payment of an administrative expense.
. The calculation for this pro-rated amount is as follows:
December 9, 1999 to March 31, 2000 = 113 days
April 1, 2000 to March 31, 2001 = 365 days
April 1, 2001 to March 31, 2002 = 365 days
TOTAL = 843 days
$432,601.65 divided by 843 days = $513.17 per diem
November 18, 1999 to December 8, 1999 = 21 days (inclusive)
$513.17 per diem < 21 days = $10,776.57 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493047/ | ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
MARY D. SCOTT, Bankruptcy Judge.
THIS CAUSE is before the Court upon John B. Homes Jr.’s Motion for Summary Judgment, filed on May 1, 2000, to which the plaintiff debtor responded on May 26, 2000.
In 1995, the debtor admitted to swindling over $89,500 from her employer during the period October 1988 through April 30, 1991. The debtor appeared before a state district court in Texas and agreed to pay restitution, and orders were entered reflecting the plea agreement and sentence. After she committed the criminal acts, but four years before she entered into the plea agreement, the debtor twice filed petitions for relief under chapter 13 of the Bankruptcy Code. Case Number 91-41544 was filed on June 27, 1991, in the Eastern District of Arkansas and voluntarily dismissed by the debtor on July 17, 1991. Accordingly, no discharge was granted in that case. Moreover, the debt- or did not list either her employer or any Texas governmental units in her petition. The debtor’s second chapter 13 case, Case Number 91-41786, was filed in the Eastern District of Arkansas jointly with her husband immediately after dismissal of the first case, on July 23, 1991. Although the plan was modified at least six times,1 and motions to add creditors were filed and allowed, no governmental unit or any individual working in any Texas criminal court system was ever scheduled or listed with regard to this second bankruptcy case. The debtor received her discharge on December 4, 1996, and the case was closed on December 10,1996.
On March 9, 1998, the debtor was arrested for failing to pay the restitution as ordered by the 337th District Court in Houston, Texas. The debtor appeared in the Texas court on March 19, 1998, and thereafter, on March 27, 1998, filed her third chapter 13 petition in the Eastern District of Arkansas. This time the debtor listed the Texas authorities on her schedules. The debt was listed as “disputed” and no reference in the plan was made to *505the debt. The plan, confirmed on July 13, 1998, without objection, provided that unsecured creditors would be paid pro rata from the plan payments, made no explicit reference to any particular debt, and provided that' disputed debts would not be paid.
The Texas authorities continued with their efforts to enforce the state court orders in the criminal case, prompting the debtor’s attorney to write letters to the district attorney and the state court judge. The letters asserted, without any supporting information, that'the restitution debt had been discharged in a prior bankruptcy. In order to finally determine whether the debt was discharged, the debtor was permitted to reopen her 1991 chapter 13 case and file this adversary proceeding seeking determination of the dischargeability of the restitution debt. All of the defendants answered the complaint and the defendant Holmes now moves for summary judgment, asserting that, as a matter of law, the debt was not discharged pursuant to section 1328(a)(3) and that the debtor is judicially estopped from asserting that the claim of the Texas authorities was discharged in the case.2
The Bankruptcy Code provides in pertinent part:
(a) As soon as practicable after completion by the debtor of all payments under the plan ... the court shall grant the debtor a discharge of all debts provided for by the plan or disallowed under section 502 of this title, except any debt—
(3) for restitution, or a criminal fine, included in a sentence on the debtor’s conviction of a crime.
11 U.S.C. § 1328(a)(3). The debtor argues that since there was never entered any judgment of conviction by the Texas court, that the section is inapplicable.
Generally, the criminal courts in Texas have three alternatives before them when a defendant pleads guilty or nolo contendere to a crime. The court may sentence the defendant to a prison term, may suspend the sentence and place the defendant on probation, or may place the defendant on deferred adjudication probation. See generally Tex.Code Crim. Proc. Ann. Arts. 42.09 § 1, 42.12 §§ 3(a), 5(a). The purpose of deferred adjudication in Texas is to allow the trial court the flexibility to defer adjudication for deserving defendants when the best interests of society and the defendant will be served. Reed v. State, 644 S.W.2d 479, 483 (Tex.Crim.App.1983). In this manner, the courts are also able to conserve scarce judicial and prosecutorial resources. Id.; see United States v. Hill, 210 F.3d 881 (8th Cir.2000)(same, under Missouri law). The deferred adjudication statute, in effect at the time of the debtor’s plea, provides:
[W]hen in its opinion the best interest of society and the defendant will be served, the court may, after receiving a plea of guilty or plea of nolo contendere, hearing the evidence, and finding that it substantiates the defendant’s guilt, defer further proceedings without entering an adjudication of guilt, and place the defendant on probation.
