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https://www.courtlistener.com/api/rest/v3/opinions/8493144/ | ORDER
JAMES J. BARTA, Bankruptcy Judge.
The hearing on the Chapter 7 Trustee’s objection to the Debtors’ claim of exemp*483tion was called on March 22, 2001 in Hannibal, Missouri. The Trustee appeared by Counsel and presented oral argument and conducted cross examination on the record. Larry L. Wallace, (“Debtor”) appeared in person and by Counsel and presented testimony and other evidence on the record. At the conclusion of the hearing, the Court announced its determinations and orders from the bench.
This is a core proceeding pursuant to Section 157(b)(2)(A) and (0) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151,157 and 1334, and Rule 81-9.01 of the Local Rules of the United States District Court for the Eastern District of Missouri.
On about May 31, 2000, the Debtor and two of his co-workers were told by their employer that they had been terminated. Since that time, the Debtor testified that he has suffered from depression and other medical problems that require daily medication. Shortly after his termination, he received a lump sum distribution from his former employer in the amount of $13,000.00. Although no written documents were provided at the time of the distribution, the Debtor stated that he believed that the amount was based on the number of weeks of employment. He testified that he and his wife intended to use the money to replace his lost wages.
After obtaining professional financial advice he purchased an annuity that allows him to withdraw amounts of money without a penalty before the scheduled payments begin. He also enjoys the ability to withdraw the full amount from the plan subject to payment of penalty. After termination from his employment and prior to the commencement of this case, the Debt- or began receiving a monthly pension distribution in the amount of $1,380.00. The Debtor believes that these payments will continue during his lifetime. In addition to the pension distribution, the household income for the Debtor and his co-Debtor spouse includes his wife’s monthly take home pay in the amount of $1,250.42.
The Debtors have claimed an exemption in the full value of the annuity under Rev. State. Mo. § 513.430(10)(e) which allows an exemption for a person’s right to receive any payment under a stock bonus plan, pension plan, disability or death benefit plan, profit-sharing plan, nonpublic retirement plan or any similar plan described, defined or established pursuant to Rev. Stat. Mo. § 456.072, annuity or similar plan or contract on account of illness, disability, death, or length of service, to the extent reasonably necessary for the support of such person and any dependent of such person. The Debtors’ have no dependents. The contract purchased by the Debtors was not made a part of the record at trial.
The operative language of the Missouri exemption statute at Section 513.430(10)(e) is essentially identical to the language of the Federal exemption law at 11 U.S.C. § 522(d)(10)(e). Therefore, the analysis of the Federal law by several courts in the Eighth Circuit is instructive here.
Under the Federal statute, the exemption of payments under an annuity is intended to protect payments which function as wage substitutes after retirement. See Andersen v. Ries, 259 B.R. 687 (8th Cir. BAP (Minn.)); In re Caslavka, 179 B.R. 141, 143-144 (Bankr.N.D.Iowa 1995).
The contract described here as an annuity was not acquired by a series of contributions made over time, but rather was created by a single lump sum payment by the Debtors. The investment will return the initial contribution with earned interest, rather than payments based upon the *484participant’s estimated life span. The contribution was made at one time from a single source, the Debtors’ assets. The investment was made approximately five months prior to the commencement of this case, after Mr. Wallace had been laid off from his employment. These circumstances suggest that the investment was a prebankruptcy planning measure, rather than the purchase of an annuity. See Andersen v. Ries, 259 B.R. 687 (8th Cir. BAP (Minn.)).
Finally, the record has disclosed that the Debtor retained a great deal of control over the asset described as an annuity. As of the commencement of this case, he held the discretion to withdraw funds from the corpus, although a penalty may attach depending on the time of the withdrawal. See Huebner v. Farmers State Bank, Grafton, Iowa, 986 F.2d 1222 (8th Cir.1993), cert. denied, 510 U.S. 900, 114 S.Ct. 272, 126 L.Ed.2d 223 (1993). These factors in combination with the Debtor’s right to receive other pension payments compels the determination that the asset listed as exempt does not qualify as an annuity and is therefore not property that can be claimed as exempt under Section 510.430(10)(e).
IT IS ORDERED that this matter is concluded; and that the Trustee’s objection is sustained; and that the Debtors’ claim of exemption under Rev. Stat. Mo. § 513.430(10)(e) to the contract purchased with the proceeds of a distribution by a former employer of the Debtor/Husband is denied; and that the Debtors’ request to claim the contract as exempt is denied; and
That all other requests in this matter are denied. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493145/ | CONTESTED MATTER
JAMES D. WALKER, Jr., Bankruptcy Judge.
MEMORANDUM OPINION
This matter comes before the Court on the objection of creditor First Frankhn Financial (“Franklin”) to confirmation of the Chapter 13 plan proposed by Walter B. and Stephanie C. Mizell (“Debtors”). This is a core matter within the meaning of 28 U.S.C. § 157(L). After considering the pleadings, evidence and applicable authorities, the Court enters the following findings of fact and conclusions of law in conformance with Federal Rule of Bankruptcy Procedure 7052.
Findings of Fact
Debtors’ proposed plan lists Franklin as the holder of an unsecured claim for $1491.36. Franklin objects to Debtors’ treatment of its claim, alleging that it has a “valid secured claim in the amount of $1491.35 secured by a hen on an automobile and personal property for which the hen is not avoidable, which has a value which equals or exceeds the claim amount.” (Franklin Obj. Conf. ¶ 2). Onyx Acceptance Corporation (“Onyx”) has a $13,729.51 claim secured by a first hen on the automobile in question, a 1997 Nissan. Debtors’ plan assigns the automobile a $10,000.00 value for plan confirmation purposes, and proposes to bifurcate Onyx’s claim into a secured claim for $10,000.00 and an unsecured claim for $3729.51. Onyx has not objected to the plan, and Debtors’ proposed their plan in good faith. Debtors are using ah of their disposable income, as defined in Section 1325(b)(2), to make plan payments.
At the confirmation hearing, Franklin wanted to prove that the automobile’s value is $20,000.00, an amount that would *588require Debtors’ to treat Franklin’s claim as wholly secured. The automobile is not worth $20,000.00, and Franklin agreed with Debtor at the hearing to stipulate that the automobile is worth $11,000.00 rather than $10,000.00. The Court is thus left with the - question as to the proper disposition of the automobile’s additional value.
Conclusions of Law
Neither the Code nor the case law specifically addresses the question this case presents. If this were Onyx’s objection, the answer would be simple. The Court would not confirm Debtors’ plan unless they modified it to afford Onyx a secured claim for $11,000.00. Onyx did not raise the objection, however, and the inequity of giving Onyx the benefit of Franklin’s diligence is patent.
The Court could dispose of the automobile’s additional in value in one of three ways. First, the Court might increase Onyx’s secured claim to $11,000.00 based on the evidence of valuation as it would if Onyx had filed the objection. Second, the Court might simply deny Franklin’s objection and confirm the plan as proposed with no increase in payments to reflect the increased valuation. Finally, the Court might require Debtors to modify their plan to propose a $1000.00 secured claim for Franklin as a condition of confirmation. The Court will discuss each of these possibilities in turn, and will adopt the third as most consistent with both the language of the Code, and with the conscience of equity-
A. Increase Onyx’s secured claim to $11,000.00
If the Court required Debtors to provide Onyx with a secured claim in the amount of $11,000.00 rather than $10,000.00, it might put Debtors’ express desire into effect that “undersecured creditors shall be treated as secured only to [and presumably ‘up to’] the value of their interest in collateral[.]” (Plan ¶ 2.(c)). If not for Franklin’s objection, however, the Court would have confirmed Debtors’ plan as proposed because Debtors’ valuation of the automobile at $10,000.00 is reasonable, even though evidence shows that such value is $1000.00 less than the automobile’s actual replacement value. A secured creditor is not obliged to undertake legal action to obtain the highest amount possible for its secured claim. Some courts accordingly deem secured creditors to accept the treatment afforded them pursuant to Section 1325(a)(5)(A) if they raise no objection to the Chapter 13 debtor’s plan, and in some districts such is mandated by the local rules. See 8 King, Collier on Bankruptcy ¶ 1325.06[2], pp. 1325-27 to 1325-28; see also 4 King, Collier on Bankruptcy ¶ 506.03[9][b], pp. 506-98 to 506-99 (courts favor parties’ agreement on collateral’s value if no overreaching, fraud, bad faith, or prejudice to the rights of third parties is manifest).1
Requiring Debtors to afford Onyx an $11,000.00 secured claim, while denying Franklin the benefit of its diligence, is not an appealing solution to the question. Onyx has remained silent, and the Court should not give it the benefit of Franklin’s efforts. Accordingly, the Court will not *589require Debtors to propose that Onyx should have an $11,000.00 secured claim. Onyx will be deemed to have agreed that the automobile is worth $10,000.00, and to have accepted the terms of Debtors’ plan.
B. Deny Franklin’s objection; confirm, plan as proposed
The second possibility is that the plan should be confirmed as proposed. The factual allegation that Onyx is an overse-cured creditor underlies Franklin's objection, but Franklin has not proved that the automobile is worth more than the full amount of Onyx’s claim. Thus, perhaps Franklin’s objection should be denied and, with no other objections pending, Debtors’ plan should be confirmed.
It does not seem appropriate, however, for the Court to ignore Franklin’s demonstration that the automobile is worth $11,000.00. It is inconsistent to accept Franklin’s evidence proving Onyx is ov-erseeured, while rejecting evidence proving, at the same time, that the automobile is worth less than the Onyx claim. Franklin is a party in interest entitled to object to confirmation pursuant to Section 1324, and the Court will not ignore a fact proved at the confirmation hearing by such a party.
The Court will not confirm the plan as proposed. If it did, then, pursuant to Section 1327(b), the automobile’s additional value would vest in debtor upon confirmation of the plan, and such value would be free and clear of Franklin’s security interest pursuant to Section 1327(c). It is no more appropriate to allow Debtors the benefit of the automobile’s additional value than to allow Onyx the benefit of such additional value when Franklin, a creditor holding a valid security interest, has made the effort to prove that such value exists.
C. Allow Franklin Secured Status for $1000.00 claim
The Court will confirm Debtors’ plan only if it proposes to afford Franklin a secured claim for $1000.00. Of the possible resolutions available to the Court, this is the one most in keeping with the equitable principle of allowing a party the benefit of its own diligence where the law does not require otherwise. This is also the holding most consistent with, though not specifically in accord with or opposed to, the Code’s provisions.
As stated supra, if no party raised an objection to confirmation of Debtors’ plan, the Court would confirm the plan as proposed. Onyx’s silence must be deemed to indicate agreement as to the automobile’s value, acceptance of the plan’s terms, or both. It follows that, by its silence, Onyx effectively eases its lien on the automobile’s additional value to the estate, and that, upon confirmation, all interest in such value would vest either in Debtors pursuant to Section 1327, or to some other party pursuant to some other claim or lien.
Franklin’s objection stands between Onyx’s silence and the interest Debtors might otherwise obtain in the automobile’s additional value pursuant to Section 1327(b). Prior to confirmation, Franklin has an interest in the interest that the estate holds in property subject to Franklin’s lien pursuant to Section 506(a). Thus, because the estate has a $1000.00 interest in the automobile, Franklin’s allegation is logically correct. Because Onyx has effectively declined any interest that it otherwise would have had in the automobile’s value greater than $10,000.00, such value is available to support Franklin’s secured claim.
Accordingly, Franklin’s objection to confirmation will be granted subject to Debtors’ right to file a modification of their plan to treat Franklin as a secured credi*590tor holding a secured claim in the amount of $1000.00.
An order in accordance with this opinion will be entered on this date.
ORDER
In accordance with the memorandum opinion entered on this date it is hereby
ORDERED that the objection of First Franklin Financial to confirmation of Debtors claim is GRANTED, and it is hereby further
ORDERED that this case will be dismissed unless Debtors propose a modification of their plan within 10 days of the entry of this Order proposing to allow First Franklin a secured claim in the amount of $1000.00.
. In order for a plan to be filed in good faith, valuations must be reasonable. Such reasonable valuations will vary and will be subject to adjustment upon proof. When values are shown to be unreasonable, such as in the case of a "low ball" or nominal valuation, the court will decline to confirm the case, even when a debtor offers to substitute a reasonable valuation. A debtor must make reasonable valuations in the first instance, as Debtor did in this case, if plans are to be regarded as having been filed in good faith. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493146/ | MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
Debtor Darryll W. Sommers, who was defendant in the above adversary action, has brought a second motion pursuant to Federal Rule of Bankruptcy Procedure 9011(b) for sanctions against plaintiffs counsel. Debtor seeks to recover legal fees and costs he allegedly incurred after we previously entered summary judgment in his favor and sanctioned plaintiffs attorney pursuant to Rule 9011 for bringing the above adversary action in the first place.
Plaintiff and his counsel steadfastly oppose debtor’s second Rule 9011 motion for sanctions.
We will deny the second motion for reasons that follow.
—FACTS—
Debtor filed a voluntary chapter 7 petition on August 26, 1999. He indicated on the attached bankruptcy schedules that he was employed by Wolfs Furniture since June of 1998 and that his monthly net income was $2,3000.00.
Notwithstanding this disclosure, plaintiff commenced the above adversary action against debtor on December 27,1999, seeking to deny debtor a discharge on the theory that debtor had failed to disclose his employment at the time of the bankruptcy filing.
On February 23, 2000, debtor brought a Rule 9011(b) motion against plaintiffs attorney on the theory that said attorney obviously had not reviewed the bankruptcy schedules before filing the complaint in the adversary action. He maintained, among other things, that the complaint was frivolous and sought to recover the sum of $200.00 in legal fees and costs incurred in defending against the complaint.
On May 25, 2000, defendant brought a motion for summary judgment, asserting that there was no material issue of fact for the court to determine in light of the disclosure of his employment in the bankruptcy schedules.
After conducting a hearing on the motion for summary judgment and plaintiffs inexplicable opposition thereto, we issued an order on June 28, 2000, granting debt- or’s summary judgment motion. We also granted debtor’s Rule 9011 motion for sanctions and ordered plaintiffs attorney to pay the sum of $200.00 to debtor to cover legal fees and costs debtor had incurred in defending against the adversary action.
Plaintiff filed a notice of appeal to the District Court on July 12, 2000, fourteen days after their entry, with respect to both orders. Debtor promptly responded by filing a motion to dismiss the appeal as untimely along with a brief in support thereof on July 20, 2000.
The District Court issued a memorandum order on September 13, 2000, dismissing as untimely plaintiffs appeal of our orders of June 28, 2000. No appeal was taken from the order of the District Court.
*159On September 22, 2000, debtor filed a second Rule 9011 motion in this court seeking, as a sanction, to recover legal fees and costs he expended in successfully opposing plaintiffs untimely appeal to the District Court and in bringing and prosecuting the second motion.
A hearing on debtor’s second motion and plaintiffs opposition thereto was conducted on November 3, 2000.
—DISCUSSION—
The sanction debtor seeks in his second Rule 9011 motion unquestionably is an order directing plaintiffs counsel to pay the legal fees and costs debtor incurred in opposing plaintiffs above untimely appeal to the District Court and in bringing and prosecuting the second motion in this court.
As a general matter, the question whether an appeal is so frivolous as to warrant imposing legal fees and costs upon the appellant as a sanction is reserved to the court to which the appeal was taken, not to the court that issued the order from which the appeal was taken. Sierra Club v. U.S. Army Corps of Engineers, 776 F.2d 383, 392 (2d Cir.1985), cert. denied, 475 U.S. 1084, 106 S.Ct. 1464, 89 L.Ed.2d 720 (1986). To hold otherwise would have the potential chilling effect of deterring even a courageous lawyer from seeking reversal of a contested order. Id.
Rule 9011 does not carve out an exception to this rule. It does not empower a bankruptcy court to determine whether an appeal of one of its orders taken to the District Court is sanctionable. Glatzer v. Montmartco, Inc. (In the Matter of Emergency Beacon Corp.), 790 F.2d 285, 286 (2d Cir.1986).
The rationale underlying the general rule applies with no less force to a bankruptcy court than it does to a district court whose order is appealed to a higher court. The heightened involvement of a bankruptcy judge in a bankruptcy proceeding is not significantly different from that of a district court judge who is involved in protracted litigation — e.g., a major anti-trust suit or a civil rights class action — or involved in litigation seeking a preliminary injunction which may precipitate interim appeals of rulings. 790 F.2d at 288. A judge’s heightened involvement in such situations strongly militates against empowering that judge to influence, if not control, a party’s decision to appeal an adverse ruling by that judge. Id.
Debtor should have brought his second Rule 9011 motion in the District Court, which obviously is in a far better position than are we to evaluate the frivolity of the motion. Although the District Court has no authority under FED.R.CIV.P. 11 to consider such a motion, it has such authority under Rule 9011. Hedges v. Resolution Trust Corp., 32 F.3d 1360, 1363-64 (9th Cir.1994); Roete v. Smith (In re Roete), 936 F.2d 963, 967 (7th Cir.1991).
We conclude in light of the foregoing that we have no authority to consider debt- or’s second Rule 9011 motion and therefore must deny it.
An appropriate order shall issue.
ORDER OF COURT
AND NOW, this 9th day of January, 2001, in accordance with the foregoing memorandum opinion, it hereby is ORDERED, ADJUDGED, and DECREED that the second motion for sanctions pursuant to Rule 9011(b) brought by debtor Darryll W. Sommers be and hereby is DENIED.
It is SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493147/ | MEMORANDUM OPINION1
JUDITH K. FITZGERALD, Chief Judge.
Before the court is the Motion for Relief from Automatic Stay filed by the Housing Authority of the City of Pittsburgh (HACP) against Debtor. HACP obtained an Order of Possession through the state court system and was two days short of executing on the Order when Debtor filed a Chapter 13 petition. HACP was attempting to evict Debtor, a tenant, from one of the units it owns at the Arlington Heights housing project on the ground that he breached non-monetary covenants in the lease, which HACP, contends cannot be cured. One of the lease provisions at issue concerns alleged drug-related activity, as to which the criminal charges have been dismissed, and no proof of the conduct appears of record in any of the three courts involved, ie., the district justice court, the Court of Common Pleas and this court.
The difficulty facing this court is that Debtor failed to timely appeal the state court’s order denying his motion for leave to appeal nunc pro tunc, that also granted possession to HACP. This bankruptcy stayed the appeal period. Debtor has 24 days remaining under applicable state court procedures to appeal an adverse ruling by the Allegheny County Court of Common Pleas, per Judge Wettick. It likewise appears from the record available that an error of law may have occurred in that the record does not show that HACP has ever proven entitlement to possession on the allegations of criminal drug-related *177conduct. This court, however, is not a state appellate court. Debtor is left with convincing a state appellate court of his entitlement to remain in possession of his leasehold. At the time he filed this bankruptcy, Debtor was (and remains) in possession of his rental unit.
I will set out a chronology of relevant facts so as to juxtapose them against a recently decided case which may be instructive to an eventual disposition:
10/29/96 Debtor and an HACP representative signed a lease which included provisions for a $99.00 security deposit and a monthly rent of $248.00. (Exhibit A, HACP’s Brief in Support of Motion for Relief from Stay.)
2/15/00 Debtor was arrested on three drug charges and a disorderly conduct charge at his unit in the Arlington Heights housing project (Exhibit C, HACP’s Brief in Support of Motion for Relief from Stay.)
2/15/00 Another person, not a tenant in the Debtor’s apartment (Yvonne Wofford), was also arrested on the same charges. The police report of the incident is all that appears in the record to explain the events surrounding HACP’s efforts to evict Debtor. (Exhibit A to Debtor’s Supplemental Memorandum and Relevant Documents.) It indicates that the arresting officer was called to the scene of Debtor’s apartment due to a report of “a violent domestic [argument].” Upon arrival, the officer could not gain access to the unit, so the 911 operator called the unit and shortly after, the security door was opened by Ms. Wof-ford. Ms. Wofford2 told the officer she was not the resident and there was no problem at the unit. She denied access to the officer. Nonetheless, as the officer pushed past her, while she tried to slam the door against him, he smelled “a heavy odor of marijuana,” and saw what appeared to be a “blunt” burning in an ash tray on the living room table. He led Ms. Wofford back into the hallway, as she shouted obscenities, causing him to place her under arrest. He then saw the Debtor and a Ms. Astonah Turner enter the hallway from the street, along with another female. The officer then had all four persons enter the apartment while he waited for backup and tried to discover whether there was a domestic dispute underway. His report does not indicate any evidence of a domestic disturbance. His report does not identify anyone present in the apartment when he first gained entry other than Ms. Wofford.
Inside, he again saw the “blunt” and some suspected marijuana seeds in a brandy snifter. As the backup arrived, the officer placed Debtor under arrest. Debtor told the officer he was the tenant, that he had called the police to report a robbery in Mount Oliver, that there was never a domestic dispute, and that the marijuana belonged to some unknown black males *178who were using his apartment to get high.
Ms. Wofford gave the officer four baggies of suspected marijuana from her pants pockets. Debtor had no contraband on his person. There the police report ends.3
2/16/00 Debtor was arraigned before City Magistrate Coles on three drug charges and one summary offense, disorderly conduct; he was convicted, through his plea, of only the disorderly conduct charge. (Exhibits B & C, HACP’s Brief in Support of Motion for Relief from Stay.4) The drug charges were dismissed as to both Debtor and Ms. Wofford.
5/31/00 HACP filed action against Debtor alleging damages to the leasehold in the amount of $35.00; unpaid rent of $0.00; additional rent remaining unpaid on hearing date; and social eviction under lease sections 81(1-2) and K. The cited provisions all relate to obligations of the tenant. Paragraph 81(1) prohibits drug related criminal conduct. Paragraph 81(2) prohibits criminal activity that threatens the health, safety or right to peaceful enjoyment by other tenants or management. Lease paragraph 8K prohibits serious or repetitious conduct that can be either criminal or not which impairs the peaceful enjoyment by other tenants of their accommodations or community facilities or that impairs the physical or social environment of the community. (Exhibit A, HACP’s Supplemental Brief and Relevant Exhibits.) Paragraph 8T of the lease indicates that conduct specified in paragraph 81 and 8K constitutes a violation of the lease.
*1796/13/00 District Justice Longo granted HACP possession and judgment for $70.00 in rent arrears and $78.75 in judgment costs (Exhibit E, HACP’s Brief in Support of Motion for Relief from Stay.) The Judgment states “possession granted,” and not “possession granted if money judgment is not satisfied by time of eviction”.
6/30/00 Debtor paid the judgment amount of $148.75 to HACP. (Exhibit B, HACP’s Supplemental Brief and Relevant Exhibits.)
7/3/00 The Notice of Judgment/Transcript Residential Lease was filed, adding another $27.75 as “costs in this proceeding” for a total of $176.50 (Unlettered Exhibit filed with HACP’s Supplemental Brief and Relevant Exhibits) although Debtor had already paid the original judgment amount.
7/6/00 HACP served 7/3/00 Order for Possession on Debtor by posting (same unlettered Exhibit as referred to in 7/3/00 item above).
7/21/00 Debtor presented a Motion for Appeal Nunc pro Tunc from District Justice Longo’s Order. (HACP represents on unnumbered page 4 of its Supplemental Brief and Relevant Exhibits that Debtor’s Motion for Appeal was filed on 7/21/00; however, at page 3 in its Brief in Support of Motion for Relief from Automatic Stay it avers that Debtor’s Motion was filed on 7/28/00. One of the copies of the “cover” page of Debtor’s Motion for Appeal Nunc pro Tunc, which copy accompanies HACP’s Supplemental Brief, has many date stamps of the local clerk of court, one of which is 7/21/00 and another of which is 7/28/00.)
7/27/00 District Justice Longo gave a statement, to attorneys for Debtor and HACP, indicating that she had no recollection of the Debtor’s hearing but that she routinely advises tenants that they have ten days to appeal any adverse judgment and that she routinely attaches written notice of the ten-day appeal process to the notice of judgment. (Exhibit C, Debt- or’s Brief in Opposition to Motion for Relief from Stay.)
9/12/00 Allegheny County Court of Common Pleas Judge Wettick considered Debtor’s Motion to Appeal Nunc pro Tunc, denied it and awarded HACP possession as of 9/20/00. (Exhibit F, HACP’s Brief in Support of Motion for Relief from Stay.)
9/18/00 Debtor filed a chapter 13.
Except for the confusion regarding when Debtor filed his motion for leave to appeal nunc pro tunc, which is not material now, none of these dates is disputed. None of the documents provided by either party has been challenged by the other party.
The en banc Ninth Circuit Court of Appeals decided Rucker v. Davis, 237 F.3d 1113 (9th Cir.2001), after Judge Wettiek’s Order. Rucker held that a public housing tenant can be evicted on drug-related grounds only if he knew, had reason to know, or had control over the household members or guests who committed the drug-related criminal acts. Rucker noted that due process considerations establish that the tenant cannot be deprived of his *180property interest in public housing absent proof of his knowledge of the activities or control over the offender. Thus, Rucker established a rebuttable presumption that the tenant has such knowledge or control. The tenant, however, may assert the equivalent of an “innocent owner” defense operable in forfeiture actions and may offer proof that he did not know of or exercise control over the offender, or that he had taken reasonable steps to prevent the conduct from occurring in his unit.
Similar to the instant facts, three of the four separate Rucker tenants were faced with eviction due to allegations that others (non-tenants) were engaged in criminal activity in or outside their apartments. Similar to the instant facts, none of the four separate Rucker tenants was directly, involved with or convicted of criminal conduct involving drugs. The Rucker court prevented the evictions based upon convictions of non-tenants.
In the case at bench, Debtor has no conviction for any drug-related offense but one conviction for disorderly conduct based upon a guilty plea.5 Thus, the Order for Possession is not based upon Debt- or’s drug related criminal conduct, because Debtor is no longer even charged with same, the charges having been dismissed. HACP, therefore, has failed to prove that Lease Paragraph 81(1) has been violated by Debtor.
The Order for Possession, if it is based on social eviction grounds at all, must be based on the disorderly conduct plea. Nothing of record, however, establishes that the conduct involved any threat to the health, safety or welfare of any other tenant or management. In fact, the record does not show the presence of any other tenant or management personnel at the scene of the incident whose health, safety or right to peaceful enjoyment was threatened by the alleged criminal activity. Thus, lease paragraph 81(2) requirements for eviction do not appear to have been satisfied. No factfinder has entered findings of fact under paragraph 8K (criminal or non-criminal conduct impairing the peaceful enjoyment or community environment), as applied to lease violations through paragraph 8T, to show that Debt- or’s conduct was either a “serious” or “repeated” violation(s) of a material term of the lease. Thus, although HACP has an Order for Possession based solely on non-monetary lease defaults, there is no evidence to support the grounds for the Order for Possession. Debtor cured the monetary lease default by paying the full judgnent amount as is authorized by Pennsylvania law, and there is no basis for eviction on this ground. In any event, HACP does not dispute that Chapter 13 permits a cure of a monetary lease default. Thus, the record before this court does not establish any grounds on which HACP is entitled to evict the Debtor, even though it has an order for possession.
HACP contends that Debtor cannot use chapter 13 to cure non-monetary defaults or provide adequate assurance of future performance. There is case law to the contrary and I agree, generally, that certain non-monetary breaches can be cured. See, e.g., In re Yardley, 77 B.R. 643 (Bankr.M.D.Tenn.1987) (Bankruptcy Code authorizes cures of non-monetary breaches of the lease); In re Mack, 1993 WL 722255 (Bankr.E.D.Pa.1993) (cures of non-monetary breaches permitted but state court is proper forum to consider the issue). However, I do not agree with Yardley’s conclusion that satisfaction of *181criminal penalties (ie., time served and payment of a fine) cures the civil consequences of breach of a lease. The civil consequence of the breach alleged in this case is the order for possession issued by the District Justice but, as explained above, the record before me contains no facts supporting that order for possession on non-monetary grounds. I agree that a debtor may provide adequate assurance that he will not commit future non-monetary lease violations in a variety of ways, depending upon the facts in the case. In this case, Debtor’s history of over three years’ tenancy without violating the lease and his promise to keep his unit free of controlled substances and users thereof, coupled with an order granting relief from stay to HACP prospectively to litigate future alleged non-monetary violations in the state court is adequate protection. However, I see no basis upon which Debtor can “cure” a criminal conviction,6 and if that conviction is the ground for an order of possession based on non-monetary lease defaults, the eviction may proceed.
In light of the record before me and the fact that Debtor has twenty-four days left to file an appeal in state court from the order of the Court of Common Pleas denying his motion for leave to appeal nunc pro tunc, I will grant relief from stay for the limited purpose of allowing Debtor to file his appeal and HACP to participate in litigating that appeal. If the state appellate court permits Debtor to appeal and the appeal is decided in Debt- or’s favor, there is no need to address assumption or cure issues. If Debtor is permitted to appeal and the appeal is decided in HACP’s favor, then HACP may exercise its state court remedies.
An appropriate order will be entered.
ORDER
AND NOW, this 12th day of March, 2001, for the reasons expressed in the foregoing Memorandum Opinion, it is ORDERED, ADJUDGED, and DECREED that the Motion for Relief from Automatic Stay filed by the Housing Authority of the City of Pittsburgh is GRANTED for the limited purpose of permitting Debtor to file an appeal to the appropriate state court within twenty-four days of the date of this Order and to permit the Housing Authority of the City of Pittsburgh to defend any such appeal.
Relief from stay is DENIED for all other purposes and HACP may not evict Debtor pending the outcome of the appeal.
. The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.
. The police report refers to her as "Ms. Gilmore" at times.
. Eventually, both Debtor and Ms. Wofford entered guilty pleas to the summary offense of disorderly conduct. Neither was convicted of drug possession and the record does not establish that the suspected marijuana was proven to be marijuana. The drug charges were all dismissed. There is no factual support of record to show that Debtor engaged in any disorderly conduct, other than his plea. There is no evidence that the disorderly conduct charge is in any way related to the suspicion that Debtor's apartment, at a time when Debtor was not inside, had a marijuana "blunt” burning in an ash tray and suspected marijuana seeds on a table.
. Noteworthy are some of the entries on the Docket Transcript of the City Magistrate dated one day after the February 15th arrest date (Exhibit B, HACP’s Brief in Support of Motion for Relief from Stay):
Description Charges Grading Offense Date Section & Subsection Disposition
A VIOL. OF DRUGS [sic] — POSSESSION 2-15-00 CS13al6 DIS
B VIOL. OF DRUGS — SMALL AMOUNT 2-15-00 CS13a31 DIS
C VIOL. OF DRUGS — PARAPHERNALIA 2-15-00 CS13a32 DIS
D DISORDERLY CONDUCT 2-15-00 CC5503 GP
There is no key to define "DIS” or "GP.” The only one of the four offenses to be graded is the disorderly conduct charge marked simply "S." The parties do not dispute that "DIS” means "dismissed,” "GP” means "guilty plea,” and "S" means "summary offense.” Hence, as of the end of Debtor’s arraignment he had been convicted of only the summary offense of disorderly conduct.
. The drug charges against Ms. Wofford were also dismissed. Thus, the order for possession cannot be based on her alleged drug related criminal conduct either.
. If the conviction were set aside, overturned, or expunged such that it no longer served as a basis for the lease violation, then "cure” would be irrelevant. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493149/ | MEMORANDUM OPINION
BERNARD MARKOVITZ, Bankruptcy Judge.
The chapter 7 trustee in the above bankruptcy cases has brought a motion to approve a settlement of a class action against Hefren-Tillotson, Inc. pending in state court. He also requests an order barring any third party from asserting any claims against Hefren-Tillotson in connection with certain “tainted” securities transactions in which either of the debtors and Hefren-Tillotson were involved.
Various defendants in adversary actions brought by the chapter 7 trustee who are not parties to the settlement agreement but who nonetheless would be subject to the proposed bar order have objected to its inclusion in any order approving the settlement agreement.
In addition, special litigation counsel to the chapter 7 trustee in the class action pending in state court has submitted an application requesting payment of legal fees and costs incurred in connection with his representation of the chapter 7 trustee in that action. The application is unopposed.
For reasons set forth below, we will approve the settlement, but without the bar order. Also, for the time being we will defer consideration of the application of special litigation counsel.
-FACTS-
Involuntary chapter 7 petitions were brought against debtors Devon Capital Management, Inc. (at No. 98-25314-BM) and Financial Management Sciences, Inc. (at No. 98-25315-BM) on July 5, 1998. Orders for relief were issued and a chapter 7 trustee for both cases was appointed on September 16,1998.
Hefren-Tillotson is a securities broker-dealer which was involved in numerous *621“tainted” securities transactions in which debtors along with others also were involved.
On September 29, 1998, Bald Eagle School District and South Butler County School District initiated a class action in the Court of Common Pleas of Blair County, Pennsylvania, against Hefren-Tillotson and four of its individual employees and representatives. The amended complaint alleged that defendants had executed securities trades at arbitrary and unfair prices and had dissipated assets of debtor Financial Management Sciences in which the class claimed an interest. Only Count III, which alleged a fraudulent scheme, has survived. With the exception of one individual, all claims against employees and representatives of Hefren-Tillotson were dismissed.
We issued an order on May 14, 1999, approving appointment of special counsel to represent the chapter 7 trustee on a contingency fee basis in various types of litigation. Subject to ultimate approval of this court, special counsel was to receive in connection with all litigation of the type involved in this instance twenty-five percent of the initial five million dollars recovered and twenty percent of any recovery in excess of that amount.1
The chapter 7 trustee filed a Praecipe for a Writ of Summons against Hefren-Tillotson in the Court of Common Pleas of Allegheny County, Pennsylvania, on September 13, 2000. No complaint was ever filed, however, because the settlement agreement presently before us was reached in the class action pending in the Court of Common Pleas of Blair County. The parties to the settlement agreement were the chapter 7 trustee, the members of the class, and all defendants named in the amended complaint.
Under the terms of the settlement agreement, Hefren-Tillotson agreed to pay the sum of $600,000 to the chapter 7 trustee, who was to distribute all of the settlement proceeds to creditors of debtors’ bankruptcy estates in accordance with the provisions of the Bankruptcy Code.
Approval of the settlement agreement by both this court and the Court of Common Pleas of Blair County is required before the settlement takes effect. The intent of the settlement agreement was to release defendants from:
... any and all liabilities to any person arising out of, or relating to, any of the facts, events, circumstances, allegations claims, causes of action, acts, omissions, failures to act, of whatever kind or character described ... in the Class Action and the Trustee’s Action .. or any other action which may be related to the Subject Matter of the Litigation.
§ 4.1.
In accordance with this stated intent, the chapter 7 trustee and class members agreed to release and discharge defendants from all claims or causes of action they had or may have thereafter relating to the subject matter of the litigation § 4.3. The releases were to be executed pursuant to the provisions of the Pennsylvania Uniform Contribution Among Joint Tortfeasors Act, 42 Pa.C.S.A. §§ 8312 et seq., and, to the extent applicable, the Pennsylvania Comparative Negligence Act, 42 Pa.C.S.A. § 7102 § 4.4.
The chapter 7 trustee and class members further agreed to reduce the amount of their recovery from and the common liability of any additional defendant, including defendants in any adversary actions brought by the chapter 7 trustee, to the extent of the released parties’ pro rata *622share of damages recoverable against all tortfeasors. § 4.5.
The settlement agreement was not binding unless the order approving the settlement contained the following bar order:
Any and all persons or entities are hereby enjoined from asserting any claims against Hefren-Tillotson and its officers, directors, agents, employees, attorneys or representatives, or anyone (or any entity acting in such capacity), and its predecessors and successors, in law or in equity, including but not limited to claims for contribution, indemnity, unjust enrichment, fraudulent conveyance, preference, or otherwise, arising from Hefren-Tillotson acting as broker-dealer or otherwise transferring moneys or securities in any transaction between (1) John Gardner Black, Devon and/or FMS, and/or (2) any other entity, including Hefren-Tillotson and/or various defendants in Adversary Actions brought by the Trustee, and such claims are hereby discharged and extinguished (this provision shall be referred to as the “third Party Injunction”). Nothing in this order prevents any such enjoined persons or entities from presenting defenses to any action brought against them by the Trustee, and receiving a pro rata release if such a court of competent jurisdiction finally adjudicates such party to be a joint tortfeasor entitled to contribution under the Pennsylvania Uniform Contribution Among Joint Tortfeasors Act, 42 Pa.C.S.A. § 8327.
§ 4.7(i).
Should we issue an order approving the settlement agreement without the bar order found at § 4.7(i), Hefren-Tillotson and the individual defendants have ten days from entry of the order to accept or reject the settlement agreement without the bar order included. § 4.8.
In consideration of the joint tortfeasor’s release, Hefren-Tillotson and the individual defendants covenanted not to sue or otherwise pursue, in any manner, any contribution or indemnification or other claim against any class member, the chapter 7 trustee, or any defendant in an adversary action brought by the chapter 7 trustee. § 4.11.
The chapter 7 trustee in the above bankruptcy cases has brought adversary actions against, among others, Toledo Hospital, Carson City-Crystal Area Schools, Comstock Park Public Schools, L’Anse Creuse Public Schools, Lincoln Consolidated Schools, School District of the City of River Rouge, and Yale Public Schools (hereinafter referred to collectively as “objectors”).
The Court of Common Pleas of Blair County issued an order on February 2, 2001, approving the above settlement agreement without striking or modifying any portion thereof.2
The chapter 7 trustee has brought a motion in this court for an order approving the settlement agreement and requesting that the bar order found at § 4.7(i) be made an express part of the order. Also, special counsel to the chapter 7 trustee has submitted an application for an award of attorneys’ fees in the amount of $145,000.00 and for costs and expenses in the amount of $13,794.74 for representing the chapter 7 trustee in the above class action.3
*623Objectors oppose the motion of the chapter 7 trustee because of the bar order found at § 4.7(i) of the settlement agreement. They argue that we should not approve the settlement agreement in toto, but instead should modify it by striking the bar order.
Hearings on the motion of the chapter 7 trustee and the objection thereto by objectors and on the uncontested fee application of special counsel to the chapter 7 trustee were held on February 13, 2001.
- DISCUSSION -
We should consider the following factors, when applicable, in determining in a bankruptcy context whether to approve a settlement agreement: (1) the probability of success on the merits in the litigation being settled; (2) the likely difficulties in collecting a judgment; (3) the complexity of the litigation and the attendant expense, inconvenience, and delay; and (4) the paramount interest of creditors. Myers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir.1996).
We conclude, without need for much ado, that these factors favor approval of the settlement. It is not certain, for instance, that the chapter 7 trustee would prevail in any action he might bring against Hefren-Tillotson. Were he to prevail, it is not obvious that Hefren-Tillotson has sufficient assets with which to satisfy a judgment against it. Also, due to the complexity and large number of the securities transactions in which Hefren-Tillotson was involved, debtors’ estates most likely would incur considerable expense if the chapter 7 trustee had to prove his case against Hefren-Tillotson at trial. The paramount interest of estate creditors would be better served by a settlement of such complex and expensive litigation which might not result in a substantial recovery for the estates even if the chapter 7 trustee were to prevail at trial.
Consideration of these factors is not, however, the end of our inquiry in this instance. We may approve a settlement only if it is “fair and equitable”. U.S. v. AWECO, Inc. (In re AWECO, Inc.), 725 F.2d 293, 297 (5th Cir.), cert. denied, 469 U.S. 880, 105 S.Ct. 244, 83 L.Ed.2d 182 (1984). Even if a settlement is fair and equitable to the parties to the settlement, approval is not appropriate if the rights of others who are not parties to the settlement will be unduly prejudiced. We must determine that “no one has been set apart for unfair treatment”. Cullen v. Riley (In re Masters Mates and Pilots Pension Plan), 957 F.2d 1020, 1026 (2d Cir.1992). Ignoring the effect of a settlement on rights of third parties “contravenes a basic notion of fairness”. In re AWECO, 725 F.2d at 298. The same is no less true where, as here, approval of a class action settlement is at issue. Eichenholtz v. Brennan, 52 F.3d 478, 482 (3d Cir.1995).
Objectors oppose the motion of the chapter 7 trustee because of the bar order.4 They assert that we should not approve the settlement insofar as it includes the proposed bar order. Objectors maintain that they have suffered losses of their own as a result of securities transactions involving FMS or Devon and Hefren-Tillotson for which they may wish to assert *624claims against Hefren-Tillotson. The bar order would prohibit them from doing so. No consideration flows to them in exchange for the bar order, objectors maintain, inasmuch as they neither are members of the class in the state court action nor creditors of debtors’ bankruptcy estates who will receive any distribution of estate assets by the chapter 7 trustee.
In support of his request for an order containing the bar order provision, the chapter 7 trustee cites to Eichenholtz, supra, wherein the Third Circuit affirmed an order approving a settlement agreement containing a bar order similar to the one found at § 4.7(i) of the above settlement agreement. His reliance upon Eichenholtz in this instance, in our estimation, is misplaced.
Plaintiffs in Eichenholtz brought a class action against an entity that had issued allegedly objectionable securities, against certain broker-dealers, and against various individuals. The defendant broker-dealers all filed cross-claims for contribution or indemnification against the entity that had issued the securities. Eichenholtz, 52 F.3d at 480-81.
Plaintiffs eventually arrived at a partial settlement with certain of the individual defendants and the issuer of the securities. The defendant broker-dealers were not parties to the settlement. The partial settlement agreement included a provision whereby the trial judge would, in approving the settlement agreement, enter a bar order which provided that:
... all claims for contribution or indemnification however denominated, against the settling defendants, based upon liability on any of the settled claims, in favor of persons, including [the] non-settling defendants are extinguished, discharged, satisfied and/or otherwise barred and unenforceable.
Eichenholtz, 52 F.3d at 481.
The partial settlement agreement also contained a proportionate fault reduction provision which expressly barred plaintiffs in the class action:
... from seeking from the non-settling defendants any amounts greater than the proportionate liability, if any, of the non-settling defendants for damages, if any, determined at trial....
Id.
The trial court determined that the partial settlement was fair, reasonable, adequate and in the best interest of the settling parties and entered an order approving it, whereupon non-settling defendants appealed. They argued on appeal that the trial court had abused its discretion in that they had suffered prejudice because the bar order extinguished their right to contribution and indemnification from settling defendants. Eichenholtz, 52 F.3d at 482-83.
The Third Circuit noted that, in addition to the bar order, the partial settlement also contained a proportionate fault reduction provision whereby the finder of fact in the trial of a non-settling defendant would assess the relative culpability of both the settling and non-settling defendants. The non-settling defendants were responsible only for a percentage of the judgment against them. Such a provision, the Third Circuit concluded, was the “equivalent” of a claim for contribution in that a non-settling defendant was responsible only for its portion of the total liability. Eichenholtz, 52 F.3d at 486-87.
The Third Circuit further noted that the United States Supreme Court, in McDermott, Inc. v. AmClyde, 511 U.S. 202, 114 S.Ct. 1461, 1466, 128 L.Ed.2d 148 (1994), had stated that the proportionate fault re*625duction method adequately protected contribution rights of non-settling defendants in an admiralty context and went on to conclude that the same was true in a case alleging violations of federal securities law. Eichenholtz, 52 F.3d at 487 n. 16. After so concluding, the Third Circuit determined that the trial court had not abused its discretion in imposing the bar order containing the proportionate fault reduction provision and affirmed the order approving the partial settlement agreement. Eichenholtz, 52 F.3d at 487.
As we understand it, the upshot of Ei-chenholtz is that a court must look beyond the presence of a bar order when determining whether to approve a settlement agreement. Such a settlement is not prejudicial to non-settling defendants and accordingly may be approved if it also contains, as does the settlement agreement presently under consideration, a proportionate fault judgment reduction provision. Notwithstanding the inclusion of a bar order in the settlement agreement, the presence of a proportionate fault reduction provision is the “equivalent” of a claim for contribution. According to the chapter 7 trustee and Hefren-Tillotson, the bar order at § 4.7(i) of the above settlement agreement is not prejudicial to objectors’ interests because the settlement agreement also contains a proportionate fault reduction provision at § 4.5. The chapter 7 trustee has agreed to reduce the amount of any recovery from objectors to the extent of Hefren-Tillotson’s pro rata share of damages recoverable by the chapter 7 trustee from all tortfeasors.
This argument is without merit. Ei-chenholtz does not in this instance support the inference that approval of the settlement agreement with the bar order included is “fair and equitable” to objectors.
The settlement agreement approved in Eichenholtz was a partial settlement. Plaintiffs in that lawsuit settled with some of the named defendants but not with others. The settlement in the present instance, by contrast, is total in that all of the parties to the lawsuit have agreed to the settlement. Objectors, we have noted, are not parties to the class action pending in state court.
Not only are the objectors in the present matter not parties to the class action pending in state court or to the settlement thereof, they also have not asserted in any forum any claims against Hefren-Tillotson for contribution. The fact that the settlement agreement contains a version of the proportionate fault reduction rule at § 4.7(i), and thus provides the “equivalent” of a claim for contribution, has no bearing on whether the bar order in this instance is fair or prejudicial to objectors. Eichen-holtz did not address a situation in which parties subject to the bar order had not asserted a claim for contribution against any of the settling defendants.
The matter does not end there. Eichen-holtz provides no basis for approving the above settlement agreement even if the above problems were not present. The bar order in Eichenholtz pertained only to claims by non-settling parties against settling parties for contribution or indemnification, “however denominated”.
The bar order in the present matter is far broader in scope in that it prohibits anyone from asserting any claims against Hefren-Tillotson when acting as a broker-dealer for transactions involving Devon or FMS. The prohibition is not limited in scope merely to claims for contribution or indemnification. It also prohibits “claims ... for unjust enrichment, fraudulent conveyance, preference, or otherwise” arising from Hefren-Tillotson’s actions as broker-dealer in any transaction between either of the debtors and any other entity, including *626defendants in adversary actions brought by the chapter 7 trustee.
Aside from claims for contribution, we do not believe that the proportionate fault reduction rule would result in an “equivalent” for any of the claims prohibited by § 4.7(i) of the settlement agreement. Prohibiting objectors from asserting any claims other than for contribution they may have against Hefren-Tillotson for transactions between either of the debtors and objectors in which Hefren-Tillotson was involved would be highly prejudicial. Objectors would receive no consideration in return for the prohibition against asserting such other claims against Hefren-Tillotson.
Hefren-Tillotson has intimated that objectors would not be prejudiced in this regard because they realistically have no meritorious claims they could assert against it at this stage. Even though we are not able to think of any claims which objectors might have against Hefren-Til-lotson, we are reluctant to conclude for this reason that objectors will not be prejudiced by the bar order. We are not the sole repository of insight and wisdom in this regard and cannot rule out the possibility that objectors have in mind potentially meritorious claims they may assert against Hefren Tillotson.
At least one appellate court of which we are aware has upheld a settlement bar order which prohibited claims against a settling party not only for contribution but also for fraud or negligence. It did so after satisfying itself that the latter claims were not independent of a claim for contribution. In re U.S. Oil and Gas Litigation, 967 F.2d 489, 495-96 (11th Cir.1992).
Although instructive, we are not bound by the holding in the case. Moreover, it is distinguishable from the present case in that the bar order at issue here is sufficiently broad to cover claims that are not merely claims for contribution masquerading as something else. The bar order in this instance prohibits any person or entity from asserting any claim against arising from its actions as broker-dealer for any transaction between Devon or FMS and any defendant in any adversary action brought by the chapter 7 trustee. All such claims against Hefren-Tillotson are discharged and extinguished.
We conclude on the basis of the foregoing that, with the exception of § 4.7(i), we should approve the terms and provisions of the above settlement agreement. Accordingly, we will issue an order approving the settlement that does not include the bar order. In accordance with § 4.8 of the settlement agreement, Hefren-Tillotson will have ten days from entry of the order to decide whether to accept or reject the settlement agreement without the bar order.
Because it is not now known whether Hefren-Tillotson will accept or reject the settlement agreement minus the bar order, it would be premature for us to consider at this time the fee application of special counsel to the chapter 7 trustee. Counsel was appointed on a contingency fee basis and would not be entitled to payment of any fees unless a monetary recovery for the benefit of the bankruptcy estates is achieved. The chapter 7 trustee shall file a notice with the court at the end of ten days indicating whether or not Hefren-Tillotson has accepted the settlement as modified. If it has, we will consider the fee application of special counsel.
An appropriate order shall issue.
ORDER OF COURT
AND NOW, this 22nd day of March, 2001, in accordance with the accompanying memorandum opinion, it hereby is ORDERED, ADJUDGED, and DECREED *627that: (1) with the exception of § 4.7(i), the settlement agreement between the chapter 7 trustee and Hefren-Tillotson is APPROVED; (2) the request for inclusion of a bar order in the form of § 4.7(i) in the order approving the settlement is DENIED; (3) at the end of ten days from entry of this order, the chapter 7 trustee shall FILE A NOTICE with the court indicating whether or not Hefren-Tillotson has accepted the settlement agreement as modified; (4) consideration of the fee application of special counsel to the chapter 7 trustee is DEFERRED until it is determined whether Hefren-Tillotson has accepted or rejected the settlement agreement as modified.
It is SO ORDERED.
. Special counsel also represents the class in the action presently pending in state court.
. None of the objectors, it should be noted, is a member of the class in the class action brought in state court or is a creditor of either debtor's bankruptcy estate.
. Although the matter involving Hefren-Tillot-son was litigated almost entirely in the class action in the state court, any compensation special counsel to the chapter 7 trustee re*623ceives in connection with the matter will come exclusively from the amount the chapter 7 trustee recovers from Hefren-Tillotson and distributes under the provisions of the Bankruptcy Code.
. It is questionable whether objectors would have standing to object to the motion to approve the settlement agreement on any other ground. The only effect it has on them results from the bar order. Eichenholtz, 52 F.3d at 482. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493150/ | MEMORANDUM OF DECISION
JEFFERY P. HOPKINS, Bankruptcy Judge.
In this adversary proceeding, Michelle Lynn Davis (“Ms. Davis”), the former *661spouse of Frank Roy Davis (“Mr. Davis”), seeks a determination that Mr. Davis’ obligation to hold her harmless on certain joint debts assumed by Mr. Davis in their divorce decree is a nondischargeable debt for alimony, maintenance or support pursuant to 11 U.S.C. § 523(a)(5). Because we find that the domestic relations court did not intend to create a support obligation for the benefit of Ms. Davis when it imposed the hold harmless obligation upon Mr. Davis the indebtedness arising from the divorce decree is dischargeable. For this reason, judgment will be awarded in favor of Mr. Davis and Ms. Davis’ complaint will be dismissed.
I
Section 523(a)(5) excepts from dischai'ge debts “for alimony to, maintenance for, or support of’ a former spouse. The parties’ divorce decree provides that Mr. Davis was to assume several joint debts and hold Ms. Davis harmless on the same. The language creating the hold harmless obligation, however, does not expressly designate it as alimony, maintenance or support. When a debt arising out of a divorce decree or separation agreement is not expressly designated as alimony, maintenance or support, courts within the Sixth Circuit must apply a four-part test set forth in Long v. Calhoun (In re Calhoun), 715 F.2d 1103 (6th Cir.1983) to determine whether the debt constitutes alimony, maintenance or support under § 523(a)(5). The first prong of the Calhoun test requires a determination of whether the parties or the state court issuing the divorce decree intended to create an alimony, maintenance or support obligation.1 Id. at 1109. When making this determination, bankruptcy judges may consider any relevant evidence, including factors considered by state courts when deciding whether to award support. Id. at 1109; Harvey v. McClelland (In re McClelland), 247 B.R. 423, 426 (Bankr.N.D.Ohio 2000). Such factors that are relevant to this determination include: (1) the relative income of the parties; (2) the duration of the marriage; (3) the presence of minor children; (4) marital fault; (5) the nature of the obligations assumed (provision of daily necessities indicates support); (6) the language of the divorce decree; and (7) whether the obligation terminates upon death or remarriage. See Ohio Rev.Code Ann. § 3105.18(C)(1); Calhoun, 715 F.2d at 1108 n. 7; McClelland, 247 B.R. at 426. Applying the foregoing standard to the evidence presented at trial, the Court concludes that the domestic relations court did not intend to create an alimony, maintenance or support obligation when it ordered Mr. Davis to assume certain of the parties’ marital debts and hold Ms. Davis harmless on them.
II
The Davises were married on October 26,1996. On November 23,1999, a Decree of Divorce terminating the marriage was entered by the Court of Common Pleas, Division of Domestic Relations, Hamilton County, Ohio. Mr. Davis filed his bankruptcy petition on February 11, 2000. The parties have two children from the marriage, ages three and one at the time of the divorce. Relevant to this proceeding, the divorce decree provided: (1) Mr. Davis was found to be guilty of adultery; (2) Mr. Davis was ordered to assume a debt to Sears in the approximate amount of $1,766.53, a debt to Monitronics (home se*662curity) in the amount of $63.50, any remaining indebtedness to Dillards and Kay Jewelers, and all taxes, utilities, insurance and mortgage debts (of which there were three) on the marital residence; (3) Mr. Davis was ordered to hold Ms. Davis harmless on these debts; (4) Mr. Davis was awarded the marital residence and Ms. Davis was ordered to quitclaim her interest therein; (5) Ms. Davis was awarded custody of the two children; (6) Mr. Davis was ordered to pay $679.00 monthly for child support; and (7) the court specifically ordered that neither party pay spousal support to the other.
Ms. Davis is twenty-four years old and has a high school education. Mr. Davis has a G.E.D.2 At the time of their divorce, Ms. Davis earned less than $13,000.00 annually as an employee at a day care facility. At the same time, Mr. Davis earned approximately $28,000.00 annually as a manager of a fast-food restaurant.
Ill
Ms. Davis argues that she waived her right to spousal support in reliance upon Mr. Davis’ commitment to assume the joint debts and hold her harmless for those debts. She therefore concludes that the debt assumption constitutes a support award, although not designated as such. Several factors arguably support her position. Indicative of Ms. Davis’ need for support is: (1) the income disparity between the parties of approximately $15,000.00; (2) the presence of two young children for which she has been granted custody; and (3) the finding of marital fault on the part of Mr. Davis. However, there are also multiple factors that militate against a support award. Such factors include: (1) a marriage of only three years; (2) the obligations assumed do not appear to have provided Ms. Davis with daily necessities3; and importantly (3) the language of the divorce decree itself. As to the actual language of the decree, several aspects are noteworthy. It is hard to overlook the fact that the decree expressly provides that both parties waive spousal support. Second, the hold harmless obligation is not designated as an award in lieu of spousal support. Third, the language creating the hold harmless obligation is located within paragraphs five through nine of the divorce decree, which provide for a division and distribution of property between the parties.4 Finally, the obligation does not terminate upon the death or remarriage of Ms. Davis.
In light of the foregoing factors, the Court concludes that the evidence preponderates in favor of a finding that the domestic relations court did not intend to
*663create a support obligation when it ordered Mr. Davis to hold Ms. Davis harmless on their joint debts. This conclusion is further supported by a recent decision out of the Northern District of Ohio with strikingly similar facts. In Findley v. Findley (In re Findley), 245 B.R. 526 (Bankr.N.D.Ohio 2000) (Snow, J.), the debtor (“Mr. Findley”) and his ex-spouse (“Ms. Findley”) were married for six years before their divorce. Ms. Findley was awarded custody of the parties’ single child. A separation agreement, incorporated into the decree of divorce, provided that Mr. Findley was awarded the marital residence in return for holding Ms. Find-ley harmless on several debts. The parties further agreed that neither party was to pay spousal support to the other. Mr. Findley filed his bankruptcy petition three months after the parties were divorced. Ms. Findley commenced an adversary proceeding, seeking a determination that the hold harmless obligation was nondis-ehargeable pursuant to § 523(a)(5).5 Similar to Ms. Davis, the plaintiff in Findley argued that the hold harmless obligation was a support debt because she discontinued pursuit of spousal support once her ex-husband agreed to hold her harmless on the debts in question.6 In reaching its decision the Findley court likewise scrutinized the intent of the parties when entering into the hold harmless agreement. The court concluded that the agreement was not intended to serve as a support obligation. Although the court found it to be a “close question,” it was persuaded by the following factors: (1) the hold harmless obligation was located within the provisions of the separation agreement that divided the parties’ assets; and (2) the obligation was never characterized in the agreement as being imposed in lieu of spousal support. By comparison with this case, Ms. Davis’ argument is even less compelling than the plaintiff in Findley. Here, there is no evidence in the record that Ms. Davis made any attempt to seek spousal support. Absent proof that spousal support was sought or even desired by Ms. Davis in the domestic relations proceedings, it is difficult for this Court to find that the hold harmless obligation was intended as spousal support in lieu of a direct award for the same. “There is no basis for the bankruptcy court to create a non-dischargeable obligation for the debtor that the state court granting the divorce decree or the parties to the proceedings did not create.” Calhoun, 715 F.2d at 1109.
IV
Ms. Davis contends, however, that the hold harmless obligation should also be nondischargeable because Mr. Davis never intended to uphold his commitment to hold her harmless but agreed to do so knowing that he would immediately turn around and attempt to discharge the debt in bankruptcy.7 In support of her position, Ms. Davis relies upon the decision of Arterburn v. Arterburn (In re Arterburn), 15 *664B.R. 189 (Bankr.W.D.Okla.1981). Although the record supports Ms. Davis’ factual contentions, her legal argument is misplaced.
Upon a closer reading, the holding in Arterbum actually supports this Court’s construction of § 523(a)(5). That case involved a debtor who, four days after his divorce, sought to discharge a hold harmless obligation in bankruptcy. Like Mr. Davis, the debtor in Arterbum never intended to fulfill his obligation. Under alternative theories of prosecution, the debt- or’s ex-spouse sought a determination that the obligation was nondischargeable. The court concluded that the debt was nondis-chargeable. However, the Arterbum court’s holding was not premised upon § 523(a)(5). Rather, the court concluded that § 523(a)(5) was inapplicable because the divorce decree contained no indication that the hold harmless obligation was imposed in lieu of alimony or spousal support. In Arterbum the bankruptcy judge instead found that the hold harmless obligation was only nondischargeable because debtor’s ex-spouse had alternatively pled and proved a case of fraud under 11 U.S.C. § 523(a)(2)(A). In this case, Ms. Davis never pled nor proved all of the elements required to show that her ex-husband violated the anti-fraud provisions of § 523(a)(2)(A). Unlike Arterbum, the record in this case is silent regarding any intentional misrepresentation by Mr. Davis upon which Ms. Davis reasonably relied to her detriment during formulation of the final divorce decree. Therefore, Ms. Davis’ argument that Arterbum renders Mr. Davis’ obligation nondischargeable under § 523(a)(5) must be rejected.
y
For the foregoing reasons, the debt- of Frank Roy Davis to Michelle Lynn Davis is subject to discharge. The complaint (Doc. 1) filed by Michelle Lynn Davis on March 31, 2000, will be DISMISSED. A judgment to this effect will be entered.
. In the event that the debt is created by a separation agreement between the parties, the intent of the parties (not the domestic relations court) becomes the focus. Because the debl before this Court was created by the divorce decree itself, in the absence of a separation agreement, the intent of the domestic relations court is controlling.
. Although the record does not reflect Mr. Davis’ age, he appeared to be roughly the same age as Ms. Davis.
. Because Mr. Davis was awarded the marital residence, his assumption of debt related thereto does not have the effect of providing Ms. Davis with daily necessities. See Malone v. Hackworth (In re Hackworth), 27 B.R. 638, 640 (Bankr.S.D.Ohio 1982) (Perlman, J.) (concluding that debtor’s assumption of mortgage debt did not provide ex-spouse with a necessity of life insulated from the reach of marital creditors where debtor was awarded marital residence). The record contains no evidence that the other four consumer debts served to provide Ms. Davis with daily necessities following their divorce.
.Although the divorce decree does not have separate sections with clearly identified headings, it is apparent that the decree is structure as follows:
Paragraphs 1-2 Introduction and Procedure
Paragraph 3 Grounds for Divorce
Paragraph 4 Award of Divorce
Paragraphs 5-9 Distribution of Property
Paragraph 10 Custody of Children
Paragraphs 11-17 Support of Children
Paragraph 18 Spousal Support
Paragraph 19 Costs and Fees
. In Findley, the debtor's former spouse argued in the alternative that the obligation was nondischargeable pursuant to 11 U.S.C. § 523(a)(15). Ms. Davis, however, did not pursue a similar alternative theory of nondis-chargeability under § 523(a)(15) in the proceeding before this Court.
. Unlike Ms. Davis, the plaintiff in Findley actually filed a motion for spousal support in the domestic relations court. She withdrew the motion when the hold harmless agreement was reached with her ex-husband.
.Mr. Davis did testify that: (1) he was at the final divorce hearing; (2) he knew that he would not be able to comply with the terms of the decree; (3) he made no objections when the judge asked him about the divorce decree; and (4) prior to the entry of the divorce decree, he decided to file for bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493151/ | RICHARD S. STAIR, Bankruptcy Judge.
MEMORANDUM ON PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
This adversary proceeding was commenced by the November 8, 2000 filing of a Complaint by ORNL Federal Credit Union (ORNL) against the Debtor, Helen M. Wilson, Commercial Credit Plan, Inc., and the Chapter 7 Trustee, Maurice K. Guinn (Trustee). By an Amended Complaint filed on February 20, 2001, ORNL added Wells Fargo Financial Tennessee, Inc. as a party Defendant. By this action, ORNL asks the court to void its unintentional release of a Deed of Trust encumbering the Debtor’s former home (Residence).
Presently before the court is ORNL’s Motion for Summary Judgment filed on March 14, 2001. ORNL asserts that it is entitled to a judgment as a matter of law because it holds an equitable lien on the Residence and because reinstatement of the mistakenly released Deed of Trust will not infringe upon the intervening rights of any third party. Conversely, the Trustee argues that he can avoid ORNL’s alleged *666interest by virtue of the “strong arm” powers granted by 11 U.S.C.A. § 544(a) (West 1993).
ORNL’s motion was accompanied by a Brief in Support of Motion for Summary Judgment and by affidavits. The Trustee filed a Reply to Motion for Summary Judgment on March 28, 2001, accompanied by a Trustee’s Brief in Opposition to ORNL’s Motion for Summary Judgment and by affidavits. On April 6, 2001, ORNL filed a Reply Brief of ORNL Federal Credit Union. The Defendants Commercial Credit Plan, Inc. and Wells Fargo Financial Tennessee, Inc. have not responded to ORNL’s Motion for Summary Judgment.1 They are, therefore, deemed to not oppose the motion. See E.D.Tenn. LBR 7007-1 (“A failure to respond [to a summary judgment motion] shall be construed by the court to mean that the respondent does not oppose the relief requested by the motion.”).
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(E) (West 1993).
I
On May 22, 1998, the Debtor filed her petition under Chapter 13 of the Bankruptcy Code. On the date she commenced her case, the Debtor resided at 3008 La-Fayette Road in Knoxville, Tennessee. The Residence was, at that time, encumbered by three properly recorded Deeds of Trust. The first priority deed was held by ORNL. The second and third priority deeds were held by Commercial Credit Plan, Inc. and Norwest Financial Tennessee, Inc., predecessor in interest to Wells Fargo Financial Tennessee, Inc., respectively.
On November 5, 1999, ORNL, after transferring the Debtor’s loan to another account number, inadvertently released its Deed of Trust on the Residence. Subsequently on September 15, 2000, the Debtor converted her Chapter 13 case to Chapter 7. On February 15, 2001, the court entered an Order authorizing the Trustee to sell the Residence free and clear of all liens with lien claims attaching to the sale proceeds. On March 9, 2001, the Trustee closed the sale and received $52,248.56 which, in addition to $2,500.00 in earnest money, he is holding pending resolution of this adversary proceeding.
II
Pursuant to Rule 56(c) of the Federal Rules of Civil Procedure, summary judgment is warranted “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 a judgment as a matter of law.” FmR.Crv.P. 56(c). Rule 56(c) is made applicable to this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure.
A court may grant summary judgment only if the prevailing party demonstrates as a matter of law that it is entitled to judgment on the merits. See Felix v. Young, 536 F.2d 1126, 1130 (6th Cir.1976). Additionally, summary judgment is appropriate only where the documents tendered to the court show that no genuine issue of material fact remains to be decided. See id. The present matter is ripe for summary judgment, as the parties do not dispute any facts material to the resolution of this proceeding.
III
Under Tennessee law, the mistaken release of a recorded deed of trust *667creates an equitable lien in favor of the creditor. See In re Tate, No. 99-31027, slip op. at 10 (Bankr.E.D.Tenn. March 2, 2000), aff'd, No. 3:00-cv-279 (E.D.Tenn. Dec. 15, 2000) (citing First Am. Nat’l Bank v. Miller (In re Miller), No. 98-20011, Adv. No. 98-2010, slip op. at 14-15 (Bankr.E.D.Tenn. Nov. 24, 1999) (citing Hamilton Nat’l Bank of Chattanooga v. Duncan, 23 Tenn.App. 329, 132 S.W.2d 353, 354 (1939), and Jetton v. Nichols, 8 Tenn.App. 567, 1928 WL 2152 at *5 (Tenn.Ct.App.1928))). An equitable lien is “the right to have the property subjected in a court of equity to the payment of the claim. It is a floating equity until action by the court is invoked.” Osborne v. McCormack, 180 Tenn. 526, 176 S.W.2d 824, 824-25 (1944).
Under Tennessee law, courts may reform written instruments, including deeds, only in cases of mutual mistake or mistake of one party influenced by fraud of the other. See Miller, No. 98-20011, at *11 (quoting Kozy v. Werle, 902 S.W.2d 404, 411 (Tenn.Ct.App.1995)). In the present case, there is no hint or allegation of fraud by the Debtor or any other Defendant. Additionally, the Trustee states that no mutual mistake occurred. The court disagrees.
Mutual mistake is “a mistake common to all the parties to the written contract or the instrument or in other words it is a mistake of all the parties laboring under the same misconception.” Collier v. Walls, 51 Tenn.App. 467, 369 S.W.2d 747, 760 (1962). It is undisputed that ORNL did not intend to release its Deed of Trust. Subsequent conduct by the Debtor demonstrated that she, too, “labored under the same misconception” that ORNL still held a valid lien on the Residence. For example, in her Statement of Intention filed pursuant to 11 U.S.C.A. § 521(2) (West 1993) on September 19, 2000, the Debtor expressed her intention to surrender the Residence to secured creditors ORNL and Commercial Credit Plan, Inc. Certainly the Debtor would not have planned the surrender to ORNL if she did not believe ORNL’s Deed of Trust to constitute an encumbrance on her Residence. Additionally, the Debtor’s Conversion Schedules adopt the schedules of her Chapter 13 filing, which list ORNL as the holder of the first mortgage on the Residence. Cf. Tate, No. 99-31027, at *12 (finding mutual mistake where neither party intended that the deed of trust be released); Miller, No. 98-20011, at *13-14 (same).
Based on the existence of mutual mis-» take, the court is permitted to exercise its equitable powers to void the release of ORNL’s Deed of Trust, provided that the rights of a third party have not intervened. See Tate, No. 99-31027, at *11; Needham v. Caldwell, 25 Tenn.App. 189, 154 S.W.2d 535, 538 (1941); Hamilton Nat’l Bank, 132 S.W.2d at 354. The Trustee asserts that the intervention of his § 544(a) rights should operate to prevent reinstatement of ORNL’s lien.
Section 348(a) of the Bankruptcy Code provides that the conversion of a case from Chapter 13 to Chapter 7 “does not effect a change in the date of the filing of the petition [or] the commencement of the case....” 11 U.S.C.A. § 348(a) (West 1993). Section 544(a) fixes a trustee’s rights “as of the commencement of the case,” which in the present matter would be the date of the Debtor’s Chapter 13 filing, May 22, 1998. See 11 U.S.C.A. § 348(a). A trustee’s § 544(a) rights concern pre-petition transfers only. See 11 U.S.C.A. § 544(a) (West 1993).2
*668The “intervention of third party rights” requires a corresponding injury to or reliance by the third party. See Needham, 154 S.W.2d at 538 (“[Wjhere the release ... of the mortgage is the result of ... mistake, it will not inure to the benefit of a person acquiring an interest in the property, who did not rely or advance anything on the face of such discharge. As the discharge, under such circumstances, did not enter into, or induce the transaction, the annulment thereof and the restoration of the mortgage to its priority of lien does not operate as a prejudicial [sic] or place the person who acquired the interest in a worse position than he was before.”) (internal citation omitted); Barton v. Barton, 18 Tenn.App. 409, 78 S.W.2d 356, 358 (1934) (finding, in dicta, intervention of third party rights where third party not before the court relied upon the release); see also Miller, No. 98-20011, at *15 n. 5 (considering, in the context of a junior lien holder, whether the third party was injured by, misled by, or acted to its prejudice in reliance on the release).
The present record indicates no third party injury or reliance resulting from ORNL’s mistaken release. The release, unless voided, results in an unmerited windfall to the Debtor’s estate. See Need-ham, 154 S.W.2d at 538 (“To permit the bank to repudiate this recognition and as-serf a superior lien, because afterwards it was discovered that the first lienholder had through inadvertence released his lien upon all the lots would permit the bank to unjustly enrich itself at the expense of the first lienholder.”).
For the reasons stated above, ORNL’s Motion for Summary Judgment will be granted. The mistaken release of its Deed of Trust is void and of no effect, and ORNL is entitled to be returned to its status as first priority lienholder on the Residence. The Trustee will be instructed to distribute the proceeds realized from his sale of the Residence, to the extent of available funds, first to ORNL, second to Commercial Credit Plan, Inc., and third to Wells Fargo Financial Tennessee, Inc. in satisfaction of their respective allowed secured claims. An appropriate order will be entered.
. The Debtor, also a party Defendant, does not have a stake in the outcome of this adversary proceeding. Default was entered against her on December 21, 2000.
. Section 544(a) provides:
(a) The trustee shall have, as ol the com*668mencement 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—
(1) a creditor that extends credit to the debtor at the time of the commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;
(2) a creditor that extends credit to the debtor at the time of the commencement of the case, and obtains, at such time and with respect to such credit, an execution against the debtor that is returned unsatisfied at such time, whether or not such a creditor exists; or
(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 a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
11 U.S.C.A. § 544(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493152/ | Memorandum of Decision
ALAN JAROSLOVSKY, Bankruptcy Judge.
There are no disputed facts in this case. Defendants Michael and Patricia Blum are *670the parents of debtor Julie Crumrine. Prior to the Crumrines’ bankruptcy filing, the Blums had sued the Crumrines in state court and recorded a Us pendens against the Crumrines’ home, alleging that money wrongfully taken from them had been used to buy the home. In a decision which was not final at the time of the bankruptcy filing, the state court had ruled that the home had not been purchased with the Blums’ money but that $32,000.00 in mortgage payments had been made with their money.
The bankruptcy was originally filed as a Chapter 7 and subsequently converted to Chapter 13. In actions fully documented in a separate adversary proceeding, the Blums elected to ignore the Chapter 13 proceedings. Despite full notice and actual knowledge of the conversion and confirmation of a plan, the Blums took no action to contest the plan until after it was too late to set it aside.
This adversary proceeding centers around the lis pendens recorded by the Blums against the Crumrines’ home. The Crumrines allege that the lis pendens was improperly recorded, and must be expunged. They also allege that the failure of the Blums to voluntarily remove the lis pendens is a continuing violation of the automatic stay. Both sides seek summary judgment.
The court sees the issue quite differently from the Crumrines. They argue that the court should apply state law to find that the lis pendens is improper and order its expungement, even though it was not recorded as part of litigation pending in this court. However, the true issue is whether under federal bankruptcy law any prepetition interest of the Blums survived the confirmation of the Crumrines’ plan. If it did not, the court has the power to issue declaratory relief that the Blums have no right, title or interest in the property after confirmation. This determination would supercede the lis pendens, not expunge it.
It seems clear that the Blums had a strong claim to a constructive trust against the Crumrine home to recover the $32,000.00 of their money used by the Crumrines to make mortgage payments. However, it also seems clear that their failure to press their claim before confirmation of the plan was fatal. The plan, which calls for payments of $2,000.00 per month for 60 months and 100% payment of allowed claims, makes no other provision for the Blums. Section 1327 of the Bankruptcy Code provides:
(a) The provisions of a confirmed plan bind the debtor and each creditor, whether or not the claim of such creditor is provided for by the plan, and whether or not such creditor has objected to, has accepted, or has rejected the plan.
(b) Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor.
(c) Except as otherwise provided in the plan or in the order confirming the plan, the property vesting in the debtor under subsection (b) of this section is free and clear of any claim or interest of any creditor provided for by the plan. [Emphasis added]
Thus, the Blums do not have an enforceable interest in the Crumrines’ home not because the lis pendens was improperly recorded under state law but because confirmation of the Chapter 13 plan revested the home in the Crumrines free and clear of the Blums’ interest. The plan is res judicata as to all issues that could have or should have been litigated at the confirmation hearing. In re Pardee, 193 F.3d 1083, 1087 (9th Cir.1999).
*671The court finds no merit to the allegations that the Blums violated the automatic stay by failing to voluntarily remove the lis pendens.1 It is certainly true that a continuing act, such as failure to turn over repossessed property, may be a violation of the automatic stay even if the property was repossessed pre-petition. In re Del Mission Ltd., 98 F.3d 1147, 1151 (9th Cir.1996); In re Abrams, 127 B.R. 239, 241-43 (9th Cir. BAP 1991). However, the recording of a lis pendens is not a continuing act. It is a one-time notice. The fact that it may have postpetition effect does not make it a postpetition act. Therefore, failure to remove it does not result in violation of the automatic stay.
For the foregoing reasons, the court will enter a judgment declaring that the Blums no longer have any right, title or interest in the Crumrines’ home, and permanently enjoining them from asserting any such interest. The Crumrines shall take nothing by their claim that the Blums violated the automatic stay. Each side shall bear its own attorneys’ fees and costs. Counsel for the Crumrines shall prepare an appropriate form of order granting each side’s motion for summary judgment in part, and a form of judgment consistent with this Memorandum.
. In this circuit, the postpetition recording of a lis pendens violates the automatic stay. In re Edwards, 214 B.R. 613 (9th Cir. BAP 1997). However, the rule may different in other circuits. See In re Knightsbridge Development Co., 884 F.2d 145, 148 (4th Cir.1989). The court has found no case in which a prepetition lis pendens has been found to be the basis for a violation of the stay. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493153/ | ORDER ON APPLICATION FOR ALLOWANCE OF ADMINISTRATIVE EXPENSE FILED BY MDG CAPITAL PARTNERS (Doc. No. 731)
ALEXANDER L. PASKAY, Bankruptcy Judge.
It is not unusual in a substantial Chapter 11 Reorganization Case that involves an attempt to sell properties of the estate of some substance to have numerous suitors who appear on the scene submitting bids to purchase the subject property. Of course, ultimately some of them will be disappointed and will not end up the successful bidder. What is unusual about this case, however, is that the unsuccessful *719bidder seeks allowance as a cost of administration for the expenses it incurred to conduct the due diligence in an effort to proceed and make their bid and ultimately purchase the property.
This is precisely what happened in this case, albeit it has some unique and different features. The Application for Allowance filed by MDG Capital Partners 540, Inc. (MDG) was asserted originally in the amount of $158,000.00 and is based on the contention that the owners of Phase III-A and III-B, TwinEagles Development LTD, Talon Land Group, LTD and James Colo-simo, individually and as Trustee, entered into a contract to sell Phase III-A and III-B to MDG on August 4, 1999. The contract for sale provided, inter alia, that the transaction shall be closed on August 16, 1999; however, if contingencies in Paragraph 8 of the addendum were not met by August 16, 1999, the closing shall be extended to August 31, 1999. It is without dispute that the sale was never closed and, ultimately, the property described above was sold to another entity.
The administrative claim is based on the time expended by the employees of MDG and attorney’s fees for services rendered in connection with MDG’s due diligence. All professional services relating to due diligence, including a suit filed in state court for specific performance, were performed prior to commencement of the Chapter 11. All the time spent by employees of MDG in connection with the purchase of the property in due diligence were performed prior to the Chapter 11. There were professional services performed by the attorneys after commencement of the case. However, none of these services related to the matter relating to the purchase and sale. Rather, these services were in connection with the attempt of MDG to block the debtor’s request for DIP financing and in connection with the preparation of the adversary proceeding which was shortly thereafter dismissed with prejudice based on the stipulation of parties. When the Debtor did not proceed with the sale of the properties to MDG, on January 12, 2000, MDG filed an adversary proceeding and sought specific performance of the contract for sale entered into on August 4, 1999, or prior to the commencement of the case. The Complaint was attacked by the Defendants and ultimately was dismissed based on a stipulation of the parties pursuant to which MDG agreed to a dismissal, with prejudice, provided that MDG could file an application for administrative allowance. The stipulation further provided that MDG’s claim shall not exceed $100,000.00.
As noted earlier, all the time spent in connection with MDG’s due diligence occurred prepetition and the efforts towards due diligence were performed solely on behalf of or for the benefit of MDG, and not for the benefit of the Debtors. To overcome the obvious, MDG posits a novel proposition which is based on the contention that under the applicable law of the State of Florida, when MDG and the Debtors executed a contract for sale that, based on the doctrine of equitable conversion, MDG in fact became the owner of the land involved and, as a consequence, the Debt- or’s title was only a bare legal title. Therefore, by virtue of 11 U.S.C. § 541(d), the land in question was no longer property of the estate on the date of the commencement of the case.
MDG realizing, as it must, that before its claim can be recognized as an administrative claim, it was essential to confer benefit on the estate. In support of the Doctrine of Equitable Conversion, MDG cites Cain & Bultman, Inc. v. Miss Sam, Inc., 409 So.2d 114 (Fla. 5th DCA 1982). He also cites Yaist v. United States, 228 Ct.Cl. 281, 656 F.2d 616 (1981), and Henry *720v. Ecker, 415 So.2d 137 (Fla. 5th DCA 1982).
Cain & Bultman and Yaist, unlike the present case, actually involved an agreement for deed, which, according to these cases, created an equitable title to the property. In the present instance, there was a contract to purchase and not an agreement for deed. Thus, the reliance of MDG on these two cases is misplaced. The case of Henry v. Ecker, in fact, involved the execution of a contract for sale of real estate. The Fifth District Court of Appeals held that the purchaser’s legally enforceable contractual right to receive legal title to land is sometimes called an equitable title, and, as a practical matter, the equitable title of such purchaser who is not in actual possession of the land and whose contract rights are not a matter of public record, giving constructive notice is ineffectual and unavailing as against a good-faith purchaser from the record titleholder.
McCannon v. Marston, 679 F.2d 13 (3rd Cir.1982), also cited by MDG, was decided by the Third Circuit Court of Appeals and did not involve the sale and purchase of Florida land. This Court is not satisfied that the law stated in McCannon is persuasive and, while this Court might accept the proposition that the purchaser of the land might have a right to specific performance, this presupposes, however, that there is a valid and live contract which the seller of the property refused to consummate. This record leaves no doubt that this is not the case in the present instance. Even assuming that giving up the right to sue for specific performance is a quantifiable benefit, a proposition this Court is unwilling to accept, it woefully lacks the quality of benefit which would qualify a claim for administrative expense. This is so especially, like in this instance, when the claim is based on expenses relating to the time expended to conduct due diligence by the disappointed buyer prepetition.
In addition, MDG contends that its due diligence assisted the Debtor toward the ultimate sale of the property by the information it discovered during the due diligence regarding certain title problems with the properties involved. MDG also contends that by giving up its claim of equitable conversion, it also assisted the reorganization process because the plan of reorganization was ultimately confirmed, and the Debtor could not have achieved confirmation unless the purchase of all the lands involved, including Phase III-A and III-B, were included in the sale. The difficulty with the proposition urged by MDG should be obvious if one considers the contract for sale. As noted, the sale required a closing no later than August 31, 1999. Thus, the most what could be said, even assuming that the failure to close was the fault of the Debtors, was that it was simply nothing more and nothing less than a breach of prepetition contract. It would take a miracle to transform a prepetition breach of contract damage claim into a cost of administration. Unfortunately, no one advised this Court yet of a miracle. And therefore, it is clear that the claim asserted here by MDG cannot be accorded administrative claim status.
This leaves for consideration the right to have allowed a general unsecured claim and, if so, in what amount. This record is insufficient to establish the controlling question, that is who breached this contract. Neither is the amount claimed sufficiently documented to enable one to quantify the amount of the unsecured claim to be allowed if one is ultimately allowed. This being the case, it appears to be necessary to schedule a final evidentia-ry hearing to receive competent evidence on the issue of the breach and also the amount, if any, which may be allowed as a general unsecured claim.
*721Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the administrative claim of MDG be, and the same is hereby, disallowed. It is farther
ORDERED, ADJUDGED AND DECREED that a pre-trial conference shall be scheduled before the undersigned to determine a date and time in which to hold a final evidentiary hearing to determine what amount, if any, could be allowed as a general unsecured claim in these confirmed Chapter 11 cases, in Courtroom 9A, Sam M. Gibbons U.S. Courthouse, 801 N. Florida Avenue, Tampa, Florida, 33602 on December 28, 2000 at 9:00am. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493159/ | ORDER
WILLIAM T. BODOH, Bankruptcy Judge.
This cause is before the Court on the motion of Trico Steel Company, L.L.C. (“Trico”) for a determination, pursuant to Fed. R. Bankr. P. 1014(b), of the judicial district which is appropriate for the administration of this case. Trico is a Chapter 11 debtor, having filed its petition for relief under Chapter 11 of Title 11, United States Code, in the District of Delaware on March 27, 2001. A 50% equity interest in Trico is owned by LTV-Trico, Inc., a Chapter 11 debtor which filed its petition in this Court on December 29, 2000. Because of this affiliation between Trico and LTV, the judge presiding in the District of *917Delaware has requested Trico to seek a determination from this Court of the correct or appropriate venue for administration of Trico’s estate as between that district and this one.
Trico is a Delaware corporation with its principal place of operation and the principal location of its assets in the state of Alabama. But for the LTV-Trico filing, Trico has no direct connection with this judicial district. Because of the earlier filed LTV-Trico petition, venue in this district is permissible pursuant to 28 U.S.C. § 1408(2). Venue is also appropriate under 28 U.S.C. § 1408(1) in the District of Delaware and in the appropriate judicial district in Alabama. Because Trico chose to file in Delaware rather than in Alabama, and because no party in interest or the United States Trustee urges the latter as a place of venue, we do not consider it for purposes of this motion. Our sole consideration is whether venue should be changed from where Trico initially filed its petition.
The procedure provided for consideration of venue when petitions involving related debtors are filed in different judicial districts is found in FED. R. BANKR. P. 1014(b). That Rule provides that on motion filed in the district in which the first petition was filed, the court may determine “in the interest of justice or for the convenience of the parties” which district or districts the case or cases should proceed.
From the hearing record and the motion papers, we know that Trico is not intending to reorganize its business affairs and continue in business. Rather, it is intended that Trico will liquidate or seek a sale pursuant to 11 U.S.C. § 363. LTV-Trico has discontinued further investment in Trico and reportedly has taken a full writeoff of its original investment in Trico. The other two equity owners are not funding Trico or making demands on LTV-Trico for further investments. Thus, we are not confronted with the usual reorganization considerations, such as collective bargaining agreement or retiree benefit issues nor are we apparently concerned with treatment of LTV-Trico’s original investment or of any obligation it may be claimed to have for further contributions to Trico.
On review of the record as a whole, this Court concludes that there are no pressing interests of justice to be considered beyond those ordinarily found in administration of a liquidating Chapter 11 case. The sole remaining procedural consideration under the Rule appears to be the convenience of the parties. The parties are considered to be the debtor, its creditors and witnesses. Solomon v. Continental Am. Life Ins. Co., 472 F.2d 1043, 1047 (3rd Cir.1973). The convenience of counsel or of other professionals does not appear to be a consideration intended by adoption of Rule 1014, as professionals employed pursuant to 11 U.S.C. § 327 et seq. are not parties as that term is generally used. In another context, where “convenience of parties” venue transfers are considered under 28 U.S.C. § 1404(a), the convenience of parties’ counsel is given no weight in determining whether to transfer venue. Burstein v. Applied Extrusion Techs., Inc., 829 F.Supp. 106, 112 (D.Del.1992), citing Solomon v. Continental Am. Life Insur. Co., 472 F.2d, at 1047 (“convenience of counsel is not a factor to be considered”), citing Chicago, Rock Island and Pac. R.R. Co. v. Igoe, 220 F.2d 299, 304 (7th Cir.), cert. denied, 350 U.S. 822, 76 S.Ct. 49, 100 L.Ed. 735 (1955).
Trico urges that substantial or significant, even great, weight or deference should be given a debtor’s choice of venue, where that venue choice is proper. That is a fair statement of but one of the several *918rules which courts apply in looking at venue issues, see Gulf Oil Co. v. Gilbert, 330 U.S. 501, 508, 67 S.Ct. 839, 843, 91 L.Ed. 1055 (1947), superseded by statute on other grounds as stated in Gazis v. John S. Latsis (USA), Inc., 729 F.Supp. 979, 987 (S.D.N.Y.1990), so long as Fed. R. Bankr. P. 1014(b) procedural considerations are not offended. Were this solely an argument of convenience of the professionals, we would give little weight to the argument and would, rather, look to other considerations. Here, there is no benefit to the parties to administer the estate of Trico, the related entity, in this district as LTV-Trico now has an essentially passive role respecting Trico and no other compelling reason appears for changing the originally selected venue.
On consideration of the record as a whole, this Court concludes the District of Delaware is the district in which the Trico case should proceed.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493160/ | ORDER
RANDOLPH BAXTER, Bankruptcy Judge.
The matter before the Court is the Motion for Approval of Compromise and Settlement with Glencore, Ltd. and FirstMer-it Bank, N.A. (“Motion”), filed by the Debtor in Possession, Victoria Alloys, Inc. (“Debtor”). The Official Committee of Unsecured Creditors (“Committee”) filed an Opposition to the Motion.
This is a core proceeding over which the Court has jurisdiction pursuant to 28 U.S.C. § 157(b)(2)(A) and General Order Number 84 of this District. After a duly noticed hearing, at which all relevant parties in interest appeared, the Court finds as follows.
The Debtor filed its voluntary petition for relief under Chapter 11 of the Bankruptcy Code on November 16, 2000. All parties agree that the only secured credi*920tors of the Debtor are FirstMerit Bank, N.A. (“FirstMerit”) and Glencore, Ltd. (“Glencore”). The parties further agree that FirstMerit has a fully secured claim, in the principal amount of $1.32 million, and that Glencore has an undersecured claim in the principal amount of $4.2 million.
Prepetition, an ongoing dispute ensued among the parties with regard to the cash collateral of the Debtor. On the petition date, the Debtor filed an Emergency Motion for Authority to Use Cash Collateral and Providing Adequate Protection. At a preliminary hearing on that matter, the Court entered an Interim Order that authorized the Debtor’s use of cash collateral, and scheduled a Final Hearing for December 4, 2000. Since the entry of the Interim Order, the parties have entered a number of stipulated orders, which extended the terms of the Interim Order. Throughout this period, Glencore has opposed the Debtor’s use of cash collateral, arguing that it is not entitled to use such collateral absent some replacement lien, subrogation, or marshaling the assets. The Debtor opposed the employment of marshaling, and argued in favor of reverse marshaling to block Glencore’s efforts.
The Court set a hearing on the marshaling issues for January 16, 2001, and the parties briefed the issue extensively. However, in light of the uncertainty of the marshaling, and the anticipated expenses of litigating the matter, the Debtor, Glen-core, and FirstMerit entered into an agreement to compromise and settle the disputes among them, subject to the Court’s approval.
In support of its Motion, the Debtor asserts that the best interests of the creditors and the estate are served by entering into the proposed settlement, and avoiding a potentially lengthy and complex litigation. In opposition, the Committee argues that the settlement is not in the best interests of the creditors of the estate, and that the settlement agreement is a sub rosa plan of reorganization, thereby subverting the purposes of Chapter 11.
The standards to be applied in determining whether to approve a settlement stem from Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 88 S.Ct. 1157, 20 L.Ed.2d 1 (1968), which stated that the court must “form an educated estimate of the complexity, expense, and likely duration of such litigation, the possible difficulties in collecting on any judgment which might be obtained and all other factors relevant to a full and fair assessment of the wisdom of the proposed compromise.” Id., at 424, 88 S.Ct. 1157.
Most courts have interpreted TMT to require that a proposed settlement is, first and foremost, fair and equitable, and in the best interests of the estate. See, e.g., Treinish, Trustee v. Topco Assoc., Inc. (In re AWF Liquidation Corp.), 208 B.R. 399 (Bankr.N.D.Ohio 1997). Secondary to those two elements are inquiries as to the probability of litigation success; potential difficulties in collection; complexity of the litigation; and the interests of the creditors. The proponent of the compromise bears the burden of persuasion. See, e.g., In re Goldstein, 131 B.R. 367, 369 (Bankr.S.D.Ohio 1991).
The Court finds no support for the Committee’s argument that the proposed settlement agreement is not in the best interests of creditors. As noted above, it is undisputed that FirstMerit is fully secured in the amount of $1.32 million, and Glencore has an undersecured claim in the amount of $4.2 million. In addition, it is agreed that various warehousemen hold a priority claim in the aggregate amount of $866,000. Against those liabilities, the *921Debtor holds assets of accounts receivable, with a collection value of one million dollars; and inventory, valued at approximately $2.5 million. The Committee does not contest any of the above values.
The Committee argues that the proposed settlement does not offer the unsecured creditors a dividend. In light of the values discussed, and the respective secured positions of FirstMerit and Glen-core, it is clear that the general unsecured creditors stand to receive no dividend, regardless of whether the compromise is approved.
Counsel for the Committee acknowledges that the greatest prospect for a distribution to the general unsecured creditors is through litigation of certain, unspecified avoidance actions. As of today, however, no such actions have been filed, or even quantified. As such, neither the Debtor nor the Committee is able to represent a potential dollar amount of recovery by the estate if successfully litigated.
The Committee further argues that the proposed settlement agreement amounts to a sub rosa plan. That argument is based primarily upon the case of Pension Benefit Guaranty Corp. v. Braniff Airways, Inc. (In re Braniff Airways, Inc.), 700 F.2d 935 (5th Cir.1983). In Braniff, the Fifth Circuit disallowed a proposed settlement agreement, because it sought to distribute all of the debtor’s assets, to restructure debt, and to release certain claims. The Braniff court found the settlement deficient for three reasons: (i) it effectively dictated the terms of any future reorganization; (ii) it required secured creditors to vote in favor of any future Plan; and (iii) it provided for the release of all claims against the debtor, its officers, and directors. Id., at 940.
The Court finds no similarity between the sub rosa plan in Braniff and the proposed compromise at issue here. The instant settlement contains no mandate of terms or votes in any future plan, and provides for no release of claims against the Debtor. Therefore, the Committee’s argument that the compromise amounts to a sub rosa plan is not well found. With the Debtor’s scheduled liabilities totaling $10 million, and Glencore’s security interest concededly being undersecured in the amount of $4.2 million, there is only a remote possibility that unsecured creditors would receive any dividend from the Debt- or’s estate. Not only is the proposal not a sub rosa plan, it actually is the Debtor’s only apparent chance of restructuring its debt to sustain operations. This effort clearly is shouldered at both the expense and risk of an undersecured Glencore. No other party has submitted any competing offer that would allow the Court to consider any alternate strategy for reorganizing the Debtor.
The remote chance of the unsecured creditors receiving any distribution from the Debtor’s estate hinges on the successful prosecution of any avoidance actions which are yet to be determined and filed. The Committee’s counsel acknowledged this fact, however, no assessment of a potential recovery or such action has been made by the parties in interest. As the objecting Committee is reposed with the burden of proof to substantiate this particular assertion, none was shown.
Each of the Supreme Court’s standards enunciated in TMT Trailer has been duly considered and applied to the Court’s assessment of the propriety of the proposed compromise. No bad faith effort is evinced. The compromise and settlement is in the best interest of the Debtor’s estate; is fair and equitable; and is also an appropriate exercise of the Debtor-in-Pos-sessioris business judgment.
*922Accordingly, the Motion is hereby granted, and the objection is overruled.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493161/ | ORDER
HARRY C. DEES, Jr., Bankruptcy Judge.
On May 1, 2001, trial was held on the Complaint to Determine Dischargeability of Student Loan filed by the debtors Calvin McFarland and Betty A. McFarland. The debtors, as the plaintiffs asking the court to find an educational loan discharge-able, were required under 11 U.S.C. § 523(a)(8) to demonstrate that the repayment of an educational loan would cause an undue hardship on them. The present holder of the debtors’ loan is the defendant Educational Credit Management Corporation (“ECMC”). Appearing before the court were Philip R. Skodinski, Esq., for the debtors, and Stacia L. Yoon, Esq., for the defendants ECMC et al.
Before opening statements, the court stated that ECMC had timely filed its list of exhibits and witnesses for the trial but that the court’s records did not contain the debtors’ tendered list. Debtors’ counsel responded that he did not file a list because he thought the parties would settle the case. The court reminded the debtors that the court’s Order of March 6, 2001, required that exhibit and witness lists be filed “no later than five days prior to trial.” R. 23 at 3.
ECMC then sought sanctions against the debtors pursuant to Rule 7037(b)(2)(B) and (C) of the Federal Rules of Bankruptcy Procedure. ECMC requested that the debtors’ complaint be dismissed because of the debtors’ repeated noncompliance; their failure to comply with the original scheduling order, to comply with the court’s trial order, and to respond to the defendants’ motion and numerous letter requests for production of documents. As an alternative to the sanction of dismissal, ECMC requested that the court bar all exhibits and witnesses of the debtors because they were not tendered to the defendants prior to trial. Debtors’ counsel responded that he never received defendants’ motion to produce documents and did not know which documents were sought. He claimed that he had faxed copies of the debtors’ wage stubs and W2 forms to defendants’ counsel. Moreover, he stated, he assumed that it was no surprise that the debtors would testify concerning their expenses and would offer those documents at trial.
The court then found that the debtors had not complied with its Order of March 6, 2001, requiring that exhibit and witness lists be filed “no later than five days prior to trial.” R. 23 at 3. It noted that the order contained no provision that would allow for an assumption that the debtors would testify even if no witness list was filed. It also pointed out the court’s need to prepare for the trial with the benefit of such filings. It reminded the debtors that, despite their failure to respond timely to ECMC’s requests for admissions, the court in its discretion had denied the defendants’ motion for summary judgment in order to *924hear the evidence in this case. The court found that the mandate in its Order of March 6, 2001, to file trial lists was straightforward and clear. It also recognized that the history of this ease reflected the court’s preference to hear the merits of the debtors’ complaint rather than to stand on technicalities. Nevertheless, it concluded that the debtors’ procedural noncompli-ances should not be allowed to continue. The court, noting its discretion in such matters, then granted the defendants’ motion to sanction the debtors for their failure to comply with the court’s Order of March 6, 2001, and dismissed the complaint with prejudice.
A court’s decision to sanction and its choice of an appropriate sanction are within its discretion. See Golant v. Levy (In re Golant), 239 F.3d 931, 937 (7th Cir.2001); Melendez v. Illinois Bell Telephone Co., 79 F.3d 661, 670 (7th Cir.1996). Under Rule 37 of the Federal Rules of Civil Procedure, which is made applicable in bankruptcy adversary proceedings under Rule 7037 of the Federal Rules of Bankruptcy Procedure, a court may impose sanctions, including dismissal, upon a party who fails to comply with discovery and scheduling orders.1 “Sanctions are proper upon a finding of wilfulness, bad faith, or fault on the part of a noncomplying litigant.” Id. at 671 (citing cases). The Seventh Circuit Court of Appeals has concluded that a party acted in bad faith when it knew that disclosure of materials was required by the court’s discovery orders and failed to produce them. See id. It further concluded that a party was at fault when it should have known that disclosure was required by the court’s discovery orders and yet failed to produce the materials. See id. “Fault ‘does [not] speak to the noncomplying party’s disposition at all, but rather only describes the reasonableness of the conduct — or lack thereof — which eventually culminated in the violation.’ ” Long v. Steepro, 213 F.3d 983, 987 (7th Cir.2000) (reversing magistrate judge’s sua sponte dismissal of an action for failure to comply with a scheduling order; finding that a missed deadline was a “mere mistake”).
In this case, the debtors did not make “a mere mistake or a slight error in judgment.” Long, 213 F.3d at 987. Counsel for the debtors stated to the court that he decided not to file the list of witnesses and exhibits because he believed the case would settle and because he assumed that it would not surprise the court that the debtors would testify concerning their expenses and would offer financial documents at trial. Unlike the plaintiff in Long, these plaintiffs are not acting pro se; they are represented by a seasoned bankruptcy attorney who appears often in this court. Unlike the plaintiff in Long, this *925was not the first deadline that the debtors had missed in this case. The debtors failed to respond to the defendants’ interrogatories and requests for admission within thirty days after service, as required by Federal Rule of Bankruptcy Procedure 7036. The defendants’ Motion for Summary Judgment and memorandum in support of it, filed September 12, 2000, set forth in detail the result of that non-response, and the next day the answers to the interrogatories and requests for admissions were filed. Despite the debtors’ clear breach of Rule 7036, the court allowed the late answers and denied the defendants’ summary judgment motion so that the genuine issues of material fact could be heard. And yet, given that opportunity, the debtors disregarded the court’s order that a list of witnesses and exhibits be filed prior to trial. Defendants’ counsel also charged that the debtors failed to turn over requested discovery documents.
Based on these circumstances, the court finds that the debtors’ decision to disregard the order of the court was more than carelessness or an “innocent misunderstanding [and] lack of familiarity with the law.” Long, 213 F.3d at 988 (quoting Downs v. Westphal, 78 F.3d 1252, 1257 (7th Cir.1996)). It was dilatory conduct for which the sanction of dismissal was proper. In this case, the debtors’ non-responsive conduct was unreasonable and clearly falls within the concept of “fault” as defined in Seventh Circuit law.
The court also finds that the sanction imposed is proportionate to the circumstances. See Golant, 239 F.3d at 937; Melendez, 79 F.3d at 672. The court stated in its Order of March 6, 2001, that the “parties will be bound at trial to the exhibit and witness lists previously exchanged.” R. 23 at 3. Because the debtors filed no list of witnesses or evidence to be proffered at trial, the court conducted a hearing on the matter and, in its discretion, barred from the trial the testimony of the debtors and the submission of their financial records. The explanation given to the court by debtors’ counsel reflects no inability to comply with the order, no attempt to comply, and no misunderstanding of the Court’s order; it indicates a decision not to comply with the court’s order. After a review of the record in this adversary proceeding, including the untimely answers to interrogatories, and after considering the debtors’ failure to comply with the original scheduling order, the trial order, and the defendants’ motions and additional requests for documents, the court determined that dismissal of the complaint against the defendants with prejudice was the only appropriate sanction. See Long, 213 F.3d at 986-88.
Accordingly, the court grants the defendants’ motion to sanction the debtors and dismisses the adversary complaint with prejudice.
SO ORDERED.
. Rule 37(b), as found in Rule 7037 of the Federal Rules of Bankruptcy Procedure, sets forth the sanctions that may be applied when a party fails to comply with an order of the court. The provisions upon which the defendants relied are the following:
(b) Failure To Comply With Order.
(2) Sanctions by Court in Which Action Is Pending. If a party ... fails to obey an order to provide or permit discovery ..., the court in which the action is pending may make such orders in regard to the failure as are just, and among others the following:
(B) An order refusing to allow the disobedient party to support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence;
(C) An order striking out pleadings or parts thereof, or staying further proceedings until the order is obeyed, or dismissing the action or proceeding or any part thereof, or rendering a judgment by default against the disobedient party. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484462/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
QUINTEN PUTNAM,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D22-1122
[November 17, 2022]
Appeal of order denying rule 3.850 motion from the Circuit Court for
the Seventeenth Judicial Circuit, Broward County; Frank Ledee, Judge;
L.T. Case No. 14-006560CF10A.
Craig J. Trocino and Michael Gottlieb of Michael Gottlieb, PA, Fort
Lauderdale, for appellant.
No appearance required for appellee.
PER CURIAM.
Affirmed.
KLINGENSMITH, C.J., MAY and KUNTZ, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484478/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
DAWN T. WALLACE PEARLMAN,
Appellant,
v.
DAVID J. PEARLMAN,
Appellee.
No. 4D22-550
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Maxine Cheesman, Judge; L.T. Case No.
502011DR005474.
Dawn T. Wallace Pearlman, Middleburg, pro se.
No brief filed on behalf of appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350240/ | Lincoln Life & Annuity Co. of N.Y. v Wittmeyer (2022 NY Slip Op 07357)
Lincoln Life & Annuity Co. of N.Y. v Wittmeyer
2022 NY Slip Op 07357
Decided on December 23, 2022
Appellate Division, Fourth 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 December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: WHALEN, P.J., SMITH, LINDLEY, NEMOYER, AND WINSLOW, JJ.
829 CA 21-00521
[*1]LINCOLN LIFE & ANNUITY COMPANY OF NEW YORK, PLAINTIFF,
vCAMI WITTMEYER, CATHY DECKER, GEORGE W. BURNETT, INC., DEFENDANTS-RESPONDENTS, MARIA R. BAUER, LAWRENCE J. ADYMY, JR., DEFENDANTS-APPELLANTS, ET AL., DEFENDANTS. (APPEAL NO. 1.)
THE TARANTINO LAW FIRM, LLP, BUFFALO (ANN M. CAMPBELL OF COUNSEL), FOR DEFENDANTS-APPELLANTS.
DUKE, HOLZMAN, PHOTIADIS & GRESENS LLP, BUFFALO (ELIZABETH A. KRAENGEL OF COUNSEL), FOR DEFENDANTS-RESPONDENTS.
BRADLEY ARANT BOULT CUMMINGS, LLP, CHARLOTTE, NORTH CAROLINA (C. BAILEY KING, JR., OF THE NORTH CAROLINA BAR, ADMITTED PRO HAC VICE, OF COUNSEL), AND GOLDBERG SEGALLA LLP, BUFFALO, FOR PLAINTIFF.
Appeal from an order and judgment (one paper) of the Supreme Court, Erie County (Timothy J. Walker, A.J.), entered April 6, 2021. The order and judgment, inter alia, granted the motion of defendants Cami Wittmeyer, Cathy Decker and George W. Burnett, Inc., for leave to reargue and, upon reargument, granted the motion of those defendants for summary judgment.
It is hereby ORDERED that the order and judgment so appealed from is unanimously modified on the law by denying the motion of defendants Cami Wittmeyer, Cathy Decker, and George W. Burnett, Inc. insofar as it sought summary judgment determining that the 2019 change in beneficiaries was void as a matter of law and insofar as it sought summary judgment dismissing the cross claim of defendants Maria R. Bauer and Lawrence J. Adymy, Jr. for unjust enrichment against Wittmeyer and Decker and reinstating that cross claim, and as modified the order and judgment is affirmed without costs.
Memorandum: Interpleader plaintiff, Lincoln Life & Annuity Company of New York (Lincoln Life), issued a life insurance policy to decedent naming his daughters, defendants Cami Wittmeyer and Cathy Decker (collectively, daughters), and his wife, defendant Maria R. Bauer (wife), as beneficiaries (first designation). The wife was to receive 22% of the policy benefits, and the daughters were each to receive 39% of the benefits. The premiums for the policy had been paid by defendant George W. Burnett, Inc. (GWB), a company formerly owned by decedent that was, at all relevant times, owned by decedent's son. In June 2019, the wife learned that the policy had lapsed or was about to lapse due to nonpayment of the premiums and that certain amounts must be paid in order to keep the policy active (encouraged amount). GWB could no longer afford to pay the premiums, and the daughters were unwilling to contribute toward the encouraged amount or any policy premiums going forward. Thus, the wife and her son, defendant Lawrence J. Adymy, Jr. (son), paid the encouraged amount and took over paying the premiums. The wife, as decedent's power of attorney, thereafter submitted a change of beneficiary form to Lincoln Life removing the daughters as beneficiaries of the policy and designating herself and her son as the primary beneficiaries, splitting the policy benefits equally (second designation). According to the wife, in changing the beneficiaries, she followed the [*2]procedure described to her by defendant Lee V. Stadler, an agent of an affiliate of Lincoln Life, defendant Lincoln Financial Advisors Corporation (Lincoln Financial). Decedent died in August 2019, after all amounts owed on the policy had been paid and the beneficiaries had been changed. The wife and son, and the daughters, each submitted a claim for the policy benefits.
Lincoln Life commenced this interpleader action to determine the competing claims of the wife and son (collectively, Bauer defendants) and the daughters to a death benefit payable pursuant to the policy. The daughters answered and asserted a cross claim against the Bauer defendants, alleging that the wife lacked the authority to change the beneficiaries under the policy because the power of attorney executed by decedent in 2013 that she submitted to Lincoln Life did not have a statutory gift rider as required under General Obligations Law § 5-1514. The daughters therefore sought a judgment determining that the second designation was void and ordering payment of policy benefits in accordance with the first designation. In their amended answer, the Bauer defendants asserted counterclaims against Lincoln Life for specific performance, breach of contract, negligence, and equitable estoppel. The Bauer defendants also asserted a cross claim for negligence against, among others, Stadler; cross claims against the daughters for unjust enrichment and interference with contractual relations; and a cross claim against GWB for breach of implied contract. The daughters and GWB then moved for, inter alia, summary judgment determining that the second designation was void and dismissing the Bauer defendants' cross claims against them. The Bauer defendants cross-moved for summary judgment determining that they were entitled to the death benefit under the policy in accordance with the second designation and dismissing the cross claim of the daughters against them. Supreme Court denied the motion, granted the cross motion, and ordered that Lincoln Life tender the death benefit to the Bauer defendants in accordance with the second designation. The daughters and GWB moved for, inter alia, leave to reargue their motion and their opposition to the cross motion. Lincoln Life, Lincoln Financial, and Stadler (collectively, Lincoln defendants) moved for summary judgment dismissing the Bauer defendants' counterclaims and cross claims against the Lincoln defendants.
In appeal No. 1, the Bauer defendants appeal from an order and judgment that, among other things, granted leave to reargue and, upon reagument, granted the motion of the daughters and GWB for summary judgment determining that the second designation was void and dismissing the cross claims against them, and denied the Bauer defendants' cross motion.
In appeal No. 2, the Bauer defendants appeal from an order granting in part the motion of the Lincoln defendants and dismissing the Bauer defendants' counterclaims against Lincoln Life.
In appeal No. 1, we agree with the Bauer defendants that the court erred in granting that part of the motion of the daughters and GWB for summary judgment determining that the second designation is void as a matter of law, and we therefore modify the order and judgment accordingly. Initially, we reject the Bauer defendants' contention that a 2009 power of attorney is the controlling document inasmuch as the execution of the 2013 power of attorney modified the 2009 power of attorney in a manner that directly affected the wife's ability to engage in the contested action (see generally Lopez v Fenn, 90 AD3d 569, 573 [1st Dept 2011], lv dismissed 19 NY3d 1022 [2012]; Zaubler v Picone, 100 AD2d 620, 621 [2d Dept 1984]). However, although the 2013 power of attorney executed by decedent appointing the wife as his attorney-in-fact did not grant the wife the authority to change the beneficiaries of decedent's life insurance policy inasmuch as it lacked a statutory gifts rider (see General Obligations Law former § 5-1514 [1], [3], [7]; § 5-1502F [former (3)]), "exact compliance with the contractual procedure [in the policy concerning a change in beneficiaries] will be deemed waived where the insurer, faced with conflicting colorable claims to the same policy proceeds, pays the proceeds into court in an interpleader action so that the opposing claimants may litigate the matter between themselves" (Lincoln Life & Annuity Co. of N.Y. v Caswell, 31 AD3d 1, 5-6 [1st Dept 2006]). In such cases, "[t]he paramount factor in resolving the controversy is the intent of the insured. Mere intent, however, on the part of the insured is not enough; there must be some affirmative act or acts [on the part of the insured] to accomplish the change" (McCarthy v Aetna Life Ins. Co., 92 NY2d 436, 440 [1998] [internal quotation marks omitted]; see Cook v Aetna Life Ins. Co., 166 AD2d 895, 896 [4th Dept 1990]; Cable v Prudential Ins. Co. of Am., 89 AD2d 636, 636 [3d Dept 1982]). Assuming, arguendo, that the daughters and GWB met their initial burden on that part of the motion seeking a determination that the second designation is void, we conclude that the Bauer defendants raised a triable issue of fact. In opposition to the motion, the Bauer defendants [*3]submitted the wife's affidavit in which she averred that decedent was angry that the policy had been allowed to or was about to lapse and that the daughters were unwilling to contribute toward the encouraged amount or the future premiums. The wife further averred that decedent had told her that if she and the son made the payments necessary to keep the policy active, they should be designated as the beneficiaries of the death benefit. In addition to the evidence of decedent's intent to change the beneficiaries, the wife stated that decedent affirmatively acted to accomplish that intent by signing a memo granting Lincoln Life permission to release information to Stadler, who then advised the wife how to reinstate the Policy. The wife also stated that decedent sent her as his power of attorney in his place to sign the documents necessary to institute the second designation under the mistaken belief that the 2013 power of attorney granted her such authority. Additionally, inasmuch as the Bauer defendants' own submissions raised issues of fact with respect to the validity of the second designation, we reject their further contention that the court erred in denying their cross motion for summary judgment with respect to that issue (see generally Johnson v Pixley Dev. Corp., 169 AD3d 1516, 1519-1520 [4th Dept 2019]).