Texas Code Crim. Proc. Ann. Art. 42.12 § 1 (1985).
The primary question before the Court is whether this procedure constitutes a “sentence on the debtor’s conviction of a crime” such that the debt is rendered nondischargeable. Since the Court is applying a federal statute, i.e., the Bankruptcy Code, whether a conviction exists is a question of federal law. Dickerson v. New Banner Institute, Inc., 460 U.S. 103, 103 S.Ct. 986, 74 L.Ed.2d 845 (1983); United States v. Millender, 811 F.2d. 476 (8th Cir.1987)(per curiam). A similar issue was presented to the Su*506preme Court in Dickerson where it was determined that a plea of guilty, plus a recordation of that by the state court, was a “conviction” for purposes of the gun control laws, even though the conviction was later expunged following successful probation. The Court further noted that the plea of guilt alone may be sufficient to constitute a conviction because the plea itself is- a conviction; it is conclusive. Dickerson, 460 U.S. at 112-13, 103 S.Ct. 986. The Supreme Court concluded that Congress did not intend for the term conviction, as used in title 18, to apply only to those against whom formal judgment had been entered. Id. at 113, 103 S.Ct. 986. Indeed, as the Eighth Circuit Court of Appeals has noted, the normal meaning of the term convicted is “that criminal proceeding where guilt is determined, either by verdict or plea.” United States v. Woods, 696 F.2d 566, 570 (8th Cir.1982)(citing Boykin v. Alabama, 395 U.S. 238, 242, 89 S.Ct. 1709, 23 L.Ed.2d 274 (1969)(voluntary plea of guilty is a conviction)).
This Court has no reason to believe that this analysis is any less conclusive in the bankruptcy context. Indeed, it is clear that Congress meant for section 1328(a)(3) to apply to preclude a debtor from discharging debts arising from crime. The fact that there is no written adjudication, i.e., formal entry of judgment, is due merely to the special provisions of Texas statutory law and procedure, a procedure intended as a benefit to the debtor. Further, law enforcement, including its punishment phase, should not hinge on the outcome of the admitted felon’s probation terms. Indeed, to hold debtor’s refusal to comply with the terms of her probation against the state would not only conflict with the intent and language of the statute, but with the any notion of justice. Thus, for purposes of section 1328(a) of the Bankruptcy Code, the debtor not only pleaded guilty, but has been convicted of a crime and ordered to pay a restitution debt which, under the Bankruptcy Code, could not be discharged in this bankruptcy case, No. 91-41786. Accordingly, it is
ORDERED John B. Homes Jr.’s Motion for Summary Judgment, filed on May 1, 2000, is GRANTED.
IT IS SO ORDERED.
. The final modification was not a true modification of the plan, but, rather, sought imme-diale discharge.
. Inasmuch as the proceeding is resolved upon an analysis of section 1328, the Court need not address defendant’s argument that judicial estoppel precludes discharge of the debt. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493048/ | *633
MEMORANDUM
LOWELL A. REED, Jr., Senior District Judge.
Now before the Court is the motion for reconsideration of defendant Security Pacific Bank Oregon (“Security Pacific”) (Document No. 28). Security Pacific asks this Court to revisit its April 11, 2000 ruling on the appeal taken from the August 24, 1998 order of the bankruptcy court, which granted summary judgment in favor of Security Pacific.1 For the reasons that follow, the motion of Security Pacific will be denied.
This case, the facts of which have been recounted in greater detail elsewhere, relates to the Mushroom bankruptcy estate’s efforts to recover estate funds embezzled by the estate’s former counsel. The focus of the analysis in the bankruptcy court’s decision, and in this Court’s ruling on appeal, was whether appellants Jeoffrey L. Burtch, trustee in the bankruptcy of Mushroom Transportation Company, Inc., Michael Arnold, Robbey Realty, Inc., Penn York Realty Company, Inc., and Trux Enterprises, Inc. (hereinafter collectively referred to as “appellants” or “plaintiffs”), brought this action against Security Pacific within the relevant statutes of limitations. The bankruptcy court held as a matter of law that the claims were brought outside the relevant limitations periods, that the discovery rule did not operate to toll the limitations periods, and that the claims were therefore procedurally barred.