We agree with the Bauer defendants that the court erred in granting that part of the motion of the daughters and GWB seeking summary judgment dismissing the Bauer defendants' cross claim against the daughters for unjust enrichment, and we therefore further modify the order and judgment accordingly. "[T]he theory of unjust enrichment lies as a quasi-contract claim and contemplates an obligation imposed by equity to prevent injustice, in the absence of an actual agreement between the parties" (Georgia Malone & Co., Inc. v Rieder, 19 NY3d 511, 516 [2012] [internal quotation marks omitted]). Thus, in order to sustain such a claim, the plaintiff must demonstrate that "(1) the other party was enriched, (2) at that party's expense, and (3) that it is against equity and good conscience to permit the other party to retain what is sought to be recovered" (id. [internal quotation marks omitted]; see also Omar v Moore, 196 AD3d 1182, 1183-1184 [4th Dept 2021]). "Unjust enrichment, however, does not require the performance of any wrongful act by the one enriched" (Simonds v Simonds, 45 NY2d 233, 242 [1978]). " '[T]he essential inquiry in any action for unjust enrichment . . . is whether it is against equity and good conscience to permit the defendant to retain what is sought to be recovered' " (Ahlers v Ecovation, Inc., 151 AD3d 1920, 1921 [4th Dept 2017]). Assuming, arguendo, that the daughters and GWB met their initial burden on the motion with respect to the unjust enrichment cross claim, we conclude that the Bauer defendants raised a triable issue of fact. The Bauer defendants established that they paid the encouraged amount in order to bring the policy up to date. The wife then paid premiums in August 2019 in order to keep the policy active. There is no dispute that the daughters—who would otherwise have each been entitled to 39% of the death benefit under the first designation—refused to contribute toward either the encouraged amount or future premium payments. As noted, according to the wife, in return for the payments made by her and her son, decedent wanted them to be the beneficiaries of the death benefit. Significantly, if the Bauer defendants had not made the requisite payments, the policy would not have been in effect at the time of decedent's death, and there would have been no death benefit on which to make a claim. Thus, if the second designation is ultimately determined to be void, the Bauer defendants have raised a triable issue of fact whether the daughters would be unjustly enriched at the Bauer defendants' expense (see generally Friddell v Alberalla, 176 AD2d 1213, 1213-1214 [4th Dept 1991], lv denied 79 NY2d 751 [1991]).
We reject the contention of the Bauer defendants, however, that the court erred in granting the motion of the daughters and GWB with respect to the cross claim against the daughters for interference with contractual relations. "In order to prevail on a cause of action for tortious interference with contractual relations, a plaintiff must establish the existence of a valid contract between plaintiff and a third party, the defendant's intentional and unjustifiable procurement of the third party's breach of the contract, the actual breach of the contract and the resulting damages" (Jim Ball Chrysler LLC v Marong Chrysler-Plymouth, Inc., 19 AD3d 1094, 1095 [4th Dept 2005], lv denied 5 NY3d 709 [2005]). The Bauer defendants' claim for interference with contractual relations is based upon the daughters' allegedly intentional interference, without justification, "with the rightful payment of the death benefit under the policy to the Bauer defendants by submitting their own claims to the death benefit." However, if the court ultimately determines that the second designation is valid, Lincoln Life will pay the death benefit to the Bauer defendants and there can be no breach. Likewise, if the second designation is ultimately determined to be void, payment under the first designation would not constitute a breach. The daughters and GWB therefore established their entitlement to summary judgment dismissing the cross claim for interference with contractual relations, and the Bauer [*4]defendants failed to raise a triable issue of fact in opposition (see Weiss v Bretton Woods Condominium II, 203 AD3d 1100, 1101-1102 [2d Dept 2022]).
We also reject the Bauer defendants' contention that the court erred in granting the motion of the daughters and GWB with respect to the cross claim against GWB for breach of implied contract.
In appeal No. 2, we agree with the Bauer defendants that the court erred in granting the Lincoln defendants' motion with respect to the negligence counterclaim against Lincoln Life insofar as asserted by the wife. We therefore modify the order accordingly. "As a general principle, insurance brokers 'have a common-law duty to obtain requested coverage for their clients within a reasonable time or inform the client of the inability to do so' " (Voss v Netherlands Ins. Co., 22 NY3d 728, 734 [2014]). However, "[a]bsent a specific request for coverage not already in a client's policy or the existence of a special relationship with the client, an insurance agent or broker has no continuing duty to advise, guide[] or direct a client to obtain additional coverage" (Petri Baking Prods., Inc. v Hatch Leonard Naples, Inc., 151 AD3d 1902, 1904 [4th Dept 2017] [internal quotation marks omitted]). However, the Court of Appeals has "identified three exceptional situations that may give rise to a special relationship, thereby creating an additional duty of advisement: (1) the agent receives compensation for consultation apart from the payment of premiums; (2) there was some interaction regarding a question of coverage, with the insured relying on the expertise of the agent; or (3) there is a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on" (Voss, 22 NY3d at 735 [internal quotation marks omitted]). Here, the evidence submitted by the Lincoln defendants in support of their motion with respect to the negligence counterclaim "did not satisfy [their] initial burden of establishing the absence of a material issue of fact as to the existence of a special relationship" (id.). To the contrary, the evidence suggests that there was some interaction between the wife and Stadler regarding the question of what steps were required to change the beneficiary of the policy, and thereafter the wife and decedent relied upon Stadler's expertise as an agent of an affiliate of Lincoln Life to effect the same (see generally AB Oil Servs., Ltd. v TCE Ins. Servs., Inc., 188 AD3d 624, 628-629 [2d Dept 2020]; STB Invs. Corp. v Sterling & Sterling, Inc., 178 AD3d 413, 413 [1st Dept 2019]; Petri Baking Prods., Inc., 151 AD3d at 1904-1905). In addition, issues of fact exist whether there was "a course of dealing over an extended period of time which would have put objectively reasonable insurance agents on notice that their advice was being sought and specially relied on" (Voss, 22 NY3d at 735 [internal quotation marks omitted]). Further, "[w]hether the nature and caliber of the relationship between the parties is such that the injured party's reliance on a negligent misrepresentation is justified generally raises an issue of fact" (Murphy v Kuhn, 90 NY2d 266, 271 [1997] [internal quotation marks omitted]). The Lincoln defendants' motion with respect to the negligence counterclaim insofar as asserted by the wife therefore should have been denied " 'regardless of the sufficiency of the opposing papers' " (Vega v Restani Constr. Corp., 18 NY3d 499, 503 [2012] [emphasis omitted]; see generally Voss, 22 NY3d at 734).
With respect to that part of the Lincoln defendants' motion seeking summary judgment dismissing the cross claims against Stadler and Lincoln Financial, we note that the court did not address that aspect of the motion, and we therefore deem it denied (see Hastedt v Bovis Lend Lease Holdings, Inc., 152 AD3d 1159, 1163 [4th Dept 2017]; Brown v U.S. Vanadium Corp., 198 AD2d 863, 864 [4th Dept 1993]).
Finally, we have reviewed and rejected the Bauer defendants' remaining contentions in appeal No. 2.
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350245/ | Jackson v 681 Fillmore, LLC (2022 NY Slip Op 07356)
Jackson v 681 Fillmore, LLC
2022 NY Slip Op 07356
Decided on December 23, 2022
Appellate Division, Fourth 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 December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: WHALEN, P.J., SMITH, LINDLEY, NEMOYER, AND WINSLOW, JJ.
826 CA 21-01170
[*1]DAWN M. JACKSON, PLAINTIFF-RESPONDENT,
v681 FILLMORE, LLC, GORDON FILLMORE, LLC, WESTERN NEW YORK CHECK SERVICES, LLC, AND FILLMORE WINE AND LIQUOR, DEFENDANTS-APPELLANTS.
KENNEY SHELTON LIPTAK NOWAK LLP, BUFFALO (KARL E. DANIEL OF COUNSEL), FOR DEFENDANTS-APPELLANTS 681 FILLMORE, LLC, GORDON FILLMORE, LLC AND FILLMORE WINE AND LIQUOR.
HURWITZ & FINE, P.C., BUFFALO (V. CHRISTOPHER POTENZA OF COUNSEL), FOR DEFENDANT-APPELLANT WESTERN NEW YORK CHECK SERVICES, LLC.
Appeals from an order of the Supreme Court, Erie County (E. Jeannette Ogden, J.), entered August 16, 2021. The order, inter alia, denied the motions of defendants for summary judgment.
It is hereby ORDERED that the order so appealed from is unanimously affirmed without costs.
Memorandum: Plaintiff commenced this action to recover damages for injuries that she allegedly sustained when she slipped and fell on the sidewalk in front of premises owned or operated by defendants. Supreme Court denied defendants' respective motions for summary judgment dismissing, inter alia, the complaint against them. We affirm.
Contrary to defendants' contentions, we conclude that the court properly denied their motions inasmuch as they failed to meet their initial burden of establishing that plaintiff's injuries were caused by a storm in progress (see Walter v United Parcel Serv., Inc., 56 AD3d 1187, 1187-1188 [4th Dept 2008]; cf. Battaglia v MDC Concourse Ctr., LLC, 175 AD3d 1026, 1027 [4th Dept 2019], affd 34 NY3d 1164 [2020]). In support of their motions, defendants submitted the deposition testimony of plaintiff, who testified that there was no precipitation at the time of the accident. Defendants also submitted a video of the accident showing that it was only lightly raining and there was no snow on the ground in front of the relevant properties, although there were small mounds of old accumulated snow near the road. Inasmuch as defendants failed to meet their initial burden, the court properly denied their motions without regard to the sufficiency of plaintiff's opposing papers (see generally Winegrad v New York Univ. Med. Ctr., 64 NY2d 851, 853 [1985]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484466/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
MARK KOHUT,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D21-3408
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Kirk C. Volker, Judge; L.T. Case No.
1993CF009019XXXXMB.
Dane K. Chase of Chase Law Florida, P.A., Saint Petersburg, for
appellant.
Ashley Moody, Attorney General, Tallahassee, and Jessenia J.
Concepcion, Assistant Attorney General, West Palm Beach, for appellee.
PER CURIAM.
Affirmed.
CIKLIN, LEVINE and KUNTZ, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484467/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
MARIE SCHWARTZ,
Appellant,
v.
GARY SCHWARTZ,
Appellee.
No. 4D21-2795
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Laura C. Burkhart, Judge; L.T. Case No.
50202020DR003224XXXXSB.
Michael D. Cirullo, Jr., of Goren, Cherof, Doody & Ezrol, P.A., Fort
Lauderdale, for appellant.
Jaclyn R. Soroka and B. Niklas Brihammar of Rudolph & Associates,
LLC, West Palm Beach, for appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484463/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
PRINCE HALL BUILDING ASSOCIATION,
Appellant,
v.
WEST PALM BEACH HOUSING AUTHORITY,
Appellee.
No. 4D21-2034
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Janis Brustares Keyser, Judge; L.T. Case No.
502002CA010854XXXED AB.
Elaine L. Thompson, Brandon, and Ama N. Appiah of Law Office of Ama
N. Appiah, P.A., St. Petersburg, for appellant.
Elaine Johnson James of Elaine Johnson James, P.A., Palm Beach
Gardens, for appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484464/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
PARADISE BANK,
Appellant,
v.
VITO BUCARIO, et al.,
Appellee.
No. 4D21-3379
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm Beach
County, John S. Kastrenakes, Judge; L.T. Case No. 50-2013-CA-009467.
Terrance W. Anderson, Jr. of Nelson Mullins Riley & Scarborough, LLP, Boca
Raton, and Rebecca A. Rodriguez of Nelson Mullins Riley & Scarborough, LLP,
Fort Lauderdale, for Appellant.
Michael J. Labbee and Tyler A. Hayden of Phillips, Hayden, and Labbee, St.
Petersburg, for Appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484469/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
LINDON CAMPBELL,
Appellant,
v.
ALLY FINANCIAL INC. f/k/a GMAC,
Appellee.
No. 4D21-58
[November 17, 2022]
Appeal from the County Court for the Seventeenth Judicial Circuit,
Broward County; Ellen Feld, Judge; L.T. Case Nos. COWE17-013256 and
CACE19-12233.
Lindon Campbell, Coral Springs, pro se.
Christina V. Paradowski of Tripp Scott, P.A., Fort Lauderdale, for
appellee.
PER CURIAM.
Affirmed.
CIKLIN, LEVINE and KUNTZ, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484470/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
JESSE TRACY EUGENE PARKER,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D22-1212
[November 17, 2022]
Appeal from the Circuit Court for the Nineteenth Judicial Circuit,
Indian River County; Dan L. Vaughn, Judge; L.T. Case No.
312020CF000022A.
Carey Haughwout, Public Defender, and Benjamin Eisenberg, Assistant
Public Defender, West Palm Beach, for appellant.
Jesse Tracy Eugene Parker, Crestview, appellant.
Ashley Moody, Attorney General, Tallahassee, and Paul Patti, III,
Assistant Attorney General, West Palm Beach, for appellee.
PER CURIAM.
Affirmed.
GERBER, FORST and ARTAU, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350248/ | Hospitality Concepts, LLC v Bernhardt (2022 NY Slip Op 07351)
Hospitality Concepts, LLC v Bernhardt
2022 NY Slip Op 07351
Decided on December 23, 2022
Appellate Division, Fourth 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 December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: SMITH, J.P., PERADOTTO, CURRAN, WINSLOW, AND MONTOUR, JJ.
809 CA 22-00091
[*1]HOSPITALITY CONCEPTS, LLC, PLAINTIFF-RESPONDENT,
vJAY BERNHARDT, BEDFORD FALLS ENTERPRISES, LLC, JGB PROPERTIES, LLC, DEFENDANTS-APPELLANTS, ET AL., DEFENDANT. (APPEAL NO. 3.)
D.J. & J.A. CIRANDO, PLLC, SYRACUSE (JOHN A. CIRANDO OF COUNSEL), FOR DEFENDANTS-APPELLANTS.
HINMAN, HOWARD & KATTELL, LLP, BINGHAMTON (JEFFREY A. JAKETIC OF COUNSEL), FOR PLAINTIFF-RESPONDENT.
Appeal from a judgment of the Supreme Court, Onondaga County (Deborah H. Karalunas, J.), entered October 6, 2021. The judgment awarded damages, interest, costs and attorneys' fees to plaintiff.
It is hereby ORDERED that the judgment so appealed from is unanimously affirmed without costs.
Same memorandum as in Hospitality Concepts, LLC v Bernhardt ([appeal No. 1] — AD3d — [Dec. 23, 2022] [4th Dept 2022]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484473/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
GREGG F. MOSES, D.C., P.A. a/a/o FLOR ESTRADA,
Appellant,
v.
STATE FARM MUTUAL AUTOMOBILE INSURANCE COMPANY,
Appellee.
No. 4D21-3180
[November 17, 2022]
Appeal from the County Court for the Seventeenth Judicial Circuit,
Broward County; John D. Fry, Judge; L.T. Case No. CONO18-000124.
Douglas H. Stein of Douglas H. Stein, P.A., Coral Gables, for appellant.
Marcy Levine Aldrich and Nancy A. Copperthwaite of Akerman LLP,
Miami, for appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484474/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
FRANKLIN P. JONES,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D22-51
[November 17, 2022]
Appeal from the Circuit Court for the Nineteenth Judicial Circuit,
Martin County; Sherwood Bauer, Jr., Judge; L.T. Case No.
432017CF000393A.
Carey Haughwout, Public Defender, and Robert Porter, Assistant Public
Defender, West Palm Beach, for appellant.
Ashley Moody, Attorney General, Tallahassee, and Kimberly T. Acuña,
Assistant Attorney General, West Palm Beach, for appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484476/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
EVER LEONEL MUNGUIA-PEREZ,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D22-2028
[November 17, 2022]
Appeal of order denying rule 3.850 motion from the Circuit Court for
the Fifteenth Judicial Circuit, Palm Beach County; Scott Suskauer, Judge;
L.T. Case No. 50-2018-CF-011007-AXXX-MB.
Ever Leonel Munguia-Perez, Perry, pro se.
No appearance required for appellee.
PER CURIAM.
Affirmed.
KLINGENSMITH, C.J., LEVINE and CONNER, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484477/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
DENNIS AGNEW,
Appellant,
v.
THE BANK OF NEW YORK MELLON TRUST COMPANY, N.A., ETC.,
Appellee.
No. 4D22-908
[November 17, 2022]
Appeal from the Circuit Court for the Fifteenth Judicial Circuit, Palm
Beach County; Richard Oftedal, Judge; L.T. Case No.
502020CA001574XXXMB.
Robert L. Shearin of Law Office of Robert L. Shearin, Boca Raton, for
appellant.
Hallie S. Evans of Troutman Pepper Hamilton Sanders LLP, Atlanta, for
appellee.
PER CURIAM.
Affirmed.
GROSS, MAY and FORST, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493163/ | ORDER GRANTING MOTION FOR SUMMARY JUDGMENT
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Heard on creditor Susan Ballard’s Motion for Summary Judgment in the above captioned adversary proceeding. The sole issue before me is whether the Rhode Island Superior Court judgment for assault and battery is res judicata as to Ballard’s Complaint seeking a determina*21tion that her debt is nondischargeable under 11 TJ.S.C. § 523(a)(6). Upon consideration of the facts and the arguments, and after reviewing the Superior Court Amended Complaint and Verdict Form used in the state court proceeding, I conclude that the principles of res judicata apply, that the debt in question is nondis-chargeable, and that summary judgment should enter in favor of the Plaintiff. See Geremia v. Dwyer (In re Dwyer), 250 B.R. 472, 474 (Bankr.D.R.I.2000); Fed.R.Bankr.P. 7056.
DISCUSSION
On August 15,1993, Ballard worked as a Karaoke singer at the Roundhouse Tavern in Central Falls, Rhode Island. After her performance on that date, Ballard injured her elbow while removing her equipment from the Tavern. Noticing Ballard’s difficulty, William Souza approached her and offered to apply “pain transference therapy” to eliminate the pain. Without her informed consent, Souza applied “tremendous force” to Ballard’s shoulder causing her physical injuries, and Ballard sued Souza in the Rhode Island Superior Court. The matter was fully tried before a jury, and on November 3, 1997, a verdict was returned in Ballard’s favor awarding her $25,000, plus interest and costs. On January 30, 1998, Souza filed a voluntary Chapter 7 petition.
Ballard argues that the Superior Court jury verdict is res judicata, that Souza is collaterally estopped from questioning her claim under 11 U.S.C. § 523(a)(6), and that said claim is not subject to review by the Bankruptcy Court. In response, the Debt- or argues that there is no showing that he acted with malicious intent, nor has Ballard established that the conduct in question was wilful and malicious.
The Plaintiffs First Amended Complaint filed in the Superior Court alleges, in numerous paragraphs, that William Souza injured Ballard “willfully, maliciously, and without any just cause.” See Complaint, pp. 3, 4, 6. Additionally, the jury verdict form used by the Superior Court states that the jury answered “yes” when asked “Do you find that on or about August 15, 1993, the defendant, William A. Souza, committed assault and battery upon the plaintiff, Susan Ballard?” i.e., Souza was not merely found guilty of negligence. To the contrary, the record clearly supports the conclusion that the Plaintiff has established all of the elements of a wilful and malicious injury under § 523(a)(6), and that the debt is nondischargeable. See Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998).
Under these circumstances, with the principles of res judicata applicable, the state court judgment ends the dispute in this (or any other) Court, see In re Medeiros, 153 B.R. 9 (Bankr.D.R.I.1993), and for the reasons stated above, the Plaintiffs Motion for Summary Judgment is GRANTED.
Enter Judgment consistent with this opinion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493164/ | DECISION AND ORDER
ARTHUR N. VOTOLATO, Bankruptcy Judge.
The United States District Court for the District of Rhode Island has remanded this matter with instructions to make findings of fact and conclusions of law regarding my January 3, 2000 Order granting the Defendants’ Motion to Abstain in the captioned adversary proceeding. The following comprises my response to the District Court’s July 10, 2000 remand order.
BACKGROUND
On March 5, 1998, Donald Lembo filed a voluntary petition under Chapter 7 of the Bankruptcy Code. Pending in the Rhode Island Family Court for some five years prior to the bankruptcy, was Mr. Lembo’s divorce case against his former wife, Carolyn Lembo. The family court litigation has taken various turns and twists, and according to Mrs. Lembo there have been 27 appeals to the Rhode Island Supreme Court, 3 civil actions in the Rhode Island Superior Court, and an 11 week trial in the family court, resulting in judgments against the Debtor approaching $400,000. Included within this sum are attorney’s fees awarded to Mrs. Lembo’s attorney, Arthur M. Read II, Esq. On April 29, 1998, Donald Lembo filed an adversary proceeding in this Court seeking, inter alia, a determination that the debts owed to his ex-wife are dischargeable under both 11 U.S.C. §§ 523(a)(5) and (15). The Complaint, which lists Arthur M. Read II as the Defendant,1 also seeks damages for alleged violation of the automatic stay.
On June 16, 1998, Carolyn Lembo filed a motion for relief from stay in this court, for leave to proceed with the litigation pending in the family court. On August 20, 1998, we granted the motion stating:
In light of the protracted litigation that has already taken place in the Family Court, its familiarity with this case, its experience in such matters, and the fact that the resolution of these issues involves intent vis-a-vis the various Family Court orders, relief from stay is GRANTED. See In re Schweikart, 154 B.R. 616 (Bankr.D.R.I.1993). Once the Family Court determines the nature of these obligations, the parties shall report back to this Court for a determination of dischargeability of the challenged debts.
Order Granting Relief from Stay dated August 20, 1998, BK No. 98-10875, Docket No. 16. The Debtor appealed this order to the Bankruptcy Appellate Panel for the First Circuit (“BAP”) and on September 10, 1999, the BAP issued its decision and order remanding the matter to this Court, stating:
[Bankruptcy courts have concurrent jurisdiction with state courts to determine the dischargeability of debts under 11 U.S.C. § 523(a)(5). [In re Crawford, 183 B.R. 103 (Bankr.W.D.Va.1995)]; Siragusa v. Siragusa (In re Siragusa), 27 F.3d 406 (9th Cir.1994); Thaggard v. *24Pate (In re Thaggard), 180 B.R. 659, 662 (M.D.Ala.1995); Bereziak v. Bereziak (In re Bereziak), 160 B.R. 533, 535 (E.D.Penn.1993); Rosenbaum v. Cummings (In re Rosenbaum), 150 B.R. 994, 996 (E.D.Tenn.1993) (“Although there has been some confusion on this issue, it is now clear that bankruptcy courts and state courts have concurrent jurisdiction to determine whether a debt is excepted from discharge under § 523(a)(5)”); Chaney v. Chaney (In re Chaney) 229 B.R. 266, 269 (Bankr.D.N.H.1999) ... Fed.R.Bankr.P. 4007, Advisory Committee Notes (1983) (“Jurisdiction over this issue on these debts is held concurrently by the bankruptcy court and any appropriate nonbankrupt-cy forum.”).
BAP Order dated September 10, 1999, BK No. 98-10875, Docket No. 30. The BAP pointed out that bankruptcy courts have exclusive jurisdiction over complaints to determine the dischargeability of debts under § 523(a)(15), but that since it was unable to determine whether the underlying Complaint was brought under both Sections 523(a)(5) and 523(a)(15), or what exactly we were asking the family court to determine, it remanded the matter to this Court for clarification.
On October 27, 1999, a hearing was held to consider the remand order, resulting in the parties agreeing to file papers which would clarify the matters concerning the Panel, i.e., on November 10, 1999, the parties filed a stipulation in the family court which provided, inter alia, that “[tjhis Court [the family court] elects to exercise its concurrent jurisdiction with the Bankruptcy Court to determine the discharge-ability of any debts owed by the Plaintiff to Defendant.” See Stipulation dated November 10, 1999, Plaintiff’s Ex. C. Both Mr. and Mrs. Lembo assented to the form and substance of the Stipulation. See id.
On November 12, 1999, Mrs. Lembo filed a motion to abstain in our adversary proceeding, and on January 3, 2000, I granted the motion, citing to the BAP order, and noting the family court’s concurrent jurisdiction with the bankruptcy court on issues arising under 11 U.S.C. § 523(a)(5). I also ruled that, because the Defendants had not requested a determination under Section 523(a)(15), and because the time for filing such complaints had expired, all issues raised under Section 523(a)(15) by the Debtor were moot.
On February 11, 2000, Donald Lembo filed a Notice of Appeal, this time to the District Court, where Judge Lagueux was troubled by the fact that I did not explain if I was relying on 11 U.S.C. § 305 in granting the motion to abstain. He also questioned whether the November 10, 1999 Family Court Stipulation (Exhibit C) played any role in my decision, and whether the underlying adversary proceeding is dismissed or merely stayed.
DISCUSSION
While Mrs. Lembo’s Motion to Abstain cites Section 305 of the Bankruptcy Code, that was not the basis for my decision to abstain. It is well settled that bankruptcy courts and state courts have concurrent jurisdiction to hear and decide matters arising under Section 523(a)(5). See BAP Order dated September 10, 1999, BK No. 98-10875, Docket No. 30.; Siragusa v. Siragusa (In re Siragusa), 27 F.3d 406, 408 (9th Cir.1994); Hopkins v. Hopkins, 487 A.2d 500, 503-04 (R.I.1985). The circumstances under which a bankruptcy court may abstain in favor of a state court to adjudicate the same issues are spelled out in 28 U.S.C. § 1334(c)(1). See Siragusa, 27 F.3d at 408. Section 1334 states in part:
(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.
*25(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 11.
(c)(1) Nothing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11.
28 U.S.C. § 1334. For nearly a century and a half, federal courts have routinely abstained or avoided interfering with the determination of family law matters. Barber v. Barber, 62 U.S. (21 How.) 582, 584 (1858).
[Indeed], alimony, maintenance, or support are not standard debtor/creditor situations, but involve important issues of family law. Traditionally, the federal courts have been wary of becoming embroiled in family law matters. For that reason, federal courts generally abstain from deciding diversity “cases involving divorce and alimony, child custody, visitation rights, establishment of paternity, child support, and enforcement of separation or divorce decrees still subject to state court modification.” Ingram v. Hayes, 866 F.2d 368, 369 (11th Cir.1988); see also Crouch v. Crouch, 566 F.2d 486, 487 (5th Cir.1978). See generally Simms v. Simms, 175 U.S. 162, 20 S.Ct. 58, 44 L.Ed. 115 (1899) (the subject of domestic relations belongs to state, not federal law). “The reasons for federal abstention in these cases are apparent: the strong state interest in domestic relations matters, the competence of state courts in settling family disputes, the possibility of incompatible federal and state court decrees in cases of continuing judicial supervision by the state, and the problem of congested dockets in federal courts.” Crouch, 566 F.2d at 487.
Carver v. Carver, 954 F.2d 1573, 1578 (11th Cir.), cert denied, 506 U.S. 986, 113 S.Ct. 496, 121 L.Ed.2d 434 (1992) (footnote omitted).
In his (Amended) Complaint, the Debtor seeks a determination that his obligations to the Defendants based upon family court orders are dischargeable. While they are not specifically referenced in the complaint, the only sections of the Bankruptcy Code dealing with family court issues are 11 U.S.C. § 523(a)(5) and (15). See Amended Complaint, Docket # 5, at 2. Here, since no creditor has timely filed a complaint under Section 523(a)(15), any debts that would come within the purview of that section are discharged. See 11 U.S.C. § 523(c)(1) (“Except as provided in subsection (a)(3)(B) of this section, the debtor shall be discharged from a debt of a kind specified in paragraph ... (15) of subsection (a) of this section, unless, on request of the creditor to whom such debt is owed, and after notice and a hearing, the court determines such debt to be excepted from discharge ... ”).2
Therefore, the only open issue concerning the dischargeability of debts based upon family court orders are those arising under Section 523(a)(5). As indicated in the case law cited infra, issues of *26alimony, maintenance, and support are routinely treated parochially, as matters of state law, and that, absent really exceptional circumstances, the state courts are the appropriate place to decide them. Also important in this case, the family court has a long history with these parties and it will be asked to clarify and/or interpret its own orders. The return of this dispute to the family court makes judicial and economic common sense, will promote consistent rulings, and eliminates the unseemly appearance of forum shopping. And last but not least, the parties themselves, by the November 10, 1999 family court stipulation, agreed to have this dispute resolved in the family court. See Debtor’s Exhibit C. That valid stipulation has my complete approval.
For all of these reasons, I find and/or conclude (hopefully once and for all) that abstention is appropriate under 28 U.S.C. 1334(c)(1) and that the parties should litigate in the Rhode Island Family Court the issue of whether any of the debts created by family court orders are nondischargeable under 11 U.S.C. § 523(a)(5). Because the family court’s determination will necessarily affect the Debtor’s allegation number 11 in his Amended Complaint, that Attorney Read and Mrs. Lembo violated the automatic stay, and because we do not abstain as to stay violation issues, the Bankruptcy Court adversary proceeding shall remain open until the family court renders its decision. See 11 U.S.C. § 362(b)(2) (“The filing of a petition ... does not operate as a stay ... of the collection of alimony, maintenance, or support from property that is not property of the estate”). The parties are ordered to file a quarterly report with this Court regarding the status/progress of the family court litigation.
. On June 2, 1998, Lembo filed an amended complaint adding his ex-wife as a party defendant.
. While technically, Mr. Lembo requested a discharge under 523(a)(15), that relief is automatic with the expiration of the deadline to file such complaints. Because no “creditor to whom such debt is owed" filed a timely complaint, all debts that fall within the ambit of Section 523(a)(15) are discharged. See 11 U.S.C. § 523(c)(1). It would be an odd exercise to force Mr. Lembo to litigate the issue on account of his own awkwardly drafted complaint. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493165/ | CARL L. BUCKI, Bankruptcy Judge.
The trustee in this Chapter 7 proceeding has objected to half of the debtor’s claim to an exemption for $20,000 of value in a homestead. At issue is whether the New York statute allows a widow not only to claim her own exemption for up to $10,000 of property value, but also to preserve for her own benefit the similar exemption of her deceased husband.
In 1960, Mary S. Joseph and her husband purchased the home at 114 South 13th Street in the City of Olean, New York. Mr. and Mrs. Joseph thereafter resided on this property, in the case of Mr. Joseph until his death in 1980, and in the case of Mrs. Joseph through the present date. When Mrs. Joseph then filed a petition for relief under Chapter 7 of the Bankruptcy Code in April of 2000, she claimed a homestead exemption in the amount of $20,000. In her schedules, Mary Joseph estimates the property to have a value of $23,000. To the claim of exemption, the trustee has filed a timely objection.
Section 282 of the New York Debtor and Creditor Law recognizes a bankruptcy exemption for “real property exempt from application to the satisfaction of money judgments” under section 5206 of the Civil Practice Law and Rules. Subdivision (a) of section 5206 protects, from such satisfaction of money judgments, property “not exceeding ten thousand dollars in value above liens and encumbrances, owned and occupied as a principal residence.” The trustee does not contest the entitlement of Mrs. Joseph to an exemption for at least $10,000. Rather, the issue is whether she can double this benefit by asserting also the exemption rights of her now deceased husband. In making this argument, Mrs. Joseph urges reliance on C.P.L.R. § 5206(b), which reads as follows:
The homestead exemption continues after the death of the person in whose favor the property was exempted for the benefit of the surviving spouse and surviving children until the majority of the youngest surviving child and until the death of the surviving spouse.
The debtor’s counsel argues that because the husband’s exemption continues after his death, Mrs. Joseph may now claim that additional exemption as against her creditors. Neither the trustee nor the debtor has cited any case authority, but they agree that the issue appears to be a matter of first impression.
The basic problem with the debtor’s argument is that it fails to consider the object of an exemption’s protection. Prior to his death, the debtor’s husband enjoyed an exemption as against the rights of his own creditors. Pursuant to C.P.L.R. § 5206(b), this protection survives the husband’s death, so as to limit the application of his property to the satisfaction of money judgments against the husband. Essentially, therefore, this statute protects a decedent’s property from claims of a decedent’s creditors. It accords no additional protection, however, against the creditors of someone other than the decedent. This *35same limitation applies to the benefit of a bankruptcy exemption under Debtor and Creditor Law § 282. Implicitly, the bankruptcy exemption extends only to real propérty that is exempt from the satisfaction of money judgments against the bankrupt. C.P.L.R. § 5206(b) simply provides no protection to Mrs. Joseph as against her own creditors. Accordingly, it can provide no enhancement of her bankruptcy exemption.
For the reasons stated herein, the trustee’s objection is sustained. With respect to the real property at 114 South 13th Street, the homestead exemption of Mary Joseph will be limited to value in the amount of $10,000.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493166/ | Memorandum re Objection to Claim #2
ALAN JAROSLOVSKY, Bankruptcy Judge.
Creditor WFS Financial sold the debt- or’s repossessed vehicle 17 days after giving the debtor a statutory notice pursuant to California Civil Code § 2983.2(a), which mandates a 15-day notice period. The debtor has objected to its deficiency claim, alleging that she was entitled to 20 days notice because WFS elected to serve her by mail. Section 2983.2(a) provides, in pertinent part:
[A]t least 15 days’ written notice of intent to dispose of a repossessed ... motor vehicle shall be given.... The notice shall be personally served or shall be sent by certified mail, return receipt requested, or first-class mail, postage prepaid....
In addition, the statute provides that the debtor is not liable for a deficiency unless the notice contained nine items of detailed information. Subsection (6) requires the notice to state “the seller or holder’s intent to dispose of the motor vehicle upon the expiration of 15 days from the date of giving or mailing the notice, or if by mail and either the place of deposit in the mail or the place of address is outside of this state, the period shall be 20 days instead of 15 days, and further, that upon written request to extend the redemption period and any applicable reinstatement period for 10 days, the seller or holder shall without further notice extend the period accordingly.”
*85It is clear that the notice given by WFS complied with the statute, and that the statute provides for additional time only if service is by mail and the debtor lives in another state. Nonetheless, the debtor argues that she was entitled to 20 days’ notice pursuant to Code of Civil Procedure § 1013, which provides:
(a) In case of service by mail, the notice or other paper must be deposited in a post office, mailbox, subpost office, substation, or mail chute, or other like facility regularly maintained by the United States Postal Service, in a sealed envelope, with postage paid, addressed to the person on whom it is to be served, at the office address as last given by that person on any document filed in the cause and served on the party making service by mail; otherwise at that party’s place of residence. The service is complete at the time of the deposit, but any period of notice and any right or duty to do any act or make any response within any period or on a date certain after the service of the document, which time period or date is prescribed by statute or rule of court, shall be extended five days, upon service by mail, if the place of address is within the State of California, 10 days if the place of address is outside the State of California but within the United States, and 20 days if the place of address is outside the United States, but the extension shall not apply to extend the time for filing notice of intention to move for new trial, notice of intention to move to vacate judgment pursuant to Section 663a, or notice of appeal. This extension applies in the absence of a specific exception provided for by this section or other statute or rule of court, [emphasis added]
The answer to the debtor’s argument is the last sentence of § 1013(a), which provides that the extension it calls for does not apply to another statute which contains a “specific exception.” While § 2983.2(a) does not refer to § 1013(a) by section number, it does contain a specific notice provision which covers the same subject as § 1013(a) and provides for a different time period. It is clear that the California legislature intended the specific notice provisions of subsection (6) of § 2983.2(a) to govern notices after repossession, and not the general notice provisions of § 1013(a). In such instances, the specific provisions of a special statute take precedence over the general provisions of § 1013(a), even if the latter is not specifically mentioned. Labarthe v. McRae (1939) 35 Cal.App.2d 734, 738, 97 P.2d 251. See also Losornio v. Motta (1998) 67 Cal.App.4th 110, 115, 78 Cal.Rptr.2d 799.
For the foregoing reasons, the objection to claim #2 of WFS Financial will be overruled and the claim allowed as filed. Counsel for WFS Financial shall submit an appropriate form of order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493439/ | MEMORANDUM OPINION
MARK W. VAUGHN, Chief Judge.
The Court has before it the Complaint of Barbara MacPhee (“Plaintiff’) that seeks a determination that any potential judgment rendered by the Massachusetts Middlesex County Superior Court (“Superior Court”) against Helen Sullivan (“Defendant”/“Debtor”) is nondischargeable pursuant to section 523(a)(2)(A) of Title 11 of the United States Code.1 At a hearing held on May 23, 2002, the Court heard the testimony of the Plaintiff and Debtor and thereafter took the matter under submission. Based upon the record before it and for the reasons set out below, the Court finds that the Plaintiff has not met her *122burden under § 523(a)(2)(A). Consequently, the Court denies the Plaintiff the relief sought in her complaint.
This Court has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. §§ 1334 and 157(a) and the “Standing Order of Referral of Title 11 Proceedings to the United States Bankruptcy Court for the District of New Hampshire,” dated January 18, 1994 (DiClerico, C.J.). This is a core proceeding in accordance with 28 U.S.C. § 157(b).
Facts
The Plaintiff and Debtor met in 1996, through the Debtor’s brother, Michael Patrick Sullivan. Michael Sullivan was a friend of the Plaintiffs son, who passed away, and the realtor who sold the Plaintiffs prior residence in Newton, Massachusetts.2 The testimony of the parties and evidence submitted in the form of letters written by the Plaintiff to the Debtor and to Michael Sullivan indicate that the Plaintiff had a close relationship with Michael Sullivan, but did not know the Debtor very well. See Pl.Ex. 10 and Def.Ex. 102. Despite knowing the Debtor for only a short period of time, on August 12, 1996, the Plaintiff signed a deed conveying her interest in her residence located at 20 Lillian Road, Framingham, Massachusetts (the “Property”) to the Debtor for one dollar. See PLEx. 1. On September 30, 1996, the Debtor took out a mortgage in the amount of $84,000 and subsequently refinanced the mortgage on the Property twice, on July 31,1998 and August 31, 1999. The amount of the last refinance was $112,500. The Debtor provided the Plaintiff with a written statement dated September 1, 1997, in which she indicated that although she held the deed and mortgage, the Plaintiff truly owns and occupies Property. See Pl.Ex. 5. The Debtor also noted she would reconvey the Property “as soon as legally possible.” Id.
In July 2000, the Plaintiff commenced a lawsuit in Superior Court against the Debtor and Michael Sullivan, seeking the reconveyance of the Property to her free of the liens placed on it by the Debtor, among other requests for relief. See PI. Ex. 8. The Superior Court entered an in-junctive order by which the Debtor was to keep the mortgage payments current on the Property.
Subsequently, the Defendant filed under Chapter 7 of the Code on May 10, 2001. As a result of the filing, the Superior Court litigation was stayed. In her schedules, the Defendant listed the pending civil proceedings against her and Option One Mortgage Corporation as holding a claim of $111,993.45 secured by the Property. The Debtor received a discharge on August 22, 2001. The Debtor has not made any mortgage payments since March 2001. On September 18, 2000, Option One sought and was granted relief from the automatic stay by this Court. Foreclosure proceedings on the Property were scheduled for July 30, 2002.
The Plaintiff filed the instant adversary proceeding on August 14, 2001 and an amended complaint on November 23, 2001. The Court granted Plaintiffs request for relief from the automatic stay on September 18, 2001 to pursue the requests for constructive trust and injunctive relief against Option One, but denied relief to collect any funds from the Debtor until the present dischargeability matter was determined by the Court. See Bk.Doc. 31.3 *123Further, the Court denied the Defendant’s motion to dismiss for failure to state a claim upon which relief can be granted on January 16, 2002. See Adv.Doc. 15.
Discussion
Exceptions to discharge under § 523(a) are to be narrowly construed in favor of the debtor. See McCrory v. Spigel (In re Spigel), 260 F.3d 27, 32 (1st Cir.2001); Palmacci v. Umpierrez, 121 F.3d 781, 786 (1st Cir.1997). “By seeking discharge, however, [the debtor] places the rectitude of his prior dealings squarely in issue, for as the Court has noted, the Act limits the opportunity [for discharge] to the ‘honest but unfortunate debtor.’ ” Spigel, 260 F.3d at 32 quoting Brown v. Felsen, 442 U.S. 127, 128, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979) (citations omitted). Yet, the Code specifies the kinds of debts that are deemed nondischargeable rather than “condition[ing] discharge upon a generalized determination of the moral character of the debtor.” Spigel, 260 F.3d at 32. Further, creditors must prove by a preponderance of the evidence that their claims come squarely within the exception to discharge. See Grogan v. Garner, 498 U.S. 279, 283, 111 S.Ct. 654, 657, 112 L.Ed.2d 755 (1991); Spigel, 260 F.3d at 32; Palmacci 121 F.3d at 787.
The Plaintiff brings her complaint pursuant to § 523(a)(2)(A), which states as follows:
(a) A discharge under section 727 ... of this title does not discharge an individual debtor from any debt—
(2) for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by-
(A) false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s financial condition.
11 U.S.C. § 523(a)(2)(A).
In order to establish that a debt is nondischargeable because it was obtained by “false pretenses, a false representation, or actual fraud,” the Plaintiff must show that: 1) the Debtor made a knowingly false representation or made a representation in reckless disregard of the truth, 2) the Debtor intended to deceive, 3) the Debtor intended to induce the Plaintiff to rely upon the false statement, 4) the Plaintiff actually relied upon the misrepresentation, 5) the Plaintiffs reliance was justifiable, and 6) the Plaintiffs reliance upon the false statement caused damage. Spigel, 260 F.3d at 32 (citing Palmacci 121 F.3d at 786; Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d 7, 10 (1st Cir.1994)).
In the instant case, the “property ... obtained” would be the Plaintiffs house. However, the evidence supports a finding that she voluntarily deeded the Property to the Debtor, knowing that it would be used as collateral to obtain a loan. Thus, the misrepresentation relied on by the Plaintiff must be the promise to reconvey the Property.
In her amended complaint, the Plaintiff alleges that the Debtor misrepresented that she would .sign back the Property to the Plaintiff once the loan was obtained and that the Plaintiff reasonably relied on the promise. As Collier’s states, “[t]he failure to perform a mere promise is not sufficient to make a debt nondischargeable, even if there is no excuse for the subsequent breach. A debtor’s statement of future intention is not necessarily a misrepresentation if intervening events cause the debtor’s future actions to deviate from previously expressed intentions.” 4 Collier on Bankruptcy ¶ 523.08[1][d]. Al*124though the facts surrounding the conveyance are disputed, the Plaintiff has not proven by a preponderance of the evidence that the Debtor made a knowingly false representation or one in reckless disregard of the truth for purposes of § 528(a)(2)(A).
The parties gave differing accounts as to the purpose of the conveyance. The Plaintiff testified that the Debtor requested the Plaintiff sign over her Property so that the Debtor may use it as collateral to repay her debts. Conversely, the Debtor testified that the Plaintiff wanted to engage the Debtor in this transaction so that the Debtor could obtain a loan to help Michael Sullivan, who was not creditworthy, in an alleged real estate venture. But neither party disputes that the Debtor promised to reconvey the property back. The Debtor does argue, however, that circumstances changed as to the reconveyance when the funds that were to come from her brother’s real estate venture never materialized. Instead, unable to make payments, the Debtor refinanced the original mortgage to stall foreclosure.
The evidence appears to support the Debtor’s version of the transaction. In letters written by the Plaintiff to the Debt- or, she states “my house was to get $7,000 as knew Michael needed to open office ...” Pl.Ex. 10(e). Further, the Plaintiff noted that she told Michael Sullivan that the Debtor got involved only after he “pleaded” for her help and that Debtor’s involvement was a “big mistake” on the Debtor and Plaintiffs parts. Def.Ex. 104. Further, in a correspondence to the Debt- or dated July 23, 1996, the Plaintiff thanks the Debtor for “helping out Michael Patrick” and hopes that the Debtor liked the house, proceeding to list various improvements she expected Michael Sullivan would be making on the Property. Def.Ex. 101. Additionally, the Plaintiff references the conveyance as being a “deal,” indicating that she was “paying bills that were not in this deal” for taxes and repairs on the property. Pl.Ex. 10(i). Since the Court finds that the Debtor did not make a false misrepresentation to the Plaintiff because she did intend to reconvey the property, the first prong of the nondischargeability test under § 523(a)(2)(A) was not satisfied.
As a final note, the Court recognizes the unfortunate circumstances of this case. However, the burden upon the plaintiff in a nondischargeability action is a heavy one and the Plaintiff was not able to meet it.
Conclusion
For the reasons outlined above, this Court denies the Plaintiffs complaint for relief pursuant to § 528(a)(2)(A). This opinion constitutes the Court’s findings and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052. The Court will enter a separate final judgment consistent with this opinion.
. Unless otherwise noted, all section references hereinafter are to Title 11 of the United States Code.
. At the May 23, 2002 hearing, neither party called Michael Patrick Sullivan as a witness.
. Upon request of the Plaintiff, the Court clarified this order on January 19, 2002, indicating that relief was also granted to pursue the fraud and promissory estoppel counts in the Superior Court litigation. See Bk.Doc. 35. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493440/ | MEMORANDUM OPINION
PETER J. WALSH, Bankruptcy Judge.
This is with respect to the motion (Doc. # 16) of George Calhoun (“Defendant”) for a judgment on the pleadings. I will grant the motion for the reasons discussed below.
BACKGROUND
Geotek Communications, Inc. (“Geotek”) and certain of its affiliates (collectively, “Debtors”) filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code on June 29, 1998 (“Petition Date”). On August 27, 1999, Debtors’ Second Amended Consolidated Plan of Liquidation (“Plan”) was confirmed. (See Order (Doc. # 830, Case. No. 98-1375) (“Confirmation Order”)).
Pursuant to the terms of the Plan and the Confirmation Order, all of Debtors’ Causes of Action, including, but not limited to certain Avoidance Actions, were assigned to Wilmington Trust Company, as Trustee of the Geotek Liquidating Trust *166(“Plaintiff’).1 (PL’s Mem. (Doc. #20) at 2.) This assignment took place pursuant to a modification to § 4.14 of the Plan (“Modification”), included in the Confirmation Order, which provides:
In the event a Phase II Termination Event or a Nextel Termination Event shall have occurred, except as otherwise provided in the Plan, including, but not limited to Section 11.3 of the Plan, or the Confirmation Order, or in any contract, instrument, release, indenture or other agreement entered into in connection with the Plan or the Chapter 11 Cases, all Causes of Action, including, but not limited to, the Avoidance Actions, if any, shall be transferred and assigned to the Liquidating Trust in accordance with Section 4.17.B.1 or Section 4.17.C.1, as the case may be, of the Plan.
(Confirmation Order, Ex. A at 3) (emphasis added).2 Relevant to the instant dispute, § 11.3 of the Plan (“§ 11.3”) provides:
As of the Effective Date, each of the Released Parties shall be deemed to have mutually released, to the extent permitted by the Bankruptcy CouH each of the (a) Debtors, their officers, directors and employees as of the Filing date, agents, advisors and representatives, (b) the M-L Funds, (c) the 15% Secured Notes Indenture Trustee, (d) HNS, (e) S-C Rig, (f) the Unsecured 12% Notes Indenture Trustee, (g) the Creditors’ Committee (but not any member thereof in its capacity as a Holder of a Claim), and (h) each Consenting Holder and, with respect to the Persons listed in clauses (b) through (h), the respective present and former directors, officers, partners (general and limited), shareholders (record and beneficial), employees, agents, advisors, and representatives of all the foregoing, of and from any and all Claims, obligations, rights, Causes of Action, the Released Avoidance Actions and liabilities (other than the right to enforce the obligations of any party under the Plan) which such Person may be entitled to assert, whether known or unknown, foreseen or unforeseen, then existing or thereafter arising, based in whole or in part upon any act, omission or other occurrence taking place from the beginning of time to and including the Effective Date in any way relating to the Debtors, the Chapter 11 Cases, including, but not limited to, the 85/15 Proposal, or the Plan.
(Plan § 11.3) (emphasis added). Pursuant to § 1.186 of the Plan (“§ 1.186”), the “Released Parties” are defined as:
*167[Collectively, (i) the Debtors, their officers, directors and employees as of the Filing Date, and their agents, advisors and representatives, and (ii) each Consenting Holder, the Creditors’ Committee, HNS, S-C Rig, WTC, the M-L Funds, the Unsecured 12% Notes Indenture Trustee and each of their respective present and former officers, directors, partners (general and limited), shareholders (record and beneficial), employees, agents, advisors, attorneys, and representatives.
{Id. at § 1.186.)
Prior and subsequent to the Petition Date, Defendant was employed as an officer and as a member of the Board of Directors of at least one of the Debtors. (Def.’s Mot. (Doc. # 16) ¶ 4.) On or about June 29, 2000, Plaintiff commenced the instant adversary proceeding against Defendant seeking to recover $182,129.00 allegedly due in connection with the execution of two promissory notes and the transfer of other funds to Defendant by Debtors pre-petition. {Id. at ¶ 2.)3 Subsequently, on or about May 11, 2001, Defendant filed his motion (Doc. # 16) for a judgment on the pleadings pursuant to Fed.R.Civ.P. 12(c) (“Rule 12(c)”)4.
Defendant argues that he is entitled to judgment as a matter of law because, as a former officer and director of Debtors, he is a “Released Party” under § 1.186 who has been broadly released from any and all Causes of Action “in any way relating to the Debtors” pursuant to the plain language of § 11.3. {Id. at ¶¶ 10-12.) Defendant argues that because Plaintiff succeeded to Debtors’ rights, title and interests in all of Debtors’ claims and Causes of Action subject to the release provisions of § 11.3, Plaintiff has no right to enforce the instant cause of action against him. {Id.) In response to these arguments, Plaintiff disputes that Defendant has been released with respect to claims and Causes of Action held by Geotek and argues that while § 11.3 operates to release Geotek’s claims against the other Debtors and their respective officers, directors and employees, it does not operate to release Geotek’s claims against its own officers, directors and employees, including Defendant. (Pl.’s Mem. (Doc. # 20) at 2-3.)
DISCUSSION
On October 30, 2001, upon reviewing the initial arguments made by the parties in support of their respective interpretations of § 11.3, I informed counsel that, in my opinion,. a threshold issue raised by the language in § 11.3 is that which conditions the releases “to the extent permitted by the Bankruptcy Court”. Having found that this language provided no clear understanding as to how the parties intended the releases to take effect, and that one could interpret such language to suggest a need for the Court to make a determination of the appropriateness of each and every release accompanied in the provision, I asked counsel to file supplemental written submissions as to the purpose and effect of such language. They have since done so and I am now convinced that the language “to the extent permitted by the Bankruptcy Court” was not intended to require the Court to make a determination of the appropriateness of each and every release accompanied in the provision. (Confirmation Order at 13.) Upon reading § 11.3 in context with paragraph C.C. of *168the Confirmation Order5, I find that § 11.3 can be viewed as setting forth the mechanics of the releases, while leaving it to the Court to decide whether to permit them or not, and paragraph C.C. of the Confirmation Order can be viewed as the Court agreeing that the releases, as articulated in § 11.3, are permissible in the context of the Bankruptcy Code. In other words, the language “to the extent permitted by the Bankruptcy Court” can effectively be read as proposing that the releases provided for in § 11.3 are subject to the Court’s approval, which approval was granted pursuant to paragraph C.C. of the Confirmation Order. In light of this interpretation, I am satisfied that § 11.3 sets forth the full extent to which releases are to be permitted under the terms of the Plan, and that the Court’s approval of such releases, having previously been granted pursuant to the terms of the Confirmation Order, is not now required on an additional case-by-case basis. In light thereof, I further find that pursuant to § 11.3, Defendant has been released from any and all claims and/or Causes of Action which Debtors may be entitled to assert against him and therefore, the instant proceeding must be dismissed pursuant to Rule 12(c).
In reviewing a motion for a judgment on the pleadings under Rule 12(c), the Court applies the same standard to be applied to a motion to dismiss under Fed.R.Civ.P. 12(b)(6). The Court must accept as true all allegations contained in the complaint and construe all reasonable inferences drawn therefrom in the light most favorable to the plaintiff. Morse v. Lower Merion Sch. Dist., 132 F.3d 902, 906 (3d Cir.1997); Rogin v. Bensalem Township, 616 F.2d 680, 685 (3d Cir.1980). Applying this standard to the instant matter, I find that the Amended Complaint must be dismissed as a matter of law. The Plaintiffs alleged interest in the instant cause of action against Defendant stems from the fact that “Debtors assigned to the Trust all of the Debtors’ right, title and interest in and to all claims and causes of action arising under the Bankruptcy Code or arising under state law.” (Am.Compl. ¶ 5.) However, as discussed below, at the time this alleged assignment took place, Debtors’ had no right, title or interest in any such claim or cause of action against Defendant because all of Debtors’ claims and/or causes of action against Defendant were released on the effective date of the Plan pursuant to § 11.3.
Although Plaintiff argues that § 11.3 should be interpreted as releasing all claims between Debtor entities, but not as releasing claims between a Debtor entity and its own officers, directors and employees, I find that such an interpretation conflicts with the plain language of the provision. Section 11.3 expressly and *169unambiguously provides that each of the Released Parties, defined in § 1.186 as including “the Debtors their officers, directors and employees as of the Filing Date, and their agents, advisors and representatives” (Plan § 1.186), “shall be deemed to have mutually released, to the extent permitted by the Bankruptcy Court each of the (a) Debtors, their officers, directors and employees as of the Filing date, agents, advisors and representatives ... of and from any and all Claims, obligations, rights, Causes of Action, the Released Avoidance Actions and liabilities”. (Plan § 11.3.) This language clearly encompasses the release of any and all Causes of Action held by Geotek against Defendant. If, as Plaintiff contends, the parties had intended the releases provided for in § 11.3 to apply except to the extent that a Debtor entity holds a claim, right or Cause of Action against one of its own officers, directors or employees, they could have easily so provided. The fact that they did not indicates their intent that § 11.3 be interpreted in accordance with its plain language so that each Released Party, including Defendant, is deemed to have been released from any and all claims or causes of action by all other Released Parties, including Geotek.6
CONCLUSION
For the reasons discussed above, Defendant’s motion (Doc. # 16) for a judgment on the pleadings is granted.
. Pursuant to the terms of the Plan, "Causes of Action" are defined as "all actions, causes of action, liabilities, suits, debts, indebtedness (for borrowed money or in the nature of a guarantee), dues, sums of money, accounts, reckonings, bonds, bills, specialties, covenants, trespasses, damages, rights, executions, claims, Claims, objections to Claims, judgments and demands whatsoever, whether known or unknown, choate or inchoate, suspected or unsuspected, in law, equity or otherwise.” (Plan § 1.35.) "Avoidance Actions” are defined as "all Causes of Action arising under sections 510(c), 544, 545, 547, 548, 549 or 550 of the Bankruptcy Code.” {Id. at § 1.25.)
. Prior to the Modification, which does not alter, but constitutes an addition to the language provided below, § 4.14 provided:
Except as otherwise provided in the Plan, including, but not limited to Section 11.3 of the Plan, or the Confirmation Order, or in any contract, instrument, release, indenture or other agreement entered into in connection with the Plan, Reorganized Geotek will retain and may enforce all Causes of Action, including the Avoidance Actions.
(Plan § 4.14, prior to the Modification.) Section 4.14 of the Plan was subsequently modified to include additional provisions. (See Confirmation Order, Ex. B at 9-10.)
. Plaintiff filed an amended complaint ("Amended Complaint”) on November 9, 2000, and Defendant answered on or about December 13, 2000.
. Fed.R.Civ.P. 12(c) is applicable in this proceeding pursuant to Fed. R. Bankr.P. 7012.
. Paragraph C.C. of the Confirmation Order provides:
The releases set forth in Section 11.3 of the Plan constitute good faith compromises and settlements of the matters covered thereby. Such releases are made in exchange for consideration and are in the best interests of Holders of Claims, are fair, equitable, reasonable and are integral elements of the compromises by various creditor constituencies which form the foundation of the Plan. Each of the releases:
1. falls within the jurisdiction of the Bankruptcy Court under 28 U.S.C. § 1334;
2. is an essential means of implementing the Plan pursuant to § 1123(a)(5) of the Bankruptcy Code;
3. is an integral element of the transactions incorporated into the Plan;
4. is voluntarily given by each of the Persons granting such release; and
5. is consistent with Sections 105, 1123, 1129 and other applicable provisions of the Bankruptcy Code.
(Confirmation Order at 13.)
. Given that the language of §§ 1.186 and 11.3 are clear and unambiguous, there is no need, despite Plaintiff's contention to the contrary, to look to the controversy being settled and the purpose for which the release was executed in determining the scope of the release. In addition, I find the hypothetical submitted by Plaintiff in support of its argument that Defendant's interpretation of § 11.3 could lead to incongruous results to be unpersuasive. (See Pl.’s Mem. (Doc. # 20) at 3-4.) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493442/ | MEMORANDUM DECISION AWARDING LDI HOLDING CORP. USE AND OCCUPATION PAYMENTS AND FIXING THE PROOF OF CLAIM OF LDI HOLDING CORP.
DOROTHY EISENBERG, Bankruptcy Judge.
This Court has been called on to resolve ongoing disputes over the rights of various parties in and to certain real property located at 151-19 Powells Cove Boulevard, Whitestone, New York (the “Property”). Pursuant to a written decision dated June 5, 2002, the Court made certain findings and directed that pursuant to an award of specific performance, LDI Holding Corp. (“LDI”) sell the Property to Bayside Marina, Inc. (the “Debtor”) for the original contract price of $350,000. This Court left *287open certain issues to be resolved: chiefly, whether the Debtor is entitled to offset the use and occupation payments made by the Debtor during the pendency of this matter against the remaining purchase price, whether any of the parties are entitled to damages because of this adversary proceeding, and the fixing of LDI’s prepetition claim. The following constitutes the Court’s findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052. FACTS
For a complete recitation of the facts pertinent to this adversary proceeding, refer to this Court’s memorandum decision dated June 5, 2002 (the “June Decision”). In the June Decision, the Court found that the Debtor and LDI entered into a contract dated April 2, 1998 to sell the Property to the Debtor for $350,000 (the “Stipulation”). The parties entered into the Stipulation to resolve several disputes which had arisen between LDI as landlord and the Debtor as tenant. Prior to entry of the Stipulation, the parties had entered into a Lease dated as of March 15, 1995 (the “Lease”), which granted to the Debtor an option to purchase the Property from LDI only if “at the Closing (as defined in the Purchase Agreement), Tenant shall pay in full all outstanding Fixed Rent and Additional Rent.” (Section 35.01(f) of Lease). This section further provides that “all provisions of this Lease pursuant to which Tenant is obligated to pay any sum of money to Landlord, or to indemnify, defend and/or hold Landlord harmless from any cost, claim, expense, action, damage or liability shall survive the Closing and the termination of this Lease.”
The Stipulation, which created a new contract between the Debtor and LDI, does not specifically state that all of the Lease terms are cancelled and deemed a nullity. The Stipulation further identifies the Debtor as “Tenant” and LDI as “Landlord,” and provides that in the event of a default by the Debtor, execution on a warrant of eviction is to be had and LDI is to be granted a judgment in the amount of $115,000. On execution of the warrant of eviction, credit is to be given for all nonrefundable deposits paid by the Debtor towards the $115,000 judgment. The Stipulation further provides that a portion of the purchase price of the Property may be allocated to back rent owed by the Debtor. This indicates that the Lease terms and sale pursuant to the Stipulation were not to merge.
According to LDI’s principal, Mr. Ivor Jacobson, the figure of $115,000 was arrived at based on a rough estimate of rent due and owing by the Debtor to LDI through the proposed closing date plus accrued interest, legal fees and taxes. (12/27/01 Tr. at 151-52). Mr. DiGiacomo, the Debtor’s principal, did not contradict this testimony, but he did not recall what this amount was based on. (12/04/01 Tr. at 109).
As of June 29, 1998, the Debtor had, inter alia, made payments totaling $100,000 towards the purchase price. One day prior to the date of sale, Jesse Cromer commenced litigation and filed a lis pen-dens against the Property, claiming that he had ownership of a portion of the Property and an easement running over the remainder of the Property to enable him to reach that portion. As a result of Cromer’s actions, LDI breached the Stipulation because it could not provide marketable, clear title to the Property to the Debtor, and the nature of this breach excused the Debtor from tendering the $250,000 owed under the Stipulation on the closing date.
LDI participated in the state court litigation commenced by Cromer by filing an answer and counterclaim. In other papers filed by LDI in connection with the Crom*288er litigation, LDI referred to Cromer’s claims as “baseless” and challenged Cromer’s easement and ownership claims. Nonetheless, Judge Lisa signed an Order dated December 8, 1998 granting a preliminary injunction enjoining LDI, the Debtor and Lawrence DiGiacomo, the Debtor’s principal, from interfering with Cromer’s use of the Property pending resolution of Cromer’s claims, provided that Cromer post a bond in the amount of $250,000 by January 8,1999.
Prior to expiration of the preliminary injunction issued by Judge Lisa, LDI did request relief against the Debtor in Landlord/Tenant court, seeking entry of a judgment of possession of the Property. By written decision dated December 18, 1999, Judge Gottlieb determined that the Cromer Litigation affected the ability of the parties to close on the sale of the Property. (Deft’s Exh. QQ). Notwithstanding this finding, Judge Gottlieb “revisited” the nonpayment proceeding giving rise to the parties’ entry into the Stipulation, and held that while the Cromer litigation was underway, the Debtor was obligated to pay to LDI monthly use and occupancy of $4,166.67 beginning from July 1998 and a judgment was to be entered against the Debtor and in favor of LDI in the amount of $115,000. This $115,000 figure appears to be based on the unpaid rent, taxes and costs owed by the Debtor which had accrued to the date of the scheduled closing on June 30, 1998. Upon determination of the issues arising from the Cromer Litigation, Judge Gottlieb directed that the parties are permitted to “resume their contractual positions.” (Deft’s Exh. QQ).
LDI’s breach of the Stipulation continued until this Court resolved Cromer’s claims and found that a) Cromer did not own any portion of the Property, and b) Cromer did not have an easement over any portion of the Property, by deed or by prescriptive easement. This Court directed that the lis pendens filed by Cromer against the Property be removed, thereby removing the cloud from title to the Property. Cromer did not participate in this adversary proceeding after the summary judgment stage, and an order was entered on June 28, 2001 which precluded him from introducing any discovery-related evidence in support of his claims since he defaulted on his obligation to respond to discovery requests served by LDI.
In its written decision, this Court requested additional briefs on the issue of whether LDI is entitled to retain the monthly payments the Debtor has made as use and occupancy of the Property since June 30, 1998 or whether the payments are to be applied towards the purchase price of the Property. The total amount of monthly payments made to LDI for post petition use and occupancy of the Property equals in excess of $100,000. The Court also sought additional papers on whether the Debtor is entitled to indemnification from LDI for the costs and expenses incurred in connection with resolving the cloud on title to the Property created by the commencement of litigation by Cromer. Pursuant to a motion filed by LDI, the Court is also called on to fix LDI’s prepetition claim which LDI filed in this case in the amended amount of $55,073.09. LDI’s total prepetition claim is comprised of the $115,000 judgment awarded by Judge Gottlieb, use and occupancy from July 1998 through February 1999, plus taxes in the amount of $6,739.83, less $100,000 credit for the down payment made by the Debtor. LDI also seeks an administration claim in the amount of $78,640.64 for rent due from March 1999 through August 1999 and November 2001 through July 2002, and interest on the prepetition claim to date and on the administration claim for the period March 1999 through August 1999 totaling $23,497.47.
*289DISCUSSION
Treatment of monthly payments made by the Debtor to LDI
In order to fix the amount that the Debtor still owes to purchase the Property, the Court must determine whether the monthly use and occupation payments made by the Debtor are to be credited to the sale price or whether these payments are meant to cover the Debtor’s use and occupation from June 30, 1998 to the present. In general, when a landlord and tenant enter into contract for the sale of real property, or the tenant exercises an option to purchase real property pursuant to a lease, the relationship between the parties is converted to that of vendor and vendee and the landlord-tenant relationship “merges” with the vendor-vendee relationship. Barbarita v. Shilling, 111 A.D.2d 200, 201, 489 N.Y.S.2d 86 (2d Dep’t 1985). Consequently, where merger has occurred and the lessor/lessee relationship is extinguished, the former landlord may not bring summary proceedings against the lessee for failure to pay rent during the time period between entry of the contract of sale and actual closing. N.Y.Jur.2d. Landlord and Tenant § 696 (1999). Generally, this practice is appropriate because the parties have created a new relationship which precludes either party from enforcing rights based on the prior relationship of landlord and tenant.
However, if the contract of sale reflects a clear manifestation by the parties to the contrary, or if the contract is unclear but the conduct of the parties reflects no merger, then the two contracts will coexist. Id.; Sid Farber Hempstead Corporation v. Buckley, 65 Misc.2d 237, 239, 317 N.Y.S.2d 30, 32-33 (1970). In addition, the equities of the situation can affect whether merger of the landlord-tenant relationship into the contract vendor-vendee relationship has occurred. As stated in William P. Rae Co. v. Courtney:
Whether in equity there is a merger of a lesser estate in a greater, or an equitable in a legal estate, is largely a question of the intent of the parties, to be gathered to a great extent from the situation of the parties and the surrounding circumstances. Equity looks at the real intent of the parties and not at the mere external form....
In the absence of an expressed intent, equity will look for and ascertain it from all the circumstances surrounding the parties and the transaction.
250 N.Y. 271, 274, 165 N.E. 289, 291 (1929).
Both the law, the equities and prior court rulings favor a finding that the landlord-tenant relationship was not merged into the contract-vendor-vendee relationship created by the Stipulation. Clearly, the Lease itself contemplated that the Debtor would remain liable for rent pending consummation of any sale of the Property. The Lease contains specific language that obligates the Debtor to be current with rent up to the date of any closing and provides that any monetary obligation of the Debtor pursuant to the Lease shall survive the closing and the termination of the Lease.
The terms of the Stipulation and Order do not specifically terminate the obligations of the parties under the Lease. The Stipulation refers to the Debtor as “Tenant” and to LDI as the “Landlord.” In addition, paragraph 17 of the Stipulation grants LDI the right to allocate funds paid by debtor to back rent owed as of the closing date. Furthermore, LDI retained the right to execute on a warrant of eviction if the Debtor defaulted. Paragraph 8 of the Stipulation states that if the Debtor defaults at closing, judgment would be granted in favor of LDI in the amount of *290$115,000, which amount was based on the rent, interest and counsel fees owed under the Lease through the contemplated closing date. (12/27/01 Tr. at 151-52.) Credit was to be given towards this amount in the amount of any deposits made by the Debt- or for the purchase of the Property. Paragraph 11 of the Stipulation provides that in the event a default occurs, all deposits paid by the Debtor shall be forfeited as payment of outstanding rent owed and attorneys fees incurred by the Debtor, which is essentially a re-wording of paragraph 8 of the Stipulation. Therefore, if a default by the Debtor occurred, LDI could keep the deposits made by the Debtor towards the purchase price to offset the judgment to be entered against the Debtor in the amount of $115,000 for back rent, which reflects that the Landlord/tenant relationship did not cease to exist upon entry of the Stipulation.
The fact that the Stipulation preserved LDI’s right to collect back rent owed to the date of closing and to proceed to evict the Debtor in landlord tenant court in the event of a default by the Debtor indicates that the landlord/tenant relationship was not extinguished by the terms of the Stipulation. The cases cited in the Debtor’s brief support this finding. In Fulgenzi v. Rink, 253 A.D.2d 846, 678 N.Y.S.2d 360, 361 (2nd Dep’t) the Court held that there is no right to use and occupation from a contract vendee in possession unless the landlord/tenant relationship continues to exist. In this case, the Stipulation gives LDI the right to apportion the purchase price to cover back rent due and owing without limiting the time period the back rent could accrue. If the landlord/tenant relationship had been terminated as of the date of the Stipulation, there would be no reference to rent or pursuit of remedies in landlord/tenant court. The parties would only be left with the rights of a contract vendor and vendee, which would not have included the right to a money judgment in favor of LDI based on rent and other charges accruing up to the closing date or the right of LDI to obtain a warrant of eviction in landlord/tenant court.
The case of Bostwick v. Frankfield, 74 N.Y. 207, 1878 WL 12645 (1878) also supports this Court’s finding. In the Bo-stwick case the court affirmed a tenant’s eviction after the tenant defaulted on a contract of sale of the property. The Court failed to find that a prior lease merged with a contract of sale of the real property in question where the terms of the contract of sale did not provide that the lease was to be merged into the contract, and a deed was not to be granted to the purchaser/lessee until the purchaser complied with the contract terms. As in Bostwick, the Debtor/tenant has no right to the deed until the sale closes pursuant to the Stipulation. The intervening Cromer Litigation served to excuse the Debtor from tendering performance, but the Lease was not extinguished as a result. This is especially true in this case where a final determination on the merits of the Cromer Litigation was not made until very recently and the rights of the parties pursuant to the Stipulation remained in “limbo” for almost four years.
In addition to the case law above, the equities favor a finding that the Lease did not merge with the Stipulation. Since June 1998 to date, the Debtor has continued to remain in sole possession of the Property, and has admitted to deriving a six-figure income from his use of the Property which includes the operation of a marina. (12/27/01 Tr., at 62 - 64). The Debtor continues to rent out parts of the Property for storage and parking for which he collects rent. During this lengthy time period, the Debtor cannot expect to operate its business at the Prop*291erty without paying for such use and occupancy.
While LDI was the breaching party under the law, the breach was caused by Cromer’s litigation filed on the day before the closing. LDI did not undertake to prevent the closing and did participate in the Cromer Litigation in order to oppose Cromer’s claims in and to the Property. No doubt, LDI was as surprised as the Debtor to discover that Cromer was alleging that he had superior rights in and to the Property, and certainly no party to this proceeding imagined that it would take four years to resolve the Cromer Litigation. To permit the Debtor to remain on the Property for the duration of this time period without making payment for use and occupation would result in a windfall in favor of the Debtor. Based on the equities of this case, the Court cannot in good conscience allow such a result and the Debtor is obligated to pay LDI $250,000 for the purchase of the Property, with no deductions for use and occupation payments made to LDI post petition.
This decision will not result in a windfall in favor of LDI because the purchase price pursuant to the Stipulation is most likely far less than market value. The Property has been valued at $1 million as far back as February 1988 pursuant to an appraisal by Norman F. Hanlon, Inc. which was prepared at the request of the Debtor. In addition, Mr. DiGiaeomo testified that 5,000 square foot lots across from the Property were selling for $350,000 in 1998, and the subject Property is more than 32,000 square feet.
This Court also notes that Judge Gott-lieb found that use and occupancy payments were appropriate pending the outcome of the Cromer Litigation and served to keep the rights of the parties in status quo. Judge Gottlieb recognized that the Lease had not expired and awarded LDI the judgment in the amount of $115,000 to compensate LDI for the past rent and expenses due to LDI from the Debtor up to the date of the scheduled June 30, 1998 closing. Judge Gottlieb’s order was not appealed from by the Debtor and remains binding on the Debtor in its entirety.
Finally, an award of use and occupation to LDI in consistent with a Debtor’s obligations under section 503(b), which grants administrative status to charges for a debtor’s actual use and occupancy of premises. For at least a portion of the four years in question, the Debtor was occupying the Property under the protection of the Bankruptcy Code and the Bankruptcy Code, in turn, protects parties which confer a benefit upon a debtor’s estate. Certainly the Debtor’s continued use of the Property during this time conferred a benefit upon the Debtor and LDI is entitled to be compensated for providing such benefit.
Whether Debtor is entitled to damages against LDI.
The Debtor claims entitlement to damages against LDI based on LDI’s actions in the Cromer Litigation and in connection with this bankruptcy proceeding as follows:
a. $14,000 — monthly payments to All Make Leasing, one of the Debtor’s prospective lenders, to keep the financing terms available;
b. $830 — Chapter 11 filing fee;
c. $750 — fees to the Office of the United States Trustee;
d. $55,581.90 — $1,684.30 per month for interest incurred on its borrowing of $250,000 in order to purchase the Trustee’s rights in and to this adversary proceeding;
e. $2,856.04 — origination cost of the borrowing;
f. $750 — appraisal fee paid to David Maltz by the Chapter 7 Trustee;
*292g. $27,933 — legal fees incurred by the Chapter 7 Trustee;
h. $5,745.70 — legal fees incurred by the Chapter 7 Trustee;
i. $10,195.80 — accounting fees incurred by the Chapter 7 Trustee;
j. $530.95 — US Trustee fees paid by the Chapter 7 Trustee;
k. $1,250 — witness fees for trial before this Court;
l. $4,000 — legal fees incurred in opposing eviction proceeding in state court during pendency of Judge Lisa’ preliminary injunction;
m. $2,500 — legal fees incurred in connection with filing of petition;
n. $20,000 — legal fees incurred for representing debtor in bankruptcy case;
o. $45,515.73 — legal fees and expenses in incurred in this adversary proceeding;
p. $48,785 — additional legal fees and expenses incurred in this adversary proceeding;
The total amount of damages the Debtor claims to have suffered equals $241,224.98 plus additional miscellaneous and sundry costs. In this case, the Court has already awarded specific performance in favor of the Debtor. A party awarded specific performance is also entitled to recover as special damages any direct and consequential loss suffered as a result of the seller’s refusal to convey the property in accordance with the terms of the contract of sale. Regan v. Lanze, 47 A.D.2d 378, 366 N.Y.S.2d 512 (N.Y.A.D.1975), rev’d on other grounds, 40 N.Y.2d 475, 354 N.E.2d 818, 387 N.Y.S.2d 79 (1976). The categories under which the Debtor claims entitlement to damages are as follows:
1)legal fees incurred in this adversary proceeding;
2) legal fees incurred in the landlord/tenant action;
3) fees and costs incurred by the Chapter 7 Trustee in this case;
4) fees and costs incurred in this bankruptcy;
5) payments made to All Make Leasing; and
6) costs incurred to purchase the right to pursue this adversary proceeding.
Although courts award damages to successful parties in specific performance actions, specifically excluded from damages are recovery of legal fees incurred by the prevailing party in the litigation because such fees “ ‘are merely incidents of litigation and are normally not recoverable absent contractual obligation or specific statutory authority.’” Id. (citing Klein v. Sharp, 41 A.D.2d 926, 343 N.Y.S.2d 1014 (N.Y.A.D.1973)) (other citations omitted.) The exception to this rule is in the event court finds that “the loser has contumaciously deprived a (person) of his clear legal entitlement, forcing the latter into the expense of rescuing himself through legal action.” Park South Associates v. Essebag, 113 Misc.2d 1026, 1028, 451 N.Y.S.2d 345 (N.Y.1982) (citing Vaughan v. Atkinson, 369 U.S. 527, 82 S.Ct. 997, 8 L.Ed.2d 88 (1962)).
Clearly, an award of legal fees incurred by the Debtor in this adversary proceeding is inappropriate as LDI did not act contumaciously in connection with this litigation, or in connection with the Cromer Litigation. The cloud on title was not caused by LDI’s own doing, and LDI will not be held responsible for the legal fees incurred by the Debtor in these actions. The only portion of the legal fees incurred by the Debtor which are directly attributable to LDI’s bad faith actions are the fees incurred in the state court action arising from LDI’s pursuit of the Debtor in land*293lord/tenant court while an injunction was in place by order of Judge Lisa to preserve the status quo of the parties. Judge Lisa specifically barred any party to the Cromer Litigation from taking any action which would interfere with Cromer’s alleged rights in and to the Property. In spite of this, LDI pressed forward with its action seeking to obtain a judgment of possession against the Debtor, which could have affected Cromer’s rights inasmuch as Cromer alleged that LDI did not have clear title in and to the Property. The landlord/tenant action did not include Cromer as a party yet rulings could have issued in the landlord/tenant action which could have adversely impacted Cromer’s rights. This was precisely why Judge Lisa’s preliminary injunction was put into place. Therefore, of all of the legal fees requested by the Debtor, the Debtor is only entitled to reimbursement of $4,000 incurred by the Debtor in the landlord/tenant proceedings, which were not warranted given the fact that Judge Lisa enjoined the parties from taking any action which interfered with Cromer’s access to the Property pending Mr. Cromer’s payment of the bond.
With regard to the fees and costs incurred by the Debtor in connection with the bankruptcy filing and the Trustee’s fees and costs incurred in connection with this case, the Court does not find that an award against LDI for these amounts is appropriate. LDI did not act in such a manner to warrant the granting of fees and costs in favor of the Debtor in this bankruptcy case. The filing of this petition was a tactical decision by the Debtor which does not give rise to consequential damages in its favor. In addition, costs incurred by the Debtor during the pen-dency of the bankruptcy case are not the type of costs one normally assumes will flow from a vendor’s failure to provide good title in connection with the sale of a parcel of real property.
The Debtor also seeks reimbursement for the $14,000 it incurred in order to keep its financing package available from All Make Leasing. In the June Decision, this Court found that the Debtor was ready, willing and able to close on the closing date, and remains so to date. In order to remain ready, willing and able to close, the Debtor had to demonstrate to the Court that he had financing available to close pursuant to the terms of the Stipulation. All Make Leasing was willing to provide the financing as long as the Debtor paid a certain fee to keep the financing terms in place. Debtor did so for a number of months pending a resolution of the Cromer litigation and the removal of the Cromer lis pendens. As a result of LDI’s inability to provide good and marketable title in and to the Property, the Debtor was required to pay the fee required by All Make Leasing, and the Court finds that this cost in the amount of $14,000 constitutes consequential damages which are compensable by LDI.
The final damage claim flows from the Debtor’s costs in borrowing funds to purchase the cause of action from the Trustee. This was the Debtor’s choice and LDI is not responsible for such costs. Unfortunately for the Debtor, although LDI did breach the Stipulation, LDI did not cause the breach to occur. The breach was brought on by a third party and the law dictates that LDI be charged only with the consequential losses stemming from its actions. However, the consequential damages suffered by the Debtor resulting from LDI’s breach include only the $4,000 in fees incurred in connection with defending itself in the state court landlord tenant action, and the $14,000 paid to All Make Leasing to keep the financing terms available to the Debtor, which was part of the *294Debtor’s obligations under the Stipulation. Therefore, damages are awarded in the total amount of $18,000 amount in favor of the Debtor.
LDI’s proof of claim.
Pursuant to the proof of claim filed by LDI (Deft’s Exh. UU,) LDI seeks $155,073.09 prepetition. LDI’s total claim is as follows:
a. Amount per Judge Gottlieb’s order $115,000
b. Use and occupancy 7/98 through February 1999 $ 38,333.86
c. Taxes $ 6,739.83
This amount is reduced by LDI’s own admission by $100,000 pursuant to the down payment already paid by the Debtor, leaving $55,073.09 due in prepetition taxes and use and occupation payments. LDI also seeks interest on the claim pursuant to the Revised Agreement entered into between Lawrence DiGiacomo, the Chapter 7 Trustee, counsel to the Debtor and Jesse Cromer dated October 27, 1999 (the “Revised Agreement”), which was so-ordered by this Court by order dated November 23, 1999. Pursuant to the Revised Agreement, Mr. DiGiacomo agreed to pay interest at an unspecified rate on all administration claims, allowed priority and general unsecured claims in accordance with section 726(a)(5) of the Bankruptcy Code. If the funds held by the Chapter 7 Trustee are insufficient to pay interest on said claims, Mr. DiGiacomo has agreed to remit to the Chapter 7 Trustee all funds necessary to make such payments within ten days following a request by the Chapter 7 Trustee. This agreement is binding upon Mr. DiGiacomo, and Mr. DiGiacomo and no appeal of the order approving the Revised Agreement was ever taken.
LDI asserts that the appropriate interest rate to impose on its prepetition claim and administration claim is 9%, without giving the Court any authority for this rate. However, most courts look to the federal rate of interest in deciding the appropriate interest rate to assess pursuant to § 726(a)(5). In re Laymon, 117 B.R. 856, 859-60 (Bankr.W.D.Tex.1990), rev’d on other grounds, Bradford v. Crozier (In re Laymon), 958 F.2d 72 (5th Cir.1992); In re Goldblatt Bros., 61 B.R. 459, 466 (Bankr.N.D.Ill.1986); In re A & L Properties, 96 B.R. 287, 290 (C.D.Cal.1988); and In re El Paso Refinery L.P., 244 B.R. 613, 621 (Bankr.W.D.Tex.2000). As these courts recognize, an award of postpetition interest on a claim is a matter of federal law, which militates against the use of a state-mandated interest rate. Claims filed in bankruptcy cases can originate in many jurisdictions and to ensure uniformity of treatment of claims, it is appropriate to apply the federal statutory rate of interest on judgments set by section 1961 of title 28 of the United States Code in this instance. Therefore, interest is awarded on LDI’s proof of claim at the federal statutory rate calculated from the petition date to the date of payment.
Likewise, pursuant to the Revised Agreement, LDI is entitled to interest at the federal statutory rate on its administration claim for use and occupancy plus real estate taxes owed but not paid from the date these payments were to be made from the petition date to the date of closing. The applicable federal rate of interest will vary with the date each payment was to be made by the Debtor.
Dismissal of the Action Against Ivor Jacobson
At the close of the trial, the Court dismissed the claims against Ivor Jacobson brought by the Debtor based on alleged material misrepresentations regarding LDI’s ability to convey marketable title. The Court found that there was no evidence of such fraud on the part of Ivor Jacobson, and counsel to Jacobson has requested fees and costs in connection with defending this portion of the adversary proceeding. However, LDI has not shown *295any legal authority for the granting of such relief and it is denied.
CONCLUSION
1. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. § 1334(b). This is a core matter pursuant to 28 U.S.C. § 157(a)(2)(A), (B) and (0).
2. Based on the terms of the Stipulation, the Lease and the equities of this case, the Court finds that the Lease between LDI and the Debtor did not merge with the option to purchase the Property embodied in the Stipulation and the Debt- or remains liable to LDI for use and occupation of the Property from June 1998 to the closing date at a rate of $4,166.67 per month.
3. The Debtor is entitled to consequential damages from LDI in the amount of $18,000, comprised of $4,000 in legal fees incurred in the landlord-tenant action, and $14,000 paid to All Make Leasing in order to keep the terms of the lending proposal open to the Debtor while LDI was in breach of the Stipulation.
4. LDI’s prepetition claim is fixed at $55,073.09 plus interest at the federal statutory rate for interest on judgments set by section 1961 of title 28 of the United States Code, as of the petition date, to the date of payment. In addition, LDI is entitled to collect use and occupation payments in the amount of $4,166.67 per month plus additional rent from the petition date to the closing date, with interest fixed at the federal statutory rate applicable at the time that each payment became due and owing, until payment is made.
5. Ivor Jacobson is not entitled to damages from the Debtor.
Settle an Order in accordance with this decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493443/ | REASONS FOR DECISION
GERALD H. SCHIFF, Chief Judge.
I. INTRODUCTION
WRT Energy Corporation, Inc. (“WRT” or “Debtor”), filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code1 on February 14, 1996 (“Petition Date”), and on that day an order for relief was duly entered. On May 5, 1997, an order was entered confirming the Modified Second Amended Joint Plan of Reorganization Under Chapter 11 of the United States Bankruptcy Code (“Plan”). The Plan has now become effective.
A. Litigation
Pursuant to the Plan, the WRT Creditors Liquidation Trust (“Trust”) was created to litigate and liquidate certain claims held by the Debtor. The Trust filed hundreds of complaints, which, for the purposes of this proceeding, generally fell into two categories—
• The Fraud Actions. The Trust filed some 17 complaints against over 90 parties alleging the Trust’s right of recovery pursuant to various theories, including the avoidance of fraudulent conveyances under § 548, and miscellaneous state law remedies pursuant to § 544(a).
• The Preference Actions. Asserting rights to avoid pre-petition transfers under § 547(b), the Trust filed over 400 complaints seeking to recover what is referred to as “voidable preferences.”
Although § 548 and the various state law causes of action contain several varied theories under which the Trust might recover, the insolvency of the Debtor at the time various transfers occurred was a common thread which linked all of the Fraud Actions. Accordingly, the court decided to consolidate the Fraud Actions for the purpose of determining the issue of the Debt- or’s insolvency at various points in time.
The common thread of the Debtor’s insolvency, however, was also weaved into the Preference Actions as the point in time of the Debtor’s insolvency was a necessary *351element of proof under § 547. Not wishing to try this issue piecemeal, the court entered an order in the Preference Actions requiring that each preference defendant desiring to rebut the presumption of insolvency under § 547(f) “opt in” to the consolidated case for the purpose of determining if and when the Debtor was or became insolvent. Several of the preference defendants chose to opt in and became part of the consolidated trial. Any preference defendant who did not opt in to the consolidated proceeding was precluded from raising the issue of the Debtor’s insolvency upon the resumption of the individual preference trials on the remaining issues.
Although counsel for one or more of the preference defendants may have been present in the courtroom at limited times during the consolidated trial, none formally participated. During the lengthy trial, during which many witnesses testified either live or by deposition, not one word of evidence was presented to suggest the Debtor was solvent during the preference period, ie., 90 days prior to the Petition Date. Accordingly, the court concluded, that the Trust was entitled to a finding of fact (as to the preference defendants only) that WRT was insolvent during the 90 days preceding the Petition Date. This, of course, merely recognized that the presumption of insolvency which arises under § 547(f) was not rebutted by any of the preference defendants.
B. Insolvency Trial
For some 33 days during the period May 1 through August 18, 2000, the court conducted the insolvency phase (“Insolvency Trial”) of the consolidated proceedings. The Insolvency Trial was the crown jewel of the Trust’s efforts to recover funds for the benefit of creditors of the Debtor and others2. The trial, which involved issues dealing with principles of general and forensic accounting as well as petroleum and reservoir engineering, often became contentious. Over 30 witnesses were heard and more than 4,000 exhibits were admitted into evidence. Although numerous defendants remain in these actions, the defense to the Trust’s claims during the Insolvency Trial was presented by counsel for LLOG Exploration Company (“LLOG”), Benton Oil & Gas Company of Louisiana (“Benton”), Stephen Edwards, Great Southern Oil Company (“Great Southern”), and BSFI Western E & P, Inc. (“BSFI”), (collectively the “Defendants”).
While several accounting principles were at issue, the court believes the main focus was the valuation1 of several oil and gas properties acquired by WRT from certain of the Defendants. Valuation of oil and gas properties is a two-step process. First, the amount of oil and gas in place must be determined. Then, a price must be ascertained. Applying one factor (quantity) to the other (price) should result in the value of the property. Oh, if it were only so easy.
II. FACTUAL BACKGROUND
A. History of WRT
*352WRT was founded by Steve McGuire.3 Around 1987 or early 1988, Mr. McGuire became CEO and Chairman of Tesla Resources, Inc. (“Tesla”), and Western Resource Technology, which later became WRT.4 WRT owned 100% of the stock of Tesla and Southern Petroleum, Inc. (“SPI”). Through August 1993, WRT also owned a 20% investment in TesTech, Inc. (“TesTech”), for which it had funded 100% of the operations and had management control. In September 1993, WRT acquired the remaining 80% interest in Tes-Tech and dissolved that entity. In 1992, both Tesla and SPI were merged into WRT, which became the sole surviving corporation.5 Following that consolidation, WRT “went public,” with its stock being traded on the NASDAQ.6 WRT remained continuously listed on NASDAQ from 1992 until at least Mr. McGuire’s resignation in late 1995.7
As a publicly traded company, WRT was required by regulations of the Securities and Exchange Commission (“SEC”) to file audited financial statements, both quarterly and annually. Those statements, of necessity, included valuations of WRT’s oil and gas reserves.8 Shortly after going public, KPMG Peat Marwick (“KPMG”) was retained to audit WRT’s financial statements9 and the Scotia Group (“Sco-tia”), an engineering consulting firm located in Dallas, Texas, was retained to prepare WRT’s reserve reports.10
B. WRT’s Proprietary Technology
Beginning with its predecessor companies, TesTech and Tesla, WRT developed certain proprietary tools and technologies for use in connection with the logging of wells to locate overlooked and by-passed oil and gas reserves. Specifically, WRT used specialized radioactive spectral logging tools and a hydrocyclone water treatment system.11 The radioactive spectral logging tools were a series of tools which emitted radiation through the tubing and casing of old wells and then read the signals to develop a log showing whether oil and/or gas was present.12 These tools were unique in that their miniaturized size allowed them to be run in older wells without the necessity of spending hundreds of thousands of dollars to pull out the tubing in place.13
The hydroeyclone water treatment system was a series of devices that spun fluids fast enough to separate produced water from the lighter density oil and gas hydrocarbons.14 The hydrocyclone replaced much larger separator systems and processed fluid much quicker than a conventional system, thus increasing production.16 WRT believed that the use of the hydrocyclone would allow it to obtain an *353exemption from the Louisiana Department of Environmental Quality permitting it to discharge produced water overboard rather than having to reinject the water into the ground, thus saving additional expense.15 While the hydrocyclone was not new technology, that type of equipment was not at that time being used in South Louisiana oil and gas fields.17
C. WRT’s Business Strategy
WRT thus developed into an independent oil and gas producer specializing in the acquisition, revitalization and production of mature oil and gas fields located in South Louisiana.18 WRT focused on South Louisiana because the geology in that area — numerous productive zones or sands — provided significant opportunities for overlooked and by-passed oil and gas.19
The company’s strategy was to use property acquisitions to reach a critical mass as an integrated oil and gas company.20 Wayne Beninger, who formerly consulted with WRT as a Scotia manager and joined WRT as a member of senior management in July, 1995, testified that WRT’s strategy has been successfully employed by other companies in South Louisiana, citing Flores and Rucks as a specific example.21 Mr. McGuire, WRT’s president, testified that WRT’s vision was to become “an operator and possibly a second-tier independent that could collect large properties from the majors when they were done or had exploited most of the initial reserves.”22
According to Mr. Beninger, in the 1994 time period, WRT was looking to get to “a particular size, 100-million-plus, and to do that within a couple of years.”23 Mr. McGuire testified that WRT’s tar-get was to acquire $75,000,000 of additional oil and gas properties by the end of 1994.24 Both Messrs. McGuire and Beninger agreed that the closing of a “next tier” acquisition in the $50,000,000 plus or minus range was a major goal for WRT.25
The long term goal of the company was to grow to $1 billion in assets.26 Mr. Ben-inger testified that he believed that WRT’s long term vision to become a $1 billion company was possible.27
D. WRT’s Acquisition Efforts
To accomplish its corporate mission of rapid acquisition of increasingly significant oil and gas properties, WRT, in early 1994, hired Scotia to create, in electronic form, a ranking of South Louisiana oil and gas properties for potential acquisition.28 Sco-tia reviewed “every field south of 1-10, *354[and] every field operator combination south of I — 10.”29 Scotia ultimately generated some 100 “blue books” — which covered an entire wall of one of the WRT offices— and provided WRT with evaluation parameters on approximately 100 different South Louisiana oil and gas fields, and as many as 100,000 different wells.30 These acquisition rankings were updated over time and would change as additional information would become available.31
In accordance with the WRT business plan and the directive from its board of directors, Paul White — WRT’s vice-president of acquisitions — found himself focusing “more and more on acquiring new oil and gas properties” as the company grew.32 Potential acquisition candidates were discussed by Mr. White at weekly executive staff meetings, which included Mr. McGuire and other officers.33 Mr. White testified that WRT “constantly evaluated and pursued a number of different properties in order to find one it could actually buy and close on.”34 Mr. McGuire testified that during any given time WRT would be looking at as many as 30 different properties, and have solicitations out on 5.35 Indeed, Mr. McGuire testified that, during 1994 alone, WRT evaluated over 150 possible acquisition candidates, and made offers on as many as 30 separate properties.36
John Petersen, WRT’s in-house legal counsel, confirmed that fully one-third of the staff in the Houston office was dedicated to “looking primarily at acquisition candidates.” 37 WRT’s acquisition folders are replete with dozens of concrete examples throughout 1994 and 1995 of WRT’s efforts to identify and acquire Louisiana oil and gas property interests, including: WRT’s offers to purchase different oil and gas interests from Texaco ($22.7 million),38 Phillips Petroleum ($35.5 million),39 Chevron ($60 million),40 and Shell ($35 million).41 Throughout 1994 and 1995, WRT pursued an aggressive acquisition program as part of its daily operations which resulted in a number of significant purchases. According to Mr. Petersen, these acquisition activities were part of WRT’s day-to-day business and were critical to the company’s growth.42
E. WRT’s Property Evaluation
As WRT approached specific property acquisition candidates, management would *355form a team to evaluate the property.43 The team would include Scotia personnel, landmen, in-house geologists and, in some instances, contract geologists.44 Scotia would do a preliminary screening to give the company a workable estimate of likely value.45 In helping WRT formulate acquisition strategies, Scotia would attend any presentations that were made, review all the material provided by the seller, gather whatever information was available in the public domain, do a performance analysis on the producing reserves, do a log analysis, develop their own structural and iso-pach or isochore maps, review lease operating expense statements and marketing contracts, do a risk analysis and arrive at a range of offering prices for WRT’s review.46 Scotia would also advise WRT as to whether there was potential other than proved reserves.47
Internally, WRT would “run cash-flow projections at different oil and gas pricing scenarios and discounting in different categories to arrive at prices that could be paid.”48 WRT’s personnel specializing in operations would go into the field to look at the property and equipment.49 Mr. McGuire identified 14 separate components considered by WRT with each potential property acquisition: number of wells, accumulated production by well and by field, number of productive sands per well, peak production by well and by field, well pressure/water production, aerial extent, well schematics, current production, facilities/surface equipment, probable and possible reserves, gas and oil contracts, geographic location, availability of additional acreage, and whether the field was on land versus water.50
WRT would also prepare Tobin maps for the fields that WRT’s management viewed as particularly desirable.51 Raymond Landry, who became WRT’s president and chief operating officer in April 1995, testified that, as part of the acquisition program in place from the time he joined the company, WRT was pursuing additional acreage around the properties it had acquired.52 Mr. McGuire similarly testified that it was WRT’s practice to acquire a property and then immediately turn to focusing on how it could acquire additional acreage adjacent to the newly acquired property.53 WRT used Tobin maps to track the lease ownership of a field it was interested in acquiring so that the company could see which operators they should approach in order to round out an entire field purchase.54 WRT also used Tobin maps in order to assess what additional acreage it should attempt to acquire if it elected to purchase the property that was on the market.55 This information was necessary as WRT did not wish to start to *356enhance the value of a property if it did not have a controlling block position.56
F. The Bond Offering and Due Diligence of Underwriters
By mid-1994, WRT was exploring the possibility of acquiring oil and gas properties through the issuance of public debt with Wertheim Schroeder (“Wertheim”), an investment banking firm in New York.57 At that time, Wertheim and CIBC Oppenheimer Corporation (“Oppenheimer”), another investment banking firm, were both pursuing WRT’s business.58 Ultimately, Wertheim and Oppenheimer acted as co-underwriters with regard to the debt offering.59
Wertheim, Oppenheimer and WRT evaluated a $100,000,000 debt offering, to be followed by an equity offering in the range of $35-50,000,OOO.60 Indeed, the $100,000,000 debt offering was specifically written to incorporate a $35,000,000 “claw-back” provision.61 The debt offering, however, was not dependent upon a subsequent equity offering.62
WRT eventually pursued the equity offering through a third underwriter, Prudential Securities, Inc. (“Prudential”).63 Mr. Landry testified that, based upon his conversations with Prudential during the first quarter of 1995, he was confident that such an equity offering could be made.64 When Mr. Beninger was making his decision to join WRT in the July/August 1995 time frame, he was told by Mr. Landry that he still expected the equity offering to happen in the fourth quarter.65 Mr. Ben-inger prepared his own calculations of WRT’s finances and included an assumed offering.66 Mr. McGuire testified that he was confident the equity offering would occur until late September declines in oil prices, production and the price of WRT stock made the offering impossible.67
In underwriting the debt offering, Wer-theim spent about six months in the due diligence process.68 Numerous people from Wertheim were involved,69 reviewing WRT’s financials70 and properties.71 Wertheim evaluated presently-owned properties as well as those WRT intended to acquire, including the properties to be acquired from LLOG.72 Wertheim inter*357viewed WRT’s outside consultants.73 Wertheim personnel had complete and unfettered access to all WRT documents74 including all of WRT’s financial records.75 All three of WRT’s in-house CPA’s, Ronald Hale, Ernie Begnaud and Kathy Stubbs, were assigned to assist Wertheim in this process.76
Wertheim generated more than 20 different projections for the company to assess financial performance.77 WRT reviewed and commented on those projections.78 Mr. McGuire testified that he was personally involved in at least half a dozen work sessions with Wertheim, and reviewed multiple sets of projections at each session.79
Wertheim concluded that WRT could repay the indebtedness.80 Robert Israel, Wertheim’s lead consultant working on the WRT project at the time, testified that, in his professional opinion, it was “absolutely true” based on the due diligence performed by Wertheim, that WRT could repay the $100 million bond offering at 13 % percent.81 “We concluded they could service the debt and meet their obligations.”82 Mr. Israel testified that had his firm concluded otherwise, it would not have proceeded with the bond offering.83 Mr. Israel further testified that, in his view, the proceeds of the bond offering were sufficient to develop the WRT properties.84
Other events were occurring at the same time Wertheim was engaged in its extensive due diligence: (1) Oppenheimer was involved in its own due diligence of WRT.85 Oppenheimer enjoyed the same unfettered access to WRT — including access to WRT’s financial records and reserve reports — as Wertheim.86 Attorneys for both Wertheim and Oppenheimer were also involved in the due diligence regarding the properties.87 (2) Internationale Nederlan-den Capital Corporation (“INCC”) was undertaking due diligence with regard to a $40 million line of credit sought by the company.88 INCC not only reviewed the books and records of WRT, but also performed an independent reserve evaluation with regard to WRT’s properties.89 (3) KPMG was involved in a full audit of WRT90 and an audit of expenses relating to the LLOG and Napoleonville properties.91 This process involved numerous KPMG professionals and was headed up by William Transier, KPMG’s senior partner who specialized in oil and gas account*358ing.92 (4) Finally, WRT prepared its own analysis of the bond offering and its ability to support the debt, which included some 15 to 20 separate projections.93 Each of these independent evaluations concluded WRT was solvent and would be able to pay the bond debt as well as the company’s other obligations.94
This information was reviewed with WRT’s board of directors, including James Rash, an outside director, who agreed that the projections showed that WRT could survive different runs of oil and gas pricing.95 As stated by Mr. McGuire, “[w]ith all the cash flow projections that we had run, it looked like we could survive even down to what was called a disaster case scenario.”96 Thus, after months of extraordinary due diligence undertaken by WRT, three outside underwriters, their lawyers, their accountants, two separate independent reserve engineers, WRT’s in-house staff and a big six accounting firm, WRT made the final decision to go forward with the bond offering.
G. Overview of Major Transactions
1. LLOG Properties.
In late spring or early summer of 1994, LLOG decided to actively market properties, some of which were ultimately acquired by WRT.97 LLOG did not require that any group of properties be purchased as a bundle, but was prepared to accept less, and ultimately did accept less, if properties were sold in a group rather than individually.98 LLOG utilized this same price determination process in some fifteen separate sales involving more than forty fields and which generated combined proceeds of more than $500,000,000.99
Messrs. White and McGuire contacted Donald Burks (“Burks”) to obtain data on the LLOG properties in early October, 1994.100 Mr. Burks is a petroleum engineer who has been active in reservoir engineering and acquisition work since the early 1970’s.101 They were informed that 18 properties were available.102 WRT then performed its internal analysis on all of the properties and concluded that eight of them fit WRT’s acquisition criteria — Bayou Penchant, Bayou Pigeon, Abbeville, Golden Meadow, Deer Island, N.E. Deer Island, Paradis and Lac Blanc.103 WRT and Scotia initially focused on the properties other than Paradis and Lac Blanc and concluded that those six properties could readily support a $60 million purchase price.104
*359While WRT was performing its analysis of the properties, Forest Oil, a large publicly traded oil and gas company, tendered an offer of $15 million for the Deer Island and N.E. Deer Island properties.105 LLOG rejected that offer because it failed to meet LLOG’s minimum acceptable price;106 LLOG tendered a counteroffer of $18.5 million plus a bonus tied to production.107
In mid-November, WRT offered $56 million for Bayou Penchant, Bayou Pigeon, Golden Meadow, Abbeville, Deer Island and N.E. Deer Island.108 The offer was conveyed to Mr. Burks who in turn relayed it to Gerald Boelte (“Boelte”), LLOG’s major shareholder.109 WRT’s offer, however, was less than the minimum acceptable price established by LLOG, and the offer was rejected without counter.110
Mr. Burks relayed the rejection to WRT, but noted that if the price were raised into the $60 million range, it might be acceptable.111 Following that advice, WRT made a $60 million offer for all working interests plus an additional amount— initially estimated at $2,500,000 — for overriding royalty interests (“ORR”).112 That offer was acceptable to LLOG and a letter of intent outlining the proposed transaction was executed on November 18, 1994.113
The letter of intent contemplated execution of purchase and sale agreements in mid-December, 1994,114 although it shortly became obvious that this deadline could not be met.115 LLOG and WRT had no previous relationship, and WRT required time to complete extensive due diligence.116 WRT not only required reserve evaluations on each of the properties, but also title documentation and other legal due diligence.117
One of the delays resulted from the fact that LLOG did not own all working interests in the subject fields. Obviously, WRT would only pay for those percentages of working interests which were actually transferred.118 At WRT’s urging, LLOG did its best, to convince the other working interest owners to sell to WRT.119 Such efforts, however, were not completely successful. Vintage Oil, an independent oil and gas producer, found the purchase price inadequate and refused to sell its interest in the Abbeville Field.120
*360On December 21, 1994, LLOG and WRT executed a purchase and sale agreement for Bayou Penchant.121 Similar agreements were signed on January 10, 1995, for Abbeville,122 Bayou Pigeon,123 N.E. Deer Island124 and Golden Meadow125. The Deer Island agreement was signed on January 30, 1995.126 Each of the purchase and sale agreements bound WRT to buy and LLOG to sell the respective properties.
At the time the letter of intent was executed, WRT anticipated the bond offering — the source of funding for the LLOG transaction' — would close by year-end. Delays occasioned by due diligence delayed the bond offering into January, February and finally March.127 LLOG, however, was not willing to have its properties taken off the market with no assurance of ultimate funding.128 Accordingly, WRT agreed to close on the Bayou Penchant property using funds drawn from the INCC line of credit.129 WRT also agreed to tender a $5 million non-refundable deposit which would be credited against the purchase price for the remaining properties.130 Consistent with this agreement, WRT wire transferred $15 million to LLOG on January 30, 1995, and delivered a promissory note for $5,570,317.93 as the non-refundable deposit.131 The note was paid the following week.132
While awaiting closing on the remaining LLOG properties, WRT continued with its due diligence on the Lac Blanc and Parad-is Fields.133 Mr. McGuire contacted Mr. Boelte directly to discuss price.134 Mr. Boelte indicated that he was looking for a price of $12 million for Paradis135 and in the range of $12 to $14 million for Lac Blanc.136 Mr. McGuire concluded that both were too “pricey,” and dropped the matter as to those properties.137 LLOG ultimately sold Paradis to Force Energy for $16 million and Lac Blanc to Shell for $44 million.138
The bond issue closed on March 6, 1995. On March 8, 1995, WRT wire transferred the balance of the purchase price to LLOG’s account, namely, $41,119,867.26. WRT immediately assumed operation of all the acquired properties.
*3612. East Hackberry.
Between January and September 1994, WRT acquired various oil and gas properties in the East Hackberry area including the Erwin Heirs Lease, State Lease 50, and the Roussel Royalty. WRT acquired these properties directly from Great Southern, or from Great Southern through Texas American Resources, Inc. (“TARI”).
On July 8, 1992, Great Southern, through its subsidiary, Southern Petroleum Company, paid Chevron $7.35 million for, inter alia, a 100% working interest in the Erwin Heirs Lease and a 1.515% ORR in State Lease 50.139 Further, and with an effective date of October 14, 1993, Texaco agreed to convey certain interests in State Lease 50 to Great Southern for no consideration.140
Shortly after the 1993 preferred stock offering, Mr. McGuire had discussions with TARI, concerning the potential acquisition of oil and gas interests in Louisiana.141 These negotiations led to the execution of a Master Purchase and Sale Agreement between WRT and Tari, dated February 2, 1994. Pursuant to this agreement, TARI was to convey to WRT certain oil and gas interests in the Erwin Heirs Lease, State Lease 50, West Hackberry and Rankin Fields for $11.5 million in cash, 454,000 shares of WRT common stock, and warrants to purchase 300,000 shares of WRT stock exercisable at $8.50 share.142
At the time the negotiations with WRT were underway, on or about December 28, 1993, TARI offered to purchase the Erwin Heirs Lease from Great Southern for $9.7 million. Also, on February 1, 1994, TARI purchased the Erwin Heirs lease from Great Southern for approximately $9.5 million.143 On the same day TARI purchased the Erwin Heirs Lease, it sold the identical property interest to WRT for $12.622 million.144
In connection with the Erwin Heirs Lease closing on February 1, 1994, Great Southern conveyed Rig No. 14 and Rig No. 55 to TARI for a total of $900,000.145 WRT acquired Rig No. 14 and Rig No. 55 from TARI for $1,200,000 at the same closing.146
Further, in a letter of intent dated February 1, 1994, Great Southern agreed to convey State Lease 50 to TARI for $1 million. Thereafter, on April 29, 1994, Great Southern accepted Texaco’s offer to convey Texaco’s remaining interest in State lease 50 to Great Southern for $50,000. Finally, on May 26, 1994. Great Southern conveyed State Lease 50 directly to WRT for approximately $1,000,000.147
3. Gulf Coast Joint Venture.
In 1991, WRT, Tricore Energy Venture, L.P. (“Tricore”), and Stag Energy Corporation (“Stag”) entered into a joint venture agreement identified as the Gulf Coast Joint Venture (“GCJV”). Pursuant to the GCJV, WRT was to contribute certain oil and gas properties and Stag would raise the necessary capital to develop these *362properties by selling interests in the GCJV to Tricore. The GCJV was based on WRT’s belief that certain tax credits would be available and would be offered by WRT to Tricore, the investor, in lieu of or as a supplement to production revenue.
Tricore would contribute capital under the terms of the GCJV, while Stag received a five (5%) percent share of the production revenue from the various wells contributed by WRT.148 The GCJV required that a minimum percent consideration be paid to Tricore. Section 29 tax credits which WRT claimed it was eligible to receive were assigned to Tricore and applied to the guaranteed considerations under the agreement. The GCJV claimed Section 29 tax credits and allocated them to Tricore, based on production from the Delcambre No. 1 and Lac Blanc.149
In October 1993, attempting to claim the Section 29 tax credits, WRT filed its initial state application seeking certification that certain of the wells were producing gas from geopressured brine. WRT supplemented its application in February 1994, and filed for four additional wells at Lac Blanc. The State of Louisiana accepted certification of the wells as geopressured brine wells.
In April and May, WRT applied for FERC approval of the Louisiana agency certification of the wells. In August, however, the FERC issued a preliminary finding that the determination by the state was not supported by substantial evidence. In September, WRT asked FERC to withdraw its application. FERC notified WRT that the withdrawal of the application before it becomes final nullifies the determination and application. At this point, however, WRT asked FERC to reinstate its application. Although the FERC reinstated the proceeding, on December 6, 1994, a preliminary finding consistent with the August preliminary finding was issued.150 On April 3, 1995, the FERC issued its Final Order Reversing Well Determination, affirming the preliminary finding.