Pursuant to 28 U.S.C. § 158(a), this Court exercised its appellate jurisdiction over the bankruptcy court and reviewed the bankruptcy court’s conclusions of law de novo. In an analysis of the applicability of the discovery rule to the facts of this case, this Court concluded that the bankruptcy court erred in deciding, as a matter of law, that there was insufficient evidence to convince a reasonable trier of fact that it was unreasonable for the debtors in possession to entrust bankruptcy assets to the care of counsel and thus fail to immediately discover the theft of bankruptcy funds by counsel.
Security Pacific argues in its motion for reconsideration that this Court “completely overlooked” evidence that the trustee of the Mushroom estate, by his own admission, discovered the theft of funds from the bankruptcy estate outside of the two-year limitations periods for the conversion, turnover, and unauthorized transfer claims. Security Pacific further argues that the remaining constructive trust claim fails on the merits.
This Court’s decision on appeal was limited to the legal ground on which the bankruptcy court rested its decision; that all of the trustee’s claims against Security Pacific were time-barred as a matter of law because there was no evidence upon which a reasonable jury could conclude that the debtors in possession exercised reasonable diligence sufficient to toll the statute of limitations and avoid laches under the discovery rule. My analysis of the discovery rule and the relevant bankruptcy law revealed that there was a genuine issue of material fact as to whether reasonable diligence was exercised by the debt*634ors in possession, and I reversed the bankruptcy court on that narrow legal ground, which was the sole basis for the bankruptcy court’s ruling on summary judgment.
On reconsideration, Security Pacific points to no manifest error of law or fact in this Court’s ruling on the bankruptcy appeal, nor does it present any newly discovered evidence, the only appropriate bases for a motion for reconsideration. See Confer, 760 F.Supp. at 77. Rather, Security Pacific asks this Court to broaden its legal holding and decide factual issues that have not yet been fully addressed by the bankruptcy court and were not the basis of the bankruptcy court order granting summary judgment: (1) whether the Mushroom trustee in fact discovered the theft outside the statute of limitations and (2) whether Security Pacific is entitled to judgment as a matter of law on the merits of the constructive trust claim.
This Court is required to limit its consideration of the issues on appeal to issues of law and not to delve into factual issues not yet considered by the bankruptcy court, as requested by Security Pacific. The learned bankruptcy judge has been involved the Mushroom bankruptcy for more than a decade now. He has a greater grasp of the facts, history and nuances of this case, and is therefore in a better position than this Court to decide factual issues such as those raised in the motion for reconsideration. Factual issues in a case as complex as this are best initially addressed by the court closest to the matter; in this case, the bankruptcy court.
The bankruptcy court retains its traditional role of addressing the remaining issues in the case, consistent with this Court’s April 11, 2000 decision. Security Pacific is correct in pointing out that a determination could be made, consistent with this Court’s April 11, 2000 decision, that the trustee failed to bring this suit within the relevant limitations periods. Likewise, the April 11, 2000 decision does not foreclose the assertion of arguments and evidence to the contrary, and may allow disposition of the claims asserted by the trustee on their merits. However, these are arguments to be made to the bankruptcy court on remand.
For the foregoing reasons and those set forth in this Court’s April 11, 2000 order and memorandum, I reaffirm my decision to reverse the August 24, 1998 decision of the bankruptcy court and to remand the case to the bankruptcy court for further proceedings.
An appropriate Order denying the motion for reconsideration follows.
ORDER
AND NOW, this 23rd day of May, 2000, upon consideration of the motion for reconsideration of appellee Security Pacific Bank Oregon (“Security Pacific”) (Document No. 28), the response of plaintiffs-appellants Jeoffrey L. Burtch, Trustee, Michael Arnold, Robbey Realty, Inc., Penn York Realty Company, Inc., and Trux Enterprises, Inc., and for the reasons stated in the foregoing memorandum opinion, it is HEREBY ORDERED that motion of Security Pacific is DENIED.