WRT unsuccessfully appealed the FERC ruling.151 In its ruling, however, the Fifth Circuit stated that the FERC ruling “is not dispositive” and that the IRS is “not bound to follow the FERC’s ruling.” 152 Both Michael Sterling, Stag’s president, and Mr. Petersen testified that the Section 29 tax credits taken by the joint venture partners were never challenged or disallowed by the IRS.153
Effective June 30, 1994, WRT, Stag, and Tricore entered into an Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV (“Amended and Restated JVA”).154 Article Seven of the Amended and Restated JVA sets forth the “Production Guarantee” under which WRT guaranteed that Tricore’s “interest in this GCJV would produce the minimum quantities of natural gas set forth in Exhibit B ... during the forty eight month period commencing October 1, 1992.”155 Para*363graph 7.11 of the Amended and Restated JVA further provided that “[a]ny payment required by this Article Seven may be satisfied by the issuance to [Tricore] of registered debt or equity securities of WRT or Stag which have a full market value equal to the required payment.”156
Mr. McGuire testified that WRT specifically negotiated for the option to use stock to satisfy any obligation that may arise under the production guarantee.157 He further testified that it was a deal breaking point, and that WRT would not have entered into the guarantee without the option.158 Finally, Mr. McGuire testified that WRT would never have paid with anything other than the stock had there ever been a call on the guarantee.159
4. Napoleonville Field.
BSFI and other working interest owners acquired an interest in the Napoleonville Field in 1991.160 BSFI, acting through Joseph P. Brantley, IV, was the operator of the field and acted on behalf of all working interest owners throughout. Their plan was to develop the field and then market it for sale. Brantley sought Mr. Burks’ advice regarding decisions to develop or market the Napoleonville Field over several years.161
Between 1991 and 1994, BSFI drilled three wells and completed several marginally successful workovers in the Napo-leonville Field.162 By early 1994, after completing two successful wells, BSFI retained Mr. Burks to begin active marketing efforts to sell the Napoleonville Field.163
BSFI and WRT engaged in negotiations for the sale of the Napoleonville Field, with BSFI initially seeking some $13 million for the property. WRT initially offered to purchase the Napoleonville Field from BSFI with WRT stock which Brant-ley valued between $10 and $11 million.164
The consideration indicated in the first draft of a letter of intent dated November 4, 1994, was all stock (600,000 shares of common stock and 240,000 shares of preferred stock) with a value of $11,585,000.165 Mr. Edwards wrote a letter to Brantley dated November 18, 1994, conveying WRT’s demand that the price be reduced by $500,000 due to the results of certain due diligence investigation on the Trahan # 1 well.166 BSFI countered WRT’s offer of $11 million; WRT rejected BSFI’s counteroffer.167
Ultimately, a letter of intent between BSFI and WRT was executed on Novem*364ber 23, 1994, indicating a purchase price of 1.25 million shares of WRT common stock with a value of approximately $10 million.168 Mr. Brantley, however, did not consider this letter of intent to be a binding deal as BSFI was still entertaining an offer from another entity interested in purchasing the Napoleonville Field.169 Mr. Brantley understood that whatever terms were finally agreed to would be subject to a purchase and sale agreement and that the letter of intent was not binding.170
In addition to negotiating the amount of the consideration to be paid for the Napo-leonville Field, BSFI and WRT negotiated the form that the consideration would take. BSFI and WRT discussed various ways to structure the transfer of the Napoleonville Field, including a merger, a combination of preferred stock and common stock, all common stock, and potentially cash.171 Mr. Brantley was attempting to obtain more cash than stock, and WRT was attempting to purchase the property for more stock than cash.172 BSFI eventually agreed to accept stock for the Napoleon-ville Field,173as on December 2, 1994, the parties executed a final version of the earlier letter of intent, the new agreement providing that the consideration for WRT’s purchase of the Napoleonville Field was to be 1.25 million shares of WRT common stock.174
On December 7, 1994, WRT’s board of directors approved WRT’s purchase of the Napoleonville Field for 1.25 million shares of common stock together with 50,000 shares for two finders.175 The Purchase and Sale Agreement was executed on December 16, 1994.176 Paragraph 2 thereof provides that the consideration shall be 1.25 million shares of WRT common stock.177 WRT committed to issue and BSFI agreed to take 1.25 million shares of WRT common stock as consideration for the Napoleonville Field.178 WRT actually issued 1.3 million shares of its common stock to BSFI as consideration for the purchase of the Napoleonville Field.179 The certificates were delivered to Mr. Edwards to hold as the escrow agent.180
5. West Cote Blanche Bay Field.
Sometimes in the late 1980’s, Tesla had acquired a 6.25% working interest in both *365the shallow and deep rights in West Cote Blanche Bay.181 Although its prior attempts to acquire additional interests in the field had been unsuccessful, WRT’s desire to increase its stake in that field continued. WRT resumed those acquisition efforts in the fall of 1994.182 In particular, WRT commenced negotiations in earnest as of November 29, 1994, with Benton seeking to acquire the 43.75% working interest owned by Tenneco Ventures Corporations and Tenneco Gas Production Corporations (collectively, “Tenneco”) and Benton. The specific interest being sought was a portion of West Cote Blanche Bay located above a certain geological marker (the “Shallow Rights”).183
Benton rejected a series of offers tendered by WRT, which offers included part cash, part stock and other variations.184 Benton did, however, ultimately accept a $20 million cash offer.185 On January 31, 1995, Benton, Tenneco and WRT executed a letter of intent calling for the sale of the Shallow Rights.186 On or about March 31, 1995, Benton entered into a Purchase and Sale Agreement with Tesla to convey its 32.95221% working interest in the Shallow Rights, effective January 1, 1995. WRT paid Benton $14,824,955 in connection with that transaction. On or about April 6, 1995, Tenneco entered into a Purchase and Sale Agreement with Tesla to convey their 10.79779% working interest in the Shallow Rights effective January 1,1995.
6. South Hackberry Field.
WRT was interested in acquiring the properties to “fill in” the area between East and West Hackberry known as South Hackberry. Tico Exploration Company (“Tico”) was formed to accomplish that purpose. Tico’s mission was to acquire leases covering more than one thousand acres from various property owners and then convey the acquired leases to WRT.
Tico raised money from investors and used those funds not only to buy the properties but also to do certain field work.187 Tico eventually acquired the South Hack-berry properties for the purpose of transferring them to WRT.188 In connection with the purchase of South Hackberry, Tico obtained valuations from several different reserve engineers.189 Tico eventually decided to discharge its obligation to perform certain work in the field by wiring $500,000 into Mr. Edwards’s escrow account as a payment to WRT for the field work that was to have been performed.190 Although WRT started to perform the field work, the work was never completed because of a blowout that occurred.191
As matters developed, Tico used the proceeds from the sale of South Hackberry to buy 300,000 shares of WRT stock held *366by BSFI.192 WRT thereafter issued checks for $1 million and $170,000 to BSFI in connection with the South Hackberry transaction.
The Trust has asserted that WRT did not receive any leases for its money. Ms. Stubbs, the in-house accountant with responsibility for WRT’s SEC reporting, testified that she saw the South Hackberry leases that WRT purchased.193 Mr. Ben-inger testified that, subsequent to the Petition Date, WRT caused the public records to be searched and determined that WRT was in fact the record owner of the South Hackberry leases.194
7. Arnoult Transactions.
In 1993 and 1994, WRT acquired, at a cost of approximately $7.3 million, four workover and drilling rigs (which included Great Southern Rig # 2, Rig # 14, Rig # 15 and one additional workover rig), a jack-up barge/lift boat, the MTV Energy VII and miscellaneous other marine equipment.195
Subsequently, WRT arranged to sell the rigs and its marine-based assets to several companies owned and/or controlled by Donald Arnoult, namely, Arnoult Energy & Construction, Inc. (“AEC”), and E.C. Energy Production, Inc. (“E.C.Energy”), (collectively, “Arnoult Entities”). The Ar-noult Entities were WRT’s primary oil field service contractors.196 In 1994, WRT sold the lift boat, the Energy VII, to AEC, and four rigs to E.C. Energy, AEC’s wholly owned subsidiary.197
These sales were completed in two separate transactions.198 Pursuant to a credit sale dated November 30, 1994, WRT sold the four rigs to E.C. Energy for a total consideration of $3,900,000, evidenced by a promissory note which was payable in monthly installments.199 The credit sale agreement expressly confirmed WRT’s continuing security interest in the rigs.200 WRT subsequently sold the Energy VII to AEC for $1,800,000, evidenced by a promissory note, dated December 4, 1994, also payable in monthly installments.201 AEC executed a preferred ship mortgage on the Energy VII in favor of WRT securing repayment of the note, which mortgage was recorded with the Coast Guard.202 The $3,900,000 and $1,800,000 notes will be collectively referred to hereinafter as the “Arnoult Notes.”
WRT’s book value for the four rigs was $2,765,000.203 The book value for the En*367ergy YII was $1,173,000.204 Accordingly, prior to these transactions, WRT’s property account reflected a combined value of $3,938,000 for these marine assets.
WRT did not immediately book the $1.8 million dollar gain that it anticipated would be realized over time from the sale of these assets; the gain was deferred and therefore recorded as a liability.205 AEC never made any payments on the $3.9 million rig notes, leading WRT eventually to demand the return of the rigs. The rigs were eventually given back to WRT pursuant to a dation en paiement.206
In addition to defaulting on the $3.9 million note, AEC did not make a single payment on the $1.8 million note.207 AEC, however, subsequently mortgaged the vessel to General Electric Capital Corporation (“GECC”). After suffering personal injuries aboard the Energy VII, the vessel’s captain made a claim on the vessel. No insurance was in place on the vessel and a lawsuit resulted, wherein the ranking of security interests was disputed. The result was that the vessel was sold pursuant to an agreed compromise of the personal injury action, with the proceeds going to the captain (approximately $400,000), GECC (approximately $200,000) and WRT (approximately $200,000)208
III. APPLICABLE LAW
The Trust now seeks to avoid certain of the foregoing transactions as fraudulent transfers under federal law and/or pursuant to state law by virtue of section 544(b). As state law issues come into play, the court must initially determine which state’s law to apply. All parties concede that Louisiana law applies to the LLOG and Benton transactions.
The Trust argues, however, that Texas law should apply to the Napoleon-ville and South Hackberry transactions. This position is based upon the fact that the transactions involved the transfer of WRT stock. The court disagrees with that analysis. The most significant contact regarding those transactions were the properties which were the subject of the transfers involved, all of which properties are located in Louisiana. Accordingly, the court will apply Louisiana law as to each of the transactions involving real property transfers.
The Trust also argues that Texas law should apply to its action seeking to avoid the transfers of preferred stock dividends. The court agrees; there is no question but that Texas law should apply with respect to that issue.
IV. BURDEN OF PROOF
The Trust has the burden of proof on all elements of a fraudulent transfer action under section 548. Besing v. Hawthorne, 981 F.2d 1488, 1494 (5th Cir.1993); In re McConnell, 934 F.2d 662, 665 n. 1 (5th Cir.1991). The standard of proof in fraudulent transfer avoidance actions is proof by preponderance of the evidence. See, e.g., In re Gutierrez, 160 B.R. 788 (Bankr.W.D.Tex.1993); In re American Way Serv. Corp., 229 B.R. 496 (Bankr.S.D.Fla.1999).
The Trust also has the burden of proving each element of each state law claim asserted under section 544(b). WCC Holding Corp. v. Texas Commerce Bank-*368Houston, 171 B.R. 972, 984 (Bankr.N.D.Tex.1994). The Trust must establish each element of the state law claims by a preponderance of the evidence. See, e.g., In re Interest of K.R., 22 S.W.3d 85 (Tex.App.2000) (the burden of proof in civil cases is preponderance of the evidence unless a heightened burden has been specifically prescribed); Johnson v. Texas, 23 S.W.3d 1, 15 n. 14 (Tex.Crim.App.2000) (“[T]he burden of proof on the civil side is preponderance of the evidence.”); Boise Cascade Corp. v. Dean, 767 So.2d 76, 87 (La.Ct.App.2000) (in a civil matter “a plaintiff must prove each element of his case by a mere preponderance of the evidence”).
The burden of showing something by a preponderance of the evidence “simply requires the trier of fact to believe that the existence of the fact is more probable than its nonexistence ...” Concrete Pipe and Prod. of Cal. v. Construction Laborers Pension Trust, 508 U.S. 602, 113 S.Ct. 2264, 124 L.Ed.2d 539 (1993); Sandoval v. Hagan, 7 F.Supp.2d 1234 (M.D.Ala.1998) (preponderance of the evidence merely means that the evidence must demonstrate that what is sought to be proved is more likely true than not true).
The Trust may meet its burden by expert testimony, financial statements, public documents, appraisals, or a combination of these. See, e.g., Traina v. Blanchard (In re Mayer), 1999 WL 777758 (E.D.La. Sept.29, 1999).
The burden of proof remains on the Trust as to any element to which there is a presumption. However, a presumption requires the party against whom the action is directed “to come ‘forward with evidence to rebut or meet the presumption.’ ” In re Emerald Oil Co., 695 F.2d 833, 838 (5th Cir.1983) (quoting Fed.R.Evid. 301) (holding that creditor did not rebut presumption of insolvency during 90-day period prior to bankruptcy where debtor rested on presumption and creditor presented a C.P.A. who testified that it was possible debtor’s assets exceeded its liabilities). Moreover, “mere speculative evidence ... is not enough.” Gasmark Liquidating Trust v. Louis Dreyfus Natural Gas Corp., 158 F.3d 312, 315 (5th Cir.1998).
V. WRT’S ASSETS AND LIABILITIES
A. The Law.
To determine if an entity is insolvent for purposes of avoiding a fraudulent conveyance, courts must utilize the balance sheet test under section 101(32), evaluating whether the entity’s “financial condition [is] such that the sum of such entity’s debts is greater than all of such entity’s property, at a fair valuation ...,” exclusive of property fraudulently transferred. Section 101(32); see section 548(a)(1)(B). This test is “the traditional bankruptcy balance sheet test of insolvency.” H.R. No. 100-11,100th Cong.2d Sess. 5-6 (1988).
The relevant solvency valuation date for avoidance purposes is the date of the challenged transfer. See, e.g., Harvey v. Orix Credit Alliance, Inc. (In re Lamar Haddox Contractor, Inc.), 40 F.3d 118, 121 (5th Cir.1994); In re Sullivan, 161 B.R. 776, 783 (Bankr.N.D.Tex.1993) (stating that the “Court may find insolvency if the plaintiff shows the debtor was insolvent ‘proximately before or immediately after the transfer’ ”; insolvency established by showing debtor was insolvent six months before and after transfer).
Courts generally conduct a two-step analysis to determine whether a debt- or is insolvent under the balance sheet test. Union Bank of Switzerland v. Deutsche Financial Services Corp., 2000 WL 178278, at *9 (S.D.N.Y. February 16, *3692000) (citing In re Taxman Clothing Co., 905 F.2d 166, 169-70 (7th Cir.1990)). First, the court determines whether it is proper to value the debtor’s assets on a “going concern” basis or a “liquidation” basis. Second, the court conducts a “fair valuation” and assigns a value to all the debtor’s assets and liabilities as of the date of the challenged transfer. These assets and liabilities are tallied, and if debts exceed assets at fair valuation as of the date of the challenged transfer, the debtor is “insolvent” within the meaning of the balance sheet test. See id.; section 101(32).
A liquidation analysis is used to determine “fair valuation” of assets where the debtor is “financially dead or mortally wounded.” E.g., Langham, Langston & Burnett v. Blanchard, 246 F.2d 529, 532-33 (5th Cir.1957). Liquidation or scrap value of assets must be used because, if the entity is not a going concern at the time of the transfer, “it would not be proper for the assets to be valued at a going concern value.” Id. (citation omitted); Mitchell v. Investment Secs. Corp., 67 F.2d 669, 671 (5th Cir.1933) (stating that use of scrap or junk values is proper if the debt- or, though nominally alive, is really dead on its feet on the date of the transfer).
If bankruptcy was not clearly imminent on the date of the challenged transfer, the court must achieve a “fair valuation” of the debtor’s assets on a “going concern” basis. In re Trans World Airlines, Inc., 134 F.3d 188 (3d Cir.1998); see also WCC Holding Corp. v. Texas Commerce Bank-Houston, 171 B.R. 972, 984 (Bankr.N.D.Tex.1994) (citing Moody v. Security Pac. Business Credit, Inc., 971 F.2d 1056, 1067 (3d Cir.1992)).
“Fair value, in the context of a going concern, is determined by the fair market price of the debtor’s assets that could be obtained if sold in a prudent manner within a reasonable period of time to pay the debtor’s debts.” In re Roblin Indus., Inc., 78 F.3d 30, 35 (2d Cir.1996) (citations omitted); Lamar Haddox, 40 F.3d at 121 (stating that “fair value of property is ... determined [not by arbitrary book values of assets but rather] by ... ‘estimating what the debtor’s assets would realize if sold in a prudent manner in current market conditions’ ”; equating fair value with fair market value at the time of the transfer); see also Langham, Langston & Burnett, 246 F.2d at 532 (quoting Mitchell v. Investment Securities Corp., 67 F.2d 669, 671 (5th Cir.1933)): “One is insolvent under the statute when his assets, if converted into cash, at a fair not forced sale will not pay [his debts].” “In determining a debtor’s insolvency, a court must examine the actual values of the assets [at the time of the transfer] and not arbitrary values assigned by the debt- or.” E.g., Pioneer, 147 B.R. at 892. “A fair valuation may not be equivalent to the values assigned on a balance sheet. Financial statements reflect the book value of assets.” Lamar Haddox, 40 F.3d at 121. Book value may not be equivalent to fair market value.
“[F]air valuation ... means a fair market price that can be made available for payment of debts within a reasonable period of time, and ‘fair market value’ implies a willing seller and a willing buyer.” American Nat’l Bank and Trust Co. of Chicago v. Bone, 333 F.2d 984, 987 (8th Cir.1964). For purposes of a “fair valuation,” the fair market value of the property must be measured by what the property would bring if actually sold on the market at the time of the transfer, assuming an informed, hypothetical willing seller and an informed, hypothetical willing buyer not under compulsion to buy or sell, and having a reasonable amount of time to sell the property.
*370Because “[a] fair valuation of assets contemplates a conversion of assets into cash during a reasonable period of time,” “ ‘[a]sset valuation ... should be reduced by the value of the assets not readily susceptible to liquidation and the payment of debts.’ ” Trans World Airlines, Inc., 134 F.3d at 194 (3d Cir.1998)(quoting Briden v. Foley, 776 F.2d 379, 382 (1985)); Constructora Maza, Inc. v. Banco de Ponce, 616 F.2d 573, 577 (1st Cir.1980) (“Reduction in the fair value of assets may be appropriate if those assets are not susceptible to liquidation, and thus cannot be made available for payment of debts, within a reasonable period of time”; discussing discounting of accounts receivable); Louisiana Nat. Life Assur. Society v. Segen, 196 F. 903, 905 (E.D.La.1912)(same).
Additionally, contingent assets or liabilities should be included as part of the balance sheet insolvency test. E.g., In re Worcester Quality Foods, Inc., 152 B.R. 394 (Bankr.D.Mass.1993)(stating that sec tion 101(32) requires the full amount of contingent liabilities to be included in solvency analysis and thus full amount of debtor’s contingent lease commitments should be reflected on Lability side of balance sheet); Marine Midland Bank v. Stein, 105 Misc.2d 768, 433 N.Y.S.2d 325 (N.Y.Sup.Ct.1980)(finding that debtor’s guaranty was contingent liability that must be included at face value in determining balance sheet solvency).
Insolvency and “fair valuation” may be established to the court’s satisfaction by expert testimony, financial statements, public documents, appraisals, or a combination of these. See, e.g., Traina v. Blanchard (In re Mayer), 1999 WL 777758 (E.D.La. Sept.29, 1999)(proper to establish fair market value of an asset through compilation of expert testimony, balance sheets, financial statements, appraisals, and other affirmative evidence) (citation omitted); Pembroke Dev. Corp. v. Commonwealth Sav. & Loan Ass’n, 124 B.R. 398, 402 (Bankr.D.Fla.1991)(holding that evidence such as appraisals or opinion testimony was required to establish actual fair market value versus book value of real properties).
In reaching its conclusions on “fair valuation,” the court may adopt the asset values of one party or the other, or the court may choose its own fair valuation figure after weighing all the evidence. See, e.g., Roblin Indus., 78 F.3d at 35 (stating that if possible, insolvency determinations should be based on seasonable appraisals or expert testimony, but that “[b]eeause the value of property varies with time and circumstances, the finder of fact must be free to arrive at the ‘fair valuation’ defined in § 101[ (32) ] by the most appropriate means.”); Syracuse Eng’g Co., 110 F.2d at 470 (upholding “middle course” that court took with respect to value of assets and liabilities).
After considering the evidence and assigning a final value to the debtor’s assets and liabilities, a court should subtract the debtor’s liabilities from its assets to determine whether the debtor was insolvent under the balance sheet test. See, e.g., Associated Painting Servs., Inc., 1993 WL 179423 (E.D.La. April 29, 1993)(re-viewing trial court’s “fair valuation” and insolvency calculations); see Pioneer, 147 B.R. at 892 (stating that ultimately, under the balance sheet test, “it is the actual, rather than the theoretical condition of the debtor which determines [insolvency]” at the time of the transfer) (quoting Mitchell, 67 F.2d at 671). The essential question to be answered by the court is whether the debtor’s liabilities exceeded its assets, valued in accordance with the statute, at the time of the transactions at issue.
*371B. The Experts.
1. The Trust’s Expert Witnesses.
(a) Michael Heinz. Mr. Heinz, a petroleum engineer, was accepted by the court as an expert in the field of oil and gas reserve engineering. Mr. Heinz holds a Bachelor of Science degree in Petroleum Engineering and is a Vice President and Team Leader with Netherland, Sewell & Associates.
(b) Jeff Spilker. Jeff Spilker was accepted as an expert in the fields of forensic and financial accounting, financial fraud investigation, and property business valuation, including projections analysis. Mr. Spilker is a certified public accountant and holds a Bachelor of Architecture, a Masters of Business Administration and a Doctorate of Jurisprudence.
(c) Sheila Macdonald. Sheila Mac-donald was offered by the Trust as an expert witness in the area of valuation of oil and gas properties. The Defendants strongly challenged Ms. Macdonald’s credentials and in fact presented evidence to suggest her resume contained false information and that she had given false testimony. Of particular concern, the Defendants presented evidence to suggest that not only did Ms. Macdonald not hold an Archeology degree from Stanford University, but that she in fact had never attended Stanford.
After Ms. Macdonald provided an elaborate explanation regarding the Defendants’ evidence and adamantly insisted that she did hold a degree from Stanford, the court permitted Ms. Macdonald to testify as an expert in the valuation of oil and gas properties. The court noted at that time, however, that the weight to be given her testimony might well be affected by matters such as a lack of strong qualifications, prior inconsistent statements and other facts suggesting impeachment.
Subsequent to Ms. Macdonald’s testimony, counsel for the Trust advised the court that their investigation revealed that Ms. Macdonald in fact had not attended Stanford University. At the same time, the court, was advised (by letter from her counsel) that Ms. Macdonald refused to return to Louisiana to testify on behalf of the Trust. Through that attorney, Ms. Macdonald attempted to withdraw those portions of her resume and testimony dealing with Stanford University.209
In light of what the court now knows about Sheila Macdonald’s testimony, the court cannot give any weight to that testimony. At this point, the court is not certain whether Ms. Macdonald holds any degrees whatsoever or whether any testimony she gave was true. It was established that she lied about attending Stanford University; she thereafter created a more elaborate lie when confronted on the witness stand with her first lie. This was compounded when a chambers conference was held with Ms. Macdonald and counsel for the Trust. The fact that Ms. Mac-donald was not a fact witness is of no moment. The court cannot trust the word of an expert witness who would brazenly lie about her credentials and then further lie when caught. If she would lie about her academic credentials, there is no reason to believe that she would not provide erroneous and/or misleading valuation testimony if she believed it would benefit her client.
The court, therefore, will not ascribe any weight to the evidence supplied by Ms. Macdonald. As Ms. Macdonald was the sole witness on valuation for the Trust, this decision will create a significant hole *372in the Trust’s case with respect to valuation. While this is unfortunate, the Trust chose this witness and apparently was satisfied with this selection as counsel for the Trust vouched for her veracity when she was confronted by counsel for the LLOG defendants210.
2. The Defendants’ Expert Witnesses.
(a) Dr. Stephen A. Holditch. Dr. Hol-ditch was qualified as an expert in petroleum engineering, including reservoir engineering, and the valuation of oil and gas properties. Dr. Holditch holds Doctor of Philosophy, Master of Science and Bachelor of Science degrees in Petroleum Engineering from Texas A & M University. Dr. Holditch is a registered engineer and has had 32 years of experience in the oil and gas industry, including the estimation of reserves and future reserves and the valuation of oil and gas properties.
(b) Peter Huddleston. Mr. Huddleston was allowed to testify as an expert in the area of oil and gas reserve engineering and fair market valuation of oil and gas properties. He is a registered professional petroleum engineer and holds a Bachelor of Science degree in Petroleum Engineering from Texas A & M University.
(c) William Legier. Mr. Legier, a certified public accountant, was qualified to testify as an expert in the fields of public and forensic accounting, business valuation, and fraud examination.
C. The fair value of WRT’s assets as of the dates of the transactions at issue.
1. WRT’s oil and gas properties.
Clearly the most significant asset owned by WRT was its oil and gas properties. As such, the valuation of the oil and gas properties owned by WRT and those purchased by WRT during the relevant time periods was the most contested issue during the Insolvency Trial.
Unfortunately, the valuations provided by the experts for the Trust and those provided by the experts for the Defendants were not even in the same ballpark. The extreme differences are the result of several factors. First and foremost, the art of valuing oil and gas properties, which includes the task of estimating reserves, is not an exact science. Each and every expert witness, as well as the fact witnesses who were experienced in the oil and gas industry, readily conceded that the opinions of professionals in estimating reserves and valuing oil and gas properties can differ greatly. As such, the methodology employed by the experts differed.
The Trust’s experts created a mechanical formula of deriving fair market value, examining only proved reserves, calculating likely cash flow through employing assumptions as to expenses and pricing and then reducing that cash flow by various risk factors. The experts for the Defendants, on the other hand, started with the price WRT paid for the properties, and then reevaluated and audited reserve reports and market factors, such as comparable sales, to determine whether the prices paid by WRT (or WRT’s book value for properties already owned) were reasonable.
The court initially notes that as a result of the lack of credible testimony from Ms. Macdonald, the Trust has essentially no evidence on the fair market value of the *373properties. However, even if the court were to consider the testimony of Ms. Macdonald, the court finds that the methodology employed by the Trust’s experts in valuing the oil and gas properties is flawed in several critical respects, namely the failure to even consider comparable sales and the failure to give any value whatsoever to “probable” and “possible” reserves. Pursuant to SEC regulations, estimates of oil and gas reserves are limited to “proven” and certain categories of “probable.” These limitations are for at least two reasons. First, to protect the public from wild unsubstantiated reserve reports, and second, to provide some standard by which all reserves are reported. This is not to say, however, that there is no value whatsoever to non-reportable “probable” and any “possible” reserves. And while a prospective purchaser of oil and gas reserves may not ascribe much value to these categories when negotiating the purchase of the asset, they no doubt have some indication that these reserves may certainly increase the value of the purchase.
Most importantly, however, the court does not believe that the valuations arrived at by Ms. Macdonald have any connection to real market values. A dramatic example of the fundamental disconnect between Ms. Macdonald’s opinion of value and the real world occurred with respect to the East Hackberry property.211 Ms. Mac-donald placed a combined value on WRT’s 50% interest in East Hackberry as of December 1, 1994, of approximately $4,500,000. However, only ninety days prior to this date, on September 2, 1994, Milam Royalty Corporation (“Milam”) paid WRT $8,605,431 for an undivided 50% ORR in these same properties — plus almost $3 million additional for an interest in well bores existing as of September 2, 1994.212
Milam did have the right to elect to participate in wells after May 1, 1994;213 however, if it made such an election, it had the obligation to share in the costs as a deferred overriding purchase price.214 Pri- or to the September 2 closing, Milam made the election to participate in all well activities initiated subsequent to the effective date (May 1,1994), but prior to the closing date (September 2, 1994).215 As a result, Milam paid an additional deferred purchase price through September 2, 1994, in the amount of $2,694,617.216 Accordingly, through an effective date of September 2, 1994, Milam paid WRT $11.3 million for a 50% ORR in the field — almost 2/é times the value ascribed by Ms. Macdonald!217
Throughout 1995, Milam continued to make payments to WRT under the deferred portion of the purchase price.218 Mr. William Hurt, Milam’s Vice President, *374testified that Milam made the decision to participate “in excess of 20 to 25” new wells and/or recompletions as part of the deferred purchase price.219 As reflected in an audit undertaken over a year later, Milam paid the original acquisition price of $8,605,431, plus a deferred purchase price of $9,890,948, for a total of $18,496,379— almost 4 times the value ascribed by Ms. Macdonald!220
Ultimately, the original acquisition price plus the deferred purchase price paid by Milam to WRT exceeded $20,000,000.221 Mr. Hurt specifically testified that based upon Milam’s assessment of the value, Mi-lam considered this price to be a fair price for their ORR in the property.222
Milam was a sophisticated purchaser. It was a wholly-owned subsidiary (of JP Morgan and the representatives) of a commingled pension trust — with several hundred millions in assets — which invested solely in ORRs and direct royalties in oil and gas properties located primarily in the oil producing states in the domestic United States, including Louisiana.223
The pension trust spent several months in conducting due diligence on WRT’s East Hackberry properties.224 That due diligence was generally similar to what they do with every prospective acquisition.225 Mr. Hurt testified that the pension trust independently analyzed the information regarding the properties given to them by WRT.226 The pension trust’s internal reserve engineer independently evaluated the reserves for the properties.227 The representatives of the pension trust were comfortable with the reserve analysis provided by the internal reserve engineer.228
The pension trust also undertook due diligence with regard to WRT, as the potential seller. Mr. Hurt explained that, because the pension trust was an ORR owner, the quality of the seller’s ability to operate and manage their finances played a significant role in the outcome in the investment.229 This evaluation of any seller was a standard part of the pension trust’s due diligence.230
Finally, Mr. Hurt testified that the pension trust “had a policy of regularly auditing each one of its investments on a periodic basis in order to confirm and verify the performance and accounting of each of our entities that we did business with.”231 The pension trust monitored each one of these projects on a daily basis, getting both daily well reports and monthly production reports, and also undertook periodic re-evaluations of the reserves.232 For *375the 1995 audit of the East Hackberry reserves, Milam used Ryder Scott,233 an engineering consulting firm in Houston agreed by all parties to be one of the leaders in the field.
Again, through May of 1996, the pension trust’s investment in the East Hackberry Field totaled in excess of $20,000,000.234 These real world decisions by fiduciaries of a trust — made without the benefit of hindsight — stand in stark contrast to Ms. Mac-donald’s opinion that as of December 1, 1994, WRT’s remaining 50% interest in these same fields was worth less than one quarter of this amount. Quite clearly, Ms. Macdonald’s valuation cannot be reconciled with amounts paid by Milam.
But the Milam situation is hardly unique. Ms. Macdonald’s valuations of other properties are at direct odds with other concrete examples of real world market valuation. Ms. Macdonald opined that the Deer Island and N.E. Deer Island Fields had an aggregate value of less than $9,000,000.00. However, in October 1994, LLOG received an offer for those very properties of $15 million from Forest Oil, a substantial independent oil and gas producer.235 LLOG rejected the offer because it was less than what it perceived to be the minimum acceptable price; 236 LLOG indicated to Forest Oil, however, that it would be willing to accept $18.5 million for the interests plus a bonus tied to production.237
Turning to the Abbeville property, Ms. Macdonald opined that this property had a value of $650,000. Of the total purchase price paid for the remaining LLOG properties, WRT allocated more than $3 million to Abbeville, some 500% of the value calculated by Ms. Macdonald. LLOG was not the sole working interest owner in the Abbeville Field. Vintage Petroleum, an independent oil and gas operator, was offered the opportunity to sell its interests to WRT at a price consistent with the amount paid to LLOG. Vintage found the price inadequate, however, and refused to sell its interest in the field.238
Ms. Macdonald’s values for West Cote Blanche Bay are also in direct conflict with amounts actually paid for other interests in that property. Ms. Macdonald testified that the 6.25% interest owned by WRT had a value as of December 1, 1994, of $530,000. She valued the approximate 33% interest WRT acquired from Benton for $15 million as of April 1, 1995, at only $2,080,000. These figures, however, are in direct conflict with prices of actual sales in the same relative time frame. Several examples are illustrative:
1. WRT rejected an offer of $3 million for its 6.25% interest in 1993 in West Cote Blanche Bay; no counter offer was made. Ms. Macdonald values the same interest at $530,000. Extrapolating Benton’s offer to the 33% interest acquired by WRT would establish a value in excess of $16 million.239
2. Tenneco acquired an approximate 10.8% interest in West Cote Blanche Bay *376for $13,410,860.00, in 1994. This extrapolates to an approximate $40 million dollar value for a 33% interest.240
3. In the summer of 1995, Texaco rejected a $22.2 million offer for a 50% interest. This initial offer, which WRT officers admitted they were prepared to raise, would extrapolate a value of $14,650,000. Ms. Macdonald, however, valued that interest at $2,080,000.00.241
4. Benton paid a total of $23,435,058.00 for its 43.75% interest. This extrapolates to a value of approximately $17,576,000.00 for the 33% it sold WRT.
Even if the court were to overlook her total lack of credibility, the values ascribed to these properties by Ms. Macdonald simply do not stand up to the reality of the marketplace.
The court has reviewed the expert reports, testimony and other evidence and finds that the methodology employed by the Defendants’ experts provides appropriate valuations for WRT’s oil and gas properties. Accordingly, based upon all relevant and credible evidence presented, the court fixes the fair market value of WRT’s oil and gas properties at the relevant dates as set forth in the following chart:
Property_12/16/94_1/30/95_3/8/95_3/31/95
Tigre Lagoon_$ 840,000 $ 827,000 $ 819,000 $ 811,000
West Hackberry $10,789,000 $11,495,000 $ 11,436,000 $ 11,410,000
Lac Blanc_ $ 9,339,000 $ 8,783,000 $ 8,830,000 $ 8,672,000
East Hackberry_$13,033,000 $15,870,000 $ 16,198,000 $ 17,098,000
West Cote Blanche Bay
(1) 6.25% $ 3,180,000 $ 3,195,000 $ 3,234,000 $ 3,409,000
(2) 32,95221%_N/A N/A_N/A $ 14,824,000
Napoleonville_$ 9,750,000 $ 9,893,000 $ 9,893,000 $ 9,898,000
Bayou Penchant_N/A $15,000,000 $ 15,570,000 $ 23,332,000
Abbeville_N/A_N/A $ 2,443,000 $ 2,443,000
Bayou Pigeon_N/A_N/A $ 14,315,000_$ 14,135,000
Deer Island_N/A_N/A $ 16,562,000 $ 16,562,000
Golden Meadow_N/A_N/A $ 7,647,000_$ 7,647,000
Totals_$46,931,000 $65,063,000 $106,947,000 $130,000,000
Although these values are either the WRT book values or purchase prices of the properties at issue, the court did not merely adopt those values without further evaluation. The court believes that the evidence supports that these values represent the minimum fair market values of these properties. The following observations support this conclusion:
First, the court notes that WRT’s books were reviewed by numerous professionals, both inside and outside the corporation. By the middle of 1994, WRT had an internal accounting staff of seven to ten people including three CPAs.242 In addition, an outside director, Mr. Rash, and a senior corporate officer, Mr. Petersen, were each CPAs. WRT’s accounting department con*377sisted of three CPAs, Mr. Hale, CFO, Ms. Stubbs, manager of financial accounting, and Mr. Begnaud, manager of corporate accounting; Bill Jenny, manager of oil and gas accounting; two supervisors, two associates and an assistant or two.243 Each of the managers had extensive experience in oil and gas accounting and maintained WRT’s financial records in accordance with their training and SEC standards.
Further, WRT books and records were independently audited by KPMG.244 KPMG’s audit team handling the WRT engagement was highly qualified and included several specialists in oil and gas accounting. The team was headed by Mr. Transier, a nationally recognized expert in his field. Mr. Transier was KPMG’s senior partner in the oil and gas area, and also served as the firm’s representative to the working group of national accounting firms on oil and gas accounting. Mr. Tran-sier went on to become the number two man and CFO of Ocean Energy, the seventh largest independent oil and gas company in the world.245 Randy Hill, the senior manager in charge, became a partner at KPMG.246 Chet Williams, the staff accountant handling the WRT engagement is now a manager at KPMG.247 Each of these qualified and experienced accountants were involved in examining the accuracy of WRT’s records.
Second, the comparable sales mentioned above more than support these values.
Third, the extensive and exhaustive reports of Dr. Holditch and Mr. Huddleston support these values. Dr. Holditch conducted his own reserve analysis of the LLOG properties and concluded that those properties were worth in excess of $62 million. Dr. Holditch also undertook an audit of the reserve work that had been done by Scotia, Veazey and Huddleston and concluded that the non-LLOG properties were worth in excess of $70 million. Mr. Huddleston reviewed numerous sales of interests in West Cote Blanche' Bay and concluded that the 32.95221% working interest acquired by WRT from Benton had an estimated fair market value of between $14.06 million to $17.8 million.
Finally, Mr. Legier performed a “ceiling test” to determine what values to use in his solvency analysis. Mr. Legier looked for indicia of value that was contemporaneous and available in KPMG’s work papers and in WRT’s records. He then compared those to the amount that the properties were recorded on the books, net of depreciation and amortization. If the value was in excess of the book value, he used the book value. If the evidence demonstrated that the value was less than book value, book value was written down. In doing his analysis, Mr. Legier reviewed not only historical reserve engineer reports, but also the current information provided by Dr. Holditch.
As to South Hackberry, the court finds that the record is devoid of any credible evidence regarding the value of WRT’s interest in South Hackberry as of the date of that transfer. Accordingly, the court fixes the value of South Hackberry as of June 1995 at $1,170,000, the consideration paid by WRT.
2. Notes and accounts receivable.
(a) The Amoult Notes. WRT arranged to sell certain rigs and its marine based *378assets to the Arnoult Entities.248 In 1994, WRT sold the lift boat, the Energy VII, to AEC, and four rigs to E.C. Energy, AEC’s wholly owned subsidiary.249 This sale was completed in two separate transactions as discussed above wherein WRT received the two Arnoult Notes.250
WRT’s book value for the four rigs and the Energy VII was $2,765,000251 and $1,173,000,252 respectively. Accordingly, prior to these transactions, WRT’s property account reflected a combined value of $3,938,000 for these marine assets — approximately $1.8 million less than the face amount of the Arnoult Notes.253
WRT did not immediately book the $1.8 million dollar anticipated gain that would be realized over time from the sale of these assets; the gain was deferred and therefore recorded as a liability.254 By recording the $1.8 million deferred gain as a liability (thus offsetting the $5.7 million in notes then carried on WRT’s balance sheet), WRT ensured that the gain would be recognized as an asset if, and only to the extent, the Arnoult Notes performed.255 The transaction had no affect on WRT’s balance sheet, or net worth.256 KPMG specifically reviewed both transactions.257
Both Messrs. Legier and Spilker wrote off the two Arnoult Notes at year-end 1994, as well as the corresponding liability for the deferred gain.258 They disagreed, however, with respect to the accounting treatment for the underlying collateral. Mr. Legier opined that there was no basis to write off both the notes and the underlying collateral.259 As a result, he made an adjusting credit to WRT’s property account of $1,723,000, representing an estimate of the fair value of the rigs ($550,000) and the Energy VII ($1,173,000).260
Mr. Legier testified that his estimate as to the value of this collateral was conservative, as the four rigs alone had a book value of $2,765,000.261 Mr. Legier in fact testified that he perhaps seriously undervalued this collateral. Mr. Harvey Davis, Great Southern’s expert witness, corroborated this point. He testified that three of the rigs (Rig # 2, Rig # 14 and Rig # 55) alone had a fair market value of *379$1,061,600.262 This expert analysis is supported by a 1990 appraisal of only three of the rigs which fixed a fair market value of $1,142,200.263
Similarly, the Energy YII had a value on WRT’s books of $1,173,000 prior to the sale to E.C. Energy.264 Mr. Legier reviewed all of the available information regarding the vessel and decided that this figure represented a fair value for the asset. His reasons for this are several. First, an appraisal of the Energy VII commissioned by James Arnoult in August of 1994 found that the vessel had “a fair current market value of $1,100,000” and a replacement value of $2,200,000.265 Second, the survey report notes that the Energy VII had recently undergone extensive refurbishment and detailed the recent efforts of WRT to repair and modify this vessel.266 Third, WRT’s efforts to fully repair and refurbish the vessel did not end in August of 1994.267 Fourth, in May 1995, AEC reaffirmed its indebtedness to WRT for the Energy VII and executed another mortgage on the vessel; AEC thus confirmed that WRT had advanced significant sums of money for the refurbishment of the vessel and that the vessel had a fair market value of $1.8 million.268 Fifth, consistent with the foregoing, WRT (through its Trustee, Goldin) has taken the position in litigation before the Eastern District of Louisiana,269 that WRT had advanced AEC $1,173,393.12 to repair and refurbish the Energy VII,270 and that the Energy VII’s market value, in its restored condition, was approximately $1.8 million.271 And sixth, an appraisal of the vessel on February 19, 1996, concluded that it had a “forced liquidation value” of $1 million.272
Based on these facts, Mr. Legier was of the opinion that WRT’s security on the Energy VII was not impaired as of either year-end 1994 or March 31, 1995, and that $1,173,000 — as a fair value of the vessel— should be credited to WRT’s property account as of those dates.273 Combined with an estimate for the value of the rigs ($555,-000), Mr. Legier adjusted WRT’s balance sheet (property account) to recognize as an *380asset the collateral underlying the Arnoult Notes at a fair value of $1,723,000274
In stark contrast, despite the fact that he admitted on cross-examination that an impaired loan should be measured at the fair value of its collateral,275 Mr. Spilker gives WRT no credit for the value of the collateral underlying the Arnoult Notes, contending that WRT’s collateral was “impaired.”276 He was of the opinion that WRT should not be given credit for any value of the collateral because there was a “high probability that the collateral would be lost,” 277 as WRT had agreed that its security interest might be subordinated. WRT’s SEC filings do note that subordination was a possibility. According to Mr. Spilker, however, the mere possibility of subordination wholly eliminates the value of collateral regardless of whether subordination ever in fact occurs. He then asserted that the entire value of the rigs — which had a book value to WRT of over $2.5 million at November 30, 1994 — was lost one week later merely by the sale to E.C. Energy.278
This position is simply not supported by the evidence. On cross-examination, Mr. Spilker admitted that he has never seen a subordination agreement.279 He has not checked any public records or even inquired as to whether there was subordination.280 He was unable to cite any accounting standard supporting his theory that the mere possibility of subordination means collateral has no value for financial statement purposes.281
The public filings which Mr. Spilker cites as confirmation for such an agreement’s existence evidence no such thing. For example, WRT’s 10-KSB for year-end 1994, filed April 13, 1995, speaks only to the possibility of subordination, which according to the legally operative documents, WRT controlled by virtue of its unfettered discretion to grant or withhold its consent to any encumbrance of these secured assets.282 For example, the preferred ship mortgage securing the $1.8 million AEC note clearly states:
10. Owner shall not, without the prior written consent of Mortgagee [WRT], sell, mortgage, or charter the vessel or any interest therein, and then only to persons and for uses lawful for American vessels and provided said insurance be unaffected thereby or adequately replaced; nor, if a corporation, merge or consolidate with any other person, firm or corporation or dissolve.283 [Emphasis added.]
More to the point, no fact witness, including Mr. Arnoult, testified that a subordination agreement was ever entered into between the parties.284
Mr. Spilker’s theory as to the Energy VII’s subordination is particularly weak given that his client, the Trust, litigated and prevailed as to the priority of the WRT mortgage on the grounds that WRT *381had not consented to a subsequently recorded mortgage. In Mayfield, supra, the District Court was required to rank two mortgages — that of WRT and a subsequently recorded mortgage of GECC. The Trust argued that WRT’s mortgage had been recorded first and that WRT had never provided the necessary written consent to subordination. The Trust prevailed.285
As testified to by Mr. Legier at trial, the mere possibility of impairment is not a sufficient basis to write these assets off.286 Mr. Transier confirmed Mr. Legier’s conclusion, and testified that KPMG considered the value of the collateral when accounting for these promissory notes and that a potential subordination did not affect that judgment.287
In sum, both experts agree that when considering an impaired loan, one looks to the fair value of the underlying collateral. While Mr. Spilker valued that collateral at zero, his “subordination” theory is not supported by the evidence. Mr. Legier’s fair valuation of the rigs and vessel at $1,723,000 is conservative. The court concludes that his credit adjustment to WRT’s property account for this amount (in conjunction with the write off of the Arnoult Notes) is proper.
(b) Continental Guaranty Notes. As discussed earlier herein, WRT, Tricore, and Stag entered into the GCJV in 1991. WRT was to contribute oil and gas property to the GCJV and Stag would raise the necessary capital to develop the properties.288 Tricore’s obligation under the GCJV was the contribution of capital, while Stag was to receive a five (5%) percent share of the production revenue from the various wells contributed to the GCJV by WRT.289
In 1992 and 1993, WRT agreed to loan Stag $540,000 representing an advance, or prepayment, of Stag’s estimated share of the production revenue to be realized by the GCJV.290 Continental Guaranty Corporation (“CGC”), though its president, Mr. Sterling,291 acknowledged this debt and executed two promissory notes in favor of WRT — one dated April 15, 1992, in the amount of $200,000, and the other dated April 1, 1993, in the amount of $340,000 (collectively, the “CGC Notes”).292 All parties contemplated that the CGC Notes were to be satisfied from Stag’s pro-rata *382share of the production revenue generated by the GCJV.293
Review of the CGC Notes was one of KPMG’s primary audit objectives for the 1994 audit.294 KPMG carefully reviewed the history of the CGC Notes and determined that payments were in fact made in 1994 and applied to both interest and principal; in excess of $40,000 was applied against the principal balance in the last quarter of 1994 alone.295 Subsequent KPMG work and WRT’s records confirm that the CGC Notes continued to perform as of June 30, 1995.296
KPMG also performed a thorough review of the anticipated future net cash flows attributable to Stag’s interest in the oil and gas properties underlying the CGC Notes.297 KPMG’s year-end 1994 calculations of Stag’s interest in the undiscounted cash flows from the GCJV supported a finding that projected future net revenue was sufficient to satisfy the outstanding balance of the CGC Notes.298 Specifically, KPMG determined that the projected net revenue attributable to Stag’s interest in the joint venture, $556,889, was more than sufficient to cover the entire outstanding balance of the CGC Notes as of December 31, 1994, namely, $494,538.04.299 Accordingly, KPMG determined that the CGC “Note Receivable” balance appeared proper and collectible at December 31, 1994.300
At trial, Mr. Legier testified that he had reviewed all of the data available as of year-end 1994 (including KPMG’s study of the issue), considered the testimony of all fact witnesses with regard to the anticipated production from the Lac Blanc Field and determined that there was no reason to impair this note either as of year-end 1994 or as of March 31, 1995.301 Mr. Legier testified that he agreed with KPMG that the CGC Notes were properly carried as an asset on WRT’s balance sheet as of December 31, 1994, and March 31, 1995.302
*383Mr. Spilker admitted that the CGC Notes are worth what one could reasonably expect from Stag’s five (5%) percent interest in the GCJV.303 He further acknowledged that KPMG had reviewed both the CGC Notes and CGC’s ability to pay based upon the projected net revenues.304 Mr. Spilker, however, decided to write the CGC Notes off completely as of November 30,1994.305 One of the reasons he concluded that this was appropriate was because neither Mr. Sterling nor CGC had any assets from which to pay the note independent of the receipt by Stag of proceeds from the GCJV. Mr. Spilker also considered that numerous joint venture owners had accused Mr. Sterling of fraud and failure to pay royalties, and were threatening to sue him at the time. Finally, Mr. Spilker asserted that certain of the loans were either not disclosed by WRT and/or fraudulently booked as equipment purchases, which made it unlikely that the loans were going to be paid back. Given this, Mr. Spilker determined that the CGC Notes were totally uncollectible.306
The court finds that the Trust has not satisfied its burden of establishing that the CGC Notes should be entirely written off. First, as evidenced by the decreasing adjustments Mr. Spilker makes to WRT’s balance sheet 11/30/94 ($386,000), 1/31/95 ($373,000) and 3/31/95 ($365,000), the CGC Notes were actually performing during the relevant time periods.307 The evidence at trial also established that, as of year-end 1994, all available resources bearing on likely revenue (reserve reports, reserve engineers, accountants and joint venture participants) demonstrated that Stag’s interest in the GCJV was sufficient to service this obligation in full.308 Messrs. Beninger, Sterling, and McGuire all testified that the Lac Blanc wells were prolific performers in the fourth quarter of 1994 and that the decline of those fields in the fall of 1995 was neither anticipated nor foreseeable as of year-end 1994.309 No fact witness testified otherwise. With the benefit of perfect hindsight, however, Mr. Spilker uses the unexpected failure of the Lac Blanc well in the fall of 1995 to write the CGC Notes off months earlier.310 Such use of hindsight is inappropriate in determining value of assets at a particular point in time.
(c) Accounts Receivable. Both solvency experts made certain adjustments to the accounts receivable recorded in WRT’s books.
1-Employee receivables. Included in WRT’s books under accounts receivable were certain notes representing loans to employees.
*384Mr. Spilker deducted $474,000 on December 16, 1994, and January 31, 1995, and $399,000 on March 31, 1995, on account of employee loans for which he believed collection was doubtful. He indicated that collection was doubtful because the loans were made for the purpose of purchasing WRT stock and as such, collection was dependent upon the price of WRT stock.
The loans to these employees, however, did not actually contain such a limitation. In fact, as to the $300,000 loan to Mr. Petersen, the largest of the employee loans, Mr. Petersen responded to inquiries following the audit of December 31, 1994. His letter of March 23, 1995, set forth a summary of his assets to illustrate his ability to repay the loan according to its terms.311 The court concludes that the mere fact that the purpose of the loan was to purchase WRT stock does not make the repayment of the loan dependent upon the ultimate price of that stock.
The court further concludes that the Trust has failed to meet its burden of proving that the employee loans should be removed as an asset of WRT on the relevant dates. The proper test would be a determination of the ability of the account debtor to pay the obligation, not an inquiry into the use of the funds borrowed.
2-Bear Steams litigation. Also included in WRT’s books under accounts receivable were accrued legal fees which were booked in anticipation of a potentially favorable ruling in the Bear Stearns litigation. WRT had paid the legal fees of certain employees which would be repaid if the employees were successful in the litigation.
Both financial experts agreed that this receivable should be removed from WRT’s books. The amount to be written off was $450,000 on December 16, 1994, January 30, 1995, and March 8, 1995, and $950,000 on March 31,1995.
S-Milam receivable. Mr. Spilker deducted the amount of operating costs in East Haekberry that WRT had recorded as receivable working interest expenses from Milam. Mr. Spilker took the position that WRT’s entitlement to recover 50% of the operating costs from Milam was contingent on generation of profits from the East Haekberry Field because operating costs could only be collected from Milam’s share of the net revenue. Thus, if WRT had current losses from its operations, it could only recoup operating costs from Milam’s share of future net revenue. Mr. Spilker therefore deducted this receivable from each adjusted balance sheet because it was a “gain contingency”, and in his view, it should have been anticipated that East Haekberry would not generate revenues sufficient to pay the receivables.312
The arrangement between Milam and WRT contemplated that Milam’s share of expenses would be paid from production revenues and, employing the Trust’s expert report, Mr. Spilker concluded that revenues would not support expenses. This conclusion, however, directly contradicts the contemporaneous view of both WRT and Milam. Projections prepared in March 1995 anticipated more than adequate revenues.313 Milam certainly anticipated substantial revenues. Indeed, in the last quarter of 1994 and continuing through 1996, Milam spent more than $8.7 million in this field in addition to the $11.3 million paid as part of the original and *385deferred purchase price through September 2, 1994.314 Based on what was known at year-end 1994, the Milam receivable was valid and should properly have been included as an asset on WRT’s books.
Jp-GCJV receivable adjustments. Mr. Spilker deducted costs WRT accrued as receivables due from its GCJV partners. He felt this deduction was proper because the drilling arrangement under the GCJV was “turnkey”, meaning that WRT bore all responsibility for the drilling costs. Therefore, WRT had improperly allocated a portion of these costs to the GCJV.315 Mr. Spilker added a portion of the operating costs attributable to wells for which its partners in the GCJV did bear some responsibility — the wells not subject to the turnkey drilling arrangement. This adjustment was required because WRT was entitled to bill its joint venture partners for certain receivables, stemming from expenses which WRT had incurred, but not yet recorded on its books.
The court believes that these adjustments are appropriate. The amounts of these adjustments on the relevant dates are set forth below.
Adjustment_12/16/94_1/30/95_3/8/95_3/31/95
Deduction for accrued costs_( 594.000)_(21,000)_(21.000)_(22.000)
Joint venture share of operating costs_21,000_38,000_24,000_32,000
Total adjustment(8573.000) $ 17,000 $ 3,000 $ 10.000
3. The value of equipment.
In December 1994, WRT began its sale of marine equipment when four workover and drilling rigs and the Energy VII were sold to E.C. Energy and AEC, respectively. At that time, WRT continued to negotiate with AEC regarding the sale of WRT’s remaining marine equipment, although WRT did not anticipate that this sale would close until April 1995.316 As a result, WRT continued to carry the cost-basis of the marine equipment on its books and records.317
During the course of those negotiations to sell the remaining marine equipment, the Arnoult Entities continued to refurbish and operate WRT’s marine assets.318 In addition, the company continued to acquire marine equipment apparently for use on WRT’s properties.319 In May 1995, WRT and AEC came to an agreement with respect to the marine equipment and closed this final transaction.320 AEC agreed to purchase the marine equipment for $3.4 million.321 AEC executed a promissory *386note for the purchase price and granted WRT a mortgage in the amount of $3.4 million on five marine vessels.322 As part of this arrangement, WRT entered into a Master Service Contract and Bareboat Charter Agreement whereby WRT would pay AEC a flat $250,000 per month for its operation of the WRT properties.323
Mr. Legier determined that WRT appropriately booked the marine equipment as a $3.4 million dollar asset as of year-end 1994 and March 31, 1995. His determination was based upon a review of WRT’s books and records, WRT’s relationship with the Arnoult Entities, the KPMG work papers and the testimony of fact witnesses with respect to the marine equipment issue.324 Accordingly, Mr. Legier made no adjustment to WRT’s PP & E account for the marine equipment. Mr. Legier opined that whether WRT was the owner or beneficial owner of substantial marine assets utilized to operate WRT’s water based oil and gas fields,325 it was proper for WRT to book these marine assets as equipment.326
Mr. Spilker disagreed and observed that although WRT had recorded $3.4 million dollars in its balance sheet equipment account to reflect marine equipment it purportedly purchased, he believed that WRT never purchased that quantity of equipment. Mr. Spilker found $3.2 million — not $3.4 million — in 1994 journal entries for wire transfers to AEC that were classified by WRT as purchases of marine equipment. He also found a lack of journal entries reflecting payment for AEC’s ongoing work on WRT’s fields. Mr. Spilker testified that he found that there was documentation evidencing that equipment was actually being purchased or refurbished, but it only was for a few hundred thousand dollars worth of the payments. The remaining wire transfer documents bore no indication that the payments were for equipment. Mr. Spilker also testified that he did not find title documents, bills of sale, or other proof an accountant would expect to find to back up $3.4 million in marine equipment purchases. In fact, because AEC was doing substantial work for WRT in the fields, Mr. Spilker believed that the bulk of these payments were actually for that work, not equipment.327
Mr. Spilker determined that journal entries alone were insufficient proof that WRT actually purchased $3.4 million worth of marine equipment. However, giving the benefit of the doubt to the existence of at least some marine equipment, Mr. Spilker relied on an AEC appraisal of equipment to assign a $900,000 fair value to the equipment which WRT purported to own. This resulted in a write-off of $2.5 million of WRT’s $3.4 million listed basis in the equipment.328
The court does not believe that Mr. Spilker’s adjustments are appropriate. He attempted to review the equipment issue in a vacuum, rather than looking to fact witnesses and contemporaneous documents evidencing the relationship between AEC and WRT. WRT did not advance millions of dollars to AEC for charitable *387purposes. WRT did so for legitimate purposes, namely the accumulation, refurbishment and operation of marine assets in order to conduct workovers and exploit WRT’s oil and gas properties.
The evidence presented at trial confirms that WRT advanced significant funds to AEC by wire transfer.329 The intended purpose of these transfers was for AEC to purchase marine equipment or make improvements to the existing equipment or vessels.330 AEC’s own corporate promotional literature confirms this fact: “The large producing fields that WRT owns have the need for extensive land and marine operations. AEC and WRT have together assembled over $10 million worth of rigs, marine vessels and wireline equipment and AEC operated the majority of this equipment on WRT properties.”331 Given the fact that the Arnoult Entities had virtually no financial support other than from WRT, it is clear that these assets were in fact paid for and refurbished with WRT’s money.332 Mr. Hale, WRT’s chief financial officer, testified that he believed that there was an understanding between the two companies that WRT would finance the acquisition of the equipment. He testified that AEC had refurbished WRT’s equipment and accumulated additional equipment with WRT’s funds for the purpose of using it in WRT’s fields. As WRT had funded the equipment, he believed it to be WRT’s equipment.333
The trial testimony of Messrs. Petersen and McGuire is entirely consistent with that of Mr. Hale regarding the nature of WRT’s arrangement with AEC. While WRT desired to exit the business of operating marine equipment, AEC wanted to expand its holdings in this area.334 However, as Mr. Petersen testified, AEC did not have the financial resources to acquire and refurbish the amount of marine equipment necessary to operate certain of WRT’s properties.335 Hence, WRT agreed to purchase or finance the equipment, pay for its refurbishment and ultimately sell the completed assets to AEC.336 In turn, WRT contracted with AEC to conduct its water-based operations by utilizing these same assets.337 This effectively resulted in what Messrs. Petersen, Hale and McGuire all described as a sale and leaseback arrangement whereby WRT was able to reduce its Jones Act liability but still secure the availability of marine equipment at a reasonable rate.338 In addition, the *388form of the transaction allowed WRT to avoid the direct cost of maintaining a fleet of marine assets during inactive periods.339
Although occurring after the relevant dates, perhaps the greatest factor confirming the $3.4 million value assigned to WRT’s remaining marine equipment are the events of May 1995. Between February 1994 and May 1995, a significant dispute arose as to the amount of money WRT owed AEC and its related companies for goods and services provided.340 WRT and AEC jointly selected an auditor to review all work performed and all invoices alleged due to AEC.341 The purpose of this reconciliation, according to both Messrs. McGuire and Hale, was to wipe the slate clean with respect to the amount of money owed AEC 342 and more importantly, clarify WRT’s actual ownership of the marine equipment gathered and refurbished by AEC at WRT’s expense.343 As Mr. McGuire testified at trial, WRT did not believe that it actually owed AEC that amount of money, but agreed to pay it in order to settle the dispute over ownership of the equipment.344 With that settled, the parties then arranged to formally execute the sale and lease-back arrangement.345
On May 18, 1995, WRT completed the sale of the remaining marine equipment to AEC as part of the resolution of all issues between WRT and the Arnoult Entities.346 WRT sold the equipment at its carrying cost of $3.4 million and recorded no gain from the sale.347 AEC executed a promissory note in the amount of $3.4 million, payable in monthly installments over nine (9) years.348 In addition, AEC granted WRT a preferred mortgage in the amount of $3.4 million on six (6) vessels that comprised part of the sale.349
KPMG reviewed this transaction, deemed the $3.4 million promissory note collectible, and recorded the note receivable at full value as of June 30, 1995.350 The auditor’s comments further provided that the marine equipment sold was comprised of five vessels and that “two payments of $35,250 had become due and were paid [by AEC].”351 Accordingly, the $3.4 million note was performing as of July, *3891995.352 In addition, correspondence from AEC’s own auditors, Charlet & Simon, CPAs, confirms AEC’s receipt of the funds for the purchase and refurbishment of marine equipment and its debt to WRT in the amount of $3.4 million.353
Based upon this information, Mr. Legier determined that WRT appropriately booked its marine equipment at $3.4 million as of December 31, 1994, through March 31, 1995.354 The court believes the evidence supports Mr. Legier’s conclusion and concludes that the deductions made by Mr. Spilker are improper.
4. Other assets.
Mr. Spilker makes certain adjustments to WRT’s balance sheets on the transaction dates to reduce the assets to account for the cost of the property purchased while at the same time adding the value of that property. The court finds that this type of adjustment is appropriate.
Mr. Spilker deducted $7.0 million from WRT’s cash account and increased WRT’s notes payable account by $8 million for WRT’s adjusted February 1, 1995, balance sheet. This was because WRT used the $7 million cash, along with a draw down of $8 million on its credit facility with INCC, to purchase the Bayou Penchant Field from LLOG. The value of the Bayou Penchant property was added to the balance sheet, necessitating the removal of the funds used by WRT to pay for that property.355 This adjustment is appropriate.
Mr. Spilker added $34,814,000 to WRT’s cash account and $78,900,000 to WRT’s notes payable account for WRT’s adjusted March 8, 1995, balance sheet. This was to account for WRT’s receipt of funds from the $100 million notes offering, and use of the proceeds to pay back its credit lines, to purchase the LLOG Phase II properties, and for miscellaneous acquisition costs.356 This adjustment is appropriate.
Mr. Spilker reduced WRT’s cash account by $5,140,000 for WRT’s adjusted March 31, 1995, balance sheet to account for cash used to purchase a working interest in the West Cote Blanche Bay Field from Tenneco. The Tenneco purchase, however, did not close until after the March 31, 1995, financial statement. The court does not believe that this adjustment is appropriate as the Tenneco purchase was not completed as of March 31, 1995.
D. The fair value of WRT’s liabilities as of the dates of the transactions at issue.
1. Accounts payable including the AEC payables.
With respect to WRT’s accounts payable, Mr. Spilker makes an $8,890,000 adjustment as of January 30, 1995, a $9,322,000 adjustment as of March 8, 1995, and a $7,272,000 adjustment as of March 31, 1995, to increase accounts payable for alleged unrecorded liabilities. Mr. Spilker’s accounts payable adjustment is broken into three categories: (a) “unrecorded” invoices from Scotia; (b) “unrecorded” invoices from AEC, and (c) invoices that were not recorded in the same month the invoice was issued because of either dis*390putes or delay in receiving the invoice from the field.
(a) Scotia Invoices. Both Mr. Legier and Mr. Spilker agree that the accounts payable should be increased to include Scotia invoices which were not recorded on WRT’s books. The experts differ, however, as to the amount which should be included. The difference between the two numbers arrived at by the experts is $318,000. At trial, Mr. David Heather, president of Scotia,357 identified a May 3, 1995, fax he sent to Mr. McGuire and confirmed that attached to the fax was an account summary generated by Scotia.358 The two center columns of the account summary reflect either the amount of the invoice to WRT or WRT’s payment; the last column is the outstanding account balance on the various dates.359 Reflected in the account summary are three payments totaling $318,000 which Mr. Spilker argues should not be included in his analysis. He acknowledges these three payments were made, but does not give WRT credit for them because they were not recorded on WRT’s books.360
The court does not agree with Mr. Spilker’s analysis. The question in this Insolvency Trial is not whether a journal entry should have been made, but whether a true liability existed. The court concludes that the actual liability owed to Scotia on the relevant dates and the amounts which should be added to the account payables on WRT’s books are $384,703.86 as of December 16, 1994, $384,426.26 as of January 30, 1995, $345,209.97 as of March 8, 1995, and $1,692.66 as of March 31,1995.
(b) AEC Invoices. As part of his accounts payable adjustment, Mr. Spilker adds $3,413,000 in liabilities as of December 16, 1994, $3,274,000 in liabilities as of January 30, 1995, $2,828,000 in liabilities as of March 8, 1995, and $1,665,000 in liabilities as of March 31, 1995, for alleged AEC invoices that were not recorded on WRT’s books and records.361 As Mr. Spilker testified, to get to these numbers, he tallied up twelve boxes of invoices produced in this litigation by the AEC entities.362 To get his final adjustment for “alleged unrecorded AEC invoices,” he deducted from the total (i) payments WRT made to AEC and (ii) invoices WRT received from AEC to the extent reflected on WRT’s Petro-Comp system.363
The Defendants contend that the evidence contradicts the assumption that the entirety of the twelve boxes of invoices produced by AEC were valid obligations owed by WRT. The Defendants argue that WRT had properly recorded the liabilities owed to AEC on the relevant dates based upon the following: (1) beginning in early 1994, AEC and WRT entered into an operating contract which the parties treated as a turnkey agreement under which AEC performed services for WRT for an agreed fee; 364 (2) under WRT’s agreement with AEC, WRT would be invoiced and would pay for work AEC performed above and *391beyond the turnkey and for work outside vendors performed that fell outside the turnkey agreement; 365 (3) WRT was having problems with AEC double-billing and sending duplicate invoices; 366 (4) in early 1995, WRT and AEC were in a dispute over invoices that WRT believed should have been covered by the turnkey agreement and not considered work above and beyond the turnkey agreement; 367 (5) WRT and AEC entered into negotiations to resolve the dispute over what was owed;368 (6) in April 1995, AEC generated and sent WRT a box of invoices to demonstrate what would have been owed by WRT if they were not operating under a turnkey agreement; 369 (7) the mass of invoices delivered by AEC were not to have been paid by WRT, but were simply intended to contrast what WRT was getting under the turnkey agreement with what they would be paying otherwise; 370 (8) these invoices should never have been recorded on WRT’s books and records;371 and (9) after substantial negotiations — and an audit performed by an independent auditor jointly selected by WRT and AEC— WRT and the AEC entities 372 entered into a Memorandum of Understanding on May 18, 1995, under which the parties agreed that:
a) the audit showed that WRT owed AEC only $1,017,000.00 as of May 18, 1995; and
b) the payment of this amount was not a compromise or settlement, but payment in full for all goods and services rendered by AEC through that date.373
The Defendants argue that there is no support for Mr. Spilker’s conclusion that the unrecorded AEC invoices were actual liabilities of WRT.
Mr. Spilker admitted that he did not determine whether these invoices were accepted as valid by WRT.374 He admitted that “not every invoice was signed-off’ by WRT.375 And, he admitted that he “didn’t go back through the 12 boxes to specifically say there is support for the individual invoices.” 376 Accordingly, the Defendants *392assert that no adjustment should be made to WRT’s books based upon the unrecorded AEC invoices.
The court agrees with the Defendants. The Trust failed to meet its burden of proving that the unrecorded AEC invoices were actual liabilities of WRT. In fact, the preponderance of the evidence establishes that WRT had properly included the amount owed to AEC in its books. As such, no adjustment should be made to WRT’s accounts payable for the so-called unrecorded AEC invoices.
(c) Untimely and Unrecorded Invoices. Mr. Spilker also increases WRT’s accounts payable by recording liabilities of $4,303,000 as of December 16, 1994, $5,537,000 as of January 30, 1995, $6,440,000 as of March 8, 1995 and $6,028,000 for what he alleges are “unrecorded accounts payable — vendors.” The Trust contends that WRT improperly recorded invoices into its oil and gas accounting computer system, the PetroComp system.
Mr. Spilker testified that, with regard to certain invoices, the expense date recorded in the system was the proper cate of entry rather than the earlier invoice date. Therefore, Mr. Spilker took the position that, according to PetroComp, invoices dated in one month, but later received by WRT and entered into the system were not timely captured for reporting purposes.
Initially, the Defendants dispute the trustworthiness of Mr. Spilker’s particular copy of the PetroComp accounting system, which he obtained from the Trust’s paid consultant, Ms. Suzanne Ambrose.377 Indeed, Mr. Spilker’s copy is actually a copy of a copy. Ms. Ambrose is a former contract employee who was first employed in the fall of 1996 — after the company filed bankruptcy.378 She claims to have downloaded a copy of WRT’s PetroComp system onto her personal laptop where it has been for over two years.379
The Defendants express four concerns with respect to the integrity of this copy of the PetroComp system. First, the copy on its face is not a contemporaneous reflection of WRT’s books and records as of the year-end 1994 and the first-quarter 1995. It appears that certain adjustments to WRT’s financial records as of year-end 1994 and first-quarter 1995 were likely made after the bankruptcy filing. For example, Ms. Ambrose testified that invoices for amounts asserted in proofs of claim were entered into the accounting system 380 It is this modified copy — which includes pre-petition invoices entered into the system after the bankruptcy filing— that Mr. Spilker used to perform his analysis.
Second, the Defendants’ express concerns about the lack of control regarding access to the system. In fact, when Ms. Ambrose’s logged onto the computer database on her laptop during the trial, she did not even have her own personal identification number; instead, she used a personal code for Ms. Stubbs.381 When questioned, Ms. Ambrose confirmed that she does not know who was using whose identification code while she was a contract employee for *393WRT.382
Third, because Ms. Ambrose’s copy of the system was “copied over” from WRT’s records, the access log was purged. As a result, she could not even determine who was accessing the database in 1994 or 1995.383
Finally, the subledgers that Mr. Spilker uses to generate invoice date runs cannot be tied in any way to public filings so the accuracy of the numbers can be confirmed.
Beyond the concerns regarding the integrity of the underlying data, the Defendants also argue that Mr. Spilker’s analysis is flawed. Mr. Legier testified, while Mr. Spilker created a larger accounts payable, “[h]e didn’t take into consideration all of the other side of the ledger, because for every debit, there must be a credit. So if you look at those transactions that made up the accounts payable, the[re] were assets that were acquired.”384
Accordingly, the Defendants argue that even if one adopts Mr. Spilker’s analysis, adjustments to reflect the corresponding credits must be made increasing WRT’s receivables and property accounts.385 In other words, because the invoices that Mr. Spilker contends should be added as liabilities to the balance sheet are for work in the field, recordation of the invoices, as Mr. Legier testified, also results in (i) an increase in receivables from joint interest partners, or (ii) an increase in the property account due to the company’s capitalization of these expenses.386
The court agrees with Mr. Spilker’s analysis that adjustments must be made to reflect the correct expense dates for the invoices. The court also agrees with Mr. Legier’s analysis that if those adjustments are made, corresponding adjustments must be made to the asset side of the ledger to reflect either an increase in receivables from joint interest partners and/or capitalization of the expenses. However, the court believes that Mr. Spilker had taken into account adjustments on both sides of the ledger and had increased joint interest billings on the accounts receivable side of the ledger to account for the unrecorded liabilities.
Accordingly, the court finds that the adjustments made by Mr. Spilker were appropriate.
2. Liabilities relating to the Napole-onville transactions.
Mr. Spilker increases WRT’s obligations on account of a purported liability arising from the Napoleonville transaction. The Defendants of course dispute this adjustment.
On December 16, 1994, WRT and BSFI executed a Purchase and Sale Agreement regarding Napoleonville.387 Paragraph 2 of the Purchase and Sale Agreement provides that the consideration shall be 1.25 million shares of WRT common stock.388 WRT committed to issue and BSFI agreed to take 1.25 million shares of WRT common stock as consideration for the Napole-onville Field.389 WRT actually issued 1.3 *394million shares of its common stock to BSFI as consideration for the purchase of the Napoleonville Field.390 The certificates were given to Mr. Edwards to hold as the escrow agent.391
The Trust argues that the economic substance of the Napoloenville transaction was that WRT promised or guaranteed to pay BSFI $10 million in cash for the property. Mr. Spilker believes that the following actions of the parties demonstrated that WRT had a “responsibility to pay cash.” First, WRT recorded the Napoleonville purchase price in its financials at the $9.75 million, the then market value of the common stock supposedly exchanged, even though the stock was restricted and was subject to a steep discount.392 Second, WRT always remained in control of the stock supposedly exchanged, and WRT itself arranged for the sales of the stock to deliver funds to BSFI to satisfy the $10 million obligation.393 Third, multiple letters sent to and from Mr. Brantley and Mr. Edwards at and after the time of the transaction continually refer to cash payments to be made to BSFI.394 Fourth, when WRT was unable to deliver enough cash to BSFI, Mr. Brantley held back turning over control of operations of the property, until funds were transferred.395
The Defendants argue that the documents speak for themselves, that is, the consideration for the sale was stock. The court agrees. The Purchase and Sale Agreement entered into between BSFI and WRT provided that the consideration for WRT’s acquisition of the Napoleonville Field was 1.25 million shares of WRT’s common stock.396 The Purchase and Sale Agreement contains an integration clause that requires any amendment to the agreement be made in writing.397 The Purchase and Sale Agreement was not amended and is the document that controls the rights and obligations between the parties pertaining to the purchase of the Napoleon-ville Field.398
Under Louisiana law, antecedent or contemporaneous oral agreements or understandings which are not made part of a written contract may not be admitted to vary the contents of an authentic act. La. C.C. art. 1848; Perfection Metal & Supply Co. v. Independent Supply of N.O., Inc., 707 So.2d 86, 90 (La.App. 5th Cir.1998) (parol evidence is inadmissible to alter the terms of a written contract where the defendant failed to plead mistake or fraud.); Pelican Homestead & Savings Assoc. v. Airport Mini-Warehouses, Inc., 531 So.2d 524, 527 (La.App. 5th Cir.1988) (antecedent verbal agreements which are in conflict with a written agreement cannot be proved by parol evidence.); and Crochet v. Pierre, 646 So.2d 1222, 1225 (La.App. 5th Cir.1994), writ denied, 649 So.2d 429 (La.1995) (“contemporaneous oral agreements or understandings between the parties which *395are not made part of the written contract do not qualify as an exception of the parol evidence rule.”). The Trust is precluded as a matter of law from using parol evidence to argue that the agreement was something other than what was stated in the Purchase and Sale Agreement.
Even if parol evidence may be considered, however, the adjustment proposed by Mr. Spilker is not proper, as there is no evidence from the fact witnesses involved in the transaction that WRT itself guaranteed anything to BSFI. All parties to the negotiations, namely, Messrs. Brantley, McGuire, Petersen, and Hale, denied that WRT agreed to provide any guarantee to BSFI.399
What the evidence does show is that BSFI and WRT discussed the possibility of WRT arranging for a third party to guarantee the value of the WRT shares being issued to BSFI through what is known as a “cap and collar” agreement.400 The third party guarantor would guarantee that BSFI would receive a set amount for the stock. In exchange, the third party guarantor would receive the benefit of any increase in the value of the stock above a set amount. Mr. Petersen made inquiries and learned that such a guarantee would require BSFI to relinquish the upside potential should the value of the WRT stock increase as expected.401 Mr. Brantley rejected the offer of a third party guarantor upon learning that he would be required to relinquish the upside potential if the price of the stock increased.402 WRT never obtained a third party guarantor.403
Mr. Brantley testified that he expected to receive at least $10 million from sale of the WRT stock; however, he was clear that the money was to come from sale of the stock, and not from WRT.404 Moreover, both Mr. Brantley and Mr. John Cutrer, the largest investor in BSFI, believed that the value of the WRT stock would increase because WRT purchased the Napoleonville Field with equity.405 Mr. Brantley’s dissatisfaction began when the price of the WRT stock began decreasing instead of increasing after the transaction.406
The Trust argues that a January 25, 1995, letter from Mr. Edwards to Mr. Brantley demonstrates WRT’s guarantee to BSFI. The terms of that letter provide that WRT will redeem the stock issued to BSFI (a non-binding obligation as matter of law to the extent that WRT was insolvent as alleged by the Trust). First, the court has already held that any agreement by WRT to redeem the WRT stock issued to BSFI “cannot be considered a binding obligation under basic corporate law and thus cannot be considered in determining the solvency or insolvency of WRT.”407
Moreover, the totality of the testimony and circumstances do not support the Trust’s position that WRT agreed to redeem the stock issued to BSFI. The evidence suggests that not only did WRT not agree to the terms set forth in the letter, *396but that Mr. Edwards was not authorized to write the letter on behalf of WRT.408 And WRT did not adhere to the terms of Mr. Edwards’ letter.409 Further, Mr. Brantley, a practicing attorney, did not seek enforcement when WRT did not comply with the terms of the letter.410 And finally, no mention is made of Mr. Edwards’ letter in subsequent dealings between BSFI and WRT.
Mr. Brantley executed a Memorandum of Understanding on March 20, 1995, which confirmed that the total consideration paid by WRT to BSFI for the Napo-leonville Field was 1.3 million shares of WRT common stock.411 Brantley provided the Memorandum of Understanding to WRT.412 The lack of any reference to a guarantee or additional obligations in the Memorandum of Understanding is further support for the conclusion that WRT incurred no additional obligations in favor of BSFI.
There is no evidence that WRT agreed to pay $10 million cash to BSFI either before or after execution of the Purchase and Sale Agreement with BSFI. Mr. Le-gier concluded after studying all of the information, documents, and testimony that no liability should be booked for the Napoleonville transaction because there was no evidence that the transaction was anything other than a stock transaction for 1,300,000 shares of stock.413
The Trust argues that WRT’s assistance to BSFI in liquidating the stock supports Mr. Spilker’s assertion that WRT’s financial statements should be adjusted to reflect an obligation owed by WRT to BSFI. Again, the facts do not support this conclusion.
Mr. Edwards was the escrow agent appointed to hold the WRT stock issued to BSFI.414 Mr. Brantley signed a power of attorney on behalf of BSFI authorizing Mr. Edwards to sell the WRT stock on behalf of BSFI.415 Mr. Brantley understood that WRT would assist BSFI in liquidating the stock by contacting individuals within the investment community that had a relationship with WRT that may be interested in purchasing the stock.416
The stock was in fact liquidated over the next several months. WRT placed Mr. Edwards in contact with GFL Ultra Fund, Ltd., in December 1994. GFL was to purchase a portion of the shares issued to BSFI, but that sale fell through when GFL withdrew.417 Thereafter, Mr. Edwards arranged for sale of 500,000 shares of BSFI’s WRT stock to Banque Franck.418 *397Mr. Brantley himself directed the transfer of 300,000 shares to Mr. Boelte.419 An additional 300,000 shares were sold to Tico.420 The final 200,000 shares were sent to Oppenheimer by Mr. Edwards and by Banque Franck (Edwards had sent a 600,-000 share certificate to Banque Franck for purchase of 500,000 shares).421 BSFI, not WRT, received the proceeds from the stock sales.
In conclusion, the court finds that the evidence does not support the Trust’s contention that WRT was obligated to pay BSFI $10 million in cash for the Napoleon-ville property. The transaction was completed once the stock was transferred to Mr. Edwards on BSFI’s behalf. Accordingly, the adjustment suggested by Mr. Spilker is unwarranted.
3. Liabilities with respect to the Tricore production guaranty.
Mr. Spilker deducted $9,165,000 as of December 16, 1994, $9,000,000 as of January 30 and March 8, 1995, and $8,968,000 as of March 31, 1995, from WRT’s balance sheet for an alleged liability under a minimum production guaranty found in the GCJV.
The Defendants argue that this adjustment is improper for several reasons, namely: (1) the GCJV expressly contemplated that any obligations owed by WRT under the minimum production guarantee may be paid in stock;422 (2) every fact witness which addressed the issue agreed that the guarantee would, if ever called, be paid in stock423 — an action that would not have created a liability;424 (3) as of December 31, 1994, no one involved (Tricore, Stag, or WRT) anticipated that the minimum production guarantee would ever be called upon;425 and, (4) Mr. Spilker’s calculation of the alleged amounts owed directly contradict not only the testimony of the witnesses involved, but the express terms of the agreement.
Effective June 30, 1994, WRT, Stag, and Tricore entered into the Amended and Restated JVA.426 Article Seven thereof sets forth the “Production Guarantee” under which WRT guaranteed that Tricore’s “interest in this Joint Venture will produce the minimum quantities of natural gas set forth in Exhibit B ... during the forty eight month period commencing October 1, 1992.” 427 The agreement also explicitly provides under ¶ 7.11 that “[a]ny payment required by this Article Seven may be satisfied by the issuance to [Tricore] of registered debt or equity securities of WRT or Stag which have a full market *398value equal to the required payment.”428
Mr. Spilker acknowledged that the Amended and Restated JVA permitted WRT to fulfill any obligation it may owe by issuing stock.429 In fact, as Mr. McGuire testified, WRT specifically negotiated for the option to use stock to satisfy any obligation that may arise under the production guarantee.430 He further testified that it was a deal breaking point, and that WRT would not have entered into the guarantee without the option.431 Finally, Mr. McGuire testified that WRT would never have paid with anything other than the stock had there ever been a call on the guarantee.432
Mr. McGuire’s testimony was corroborated by that of Mr. Petersen, who was also involved in the negotiations, and who confirmed that WRT would have elected to issue stock had the guaranty ever been called.433 Indeed, in communications addressing generally WRT’s SEC filings, Mr. Jeffrey P. Riedler, Branch Chief of the SEC, notes: “The [SEC] staff notes that approximately 330,000 shares of the Company’s common stock (as valued at December 31, 1993) would be required to discharge fully the Company’s obligations to Tricore.” 434 In its response to the SEC, WRT confirmed that — in the unlikely event there was a call on the guarantee— payment would, in fact, be made in stock.435
Because WRT could have satisfied the guarantee by issuing stock, Mr. Legier did not record any liability for the minimum production guarantee. He testified that the 1994 10-KSB WRT filed for the year ending December 31, 1994, confirmed that WRT had sufficient authorized stock in order to satisfy the production guarantee. As detailed at page 25 of the 1994 10-KSB, WRT had 50 million authorized shares, and only 8,981,000 issued shares, leaving over 40 million shares to satisfy the minimum production guarantee.436 WRT’s stock at that time was trading for about $8 per share.437
Further, both experts agree that the issuance of registered stock by WRT would not affect WRT’s liabilities.438 Mr. Spilker acknowledged that the minimum production guarantee was a contingent lia*399bility.439 Under the Bankruptcy Code, for purposes of determining solvency, contingent liabilities should not be considered at face value, but rather should be discounted by the probability that the contingency will materialize. See Nordberg v. Arab Banking Corp. (In re Chase & Sanborn Corp.), 904 F.2d 588, 594 (11th Cir.1990); In re Xonics Photochemical, Inc., 841 F.2d 198, 200 (7th Cir.1988); Covey v. Commercial Nat’l Bank of Peoria, 960 F.2d 657, 659-60 (7th Cir.1992). Indeed, as one court has noted, “[t]o correctly ‘value the contingent liability it is necessary to discount it by the probability that the contingency will occur and the liability become real.’ ” Federal Deposit Ins. Corp. v. Bell, 106 F.3d 258, 264 (8th Cir.1997).
The evidence confirms that, at the end of 1994, and well into the first quarter of 1995, everyone associated with the transaction — Tricore, Stag, and WRT — anticipated that the minimum production guarantee would never be called upon. Every fact witness involved in either the GCJV or in operations on the key well subject to the minimum production guarantee (Lac Blanc 23) believed not only that the minimum production schedule would be fully satisfied from future production, but that the entire project would succeed.
When Mr. Sterling was asked during his video deposition, what was his view as to whether there would ever be a call under the minimum production, he responded:
Oh, I didn’t think so. We were blowing and going at the end of ’94 ... everything was, you know, looked like sunshine. I was getting ready to retire on my little 5 percent interest in this back end when the thing kicked in. There was never a doubt in my mind these investors are going to get every cent of their money back and we were going to go on and raise money in ’95 and on into the future.440
Similarly, Earl Roberts, president of Tricore, testified at his deposition that not only did he not expect the dramatic decline in production of the Lac Blanc 23 well in the August 1995 time frame, but that even with the benefit of hindsight, he still does not believe that it was foreseeable that there would be a serious decline in production from the well.441
Mr. Beninger testified that as of the end of 1994, Lac Blanc was the most prolific gas well at WRT.442 He further testified that WRT “had a 90 percent confidence that at least that level of reserves projected would be produced ....” 443 Instead, the Lac Blanc 23 well “watered out unexpectedly” some eight months later in August 1995.444 When asked whether he was shocked when the Lac Blanc well watered up as it did in August of 1995, Mr. Bering-er responded: “Yeah, I would say that I was north of surprised.”445
And, as Mr. McGuire testified, the engineering evaluations, including the reserve report on Lac Blanc 23, all indicated that the guarantee would be fully satisfied.446 Lac Blanc continued to produce until the third quarter of 1995, and as Mr. McGuire *400testified, no one had a hint that production would cease until that time.447
Mr. Spilker relies on the 1999 reserve evaluation prepared by Michael Heinz. Mr. Spilker’s use of hindsight gives a false picture of the company in 1994 and early 1995 and is inappropriate.
The court concludes that the fair value of a contingent liability is properly determined by multiplying total debt guaranteed by the probability that the debtor would be required to make good on the guarantee. Covey, 960 F.2d at 659-60. The court further concludes that this evaluation must be made as of the date of the valuation and without the benefit of hindsight. Based upon the evidence adduced, the probability that WRT would be called under the Tricore guaranty was de mini-mus.
Even if the court were to determine that some liability should be assessed based upon the minimum production guarantee, the court does not believe that Mr. Spilker’s analysis is correct. His calculation of the minimum production guarantee liability ignored the terms of the contract which control. First, his calculation begins with the faulty assumption that the minimum production guarantee amount is calculated by taking 150% of the amount contributed by Tricore to the GCJV. Mr. Spilker admitted that this method is nowhere to be found in either the Amended and Restated JVA or the Addendum.448 Mr. Spilker testified that the 150% formula could only be found in earlier agreements.449
Additionally, under the Amended and Restated JVA and the Addendum, the minimum production guarantee is subject to both a time limitation and a monetary cap. Under ¶ 7.01, the minimum production guarantee is limited to a 48 month period that ends by September 30, 1996.450 Mr. McGuire confirmed that the guarantee would expire by its terms September 30, 1996, and also confirmed that the expiration was a point of negotiation with Tricore.451 As both Messrs. Petersen and McGuire testified, if there was no call on the guarantee by September 30, 1996, it was gone.452 Mr. Roberts also testified that it was his understanding that the minimum production guarantee would terminate in 48 months — effective September 30, 1996.453 Despite all of this evidence, Mr. Spilker did not place any such limit on the production schedule when calculating the alleged liability.454
In addition, the minimum production guarantee was subject to a monetary cap. Paragraph 7.12 of the Amended and Restated JVA provides:
After TEV, L.P. has received aggregate distributions equal to 100% of TEV, L.P.’s total capitalization of $7,052,500 all liability of WRT and Stag under the terms of this Article Seven shall immedi*401ately terminate.455
Mr. McGuire confirmed that $7,052,500, which could include tax credits, was a monetary cap.456 Once $7,052,000 was distributed, the guarantee was over.457 Messrs. Sterling 458, Roberts 459, and Petersen460 each testified that to determine WRT’s maximum exposure as of December 31, 1994, one should deduct the cumulative actual revenue on that date from the cap amount of $7,052,500. According to the matrix prepared by WRT and accepted by Tricore, as of December 31, 1994, the cumulative actual revenue for December 31, 1994, was $3,865,674.461 As Mr. Petersen testified, the amount of liability therefore would be approximately only “$3.2, with a good deal of cushion built in.”462
The reality is that, as of December 31, 1994, the GCJY wells had provided a cushion over the minimum production guarantee of $767,005.463 Mr. Legier analyzed this cushion and presented a demonstrative line graph showing how the cushion grew over time until March 1995.464
Mr. Spilker, however, deducted the tax credits Tricore received under Section 29 of the Internal Revenue Code from his calculation of Tricore’s gross revenues. In support of this deduction, Mr. Spilker points to a preliminary finding by the Federal Energy Regulatory Commission (“FERC”) that Section 29 credits were not available. Notably, FERC’s final order was not issued until April 1995465 — well after the period for which Mr. Spilker makes his adjustment. But what Mr. Spilker ignored is the fact that the Fifth Circuit Court of Appeal, upon hearing the issue, explicitly stated that the FERC ruling “is not dispositive” and that the IRS is “not bound to follow the FERC’s ruling.” 466 Further, Mr. Spilker ignored the testimony of Messrs. Sterling and Petersen that confirmed that the Section 29 tax credits taken by the joint venture partners were never challenged or disallowed by the IRS.467 Since the tax credits were never disallowed, it was simply improper to disregard them and act as if they never happened. To do so, as Mr. Legier testified, would “be tantamount to having the company pay something that they would not otherwise have to pay that was already granted to the recipients.”468
In sum, WRT negotiated for, and obtained, the right to satisfy its guarantee obligation to Tricore through the issuance *402of WRT stock. Every witness confirmed that if the guarantee was ever called, WRT would have paid in stock. Further, both experts agree that WRT’s payment of an obligation with stock would have no effect on its solvency. Based upon this fact alone, no liability should be attributed to the Tricore minium production guarantee.
4. Liabilities with respect to plugging and abandonment obligations for the Lac Blanc property.
Mr. Spilker maintained that WRT’s balance sheets on each of the relevant dates should reflect an actual liability in the amount of $1,700,000 for the future plugging and abandonment (“P & A”) costs for the Lac Blanc Field. This adjustment is a line item entry on the balance sheet-to reflect WRT’s contractual commitment to the State of Louisiana to deposit $20,000 per month into an escrow account in order to properly fund WRT’s P & A liability for the Lac Blanc Field. WRT was obligated to deposit these funds until the balance in the escrow reached $1,700,000.
Each witness to address this issue, including the Trust’s own experts, Mr. Heinz 469 and Ms. Macdonald,470 testified that a P & A contingency for onshore domestic properties is a “wash,” i.e., that the P & A liability is roughly equal to the salvage value of the equipment on site once the property is fully depleted. Simply stated, WRT’s ultimate exposure, if and when the Lac Blanc wells ceased to produce hydrocarbons, was fully covered by the salvage value of the equipment.471
Petroleum Engineers, Inc., an independent engineering firm retained by the Louisiana State Office of Conservation, evaluated the salvage value of the equipment at Lac Blanc and the P & A cost associated with those wells.472 Their estimate of the P & A cost for this field was fixed at $1,708,394. Petroleum Engineers also determined, however, that the P & A cost would be offset by the salvage/recovery values of the tubulars and equipment associated with this property, estimated at $1,438,000, thus leaving a net liability of $270,394 at the end of the life of this field.473 The Office of Conservation specifically accepted this finding and incorporated it in its agreement with WRT.474
Mr. Legier testified that WRT properly accounted for this matter:
[I]n the old days in some of the basic accounting textbooks where you dealt with straight line depreciation, you would take into consideration the salvage value and depreciate down to salvage value, so that at the end, if you sold it, you would have an amount that you would offset against that.
However, in this case, and in oil and gas accounting you write the property down throughout its life to zero, thereby leaving no basis on the books, and any gain that you realize, any proceeds you realize would then create a gain. That gain would be offset against the cost of the *403property. So to offset on the company’s books would be zero.475
Importantly, Mr. Transier, the chief financial officer of Ocean Energy, Inc., and formerly KPMG’s leading oil and gas accounting partner, agreed that this was the proper accounting for this issue. As Mr. Transier explained:
Salvage value is the leftover value of oil and gas properties that are there today. I mean it assumes that at the time when the property is fully depleted, there is some value that you can salvage out of the remaining assets that are there. What we in the oil and gas business have generally assumed for onshore domestic properties is, is that the P & A liability is roughly equal to the salvage value of the equipment that would be left behind.476
Mr. Transier further testified that WRT properly accounted for the P & A obligation in that the company accounted for the net P & A liability in the depletion rate.477 This testimony is directly consistent with WRT’s statement to the SEC on November 1, 1994, that “[t]he estimated future dismantlement and abandonment costs, net of estimated salvage values have been included in the Company’s amortization rate for the Lac Blanc Field.” 478 Mr. Legier agreed, stating that the $270,000 “P & A liability is estimated in the depletion rate over the life of the assets under the accounting rule. [ (FASB 19) ].” 479 Finally, when Mr. Transier was asked whether it was appropriate to record the P & A obligation as a $1,700,000 liability, he responded “Absolutely not.”480
Mr. Spilker admitted that P & A is, by definition, a contingent liability.481 He admitted that an owner is not obliged to P & A a well until that well ceases production.482 He further admitted that the date upon which a well will terminate is unknown,483 and that WRT may not be the owner and, if not, would no longer be the party ultimately responsible when it comes time to P & A the well.484 Finally, Mr. Spilker acknowledged that although the estimated future P & A cost at the end of the life of the field was $1,700,000, the difference between the estimated salvage value and the estimated future P & A cost was only $270,000.485
Mr. Spilker contended that WRT should record a $1,700,000 P & A liability as of December 31, 1994, because of its contractual obligation with the State of Louisiana. The contract with the State, however, simply requires that WRT establish and contribute $20,000 per month to a site specific escrow fund.486 WRT complied with this obligation and had deposited into a trust account $490,000 as of year end 1994, $550,000 as of March 31, 1995, and $710,000 as of year end 1995. Finally, the contract clearly provides that funds con*404tributed to the escrow account remain the property of WRT.487
The court finds that the evidence supports the Defendants’ contention that WRT properly recorded its P & A obligations regarding the Lac Blanc field. As such, Mr. Spilker’s adjustment is inappropriate.
VI. REASONABLY EQUIVALENT VALUE
A. The Law.
Section 548 provides in relevant part that—
any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, [may be avoided] if the debtor voluntarily or involuntarily ... (B)(i) received less than a reasonably equivalent value in exchange for such transfer or obligation
11 U.S.C. § 548.
The statute thus presents a two-step inquiry:
[T]he issue of reasonably equivalent value presents two questions. First, did the transferee give value? Second, if the transferee did give value was the value given reasonably equivalent to the value of the transferred property?
In re Universal Clearing House, 60 B.R. 985, 998 (D.Utah 1986).
The term “value” is specifically defined in the statute:
In this section—
(A) “value” means property, or satisfaction or securing of a present or antecedent debt of the debtor, but does not include an unperformed promise to furnish support to the debtor or to a relative of the debtor.
11 U.S.C. § 548(d)(2)(A).
Under section 548, therefore, “property” such as those oil and gas properties conveyed to WRT in this case certainly constitute “value” to a debtor. On the other hand, the phrase “reasonably equivalent value” is not defined in the Bankruptcy Code. See Besing v. Hawthorne, 981 F.2d 1488, 1494-95 (5th Cir.1993)(“The task of determining the scope of the term has been left to the courts.”), cert. denied, 510 U.S. 821, 114 S.Ct. 79, 126 L.Ed.2d 47 (1993). The legislative history of section 548 equates “reasonably equivalent value” with the debtor’s receipt of consideration of reasonably equivalent value in exchange for the transfer. H.R. No. 95-595, 95th Cong., 1st Sess. 375 (1977), U.S.Code Cong. & Admin.News 1978, 5963, 6331; S.R. No. 95-989, 95th Cong., 2d Sess. 89-90 (1978), U.S.Code Cong. & Admin.News 1978, 5787, 5875-76. The Supreme Court has stated that reasonably equivalent value means the debtor received a “fair and proper price” for its transfer. BFP v. Resolution Trust Corp., 511 U.S. 531, 545 & 547, 114 S.Ct. 1757, 128 L.Ed.2d 556 (1994).
Whether a debtor received “reasonably equivalent value” must be measured at the time the debtor made the challenged transfer. Fairchild Aircraft Corp., 6 F.3d 1119, 1126 n. 8 (5th Cir.1993)(citing In re Morris Communica tions NC, Inc., 914 F.2d 458, 466 (4th Cir.1990)); In re Viscount Air Servs., Inc., 232 B.R. 416 (Bankr.D.Ariz.1998)(observ ing that the assets involved in the contested transfer must be measured by their fair market value at the time of the transfer).
*405The Fifth Circuit follows the “totality of the circumstances” approach to determining reasonably equivalent value and has rejected the use of a mechanical mathematical formula. See Fairchild, 6 F.3d at 1125-26 & n. 7 (“Although the minimum quantum necessary to constitute reasonably equivalent value is undecided, it is clear that the debtor need not collect a dollar-for-dollar equivalent to receive reasonably equivalent value.”). Although the Fifth Circuit and other courts have held that a bright-line mathematical test for reasonably equivalent value is inappropriate (see, e.g., In re DeVito, 111 B.R. 529, 532 (Bankr.W.D.Pa.1990)), it remains true that when the value received by the debtor is out-of-line with the amount transferred by the debtor, constructive fraud exists under section 548(a)(1)(B). “[A] court must base its [reasonably equivalent value] determination upon subsidiary fact findings regarding the value of the property transferred and the ‘value1 received in exchange.” Besing, 981 F.2d at 1494-95. The detailed fact-finding and valuation entailed in the reasonably equivalent value analysis often “requires the fact finder to assess the contrary opinions of the competing experts.” See, e.g., Weaver v. Kellogg, 216 B.R. 563, 574 n. 13 (S.D.Tex.1997).
The test for “reasonably equivalent value” is whether the net economic effect of the transfer was a dissipation of the debtor’s estate. E.g., In re Sullivan, 161 B.R. 776, 781-82 (Bankr.N.D.Tex.1993)(“The Court must focus on the net effect of the transfer on ... the amount of funds available to unsecured creditors.”); See also In re Suburban Motor Freight, Inc., 124 B.R. 984, 997 (Bankr.S.D.Ohio 1990)(focus is placed on adequacy of consideration received by debtor under measurement test in which all aspects of transaction are examined to calculate the economic value of all the benefits and burdens to debtor, direct or indirect; collapsing transactions in question to look at net effect of overall transfer).
In evaluating the “net effect” of the transaction, the property exchanged by the debtor and the transferee generally must be valued at its fair market value. See, e.g., BFP, 511 U.S. at 545, 114 S.Ct. 1757 (stating that outside the foreclosure context, reasonably equivalent value ordinarily means “similar to fair market value”); Taylor, 228 B.R. at 501. “Fair market value” in the context of reasonably equivalent value generally means what the property would bring if actually sold on the market at the time of the transfer, assuming a hypothetical willing seller and a hypothetical willing buyer with a reasonable time frame to sell the property. See, e.g., In re Ozark, 850 F.2d 342, 344-45 (8th Cir.1988)(finding that the bankruptcy court clearly erred in basing its reasonably equivalent value analysis on testimony that debtor needed 30% markup to survive, where only 20% markup was objectively warranted); American Nat’l Bank and Trust Co. of Chicago v. Bone, 333 F.2d 984, 987 (8th Cir.1964)(“ ‘[F]air market val ue’ implies a willing seller and a willing buyer.’ ”) (citation omitted); In re Pioneer Home Builders, Inc., 147 B.R. 889, 891-92 (Bankr.W.D.Tex.1992)(stating that fair market value is that value that a prudent business person can obtain from the sale of an asset when there is a willing buyer and a willing seller).
This is basically the same test as used for the “fair valuation” of assets under the balance sheet insolvency test. See WCC Holding Corp. v. Texas Commerce Bank-Houston, 171 B.R. 972, 985 (Bankr.N.D.Tex.1994)(UFTA case calculating and comparing, for reasonably equivalent value determination, total considerations exchanged in sale transaction based on fair valuation of assets of debtor, which was *406going concern). Courts often use the same valuation figures for the insolvency test and the reasonably equivalent value calculations.
The willing seller and willing buyer contemplated for fair valuation purposes are hypothetical figures — not the buyer and seller in the transaction at issue. See, e.g., Trans World Airlines, 134 F.3d at 194-95 (stating that fair valuation of a going concern is what a “hypothetical sale of assets” would yield for creditors); see also In re Wabash Valley Power Ass’n, Inc., 111 B.R. 752 (S.D.Ind.1990)(reviewing bankruptcy court’s evaluation of going concern value of chapter 11 debtor for purposes of reorganization plan and holding that bankruptcy court erred in its fair market valuation by focusing only on how willing buyer might evaluate transaction while failing to consider strengths that willing seller would bring to bargaining table). The court in Wabash stated as follows:
A central focus of this going concern value is the willing buyer-willing seller standard. The goal is to determine, on a case-by-case basis, the approximate price at which the property of the debt- or would change hands between an informed seller and buyer. Such an analysis presumes that neither ... is under compulsion ... and that both are reasonably informed as to all relevant facts... The price the willing buyer would pay, and the willing seller would accept, is that which would result from an informed bargaining process .... To determine going-concern value, the bankruptcy court had to take into account all considerations that the parties might fairly bring forward and give substantial weight in their bargaining.... Such a valuation can presume neither incorrigible optimism nor confirmed pessimism on the part of the participants .... As one federal court has explained in discussing the willing buyer-willing seller standard, the “ ‘willing buyer’ and ‘willing seller’ whose judgment the court is charged to simulate are hypothetical persons-constructs of the law.”
Wabash, 111 B.R. at 768-69.
In determining fair market value for a going concern, “the reasonable time [for measuring the hypothetical sale] should be an estimate of the time that a typical creditor would find optimal: not so short a period that the value of the goods is substantially impaired via a forced sale, but not so long that a typical creditor would receive less satisfaction of its claim, as a result of the time value of money and typical business needs, by waiting for the possibility of a higher price.” In re Trans World Airlines, Inc., 134 F.3d 188, 195 (3d Cir.1998)(affirming bankruptcy court’s de termination that 12 to 18 months was reasonable time to value assets based on the size and nature of TWA).
Industry standards in place at the time of the transaction should be used to determine the fair market value of the property at issue because these industry standards determine what a hypothetical sale of such property would yield for creditors. “Some speculation is inherent in the ascertainment of value of all resource property, be it mineral, oil, gas, or otherwise, and if the quality of proof follows the custom of the industry, is the best available, and is sufficient to allow the jury or the court to make an informed estimate as to the fact of value, such proof is sufficient to meet the burden [of proof as to fair market valuation].” See, e.g., United States v. Silver Queen Mining Co., 285 F.2d 506, 507-10 (10th Cir.1960)(eminent domain case evaluating fair market value of the property at the time of the taking “measured by what a willing buyer would *407pay to a willing seller when neither is acting under compulsion”); Amstar Corp. v. M/V Alexandros T., 472 F.Supp. 1289, 1296 (D.Md.1979)(fair market value of raw sugar for damages calculation should be determined using commercially accepted practice in sugar industry), aff'd, 664 F.2d 904 (4th Cir.1981); See also United States v. Kail, 804 F.2d 441, 446-47 (8th Cir.1986)(implying that, when possible, expert testimony should be based on industry-wide standards; but even where industry-wide standard did not exist for grading and valuation of rare coins, expert appraisal would not be excluded where based on same standard methodology used by defendant); Scott Paper Co. v. Taslog, Inc., 638 F.2d 790, 799 (5th Cir.1981)(affirming district court’s adoption of valuation method agreed to by the parties and consistent with both applicable legal and principles and industry practice).
Solvency valuations, including those undertaken by experts, generally must be based on conditions and standards as they existed at the time of the transaction at issue, not on hindsight. See generally Harman v. Defatta, 182 La. 463, 162 So. 44, 48 (1935)(valuations for insolvency purposes must be measured based on circumstances as they existed at the time because then-present market value governs; noting that “the value of property shifts from year to year, and even from day to day”); Union Bank of Switzerland v. Deutsche Fin. Servs. Corp., 2000 WL 178278, *10 (S.D.N.Y. Feb.16, 2000)(as long as valuations are based in reality, a “debtor’s assets must be valued at the time of the relevant valuation ... and not what the assets turn out to be worth at some later time after the intervening bankruptcy”).
Moreover, the fair market value of what the debtor gave and received must be valued objectively and from the perspective of the debtor’s creditors, without regard to the subjective needs or perspectives of the debtor or transferee. “ “Value’ must be determined by an objective standard.” See, e.g., In re Independent Clearing House, 77 B.R. 843, 859 (D.Utah 1987); In re Maddalena, 176 B.R. 551 (Bankr.C.D.Cal.1995)(rej ecting transferee-defendant’s subjective argument that it had given the debtor reasonably equivalent value because it could not pay more); Ozark, 850 F.2d at 344-45 (finding that debtor’s subjective needs or perspective were not determinative for purposes of the reasonably equivalent value analysis).
Reasonably equivalent value is determined in property cases, including oil and gas cases, by comparing the fair market value of the items of “value” exchanged by the debtor and the transferee, i.e., property and money. “[I]n the real estate context there is no doubt that the debtor is receiving something of ‘value’ i.e., cash in exchange for real property, which also has a measurable value.” In re R.M.L., Inc., 92 F.3d 139, 150 (3d Cir.1996) (discussing BFP, 511 U.S. 531, 114 S.Ct. 1757, and noting that the issue in the real estate context is not “whether any value was exchanged, but rather whether the value obtained [by the debtor] was ‘reasonably equivalent’ to what was given up”).
Under the case law, “reasonably equivalent value” is absent from a property transaction, making it avoidable, if the debtor, while insolvent, (a) materially overpaid for property or (b) conveyed property and in exchange received materially less than its fair market value. See, e.g., In re Emerald Oil Co., 807 F.2d 1234, 1239 (5th Cir.1987); In re McConnell, 934 F.2d 662, 665 (5th Cir.1991). Thus, the analysis of reasonably equivalent value in such property cases is straightforward (though fact-intensive) — the court need only compare *408the money transferred versus the value of the property transferred.
B. Did WRT receive reasonably equivalent value in connection with the acquisition of the Napo-leonville property?
In exchange for the acquisition of the Napoleonville property, WRT gave BSFI 1,300,000 shares of common stock valued at $9,750,000. The court has found that the value of the Napoleonville property as of December 16, 1994, the date of the acquisition, was $9,750,000. Accordingly, the court finds that WRT received reasonably equivalent value in connection with the acquisition of the Napoleonville property.
C. Did WRT receive reasonably equivalent value in connection with the acquisition of the LLOG Properties?
Based upon the values ascribed by the court to the LLOG properties on the transaction dates, the court finds that WRT received a reasonably equivalent value in connection with the acquisition of the LLOG properties. The evidence supports the conclusion that the value paid by WRT was equivalent to the value of the property received.
D. Did WRT receive reasonably equivalent value in connection with the West Cote Blanche Bay (WCBB) property?
Based upon the value ascribed by the court to the interest in West Cote Blanche Bay acquired from Benton, the court finds that WRT received a reasonably equivalent value in connection with the acquisition of West Cote Blanche Bay. The evidence supports the conclusion that the value paid by WRT was equivalent to the value of the property received.
E.Did WRT receive reasonably equivalent value in connection with the South Hackberry property?
As the court has px-eviously indicated, the record is devoid of any credible evidence regarding the value of WRT’s interest in South Hackberry as of the date of that transfer. Accordingly, the court fixed the value of South Hackberry as of June 1995 at $1,170,000, the consideration paid by WRT. The court finds that the Trust has failed to meet its burden of proving that WRT did not receive reasonably equivalent value in connection with the South Hackberry property.
VII. WAS WRT INSOLVENT AS OF THE DATES OF THE TRANSACTIONS AT ISSUE, OR WAS IT RENDERED INSOLVENT AS A RESULT OF ANY OF THE TRANSACTIONS AT ISSUE?
Based upon the court’s earlier analysis of the fair value of WRT’s assets and liabilities on the relevant transaction dates, the court concludes that WRT was neither insolvent on the dates of the transactions at issue nor was rendered insolvent as a result of any of those transactions. The following chart followed by explanatory remarks summarizes those assets and liabilities.
Assets
ASSETS 12/16/941 1/30/962 3/8/953 3/31/95 *
Cash ($ 689,000) $ 668,0005 $ 35,888,0006 $ 15,349,000
*409Accounts Receivable $ 5,501,0007 $ 7,165,000 8 $ 6,585,000 9 $ 7,600,00010
Current Notes Re- $ 60,000 $ 88,00011 $ 88,00012 $ 93,00078 ceivable
Prepaid expenses & $ 2,064,000 $ 454,000 $ 631,000 $ 513,000 others
Cash held in escrow $ 430,000 $ 490,000 $ 490,000$ 550,000
Notes and other re- $ 326,000 $ 285,000« $ 285,00015 $ 276,000 ceivables
Other assets $ 524,000 $ 602,000 $ 1,496,000 $ 4,954,000
Equipment_$ 11,017,000 $ 9,122,000 u $ 9,420,00018 $ 9,693,00012
Oil & gas properties $ 46,931,000 $ 65,063,000 $106,947,000$130,000,000
Total Assets $ 66,154,000 $ 83,937,000 $161,830,000 $168,928,000
Liabilities
_12/16/94_1/30/95_3/8/95_3/31/95
Accounts payable$ 10,445,000 2” $ 16,431,000 21 $ 16,251,000 22 $ 13,555,000 22
Current portion of $ 105,000 ($ 1,148,000) ($ 1,002,000) ($ 705,000) notes payable
Notes payable$ 123,000 $ 16,378,00024 $102,622,000$102,323,000
Deferred gain $ 0 $ 026 $ 027 $ 028
Total Liabilities $ 10,673,000 $ 31,661,000 $117,871,000 $115,173,000
Fair Value of Assets Minus Liabilities
12/16/94_1/30/95_3/8/95_3/31/95
Pair Value of Assets $ 55,481,000 $ 52,276,000 $ 43,959,000 $ 53,755,000 Minus Liabilities
1. Unless otherwise noted, the amounts come from the 11/30/94 financial statements of WRT without adjustment.
2. Unless otherwise noted, the amounts come from the 1/31/95 financial statements of WRT without adjustment.
3. Unless otherwise noted, the amounts come from the 2/28/95 financial statements of WRT without adjustment.
4. Unless otherwise noted, the amounts come from the 3/31/95 financial statements of WRT without adjustment.
5. $7,668,000 noted in WRT financial statements less $7 million used in purchase of Bayou Penchant on that date.
6. $1,074,000 noted in WRT financial statements plus $34,814,000 to account for WRT’s receipt of funds from the $100 million notes offering, and use of the proceeds to payback its credit lines, to purchase the LLOG Phase II properties, and for miscellaneous acquisition costs.
7. $6,524,000 noted in WRT financial statements less $450,000 for Bear- Stearns fees and $573,000 for Gulf Coast Joint Venture adjustments.
8. $7,598,000 noted in WRT financial statements less $450,000 for Bear Stearns fees and addition of $17,000 for Gulf Coast Joint Venture adjustments.
9. $7,032,000 noted in WRT financial statements less $450,000 for Bear Stearns fees and addition of $3,000 for Gulf Coast Joint Venture adjustments.
10. $8,440,000 noted in WRT financial statements less $950,000 for Bear Stearns fees and addition of $10,000 for Gulf Coast Joint Venture adjustments.
*41011. $488,000 noted in WRT financial statements less $400,000 for uneollectable AEC notes.
12. $488,000 noted in WRT financial statements less $400,000 for uncollectable AEC notes.
13. $493,000 noted in WRT financial statements less $400,000 for uncollectable AEC notes.
14. $5,585,000 noted in WRT financial statement less $5,300,000 for AEC notes.
15. $5,585,000 noted in WRT financial statement less $5,300,000 for AEC notes.
16. $5,576,000 noted in WRT financial statement less $5,300,000 for AEC notes.
17. $7,399,000 noted in WRT financial statement plus $1,723,000 addition as value of collateral in AEC notes.
18. $7,697,000 noted in WRT financial statement plus $1,723,000 addition as value of collateral in AEC notes.
19. $7,970,000 noted in WRT financial statement plus $1,723,000 addition as value of collateral in AEC notes.
20. $5,757,000 noted in WRT financial statement plus $385,000 for unrecorded Scotia invoices and $4,303,000 to account for untimely recorded invoices.
21. $10,509,000 noted in WRT financial statement plus $385,000 for unrecorded Scotia invoices and $5,537,000 to account for untimely recorded invoices.
22. $9,466,000 noted in WRT financial statement plus $345,000 for unrecorded Scotia invoices and $6,440,000 to account for untimely recorded invoices.
23. $7,525,000 noted in WRT financial statement plus $2,000 for unrecorded Scotia invoices and $6,208,000 to account for untimely recorded invoices.
24. $8,378,000 noted in WRT financial statement plus $8 million from ING credit facility used for purchase of Bayou Penchant.
25. $23,722,000 noted in WRT financial statement plus $78,900,000 to account for WRTs receipt of funds from the $100 million notes offering, and use of the proceeds to payback its credit lines, to purchase the LLOG Phase II properties, and for miscellaneous acquisition costs.
26. $1,766,000 included in WRT financial statement deleted as a result of elimination of AEC notes.
27. $1,766,000 included in WRT financial statement deleted as a result of elimination of AEC notes.
28. $1,766,000 included in WRT financial statement deleted as a result of elimination of AEC notes.
VIII. DID ANY OF THE TRANSACTIONS AT ISSUE CAUSE OR INCREASE WRT’S INSOLVENCY WITHIN THE MEANING OF LOUISIANA CIVIL CODE ARTICLE 2036 ET SEQ.?
The definition of insolvency under the Louisiana revocatory action is worded similarly to that of the Bankruptcy Code: “An obligor is insolvent when the total of his liabilities exceeds the total of his fairly appraised assets.” La. Civil Code art. 2037.
In Harman v. Defatta, 182 La. 463, 162 So. 44 (1935), the Louisiana Supreme Court considered how insolvency was to be determined in a revocatory action analysis. Similar to today’s version, the then-applicable code article stated:
By being in insolvent circumstances is meant, that the whole property and credits are not equal in amount, at a fair appraisement, to the debts due by the party.
Harman, 162 So. at 46 (quoting La. Civil Code art.1985 (1870)). The Court specifically compared the meaning of “insolvency” under the Louisiana revocatory action to its meaning under the Bankruptcy Code:
The [Civil] Code, in speaking of what “insolvency” means, does not mention “market value,” but says that if the whole property and credits “at a fair appraisement” are not equal in amount to the debts, the debtor is insolvent. The only way to make a fair appraise*411ment of property is to find its “fair value.” The federal statutes relating to bankruptcy and the method of determining solvency use practically the same terms as those used in our Code.
162 So. at 47.
In more modern times, the balance sheet test of insolvency continues to be used. Central Bank v. Simmons, 595 So.2d 363 (La.App. 2d Cir.1992); Reading & Bates Construction Co. v. Baker Energy Resources Corp., 698 So.2d 413, 423 (La.App. 3rd Cir.1997), unit denied, 706 So.2d 976 (La.1998).
Based upon the court’s analysis regarding the fair value of the assets and liabilities of WRT on the relevant transaction dates, the court finds that none of the contested transactions herein either caused or increased WRT’s insolvency within the meaning of Louisiana Civil Code Article 2036.
IX. AS OF THE DATES OF THE TRANSACTIONS AT ISSUE, WAS WRT ENGAGED, OR ABOUT TO BE ENGAGED IN BUSINESS FOR WHICH IT HAD AN UNREASONABLY SMALL CAPITAL?
Under the Bankruptcy Code, a transfer or obligation for less than a reasonably equivalent value is constructively fraudulent if the debtor, inter alia, “was engaged in business or a transaction, or was about to engage in business or a transaction, for which any property remaining with the debtor was an unreasonably small capital.” Section 548(a)(1)(B)(ii)(II). Whether the amount of capital remaining in the hands of the debtor is unreasonably small for running the business is a factual question to be determined on a case-by-case basis. See, e.g., In re Suburban Motor Freight, Inc., 124 B.R. 984, 994 (Bankr.S.D.Ohio 1990).
In determining unreasonably small capital, courts generally examine cash flow, focusing on whether the debtor was left in a position in which it was unable after the transfer to generate sufficient profits to sustain operations. See, e.g., Moody v. Security Pac. Business Credit, Inc., 971 F.2d 1056 (3d Cir.1992). The test is whether the unreasonably small capital condition and consequent cash flow problems were reasonably foreseeable when viewed objectively at the time of the transaction at issue. As stated by the Third Circuit in Moody:
Because [a debtor’s cash flow] projections tend to be optimistic, their reasonableness must be tested by an objective standard anchored in the company’s actual performance. Among the relevant data are cash flow, net sales, gross profit margins, and net profits and losses.... However, reliance on historical data alone is not enough. To a degree, parties must also account for difficulties that are likely to arise, including interest rate fluctuations and general economic downturns, and otherwise incorporate some margin for error.
Moody, 971 F.2d at 1073 (citations omitted); See also Crowthers McCall Pattern, Inc. v. Lewis, 129 B.R. 992, 998 (S.D.N.Y.1991).
The question in not whether cash flow' projections were correct in hindsight but rather whether they were reasonable and prudent when made. See Moody, 971 F.2d at 1073; In re O’Day Corp., 126 B.R. 370, 404-07 (Bankr.D.Mass.1991) (unreasonably small capital found where the management’s financial projections were both unreasonable and imprudent and where the inevitable actual financial result of the transaction was manifest and readily apparent). Other courts have examined the relationship between the debtor and its lenders and trade creditors before and af*412ter the transfer when considering the sufficiency of capitalization, focusing on whether the debtor was able to deal on normal credit terms with suppliers, and obtain credit from its lenders. Wells Fargo Bank v. Desert View Bldg. Supplies, Inc., 475 F.Supp. 693, 697 (D.Nev.1978), aff'd, 633 F.2d 225 (9th Cir.1980), aff'd, 633 F.2d 225 (9th Cir.1980).
In the case at bar, the court is faced with two separate types of projections. On the one hand, the court has projections as to WRT’s anticipated performance and capital needs prepared by WRT itself, its secured lenders and underwriters, which projections were the basis for decision-making on the most important transactions in the company’s history. On the other hand, the court has the calculations of Mr. Spilker, performed in anticipation of trial.
The court initially notes that Mr. Spilker’s analysis was based in large part on his conclusions that WRT had far more liabilities than shown on its books. The court has already addressed these issues in determining the fair value of WRT’s liabilities and has rejected the vast majority of the adjustments made by Mr. Spilker. This will, of course, have a negative impact on Mr. Spilker’s analysis.
The evidence before the court suggests that the projections performed by the numerous professionals involved with WRT accurately reflected that WRT had sufficient capital to continue in business at the time of the transactions at issue herein.
Before making the WRT debt offering, Wertheim generated more than 20 cash flow projections.488 These contained varied assumptions as to pricing and production.489 Moody’s and Standard and Poor’s, who rated WRT’s debt independently, prepared their own projections 490 All of these projections, including even the disaster and pessimistic cases, indicated that WRT would be able to pay its debts, develop its properties and sustain its operations.491 Wertheim “concluded they could service the debt and meet their obligations,”492 and thus proceeded with the bond offering.493
WRT analyzed Wertheim’s projections and created its own. All projections demonstrated WRT would sustain its operations and pay its debts timely.494 According to Mr. McGuire, the cash flow projections showed that WRT could survive even the disaster scenario.495
INCC extended a substantial loan to WRT in December of 1994. As part of its due diligence, INCC also concluded that WRT could sustain its operations and be profitable.496
In sum, all of the professionals whose investment decisions were tied to a realistic view of the company prepared projections of its performance, evaluated the company’s resources and endorsed WRT’s ability to sustain its operations and become *413profitable. That endorsement was in the form of loans to and investment in WRT totaling over $130 million.
The testimony of Mr. Legier also supports the conclusion that WRT had sufficient capital. Mr. Legier evaluated both WRT’s total capital and the company’s working capital during the applicable periods.497 “Total capital” is defined as total assets minus total liabilities.498 WRT’s total capital grew substantially from the beginning of 1993 to the end of the first quarter of 1995.499 Mr. Legier next evaluated WRT’s debt-to-equity ratio during this same time period.500 He testified that a debt-to-equity ratio of 2 to 1 was not a dangerous level,501 that a ratio of 4 to 1 was considered “high leverage”, but that it was not uncommon to see a debt-to-equity ratio at that level in connection with a high yield bond offering.502 Throughout 1993 through the first quarter of 1995, WRT was substantially below the industry average debt-to-equity ratio of between 0.9 to 1 and 1 to 1 even on an adjusted basis, until the March 1995 bond offering.503 Even at the time of the $100,000,000 bond offering, WRT’s adjusted debt-to-equity ratio was not 4 to 1, but remained less than 2 to l.504
Mr. Legier analyzed not only WRT’s total capital but also whether WRT’s working capital was adequate to sustain its operations during the period December 31, 1994, to March 31, 1995.505 ‘Working capital” is defined as current assets minus liabilities.506 The ratio of current assets over current liabilities is called the “current ratio.” 507 Even with Mr. Legier’s adjustments to WRT’s financial statements, WRT’s current ratio for December 31, 1994, was 1.14 and for March 31, 1995, was 2.0 — still well within the industry average.508
The Trust argues that the ultimate demise of WRT in the latter part of 1995 supports Mr. Spilker’s analysis that WRT was operating with an unreasonably small amount of capital. However, there was evidence suggesting that numerous other events caused or at least contributed to the losses of WRT rather than the transactions at issue in this proceeding. Mr. Ben-inger testified to a series of unanticipated *414events resulting in total unanticipated financial losses exceeding $28,000,000, including unanticipated expenses ($11,500,-000), low oil and gas prices ($2,100,000), loss of money in matters involving Trideck Oil and Gas Company (losses on gas liquids sales, gas sales and oil sales, of $350,000, $471,000 and $209,000, respectively), loss of oil ($7,520,000) and gas production ($3,500,000), losses on AEC contracts ($500,000), loss of money through R & D expenses ($1,200,000), and a loss on funds to be spent on the South Hackberry transaction ($1,000,000).509 Furthermore, Mr. Beninger testified that these losses did not include the unanticipated inability of the company to proceed with the equity offering ($50,000,000), for a total financial loss and lost equity to the company as a result of unanticipated events in excess of $78,000,000.510
A significant decrease in production was the result of the loss of the Exxon 23 well in the Lac Blanc Field. Mr. Beninger testified that this field had been the most prolific gas well at WRT,511 and that it “watered out unexpectedly.”512
It cannot be disputed that WRT spent nearly $30 million on capital development in 1995 alone,513 nor that the company failed to realize nearly $80 million in the third and fourth quarter which it reasonably expected.514 Adequacy of capital and belief as to ability to pay debts must be judged by what was reasonably believed at the time of the transactions and not on the basis of hindsight informed by the unforeseeable losses of the third and fourth quarter. See Moody v. Sec. Pac. Bus. Credit, Inc., 971 F.2d at 1070; Credit Managers Association of Southern California v. Federal Co., 629 F.Supp. at 186-87.
Based upon the foregoing, the court concludes that the Trust has failed to meet its burden of proving that WRT was engaged in a business or a transaction, or was about to engage in business or a transaction, for which any property remaining was an unreasonably small capital.
X. ON THE DATES OF THE TRANSACTIONS AT ISSUE, DID WRT INTEND TO INCUR OR BELIEVE THAT IT WOULD INCUR DEBTS WHICH WERE BEYOND ITS ABILITY TO PAY AS SUCH DEBTS MATURED?
Section 548(a)(l)(B)(ii)(III) provides that a transfer for inadequate consideration may be avoided as fraudulent if the debtor “intended to incur, or believed that the debtor would incur, debts that would be beyond the debtor’s ability to pay as such debts matured.” This provision is satisfied where “the debtor [in] making a transfer ... knows that he will be unable to pay future debts as they mature.” In re Hall, 131 B.R. 213, 217 (Bankr.N.D.Fla.1991). This part of the statute protects future creditors from a debtor who transfers assets with the intent to hide them or impair the debtor’s ability to pay debts as they arise or with the *415belief that inability to pay debts would likely result. Hall, 131 B.R. at 218.
The “inability to pay debts” prong of section 548 is met if it can be shown that the debtor made the transfer or incurred an obligation contemporaneous with an intent or belief that subsequent creditors likely would not be paid as their claims matured. 2 Collier on Bankruptcy ¶ 548.05[4] (3d ed. rev.2000). While the statute suggests a standard based on subjective intent, the courts have held that the intent requirement can be inferred where the facts and circumstances surrounding the transaction show that the debtor could not have reasonably believed that it would be able to pay its debts as they matured. See In re Suburban Motor Freight, Inc., 124 B.R. 984, 1001 (Bankr.S.D.Ohio 1990), and In re Taubman, 160 B.R. 964, 986-87 (Bankr.S.D.Ohio 1993).
The court finds that the facts deduced at trial establish that WRT and its consultants honestly believed at the time of each of the transactions involved herein, and particularly after the bond offering, that WRT could pay its debts and that the company would succeed as a business venture. The testimony of Messrs. McGuire,515 Beninger,516 Heather,517 Landry,518 and Israel519 on this point was not controverted. While WRT may have been ultimately wrong in this belief, it did believe at the time that it would succeed.
While this belief was eventually demolished in the third and fourth quarters of 1995, the Trust has failed in its burden of proving a subjective intent on the part of WRT as of the dates at issue herein, to incur debts beyond its ability to repay as required under section 548(a)(l)(B)(ii)(III). Nor did the Trust produce sufficient facts and circumstances surrounding the transactions to enable the court to infer that the debtor’s belief it would be able to pay its debts as they matured was unreasonable. Accordingly, the Trust has failed to carry the requisite burden of proof to succeed under section 548(a)(l)(B)(ii)(III).
XI. WERE THE CHALLENGED TRANSACTIONS IN THE ORDINARY COURSE OF WRT’S BUSINESS?
As authorized by section 544(b), the Trust seeks to utilize non-bankruptcy law, the Louisiana revocatory action,520 to avoid the disputed transactions. Under this statute, creditors of a transferor may avoid the transfer if, as a result thereof, the transferor became insolvent or his insolvency was thereby increased. La. Civ. Code art.2036. A safe harbor exists to some extent in article 2040, which provides a defense to the revocatory action: “[a]n obligee may not annul a contract made by the obligor in the regular course of his business.” La. Civ.Code art. 2040.
The court previously granted the Defendants’ motion for summary judgment on this issue, finding that the acquisitions were part of the Debtor’s “regular course of business.” In reversing521 this decision, however, the District Court observed that, based upon the jurisprudence surrounding article 2040, analysis of WRT’s regular course of business requires a “determina*416tion of WRT’s prior business dealings with regard to the acquisition of operating working interests, amounts previously paid by WRT, and the impact of such transactions on WRT’s bottom line.” This list does not purport to be exhaustive.
The court has ruled that the Trust failed to establish that the transactions at issue herein caused or increased WRT’s insolvency. This finding by itself will defeat the Trust’s claims under the revocatory action. The court will, however, address the “regular course of business” defense in order to provide a complete ruling of all issues presented.
Article 2040 does not define “regular” or “regular course of business,” and the legislative history provides no guidance. The words of a law, however, must be given their generally prevailing meaning. La. Civ.Code art. 11.
This court previously determined that WRT’s business did comprise the acquisition and development of oil and gas properties. Further, the court has now determined that the transactions at issue did not have a negative impact on WRT’s bottom line. The District Court determined that this court erred in not considering the size of the transaction and the prior dealings of the parties. While the LLOG and Benton transactions were significantly larger than any of WRT’s prior transactions, WRT was clearly seeking to expand its presence in the market, as clearly evidenced by the $100,000,000 bond offering and the proposed $50,000,000 equity offering. This activity, while broader in scope that WRT’s prior acquisitions, was identical to prior acquisitions-only larger in amount.
The District Court also suggested that prior dealings between the parties might be an indicia of ordinary course of business. While it is true that, WRT had not made any other purchases from either LLOG or Benton prior to these transactions, the nature of the oil & gas acquisition game does not revolve around repeat business. WRT did not have a “regular” supplier of oil & gas properties. Through its extensive data base in South Louisiana properties, WRT was ever vigilant in seeking out good prospects which were available on the market. In this case the owners of the properties were LLOG and Benton. The court concludes that the fact of no prior dealings with these entities was of no moment in determining “ordinary course of business.” This conclusion is supported by the following query? If the LLOG and Benton transactions were not “ordinary course of business” because of no prior dealings, would the answer be different if the vendors were Texaco and Tenneco (assuming these were prior vendors)? Under the circumstances of the case, there is no logical basis for saying one is ordinary course of business while the other is not.
As article 2040 is an affirmative defense to the revocatory action, the burden of proof as to whether the transactions were in the ordinary course of business rests on the Defendants. The court concludes that the evidence establishes that the contested transactions were in the regular course of WRT’s business. Under the peculiar circumstances of this case, to blindly apply the guidelines set forth by the District Court will result in no company in an expansion mode being deemed in the ordinary course of its business. Accordingly, the court finds that the Defendants have met their burden of proof as to this affirmative defense.
XII. THE DIVIDEND ACTION
The Trust is also seeking to avoid the transfers of preferred stock dividends. This action is one under Texas law. The *417only issue regarding these transfers presently before the court is WRT’s financial situation at the time of these transfers, namely, from December 1993 to October 1995. Unfortunately, very little testimony was presented with respect to these transfers. In fact, Mr. Spilker’s analysis on this issue relied upon his analysis performed with regard to the real property transfers. He concluded that WRT had unreasonably small capital and was unable to pay its debts as they matured from as early as June 1994.
The court has already addressed Mr. Spilker’s analysis as of the dates of the real property transfers. As to later dates, the court concludes that insufficient evidence was presented to determine WRT’s financial situation at the relevant time and whether the transfers of preferred stock dividends were avoidable under Texas law.
XIII. CONCLUSION
These reasons for decision were not lightly considered. The 33 actual days of court translates into almost 10,000 pages of transcript, over 4,000 exhibits, some 94 volumes of deposition designations, and almost 800 pages of final briefs. After all was said and done, however, the court’s decision came to rest on the requirement of the Trust, as plaintiff, to prove its case by a preponderance of the evidence. This it has failed to do.
The issue of solvency, in its basic form, is a comparison of the values assigned to assets and liabilities. In this instance, the parties sought to present to the court expert testimony from witnesses in the appropriate areas at issue. With respect to the petroleum/reservoir engineers, the court was impressed by all of the experts. They each performed their duties admirably, both in preparation and presentation. In the final analysis, however, all of this testimony results in the conclusion that this area is one of “art, not science,” and, as all of the professionals agreed, there is substantial grounds for a difference of opinion among professionals as to what lies beneath the surface of the earth, oftentimes 2 and 3 miles deep.' While Mr. Heinz attempted to punch holes in the testimony of the Defendants’ experts, his testimony did not convince the court that the Defendants’ estimates of reserves were incorrect.
While the scientific experts agreed with each other on certain matters, the expert accountants, Messrs. Spilker and Legier, seemed to disagree on all. The court was certainly impressed with the knowledge of Mr. Spilker as well as his significant work in investigating facts and preparing for trial. However, the court eventually came to the conclusion that in virtually each and every situation where a question arose as to how a matter would be resolved by Mr. Spilker, he made the call in favor of the Trust and against the Defendants. Granted, as the Trust’s expert in forensic accounting, one would expect his testimony to be favorable to the Trust. However, where he consistently ignored or downplayed existing facts to reach a contradictory conclusion, the court was left with the distinct feeling that his testimony was calculated to reach a desired result rather than to present a fair and balanced picture of assets and liabilities at a given point in time.
Lastly, the court has previously mentioned the disaster surrounding the Trust’s other expert, Ms. Macdonald. Even though her testimony was disregarded as totally without credibility, the court concluded that the valuation methodology she employed was inappropriate as she ignored basic facts which must be considered under applicable standards of valuation.
Within 20 days of the entry of these reasons, counsel for LLOG shall prepare a *418proposed judgment in conformity herewith and shall submit such order to counsel for the Trust for its review and approval as to form. Within 10 days of such submission, counsel for the Trust shall either (a) approve the judgment as to form and transmit the same to the Clerk of the Bankruptcy Court for execution, or (b) submit to the Clerk of the Bankruptcy Court the Defendants’ proposed judgment and a letter setting forth the reasons why counsel does not approve the form of the judgment.
. Title 11, United States Code. References herein to the Bankruptcy Code appear as " § _” or “section_"
. The Plan also provided for the distribution of certificates of beneficial interest ("CBIs”) to various entities ("CBI Holders”), including pre-petition creditors, the reorganized debtor (on the effective date the Debtor's name was changed to "Gulfport Energy Corporation”), and the two entities (Wexford Management, LLC, and DLB Oil & Gas, Inc.), which invested substantial sums in order to fund the reorganization. Among other things, CBI Holders are to receive certain distributions from recovery made by the Trust through the litigation and liquidation process. Further, as they are transferrable, CBI Holders now include persons who have acquired CBIs by purchase from the original holders.
. Tr. 5/23/00, p. 297-298, In. 2-14.
. Tr. 5/24/00, p. 7, In. 19-22.
. First Amended Disclosure Statement Under 11 U.S.C. § 1125 in Support of Debtor’s and DLBW's First Amended Joint Plan of Reorganization under Chapter 11 of the Bankruptcy Code, p. 18.
. Tr. 5/24/00, p. 18,In. 22 — p. 19, In. 9.
. Tr. 5/24/00, p. 19, In. 10-17.
. Tr. 5/24/00, p. 19, In. 19 — p. 20, In. 15.
. Tr. 5/24/00, p. 19, In. 24 — p. 20, In. 5.
. Tr. 5/3/00, p. 44, In. 13 — p. 46, In. 11; Tr. 5/24/00, p. 20, In. 11-18.
. Tr. 5/24/00, p. 25, In. 1-4.
. Tr. 5/24/00, p. 25, In. 5-15.
. Tr. 5/24/00, p. 25, In. 16 — p. 27, In. 3.
. Tr. 5/24/00, p. 29, In. 2-7.
. Tr. 5/24/00, p. 29, In. 7-11.
. Tr. 6/27/00, p. 13, In. 5-19.
. Tr. 5/2/00, p. 80, In. 9-24.
. Tr. 5/23/00, p. 215, In. 12-23; See Exhibit L-947 (June 1994 WRT Business Plan) atp. 1; Exhibit L-l (12/31/94 WRT 10-KSB) at 3-4; Exhibit L-407 (2/28/95 Prospectus for WRT's $100 million Note Offering) at 3-4.
. Tr. 6/26/00, p. 30, In. 17 to p. 31, In. 14; See Exhibit L-l (12/31/94 WRT 10-KSB) at 3.
. Tr. 5/3/00, p. 73, In. 25 to p. 74, In. 22.
. Tr. 5/4/00, p. 160, In. 5-8.
. Tr. 5/23/00, p. 209, In. 21 to p. 210, In. 5.
. Tr. 5/3/00, p. 74, In. 1-16.
. Tr. 5/24/00, p. 75, In. 23 to p. 76, In. 1.
. Tr. 5/24/00, p. 136, In. 15-23; Tr. 5/3/00, p. 15, In. 16 to p. 16, In. 8; Tr. 5/4/00, p. 253, In. 16 to p. 254, In. 5; See Exhibit L-521 (9/22/94 Letter from Scotia to Steve McGuire).
. See Exhibit L-947 (June 1994 WRT Business Plan); Tr. 6/26/00, pp. 39-40.
. Tr. 5/4/00, p. 182, In. 4 to p. 183, In. 15.
. Tr. 5/23/00, p. 182, In. 2-22; Tr. 5/15/00, p. 15, In. 3-10; Tr. 6/26/00, pp. 29-33; See also Exhibit L-l 6 (11/2/94 WRT Acquisition Ranking, by Parameters).
. Tr. 5/3/00, p. 60, In. 9-14; Tr. 5/23/00, p. 182, In. 23 to p. 183, In. 2; Tr. 5/3/00, p. 16, In. 20 to p. 17, In. 21.
. Tr. 5/4/00, p. 173, In. 17 to p. 176, In. 10; Tr. 6/26/00, p. 31, In. 15 to p. 34, In. 12.
. Tr. 5/23/00, p. 194, In. 10-15; Tr. 5/24/00, p. 37, In. 20 to p. 38, In. 7.
. Deposition Excerpt, Paul White, 1/13/99, Vol. 1, p. 37, In. 9-11; See Exhibit L-947 (June 1994 WRT Business Plan).
. Deposition Excerpt, Paul White, 1/13/99, Vol. 1, p. 48, In. 5 to p. 49, In. 2; Tr. 5/25/00, p. 21, In. 23 to p. 23, In. 1.
. Deposition Excerpt, Paul White, 1/13/99, Vol. 1, p. 48, In. 1-4; See Exhibit L-947 (June 1994 WRT Business Plan).
. Tr. 5/24/00, p. 70, In. 15 to p. 71, In. 10.
. Tr. 5/24/00, p. 71, In. 3 to p. 74, In. 5.
. Tr. 6/26/00, p. 33, In. 24 to p. 34, In. 12.
. Tr. 5/25/00, p. 122, In. 2 to p. 123, In. 5; See Exhibit L-947 (June 1994 WRT Business Plan) at 6; See Benton Exhibit # 53.
. Tr. 5/25/00, p. 123, In. 6-13; See Benton Exhibit # 54.
. Tr. 5/25/00, p. 123, In. 14-20; See Benton Exhibit # 58.
. Tr. 5/25/00, p. 122, In. 2 to p. 123, In. 5; See Exhibit L-497 (June 1994 WRT Business Plan) at 6.
. Tr. 6/26/00, p. 41, In. 24 to p. 42, In. 9.
. Tr. 5/24/00, p. 36, In. 7-16.
. Tr. 5/24/00, p. 36, In. 7-16.
. Tr. 5/3/00, p. 64, In. 18 to p. 65, In. 20.
. Tr. 5/3/00, p. 65, In. 21 to p. 66, In. 17.
. Tr. 5/3/00, p. 68, In. 5-12.
. Tr. 5/23/00, p. 217, In. 10-18.
. Tr. 5/4/00, p. 256, In. 13-19; See also Exhibit L-31 and Exhibit L-33 (Memoranda from WRT's Field Evaluation Team).
. See Exhibit L-3062 (WRT Value Components for Acquisitions); Tr. 5/24/00, p. 51, In. 4 to p. 62, In. 2.
. Tr. 5/24/00, p. 41, In. 25 to p. 42, In. 3.
. Tr. 6/2/00, p. 265, In. 1-10.
. Tr. 5/24/00, p. 60, In. 23 to p. 61, In. 3.
. Tr. 5/24/00, p. 44, In. 4-12.
. Tr. 5/24/00, p. 47, In. 4-8.
. Tr. 5/24/00, p. 46, In. 3-10.
. Tr. 5/25/00, p. 27, In. 22 to p. 28, In. 4; Tr. 6/26/00, p. 62, In. 12-24.
. Tr. 6/26/00, p. 62, In. 19 to p. 63, In. 9.
. See Exhibit L-407 (WRT Prospectus); Tr. 5/25/00, p. 28, In. 5 to p. 29, In. 7; Tr. 5/25/00, p. 37, In. 25 to p. 39, In. 21; Tr. 6/26/00, p. 66, In. 23 to p. 67, In. 17.
. Tr. 5/25/00, p. 39, In. 15-21; Tr. 6/2/00, p. 248, In. 10-23, p. 251, In. 10-20; p. 258, In. 9 to p. 259, In. 12.
. Tr. 5/25/00, p. 39, In. 4-8; Tr. 6/2/00, p. 248, In. 10-23.
. Tr. 5/23/00, p. 81, In. 20-23 and p. 106, In. 11-19.
. Tr. 5/25/00, p. 38, In. 8 to p. 39, In. 8.
. Tr. 6/2/00, p. 259, In. 13-18.
. Tr. 5/4/00, p. 191, In. 13 to p. 192, In. 7; Tr. 6/2/00, p. 259, In. 19 to p. 260, In. 9; Tr. 5/25/00, p. 68, In. 16 to p. 70, In. 20.
. Tr. 5/04/00, p. 192, In. 8 to p. 193, In. 13.
. Tr. 5/25/00, p. 68, In. 16 to p. 71, In. 6.
. Tr. 5/23/00, p. 284, In. 22 to p. 285, In. 1.
. Tr. 5/23/00, p. 285, In. 2-5.
. Tr. 5/23/00, p. 285, In. 6-8.
. Tr. 5/23/00, p. 185, In. 9-11.
. See Tr. 5/23/00, p. 102, In. 2 to p. 103, In. 23; Tr. 5/23/00, p. 109, In. 16 to p. 110, In. 5; Tr. 5/23/00, p. 114, In. 25 to p. 117, In. 5.
. Tr. 5/23/00, p. 285, In. 12-14.
. Tr. 5/23/00, p. 285, In. 15-17.
. Tr. 5/25/00, p. 30, In. 1-8.
. Tr. 5/25/00, p. 30, In. 12 to p. 31, In. 17.
. Tr. 5/25/00, p. 31, In. 18 to p. 33, In. 19; See also Exhibit L-944 (Wertheim Projections).
. Tr. 5/25/00, p. 31, In. 18 to p. 32, In. 1.
. Tr. 5/25/00, p. 31, In. 24 to p. 32, In. 8.
. Tr. 5/23/00, p. 118, In. 23 to p. 119, In. 1.
. Tr. 5/23/00, p. 119, In. 6-14.
. Tr. 5/23/00, p. 119, In. 6-14.
. Tr. 5/23/00, p. 119, In. 2-5.
. Tr. 5/23/00, p. 124, In. 13-17.
. Tr. 5/23/00, p. 287, In. 8-10.
. Tr. 5/23/00, p. 287, In. 14-16; Tr. 5/25/00, p. 39, In. 22 to p. 40, In. 9.
. Tr. 5/23/00, p. 287, In. 20 to p. 288, In. 14.
. Tr. 5/25/00, p. 40, In. 20 to p. 41, In. 2.
. Tr. 5/23/00, p. 292, In. 9-19.
. Tr. 5/23/00, p. 285, In. 25 to p. 286, In. 5.
. Tr. 6/26/00, p. 172, In. 17 to p. 173, In. 22.
. Tr. 6/26/00, p. 163, In. 20 to p. 164, In. 4; Tr. 5/23/00, p. 286, In. 6-13.
. Tr. 5/24/00, p. 99, In. 3-9.
. Tr. 5/25/00, p. 42, In. 22 to p. 44, In. 16.
. Tr. 5/23/00, p. 289, In. 22-24; Tr. 5/25/00, p. 43, In. 1 to p. 44, In. 11; Deposition Excerpt, James Rash, 3/26/99, Vol. 3, p. 39, In. 4-8.
. Tr. 5/25/00, p. 41, In. 14-21.
. Tr. 7/26/00, p. 47, In. 22 to p. 48, In. 17.
. Tr. 5/24/00, p. 116, In. 4-13; Tr. 7/26/00, p. 75, In. 15 to p. 76, In. 1.
. Tr. 7/26/00, p. 19, In. 15-25.
. Tr. 5/23/00, p. 239, In. 9 to p. 240, In. 3, Tr. 6/28/00, p. 175, In. 24 to p. 176, In. 7.
. Tr. 6/28/00 p. 123, In. 3 through p. 135, In. 12.
. See Exhibit L-26 (10/28/94 Burks Finder Fee/Confidentiality Letter Agreement from Don Burks to Paul White); 5/23/00, p. 240, In. 4-9.
. Tr. 5/23/00, p. 303, In. 23 to p. 306, In. 3; Tr. 5/24/00, p. 48, In. 2; Tr. 5/25/00, p. 26, In. 2-15; Tr. 5/24/00, p. 95, In. 24 to p. 96, In. 3.
. Tr. 5/24/00, p. 102, In. 22 to p. 104, In. 2.
. See, Exhibit L-1528 (9/12/94 Forest Oil Offer letter); Tr. 6/28/00, p. 220, In. 17-22; Tr. 6/28/00, p. 221, In. 19 to p. 222, In. 6.
. Tr. 7/26/00, p. 54, In. 21 to p. 55, In. 5.
. See Exhibit L-102 (9/23/94 LLOG Exploration Co. letter from Gerald Boelte to Robert Boswell re: proposed property sale, Deer Island Field); Tr. 6/28/00, p. 251, In. 5 to p. 252, In. 6.
. Tr. 6/28/00, p. 215, In. 10 to p. 216, In. 2; Tr. 7/26/00, p. 64, In. 5-8.
. Tr. 6/28/00, p. 216, In. 3-7.
. Tr. 7/26/00, p. 64, In. 8-20.
. Tr. 6/28/00, p. 216, In. 8-10.
. Tr. 6/28/00, p. 216, In. 8 to p. 217, In. 3.
. See Exhibit L-34 (11/18/94 Letter of Intent).
. See Exhibit L-34 (11/18/94 Letter of Intent).
. Tr. 5/24/00, p. 116, In. 14-23.
. Tr. 5/24/00, p. 104, In. 18 to p. 105, In. 25.
. Tr. 5/24/00, p. 120, In. 24 to p. 121, In. 11.
. Tr. 7/26/00, p. 65, In 16 to p. 66, In. 16.
. Tr. 7/26/00, p. 65, In. 20 to p. 66, In. 16.
. Tr. 7/26/00, p. 66, In. 19 to p. 67, In. 7.
. See Exhibit LI 17 (12/21/94 Purchase and Sale Agreement, Bayou Penchant Field).
. See Exhibit L-842 (10/10/95 Purchase and Sale Agreement, Abbeville Field).
. See Exhibit L-840 (1/10/95 Purchase and Sale Agreement, Bayou Pigeon Field).
. See Exhibit L-844 (1/10/95 Purchase and Sale Agreement, N.E. Deer Island Field).
. See Exhibit L-843 (1/10/95 Purchase and Sale Agreement, Golden Meadow Field).
. See Exhibit L-846 (1/31/95 Purchase and Sale Agreement, Deer Island Field).
. Tr. 6/28/00, p. 92, In. 3-22.
. Tr. 5/23/00, p. 252, In. 10 to p. 253, In. 10; Tr. 7/26/00, p. 73, In. 23 to p. 74, In. 19.
. Tr. 5/25/00, p. 41, In. 3-9.
. See Tr. 7/26/00, p. 74, In. 4-8; Tr. 6/28/00, p. 85, In. 18 to p. 86, In. 1; Tr. 5/23/00, p. 252, In. 19 to p. 253, In. 10.
. See Exhibit L-1538 (Bayou Penchant Field Closing Documents); See Exhibit L-121 (1/30/95 Promissory Note).
. Stipulated Facts of LLOG and Trust, No. 7, Final Pre-Trial Order.
. Tr. 5/24/00, p. 95, In. 14 to p. 96, In. 9.
. Tr. 5/25/00, p. 19, In. 15 to p. 20, In. 7.
. Tr. 7/26/00, p. 60, In. 22 to p. 61, In. 15.
. Tr. 7/26/00, p. 60, In. 5-12.
. Tr. 7/26/00, p. 60, In. 5-14.
. Tr. 7/26/00, p. 60, In. 5 to p. 61, In. 3.
. Trust Ex. 1211., Trust Ex. 525.
. Trust Ex. 590.
. Wright Dep. 6/24/99, p. 33, In. 10 — p. 34, In. 7.
. Trust Ex. 697.
. Trust Ex. 675; Final Pre-trial Order: Stipulated Fact.
. Trust Ex. 695.
. Trust Ex. 688. Final Pre-trial Order: Stipulated Fact.
. Trust Ex. 689.
-. Trust Ex. 803.
. See Exhibit L-2295 (10/18/91 Joint Venture Agreement) at ¶ 1.02.
. Trust Ex. 4213.
. Trust Ex. 4271.
. Tr. 6/2/00, p. 243, In. 1 — 17, p. 244, In. 7 — 19; Tr. 5/31/00, p. 202, In. 2 — p. 203, In. 13.
. WRT Energy Corporation v. Federal Energy Regulatory Commission, 107 F.3d 314, 318 (5th Cir.1997).
. Tr. 5/26/00, p. 121, In. 21 to p. 122, In. 8; Tr. 6/27/00, p. 74, In. 18 to p. 75, In. 2.
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast JV Effective June 30, 1994).
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast JV Effective June 30, 1994) at ¶ 7.01, page 5.
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast Effective June 30, 1994) at ¶ 7.11, page 7. Although the parties entered into an addendum to the Amended and Restated JV Agreement, ¶ 7.11 was neither altered nor modified. See Exhibit L-2300 (1994 Addendum to the Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV). See also Tr. 5/25/00 p. 86, In. 8-18.
. Tr. 5/25/00, p. 83, In. 22 to p. 84, In. 2.
. Tr. 5/25/00, p. 84, In. 6-14. See also Tr. 5/25/00, p. 86, In. 8-18.
. Tr. 5/25/00, p. 87, In. 14-25.
. Tr. 5/22/00 p. 180, In. 3-20.
. Tr. 6/29/00 p. 4, In. 16 through p. 5, In. 3.
. Tr. 5/22/00 p. 180, In. 21 through p. 182, In. 25.
. Tr. 5/22/00 p. 183, In. 12-15.
. Tr. 5/22/00 p. 201, In. 6-13; Edwards Ex. 13.
. Tr. 5/22/00 p. 206, In. 5 through p. 207, In. 6; Edwards Ex. 16.
. Tr. 5/22/00 p. 214, In. 8 through p. 215, In. 17; Trust Ex. 1094.
. Tr. 5/22/00 p. 215, In. 24 through p. 217, In. 24; Edwards Ex. 108.
. Tr. 6/26/00 p. 82, In. 13 through p. 83, In. 19; LLOGEx. 138; Trust Ex. 1099.
. Tr. 5/22/00 p. 218, In. 10 through p. 219, In. 21; Edwards Ex. 183.
. Tr. 5/22/00 p. 215, In. 11-14.
. Tr. 5/22/00 p. 17, In. 23 through p. 18, In. 8; p. 202, In. 6-9; Tr. 5/24/00 p. 137, In. 19 through p. 138, In. 2.
. Tr. 6/26/00 p. 78, In. 9-13.
. Tr. 5/22/00 p. 223, In. 5-7; p. 228, In. 2-16; p. 241, In. 12 through p. 242, In. 12; p. 275, In. 20-22; Tr. 5/24/00 p. 137, In. 19 through p. 138, In. 5; p. 140, In. 6-12; Tr. 6/26/00 p. 78, In. 9-15; p. 89, In. 20 through p. 90, In. 1; p. 91, In. 17 through p. 92, In. 2; Trust Ex. 1185; Edwards Ex. 27; Edwards Ex. 301; Edwards Ex. 302; Edwards Ex. 54.
. Tr. 5/22/00 p. 220, In. 8-23; Tr. 6/26/00 p. 82, In. 13 through p. 83, In. 19.
. Tr. 6/26/00 p. 89, In. 2 through p. 90, In. 1; Tr. 5/24/00 p. 151, In. 7 through p. 153, In. 14; Edwards Ex. 27.
. Trust Ex. 1185.
. Tr. 5/22/00 p. 227, In. 7-20; Trust Ex. 1185.
. Tr. 5/22/00 p. 228, In. 5-16; Tr. 5/24/00 p. 151, In. 23-25; Trust Ex. 1185.
. Tr. 5/22/00 p. 241, In. 12 through p. 242, In. 12; Tr. 5/24/00 p. 154, In. 11-19; Tr. 6/1/00 p. 418, In. 11-21; Edwards Exs. 301 and 302.
. Tr. 5/22/00 p. 228, In. 5-16.
. Tr. 7/27/00, p. 38, In. 1 — p. 28, In. 7.
. Tr. 6/27/00, p. 103 1. 16 — p. 104, In. 1.
. Tr. 7/27/00, p. 62,1. 24-p. 63, In. 17.
. Tr. 7/27/00, p. 69, In. 10 — p. 81, In. 12; Benton Ex. 89.
. Tr. 7/27/00, p. 82, In. 15 — p. 83, In. 16.
. Trust Ex. 1346.
. Phillips 1/25/99 Dep. p. 107, In. 19 through p. 108, In. 3.
. Phillips 1/25/99 Dep. p. 99, In. 4-15.
. Phillips 1/25/99 Dep. p. 99, In. 16 through p. 100, In. 22; p. 114, In. 20 through p. 116, In. 6.
. Phillips 1/25/99 Dep. p. 120, In. 7 through p. 122, In. 12.
. Phillips 1/25/99 Dep. p. 121, In. 22 through p. 122, In. 12.
. Phillips 1/25/99 Dep. p. 118, In. 7 through p. 119, In. 6; Edwards Exs. 104 and 121.
. Stubbs 2/25/99 Dep. p. 87, In. 2 through p. 92, In. 3.
. Beninger Tr. 5/3/00 p. 176, In. 12-25.
. See Exhibit L-294 (8/22/95 Hale Memorandum to Accounting File re: Rig and Marine Equipment); Tr. 6/26/00, p. 118 In. 21 to p. 119 In. 14.
. Tr. 6/26/00, p. 118, In. 24 to p. 120, In. 5; See Exhibit L-289 (Hale Memorandum re: Rig and Equipment).
. Tr. 5/2/00, p. 137, In. 10 to p. 138, In. 7.
. See Exhibit L-l (12/31/94 WRT 10-KSB) at 14.
. See Exhibit L-263 (11/30/94 Credit Sale Agreement); Exhibit L-285 (11/30/94 $3.9 million promissory note).
. See Exhibit L-263 (11/30/94 Credit Sale Agreement).
. See Exhibit L-298 (12/4/94 $1.8 million Promissory Note by E.C. Energy to WRT Energy).
. See Exhibit L-297 (12/4/94 Preferred Mortgage on M/V Energy VII).
. See Exhibit L-294 (8/22/95 Hale memo).
. See Exhibit L-294 (8/22/95 Hale memo).
. Tr. 6/29/00, p. 318, In. 3-18.
. Tr. 5/2/00, p. 173, In. 3 — p. 174, In. 5.
. Tr. 5/2/00, p. 185, In. 9 — p. 194, In. 9.
. 1/20/98 Clarification Agreement between WRT Energy Corporation and WRT Creditors Liquidation Trust, p. 6.
. The court submitted a report and recommendation to the District Court suggesting that Ms. Macdonald be held in criminal contempt. She ultimately entered a plea of guilty to criminal contempt before the Hon. F.A. Little, Jr. Chief United States District Judge.
. This is not to suggest that counsel was aware of the misrepresentations made by Ms. Macdonald.
. The East Hackberry properties are the Erwin Heirs lease and State Lease 50.
. Depo. Tr. 4/5/99, p. 19, ln. 3-12. Depo. Tr. 4/5/99, p. 69, In. 25 to p. 74, In. 8; See also Exhibits L-549, L-550, L-551 and L-552 (9/26/94 Conveyances and Ancillary Agreements from WRT/Southern Petroleum Co. to Milam Royalty Corp.).
. Depo. Tr. 4/5/99, p. 79, In. 13 to p. 80, In. 3.
. Depo. Tr. 4/5/99, p. 80, In. 4-8.
. Depo. Tr. 4/5/99, p. 82, ln. 21 to p. 85, In. 4.
. Depo. Tr. 4/5/99, p. 82, ln. 21 to p. 87, ln. 17.
. Depo. Tr. 4/5/99, p. 99, In. 19-25; See also Exhibit L-l (WRT's 10-KSB for year ending 12/31/94), at 17; Exhibits L-553 (Preliminary Settlement Statement); Exhibit L-554 (WRT Updated Closing Statement); Exhibit L-1791 (WRT Gain Calculation — 9/2/94).
. Depo. Tr. 4/5/99, p. 100, In. 1-6.
. Depo. Tr. 4/5/99, p. 105, In. 4-17 and p. 106, In. 4-9.
. Depo. Tr. 4/5/99, p. 100, In. 25 to p. 101, In. 7; p. 102, In. 4-24.
. Depo. Tr. 4/5/99, p. 219, In. 8 to 220, In. 9.
. Depo. Tr. 4/5/99, p. 102, In. 25 to p. 103, In. 7.
. Depo. Tr. 4/5/99, p. 20, In. 9 -19, p. 21, In. 19-25, p. 22, In. 6-19, p. 23, In. 2-7 and p. 45, In. 11 to p. 46, In. 4.
. Depo. Tr. 4/5/99, p. 37, In. 15-19.
. Depo. Tr. 4/5/99, p. 37, In. 20 to p. 38, In. 4.
. Depo. Tr. 4/5/99, p. 90, In. 7-17.
. Depo. Tr. 4/5/99, p. 38, In. 18-21 and p. 90, In. 18 top. 91, In. 1.
. Depo. Tr. 4/5/99, p. 39, In. 4-8.
. Depo. Tr. 4/5/99, p. 31, In. 15 to p. 32 In. 9.
. Depo. Tr. 4/5/99, p. 32, In. 10-12.
. Depo. Tr. 4/5/99, p. 131, In. 15-20.
. Depo. Tr. 4/5/99, p. 128, In. 7-16.
. Depo. Tr. 4/5/99, p. 197, In. 1-24.
. Depo. Tr. 4/5/99, p. 100, In. 25 to 101, In. 7, p. 102, In. 4-24, and p. 219, In. 8 to p. 220, In. 9.
. Tr. 7/26/00, p. 1, In. 5-9.
. Tr. 7/26/00, p. 55, In. 1-5; Tr. 7/26/00, p. 54, In. 21-23.
. Tr. 7/26/00, p. 55, In. 1-5.
. Tr. 7/26/00, p. 60, In. 8 to p. 67, In. 7; Tr. 7/28/00, p. 34, In. 16 to p. 35, In. 2.
. Tr. 5/24/00, p. 164, In. 10-24.
. Tr. 5/25/00, p. 141, In. 15 to p. 142, In. 6.
. Tr. 5/24/00, p. 189, In. 2 to p. 190, In. 14; p. 191, In. 1 — 3; p. 192, In. 1-24.
. Deposition Excerpt, Ronald Hale, 4/22/99, Vol. 1, p. 19, In. 7-12; Tr. 5/23/00, p. 295, In. 19 top. 296, In. 7.
. Deposition Excerpt, Cathy Stubbs, 2/24/99, Vol. 1, p. 28, In. 3 to p. 30, In. 1.
. Tr. 6/26/00, p. 172, In. 3-16.
. Tr. 6/26/00, p. 162, In. 4-15; Tr. 6/26/00, p. 162, In. 22.
. Tr. 6/26/00, p. 189, In. 2-15.
. Tr. 6/26/00, p. 325, In. 16 to p. 326, In. 5.
. Tr. 6/26/00, p. 118, In. 24 to p. 120, In. 5; See Exhibit L-289 (Hale Memorandum re: Rig and Equipment); see discussion at pp. 366-67, supra.
. Tr. 5/2/00, p. 137, In. 10 to p. 138, In. 7.
. See Exhibit L-l (12/31/94 WRT 10-KSB) at 14.
. See Exhibit L-294 (8/22/95 Hale memo).
. See Exhibit L-294 (8/22/95 Hale memo).
. See Exhibit L-l (12/31/94 WRT 10-KSB) at 14 and Exhibit L-294 (8/22/95 Hale memo).
. Tr. 6/29/00, p. 318, In. 3-18.
. Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 169, In. 2 to p. 170, In. 25; Tr. 6/26/00, p. 358, In. 10 to p. 359, In. 9.
. Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 169, In. 2 to p. 170, In. 25.
. Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 169, In. 2 to p. 170, In. 25; Tr. 6/26/00, p. 358, In. 10 to p. 359, In. 9.
. Tr. 6/29/00, p. 314, In. 18 to p. 315, In. 18; Tr. 5/31/00, p. 241, In. 1-5.
. Tr. 6/30/00, p. 39, In. 6-17.
. Tr. 6/29/00, p. 314, In. 1 to p. 317, In. 5.
. Part of L-2272. Legier Binder, Tab V (KPMG work paper, see WRT Energy Corporation support for sale of rigs and equipment, December 1994).
. See Great Southern Exhibit No. 53.
. See Exhibit L-916 (Hadco Appraisal for Great Southern Oil & Gas (GSOG) Rig No. 2 valuing the rig at $150,900); Exhibit L-917 (Hadco Appraisal for GSOG Rig No. 14 valuing the rig at $487,000); Exhibit L-918 (Had-co Appraisal for GSOG Rig No. 55 valuing the rig at $503,900).
. Part of L-2272. Legier Binder, Tab V (KPMG work paper, see WRT Energy Corporation support for sale of rigs and equipment, December 1994).
. Exhibit T888 (8/16/94 Perry H. Burke & Associates, Marine Surveyors and Consultants, appraisal of the M/V Energy VII). Le-gier Binder No.l, V. 43.
. Exhibit T888 (8/16/94 Perry H. Burke & Associates, Marine Surveyors and Consultants, appraisal of the M/V Energy VII). Le-gier Binder No.l, V. 43.
. See, Tr. 6/26/00, p. 216, In. 9-22; Tr. 5/25/00, p. 176, In. 18 to p. 178, In. 6.
. See Mayfield Pre-Trial Order, June 21, 1994, L-1782 at p. 5. Legier Binder No.l, v. 42.
. Claude Mayfield v. Energy VII, et al., Civil Action No. 96-1954.
. See Mayfield Pre-Trial Order, June 21, 1994, L-1782 at p. 5. Legier Binder No.l, v. 42.
. See Mayfield Pre-Trial Order, June 21, 1994, L-1782 at p. 5. Legier Binder No. 1, v. 42.
. See Exhibit L-1784 (2/16/96 Bachrach, Wood, Peters & Associates, Inc., Survey Report re: M/V Energy VII). Introduced as part of Legier Binder No. 1, v. 5.44.
. Tr. 6/29/00, p. 315, In. 19 to p. 320, In. 12.
. Tr. 6/29/00, p. 317, In. 6 to p. 318, In. 3.
. Tr. 6/1/00, p. 110, In. 6-21.
. See Expert Report, Spilker, 5/10/00, pp. 51, 71, and 79.
. 6/2/00, p. 86, In. 12-22.
. Tr. 5/31/00, p. 238, In. 18 to p. 239, In. 9.
. Tr. 6/1/00, p. 110, In. 25 to p. Ill, In. 20.
. Tr. 6/1/00, p. 120, In. 14 to p. 121, In. 1.
. Tr. 6/1/00, p. 110, In. 22 to p. Ill, In. 20.
. See Exhibit L-297 (Preferred Mortgage on M/V Energy VII); Exhibit L-l (12/31/94 WRT 10-KSB) at 14.
. See Exhibit L-297 (Preferred Mortgage on M/V Energy VII).
. Tr. 5/2/00,. p. 234, In. 5-19.
. Tr. 6/1/00, p. 116, In. 4 to p. 118, In. 14 (Summary of Material Facts claimed by Trust); Exhibit L-1781 (Ruling granting WRT's Motion for Summary Judgment in Mayfield v. The Energy VII, et al., No. 96-1954, Section "J" (3), U.S.D.C., Eastern District of Louisiana) at p. 8-9.
. Tr. 6/29/00, p. 312, In. 13 to p. 313, In. 11.
. Tr. 6/26/00, p. 364 In. 21 to p. 365, In. 15.
. See KPMG Workpaper re: CGC Notes Receivable Collectability at 8/31/94, Legier Binder, (Tab D) at p. 1.
. See Exhibit L-2295 (10/18/91 Joint Venture Agreement) at ¶ 1.02.
. See KPMG Workpaper re: CGC Notes Receivable Collectability at 8/31/94. Legier Binder, (Tab D); Letter of Ernie Begnaud (WRT Manager of Corporate Accounting) to Continental Guaranty Corporation 10/6/93, Legier Binder, (Tab C). Mr. Sterling, President of Stag and CGC, returns this letter confirming the obligation and corrects notation that interest is paid on the note through 10/12/94.
. Mr. Sterling was also the owner of Stag.
. See Exhibit T-4178 (4/15/92 Promissory Note), Legier Binder (Tab A); Exhibit T-4197 (4/1/93 Promissory Note), Legier Binder, (Tab B).
. Tr. 6/1/00, p. 313, In. 6-15. Spilker admits that the CGC notes are payable from the Joint Venture distributions.
. Tr. 5/30/00, p. 127, In. 1-5, Tr. 5/30/00; p. 314, In. 7 to p. 316, In. 15; Tr. 6/29/00, p. 323, In. 3-22; Exhibit T-4252 (12/31/94 KPMG Audit Strategy Documents and Planning Memorandum) at 3; KPMG 12/31/94 Completion Memo, dated 3/30/95, Legier Binder, (Tab G).
. KPMG Workpaper re: CGC Note Receivable 12/31/94, Exhibit T-4287, prepared 2/95, Legier Binder, (Tab E).
. See Exhibit L-292 (WRT Energy Notes Receivable roll forward).
. See Exhibit T-4252 (12/31/94 KPMG Audit Strategy Memo) at 3; KPMG Memo to Audit Workpapers re: CGC Notes Receivable Collectability at 8/31/94, dated 11/4/94, Legier Binder (Tab D) at 2; KPMG Workpaper re: collectability of Stag Energy Note under Future Cash Flows 12/31/94, Legier Binder, (Tab F).
. See KPMG Memo to Audit Workpapers re: CGC Note Receivable Collectability at 8/31/94, Legier Binder, (Tab D) at 2; KPMG Workpaper re: Collectability of Stag Energy Note Under Future Cash Flows 12/31/94, Le-gier Binder, (Tab F); and KPMG 12/31/94 Completion Memo, dated March 30, 1995, Legier Binder, (Tab G).
. KPMG Workpaper re: Collectability of Stag Energy Note Under Future Cash Flows 12/31/94, Legier Binder, (Tab F).
. KPMG 12/31/94 Completion Memo, "Conclusions on Critical Audit Objectives,” Legier Binder, (Tab G).
. Tr. 6/29/00, p. 322, In. 24 to p. 327, In. 10. As an aside, Mr. Legier determined that the CGC promissory notes are in fact with recourse. Accordingly, while not the principal point in dispute, Mr. Legier testified that WRT could, in fact later call upon CGC for any shortcoming in cash flow from the joint venture.
. Tr. 6/29/00, p. 327, In. 6-10.
. Tr. 6/01/00, p. 314, In. 10-18.
. Tr. 6/01/00, p. 314, In. 10-25.
. See, Tr. 5/31/00, p. 231, In. 8-21.
. Tr. 5/30/00, p. 125 In. 21. — p. 131, In. 3. (discussing Trust Ex. 4851 — Spilker Analysis of Tricore Joint Venture Turnkey Drilling Fees; Trust Ex. 4342 — CGC Note; and Trust Ex. 4266 — KPMG Workpaper on CGC Note Collectability); p. 230, In. 22 — p. 232, In. 14.
. Spilker Expert Report, dated May 10, 2000 pp. 50, 71, 79, and 80.
. See, KPMG Workpaper re: calculation of Stag Energy's Undiscounted Future Cash Flows 12/31/94, Legier Binder, (Tab F); KPMG Audit Workpaper re: CGC Notes Receivable Collectability at 8/31/94, Legier Binder, (Tab D).
. Tr. 5/4/00, p. 207, In. 16 to p. 208, In. 8; Tr. 5/26/00, p. 110, In. 12 to p. Ill, In. 15; Tr. 5/25/00, p. 92, In. 20 to p. 93, In. 15.
. Tr. 6/01/00, p. 315, In. 11. Spilker’s reserve analysis is based on the year-end 1995. Reserve Report prepared by NSA. See Section VI(B)(3) of Brief re: Tricore Production Guarantee.
. LLOG Exhibit 4045, Tab IV, D.
. Tr. 6/1/00, p. 130, In. 15 to p. 132, In. 10.
. Tr. 6/1/00, p. 133, In. 18 to p. 136, In. 11; See also Exhibit L-785 (WRT May — December 1995 Budget).
. Deposition Excerpt, William Hurt, 4/5/99, p. 69, In. 25 to p. 74, In. 8; p. 82, In. 21 to p. 87, In. 17; p. 100, In. 25 to p. 102, In. 24; p. 219, In. 8 to p. 220, In. 9.
. Tr. 5/31/00, p. 220, In. 7 — p. 221, In. 3.
. See Exhibit L-l (12/31/94 WRT 10-KSB) at 14; Exhibit L-289 (12/22/94 Hale Memorandum re: Rig and Marine Equipment) at 2.
. See Exhibit L-289 (12/22/94 Ronald Hale memorandum) at 2.
. See Exhibit L-294 (8/22/95 Ronald Hale memo) at 1 “During 1994, additional equipment consisting of barges, crew boats, barge mounted cranes, etc. was purchased and sent to AEC's yard for refurbishment and repairs.”
. Tr. 6/30/00, p. 69, In. 1-9 and p. 137, In. 19 to p. 158, In. 13.
. See Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 225, In. 13 to p. 227, In. 16. See also Exhibit L-295 (12/31/95 IGPMG Rig and Equipment Memo) (dated 4/96).
. See Exhibit L-295 (12/31/95 KPMG Rig and Equipment Memo) (dated 4/96); Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 227, In. 9-16.
. See Exhibit L-300 (5/18/95 $3.4 million Promissory Note); Exhibit L-302 (5/18/95 Preferred Mortgage filed with the U.S. Coast Guard).
. See Exhibit L-913, (Master Service Contract); Exhibit L-914 (AEC/Energy Marine, Inc. Bareboat Charter Party).
. Tr. 6/29/00, p. 329, In. 11 to p. 331, In. 4.
. Deposition Excerpt, Ronald Hale, Vol. I, 4/22/99, p. 230, In. 12 to p. 231, In. 7.
. Tr. 7/7/00, p. 100, In. 12 to p. 101, In. 5.
. Tr. 5/30/00, p. 131, In. 4 — p. 132, In. 11; 5/31/00, p. 242, In. 2, p. 250, In. 21.
. Id.
. Tr. 5/31/00, p. 191, In. 10-14.
. See Deposition Excerpt, Ronald Hale, Vol. Ill, p. 102, In. 4 to p. 103, In. 15; Deposition Excerpt, Ronald Hale, Vol. Ill, p. 110, In. 12 to p. 112, In. 17; Tr. 5/25/00, p. 176, In. 18 to p. 177, In. 8.
. Exhibit L-1892 (AEC, Inc. and Energy Companies Promotional Packet) (Emphasis added).
. Exhibit L-1892 (AEC, Inc. and Energy Companies Promotional Packet). AEC lists its primary sources of repayment as WRT.
. Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 229, In. 4 to p. 231, In. 7.
. Tr. 6/26/00, p. 118, In. 21 to p. 120, In. 17.
. Tr. 6/26/00, p. 118, In. 21 to p. 120, In. 17.
. Deposition Excerpt, Ronald Hale, Vol. I, p. 225, In. 13 to p. 228, In. 2 and p. 229, In. 4 to p. 231, In. 7; Tr. 6/26/00, p. 118, In. 21 to p. 120, In. 5; 5/25/00, p. 57, In. 25 to p. 58, In. 13.
. See Exhibit L-913 (Master Service Contract) and Exhibit L-914 (Bareboat Charter Party); Tr. 5/25/00, p. 51, In. 14-23.
. Deposition Excerpt, Ronald Hale, Vol. I, p. 225, In. 13 to p. 228, In. 2 and p. 229, In. 4 to p. 231, In. 7; Tr. 6/26/00, p. 118, In. 21 to p. 120, In. 5; Tr. 5/25/00, p. 57, In. 25 to p. 58, In. 13.
. See Exhibit L-289 (12/22/94 Ronald Hale memo).
. See Tr. 5/25/00, p. 51, In. 16 to p. 52, In. 24.
. See Exhibit L-308 (5/18/95 Memorandum of Understanding).
. Tr. 5/25/00, p. 60, In. 5 to p. 61, In. 6; Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 240, In. 21 to p. 241, In. 18.
. Tr. 5/25/00, p. 63, In. 2 to p. 64, In. 15; Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 229, In. 4 to p. 231, In. 7.
. Tr. 5/25/00, p. 63, In. 8-19.
. Tr. 5/25/00, p. 58, In. 3-13.
. Tr. 5/2/00, p. 173, In. 24 to p. 174, In. 2.
. See Exhibit L-340 (Promissory Note); Exhibit L-302 (Preferred Mortgage on M/V Energy VII); Exhibit L-1940 (KPMG workpa-per re: WRT Balance Sheet Analytical 6/30/95), ("The amount of the note receivable is $3.4 million, the book value of the equipment at the date of sale.”)
. See Exhibit L-300 (5/18/95 Promissory Note).
. See Exhibit L-302 (5/18/95 Preferred Mortgage).
. Exhibit L-1940 (KPMG workpaper, WRT Balance Sheet Analytical — T/M Explanations, June 30, 1995, prepared 7/95) and included in Legier Binder, L-4046, (Tab C).
. Exhibit L-1940 (KPMG workpaper, WRT Balance Sheet Analytical — T/M Explanations, June 30, 1995, prepared 7/95) and included in Legier Binder, L-4046, (Tab C).
. See Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 231, In. 8 to p. 232, In. 16.
. See Exhibit L-607 (6/30/95 Letter from Gil Acosta, C.A.O of AEC).
. Tr. 6/29/00, p. 329, In. 11 to p. 330, In. 15.
. Tr. 5/31/00, p. 311, In. 17 — p. 312, In. 3 (discussing Trust Exs. 4857 and 4858).
. Tr. 5/31/00, p. 319, In. 6 — p. 320, In. 2 (discussing Trust Exs. 4859 and 4860).
. Tr. 5/2/00, pg. 266, In. 18-20.
. Tr. 5/3/00, p. 26, In. 20 to p. 27, In. 1; See also Exhibit T-2631 (May 3, 1995 fax from David Heather to Steve McGuire).
. Tr. 5/3/00, p. 27, In. 2-13.
. Tr. 6/1/00, p. 207, In. 19 to p. 209, In. 9.
. Exhibit T-4880 (Spilker Report) at pp. 74 and 82.
. Tr. 5/31/00, p. 255, In. 21 to p. 256, In. 13.
. Tr. 5/31/00, p. 262, In. 21 to p. 263, In. 13.
. Tr. 5/25/00, p. 52, In. 13 to p. 54 and p. 288, In. 13 top. 289, In. 11.
. Tr. 5/25/00, p. 289, In. 13-23.
. Tr. 6/26/00, p. 117, In. 7-14; Tr. 6/26/00, p. 120, In. 18 to p. 121, In. 7; Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 239, In. 10-22.
. Tr. 5/25/00, p. 51, In. 24 to p. 52, In. 24 Tr. 5/25/00, p. 289, In. 21-23; Deposition Excerpt, Ronald Hale, 4/22/99, Vol. I, p. 240, In. 21 to p. 241, In. 4 See also Exhibit L-1911 (January 6, 1995 memorandum from Don Muller, AEC, Inc., to Steve McGuire, Ronnie Hale, and Danny LeJeune).
. Tr. 5/25/00, p. 53, In. 23 to p. 55, In. 11; Tr. 5/25/00, p. 286, In 20 to pg. 287, In. 15; See also Exhibit L-1911 (January 6, 1995 memorandum from Don Muller, AEC, Inc., to Steve McGuire, Ronnie Hale, and Danny Le-Jeune).
. Tr. 5/25/00, p. 52, In. 5-13; Tr. 5/25/00, p. 54, In. 3 to p. 55, In. 11; Tr. 5/25/00, p. 286, In. 20 to p. 287, In. 16; Tr. 5/19/00, p. 344, In. 23 to p. 345, In. 14.
. Tr. 5/25/00, p. 55, In. 5-11; Tr. 5/19/00, p. 346, In. 17 to p. 347, In. 11.
. Tr. 5/25/00, p. 55, In. 1-11.
. The AEC entities who were signatories to the agreement were: Arnoult Equipment and Construction Company, Inc., AEC Energy Marine, Inc., D.H. Valve, Inc., L.V. Wireline, Inc., Energy Workover and Drilling Services, Inc., Energy Labor Services, Inc., Energy Production Services, Inc. and Energy VII, Inc. See Exhibit L-308 (May 18, 1995 Memorandum of Understanding).
. See Exhibit L-308 (May 18, 1995 Memorandum of Understanding).
. Tr. 5/31/00, p. 268, In. 12-17.
. Tr. 5/31/00, p. 256, In. 8-13.
. Tr. 5/31/00, p. 267, In. 6-8.
. Tr. 5/30/00, p. 52, In. 6-20. Ms. Ambrose has worked for the Trust since October of 1997 and has been paid to "[a]ssist them answering their questions, locating documents, information.” Tr. 5/2/00, p. 10, In. 22 to p. 11, In. 10.
. Tr. 5/2/00, p. 9, In. 5-7.
. Tr. 5/2/00, p. 27, In. 7 lo p. 28, In. 2.
. Tr. 5/2/00, p. 20, In. 14-20.
. Tr. 5/2/00, p. 62, In. 8-22.
. Tr. 5/2/00, p. 63, In. 2-10.
. Tr. 5/2/00, p. 65, In. 15-23.
. Tr. 6/29/00, p. 347, In. 13-19.
. See Exhibit L-3074 (March 15, 2000 expert report of William R. Legier) at 3.
. Tr. 6/29/00, p. 306, In. 24 to p. 309, In. 10; Tr. 6/29/00, p. 368, In. 5 to p. 369, In. 21.
. Trust Ex. 1185.
. Tr. 5/22/00 p. 227, In. 7-20; Trust Ex. 1185.
. Tr. 5/22/00 p. 228, In. 5-16; Tr. 5/24/00 p. 151, In. 23-25; Trust Ex. 1185.
. Tr. 5/22/00 p. 241, In. 12 through p. 242, In. 12; Tr. 5/24/00 p. 154, In. 11-19; Tr. 6/1/00 p. 418, In. 11-21; Edwards Exs. 301 and 302.
. Tr. 5/22/00 p. 228, In. 5-16.
. Tr. 5/31/00, p. 4, In 16 — p. 5, In. 10; See also Trust Ex. 4867 (Recorded Transaction tab).
. Tr. 5/31/00, p. 9, In. 7-23; 20, In. 12 — p. 21, In. 22.
. Tr. 5/31/00, p. 14, In. 22 — p. 20, In. 11 (referring to letters at Trust Ex. 4867, Guarantee tab).
. Tr. 5/22/00, p. 276, In. 21 — p. 277, In. 8; Tr. 5/31/00, p. 56, In. 18 — p. 61, In. 17.
. Plaintiff Ex. 1185 at ¶ 2.
. Plaintiff Ex. 1185 at ¶ 18.
. Tr. 5/22/00 p. 228, In. 17 — p. 230, In. 20; Tr. 5/24/00 p. 143, In. 14 — p. 144, In. 4.
. Tr. 5/22/00 p. 236, In. 2-19; Tr. 5/24/00 p. 142, In. 4 — p. 143, In. 6; Tr. 6/26/00 p. 92, In. 3-10; Hale Dep. 6/16/99 p. 176, In. 2 — p. 177, In. 7.
. Tr. 5/22/00 p. 235, In. 20 — p. 236, In. 1; Tr. 6/25/00 p. 83, In. 20 — p. 84, In. 17.
. Tr. 6/26/00 p. 84, In. 18 — p. 85, In. 14.
. Tr. 6/26/00 p. 85, In. 15 — p. 86, In. 1.
. Tr. 5/22/00 p. 57, In. 15-17.
. Tr. 5/22/00 p. 74, In. 2-4.
. Tr. 5/22/00 p. 233, In. 14 — p. 234, In. 16.
. Tr. 5/24/00 p. 145, In. 16 — p. 147, In. 10.
. Memorandum Ruling dated March 9, 2000.
. Tr. 5/22/00 p. 237, In. 3 — p. 240, In. 6; Tr. 5/24/00 p. 144, In. 15 — p. 145, In. 15; p. 148, In. 6 — p. 151, In. 6; p. 162, In. 13 — p. 163, In. 8; Tr. 6/26/00 p. 102, In. 1-23; p. 105, In. 1 — p. 107, In. 4; Hale Dep. 6/16/99 p. 185, In. 21 — p. 189, In. 4; Plaintiff Ex. 1323.
. Tr. 5/22/00 p. 237, In. 3 — p. 239, In. 9; Tr. 5/24/00 p. 148, In. 6 — p. 149, In. 21; Tr. 6/26/00 p. 102, In. 1 — p. 105, In. 7; Tr. 6/1/00 p. 430, In. 6-19.
. Tr. 5/22/00 p. 239, In. 10 — p. 240, In. 12.
. Tr. 5/22/00 p. 240, In. 13 — p. 242, In. 12; Tr. 5/24/00 p. 153, In. 25 — p. 154, In. 19; Edwards Ex. 54.
. Tr. 5/24/00 p. 154, In. 20-22.
. Tr. 6/30/00 p. 29, In. 1-17.
. Tr. 5/22/00 p. 228, In. 5-16; p. 232, In. 8 — p 233, In. 3; McGuire Tr. 5/25/00 p. 175, In. 7-25; 6/26/00 p. 151, In. 5-22; Edwards Ex. 41.
. Tr. 5/22/00 p. 232, In. 8 — p. 233, In. 3; p. 247, In. 3-5; Edwards Ex. 41.
. Tr. 5/22/00 p. 33, In. 22 — p. 34, In. 10; p. 73, In. 22-24.
. Tr. 6/26/00 p. 87, In. 23 — p. 89, In. 1.
. Tr. 5/22/00 p. 243, In. 6 — p. 244, In. 12; Tr. 6/26/00 p. 101, In. 2-6; p. 101, In. 22-25; p. 108, In. 23 — p. 109, In. 12; Plaintiff Ex. 1307.
. Plaintiff Ex. 2045 at BB 0426.
. Tr. 5/22/00 p. 245, In. 25 — p. 247, In. 9; Plaintiff Ex. 1440.
. Tr. 5/22/00 p. 257, In. 25 — p. 260, In. 5; Edwards Exs. 121 and 161; Plaintiff Ex. 2045 at BB 0423.
. See Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV Effective June 30, 1994) at 7, ¶ 7.11
. Tr. 5/25/00, p. 84, In. 6-14; Tr. 5/26/00, p. 100, In. 7 to p. 101, In. 18; Tr. 6/26/00, p. 126, In. 3 to p. 127, In. 23.
. Tr. 6/30/00, p. 11, In. 18 to p. 12, In. 12.
. Tr. 6/26/00, p. 130, In. 23 to p. 131, In. 1; Tr. 5/26/00, p. 109, In. 22 to p. 110, In. 2 and p. 110, In. 19 to p. Ill, In. 1; Deposition Excerpt, Roberts, 1/11/00, Vol. 1, p. 182, In. 9-16; Tr. 5/4/00, p. 207, In. 6 to p. 208, In. 8; Tr. 5/25/00, p. 93, In. 5-15.
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast JV Effective June 30, 1994).
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast JV Effective June 30, 1994) at ¶ 7.01, page 5.
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT — Gulf Coast Effective June 30, 1994) at ¶ 7.11, page 7. Although the parties entered into an addendum to the Amended and Restated JV Agreement, ¶ 7.11 was neither altered nor modified. See Exhibit L-2300 (1994 Addendum to the Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV (the "Addendum”)). See also Tr. 5/25/00 p. 86, In. 8-18.
. Tr. 6/1/00, p. 253, In. 13-23.
. Tr. 5/25/00, p. 83, In. 22 to p. 84, In. 2.
. Tr. 5/25/00, p. 84, In. 6-14. See also Tr. 5/25/00, p. 86, In. 8-18.
. Tr. 5/25/00, p. 87, In. 14-25.
. Tr. 6/26/00, p 125, In. 11 to p. 127, In. 23.
. Exhibit L-4046, Tab XIII (J) (Legier trial binder including October 14, 1994 letter from SEC to WRT) at 5.
. Exhibit L-3067 (November 1, 1994 letter from John Petersen, WRT Energy Corporation, to Jeffrey P. Reidler, Securities and Exchange Commission) at 7.
. Exhibit L-l (1994 10-KSB of WRT Energy Corporation) at 25. See also Tr. 6/30/00, p. 10, In. 25 to p. 11, In. 17.
. Exhibit L-401 (Legier Demonstrative re: WRT Energy Corporation Stock Values by Quarter); Exhibit L-4046, Tab XIV (H) (Legier trial binder including WRT produced document showing WRT stock prices from 1/4/95 to 12/16/94).
. Tr. 6/1/00, p. 257, In. 10-16; Tr. 6/30/00, p. 11, In. 18 to p. 12, In. 12.
. Tr. 5/31/00, p. 202, In. 22 to p. 203, In 7.
. Tr. 5/26/00, p. 109, In. 22 to p. 110, In. 2; p. 110, In. 19 to p. Ill, In. 1.
. Deposition Excerpt, Earl Roberts, 1/11/00, Vol. 1, p. 182, In. 9-16.
. Tr. 5/4/00, p. 207, In. 16-19.
. Tr. 5/4/00, p. 207, In. 16 to p. 208, In 1.
. Tr. 5/4/00, p. 207, In. 5.
. Tr. 5/4/00, p. 207, In. 6 to p. 208, In. 8.
. Tr. 5/25/00, p. 92, In. 25 to p. 93, In. 8; See also Exhibit L-2315 (September 6, 1995 letter from Earl Roberts to Steve McGuire attaching draft reserve reports).
. Tr. 5/25/00, p. 93, In 9-15.
. Tr. 6/1/00, p. 240, In. 15 to p. 242, In. 18.
. Tr. 6/1/00, p. 242, In. 8-18.
. Under Paragraph 7.01, WRT and Stag guaranteed only that Tricore’s "interest in this Joint Venture will produce the minimum quantities of natural gas set forth in Exhibit B ... during the forty eight month period commencing October 1, 1992.” See Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV Effective June 30, 1994) at 5, ¶ 7.01.
. Tr. 5/25/00, p. 83, In 5-21.
. Tr. 5/25/00, p. 85, In. 24 to p. 86, In. 7; Tr. 6/26/00, p. 132, In. 3-16.
. Deposition Excerpt, Roberts, 1/11/00, Vol. I, p. 154, In. 25 to p. 155, In. 5.
. Tr. 6/1/00, p. 246, In. 8-13.
. Exhibit L-2301 (Amended and Restated Joint Venture Agreement WRT-Gulf Coast JV Effective June 30, 1994) at 7, ¶ 7.
. Tr. 5/25/00, p. 85, In. 3-18.
. Tr. 5/25/00, p. 85, In. 19-23.
. Tr. 5/26/00, p. 106, In. 2 to p. 109, In. 21.
. Deposition Excerpt, Earl Roberts, 1/11/00, Vol. 1, p. 175, In. 20 to 177, In. 7.
. Tr. 6/26/00, p. 133, In. 8 to p. 134, In. 24.
. Exhibit L-2317 (Document produced by Tricore titled WRT/Gulf Coast Joint Venture Production) at 3.
. Tr. 6/26/00, p. 134, In 20-24.
. L-2317 (document produced by Tricore titled WRT/Gulf Coast Joint Venture Production and showing cushion) at p. 3.
. L-4041 (Legier demonstrative titled "WRT Cumulative Actual Revenue and Minimum Revenue in $’s 3/95”).
. WRT Energy Corporation v. Federal Energy Regulatory Commission, 107 F.3d 314, 317 (5th Cir.1997).
. WRT Energy Corporation v. Federal Energy Regulatory Commission, 107 F.3d 314, 318 (5th Cir.1997).
. Tr. 5/26/00, p. 121, In. 21 to p. 122, In. 8; Tr. 6/27/00, p. 74, In. 18 to p. 75, In. 2.
. Tr. 6/30/00, p. 15, In. 23 to p. 16, In. 23.
. Tr. 5/16/00 p. 3, In. 22 to p. 94, In. 11.
. Tr. 5/18/00 p. 306, In. 7 to p. 307, In. 6.
. Tr. 6/26/00 p. 397, In. 14-25.
. See Exhibit L-1012 (June 11, 1993 letter from Petroleum Engineers, Inc. to WRT Energy Corporation estimating net cost of P & A for LacBlanc was $270,000).
. See Exhibit L-1012 (June 11, 1993 letter from Petroleum Engineers, Inc. to WRT Energy Corporation estimating net cost of P & A for LacBlanc was $270,000).
. Exhibit L-1012 (June 11,1993 letter from Petroleum Engineers, Inc. to WRT and attached Office of Conservation Escrow Agreement) at 4.
. Tr. 6/30/00, p. 26, In. 5-21; See also Tr. 6/30/00, p. 25,1. 8-23.
. Tr. 6/26/00, p. 397, In. 14-25.
. Tr. 6/26/00, p. 398, In. 1-8.
. Exhibit L-3067 (November 1, 1994 letter from WRT to the SEC) at 5.
. Tr. 6/26/00, p. 398, In. 1-8.
. Tr. 6/26/00, p. 400, In. 1-5.
. Tr. 6/1/00, p. 292, In. 18 to p. 293, In. 24.
. Tr. 6/1/00, p. 289 In. 15-24.
. Tr. 6/1/00 p. 289, In. 15, p. 290, In. 1.
. Tr. 6/1/00, p. 291, In. 5 to p. 292, In. 17.
. Tr. 6/1/00, p. 295, In. 23 to p. 296, In. 21.
. See L-1012 (June 11, 1993 letter from Petroleum Engineers Inc. to WRT and attached Escrow Agreement).
. See L-1012 (June 11, 1993 letter from . Petroleum Engineers, Inc. to WRT and attached Escrow Agreement) at ¶ 8.GPT0249 00597.
. Tr. 5/25/00, p. 31, In. 18 to p. 33, In. 19; Exhibit L-944 (Wertheim Projections).
. Tr. 5/25/00, p. 22, In. 8-11.
. Tr. 5/23/00, p. 76, In. 8-25; Tr. 5/23/00, p. 104, In. 4-12.
. Tr. 5/25/00, p. 33, In. 12-16.
. Tr. 5/23/00, p. 119, In. 6-14.
. Tr. 5/23/00, p. 119, In. 2-5.
. Tr. 5/23/00, p. 289, In. 22-24; Tr. 5/25/00, p. 43, In. 1 to p. 44, In. 11; Deposition Excerpt, James Rash, 3/26/99, Vol. 3, p. 39, In. 4-8; Deposition Excerpt, Ronnie Hale, 4/22/99, Vol. 1, at p. 262, In. 25 to p. 263, In. 4.
. Tr. 5/25/00, p. 41, In. 14-21.
. Tr. 5/23/00, p. 292, In. 9-19.
. Tr. 6/30/00, p. 86, In. 12-20.
. Tr. 6/29/00, p. 276, In. 16-22.
. Tr. 6/30/00, p. 89, In. 15 to p. 90, In. 3; Exhibits L-3095 (Legier Demonstrative re: Evidence of Adequacy of WRT's Total Capital During Applicable Period); Exhibit L-3096 (Legier Demonstrative re: WRT Total Shareholder Equity).
. Tr. 6/30/00, p. 92, In. 1 to p. 96, In. 26. See Exhibit L-3097 (Legier Demonstrative re: Evidence of Adequacy of WRT’s Total Capital During Applicable Period), Exhibits L-3098 and L-3099 (Legier Demonstratives re: WRT Debt to Equity Ratio-Actual and Adjusted).
. Tr. 6/30/00, p. 94, In. 12-21.
. Tr. 6/30/00, p. 94, In. 22-25.
. Tr. 6/30/00, p. 92, In. 1 to p. 94, In. 1. See Exhibits L-3098 and L-3099 (Legier Demonstratives re: WRT Debt to Equity Ratio — Actual and Adjusted).
. Tr. 6/30/00, p. 94, In. 24 to p. 95, In. 5. See Exhibits L-3098 and L-3099 (Legier Demonstratives re: WRT Debt to Equity Ratio— Actual and Adjusted).
. Tr. 6/30/00, p. 112, In. 9 to p. 128, In. 9. See Exhibits L-4012 — L-4022 (Legier Demonstratives re: Working Capital and of Liquidity).
. Tr. 6/29/00, p. 277, In. 1-13.
. Tr. 6/29/00, p. 277, In. 13-17.
. See Exhibit 3093 (12/31/94 WRT Financial Statements); Exhibit L-3094 (3/31/95 WRT Financial Statements); Exhibit L-4021 (Legier Demonstrative re: WRT Current Ratio). Tr. 6/30/00, p. 124, In. 20 to p. 126, In. 19.
. Tr. 5/4/00, pp. 258-334 and 5/15/00, p. 106-110; Exhibit L-3041 (WRT Financial Losses — 1995).
. Tr. 5/4/00, pp. 334-34; Tr. 5/15/00, pp. 106-110; Exhibit L-3041 (WRT Financial Losses — 1995).
. Tr. 5/4/00, p. 207, In. 16-19.
. Tr. 5/4/00, p. 207, In. 6-15.
. Tr., 5/14/00, p. 281; See also Exhibit L-10 (WRT 1995 10-K) at 25.
. Tr. 5/4/00, pp. 284-338; See also Exhibit L-3041 (Chart of WRT Financial Losses— 1995).
. Tr. 5/25/00, p. 41, In. 10 to p. 43, In. 25; Tr. 5/25/00, p. 46, In. 12-16.
. Tr. 5/4/00, p. 189, In. 19 to p. 193, In. 13.
. Tr. 5/3/00, p. 20, In. 23 to p. 21, In. 10.
. Tr. 6/2/00, p. 175, In. 7 to p. 159, In. 18.
. Tr. 5/23/00, p. 81, In. 12 to p. 82, In. 3.
. Louisiana Civil Code Article 2036, et seq.
. Memorandum Ruling dated February 25, 2000. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493444/ | MEMORANDUM OPINION
JOHN T. LANEY, III, Bankruptcy Judge.
On August 7, 2002, the court conducted a trial on the complaint of First National Bank of South Georgia (“Plaintiff’) to determine the validity, priority and extent of liens or other interest in certain property. At the conclusion of the trial, the court took the matter under advisement. After considering the evidence, the parties’ briefs, stipulations and oral arguments as well the applicable statutory and case law, the court makes the following findings of fact and conclusions of law.
Procedural History
On November 27, 2000, Ayers Aviation Holdings, Inc., Ayers Corporation, and the Fred Ayers Company filed voluntary petitions under Chapter 11 of the Bankruptcy Code (“Code”). These cases have been administratively consolidated. On February 8, 2001, Plaintiff filed this adversary proceeding in the Ayers Aviation Holdings, Inc. (“Debtor”) case. Plaintiff seeks a determination of the validity, priority, or extent of a lien or other interest in two General Electric aircraft engines. The complaint also requests that the court preliminarily enjoin the defendants from removing the aircraft in which the engines have been installed from Debtor’s facility located in Abany, Georgia.
Only Debtor, Zlatava Davidova, Trustee of LET, a.s., and GATX Capital Corporation (“GATX”) were named as defendants in the original complaint.1 General Electric Company (“General Electric”) was not a defendant in Plaintiffs original complaint. GATX filed a motion to dismiss for Plaintiffs failure to join General Electric as a defendant. On February 22, 2001, the court held a hearing on GATX’s motion to dismiss. In accordance with the announcements made at the hearing, the court entered an order granting Plaintiff leave to amend to add General Electric as a defendant. The parties agreed that they would not remove the aircraft with the subject engines from the jurisdiction of the court. Therefore, on March 5, 2001, Plaintiff filed a restated complaint which deleted the prayer for a preliminary injunction and added General Electric as a defendant.
In its answer, Debtor asserts cross-claims and counterclaims seeking a determination of the validity, priority and extent of liens and competing interests in the aircraft and its two engines. Debtor also seeks a determination of its avoidability of *536these interests and authority as trustee to dispose of these assets. In response to Debtor’s cross-claim, GATX sought, among other things, relief from the automatic stay. On October 23, 2001, the court granted GATX’s request to consolidate this motion with the adversary proceeding so that it would be heard at the same time the adversary proceeding is tried.
On May 17, 2002, the court held a Final Pre-Trial Conference in this adversary proceeding. At the hearing, the court approved and adopted the pre-trial order submitted by the parties. The parties raised the issue of which law should govern the validity, priority, and extent of liens in the subject property. After considering the parties’ briefs on this issue, the court found that the law of the Czech Republic was controlling as to this issue. Because GATX admitted that it did not have a perfected security interest under the law of the Czech Republic, the court granted the parties’ motion to strike the responsive pleadings of GATX.
FINDINGS OF FACT
Many of the pertinent facts are not disputed. Debtor is a corporation organized under the laws of the State of Florida. Fred P. Ayers is the sole shareholder of the Debtor corporation. Formed in 1991, LET, a.s. (“LET”) is a legal entity organized under the laws of the Czech Republic.
Both LET and Debtor were in the business of manufacturing aircraft. LET manufactured the type L610 G aircraft (“L610”). In 1997, LET manufactured a L610, Serial No. 970301 (“L610-301”). Installed in this aircraft are two General Electric Model HE CT7-9D engines, Serial Nos. GE-E-685998 (“998 engine”) and GE-E-685002 (“002 engine”). The L610-301 and the two engines are the subject property to this adversary proceeding.
On May 13, 1997, this aircraft was registered with the Civil Aviation Authority Register of the Czech Republic, Register No. 4770, with LET designated as its owner. (See LET Exh. I).2 Also, the Civil Aviation Authority issued the L610-301 a Special Certificate of Airworthiness, No. ZO1Z-4770/4, in the experimental aircraft category. (See id.).
On or about August 11, 1998, Debtor acquired approximately 93% of the outstanding shares of stock of LET. At the time of this acquisition, Zdenek Pernica was serving as the “director general” of LET. Mr. Ayers testified that he understood a director general to be the equivalent of a president or chief executive officer. Mr. Pernica was subsequently replaced by Mr. Preston Turner Bo-stwick.3 Many members of management of LET were also replaced with individuals who were associated with the Debtor.
The management structure of LET, at least after Debtor’s acquisition, consisted of a board of directors and two “Procurators.” (See Pl.’s Exh. 13). Mr. Ayers held the position of chairman of the board of directors and also served as one of the two Procurators. Mr. Bostwiek served as the other Procurator and also served as a member of the board of directors. (See id.) Although Mr. Ayers made most of the decisions for LET, Mr. Ayers testified that he never attended any of the meetings held by the board of directors.
*537Based on the “Companies Register maintained by the Regional Court in Brno.,” (“Register”) at least two directors are required to act for or on behalf of LET. (See id.) As to the authority of the Procurators, the Register provides:
Each Procurator is authorised [sic] to act for and on behalf of the Company severally within the scope of the Procu-ration granted. Each of the Procurators is authorised [sic] to perform legal acts in writing for and on behalf of the Company LET, a.s., severally by attaching his signature and the word “Procurator” to the written or printed style of LET, a.s.
(Id.).
On May 19, 2000, Mr. Ayers, on behalf of “LET Aeronautical Works,”4 executed a Bill of Sale, Assignment and Conveyance (“Bill of Sale”). (See Pl.’s Exh. 1). Mr. Ayers signed the Bill of Sale as “Chairman.” (See id.). The Bill of Sale purported to memorialize a sale of the L610-301 aircraft with the attached 998 and 002 engines from LET to Debtor. As consideration for this purchase, Mr. Ayers testified that Debtor and Ayers Corporation, Debtor’s affiliate, transferred avionics and cash to LET in 1999 and 2000.
Also on May 19, 2000, Mr. Ayers, on behalf of Debtor, entered into a loan agreement with Plaintiff in which Plaintiff loaned $200,000.00 to Debtor. (See Pl.’s Exhs. 2 & 5). In exchange for these funds, Debtor executed a document purporting to grant Plaintiff a security interest in the 002 and 998 engines. (See Pl.’s Exh. 6). On May 22, 2000, Plaintiff filed a UCC-1 financing statement in the Superi- or Court of Dougherty County. (See Pl.’s Exh. 10). On July 17, 2000, Plaintiff recorded its security interest in the two engines with the Federal Aviation Administration (“FAA”). (See Pl.’s Exh. 8). Debtor and Plaintiff have stipulated that as of the date of the trial, the principal amount which Debtor is indebted to Plaintiff is $200,125.00 plus $45,261.60 in interest accruing at $63.92 per day.
On or about August 30, 2000, liquidation proceedings were initiated against LET under the laws of the Czech Republic. Zlatava Davidova (“LET Trustee”) is the trustee of the estate of LET.
As to the contentions of the parties, Plaintiff contends it has a perfected security interest in the two engines. Plaintiff asserts that the conveyance of the L610-301 and the two engines from LET to Debtor was proper. As a result, Debtor owned the aircraft and its engines at the time Debtor pledged the two engines as collateral. Because both engines were rated at a horsepower of greater than 750, Plaintiff argues that its registration with the FAA is the proper means by which to perfect its security interest.
General Electric contends that neither Debtor nor LET owned the 998 engine. General Electric does not dispute that LET purchased the 002 engine from General Electric for a purchase price of $750,400.00. (See Pre-Trial Order, Exh. “A”, para. 7; see also Pl.’s Exhs. 11 & 12). Accordingly, General Electric claims no interest in the 002 engine. However, General Electric argues that the 998 engine was loaned to LET under the terms of a bailment agreement. (Nee GE Exh. 1).
On April 17, 1997, LET and General Electric entered into a contract (“LET/GE Contract”) whereby General Electric would supply and sell CT7-9 engines to LET which would, among other things, manufacture L610G aircraft. (Nee GE-1). The LET/GE Contract was to be effective during the Development Phase, which in-*538eluded the time until the L610G aircraft with the CT7-9 engine was certified by the FAA. (See id., art. 1, para. G). Specifically, the LET/GE Contract provided that General Electric will supply LET with two CT7-9 engines during the development phase. These “Engines will be bailed (loaned at no charge) for the duration of the LET L610G Development Program, as per terms of Exhibit D, Bailment Agreement, herein.” (Id., Exh. C, para. C.4). LET and General Electric entered into the above referenced Bailment Agreement on June 3, 1997. (See id., Exh. D). The Bailment Agreement defines “Bailed Property” as property General Electric provided pursuant to Exhibit C. (Id., cl. 1).
Because LET did not own the 998 engine, General Electric argues that LET could not have effectively transferred the engine to Debtor. Therefore, General Electric contends that the 998 engine never became property of LET or Debtor.
Debtor contends that it properly acquired title to the L610-301 from LET through the Bill of Sale executed on May 19, 2000. Debtor argues that Mr. Ayers possessed the requisite corporate authority to execute the Bill of Sale. Also, Mr. Ayers executed the document properly. Merely because he signed the Bill of Sale as “Chairman” and not “Procurator” does not invalidate the transfer. Debtor further argues that it transferred to LET equivalent value for the aircraft and engines and had no knowledge of General Electric’s claims. Therefore, Debtor asserts that it was a good faith purchaser of the aircraft and the two engines.
The LET Trustee contends that LET holds all rights, title and interest in the L610-301 and the 002 engine free and clear from any competing claims. Essentially, the LET Trustee argues that LET’S purported transfer of the aircraft and engine to Debtor was ineffective.
First, the LET Trustee asserts that the Bill of Sale was improperly executed by Mr. Ayers. She points to the language in the Register which requires two directors to act in order to act on behalf of LET. Because Mr. Ayers acted independently when he executed the Bill of Sale, the LET Trustee contends that he lacked the authority to bind the company. The LET Trustee also points out that a Procurator acting severally from the other Procurator must attach the word “Procurator” to the document in order to bind the company. Therefore, even if Mr. Ayers was acting in his capacity of Procurator, the LET Trustee argues that the Bill of Sale is nevertheless invalid.
Second, the LET Trustee argues that the Bill of Sale is invalid because it does not comply with the Czech Commercial Code. According to the LET Trustee, section 409 of the Czech Republic Commercial Code requires such documents to either provide the price paid or provide a method for determining the price paid for the purported transfer.
The LET Trustee farther argues that the purported transfer of the aircraft and engine was ineffective because it occurred within six months before the date on which the liquidation proceeding was filed against LET. According to the LET Trustee, section 15(l)(c) of the Czech Bankruptcy and Composition Act would void the transfer because it was made within this six-month period. As a result, the L610-301 and the 002 engine were property of LET at the time the petition was filed against LET in the Czech Republic.
Lastly, the LET Trustee contends that the transfer was ineffective because it was never registered with the Civil Aviation Authority in the Czech Republic. The LET Trustee asserts that section 5(b) of the Czech Civil Aviation Act requires the *539registration of a change of ownership. The L610-301 has always shown LET as the owner on the Czech Civil Aviation Authority Registry. Accordingly, the LET Trustee argues that any purported transfer of the L610-301 is ineffective. Therefore, because the L610-301 and the 002 engine were property of LET when the petition was filed, the LET Trustee asserts they became property of LET’S estate.
CONCLUSIONS OF LAW
The court first addresses the contentions of General Electric and finds that the 998 engine is subject to the Bailment Agreement in the LET/GE Contract. The LET/GE Contract or the Bailment Agreement does not specifically reference the 998 engine. However, the parties have stipulated that the 998 engine was furnished to LET pursuant to the terms of an agreement relating to the L610G aircraft. (See Pre-Trial Order, Exh. “A”, para. 8).
Based on these stipulations and the language in the LET/GE Contract, the court finds that LET is a bailee of the 998 engine. See Stephens v. Thompson, 177 Ga.App. 528, 529, 339 S.E.2d 784, 785 (1986) (defining the requirements for a bailment). Accordingly, LET possessed no ownership interests in the engine. See McDaniel v. American Druggists Insurance Co. (In re Nat’l Buy-Rite, Inc.), 11 B.R. 196, (Bankr.N.D.Ga.1981) (holding that a bailee does not acquire title to the bailed property).5 Because LET did not own the 998 engine, LET could not have effectively conveyed it to Debtor. Therefore, the purported transfer of the 998 engine from LET to Debtor is invalid.
The court now turns to the Bill of Sale. The court finds that the Bill of Sale is invalid only as to the transfer of the 998 engine. As indicated above, LET did not possess title to the 998 engine thus it could not have conveyed an interest which it did not possess. However, that in of itself does not invalidate the Bill of Sale in its entirety.
As to the LET Trustee’s argument that the Bill of Sale is invalid because Mr. Ayers executed the document improperly, the court rejects that argument. Although Mr. Ayers signed the Bill of Sale as “Chairman” and did not attach the word “Procurator,” the evidence demonstrates that he intended to sign the document in his capacity as Procurator. The court agrees with the opinion of Mr. Petr Halu-za. (See Pl.’s Exh. 14). Therefore, Mr. Ayers’ failure to attach the word “Procurator” to the Bill of Sale does not affect its validity.
The court now addresses the LET Trustee’s argument that the Bill of Sale is invalid because it does not comply with the Commercial Code of the Czech Republic. In the court’s pre-trial order, it found that the law of the Czech Republic would govern issues relating to the validity, priority, and extent of liens. Arguably, this order is applicable to the issue of the validity of the Bill of Sale. However, the LET Trustee failed to prove the contents of this law.
Determining the application of foreign law is governed by Fed.R.Civ.P. 44.1 (“Rule 44.1”), which is made applicable to bankruptcy cases by Fed.R.BaNKR.P. 9017. In pertinent part, Rule 44.1 provides:
*540“The court, in determining foreign law, may consider any relevant material or source, including testimony, whether or not submitted by a party or admissible under the Federal Rules of Evidence. The court’s determination shall be treated as a ruling on a question of law.”
Under Rule 44.1, “the parties have the burden of sufficiently proving foreign law in such a way that the court may apply it to the facts of the case.” Riffe v. Magushi 859 F.Supp. 220, 223 (S.D.W.Va.1994). “Federal courts are given great discretion in choosing source materials when application of foreign law is necessary.” Id. (citing Argyll Shipping Co. v. Hanover Ins. Co., 297 F.Supp. 125, 128 (S.D.N.Y.1968)). Moreover, “[n]othing in Rule 44.1 requires a court to engage in private research; the rule preserves the court’s right to insist upon a complete presentation by counsel on the foreign law issue.” Id. at 224.
In the instant case, the LET Trustee, on the morning of the trial, filed with the court and hand delivered to all the parties a letter by Tomas Richter, a Czech Republic attorney. In this letter, Mr. Richter provided translated portions of the Czech Civil Aviation Act and the Czech Bankruptcy and Commercial Code. Mr. Richter also included his opinions on the various provisions he provided.
As counsel for Plaintiff pointed out in his closing argument, Mr. Richter is an attorney for the same firm which filed a answer on behalf of the LET Trustee. (See Doc. #24, Adv.Proc. file). For this reason, Plaintiffs counsel objected to the court’s consideration of the letter based on the fact that Mr. Richter would not be competent to render an opinion. The court acknowledged that the letter had not been offered as evidence. The court then inquired whether it could consider the letter and counsel for the Plaintiff stated it could not be considered. No one announced any disagreement with Plaintiffs counsel at this time or any time before the trial concluded.
However, the LET Trustee submitted a post-trial brief. (See Doc. # 58, Adv.Proc. File). Because the language of Rule 44.1 allows the court to consider “any relevant material or source ... whether or not admissible under the Federal Rules of Evidence!,]” the LET Trustee argues that the court should consider Mr. Richter’s letter. Further, the LET Trustee points to case law demonstrating that a sworn statement is not needed in order to meet the burden of proving foreign law.
The court agrees with the LET Trustee in that Rule 44.1 would allow the court to consider Mr. Richter’s letter even though he might not qualify as a competent witness under the rules of evidence. However, the facts in this case on this issue are unique. As indicated above, the court inquired from the parties whether it could consider Mr. Richter’s letter. While it is possible that Plaintiff may not have been legally accurate when, upon the court’s inquiry, it asserted that the court could not consider Mr. Richter’s letter, the LET Trustee did not object to Plaintiffs assertion.
Although Rule 44.1 provides that the court may consider inadmissible evidence on foreign law, it is clear that at the conclusion of the trial, the parties understood that Mr. Richter’s letter would not be considered. Had the LET Trustee disagreed with Plaintiff at trial and put forth the argument she now advances in her post-trial brief, the court might have concluded that it could consider Mr. Richter’s letter after hearing argument by all the parties. However, the LET Trustee did not do this. Therefore, the court finds that the LET Trustee failed to meet her burden of proving foreign law. As a re-*541suit, the court will not consider Mr. Richter’s letter.
Because the LET Trustee failed to sufficiently prove the substantive foreign law, the court rejects her arguments which rely on such substantive law. First, the court rejects her arguments that the Bill of Sale is invalid because of noncompliance with the Commercial Code of the Czech Republic. Similarly, the court rejects the LET Trustee’s argument that the purported transfer of the L610-301 and the 002 engine was ineffective because under the Czech Bankruptcy and Composition Act, the transfer would be void. Also rejected is the LET Trustee’s argument that the transfer was ineffective because it was never registered with the Civil Aviation Authority of the Czech Republic.
Based on the foregoing, the court finds that the Bill of Sale is valid, in that it purports to transfer from LET to Debtor the L610-301 aircraft and the 002 engine. As indicated above, the Bill of Sale is invalid only as to the purported transfer of the 998 engine. Therefore, the court concludes the following:
(1) General Electric is the title owner of the 998 engine, free and clear of any claims or encumbrances of Debtor, the LET Trustee and Plaintiff;
(2) The Bill of Sale executed on May 19, 2000 between LET, and Debtor transferred ownership in the 002 engine to Debtor. Debtor’s pledge of the 002 engine to Plaintiff as collateral is valid. Plaintiff has a valid perfected security interest in the 002 engine. See generally 49 U.S.C. § 44107; O.C.G.A. § 11-9-302 (1994 & Supp.2000); See also Philko Aviation, Inc. v. Shacket, 462 U.S. 406, 413, 103 S.Ct. 2476, 76 L.Ed.2d 678 (1983) (holding that perfection of an interest in an aircraft is governed by filing under the Federal Aviation Act, however, state law determines the priority);
(3) The Bill of Sale executed on May 19, 2000 between LET and Debtor transferred ownership in the L610-301 to Debtor. The L610-301 is part of Debtor’s bankruptcy estate; and
(4) The motion of GATX for relief from stay is denied.
An order in accordance with this Memorandum Opinion will be entered.
. The court notes that John Kennedy, the appointed Chapter 11 trustee in this case, is the actual party in interest for Debtor. LET, a.s. is a Czech Republic entity involved in a liquidation proceeding in the Czech Republic. Likewise, Zlatava Davidova, the trustee for LET, a.s. in its liquidation proceeding, is the actual party in interest for LET.
. At trial, however, Mr. Ayers testified that the registration with the Civil Aviation Authority of the Czech Republic “has nothing to do with ownership.”
. See Pre-Trial Order, Exh. "A”, para. 3. However, Mr. Ayers testified at the trial that Mr. Pernica resigned in June 1999.
. Mr. Ayers testified that LET, a.s. and LET Aeronautical Works were the same company.
. The court notes that the LET/GE Contract provides that it is to be governed by the laws of England. (See. Exh. GE-1, art. 19). However, none of the parties raised a conflict of law issue as to the LET/GE Contract. Therefore, a federal court applies the law of the state in which it sits. See Anderson v. McAllister Towing & Transp. Co., 17 F.Supp.2d. 1280, 1283 (S.D.Ala.1998). Accordingly, the court will apply the law of Georgia. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493446/ | OPINION
JOHN J. THOMAS, Bankruptcy Judge.
On October 18, 2000, in disposing of cross-motions for summary judgment, I concluded that Sears, Roebuck & Co. (SRC) and Sears National Bank (SNB) were liable to the Trustee-Plaintiff, in a host of related litigations stemming from the changeover of credit cards from SRC to SNB. The details of that decision can be found in In re Derienzo, 254 B.R. 334 (Bankr.M.D.Pa.2000). With one exception, that decision disposed of the liability issues of this trial.
The Trustee’s Complaint consisted of four Counts: (1) “Complaint to Determine *588Lien Status Under 11 U.S.C. § 506,” (2) “Complaint for Violation under the Truth in Lending Act (15 U.S.C. § 1637 et seq.), Seeking Damages and Lien Avoidance,” (3) “Complaint for Violation under the Pennsylvania Unfair Trade Practices and Consumer Protection Law” (73 P.S. § 201 et seq.), and (4) “Complaint under Plain Language Consumer Contract Act of the Commonwealth of Pennsylvania (73 P.S. § 2201 et seq.).” Counts 3 and 4 were disposed of by my grant of summary judgment in favor of the Defendants. Hereinafter, Truth in Lending Act is referred to as “TILA”.
Count 1 of the Trustee’s Complaint asked the Court to determine the lien status of SRC and SNB’s claim vis-a-vis each Debtor. The documentation supplied at trial included language that each item charged stood as security for the contemporaneous obligation. The Trustee argues that the poorly formatted periodic statements render it virtually impossible to ascertain the balance due on individual secured items during the existence of two accounts. (See, for example, Transcript of 2/5/00 at 50-52.) The Trustee maintains that this is so extreme no determination of what is secured and what is not can be made. While the Trustee has not offered any evidentiary contest to the security interest as set forth in paragraph 12 of the
SNB agreement, (Plaintiffs Exhibit P-12), the Trustee has challenged the lien based on vague assertions of “confusion” without advancing any specific example of inability to determine the security attached to a given obligation. The Trustee, as the Plaintiff, carries the burden on this issue and has simply failed to meet that task. Matter of Decker, 595 F.2d 185, 190 (3d Cir.1979). Accordingly, judgment should be entered in favor of the Defendants on this Count.
Having found liability on Count 2 regarding TILA, it is now incumbent upon me to adjudicate damages. In anticipation of this litigation, the parties stipulated that the underlying 200+ cases could be grouped into four principle categories by reference to the use of the charge card during a time when SNB was extending credit as well as the existence of any delinquency.1
In its initial defense to the damage claim, SRC and SNB presented a dispositive motion to the Court to bar evidence on damages regarding Category I and II cases. It was stipulated that these categories of cases only involved one charge account advanced by SRC to each Debtor. That motion was taken under advisement prior to the trial. (Adversary Doc. No. *589203A.) In opposition to that motion, the Trustee argues that merely because an individual Debtor did not utilize the line of credit tendered by SNB does not mean a violation of TILA did not occur.2 I believe the Trustee has misinterpreted my earlier holding. I did not find the disclosure documents were misleading. Rather, I found that monthly statements, as they pertained to two accounts, did not comport with TILA. They did not have beginning or ending balances for each account. Neither did they identify what debits and credits were entered on each account. Accordingly, if there was but one account, there would have been no confusion by the periodic statements. According to the terms of credit issued by SNB, the SNB account did not exist until the consumer utilized the new SNB charge card. (Exhibit P-2 at 4.) Since categories one and two only pertained to the SRC account, no violation of TILA would have been found to exist based on my earlier findings. Thus, I now find in favor of SRC and SNB regarding liability and damages arising out of Category I and II cases.
In a similar vein, SRC and SNB argue that damages should cease when one of the two accounts maintained by an individual Debtor was paid off. While this may sound logical, the Debtor was never told, orally or in writing, expressly or implicitly, that only one account remained. Presumably this was due to SRC and SNB’s steadfast position that there was but one account. It was at the point that the two accounts were created that the periodic statements became misleading and the violations occurred. Those violations continued for the duration of the billing process thereafter since it would have been quite impossible for a consumer to calculate the ongoing account balance or balances without reference to information available only to SNB and SRC.3
SRC and SNB argue that the damages in this case are limited by the provisions of 15 U.S.C.A. § 1640(a)(2)(A)© to a cap of $1000 per claim.4
For this proposition, they ask the Court to ignore the plain language of subpara-graph (i) and rely on the 7th Circuit case of Strange v. Monogram Credit Card Bank of Georgia, 129 F.3d 943, 946 (7th *590Cir.1997) which implies that Congress, in its careless effort to expand coverage to violations of this nature, failed to properly articulate the limitations they “intended”. This conclusion is demonstrably at odds with the fact that, since Strange pointed out this oversight in 1997, Congress has made no effort to address their so-called “error”.
It is a fundamental principle of statutory construction that “[i]f Congress has mistakenly disguised its actual intent by incorporating language pointing in a different direction, it is not up to us to rewrite the statute unless, perhaps, a literal reading produces a truly absurd result.” See Holy Trinity v. United States, 143 U.S. 457, 12 S.Ct. 511, 36 L.Ed. 226 (1892), Napotnik v. Equibank & Parkvale Savings Ass’n, 679 F.2d 316, 321 (3d Cir.1982). Moreover, trial courts are regularly reminded to apply the “plain meaning” of legislation. United States v. Ron Pair Enterprises, Inc., 489 U.S. 235, 242, 109 S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989); Connecticut Nat. Bank v. Germain, 503 U.S. 249, 254, 112 S.Ct. 1146, 117 L.Ed.2d 391 (1992) (Congress “says in a statute what it means and means in a statute what it says there”); In re Continental Airlines, Inc., 932 F.2d 282, 287 (3d Cir.1991). Because there is nothing “absurd” when applying the plain meaning of the statute, I decline to limit damages to the sum of $1000 per account. In further support of this interpretation, I rely on the fact that TILA is remedial legislation and thus should be construed liberally in favor of the consumer. Ramadan v. Chase Manhattan Corp., 156 F.3d 499, 502 (3d Cir.1998). Any ambiguities in interpretation should be resolved in favor of the Plaintiff. Rossman v. Fleet Bank (R.I.) Nat. Ass’n, 280 F.3d 384 (3d Cir.2002).
The trustee has submitted much information on the finance charge pertaining to various cases. Nevertheless, it appears that the confluence of the limitations period of TILA claims, (one year pursuant to 15 U.S.C.A. § 1640(e)), and the statutory extension period provided by 11 U.S.C. § 108, necessarily limit the attributable finance charge to one year prior to bankruptcy. Schmidt v. Citibank (South Dakota), N.A., 677 F.Supp. 687, 690-691 (D.Conn.1987).
SRC and SNB have argued that, when internal accounting assesses a specific period of nonpayment, then the account is deemed “uncollectible” and the account ceases accruing finance charges. Their argument continues that, since they no longer accrue finance charges, then no basis for additional damage can be supported under 15 U.S.C.A. § 1640(a)(2)(A)(i). (Transcript of 2/6/01 at 132-136.)
The exhibits submitted by the parties include credit card agreements which provide for the accrual of finance charges on average daily balances. My attention has not been drawn to any provision in the agreement that would suspend the accrual of finance charges by reason of any extended period of nonpayment. Moreover, the record includes no indication that individual consumers were told that additional finance charges were waived by either SRC or SNB. Furthermore, I am aware of no legal bar to a creditor, after the fact, recalculating an obligation to include all finance charges provided by the original contract, notwithstanding inconsistent interim calculations. I conclude that the finance charge provided by the original agreements should represent the fair measure of statutory damages under § 1640(a)(2)(A)(i). An itemization of those finance charges is attached as Appendix “A”. Such finance charges are calculated in Category III and IV cases only since it is these cases where SNB charges were incurred while there remained an outstand*591ing SRC balance. Periodic statements issued thereafter would have been confusing and violative of TILA. Moreover, I have limited damages to the time period occurring within one year of the bankruptcy filing date pursuant to the limitation period present in section 1640(e). These finance charges are doubled in arriving at the proper award in these cases as mandated by section 1640(a) (2) (A) (i).