. A federal district court has the inherent power to reconsider interlocutory orders "when it is 'consonant with justice to do so.’ ” Walker by Walker v. Pearl S. Buck Foundation, Inc., 1996 WL 706714 at *2, No. 94-1503, 1996 U.S.Dist.LEXIS 17927, at *6 (E.D.Pa. Dec. 3, 1996) (quoting United States v. Jerry, 487 F.2d 600, 605 (3d Cir.1973)). " 'The purpose of a motion for reconsideration is to correct manifest errors of law or fact or to present newly discovered evidence.’ ” Confer v. Custom Eng’r Co. Employee Health Benefit Plan, 760 F.Supp. 75, 77 (W.D.Pa.) (quoting Harsco Corp. v. Zlotnicki, 779 F.2d 906, 909 (3d Cir.1985)), aff'd in part on other grounds and dismissed in part on other grounds, 952 F.2d 41 (3d Cir.1991). Because of the interest in finality, however, courts should grant motions for reconsideration sparingly. Rottmund v. Continental Assurance Co., 813 F.Supp. 1104, 1107 (E.D.Pa. 1992). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493050/ | MEMORANDUM OPINION ON COMMITTEE MOTION TO REVOKE DR. SHIEH PRO HAC VICE STATUS AND ON MOTIONS FILED BY DR. SHIEH
JACK B. SCHMETTERER,' Bankruptcy Judge.
This matter is before the Court on motion of Schwinn Plan Committee to revoke the pro hac vice admission of Dr. Liang-Houh Shieh (“Dr. Shieh”), which earlier permitted him to appear as Taiwan counsel for Defendant Fairly Bike Manufacturing Co., Ltd. Also, Dr. Shieh has filed many cross motion.
BACKGROUND
On October 7, 1992 Schwinn Bicycle Company (“Schwinn”) and several related entities filed Chapter 11 bankruptcy petitions herein.
On June 6, 1994, Schwinn’s Plan of Liquidation (the “Plan”) was confirmed. Pursuant to Article IX of the Plan, the Schwinn Plan Committee was established to perform various tasks necessary to implement the Plan. Pursuant to Section 9.2 of the Plan and paragraph 34 of the Order confirming the Plan, the Schwinn Plan Committee was authorized to prosecute any proceedings which could be brought on behalf of Schwinn’s bankruptcy estate and to recover any transfers to which the Debtor might be entitled under the Code, including preferences.
In October, 1994, the Schwinn Plan Committee filed an Adversary Complaint seeking under 11 U.S.C. § 547 to recover preferential transfers from several defendants, including Fairly Bike Manufacturing Company, Ltd. (“Fairly Bike”), a Taiwan corporation.
In accord with Local Bankruptcy Rule 603(A), Fairly Bike filed a Designation of Local Counsel on February 23, 1995, designating Eric G. Grossman as local counsel. Mr. Grossman then filed his Appearance on behalf of Fairly Bike and Ming Tai Hardware Ind. Co. (“Ming Tai”), a co-defendant.
On August 2, 1995, asserting that he was lead counsel for Fairly Bike and Ming Tai, Dr. Shieh moved for his admission Pro Hac Vice. An order allowing him to appear Pro Hac Vice was entered that day.
On March 25, 1996, after several hearings in connection with Schwinn Plan Committee’s motion for default judgment to be entered in this Adversary proceeding against Fairly Bike, a Default Judgment was entered herein against Fairly Bike in the amount of the Schwinn Plan Committee’s preference claim.
On September 13,1999, over three years after that Default Judgment was entered against Fairly Bike, Dr. Shieh filed its Motion to Amend December 13, 1995 Decision and Default Judgment. That motion was later denied for untimeliness and also for failure to meet threshold requirements for vacating a default judgment. Schwinn Plan Committee v. AFS Cycle Company, 248 B.R. 328 (Bankr.N.D.Ill.2000).
Soon after Fairly Bike filed its Motion to Amend, Mr. Grossman moved for leave to withdraw as local counsel. That motion was allowed on October 25, 1999.
The Schwinn Committee filed its current motion to revoke the pro hac vice admission of Dr. Shieh. That motion is based on Shieh’s disbarment from the state bars of California and New York and federal bars of the U.S. Supreme Court and the U.S. Court of Appeals for the District of Columbia.