Section 1640(a)(3) of TILA provides that the liability of the Defendants in a successful action brought by the Trustee should include the costs of the action as well as reasonable legal fees.
In determining the amount of reasonable legal fees, it is fairly well established the starting point to utilize should be calculated by using the “lodestar” method. As pointed out by our Circuit, such a calculation “assures counsel undertaking socially beneficial litigation ... an adequate fee irrespective of the monetary value of the final relief achieved” while also “avoiding subjective evaluations of the monetary worth of the intangible rights.” In re General Motors Corp. Pick-Up Truck Fuel Tank Products Liability Litigation, 55 F.3d 768, 821 (3d Cir.1995), cert. denied, 516 U.S. 824, 116 S.Ct. 88, 133 L.Ed.2d 45 (1995).
My review of the itemization of the fees, together with the fact that there was virtually no challenge to their legitimacy, satisfies me that attorneys’ fees should be awarded in Category III and IV cases as well as in advancing this litigation. An itemization of said fees are attached as Appendix “B”.
Due to the difficulties involved in calculating individual judgments regarding these consolidated proceedings, final judgment^) shall be deferred pending a telephone conference with the parties hereby scheduled for Monday, April 29, 2002 at 9:30 o’clock a.m. The Court will initiate the telephone conference and the following parties will be contacted by a teleconferencing service at the numbers listed: William Schwab, Esq. and/or Michele Wolfe, Esq. at # 610-377-5200; Joseph Murray, Esq. at # 570-822-1959; William J. Gibbons, Esq. and/or Patrick E. Gibbs, Esq. at # 312-876-7700; and Charles J. Phillips, Esq. at # 570-372-8427.
ORDER
On May 8, 1998, pursuant to Federal Rules of Bankruptcy Procedure 7042, the parties entered into a stipulation agreeing to consolidate over 200 trials. The Court issued a decision on October 18, 2000 disposing of virtually all of the liability questions and scheduling a consolidated trial on damages. That decision on damages was rendered on April 15, 2002 and the parties were invited to assist in drafting dispositive judgment(s), to streamline the administration of individual cases and/or to facilitate a possible appeal. In apparent disagreement as to the extent of the consolidation stipulation, a Motion for Entry of Consolidated Judgment was filed by the Defendants, which was opposed by the Plaintiff.
The extent of consolidation is decided on a case-by case-approach. Bergman v. Atlantic City, 860 F.2d 560, 566 (3d Cir.1988). Because of what was stipulated to be the substantial similarity of facts and common questions of law and because all outstanding issues have been addressed in the liability and damage opinions, I conclude that the pending Motion of the Defendants to consolidate should be denied as being unnecessary since the earlier Order of consolidation was effective for all purposes, including judgment. (Doc. # 80A, Adv. No. 5-96-00248A.)
Judgment was rendered in favor of the Defendants on Counts 3 (Consumer Pro*592tection Law) and 4 (Plain Language Consumer Contract Act) of all Complaints, by virtue of my earlier disposition of a Summary Judgment Motion. In re Derienzo, 254 B.R. 334 (Bankr.M.D.Pa.2000). Furthermore, for the reasons set forth in opinions of October 18, 2000, and April 15, 2002, judgment is rendered in favor of the Defendants on Count l(lien avoidance) in all cases. With regard to Count 2 (Truth in Lending), judgment is rendered in favor of the Defendants in all Category I and II cases, and judgment is rendered in favor of the Plaintiff and against the Defendants on Count 2 of all Category III and IV cases in the total amount of $150,565.18 as apportioned in the damage opinion of April 15, 2002. Attorney fees are awarded to the office of William G. Schwab and Associates in the amount of $134,758.70 together with costs of $31,349.45; and to Attorney Joseph G. Murray in the amount of $30,768.02 together with costs of $85.52, all of which is more specifically set forth in the April 15, 2002 opinion of this Court.
*593APPENDIX "A"
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*601APPENDIX "B"
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. A. Category I — These actions involve Debtors’ accounts which did not incur any charges after the May 1, 1995 transfer, whose finance charge designation on the monthly billing statement is “ALL,” and which were delinquent at some time prior to the Debtors' bankruptcy petition date.
B. Category II — These actions involve Debtors’ accounts which did not incur any charges after the May 1, 1995 transfer, whose finance charge designation on the monthly billing statement is “ALL,” and which remained current up to the time of the Debtors’ bankruptcy petition date.
C. Category III — These actions involve Debtors’ accounts which incurred charges both before and after the May 1, 1995 transfer, whose finance charge designation on the monthly billing statement is “ALLOCATED” between SEARS, ROEBUCK AND CO. and SEARS NATIONAL BANK, and which remained current up to the Debtors' bankruptcy petition date.
D.Category IV — These actions involve Debtors' accounts which incurred charges both before and after the May 1, 1995 transfer, whose finance charge designation on the monthly billing statement is “ALLOCATED” between SEARS, ROEBUCK AND CO. and SEARS NATIONAL BANK, and which were delinquent at some time up to the Debtors' bankruptcy petition date.
In re Derienzo, 254 B.R. at 338.
. Most emphatically, it is clearly the law that financial loss need not be demonstrated to claim damages under TILA. Dzadovsky v. Lyons Ford Sales, Inc., 593 F.2d 538, 539 (3d Cir.1979). Moreover, reliance on an improper disclosure statement is not material. Schnall v. Amboy Nat. Bank 279 F.3d 205, 2002 WL 104903 at *11 (C.A.3 (N.J.) 2002).
. See testimony of SRC paralegal, Matthew Chamberlain, that payments were first applied to finance charges on SRC and SNB charges and then on the principal balance of the oldest billings. (Transcript of 2/6/01 at 75 and 112.)
. § 1640. Civil liability
(a) Individual or class action for damages; amount of award; factors determining amount of award
Except as otherwise provided in this section, any creditor who fails to comply with any requirement imposed under this part, including any requirement under section 1635 of this title, or part D or E of this subchapter with respect to any person is liable to such person in an amount equal to the sum of—
(1) any actual damage sustained by such person as a result of the failure;
(2)(A) (i) in the case of an individual action twice the amount of any finance charge in connection with the transaction, (ii) in the case of an individual action relating to a consumer lease under part E of this subchapter, 25 per centum of the total amount of monthly payments under the lease, except that the liability under this subparagraph shall not be less than $100 nor greater than $1,000, or (iii) in the case of an individual action relating to a credit transaction not under an open end credit plan that is secured by real property or a dwelling, not less than $200 or greater than $2,000; ...
15 U.S.C.A. § 1640(a) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493706/ | ORDER
C. RAY MULLINS, Bankruptcy Judge.
THIS MATTER is before the Court on the Chapter 7 Trustee’s Objection to Debt- or’s Exemptions (the “Objection”) (Doc. No. 6), filed on August 10, 2004. On September 7, 2004, the Debtor filed the Response to Objection to Debtor’s Exemptions (the “Response”) (Doc. No. 7). On September 9, 2004, a non-evidentiary hearing was held on the Objection, and the Court permitted the parties to file supplemental briefs. On September 9, 2004, the Debtor filed the Supplemental Response to Objection to Debtor’s Exemptions (the “Supplemental Response”) (Doc. No. 9). On September 23, 2004, the Chapter 7 Trustee (the “Trustee”) filed the Trustee’s Memorandum in Support of Objection to Exemption (Doc. No. 12).
The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334(b), as well as Rule 1070-1 of the Local Rules of Practice for the United States Bankruptcy Court for the Northern District of Georgia. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
The issue is whether a debtor is entitled to a $20,000.00 homestead exemption pursuant to section 44-13-100(a)(l) of the Official Code of Georgia where the debtor’s residence is titled in both spouses, yet only one spouse files bankruptcy. The Court sustains the Trustee’s objection and enters the following findings of fact and conclusions of law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure. The Court holds that where a debt- or and non-debtor spouse have joint title to the residence, the debtor is entitled to a $10,000.00 homestead exemption.
I. FACTS
The parties do not dispute the facts of the instant case. The Debtor filed a petition for relief under chapter 7 of the Bank*216ruptcy Code on June 4, 2004. The Debtor is married, but separated from her spouse. The Debtor’s spouse is not a debtor in the above-styled case, nor is he presently a debtor in a separate bankruptcy case. The Debtor and her spouse have joint title in real property located in Alpharetta, Georgia. The real property, which serves as the Debtor’s residence, is subject to two liens including a mortgage in the amount of $157,000.00 and homeowners’ association dues in the amount of $1,291.58. The Schedules list the current market value of the property at approximately $176,000.00. Pursuant to the Debtor’s valuation, there would be approximately $17,708.42 of equity in the property. The Debtor seeks an exemption in that amount pursuant to section 44-13-100(a)(l) of the Official Code of Georgia. The Trustee objects and argues that the claimed exemption exceeds the amount the Debtor is entitled to exempt under Georgia law. The Trustee requests that the Debtor’s homestead exemption be limited to $9,000.00, as the Debtor has claimed a $1,600.00 exemption in a 2001 income tax refund.1
II. ANALYSIS
Rule 4003 of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”) and section 522 of the Bankruptcy Code require a debtor to list property claimed as exempt on the debtor’s schedules. Section 522 also defines the property that may be claimed as exempt. Although subsection (d) of section 522 specifies the type of property that a debtor may exempt, subsection (b) allows states to “opt out” of this federal exemption scheme and enact state exemption provisions.2 Georgia has opted out of the federal exemptions and codified state bankruptcy exemptions in section 44-13-100(a) of the Official Code of Georgia (“O.C.G.A.”).3 Georgia’s homestead exemption is set forth in section 44^-13-100(a)(1), which was amended in 2001. The statute provides that any debtor who is a natural person may exempt, pursuant to this article, for purposes of bankruptcy, the following property:
The debtor’s aggregate interest, not to exceed $10,000.00 in value, in real property or personal property that the debt- or or a dependent of the debtor uses as a residence, in a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence, or in a burial plot for the debtor or a dependent of the debtor. In the event title to *217property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $ 20,-000.00L]
O.C.G.A. § 44-13-100. Relying on section 44-13-100(a)(l), the Debtor argues that she is entitled to an exemption in the amount of $17,708.42. According to section 522(i), unless a party in interest objects to the debtor’s exemptions, the property claimed shall be exempt. Rule 4003(b) governs such objections and provides that any party in interest may object to the debtor’s claimed exemption within thirty days after the conclusion of the meeting of creditors. The Trustee has timely objected and, as the moving party, has the burden of proving that the Debt- or’s claimed exemption is improper. See Fed. R. Bankr.P. 4003(c).4 The Trustee argues that the Debtor’s exemption should be limited to $10,000.00.
The Trustee and the Debtor disagree as to the interpretation of section 44-13-100(a)(1). The last sentence of the statute, added via a 2001 amendment, is at issue and states: “In the event title to property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $ 20,000.00[.]” O.C.G.A. § 44-13-100. This language has been interpreted by several bankruptcy courts. In the case of In re Burnett, a bankruptcy case from the Middle District of Georgia, Judge Walker opined that the language of the provision is clear and provides that if the residence is titled in only one spouse, and that spouse is a bankruptcy debtor, he/she is entitled to a $20,000.00 exemption. In re Burnett, 303 B.R. 684, 686 (Bankr.M.D.Ga.2003) (Walker, J.). Declining to examine the legislative history of the statute, Judge Walker carefully analyzed the plain meaning of the statute:
The sentence uses the phrase “who is a debtor,” which uses a singular verb, rather than the plural form “who are debtors,” so that it refers to the “one” spouse holding title. In other words, the spouse holding title must be a bankruptcy debtor in order to take advantage of the $ 20,000 exemption, but the statute imposes no requirement that the non-titled spouse also be in bankruptcy.
Id. Thus, Judge Walker recognized two requirements for members of the class protected by the statute: (1) title must be in only one spouse; and (2) the spouse holding title must be in bankruptcy. In the instant case, the Debtor and her spouse hold joint title to the residence. Accordingly, it appears that the Debtor is not a member of the protected class, and thus is not eligible for the exemption pursuant to the language of the statute.
In a thorough unpublished opinion from the Northern District of Georgia, Judge Drake ostensibly reached the same conclusion as Judge Walker: that the last sentence of section 44-13-100(a)(l) is “a special exception for cases in which the title to the residence is in the name of only one spouse” and “where the property is titled in both spouses, and either one spouse files bankruptcy or both spouses file bankruptcy, the statute by its own terms, would not apply.” In re Hartley, Case No. 01-13332-WHD, slip op. at Doc. No. 21 (Bankr.N.D.Ga. July 18, 2002) (Drake, J.). *218Since the subject real property is titled in both the Debtor and her spouse, it appears that the statute, on its face, would not be applicable to the Debtor.
In In re Neary, a well-reasoned unpublished opinion from the Northern District of Georgia, Judge Diehl looked beyond the language of section 44-13-100(a)(1) to the legislative history of the amendment. 2004 Bankr.LEXIS 617, Case No. 03-97808-MGD, slip op. at Doc. No. 24 (Bankr.N.D. Ga. April 21, 2004) (Diehl, J.). Criticizing the Debtor’s sole reliance on the plain meaning of the statute, Judge Diehl asserted that:
[U]nder Georgia law, the most important determinant of the meaning of a statute is legislative intent. “The cardinal rule of statutory interpretation is to ascertain the legislature’s purpose in enacting a statute and then construe the statute to effect that purpose, avoiding interpretations that do not ‘square with commonsense and sound reasoning.’ ”
Id. at *6 (quoting Ins. Dep’t of Ga. v. St. Paul Fire & Cas. Ins. Co., 253 Ga.App. 551, 552, 559 S.E.2d 754, 756 (2002) (internal quotations and citations omitted)). The Court agrees with Judge Diehl’s analysis. If statutory language is ambiguous or would produce an absurd result, the Court must look to the intent of the legislature in enacting the amendment. Busch v. State, 271 Ga. 591, 592, 523 S.E.2d 21, 23 (1999); O.C.G.A. § 1-3-1(a). The Court finds that the phrase “in one of two spouses who is a debtor” in the last sentence of section 44 — 13—100(a)(1) is not entirely clear. Although the Court appreciates Judge Walker’s analysis, the Court will also look to the legislative history of the statute for a more thorough understanding of this somewhat vague language.
Section 44 — 13—100(a)(1) was amended in 2001 by the General Assembly of Georgia. The amendment was introduced on the House floor as House Bill 373. 2001 Bill Tracking Ga. H.B. 373. The bill was then referred to the House Judiciary Committee, which revised the last sentence of the statute. Id. The original version of the statute provided that “[i]n the event title to property used for the exemption provided under this paragraph is in one of two spouses filing jointly, the unused portion of the exemption provided by this paragraph as if such property had been owned jointly by both spouses shall also be allowed.” H.B. 373, 146th Gen. Assem., Reg. Sess. (Ga.2001) (Introduced Version) (February 1, 2001) (emphasis added). According to the Peach Sheet,5
As introduced, that section of the bill allowed married people who owned them home in just one spouse’s name to take advantage of the other spouse’s right to a homestead exemption despite the fact that, technically, the other spouse did not have an ownership interest in the home. The language in the bill as intro*219duced provided that when a married couple jointly files for bankruptcy, and only one spouse has title to their home property, the couple will be treated as if they owned the property jointly. Accordingly, both can take advantage of the homestead exemption even though only one party actually owns the property-
John Dyer, ARTICLE: Property: Homestead and Exemptions: Change the Provisions Relating to Exemptions for Purposes of Bankruptcy and Intestate Insolvent Estates; Change the Amounts of Certain Exemptions; Provide for Calculation of the Amounts of Certain Exemptions and the Standards, Practices, and Procedures Connected Therewith; Provide for the Duties of the Administrator of the Governor’s Office of Consumer Affairs, 18 Ga. St. U.L.Rev. 263, 266 (Fall 2001). Due to some concerns regarding the clarity of the language, the Judiciary Committee revised the last sentence. Id. The House never voted on the Judiciary Committee substitute, but a House floor substitute was created using the current language: “[i]n the event title to property used for the exemption provided under this paragraph is in one of two spouses who is a debtor, the amount of the exemption hereunder shall be $ 20,000.00[.]” Id. at 267; 2001 Bill Tracking Ga. H.B. 373; H.B. 373, 146th Gen. Assem., Reg. Sess. (Ga.2001) (Enacted Version) (April 26, 2001). The floor substitute passed the House and then the Senate without any further changes. Dyer, supra, at 268. Governor Roy Barnes signed House Bill 373 into law on April 26, 2001. Id.; 2001 Bill Tracking Ga. H.B. 373. From this history, it appears that the statute was enacted to protect the non-debtor spouse’s interest in the residence, even though the property was titled in the debtor. Examining the legislative history, Judge Diehl likewise concluded that the legislature desired to ensure that families would receive the full exemption to which they would be entitled if the property were jointly owned. Neary, 2004 Bankr.LEXIS 617 at *6-7. Similarly, when reviewing the legislative history to determine whether married couples who file joint bankruptcy petitions are entitled to the $20,000.00 homestead exemption, Judge Drake deduced that “[t]he motivation behind the amendment appears to have been concern over the loss of a spouse’s equitable interest in a married couple’s primary residence when the residence is titled in only one spouse, and the titled spouse files for bankruptcy.” Hartley, Case No. 01-13332-WHD, slip op. at Doc. No. 21. The Court agrees with the reasoning of Judges Diehl and Drake, and upon consideration of the passage of House Bill 373, the Court holds that the General Assembly of Georgia intended to protect the equitable interest of a non-debtor spouse in a residence titled in the debt- or. The purpose of the section, made applicable explicitly to bankruptcy, is to protect the non-debtor spouse’s equitable interest from the debtor’s creditors. Hartley, Case No. 01-13332-WHD, slip op. at Doc. No. 21. If the non-debtor spouse has title to the property, he/she does not need such protection. In the instant case, the Debtor’s spouse has joint title to the property. Accordingly, the spouse does not have an equitable interest, but a real and true equity interest that cannot be reached by the Debtor’s creditors. The Debtor’s spouse does not need, nor is he entitled to, a $10,000.00 exemption in addition to the Debtor’s $10,000.00 exemption.
Furthermore, should section 44-13-100(a)(1) be applied as the Debtor suggests, the statute would produce an absurd *220result, unjustly enriching the debtor and/or the non-debtor spouse. As the Trustee notes, if she sells the subject property, the non-debtor spouse would receive his equity interest (one-half of the equity), yet the Debtor would receive a $20,000.00 homestead exemption. The result of the Debtor’s interpretation of the statute is not supported by the language of section 44^13-100(a)(l) and is contrary to the legislative history. Moreover, such an outcome would be tantamount to “double-dipping” and would constitute unjust enrichment.
III. CONCLUSION
Having considered the language and legislative history of section 44 — 13—100(a)(1), the Court concludes that, under the statute, where a residence is titled only in a married debtor, the debtor is entitled to a $20,000.00 homestead exemption to protect the equitable interest of the non-debtor spouse. Furthermore, the Court finds that where a residence is jointly titled in the names of the debtor and the non-debtor spouse, the debtor is limited to a $10,000.00 exemption. For the foregoing reasons,
IT IS ORDERED that the Trustee’s Objection be and is hereby SUSTAINED.
IT IS FURTHER ORDERED that the Debtor’s exemption be limited to $9,000.00.
IT IS FURTHER ORDERED that the Debtor amend the Schedules in accordance with this ruling.
The Clerk’s Office is directed to serve a copy of this Order upon the Debtor, Debt- or’s Counsel, the Chapter 7 Trustee, and the United States Trustee.
. The Debtor can exempt an additional $600.00 in any property pursuant to section 44-13-100(6) of the Official Code of Georgia.
. Section 522(b) provides, in pertinent part: Notwithstanding section 541 of this title, an individual debtor may exempt from property of the estate ...
(1) property drat is specified under subsection (d) of this section, unless the State law that is applicable to the debtor under paragraph (2)(A) of this subsection specifically does not so authorize; or, in the alternative,
(2) (A) property that is exempt under Federal law, other than subsection (d) of this section, or State or local law that is applicable on the date of the filing of the petition at the place in which the debtor’s domicile has been located for the 180 days immediately preceding the date of the filing of the petition, or for a longer portion of such 180-day period than in any other place; and
(B) any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.
11 U.S.C. § 522.
. Section 44-13-100(b) of the Official Code of Georgia expressly prohibits debtors who are domiciled in Georgia from applying or utilizing the federal exemptions articulated in section 522(d).
. Although section 522(l) does not explicitly mandate that the exemption be claimed in good faith, there is an inherent requirement of good faith that runs throughout the Bankruptcy Code and Federal Rules of Bankruptcy Procedure, as evident by the various provisions that address the ramifications of improper conduct in bankruptcy proceedings. See Taylor v. Freeland & Kronz, 503 U.S. 638, 645, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992); Fed. R. Bankr.P. 1008; Fed. R. Bankr.P 9011; 11 U.S.C. § 343; 18 U.S.C. § 152.
. "The State of Georgia does not publish an official legislative history other than the information contained in the House and Senate journals. Because the House and Senate journals contain little more than a record of votes taken on the floors of the House and Senate, the Georgia State University Law Review publishes an annual review of selected Georgia legislation known as the Peach Sheets™ in an effort to document legislative history. The Peach Sheets discuss significant pieces of legislation from the most recent Georgia General Assembly session that are likely to have an impact on the practice of law in Georgia." Available at http://law.gsu.edu/lawreview/peachsheets.htm (last visited January 26, 2005). By attending committee hearings, listening to sessions of the House and Senate, interviewing representatives and witnesses, and reviewing versions of the bill, author John Dyer provides a comprehensive and detailed analysis of the legislative intent in the enactment of House Bill 373. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493707/ | Memorandum of Decision
JAMES B. HAINES, JR., Bankruptcy Judge.
Before me for decision on stipulated facts are confirmation of the debtor’s Chapter 13 plan, and a motion to dismiss filed by the lone creditor in this case, Ogden N. Lewis, personal representative of the estate of Ogden N. Lewis, Jr. (the “Estate”).
*223
Facts
On November 14, 2001, the debtor, Robert Pike, was driving a rented car in a national park in southern Argentina. With him were his good friends Ogden N. Lewis, Jr. and Owen Breck, both of whom were visiting him. Pike lost control of the car and it crashed. Pike sustained traumatic brain injuries; Breck escaped with relatively minor injuries; Lewis died.
In September 2003 Lewis’s estate sued Pike in federal district court in Maine, seeking damages for injuries and wrongful death. Pike answered the estate’s complaint, but moved for dismissal on grounds of forum non conveniens. The district court denied the motion.1
Pike filed a voluntary Chapter 7 petition in this court on May 28, 2004, representing that he has been domiciled or maintained a residence in Maine, although he currently lives and works in Thailand. His schedules list only one creditor: the Estate. The Estate is scheduled as holding a disputed wrongful death claim of unknown amount.
On June 29, 2004, Pike converted his case to Chapter 13.2 His initial plan proposed 36 monthly payments totaling $20,796.00. Aside from the trustee’s commission, all funds were to be distributed to the Estate, in respect of its claim.3 The plan proposed that the Estate’s claim be “estimated for the purposes of plan confirmation and plan payments.” Pike later filed an amended plan, increasing the term to 44 months and the total paid to $25,940.00. Again, all funds, save the trustee’s commission, would be distributed to the Estate. The amended plan is before me for confirmation. The Chapter 13 trustee has consented to its confirmation.
Shortly after Pike noticed a confirmation hearing on the amended plan, the Estate filed its Motion to Dismiss, alternatively seeking dismissal or a suspension of all proceedings in the bankruptcy court pending a trial of its claim in the district court. Although the motion asserts several arguments, at oral argument the Estate’s counsel conceded that the sole issue before me is that presented by 28 U.S.C. § 157(b)(2)(B): whether an otherwise con-firmable Chapter 13 plan can be confirmed over the objection of an unsecured wrongful death creditor holding an unliquidated, disputed claim and demanding that its claim be liquidated or estimated in the district court.
I conclude that the plan can be confirmed because, for confirmation purposes, there is no need for the claim to be liquidated or estimated.
Discussion
The Estate’s primary argument is that the effect of confirming the plan in this case will be a final adjudication of its claim in violation of 28 U.S.C. § 157(b)(2)(B), which prohibits bankruptcy courts from estimating or liquidating wrongful death claims for purposes of distribution. The statute provides:
(b)(1) Bankruptcy judges may hear and determine all cases under title 11 and all core proceedings arising under title 11, *224or arising in a case under title 11, referred under subsection (a) of this section, and may enter appropriate orders and judgments, subject to review under section 158 of this title.
(2) Core proceedings include, but are not limited to—
(B) allowance or disallowance of claims against the estate or exemptions from property of the estate, and estimation of claims or interests for the purposes of confirming a plan under chapter 11, 12 or 13 of title 11 but not the liquidation or estimation of contingent or unliquidated personal injury tort or wrongful death claims against the estate for purposes of distribution in a case under title 11;
28 U.S.C. § 157(b)(2)(B) (emphasis added).
The Estate relies principally on In re Schepps Food Stores, Inc., 169 B.R. 374 (Bankr.S.D.Tex.1994). The Schepps court, ruling on the debtors’ motion for summary judgment on an objection to a former employee’s personal injury claim, concluded it did not have jurisdiction to decide a state law statute of limitations defense because to do so could “effectively liquidate the claim for purposes of distribution.” Schepps Food Stores, 169 B.R. at 377. The court recognized that claims allowance and disallowance is a core function of bankruptcy courts, 28 U.S.C. § 157(b)(2)(B). But it read the statute’s personal injury/wrongful death exception to core jurisdiction to render non-core any ruling finally adjudicating the claim’s merits that would “effectively liquidate the claim for purposes of distribution.” Id. at 377. In so doing, it made reference to constitutional limitations on bankruptcy judges’ powers. Id.
The Supreme Court has held that, because bankruptcy judges are not Article III judges, the Constitution limits their jurisdiction. Northern Pipeline Constr. Co. v. Marathon Pipe Line Co., 458 U.S. 50, 102 S.Ct. 2858, 73 L.Ed.2d 598 (1982). In an effort to ameliorate the over-broad delegation of power that was found unconstitutional in Marathon, Congress in The Bankruptcy Amendments and Federal Judgeship Act of 1984 created the core/non-core distinction found today in Title 28. Jurisdiction over bankruptcy matters is given, first, to district courts. 28 U.S.C. § 1334(a). Pursuant to 28 U.S.C. § 157(a), district courts may refer bankruptcy cases to bankruptcy judges in then-district. Bankruptcy judges may enter final judgments in core matters only, unless the parties to a non-core dispute consent to the court’s entry of a final judgment. Sheridan v. Michels (In re Sheridan), 362 F.3d 96, 99-100 (1st Cir.2004); Arnold Print Works, Inc. v. Apkin (In re Arnold Print Works, Inc.), 815 F.2d 165, 167 (1st Cir.1987).
I am unpersuaded by the Estate’s contentions. For sound reasons, Schepps is not widely accepted. See e.g., In re Johns-Manville Corp., 45 B.R. 823, 825 (S.D.N.Y.1984) (statute contains no mandate that all personal injury and wrongful death claims must be tried, and § 157(b)(2) does not exclude from the bankruptcy court’s core jurisdiction estimation of personal injury and wrongful death claims for “all purposes”); In re C & G Excavating, Inc., 217 B.R. 64, 64 n. 1 (Bankr.E.D.Pa.1998) (bankruptcy court has jurisdiction to “decide corollary issues involving the validity of a proof of claim for personal injuries or wrongful death, such as whether the statute of limitation on the ... cause of action has expired.”); In re Chateaugay Corp., 111 B.R. 67, 76 (Bankr.S.D.N.Y.1990) (bankruptcy court has jurisdiction to make threshold determination whether claim, as a matter of law, exists, even if claim “sounds in personal injury, tort or *225wrongful death”), rev’d on other grounds, 146 B.R. 339 (S.D.N.Y.1992). And Schepps’ intimation that the jurisdictional exclusion is constitutionally bottomed has been justifiably criticized. In re Dow Corning Corp., 215 B.R. 346, 353-54 (Bankr.E.D.Mich.1997) (“The 1984 amendments were enacted to resolve a number of ‘problems’ aside from the jurisdictional crisis created by Marathon some two years earlier.... Finally, recall: many personal injury attorneys confronted the bankruptcy process, some for the first time, in the course of Johns-Manville and other asbestos bankruptcy eases. Not enjoying the process, these attorneys lobbied to exempt, to the extent possible, personal injury claims from adjustment in bankruptcy. Result: 28 U.S.C. § 157(b)(2)(B), (0), § 157(b)(5), and § 1411(a).... There is no rational way one could constitutionally distinguish the trial of a contract claim from the trial of a tort claim in a bankruptcy court.”).
In this case, at this juncture, the amount of the Estate’s claim is simply irrelevant. Plan confirmation is a core matter. 28 U.S.C. § 157(b)(2)(L). Estimation of claims, if necessary, for purposes of confirmation is a core matter. 28 U.S.C. § 157(b)(2)(B); In re UAL Corp., 310 B.R. 373, 378 n. 5 (Bankr.N.D.Ill.2004). What 28 U.S.C. § 157(b)(2)(B) makes non-core is only “the liquidation or estimation of ... unliquidated ... wrongful death claims against the estate for purposes of distribution.” Confirming Pike’s plan requires neither estimating or liquidating the Estate’s claim.4 And even if it did, 28 U.S.C. § 157(b)(2)(B) is clear that the claim could be estimated for purposes of confirmation,5 just not distribution.6
Of course, I understand the Estate’s predicament and its longing for a full hearing addressing the circumstances of the Lewis family’s loss.7 The time for such a hearing may come, if there are sources other than Pike’s personal liability from which recompense might be had. Here, however, Pike’s eligibility for Chapter 13 relief, his good faith, the lawful level of his plan contributions, and all other elements of confirmation are conceded. Nothing would be gained, no legal requirement satisfied, anent confirmation, by trial of the Estate’s claim.8
*226
Conclusion
For these reasons, Pike’s Chapter 13 plan will be confirmed, and the Estate’s motion to dismiss denied. A separate order will issue forthwith.
. As of the bankruptcy petition date, discovery had not yet been taken in the district court civil action.
. Shortly before the conversion, the Estate moved to withdraw the reference of this bankruptcy case. Following a status hearing on December 3, 2004, the district court denied the withdrawal motion without prejudice, in-cheating that “trial of any claim for personal injury or wrongful death would be before [the district court].”
. The Estate filed a proof of claim on November 11, 2004, in the amount of "$1,299,-077.38 — at least.”
. The amount of a debtor’s noncontingent, liquidated debts sets the limits for Chapter 13 jurisdiction, 11 U.S.C. § 109(e). The Estate's unliquidated claim does not count against the jurisdictional limit.
In this district, assuming other requirements (e.g., good faith) are met, Chapter 13 plan confirmation is, fundamentally, a function of what the debtor contributes to the plan. See 11 U.S.C. § 1325. The case might be different if there were a minimum percentage dividend requirement for confirmation.
. Estimation for confirmation purposes can be necessary in connection with Chapter 11 reorganizations. See e.g., 11 U.S.C. §§ 1126(c), 1129(a)(8).
. In this district, plan confirmation precedes the claim allowance/disallowance processes. See D. Me. LBR 3015-3.
. The Estate, after all, is not a faceless entity. It is the family of Ogden Lewis, Jr. Their loss is terrible, and their desire for a full accounting of the circumstances of his death is understandable.
. It is worth mentioning that, since the Estate's claim is the only claim that will be receiving plan dividends, it is impossible to conceive how its liquidation will be necessary for distribution purposes, either. The Estate will receive all plan distributions, less the trustee's commission. Were there one other claim, it would be necessary to liquidate claims to determine each creditors pro rata dividend. And, while, under these circumstances, the result of confirmation will be a final determination of what the Estate is to receive from Pike, that consequence flows from the realities of the plan, not from liquidation of its claim. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493709/ | MEMORANDUM OPINION1
MARY F. WALRATH, Chief Judge.
The Plaintiff, the trustee for the Creditors Reserve Trust, seeks summary judgment on its Complaint to Avoid Preferential and Fraudulent transfers under the Bankruptcy Code and the Massachusetts Uniform Fraudulent Transfer Act. The Defendant opposes the Motion, asserting that there are material issues of disputed fact. For the reasons set forth below, we will deny the Motion.
I.BACKGROUND
CVEO Corporation flk/a Converse, Inc. (“the Debtor”) filed a chapter 11 petition on January 22, 2001. Two months before that, in November of 2000, an ad hoc committee of its noteholders (“the Ad hoc Committee”) and the Debtor entered into an agreement (“the Agreement”) with Chanin Capital Partners (“Chanin”) whereby Chanin agreed to act as a financial advisor to the Ad hoc Committee. Under the Agreement, the Debtor agreed to pay a flat fee of $75,000 per month plus expenses to Chanin for services to be rendered by Chanin to the Ad hoc Committee. The Debtor did, in fact, make two pre-petition payments to Chanin totaling $161,879.
The Plaintiff has filed a Complaint to recover those payments as preferential and fraudulent transfers. On September 9, 2004, the Plaintiff filed a Motion for Summary Judgment on the Complaint. Opposing the Plaintiffs motion, Chanin argues that there are disputed issues of material fact in three areas: (1) whether the payments allowed Chanin to receive more than it would have received in a liquidation; (2) whether the payments were made in the ordinary course of business; and (3) whether Chanin provided the Debt- or with reasonably equivalent value.
The summary judgment motion has been fully briefed and affidavits and deposition transcripts in support of the parties’ positions have been submitted under Rule 56(e) of the Federal Rules of Civil Procedure, which is incorporated by Rule 7056 of the Federal Rules of Bankruptcy Procedure. The matter is now ripe for decision.
II. JURISDICTION
The Court has jurisdiction over this adversary proceeding pursuant to 28 U.S.C. § 157(b)(2)(F) & (H).
III. DISCUSSION
A. Standard for Summary Judgment
The party filing a motion for summary judgment bears the burden of proving that it has established all the elements of its case entitling it to judgment in its favor and that there is no genuine issue of material fact in dispute. See, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 586 n. 10, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “Facts that could alter the outcome are ‘material’ ... and disputes are ‘genuine’ if evidence exists from which a rational person could conclude that the position of the person with *261the burden of proof on the disputed issue is correct.” Horowitz v. Fed. Kemper Life Assurance Co., 57 F.3d 300, 302 n. 1 (3d Cir.1995) (internal citations omitted).
Once the moving party establishes the absence of a genuine issue of material fact, however, the burden shifts to the nonmov-ing party to “do more than simply show that there is some metaphysical doubt as to the material facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. 1348. A party may not defeat a motion for summary judgment unless it sets forth specific facts, in a form that “would be admissible in evidence,” establishing the existence of a genuine issue of material fact for trial. Fed. R. Bankr.P. 7056. See also Fireman’s Ins. Co. of Newark, N.J. v. DuFresne, 676 F.2d 965, 969 (3d Cir.1982) (“Rule 56(e) does not allow a party resisting the motion to rely merely upon bare assertions, conclusory allegations or suspicions”); Olympic Junior, Inc. v. David Crystal, Inc., 463 F.2d 1141, 1146 (3d Cir.1972) (“Conclusory statements, general denials, and factual allegations not based on personal knowledge would be insufficient to avoid summary judgment”); Tripoli Co., Inc. v. Wella Corp., 425 F.2d 932, 935 (3d Cir.1970) (holding that to defeat summary judgment motion, “a party must now come forward with affidavits setting forth specific facts showing that there is a genuine issue for trial”). Unsworn statements of counsel in memoranda submitted to the court are “insufficient to repel summary judgment.” Schoch v. First Fid. Bancorporation, 912 F.2d 654, 657 (3d Cir.1990).
B. Preferential Transfers
To establish that a transfer is a voidable preference, the Plaintiff must show that the transfer was:
(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 ....
11 U.S.C. § 547(b).
The Plaintiff has presented evidence, undisputed by Chanin, as to four of the five elements of a preferential transfer, i.e. that the payments were to or for the benefit of a creditor, for or on account of an antecedent debt, made while the debtor was insolvent, and made within 90 days of the bankruptcy petition filing. Chanin claims that there is a material issue of fact as to whether it received more than it would have in a liquidation.
1. Did Chanin receive more than in a liquidation?
In support of this argument, Chanin points to paragraph 3(d) of the Agreement which provides: “It is further intended by the parties hereto that such of Chanin’s fees payable pursuant hereto, but remaining unpaid at the time of the filing of any petition under chapter 11, shall be in the nature of a post-petition claim for administrative expenses.” Chanin argues, there*262fore, that if it had not been paid pre-petition, it would have been an administrative claimant. While the Plaintiff has presented evidence that the general unsecured creditors would not have been paid in full on a liquidation, Chanin notes that the Plaintiff has not presented any evidence that administrative expense creditors would not have been paid in full. Since the burden of proof on this point is on the Plaintiff, Chanin asserts that summary judgment in Plaintiffs favor is not appropriate. See, e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (summary judgment should enter “against a party who fails to make a showing sufficient to establish the existence of an element essential to that party’s case, and on which that party will bear the burden of proof at trial”).
The Plaintiff argues, however, that the services rendered by Chanin were pursuant to a pre-petition contract and were fully performed pre-petition. Therefore, it argues that Chanin’s claim would rise to no more than a general unsecured claim. See, e.g., Abercrombie v. Hayden Corp., 139 F.3d 755, 757 (9th Cir.1998) (“Postpetition contracts may qualify for administrative expense priority, but costs and expenses arising out of prepetition contracts are treated under the Bankruptcy Code as nonprioritized unsecured claims”).
However, the Third Circuit has recognized that services rendered before the filing of the bankruptcy petition may be entitled to administrative claim status so long as the services provided a substantial contribution to the reorganization efforts during the pendency of the chapter 11 case. Lebron v. Mechem Fin. Inc., 27 F.3d 937, 943-44 (3d Cir.1994). In fact, the Third Circuit specifically noted that such a conclusion was supported by the legislative history and practice under the Bankruptcy Act, which permitted reimbursement of fees for pre-petition services of informal committees of creditors. Id. at 945 (citations omitted).
It is not enough, however, to show that fees and expenses were incurred pre-petition by an informal committee of creditors or that there was a prepetition agreement that the fees would have administrative claim status. In order to achieve administrative status, Chanin must establish that, the pre-petition activity directly benefited the post-petition reorganization efforts. Chanin has presented evidence, by the testimony of its representatives, that it provided a substantial contribution to the chapter 11 case by its analysis of the Debtor’s business and assets and assistance it provided in the preparation of the Debtor for sale. The Plaintiff has presented affidavits of the Debtor’s officers who state that Chanin did not provide any benefit to them or their reorganization. Therefore, a genuine issue of material fact is in dispute. See, e.g., Horowitz, 57 F.3d at 302 n. 1 (“Summary judgment is inappropriate when a case will turn on credibility determinations.”).
2. Has Chanin established an ordinary course defense?
Chanin claims that summary judgment in favor of the Plaintiff is also inappropriate because Chanin has an affirmative defense, namely, that the payment was made in the ordinary course of business. To prove this affirmative defense, Chanin must show that the payments were:
(A) in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debt- or and the transferee;
(B) made in the ordinary course of business or financial affairs of the debtor and the transferee; and
*263(C) made according to ordinary business terms ....
11 U.S.C. § 547(e)(2). All three elements must be established. See, e.g., J.P. Fyfe, Inc. v. Bradco Supply Corp., 891 F.2d 66, 69 (3d Cir.1989).
“The purpose of the [ordinary course of business] exception is to leave undisturbed normal financing relations, because it does not detract from the general policy of the preference section to discourage unusual action by either the debtor or his creditors during the debtor’s slide into bankruptcy.” Id. at 70 (quoting S.Rep. No. 989, 95th Cong., 1st Sess. 88, reprinted in 1978 U.S.C.C.A.N. 5787, 5874).
As to the first element, the defendant “must demonstrate that the original transaction creating the debt is within the ordinary course of dealing between the parties.” In re Toy King Distribs., Inc., 256 B.R. 1, 114 (Bankr.M.D.Fla.2000) (internal quotations and citations omitted). The second element is a subjective inquiry focusing on the ordinary payment pattern of both the debtor and the creditor. Id. at 120. The third element “refers to the range of terms that encompasses the practices in which firms similar in some general way to the creditor in question engage, and that only dealings so idiosyncratic as to fall outside that broad range should be deemed extraordinary and therefore outside the scope of subsection C.” Fiber Lite Corp. v. Molded Acoustical Prods., Inc. (In re Molded Acoustical Prods., Inc.), 18 F.3d 217, 220 (3rd Cir.1994) (internal quotations and citations omitted).
With respect to the first element, Chanin has presented evidence that the Agreement was entered in the ordinary course of its own business. As an investment banker and financial advisory firm, it often enters into such agreements with corporations and their public noteholders. The more difficult issue is whether there is any evidence that the Agreement was in the ordinary course of the Debtor’s business.
Chanin argues that it is ordinary for “[a]n entity encountering difficult financial times” such as the Debtor to seek professional advice as part of its restructuring efforts. See, e.g., Harman v. First American Bank (In re Bigelow Design Group, Inc.), 956 F.2d 479, 488 (4th Cir.1992). It further argues that the debt was incurred by the Debtor as part of an arms-length commercial transaction. Eric Scroggins, Chanin’s witness, testified that the Debtor entered into the Agreement because it thought the Agreement was in its own best interests, and that the Debtor derived benefit from the services provided by Chanin to the Committee.
The Plaintiff argues that it clearly was not in the ordinary course of the Debtor’s business, which was the manufacture and sale of sneakers. The Debtor was not in the habit of paying the fees of its creditors’ professionals. See Lawlor Affidavit at ¶ 8. Further, it asserts that the Ad hoc Committee coerced the Debtor into agreeing to pay Chanin’s fees by threatening to file an involuntary petition against the Debtor. Such action, the Plaintiff asserts, is exactly what Congress intended to prevent by enacting the preference provisions.
It is apparent that there are genuine issues of material fact as to the circumstances of the agreement to pay Chanin’s fees and whether the Debtor was agreeing to pay other restructuring fees at the same time. Consequently, we cannot find that the debt arose in the ordinary course of the Debtor’s business or financial affairs. Similarly, we conclude that there are genuine issues of material fact as to the second and third elements of the ordinary course of business defense, whether the payments were made according to an ordinary pay*264ment pattern and whether the Agreement and payments fall outside the ordinary range of terms in the industry generally. Therefore, summary judgment is not appropriate and the Motion will be denied as to the preference count of the Plaintiffs Complaint.
C. Fraudulent Transfers
The Plaintiff alleges in Count II of its Complaint that the payments were fraudulent transfers under the Bankruptcy Code and applicable state law.2 Section 548(a)(1) of the Bankruptcy Code provides in relevant part:
The trustee may avoid any transfer of an interest of the debtor in property, or any obligation incurred by the debtor, that was made or incurred on or within one year before the date of the filing of the petition, if the debtor voluntarily or involuntarily—
(B) (i) received less than a reasonably equivalent value in exchange for such transfer or obligation; and
(ii)(I) was insolvent on the date that such transfer was made or such obligation was incurred, or became insolvent as a result of such transfer or obligation ....
11 U.S.C. § 548(a)(1). The Massachusetts Uniform Fraudulent Transfer Act requires substantially the same showing.
The only element of a fraudulent transfer as to which Chanin claims that there is a material fact in dispute is whether the Debtor received less than reasonably equivalent value in exchange for the payments it made to Chanin.
The Plaintiff argues that no value at all was given by Chanin to the Debtor. To support this argument, the Plaintiff presented the affidavit of James Lawlor, the Debtor’s former Chief Financial Officer, who stated that services were rendered by Chanin solely to the Ad hoc Committee and that the Debtor received no value. Further, the Plaintiff notes that the Agreement itself said that the Ad hoc Committee was Chanin’s client and the Debtor could not rely on Chanin’s work.
Chanin argues in response that, as a matter of law, we must conclude that value was given because the payments were made in satisfaction of an antecedent debt. 11 U.S.C. § 548(d)(2)(A) (“value” is defined for purposes of this section to include the “satisfaction or securing of a present or antecedent debt”). See also Sherman v. FSC Realty LLC (In re Brentwood Lexford Partners, LLC), 292 B.R. 255, 268 (Bankr.N.D.Tex.2003); Balaber-Strauss v. Sixty-Five Brokers (In re Churchill Mortgage Inv. Corp.), 256 B.R. 664, 678-80 (Bankr.S.D.N.Y.2000).
We disagree with Chanin’s legal argument. In this case, the antecedent debt itself arose within the fraudulent conveyance period. Therefore, we must determine if the Debtor’s undertaking to be liable for that debt provided any benefit to the estate which is reasonably equivalent to the liability incurred and paid.
Even if the Court were inclined to examine the amount of the value given, however, Chanin argues that there are disputed facts on this point. It presented the depositions of Scroggins and Michael Seery, a vice president of Chanin, who testified that the Debtor did receive value from the services Chanin provided: (1) the Debtor’s *265agreement to pay for Chanin’s services kept the noteholders from filing an involuntary petition against the Debtor; (2) the purpose of Chanin’s engagement was to maximize the value of the Debtor’s assets; (3) Chanin shared its work product with the Debtor, allowing the Debtor to negotiate a higher price for its assets. See, e.g., Pummill v. Greensfelder, Hemker & Gale (In re Richards & Conover Steel, Co.), 267 B.R. 602 (8th Cir. BAP 2001) (holding that there was no fraudulent transfer where attorney for pre-petition ad hoc committee of unsecured creditors was paid by debtor).
As noted above, the Plaintiff has presented testimony that conflicts with Cha-nin’s position. Therefore, we conclude that there is a genuine issue of material fact as to whether the Debtor received value from the services Chanin provided to the Committee that was reasonably equivalent in value to the payments made to Chanin. Thus, summary judgment is also not appropriate on the fraudulent transfer count.
IV. CONCLUSION
For the reasons stated above, we conclude that the Motion for Summary Judgment filed by the Plaintiff should be denied.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
. Under section 544(b) of the Bankruptcy Code, ”[T]he trustee may avoid any transfer of an interest of the debtor in property ... that is voidable under applicable law .In this case, the Plaintiff seeks to avoid the payments under the Massachusetts Uniform Fraudulent Transfer Act. See Mass. Gen. Laws ch. 109A, §§ 1 et seq. (2004). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493710/ | Opinion
STEPHEN RASLAVICH, Bankruptcy Judge.
I. Introduction
Before the Court is Plaintiff Liberty Logistics, LLC’s (“Liberty”) Motion for Leave to Amend Complaint under Fed. R. Bankr.P. 7015. In its Motion, Plaintiff seeks to amend the Complaint to include a claim for damages based on lost profits from operations. Defendant Consolidated Container Company LLC (“Consolidated”) opposes the Motion. The Court held an expedited hearing on this matter on January 20, 2005. For the reasons discussed below, the Court will deny Plaintiffs Motion.
II. Procedural Background
Liberty filed this breach of contract action against Consolidated on April 15, 2004. Discovery closed October 15, 2004, and trial is scheduled to begin March 16, 2005.
In the Complaint, Liberty alleges breach of contract regarding transportation services it agreed to provide Consolidated out of Consolidated’s Verona, Pennsylvania facility. Allegedly in reliance on the contract, Liberty leased for a three-year term 160 trailers that it then intended to rent to Consolidated for a profit. See Complaint, at ¶ 15. In the Complaint, Liberty seeks as its sole basis of damages the profit lost on the rental of those trailers. The amount of that claim totals $625,069.00, a figure calculated by multiplying the weekly rental fee times the number of trailers times the total number of weeks remaining on the contract, minus the cost of leasing the trailers for the same period.
At no time prior to the close of discovery on October 15, 2004 did Plaintiff raise any additional damages claim. In fact, in response to a specific discovery request by Defendant concerning Plaintiffs alleged damages, Plaintiff made no mention of any claim other than lost profits from the lease of the trailers.
On November, 5, 2004, Plaintiff filed its pretrial disclosures in this case. In the disclosures, Plaintiff again failed to indicate any damage claim other than lost profits from the lease of the trailers.
On December 6, 2004, the parties’ counsel participated in a conference call with the Court concerning Defendant’s motion to extend the trial date. Not only did Plaintiff again fail to mention an additional damage claim but Plaintiff opposed Defendant’s request for more time, arguing that it would be prejudiced by a delay of the proceedings.
Now, just two months prior to the start of trial-and three months following the close of discovery-Plaintiff seeks leave to *293amend the Complaint to assert an entirely new damage theory based on lost profits related to the operation of its business. Under this new theory, damages would include lost profits from Plaintiffs provision of transportation services (i.e., tractors and drivers) to move the trailers from Defendant’s Verona facility to its customers’ locations. Plaintiff therefore now seeks to recover lost profits from both its provision of trailers and its provision of transportation services. Through this proposed amendment, Plaintiff seeks to increase its total damages claim by over one-third, adding an additional $354,915.00 in damages. On December 10, 2004, Plaintiff provided Defendant with a document titled “Calculation of Damages,” which identified this new damages claim. At the January 20, 2005 hearing, Plaintiff had the damages document, identified as Schedule B, marked as an exhibit. Schedule B identifies nine categories of Plaintiffs operating expenses and projected net income from transportation services for the remainder of the contract.
Plaintiffs explanation for seeking leave to amend this late in the proceedings is that it did not become “aware” of the extent of Plaintiffs damages until shortly before December 10, 2004. According to Plaintiff, it was not until early December when it began to assess any losses from its transportation services-losses that would have had to offset any claimed profits from the lease of the trailers-did it realize that it actually had lost profits from operations.
In response to Plaintiffs Motion, Defendant argues that dilatory motive, undue delay and unfair prejudice should act as a bar to amendment.1
III. Discussion
Amendment of pleadings is governed by Fed. R. Bankr.P. 7015, which incorporates Fed.R.Civ.P. 15. Subsection (a) of Rule 15 provides in pertinent part:
(a) Amendments. A party may amend the party’s pleading once as a matter of course at any time before a responsive pleading is served or, if the pleading is one to which no responsive pleading is permitted and the action has not been placed upon the trial calendar, the party may so amend it at any time within 20 days after it is served. Otherwise a party may amend the party’s pleading only by leave of court or by written consent of the adverse party; and leave shall be freely given when justice so requires.
Fed.R.Civ.P. 15(a) (emphasis added).
Because Defendant already filed its answer to Plaintiffs Complaint, leave of court to amend is required. Rule 15(a) states that “leave shall be freely given when justice so requires.” Id. However, if there exists an apparent or declared reason such as “undue delay, bad faith or dilatory motive on the part of the movant, repeated failure to cure deficiencies by amendments previously allowed, undue prejudice to the opposing party by virtue of allowance of the amendment [or] futility of the amendment,” leave to amend should be denied. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962). Here, Defendant argues that Plaintiff has exhibited dilatory motives, there has been undue delay, and amendment will result in undue prejudice to Defendant. The Court agrees with Defendant.
*294The record demonstrates that Plaintiff has acted with dilatory motives. Plaintiffs asserted reason for the delay is lack of diligence. Plaintiff claims that it just did not realize it had this claim for lost operational profits until it began to assess in December 2004 whether there would be any offset to its claim regarding the trailers. Plaintiffs own counsel’s testimony, however, makes clear that the true reason for its delay was its misplaced confidence in a settlement of this case. Jerrold Moss, Esquire, counsel for Plaintiff, testified as much before this Court on January 20, 2005. See N.T., at 6 (“... when this case was filed, I believe on April 15th, tax day of last year, as we approached the-got to the discovery and approached the time for trial, it became rather apparent that this case was not going to be [settled] [sic], as I naively thought it would be.”). Thus, it is evident that Plaintiff rested its hope on settlement of this matter rather than fully and properly preparing its case and prosecuting its claims. With settlement failing to occur, Plaintiff now seeks to “raise the stakes” of its claims by proffering a new damages theory, just weeks before trial, that increases its total damage amount by over one-third. The Court will not permit amendment in light of these dilatory and tactical motives.
Moreover, the Court finds that there has been undue delay. While delay alone is an insufficient ground to deny leave to amend, “at some point the delay becomes ‘undue,’ placing an unwarranted burden on the court, or becomes ‘prejudicial,’ placing an unfair burden on the opposing party.” See Cureton v. National Collegiate Athletic Ass’n, 252 F.3d 267, 273 (3d Cir.2001) (quoting Adams v. Gould Inc., 739 F.2d 858, 863 (3d Cir.1984)). Delay may become undue when the movant had numerous past opportunities to amend the complaint. Id. Thus, the question of delay requires the court to focus on the movant’s reasons for not amending sooner. Id.
In the instant case, had Plaintiff properly prepared its case and focused on the harm it allegedly suffered, it would have had ample opportunity to amend the Complaint in a timely fashion had it been necessary. Instead, Plaintiffs request comes three months after the close of discovery, nine months after filing of the Complaint, and almost two years after the alleged breach. Despite the egregious delay, Plaintiffs only explanation is inattention to its damages claim-an explanation that, as discussed above, was really due to its hopes of settlement. The Plaintiffs delay in this case goes well beyond acceptable bounds of tardiness. For these reasons as well, the Court finds that amendment is not warranted.
Finally, the Court also finds that allowance of amendment will cause unfair prejudice to Defendant. The issue of prejudice requires the court to focus on the hardship on defendant if amendment were permitted. Cureton, 252 F.3d at 273. Unlike the formulaic calculation of damages set forth in the Complaint concerning lost rental profit on the trailers, Plaintiff now seeks to add an intricate and complicated analysis of lost profits stemming from the operation of its business. Under Pennsylvania law, lost profits for new business must be proven with “reasonable certainty” and with more persuasive evidence than is required in the case of ongoing business. See National Controls Corp. v. National Semiconductor Corp., 833 F.2d 491, 495-96 (3d Cir.1987). This standard allows for increased scrutiny of movant’s records and projections of expenses.
Here, the vetting of Plaintiffs new theory of damages would lead to significant new preparation by Defendant. Defen*295dant would first have to obtain discovery of Plaintiffs pertinent operational data, including revenues and expenses. The nine categories of expenses set forth in Schedule B-wages, office/clerical wages, truck rental, insurance, fuel costs, tires, repairs and maintenance, tolls and telephone-are indicative of the breadth of records that Defendant would need to discover and analyze. Taking the above data, Defendant would then have to parse out what costs were attributable to operations at Consolidated’s Verona facility and what were attributable to other locations. Further, Defendant would have to isolate which costs were associated with the dedicated lane operations and which with the non-dedicated lanes. Defendant has also indicated that it would need to retain a forensic accountant to cull through and properly analyze the above data and to accurately forecast operational costs for the remainder of the contract. This poses a laborious, expensive and time-consuming burden on Defendant. The Court will not impose such a burden on Defendant just weeks before trial.
IV. Conclusion
For all of the reasons set forth above, the Court finds that dilatory motives, undue delay and unfair prejudice to the Defendant all warrant denial of Plaintiffs request for amendment at this late stage of the proceedings. Accordingly, the Court will deny Plaintiffs Motion for Leave to Amend its Complaint.
ORDER
And now, upon consideration of Plaintiff Liberty Logistics, LLC’s (“Liberty”) Motion for Leave to Amend Complaint, and opposition thereto, and after a hearing held thereon on January 20, 2005, it is hereby:
Ordered, that for the reasons stated in the accompanying Opinion, the Motion is DENIED.
. In addition, Defendant argues that Plaintiff's failure to attach a draft amended pleading to its Motion is also fatal to its request. See Lake v. Arnold, 232 F.3d 360, 374 (3d Cir.2000). For this reason, in addition to the reasons set forth infra, the Court will deny Plaintiff's Motion. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484481/ | DISTRICT COURT OF APPEAL OF THE STATE OF FLORIDA
FOURTH DISTRICT
BEVERLY LOUISE BROOK,
Appellant,
v.
STATE OF FLORIDA,
Appellee.
No. 4D22-1026
[November 17, 2022]
Appeal from the County Court for the Nineteenth Judicial Circuit,
Martin County; Kathleen H. Roberts, Judge; L.T. Case No.
432021MM000464A.
Beverly Louise Brook, Port St. Lucie, pro se.
No appearance filed for appellee.
PER CURIAM.
Affirmed.
GERBER, LEVINE and CONNER, JJ., concur.
* * *
Not final until disposition of timely filed motion for rehearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484484/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0874
Filed November 17, 2022
TYLER M. GOULD,
Plaintiff-Appellee,
vs.
WENDY L. ALDERIN,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Scott County, Mark D. Cleve, Judge.
A mother appeals the district court decision sending the parties’ child to
school in the father’s school district. AFFIRMED.
Ryan M. Beckenbaugh of Beckenbaugh Law P.C., Davenport, for appellant.
Robert S. Gallagher of Gallagher, Millage & Gallagher, P.L.C., Bettendorf,
for appellee.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
CHICCHELLY, Judge.
This appeal concerns the narrow issue of where the parties’ minor child,
E.G., should attend school. Wendy Alderin wishes for the child to attend school in
Illinois where she resides. The district court determined that E.G. should attend
school in Iowa where his father, Tyler Gould, resides. Upon our de novo review,
we affirm that E.G. should be enrolled in the Davenport Community School District.
I. Background Facts and Proceedings.
E.G., born in 2017, is the only child shared by Wendy and Tyler. The parties
were living together in Blue Grass, Iowa, at the time of his birth but separated in
approximately 2019. At that time, Tyler moved to nearby Walcott, Iowa. Tyler filed
a petition to establish custody and visitation, but the parties were able to cooperate
and arrive at a stipulation to maintain joint legal custody and joint physical care on
a week on/week off basis, which the court approved in March 2020.
Between March and June of 2020, Wendy moved into a home owned by
her fiancé in Taylor Ridge, Illinois. Wendy works as a paramedic and is able to
arrange her schedule to work on alternate weeks when she does not have E.G.
Wendy has three older children, ages nine, thirteen, and fourteen. She has
physical care of the two oldest children and joint care of the nine-year-old child,
whose schedule syncs with that of E.G. Under Wendy’s stipulation with the father
of her nine-year-old child, she cannot leave the Rockridge School District (based
in Taylor Ridge, Illinois).
3
In January 2021, Tyler moved to Buffalo, Iowa, where he now resides with
his girlfriend.1 They own their home as joint tenants and have a one-year-old
daughter. He is employed full-time as an auto mechanic in Davenport.
In May, Tyler filed a petition requesting the court to determine where E.G.
should attend school. During the pendency of this action, E.G. began four-year-
old preschool at a private school in Illinois. Tyler and Wendy had each enrolled
him in different schools, but Tyler explained that he had to “bite the bullet” and
consent to attendance in Illinois to avoid E.G. missing out on preschool. Wendy
accepted responsibility for the cost of the preschool.
In March 2022, the district court held a hearing on the matter and
subsequently ordered E.G. to be enrolled in the Davenport Community School
District beginning in the fall of 2022. Wendy filed a timely appeal.
II. Review.
As this appeal concerns modification of a child custody action and was
heard in equity, our review is de novo. See Iowa R. App. P. 6.907; Christy v. Lenz,
878 N.W.2d 461, 464 (Iowa Ct. App. 2016). We give weight to the district court’s
factual findings and credibility determinations, though we are not bound by them.
Christy, 878 N.W.2d at 464. “Prior cases have little precedential value, except to
provide a framework for analysis, and we must base our decision on the particular
facts and circumstances before us.” In re Marriage of Will, 489 N.W.2d 394, 397
(Iowa 1992).
1Buffalo and Taylor Ridge are both located near the Quad Cities, approximately
seventeen miles apart.
4
III. Discussion.
As joint legal custodians, each parent is entitled to “equal participation” in
decisions affecting the child’s education. Iowa Code § 598.1(3) (2021). Because
the parties have been able to effectively co-parent with the exception of the specific
question now before us, neither parent requests a change to their custody or
physical-care arrangement. However, Wendy requests that Tyler be ordered
responsible for all transportation to and from school if we are to affirm the district
court’s decision to place E.G. in school in Iowa.
In rendering our decision, we seek a resolution that serves the best interest
of the child:
Our supreme court has explained that ‘[w]hen joint legal custodians
have a genuine disagreement concerning a course of treatment
affecting a child’s medical care, the court must step in as an objective
arbiter, and decide the dispute by considering what is in the best
interest of the child.’ That reasoning applies equally to decisions
concerning a child’s education.
In re Marriage of Laird, No. 11-1434, 2012 WL 1449625, at *3 (Iowa Ct. App. Apr.
25, 2012) (internal citation omitted). “‘Best interest of the child’ includes but is not
limited to the opportunity for maximum continuous physical and emotional contact
possible with both parents, unless direct physical or significant emotional harm to
the child may result from this contact.” Iowa Code § 598.1(1).
Wendy argues the logistics of getting E.G. to and from a different school
than her older children support him attending school in Illinois. Tyler testified that
he has significant flexibility in his work schedule and is able to transport E.G. to
school in either district. We have previously prioritized logistics in selecting a
child’s school to minimize the amount of time the child must spend traveling to and
5
from school. See Laird, 2012 WL 1449625, at *3; Gaswint v. Robinson, No. 12–
2149, 2013 WL 4504879, at *5 (Iowa Ct. App. Aug. 21, 2013). However, Wendy’s
argument pertains to a schedule that will work best for her and not how long E.G.
will spend traveling. In either school district, E.G. will have a longer trip to and
from school every other week, and both parents will have at least one half-sibling
with whom to coordinate transportation. Therefore, we are unpersuaded by the
logistics issue.
Both parents presented evidence regarding the quality of education offered
by the two school districts. While the Illinois schools ranked slightly better in some
categories, we agree with the district court’s finding that they are relatively
comparable and both good schools. Tyler argued there are better opportunities to
pursue college credit during high school in Davenport, but Wendy pointed out there
is some availability for such credit with Rockridge, and the curriculum may change
by the time E.G. reaches high school. Given the age of E.G.’s half-siblings, there
will be minimal building overlap with his next closest half-sibling in either school
district. Tyler emphasized that E.G. also has friends from tee-ball and cousins
from Wendy’s side in the Davenport schools. Wendy pointed out that E.G. made
friends while attending preschool in Illinois. We encourage both parents to
continue to foster E.G.’s social development with family and friends from their
respective communities and extracurricular activities.
The district court cited “a slight advantage in continuity and stability” for E.G.
to attend school in the Davenport district. While both school districts present
strong opportunities to serve E.G.’s best interest, we affirm the court’s decision
that E.G. should be enrolled in the Davenport Community School District. Because
6
it would be inequitable to completely absolve Wendy of her responsibility to
transport E.G. to and from school, we decline her request to order Tyler to provide
all transportation.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484491/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0767
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
JEFFREY BLAKE PALMER,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Scott County, Stuart P. Werling,
Judge.
Jeffrey Palmer appeals the sentence imposed for convictions of possession
of controlled substances. AFFIRMED.
Martha J. Lucey, State Appellate Defender, and Melinda J. Nye, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Louis S. Sloven, Assistant Attorney
General, for appellee.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
BOWER, Chief Judge.
Jeffrey Palmer appeals the fines imposed as part of his sentence. 1
Pursuant to a plea agreement, on February 18, 2022, Palmer pleaded guilty to
possession of methamphetamine with intent to deliver, a class “C” felony, and
possession of marijuana with intent to deliver, a class “D” felony. Also on February
18, a written “memorandum of plea agreement” signed by Palmer and his attorney
was filed with the court. The State agreed to dismiss one count and not to pursue
a sentencing enhancement. Sentencing was open, with the State free to “make
any recommendations at sentencing” and a provision for Palmer’s restitution order.
The court accepted Palmer’s guilty pleas.
“We review sentences imposed in a criminal case for correction of errors at
law.” State v. McCalley, 972 N.W.2d 672, 676 (Iowa 2022). “Sentencing decisions
that fall within the statutory limits are ‘cloaked with a strong presumption in [their]
favor.’” Id. (alteration in original) (citation omitted). “Absent ‘an abuse of discretion
or some defect in the sentencing procedure,’ we will not reverse a sentence.” Id.
(citation omitted).
Palmer alleges the sentencing court did not explain its reasons for imposing
the minimum fines instead of suspending them, asserting the district court should
have to create additional record if imposing fines or suspending them.
A district court’s sentencing discretion “includes the authority to defer or
suspend a fine.” State v. Loyd, 530 N.W.2d 708, 713 (Iowa 1995); see State v.
1 Because Palmer is challenging his sentence, he has good cause to appeal. See
State v. Damme, 944 N.W.2d 98,105 (Iowa 2020) (“We hold that good cause exists
to appeal from a conviction following a guilty plea when the defendant challenges
his or her sentence rather than the guilty plea.”).
3
Lee, 561 N.W.2d 353, 355 (Iowa 1997) (vacating a fine imposed when the court
“erroneously believe[d] it had no discretion” and remanding for resentencing). “All
that is required of the district court is its consideration and weighing of pertinent
sentencing matters, . . . and the ‘court is not required to give its reasons for
rejecting particular sentencing options.’” State v. Smith, No. 21-0400, 2022 WL
244498, at *4 (Iowa Ct. App. Jan. 27, 2022) (quoting Loyd, 530 N.W.2d at 713–
14).
At the sentencing hearing, the State recommended concurrent prison
sentences and the imposition of statutory minimum fines. The court then verified
what the statutory minimum fine for each offense was, correcting a misstatement
in the plea agreement with respect to the minimum fine for the class “C” felony.
Palmer requested suspended sentences and probation, or concurrent sentences
if incarcerated. Palmer did not request the statutory fines be suspended. The
presentence investigation (PSI) made no recommendation as to fines. The court
imposed concurrent prison sentences and statutory minimum fines of $1000 and
$855 for the two offenses; it did not suspend any of the sentence. The court stated
its reasons for the sentence imposed:
The court has heard the statements of counsel and has
reviewed the PSI in this matter. The court notes that the defendant
has a prior criminal history that appears to be largely drug-related.
However, the court notes that there is a firearm offense in his criminal
history, which the court takes quite seriously.
The PSI author recommends incarceration in this matter. The
State recommends incarceration. The defense requests probation.
The court, in this case, feels that the defendant would benefit from
the services that would be available in a more restrictive
environment.
For those reasons, the court takes—and taking into
consideration the recommendations of the PSI author, the
defendant’s needs as set forth in the PSI, the nature of this offense,
4
and his criminal history, the court believes that a term of incarceration
is appropriate in this matter.
When discussing whether to order discretionary category “B” restitution, see Iowa
Code §§ 910.1(2) (defining category “B” restitution), .2(1)(a)(2) (stating “[c]ategory
“B” restitution shall be ordered subject to an offender’s reasonable ability to make
payments pursuant to section 910.2A”), Palmer’s counsel indicated he did not have
the capacity to make such payment but again did not suggest suspending Palmer’s
fines.
The court considered and gave reasons for the sentence imposed, which
includes the statutory minimum fines. The court was not required to give its
reasons for deciding not to suspend his fines—an alternative Palmer did not
request. We find Palmer has failed to overcome the presumption of validity of his
sentence and affirm.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484490/ | IN THE COURT OF APPEALS OF IOWA
No. 21-0707
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
JIMMY JACOBY CARR,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Pottawattamie County, Michael D.
Hooper, Judge.
The defendant challenges his convictions and sentences. AFFIRMED IN
PART, VACATED IN PART, AND REMANDED.
Martha J. Lucey, State Appellate Defender, and Josh Irwin, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Tyler J. Buller (until withdrawal)
and Thomas E. Bakke, Assistant Attorneys General, for appellee.
Considered by Bower, C.J., Tabor, J., and Potterfield, S.J.* Buller, J., takes
no part.
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
POTTERFIELD, Senior Judge.
Following an incident at a gas station in 2020, Jimmy Carr was charged with
attempted murder of a peace officer (count I), robbery in the first degree (count II),
assault on a peace officer while using or displaying a dangerous weapon
(count III), interference with official acts while using or displaying a dangerous
weapon (count IV), and felon in possession of a firearm (count V). A jury acquitted
him of attempted murder; found him guilty of lesser-included charges of counts III
and IV—assault and interference with official acts, respectively; and found him
guilty as charged of first-degree robbery and felon in possession of a firearm.
Carr appeals,1 arguing (1) the district court erred in not giving the specific
instruction on implicit bias that he requested; (2) the court erred in overruling his
objection to the instruction on participation in a public offense because it contained
an inaccurate statement of law; (3) there is insufficient evidence to support his
conviction for assault because the State’s theory was that Carr assaulted the police
officer by drawing and firing a gun, which the jury implicitly rejected when it
acquitted Carr of attempted murder, assault on a peace officer while using or
displaying a dangerous weapon, and interference with official acts while using or
displaying a dangerous weapon; (4) there is insufficient evidence to support his
conviction for first-degree robbery; (5) the district court abused its discretion in
denying his motion for new trial on the assault and first-degree-robbery
1 Carr applied for discretionary review, asking for review of the sufficiency of the
evidence on his assault conviction—a simple misdemeanor—claiming that
otherwise Carr would not be afforded substantial justice. See Iowa R. App.
P. 6.106(2). Our supreme court granted Carr’s application before transferring the
case to us.
3
convictions; and (6) even if there is sufficient evidence to support both the assault
and the first-degree robbery convictions, the two should have merged.
I. Background Facts and Proceedings.
On May 2, 2020, just before 8:00 a.m., Carr and a female friend walked into
a Council Bluffs convenience store.2 Carr picked up a gas can before one of the
workers, Dakota, heard Carr and the woman discussing how they forgot to bring
money. Then Carr put the gas can under his shirt and exited the store without
paying; his friend followed a few seconds later. After double checking that Carr
had not paid, Dakota took a few steps outside and asked Carr to come back and
return the gas can. Carr walked toward him; Dakota believed Carr was intending
to hand the gas can over.
As Carr exited the store, Officer Michael Roberts pulled up, intending to get
a cup of coffee. Officer Roberts walked up to Dakota and Carr and immediately
asked if the gas can was paid for; Dakota told him it was not. Carr continued to
hold the gas can in his right hand and had his left hand in a pocket. According to
Officer Roberts, he told Carr to remove his hand from his pocket so they could talk;
Carr reponded, “I got this, it’s all good” and started pacing slightly. Officer Roberts
again ordered him to remove his hand from his pocket and, when Carr did not
comply, moved to handcuff Carr. Officer Roberts testified he grabbed the hand
holding the gas can while he reached for his handcuffs; Carr “made a stutter step,”
and Officer Roberts shoved him. “[I]mmediately after that shove, [Officer Roberts]
2The convenience store had cameras recording from several angles both inside
and outside of the store. A number of videos of the time period at issue were
entered into evidence at trial.
4
heard a pop. And then [Carr] hit[] a stand of windshield wiper fluid, and [Officer
Roberts saw] out of the corner of [his] eye something flying.” It was a gun. Carr
got up and, believing Carr was running toward the gun, Officer Roberts shoved
Carr a second time. According to Officer Roberts, he “kind of push[ed] him forward,
closer to the gun. And [Carr got] up quick again. And he[ was] within a few feet,
and he start[ed] leaning over for the gun, and [Officer Roberts drew] his service
weapon and fire[d] two rounds at him.” One of the bullets hit Carr and lodged in
his buttock.
Once backup arrived, Carr was taken into custody. He was taken to the
hospital, and the clothing he was wearing—including boxers, athletic shorts, and
jeans—was retained as evidence. The gun Officer Roberts saw “flying” remained
on the ground where it fell until it was also recovered.
Carr was charged with attempted murder of a peace officer (count I),
robbery in the first degree (count II), assault on a peace officer while using or
displaying a dangerous weapon (count III), interference with official acts while
using or displaying a dangerous weapon (count IV), and felon in possession of a
firearm (count V). He pled not guilty and proceeded to a jury trial.
At trial, the prosecutor elicited testimony from Dakota that after Officer
Roberts first told Carr to put his hands up, Carr “flashed something or his waistband
or something.” Dakota testified, “Officer Roberts was yelling, ‘Freeze, stop,’ and I
heard disfire [sic]. I don’t know whose gun went off first. Next thing you know,
Officer Roberts is grabbing his gun.” During his testimony, Officer Roberts
admitted he “never saw the pistol on” Carr. But he testified that later, when Carr
was being taken into custody, he asked Carr about the gun and Carr’s response
5
was, “I need to protect myself.” Officer Roberts took this to mean Carr admitted
the gun was his.
One of the crime scene investigators from the Council Bluffs Police
Department testified at trial. She testified they recovered only two bullet casings
from the scene—both fired from Officer Roberts’s gun. A third casing was found
still in the chamber of the gun that was recovered. The only recovered bullet was
the one lodged in Carr’s body. The investigator also observed “a defect, a hole, in
the wall that may have been caused by a fired bullet in the side of the building.” It
was never confirmed to be a bullet hole—no bullet was recovered and no
reconstructions of the scene was completed. And the investigator could not say
whether the cartridges Officer Robert had in his gun—9 mm—or the cartridges in
the recovered gun—.380 ACP—may have caused it. The investigator also testified
about the clothing taken from Carr at the hospital; the front pockets of his jeans did
not have any defects—no holes from a bullet or otherwise. The athletic shorts he
was wearing under the jeans had a defect in one of the pockets; the investigator
could not testify about what caused it. She testified she used an infrared camera
to look for gunshot residue inside the pockets of the athletic shorts and did not
observe any. When asked by defense counsel, the investigator agreed her report
did not list the pockets as being tested but testified she remembered completing
the testing.
Carr rested without presenting a defense.
The jury acquitted Carr of attempted murder of a peace officer. It found him
guilty of lesser-included charges on both count III and IV—assault as part of
assault on a peace officer while using or displaying a dangerous weapon and
6
interference with official acts as a lesser included of interference with official acts
while using or displaying a dangerous weapon. The jury also convicted Carr of
first-degree robbery and felon in possession of a firearm.
Carr filed what he called a combined motion in arrest of judgment and for
new trial. In the motion, Carr considered the elements of the various charged
crimes and, based on the jury’s overall verdict, argued it found he “possessed a
firearm but did not display or use that firearm.” He claimed there was insufficient
evidence to support his conviction for first-degree robbery and assault and argued
arrest of judgment was the proper remedy. Carr moved for new trial based on an
improper statement made by the prosecutor and an alleged issue involving
whether his jury pool was comprised of a fair cross section of the community.
The court took up the motions before sentencing Carr. After some
discussion about case law and Carr’s motion, the court stated it would “consider
[Carr’s claims of insufficient evidence] as a motion for new trial” and “weigh the
evidence in total, consider the credibility of each witness” and determine if “there’s
a miscarriage of justice.” After arguments from Carr and the State, the court
broadly denied Carr’s motion.
Carr was sentenced to twenty-five years in prison for first-degree robbery
with a 70% mandatory minimum and five years for being a felon in possession of
a firearm, he was ordered to serve those two sentences concurrently. The court
also sentenced Carr to thirty days for assault and interference with official acts,
with those two sentences served concurrently.
Carr appeals.
7
II. Discussion.
A. Jury Instructions.
1. Implicit Bias.
Carr is African American; he asked the district court to give the jury the
instruction on implicit bias that was proposed by the “Achieving an Impartial Jury”
Project (AIJ Project), which states:
Our system of justice depends on judges like me and jurors
like you being able and willing to make careful and fair decisions.
Scientists studying the way our brains work have shown that, for all
of us, our first responses are often like reflexes. Just like our knee
reflexes, our mental responses are quick and automatic. Even
though these quick responses may not be what we consciously think,
they could influence how we judge people or even how we remember
or evaluate the evidence.
Scientists have taught us some ways to be more careful in our
thinking that I ask you to use as you consider the evidence in this
case:
Take the time you need to test what might be reflexive
unconscious responses and to reflect carefully and consciously
about the evidence.
• Focus on individual facts, don’t jump to conclusions that may
have been influenced by unintended stereotypes or associations.
• Try taking another perspective. Ask yourself if your opinion
of the parties or witnesses or of the case would be different if the
people participating looked different or if they belonged to a different
group.
• You must each reach your own conclusions about this case
individually, but you should do so only after listening to and
considering the opinions of the other jurors, who may have different
backgrounds and perspectives from yours.
Working together will help achieve a fair result.
AIJ Project, Toolbox, Am. Bar Ass’n 17–20 (footnotes omitted),
https://www.americanbar.org/content/dam/aba/publications/criminaljustice/voirdir
e_toolchest.pdf (last visited Oct. 12, 2022); see also State v. Williams, 929 N.W.2d
621, 632–33 (Iowa 2019).
8
The prosecutor resisted, arguing the court “should stick with the model.
That’s what happened in [Williams]. The [s]upreme [c]ourt certainly did not
disapprove of the proposed instruction, but they specifically approved of the model.
I’m not a fan of messing around with models too much, so our position would be
we should give the model.” The court denied Carr’s request, stating the instruction
from State v. Lilly, 930 N.W.2d 293, 297 (Iowa 2019) plus model instruction 100.8
“covers everything, has been used and has been approved, obviously, and with
those two together I think covers everything that would need to be covered.” The
court ultimately instructed the jury as follows:
You must determine Jimmy Carr’s guilt or innocence from the
evidence, and the law in these instructions. You must consider all of
the instructions together. No one instruction includes all the
applicable law. My duty is to tell you what the law is. Your duty is to
accept and apply this law and to decide all fact questions.
As you consider the evidence, do not be influenced by any
personal sympathy, bias, prejudices or emotions. It is common to
have hidden or implicit thoughts that help us form our opinions. You
are making very important decisions in this case. You must evaluate
the evidence carefully. You must avoid decisions based on things
such as generalizations, gut feelings, prejudices, fears, sympathies,
stereotypes, or inward or outward biases. The law demands that you
return a just verdict, based solely on the evidence, your reason and
common sense, and these instructions. As jurors, your sole duty is
to find the truth and do justice.
See generally Iowa State Bar Ass’n, Iowa Crim. Jury Instruction 100.8. The court
also instructed the jury:
Reach your verdict without discrimination. In reaching your
verdict, you must not consider Jimmy Carr’s race, color, religious
beliefs, national origin or sex. You are not to return a verdict for or
against Jimmy Carr unless you would return the same verdict without
regard to his race, color, religious beliefs, national origin or sex.
See Lilly, 930 N.W.2d at 297. Carr maintains the district court erred in refusing to
give the specific implicit-bias instruction that he requested.
9
“Iowa law permits—but does not require—cautionary instructions that
mitigate the danger of unfair prejudice.” State v. Plain, 898 N.W.2d 801, 816 (Iowa
2017). “We review the issuance or denial of a requested cautionary instruction for
abuse of discretion and only reverse if the district court’s decision rested on
grounds or reasoning that were clearly untenable or clearly unreasonable.” Id. An
erroneous application of law, such as the wrong belief the court is without the
authority to give an instruction, constitutes an abuse of discretion. See id. at 816–
17 (finding the refusal to give an instruction because of an erroneous belief the
court lacked the authority to give the instruction was an error of law, which
constituted an abuse of discretion). Even when the court abuses its discretion in
refusing a requested jury instruction, we only reverse if the refusal “results in
prejudice to the complaining party.” Id. at 817 (citation omitted).
Carr suggests the district court refused to give the requested instruction
because it differs from Iowa’s model jury instruction on implicit bias and has not
yet been explicitly endorsed by the Iowa Supreme Court3; he maintains this basis
for refusal is an erroneous application of the law. But unlike in Plain, the district
court here did not wrongly believe it lacked authority to give Carr’s requested
instruction. See id. And there is a distinction between refusing to give a jury
instruction because of a failure to recognize (and therefore, exercise) the court’s
discretion to do so and recognizing the court may give a requested instruction but
deciding to give different, already-approved instruction. See Williams, 929 N.W.2d
at 633 (finding no abuse of discretion when district court used model instruction
3Carr recognizes it was the prosecutor who made this argument and the district
court did not specifically adopt it when rejecting Carr’s requested instruction.
10
100.8 instead of the AIJ Project instruction the defendant requested because “the
district court did not conclude it lacked authority to give an implicit-bias instruction.
Rather, it found that [model instruction 100.8] adequately addressed the concern”).
The district court did not abuse its discretion in choosing to give implicit-bias
instructions other than the one requested by Carr. That said, nothing we have
seen in the decisions of our supreme court and nothing we have said here is meant
to suggest courts should not give the AIJ Project instruction when asked. Cf.
Williams, 929 N.W.2d at 633 (pointing out that just because the model instruction
was appropriately given “does not mean, of course, that it would have been an
abuse of discretion to use [the AIJ Project] instruction”).
2. Participating in a Public Offense.
Carr objected to the court giving the jury instruction 16, participating in a
public offense, which states: “A person participates in a crime beginning with the
first act done toward the commission of the crime and ending when a person has
been arrested or has escaped from pursuers. A person participates in a crime
regardless if he is successful in committing it.” Iowa State Bar Ass’n, Iowa Crim.
Jury Instruction 200.6. He argued:
I don’t believe that the ongoing nature of the acts that is described in
[i]nstruction 16 is appropriate for this case. I would give the Court an
example of where when a person, beginning with a first act done
towards the commission of a crime and ending when a person has
been arrested or has escaped from pursuers.
If you were to think of regular thefts, which is the intent to
permanently deprive someone of property, if I were to take property
from [the prosecutor], walk out and intend to permanently deprive
him of that property, walk out of the courtroom and decide two
minutes later that I actually did not want to deprive him of that
property and I came back and returned it to [him], I have not been
arrested and I have not escaped. Therefore, I believe that this jury
instruction is not appropriate for this case.
11
The prosecutor responded that the instruction was “an accurate statement of the
law and it ought to stay in the package.” The district court agreed it was an
accurate statement of law and overruled Carr’s objection.
During the State’s rebuttal closing argument, the State referenced
instruction 16 when discussing the State’s theory of why Carr was guilty of robbery
in the first degree, stating:
Under the theory that once you walk out the door the theft is
complete, there would never be a robbery, it’d just be a whole
different deal. It’s like, oh, I got out, once I get out the door, olly olly
oxen free, no robbery for me. You know, I can beat the crap out of
somebody, you know, assault ‘em, or I can point a gun at ‘em, it’s a
whole different deal, but it’s not a robbery, right? That’s not the way
it works. If you’re using the assault to get away from the scene. And
he’s not even off the property yet. If you’re using the assault to get
away from the scene and assist you, that’s part of the escape.
And you have another instruction, I feel like it’s
[instruction]16 . . . . But it says a person commits a crime with the
first act toward committing it and it’s not complete till they’re arrested
or they escape from pursuers. So the whole the theft, hasn’t got
away with it, he got out the door and a fairly vigilant clerk spots him,
heads down, says, hey, get back here. That doesn’t make him not
guilty that he goes, “Oops, you caught me.” That just means that,
you know, he’s trying to figure out, well, what’s the best thing to do.
The jury found Carr guilty of first-degree robbery.
On appeal, Carr claims that the instruction was a misstatement of law
because the instruction wrongly “indicates that only two circumstances could end
Carr’s participation in theft: arrest or escape.” But, according to Carr, “section
702.13[4] contemplates that a person could be participating in a public offense
4 Iowa Code section 702.13 states:
A person is “participating in a public offense,” during part or the entire
period commencing with the first act done directly toward the
commission of the offense and for the purpose of committing that
offense, and terminating when the person has been arrested or has
12
during part of the period commencing with the first act toward commission of the
offense and ending with either arrest or escape, but not necessarily continuously
participating in the offense until one of those events occurs.”5
The State responds that Carr’s complaint about instruction 16 is based on
a misunderstanding because the “participating in a public offense” instruction does
not apply to robbery in the first degree. We agree with the State. As charged here,
robbery does not require “participation in a public offense”—which is a term of art.6
Instead, the operative questions are whether Carr had a specific intent to commit
theft and whether, “to assist or further the commission of the intended theft or the
person’s escape from the scene thereof with or without the stolen property,” he
withdrawn from the scene of the intended crime and has eluded
pursuers, if any there be. A person is “participating in a public
offense” during this period whether the person is successful or
unsuccessful in committing the offense.
(Emphasis added.)
5 This is not the same objection Carr made at trial; Carr did not ask the district court
to add words so the instruction mirrored section 702.13. See Grefe & Sidney v.
Watters, 525 N.W.2d 821, 824 (Iowa 1994) (“Objections to the court’s instructions
must specify the subject of the objection and the grounds of the objection. Further,
the objection must be sufficiently specific to alert the trial court to the basis of the
complaint so that if error does exist the court may correct it before placing the case
in the hands of the jury.” (citing now Iowa R. Civ. P. 1.924)); see also State v.
Maghee, 573 N.W.2d 1, 8 (Iowa 1997) (“Rules relating to civil jury instructions
apply to criminal trials.”).
6 Cf. State v. Liggins, 557 N.W.2d 263, 267 (Iowa 1996) (finding no error when
court gave instruction on participating in public offense for felony-murder charge
because “[a] conviction for first-degree murder premised on felony murder requires
a finding that a defendant was ‘participating’ in a forcible felony. Therefore, it is
important to define ‘participation’”); see also Iowa Code §§ 321.279(3)(a)
(providing a person commits a class “D” felony if they attempt to elude a peace
officer while exceeding the speed limit by at least twenty-five miles per hour and
“[t]he driver is participating in a public offense, as defined in section 702.13”), 703.2
(defining joint criminal conduct as “[w]hen two or more persons, acting in concert,
knowingly participate in a public offense, [and] each is responsible for the acts of
the other done in furtherance of the commission of the offense or escape
therefrom . . . .” (emphasis added)).
13
committed an assaultive or threatening act.7 See Iowa Code § 711.1. The State
did not have to prove whether Carr was still in the process of committing a theft at
the time of any alleged assaultive or threatening action; the State had to prove
Carr “committed as assault on” Officer Roberts or “purposely put [him] in fear of
immediate serious injury” in order to carry out a theft or assist Carr in escaping
from the scene.
The State argues this should end our analysis—Carr’s claim instruction 16
incorrectly defines the period for first-degree robbery misses the mark because the
complained-of instruction doesn’t apply to first-degree robbery. But to what
charged crime or crimes does instruction 16 apply? Carr objected to the instruction
being given, arguing “the ongoing nature of the acts that is described in [i]nstruction
16 is [not] appropriate for this case.” The State resisted, broadly asserting the
instruction was an “accurate statement of the law,” and the court gave the
instruction over Carr’s objection. Nothing in the jury instructions themselves tie
instruction 16 to any of the crimes; no marshalling instruction incorporates or
7This is similar to the instruction the jury was given for first-degree robbery, which
neither the State nor Carr contested. Instruction 21 states:
[T]he State must prove all of the following elements of robbery in the
first degree:
1. On or about the 2nd day of May, 2020, Jimmy Carr had
the specific intent to commit a theft.
2. To carry out his intention or to assist him in escaping from
the scene, with or without the stolen property, Jimmy Carr:
a. Committed an assault on Michael Roberts, or
b. Purposely put Michael Roberts in fear of immediate
serious injury.
3. Jimmy Carr:
a. Purposely inflicted or attempted to inflict a serious injury
on Michael Roberts, or
b. Was armed with a dangerous weapon.
14
references instruction 16. The only indication of how to use the “participating in a
public offense” instruction came from the prosecutor during the State’s rebuttal
closing argument, when he urged the jury to use the instruction when considering
the first-degree-robbery charge. It would be unfair to allow the State to argue for
the inclusion of the jury instruction to the district court, rely on the instruction in its
closing argument to the jury about why it should convict Carr of robbery, and then—
after the jury has done so—take the position on appeal that the instruction is
unrelated to the crime so there is no need for our review. Cf. State v. Duncan, 710
N.W.2d 34, 43 (Iowa 2006) (“A party who has, with knowledge of the facts,
assumed a particular position in judicial proceedings is estopped to assume a
position inconsistent therewith to the prejudice of the adverse party.” (citation
omitted)); Wilson v. Liberty Mut. Grp., 666 N.W.2d 163, 166 (Iowa 2003)
(describing judicial estoppel as “a ‘common sense’ rule, designed to protect the
integrity of the judicial process by preventing deliberately inconsistent—and
potentially misleading—assertions from being successfully urged in succeeding
tribunals”).
The district court erred in giving instruction 16. See Liggins, 557 N.W.2d at
267 (“We review jury instructions to decide if they are correct statements of the law
and are supported by substantial evidence.”). But “[e]rror in a particular instruction
does not require reversal unless the error was prejudicial to the complaining party.”
State v. Hanes, 790 N.W.2d 545, 548 (Iowa 2010). “When a court erroneously
gives . . . a jury instruction, ‘we presume prejudice and reverse unless the record
affirmatively establishes there was no prejudice.’” State v. Mathis, 971 N.W.2d
514, 520 (Iowa 2022) (citation omitted). “When the error is not of constitutional
15
magnitude, the test of prejudice is whether it sufficiently appears that the rights of
the complaining party have been injuriously affected or that the party has suffered
a miscarriage of justice.” Id. And “[o]ur analysis of prejudice is . . . influenced by
an evaluation of whether a jury instruction could reasonably have misled or
misdirected the jury.” Hanes, 790 N.W.2d at 551.
We cannot find Carr was prejudiced by the inclusion of instruction 16. Carr’s
theory—raised at trial and again in his appeal brief—is that because he wanted to
return the stolen gas can and was in the process of doing so when Officer Roberts
engaged with him, any attempted theft was complete and any assaultive or
threatening behavior that came after cannot be part of a robbery. He maintains it
was the improper wording of instruction 16 that stopped him from succeeding on
this theory. But the district court should not have given the instruction Carr now
wants to apply to first-degree robbery.8 And even if the jury applied instruction 16
as written to the robbery charge, the instruction did not expand the period for which
the jury was to consider Carr’s actions to determine if he committed a robbery.
The jury was properly instructed that it was allowed to consider the time “after” an
intended theft when determining if Carr committed a robbery:
[T]he Iowa Legislature has proscribed conduct which would not have
constituted robbery at common law. Without question [section 711.1]
expands the time span in which the required assault or threat of
physical violence can occur. Explicitly included within this statutory
definition of robbery is an assault committed after a theft has been
completed but which furthered the offender’s escape.
State v. Jordan, 409 N.W.2d 184, 186 (Iowa 1987) (internal citation omitted).
8 As we already stated, as a matter of law, participating in a public offense does
not apply to this crime. And Carr did not request the addition of “part of” to
instruction 16 when he raised his objection to the district court.
16
Because this record affirmatively establishes Carr was not prejudiced by the
improper instruction, we will not reverse his conviction for first-degree robbery.
B. Sufficiency of the Evidence.
Carr challenges the sufficiency of the evidence supporting his convictions
for assault and first-degree robbery. Based on a recent change in case law, there
is no error-preservation requirement to challenge sufficiency of the evidence on
appeal. See State v. Crawford, 972 N.W.2d 189, 202 (Iowa 2022). We review for
correction of errors at law. Id. “In conducting that review, we are highly deferential
to the jury’s verdict.” Id. “In determining whether the jury’s verdict is supported by
substantial evidence, we view the evidence in the light most favorable to the State,
including all ‘legitimate inferences and presumptions that may fairly and
reasonably be deduced from the record evidence.’” Id. (citation omitted).
1. Assault.
For the jury to properly convict Carr of assault, the State had the burden to
prove:
1. On or about the 2nd day of May, 2020, Jimmy Carr did an
act which was intended to cause pain or injury or result in physical
contact which was insulting or offensive or placed Michael Roberts
in fear of an immediate physical contact which would have been
painful, injurious, insulting or offensive to Michael Roberts.
2. Jimmy Carr had the apparent ability to do the act.
Assault is a specific-intent crime. See, e.g., State v. Fountain, 786 N.W.2d 260,
265 (Iowa 2010). It requires not only that Carr intended to cause pain or injury or
result in physical contact which was insulting or offensive or placed Officer Roberts
in fear of an immediate physical contact which would have been painful, injurious,
17
insulting or offensive to Michael Roberts, but also an overt act by Carr. See State
v. Heard, 636 N.W.2d 227, 230–32 (Iowa 2001).
Carr argues there is insufficient evidence in the record to establish he took
any action with the intent to cause pain or injury to Officer Roberts or to place
Officer Roberts in fear of an immediate physical contact that would have been
painful or injurious. Carr claims the jury’s acquittal of him of the charges that
involved using or displaying a dangerous weapon shows the jury found he never
used or displayed the recovered gun.
First, the jury was asked to and returned only a general verdict—the jury
made no specific findings of fact that we can now rely on. See Clinton Physical
Therapy Servs. P.C. v. John Deere Health Care, Inc., 714 N.W.2d 603, 610 (Iowa
2006) (comparing general verdicts, “in which the jury only makes a finding in favor
of one party over the other party, “with special verdicts and general verdicts
supplemented with written interrogatories). And second, even if the jury concluded
that Carr never displayed or intentionally discharged the gun, it still could have
found that Carr went for a gun on his person rather than removing his hand from
his pocket—as Officer Roberts ordered. Carr’s action of rooting around in his
pocket attempting to free the gun to pull it on Officer Roberts—whether he was
successful in his goal or not—was an act done with the intention to put Officer
Roberts in fear of immediate physical contact (a gunshot) that would have been
painful or injurious.
When arguing Carr’s post-trial motions to the district court, Carr’s attorney
claimed this could not be the facts the jury found because that would constitute
“using” the dangerous weapon. But the jury was never instructed on what it meant
18
to “use” the weapon. A common definition of “use” is “to put into action or service.”
Use, Merriam Webster, https://www.merriam-webster.com/dictionary/use (last
visited Nov. 9, 2022); see also State v. Gonzalez, 718 N.W.2d 304, 308 (Iowa
2006) (“We may consult a dictionary in order to determine the ordinary meanings
of words used by the legislature.”). That Carr was unable to retrieve the gun from
his pocket and point it at Officer Roberts could be understood to show he did not
actually “use” (or display)9 the gun. But failing to pull the gun on Officer Roberts
does not change the fact Carr made an overt action and the intended result of that
action was to place Officer Roberts in fear of immediate physical contact that was
painful or injurious.
Substantial evidence supports Carr’s conviction for assault.
2. First-Degree Robbery.
Next, building off his sufficiency-of-the-evidence argument on his assault
conviction, Carr argues there is not substantial evidence he committed first-degree
robbery. For the jury to properly convict Carr of robbery in the first degree, the
State had to prove:
1. On or about the 2nd day of May, 2020, Jimmy Carr had
the specific intent to commit a theft.
2. To carry out his intention or to assist him in escaping from
the scene, with or without the stolen property, Jimmy Carr:
a. Committed an assault on Michael Roberts, or
b. Purposely put Michael Roberts in fear of immediate
serious injury.
3. Jimmy Carr:
9 See State v. Hall, No. 15-1467, 2016 WL 4543891, at *2 (Iowa Ct. App. Aug. 31,
2016) (noting there was no definition of “display” within the statute on interference
of official acts or in case law; using the common definition of the word to determine
the defendant displayed an open pocket knife because he “exhibited the knife to
the sight of” the officer).
19
a. Purposely inflicted or attempted to inflict a serious injury
on Michael Roberts, or
b. Was armed with a dangerous weapon.
Carr challenges the second element, claiming he neither committed an assault nor
purposely put Officer Roberts in fear of immediate serious injury. As we have
already concluded there is substantial evidence to support the jury’s determination
Carr assaulted Officer Roberts, we do not consider this further.
C. Motion for New Trial.
Carr argues the district court was wrong to deny his motion for new trial; he
claims the weight of the credible evidence is contrary to the jury’s finding of guilt
for assault and first-degree robbery. “We review a trial court’s ruling on a motion
for new trial for an abuse of discretion.” State v. Shanahan, 712 N.W.2d 121, 135
(Iowa 2006). “Except in the extraordinary case where the evidence preponderates
heavily against the verdict, trial courts should not lessen the jury’s role as the
primary trier of facts and invoke their power to grant a new trial.” Id.
The State contests error preservation because Carr argued for a different,
incorrect standard to the district court. But because Carr brought the motion for
new trial and ultimately got the ruling he now contests, we conclude error was
preserved. See Crawford, 972 N.W.2d at 198 (“When we speak of error
preservation, all we mean is that a party has an obligation to raise an issue in the
district court and obtain a decision on the issue so that an appellate court can
review the merits of the decision actually rendered.”); Segura v. State, 889 N.W.2d
215, 219 (Iowa 2017) (“[E]rror preservation does not turn on ‘hypertechnical’
challenges.”).
20
The main point of contention at trial was whether Carr drew a gun and
purposely fired at Officer Roberts. The jury seemingly concluded he did not—
acquitting Carr of attempted murder of a peace officer, assault on a peace officer
while using or displaying a dangerous weapon, and interference with official acts
while using or displaying a dangerous weapon.10 In an argument mirroring his
claims of insufficient evidence, Carr argues the weight of the evidence does not
support a finding Carr used and shot the gun at Officer Roberts. Without enough
evidence he used or shot the gun, Carr claims the weight of the evidence does not
support a determination he assaulted Officer Roberts or committed first-degree
robbery. But, as we stated in the section on sufficiency of the evidence, the State
did not need to prove Carr used or intentionally shot the gun for the jury to conclude
Carr assaulted Officer Roberts. The weight of the credible evidence supported a
finding Carr refused to remove his hand from his pocket when ordered and then
rooted around in his pocket, attempting to pull a gun free.11 This overt act,
combined with the intention to place Officer Roberts in fear of immediate physical
contact that would have been painful or injurious, constitutes assault. Accordingly,
the district court did not abuse its discretion in denying Carr’s motion for new trial.
10 These rejected charges share similar elements. The attempted-murder charge
required the jury to find Carr “specifically intended to cause the death of” Officer
Roberts; assault on a peace officer while using or displaying a dangerous weapon
required a finding Carr “intentionally pointed a firearm toward [Officer] Roberts or
displayed a dangerous weapon toward [Officer Roberts] in a threatening way”; and
interference with official acts while using or displaying a dangerous weapon
required that Carr “displayed or used a dangerous weapon.”
11 “‘When making a ruling on a motion for new trial, the trial court should state the
reasons for its ruling.’ When the trial court has failed to do so, we may review the
record to determine if there is a proper basis for the trial court’s ruling.” State v.
Moore, No. 16-1616, 2017 WL 4317298, at *3 (Iowa Ct. App. Sept. 27, 2017)
(quoting State v. Maxwell, 743 N.W.2d 185, 192 (Iowa 2008)).
21
D. Illegal Sentence: Merger.
Carr challenges the legality of his sentences. See State v. Negrete-
Ramirez, No. 07-1059, 2008 WL 4531532, at *1 (Iowa Ct. App. Oct. 1, 2008)
(“Merger implicates the legality of the sentence. An illegal sentence can be
challenged at any time, and we can address the issue even if it was not expressly
addressed below.” (internal citations omitted)). He argues that, at most, there was
substantial evidence to establish he committed one assault. Because assault is a
lesser-included offense of robbery as charged here, “[i]f the robbery and assault
charges were predicated on a single assault, the two crimes should merge.” State
v. Nyomah, No. 17-1435, 2018 WL 3471605, at *1 (Iowa Ct. App. July 18, 2018).
But, if Carr committed multiple assaults, then merger is not required. See State v.
Clay, No. 14-0864, 2015 WL 4935606, at *6 (Iowa Ct. App. Aug. 19, 2015) (“Merger
is not required when each charged offense may be proven by a different criminal
act.” (citing State v. McKettrick, 480 N.W.2d 52, 56 n.2 (Iowa 1992) (noting merger
would not preclude “a conviction of both assault with intent to commit serious injury
and assault causing bodily injury” when the State proves that “a series of assaults
occurred”))).
The State disputes there is only substantial evidence of one assault. But it
concedes that if we find only one assault was committed, then merger is the
appropriate remedy. Because we conclude there is substantial evidence of only
one assault, we agree with Carr that his conviction for assault should merge with
his conviction for first-degree robbery, we vacate his assault conviction and
remand for dismissal of that count. Cf. Negrete-Ramirez, 2008 WL 4531532, at
*2.
22
III. Conclusion.
The district court did not abuse its discretion in declining to give the specific
explicit-bias instruction Carr requested. It was an error to give the instruction on
participating in a public offense, but Carr was not prejudiced by the error.
Substantial evidence supports Carr’s convictions for assault and first-degree
robbery. But, because assault is a lesser-included of the robbery charge and there
is not substantial evidence of multiple assaults, Carr’s assault conviction should
merge with the robbery conviction. We vacate the assault conviction and remand
for dismissal of that count. Finally, the district court did not abuse its discretion in
denying Carr’s motion for new trial.
AFFIRMED IN PART, VACATED IN PART, AND REMANDED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484485/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0644
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
STEVEN JAMES HAYDEN,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Marshall County, Kim M. Riley,
District Associate Judge.
Steven James Hayden appeals his convictions and sentences in three
cases after entering guilty pleas to stalking, third-degree harassment, eluding, and
two counts of operating while under the influence. AFFIRMED.
Richard Hollis, Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Louis S. Sloven, Assistant Attorney
General, for appellee.
Considered by Bower, C.J., Tabor, J., and Scott, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
BOWER, Chief Judge.
In August and December 2021, Steven James Hayden entered written guilty
pleas to several charges filed in three different cases.
AGCR097866—Hayden pleaded guilty in count I of stalking in violation of
Iowa Code section 708.11(1), (2), and (3)(c) (2020), with the following basis.
I plead guilty because I know I am guilty. I agree with the
allegations in the trial information. I state that on or about
September 1, 2015 up to an including October 23, 2020, in the
County of Marshall and the State of Iowa, I did purposely engage in
a course of conduct directed at [L.R.] that would cause a reasonable
person to feel threatened and I had knowledge that a reasonable
person would feel threatened by the course of the conduct.
In count VI, Hayden pleaded guilty to third-degree harassment,1 in violation
of section 708.7(1)(a)(1) and (a)(4), with this factual basis:
I plead guilty because I know I am guilty. I agree with the
allegations in the trial information. I state that on or about the 19th
day of October, 2020, in the County of Marshall and the State of
Iowa, I did purposefully and without legitimate purpose communicate
with [L.R.] by writing in a manner likely to cause him annoyance with
the intent to intimidate, annoy or alarm him.
OWCR097844—In count I, Hayden pleaded guilty to operating while
intoxicated (OWI), second offense, in violation of section 321J.2, with this basis:
I plead guilty because I know I am guilty. I agree with the
allegations in the trial information. I state that on or about the 18th
day of October, 2020, in the County of Marshall and the State of
Iowa, I did operate a motor vehicle while under the influence of an
alcoholic beverage or drug, or a combination of such substances,
and had previously been convicted of this offense within the previous
[twelve] years.
1 The State agreed to and did dismiss four additional counts of harassment in the
third degree.
3
In count II, he pleaded guilty to eluding, in violation of section 321.279(1)(a),
with this factual basis:
I plead guilty because I know I am guilty. I agree with the
allegations in the trial information. I state that on or about the 18th
day of October, 2020, in the County of Marshall and the State of
Iowa, I did willfully operate a motor vehicle, and failed to bring the
motor vehicle to a stop, or did willfully otherwise elude, or attempt to
elude a marked official law enforcement vehicle that was driven by a
uniformed peace officer, after being given a visual and audible signal
to stop.
OWCR097874—Hayden pleaded guilty to OWI, second offense, in violation
of section 321J.2, with this basis:
I plead guilty because I know I am guilty. I agree with the
allegations in the trial information. I state that on or about the 24th
day of October, 2020, in the County of Marshall and the State of
Iowa, I did operate a motor vehicle while under the influence of an
alcoholic beverage or drug, or a combination of such substances,
and had previously been convicted of this offense within the previous
[twelve] years.
The written pleas set out the minimum and maximum fines and sentences
for each offense, acknowledged the court “does not have to follow the plea
bargain,” and detailed the sentence the State was going to recommend. Hayden
waived his “right to be present while making this plea and personally inform the
court of my plea and to speak for myself.”
The court accepted the pleas and set sentencing for hearing. Hayden did
not file a motion in arrest of judgment.
After several continuances, a combined sentencing hearing on the three
cases was held on March 11, 2022. The State recommended a two-year prison
term for stalking, a thirty-day jail sentence for harassment, two-year prison terms
for each OWI, and a 365-day term for eluding, with the eluding and OWI sentences
4
served concurrently, but consecutive to the stalking sentence, for a total four-year
term. The State also noted it had agreed these sentences should run concurrently
with two Polk County cases. The prosecutor argued Hayden represented a danger
to the community and law enforcement and incarceration would best protect the
community.
The defense contended the court should consider all the charges were filed
within a week and were all related to Hayden’s alcohol problems. The defense
stated, “Alcohol abuse is not an excuse. It’s only an explanation, and I hope the
court considers the mitigating factor as we ask the court to consider our
recommendation.” The defense asked that the court impose “the bare minimum”—
run all the sentences concurrently, suspend the sentences, and place Hayden on
probation and order him “to undergo counseling and treatment for his obvious
alcohol abuse.”
In determining the sentences to be imposed, the court stated it had
considered
Hayden’s personal circumstances as noted by counsel. The court
also takes into account the particular facts and circumstances of
these cases, the harm to any victims . . . , and then attempts to
fashion a sentence that will serve Mr. Hayden’s rehabilitative needs
and also in the process protect the community from future criminal
actions on his part and also to deter him and others similarly situated.
The court does consider the fact, as [the defense] has brought
to the court’s attention, that each of these events occurred within a
very short span of time.
The defendant in case number 97874 was found to be passed
out I believe in a running vehicle. A chemical test later showed a
result of alcohol concentration of .220. Quite a high level.
In case number 97844—in that case the defendant has pled
guilty to charge of OWI second offense, as well as a charge of
eluding. And, of course, the driving behaviors on the eluding conduct
placed other people in harm’s way as a result of Mr. Hayden’s
5
actions. I believe there was a blood test administered in that case
which showed a result of .190. Again, more than twice the legal limit.
Probably the most aggravating offense[s], however, are those
contained in case number AG97866. In that case Mr. Hayden has
pled guilty to stalking under Count I and third-degree harassment
under Count VI.
And the court has received a victim impact statement in
connection with those matters. The court considers the considerable
harm to the victim in this case and kind of the on-going nature of that
stalking offense.[2]
And the court believes that the sentence that it is going to
pronounce will best serve to address Mr. Hayden’s rehabilitative
needs and also protect those named victims in that offense and . . .
other citizens.
The court set two of Hayden’s two-year terms of incarceration to run
consecutively, with the other sentences to run concurrently. The court stated:
Again, the court imposes these sentences because it believes
that these sentences are appropriate given the nature and
circumstances of these crimes and the fact that each of these events
represent a separate and distinct offense and that there is a named
victim in connection with the stalking and harassment charges.
The court has considered the possibility of suspending the
terms of confinement but does not believe that Mr. Hayden
represents a good candidate for probation supervision.
Hayden appeals, claiming his due process rights were violated as he was
not advised of his right to a jury trial, rendering his plea involuntary, and the court
abused its sentencing discretion in imposing more than the statutory minimum.
“We review challenges to plea proceedings for correction of errors at law.”
See State v. Weitzel, 905 N.W.2d 397, 401 (Iowa 2017). But, because this is a
direct appeal from guilty pleas to charges less than class “A” felonies, Hayden must
establish good cause to appeal. See Iowa Code § 814.6(1)(a)(3) (prohibiting an
2 The target of Hayden’s harassment and stalking was a former co-employee, and
the factual basis for Hayden’s stalking charge admitted conduct spanning a period
from 2015 to 2020.
6
appeal from a guilty plea except for a class “A” felony or “in a case where the
defendant establishes good cause”); State v. Damme, 944 N.W.2d 98, 104 (Iowa
2020) (noting the defendant “bears the burden of establishing good cause to
pursue an appeal of [his] conviction based on a guilty plea.”). Good cause means
a “legally sufficient reason,” which “is a ground that potentially would afford the
defendant relief.” State v. Tucker, 959 N.W.2d 140, 149 (Iowa 2021).3
The State contends Hayden’s appeal of his guilty pleas should fail because
he did not file a motion in arrest of judgment with the district court. See Iowa R.
Crim. P. 2.24(3)(a) (“A defendant’s failure to challenge the adequacy of a guilty
plea proceeding by motion in arrest of judgment shall preclude the defendant’s
right to assert such challenge on appeal.”).
Hayden invokes an exception. See State v. Treptow, 960 N.W.2d 98, 109
(Iowa 2021) (noting the supreme court has recognized two exceptions: (1) if the
defendant is not adequately advised of the consequences of a failure to file a
motion in arrest of judgment, and (2) “if the failure to file a motion in arrest of
judgment resulted from ineffective assistance of counsel”; but section 814.7 has
been amended and all claims of ineffective assistance of counsel now must be
resolved in postconviction-relief proceedings). Hayden contends the district court
did not personally advise him of the consequences of failure to file a motion in
arrest of judgment. The district court was not required to do so.
Rule 2.8(2)(d) clearly imposes two requirements. First, the
court must “inform the defendant that any challenges to a plea of
guilty based on alleged defects in the plea proceedings must be
3Our supreme court expressly declined to “expand the concept of good cause and
hold that a claim that a plea is not intelligently or voluntarily made constitutes good
cause to appeal as a matter of right.” Tucker, 959 N.W.2d at 153.