In response, Dr. Shieh has filed many motions, documents and appendices all without designating local counsel: Fairly Bike’s Motion for Deemed Admissions and for Imposing Sanctions Against Schwinn *762and its Counsel; Fairly Bike’s Motion for Deemed Admissions; Shieh’s Motion for Deemed Admissions Against Schwinn and its Counsel; Fairly Bike’s and Shieh’s Motion to Compel Deposition and Production of Documents, and to Impose Sanction Against Schwinn and its Counsel Jointly and Severally; Motion for Sanctions Against “Convicted Felons and Indicted Felons” for One Million Dollars; Shieh’s Motion to Compel Deposition, Appearance, and Production of Documents, and to Impose Sanction Against SBC, California, New York and Washington D.C. Criminal Defendants; Motion to Disqualify Brian Graham and His Co-counsel and to Suspend Their Licenses to Practice Law Before the Court on the Grounds of Their Criminal Indictments of Felonies, Repeated and Endless Bad Faith Acts, and Tactics, Frivolous Motions and Oppositions, Frauds Upon this Court, Conspiracy to Commit Perjury and Other Felonies; Motion for Extension of Time to File Answer and Opposition to Schwinn’s Motion; Request for Hearing by Overseas Phone Calls; and Request to Rule on Fairly Bike’s Motion Prior to Schwinn’s Motion. When all stacked together, those pleadings stand six inches high, including two voluminous appendices totaling over 1300 pages. Dr. Shieh seems to lack appreciation of the need in federal pleadings for plain and clear allegations.
The foregoing papers filed by Dr. Shieh generally seek to have this Court investigate various complaints about events and acts in and before other courts having nothing to do with this Adversary case of bankruptcy. In addition, Dr. Shieh seeks to take discovery in what appears to be his renewed and never ending effort to reopen the default judgment against his client over three years after he failed to oppose it when originally entered.
DISCUSSION
It is commonly provided under local District Court rules that any attorney who is not a member of the bar of a particular District Court in which the attorney desires to appear in a case, but who is admitted to practice before another District Court or before the highest court of a state, may upon request be admitted to appear pro hac vice in the case. Some rules require that such an attorney designate a member of the bar of the District Court in question as local counsel upon whom papers may be served.
This jurisdiction has such rules among Local Bankruptcy Rules approved by our District Court: “A member in good standing of the bar of the highest court of any state or of any United States District Court may, upon motion, be permitted to argue or try a particular case in whole or in part.” (Emphasis added) Local Bankruptcy Rule 602. “Unless excused by order for cause shown, an attorney primarily responsible for matters before the court (“lead counsel”), but not having an office within this District may not appear before this Court in any contested matter or adversary proceeding unless such lead counsel first designates a member of the bar of the District Court having an office within this District upon whom such service may be made.” Local Bankruptcy Rule 603(A).
The Latin phrase “pro hac vice” means: “For this occasion or particular purpose. The phrase usually refers to a lawyer who has not been admitted to practice in a particular jurisdiction but who is admitted there temporarily for the purpose of conducting a particular case.” Black’s Law Dictionary 1227 (7th ed.1999).
On August 2, 1995, Dr. Shieh was admitted pro hac vice only for the purpose of his appearing as lead counsel to defend Fairly Bike and Ming Tai in this Adversary case. The Adversary for which Dr. Shieh was admitted pro hac vice and the related Schwinn bankruptcy case itself were each closed on April 15, 1999 and March 5, 1999 respectively. After the Adversary case was closed, the Court entertained Fairly’s motion filed by Dr. Shieh to amend and vacate the Default Judgment *763entered against Fairly Bike. That motion was denied by this Court. Schwinn Plan Committee v. AFS Cycle & Co. Ltd., et al., 248 B.R. 328 (Bankr.N.D.Ill.2000).
Thus, there is no matter left to be resolved in this Adversary. Because pro hac vice admission by its very meaning is for a particular case and here that case has already been closed, Dr. Shieh’s admission to appear here is no longer valid under the original authorization.