7
raised in a motion in arrest of judgment.” Second, the court must
inform the defendant “that failure to so raise such challenges shall
preclude the right to assert them on appeal.”
State v. Meron, 675 N.W.2d 537, 541 (Iowa 2004) (internal citations omitted).
“Absent a written plea of guilty describing all the matters set forth in the rule,
noncompliance with oral requirements of the rule normally constitutes reversible
error.” Id. at 542 (emphasis added). Cf. State v. Basquin, 970 N.W.2d 643, 659
(Iowa 2022) (“We have long utilized written guilty pleas for misdemeanor offenses,
and we have held the defendants can waive in writing the right to an in-person
colloquy in open court.”).
Each of Hayden’s written guilty pleas includes this advisory:
I do not waive the right to wait [fifteen] days before sentencing,
and do not give up the right to file a motion in arrest of judgment
under rule 2.8 of the Iowa Rules of Criminal Procedure. I understand
that I must file that motion at least five days before sentencing.
Otherwise, it will be too late. I will have no appeal and no other way
to object to the way the [c]ourt accepted my guilty plea.
I hereby waive my right to be present while making this plea
and personally inform the [c]ourt of my plea and to speak for myself,
as is my right under Iowa Rule of Criminal Procedure 2.8. I also
understand that I have a right to be present for sentencing.
Because Hayden was advised of the consequences of failure to file a motion
in arrest of judgment and he failed to file a motion in arrest of judgment, he is
precluded from challenging his pleas on direct appeal.4
However, we may address Hayden’s challenge to the sentences imposed.
“[G]ood cause exists to appeal from a conviction following a guilty plea when the
4Moreover, Iowa Code section 814.29 stipulates: “If a defendant challenges a
guilty plea based on an alleged defect in the plea proceedings, the plea shall not
be vacated unless the defendant demonstrates that the defendant more likely than
not would not have pled guilty if the defect had not occurred.” Hayden makes no
assertion that he would not have pled guilty.
8
defendant challenges his or her sentence rather than the guilty plea.” Damme,
944 N.W.2d at 105 (explaining “[a] sentencing error invariably arises after the court
has accepted the guilty plea” and “[t]his timing provides a legally sufficient reason
to appeal notwithstanding the guilty plea”).
Hayden claims the court abused its discretion because it did not treat the
several offenses as “basically one series of events occurring in a brief period of
time.” We also do not find it reasonable to characterize Hayden’s conduct as “one
series of events.” His pleas establish his stalking behavior spans a five-year
period. It is true he had repeated alcohol-related offenses from October 18 to
October 24; yet, each of those offenses were distinct intoxications and separately
endangered the community.
Hayden also contends the sentencing court did not explicitly consider his
substance-abuse issues “as a mitigating factor.” The court did consider Hayden’s
substance-abuse history, referring to both his personal circumstances as
described by counsel and his rehabilitative needs.5
“An abuse of [sentencing] discretion will only be found when a court acts on
grounds clearly untenable or to an extent clearly unreasonable.” State v.
Leckington, 713 N.W.2d 208, 216 (Iowa 2006). The court is to
[w]eigh and consider all pertinent matters in determining proper
sentence, including the nature of the offense, the attending
circumstances, defendant’s age, character and propensities and
chances of his reform. The courts owe a duty to the public as much
as to defendant in determining a proper sentence. The punishment
should fit both the crime and the individual.
5 And as noted by the State, the district court could determine that “if chronic
substance abuse had made Hayden unable to control his actions, that would
establish a profound need for short-term incapacitation and rehabilitation.”
9
Id. (alteration in original) (quoting State v. August, 589 N.W.2d 740, 744 (Iowa
1999)); accord Iowa Code § 901.5 (providing that an appropriate sentence “will
provide maximum opportunity for the rehabilitation of the defendant, and for the
protection of the community from further offenses by the defendant and others”).
We have already set out the court’s reasons for imposing sentences—those
reasons are not clearly untenable or unreasonable. Finding no abuse of
sentencing discretion, we affirm.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484489/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0344
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
JOSHUA DEAN GREEN,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Warren County, Mark F. Schlenker,
District Associate Judge.
Defendant appeals the sentences imposed on his criminal convictions.
AFFIRMED.
Jessica A. Millage of Flanagan Law Group, PLLC, Des Moines, for
appellant.
Thomas J. Miller, Attorney General, and Kyle Hanson, Assistant Attorney
General, for appellee.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
BADDING, Judge.
Joshua Green appeals the consecutive sentences imposed on his
convictions for multiple crimes,1 claiming the district court sentenced him to prison
“without due consideration of mitigating factors.” We review this claim for an abuse
of discretion. See State v. Hill, 878 N.W.2d 269, 272 (Iowa 2016). Finding none,
we affirm.
Over the span of thirteen months, the State charged Green with seven
crimes in three separate criminal cases. The trial information in the first case
alleged that in February 2020, Green operated two motor vehicles without the
owner’s consent and while his license was barred. About two months later, Green
was charged with two counts of first-degree harassment and witness tampering for
posting partially nude photographs of the victim in his first case. In April 2021,
Green was charged with tampering with the same witness again.
Green filed written guilty pleas to each of these crimes in exchange for the
State’s agreement to cap its recommendation for prison at six years. At the
sentencing hearing, Green’s attorney asked for suspended sentences instead so
that Green could “address not only substance abuse, but his mental health issues
in the community, consistent with the recommendation of the presentence
investigation” report for probation. He highlighted Green’s accountability, pointing
out he “did literally plead to every charge he’s been charged with.” And he asserted
1 The parties agree Green has “good cause” to appeal because he is challenging
the sentences imposed instead of his guilty pleas. See Iowa Code § 814.6(1)(a)(3)
(2020); State v. Damme, 944 N.W.2d 98, 104 (Iowa 2020).
3
there had been “no ongoing issues as it relates to this victim as of spring of last
year.”
The district court considered those mitigating factors but decided to impose
a mix of concurrent and consecutive sentences for a total indeterminate prison
term of six years, reasoning: “The defendant does have a fairly lengthy record, and
as set forth in the presentence investigation [report], the [c]ourt is particularly
concerned by the weapons charges that he has, knives and firearms, a history of
continued violations. He’s on probation, he’s been revoked, sent to prison before.”
The court was concerned by Green’s recent conviction for possession of a firearm
by a felon—a crime he committed in September 2021 while these cases were
pending—along with the serial nature of Green’s offenses, which the court
considered to be “very serious charges . . . aimed at influencing the judicial
process.” Green’s continued use of illegal substances also concerned the court,
with the presentence investigation report disclosing that Green tested positive for
methamphetamine and amphetamines in March 2021 and admitted to marijuana
use as recently as one month before sentencing.2 With those factors in mind, the
court determined Green needed the “more controlled environment” of prison.
Green argues the “court seemingly gave little weight to the
recommendations of the [presentence] [i]nvestigation [report] and what Green
needs for rehabilitation to avoid further criminal conduct.” But in exercising its
sentencing discretion, it is up to the court to determine the weight to place on the
2 Though Green corrected other parts of the presentence investigation report, he
did not challenge this portion. See State v. Gonzalez, 582 N.W.2d 515, 517
(Iowa 1998) (holding sentencing court was free to consider unchallenged matters
in a presentence investigation report).
4
various considerations. See State v. Wright, 340 N.W.2d 590, 593 (Iowa 1983).
The court is not bound by sentencing recommendations in presentence
investigation reports. See State v. Headley, 926 N.W.2d 545, 552 (Iowa 2019).
“Instead, they are just one of many factors a sentencing court may consider,” as
the court did here. State v. Adams, No. 21-1056, 2022 WL 951062, at *1 (Iowa Ct.
App. Mar. 30, 2022). “Though the court did not give the same weight to the factors”
Green does on appeal, “the sentence imposed by the court was not based ‘on
grounds or for reasons clearly untenable,’ nor was its choice ‘clearly unreasonable’
under the circumstances.” State v. Gryp, No. 18-1132, 2019 WL 719046, at *2
(Iowa Ct. App. Feb. 20, 2019) (citation omitted); accord Hill, 878 N.W.2d at 272
(setting out abuse-of-discretion standard).
Green also challenges the reasons the court provided for imposing
consecutive sentences, those being “the separate nature of the offenses”; “the
facts of the case”; and Green’s criminal history. Though the court’s reasons were
cursory, see State v. Jacobs, 607 N.W.2d 679, 690 (Iowa 2000), all were
permissible. See State v. Criswell, 242 N.W.2d 259, 260 (Iowa 1976) (stating
consecutive sentences are appropriate where the offenses are separate); State v.
Eaton, No. 01-2024, 2002 WL 1842923, at *1 (Iowa Ct. App. Aug. 14, 2002)
(finding a defendant’s “criminal history and the nature of the crime” were sufficient
reasons for consecutive sentences). While Green argues the “separate acts . . .
arise out of the same nexus of facts,” consecutive sentences may be imposed on
separate convictions even if the “offenses were committed in the course of a single
transaction.” Criswell, 242 N.W.2d at 260 (citation omitted). Here, we have
5
multiple transactions spanning more than one year. We find no abuse of discretion
in the sentences imposed by the court.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484488/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1467
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
MANUAL J. SEENSTER, JR.,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Clayton County, Richard D. Stochl,
Judge.
Manual Seenster Jr. appeals the district court’s denial of his motions in
arrest of judgment and for a new trial. CONVICTION CONDITIONALLY
AFFIRMED, RULING ON NEW TRIAL MOTION VACATED AND REMANDED.
Zeke Robert McCartney of Reynolds & Kenline L.L.P., Dubuque, for
appellant.
Thomas J. Miller, Attorney General, and Sheryl Soich, Assistant Attorney
General, for appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
VAITHESWARAN, Presiding Judge.
A jury found Manual Seenster Jr. guilty of delivery of methamphetamine.
Seenster filed motions in arrest of judgment and for a new trial, arguing the State
“failed to prove beyond a reasonable doubt that” he intentionally delivered
methamphetamine to another person and the verdict was “contrary to the law and
evidence.” The district court denied both motions after finding “sufficient evidence
to support the jury’s verdict.” The court imposed sentence without further mention
of the new trial motion.1
On appeal, Seenster contends the evidence was insufficient to support the
jury’s finding of guilt and the verdict was contrary to the weight of the evidence.
“When evaluating the sufficiency of the evidence, we consider whether, taken in
the light most favorable to the State, the finding of guilt is supported by substantial
evidence in the record.” State v. Crawford, 974 N.W.2d 510, 516 (Iowa 2022)
(internal quotations and citation omitted). “We generally review rulings on motions
for new trial asserting a verdict is contrary to the weight of the evidence for an
abuse of discretion.” State v. Ernst, 954 N.W.2d 50, 60 (Iowa 2021) (internal
quotations and citation omitted). “However, we review a claim that the district court
failed to apply the proper standard in ruling on a motion for new trial for errors at
law.” State v. Ary, 877 N.W.2d 686, 706 (Iowa 2016).
The jury was instructed the State would have to prove the following
elements of delivery of methamphetamine:
1. On or about the 28th day of July, 2019, the defendant
delivered methamphetamine.
1 Seenster admitted to prior offenses and was sentenced as a habitual offender.
3
2. The defendant knew that the substance he delivered was
methamphetamine.
“Deliver” or “delivery” was defined for the jury as “the actual, constructive, or
attempted transfer of a substance from one person to another.”
A reasonable juror could have found the following facts. A man in
possession of methamphetamine agreed to cooperate with the Clayton County
Sheriff to investigate Seenster for dealing. A deputy sheriff met the informant, had
him empty his pockets, and gave him a listening device and “$100.00 of cash” that,
according to the deputy, was the pre-arranged “purchase amount.” The deputy
dropped him off near a store in Postville, Iowa. “There was some conversation by
phone between Mr. Seenster” and the informant, and it was agreed the informant
would “come over to Mr. Seenster’s house, and that’s where the transaction” would
take place. The deputy saw the informant walk to the building and enter the
residence. Although the deputy was not able to see inside the residence, he could
hear what was going on “[t]hrough the listening device.” The deputy “heard
conversation about the informant receiving the methamphetamine.” He believed
Seenster said “he doubled him up, which means he gave him more drugs than
were requested.” The transaction took about ten minutes. The informant texted
the deputy to let him know Seenster would be “giving him a ride up the street.” The
deputy saw the two leave the house. After they parted ways, the deputy picked up
the informant, who gave him a plastic bag containing “two individual gem bags with
crystal methamphetamine inside.” He searched the informant again “to make sure”
the money was gone and there were no other drugs.
4
At trial, the informant confirmed the deputy’s account of the events leading
up to the purchase. He also described the purchase, stating he and Seenster “got
into [Seenster’s] bedroom and Seenster “had the drugs out on the table already.”
The informant “either set the money down or [ ] handed it to” Seenster. Nobody
else was present; it was “just the two of them.” The informant corroborated that
fact by identifying the two voices on the audio recording of the transaction.
A juror reasonably could have surmised that Seenster delivered
methamphetamine to the informant, knowing it was methamphetamine. Although
Seenster testified at trial and denied the delivery, it was the jury’s prerogative to
weigh the evidence and assign credibility. See State v. Sanford, 814 N.W.2d 611,
615 (Iowa 2012) (“Inherent in our standard of review of jury verdicts in criminal
cases is the recognition that the jury [is] free to reject certain evidence, and credit
other evidence.” (internal quotations and citation omitted)). Substantial evidence
supported the jury’s finding of guilt.
Seenster next argues the greater weight of credible evidence supports his
version of events. See Ary, 877 N.W.2d at 706 (“Iowa Rule of Criminal Procedure
2.24(2)(b )(6) permits a district court to grant a motion for new trial when a verdict
is contrary to the weight of the evidence.”) (citing State v. Ellis, 578 N.W.2d 655,
657–59 (Iowa 1998)). “The weight-of-the-evidence standard requires the district
court to consider whether more “credible evidence” supports the verdict rendered
than supports the alternative verdict.” Id. “It is broader than the sufficiency-of-the-
evidence standard in that it permits the court to consider the credibility of
witnesses.” Id.
5
Seenster separately moved for arrest of judgment and for new trial. His new
trial motion cited the Ellis weight-of-the-evidence standard. At the sentencing
hearing, Seenster’s attorney asked the court, “for the reasons stated in each of
those motions, to either arrest judgment or grant the defendant a new trial.” The
district court found “there was sufficient evidence in the record to support the jury’s
verdict. The Motion in Arrest of Judgment and the Motion for New Trial are denied.”
“Appellate review of a district court ruling on a motion for new trial asserting
the verdict was contrary to the weight of the evidence ordinarily does not extend
to “the underlying question of whether the verdict is against the weight of the
evidence.” Ary, 877 N.W.2d at 707 (citation omitted). Seenster does not explicitly
argue that the district court used an incorrect standard in ruling on the new trial
motion. But that argument is implied in his assertion that, “when credibility is
considered, the evidence supports a finding of not guilty.” We are not at liberty to
weigh the informant’s testimony against his own and adopt “the defendant’s
[ ]version,” as he requests. See id. (reversing the district court ruling on the motion
for new trial and remanding for application of the correct standard). It is the district
court’s obligation to consider that request, applying the weight-of-the-evidence
standard. Because the court applied the sufficiency standard in ruling on the new
trial motion, we conditionally affirm Seenster’s conviction but vacate the ruling on
the new trial motion and remand for application of the weight-of-the-evidence
standard. See State v. Brumfield, 21-0011, 2022 WL 951033, at *3 (Iowa Ct. App.
6
Mar. 30, 2022); State v. Saunders, No. 20-1352, 2022 WL 108569, at *3 (Iowa Ct.
App. Jan. 12, 2022).
CONVICTION CONDITIONALLY AFFIRMED, RULING ON NEW TRIAL
MOTION VACATED AND REMANDED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484486/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0267
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
NATHANIEL SCOTT PEARCE,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Cerro Gordo County, Gregg R.
Rosenbladt, Judge.
The defendant challenges the imposition of consecutive sentences
following guilty pleas. AFFIRMED.
Raya D. Dimitrova of Carr Law Firm, P.L.C., Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Nicholas E. Siefert, Assistant
Attorney General, for appellee.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
GREER, Judge.
Nathaniel Pearce pled guilty to two counts of sexual abuse in the second
degree and was later sentenced to two consecutive twenty-five-year terms of
imprisonment. Here on appeal, Pearce argues the district court did not provide
adequate reasons to explain why it imposed consecutive sentences and the court
placed too much weight on the nature of the offenses in deciding the appropriate
sentences.1 We find no abuse of discretion.
“Errors in sentencing, including contentions the trial court failed to articulate
adequate reasons for a particular sentence, ‘may be challenged on direct appeal
even in the absence of an objection in the district court.’” State v. Thacker, 862
N.W.2d 402, 405 (Iowa 2015) (citation omitted). We review sentencing decisions
for correction of errors at law. State v. Valin, 724 N.W.2d 440, 444 (Iowa 2006).
“We will not reverse the decision of the district court absent an abuse of discretion
or some defect in the sentencing procedure.” State v. Letscher, 888 N.W.2d 880,
883 (Iowa 2016) (citation omitted). In exercising discretion at sentencing, the
district court must weigh and consider “all pertinent matters in determining a proper
sentence, including the nature of the offense, the attending circumstances, the
defendant’s age, character, and propensities or chances for reform.” Thacker, 862
N.W.2d at 405 (quoting State v. Johnson, 476 N.W.2d 330, 335 (Iowa 1991)). Iowa
Rule of Criminal Procedure 2.23(3)(d) also provides that the court must state on
1 As Pearce is challenging his sentences, he has good cause for this appeal. See
Iowa Code § 814.6(1)(a)(3) (2022) (requiring good cause to appeal when the
defendant pleads guilty to crimes other than class “A” felonies); State v. Damme,
944 N.W.2d 98, 100 (Iowa 2020) (“[T]he good-cause requirement is satisfied . . .
when the defendant appeals a sentence that was neither mandatory nor agreed to
in the plea bargain.”).
3
the record the reasons for selecting the particular sentence. This applies to the
decision to impose consecutive terms. State v. Hill, 878 N.W.2d 269, 273 (Iowa
2016). The purpose of requiring the sentencing court to state the reasons for the
sentence is to “ensure[] defendants are well aware of the consequences of their
criminal actions” and to afford “appellate courts the opportunity to review the
discretion of the sentencing court.” Id. (citations omitted).
As part of a plea agreement, the State amended the charges against Pearce
from two counts of continuous sexual abuse of a child2 to two counts of sexual
abuse in the second degree, in violation of Iowa Code section 709.3(1)(b)
(committing sexual abuse and the other person is under age twelve). Both Pearce
and the State were free to argue for any sentencing recommendation they saw fit.
The State recommended two consecutive sentences because one of the children
“incurred this over a period of ten years” and “[t]he other one over five years.”
Through his attorney, Pearce asked the court to order the sentences to run
concurrently, stating that while “it is a very bad thing that went on for ten years,”
concurrent twenty-five-year sentences with a 70% mandatory minimum would
“speak volumes” to both Pearce and “also to the public” from a deterrence
standpoint. After Pearce’s allocution, the court stated:
In considering a sentence, Mr. Pearce, the Court needs to
look at several factors. The broad factors include the defendant’s
maximum rehabilitation and the protection of the community from
offenses by this defendant and others. Part of that protection of the
2 Under Iowa Code section 709.23(1),
A person eighteen years of age or older commits continuous
sexual abuse of a child when the person engages in any combination
of three or more acts of sexual abuse in violation of section 709.3 or
709.4, with the same child, and at least thirty days have elapsed
between the first and last acts of sexual abuse.
4
community is deterrence to others. That dovetails into the protection
of the community consideration looked at by the Court.
The Court also needs to look at several more specific factors
including the defendant’s age and prior record, the defendant’s
employment and family circumstances, the nature of the offense, the
defendant’s attitude and recommendations of the Presentence
Investigation [(PSI)] Report and recommendations of the attorneys.
I’ll verify with you that the Court has considered all of the above, and
the Court has had an opportunity prior to the hearing to review the
[PSI] Report that is contained in the court file.
In sentencing, Mr. Pearce, it’s not a thing where one factor,
one specific factor, carries the day in terms of weight. It is a
combination of factors, and the Court needs to look at all the factors
in combination. The Court needs to factor in the rehabilitation of the
defendant, what’s available for counseling and resources. The Court
certainly needs to factor in the protection of the community looking
at the safety of others. Also the deterrence factor comes into play as
well as part of protection of the community. And the Court certainly
looks at the nature of the offense and circumstances of the offense
as well. And those are the statutory factors the Court looks at.
Mr. Pearce, one of the things about your case is you don’t
have an extensive prior criminal history. The Court notes that from
the [PSI] Report, and so you’ve not had prior resources from the
court system prior to the instant offense. So that is a factor the Court
has considered here as part of its decision.
However, the Court needs to also look at other factors as I
identified, and the striking thing here about your situation would be
the nature of the offenses. And there are two distinct and separate
victims here that need to be considered by the Court. This is
behavior that impacted a whole family, obviously, but there are two
very specific and distinct victims involved in the matter. Each of
those victims, obviously, has been greatly and adversely impacted
by these events, and for a long period of time, have been affected
and will be affected by your actions.
The Court—and by its very nature, sexual abuse in the second
degree indicates that the victims were under age twelve when the
offenses happened so the victims were very young, and again, it
happened over a period of time, long period of time and a number of
years as well for each of the victims of the offense.
So in looking at all of these factors, Mr. Pearce, in
combination, the Court, and again, knowing that we do have the
seventy percent minimum incarcerations that is to apply, the Court
has determined that in the interest of the protection of the community
and your rehabilitation that the sentences in the offenses should be
run consecutively or one after the other for the reasons I have placed
5
on the record and so the sentences here will be run consecutively by
the Court.[3]
The only decision before the sentencing court was whether Pearce would
serve his two twenty-five-year sentences consecutively or concurrently. In
imposing consecutive terms, the court explicitly considered Pearce’s age, his lack
of prior criminal history, and the fact that there were two separate child victims.
“Given the serious nature of the defendant’s offenses and the number of victims,
the sentencing court was well within its discretion in imposing consecutive
sentences . . . .” State v. Witham, 583 N.W.2d 677, 679 (Iowa 1998) (affirming
sentencing court imposing three consecutive sentences when defendant pled
guilty to three counts of committing lascivious acts with a child with three separate
child victims). And we cannot say the district court put too much weight on the
nature of the offenses and not enough weight on Pearce’s lack of criminal history,
as both are proper considerations and the weighing of the factors is up to the
sentencing court. See State v. Hopkins, 860 N.W.2d 550, 555 (Iowa 2015) (“When
considering whether a court abuses its discretion by imposing a sentence of
3 Pearce has not raised this issue for reversal, but we note that Pearce pled guilty
to second-degree sexual abuse, which involved him committing sexual abuse on
two children under the age of twelve. He did not plead guilty to the crimes with
which he was initially charged—continuous sexual abuse of a child. None of
Pearce’s admissions involved the long duration of sexual abuse referenced by the
prosecutor, Pearce’s own attorney, and the court. See State v. Chapman, 944
N.W.2d 864, 872 (Iowa 2020) (“While minutes of testimony attached to a trial
information ‘can be used to establish a factual basis for a charge to which a
defendant pleads guilty[,] [t]he sentencing court should only consider those facts
contained in the minutes that are admitted to or otherwise established as true.’
‘Where portions of the minutes are not necessary to establish a factual basis for a
plea, they are deemed denied by the defendant and are otherwise unproved and
a sentencing court cannot consider or rely on them.’” (alterations in original)
(internal citations omitted)).
6
incarceration, we recognize the nature of the offense alone is not determinative.
On the other hand, the seriousness and gravity of the offense is an important
factor.” (internal citation omitted)); see also Thacker, 862 N.W.2d at 405 (“In
exercising discretion, the district court must ‘weigh all pertinent matters in
determining a proper sentence, including the nature of the offense, the attending
circumstances, the defendant’s age, character, and propensities or chances for
reform.’” (citation omitted)). Here the district court weighed factors, both positive
and negative, and we do not find the sentence given was untenable or clearly
unreasonable. See Hopkins, 860 N.W.2d at 556.
Because Pearce has not raised a reversible error, we find no abuse of
discretion and affirm.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484483/ | IN THE COURT OF APPEALS OF THE STATE OF IDAHO
Docket No. 49352
RICKY ASHTON CAIN, )
) Filed: November 17, 2022
Petitioner-Appellant, )
) Melanie Gagnepain, Clerk
v. )
) THIS IS AN UNPUBLISHED
VICTORIA ANNE CAIN, ) OPINION AND SHALL NOT
) BE CITED AS AUTHORITY
Respondent. )
)
Appeal from the District Court of the Seventh Judicial District, State of Idaho,
Bonneville County. Hon. Dane H. Watkins, Jr., District Judge; Hon. Andrew R.
Woolf, Magistrate.
Decision of the district court, on intermediate appeal from the magistrate court,
affirming in part and reversing in part the judgment, affirmed.
David A. Johnson and Beard St. Clair Gaffney PA; Kristopher D. Meek, Idaho
Falls, for appellant.
Parsons Behle & Latimer; Challis A. McNally, Idaho Falls, for respondent.
________________________________________________
BRAILSFORD, Judge
Ricky Ashton Cain (Rick) appeals the district court’s decision, on intermediate appeal,
affirming in part and reversing in part the magistrate court’s judgment and decree of divorce.
Specifically, Rick asserts the magistrate court erred in concluding that a franchised business,
The Little Gym, was acquired with community property funds and that The Little Gym’s value
was $100,000. We affirm.
I.
FACTUAL AND PROCEDURAL BACKGROUND
Rick and Victoria Cain (Tori) were married in 2011, and Rick filed for divorce in June
2018. The case proceeded to trial in May 2019. At trial, Tori testified that she acquired a franchise
right to operate The Little Gym in May 2017; she obtained the financing for the business from her
1
father, John Zumberge; and the business had a value of $100,000 at the time of trial. The
magistrate court admitted into evidence several documents related to the funding of The Little
Gym. These documents included: (1) a promissory note signed by Tori and payable to Zumberge
in the amount of $350,000; (2) a “loan request letter” from Tori to Zumberge dated May 2017,
requesting “a small business loan of $350,000” to fund The Little Gym, which letter Zumberge
countersigned noting “approved”; and (3) a “business plan” for The Little Gym dated August 2017.
Additionally, Zumberge testified about providing the financing for The Little Gym.
Following the trial, the magistrate court entered written findings of fact and conclusions of
law. The court found that “the parties agreed they would open The Little Gym and would borrow
money from Tori’s father to do so”; “Tori’s father agreed to loan the parties $350,000 in order to
open The Little Gym”; and “Tori and Rick started The Little Gym in May 2017.” Based on these
findings, the court concluded:
The Little Gym was started during the marriage and is community property. The
value of The Little Gym is $100,000.00. The debt owed on The Little Gym is
$350,000. The debt is community debt. The Little Gym is awarded to Tori, along
with the debt at a community value of [a negative] $250,000.
On intermediate appeal, Rick challenged the magistrate court’s conclusions that The Little
Gym’s value was $100,000; The Little Gym was community property; and the related community
debt was $350,000. In addressing these challenges, the district court ruled that the magistrate court
did not err in concluding that The Little Gym was community property acquired with community
debt or that The Little Gym’s value was $100,000. The district court, however, ruled “the
undisputed evidence demonstrated that the parties only incurred $325,000 in debt on The Little
Gym.” Accordingly, the district court ordered the magistrate court on remand to correct the debt
calculation and to adjust the equal division of community property and debt between the parties.
Rick timely appeals.
II.
STANDARD OF REVIEW
For an appeal from the district court, sitting in its appellate capacity over a case from the
magistrate division, we review the magistrate court record to determine whether there is substantial
and competent evidence to support the magistrate court’s findings of fact and whether the
magistrate court’s conclusions of law follow from those findings. Pelayo v. Pelayo, 154 Idaho
855, 858-59, 303 P.2d 214, 217-18 (2013). However, as a matter of appellate procedure, our
2
disposition of the appeal will affirm or reverse the decision of the district court. Id. Thus, we
review the magistrate court’s findings and conclusions, whether the district court affirmed or
reversed the magistrate court and the basis therefore, and either affirm or reverse the district court.
The manner and method of the acquisition of community and separate property are
questions of fact for the trial court. Papin v. Papin, 166 Idaho 9, 24, 454 P.3d 1092, 1107 (2019).
The characterization of property as either community or separate property is a mixed question of
law and fact. Id. Determining the value of the community property is within the trial court’s
discretion and will not be disturbed on appeal if substantial and competent evidence supports the
valuation. Id. at 29, 454 P.3d at 1112. Substantial and competent evidence does not mean
uncontradicted evidence but rather is relevant evidence that a reasonable mind might accept to
support a conclusion. Griffiths v. Griffiths, 167 Idaho 287, 296, 469 P.3d 615, 624 (2020). The
trial court resolves conflicting evidence and determines the weight, credibility, and inferences to
be drawn from the evidence. Id.
When a trial court’s discretionary decision is reviewed on appeal, the appellate court
conducts a multi-tiered inquiry to determine whether the trial court: (1) correctly perceived the
issue as one of discretion; (2) acted within the boundaries of such discretion; (3) acted consistently
with any legal standards applicable to the specific choices before it; and (4) reached its decision
by an exercise of reason. Lunneborg v. My Fun Life, 163 Idaho 856, 863, 421 P.3d 187, 194
(2018).
III.
ANALYSIS
A. Characterization of The Little Gym
Rick challenges the characterization of The Little Gym as community property acquired
with community debt. Whether a specific piece of property is characterized as community or
separate property depends on when it was acquired and the source of the funds used to purchase
it. Papin, 166 Idaho at 24, 454 P.3d at 1107. The property’s characterization as either community
or separate vests at the time the property is acquired. Id. “All property of either the husband or
the wife owned before marriage” or thereafter acquired “by gift, bequest, devise or descent” or
with proceeds of separate property is separate property. Idaho Code § 32-903. Under Idaho law,
a gift is defined as a voluntary transfer of property by one to another without consideration or
compensation therefore. Stanger v. Stanger, 98 Idaho 725, 728, 571 P.2d 1126, 1129 (1977); see
3
also Smith v. Smith, 164 Idaho 457, 472, 432 P.3d 6, 21 (2018). “All other property acquired after
marriage by either husband or wife is community property.” I.C. § 32-906. A rebuttable
presumption exists that all property acquired during marriage is community property. Reed v.
Reed, 137 Idaho 53, 58, 44 P.3d 1108, 1113 (2002). A party seeking to show an asset acquired
during marriage is separate property bears “the burden of proving with reasonable certainty and
particularity that the property is separate.” Baruch v. Clark, 154 Idaho 732, 737, 302 P.3d 357,
362 (2013).
Rick does not dispute that The Little Gym was acquired during the marriage. He contends,
however, that the district court erred by affirming the magistrate court’s conclusion that the
$325,000 debt was a community debt and argues that Zumberge gifted these funds to Tori. In
support, Rick summarizes Zumberge’s testimony, stating that Zumberge “was very clear in his
testimony that there was no expectation of repayment”; “[h]e had no intent to foreclose on the
obligation”; and “the note was prepared so that the transfer of money ‘did not look like a gift.’”
Rick, however, mischaracterizes Zumberge’s testimony.
Contrary to Rick’s summary of Zumberge’s testimony, Zumberge testified he intended to
loan--not to gift--the funds. For example, Zumberge testified that “I don’t want to lose the money”;
he described the loan as a “[b]usiness loan” and an “extended loan”; and he stated the reason he
documented the loan was to avoid the appearance of a gift:
Q. Okay. Now, did your accountant tell you that you needed to have a
promissory note with Tori?
A. He said it would be a good idea to do that.
Q. And that’s for income tax purposes--correct?--to document the loan?
A. Well, he also said--you know, I lent the money. I said, Well you know, I
want--I’m not going to charge you much interest. But my accountant told
me, Well you have to charge some interest because, otherwise, it might look
like a gift.[1]
Additionally, Zumberge did not testify that he had “no expectation of repayment,” as Rick
contends. Rather, Zumberge testified he did expect repayment:
Q. Okay. And is it your expectation that, when you loan Tori money, that she
will repay you?
A. That’s why--one reason why I wasn’t worried about The Little Gym too
much. They--they paid the first two loans I had.
1
The promissory note provides that “in the event the entirety of said note evidenced hereby
is declared due, interest shall accrue at the rate of 3.00% per annum from such time.”
4
Q. Okay.
A. So I expect to get payment, but I--you know, it--I know it takes time to start
a business like that. I don’t expect payment right away, so that’s how we
worked it in the--
Q. Okay.
A. --application.
Finally, although Zumberge did not testify he intended to “foreclose on the obligation,” his
testimony demonstrates he anticipated some legal recourse if the loan was not repaid:
Q. Okay. Now, if Tori is unable to pay that, do you plan to sue her?
A. I might not sue her, but I might think [sic] over the business--
Q. Okay.
A. --and maybe sell it if I can or do something with it.
Contrary to Rick’s arguments, Zumberge’s testimony does not support the conclusion that he
gifted Tori the funds for The Little Gym.2
Alternatively, Rick argues the loan from Zumberge was a “soft loan,” which he defines as
a loan from a “close family member” who is likely to “provide favorable and relaxed treatment of
the loan, including possible outright forgiveness.” Rick contends this Court should treat the soft
loan as a gift or at least closely scrutinize the loan’s legitimacy. The only binding authority Rick
cites in support is Huerta v. Huerta, 127 Idaho 77, 896 P.2d 985 (Ct. App. 1995). Huerta, however,
is distinguishable. In that case, the husband’s father provided $15,000 to help the couple construct
a home. Id. at 77, 896 P.2d at 987. The wife testified that “she understood the money was a gift
to both parties and would not be repaid.” Id. at 79, 896 P.2d at 987. In contrast, the husband
testified that “the money was a loan, which was to be repaid.” Id. He also testified, however, that
“his father assigned the loan to [him] after the divorce, effectively forgiving the debt.” Id. The
magistrate court concluded “the money was a gift to the community and therefore did not need to
be considered in calculating the community debt.” Id. On appeal, this Court noted “no formal
documents regarding the alleged loan were ever signed nor any payment schedule or interest
2
Tori’s testimony, likewise, does not support a conclusion that Zumberge gifted her the
funds for The Little Gym. Although Tori testified she believed the business was her separate
property, she also stated she “want[ed] the Court to decide what is right.” Indeed, whether The
Little Gym is characterized as community or separate property is a question of law. See Papin v.
Papin, 166 Idaho 9, 24, 454 P.3d 1092, 1107 (2019) (discussing standard of review). Accordingly,
Tori’s subjective belief has no bearing on the legal conclusion regarding the character of the
property as community or separate.
5
discussed” and concluded substantial and competent evidence, albeit conflicting, supported the
magistrate court’s decision.
In contrast to Huerta, no witness in this case testified the funds for The Little Gym were a
gift. Additionally, Tori signed a promissory note providing for interest on the loan; she sent
Zumberge a “loan request letter” containing loan terms, which Zumberge countersigned as
“approved”; and she provided a business plan showing, among other things, a schedule of
investments and income projections. Although Rick challenges these documents as “pro forma
and not [created] for the purpose of enforcement,” he cites no evidence in support of this assertion.
Likewise, Rick cites no evidence in support of his assertions that “there was not an actual intent to
rely” on the loan documents; “the promissory note was prepared to change the appearance of the
transfer from a gift to a loan”; and “Tori and her father specifically discussed the nature of what
would constitute loans and/or gifts specifically related to this case to get their stories straight.”
This Court will not search the record for evidence in support of Rick’s assertions. See Kelly v.
Kelly, ___ Idaho ___, ____, 518 P.3d 326, 344 (2022) (declining to consider issue lacking record
citation or to search record for supporting evidence).
Furthermore, that Tori entered into the loan in her individual capacity and refers to herself
in the first person in the loan documents does not overcome the presumption, as Rick suggests,
that The Little Gym is community property and that the related debt is, likewise, community.
Under Idaho law, “[e]ither the husband or the wife shall have the right to manage and control the
community property, and either may bind the community property by contract.” I.C. § 32-912.
Because Tori entered into the loan during the marriage for the purchase of community property,
the debt is a community debt.
A review of the record shows Rick failed to rebut the presumption that The Little Gym was
community property acquired during the marriage with community debt. Substantial and
competent evidence, including Zumberge’s testimony and the loan documents, supports the
magistrate court’s conclusion that the debt was a community debt. Accordingly, the district court
did not err by affirming that decision.
B. Valuation of The Little Gym
Rick challenges the magistrate court’s valuation of The Little Gym at $100,000. At trial,
Tori testified that “I would guess [The Little Gym is] valued at $100,000.” On appeal, Rick
disputes this testimony, stating Tori declared an opinion of value, but provided no basis for her
6
opinion.” Accordingly, he contends that the court did not determine the value by an exercise of
reason and that the court “should have zeroed out any community value,” “could have divided the
obligation owed to [Zumberge] equally between the parties,” or “order[ed] that The Little Gym be
sold.”
Although Rick characterizes Tori’s testimony about The Little Gym’s value as a guess,
Rick elicited this testimony on cross-examination but neither challenged the testimony as
speculative nor inquired about the basis of her opinion. Further, owners are generally deemed
competent to testify about the value of their property. See, e.g., Hurtado v. Land O’Lakes, Inc.,
153 Idaho 13, 21, 278 P.3d 415, 423 (2012) (ruling owner is qualified to testify to property’s
value). Finally, nothing in the appellate record indicates Rick requested the magistrate court to
value The Little Gym in the manner he proposes on appeal, and he does not cite any evidence to
support a different valuation.
For these reasons, we decline to conclude the magistrate court erred by valuing The Little
Gym at $100,000. Substantial and competent evidence supports The Little Gym’s valuation at
$100,000 based on Tori’s testimony about her involvement in the business and her estimate of its
value. See Papin, 166 Idaho at 34, 454 P.3d at 1117 (“The disposition of community property is
left to the discretion of the trial court, and unless there is evidence in the record to show an abuse
of that discretion, the award of the trial court will not be disturbed.”).
C. Costs on Appeal
Both parties seek costs on appeal. Idaho Appellate Rule 40(a) provides that “costs shall be
allowed as a matter of course to the prevailing party unless otherwise provided by law or order of
the Court.” Because Tori is the prevailing party on appeal, she is entitled to an award of costs on
appeal.
IV.
CONCLUSION
Substantial and competent evidence supports the magistrate court’s conclusion that The
Little Gym’s value is $100,000 and that the related $325,000 debt is a community debt.
Accordingly, the district court did not err by affirming the magistrate court’s decision in this
regard, and we affirm the district court’s decision.
Chief Judge LORELLO and Judge GRATTON CONCUR.
7 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484501/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0441
Filed November 17, 2022
SHAWN MICHAEL PLUCAR,
Petitioner-Appellant,
vs.
TIFFANY GRAFTON,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Linn County, Andrew B. Chappell,
Judge.
Shawn Plucar appeals the district court’s order denying his application for
rule to show cause requesting that Tiffany Grafton be held in contempt.
AFFIRMED.
Katelyn Simon of Cordell Law, L.L.P., Des Moines, for appellant.
Tiffany Grafton, Cedar Rapids, self-represented appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
VAITHESWARAN, Presiding Judge.
Shawn Plucar and Tiffany Grafton divorced. Under the dissolution decree,
Grafton was awarded “sole right, title and possession of” a 2015 Chevrolet
Silverado with the associated debt and was to “hold [Plucar] harmless from this
debt.” Plucar was to receive a cell phone and the associated debt.
Less than one month after the dissolution decree was finalized, Plucar filed
an application for rule to show cause, alleging in part that Grafton “failed to transfer
title of the Silverado in her name or refinance the vehicle in her own name” and
“stopped making payments on the vehicle.” He also alleged Grafton “failed to give
[him] the cell phone that he was awarded.” The district court denied the application
following an evidentiary hearing. While the court found that Grafton “fail[ed] to
comply with the” decree in not removing Plucar’s name from title and loan
documents for the Silverado, the court determined Plucar’s evidence on whether
the omission was willful fell “far short of the mark.” The court concluded:
[Plucar] has not proven by even a preponderance of the
evidence, let alone beyond a reasonable doubt, that between the
times the Decree was entered and the date of the contempt
proceedings [Grafton] had the financial wherewithal to cover the
amount of the loan . . . .
[Plucar] provides no actual evidence to demonstrate that
[Grafton] has the ability to pay the debt on the Silverado or that she
had that ability sometime after the Decree was entered but failed to
do so. Absent this, [Grafton’s] failure to comply with the Decree
cannot be found to be willful. If [Grafton] has not acted willfully, she
cannot be found to be in contempt of court.
3
On appeal,1 Plucar contends the district court “gross[ly] abused its
discretion in finding that [Grafton’s] actions were not a willful violation of the court’s
decree.” See In re Marriage of Swan, 526 N.W.2d 320, 327 (Iowa 1995) (stating
“unless this discretion is grossly abused, the [trial court’s] decision must stand”
(alteration in original) (citation omitted)); see also Iowa Code § 598.23(1) (2021)
(“If a person against whom a temporary order or final decree has been entered
willfully disobeys the order or decree, the person may be cited and punished by
the court for contempt . . . .” (emphasis added)). We disagree. The court
summarized the evidence supporting Grafton’s claimed inability to pay the vehicle
loan, some of which was offered by Plucar. As for the cell phone, it was returned
to Plucar at the time of the hearing.
We conclude the district court did not grossly abuse its discretion in
declining to find Grafton in contempt, and we affirm the court’s denial of the
application for rule to show cause.
AFFIRMED.
1Plucar filed a petition for writ of certiorari. Citing Patterson v. Keleher, 365
N.W.2d 22, 24 (Iowa 1985), the supreme court ordered the petition treated as an
appeal. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484505/ | IN THE COURT OF APPEALS OF IOWA
No. 21-0381
Filed November 17, 2022
MARK ALAN TROUTMAN,
Applicant-Appellant,
vs.
STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Mills County, Jeffrey L. Larson,
Judge.
Mark Troutman appeals the denial of his application for postconviction relief.
AFFIRMED.
Christopher J. Roth of Roth Weinstein, LLC, Omaha, Nebraska, for
appellant.
Thomas J. Miller, Attorney General, and Thomas E. Bakke, Assistant
Attorney General, for appellee State.
Considered by Bower, C.J., and Vaitheswaran and Tabor, JJ.
2
VAITHESWARAN, Judge.
A jury found Mark Troutman guilty of first-degree murder in connection with
the shooting death of his ex-girlfriend. The court of appeals affirmed his judgment
and sentence. State v. Troutman, No. 17-0277, 2018 WL 1182623, at *3 (Iowa Ct.
App. Mar. 7, 2018). Troutman filed an application for postconviction relief. The
district court denied the application following an evidentiary hearing.
On appeal, Troutman contends (I) his trial attorneys were ineffective in
failing to (A) pursue a renewed motion for change of venue, (B) give him all the
discovery materials, (C) call witnesses on his intoxication defense, (D) argue for
the lesser-included offense of voluntary manslaughter, and (E) object to evidence
of the deceased’s good character; and (II) his appellate attorney was ineffective in
failing to (A) appeal the partial denial of his suppression motion and (B) appeal the
denial of the motions for change of venue. Ineffective-assistance claims require
proof of deficient performance and prejudice. See Strickland v. Washington, 466
U.S. 668, 687 (1984). “Failure to prove either prong is fatal to an ineffective-
assistance-of-counsel claim.” State v. Lorenzo Baltazar, 935 N.W.2d 862, 868
(Iowa 2019). We begin and end with the prejudice prong.
We have presumed prejudice for ineffective-assistance claims that “rise to
the level of structural errors.” See Sothman v. State, 967 N.W.2d 512, 530 (Iowa
2021). Troutman does not contend any of his claims require a presumption of
prejudice. Accordingly, we apply the general prejudice standard, which requires a
showing of a reasonable probability that the result would have been different but
for counsel’s errors. See State v. Kuhse, 937 N.W.2d 622, 628 (Iowa 2020). The
3
standard will not be satisfied where there is overwhelming evidence against the
defendant. Id. Our de novo review of the trial record reveals the following facts.
Troutman began a long-distance romantic relationship with an Iowan. He
occasionally traveled from Ohio to western Iowa to see her. One day, he arrived
by train expecting her to pick him up, only to discover she was not there. She
texted him the next day asking, “When do you want to meet so I can give you you[r]
stuff back[?]” Troutman responded, “I don’t understand.” She clarified that she
was ending the relationship.
In conveying his feelings about the breakup to another person, Troutman
texted, “It took everything I had as a person to not start hitting her until she wasn’t
alive anymore.” He told someone else he contemplated a murder/suicide.
Troutman returned to Iowa and shot the woman in her head outside her
place of employment. Witnesses pointed to Troutman as the shooter. Following
the shooting, the manager of the hotel where Troutman was staying found
Troutman crying in his room. She informed him of the shooting. He responded it
was him they were looking for and said, “you know what I did.” He then got the
gun, showed it to her, put it down, and went to the lobby with the manager to wait
for police.
Officers found writing on the wall inside Troutman’s hotel room saying he
was sorry and signed with the initials “MT.” He also wrote, “Please ask [the
woman], she’s the one who lied and cheated on me, why I did it.” He referred to
texts on his phone and said, “I just couldn’t cope with what I thought was real but
apparently nothing was real ever.” He continued, “Why make me travel eight, nine
4
hours to surprise me. That’s why I did it. I’m so sorry I let everyone down but I
can’t live with that and neither should she.”
We conclude the record overwhelmingly establishes Troutman’s guilt.
Troutman failed to establish Strickland prejudice, and the district court
appropriately denied all his ineffective-assistance-of-counsel claims.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484493/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1772
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
DUSTIN ELLIOTT WILLIAMS,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Jeffrey Farrell, Judge.
A defendant appeals the denial of his Batson challenge. AFFIRMED.
Martha J. Lucey, State Appellate Defender, and Theresa R. Wilson,
Assistant Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Louis S. Sloven, Assistant Attorney
General, for appellee.
Considered by Bower, C.J., Tabor, J., and Vogel, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
TABOR, Judge.
Dustin Williams appeals his conviction for possession of a controlled
substance, third offense, as a habitual offender, arguing the court should have
granted his Batson challenge.1 He contends the State struck a “multiracial”
potential juror in violation of the Equal Protection Clause. The State responds that
the trial prosecutor had a credible, race-neutral reason for the strike, and the
district court correctly denied his challenge. Relying on the perceptions of the
district court, we also reject his constitutional claim.
I. Facts and Prior Proceedings
In March 2021, police stopped Williams’s car for having no license plate.
They found scales and baggies containing methamphetamine. The State charged
Williams with a felony drug offense. See Iowa Code §§ 124.401(5), 902.8, .9(1)(c)
(2021).
Williams appeared for a jury trial in July 2021. During jury selection, he
raised a Batson challenge to the prosecutor using a peremptory strike on a
potential juror who identified himself as “multiracial.”2 The court denied the
challenge. The jury found Williams guilty as charged. The court sentenced him to
a term of fifteen years. Williams appeals.
II. Scope and Standard of Review
We review Batson challenges de novo. See State v. Veal, 930 N.W.2d 319,
327 (Iowa 2019).
1 See generally Batson v. Kentucky, 476 U.S. 79 (1986).
2 Williams identified himself as African-American.
3
III. Analysis
Williams’s only contention on appeal is that the district court wrongly denied
his Batson challenge. “Purposeful racial discrimination in selection of [a jury]
venire violates a defendant’s right to equal protection.” Batson, 476 U.S. at 86.
The Equal Protection Clause “forbids the prosecutor to challenge potential jurors
solely on account of their race.” Id. A challenge under Batson follows three steps:
first, the defendant must make “a prima facie case of racial discrimination.” State
v. Mootz, 808 N.W.2d 207, 215 (Iowa 2012) (citation omitted). That is, “the
defendant first must show that he is a member of a cognizable racial group . . . and
that the prosecutor has exercised peremptory challenges to remove from the
venire members of the defendant’s race.”3 Batson, 476 U.S. at 96 (internal citation
omitted). The defendant must show “these facts and other relevant circumstances
raise an inference of discrimination.” Veal, 930 N.W.2d at 332.
At step two, “the burden of production shifts to the [State] to come forward
with a race-neutral explanation.” Mootz, 808 N.W.2d at 215 (citation omitted). “A
neutral explanation . . . means an explanation based on something other than the
race of the juror.” Hernandez v. New York, 500 U.S. 352, 360 (1991). “Unless a
discriminatory intent is inherent in the prosecutor’s explanation, the reason offered
will be deemed race neutral.” Id. The reason “need not rise to the level justifying
exercise of a challenge for cause.” State v. Griffin, 564 N.W.2d 370, 375 (Iowa
1997) (citation omitted). The discriminatory intent must be “inherent in the
3 Recently, the Supreme Court clarified, “A defendant of any race may raise a
Batson claim, and a defendant may raise a Batson claim even if the defendant and
the excluded juror are of different races.” Flowers v. Mississippi, 139 S. Ct. 2228,
2243 (2019).
4
[prosecutor’s] explanation,” Mootz, 808 N.W.2d at 214 (quoting Hernandez, 500
U.S. at 360), and it need not be “persuasive, or even plausible,” id. (quoting Purkett
v. Elem, 514 U.S. 765, 768 (1995)). In other words, “[t]he reason given must, in
and of itself, violate equal protection.” Id. at 218. Step one is moot if the State
satisfies its burden at step two. See id.
At the third step, the court decides whether the “stated reason constitutes a
pretext for racial discrimination.” Id. at 219 (citation omitted). It is only at step
three that we determine whether the reason given is a persuasive justification.
Purkett, 514 U.S. at 768 (“It is not until the third step that the persuasiveness of
the justification becomes relevant . . . .”). “The court must, at this point, ‘decide
whether to believe the [attorney’s] explanation for the peremptory challenges.’”
Mootz, 808 N.W.2d at 219 (citation omitted). “At that stage, implausible or fantastic
justifications may (and probably will) be found to be pretexts for purposeful
discrimination.” Purkett, 514 U.S. at 768.
During voir dire, the prosecutor and the potential juror, X.Q., had the
following brief discussion:
[D]oes anybody . . . know anybody from my office, the Polk County
Attorney’s Office, or have any friends or family that had any
interaction with our office? No?
....
PROSECUTOR: Okay. I saw another hand. Sir?
X.Q.: My fiancée worked as an intern in the prosecutor’s
office.
PROSECUTOR: What’s your name?
X.Q.: [X.Q.]
PROSECUTOR: [X.Q.], who is you fiancée, if you don’t mind
me asking.
X.Q.: [N.D.]
PROSECUTOR: [N.D.] When did she intern with our office?
X.Q.: I guess it would have been two years ago.
5
PROSECUTOR: Two years ago. Okay. So I would have
been here. Do you know what division she worked in?
X.Q.: I don’t remember.
PROSECUTOR: You don’t remember. Did you guys kind of
talk about what her experience was like?
X.Q.: Not in detail.
PROSECUTOR: Not in detail. Did she have a positive
experience?
X.Q.: It was an educational experience.
PROSECUTOR: Okay. It was an educational experience.
You know, I will take that. I will take that. Educational. At a
minimum, it’s supposed to be that. I like to make it a little more fun,
but I will take educational. Any reason why her experience would
influence your decision-making process?
X.Q.: Not in this context.
PROSECUTOR: Okay. Excellent. Thank you for that.
Defense counsel did not ask X.Q. any questions.
The State exercises a preemptory strike to exclude X.Q. from the jury. At
the end of voir dire, defense counsel raised a Batson challenge to the State’s
action. The prosecutor offered this reason for the strike:
The record reflects my conversation with [X.Q.] on the record, which
indicated that he, through his, I think, he said fiancée or wife had prior
interactions with my office, specifically the Polk County Attorney’s
Office. In my general conversation with [X.Q.], I became of the
opinion that either he or his wife did not harbor necessarily positive
experiences working with our office. As I directly asked him, was it
a positive experience, and instead of saying yes, he replied twice
with it was educational, which I took to mean that there was
educational value, albeit, I don’t believe that his spouse or fiancée
enjoyed that experience.[4]
Defense counsel had a different read of the interview:
[The prosecutor] did ask him if it was a positive experience, and he
did not respond affirmatively to say that it was a positive experience,
but he also didn’t say no. He said it was an educational experience.
4 The prosecutor gave the added reasoning that “in my questioning . . . and my
observations of [X.Q.] during general questioning, [X.Q.] appeared to be . . . more
disengaged than other jurors.” The district court commented “I guess I didn’t really
notice that as much,” implicitly rejecting the prosecutor’s reasoning. The State
does not reprise the “disengaged” rationale on appeal.
6
I don’t know if he said it once or twice, but if he did, I wouldn’t dispute
it. But he didn’t say anything on the record that was negative about
the experience. His recitation was that it was neutral. It was maybe
complicated. It was an experience that, as people being experienced
in our profession, they encounter.
His fiancée, I believe, based on the context of the
conversation was a law student who was interning in their office,
although maybe she wasn’t a law student. She was an intern in their
office. But I think that his statements were entirely neutral about the
experience. That doesn’t rise to the level of sufficient reason to strike
this juror . . . .
The court accepted the prosecutor’s reason:
[T]he response made to the questions about his fiancée interning at
the county attorney’s office is grounds for the strike. He was—and I
think [the State] was, you know, had a good conversation with [X.Q.],
and [X.Q.] raised the issue and said was it positive experience, and
there’s a pause, and then said, it was educational. And I took it that
that could potentially be a negative interaction. That’s the way I
heard it. And maybe it wasn’t, but he didn’t say it was positive. And
educational can be negative. It can be positive.
I think it certainly gives [the State] grounds to exercise a
preemptive strike with regard to the juror. It’s certainly race neutral.
It’s based upon his fiancée’s experience in that office. And I think
[the prosecutor] would have concern based on this answer whether
or not [X.Q.] would be fair to the State. Particularly, when it’s his
office that’s prosecuting case.
Because the district court and parties on appeal move straight to the latter
steps of the Batson analysis, we will do the same.5
5 At step one, the evidence for a prima facie showing of racial discrimination
centers on X.Q.’s racial self-identification and the fact of the strike. See Mootz,
808 N.W.2d at 215 (explaining at step one, “the court may consider all relevant
circumstances, including a pattern of strikes against jurors of a particular race”);
see also Flowers, 139 S. Ct. at 2243 (listing the factors the trial judge should
consider in evaluating whether racial discrimination occurred, including statistics
on the prosecutor’s exercise of peremptory strikes against Black versus white
jurors; evidence of disparate questioning and investigation; comparisons of Black
jurors who were struck versus white jurors who were not; the prosecutor’s
misrepresentations of the record in explaining strikes; history of the State’s
peremptory strikes in past cases; and other relevant circumstances bearing on
racial discrimination). The trial record does not show that the State argued the
lack of a prima facie case, so we assume the State waived that ground.
7
Step two is “extremely deferential” to the State. Mootz, 808 N.W.2d at 218.
The key issue is “the facial validity of the [prosecutor’s] explanation.” Id. (quoting
Hernandez, 500 U.S. at 360). “The trial court must consider the prosecutor’s race-
neutral explanations in light of all of the relevant facts and circumstances, and in
light of the arguments of the parties.” Flowers, 139 S. Ct. at 2244. “[T]he best
evidence of discriminatory intent often will be the demeanor of the attorney who
exercises the challenge.” Id. (citation omitted). Such “determinations of credibility
and demeanor lie peculiarly within a trial judge’s province.” Id. For that reason,
we give “a great deal of deference to the district court’s evaluation of credibility.”
Mootz, 808 N.W.2d at 214. “The trial judge must determine whether the
prosecutor’s proffered reasons are the actual reasons, or whether the proffered
reasons are pretextual and the prosecutor instead exercised peremptory strikes
on the basis of race.” Flowers, 139 S. Ct. at 2244.
Williams contends the prosecutor’s proffered reason—the less-than-
positive experience of X.Q.’s fiancée as an intern for the county attorney—“did not
overcome the prima facie showing of purposeful discrimination.” He argues X.Q.’s
answers did not show “his fiancée’s experience in the county attorney’s office
would influence his decision-making.” He asks us to find the reason given was
merely pretext for purposeful discrimination.
The State contends that it is well settled that a potential juror’s encounters
with the prosecutor’s office can be a basis for removal.6 Cf. Mootz, 808 N.W.2d at
6The State mentions in passing, “The prosecutor could probably strike X.Q. based
on the mere fact of his fiancée’s prior connection to the Polk County Attorney’s
office, even without more.”
8
219 (“Our cases have repeatedly noted that a juror’s interactions with law
enforcement and the legal system are a valid, race-neutral reason for a peremptory
challenge.”).
The supreme court examined that principle recently and noted “the
disproportionate impact [on African-American jurors] when jurors can be removed
based on prior interactions with law enforcement.” Veal, 930 N.W.2d at 334. In
that case, the defendant argued “allowing prosecutors to use peremptory strikes
on prospective jurors who are relatives of individuals they previously prosecuted
disproportionately implicates African-American potential jurors.” Id. (internal
quotation marks omitted). Still, the court recognized that case involved a “special
set of circumstances”: the struck juror’s father was prosecuted by the same
prosecutor and sent to jail for life. Id. Thus the court found the strike valid. Id.
Here we do not see a “special set of circumstances” that would mark the
juror’s views to the same extent as in Veal. X.Q.’s fiancée interned in the county
attorney’s office two years earlier, X.Q. did not know what division she worked in,
and they did not speak about her work in detail. And Williams insists on appeal
that describing the experience as “educational” was at most neutral and not
enough to warrant the strike. On those facts, we are concerned about the
disparate impact of striking this juror.
Yet, we must defer to the district court’s ringside seat for jury selection. The
court recalled X.Q.’s peculiar response to the prosecutor’s question: “there’s a
pause, and then [X.Q.] said, it was educational.” The court took that to mean the
fiancé may have had a negative experience while interning for the county attorney
9
and shared that negativity with the potential juror. The court agreed with the
prosecutor that the exchange raised a concern about X.Q.’s ability to be fair.
“[R]ace-neutral reasons for peremptory challenges often invoke a juror’s
demeanor (e.g., nervousness, inattention), making the trial court’s firsthand
observations of even greater importance.” Snyder v. Louisiana, 552 U.S. 472, 477
(2008). The court is responsible for “evaluat[ing] not only whether the prosecutor’s
demeanor belies a discriminatory intent, but also whether the juror’s demeanor can
credibly be said to have exhibited the basis for the strike attributed to the juror by
the prosecutor.” Here, we rely on the district court’s interpretation of the potential
juror’s demeanor and how he conveyed his understanding of his fiancée’s
experience with the county attorney’s office.
Our view is bolstered by some earlier interactions during voir dire. The court
asked whether anyone had served on a jury before. Two potential jurors said they
had. When asked, both confirmed it was a “good experience.” The State did not
exercise peremptory strikes against either.7 Those conversations drew a contrast
from X.Q.’s response when asked whether his fiancée had a “good experience”
interning for the county attorney. The subtext, tone of voice, and demeanor of the
jurors are relevant and not apparent from a transcript. We must defer to the district
court’s impressions of the prosecutor’s perception of potential bias against his
office. With that deference, we find the reason was race-neutral and not pretext
to strike a multiracial juror. We affirm the denial of the Batson challenge.
AFFIRMED.
7 The defense exercised peremptory strikes to remove them. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484492/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0181
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
ENOC ALVARENGA,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court of Dubuque County, Michael J. Shubatt,
Judge.
Enoc Alvarenga appeals his convictions for enticing a minor and indecent
contact with a child. AFFIRMED.
Martha J. Lucey, State Appellate Defender, and Theresa R. Wilson,
Assistant Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Louis S. Sloven, Assistant Attorney
General, for appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
VAITHESWARAN, Presiding Judge.
A jury found Enoc Alvarenga guilty of enticing a minor and indecent contact
with a child. The district court sentenced him to prison for terms not exceeding ten
and two years respectively, to be served consecutively.
On appeal, Alvarenga contends the district court abused its discretion in
(1) denying his motion in limine to exclude evidence of his arrest and (2) imposing
consecutive sentences.
I. Limine Ruling
Alvarenga’s pretrial motion in limine sought to prevent the State “from
introducing details of [his] arrest.” He asserted evidence “that he resisted and/or
attempted to flee . . . would cause the jury to improperly conclude that [he] was
avoiding law enforcement due to the allegations stemming from the instant case”
or might force him “to reveal a prior bad act.” Citing Iowa Rule of Evidence 5.403,
he argued the evidence, while relevant, was “substantially outweighed by unfair
prejudice.” At a hearing on the motion, the prosecutor noted that Alvarenga was
arrested on a warrant on the underlying charges and his “attempt[] to flee” was
evidence of his “consciousness of guilt” that was “something for the jury to
consider.” Alvarenga responded that admission of the evidence would put the
defense in “an unfair situation.” The district court denied the motion, reasoning the
evidence placed the defense in “a difficult situation” rather than an “unfair
situation,” requiring a strategic decision on how to respond. The court stated trial
strategy was an insufficient ground to exclude evidence that “would normally come
in.”
3
At trial, an officer with the Dubuque Police Department testified he was at a
convenience store to check on an abandoned vehicle. He ran the plate, which
came back to Alvarenga, who he “knew to have an active warrant for his arrest.”
Momentarily, he “observed [Alvarenga] walking toward[] [him] in the direction of his
vehicle.” He “grabbed onto [Alvarenga’s] right arm and said, hey, you got warrants
for your arrest and went to go place him into handcuffs.” As he did so, Alvarenga
“pulled his arms away” and both individuals “went to the ground.” According to the
officer, “[t]here was a struggle on the ground there for a second” and Alvarenga
got away, and ran “along the front of the store again while [he] still had a hold of
[Alvarenga’s] shirt.” The officer kicked Alvarenga’s “feet from underneath him,”
and “he tripped and fell.”
Alvarenga did not lodge a trial objection to this testimony. He did object to
the offer of surveillance footage from the convenience store, citing “the objection
that was previously made” during pretrial motions. The district court noted and
overruled the objection, and the video was played. On cross-examination,
Alvarenga elicited an admission from the officer that people could run for any
number of reasons. He did not refer to the prior bad act that undergirded his motion
in limine.
On appeal, Alvarenga essentially reprises the argument he made at the
hearing on his motion. The State responds that he failed to preserve error.
“Generally denial of a motion in limine does not preserve error for appellate
review.” State v. Thoren, 970 N.W.2d 611, 620–21 (Iowa 2022). But if the motion
“declares the evidence admissible or inadmissible, it is ordinarily a final ruling and
need not be questioned again during trial.” Id. at 621.
4
We conclude the district court made a final ruling on the motion in limine.
Although the court initially questioned how the State would admit evidence of the
arrest warrant, it ultimately decided to assume “that there was a warrant [and] that
[Alvarenga] ran.” Based on that assumption, the court unequivocally ruled the
flight evidence was admissible. See Quad City Bank & Tr. v. Jim Kircher &
Assocs., P.C., 804 N.W.2d 83, 90–91 (Iowa 2011) (“The court did not equivocate
or state it would reconsider its ruling at trial” and, “[a]ccordingly, the court’s ruling
had the effect of a definitive evidentiary ruling.”). Because the ruling left scant, if
any, room for doubt as to the admissibility of the flight evidence, Alvarenga had no
obligation to object to the evidence at trial in order to preserve error.
As for the scope of the final ruling, we are persuaded it covered the
probative value and prejudicial effect of the evidence under Iowa Rule of Evidence
5.403 as well as potential limits on the use of prior bad acts evidence under Iowa
Rule of Evidence 5.404(b). Because Alvarenga raised these arguments in the
district court, he preserved error. We proceed to the merits.
“It is well-settled law that the act of avoiding law enforcement after a crime
has been committed may constitute circumstantial evidence of consciousness of
guilt that is probative of guilt itself.” State v. Wilson, 878 N.W.2d 203, 211 (Iowa
2016) (citations omitted). At the same time, the evidence has to be treated “with
caution.” Id. at 212. “[T]he probative value of evidence showing a defendant
avoided apprehension turns on the circumstances under which the avoidance
occurred.” Id. at 213. Specifically, “[f]or any valid inference of guilt to be drawn by
the jury from flight evidence, the district court must assure itself there is some
5
evidence in the record to support the inferential chain between the defendant’s act
of avoidance and consciousness of guilt for the crime charged.” Id.
[T]he inferential chain connecting an act of flight to guilt for the crime
charged can reasonably be drawn only when the timing of the act
suggests the sudden onset or the sudden increase of fear in the
defendant’s mind that he or she will face apprehension for,
accusation of, or conviction of the crime charged.
Id. (internal quotations and citation omitted). “The immediacy requirement is
important. It is the instinctive or impulsive character of the defendant’s behavior,
like flinching, that indicates fear of apprehension and gives evidence of flight such
trustworthiness as it possesses.” Id. That said, “establishing immediacy is less
critical to establishing the probative value of flight when the evidence conclusively
establishes the defendant knew he or she was suspected of the charged crime at
the time of flight.” Id. at 214. Once a district court admits such evidence, it is for
the jury to decide whether to credit the inferential chain leading from a particular
act of the defendant to guilt for the crime charged.” Id. at 215.
Alvarenga concedes Wilson is the governing precedent but argues the
opinion is distinguishable on its facts. He asserts that, unlike Wilson, his “attempt
to avoid arrest cannot be directly tied to the allegations in this case.” He points out
the incident giving rise to the charges occurred twenty days before his attempt to
flee, an officer visited him to obtain a DNA sample in the interim and did not call
him for an interview after saying he might, and “[n]o developments between [the
visit and his arrest] would have led [him] to believe circumstances had materially
changed.” In his view, his attempt to flee was attributable to the prior bad act he
discussed at the motion hearing, making the flight “irrelevant to any legitimate
issue in dispute.”
6
We are persuaded Wilson is on point factually as well as legally. There, the
court cited “[s]everal significant events related to the charged crimes . . . in the
days immediately leading up to the flight from which a jury could reasonably infer
that [the defendant] fled from law enforcement due to his consciousness of guilt
for those crimes.” Id. at 216. The same is true here. A jury reasonably could have
inferred that the officer’s contact with him to obtain a DNA sample together with
the request for a follow-up interview placed Alvarenga on notice that he was a
suspect in the current matter. A jury could have surmised that he “experienced a
sudden increase in fear that he would be accused of the charged crimes.” Id. We
conclude the arrest and flight evidence was probative of Alvarenga’s
consciousness of guilt, just as it was in Wilson.
We turn to the question of whether the evidence was unfairly prejudicial.
See id. at 215-16. “Unfair prejudice arises when the evidence appeals to the jury’s
sympathies, arouses its sense of horror, provokes its instinct to punish, or . . . may
cause a jury to base its decision on something other than the established
propositions in the case.” Id. at 216 (internal quotations and citation omitted).
The officer’s testimony was fairly brief. See id. at 217 (noting flight
testimony “was not presented in an inflammatory manner, as it was brief relative
to the length of the trial as a whole”). Although his description of the tackle was
vivid, it was not the type of evidence relative to the underlying crimes that would
have prompted the jury to punish him. Id. As for the surveillance video, it recorded
the door of the store from an interior vantage point and captured people
momentarily running past the door, with the faces of the runners out of the
camera’s range. True, admission of the flight evidence forced Alvarenga to decide
7
whether he would offer evidence of a prior bad act unrelated to the underlying
crimes to establish an alternative basis for fleeing. But Alvarenga elected not to
offer that evidence. We conclude the probative value of the evidence was not
substantially outweighed by the danger of unfair prejudice and the district court did
not abuse its discretion in concluding the evidence was admissible.
Even if the evidence should not have been admitted, we must engage in a
harmless-error analysis to determine whether the admission amounted to
reversible error. See id. at 218–19. “The type of prejudice in our harmless error
analysis differs from the rule 5.403 prejudice.” State v. Sullivan, 679 N.W.2d 19,
30 (Iowa 2004). We presume prejudice and reverse unless the record affirmatively
establishes a lack of prejudice. Id. The record may affirmatively establish a lack
of prejudice where the unchallenged evidence is overwhelming. See Thoren, 970
N.W.2d at 636–37; State v. Parker, 747 N.W.2d 196, 210 (Iowa 2008).
The child provided compelling testimony of the circumstances underlying
the charges. Her testimony together with other evidence overwhelmingly
supported findings of guilt on both charges rendering any error in admitting the
flight evidence harmless.
II. Consecutive Sentences
Alvarenga contends the district court abused its discretion in imposing
consecutive sentences. See State v. August, 589 N.W.2d 740, 744 (Iowa 1999)
(setting forth standard of review). We disagree. In running the sentences
consecutively, the district court agreed with the recommendation contained in the
presentence investigation report and cited “the nature of the offense[s]” and “the
8
fact that although they were proximate in time[,] they [were] separate acts,
separate crimes.” We discern no abuse of discretion in the statement of reasons.
We affirm Alvarenga’s judgment and sentence.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484506/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0127
Filed November 17, 2022
LEANN FAYE WERTS,
Plaintiff-Appellant,
vs.
IOWA BOARD OF PAROLE,
Defendant-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Jeanie K. Vaudt, Judge.
Leann Faye Werts challenges the Iowa Board of Parole’s denying her
conditional release based only on the seriousness of her offenses. AFFIRMED.
Gordon E. Allen, Johnston, for appellant.
Thomas J. Miller, Attorney General, and John R. Lundquist, Assistant
Attorney General, for appellee.
Heard by Bower, C.J., Badding, J., and Potterfield, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
BOWER, Chief Judge.
Leann Faye Werts challenges the Iowa Board of Parole’s (Board) denial of
her conditional release based only on the seriousness of her twenty-year-old
offenses. She contends the Board’s reason is contrary to the statutory mandate
that release “shall be ordered” when “there is reasonable probability that the
person . . . . is able and willing to fulfill the obligations of a law-abiding citizen.”
Iowa Code § 906.4 (2021). She maintains the Board’s denial here was contrary to
law, “and given the factual record, simply irrational and illogical.”
The Board’s decision denying Werts conditional release was within its
discretion as provided in section 906.4. We affirm the district court’s finding the
Board did not prejudice Werts’s substantial rights in denying release.
I. Background Facts and Proceedings.
Werts was originally sentenced to life in prison without the possibility of
parole after a jury found her guilty of first-degree murder for the death of a twenty-
one-month-old child who was in her care. Her conviction was overturned on
appeal, and a new trial ordered. See State v. Werts, 677 N.W.2d 734, 735 (Iowa
2004).
In April 2005, Werts voluntarily entered an Alford plea1 and was adjudged
guilty of “multiple acts of child endangerment,” in violation of Iowa Code section
726.6A (maximum term of fifty years), and attempted murder, in violation of Iowa
Code section 707.11 (maximum twenty-five-year term with a mandatory minimum).
1 See North Carolina v. Alford, 400 U.S. 25, 37 (1970) (permitting a criminal
defendant to enter a guilty plea without admitting guilt by acknowledging strong
evidence of guilt and voluntarily, knowingly, and understandingly agreeing to allow
the court to consider such strong evidence of guilt in accepting the plea); see also
State v. Burgess, 639 N.W.2d 564, 567 n.1 (Iowa 2001).
3
To support her pleas, Werts stipulated she twice intentionally struck the child’s
head against a highchair with unreasonable force and her actions resulted in a
serious brain injury to her victim that caused a substantial risk of death. In addition,
Werts stipulated that on another date she intentionally pulled the child off the
ground by his arm and slammed him to the ground on his buttocks.
The sentencing court determined the fifty-year and twenty-five-year prison
terms would run consecutively due to “the nature of the offenses and because to
do otherwise would unduly lessen the seriousness of the offenses.” Thus, Werts
received a seventy-five-year sentence and was not eligible for parole until she had
served at least seven-tenths of her attempted-murder sentence. Werts’s
mandatory-minimum term was completed in March 2020; her tentative discharge
date is in September 2046. In anticipation of Werts completing the mandatory
portion of her sentence, the Board began annual reviews of her case starting in
April 2019.
Werts sought judicial review of the Board’s April 21, 2021 and September 9,
2021 final appeal decisions denying her a conditional release. Werts alleges the
Board applied an erroneous legal standard or otherwise acted unreasonably or
arbitrarily in denying her release based solely upon the seriousness of her criminal
offense.
In its judicial review decision, the district court concluded:
Iowa’s parole statute requires that [Werts] cannot be released on
parole until [the Board] determines—in its sole opinion—that she is
able [and] willing to fulfill her obligations as a law-abiding citizen.
Iowa Code § 906.4(1). Ultimately, “[t]he parole decision is the
exclusive prerogative of the board of parole.” State v. Shield, 368
N.W.2d 721, 724 (Iowa 1985). Under Iowa’s indeterminate
sentencing scheme, the “ultimate determination of the length of
sentence [Werts] will actually serve within the maximum rests with
4
the [Board],” not the [department of corrections] or the district court.
[State v.] Remmers, 259 N.W.2d [779,] 783–84 [(Iowa 1977)].
Second, [the Board] could rationally and justifiably find that a
person who commits serious crimes such as those committed by
[Werts] here must demonstrate that any exhibited rehabilitation is
genuine and persists over a longer period of time before it concludes
a reasonable probability exists that that perpetrator is willing and able
to abide by the law, and therefore the best interests of the public will
indeed be served through giving the perpetrator a parole release.
Werts appeals.
II. Scope and Standard of Review.
The Board’s action qualifies as “other agency action” and not a contested
case. Iowa Code § 906.3 (“The grant or denial of parole or work release is not a
contested case as defined in section 17A.2.”); Sindlinger v. Iowa State Bd. of
Regents, 503 N.W.2d 387, 389 n.1 (Iowa 1993) (explaining what qualifies as a
contested case hearing). Thus, the question is whether the Board “committed an
error of law or acted unreasonably, capriciously, or arbitrarily.” Greenwood Manor
v. Iowa Dep’t of Pub. Health, 641 N.W.2d 823, 831 (Iowa 2002). “In exercising its
judicial review power, the district court acts in an appellate capacity.” Hill v.
Fleetguard, Inc., 705 N.W.2d 665, 669 (Iowa 2005). “We will apply the standards
of section 17A.19(10) to determine if we reach the same result as the district court.”
Ghost Player, LLC v. Iowa Dep’t of Econ. Dev., 906 N.W.2d 454, 462 (Iowa 2018).
III. Discussion.
The parties emphasize different phrases in the relevant statutory provision:
A parole or work release shall be ordered only for the best
interest of society and the offender, not as an award of clemency.
The board shall release on parole or work release any person whom
it has the power to so release, when in its opinion there is reasonable
probability that the person can be released without detriment to the
community or to the person. A person’s release is not a detriment to
the community or the person if the person is able and willing to fulfill
the obligations of a law-abiding citizen, in the board’s determination.
5
Iowa Code § 906.4(1).
Werts notes the mandatory nature of the language—parole “shall be
ordered” and the board “shall release” “when . . . there is a reasonable probability
that the person . . . is able and willing to fulfill the obligations of a law abiding
citizen.” Id.; see Iowa Code § 4.1(30)(a) (“The word ‘shall’ imposes a duty.”).2 She
emphasizes the Board was in receipt of sixty letters of support from friends, family,
and her religious community; recommendations indicating Werts had offers of
transportation and employment; and confirmation she had housing and family
support upon release. Her history while in prison shows she had completed all
available and recommended programming; has been consistently employed and
is currently in a position of trust as a peer educator; had only one minor disciplinary
matter almost two decades ago; and was being recommended for work release by
the Iowa Correctional Institute for Women (ICIW) administrators, the warden,
correctional officers, counselors, and staff. Werts asserts these letters and
recommendations show she is “able and willing to fulfill the obligations of a law
abiding citizen” and, consequently, the Board must authorize her conditional
release. She argues the Board’s refusal on this record is unreasonable.
2Cf. Bomgaars v. State, 967 N.W.2d 41, 47–48 (Iowa 2021) (noting the mandatory
wording of the statute, i.e. “shall release,” establishes a “liberty interest in parole
protected by the Due Process Clause of the Fourteenth Amendment and article 1,
section 9 of the Iowa Constitution.”); Belk v. State, 905 N.W.2d 185, 190 (Iowa
2017) (“From [Supreme Court precedent], a court can conclude if the statute
mandates that a parole board must release an inmate if the inmate meets certain
statutorily created criteria, then a protected liberty interest in parole exists.”). Werts
does not raise a constitutional challenge; rather, she argues she has met the
statutorily created criteria.
6
The Board, though, focuses on other language, noting parole and work
release are to be ordered “only for the best interest of society and the offender, not
as an award of clemency” and “when in its opinion there is reasonable probability
that the person can be released without detriment to the community or to the
person.” Iowa Code § 906.4(1). (emphasis added). The Board notes no
conditional release may be granted unless at least three members of the Board
agree to the release. See Iowa Admin. Code r. 205–8.15(2) (“The board shall
grant parole or work release to an inmate if at least three members of the board
agree that the inmate can be released without detriment to the community or the
inmate. If three members do not agree, the board shall deny parole or work
release.”).
The question presented to us is whether the Board violated Iowa Code
section 906.4 or otherwise acted unreasonably in denying Werts a conditional
release on the basis stated—DR7, a “shorthand” for “The seriousness of your
crime or your criminal history indicates more time is needed before the Board will
be convinced a release would be in the best interest of you or society.”
“[I]t is for the Board to decide when an inmate ‘shall be released.’”
Bomgaars, 967 N.W.2d at 54; see Iowa Code § 906.3 (“The board shall determine
which of those persons who have been committed to the custody of the director of
the Iowa department of corrections, by reason of their conviction of a public
offense, shall be released on parole or work release.”); accord State v. Mohr,
No. 10-0284, 2010 WL 4483991, at *5 (Iowa Ct. App. Nov. 10, 2010) (“Under
Iowa’s correctional scheme, the parole board is vested with the exclusive authority
7
to determine the minimum term of a defendant’s incarceration.”).3 Because the
Board is delegated the sole authority to release persons on parole, its application
of law to fact may be reversed only if found to be “irrational, illogical, or wholly
unjustifiable.” Iowa Code § 17A.19(10)(m).
Iowa Administrative Code rule 205–8.10(1) sets out factors the Board “may
consider” in deciding whether to grant parole or work release:
a. Previous criminal record;
b. Nature and circumstances of the offense;
c. Recidivism record;
d. Convictions or behavior indicating a propensity for violence;
e. Participation in institutional programs, including academic
and vocational training;
f. Psychiatric and psychological evaluations;
g. Length of time served;
h. Evidence of serious or habitual institutional misconduct;
i. Success or failure while on probation;
j. Prior parole or work release history;
k. Prior refusal to accept parole or work release;
l. History of drug or alcohol use;
m. A parole plan formulated by the inmate;
n. General attitude and behavior while incarcerated;
o. Risk assessment.
The factors listed are permissive factors—they may be considered. We agree with
the district court’s observation, “Iowa law does not dictate how [the Board] is to
give weight to the various statutory factors when making parole decisions, nor does
it mandate that all factors must be given equal consideration.” And, it remains for
the Board to determine if “in its opinion there is reasonable probability that the
person can be released without detriment to the community or to the person.” Iowa
Code § 906.4(1).
3 Werts asserts Fortune v. State, 957 N.W.2d 696 (Iowa 2021), and Becher v.
State, 957 N.W.2d 710 (Iowa 2021), are instructive in our analysis. However,
those cases deal with modification of sex offender registration requirements, and
the criteria discussed are not applicable here.
8
Werts contends the basis stated by the Board—“seriousness of your
crime”—is not a listed factor. Moreover, she asserts the Board ignored other, more
relevant factors such as her lack of prior criminal record, her participation in
institutional programming, her nearly twenty years of being a “model” prisoner, and
her available housing and employment upon release.
But rule 8.10 is not an exclusive list of factors; the rule states “the following
factors and others deemed relevant to the parole and work release decisions.” In
any event, we find the “[n]ature and circumstances of the offense” is analogous to
the “seriousness” of a crime. See Johnson v. Iowa Bd. of Parole, No. 02-1320,
2003 WL 1970475, at *2 (Iowa Ct. App. Apr. 30, 2003) (finding the denial of parole
was reasonable and proper where Board concluded “[b]ased on the seriousness
of [his] offense,” the inmate “could not be released without detriment to society”).
The district court discussed Burnside v. White, which interpreted a very
similar parole statute as Iowa’s.4 760 F.2d 217, 221–22 (8th Cir. 1985). In
Burnside, the Eighth Circuit Court of Appeals found the Missouri parole board
could consider the seriousness of the inmate’s offense as the sole justification for
denying parole. Id. (concluding “the Board acts within its discretion in determining
that the release of an offender convicted of a serious crime may be a detriment to
the community”); see also Maggard v. Wyrick, 800 F.2d 195, 197 (8th Cir. 1986)
4 The Missouri parole statute in question then stated: “When in its opinion there is
reasonable probability that the prisoner can be released without detriment to the
community or to himself, the [parole] board shall release on parole any person
confined in any correctional institution administered by state authorities.” See Mo.
Ann. Stat. § 549.261(1) (1969–repealed 1982). It also provided: “A parole shall be
ordered only for the best interest of society, not as an award of clemency . . . . A
prisoner shall be placed on parole only when the board believes that he is able
and willing to fulfill the obligations of a law-abiding citizen.” Id. § 549.261(3).
9
(“It is well-established that the Board may determine that the serious nature of the
inmate’s offense requires that a longer term be served before parole release.”).5
Other courts have concluded the seriousness of an offense is a proper factor for
the parole board to consider.6 Federal parole guidelines for adult prisoners use
two factors: offense severity and offender characteristics. See 18 U.S.C. § 4206
(sunsetting Oct. 31, 2022)7; 28 C.F.R. § 2.20(b); Neal P. Cohen, The Law of
Probation and Parole §§ 5:4–:5 Westlaw (database updated Sept. 2021).
5 In Maggard, 800 F.2d at 198, the court noted the Missouri legislature amended
the parole release statute and replaced the mandatory “shall” with the permissive
“may in its discretion” after the Eighth Circuit court concluded “shall” order parole
“provided an expectancy of release which was entitled to some measure of
constitutional protection.”
6 See Brennan v. Bd. of Parole, 512 S.W.3d 871, 875 (Tenn. 2017) (“The Board
based its denial of parole on Tennessee Code Annotated section 40-35-503(b)(2)
[(2013)], which provides for denial if the Board finds that ‘release from custody at
the time would depreciate the seriousness of the crime of which the defendant
stands convicted or promote disrespect for the law.’ See also Tenn. Bd. Parole R.
1100-01-01-07(4). Courts have repeatedly upheld Board decisions denying parole
for this reason.”); id. at 876 n.5 (noting factors board is to consider includes “nature
of the crime and its severity”); State ex rel. Jardine v. Nagle, No. 2014AP1347,
2015 WL 1186133, at *1 (Wis. Ct. App. Mar. 17, 2015) (“However, the difference
between ‘sufficient time for punishment’ and ‘sufficient time so that release would
not depreciate the seriousness of the offense’ is semantic. Both standards require
the Commission to consider the nature of the offenses committed and whether the
length of time served under the circumstances demonstrates a sufficiently weighty
consequence for the particular offenses.”); Kaczynski v. Mo. Bd. of Prob. & Parole,
349 S.W.3d 354, 360 (Mo. Ct. App. 2011) (noting it is “settled Missouri law that it
is appropriate for the Board to consider the seriousness of the offense in
determining whether a prisoner will be released for parole” and citing numerous
cases).
7 The federal statute provides:
(a) If an eligible prisoner has substantially observed the rules
of the institution or institutions to which he has been confined, and if
the Commission, upon consideration of the nature and
circumstances of the offense and the history and characteristics of
the prisoner, determines:
(1) that release would not depreciate the seriousness of his
offense or promote disrespect for the law; and
(2) that release would not jeopardize the public welfare;
subject to the provisions of subsections (b) and (c) of this section,
10
Under Iowa Code section 906.4, the Board, using its discretion, may release
on parole or work release an offender whose release will not be to the detriment
of the community. In this case the Board denied Werts’s release due to the severity
of her crimes. As the district court observed:
The seriousness of [Werts’s] crimes of conviction cannot be
understated. Upon her voluntary entry of an Alford plea, she was
adjudged guilty of engaging in multiple acts of child endangerment
resulting in a serious injury to a [twenty-one]-month-old boy in her
care and that she purposively set in motion a chain of events through
which she intended to cause the death of that child. [She] stipulated
that she intentionally struck the victim’s head against a highchair with
unreasonable force. The sentencing judge found [Werts’s] conduct
sufficiently serious to order that her fifty year and twenty-five year
prison terms run consecutively.
At this point Werts has been incarcerated for less than one-third of the seventy-
five-year sentence. It is not unreasonable to conclude granting early release to
persons convicted of serious crimes can have a detrimental impact upon the safety
of the community by undermining the deterrent effect intended through the
imposition of lengthy prison terms for such crimes. See Burnside, 760 F.2d at
221–22. The Board’s decision denying Werts conditional release was reasonable
and within its discretion as provided in section 906.4 and, therefore, we affirm the
district court’s finding the Board did not prejudice Werts’s substantial rights in
denying release.
AFFIRMED.
and pursuant to guidelines promulgated by the Commission pursuant
to section 4203(a)(1), such prisoner shall be released.
18 U.S.C. § 4206. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484504/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1407
Filed November 17, 2022
MARTIN SHANE MOON,
Applicant-Appellant,
vs.
STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Clarke County, Terry Rickers, Judge.
A defendant appeals the dismissal of his application for postconviction
relief. AFFIRMED.
Kelsey Knight of Carr Law Firm, P.L.C., Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Bridget A. Chambers, Assistant
Attorney General, for appellee.
Considered by Ahlers, P.J., and Badding and Chicchelly, JJ.
2
CHICCHELLY, Judge.
Martin Moon appeals the dismissal of his application for postconviction relief
(PCR) concerning his conviction for murder in the first degree. He maintains
summary dismissal was improper because he alleges newly discovered evidence
and potential Brady1 violations. Finding no genuine issue of material fact, we affirm
the district court’s dismissal as a matter of law.
I. Background Facts and Proceedings.
On July 6, 2000, a jury found Moon guilty of first-degree murder. In an en
banc decision, we upheld his conviction on direct appeal. See State v. Moon, No.
00-1128, 2002 WL 663486 (Iowa Ct. App. Apr. 24, 2002). Three PCR applications
have since been either denied or dismissed, with each affirmed on appeal. See
Moon v. State, No. 05-0816, 2007 WL 1345732 (Iowa Ct. App. May 9, 2007); Moon
v. State, 911 N.W.2d 137 (Iowa 2018); Moon v. State, No. 19-2037, 2021 WL
610195 (Iowa Ct. App. Feb. 17, 2021).
This appeal concerns Moon’s fourth PCR application, which he filed on
February 21, 2020. In March, the State filed a motion for summary dismissal,
arguing Moon’s application was untimely. After waiting for a resolution to Moon’s
appeal of his third PCR application, the district court held a hearing in August 2021
and granted the State’s motion in September. Moon filed a timely notice of appeal.
II. Review.
“We review summary dismissals of [PCR] applications for errors at law.”
Schmidt v. State, 909 N.W.2d 778, 784 (Iowa 2018). PCR applications are subject
1See Brady v. Maryland, 373 U.S. 83, 87 (1963) (finding due process requires the
State to disclose exculpatory evidence to the accused).
3
to the same summary judgment standards applied in civil proceedings. See id.
Accordingly, we affirm a summary dismissal “if the pleadings, depositions, answers
to interrogatories, and admissions on file, together with the affidavits, if any,
show . . . there is no genuine issue of material fact and . . . the moving party is
entitled to a judgment as a matter of law.” Id. (alterations in original) (citation
omitted). “We view the record in the light most favorable to the nonmoving party”
and “draw all legitimate inferences from the evidence in favor of the nonmoving
party.” Id.
III. Discussion.
Moon contends that he has newly discovered evidence within the meaning
of Iowa Code section 822.3 (2020), which provides an exception to the three-year
limit to file a PCR application for “a ground of fact or law that could not have been
raised within the applicable time period.” However, even evidence discovered after
three years have passed will not overcome the statute of limitations if it could have
been raised during an earlier proceeding. See Redding v. State, 274 N.W.2d 315,
317 (Iowa 1979) (“Under [the Iowa Code], multiple grievances of a convicted
defendant should be submitted in a unitary action rather than piecemeal in
successive actions.”).
At the hearing on the State’s motion to dismiss, Moon’s attorney advised
the court that Moon received the evidence in question in April 2019 after the State
provided a copy of Moon’s file to his attorney during his third PCR proceeding. The
court held a hearing on summary judgment in Moon’s third PCR action in
November 2019. Moon’s trial counsel in the present action requested Moon
provide an affidavit attesting to when he actually discovered the evidence after it
4
was mailed to him, but Moon did not provide one. According to Moon’s signed and
notarized PCR application that initiated this case, his attorney received the
documents in late March 2019 and, upon receipt, forwarded a copy to him. The
State challenges whether Moon truly did not know of the evidence sooner. In any
event, the evidence was received, at the latest, during the pendency of Moon’s
third PCR action. With that fact settled, Moon’s application must be dismissed as
a matter of law.
Iowa Code section 822.8 requires that “[a]ll grounds for relief available to
an applicant under this chapter must be raised in the applicant’s original,
supplemental or amended application.” Moon did not move to amend his third
PCR application once the evidence in question was received, nor was any
information regarding newly discovered evidence or Brady violations brought to
the court’s attention during that PCR trial. Consequently, Moon must establish
both “sufficient reason” for his failure to bring this challenge during the earlier
action and actual prejudice resulting from this error. See Polly v. State, 355
N.W.2d 849, 856 (Iowa 1984).
Moon contends he did not have sufficient time to properly analyze and
review the evidence he received prior to the PCR trial in November 2019. Given
that approximately seven months elapsed between receipt and trial, and Moon
does not allege ineffective assistance of counsel, we find this reason insufficient.
As stated regarding one of Moon’s previous PCR applications, “[t]he burden is on
Moon to demonstrate he could not have raised the newly discovered evidence
5
earlier in the exercise of due diligence.” Moon, 911 N.W.2d at 152. Moon failed
to meet this burden. We therefore affirm the dismissal of his PCR application.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484497/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1228
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
CARSON BRUCE SINCLAIR,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Story County, Steven P. Van Marel,
District Associate Judge.
Carson Sinclair appeals his conviction for operating a vehicle without the
owner’s consent. AFFIRMED.
Shawn Smith of The Smith Law Firm, PC, Ames, for appellant.
Thomas J. Miller, Attorney General, and Thomas E. Bakke, Assistant
Attorney General, for appellee.
Considered by Bower, C.J., Tabor, J., and Potterfield, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
BOWER, Chief Judge.
Carson Sinclair was charged with second-degree theft of a motor vehicle
but was convicted of the lesser-included offense of operating a motor vehicle
without the owner’s consent, in violation of Iowa Code section 714.7 (2021).
Sinclair appeals the denial of his request that the court instruct the jury on the
definition of “operating a motor vehicle.” We affirm.
“[W]e generally review a district court’s refusal to give a requested jury
instruction for errors at law; however, if the jury instruction is not required but
discretionary, we review for an abuse of discretion.” State v. Davis, 975
N.W.2d 1, 8 (Iowa 2022) (alteration in original) (citations omitted). “[W]e consider
the jury instructions as a whole rather than in isolation to determine whether they
correctly state the law.” Id. (alteration in original) (citation omitted).
“In Iowa all crimes are statutory.” State v. Hansen, 55 N.W.2d 923, 923
(Iowa 1952). “A strict construction of a criminal statute against the State is the
recognized rule and the burden is upon the State to prove every element essential
to constitute the crime charged.” Id. at 924. The elements of an offense are
defined by the statute.
Iowa Code section 714.7 states: “Any person who shall take possession or
control of any . . . self-propelled vehicle . . . the property of another, without the
consent of the owner of such, but without the intent to permanently deprive the
owner thereof, shall be guilty of an aggravated misdemeanor.” Sinclair concedes
“operating” is not an explicit element of the offense. Nonetheless, Sinclair argues:
[T]he court erred when it refused to add the definition of “operating”
to the jury instructions for the charge of operating without owner’s
consent. Although the operating without owner’s consent as codified
3
under Iowa Code [section] 714.7 does not list “operating” as an
element of the crime, when the crime was moved from chapter 321
of the Iowa Code to chapter 714, the legislature maintained the term
“operating” in the title of the section. Implicit in the title of the crime
is that the someone must be “operating” a motor vehicle for it to
satisfy the elements of the crime.
We cannot agree.
Iowa Code section 3.3(1) states:
Proper headnotes may be placed at the beginning of a section
of a bill or at the beginning of a Code section or Code section subunit.
However, except as provided for the uniform commercial code
pursuant to section 554.1107, headnotes shall not be considered as
part of the law as enacted.
Sinclair offers no authority in support of his proposition that the mere use of the
term in the heading of the offense can add an element to an offense that is not
included in the statute. See Iowa R. App. P. 6.903(2)(g)(3) (“Failure to cite
authority in support of an issue may be deemed waiver of that issue.”).
The primary purpose of statutory interpretation is to determine legislative
intent. State v. Johnson, 630 N.W.2d 583, 586 (Iowa 2001). We “glean[] this intent
from the words used by the legislature.” Id. “We do not speculate as to the
probable legislative intent apart from the words used in the statute.” State v.
Tague, 676 N.W.2d 197, 201 (Iowa 2004) (citation omitted). “[W]hen a statute is
plain and its meaning is clear, courts are not permitted to search for meaning
beyond its expressed terms.” State v. Welton, 300 N.W.2d 157, 160 (Iowa 1981).
Here, the district court did not err in concluding, “By the clear language of [section]
714.7, operating is not an element of the offense.”
“Iowa law requires a court to give a requested jury instruction if it correctly
states the applicable law and is not embodied in other instructions.” Alcala v.
4
Marriott Int’l, Inc., 880 N.W.2d 699, 707 (Iowa 2016) (citation omitted). Here, the
jury was properly instructed about the two statutory elements:1
The State must prove all of the following elements of
Operating a Motor Vehicle Without Owner’s Consent:
1. On or about December 7, 2020, Carson Sinclair
intentionally took possession or control of an automobile belonging
to [a car dealership].
2. The possession or control was without consent of [the car
dealership].
If the State has proved all of the elements, Carson Sinclair is
guilty of Operating a Motor Vehicle Without Owner’s Consent. If the
State has failed to prove any element, then Carson Sinclair is not
guilty of the lesser included offense of Operating a Motor Vehicle
Without Owner’s Consent.
Finding no error in the court’s denial of an instruction on “operating,” we affirm.
AFFIRMED.
1This instruction mirrors Iowa State Bar Association, Iowa Criminal Jury Instruction
1400.24, which provides:
The State must prove both of the following elements of
Operating Without Owner’s Consent:
1. On or about the _____ day of _____________, 20___, the
defendant intentionally took possession or control of an automobile
belonging to (victim).
2. The possession or control was without consent of (victim).
If the State has proved both of the elements, the defendant is
guilty. If the State has failed to prove either of the elements, the
defendant is not guilty. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484502/ | IN THE COURT OF APPEALS OF IOWA
No. 21-0957
Filed November 17, 2022
SCOTT CHARLES MARINOVIC,
Applicant-Appellant,
vs.
STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Pottawattamie County, James S.
Heckerman, Judge.
Scott Marinovic appeals the denial of his application for post-conviction
relief. AFFIRMED.
Guy K. Weinstein of Roth Weinstein, LLC, Omaha, Nebraska, for appellant.
Thomas J. Miller, Attorney General, and Linda J. Hines, Assistant Attorney
General, for appellee State.
Considered by Vaitheswaran, P.J., Ahlers, J., and Doyle, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
DOYLE, Senior Judge.
Scott Marinovic appeals the denial of his application for post-conviction
relief (PCR). He contends he received ineffective assistance of counsel during the
criminal proceedings that resulted in his second-degree-theft conviction and the
probation-revocation proceedings that followed. He claims his counsel failed to
properly investigate the theft charges, ensure he entered an intelligent guilty plea
supported by a factual basis, research double-jeopardy and due-process
concerns, and represent him effectively during the probation-revocation
proceedings.
I. Background Facts and Proceedings.
The State charged Marinovic with theft by taking after he drove away with
a Jeep left running outside a business. Marinovic pled guilty to second-degree
theft in exchange for the State’s agreement not to pursue a habitual offender
sentencing enhancement. The district court accepted Marinovic’s plea and
imposed the sentence the parties agreed on: a five-year suspended sentence with
a two-year term of probation.
Less than three weeks later, the State alleged Marinovic violated the terms
of his probation by failing to report to the intake appointment with his probation
officer. Marinovic admitted the probation violation but contested the disposition.
After a hearing, the district court imposed the original five-year sentence.
Marinovic applied for PCR, challenging the five-year sentence. He alleged
his right to counsel was violated when he received deficient representation during
the criminal and probation-revocation proceedings. The PCR court denied his
PCR application after a hearing.
3
II. Scope of Review.
We generally review the denial of a PCR application for correction of errors
at law. See Sothman v. State, 967 N.W.2d 512, 522 (Iowa 2021). We review
claims of ineffective assistance of counsel and other claims of a constitutional
nature de novo. See id. We give weight to the PCR court’s findings but are not
bound by them. See id.
III. Ineffective Assistance of Counsel.
To succeed on a claim of ineffective assistance of counsel, Marinovic must
show his counsel failed to perform an essential duty and prejudice resulted. See
id. We may affirm if he fails to prove either breach of duty or prejudice. See id.
We presume counsel acted competently unless it is shown that counsel’s
performance fell below the normal range of competency. See id.
A. Theft conviction.
Marinovic first challenges his counsel’s performance in representing him
during the criminal proceedings on the theft charge. He complains his counsel
failed to adequately investigate the merits of the theft charge or engage in
discovery. But only pre-plea breaches affecting the voluntary and intelligent nature
of the plea itself survive the guilty plea. See State v. Carroll, 767 N.W.2d 638, 644
(Iowa 2009).
On the question of the voluntary and intelligent nature of his plea, Marinovic
complains counsel failed to explain the written guilty plea adequately. He
complains that he did not read the document and only signed it because he wanted
to get out of jail. In support of his claim, Marinovic notes that the plea agreement
included three separate statements about his ability to pay for counsel; rather than
4
initialing the one that applied, Marinovic wrote his initials next to all three
statements. But Marinovic never claims he would have insisted on going to trial if
counsel had performed competently, so there is no showing of prejudice. See id.
(“The burden to prove prejudice in this context will require the party seeking relief
to prove a reasonable probability of a different outcome had the breach not
occurred; i.e., that but for counsel’s breach of duty, the party seeking relief would
not have pled guilty and would have elected instead to stand trial.”).
Marinovic also alleges his counsel breached a duty by allowing him to plead
guilty to a charge when the record did not reveal a factual basis to support it. If
counsel allows a defendant to plead guilty without a factual basis, counsel fails to
perform an essential duty and prejudice is inherent. State v. Perkins, 875 N.W.2d
190, 193 (Iowa Ct. App. 2015). In determining whether there is a factual basis for
a plea, we look at the entire record before the district court at the time of the guilty-
plea hearing. See id. That record may include “statements made by the
defendant, facts related by the prosecutor, the minutes of testimony, and the
presentence report.” Id. (citation omitted).
The State alleged that Marinovic committed second-degree theft by
“[t]ak[ing] possession or control of the property of another . . . with the intent to
deprive the other thereof.” Iowa Code § 714.1(1) (2020) (emphasis added); accord
State v. Clay, 824 N.W.2d 488, 497 (Iowa 2012). An intent to permanently deprive
the owner of the property is an essential element of theft under section 714.1(1).
State v. Schminkey, 597 N.W.2d 785, 789 (Iowa 1999). Marinovic claims the
record does not show he intended to permanently deprive the owner of the Jeep.
“Because proof that the defendant acted with the specific purpose of depriving the
5
owner of his property requires a determination of what the defendant was thinking
when an act was done, it is seldom capable of being established with direct
evidence.” Id. We may instead rely on the facts surrounding the act and any
reasonable inferences drawn from them to determine a defendant’s intent. See id.
The record at the time of the plea hearing show Marinovic intended to
permanently deprive the owner of the Jeep. Marinovic took the Jeep after the
owner left it running outside a restaurant in Council Bluffs; he was driving it two
days later during a traffic stop in Omaha. Both how long Marinovic had the Jeep
and how far he drove it shows an intent to permanently deprive. Compare id. at
790-91 (concluding no factual basis showed the defendant intended to
permanently deprive the owner of the vehicle because the defendant crashed it
only hours later just seven or eight miles from where it was taken), with State v.
McCarty, No. 02-1033, 2004 WL 894553, at *4-5 (Iowa App. Apr. 28, 2004)
(concluding there was substantial evidence the defendant intended to permanently
deprive owner of a vehicle recovered several days after the theft in a town about
two hours away). Because a sufficient factual basis exists for Marinovic’s plea,
counsel was not ineffective.
B. Probation revocation.
Marinovic contends his counsel provided ineffective assistance before and
during the probation revocation. He alleges that if counsel had acted competently,
Marinovic would have accepted a plea deal for a 180-day sentence. Instead, he
claims counsel engaged in an unreasonable strategy of admitting the probation
violation but contesting the disposition. As a result, the court reinstated the five-
year sentence.
6
Again, Marinovic has not shown prejudice. There is no showing that
Marinovic would have received a 180-day sentence as he claims. The prosecutor
testified that she told Marinovic that she would not agree to less than 180-days,
“that there would be either prison or possibly 180 days but that we were never in
a place where that came to an agreement.” The prosecutor could only speculate
when asked if she would have accepted a 180-day sentence on the contempt
charge, but her answer casts doubt:
I will tell you it’s difficult to say now, and this is why. As we
were trying to work on this, Mr. Marinovic could have had the option
at drug court . . . .
But given his behavior on probation and even at the end of
our hearing, . . . he’s not a person who comes across in a way to
encourage leniency.
I don’t know if I would agree to the 180 days because we had
already done it before, and then he comes back with the same
behavior on a subsequent probation case, and it had only been a few
years difference.
So I don’t know. I feel like, because we never got there, I can’t
positively say, I mean, and quite frankly, had, you know, there been
discussions that never happened, who’s to say?
I mean, we’ve had some people who have gone out of their
way to be apologetic, get themselves back in treatment, I mean,
things that they’re not doing on probation to kind of basically beg for
another chance or, you know, to ask for some leniency, and that was
just not the dynamic here.
Moreover, both the prosecutor and Marinovic’s counsel testified that Marinovic
refused to accept a sentence of more than 150-days incarceration.
C. Substantive due process and double jeopardy.
A Nebraska criminal complaint charged that Marinovic “did unlawfully
receive, retain, or dispose of stolen movable property of [the owner of the Jeep],
knowing or believing it has been stolen, without the intent to return it to the owner.”
Marinovic pled no contest and was sentenced to sixty days in jail. Some months
7
later Iowa charged him with theft of the Jeep. Marinovic contends his Iowa
conviction violated his right to substantive due process and double-jeopardy
protections1 because he was previously charged with and convicted of theft by
receiving stolen property in Nebraska.
It is established that one act can be charged as a crime and punished by
two different states, without regard to which state made it to the courthouse first:
When assessing jurisdiction in criminal matters, courts are
governed by the concept of dual sovereignty. Under that doctrine,
even if we assume the elements of first-degree murder in Missouri
are identical to those of the charge of murder that could have been
brought against Bradley in Iowa, each state was free to prosecute
the crime without regard to the other. See Heath v. Alabama, 474
U.S. 82, 88, 106 S.Ct. 433, 437, 88 L.Ed.2d 387, 394 (1985). In
defining its own criminal code, each state exercises its own
sovereignty when determining what acts will constitute “an offense
against its peace and dignity . . . .” Id. at 89, 106 S.Ct. at 437–38, 88
L.Ed.2d at 394–95. Therefore, a single act delineated a crime by two
different states is an offense against each, and may be punished by
both. Id.
Enforcing its own criminal laws is a primary
function of a state’s sovereignty:
To deny a State its power to enforce its criminal
laws because another State has won the race to the
courthouse “would be a shocking and untoward
deprivation of the historic right and obligation of the
States to maintain peace and order within their
confines.” Bartkus [v. People of State of Ill.], 359 U.S.
[121], at 137, 79 S.Ct. [676], at 685[, 3 L.Ed.2d 684]
(1959).
State v. Bradley, 637 N.W.2d 206, 215-16 (Iowa Ct. App. 2001) (quoting Heath,
474 U.S. at 93), overruled on other grounds by State v. Jenkins, 788 N.W.2d 640
(Iowa 2010). See also State v. Wemett, No.11-1736, 2013 WL 105346, at *1-2
(Iowa Ct. App. Jan. 9, 2013), further review denied (Mar. 15, 2013). Under the
1 Marinovic fails to cite either the state or federal constitution in support of his claim.
8
holding of Heath and the principles of dual sovereignty, Nebraska’s prosecution
would not have barred Iowa’s prosecution of Marinovic for theft of the Jeep.
Because there is no merit to Marinovic’s claim, counsel was not ineffective
by failing to raise the issue. See State v. Halverson, 857 N.W.2d 632, 635 (Iowa
2015) (“Counsel, of course, does not provide ineffective assistance if the
underlying claim is meritless.”).
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484499/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1734
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
ALLIX JAMES INEZ BETSINGER,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Emmet County, Nancy L.
Whittenburg, Judge.
Allix Betsinger appeals the denial of his motion to suppress. AFFIRMED.
Peter Ickes of Stowers & Nelsen PLC, West Des Moines, for appellant.
Thomas J. Miller, Attorney General, and Timothy M. Hau, Assistant Attorney
General, for appellee.
Heard by Bower, C.J., and Greer and Badding, JJ.
2
BOWER, Chief Judge.
Allix Betsinger appeals the denial of his motion to suppress evidence.
Because the initial evidence was not obtained as a result of an illegal search and
Betsinger has no standing to challenge the search of another person, we affirm.
I. Background Facts & Proceedings.
At 2:47 in the morning on May 23, 2020, Deputy Sheriff Merwald was driving
west and saw an east-bound vehicle cross over the center line into his lane of
traffic. Deputy Merwald conducted a traffic stop of the vehicle and approached
from the passenger side—away from traffic. Donald Dorenkamp was driving the
vehicle; Betsinger, who owned the vehicle, sat in the front passenger seat. As the
deputy approached the vehicle, he observed through the windows evidence of a
road trip—a duffle bag, sleeping bag, blankets, pillows, and energy drinks.
Betsinger rolled down the passenger window. Deputy Merwald leaned
down to speak with the occupants of the vehicle, and he placed his arms on top of
the lowered window with his head by the open window. Deputy Merwald noticed
both Dorenkamp and Betsinger appeared nervous, with shaky hands.
Dorenkamp’s face was flushed, and his voice was shaky. As Betsinger handed
over his vehicle registration, the deputy “observed the odor of marijuana come from
the vehicle.” The deputy asked for both men’s identification. He saw a large
amount of cash in Betsinger’s wallet. The deputy recognized Betsinger’s name
from a previous case where an informant indicated Betsinger “was involved in the
sales of narcotics.”
The deputy asked Dorenkamp to step out of the vehicle and come back to
the patrol vehicle, as was his customary practice in traffic stops. Dorenkamp forgot
3
to place the car in park and the vehicle started to roll. The deputy asked to pat
down Dorenkamp before they got into the patrol car, and Dorenkamp consented.
The deputy located an item in Dorenkamp’s front pocket and asked what it was,
recognizing it as a legal marijuana container.1 Dorenkamp confirmed it was a
marijuana container but stated it was empty. Once in the front seat of the patrol
vehicle, Dorenkamp told Deputy Merwald they had just left Fort Dodge. However,
the vehicle was heading in the wrong direction for that to be true.
The deputy called for backup. Both Dorenkamp and Betsinger were
detained. The deputy and his backup searched the vehicle, finding THC and CBD
vape cartridges; receipts from Colorado dispensaries; cash; a vacuum-sealed
substance that appeared to be cocaine; and a heavy, padlocked duffle bag that
smelled of marijuana. Deputy Merwald called for the vehicle to be towed. The
deputy applied for a search warrant of Betsinger’s vehicle. The search yielded
marijuana, THC edibles, and some MDMA in addition to the previously listed
items.2 Deputy Merwald then applied for a warrant of Betsinger’s house, where
more marijuana and drug paraphernalia was found.
Betsinger filed a motion to suppress “all evidence found as a result of the
traffic stop and subsequent search of his home” under the Fourth Amendment of
the United States Constitution and article I, section 8 of the Iowa Constitution.
1 Deputy Merwald explained that in other states, marijuana wax used in a vape pen
can be legally purchased in a container like the one in Dorenkamp’s pocket. He
described it as “a small cylinder-type container. It’s got a real thin rimmed lid on it.
And usually it’s got some edges where you place your fingers. You squeeze the
top. It’s a thinner plastic so that, when you squeeze the top, it bends enough to
pop the top open.”
2 Neither Betsinger nor Dorenkamp claimed ownership of the padlocked duffle bag
or a suitcase located in the trunk containing marijuana and edibles.
4
Specifically, Betsinger argued “Deputy Merwald exceeded the scope and duration
of the traffic stop,” “conducted an illegal search of the vehicle,” and “conducted an
illegal pat-down search” of Dorenkamp. He reasoned, because the evidence
obtained from the traffic stop should be suppressed, there was not probable cause
to support the search of his home.