Moreover, when Dr'. Shieh was admitted pro hac vice, Fairly Bike was also represented, as Local Bankruptcy Rule 603(A) requires, by its local counsel Mr. Grossman who had been designated by Dr. Shieh. However, on October 27, 1999, Mr. Grossman was granted leave to withdraw as local counsel. To date, Dr. Shieh, who offices in Taiwan and does not have an office within the Northern District of Illinois, has failed to designate any other attorney admitted to this District Court as local counsel for Fairly Bike. Nor has any order been entered allowing Dr. Shieh to appear without meeting the requirements of Local Rule 603(A). While the earlier motion filed by Dr. Shieh on behalf of Fairly Bike without local counsel was entertained, that was Fairly Bike’s motion to vacate the Default Judgment, and that motion was integral to counsel’s originally authorized representation. The reason for his earlier authorization has now expired and he was never given authority to appear here to pursue other matters and file other motions. Dr. Shieh was also not in compliance with Local Rule 603(A) when he filed subsequent motions. For both reasons, all pending motions filed by Dr. Shieh without local counsel and after his authorization to appear had expired will be stricken. See Local Rule 603(B).
Further, Dr. Shieh’s effort to take discovery into issues resolved by the default judgment comes too late for reasons set forth in the Opinion denying his effort to reopen that default judgment. Finally, his effort to assert complaints about conduct of parties and lawyers, to the extent they relate to other proceedings, seek to raise issues on which no core or related jurisdiction lies here, Zerand-Bernal Group, Inc. v. Cox, 23 F.3d 159, 162-63 (7th Cir.1994).
CONCLUSION
Dr. Shieh was admitted pro hac vice to enable him, with aid of local counsel, to defend Defendants in this particular Adversary case. The Adversary proceeding is now over and all issues therein have been finally decided. It has been closed. The bankruptcy case itself is also closed. Therefore, the purpose for Dr. Shieh’s pro hac vice admission has expired, and his permission must be revoked for that reason by separate order. There is no need to reach the many issues asserted against him in the Committee’s motions that were based on decisions entered in other jurisdictions, and those issues are moot in light of the ruling here.
Moreover, Dr. Shieh has filed numerous •motions and pleadings without designating local counsel in violation of Local Bankruptcy Rule 603(A), and all those motions will be stricken for that reason and also by reason of the expiration of his authority to appear. Moreover, the issues he seeks to raise in those motions and pleadings were either foreclosed by the default judgment and prior denial of his effort to reopen it, or beyond the jurisdiction of this Court. Therefore, the cross issues raised and attacks asserted by Dr. Shieh against the Committee and its counsel are all to be stricken by separate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493052/ | MEMORANDUM
JOHN C. MINARAN, Jr., Bankruptcy Judge.
This matter is before the Court on a Motion to Approve Settlement Agreement by which the Chapter 7 Trustee seeks to compromise a claim for disgorgement of attorney fees from the debtor’s former counsel, Ms. Marion Pruss. The settlement agreement is approved.
FACTS
The factual background of this case is complex, and detailed recitations of the underlying facts may be found in the previously published opinions in Matter of Sauer, 191 B.R. 402, 404-07 (Bankr.D.Neb.1995) and In re Sauer, 222 B.R. 604, 605-07 (8th Cir. BAP 1998). The facts pertinent to the matters currently before the Court follow.
Debtor’s former counsel, Ms. Marion Pruss, was ordered to disgorge over $81,-000 in attorney’s fees because she did not maintain a disinterested status in relation to these bankruptcy cases. The disgorgement order was appealed to the Eighth Circuit Bankruptcy Appellate Panel which reduced the disgorgement amount to $43,-345.21. In re Sauer, 222 B.R. 604, 610 (8th Cir. BAP 1998). Ms. Marion Pruss, as the debtor, filed an individual Chapter 13 bankruptcy case during the pendency of the appeal.
Over the past two years, extensive litigation has occurred in Ms. Pruss’ bankruptcy case. She has attempted to obtain confirmation of a Chapter 13 plan, and the Chapter 7 Trustee in this case has been objecting to confirmation in an attempt to collect the disgorgement amount. There are currently several matters, arising in Ms. Pruss’ personal Chapter 13 case, still pending before the bankruptcy court *800(Chief Judge Mahoney presiding) and before the Eighth Circuit Court of Appeals. See In re Pruss, 235 B.R. 430 (8th Cir. BAP 1999), appeal docketed, No. 99-2906 (8th Cir. July 12,1999).