The State resisted, asserting the traffic stop was still in progress when the
deputy detected the smell of marijuana, Dorenkamp consented to the pat down,
and the deputy knew what the container in Dorenkamp’s pocket was based on its
shape and size.
After hearing testimony from Deputy Merwald, watching the body-cam
footage of the stop, and hearing the parties’ arguments, the court denied the
motion to suppress.3
Betsinger waived a jury trial. The court tried Betsinger on the minutes of
testimony with a stipulated record. The court found him guilty of twelve assorted
drug offenses.
Betsinger appeals the denial of his motion to suppress, arguing the deputy
illegally intruded into his vehicle and exceeded the scope and duration of the traffic
stop and, without that intrusion, the deputy would not have probable cause to pat
down Dorenkamp or obtain warrants to search Betsinger’s home.
II. Standard of Review.
We review the district court’s denial of a motion to suppress
based on the deprivation of a constitutional right de novo. In our
review, we must make “an independent evaluation of the totality of
the circumstances as shown by the entire record.” “We give
deference to the district court’s fact findings due to its opportunity to
3 The suppression hearing was a joint hearing for both Betsinger and Dorenkamp.
5
assess the credibility of witnesses, but we are not bound by those
findings.”
In re Pardee, 872 N.W.2d 384, 390 (Iowa 2015) (quoting State v. Tyler, 867 N.W.2d
136, 152 (Iowa 2015)).
III. Analysis.
Betsinger does not contest the validity of the initial traffic stop, instead
arguing the deputy’s actions exceeded the scope of the stop and thus were
unconstitutional under the Fourth Amendment to the United States Constitution
and article I, section 8 of the Iowa Constitution.4 Recently, our supreme court has
noted inconsistent application of the Fourth Amendment in federal jurisprudence
and opted to apply the Iowa Constitution in a more textual fashion. See State v.
Wright, 961 N.W.2d 396, 411–12 (Iowa 2021) (plurality opinion).
We use “a two-step approach to determine whether there has been a
violation of the Fourth Amendment or article I, section 8 of the Iowa Constitution.”
State v. Lowe, 812 N.W.2d 554, 567 (Iowa 2012). The first step is to determine
whether the individual challenging the search had a legitimate expectation of
privacy in the area searched. Id. An alternative method to meet the first step
occurs “when, without a warrant, the officer physically trespasses on protected
property.” Wright, 961 N.W.2d at 416 (majority opinion); State v. Wilson, 968
N.W.2d 903, 913, 915–16 (Iowa 2022) (recognizing and applying both Wright’s
trespass alternative and the expectation-of-privacy test). If the first step is met, we
then “decide whether the State unreasonably invaded the protected interest.”
4Article I, section 8 of the Iowa Constitution states, “The right of the people to be
secure in their persons, houses, papers and effects, against unreasonable
seizures and searches shall not be violated.”
6
Lowe, 812 N.W.2d at 567–68; see Wright, 961 N.W.2d at 418–19 (evaluating a
citizen’s privacy interests in their discarded trash).
A. Trespass exceeding scope of stop. Betsinger alleges the deputy “broke
the plane,” trespassing into protected property by leaning into the open window of
the vehicle and exceeding the scope of the traffic stop. See Wilson, 968 N.W.2d
at 916 (ruling an officer who placed his foot across the threshold to prevent the
home’s occupant from terminating an encounter committed a trespass); Wright,
961 N.W.2d at 412 (plurality opinion) (holding “a peace officer engaged in general
criminal investigation acts unreasonably under article I, section 8 [of the Iowa
Constitution] when the peace officer commits a trespass against a citizen’s house,
papers, or effects without first obtaining a warrant”). Betsinger argues because
the intrusion into the vehicle impermissibly exceeded the scope of the traffic stop,
any resulting evidence from the initial vehicle search should be suppressed.
The scope and duration of a traffic stop includes not only determining
whether to issue a traffic ticket, but also “checking the driver’s license, determining
whether there are outstanding warrants against the driver, and inspecting the
automobile’s registration and proof of insurance.” Rodriguez v. United States, 575
U.S. 348, 355 (2015). “[A]n officer ‘may conduct certain unrelated checks during
an otherwise lawful traffic stop’ but ‘may not do so in a way that prolongs the stop,
absent the reasonable suspicion ordinarily demanded to justify detaining an
individual.’” Pardee, 872 N.W.2d at 393 (quoting Rodriguez, 575 U.S. at 355);
accord State v. Warren, 955 N.W.2d 848, 865 (Iowa 2021) (noting questions
related to the traffic violation and related safety concerns are permissible).
7
A search occurs “whenever the government commits a physical trespass
against property, even where de minimis, conjoined with ‘an attempt to find
something or to obtain information.’” Wright, 961 N.W.2d at 413 (plurality opinion).
“Within the meaning of article I, section 8, an officer acts unreasonably when,
without a warrant, the officer physically trespasses on protected property or uses
means or methods of general criminal investigation that are unlawful, tortious, or
otherwise prohibited.” Id. at 416 (majority opinion). This analysis includes
considering whether the defendant had a constitutional interest in protecting the
trespassed location under the facts presented. See Wilson, 968 N.W.2d at 915
(holding Wilson did not abandon privacy of the home beyond what could be seen
through a partially opened door). Our supreme court recently restated vehicles
have a lower expectation of privacy, and therefore a lesser protected interest,
compared to homes. See State v. Rincon, 970 N.W.2d 275, 280 (Iowa 2022)
(citing State v. Storm, 898 N.W.2d 140, 145 (Iowa 2017)).
Deputy Merwald was within the initial inquiries of his traffic-stop
investigation when he leaned over to speak with both Betsinger and Dorenkamp,
putting his head at a level where he could be seen from both seats. The deputy
leaned his arm along the top of the window to speak with Dorenkamp about
crossing over a no-passing line into oncoming traffic at 2:47 a.m. The deputy
leaning a hand and arm against the window while legitimately investigating a traffic
violation was not an unlawful invasion, was not unreasonable under the
circumstances, and did not violate Betsinger’s constitutional rights.
Moreover, the deputy was not intruding into the vehicle when he smelled
marijuana. Deputy Merwald’s report and testimony indicate he first detected the
8
odor of marijuana when Betsinger handed him the insurance paperwork. The
video shows the deputy is standing upright, with the frame of the window visible,
when the exchange happened. Betsinger has no protected property interest in air
that leaves his vehicle through an open window. We do not ask law enforcement
to ignore evidence they can see, hear, or smell because it is unrelated to the
specific reason for the traffic stop. See, e.g., Lowe, 812 N.W.2d at 569 (“So long
as officers make their observations from a location where they have a right to be,
they have ‘a right to see what [is] visible from that position.’” (citation omitted));
State v. Moriarity, 566 N.W.2d 866, 868–69 (Iowa 1997) (finding an alligator clip
hanging from the mirror and the smell of burnt marijuana was sufficient probable
cause to search). Nor was it outside the scope of the traffic stop and related safety
concerns when the deputy looked through the windows into the rear of the vehicle.
Because the deputy’s observations were made within the lawful scope of
the traffic stop, the smell of marijuana and resulting search of his vehicle did not
violate Betsinger’s constitutional rights.
B. Pat down of Dorenkamp. Betsinger argues the deputy conducted the pat
down of Dorenkamp without reasonable suspicion. The district court ruled the
deputy did not have sufficient reason for a protective search and the plain-view
doctrine did not apply. But, the court found the evidence should not be suppressed
based on the inevitable discovery doctrine. The court decided the deputy had
sufficient probable cause to search the vehicle because of the marijuana odor and
given the contraband in the vehicle, “Dorenkamp would have been arrested for
possession of controlled substances even if he had not been patted down first.”
9
Betsinger’s challenge here fails on the first step of our analysis. “[I]n order
to claim the protection of the Fourth Amendment, a defendant must demonstrate
that he personally has an expectation of privacy in the place searched, and that
his expectation is reasonable.” Minnesota v. Carter, 525 U.S. 83, 88 (1998); Lowe,
812 N.W.2d at 567 (“In order to object to the evidence on constitutional grounds,
Lowe must show that his own constitutional rights, under either the state or federal
constitutions, have been violated.”). Betsinger had no property interest or
legitimate expectation of privacy in Dorenkamp’s pants pocket, and therefore the
pat down did not violate Betsinger’s constitutional rights. See Wright, 961 N.W.2d
at 415 (“Heinz’s seizure and search of the papers and effects would be
inconsequential if the papers and effects did not belong to Wright.”); State v. Dixon,
241 N.W.2d 21, 23–24 (Iowa 1976) (finding the driver had no standing to object to
the search of the passenger’s wallet).
C. Warrants. Betsinger next argues that because the initial detection of
marijuana odor and the pat down of Dorenkamp were illegal, the evidence found
from the vehicle search should be suppressed as fruit of the poisonous tree. He
then takes the next step and argues all evidence obtained executing warrants
based on the vehicle-search evidence should also be suppressed.
Considering our rulings above, this argument is without merit, and we affirm
the district court’s denial of Betsinger’s motion to suppress.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484495/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1383
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
DANIEL RICHARD DEFINBAUGH,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Black Hawk County,
Kellyann M. Lekar, Judge.
A defendant appeals his convictions, alleging the district court should have
suppressed statements he made to police and also claims insufficient evidence
corroborates his admissions. AFFIRMED.
Martha J. Lucey, State Appellate Defender, and Melinda J. Nye, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Louis S. Sloven, Assistant Attorney
General, for appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
SCHUMACHER, Judge.
Daniel Definbaugh appeals his convictions for two counts of sexual abuse
in the second degree. He contends there is insufficient evidence to corroborate
confessions he made to police at his home and at the police station. He also claims
those statements were involuntary because they were made prior to him receiving
Miranda warnings, were made again following Definbaugh invoking his right to
counsel, and in both instances, were made due to a promise of leniency. We find
sufficient evidence corroborates Definbaugh’s confessions. We also find that the
court properly denied Definbaugh’s motion to suppress his confessions to police
based on alleged promises of leniency. While we find the court should have
suppressed Definbaugh’s statements at the police station, any error was harmless.
We affirm.
I. Background Facts & Proceedings
Definbaugh met J.J. in 2015 after she and her family moved into the same
trailer park where Definbaugh resided with his girlfriend, Darlene. J.J. would assist
Definbaugh with rides to the local food pantry. Definbaugh babysat S.J., J.J.’s
daughter, between December 2018 and December 2020. S.J. was two years old
in 2018. The exact number of times Definbaugh babysat the child is in dispute. It
is undisputed that Definbaugh would babysit the child at his trailer. Darlene would
sometimes be present, but at other times Definbaugh would be alone with S.J. J.J.
eventually stopped allowing Definbaugh to babysit S.J. after she became
concerned about how frequently he asked to babysit the young girl.
Definbaugh began a romantic relationship with Alyssa Johnson in the spring
of 2020. Johnson, who was married, met Definbaugh at the food pantry. Johnson
3
would give Definbaugh rides and bought him various items, some of which were
gifts. Definbaugh and Johnson communicated frequently, usually over Facebook
Messenger.
Sometime in April or May 2020, Definbaugh told Johnson that he had
sexually abused S.J. multiple times. Such abuse centered on the times he babysat
S.J., particularly around times when he changed her diapers. The abuse included
Definbaugh rubbing S.J.’s vagina with his finger and the tip of his penis. Johnson
claimed that Definbaugh told her he used a sex-toy on the child’s vagina and also
made S.J. perform oral sex on him. Johnson testified that Definbaugh was
obsessed with S.J. and wanted Johnson to help him gain access to the child.
Johnson informed no one at that time about Definbaugh’s admissions.
Johnson’s husband learned of his wife’s relationship with Definbaugh on
July 3, 2020, and demanded Definbaugh return some of the property Johnson had
given him. Johnson informed Definbaugh of the demands. Definbaugh first
resisted. Upon his reticence, Johnson told him that she would “call [the] cops about
[S.J.] if you wanna play dirty.” Definbaugh sent multiple messages back, generally
pleading with Johnson to not bring up his past and offering to return the property.
Johnson then informed J.J. of Definbaugh’s admissions the same day.
Police were contacted, and Johnson and J.J. spoke with police. The police
extracted Johnson’s phone data, which included the Facebook Messages with
Definbaugh from July 3. The extraction did not obtain any of the purported
messages that Definbaugh sent describing the abuse.
Police eventually contacted Definbaugh at his home on August 18. Two
officers spoke with Definbaugh in his yard. After initially denying any abuse
4
occurred, Definbaugh eventually admitted to sexually abusing the child. He was
detained and taken to the police station, where he made further incriminating
statements.
The State charged Definbaugh with two counts of sexual abuse in the
second degree. Definbaugh moved to suppress, arguing his statements at both
his house and the police station were obtained after promises of leniency. He also
argued that the police questioned him after he invoked his right to counsel at the
police station. Following a hearing, the court denied the motion. A bench trial was
held on April 26, 2021. The court found Definbaugh guilty as charged on July 30.
He was sentenced to two consecutive fifty-year terms in prison. Definbaugh
appeals.
II. Suppression of Definbaugh’s Confessions
Definbaugh alleges the statements he made to police at his home should
be suppressed because they were made prior to receiving Miranda warnings. He
also claims he invoked his right to counsel at the police station, which the police
ignored. Thus, he asserts statements made at the police station should also be
suppressed. Finally, he claims both instances of questioning included promises of
leniency.
A. Statements at Definbaugh’s Home
Definbaugh claims he was in custody when an officer was talking to him in
front of Definbaugh’s home and, therefore, the statements he made should be
suppressed because he had not yet received any Miranda warnings. The merits
of Definbaugh’s claim are not preserved for our review. “It is a fundamental
doctrine of appellate review that issues must ordinarily be both raised and decided
5
by the district court before we will decide them on appeal.” Meier v. Senecaut, 641
N.W.2d 532, 537 (Iowa 2002). Here, neither step was met.
Definbaugh never raised this issue at the district court. His motion to
suppress identified that police “detained, arrested and questioned the defendant
on two separate occasions—one occurring at the Defendant’s residence and the
second at the Cedar Falls Police Department.” This would appear to have raised
his claim to the district court. However, the motion continues, “the Defendant’s
request for an attorney was ignored and said questioning contained ‘implied
promises of leniency’ thereby making the Defendant’s statements involuntary and
coerced.” The motion concluded by claiming that “said questioning”—the
questioning after Definbaugh invoked his right to counsel and after the promises
of leniency—violated Definbaugh’s rights and should be suppressed. Definbaugh
never raised to the district court that his rights were violated by utilizing
incriminating statements made prior to receiving his Miranda warnings. Thus, his
claim is unpreserved.
Furthermore, the district court never ruled on a claim involving Definbaugh’s
Miranda rights at his home. The only reference to that issue comes in the “factual
background” section, which notes, “Definbaugh voluntarily engaged in answering
the questions at that time and there is no indication his involvement was not
voluntary or that he was in custody.” The court’s “discussion” section analyzes
Definbaugh’s claims involving the invocation of his right to counsel and potential
promises of leniency. Definbaugh’s claim is unpreserved.
But even if we were to address Definbaugh’s claim that he was restrained
at his residence in a way that amounts to a custodial interrogation, we reject this
6
assertion. The record established that officers knocked on Definbaugh’s door and
asked if he would “mind stepping out and chatting real quick.” The manner of the
questions were investigative, not threatening. Definbaugh was asked if he knew
why the officers were there. Definbaugh launched into details of a property dispute
and relationships he had with S.J.’s mother and another individual, a previous
conviction for sexual abuse, a prison sentence, the requirement to be on the sexual
registry, and his own sexual abuse by his father. While he initially denied sexually
abusing S.J., he later admitted to the same. And while Definbaugh argues he was
detained, he was not handcuffed or physically restrained. Although an officer
walked with him to his residence to retrieve a pair of shoes, Definbaugh walked
back outside while the officers visited with Definbaugh’s girlfriend.
It is well settled that Iowa courts apply an objective test, that is, a person is
in custody, for Miranda purposes, when a reasonable person in that position would
understand himself to be in custody. State v. Countryman, 572 N.W.2d 553, 557
(Iowa 1997). Iowa precedent on custody for purposes of Miranda identifies four
factors to consider:
(1) the language used to summon the individual;
(2) the purpose, place, and manner of interrogation;
(3) the extent to which the defendant is confronted with
evidence of [their] guilt; and
(4) whether the defendant is free to leave the place of
questioning.
State v. Miranda, 672 N.W.2d 753, 759 (Iowa 2003) (quoting Countryman, 572
N.W.2d at 558). Iowa courts will consider the totality of the circumstances, but
“[t]he general rule is that in-home interrogations are not custodial for purposes of
Miranda.” See id. at 759–60 (quoting State v. Evans, 495 N.W.2d 760, 762
7
(Iowa 1993)). The same has been held to be true for conversations outside of a
residence. See, e.g., State v. Schwartz, 467 N.W.2d 240, 245 (Iowa 1991); State
v. Decanini-Hernandez, No. 19–2120, 2021 WL 610103, at *7 (Iowa Ct. App.
Feb. 17, 2021) (citing Schwartz, 467 N.W.2d at 245). Considering these factors,
we determine that Definbaugh was not in custody at his residence at the time he
made statements concerning sexual abuse of the child.
B. Statements at the Police Station
Definbaugh argues the district court should have suppressed the
statements he made at the police station because they were made after he invoked
his right to counsel. We review the denial of a motion to suppress statements
made in violation of constitutional guarantees de novo. State v. Tyler, 867
N.W.2d 136, 152 (Iowa 2015). “‘[W]e make an independent evaluation of the
totality of the circumstances as shown by the entire record, considering both the
evidence introduced at the suppression hearing as well as the evidence introduced
at trial.” Id. (internal quotation marks and citation omitted).
Once a defendant invokes their right to have counsel present, they cannot
be subject “to further interrogation by the authorities until counsel has been made
available to him, unless the accused himself initiates further communication,
exchanges, or conversations with police.” Edwards v. Arizona, 451
U.S. 477, 484 (1981). However, in order to exercise such right, the invocation
“requires, at minimum, some statement that can reasonably be construed to be an
expression of a desire for the assistance of an attorney.” Davis v. United
States, 512 U.S. 452, 548 (1994). The statement must not be “ambiguous or
equivocal in that a reasonable officer in light of the circumstances would have
8
understood only that the suspect might be invoking the right to counsel.” Id. at 459;
accord State v. Harris, 741 N.W.2d 1, 6 (Iowa 2007) (“Officers have no obligation
to stop questioning an individual who makes an ambiguous or equivocal request
for an attorney”).
The following exchange occurred at the police station:
Definbaugh: Can I have a lawyer?
Officer Mercado: What’s that?
D: Can I have a lawyer?
M: You can, if you would like to.
D: I don’t have one.
M: Ok.
D: I just don’t want to go to jail anymore.
M: Ok.
D: I want to set my path right where I belong.
M: Right.
D: And live my life with Darlene and her daughter. . .
M: Right, I understand. No one wants to go to jail and I’m not
saying that’s where you are going right now but I do need to cover a
few more questions with you, so are you willing to do that with me
today?
D: Yeah, I’ll try the best I can.
The district court found that Definbaugh’s initial questions about a lawyer
did not invoke his right to an attorney.
[W]ithout even really listening to or responding to the officer’s
statement that he ‘can’ have a lawyer, Definbaugh continued
speaking . . . and then immediately returned to a stream of prior
conversation with the officer about not wanting to go to jail again and
wanting to set his path right. Definbaugh flowed back into the
conversation with the officer without any prompting by the officer and
never returned to the topic of an attorney. . . . The Court finds that
Definbaugh made a reference to a lawyer but his statements and
actions immediately following establish a waiver of his right to
counsel.
We determine that Definbaugh invoked his right to counsel and did not
reinitiate questioning. Contrary to the district court’s assessment, Definbaugh
unambiguously invoked his right to counsel. His request for counsel was not
9
conditional, inquisitory, or otherwise tentative. Compare Davis, 512 U.S. at 462
(concluding “Maybe I should talk to a lawyer” was insufficient), Harris, 741 N.W.2d
at 6 (finding the statement “If I need a lawyer, tell me now,” was not invoking a right
to counsel), and State v. Morgan, 559 N.W.2d 603, 608 (Iowa 1997) (holding the
statement “I think I need a attorney,” insufficient to invoke the right to counsel),
with Harris, 741 N.W.2d at 7 (finding “I don’t want to talk about it. We’re going to
do it with a lawyer” was an invocation). Other jurisdictions have held that
Definbaugh’s exact phrasing was an unequivocal invocation. See, e.g., United
States v. Lee, 413 F.3d 622, 626 (7th Cir. 2005); State v. Dumas, 750 A.3d 420,
425 (R.I. 2000); Daniel v. State, 238 So. 3d 1283, 1287 (Fla. Dist. Ct. App. 2018);
People v. Howerton, 782 N.E.2d 942, 945 (Ill. App. Ct. 2003). His further
statements involving getting his life back on track did not “evince[ ] a willingness
and a desire for a generalized discussion about the investigation.” See Harris, 741
N.W.2d at 6. Indeed, they demonstrate the exact opposite—Definbaugh wanted
an attorney present so he could, in his mind, avoid jail. Definbaugh was not
ignoring Officer Mercado’s responses; he was asserting his right to counsel.
Finally, the officer kept Definbaugh talking by informing him that there were
remaining questions that the officer “need[ed] to cover with [Definbaugh.]” This
suggested that Definbaugh could not leave until he answered the questions. The
officer’s insistence that Definbaugh answer a few more questions was “reasonably
likely to elicit an incriminating response.” See id. at 7 (citation omitted). As a result,
the questioning violated Definbaugh’s constitutional rights.
Despite that, we determine this violation does not warrant reversal. “When
the alleged error concerns the erroneous admission of evidence in violation of a
10
defendant’s constitutional rights, such error is typically subject to harmless-error
analysis.” Tyler, 867 N.W.2d at 153. Definbaugh’s admissions in the interview at
his home were substantially the same as those at the police station. He admitted
to babysitting S.J. two or three times, including at least one instance in which he
changed her diaper. He admitted to telling Johnson that he molested S.J.,
including touching her vagina with his finger and penis. He admitted this happened
at least twice. There were some details that only came out during the police station
interview, such as Definbaugh’s assertation that S.J. never performed oral sex on
him, but the admissions at his residence alone provide the evidentiary basis for the
convictions of two counts of sexual abuse. Subsequent admissions at the police
station were cumulative, making the error harmless. See State v. Parker, 747
N.W.2d 196, 210 (Iowa 2008).
C. Promises of Leniency
Definbaugh alleges his statements to the police should be suppressed
because they were made after improper promises of leniency. In particular, after
Definbaugh told Officer Mercado that “I just don’t want to be in trouble,” the officer
responded, “I understand that. But you know what, honesty gets you a long ways
and you’re starting with it. We just need to keep going down that path of honesty.”1
Definbaugh claims the officer’s statement that honesty “gets you a long ways” was
an improper promise of an advantage for confessing.
Claims involving promises of leniency are reviewed under the common law
evidentiary test for correction of errors at law. State v. Hillery, 956
1He also alleges there were instances of promises of leniency at the police station.
We conclude the statements he cites were not promises of leniency.
11
N.W.2d 492, 498 (Iowa 2021). “[A] ‘confession can never be received in evidence
where the prisoner has been influenced by any threat or promise.’” Id. at 499
(citation omitted).
An officer can tell a suspect that it is better to tell the truth without
crossing the line between admissible and inadmissible statements
from the defendant. State v. Hodges, 326 N.W.2d 345, 349
(Iowa 2005). However, the line is crossed “if the officer also tells the
suspect what advantage is to be gained or is likely from making a
confession.” Id.
State v. McCoy, 692 N.W.2d 6, 28 (Iowa 2005).
Here, the officer’s statements were limited to encouraging Definbaugh to be
honest. He never told Definbaugh, either expressly or implied, what, if any,
advantage would be gained from being honest. While the officer did say that
honesty would “go a long ways,” we find such statements similar to others that
have been held to be proper. See State v. Whitsel, 339 N.W.2d 149, 153
(Iowa 1983) (finding that an offer to recommend psychiatric help to the county
attorney was not improper); State v. Bunker, 13-0600, 2014 WL 957432, at *1–2
(Iowa Ct. App. Mar. 12, 2014) (holding detective’s statement, “I can only help you
if you’re honest with yourself” did not amount to promissory leniency); State v. Foy,
No. 10-1549, 2011 WL 2695308, at *2–3 (Iowa Ct. App. July 13, 2011) (concluding
investigator’s statements “[w]e’re not going to be any bit of any help to you,” if the
defendant “did not tell the truth” and “[w]e’re just here simply for your benefit” did
not amount to promises of leniency). Definbaugh’s statements were not made
after a promise of leniency.
12
III. Sufficiency of Corroborative Evidence
Definbaugh claims there was insufficient evidence to convict him because
his confessions to both the police and Johnson lacked corroborating evidence. We
review sufficiency of the evidence claims for correction of errors at law. State v.
Sanford, 814 N.W.2d 611, 615 (Iowa 2012). The court will “consider all of the
record evidence viewed ‘in the light most favorable to the State, including all
reasonable inferences that may be fairly drawn from the evidence.’” Id. (citation
omitted). We will uphold the verdict if substantial evidence supports it—that is, if
there is enough evidence to “convince a rational jury that the defendant is guilty
beyond a reasonable doubt.” Id.
“The confession of the defendant, unless made in open court, will not
warrant a conviction, unless accompanied with other proof that the defendant
committed the offense.” Iowa R. Crim P. 2.21(4). Evidence corroborates
confessions when it tends to “confirm[ ] some material fact connecting the
defendant to the crime.” State v. Meyer, 799 N.W.2d 132, 139 (Iowa 2011).
“Corroboration need not be strong nor need it go to the whole case so long as it
confirms some material fact connecting the defendant with the crime.” State v.
Polly, 657 N.W.2d 462, 467 (Iowa 2003) (quoting State v. Liggins, 524 N.W.2d
181, 187 (Iowa 1994)); accord Meyer, 799 N.W.2d at 139 (“It is sufficient as long
as it supports the content of the confession and if, together with the confession,
proves the elements of the charge against the defendant beyond a reasonable
doubt”).
The State must offer evidence to show the crime has been committed
and which as a whole proves Polly is guilty beyond a reasonable
doubt. However, the “other proof” itself does not have to prove the
13
offense beyond a reasonable doubt or even by a preponderance.
Other independent evidence “merely fortifies the truth of the
confession, without independently establishing the crime charged.”
Polly, 657 N.W.2d at 467 (internal citations omitted). Admissions, which “amount
to an acknowledgement of the guilt of the offense charged” but fall short of
confessions, must similarly be corroborated. Meyers, 799 N.W.2d at 139.
Sufficient evidence corroborates Definbaugh’s statements. First, J.J.’s
testimony corroborated Definbaugh’s statements about the time frame and
frequency of Definbaugh’s babysitting. Her testimony further corroborates the
statements Definbaugh made to Johnson, particularly his obsession with S.J.
According to J.J., she stopped allowing Definbaugh to babysit because he was
constantly asking to see S.J. Similarly, Johnson testified that Definbaugh was
fixated on S.J.
Definbaugh’s messages to Johnson further corroborate his admissions.
After Johnson threatened to “call cops about [S.J.],” Definbaugh responded
“please don’t,” then immediately offered to give the property back. Three minutes
later, he messaged her again, “don’t say nothing please I’m crying.” The next
minute he messaged her again, “don’t say nothing please.” A couple of minutes
later, “please don’t say nothing about past.” About fifteen minutes later, he
messaged her yet again, “please don’t bring my past up at all please.” When he
resisted returning some property, Johnson told him, “[c]ops will be called and I’ll
tell [S.J.’s father] what u did.” Definbaugh promptly responded, “it’s headed back,”
“nothing about past.” Definbaugh’s statements, as the district court aptly noted,
were “immediate, emotional and pleading.” He never questioned what Johnson
meant when she threatened to call the police about S.J. His pleading indicates his
14
own knowledge of wrongdoing. Definbaugh’s messages corroborate his
inappropriate contact with S.J.
We recognize, as Definbaugh points out, that there was no physical
evidence in this case. Nor was there any testimony by S.J. However, the nurse
practitioner who examined S.J. testified that both of those omissions are expected
in a case such as this one, where the victim was only two years old at the time of
the offense and there was delayed reporting. Furthermore, our review on appeal
is limited, and we view the evidence in the light most favorable to the State. See
Sanford, 814 N.W.2d at 615. J.J.’s testimony and Definbaugh’s messages to
Johnson “fortif[y] the truth of [Definbaugh’s] confession[s].” See Polly, 657 N.W.2d
at 467.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484500/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0278
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
ADAM MICHAEL BOWEN,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Jasper County, Thomas P. Murphy,
Judge.
Adam Bowen appeals the disposition of his probation-revocation
proceedings. REVERSED AND REMANDED.
Martha J. Lucey, State Appellate Defender, and Mary K. Conroy, Assistant
Appellate Defender, for appellant.
Thomas J. Miller, Attorney General, and Timothy M. Hau, Assistant Attorney
General, for appellee.
Considered by Ahlers, P.J., and Badding and Chicchelly, JJ.
2
AHLERS, Presiding Judge.
Adam Bowen received a deferred judgment and was placed on probation
after pleading guilty to possession of methamphetamine with intent to deliver. He
violated the terms of his probation. As a result, the district court revoked his
probation, revoked his deferred judgment, adjudicated him guilty of the offense,
and sentenced him to prison. Bowen appeals. He does not challenge the finding
that he violated probation. Instead, he contends the district court considered an
improper factor in choosing imposition of a prison sentence as the disposition of
his probation-revocation proceeding.
We have jurisdiction to hear this appeal following a guilty plea because
Bowen has demonstrated good cause by challenging his sentence, not the plea
itself. See State v. Damme, 944 N.W.2d 98, 105 (Iowa 2020); see also State v.
Thompson, 951 N.W.2d 1, 5 (Iowa 2020) (holding a defendant has good cause to
appeal an order revoking a deferred judgment and entering a judgment of
conviction and sentence when the challenge is not to the underlying plea).
The parties frame the issue as a sentencing issue, so we do as well. We
review sentencing decisions for corrections of errors at law. Damme, 944 N.W.2d
at 103. We reverse if we find an abuse of discretion or defect in the sentencing
procedure. Id. There is no dispute that Bowen’s sentence was within the statutory
limits. A sentence that falls within statutory limits “is cloaked with a strong
presumption in its favor, and will only be overturned for an abuse of discretion or
the consideration of inappropriate matters.” Id. at 105–06 (quoting State v.
Formaro, 638 N.W.2d 720, 724 (Iowa 2002)).
3
Bowen asserts that the district considered an improper factor. Specifically,
he contends the district court improperly considered parole eligibility before
deciding on a sentence. His claim is based on the following exchange that took
place after the district court announced its finding that Bowen violated probation,
when the parties were arguing their positions on disposition:
THE COURT: We had a brief off-the-record discussion before
we started. And I thought you had said 286 days in jail. Is it 284?
DEFENSE COUNSEL: I’m sorry. It was 284 on Monday, Your
Honor. Two eight-six. You are right.
THE COURT: So assuming forty-two or forty-four days of
treatment, Mr. Bowen would get credit for 328 to 330 days.
[Prosecutor], if I sent Mr. Bowen are they going to turn him loose as
soon as he gets there?
PROSECUTOR: On this ten-year sentence he’s immediately
eligible for parole. I can’t tell you what department of corrections
would or when they would parole him. I mean, what I would say is
if—if you don’t mind, it’s his choice that he’s been in for 284 days.
THE COURT: I—I get all that.
PROSECUTOR: So—but, yes, he would be—he would be
granted credit. There’s no minimum on this. So—and I—I’d have to
look it up. I—I don’t think we’re supposed to consider when his
discharge date would be. I—I think it’s just whether a prison
sentence is appropriate. I—I think that’s a lot easier said than done.
I think the reality of the matter is, yeah, he would be—he’s burned a
good bit of that prison sentence. But I—I couldn’t give you a—I
wouldn’t want to put on the record a number and it would be wrong.
But he would be—regardless of the 284 days, he would be
immediately eligible for parole. And I know they would use those 284
days for calculating his parole date.
THE COURT: [Defense counsel], do you have any idea of
what the turnaround time is right now?
DEFENSE COUNSEL: Your Honor, I do not. I believe the
discharge at the time that it was incurred actually had the—the one-
third and the court would have to affirmatively waive the mandatory
minimum on it. Or else you have I think it’s a twenty-month minimum
by the time they applied good time. But I—I didn’t do the research
on that. I know that you can waive it. In terms of how long he would
remain in, the guidance that I’ve been getting has been for a five,
plan on doing one. And for a ten, plan on doing two.
THE COURT: So—
4
DEFENSE COUNSEL: But that is widely varied between
people. I’ve had people go on tens and get out in four months. I’ve
had people go on tens and discharge it at four and a half years.
THE COURT: Okay. I—I think there’s credit for time served.
I don’t think that time served in jail or treatment, which sometimes
counts, counts as earned time or good time.
The court proceeded to revoke the deferred judgment and sentenced Bowen to
prison.
Consideration of the timing of parole is an improper sentencing factor. State
v. Hulbert, 481 N.W.2d 329, 335 (Iowa 1992) (sentencing in such a manner as to
“thwart a perceived risk of early parole warrants a remand for resentencing”); State
v. Remmers, 259 N.W.2d 779, 785 (Iowa 1977); State v. Thomas, 520 N.W.2d
311, 313 (Iowa Ct. App. 1994). The reason for the rule prohibiting consideration
of the timing of parole is that “[s]entencing authority is statutory in Iowa,” and “[o]ur
legislature has elected in most instances to deny authority to judges to fix minimum
sentences,” choosing instead to grant “exclusive power to the board of parole to
determine what amount of time will actually be served.” Remmers, 259 N.W.2d at
784.
The State recognizes the rule against considering timing of parole in
choosing a sentence but claims the rule does not apply here. The State claims
that, unlike the cases cited above, the district court here was sentencing on one
charge with a fixed maximum term, rather than sentencing on multiple charges for
which a decision could be made to impose consecutive sentences or choosing the
length of the sentence. So, the State argues, there was no way for the district
court’s sentence to obstruct the board of parole or the department of corrections.
We are not persuaded by the State’s argument for two reasons. First, our
5
court has rejected a similar argument. In Thomas, the State conceded that it is
impermissible for the sentencing court to deliberately lengthen a sentence in an
effort to interfere with parole practices, but it argued that there was no impropriety
because the district court imposed a more lenient sentence than was available
under the sentencing options. 520 N.W.2d at 313. Our court rejected the
argument holding that “[t]he important focus is whether an improper sentencing
factor crept into the proceedings; not the result it may have produced or the manner
it may have motivated the trial court.” Id. The same reasoning applies here.
Second, there were sentencing options available to the district court beyond
just sending Bowen to prison for an indeterminate term or suspending the
indeterminate sentence. Once a probation violation is established, the district
court has a number of options, which include holding the probationer in contempt
while continuing probation. Iowa Code § 908.11(4) (2021). The contempt power
would include the option of incarcerating Bowen for up to six months in the county
jail. Id. § 665.4(2) (setting the penalty for contempt before district judges to include
“imprisonment in a county jail not exceeding six months”). Had the district court
chosen that route, Bowen could have been incarcerated in the county jail for a
determinate term that would not be subject to release decisions by the board of
parole or the department of corrections. So, contrary to the State’s contention,
there was a way for the district court to circumvent release decisions by the board
of parole or department of corrections. We find that the rule against considering
timing of parole in choosing a sentence applies here.
There is a presumption in favor of the sentence imposed, and a defendant
must overcome that presumption by affirmatively demonstrating that the district
6
court relied on an improper factor. Damme, 944 N.W.2d at 106. However, if the
defendant demonstrates that the district court considered an improper factor,
resentencing is required even if the improper factor was merely a secondary
consideration. State v. Boldon, 954 N.W.2d 62, 73 (Iowa 2021).
The above-quoted exchange between the district court and the attorneys
convinces us that how much time Bowen would serve before being paroled was
considered by the court. The exchange starts with the court acknowledging an off-
the-record discussion on that very topic. The court then asks whether “they [are]
going to turn him loose as soon as he gets there.” Even after being reminded—or
warned—by the prosecutor that “I don’t think we’re supposed to consider when his
discharge date would be,” the district court immediately returns to the subject by
asking defense counsel “do you have any idea of what the turnaround time is right
now?” Based on this exchange, we find Bowen has met his burden to establish
that the district court relied on an improper factor.
Having established consideration of an improper factor, Bowen is entitled
to resentencing regardless of how much weight the district court gave it. See id.
Because the sentencing decision here was made as part of the disposition decision
of a probation-revocation proceeding, we put Bowen back in the same position he
was in before disposition was determined. See Thompson, 951 N.W.2d at 5–6
(directing a remand for a new hearing when there are defects in the probation
revocation hearing); see also State v. Keutla, 798 N.W.2d 731, 735 (Iowa 2011)
(finding that impropriety of sentence imposed as disposition of probation-
revocation proceeding necessitated reversal of the revocation of a deferred
judgment and a remand to “fashion an appropriate consequence within the
7
authorized range of choices provided in section 908.11(4)”). That means (1) the
probation violations remain undisturbed and conclusively established, as Bowen
did not challenge them; (2) we reverse the revocation of Bowen’s deferred
judgment, the adjudication of guilt, and the sentence imposed; and (3) we remand
to the district court to fashion an appropriate consequence within the authorized
range of choices provided in Iowa Code section 908.11(4). By requiring a do-over
of the probation-revocation disposition, we do not suggest what disposition should
be imposed or that it must be more lenient than imposed here; we merely hold that,
in determining the appropriate disposition, an impermissible factor cannot be
considered. See Remmers, 259 N.W.2d at 786 (“We do not intimate that the new
sentence must be less than the present sentence . . . .”); Hulbert, 481 N.W.2d at
335 (“We do not suggest by this opinion that other permissible reasons for
consecutive sentencing do not exist.”). The new probation-revocation disposition
determination must be made by a different judge. See State v. Lovell, 857 N.W.2d
241, 243 (Iowa 2014) (requiring resentencing before a different judge “[i]n order to
protect the integrity of our judicial system from the appearance of impropriety”).
REVERSED AND REMANDED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484496/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1952
Filed November 17, 2022
STATE OF IOWA,
Plaintiff-Appellee,
vs.
DALE LEE SPAULDING,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Greene County, Joseph B.
McCarville, District Associate Judge.
A defendant appeals his conviction for operating while intoxicated, in
violation of Iowa Code section 321J.2 (2020). AFFIRMED.
Jesse A. Macro, Jr. of Macro & Kozlowski, LLP, West Des Moines, for
appellant.
Thomas J. Miller, Attorney General, and Thomas E. Bakke, Assistant
Attorney General, for appellee.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
CHICCHELLY, Judge.
Dale Spaulding appeals his conviction for operating while intoxicated, in
violation of Iowa Code section 321J.2(2)(a) (2020). He alleges there was
insufficient evidence to support his conviction. Finding to the contrary, we affirm.
I. Background Facts and Proceedings.
Shortly before 3:00 a.m. on November 29, 2020, two uniformed police
officers responded to a radio report of a stationary vehicle with a potentially
unconscious driver. Upon arrival, officers found Spaulding seemingly asleep in the
driver’s seat of a vehicle. The vehicle was stopped at an intersection but still in
drive. Officer Johnathan Young knocked on the window of the vehicle until
Spaulding awoke. After Spaulding placed the vehicle into park, Officer Young
administered standardized field-sobriety and advanced-roadside-impairment
testing. Officer Young testified that Spaulding failed this testing and exhibited
impairment through hopping, swaying, missing heel-to-toe steps, and completing
an incorrect number of steps, among other indicators.
Spaulding admitted consuming one alcoholic beverage that evening and
stated he was simply tired. Spaulding consented to a search of his vehicle,
wherein officers found a glass pipe consistent with methamphetamine use. Based
on the roadside testing and discovery of drug paraphernalia, Officer Young
believed Spaulding was impaired on a combination of alcohol and narcotics. He
arrested Spaulding for operating while intoxicated (OWI). During a pat-down
search, he found a marijuana pipe in Spaulding’s pocket.
Once at the police station, Spaulding signed a form indicating his consent
to provide breath and urine samples. His blood alcohol content was measured at
3
0.04. Toxicology reports indicated his urine contained amphetamine,
methamphetamine, and THC metabolites.
In September 2021, a jury found Spaulding guilty of OWI, first offense, in
violation of Iowa Code section 321J.2(2)(a). The district court denied Spaulding’s
motions in arrest of judgment and for new trial. Spaulding filed a timely appeal.
II. Review.
We review a challenge to the sufficiency of the evidence for the correction
of errors at law. State v. Huser, 894 N.W.2d 472, 490 (Iowa 2017). If substantial
evidence supports the jury’s verdict, we will uphold it. State v. Sanford, 814
N.W.2d 611, 615 (Iowa 2012). “Evidence is considered substantial if, when viewed
in the light most favorable to the State, it can convince a rational jury that the
defendant is guilty beyond a reasonable doubt.” Id.
Spaulding contends there was insufficient evidence to support a finding of
intoxication or impairment because the results of the field-sobriety and urine-
sample tests were not credible or reliable. This argument conflates the nature of
sufficiency challenges with that of evidentiary disputes, which are reviewed for an
abuse of discretion. See State v. Dessinger, 958 N.W.2d 590, 597 (Iowa 2021).
Spaulding’s appeal challenges the weight of the field-sobriety tests and urine-
sample results and not the admissibility of this evidence. “In determining the
correctness of a ruling on a motion for judgment of acquittal, we do not resolve
conflicts in the evidence, pass upon the credibility of witnesses, or weigh the
evidence. Such matters are for the jury.” State v. Hutchison, 721 N.W.2d 776,
780 (Iowa 2006) (cleaned up) (citation omitted).
4
III. Discussion.
Only two elements comprise Spaulding’s OWI charge: (1) that he operated
a motor vehicle on or about the day in question, and (2) at that time, he (a) was
under the influence of alcohol, drugs, or a combination of alcohol and drugs, or
(b) had any amount of a controlled substance present in him, as measured in his
urine. Only the second element is at issue. We find it is supported by substantial
evidence, including the field-sobriety and urine-sample tests, as well as testimony
from officers and Iowa Division of Criminal Investigations (DCI) criminalists.
Regarding the field-sobriety tests, Spaulding points out that Officer Young
had no baseline with which to compare his behavior and was unaware of any
physical limitations. However, bodycam footage displays Spaulding attesting that
he did not have physical limitations, nor has he identified any on appeal. Officer
Young explained how the tests were performed and why Spaulding failed them.
As for the urine sample, Spaulding lodges a variety of attacks. First, he
contends Officer Young did not follow protocols regarding execution of the implied
consent documents. Officer Young’s bodycam footage reflects that Spaulding
verbally acknowledged his consent to provide breath and urine samples before
signing a physical document to this effect. This document was scanned and his
signature reproduced in multiple places on the officer’s report. Officer Young
testified these steps were standard procedure to reflect consent for the samples.
Regardless, Spaulding does not deny that he signed the form intending to consent
to the sample collection.
Next, Spaulding argues the chain of custody for his urine sample was
incomplete because he did not personally sign off to verify it was his sample. A
5
DCI criminalist testified that it is not common for defendants to sign their specimen
containers. The criminalist explained that a defendant might sign an implied
consent form if applicable, as Spaulding did here. Another DCI criminalist testified
that he had never seen a specimen provided with the defendant’s signature.
Footage from Officer Young’s body camera shows that he was in the room with
Spaulding when the sample was collected and proceeded to complete the related
paperwork and package the specimen. Accordingly, Spaulding has failed to show
a reasonable probability of tampering or substitution. See State v. Bakker, 262
N.W.2d 538, 542–43 (Iowa 1978) (“[I]n establishing a chain of custody adequate
to justify the admission of physical evidence, the State only need show
circumstances making it reasonably probable that tampering, substitution or
alteration of evidence did not occur.”).
Spaulding faults Officer Young for only filling one of two testing vials from
the specimen he provided. Officer Young testified, and his body camera reflected,
that he had difficulty filling the second vial provided in the specimen kit. He
affirmed that although filling two vials is preferred, only one vial is required.
Therefore, this complication did not affect the integrity of the sample. Testimony
from a DCI criminalist further confirmed that it does not matter whether two testing
vials are provided, as only a small amount is needed to test for drugs.
Finally, Spaulding claims his sample was improperly stored because it was
unrefrigerated in an evidence locker for more than two weeks before arriving at the
DCI laboratory and sat in storage for several additional weeks before being tested.
Testimony from three DCI criminalists who handled Spaulding’s sample confirmed
that the manner and timing of storage was adequate. They indicated that even if
6
a lack of refrigeration were to have an effect, it would have reduced the amount of
drugs that could be detected in the specimen.
Because the State presented sufficient evidence upon which a rational jury
could find Spaulding guilty beyond a reasonable doubt, we affirm his conviction.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484508/ | IN THE COURT OF APPEALS OF IOWA
No. 21-0663
Filed November 17, 2022
JONATHAN RODRIGUEZ LEYVA,
Applicant-Appellant,
vs.
STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Celene Gogerty, Judge.
The applicant appeals the denial of his application for postconviction relief.
AFFIRMED.
Thomas A. Hurd of the Law Office of Thomas Hurd, PLC, Des Moines, for
appellant.
Thomas J. Miller, Attorney General, and Thomas E. Bakke, Assistant
Attorney General, for appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
GREER, Judge.
Jonathan Rodriguez Leyva1 appeals the denial of his PCR application
relating to his 2016 convictions for homicide by vehicle,2 leaving the scene of an
accident resulting in death, two counts of leaving the scene of a personal injury
accident, and operating a motor vehicle while barred. Rodriguez Leyva generally
re-raises issues he brought in his PCR application to the district court, claiming
trial counsel provided ineffective assistance by failing to (1) challenge the search
warrant under Iowa Code section 321J.10 (2015); (2) better prepare him for
allocution at sentencing; and (3) obtain an expert in retrograde extrapolation.
I. Background Facts and Proceedings.
Shortly after 10:00 a.m. on August 16, 2015, a vehicle driving
west on Grand Avenue near 51st Street in Des Moines struck a group
of bicyclers riding in the same direction, causing several injuries to
the riders and fatally injuring one rider. The driver of the vehicle did
not stop to assist the injured riders and continued driving west on
Grand Avenue. Other nearby bicyclists observed the collision and
identified the vehicle as a white Chevrolet Equinox SUV. One
witness took note of the license plate number on the vehicle, which
he reported to law enforcement officials.
Based on the license plate information, law enforcement
officers determined the vehicle belonged to [Rodriguez Leyva’s]
girlfriend, Adriana Cortes, and went to the couples’ home to question
Cortes and [Rodriguez Leyva]. After speaking with Cortes, the
officers determined [Rodriguez Leyva] was the last person to drive
the vehicle. The officers detained [him] and transported him to the
police station for further questioning. While there, [Rodriguez Leyva]
failed the administered standard field sobriety tests. [Rodriguez
Leyva] refused a preliminary breath test. An officer then placed [him]
1 In the underlying criminal matter and on direct appeal, the caption referred to the
defendant as Jonathan Leyva Rodriguez; in the postconviction-relief (PCR) action,
he is named Jonathan Rodriguez Leyva. We use the name we were provided in
this PCR action.
2 The jury also found Rodriguez Leyva guilty of operating a motor vehicle while
under the influence of alcohol or drug, second offense, which the district court
concluded merged with homicide by vehicle.
3
under arrest. . . .[3] The officers then transported [Rodriguez Leyva]
to a local hospital and obtained a search warrant for a body
specimen, which showed a BAC of .192.
State v. Rodriguez, No. 16-1159, 2017 WL 3524774, at *1 (Iowa Ct. App. Aug. 16,
2017).
Rodriguez Leyva was charged with and found guilty of six charges,
including homicide by vehicle. Finding one of the charges merged with another,
the court ordered Rodriguez Leyva to serve the sentences on the remaining five
counts consecutively for a total of thirty-four years imprisonment, with a 70%
mandatory minimum on the twenty-five-year sentence for homicide by vehicle.
Rodriguez Leyva challenged his convictions and sentences with a direct
appeal. In that appeal, he claimed there was insufficient evidence to support his
convictions and that his trial counsel provided ineffective assistance by failing to
object to the questioning of an officer at trial regarding the ultimate issue of the
case and portions of victim impact statements requesting that maximum sentences
be imposed. A panel of this court affirmed. See id. at *3. Procedendo issued on
December 12, 2017.
Rodriguez Leyva timely filed his PCR application in January 2019. In a later
application, amended with the assistance of counsel, Rodriguez Leyva claimed
trial counsel provided ineffective assistance by failing to challenge the search
warrant under section 321J.10: “Specifically, there should have been a challenge
to the reasonable grounds to believe that Applicant was ‘one or more of the
persons whose driving may have been the proximate cause of the accident was
3As both parties point out, our 2017 ruling contained a misstatement of fact, which
we have removed from this opinion.
4
violating section 321J.2 at the time of the accident.’ See Iowa Code section
321J.10(1)(b).” He also raised the issues of whether counsel had a duty to better
prepare him for allocution at sentencing, when he read a prepared statement, and
to obtain an expert in retrograde extrapolation.4
The parties agreed to submit the matter to the district court based on a
number of exhibits, which included deposition testimony from Rodriguez Leyva’s
trial attorney and appellate attorney. After each party filed a proposed ruling, the
district court denied Rodriguez Leyva’s application.
He appeals.
II. Standard of Review.
“We generally review a district court’s denial of an application for [PCR] for
errors at law.” Sothman v. State, 967 N.W.2d 512, 522 (Iowa 2021) (citation
omitted). “However, a PCR application alleging ineffective assistance of counsel
raises a constitutional claim, and we review [PCR] proceedings that raise
constitutional infirmities de novo.” Id. (altered for readability) (citations omitted).
III. Discussion.
Rodriguez Leyva argues trial counsel provided ineffective assistance in a
number of ways.
To prevail on a claim of ineffective assistance of counsel, the
applicant must demonstrate both ineffective assistance and
prejudice. Both elements must be prove[d] by a preponderance of
the evidence. However, both elements do not always need to be
addressed. If the claim lacks prejudice, it can be decided on that
ground alone without deciding whether the attorney performed
deficiently.
Ledezma v. State, 626 N.W.2d 134, 142 (Iowa 2001) (internal citations omitted).
4 Rodriguez Leyva also raised a fourth issue, which he has not re-raised on appeal.
5
A. Suppression.
Officer Michael Dixon called the court and verbally requested a warrant to
retrieve a blood specimen from Rodriguez Leyva on August 16, 2015; the court
granted the warrant. Testing done on the blood specimen showed a blood alcohol
content (BAC) of .192. Rodriguez Leyva’s trial counsel moved to suppress the
evidence under Iowa Code section 808.3,5 arguing “[n]owhere in the application
by phone did the issuing judge request or record any address of the sworn person.”
After a hearing, the district court denied the motion, concluding
the record indicates the search warrant was based on sworn oral
testimony communicated by telephone and granted pursuant to the
specialized warrant requirement of Iowa Code section 321J.10 rather
than the general warrant requirement of section 808.3. Section
321J.10 provides a basis for the issuance of a search warrant distinct
from section 808.3. If issued under section 321J.10(3), a search
warrant must meet delineated standards distinct from those required
under section 808.3. As section 321J.10 does not require that the
magistrate endorse the name and address of the individuals
providing the relied-upon testimony, the search warrant in this case
was not invalid for the reasons cited in [Rodriguez Leyva’s] motion
to suppress.
In his PCR application, Rodriguez Leyva asserted trial counsel provided
ineffective assistance by bringing the motion to suppress under section 808.3
5 Section 808.3 states:
1. A person may make application for the issuance of a search
warrant by submitting before a magistrate a written application,
supported by the person’s oath or affirmation, which includes facts,
information, and circumstances tending to establish sufficient
grounds for granting the application, and probable cause for
believing that the grounds exist. . . .
2. If the magistrate issues the search warrant, the magistrate
shall endorse on the application the name and address of all persons
upon whose sworn testimony the magistrate relied to issue the
warrant together with the abstract of each witness’ testimony, or the
witness’ affidavit. . . .
6
when the search warrant was issued under section 321J.10. Section 321J.10(1)
provides:
1. Refusal to consent to a test under section 321J.6 does not
prohibit the withdrawal of a specimen for chemical testing pursuant
to a search warrant issued in the investigation of a suspected
violation of section 707.5 or 707.6A if all of the following grounds
exist:
a. A traffic accident has resulted in a death or personal injury
reasonably likely to cause death.
b. There are reasonable grounds to believe that one or more
of the persons whose driving may have been the proximate cause of
the accident was violating section 321J.2 at the time of the accident.
In both his PCR application and proposed ruling, Rodriguez Leyva focused on
section 321J.10(1)(b), suggesting the issuing court did not have reasonable
grounds to believe he was driving the SUV who struck the bicyclists. The district
court found this claim was meritless.
On appeal, Rodriguez Leyva changes tack, arguing trial counsel was
ineffective for failing to challenge the warrant under section 321J.10(1)(a). He
maintains,
Trial [c]ounsel failed to challenge that the oral warrant
application lacked sufficient indicia of reliability under Iowa Code
321J.10(1)(a) because the warrant application failed to contain any
personal observations of either Officer Dixon, Lieutenant Siebert, or
any unnamed witness upon whom Lieutenant Siebert relied as to the
reasonable likelihood the injury would cause death. Additionally, the
warrant application failed to relay any basis the same person was
qualified to opine regarding the reasonable likelihood the injuries
involved would cause death, either through personal observation of
the injuries directly, through professional training, or experience.
Because this is a different claim than he raised to the PCR court, Rodriguez Leyva
never got a ruling on this issue. It is not preserved for our review. See Lamasters
v. State, 821 N.W.2d 856, 862 (Iowa 2012) (“It is a fundamental doctrine of
appellate review that issues must ordinarily be both raised and decided by the
7
district court before we will decide them on appeal.” (citation omitted)). And he
does not claim PCR counsel provided ineffective assistance for how he presented
the issue to the district court. See Harryman v. State, No. 14-1334, 2015 WL
4935640, at *5 (Iowa Ct. App. Aug. 19, 2015) (recognizing an applicant may raise
an ineffective-assistance-of-PCR-counsel claim on appeal from the denial of a
PCR application to bypass error preservation). So we do not reach the merits of
this issue.
B. Allocution.
At sentencing, Rodriguez Leyva read a statement he prepared beforehand.
He said:
Your Honor, I’m very sorry for my actions that caused
somebody to pass away. Accidents happen every day, and
sometimes we don’t know what happened. I have been a victim of
addiction, and have been struggling with it most of my life.
I’m sincere in what I say, and it’s the truth, concerning my
circumstances. For a short moment I fell asleep and did not know
what happened until I was arrested by the police.
I am a good person and have participated in a lot of good
things in the community and church events. If I only knew, I would
have helped at that moment. I called the media because I found out
the details then, and also I did not have a lawyer at the time, but I felt
really bad and wanted to let the community and everybody know that
I was sorry.
My family, and everybody, all I can offer is my apology and
ask them to please forgive me and don’t condemn me. And it’s been
very difficult for me, too.
I’ve been praying a lot and ask for mercy and compassion.
And I ask that my sentences run concurrent with each other at the
beginning of my sentence. I would like to get back into society and
to my family as soon as possible to support my family. Please give
me the chance to show you that I can be a productive member of the
community and able to maintain a respectful relationship with
society. Thank you very much, Your Honor.
Rodriguez Leyva claims trial counsel breached an essential duty in not
better preparing him for allocution at sentencing. He maintains he was prejudiced
8
because the court chose to run each of his sentences consecutively to the others.
In linking his own statement at allocution to the sentence he received, Rodriguez
Leyva relies on testimony elicited from his appellate attorney, who testified the
statement made at allocution “was not helpful to [Rodriguez Leyva’s] case” and
“whatever point or purpose they were trying to make wasn’t made properly.” But
even assuming the statement negatively impacted the sentence imposed by the
district court, according to Rodriguez Leyva’s PCR testimony, trial counsel
reviewed Rodriguez Leyva’s prepared statement and advised against it. It was
Rodriguez Leyva who was “very insistent” on reading that statement to the court
and, of course, who ultimately did so. See Pizarro v. State, No. 18-0223, 2019 WL
1294790, at *3 (Iowa Ct. App. Mar. 20, 2019) (noting it is ultimately the defendant
who has to personally exercise the right of allocution). We cannot find counsel
breached a duty under these facts. This claim fails.
C. Expert.
Rodriguez Leyva argues trial counsel breached a duty in failing to obtain an
expert in retrograde extrapolation; he broadly claims “[a]n expert could have only
helped him and could also have really helped if [Rodriguez Leyva’s] alcohol
consumption occurred after the time of the accident.” But he points to nothing in
the record before us that suggests Rodriguez Leyva did consume alcohol after
striking the bicyclists with his vehicle.
The State put forth evidence that Rodriguez Leyva’s BAC was .192—more
than twice the legal limit—when his blood was drawn a few hours after the incident.
And the State’s witness, criminalist Justin Grodinsky, who has a Ph.D. in
physiology and toxicology, opined that based on his retrograde extrapolation,
9
Rodriguez Leyva’s BAC would have been “anywhere between .232 and .292” at
the time of the accident. Rodriguez Leyva still has not shown that an expert exists
who would offer any opinions or testimony to contradict the State’s evidence. See
State v. Graves, 668 N.W.2d 860, 881 (Iowa 2003) (“Trial counsel has no duty to
raise an issue that has no merit.”). He has not established his claim of ineffective
assistance. See Dunbar v. State, 515 N.W.2d 12, 15 (Iowa 1994) (“When
complaining about the adequacy of an attorney’s representation, it is not enough
to simply claim that counsel should have done a better job.”).
IV. Conclusion.
Rodriguez Leyva’s claim about trial counsel’s failure to move for
suppression under section 321J.10(1)(a) is not preserved for our review. He has
not established his other two claims of ineffective assistance. We affirm the district
court’s denial of his PCR application.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484509/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0919
Filed November 17, 2022
IN THE MATTER OF D.R.,
Alleged to Be Seriously Mentally Impaired,
D.R.,
Respondent-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Johnson County, Paul D. Miller,
Judge.
D.R. appeals the determination he is seriously mentally impaired.
AFFIRMED.
David R. Fiester, Cedar Rapids, for appellant.
Thomas J. Miller, Attorney General, and Chandlor Collins, Assistant
Attorney General, for appellee State.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
BOWER, Chief Judge.
D.R. appeals his involuntary commitment for serious mental impairment,1
arguing he does not meet the statutory criteria—specifically claiming he has
sufficient judgment to make responsible treatment decisions and does not present
a danger to himself or others. We affirm because substantial evidence supports
the district court finding D.R. is seriously mentally impaired.
I. Background.
Iowa Code chapter 229 provides for the hospitalization of persons with
mental illness—both voluntary and involuntary. Involuntary commitment occurs
after a third party files a verified application with specific criteria and a
1 A serious mental impairment is defined as follows:
[T]he condition of a person with mental illness and because of that
illness lacks sufficient judgment to make responsible decisions with
respect to the person’s hospitalization or treatment, and who
because of that illness meets any of the following criteria:
a. Is likely to physically injure the person’s self or others if
allowed to remain at liberty without treatment.
b. Is likely to inflict serious emotional injury on members of the
person’s family or others who lack reasonable opportunity to avoid
contact with the person with mental illness if the person with mental
illness is allowed to remain at liberty without treatment.
c. Is unable to satisfy the person’s needs for nourishment,
clothing, essential medical care, or shelter so that it is likely that the
person will suffer physical injury, physical debilitation, or death.
d. Has a history of lack of compliance with treatment and any
of the following apply:
(1) Lack of compliance has been a significant factor in the
need for emergency hospitalization.
(2) Lack of compliance has resulted in one or more acts
causing serious physical injury to the person’s self or others or an
attempt to physically injure the person's self or others.
Iowa Code § 229.1(20) (2022).
3
hospitalization hearing is held for the hospitalization referee to evaluate the
necessity of involuntary commitment. Iowa Code §§ 229.6, .12
The application shall:
a. State the applicant’s belief that the respondent is a person
who presents a danger to self or others and lacks judgmental
capacity due to either of the following:
(1) A substance-related disorder as defined in section 125.2.
(2) A serious mental impairment as defined in section 229.1.
b. State facts in support of each belief described in
paragraph “a”.
c. Be accompanied by any of the following:
(1) A written statement of a licensed physician or mental
health professional in support of the application.
(2) One or more supporting affidavits otherwise corroborating
the application.
(3) Corroborative information obtained and reduced to writing
by the clerk or the clerk’s designee, but only when circumstances
make it infeasible to comply with, or when the clerk considers it
appropriate to supplement the information supplied pursuant to,
either subparagraph (1) or (2).
Id. § 229.6(2).
D.R. has schizophrenia requiring medication, a history of delusions and
hallucinations causing paranoia, and a substance-abuse disorder. He was
involuntarily committed in November 2021 following acute hallucinations and
seeking medical attention for alleged stings and bites from a scorpion infestation.
D.R. filed an incoherent public safety report alleging the murder of a family
member, he saw her body under a porch, and someone blamed him for the
stabbing. In early December, D.R.’s medical treatment improved his condition and
abated the danger he posed to himself and others. As a result, he was transitioned
to an outpatient clinic.
In late December, D.R. attempted suicide by overdose and reported more
hallucinations of harm to himself and family members. D.R. was returned to
4
inpatient commitment. A placement hearing in January 2022 found D.R. struggles
outside inpatient treatment and poses a danger to himself from self-medication.
He remained in an inpatient commitment. D.R.’s involuntary commitment was
continued in February, and he transferred to a residential facility with a lesser
degree of supervision. In March, the hospitalization referee considered whether
to continue D.R. with inpatient treatment. The referee found D.R. had improved
his judgmental capacity but needed more time in a supervised facility, noting poor
compliance with oral medication, and found D.R. posed a danger to himself based
on recent self-harm and substance abuse when unsupervised.
D.R. appealed the March order to the district court. The court tried the
matter anew, hearing testimony from D.R.’s treating provider at the residential
facility and from D.R. See id. § 229.21. The weekend before his district court
hearing, D.R. threatened to take the steering wheel while a staff member was
driving and made threats to harm staff and their families.
During the judicial review hearing, the provider testified about D.R.’s claims
of poison and spiders in his room at the facility and his trips to the emergency room
related to those claims. She opined D.R. was likely to become noncompliant with
medication and noted his current delusions occurred after his psychiatric
medication dose was decreased at D.R.’s request. D.R. threatened “to come after”
one staff member in the facility, and the provider believed he would still be a risk
of harm to himself if released to the community. During his testimony, D.R. claimed
facility staff were sabotaging him by putting a venomous spider nest and poison in
his room. He said the staff member who reported him pulling the wheel was lying
and would not let him use the bathroom.
5
On May 5, the court ruled clear and convincing evidence established D.R.
was seriously mentally impaired, lacked judgment to make responsible medical
decisions, and was “likely to physically injure himself or others if allowed to remain
at liberty without treatment.” Thus, the court continued D.R.’s involuntary
commitment.
D.R. appeals the district court’s ruling.
II. Standard of Review.
We review sufficiency-of-the-evidence challenges in involuntary
commitments for errors at law. See In re B.B., 826 N.W.2d 425, 428 (Iowa 2013).
“If the findings of fact are supported by substantial evidence, they are binding on
us.” In re L.H., 890 N.W.2d 333, 339 (Iowa Ct. App. 2016). “The allegations made
in an application for involuntary commitment must be proven by clear and
convincing evidence.” B.B., 826 N.W.2d at 4289. This “means that there must be
no serious or substantial doubt about the correctness of a particular conclusion
drawn from the evidence.” Id.
III. Analysis.
Placement. D.R. notes in his brief that after the district court’s ruling, he
was transferred to a hospital with a higher level of care and supervision. He then
objects generally to “this placement and the need for an involuntary commitment.”
If D.R. is objecting to his new placement, it occurred after the district court order
was issued, and is outside the record for our review. Any argument against
placement at the residential facility is moot as D.R. is no longer committed at that
6
facility.2 See S.Q. v. St. Anthony Reg’l Hosp., No. 10-1293, 2011 WL 3481001, at
*1 (Iowa Ct. App. Aug. 10, 2011) (“An appeal ‘is moot if it no longer presents a
justiciable controversy because [the contested issue] has become academic or
nonexistent.’” (alteration in original)).
Serious mental impairment. Concerning the court’s May 5, 2022 ruling
confirming the referee’s finding D.R. remains seriously mentally impaired, D.R.
challenges the district court’s findings on the elements of his judgmental capacity
and that he presents a danger to himself or others.
Judgmental capacity. In March, the referee found D.R. had improved but
needed more time in a supervised setting. Shortly thereafter, D.R.’s dose of
medication was reduced at his request,3 resulting in a significant increase in
symptoms, including hallucinations and delusions of poison and venomous spiders
in his room. D.R. resisted increasing his dose again despite the hallucinations.
During his testimony to the court, D.R. accused the facility staff of sabotaging him,
lying, trapping him, and placing black widow spiders in his room.
Clear and convincing evidence establishes D.R. lacked sufficient judgment
to make responsible decisions regarding his hospitalization and treatment for his
mental illness.
Dangerousness. The dangerousness element requires “a recent overt act,
attempt, or threat.” B.B., 826 N.W.2d at 433. The referee found D.R. was unable
2 Moreover, part of D.R.’s argument in favor of judgmental capacity was his
willingness to stay at the residential facility on a voluntary basis as he finished a
training program.
3 D.R. had told the referee the higher dose left him “sleepy and feeling doped.” His
dose was reduced by a doctor at the local hospital.
7
to live safely on his own given his recent overdose and substance abuse and
“would soon be unable to meet his daily needs” if released. In the treatment
provider’s March report to the court, she noted D.R. “threatens to harm others” and
mentioned a history of making verbal threats of harm to staff and family. The
hospital requested the judicial review hearing occur over the telephone after D.R.
threatened staff and tried to take the wheel from a staff member during
transportation back from the hospital. The provider’s May report to the court noted
D.R.’s lack of compliance with medication and his threats to staff about being
poisoned. The provider testified D.R. would be at risk of harm to himself out in the
community. Based on the provider reports, filings, and the testimony heard, we
find the court did not err in finding D.R. posed a threat to himself or others.
We conclude the district court’s finding that D.R. was seriously mentally
impaired is supported by substantial evidence.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484507/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1913
Filed November 17, 2022
K.C. on behalf of T.L.S.,
Petitioner-Appellee,
vs.
T.D.L.,
Respondent-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Warren County, Brendan E. Greiner,
District Associate Judge.
T.L. appeals the imposition of a protective order for relief from sexual abuse
entered under Iowa Code chapter 236A (2021). AFFIRMED.
Amy K. Davis of Miller, Zimmerman & Evans, P.L.C., Des Moines, for
appellant.
Jami J. Hagemeier of The Youth Law Center, Des Moines, attorney and
guardian ad litem for minor child, appellee.
K.C., self-represented appellee.
Heard by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
CHICCHELLY, Judge.
T.L. appeals the imposition of a protective order for relief from sexual abuse
entered under Iowa Code chapter 236A (2021). He challenges the sufficiency of
the evidence supporting a finding of sexual abuse. He also challenges the ruling
quashing the subpoena of the child victim and allowing a videotaped forensic
interview into evidence in its place.
Substantial evidence supports a finding that a preponderance of the
evidence shows T.L. committed sexual abuse. T.L. has not preserved error on his
claim that the court erred by appointing the guardian ad litem who moved to quash
the subpoena, and there is no showing that the court abused its discretion in
granting quashal. For these reasons, we affirm.
I. Background Facts and Proceedings.
K.C. petitioned for relief against sexual abuse, alleging that T.L. sexually
assaulted her daughter, T.S.1 K.C. claims she learned of the assault after picking
T.S. up from school in September 2021. Because T.S. has an intellectual
disability,2 K.C. pieced this information together from fragments of statements T.S.
made:
1 T.S. and T.L. are both preteens. T.S. is in her father’s physical custody, and T.L.
is in his mother’s physical custody. Because T.S.’s father and T.L.’s mother
married, T.S. and T.L. shared a residence.
2 A psychological evaluation from September 2020 diagnosed T.S. with “Mild
Intellectual Disability.” T.S. scored in the “very low to extremely low range” on a
test of intellectual functioning. The evaluator concluded that T.S.’s “verbal
reasoning skills are in the extremely low range and indicate that [T.S.] will tend to
have a poorly developed word knowledge and problems with verbal expression.
These deficits are likely to be present in her efforts to communicate with others.”
Testing of T.S.’s adaptive skills functioning showed her ability to communicate was
“significantly below other individuals her age and indicate[d] that she will have
difficulty in all areas of communication.” The evaluator concluded that T.S. “is likely
3
[T.S.] said that [T.L.] would—first it started with a dream, that
she kept having bad dreams at her father’s house. And I asked what
they were about. She stated that she was flying inside her father’s
house, and she was scared. And I asked what she was flying from.
And she said a monster—or—and I asked what she was flying from.
I said, “Are you flying from a monster?”
And she then stated, . . . that [T.L.] would wake her up in the
middle of the night, sometimes bringing in a stuffed animal, telling
her to be quiet, threatening to break her leg if she made a sound.
K.C. went to the local police, who referred her to the STAR Center for a forensic
interview.
The STAR Center interviewed T.S. about the abuse allegations one week
later. During the videotaped interview, T.S. talks about T.L. doing “this” as she
makes a gesture. The interviewer asked T.S. to explain what she meant:
Q. What do you mean when you say this? A. When he did
(gestures).
Q. What does that mean? A. It’s probably touching your
private parts, and it’s really disgusting.
Q. Did that happen? A. Yeah.
Q. What did he touch your private part with? A. His hand.
And it was really gross and I felt it.
Q. Did it touch the clothes or the skin of your private part?
A. The skin of my private part.
K.C. represented herself in the proceedings under chapter 236A, and T.L.
was represented by counsel. The district court appointed a guardian ad litem to
represent T.S. When T.L. subpoenaed T.S. to testify, the guardian ad litem moved
to quash the subpoena and admit the videotape of the forensic interview in place
of live testimony. The district court granted the motion and allowed K.C. to
introduce the videotaped interview of T.S. as evidence. K.C. also testified in
to lack understanding of information received from others and to have equal
difficulty using words and sentences to express her own thoughts and ideas.”
4
support of her petition. T.L. offered testimony by both T.S.’s father and his father,
as well as a police detective who investigated T.S.’s allegations.
At the close of the hearing, the guardian ad litem argued a preponderance
of the evidence showed a sex act and sex abuse occurred:
From the STAR Center interview, Your Honor, and from my
client’s words, I would support that the evidence has been shown
that a sex act has occurred. Pursuant to that video, [T.S.] was able
to say that [T.L.] had come into her room, that he had brought a toy
with him, she was able to act out what occurred, and was able to
then talk about what she did in order to have him stop and then what
she needed to do once the act was concluded. So I think in that
interview, I think she was very clear with her words, and I believe in
your order as stated she was interviewed by a forensic interviewer,
non-leading questions.
The district court agreed that the interview “is compelling and is more than
sufficient to sustain the petition.” It entered an order prohibiting T.L. from having
contact with T.S., and T.L appealed.
II. Scope of Review.
Proceedings under chapter 236A “shall be held in accordance with the rules
of civil procedure.” The parties agree the action was tried at law, and our review
is for correction of errors at law. See Iowa R. App. P. 6.907.
III. Sufficiency of the Evidence.
T.L. first challenges to the sufficiency of the evidence supporting the
allegations in the petition. He argues K.C. failed to show by a preponderance of
the evidence that he sexually abused T.S.
We begin with our standard of review. “[W]e must view the evidence in the
light most favorable to support the judgment and liberally construe the court’s
finding to uphold, rather than defeat, the result reached.” Papillon v. Jones, 892
5
N.W.2d 763, 770 (Iowa 2017) (citation omitted). We are bound by the district
court’s fact findings if supported by substantial evidence. See Iowa Beta Chapter
of Phi Delta Theta Fraternity v. State, 763 N.W.2d 250, 257 (Iowa 2009). Evidence
is substantial if reasonable minds would find it adequate to reach the same finding.
See Zaw v. Birusingh, 974 N.W.2d 140, 160 (Iowa Ct. App. 2021). We cannot
substitute our own findings for those of the district court simply because the
evidence supports different inferences. See Iowa Beta Chapter of Phi Delta Theta
Fraternity, 763 N.W.2d at 257. The question is not whether the evidence would
support a different finding but whether it supports the finding made by the court.
See id.
We then turn to the requirements of chapter 236A. The court can issue a
protective order under that chapter only after finding sexual abuse has occurred.
See Iowa Code § 236A.3(2) (“If the factual basis for the alleged sexual abuse is
contested, the court shall issue a protective order based upon a finding of sexual
abuse . . . .”). Sexual abuse occurs when a person commits a sex act “by force or
against the will of the other” or when “[s]uch other person is a child.” Id. § 709.1(1),
(3) (defining sexual abuse); see also id. § 236A.2(5) (stating, in part, that the
commission of any crime defined in chapter 709 is sexual abuse under
chapter 236A). The petitioner bears the burden of showing by a preponderance
of the evidence that sexual abuse occurred. Id. § 236A.3(2). “A preponderance
of the evidence is the evidence ‘that is more convincing than opposing evidence’
or ‘more likely true than not true.’” In re K.D., 975 N.W.2d 310, 320 (Iowa 2022)
(citation omitted). “The evidence may preponderate, and yet leave the mind in
doubt as to the very truth. In such cases the evidence does not fairly set the
6
question at rest, but merely preponderates in favor of that side whereon the doubts
have less weight.” Walthart v. Bd. of Directors of Edgewood-Colesburg Cmty. Sch.
Dist., 694 N.W.2d 740, 744 (Iowa 2005) (citation omitted).
With these precepts in mind, we turn to the evidence. Because the sexual
abuse allegedly happened at night in T.S.’s bedroom without witnesses, most of
the relevant evidence comes from the STAR Center forensic interview of T.S. The
limits of T.S.’s ability to communicate are apparent during the interview. T.S. often
meanders from a question mid-answer, interjecting non sequiturs to share her
stepmother’s age or show her painted fingernails. Her demeanor is casual
throughout the interview, but she uses animated facial expressions and gestures
when recalling events as though acting them out.3
During the interview, T.S.’s most incoherent answer stems from a question
she does not understand. The interviewer asks T.S., “What is your ocular hue?”
Although the interviewer had just explained that T.S. should say if she does not
understand a question, T.S. tries to answer anyway:
3 As an example, the interviewer asks T.S. what she did from the time she woke
up that morning up to the time she arrived at the interview. The timestamp on the
video shows that the interview begins at 9:30 a.m. T.S. begins by looking around
for a clock before venturing a guess that she woke up at 5:30. T.S. says, “I was
like, ‘Mom, I need to’” and gestures opening her eye with one hand. She then
continues: “So, I took a shower in the morning. And I brushed my hair. Well, [L.]
did but, um.” The next thing T.S. mentions is her arrival at the interview: “We were
a few minutes away from here and then—” T.S. again stops speaking as she
gestures expansively with her arms before continuing: “Here we go, right? And
like, ‘Is that my dad? I can’t believe my dad is already here.’” Her tone of voice
and expression then changes as though to suggest she is repeating another
person’s words when she continues: “Okay, it’s okay. I got this.” T.S. then
concludes her answer by resuming her former demeanor and saying, “So, that’s
the truth.”
7
T.S.: Okay, my ocular hue is if I asked mom if she can take me
back tomorrow to school and say, “It’s okay if you go back to school
for a little bit.”
Interviewer: Do you know what ‘ocular hue’ means?
T.S.: Yeah, but my mom said, “I’m going to take you to school.
I can’t believe your mom—your dad—I don’t know. But they’ll like,
dramatically arguing a little bit, but not just every time. But
sometimes I just really feel like my dad wants me to go to his house
for a little bit and go to my mom’s for a little bit. But I wish my mom
would say, “Hey, I need you to go away from your dad. I don’t want
him stealing your money.” Well, actually he doesn’t have my money
but—I do.
The interviewer then reiterates that T.S. can say, “I don’t know” if she does not
know the answer to a question, adding, “You don’t have to do any guessing.” She
illustrates this by following up with a simpler question, asking, “Do I have a dog at
my house?” This time, rather than guessing at an answer, T.S. shakes her head
to reflect she does not know.
Unlike in her answer about ocular hue, T.S. is clear in articulating what
happened to her. When asked to explain the gesture she makes when explaining
what T.L. did to her, T.S. answers that T.L. placed his bare hand on her bare
genitals. The district court found the interview “is not only compelling and reliable,
it is believable that an assault with intent to commit sex abuse occurred.” Because
the district court “has the prerogative to determine which evidence is entitled to
belief” and “a better opportunity than we do to evaluate the credibility of witnesses,”
we defer to its determination about T.S.’s interview. See Tim O’Neill Chevrolet,
Inc. v. Forristall, 551 N.W.2d 611, 614 (Iowa 1996) (stating “factual disputes
depending heavily on . . . credibility are best resolved by the district court”).
The question is whether a reasonable mind would find there is adequate
evidence to support the finding that it is more likely that sexual abuse occurred
8
than did not. Viewing the evidence in the light most favorable to the district court’s
ruling, deferring to its credibility findings, and giving the interview the same weight,
we find that it would. Although a reasonable person could reach a different finding
on the same evidence, that is not relevant to the question before us. Because
sufficient evidence supports the finding that T.L. committed sexual abuse, we
affirm.
IV. Evidentiary Rulings.
T.L. also challenges the ruling granting the motion to quash the subpoena
of T.S. and allowing the STAR Center interview in place of live testimony. 4
Because only the guardian ad litem moved to quash the subpoena, most of T.L.’s
argument focuses on whether the court could appoint the guardian ad litem. T.L.
admits he lodged no objection to the guardian ad litem’s appointment below and
thus concedes that “error is not necessarily preserved.” “Nothing is more basic in
the law of appeal and error than the axiom that a party cannot sing a song to us
that was not first sung in trial court.” Struck v. Mercy Health Servs.-Iowa Corp.,
973 N.W.2d 533, 539 (Iowa 2022) (citation omitted). Because T.L. failed to
preserve error by objecting to the appointment of the guardian ad litem in the
district court, we will not consider the propriety of the appointment for the first time
on appeal.
4 In a footnote, T.L. questions “whether the district court had authority to appoint a
guardian ad litem” under Iowa Code section 915.37. But he concedes that “error
is not necessarily preserved” because he never objected to the appointment.
Because T.L. failed to preserve error by raising an objection below, we do not
consider the issue on appeal.
9
We turn to the question of quashal and the substitution of the STAR Center
interview for live testimony, which are preserved for our review. Iowa Rule of Civil
Procedure 1.1701(4)(d)(1)(4) requires the court to quash a subpoena if it
“[s]ubjects a person to undue burden.” See, e.g., Iowa R. Civ. P. 1.504(1)(a)
(allowing the court to grant an order protecting any person from whom discovery
is sought “from annoyance, embarrassment, oppression, or undue burden or
expense”). An undue burden is “[a] substantial and unjust obstacle to the
performance of a duty.” Burden, Black’s Law Dictionary (11th ed. 2019).
The guardian ad litem argued that requiring T.S. to testify live and in person
would subject T.S. to an undue burden because of her disability. In support of her
motion to quash, she filed as an exhibit the September 2020 psychological
evaluation of T.S. that details the extent of T.S.’s mental disability. In resisting the
motion to quash,5 T.L. argued that there was no showing of undue burden and live
testimony was necessary for the court to determine T.S.’s credibility, which was
central to K.C.’s petition.
The district court has “wide discretion” in ruling on a motion to quash. See
Morris v. Morris, 383 N.W.2d 527, 529 (Iowa 1986). We also afford the lower court
discretion in deciding whether to allow a child’s in-person testimony when it goes
against the child’s best interests. See Mauk v. State Dep’t of Hum. Servs., 617
N.W.2d 909, 913 (Iowa 2000) (citing In re E.H. III, 578 N.W.2d 243, 246 (Iowa
1998), in which the court found “no abuse of discretion in the juvenile court’s
conclusion that the best interests of the children militated against their testimony
5T.L. did not object to the court considering the videotaped interview as evidence;
he objected only to use of the interview instead of live testimony.
10
in court” based on the beliefs of their mother, guardian ad litem, and therapists that
testifying would traumatize the children); see also In re E.H., No. 02-0453, 2002
WL 31538128, at *1 (Iowa Ct. App. Nov. 15, 2002) (“The trial court is given
discretion in determining whether child witnesses must testify.”). In granting the
guardian ad litem’s motion, the district court noted the limitations in T.S.’s ability to
communicate, with the psychological evaluation assessing “socialization skills
similar to children age two to three.”6 The court also shared the guardian ad litem’s
concern that K.C. conducting direct examination of T.S. would cause inherent bias,
while the forensic interview—“[a] neutral examination in a controlled environment,
from an unbiased interviewer”—lead to more reliable answers. Finally, although
K.C. and T.S.’s father disagreed on the pivotal issue of whether sexual abuse
occurred, they both suggested that requiring in-person testimony would unduly
6 T.S. was ten years old at the time of the hearing. In other circumstances, a child
of that age may be competent to testify at trial. See St. Peter v. Iowa Tel. Co., 131
N.W. 2, 4 (Iowa 1911) (observing “the trial judge has better opportunity to judge of
these than an appellate court” in affirming a district court’s conclusion that a ten-
year-old witness was competent to testify). But as our supreme court has noted,
the competency of a child has less to do with age and more to do with a child’s
maturity and intelligence:
There is no particular age at which a child becomes competent as a
witness. The statute fixes no age, and requires only that the witness
have sufficient capacity to understand the obligation of an oath. A
child of sufficient maturity and intelligence to receive correct
impressions from its surroundings, and to remember and correctly
narrate transactions, is a competent witness, if he also comprehend
the meaning and obligation of an oath. If a child has the necessary
intelligence and appreciates the moral duty to tell the truth, he need
not fully understand the nature of an oath, or have any particular
religious belief or training to qualify him as a witness.
Clark v. Finnegan, 103 N.W. 970, 970 (Iowa 1905) (internal citations omitted). That
distinction is important here, where T.S.’s intellectual functioning is significantly
lower than her biological age would suggest.
11
burden T.S.7 Because the record supports the court’s reasoning, we find no abuse
of discretion in granting the motion to quash.
T.L. cites to State v. Skahill, 966 N.W.2d 1 (Iowa 2021), to argue that the
court misplaced its reliance on the STAR Center interview. The court in Skahill
considered the admissibility of a forensic interview of a child victim in a criminal
prosecution for sexual abuse in addition to the child’s live testimony. 966 N.W.2d
at 4. The court found the interviews “were not more probative than the otherwise
available live testimony under which [the child] could be (and was) cross-
examined.” Id. at 15. As a result, the court held the residual hearsay exception
did not apply. Id.
T.L. never challenged the admissibility of the STAR Center interview below.
Nor does he challenge it on appeal. He instead cites to Skahill for observations
about the difference between taped forensic interviews and live testimony, which
the supreme court made during its harmless-error analysis:
Forensic interviews can be different from and, sometimes, more
powerful than trial testimony. The questioner can be—indeed, often
should be—openly sympathetic to the child. The interviewer and the
child may be able to develop a rapport. There is no requirement in
a forensic interview to ask only legally relevant questions or to avoid
repetition. The narrative may flow more naturally than in the bumpy
give-and-take of a trial—the setting in which witnesses normally must
provide their testimony.
7 At the hearing on the motion to quash, T.S.’s father asked the court to examine
T.S. in camera instead of T.S. giving live testimony because he believed testifying
in person would go against T.S.’s best interests. K.C. agreed that giving live
testimony would not be in T.S.’s best interests because “it would be more traumatic
for her to have to go and be interrogated even further, whether it be by me or by a
stranger. Just to have more questions regarding the matter is already hard enough
on her to talk about.”
12
Id. at 16. T.L. argues that for the same reasons, the court gave the STAR Center
interview more weight than it deserved even though T.S. “was incoherent in her
interview, and unable to provide any specific dates or specific instances of alleged
sexual abuse.”8 But this complaint goes to the weight of the evidence rather than
its admissibility. The district court noted the limitations in T.S.’s ability to
communicate during the interview and still found her statements about the sexual
abuse to be credible and persuasive. As stated above, we defer to the district
court on the question of what weight to give the evidence.
AFFIRMED.
8 T.L. argues the interview is like the one described in M.W. on behalf of B.W. v.
J.W., No. 19-0574, 2020 WL 4200856, at *3 (Iowa Ct. App. July 22, 2020), in which
this court affirmed the denial of a petition for relief from sexual abuse filed against
the father of a two-year-old child. As in this case, a videotaped interview of the
child was admitted into evidence and provided “our only opportunity to directly
observe the child.” M.W., 2020 WL 4200856, at *3. But the child’s interview in
M.W. “largely refute[d] the allegations the father inappropriately touched the child.”
Id. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484513/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1166
Filed November 17, 2022
IN THE INTEREST OF N.L.,
Minor Children,
B.L., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Susan Cox, District
Associate Judge.
A mother appeals the juvenile court’s denial of her motion to continue and
termination of her parental rights. AFFIRMED.
Teresa M. Pope of Branstad & Olson Law Office, Des Moines, for appellant
mother.
Thomas J. Miller, Attorney General, and Mary A. Triick, Assistant Attorney
General, for appellee State.
ConGarry Williams, Des Moines, attorney and guardian ad litem for minor
child.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
TABOR, Presiding Judge.
A mother, Brooke, appeals the termination of her parental rights to a two-
year-old child. She challenges the statutory ground for termination, requests
additional time, and argues termination Is not in the child’s best interests. She also
contends the juvenile court’s denial of her motion to continue the termination
hearing was an abuse of discretion. After our independent review of the record,
we find the termination ground was supported, additional time was unwarranted,
and termination Is in the child’s best interests.1 We also find no abuse of discretion
in the court’s denial of a continuance. So we affirm.
I. Facts and Prior Proceedings
This family has been involved with the Iowa Department of Health and
Human Services (DHHS) since before Na.L.’s birth in October 2019. Na.L.’s three
older siblings were removed from Brooke’s care in 2018.2 A younger sibling, No.L.,
was born in June 2021. Because of Brooke’s methamphetamine use, the juvenile
court removed Na.L. from her custody and adjudicated him as a child in need of
assistance (CINA) in October 2020. He was placed with a family friend, where he
has remained since.
1 We review termination-of-parental-rights proceedings de novo. In re M.D., 921
N.W.2d 229, 232 (Iowa 2018). We are not bound by the juvenile court’s findings
of fact. Id. But we give them weight, especially in assessing witness credibility.
Id. Our foremost attention is to the child’s best interests. In re J.C., 857 N.W.2d
495, 500 (Iowa 2014).
2 The older three children were briefly placed with their father, Jeffrey, in 2018, and
then returned to both parents. They were removed again in February 2020
because of Brooke’s methamphetamine use. The juvenile court terminated
Brooke’s parental rights to the older children two weeks before terminating her
rights to Na.L. At the time of that termination, No.L. was Brooke’s only child with
whom she still had a legal tie. But he had been adjudicated as a CINA and placed
with foster parents.
3
Brooke has a long history of substance-abuse and mental-health concerns.
Her drug tests throughout this case have not demonstrated a trend toward sobriety.
She refused or avoided testing several times. But in 2021, she entered residential
substance-abuse treatment—with baby No.L. in her care. Then, in February 2022,
the mother left the center without letting anyone know where she was taking No.L.
They were eventually located at an apartment Brooke had rented. Brooke was
visibly intoxicated. Also in the apartment were Jeffrey and another man whom
Jeffrey admitted was the parents’ drug dealer. Police removed No.L. from the
parents’ custody. The baby suffered injuries to his head and shoulder while in the
care of his impaired mother, resulting in a founded child abuse assessment.
Brooke later confessed that she had a relapse that day, using methamphetamine
and marijuana.
The record also reflects Brooke’s struggles with domestic violence and
mental health. Shortly after the children were removed, an argument between
Brooke and Jeffrey required a call to police. Brooke reported Jeffrey assaulted
her. Both parents have repeatedly violated no-contact orders. They deny
continuing their intimate relationship. Brooke was ordered to attend mental-health
therapy but was discharged due to nonattendance. She has several diagnosed
but untreated disorders. Her attendance and performance at visitations has been
lackluster according to service providers. And she is unable to have visits at her
apartment due to fire damage that is awaiting repair.
In mid-May 2022, shortly before the termination hearing, the DHHS worker
transported the parents to their drug testing appointments, where two unusual
events took place. First, the mother refused to provide a hair sample for a hair stat
4
test, though she later agreed. Second, the father confessed to the DHHS worker
that Brooke gave him a small bottle containing “clean” urine. The drug examiner
tested the bottle and confirmed it contained no illegal substances. The mother’s
urine test was also negative for drugs. But the hair stat test came back positive
for methamphetamine and amphetamine.
The mother did not appear at the termination hearing; the record does not
include a reason for her absence. The court terminated her rights to Na.L. under
Iowa Code section 232.116(1)(h) (2022). Brooke appeals.3
II. Analysis
A. Motion to Continue
Brooke first argues the district court abused its discretion by denying her
request to continue the termination hearing. She sought the continuance because
several State’s exhibits were filed three days before the hearing, despite an order
that all exhibits be filed seven days in advance. We review a motion to continue
for abuse of discretion. M.D., 921 N.W.2d at 232. An abuse occurs when the
grounds for the denial are clearly untenable or unreasonable. In re A.M., 856
N.W.2d 365, 370 (Iowa 2014). We reverse only if injustice to the moving party will
result. In re R.B., 832 N.W.2d 375, 378 (Iowa Ct. App. 2013).
When moving to continue, Brooke’s counsel stated she had not had a
chance to look at the late filings or contact her client. Despite being aware of the
date, Brooke did not attend the hearing. The court denied the request, citing the
statutory timeframes and focusing on the child’s best interests and need for
3The court also terminated Jeffrey’s rights to Na.L. He does not participate in this
appeal.
5
permanency. Still, upon objection, the court refused to admit several late reports.
Three exhibits, though untimely, were admitted. Brooke argues the late filing of
those exhibits justified a continuance. The first exhibit was a court-appointed-
special-advocate report, to which she did not object. And the other two exhibits
were hair-stat test results from mid-May, which were not available to DHHS until
that day. The juvenile court found good cause to admit the results, which show
Brooke tested positive for amphetamine and methamphetamine.4 Brooke was
aware of the outstanding test, and both parties received the results on the same
day. The juvenile court acted reasonably by admitting test results that all the
parties were waiting on. No injustice resulted from their admission. We find no
abuse of discretion.
B. Statutory Ground for Termination
Brooke next contends the juvenile court erred in terminating her parental
rights under Iowa Code section 232.116(1)(h). That ground requires proof that the
child (1) is three years of age or younger, (2) has been adjudicated in need of
assistance, (3) has been removed for a specified time, and (4) cannot be returned
to parental custody “at the present time.” Iowa Code § 232.116(1)(h). She
challenges only the last element. Id. § 232.116(1)(h)(4). Brooke argues the State
did not offer clear and convincing evidence that the child could not have been
returned to her custody “at the time of the termination hearing or within a
reasonable period of time.” But the “within a reasonable period of time” language
does not appear in the statutory grounds, and we interpret “at the present time” to
4 A social worker also testified to the results.
6
mean at the time of the termination hearing. See In re D.W., 791 N.W.2d 703, 707
(Iowa 2010).
She points out that, although domestic violence was a concern at the start
of the case, no evidence was presented that it remained a concern. And she brings
up her efforts at substance-abuse treatment. The record shows she has been
engaged in services for four years involving five children. Yet the substance-abuse
concerns remain. She discharged early from treatment this February, left without
telling anyone her whereabouts, and was intoxicated while caring for her infant,
which caused him injuries. She tried to tamper with drug tests by providing false
urine samples. And she tested positive for illegal drugs about one week before the
termination hearing. True, she has not suffered domestic violence recently, but
she has not completed counseling to deal with her past exposure to abuse. And
she appears to maintain a relationship with Jeffrey, who assaulted her. She also
has not consistently engaged in mental-health services. Further, although not her
fault, her home is not in a safe condition for children due to the recent fire damage.
So she could not safely resume custody of Na.L. at the time of the hearing. We
affirm termination on this statutory ground.
C. Request for More Time
Brooke next challenges the juvenile court’s refusal to give her more time to
work toward reunification. Under Iowa Code section 232.117(5), the court may
order an extension of permanency for up to six months under section 232.104(2)(b)
as an alternative to terminating parental rights. See In re N.J., No. 19-1999, 2020
WL 2988237, at *3 (Iowa Ct. App. June 3, 2020). Such an extension is appropriate
if the court can point to “specific factors, conditions, or expected behavioral
7
changes” that justify believing the need for removal from parental care would no
longer exist after that time. Iowa Code § 232.104(2)(b).
Brooke emphasizes her substance-abuse treatment and individual therapy.
She admits lapses in her participation in services but attributes some of that to the
fire damage to her home and “cancelation of visits by the in-home worker.” While
Brooke’s home might be ready within six months, she has not in the last four years
resolved the substance-abuse and mental-health challenges that prevent her from
being a safe parent. Given her history of repeated relapses and positive drug tests,
we do not believe the need for removal will no longer exist in six months.
D. Best Interests of the Child
As a final argument, Brooke contends it is not in Na.L.’s best interests to
terminate her rights. In assessing best interests, we must “give primary
consideration to the child’s safety, to the best placement for furthering the long-
term nurturing and growth of the child, and to the physical, mental, and emotional
condition and needs of the child.” Iowa Code § 232.116(2). Brooke cites her
participation in services and positive interactions with Na.L. But the record shows
her engagement with services has been inconsistent. And taking care of a two-
year-old full time requires more focused parenting than Brooke demonstrated in
supervised visitations.
On the other hand, we may also consider “whether the child has become
integrated into the foster family to the extent that the child’s familial identity is with
the foster family, and whether the foster family is able and willing to permanently
integrate the child into” their family. Id. § 232.116(2)(b). The foster parent has
been caring for Na.L. most of his life. The social worker testified he calls the foster
8
parent “mommy” and looks to her for safety and comfort. The foster parent is
willing and able to adopt Na.L. and is committed to maintaining his contact with his
siblings, as well as his biological parents, so long as they are sober. So, in both
the short- and long-term view, termination of Brooke’s parental rights to Na.L. is in
his best interests.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484512/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1595
Filed November 17, 2022
IN THE INTEREST OF R.M.,
Minor Child,
A.P., Father,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Monona County, Mark C. Cord III,
District Associate Judge.
The father appeals the termination of his parental rights. AFFIRMED.
Debra S. De Jong, Orange City, for appellant father.
Thomas J. Miller, Attorney General, and Ellen Ramsey-Kacena and
Mackenzie Moran, Assistant Attorneys General, for appellee State.
Michelle M. Hynes of Juvenile Law Center, Sioux City, attorney and
guardian ad litem for minor children.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
GREER, Judge.
The father appeals the termination of his parental rights to R.M., who was
born in 2020. In an amended petition, the county attorney petitioned to terminate
the father’s parental rights under Iowa Code section 232.116(1)(b), (d), (e), (h), (i),
and (l) (2022). The juvenile court granted the petition, terminating the father’s
rights under section 232.116(1)(d) and (i).1 Here, the father challenges the
grounds for termination, argues the loss of his rights is not in the child’s best
interests, and maintains he should be given additional time to work toward
reunification. We review termination proceedings de novo. In re M.W., 876
N.W.2d 212, 219 (Iowa 2016).
R.M.’s guardian ad litem filed a response on appeal, arguing we can
properly affirm under either paragraph (d) or (i) of section 232.116(1). See id. at
219 (“The first step is to determine whether any ground for termination under
section 232.116(1) has been established.”). The State also filed a response,
urging that we may also affirm termination of the father’s rights under
paragraph (h). See id. at 221 (“‘It is well-settled law that a prevailing party can
raise an alternative ground for affirmance on appeal without filing a notice of cross-
appeal, as long as the prevailing party raised the alternative ground in the district
court.’ . . . [W]e hold the prevailing party in a termination-of-parental-rights action
need not file a cross-appeal or a rule 1.904(2) motion to assert an alternative
ground for affirmance on appeal that was raised before the juvenile court.” (internal
1 The mother’s rights were also terminated; she does not appeal.
3
citations omitted)). We choose to review termination under paragraph (h), which
allows the court to terminate parental rights when:
(1) The child is three years of age or younger.
(2) The child has been adjudicated a child in need of
assistance [(CINA)] pursuant to section 232.96.
(3) The child has been removed from the physical custody of
the child’s parents for at least six months of the last twelve months,
or for the last six consecutive months and any trial period at home
has been less than thirty days.
(4) There is clear and convincing evidence that the child
cannot be returned to the custody of the child’s parents as provided
in section 232.102 at the present time.
Iowa Code § 232.116(1)(h).
R.M. was born in late 2020, adjudicated a CINA in March 2021, and
removed from the father’s custody in April 2021 (about fifteen months before the
July 2022 termination trial). The only element in dispute is whether R.M. could be
returned to the father’s care at the time of the termination trial. See M.W., 876
N.W.2d at 223 (interpretating “at the present time” to mean “at the time of the
termination hearing”).
The father is unable to parent R.M. on his own, and he does not have a
home to which R.M. could be returned. After losing his job at a fast food restaurant
in April 2022 for failing to show up and being “not willing to work,” the father was
unable to pay his rent and lost his apartment. He moved in with his parents—the
paternal grandparents—who live in a one-bedroom camper in Nebraska.2 Two of
the father’s siblings also live in the camper. The father testified he sleeps on the
2The family stopped living in their home due to structural issues that made it
unsafe; they are living in a camper on the same property.
4
floor, while one of his brothers sleeps in a chair and another on the couch. There
is no room for R.M. in the home.3
The father testified he receives social security income due to his learning
disability. Whether due to this learning disability or for some other reason, the
father has struggled to meet R.M.’s needs during the relatively short supervised
visits. The family support specialist or the paternal grandmother, who has attended
a number of visits, often have to remind the father to change R.M.’s diaper and
feed her. These reminders have been needed for the duration of supervised
visits—approximately fifteen months. And, on more than one occasion, the father
placed R.M. on a table and then left her unattended. There is clear and convincing
evidence R.M. could not be safely returned to the custody of the father at the time
of the termination hearing. See In re A.M., 843 N.W.2d 100, 111 (Iowa 2014)
(affirming termination where the parents had “lower mental functioning” and, after
the statutory time frame passed, “the parents were still not in a position to care for
[the child] without ongoing [DHHS] involvement”).
Next, the father argues termination of his rights is not in the child’s best
interests. We are “required to use the best-interest framework established in
section 232.116(2) when [we] decide[] what is in the best interest of the child.” In
re P.L., 778 N.W.2d 33, 37 (Iowa 2010). “The primary considerations are ‘the
child’s safety,’ ‘the best placement for furthering the long-term nurturing and growth
3 The father testified the family could remove their table to make space for R.M.’s
crib. But the Iowa Department of Health and Human Services (DHHS) social
worker testified that, because the father and his family live in Nebraska, “the State
of Nebraska would need to approve their home and it will never pass a home
study.”
5
of the child,’ and ‘the physical, mental, and emotional condition and needs of the
child.’” Id. (quoting Iowa Code § 232.116(2)). The father is not yet able to care for
R.M. on his own, and it is not clear if or when he will be able to do so. And R.M.
has more than just basic needs—after being exposed to methamphetamine in
utero, R.M. has language delays and difficulty controlling her anger. Her current
foster placement told the court R.M. is
behind in so many things that [they] have AEA, the Child Health
Specialty Clinic getting involved. . . . She’s trying to do her best, but
she’s—she’s far behind. . . . [S]he’s going to need a lot of doctors, a
lot of help in all of this. She’ll probably need counseling [and] she
has a high chance of ADHD and many other medical issues due to
the drugs.
Nothing in the record suggests the father can handle the special needs of this child.
Instead, there was evidence that the father would no-show for the scheduled well-
child check-ups and that he could barely meet the child’s basic needs, let alone
having skills to work on the child’s developmental delays. See In re D.W., 791
N.W.2d 703, 708 (Iowa 2010) (“The mental capacity of a parent . . . [is a] relevant
consideration[] in evaluating the safety of the child, the best placement for optimal
growth of the child, and the physical, mental, and emotional condition and needs
of the child.”).
Additionally, the father maintained his relationship with the mother
throughout the pendency of the child-welfare proceedings. Her were also
terminated. The mother has several significant mental-health diagnoses, and she
experiences hallucinations. At the time of the termination trial, the mother was not
treating her mental health. Additionally, the mother uses methamphetamine. The
father agreed these issues could pose a danger to small children, however he
6
voiced that the mother acted “normal” while on methamphetamine, alluding to the
conclusion that he did not appreciate the harm to R.M. that might result from the
mother in her drug-induced state. It is not clear he could or would keep R.M. from
the mother if she was returned to his care despite recognizing the risk the mother
may pose without mental-health and substance-abuse treatment. Termination of
the father’s parental rights is in R.M.’s best interests.
Finally, the father argues he should get six more months to work toward
reunification with R.M. But in spite of the father’s obvious love for R.M. and his
best intentions, we cannot say the need for R.M.’s removal from the father’s
custody will no longer exist at the end of an additional six months. See Iowa Code
§ 232.104(2)(b).
We affirm the termination of the father’s parental rights to R.M.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484517/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1455
Filed November 17, 2022
IN THE INTEREST OF D.S.,
Minor Child,
M.S., Father,
Appellant,
D.S., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Cerro Gordo County, Adam Sauer,
District Associate Judge.
A father appeals the termination of his parental rights to his child.
AFFIRMED.
Cameron M. Sprecher of Sprecher Law Office, P.L.C., Mason City, for
appellant father.
Barbara Jo Westphal, Belmond, for appellant mother.
Thomas J. Miller, Attorney General, and Ellen Ramsey-Kacena, Assistant
Attorney General, for appellee State.
Becky Wilson of O’Mara Wilson Law, P.L.L.C., Mason City, attorney and
guardian ad litem for minor child.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
CHICCHELLY, Judge.
A father appeals the termination of his parental rights to his child. He asks
for more time and contends the juvenile court erred by finding the State proved the
grounds for termination. He also contends termination is not in the child’s best
interests and would harm the child based on the close bond they share.
We review termination proceedings de novo. In re J.H., 952 N.W.2d 157,
166 (Iowa 2020). After doing so, we conclude more time would not change the
outcome of the proceedings, the statutory requirements for termination have been
met, and termination is in the child’s best interests. We therefore affirm.
I. Background Facts and Proceedings.
The child was born in 2018. Because of the mother’s methamphetamine
use and concerns about domestic violence between the parents, the child was
removed from the home and placed in the custody of the Iowa Department of
Health and Human Services (DHHS) in July 2021. The juvenile court adjudicated
the child in need of assistance (CINA) in September.
The DHHS first placed the child in the father’s care1 with the understanding
that the father would not supervise the mother’s visits with the child or allow the
mother to live in the home. But in the days after the CINA adjudication, the DHHS
learned of ongoing contact between the mother and the father, and attempts to
contact each parent went unanswered. Concerned for the child’s safety, the DHHS
decided to remove the child from the father’s care and place the child with a foster
family. A worker arrived at the father’s home for removal and discovered the father
1Although the child was placed in the father’s care for a short time, the DHHS
maintained custody throughout.
3
left the child with the maternal grandmother, who has a history of substance use.
The worker reported that when the child was returned, the grandmother showed
“physical indicators of possible substance use.”
The father made no progress toward reunification. The juvenile court gave
a succinct summary of the father’s limited engagement with services:
Since November 2021, [the father] has only met with the
[DHHS] when his attorney could also be present. [The father] is not
currently participating in Family Centered Services. [The father]
completed four anger management classes and reported that he did
not need to attend more classes. [The father] no showed for
paternity testing on November 3 and December 8, 2021, and May
20, 2022. [The father] has not had an interaction with the child since
the beginning of [2022] and has provided no reasonable explanation
for not seeing the child in approximately seven months. [The father]
has made no attempts, whether in-person, over the phone, or video,
to have contact with the child.
As a result, the juvenile court found clear and convincing evidence supported
terminating the father’s parental rights under Iowa Code section 232.116(1)(e) and
(h) (2022). The father appeals.2
II. Extending Time.
The father first asks for more time to reunify with the child. Iowa Code
section 232.104(2)(b) allows the court to continue the child’s placement for six
months if doing so will eliminate the need for the child’s removal. But before the
court can grant more time, it must “enumerate the specific factors, conditions, or
expected behavioral changes which comprise the basis for the determination that
2The court also terminated the mother’s parental rights. The mother’s attorney
appealed at the mother’s behest, but the supreme court dismissed the appeal
when the mother failed to sign the notice of appeal.
4
the need for removal of the child from the child’s home will no longer exist at the
end of the additional six-month period.” Iowa Code § 232.104(2)(b).
The father argues for more time, claiming he “made significant progress” by
finding employment and trying to maintain housing. He admits he did not
participate in services because he distrusted the DHHS and disagreed with its
determination that he was not a suitable placement for the child. But concerns
about the father’s ability to care for the child arose when he violated the safety
plan. And the father’s claim that “[t]here is no rule of law that states a parent must
comply with services offered by the [DHHS] in order to regain custody” ignores that
the juvenile court ordered his participation.3
Nothing in the record suggests custody can be returned to the father with
more time. The progress claimed by the father is in areas that were not a concern
when the case began. He made no progress with the concerns that led to the
DHHS to remove the child from his care: allowing the mother and maternal
grandmother contact with the child and failing to address concerns about domestic
violence in his relationship with the mother.4 To add to those concerns, the father
had not seen the child in the seven months before termination. On this record, we
conclude that delaying termination will not bring a better result. See In re B.H.A.,
3 The juvenile courts orders include recommendations made by the DHHS. For
example, the adjudicatory order prohibits the mother from interacting with the child
“without prior approval of the [DHHS] and with the presence of a person approved
by the [DHHS] to provide supervision.” It also requires the father to complete anger
management therapy; arrange for paternity testing; keep all testing appointments,
and cooperate with all testing procedures; and “attend all sessions, actively
participate in, and demonstrate progress with, all services ordered herein.”
4 The child made statements to the foster family revealing she witnessed that
violence.
5
938 N.W.2d 227, 233 (Iowa 2020) (looking at a parent’s past performance as
evidence of the future). We deny the father’s request for more time.
III. Statutory Grounds for Termination.
We next address the grounds for termination. We need only find sufficient
evidence supporting one of the grounds cited by the juvenile court to affirm. See
In re A.B., 815 N.W.2d 764, 774 (Iowa 2012). The father challenges the evidence
supporting termination under section 232.116(1)(h), arguing the State failed to
show the child cannot be returned to his custody as provided in section 232.102.
See Iowa Code § 232.116(1)(h)(4).5 He does not challenge termination under
section 232.116(1)(e) (allowing termination when “clear and convincing evidence
that the parents have not maintained significant and meaningful contact with the
child during the previous six consecutive months and have made no reasonable
efforts to resume care of the child despite being given the opportunity to do so”).
“Where a party has failed to present any substantive analysis or argument on an
issue, the issue has been waived.” L.N.S. v. S.W.S., 854 N.W.2d 699, 703 (Iowa
2013).
Even so, sufficient evidence supports termination on either ground.
Because the father had no contact with the child during the seven months before
termination and has made little to no effort to resume care of the child, we may
5 The father cites to section 232.116(1)(f), which is nearly identical to
section 232.116(1)(h) but differs on the child’s age and how long the child has been
removed from the parent’s custody. Because the juvenile court terminated the
father’s rights under section 232.116(1)(h) rather than (f), we presume the error is
typographical and the father intended to cite section 232.116(1)(h)(4) (“There is
clear and convincing evidence that the child cannot be returned to the custody of
the child’s parents as provided in section 232.102 at the present time.”).
6
terminate his parental rights under section 232.116(1)(e) (allowing termination
when “the parents have not maintained significant and meaningful contact with the
child during the previous six consecutive months and have made no reasonable
efforts to resume care of the child despite being given the opportunity to do so”).
Because evidence also shows the child cannot be returned to the father’s care for
the reasons stated in section I, we may terminate his parental rights under
section 232.116(1)(h).
IV. Best Interests.
The father next contends termination is not in the child’s best interests. To
determine the child’s best interests, we use the framework described in
section 232.116(2). See In re A.H.B., 791 N.W.2d 687, 690–91 (Iowa 2010). That
provision requires that we “give primary consideration to the child’s safety, to the
best placement for furthering the long-term nurturing and growth of the child, and
to the physical, mental, and emotional condition and needs of the child.” Iowa
Code § 232.116(2). The “defining elements” of the best-interests analysis are the
child’s safety and “need for a permanent home.” In re H.S., 805 N.W.2d 737, 748
(Iowa 2011) (citation omitted).
The father’s best-interests argument hinges on his belief that the child was
never in danger while in his care. The record refutes his claim for the reasons
stated in section I about his violation of the safety plan and the court’s orders. The
father failed to provide for the child’s safety. Given the father’s refusal to engage
in services, there is no basis to find that will soon change.