On February 14, 2000, the Chapter 7 Trustee filed a Motion to Approve Settlement Agreement. The settlement agreement, inter alia, provides for payment of $17,000 by Ms. Pruss as full and complete settlement of these bankruptcy estates’ claim for the disgorgement of $43,345.21. The settlement agreement further provides that, upon its approval, the appeal pending in the Eighth Circuit in In re Pruss will be dismissed with prejudice, and the Chapter 13 personal bankruptcy of Ms. Pruss will be dismissed.
No objections have been filed by any parties in interest regarding approval of the settlement agreement. The United States Trustee was asked to make comments on the settlement agreement and recommends its approval.
On April 7, 2000, this Court entered a journal entry setting this matter for hearing. In that order, the Court expressed concerns regarding the settlement agreement and ordered the Chapter 7 Trustee to appear and to make a formal record as to why the Court should approve the settlement agreement. The Court also requested the United States Trustee to appear at the hearing to make a specific recommendation as to approval of the settlement agreement.
On April 12, 2000, a hearing was held on the settlement agreement. At that hearing, counsel for Ms. Pruss indicated that payment of the disgorgement amount would render Ms. Pruss insolvent. The Court ordered Ms. Pruss to file an affidavit detailing her financial condition. Counsel for the Chapter 7 Trustee stated that because of the uncertainty of results in the pending appeal before the Eighth Circuit and other litigation pending in Ms. Pruss’ personal bankruptcy case, the settlement was in the best interest of these bankruptcy estates.
DISCUSSION
Based on the affidavits of record, the comments of the Chapter 7 Trustee, and the comments of the United States Trustee, I conclude that approval of the settlement agreement is in the best interest of the creditors of the James A. Sauer and J.A.S. Enterprises, Inc. bankruptcy cases.
My approval of the settlement agreement is not without reservation. When I consider the totality of facts and circumstances, I conclude that the settlement agreement arguably takes on an appearance of impropriety and abuse of the bankruptcy process. Ms. Pruss represented the debtor in these bankruptcy cases. I concluded that during the time of her representation, she engaged in egregious conduct and lost her disinterestedness. She was then ordered to disgorge fees. In response to the disgorgement order, she filed a personal bankruptcy and subsequently entered into the settlement agreement which is now sought to be approved by the Court. As things stand today, when the settlement agreement is approved, Ms. Pruss will pay a mere $17,000 in satisfaction of a disgorgement order that she repay in excess of $43,000. It appears that during the pendency of Ms. Pruss’ personal bankruptcy case there has been a great deal of litigation and expenditure on attorney fees both on the part of the Chapter 7 Trustee appointed in these cases, as well as Ms. Pruss’ personal counsel. Ms. Pruss appears to have used the bankruptcy process, through the filing of her personal Chapter 13 case, to frustrate the disgorgement order of the bankruptcy court. In my eyes, these facts elude to an appearance of impropriety or an abuse of the bankruptcy process. However, after much reflection, I conclude that issues concerning Ms. Pruss’ personal bankruptcy case are simply not before this Court. Ms. Pruss’ personal bankruptcy case is assigned to Chief Judge Mahoney and any allegations or concerns that her bankrupt*801cy case involves an appearance of impropriety or an abuse of the bankruptcy process would be appropriately considered by Chief Judge Mahoney. These issues are not before this Court.
What is before this Court is whether the settlement agreement between the Chapter 7 Trustee and Ms. Pruss should be approved as in the best interest of creditors of the James A. Sauer and J.A.S. Enterprises, Inc. bankruptcy cases. I conclude the settlement agreement is in the best interest of these bankruptcy estates, and the settlement agreement should be approved.
This Court is aware that it has ordered disgorgement of fees from Ms. Pruss and that the disgorgement order will not be obeyed. I conclude that my approval of this settlement agreement will, as a practical matter, preclude me from instituting contempt or other proceedings against Ms. Pruss for her failure to comply with this Court’s disgorgement order. Ms. Pruss has filed an affidavit detailing her financial condition. Upon review of this affidavit, I conclude that Ms. Pruss does not have the ability to pay the disgorgement amount. Accordingly, contempt proceedings against Ms. Pruss appear inappropriate as she should not be held in contempt for the failure to make payments when she has an inability to pay. | 01-04-2023 | 11-22-2022 |
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