Section 232.116(1)(e) and (h) allow the court to terminate parental rights
after six months. Once that statutory period passes, we view termination
7
proceedings with a sense of urgency. In re C.B., 611 N.W.2d 489, 494–95 (Iowa
2000). “[W]e cannot deprive a child of permanency after the State has proved a
ground for termination under section 232.116(1) by hoping someday a parent will
learn to be a parent and be able to provide a stable home for the child.” In re A.M.,
843 N.W.2d 100, 112 (Iowa 2014) (citation omitted).
One year passed between the CINA adjudication and termination. The child
remained with the same foster family and integrated into the home. The juvenile
court found she is “thriving” there. But long-term placement in foster care is not
preferred to termination of parental rights. In re R.L., 541 N.W.2d 900, 903 (Iowa
Ct. App. 1995). The DHHS and guardian ad litem agreed that the child’s best
interests are served by terminating parental rights to allow the child to be adopted.
We agree.
V. Parent-Child Bond.
Finally, the father argues against termination of his parental rights based on
the closeness of the parent-child relationship. Under Iowa Code
section 232.116(3)(c), the juvenile court “need not terminate the relationship
between the parent and the child if . . . termination would be detrimental to the child
at the time due to the closeness of the parent-child relationship.” But the court
need not save the parent-child relationship based on section 232.116(3)(c). See
In re A.S., 906 N.W.2d 467, 475 (Iowa 2018). The court has discretion in doing so
based on the facts of the case. See id.
We agree with the juvenile court that there is no evidence termination would
harm the child:
8
Any sadness the child may experience because of termination
does not overcome the likely long-term hardship and neglect the
child will suffer if in the care of parents. The Court simply cannot find
that the parent-child relationship is so strong that it outweighs the
need for termination. Despite any fondness or love between the
parents and the child, it is not in the child’s best interest to wait any
longer for permanency.
Because the child’s best interests are served by terminating the father’s parental
rights, we affirm.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484520/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1443
Filed November 17, 2022
IN THE INTEREST OF A.C. and A.F.C.,
Minor Children,
T.D., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Polk County, Kimberly Ayotte,
District Associate Judge.
A mother appeals the termination of her parental rights. AFFIRMED.
Austin Jungblut of Parrish Kruidenier Dunn Gentry Brown Bergmann &
Messamer L.L.P., Des Moines, for appellant mother.
Thomas J. Miller, Attorney General, and Ellen Ramsey-Kacena, Assistant
Attorney General, for appellee State.
Paul White of Des Moines Juvenile Public Defender, Des Moines, attorney
and guardian ad litem for minor children.
Considered by Vaitheswaran, P.J., and Ahlers and Chicchelly, JJ.
2
AHLERS, Judge.
About four years of services were provided to a family to try to correct
problems in the home. The problems included the mother allowing a sex offender
unrestricted access to the children, domestic violence (including multiple incidents
involving knives or firearms), child abuse, housing instability, drug use, and drug
dealing. When the services did not succeed, the juvenile court terminated the
parental rights of the parents of five-year-old A.F.C. and three-year-old A.C.1 Only
the mother appeals.
We conduct de novo review of decisions terminating parental rights. In re
Z.K., 973 N.W.2d 27, 32 (Iowa 2022). Our review follows a three-step process of
determining if statutory grounds for termination have been established, if
termination is in the children’s best interests, and whether any permissive
exceptions should be applied to preclude termination. In re A.B., 957 N.W.2d 280,
294 (Iowa 2021). We do not address any steps a parent does not challenge. In
re P.L., 778 N.W.2d 33, 40 (Iowa 2010). Then we address any additional claims
raised by a parent. In re S.D., No. 22-1141, 2022 WL 3906757, at *1 (Iowa Ct.
App. Aug. 31, 2022).
The juvenile court terminated the mother’s rights to the older child pursuant
to Iowa Code section 232.116(1)(f) (2022) and to the younger child pursuant to
section 232.116(1)(h). The mother only challenges the statutory grounds for
terminating her rights to the older child. Yet, in doing so, she points to no part of
section 232.116(1)(f) that the State failed to prove. Section 232.116(1)(f) permits
1The children have the same mother. The father of A.C. is unknown. The juvenile
court terminated the rights of A.F.C.’s father and all unknown fathers of A.C.
3
termination upon proof that (1) the child is four years of age or older; (2) the child
has been adjudicated as a child in need of assistance; (3) the child has been
removed from the physical custody of the child’s parent for the last twelve
consecutive months and any trial period at home has been less than thirty days;
and (4) the child cannot be returned to the custody of the child’s parent at the time
of the termination hearing. In re D.W., 791 N.W.2d 703, 707 (Iowa 2010).
On our de novo review, we find clear and convincing evidence of all four
elements for termination. As noted by the juvenile court, the mother has not
engaged in services to address her history of physical abuse of the children or her
history of domestic violence. See In re J.R., No. 17-0556, 2017 WL 2684405, at
*3 (Iowa Ct. App. June 21, 2017) (“The threat to children posed by domestic
violence in their home may serve as the basis for terminating parental rights.”); see
also In re A.R.C. III, No. 13-0786, 2013 WL 3458222, at *5–6 (Iowa Ct. App. July
10, 2013) (considering unresolved domestic-violence issues as a basis for
terminating parental rights). She was dishonest to the court and service providers
regarding her relationship with an abusive sex offender. See In re M.W., 876
N.W.2d 212, 223 (Iowa 2016) (finding continued dysfunctional relationships as a
basis for finding a child cannot be returned to a parent’s custody). She has not
demonstrated the ability to maintain stable housing, and she has not shown
progress in addressing her substance-abuse issues. See In re A.B., 815 N.W.2d
764, 776 (Iowa 2012) (“We have long recognized that an unresolved, severe, and
chronic drug addiction can render a parent unfit to raise children.”); In re D.M.,
No. 18-0086, 2018 WL 1433104, at *2 (Iowa Ct. App. Mar. 21, 2018) (collecting
cases finding a child cannot be returned to a parent when the parent does not have
4
stable housing or employment). The juvenile court correctly found statutory
grounds for terminating the mother’s parental rights to the older child.2
Within her argument challenging the termination of her rights to the older
child, the mother makes repeated reference to an additional period of
rehabilitation. An additional period to work toward reunification is not relevant to
whether statutory grounds for termination exist, as the relevant inquiry for
termination under section 232.116(1)(f) is whether the child can be returned to the
mother’s custody at the time of the termination hearing, not at some future time.
See In re A.S., 906 N.W.2d 467, 473 (Iowa 2018) (interpreting “at the present time”
to mean “at the time of the termination hearing”). The mother’s argument
essentially concedes that the older child could not be returned home at the time of
the hearing and thus concedes the statutory grounds. Nevertheless, we interpret
the mother’s argument as a separate argument requesting additional time to work
toward reunification.
If the juvenile court does not terminate a parent’s rights, it can choose any
permanency option, including giving a parent an additional six months to work
toward reunification. See Iowa Code § 232.117(5) (permitting the court to enter
an order pursuant to section 232.104 if the court does not terminate parental
rights); see also id. § 232.104(2)(b) (establishing a permanency option of
continuing placement for an additional six months to give a parent the opportunity
to change so that removal will no longer be necessary). However, to choose this
2 The mother’s petition on appeal does not address our typical steps two and
three—whether termination is in the children’s best interests and permissive
exceptions to termination. As a result, we do not reach these issues.
5
option, the court must be able to “enumerate the specific factors, conditions, or
expected behavioral changes which comprise the basis for the determination that
the need for removal of the child from the child’s home will no longer exist at the
end of the additional six-month period.” Id. § 232.104(2)(b). On our de novo
review, we cannot enumerate any such factors, conditions, or expected behavioral
changes. We agree with these observations by the juvenile court:
[The mother] has asked for additional time to work towards
reunification. [The mother] has received years of services without
those services yielding meaningful and lasting change. By her own
admission, [the mother] delayed in participating in services until after
the [court of appeals] affirmed the termination of her parental rights
towards [two older children whom are not the subject of this
proceeding]. [The two children involved in this proceeding] have
remained in limbo throughout the life of this case. They have been
removed in excess of a year, and it only now that [the mother]
appears ready to make changes. It is not in these children’s best
interests to continue to suspend the crucial days of childhood while
the parents experiment with ways to face up to their own problems.
We reject the mother’s request for additional time to work toward reunification.
As to the younger child, the mother makes only a conditional challenge to
the termination of her rights. She asserts that, if we reverse the termination of her
rights to the older child, we should also reverse the termination of her rights to the
younger child in order to keep the siblings together. The condition for the mother’s
arguments has not been met, as we are not reversing the termination of her rights
to the older child. As a result, we also reject her conditional challenge to the
termination of her rights to the younger child.
We affirm the juvenile court’s ruling terminating the mother’s rights to both
children.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484515/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1167
Filed November 17, 2022
IN THE INTEREST OF K.A., C.A., and A.A.,
Minor Children,
S.A., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Winnebago County,
Karen Kaufman Salic, District Associate Judge.
A mother appeals the removal of children from her custody in child-in-need-
of-assistance proceedings. APPEAL DISMISSED.
Jane M. Wright, Forest City, for appellant mother.
Thomas J. Miller, Attorney General, and Mary A. Triick, Assistant Attorney
General, for appellee State.
Carrie Jean Rodriguez, Garner, attorney and guardian ad litem for minor
children.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
SCHUMACHER, Judge.
A mother appeals the removal of children from her custody in child-in-need-
of-assistance proceedings. We dismiss the mother’s claims regarding removal of
the children because the issue is moot.
I. Background Facts & Proceedings
S.A., mother,1 and E.A., father, are the parents of K.A., born in 2019, C.A.,
born in 2020, and A.A., born in 2021. On April 19, 2022, the children were removed
from the father’s custody following an incident of domestic violence, where the
mother was the victim. The children remained in the mother’s custody. The State
filed a petition alleging the children were in need of assistance (CINA).
On May 20, the children were removed from the mother’s custody based on
concerns about the mother’s parenting of the children. There was information the
mother locked the children in their bedroom and they had chronic diaper rash.
There were also concerns the mother might be planning to flee from Iowa with the
children. The children were placed with a paternal aunt.
An adjudication and removal hearing was held on May 27. The mother
agreed to CINA adjudication for the children but contested their removal from her
custody. The court adjudicated the children under Iowa Code
section 232.2(6)(c)(2) and (n) (2022).
At the removal and adjudication hearing, the mother objected to these
exhibits: No. 6—a letter from Molly Eichenberger, ARNP; No. 8—the termination
1 The mother has four other children. Two of the children live with their father, and
the mother is permitted supervised visitation. Another child was voluntarily placed
with a relative. The mother’s parental rights to the fourth child were terminated.
3
order for an older child; No. 9—a photograph of a latching device on the children’s
bedroom door; No. 10—a photograph of moldy sippy cups; and No. 11—a
photograph of diaper rash. The mother objected on the grounds of foundation and
authentication. During the hearing, the court ruled the exhibits were admissible
because they were provided to a child protective worker for the Iowa Department
of Human Services2 as part of her investigation.
The court ruled that the children should be placed in foster care because
“[t]he animosity between Mother and [the paternal aunt] is not conducive to
reunification.” There were also concerns because the paternal aunt continued to
have contact with the father and there was a no-contact order prohibiting the father
from having contact with the children. On May 28, the children were placed in
foster care.
A dispositional hearing was held on June 24. A representative from the
department recommended the children be returned to the mother with continued
services. The State asserted, “I am hesitantly in agreement with that
recommendation, provided that plenty of services are in place for both mother and
the children once they are returned—or if they are returned to her home.” The
guardian ad litem stated it was not in the children’s best interests to be returned at
that time. The mother asked to have the children returned to her custody.
In the dispositional order, the court expressed concerns about other adults
living in the mother’s home and their use of illegal drugs. The court found, “The
problems for which the Court became involved have not resolved.” The court
2The department is now known as the Iowa Department of Health and Human
Services.
4
determined the children should remain in foster care. The mother appealed
following the entry of the dispositional order. On September 16, following hearing,
the children were returned to the mother’s custody.
II. Standard of Review
The juvenile court’s decisions in CINA proceedings are reviewed de novo.
In re L.H., 904 N.W.2d 145, 149 (Iowa 2017). We are not bound by the factual
findings of the juvenile court, but we give weight to those findings. In re J.S., 846
N.W.2d 36, 40 (Iowa 2014). The court’s “determinations must be based upon clear
and convincing evidence.” Id. at 41. Our primary consideration is the best interests
of the children. In re D.S., 563 N.W.2d 12, 14 (Iowa Ct. App. 1997).
III. Discussion
A. The mother agreed to the CINA adjudication for the children. The
mother stated, “I’m okay with adjudication.” The court found the children should
be adjudicated under section 232.2(6)(c)(2) and (n). Because the mother did not
contest the adjudication, we do not address the propriety of the CINA adjudication
in this appeal. See In re M.A.F., 679 N.W.2d 683, 685 (Iowa Ct. App. 2004)
(“Under our rules of civil procedure, an issue which is not raised before the juvenile
court may not be raised for the first time on appeal.”).
B. At the adjudication hearing, the mother challenged the removal of the
children from her custody. A similar issue was raised in In re E.M., where a parent
asserted that even if the CINA adjudication was affirmed, the evidence did not
show that the children should be removed. No. 20-1722, 2021 WL 811135, at *2
(Iowa Ct. App. Mar. 3, 2021). We stated, “However, we cannot go back in time
and restore custody based on alleged errors in the initial removal order.” Id.
5
“Ordinarily, an appeal is moot if the ‘issue becomes nonexistent or academic and,
consequently, no longer involves a justiciable controversy.’” In re B.B., 826
N.W.2d 425, 428 (Iowa 2013) (citation omitted). The removal of the children at the
time of the adjudication hearing is now moot. See In re A.M.H., 516 N.W.2d 867,
871 (Iowa 1994) (holding that following an adjudication order and dispositional
order, any error committed in granting the initial removal order was moot).
On the issue of the initial removal of the children, the mother’s complaints
about the admission of certain exhibits are also moot. See In re A.G., No. 12-
0393, 2012 WL 1454021, at *2 (Iowa Ct. App. Apr. 25, 2012) (finding that
arguments regarding the admission of evidence were moot where the underlying
issue could not be addressed); In re E.S., No. 06-1146, 2006 WL 2563375, at *3
(Iowa Ct. App. Sept. 7, 2006) (same). Even if we were to find the exhibits were
improperly admitted, the removal of the children at the time of the adjudication
cannot be undone. See A.M.H., 516 N.W.2d at 871 (finding that any error in
granting the removal at the time of the adjudication cannot now be remedied,
making the issue moot).
C. The mother contends the children should have been returned to her
custody at the time of the dispositional ruling on June 24. The State does not
respond to this issue, stating that it urged the court to return the children to the
mother at the time of the dispositional hearing. See In re J.L., 973 N.W.2d 895,
899 n.1 (Iowa Ct. App. 2022) (noting that as an appellee, the State “cannot
challenge the adverse ruling on appeal”).
The children were returned to the mother’s custody on September 16.
Although this information is outside the record on appeal, as the notice of appeal
6
was filed on July 9, “[w]e may consider matters technically outside the record to
establish or counter a claim of mootness.” See In re A.R., No. 21-0340, 2021 WL
2453377, at *1 (Iowa Ct. App. June 16, 2021) (citing In re L.H., 480 N.W.2d 43, 45
(Iowa 1992)).
As noted, “an appeal is moot if the ‘issue becomes nonexistent or academic
and, consequently, no longer involves a justiciable controversy.’” B.B., 826
N.W.2d at 428 (citation omitted). In the case In re D.B., a mother appealed an ex
parte removal order, adjudicatory order, and dispositional order, claiming her
children should be returned to her custody. No. 11-2116, 2012 WL 666842, at *1
(Iowa Ct. App. Feb. 29, 2012). Following these orders, the children were returned
to the mother’s custody. Id. We found “the district court’s denial of [the mother’s]
request that the children be returned to her care following the adjudicatory order
and the . . . dispositional order has been resolved.” Id. “Therefore, the district
court’s . . . decision to return the children to [the mother] renders this issue on
appeal moot and we accordingly dismiss this claim.” Id.
We conclude the mother’s request to have the children returned to her
custody at the time of the dispositional hearing on June 24 is now moot, as the
children were returned to her custody on September 16. Whether the children
should be returned to her custody is now nonexistent or academic, and so no
longer presents a justiciable controversy. See B.B., 826 N.W.2d at 428.
We dismiss the mother’s claims regarding removal of the children because
the issue is moot.
APPEAL DISMISSED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484516/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1153
Filed November 17, 2022
IN THE INTEREST OF E.H. and G.F.,
Minor Children,
S.J., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Mahaska County, Rose Anne
Mefford, District Associate Judge.
A mother appeals the termination of her parental rights to two children.
AFFIRMED.
Lynnette M. Lindgren of Faulkner, Broerman & Lindgren, Oskaloosa, for
appellant mother.
Thomas J. Miller, Attorney General, and Kathryn K. Lang, Assistant
Attorney General, for appellee State.
Patrick Joseph Mahaffey of Mahaffey Law Office, Montezuma, attorney and
guardian ad litem for minor children.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
VAITHESWARAN, Presiding Judge.
A mother appeals the termination of her parental rights to two children, born
in 2007 and 2013. She contends (1) the State failed to prove the children “could
not be returned to [her] custody at the time of the termination hearing”; (2) the
department of health and human services failed to make “reasonable efforts to
reunify [her] with her child[ren]”; and (3) termination was not in the children’s best
interests “due to the closeness of the parent-child relationship” and because a
guardianship “would allow the child[ren] to be placed in a safe and stable
environment while also preserving the child[ren]’s close bond with [her].”
The district court terminated the mother’s parental rights pursuant to two
statutory grounds. Because she only challenges one of the grounds, we could
affirm on the other. See In re T.S., 868 N.W.2d 425, 435 (Iowa Ct. App. 2015)
(“When the juvenile court orders termination of parental rights on more than one
statutory ground, we need only find grounds to terminate on one of the sections to
affirm.”). We elect to proceed to the merits of the ground she appeals, which
requires proof of several elements, including proof the children cannot be returned
to parental custody. See Iowa Code § 232.116(1)(f)(4) (2021).
The department intervened in October 2020 “due to concerns of domestic
violence and methamphetamine use by” the mother. Its most recent involvement
came on the heels of another case, which closed just four months earlier. The
department also intervened two other times, with the first contact occurring a
decade earlier, when the older child was just two-and-a-half years old and was left
home alone. The mother’s methamphetamine use precipitated all four
interventions.
3
The State applied to have the children temporarily removed from the
mother’s custody. The district court granted the application. The court later
adjudicated the children in need of assistance. One child was placed with her father
and then with her paternal grandmother, and the other child was placed with a
nonrelative and later with a paternal relative.
The mother successfully completed a drug treatment program but relapsed
within a month. She attended treatment at another facility but again relapsed. Prior
to the termination hearing, the department reported that the mother was not “able
to maintain her sobriety throughout the life of this case” or “maintain her sobriety for
a significant period of time after” the department “closed prior cases.” At the
hearing, the department’s social work case manager pointed to “six total” founded
child abuse reports against the mother for dangerous substances. She opined the
children could not be returned to the mother’s custody.
The mother confirmed her extensive history of illegal substance use. She
testified that she began using methamphetamine thirteen years earlier and used
marijuana for five years before that. She stated her current “clean date” from
methamphetamine was a little over two months before the termination hearing, and
she characterized her refusal to take a drug test several days before the hearing
as “a miscommunication.”
On our de novo review, we are persuaded the mother was not in a position
to have the children returned to her custody. As the district court stated:
[The mother] has demonstrated that she can be an engaged and
attentive parent when sober and supervised. [She] has not
demonstrated that she can maintain her sobriety for any substantial
length of time. [Her] alleged sobriety since her [last] relapse is
questionable, given [her] refusal to submit to testing in January of
4
2022 and her disengagement with substance abuse and mental
health treatment. The [children] have been out of [her] care since
October 5, 2020, a period of over 20 months and cannot safely be
returned at this time.
We turn to the mother’s contention that the department failed to make
reasonable reunification efforts. See In re C.B., 611 N.W.2d 489, 493 (Iowa 2000)
(“The State must show reasonable efforts as a part of its ultimate proof the child
cannot be safely returned to the care of a parent.”). The mother does not specify
how the department fell short. On our de novo review, it is evident the department
provided a host of reunification services, including inpatient substance-abuse
treatment at two facilities, outpatient substance-abuse treatment, and mental-
health treatment. The reasonable-efforts mandate was satisfied.
Termination must be in the children’s best interests. See Iowa Code
§ 232.116(2). The case manager was asked whether the mother was “a sober
parent to the level that there [were] no safety concerns for the [d]epartment.” She
responded, “No.” The State established the mother could not safely parent her
children. We conclude termination was in the children’s best interests.
As noted at the outset, the mother also cites the closeness of the parent-
child bond as a basis for reversal. This argument implicates an exception to
termination. See id. § 232.116(3)(c). The case manager testified that the older
child “love[d] her mother very much” but felt “much more stable” in her current
placement. The mother conceded as much and the record indicates that the older
child understood the implications of her mother’s ongoing drug use and chose not
to attend supervised visits. The younger child was more equivocal on her desires
for a permanent placement, but her diabetes diagnosis made it imperative that she
5
live with a vigilant caretaker. On our de novo review, we conclude there was no
basis for granting an exception to termination based on the parent-child bond.
Finally, the mother suggests the creation of a guardianship was a better
option than termination of parental rights. The case manager was against that
option. She stated in part that “the history of this family’s involvement with the
[d]epartment would indicate that it’s important . . . to have established permanency
through termination of parental rights and adoption.” We agree. See In re W.M.,
957 N.W.2d 305, 315 (Iowa 2021) (“[A] guardianship is not a legally preferable
alternative to termination.”).
We affirm the district court’s decision to terminate the mother’s parental
rights to the two children.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484518/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1429
Filed November 17, 2022
IN THE INTEREST OF A.M.-G. and A.M.,
Minor Children,
P.M., Mother,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Black Hawk County, David F. Staudt,
Judge.
A mother appeals the termination of her parental rights. AFFIRMED.
Joseph G. Martin, Cedar Falls, for appellant mother.
Thomas J. Miller, Attorney General, and Ellen Ramsey-Kacena, Assistant
Attorney General, for appellee State.
Kimberly S. Lange of the Public Defender’s Office, Waterloo, attorney and
guardian ad litem.
Considered by Tabor, P.J., and Schumacher and Chicchelly, JJ.
2
SCHUMACHER, Judge.
A mother appeals the termination of her parental rights. She claims
termination is not in the best interests of the children and asks for a six-month
extension. We find termination is in the children’s best interests. Additionally, a
six-month extension in not warranted on the facts in this record. We affirm.
I. Background Facts & Proceedings
The instant proceedings began in August 2020 after the Department of
Health and Human Services (DHHS) became aware of reports of the mother’s
failure to safely supervise her children, as well as the mother’s drug use.1 A.M.-
G., age three-and-a-half, and A.M., age two-and-a-half, were removed from their
mother’s custody and placed with their maternal grandmother, where they have
remained for the duration of the case.
The mother was instructed to complete substance-abuse treatment, comply
with drug testing, complete a mental-health evaluation and fulfill any recommended
treatment, participate in Family Centered Services (FCS) and the SafeCare
curriculum, and consistently attend visits with the children. Little progress was
made on any of these goals. The mother completed a substance-abuse evaluation
in July 2021, which diagnosed her with cocaine use disorder—severe, cannabis
use disorder—severe, and opiate use disorder—severe, in sustained remission.
However, the mother did not complete any substance-abuse treatment. Nor did
she engage in mental-health treatment, despite self-disclosing to DHHS that she
suffered from bipolar disorder and schizophrenia. Visitation was also problematic
1 The mother was involved with DHHS in 2018 because of similar concerns.
3
for the mother. Providers reported that the mother easily grew frustrated with the
children, failed to discipline them, failed to properly supervise them, and left
numerous hazards around the house, including loose pills and scissors within the
children’s reach. The mother completed only ten drug tests over eighteen months,
one of which was positive for cocaine and several of which were indicative of non-
human urine, resulting in presumptive positive results.
The State petitioned to terminate the mother’s parental rights in December
2021. Following a hearing, the court granted the mother a six-month extension,
noting the mother’s spirited promises to improve her situation. Still the mother
struggled to make progress. Despite efforts to make visits more available, the
mother only participated in about thirteen of twenty-six visits since February.
Similarly, she only participated in five of thirteen FCS meetings and three of six
SafeCare classes. She tested positive for cocaine on May 28, 2022, the day after
her most recent child’s birth, and admitted to drug use during the pregnancy. 2
Hospital staff indicated she was not compliant with the mental-health medication
she purported to be taking at the time.
The mother blames much of her continued struggles with sobriety and visits
on health problems she encountered since the February hearing, some of which
related to her pregnancy. While DHHS did not doubt the existence of some
medical issues, the mother never signed medical releases so DHHS could verify
the restrictions she claimed were in place. Her visits were held virtually in April
and May to accommodate the mother being placed on bedrest. Despite those
2 The new baby is not part of the instant appeal.
4
accommodations, the mother still attended only five of fourteen offered visits during
those months. She completed a new substance-abuse evaluation on June 6,
which recommended inpatient treatment.3 The mother was referred to a facility at
the same time.
A second termination hearing was held June 9. After hearing testimony
from the DHHS caseworker and the mother, the juvenile court terminated the
mother’s rights pursuant to Iowa Code sections 232.116(1)(h) and (l) (2022). The
mother subsequently moved to reconsider, which the court denied. The mother
appeals.4
II. Standard of Review
We review the termination of parental rights de novo. In re P.L., 778 N.W.2d
30, 40 (Iowa 2010). We generally review such proceedings using a three-step
analysis. Id. at 39. However, the mother does not contest that there is a statutory
ground for termination or whether permissive exceptions apply that could prevent
termination. See id. Thus, we need not discuss those steps. Id. at 40.
III. Discussion
The mother claims termination is not in the best interests of the children.
When considering the best interests of the children, we “give primary consideration
to the child’s safety, to the best placement for furthering the long-term nurturing
and growth of the child, and to the physical, mental, and emotional condition and
needs of the child.” Iowa Code § 232.116(2).
3 The mother signed a limited release of information, informing DHS about the
occurrence of the evaluation and the recommendation for treatment, but omitting
her diagnoses.
4 The father’s parental rights were also terminated. He does not appeal.
5
We determine termination of the mother’s parental rights is in the children’s
best interests. The mother has made little discernable progress over the course
of the case. She has failed to complete substance-abuse treatment and has not
participated in mental-health treatment. Despite self-reporting she suffers from
bipolar disorder and schizophrenia, she was non-compliant with her medication
around the time of her most-recent child’s birth. The mother tested positive for
cocaine about two weeks prior to the termination hearing, which indicated use
while she was pregnant. The mother’s substance-abuse and mental-health
present a real danger to the children. She has continued to struggle supervising
the children during visits.
The children have been removed from the mother’s custody for about
twenty months—a substantial portion of their young lives. The maternal
grandmother, the current placement, is a licensed adoptive home. See In re A.M.,
843 N.W.2d 100, 112 (Iowa 2014). Waiting for the mother to resolve her
substance-abuse issues is not in the children’s best interests. See P.L., 778
N.W.2d at 41 (“It is well-settled law that we cannot deprive a child of permanency
after the State has proved a ground for termination under section 232.116(1) by
hoping that someday a parent will learn to be a parent and be able to provide a
stable home for the child.”).
The mother also requests a six-month extension, contending she could
enter inpatient treatment without harming the children by continuing their
placement with their maternal grandmother. She also blames the lack of progress
she has made thus far on health issues. Juvenile courts may grant a six-month
extension to proceedings when there is a basis to believe “the need for removal of
6
the child from the child’s home will no longer exist at the end of the additional six-
month period.” Iowa Code § 232.104(2)(b).
The juvenile court properly denied the six-month extension. First, as noted
above, the mother has made very little progress over the proceeding twenty
months. While she blames medical issues have hindered her progress, those
issues only arose after the February 2022 hearing in which the court granted a six-
month extension. She cannot explain her lack of participation or progress prior to
that hearing. And DHHS made accommodations for those health issues, allowing
her to do virtual visits and offering at-home drug testing. The mother failed to
meaningfully utilize those options.
Similarly, while the mother contends she will enter inpatient treatment soon,
she has failed to maintain her sobriety for the past four years of DHHS involvement.
She continued her drug use following the discovery of her most recent pregnancy
and the February hearing that provided a six-month extension. See In re A.B., 815
N.W.2d 764, 778 (Iowa 2012) (explaining that a parent’s past conduct is indicative
of future behavior). Given her extensive history of non-participation in services,
her assurance to attend inpatient treatment at the time of the termination hearing
rings hollow. The mother had ample time to tackle her substance abuse issues,
but failed to do so. The juvenile court quoted the DHHS caseworker as aptly
describing the issue:
[The mother] has spent a great deal of energy trying to prove
her excuses for complying with treatment and testing. It remains very
difficult to believe [her] as she has provided many explanations.
When asked to provide facts and documentation she is not able to
do so.
7
The mother’s assurances notwithstanding, nothing in the record suggests
the children could be safely returned to her custody in the next six-months. A six-
month extension is not appropriate in this case.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484532/ | MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2022 ME 56
Docket: Yor-22-60
Submitted
On Briefs: September 21, 2022
Decided: November 15, 2022
Panel: STANFILL, C.J., and MEAD, JABAR, HORTON, CONNORS, and LAWRENCE, JJ.
IVAN J. DAVIES
v.
MARY T. DAVIES
CONNORS, J.
[¶1] Mary T. Davies appeals from an order entered by the District Court
(Biddeford, Mulhern, J.) striking her “motion to reopen evidence” on
Ivan J. Davies’s motion to modify child support because she failed to pay a filing
fee. Mary contends that the trial court erred by interpreting the administrative
order setting forth the court fees schedule, Revised Court Fees Schedule and
Document Management Procedures, Me. Admin. Order JB-05-26 (as amended
by A. 2-21.2) (effective Feb. 11, 2021),1 as requiring a filing fee for a motion filed
1 Me. Admin. Order JB-05-26 has recently been amended but not in any way that affects this
appeal. See Revised Court Fees Schedule and Document Management Procedures, Me. Admin. Order
JB-05-26 (as amended by A. 6-22) (effective June 1, 2022).
2
pursuant to M.R. Civ. P. 59 where the only issue in the underlying matter is child
support. We agree and vacate the judgment.
I. BACKGROUND
[¶2] Ivan and Mary divorced in 2007. At the time of the divorce, the
parties had two minor children, and Ivan was ordered to pay Mary child
support in the amount of $910 per month.
[¶3] In 2018, Ivan filed a motion to modify child support, seeking a
reduction in his support obligation because the parties’ oldest child had
reached nineteen years of age and had graduated from high school.
See 19-A M.R.S. § 2006(8)(G)(1)-(2) (2022). On November 22, 2021, after a
hearing, the trial court entered an order granting Ivan’s motion, reducing his
child support obligation to $455 per month, retroactive to when the motion was
served on Mary.
[¶4] On November 30, 2021, Mary attempted to file a “motion to reopen
evidence” pursuant to M.R. Civ. P. 59(a), asserting that she had discovered
evidence that was unavailable at the time of the hearing and would show that
Ivan’s actual income in 2021 was significantly higher than the income imputed
to him by the trial court in its order. By a notice dated December 14, 2021, the
clerk returned Mary’s motion for failing to include the filing fee required by
3
Me. Admin. Order JB-05-26. See M.R. Civ. P. 5(f) (“Filings that are received but
which are not . . . accompanied at the time of filing by a legally required element,
including but not limited to, a filing fee, . . . shall be returned by the clerk as
incomplete.”). Six days later, Mary refiled her “motion to reopen evidence,”
again without the fee. In the cover letter accompanying the refiled motion,
Mary requested that her motion be restored to the docket as of the original
filing date, arguing that Me. Admin. Order JB-05-26 “explicitly exempts from
any filing fee a Rule 59 Motion related to an underlying motion to modify child
support order.” On February 14, 2022, the trial court entered an order, stating
that
while [Ivan] may have been exempted from a filing fee when he
filed the motion to modify, [Mary’s] Rule 59(a) Motion to Reopen
Evidence is a separate filing for . . . which a filing fee is required.
[Mary’s] Rule 59(a) Motion to Reopen Evidence was properly
rejected as incomplete for lack of a filing fee on November 30,
202[1]. It similarly should not have been accepted for filing on
December 20, 2021. The Motion to Reopen Evidence filed on
December 20, 2021 is hereby STRICKEN. No action will be taken
on that motion as it is not properly before the Court.
Mary timely appealed. See 14 M.R.S. § 1901(1) (2022); M.R. App. P. 2B(c)(1).
II. DISCUSSION
[¶5] Mary contends that the trial court erred by interpreting the court
fees schedule as requiring a filing fee for her motion to reopen evidence. “We
4
review a trial court’s interpretation of procedural rules de novo and look to the
plain language of the rules to determine their meaning.” U.S Bank Tr., N.A. v.
Keefe, 2020 ME 104, ¶ 6, 237 A.3d 904 (citation and quotation marks omitted).
[¶6] Me. Admin. Order JB-05-26 sets forth the Judicial Branch’s schedule
of court fees. The relevant provision states that a $60 fee is required when
[f]iling a Motion pursuant to M.R. Civ. P. 55(b)(2), 59, 60(b), 62, or
66, except there shall be no fee for the following:
• Motion to Modify or Enforce a Child Support Order
• Motion for Contempt alleging the failure to pay child support
• Motion for Contempt filed by a plaintiff in a Protection from
Abuse Action
• Motion for Contempt filed by a plaintiff in a Protection from
Harassment action involving domestic violence, stalking,
sexual assault, sex trafficking, or unauthorized dissemination
of certain private images
Me. Admin. Order JB-05-26 § I(A)(3)(y) (footnotes omitted). This provision
further states:
A motion or stipulation to modify or enforce a child support order
may include a request for attorney fees and still be exempt from the
post-judgment filing fee. A fee will be charged for a post-judgment
motion or stipulation that raises additional issues. For example, a
motion or stipulation seeking both a change in visitation and
modification of child support requires payment of the fee.
Id. § I(A)(3)(y) n.16.
5
[¶7] Hence, the question presented in this appeal is whether the
administrative order exempts the fee requirement for post-judgment
motions—here, a motion filed pursuant to Rule 59(a)—when the underlying
matter is solely a motion to modify or enforce a child support order.
[¶8] We start with the plain language of the administrative order, taking
into account the purpose of the order, and our analysis ends there if the
meaning is clear. See Higgins v. Wood, 2018 ME 88, ¶ 58, 189 A.3d 724 (Jabar, J.,
dissenting) (stating that, as with statutes, we interpret court orders based on
their plain language); Dickau v. Vt. Mut. Ins., 2014 ME 158, ¶ 21, 107 A.3d 621
(“[W]e must interpret the plain language by taking into account the subject
matter and purposes of the statute, and the consequences of a particular
interpretation.”); Russell v. ExpressJet Airlines, Inc., 2011 ME 123, ¶ 16, 32 A.3d
1030 (stating that our analysis of a statute ends with its plain language when
the statute’s meaning is clear and the result is not illogical or absurd). In so
reviewing plain language, we must reject interpretations that do not give
meaning to every word in the text. State v. Dubois Livestock, Inc., 2017 ME 223,
¶ 8, 174 A.3d 308; see also Cent. Me. Power Co. v. Devereux Marine, Inc., 2013 ME
37, ¶ 15, 68 A.3d 1262; Cobb v. Bd. of Counseling Pros. Licensure, 2006 ME 48,
¶ 20, 896 A.2d 271.
6
[¶9] Applying these rules of statutory construction, the plain language of
the administrative order imposes a fee except as to “a Motion pursuant to M.R.
Civ. P. 55(b)(2), 59, 60(b), 62, or 66” for a series of motions, including a “Motion
to Modify or Enforce a Child Support Order.” Me. Admin. Order JB-05-26
§ I(A)(3)(y). A motion to modify or enforce child support is governed by M.R.
Civ. P. 107(a)(1) if it is a pre-judgment motion and by M.R. Civ. P. 120(a) if it is
a post-judgment motion. In other words, there is no such thing as a motion to
modify or enforce a child support order “pursuant to M.R. Civ. P. 55(b)(2), 59,
60(b), 62, or 66.” But there clearly is an exception to the fee requirement for a
motion under those rules that involves “a Motion to Modify or Enforce a Child
Support Order.” Me. Admin. Order JB-05-26 § I(A)(3)(y). That exception makes
sense if, and only if, we interpret it to apply to a Rule 59 motion seeking a new
trial on a motion to modify or enforce a child support order—exactly what
Mary’s motion was attempting to do. It follows that the only reading of our
administrative order that gives any meaning at all to the exception is one that
exempts the filing fee when the purpose of “a Motion pursuant to M.R. Civ. P.
55(b)(2), 59, 60(b), 62, or 66” is to address the modification or enforcement of
child support. Me. Admin. Order JB-05-26 § I(A)(3)(y); see Cobb, 2006 ME 48,
7
¶ 20, 896 A.2d 271 (“[B]ecause no language is to be treated as surplusage if it
can be reasonably construed, we must give meaning to this language.”).
[¶10] This reading does not result in an illogical or absurd result,
see Dickau, 2014 ME 158, ¶ 21, 107 A.3d 621, but rather is consistent with the
purpose of the fee exemption—to exempt fees in the context of proceedings
solely addressing child support, see generally 19-A M.R.S. § 2202(1) (2022).
Therefore, we need go no further than the text of the administrative order.2
See Russell, 2011 ME 123, ¶ 16, 32 A.3d 1030. Because Mary was not required
to pay a filing fee, we vacate the trial court’s order striking Mary’s motion to
reopen evidence and remand to the trial court to restore her motion to the
docket as of the original filing date of November 30, 2021.
The entry is:
Judgment vacated. Remanded to the District
Court for further proceedings consistent with
this opinion.
2 Because we conclude that no fee is required to file a post-judgment motion in matters dealing
with child support only, we need not reach Mary’s alternative argument that her failure to pay a filing
fee should be excused for good cause.
8
Dori F. Chadbourne, Esq., Chadbourne Law Offices, P.A., Cumberland, for
appellant Mary T. Davies
Craig J. Rancourt, Esq., Law Offices of Craig J. Rancourt, P.A., Biddeford, for
appellee Ivan J. Davies
Biddeford District Court docket number FM-2006-496
FOR CLERK REFERENCE ONLY | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484524/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0304
Filed November 17, 2022
IN RE THE MARRIAGE OF STEPHANIE KAY MAKELA
AND WAYNE L. MAKELA
Upon the Petition of
STEPHANIE KAY MAKELA,
Petitioner-Appellee,
And Concerning
WAYNE L. MAKELA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Clinton County, Henry W. Latham II,
Judge.
Stephanie Makela appeals the district court’s order on Wayne Makela’s
petition to modify the parties’ dissolution decree. AFFIRMED IN PART AND
MODIFIED IN PART.
M. Leanne Tyler of Tyler & Associates, PC, Bettendorf, for appellant.
Dawn D. Long of Howes Law Firm, Cedar Rapids, for appellee.
Considered by Vaitheswaran, P.J., and Greer and Schumacher, JJ.
2
VAITHESWARAN, Presiding Judge.
In this appeal from an order modifying a dissolution of marriage decree, we
are asked to resolve questions of legal custody and visitation.
Wayne and Stephanie Makela married in 2011, had two children in 2012
and 2014, and divorced in 2016. The trial court granted Stephanie sole custody of
the children in light of Wayne’s conviction and incarceration in Wisconsin for
second-degree sexual assault of a child. The court denied Wayne in-person visits
with the children but granted a motion to allow telephone contact and
correspondence. The court of appeals affirmed the decision. See In re Marriage
of Makela, No. 16-1034, 2017 WL 2181544, at *5 (Iowa Ct. App. May 17, 2017).
Approximately four years later, Wayne filed a petition to modify the decree.
He sought joint rather than sole legal custody and “appropriate temporary and
permanent orders for visitation.” He cited several factors, including his prison
release the prior year, his “successful completion of [s]ex [o]ffender 2 treatment,”
his “additional training and employment to be able to provide financially for the
children,” and Stephanie’s “limited willingness to provide information in the best
interest of” the children.
Following a hearing, the district court (1) found a material and substantial
change of circumstances for modification of legal custody and visitation;
(2) modified the decree to provide for joint legal custody of the children, with carve
outs for education and medical care; and (3) afforded Wayne immediate “video
contact” with the children “twice weekly,” “supervised visitation . . . for a period of
two hours” after sixty days, “supervised visitation . . . for a period of four hours”
after ninety days to last for four months, and six-hour supervised visits thereafter.
3
Finally, the court ordered supervised overnight visits “on a monthly basis” to “begin
on a mutually agreed upon Saturday at 11:00 a.m. and conclude on Sunday at
5:00 p.m. Stephanie appealed.
“To change a custodial provision of a dissolution decree, the applying party
must establish by a preponderance of the evidence that conditions since the
decree was entered have so materially and substantially changed that the
children’s best interests make it expedient to make the requested change.” In re
Marriage of Winnike, 497 N.W.2d 170, 173 (Iowa Ct. App. 1992). The legislature
has identified certain circumstances that may or must constitute a substantial
change. See, e.g., Iowa Code §§ 598.21D (2021) (allowing the court to consider
relocation of 150 miles or more “a substantial change of circumstances”),
598.41A(2) (requiring the court to consider a convicted sex offender’s conditional
release and successful completion of a treatment program as “a substantial
change of circumstances” for purposes of visitation).
The district court found a substantial change of circumstances warranting a
modification of legal custody and visitation. The court based its conclusion on Iowa
Code section 598.41A(2), which states:
Notwithstanding section 598.41, an individual who is a parent of a
minor child and who has been convicted of a sex offense against a
minor as defined in section 692A.101, is not entitled to visitation
rights while incarcerated. While on probation, parole, or any other
type of conditional release including a special sentence for such
offense, visitation shall be denied until the parent successfully
completes a treatment program approved by the court, if required by
the court. The circumstances described in this subsection shall be
considered a substantial change in circumstances.
(Emphasis added.) That provision applies to visitation rights. A court is obligated
to find a substantial change of circumstances for purposes of modifying visitation
4
following a sex offender’s conditional release and successful completion of a
treatment program. It does not appear the same circumstances will amount to a
substantial change for purposes of modifying legal custody. Accordingly, we apply
the general modification standard to Wayne’s request for a modification of legal
custody. See In re Marriage of Hute & Baker, No. 17-0046, 2017 WL 3283382, at
*6 (Iowa Ct. App. Aug. 2, 2017) (“As a general rule, a party seeking to modify the
custodial provisions of a decree must prove ‘by a preponderance of evidence that
conditions since the decree was entered have so materially and substantially
changed that the children’s best interests make it expedient to [change legal
custody]’” (quoting In re Marriage of Frederici, 338 N.W.2d 156, 158 (Iowa 1983))).
Stephanie argues Wayne failed to establish a material and substantial
change of circumstances to support modification of sole legal custody. She notes
that, despite his release from prison, Wayne was on “lifetime parole/supervision by
the State of Wisconsin including lifetime monitoring by a global positioning device.”
“‘[J]oint legal custody’ means an award of legal custody of a minor child to
both parents jointly under which both parents have legal custodial rights and
responsibilities toward the child and under which neither parent has legal custodial
rights superior to those of the other parent.” Iowa Code § 598.1(3) (emphasis
added). “Rights and responsibilities of joint legal custody include but are not
limited to equal participation in decisions affecting the child’s legal status, medical
care, education, extracurricular activities, and religious instruction.” Id. (emphasis
added).
The district court modified the dissolution decree to afford the parents joint
legal custody, stating the modification was necessary “to provide Wayne the
5
opportunity to be involved at a level that would provide him access to the children’s
teachers, educational records, medical providers, and medical information.” The
provision was actually a hybrid form of legal custody. See In re Marriage of Milne,
No. 20-0228, 2020 WL 5230461, at *4 (Iowa Ct. App. Sept. 2, 2020). While
putatively affording the parents “joint legal custody,” certain joint legal custodial
rights were “unbundled.” Id. Stephanie “retain[ed] the sole responsibility for
determining the place of education for the benefit of the children” and “the sole
responsibility of determining individuals providing medical care for the benefit of
the children.”
In Milne, the court of appeals questioned whether this type of unbundling is
permissible. See 2020 WL 5230461, at *4. We stated, “Chapter 598 appears to
consider joint custody and sole custody as all-or-nothing propositions.” Id. We
also stated chapter 598 does “not mention assigning sole decision-making
authority for some responsibilities of child-rearing and joint participation for others.”
Id. Ultimately, we found it unnecessary to resolve the legality of unbundling in light
of our conclusion that the father was entitled to sole legal custody. Id. at *5; see
also Moses v. Rosol, No. 21-1091, 2022 WL 949749, at *3 n.5 (Iowa Ct. App. Mar.
30, 2022) (“We do not consider whether it is permissible to maintain joint legal
custody while giving one parent sole decision-making authority over medical care
issues”).
We find it necessary to confront the issue in order to decide whether there
was a substantial change of circumstances warranting modification of the legal
custody provision. As we suggested in Milne, the statutory definition of “joint legal
custody” leaves no room for a parceling of rights. Indeed, we have indicated that
6
a less-than-complete award of joint custodial rights is actually an award of sole
rather than joint legal custody. See, e.g., Armstrong v. Curtis, No. 20-0632, 2021
WL 210965, at *4 (Iowa Ct. App. Jan. 21, 2021) (“In unbundling the authority to
make medical and educational decisions and awarding that power to [the father],
the court in effect awarded [the father] sole legal custody over those issues.”);
Kocinski v. Christiansen, No. 20-1721, 2021 WL 5106051, at *4 (Iowa Ct. App.
Nov. 3, 2021) (addressing district court’s award of joint legal custody, subject to
“boundaries on the terms of legal custody,” and stating that, “[b]ecause [the father]
concede[d] the language of the modification ruling grant[ed] [the mother] sole legal
custody”, it was unnecessary to “address the issue of hybrid legal custody”).1 We
find the reasoning persuasive. When a court grants one parent a greater share of
the legal rights subsumed within the definition of joint legal custody, we conclude
the award is one of sole legal custody rather than joint legal custody. It follows
that the district court’s decision to grant Stephanie exclusive control over selection
of the children’s schools and medical providers maintained her award of sole legal
custody.
In effect, the court concluded Wayne was not yet ready to exercise the full
panoply of legal rights. By declining to afford Wayne the entire bundle of joint
1 In the instances where we have affirmed a less-than-equal allocation of joint
custodial rights, we have done so without addressing whether the unbundling of
rights makes the award one of sole legal custody. See Sloan v. Casey,
No. 15-0921, 2015 WL 9451093, at *7–8 (Iowa Ct. App. Dec 23, 2015) (affirming
joint legal custody provision with a limitation that the father would “be the sole
parent to schedule all routine medical appointments”); In re Marriage of Bates,
No. 11-1293, 2012 WL 1440340, at *3–4, (Iowa Ct. App. Apr. 25, 2012) (affirming
the district court’s award of joint legal custody “with the restriction that [the father]
was to have the exclusive right to make health care decisions for the children”).
7
custodial rights, the court effectively determined that circumstances since his
incarceration had not substantially changed. See Frederici, 338 N.W.2d at 160 (“A
finding that either parent is a suitable legal custodian is an essential predicate to
an award of joint custody.”); cf. In re Marriage of Smith, No. 07-1253, 2008 WL
2746316, at *6 (Iowa Ct. App. July 16, 2008) (denying a challenge to modification
of sole legal custody to the father and limiting the mother to supervised visitation,
where the child had “been sexually abused a third time while in the care of her
mother”). The record supports the court’s determination.
Although Wayne sought modification of the legal custody determination
based on his participation in the “treatment 2” program in prison, he testified at his
dissolution trial that the program was “the shortest program available to all sex
offenders.” Wayne testified at the modification hearing that he also “did a sex
offender treatment aftercare program” for “approximately three or four months”
following his release, which met “once a week for two hours.” But he
acknowledged his visits with the children would remain fully supervised and subject
to approval by his parole officer. And he acknowledged he would need time to
develop a relationship with the children. He also required time to gain an
understanding of Iowa’s sex offender rules, including limitations on his access to
certain venues. In short, Wayne was not in a position at the time of the modification
hearing to gain full legal custodial rights to the children. See Hute & Baker, 2017
WL 3283382, at *3 (“It is not in the children’s best interest to vest [the father] with
equal participation rights in fundamental decisions regarding the children when he
has sexually abused one of them, is a stranger to them, and lacks experiential
history to make an informed choice for them.”).
8
We recognize Stephanie rebuffed Wayne’s efforts to obtain educational and
medical information about the children. But, as the court noted in Hute and Baker,
“less drastic remedies were available to provide [the father] with information
regarding the children . . . without a change in the custody provisions of the
decree.” Id. The court cited Iowa Code section 598.41(1)(e), which affords “both
parents . . . legal access to information concerning the child, including but not
limited to medical, educational and law enforcement records.” Id. We agree with
this reasoning. On our de novo review, we conclude Wayne did not establish a
substantial change of circumstances warranting modification of the legal custody
provision
The same cannot be said of visitation. As discussed, section 598.41A(2)
requires a finding of a substantial change of circumstances in Wayne’s situation.
In light of the statutory language, Stephanie concedes the substantial-change
requirement was satisfied for purposes of modifying visitation. But she strenuously
argues the expansion of visits and the supervisors named to oversee them did not
serve the children’s best interests. On our de novo review, we partially agree.
Stephanie called a social worker as an expert witness. She opined visits
with the father were not in the children’s best interests. The district court declined
to rely on her opinion because “the expert did not have any direct contact with any
individual in the case and spoke in generalities.” We agree that her opinion was
to some extent premised on generalities. But she also relied on a risk assessment
prepared by the correctional facility, which rated Wayne as a high risk for
supervision. The social worker opined that anyone “in a high-risk category is not
working their treatment plan, is not working that safety plan and is not being honest
9
about” triggering factors. She further opined that the risk assessment author’s
concerns about Wayne’s ability to avoid risky situations “[a]bsolutely” would give
her pause. This specific testimony drawn from Wayne’s history supported the
district court’s gradual implementation of a visitation plan. At the same time, the
testimony leads us to conclude that the last phase of the plan authorizing monthly
overnight visits is not in the children’s best interests. Accordingly, we affirm the
phased-in two- to six-hour visits but we modify the plan to eliminate the monthly
overnight visits.
Both parents seek appellate attorney fees. An award rests within our
discretion. In re Marriage of Michael, 839 N.W.2d 630, 639 (Iowa 2013). As in
Michael, both parties partially prevailed, and both parties have the resources to
pay their own fees. Accordingly, we deny their requests.
Our disposition is as follows. Because the award of less than equal
custodial rights meant that Stephanie retained her rights as sole legal custodian of
the children, we modify the determination that there was a substantial change of
circumstances warranting modification of the legal custodial relationship. We
conclude she maintained sole legal custody of the children. We affirm the district
court’s conclusion that there was a substantial change of circumstances warranting
a modification of the visitation provision of the decree, and we affirm all portions of
the visitation plan except the overnight visits. We modify the decree to eliminate
those visits.
AFFIRMED IN PART AND MODIFIED IN PART. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484522/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0080
Filed November 17, 2022
IN RE THE MARRIAGE OF JODI JEAN SNYDER
AND ADAM JEFFERY SNYDER
Upon the Petition of
JODI JEAN SNYDER,
Petitioner-Appellant,
And Concerning
ADAM JEFFERY SNYDER,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Ida County, Jeffery L. Poulson,
Judge.
Jodi Snyder appeals from a dissolution decree. AFFIRMED AS MODIFIED
AND REMANDED.
Maura Sailer of Lohman, Reitz, Sailer, Ullrich & Blazek, Denison, for
appellant.
Krisanne C. Weimer of Weimer Law, P.C., Council Bluffs, for appellee.
Considered by Greer, P.J., and Ahlers and Chicchelly, JJ.
2
AHLERS, Judge.
Following a trial, the district court dissolved the marriage of Jodi and Adam
Snyder. Jodi appeals. She challenges the property division and the district court’s
refusal to require Adam to pay her trial attorney fees. Both parties request
appellate attorney fees.
I. Property Division
Dissolution of marriage actions are reviewed de novo. In re Marriage of
McDermott, 827 N.W.2d 671, 676 (Iowa 2013). “Accordingly, we examine the
entire record and adjudicate anew the issue of the property distribution.” Id. While
we give weight to the findings of the district court, particularly concerning the
credibility of witnesses, we are not bound by them. Id. The district court’s ruling
will only be disturbed when the ruling fails to do equity. Id.
The district court divided the parties’ assets and debts using a recapitulation
statement listing each asset/debt, the value of it, and which party received it. After
totaling each party’s respective net worth, the court determined that Adam ended
up with a net worth of $19,727.00 more than Jodi. To make the division of property
equitable, the district court ordered Adam to pay an equalization payment to Jodi
equal to one-half of the difference, or $9863.50.1
Jodi does not challenge the distribution scheme used by the district court of
totaling each party’s net worth and making the party with the higher net worth make
1 The district court issued a decree. Both parties filed motions to reconsider
pursuant to Iowa Rule of Civil Procedure 1.904(2). The court amended the decree
in ruling on the motions. Throughout this opinion, we discuss, analyze, and
address the decree in its final form after the court’s ruling on the competing
Rule 1.904(2) motions.
3
an equalization payment to the other. Rather, she disagrees with the inclusion of
certain assets and debts on the recapitulation statement, making two categories
of challenges to the division of the couple’s property. First, she claims the district
court improperly accounted for temporary support payments Adam made to a joint
account rather than to the clerk of court. Second, she claims the district court failed
to account for waste Adam committed by disposing of certain assets and incurring
certain debts after the parties separated. We tackle these claims in turn.
A. Accounting for Temporary Support Payments
The district court ordered Adam to pay temporary child and spousal support
to the clerk of court prior to trial. The issue before us regarding accounting for
these support payments stems from communication problems Adam had with his
first attorney that led to double payment of some of his obligation.2
The record is replete with evidence that Adam’s first attorney neglected to
keep him informed of events, signed his name to documents, and failed to respond
to discovery requests, leading to a variety of sanctions. Adam testified that he was
under the impression from his first attorney that the support payments would be
withdrawn from his paycheck, but he had never been told he needed to send
payments to the clerk of court. When Adam noticed payments were not being
withheld from his wages, he tried to meet his support obligation by transferring
money from his personal account to a joint account used by Jodi. He believed this
satisfied his support obligation. Eventually, wage withholding began, but, because
2Adam replaced his first attorney with a second attorney a few months before trial.
The second attorney represented Adam at trial. Neither the first nor the second
attorney is Adam’s attorney on appeal.
4
there was no record of the payments Adam had made directly to the joint account,
the withholding included amounts covering current and past due amounts. So,
according to Adam, he ended up paying $6633.00 in support twice—once directly
to Jodi and a second time from wage withholding. The district court found Adam’s
testimony credible and included $6633.00 as an asset in Jodi’s column on the
recapitulation statement to account for the double payment.
Jodi acknowledges that Adam made payments directly to their joint account
and the purpose of those payments was to satisfy his support obligations. To her
credit, Jodi does not challenge the notion that she should have to account for
receiving support payments twice. She does, however, challenge the amount she
actually received. While she acknowledges Adam made over $6633.00 in support
payments to their joint account, she testified that Adam had access to that account,
he made withdrawals from the account, and she only withdrew some money from
the account before Adam took the rest. She estimates the amount she withdrew
at $3200.00, and she asks that that figure be used as an asset on her side of the
recapitulation statement rather than the $6633.00 used by the district court.
Given the vague nature of Jodi’s testimony estimating the amount of double
payments she received coupled with the district court’s finding that Adam was
credible on the details of this issue, we decline to disturb the district court’s
valuation of the double payment received by Jodi at $6633.00.
B. Waste—Dissipation of Assets and Incurring of Debt
Jodi asserts multiple claims of waste by Adam that she contends were not
properly accounted for in the property division. The claimed waste consists of
dissipated assets and post-separation debt.
5
1. Dissipated Assets
Jodi claims Adam disposed of assets after the parties separated. She
wants the value of those assets included in Adam’s column of the recapitulation
statement, which the district court did not do. See In re Marriage of Fennelly, 737
N.W.2d 97, 106 n.6 (Iowa 2007) (noting that “[t]ypically, a dissipated asset is
included in the marital estate and awarded to the spouse who wasted the asset”).
The disputed assets are the proceeds of a cashed-in retirement account and two
bonus checks Adam received from his employer.
We decline to address this issue because Jodi failed to preserve error.
Before we decide issues on appeal they must be raised and decided by the district
court. See Meier v. Senecaut, 641 N.W.2d 532, 537 (Iowa 2002). While Jodi
raised this issue during trial, the district court’s original decree did not address it.
Jodi filed a motion pursuant to Iowa Rule of Civil Procedure 1.904(2) asking the
court to enlarge its ruling to address the issue of waste, but the only claimed waste
she asked the court to address was post-separation credit card debt Adam
incurred. The motion does not mention the dissipation of assets that Jodi now
claims on appeal, so the court understandably did not address the issue. As Jodi
failed to request a ruling on the dissipation of the retirement account and the two
bonuses, the issue is not preserved for our review. Id.
2. Post-Separation Debt
Jodi also contends Adam engaged in waste by incurring two credit card
debts after the parties separated. She requests that Adam be made responsible
for those debts without the value of the debts being included in Adam’s column of
the recapitulation statement in calculating his resulting net worth. The district court
6
did not address this issue in its decree. However, Jodi’s rule 1.904(2) motion
specifically asked the court to address this issue, which the court did in its ruling
on the motion, so Jodi has preserved error on this issue. Id.
In the two years between the couple’s separation and the dissolution trial,
Adam accumulated new debt on two credit cards. Adam had a Fleet Farm credit
card that had a balance of around $300.00 when the parties separated. It had
grown to a balance of $8146.00 by the time of trial—an increase of $7846.00.
Adam also obtained a Scheels credit card after the separation on which he had
accumulated a balance of $10,061.00. Jodi contends these debts amount to
dissipation. At trial, Adam provided no receipts, lists, or explanation of how he
accumulated these debts.3
The court may consider the “dissipation or waste of marital assets prior to
dissolution when making a property distribution.” In re Marriage of Kimbro, 826
N.W.2d 696, 700 (Iowa 2013). “[W]here the dissipation is debt, it is appropriate to
set aside the debt for the spouse who incurred the debt and not include it in the
marital estate.” Fennelly, 737 N.W.2d at 106 n.6.
There is a two-pronged test to analyze dissipation claims. Kimbro, 826
N.W.2d at 701. The first prong is to determine “whether the alleged purpose of the
expenditure is supported by the evidence.” Id. (quoting Fennelly, 737 N.W.2d
at 104). If the first prong is satisfied, the second prong is to determine “whether
3 Adam tried to present testimony about how the debts were incurred. However,
the district court sustained objections to that testimony due to a prior ruling that
prohibited Adam from providing an accounting on the credit card debt as a sanction
for failing to provide discovery about the credit cards. The propriety of that sanction
and the district court’s exclusion of Adam’s testimony or other evidence about an
accounting of the credit card debt is not before us.
7
that purpose amounts to dissipation under the circumstances.” Id. (quoting
Fennelly, 737 N.W.2d at 104). “When a spouse claims the other party dissipated
assets and can identify the assets allegedly dissipated, the burden shifts to the
spending spouse to ‘show how the funds were spent or the property disposed of
by testifying or producing receipts or similar evidence.’” Id. (quoting Fennelly, 737
N.W.2d at 104). The dissipation doctrine does not apply when the spending
spouse used the assets or incurred the debt for a legitimate household expense.
Id.
The district court declined to find that Adam dissipated the marital estate by
incurring the two credit card debts. The court’s reasoning was that the credit card
debt was offset by childcare credit and stimulus money that Jodi spent after
separation. The court reasoned “[b]oth parties utilized funds received during the
marriage, and one is deemed to offset the other.” While this may be true, the flaw
in this reasoning is that Adam did not claim, let alone prove, that the funds Jodi
used were not used for legitimate household expenses. In fact, the only testimony
on that subject suggests that all money Jodi spent was for legitimate household
expenses. So, the fact that Jodi expended funds she received for legitimate
household expenses does not excuse Adam for incurring post-separation debt for
which he cannot account.
On our de novo review, we find that Adam engaged in dissipation by
incurring the Fleet Farm and Scheels credit card debts without showing that the
debts were incurred for legitimate household expenses. Therefore, while the
additional $7846.00 of debt on the Fleet Farm card and the entire $10,061.00 on
the Scheels card were properly made the responsibility of Adam, the value of those
8
debts should not have been included as debts in Adam’s column on the
recapitulation statement. See Fennelly, 737 N.W.2d at 106 n.6 (“[W]here the
dissipation is debt, it is appropriate to set aside the debt for the spouse who
incurred the debt and not include it in the marital estate.”).
When that $17,901.00 of post-separation debt is removed from Adam’s
column, the disparity in the parties’ net worth grows by an equal amount. To
achieve equity, Adam’s obligation for an equalization payment needs to be
increased by half of the additional disparity (i.e., increase by $8950.50). As a
result, we modify the district court’s decree to increase Adam’s property settlement
payment obligation owed to Jodi from $9863.50 to $18,814.00.4
II. Trial Attorney Fees
Jodi seeks an award of trial attorney fees, which the district court declined
to award. We review an award of trial attorney fees in a dissolution-of-marriage
action for an abuse of discretion. In re Marriage of Sullins, 715 N.W.2d 242, 255
(Iowa 2006). “Whether attorney fees should be awarded depends on the
respective abilities of the parties to pay.” Id. (quoting In re Marriage of Guyer, 522
N.W.2d 818, 822 (Iowa 1994)).
Jodi contends Adam has a much better ability to pay. Adam is a manager
at a meatpacking plant making a yearly salary of $102,760.00. In comparison,
Jodi makes $28,660.00 as a pharmacy technician. The court considered the
earning disparity but concluded that the “parties’ affidavits of financial status
4 Another way to calculate the property settlement figure would be to take the
original disparity figure of $19,727.00 and add the additional disparity figure of
$17,901.00, yielding a total disparity of $37,628.00 in Adam’s favor. By ordering
Adam to pay one-half of that disparity, or $18,814.00, the disparity is eliminated.
9
indicate that neither has the financial ability to pay the other’s attorney’s fees.”
While this may not be the decision we would have reached, we cannot say the
district court's refusal to award Jodi trial attorney fees was an abuse of discretion.
As a result, we affirm on this issue.
III. Appellate Attorney Fees
Both parties seek appellate attorney fees. In a dissolution-of-marriage
action, appellate attorney fees are not awarded as a matter of right but rather rest
in our discretion. Id. Factors to consider in determining whether to award appellate
attorney fees include “the needs of the party seeking the award, the ability of the
other party to pay, and the relative merits of the appeal.” Id. (quoting In re
Marriage of Okland, 699 N.W.2d 260, 270 (Iowa 2005)).
Jodi has a greater need than Adam for an attorney fee award, and Adam
has a greater ability to pay. While Jodi was not completely successful on appeal,
the appeal had merit and resulted in a significant modification in her favor.
Exercising our discretion, we decline Adam’s request for appellate attorney fees,
and we grant Jodi’s in part. As Jodi was successful on approximately one-third of
the issues she raised on appeal, we determine Adam should pay one-third of the
reasonable and necessary fees Jodi incurred on appeal. As Jodi has not submitted
an affidavit of attorney fees, we cannot determine that amount. Therefore, we
remand to the district court to determine the reasonable and necessary attorney
fees incurred by Jodi on appeal. See In re Marriage of Towne, 966 N.W.2d 668,
680 (Iowa Ct. App. 2021). Once that figure is determined, the district court shall
order Adam to pay one-third of that amount to Jodi and/or her attorney.
10
IV. Conclusion
We modify the district court’s decree to increase Adam’s property
settlement payment obligation owed to Jodi from $9863.50 to $18,814.00. We
affirm the denial of Jodi’s claim for trial attorney fees. We deny Adam’s request
for appellate attorney fees. We grant Jodi’s request for appellate attorney fees in
part. We remand to the district court to order Adam to pay a portion of Jodi’s
appellate attorney fees as described in this opinion. Costs on appeal shall be
divided two-thirds to Jodi and one-third to Adam.
AFFIRMED AS MODIFIED AND REMANDED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484528/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1847
Filed November 17, 2022
DAVID LEE HERING,
Applicant-Appellant,
vs.
STATE OF IOWA,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Muscatine County, Joel W. Barrows,
Judge.
David Hering appeals the dismissal of his fourth application for
postconviction relief. AFFIRMED.
David Hering, self-represented appellant.
Thomas J. Miller, Attorney General, and Darrel Mullins, Assistant Attorney
General, for appellee State.
Considered by Vaitheswaran, P.J., Ahlers, J., and Mullins, *S.J.
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
MULLINS, Senior Judge.
David Hering appeals the dismissal of his fourth application for
postconviction relief (PCR). He argues the court erred in dismissing his claims of
ineffective assistance of counsel based on new grounds of law and his claim that
his convictions are void on speedy-trial grounds.
I. Background
In May 2021, David Hering filed his fourth application for PCR relating to his
convictions on one count of first-degree murder and two counts of attempted
murder that became final in early 2006.1 His application argued recent decisions
by the United States and Iowa Supreme Courts—McCoy v. Louisiana2 and
Krogmann v. State3—serve as new grounds of law voiding his convictions based
on ineffective assistance of criminal trial counsel and his convictions are otherwise
void because the State did not produce a valid waiver of his speedy-trial rights
because any contracts he entered while the subject of a conservatorship were
presumed to be fraudulent.
1 We briefly surveyed the history of Hering’s conviction, appeal, further review, and
other PCR proceedings in our recent decision affirming the dismissal of Hering’s
third PCR application. See Hering v. State, No. 21-0688, 2022 WL 1487111, at
*1–2 (Iowa Ct. App. May 11, 2022), further review denied (July 6, 2022). Here, we
also note Hering has pursued relief through other avenues outside of chapter 822.
2 See 138 S. Ct. 1500, 1509 (2018) (“When a client expressly asserts that the
objective of ‘his defence’ is to maintain innocence of the charged criminal acts, his
lawyer must abide by that objective and may not override it by conceding guilt.”
(citation omitted)).
3 See 914 N.W.2d 293, 326 (Iowa 2018) (finding counsel breached an essential
duty by failing to properly challenge an unlawful freeze of defendant’s assets
resulting in a violation of defendant’s “constitutional right to be master of his
defense” and thus amounting to structural error and presumed prejudice).
3
The State responded with a pre-answer motion to dismiss, arguing the
application was time-barred by the statute of limitations in Iowa Code
section 822.3 (2021) and the claims raised were barred under section 822.8 as
either previously adjudicated or not raised in the original, supplemental, or
amended application. Hering resisted, arguing his reliance on new grounds of law
for his ineffective-assistance claims excepted him from the statute of limitations,
and his speedy-trial claim was jurisdictional and could be raised at any time. In its
ensuing answer, the State reprised its arguments for dismissal and added the
exception to the time-bar based on new grounds of law does not apply because
the cases Hering relied upon “are not to be retroactively applied.” Thereafter,
Hering filed a “motion for stay” of the proceedings, in which he stated his
ineffective-assistance claims were also raised in his third application for
postconviction relief, the claims were not addressed by the district court, and his
appeal of the district court’s decision dismissing his third application was pending
on appeal. The court ordered that motion to be considered at the upcoming
hearing on the State’s motion to dismiss.
Following a brief hearing in November 2021, the district court entered a
ruling granting the State’s motion to dismiss. The district court observed this court
already considered and rejected Hering’s speedy-trial claim, which he previously
raised through a “Motion to Correct Illegal Sentence and Void Judgment.” See
generally State v. Hering, No. 10-1360, 2011 WL 3129213 (Iowa Ct. App. July 27,
2011). As such, the district court found this claim was already the subject of a final
adjudication in another proceeding taken to secure relief and could not serve as a
basis for relief in the current application. See Iowa Code § 822.8. As to the
4
ineffective-assistance claims based on McCoy and Krogmann, the court found
Hering could have raised those claims in his third application and, because he
“offer[ed] no justification for why he did not,” they also could not form the basis for
his fourth application. See id.
Hering filed a motion to reconsider, enlarge, or amend pursuant to Iowa
Rule of Civil Procedure 1.904(2), in which he asserted he did raise McCoy and
Krogmann in his third application. As to the speedy-trial claim, he agreed this claim
“was litigated back in 2010 and 2011” but argued State v. Tipton, 897 N.W.2d 653
(Iowa 2017), serves as a new ground of law in support of his claim. The court
denied the motion, and this appeal followed.
II. Standard of Review
Appellate review of a district court ruling on a motion to dismiss in a PCR
proceeding is for errors of law. Thongvanh v. State, 938 N.W.2d 2, 8 (Iowa 2020).
To the extent claims of ineffective assistance of counsel come into play, our review
is de novo. Sothman v. State, 967 N.W.2d 521, 522 (Iowa 2021).
III. Discussion
A. Ineffective-Assistance Claims
Hering first argues the district court erred in dismissing his ineffective-
assistance claims based on McCoy and Krogmann on the basis that he failed to
raise them in his prior, third application when he in fact did raise those claims in
the third proceeding.
In assessing whether the court was correct, we look to Iowa Code
section 822.8, which “sets out three categories that may not be the basis of a
subsequent application: (1) grounds finally adjudicated, (2) ground not raised, or
5
(3) grounds knowingly, voluntarily, and intelligently waived . . . in another
proceeding that applicant has taken to secure relief.” Hasselmann v. State,
No. 21-0483, 2022 WL 951084, at *4 (Iowa Ct. App. Mar. 30, 2022).
Here, the district court appears to have relied on either the second or third
category. But we agree Hering raised McCoy and Krogmann in the third
proceeding,4 as does the State. We noted as much in our most recent decision,
although we did not address the claims because they were not preserved due to
want of a district court ruling on the claims. See Hering, 2022 WL 1487111, at *2.
In turn, we agree dismissal of the claims in this proceeding, on the basis that they
could have been raised in the third proceeding but were not, was error.
But that does not end our inquiry because we may affirm on the State’s
alternative claims below that the application was untimely, is not excepted by a
new ground of law that could not have been raised within the limitations period,
and McCoy and Krogmann are not entitled to retroactive treatment. See Brooks
v. State, 975 N.W.2d 444, 445 n.1 (Iowa Ct. App. 2022).
Hering’s convictions became final in 2006. His application was required to
be filed within three years unless it was based on “a ground of . . . law that could
not have been raised within the applicable time period.” Iowa Code § 822.3. It
clearly was not filed within the limitations period, so Hering must rely on the ground-
4 However, he raised them in a different manner, under the auspice of ineffective
assistance of prior PCR counsel whereas, here, he raises them as direct claims of
ineffective assistance of criminal counsel, likely because we already observed any
claims concerning effectiveness of Hering’s prior PCR counsel would be “untimely
under both former law and the state of the current law.” Hering, 2022 WL 1487111,
at *3.
6
of-law exception to overcome the time-bar. Then, as will be discussed below,
retroactivity comes into play.
In order for Hering to survive dismissal on the State’s alternative claims
concerning the statute of limitations and nonretroactivity, he must clear two
hurdles. He must first meet the “ground of law” exception to the time-bar, which
might be satisfied by a claim that new caselaw applies retroactively on collateral
review. See Nguyen v. State, 829 N.W.2d 183, 187 (Iowa 2013) (implying claim
of retroactivity meets new-ground-of-law exception because the claim cannot be
made before the new decision is issued). But even if the exception is satisfied, the
second step involves a determination of whether the new caselaw is entitled to
retroactive treatment. See id. at 189 (reversing dismissal on statute of limitations
and remanding “for further proceedings on whether retroactive application . . . is
required”).
New grounds of law involve “a category of legal claims that were” previously
“viewed as fruitless . . . but became meritorious later on,” id. at 188, normally by
virtue of some groundbreaking change in the law by the state or federal high courts.
Cf. Teague v. Lane, 489 U.S. 288, 301 (1989) (“In general, . . . a case announces
a new rule when it breaks new ground . . . .”). But if such a decision “does not
embody a new rule of constitutional criminal procedure,” then “the matter could
have been raised . . . , as that term is used in section 822.3, within the applicable
time period.” Perez v. State, 816 N.W.2d 354, 360–61 (Iowa 2012). Under that
situation, the application is time-barred. Id. at 355. On the other hand, if the
decision does create a new rule of constitutional criminal procedure, as Hering
submits McCoy and Krogmann do, then it does not, subject to narrow exceptions,
7
apply retroactively to allow an applicant to “rely upon it to set aside an earlier
conviction.” Id. at 355.
So we first consider whether McCoy and Krogmann serve as new grounds
of law that could not have been raised within the limitations period. Hering’s first
claim of ineffective assistance under McCoy is that, although he agreed to pursue
an insanity defense, counsel was ineffective in conceding guilt. Hering has already
argued in a prior proceeding that “he received ineffective assistance because
defense counsel presented an insanity defense, rather than presenting a general
denial he committed the offenses” and “defense counsel could have presented
inconsistent defenses by arguing he did not commit the offenses, but if he did
commit the offenses, he was legally insane at the time.” Hering v. State,
No. 13-1945, 2016 WL 3269454, at *3–4 (Iowa Ct. App. June 15, 2016). On that
claim, we found “Hering agreed to the presentation of an insanity defense, rather
than a general denial he committed the offenses.” Id. at *4. So, while this claim
was made before McCoy was decided, Hering essentially made the same claim
that counsel infringed on his “right to insist that counsel refrain from admitting guilt.”
138 S. Ct. at 1505. But the claim was rejected on the basis that Hering agreed to
that strategy as opposed to a general denial. See Hering, 2016 WL 3269454, at *4;
see also Hering v. Iowa, No. 4:16-cv-00574-JEG, 2018 WL 9371455, at * 2 (S.D.
Iowa Sept. 25, 2018) (noting the court of appeals “found Hering personally agreed
to the insanity defense over a general denial defense after discussing the options”
8
with counsel). So this claim is one that could have been, and in fact was, raised
earlier and therefore does not meet the ground-of-law exception.5
As to whether Krogmann amounts to a new ground of law, it does not fall
within the “category of legal claims that were” previously “viewed as fruitless . . .
but became meritorious later on.” Nguyen, 829 N.W.2d at 188. It therefore does
not meet the exception to the statute of limitations.
Even if we were to assume McCoy and Krogmann serve as new grounds of
law for purposes of section 822.3, as noted above, we would then consider
whether they are entitled to retroactive treatment. If a decision creates a new rule
of constitutional criminal procedure, then it does not, subject to narrow exceptions,
apply retroactively to allow an applicant to “rely upon it to set aside an earlier
conviction.” Perez, 816 N.W.2d at 355. The only potential narrow exception that
could have applied here to allow retroactive treatment of McCoy and Krogmann is
if they are watershed rules of criminal procedure that are “central to an accurate
determination of innocence or guilt.”6 Id. at 358–59 (quoting Teague, 489 U.S. at
313–14). But the United States Supreme Court has since foreclosed that
exception to nonretroactivity. See Edwards v. Vannoy, 141 S. Ct. 1547, 1559–60
(2021) (“At this point, some 32 years after Teague, we think . . . no new rules of
criminal procedure can satisfy the watershed exception. We cannot responsibly
5 Our prior conclusion that Hering agreed with counsel’s strategy is also essentially
a final adjudication on a McCoy claim, that Hering’s autonomy was infringed. See
Iowa Code § 822.8; see also McCoy, 138 S. Ct. at 1505 (premising the case on
McCoy “adamantly object[ing] to any admission of guilt” by counsel).
6 The other “exception to nonretroactivity arises when previously illegal conduct is
no longer prohibited by the law.” Perez, 816 N.W.2d at 358. That exception does
not apply here.
9
continue to suggest otherwise to litigants and courts. . . . [T]he purported exception
has become an empty promise.”).
Even if the exception was still available, McCoy does not meet it. See Smith
v. Stein, 982 F.3d 229, 235 (4th Cir. 2020), cert. denied 141 S. Ct. 2535 (2021);
see also Pennebaker v. Rewerts, No. 21-1216, 2021 WL 7237920, at *3 (6th
Cir. 2021); Christian v. Thomas, 982 F.3d 1215, 1224–25 (9th Cir. 2020). This is
because McCoy is a refinement and extension of a presupposed watershed rule
in Gideon v. Wainwright, 372 U.S. 335 (1963) and is not a watershed rule in and
of itself. Stein, 982 F.3d at 235.
Turning to Krogmann, it was also an extension of other prior caselaw,
including McCoy and, by extension, Gideon. See Krogmann, 914 N.W.2d at 318
(noting Krogmann’s challenge was rooted in the prevention of him “from being the
master of his own defense in violation of the Sixth Amendment and the Iowa
Constitution” (citing McCoy, 138 S. Ct. at 1510–11)); id. at 324 (“Like in McCoy,
the violation of Krogmann’s protected autonomy right was complete when the court
allowed the State and the victim to unlawfully wrestle away control of issues that
were within Krogmann’s sole prerogative . . . .”).
So even if McCoy and Krogmann serve as new grounds of law to except
Hering from the statute of limitations, which we have concluded they do not, they
do not apply retroactively to allow Hering to set aside his earlier conviction on
collateral review. We affirm the dismissal of Hering’s PCR application on these
alternative grounds urged by the State below.
10
B. Void-Judgment Claim
Turning to what Hering styles as his “void judgment claim,” he agrees he
litigated this claim “[i]n 2010 . . . through a motion to correct illegal sentence void
judgment,” but he submits the final decision by this court “did not issue a final
judgment on the merits of the void judgment claim” because we allegedly disposed
of the claim “because Hering did not cite any authority to support his argument.”
Long story short, we affirmed the district court’s denial of Hering’s “void judgment
claim,” and that was a final adjudication for purposes of section 822.8. We have
considered Hering’s other arguments on this point, and we summarily reject them.
We affirm the district court on this point.
IV. Conclusion
We affirm the dismissal of Hering’s application for postconviction relief.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484534/ | Matter of Yearwood v Long Is. Univ. (2022 NY Slip Op 06524)
Matter of Yearwood v Long Is. Univ.
2022 NY Slip Op 06524
Decided on November 17, 2022
Appellate Division, Third 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 and Entered:November 17, 2022
534130
[*1]In the Matter of the Claim of Trina Yearwood, Appellant,
vLong Island University et al., Respondents. Workers' Compensation Board, Respondent.
Calendar Date:October 18, 2022
Before:Garry, P.J., Lynch, Reynolds Fitzgerald, Ceresia and McShan, JJ.
Schotter Millican, LLP, New York City (Geoffrey Schotter of counsel), for appellant.
Vecchione, Vecchione, Connors & Cano, LLP, Garden Park City (Brian M. Anson of counsel), for Long Island University and another, respondents.
Lynch, J.
Appeal from a decision of the Workers' Compensation Board, filed June 18, 2021, which disallowed claimant's claim for workers' compensation benefits.
Claimant, an associate university dean, sought treatment for complaints of bilateral wrist, hand and thumb pain and numbness on September 3, 2020, and her treating physician diagnosed her with causally-related occupational disease from repetitive stress and strain including bilateral carpal tunnel syndrome and bilateral wrist and hand derangement with traumatic tendonitis. Petitioner thereafter filed a claim for workers' compensation benefits asserting that, as a result of repetitive stress and strain, she had sustained an occupational disease involving bilateral hands, knees and shoulders. A Workers' Compensation Law Judge (hereinafter WCLJ) found that claimant provided prima facie medical evidence of injuries to bilateral wrists, bilateral carpal tunnel syndrome and bilateral thumbs. An independent medical examination (hereinafter IME) was conducted at the behest of the employer and its workers' compensation carrier (hereinafter collectively referred to as the carrier), in which it was concluded that claimant had bilateral thumb sprains/strains and bilateral wrist and hand sprains/strains and recommended, among other things, EMG/NCS diagnostic tests to rule out carpal tunnel syndrome. A hearing was held at which claimant testified, disclosing for the first time on cross-examination that, in 2014, she had sought treatment for hand problems from another physician and had undergone an EMG test.
The WCLJ established the claim for an occupational disease involving bilateral wrists, carpal tunnel syndrome and thumbs, setting a date of disablement of September 3, 2020, the date claimant reported on this claim first seeking treatment. On the carrier's administrative appeal, the Workers' Compensation Board reversed the WCLJ's decision and disallowed the claim in its entirety, finding, based upon claimant's failure to report her treatment history to her treatment provider, the IME physician or the Board, that she had failed to satisfy her burden of submitting credible medical evidence demonstrating a causal connection between her proffered conditions and her current employment. Claimant appeals.
"It was claimant's burden to establish, by competent medical evidence, the existence of a causal connection between her injury and her employment" (Matter of Richman v New York State Workers' Compensation Bd., 199 AD3d 1216, 1217 [3d Dept 2021] [citations omitted]; see Matter of Blanch v Delta Air Lines, 204 AD3d 1203, 1205 [3d Dept 2022]). The medical evidence must "signify a probability as to the underlying cause of the claimant's injury which is supported by a rational basis" (Matter of Wen Liu v Division of Gen. Internal Medicine, Mount Sinai Sch. of Medicine, 186 AD3d 1770, 1771 [3d Dept 2020] [internal quotation marks and citations omitted], lv denied 36 NY3d 904 [2020]; accord Matter of Richman v New York [*2]State Workers' Compensation Bd., 199 AD3d at 1217). In evaluating medical evidence, the Board is not bound to accept the opinion of any expert but "may not totally reject uncontroverted medical testimony on the issue of causation and thereby fashion a medical opinion of its own" (Matter of Murphy v New York State Cts., 201 AD3d 1072, 1073 [3d Dept 2022] [internal quotation marks and citations omitted]; see Matter of Hughes v Mid Hudson Psychiatric Ctr., 197 AD3d 1376, 1378 [3d Dept 2021]). However, the Board is entitled to reject and discredit medical opinions as insufficient where, as here, it finds that they were not based upon an understanding of the claimant's relevant medical treatment history (see Matter of Sinelnik v AJK, Inc., 175 AD3d 1732, 1734 [3d Dept 2019]; Matter of Kondylis v Alatis Interiors Co., Ltd., 116 AD3d 1184, 1186 [3d Dept 2014]; Matter of Bailey v Binghamton Precast & Supply Corp., 103 AD3d 992, 994 [3d Dept 2013]; Matter of Jaquin v Community Covenant Church, 69 AD3d 998, 1000 [3d Dept 2010]; cf. Matter of Rodriguez v Coca Cola, 178 AD3d 1184, 1186-1187 [3d Dept 2019]).[FN1]
The medical reports of claimant's treatment provider, who did not testify, do not reflect that she disclosed her 2014 treatment for hand problems and diagnostic tests and no such history was noted under past medical history. The C-3 claim filed with the Board represents that there were no prior hand injuries. The IME report establishes that claimant declined to provide, among other things, any information regarding her medical or treatment history, prior injuries or accidents or occupational history and refused to complete the IME questionnaire, on which she added the notation "[a]s per attorney, not completing";[FN2] the IME physician did not testify. The Board expressed concern regarding claimant's complete omission of her 2014 treatment history, and found that her belated disclosure of that history on cross-examination "strongly called into question the veracity of [her] proffered history and onset of symptoms." Given its conclusion that claimant failed to disclose her relevant 2014 treatment history to either the Board or the medical providers, a conclusion fully supported by the record, the Board rationally concluded that "none of the relevant medical providers in the record possessed a sufficient understanding of . . . claimant's complete medical history to proffer a credible medical opinion on the issue of causal relationship." As such, contrary to claimant's contention, the Board's rejection of claimant's medical proof as insufficient and its finding that she failed to submit sufficient, credible medical evidence to establish a causally-related injury is supported by substantial evidence and will not be disturbed (see Matter of Richman v New York State Workers' Compensation Bd., 199 AD3d at 1218; Matter of Casey v United Ref. Co. of Pa., 194 AD3d 1300, 1301 [3d Dept 2021]).
Garry, P.J., Reynolds Fitzgerald, Ceresia and McShan, JJ., concur.
ORDERED [*3]that the decision is affirmed, with costs.
Footnotes
Footnote 1: Claimant's 2014 medical treatment records and EMG results were not admitted into evidence and are not part of the record before us.
Footnote 2: The carrier did not raise, and the Board did not address, the issue of whether claimant's omissions violated Workers' Compensation Law § 114-a (see e.g. Matter of Ali v New York City Dept. of Corr., 205 AD3d 1247, 1249 [3d Dept 2022]). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484535/ | Matter of Williams (2022 NY Slip Op 06535)
Matter of Williams
2022 NY Slip Op 06535
Decided on November 17, 2022
Appellate Division, Third 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 and Entered:November 17, 2022
PM-193-22
[*1]In the Matter of Elizabeth April Williams, an Attorney. (Attorney Registration No. 4201497.)
Calendar Date:November 7, 2022
Before:Garry, P.J., Egan Jr., Aarons, Pritzker and Ceresia, JJ.
Elizabeth April Williams, Freehold, New Jersey, pro se.
Monica A. Duffy, Attorney Grievance Committee for the Third Judicial Department, Albany, for Attorney Grievance Committee for the Third Judicial Department.
Per Curiam.
Elizabeth April Williams was admitted to practice by this Court in 2004 and lists a business address in Freehold, New Jersey with the Office of Court Administration. Williams now seeks leave to resign from the New York bar for nondisciplinary reasons (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.22 [a]). The Attorney Grievance Committee for the Third Judicial Department (hereinafter AGC) advises that it does not oppose Williams's application.
Upon reading Williams's affidavit sworn to September 28, 2022 and filed October 5, 2022, and upon reading the November 4, 2022 correspondence in response by the Chief Attorney for AGC, and having determined that Williams is eligible to resign for nondisciplinary reasons, we grant her application and accept her resignation.
Garry, P.J., Egan Jr., Aarons, Pritzker and Ceresia, JJ., concur.
ORDERED that Elizabeth April Williams's application for permission to resign is granted and her nondisciplinary resignation is accepted; and it is further
ORDERED that Elizabeth April Williams's name is hereby stricken from the roll of attorneys and counselors-at-law of the State of New York, effective immediately, and until further order of this Court (see generally Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.22 [b]); and it is further
ORDERED that Elizabeth April Williams is commanded to desist and refrain from the practice of law in any form in the State of New York, either as principal or as agent, clerk or employee of another; and Williams is hereby forbidden to appear as an attorney or counselor-at-law before any court, judge, justice, board, commission or other public authority, or to give to another an opinion as to the law or its application, or any advice in relation thereto, or to hold herself out in any way as an attorney and counselor-at-law in this State; and it is further
ORDERED that Elizabeth April Williams shall, within 30 days of the date of this decision, surrender to the Office of Court Administration any Attorney Secure Pass issued to her. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484526/ | IN THE COURT OF APPEALS OF IOWA
No. 22-0221
Filed November 17, 2022
IN RE THE MARRIAGE OF HEATHER ANN BANISTER
AND SHAUN IVAN BANISTER
Upon the Petition of
HEATHER ANN BANISTER,
Petitioner-Appellant,
And Concerning
SHAUN IVAN BANISTER,
Respondent-Appellee.
________________________________________________________________
Appeal from the Iowa District Court for Lyon County, Shayne Mayer, Judge.
Heather Banister appeals a dissolution-of-marriage decree. AFFIRMED
AS MODIFIED AND REMANDED.
Missy J. Clabaugh, Sioux Center, for appellant.
Matthew T. E. Early of Matthew Early Law Office, Spirit Lake, for appellee.
Considered by Vaitheswaran, P.J., and Tabor and Badding, JJ.
2
BADDING, Judge.
Heather Banister, a former stay-at-home mother of three children, appeals
the decree dissolving her marriage to Shaun Banister. At the trial on her petition,
Shaun complained that he had not gotten “a sniff of a win since this whole thing
started.” So to be “fair with the property division and with the kids,” he asked for
everything to be split “down the middle,” children included. The district court went
along with Shaun’s request and placed the children in the parties’ joint legal
custody and physical care. On appeal, Heather challenges that decision, along
with the court’s division of the parties’ property and treatment of attorney fees.
I. Background Facts and Proceedings
Shaun is a native of New Mexico, while Heather grew up in Iowa, where her
family still lives. The parties met in August 2014 when Shaun was working on the
road in Sanborn, Iowa on a wind turbine project. They began living together about
three months later, soon after Heather found out she was pregnant with the
couple’s first child. When the parties met, Shaun’s employment in the wind turbine
industry required him to work long hours. Heather had a teaching degree, but
because she could not find full-time employment in that field, she supplemented
her substitute teaching jobs with work in flooring sales. The parties’ relationship
from there is a tale of travels, with frequent moves driven by Shaun’s work. From
the fall of 2014 through the spring of 2015, the parties lived together in Texas,
where Shaun went for turbine work during the offseason in Iowa.
The parties moved back to Sanborn in March 2015 and remained there until
November 2016. After the parties’ first child was born in June 2015, Heather
3
stayed home to care for him, while Shaun continued to work long hours away from
home. The parties married in February 2016.
After their marriage, the parties moved to Carlsbad, New Mexico for the
winter months between November 2016 and March 2017. While there, Shaun
worked odd jobs for his uncle Melvin, and Heather stayed home with the child.
According to Heather, even though Shaun’s work schedule during this time was
much less demanding than when he worked with wind turbines, their parenting
roles did not change. Heather continued to provide most of the care for the parties’
child with little involvement from Shaun.
The parties returned to Iowa and lived in Ames from April to July 2017. Their
second child was born shortly after the move to Ames. While there, Shaun
returned to his work with wind turbines, which again involved long hours. During
the first month following their return to Iowa, Shaun lived in his boss’s camper and
would only visit Heather and the children on weekends.
In July 2017, the parties moved to Humboldt, where they remained until
April 2019. Though they were back to living together, Shaun was still minimally
involved with the children, preferring to let Heather do most of the caretaking. The
goal, according to Shaun, was for him “to work ungodly hours, save up as much
money as possible, and build a house” in New Mexico. To that end, the parties
bought a lot in New Mexico from Shaun’s uncle Melvin. From April through October
2019, Heather and the children lived with Heather’s sister in Rock Rapids, Iowa,
while Shaun lived in an RV he used to travel between job sites. He typically visited
Heather and the children every other weekend.
4
In October 2019, the parties began renting a house in Rock Rapids. By
then, the marriage was “pretty rocky.” The couple’s third child was born in January
2020. Just a few months later, they were discussing divorce. Yet in April, Heather
agreed to move back to Carlsbad with Shaun in a final effort to save the marriage.
The impetus for the move was the sale of a heating-and-cooling business in New
Mexico once owned by Shaun’s uncle, Melvin. The parties purchased the
business on July 1, though Shaun took over managerial duties of the business
soon after the family moved to Carlsbad. Shaun felt it was the right time to make
this change because the wind turbine business was slowing down. It also
dovetailed with the parties’ plan to build a home in New Mexico. Shaun explained:
[T]he whole point of me going down there was to be with family and
to get off the road, quit building wind turbines and try to be home a
little more even though I knew and I told her at the start it’s going to
be tough. It’s going to take a little time to get the thing out of the hole
and I would be busy.
The purchase price for the business was $100,000.00, with $50,000.00 due
at closing, $25,000.00 by October 1, 2020, and another $25,000.00 by January 1,
2021. The parties borrowed the initial $50,000.00 from Shaun’s uncle. They then
deposited $75,000.00 from their personal account into the business account to get
the business going, which took considerable work on Shaun’s part. To pull the
business “out of the gutter,” Shaun was working from “sun up until sun down.” He
was “trying to bid jobs, sell jobs, run the crane, run the crews, order equipment, do
inventory, keep the lights on, pay the bills.” In the midst of this scramble, Heather
5
and the children left Carlsbad on July 7 and returned to Rock Rapids,1 where they
began living with Heather’s parents. Heather told Shaun she was just taking the
children to Iowa for a visit, but within a day or two of her arrival there, she filed for
divorce. She then obtained a job at a dentist’s office, where she works thirty-two
hours per week, and enrolled the children in daycare and school.
Shaun remained in Carlsbad until December 2020, when he moved to
Larchwood, Iowa to be closer to the children. He began renting a house and
obtained employment with a local heating-and-cooling company. In Shaun’s
absence, his uncle Melvin agreed to run the business in New Mexico until it could
be sold. Melvin looked for buyers before eventually agreeing to purchase the
business himself for $75,000.00. The sale was completed at the end of December
2020, with Melvin forgiving the $50,000.00 he had loaned the parties and paying
Shaun $25,000.00. Although not specified in the purchase agreement, Melvin said
he also waived $62,500.00 due to him in lease payments for the building housing
the business. Shaun testified that selling to Melvin was pretty much his only option.
Melvin agreed, testifying: “If I hadn’t stepped in, there would be no business,
period.” But within days after Melvin bought the business, he turned around and
sold it to a company from Roswell, New Mexico for $125,000.00.
Following a hearing on temporary matters in mid-December, the court
placed the parties’ children in their joint legal custody, with physical care to
Heather. Given her role as the historic “primary caregiver” of the children, the court
1 The district court denied Shaun's motion to dismiss the dissolution petition for
lack of jurisdiction after crediting Heather's testimony that she moved to New
Mexico on a conditional basis and returned to Iowa within five months.
6
concluded that “[a] shared care arrangement would be too much of a change for
the children’s mental, emotional and physical health.” Shaun had the children in
his care every other weekend from Friday evening to Sunday evening and every
Wednesday overnight. With this parenting schedule, and his less demanding job,
Shaun became a more involved father. He testified this was an “eye-opening”
experience for him: “[I]t’s gotten a lot better now. I never had to do—it’s kind of
like if you didn’t know how to ride a bike. You’re not just going to jump on and ride
a bike. You’ve got to crash a few times.” Heather agreed “Shaun has definitely
taken on a different role as father of the children since he . . . relocated back to
Iowa.”
The case proceeded to trial over three days in April and May 2021. The
primary issues were the parties’ competing requests on physical care—with
Heather wanting physical care and Shaun seeking joint physical care—and
distribution of the marital estate. Heather’s case for physical care focused on her
role as primary caregiver of the children, Shaun’s claimed overbearing personality,
and communication problems between the parties. For his part, Shaun
acknowledged Heather was the primary caregiver during the marriage, but he
contended that since their separation, “everything is totally different. . . . She’s
working as well. I mean, basically the daycare is raising the little ones and the
school is raising” the oldest.
In its decree, the district court acknowledged that during the marriage,
Heather was the primary caregiver, with Shaun working long hours, often away
from home. But the court found that since Shaun’s return to Iowa in December
2020, he
7
has been an involved parent who loves his children. He has
exercised all the visitation awarded to him as well as any additional
time offered by Heather, has become involved in the children’s
activities such as dance, and has pursued a job that allows him to be
present for his children.
The court also found each party’s home was appropriate; the children are bonded
to both of them; and each can “provide for the emotional, social, moral, material
and educational needs of the children.” As to Heather’s allegations of conflict and
inability to communicate, the court found the parties’ communications to be nothing
more than “indicative of a couple going through a divorce.” So the court granted
Shaun’s request for joint physical care on an alternating two-day, two-day, three-
day basis.
Turning to the division of property, the court largely rejected Heather’s
claims that Shaun dissipated marital assets. Her claims focused on the sale of the
business for less than its purchase price; Shaun’s decision to liquidate a 401(k)
retirement account; and $53,860.33 in cash withdrawals and advances,
unexplained checks, and excessive spending on Shaun’s credit cards since their
separation.2 When confronted with these latter expenditures, Shaun argued that
most were from his move to Iowa and necessary living expenses.
On the sale of the business, the court found Heather presented “no
evidence on whether or not there would have been a better purchase price” when
it was sold. For the $7946.26 in penalties incurred when Shaun cashed in his
401(k) retirement account, the court found it fair that Heather should share in that
2 Heather also complained about $2991.15 that Shaun spent on “unreasonable
cost insurance despite being informed the children already had Medicaid/Title 19
at no cost,” bringing her dissipation total to $56,851.48. But she does not include
the claimed unnecessary health insurance cost in her arguments on appeal.
8
liability since she got one-half of the proceeds.3 The court agreed with Heather
that Shaun had dissipated $6000.00 in money he gambled at a casino. As for the
rest of the money Heather claimed Shaun squandered, the court only specifically
addressed Shaun’s purchase of new furniture for his residence in Iowa, which it
concluded was not dissipation because he “will be paying for those assets” by
“taking on as debt, the credit card that was used” for the purchase. The court then
awarded each of the parties any personal property in their possession, but
assigned values only for their vehicles, guns, Heather’s camera, Shaun’s tools,
and personal property located in New Mexico to be split by the parties. Finally, the
court declined to include a $10,772.70 loan from Heather’s father for her attorney
fees as a debt to her, although the court did include $10,000.00 in attorney fees
that Shaun charged to his credit card shortly before trial. Each party was then
ordered to pay their own attorney fees.
Heather moved to reconsider, enlarge, or amend. Among other things, she
complained about the court’s handling of the parties’ debts for their attorney fees.
She also complained that the court did not include “all of the household and
personal property Shaun acquired following separation” as assets to Shaun even
though it included debts for those assets on Shaun’s side of the balance sheet.
The court denied Heather’s motion as to each of these items.
Heather appeals, claiming (1) the court should have placed the children in
her physical care rather than in the parties’ joint physical care; (2) the division of
3The account was valued at $31,250.84 with a surrender value of $23,838.81.
After Shaun cashed it out, he cut Heather a check for one-half of the surrender
value.
9
marital assets was inequitable because it did not properly account for (a) Shaun’s
sale of the business for below fair market value, (b) “dissipation of other assets,”
including Shaun’s unexplained and unnecessary cash withdrawals, credit card
charges, and the penalties incurred from Shaun’s liquidation of his 401(k), (c) the
value of property Shaun purchased when he moved to Iowa, and (d) debt
associated with attorney fees; and (3) the court abused its discretion in denying
her request for an award of attorney fees.
II. Standard of Review
Our review of dissolution proceedings is de novo. Iowa R. App. P. 6.907;
see also In re Marriage of Pazhoor, 971 N.W.2d 530, 537 (Iowa 2022). While we
give weight to the factual findings of the district court, especially when considering
the credibility of witnesses, we are not bound by them. Iowa R. App. P. 6.904(3)(g);
In re Marriage of Fennelly, 737 N.W.2d 97, 100 (Iowa 2007).
III. Analysis
A. Physical Care
We begin with Heather’s claim that the district court should have placed the
children in her physical care. She emphasizes her role as the historical caregiver
of the children and submits the parties’ inability to effectively communicate, the
degree of conflict between them, and their “inability to see eye-to-eye on child
related issues” weigh against joint physical care.
Where, as here, “joint legal custody is awarded to both parents, the court
may award joint physical care to both joint custodial parents upon the request of
either parent.” Iowa Code § 598.41(5)(a) (2020). “The objective of a physical care
determination is to place the children in the environment most likely to bring them
10
to health, both physically and mentally, and to social maturity.” In re Marriage of
Hansen, 733 N.W.2d 683, 695 (Iowa 2007). Generally, courts consider the factors
in Iowa Code section 598.41(3) and In re Marriage of Winter, 233 N.W.2d 165,
166–67 (Iowa 1974), when reaching physical care decisions.4 Courts consider the
following nonexclusive factors in determining whether a joint-physical-care
arrangement is in the best interests of children:
(1) “approximation”—what has been the historical care giving
arrangement for the child[ren] between the two parties; (2) the ability
of the spouses to communicate and show mutual respect; (3) the
degree of conflict between the parents; and (4) “the degree to which
the parents are in general agreement about their approach to daily
matters.”
In re Marriage of Berning, 745 N.W.2d 90, 92 (Iowa Ct. App. 2007) (quoting
Hansen, 733 N.W.2d at 697–99). “Any consideration of joint physical care,
however, must still be based on Iowa’s traditional and statutorily required child
custody standard—the best interest of the child.” Hansen, 733 N.W.2d at 695.
The first factor clearly weighs in Heather’s favor. Before the parties
separated in July 2020, Shaun had little involvement with the children. For several
extended periods when he was working out of town, Shaun’s contact with the
children was limited to visits every other weekend. And even when he wasn’t
working, Shaun agreed his parenting consisted of “wrestling with [the children] on
the floor, playing with them.” He explained, “When they’re tiny, I mean, how many
4 “The factors the court considers in awarding custody are enumerated in Iowa
Code section 598.41(3).” In re Marriage of Courtade, 560 N.W.2d 36, 37 (Iowa Ct.
App. 1996). “Although Iowa Code section 598.41(3) does not directly apply to
physical care decisions, . . . the factors listed here as well as other facts and
circumstances are relevant in determining” physical care. Hansen, 733 N.W.2d at
696. While the statutory factors are relevant considerations, Heather focuses her
argument on the Hansen factors.
11
men do you see just, oh, holding them all day?” In an affidavit submitted to the
court for the temporary hearing,5 Shaun said, “There were times that I felt I needed
to be left alone, and I felt Heather was intentionally pushing the children on me.”
As a stay-at-home mom, Heather handled pretty much every aspect of the
children’s care. She testified that “even on the weekends when [Shaun] was home,
he had the ability to turn that parent[ing] on or off . . . when he felt like it,” while she
“never shut it on and off.” Shaun’s involvement only increased during the few
months between his return to Iowa in December 2020 and trial in April and May
2021.
So the question is, how heavily should the approximation factor weigh in
Heather’s favor? “In considering whether to award joint physical care where there
are two suitable parents,” as we have here, “stability and continuity of caregiving
have traditionally been primary factors.” Id. Those factors, which are expressed
in terms of the approximation rule, “tend to favor a spouse who, prior to divorce,
was primarily responsible for physical care.” Id. This is because “successful
caregiving by one spouse in the past is a strong predictor that future care of the
children will be of the same quality.” Id. at 697. Past caretaking patterns are also
“a fairly reliable proxy of the intangible qualities such as parental abilities and
emotional bonds that are so difficult for courts to ascertain.” Id. at 696 (citation
omitted). “While no post-divorce physical care arrangement will be identical to
predissolution experience, preservation of the greatest amount of stability possible
is a desirable goal.” Id. at 696–97.
5 The parties asked the court to take judicial notice of the entire file, specifically
including the affidavits they submitted for the temporary hearing.
12
Our supreme court in Hansen recognized there may be circumstances that
“outweigh considerations of stability, continuity, and approximation,” like where “a
primary caregiver has abandoned responsibilities or had not been adequately
performing his or her responsibilities because of alcohol or substance abuse.” Id.
at 697. There are no such circumstances present here. Indeed, even when Shaun
became more involved with the children after moving to Iowa, he still left certain
caretaking duties to Heather. For instance, when asked about his oldest child’s
education, Shaun testified, “I know [Heather] loves going through [homework]. . . .
That’s kind of her thing. Just like scheduling birthday parties or whatever.” As for
other caretaking duties, like disciplining the children or implementing their nap
schedule, Shaun said that he was still “learning” and trying to follow Heather’s lead.
While that’s good, we are not concerned with whether Shaun can learn
these parenting skills but whether the children should be placed in a caretaking
arrangement that is significantly different from what they are used to. See In re
Marriage of Arnold, No. 08-1103, 2009 WL 779041, at *3 (Iowa Ct. App. Mar. 26,
2009) (“[T]he factors of stability and continuity of caregiving focus on the caretaking
arrangement prior to the parties’ separation.” (emphasis added)). Our cases tell
us they should not, all other things being equal. See Hansen, 733 N.W.2d at 697
(“In contrast, imposing a new physical care arrangement on children that
significantly contrasts from their past experience can be unsettling, cause serious
emotional harm, and thus not be in the child’s best interest.”). And here, all other
things were not equal.
Much of the evidence at trial focused on what Heather argued was the
parties’ inability to communicate and show mutual respect, as well as the degree
13
of conflict between them. Id. at 698. In support of this argument, Heather relies
on text messages and emails between the parties that she says show their
“struggles with communication, lack of trust, and lack of respect.” There are a few
text messages and emails that show communication problems, but they are not
pervasive. On the whole, the parties’ written communication with one another was
mostly respectful and showed an ability to set aside their differences for the
children. But conflict remained in their personal interactions, with Shaun testifying:
“[M]e and her don’t get along. We never have really from the start. We don’t see
eye-to-eye on a lot of decisions.” See id. (“[T]he degree of conflict between parents
is an important factor in determining whether joint physical care is appropriate.”).
Heather described Shaun’s behavior as “explosive” at times. There were
several occasions when Shaun got upset and threw things, one time a backpack
that hit the parties’ oldest child in the hand. Shaun also had an encounter with the
owner of the children’s daycare that almost led to him being banned from the
premises. On another occasion, about six months into their separation, Shaun
saw Heather’s truck in the parking lot of a bar early one morning on his way home
from Kansas City. He tracked down the bar’s manager, asking her questions about
who Heather had been with and wanting to see footage from the bar’s security
cameras. Heather was upset by this, as well as by Shaun visiting her work
unannounced on a couple of occasions. She described Shaun as controlling.
Shaun did not necessarily disagree with that description, testifying he could be
“overbearing” and “pretty particular about stuff.” See id. (“Evidence of controlling
behavior by a spouse may be an indicator of potential problems.”).
14
Though these are not the most severe instances of conflict we have seen
in custody cases, they are enough to tip the scales toward physical care with
Heather when combined with her role as the children’s primary caretaker during
the marriage. See, e.g., In re Marriage of Thompson, No. 17-0481, 2017
WL 6026727, at *2 (Iowa Ct. App. Nov. 22, 2017) (finding joint care not in children’s
best interest where “[a]pproximation heavily favors awarding [one parent] physical
care”); In re Marriage of Garcia Lopez, No. 16-0915, 2016 WL 6269895, at *2 (Iowa
Ct. App. Oct. 26, 2016) (same); O’Brien v. Wygle, No. 13-1210, 2014 WL 1714956,
at *3 (Iowa Ct. App. Apr. 20, 2014) (same). We have also considered Shaun’s
testimony about why he was seeking joint physical care, which focused on himself
rather than the children. When asked, “Do you believe it’s in the best interests of
your children as well as in their long-range interests for you and Heather to be
awarded joint physical care,” Shaun responded: “I think it should be fair down the
middle.” But physical care decisions “are not to be resolved based upon perceived
fairness to the spouses, but primarily upon what is best for the child.” Id. at 695.
So while joint physical care might fulfill Shaun’s wish for fairness between him and
Heather, we do not believe it’s in the children’s best interest given the caretaking
arrangement in place during the marriage.
We accordingly modify the decree to place the children in Heather’s
physical care and remand for the district court to establish Shaun’s parenting
schedule and child-support obligation.
B. Property Division
Heather next challenges the district court’s property division, focusing on
the court’s failure to account for Shaun’s claimed dissipation of assets. Dissipation
15
of assets is a proper consideration when attempting to achieve an equitable
division of property. See Fennelly, 737 N.W.2d at 104. “The dissipation doctrine
applies when a spouse’s conduct during the period of separation results in the loss
or disposal of property otherwise subject to division at the time of divorce.” In re
Marriage of Kimbro, 826 N.W.2d 696, 700–01 (Iowa 2013) (citation omitted). “If
improper loss occurs, the asset is included in the marital estate and awarded to
the spouse who wasted the asset.” Id. (citation omitted). But the doctrine “does
not apply if the spending spouse used the monies for legitimate household and
business expenses.” Id. (citation omitted). With this framework in mind, and the
goal of achieving an equitable distribution, see Fennelly, 737 N.W.2d at 102, we
turn to Heather’s specific dissipation claims.
1. Business Asset
Heather first argues the district court’s division of the marital estate “failed
to account for the value added to the business and Shaun’s . . . below-fair-market-
value-sale of business to his uncle.” The parties purchased the business shortly
before their separation in July 2020 for $100,000.00. Heather complains Shaun
unilaterally sold the business at the end of December for only $75,000.00, and
Melvin’s sale of the business just a few days later for $125,000.00 shows Shaun
sold it for below market value, thus resulting in a loss to the marital estate of
$50,000.00. So she thinks Shaun should be attributed that amount as an asset.
What Heather ignores is that Shaun’s decision to sell the business to Melvin
led to Melvin waiving the parties’ liability for twenty-five months’ worth of rent under
the shop lease, totaling $62,500.00. As a result, the transaction was more
beneficial to the marital estate than it would have been had the business been sold
16
for the price Heather submits it should have been. We find no inequity to Heather
on this point and affirm. See In re Marriage of Hansen, 886 N.W.2d 868, 871 (Iowa
Ct. App. 2016) (“We will disturb the district court’s ruling only when there has been
a failure to do equity.”).
2. Other Alleged Dissipation
Heather next argues Shaun engaged in unnecessary and unexplained
spending after the parties’ separation. She points to her exhibit 57, and argues
Shaun dissipated the marital estate with $7730.13 in “[c]ash withdrawals/
advances”6 and $40,130.20 in “[l]arge unexplained checks/charges.”7
A two-prong test is used to assess a dissipation claim. Kimbro, 826 N.W.2d
at 701. First, the “court must decide whether the alleged purpose of the
expenditure is supported by the evidence. Id. (citation and internal quotation
marks omitted).
When a spouse claims the other party dissipated assets and can
identify the assets allegedly dissipated, the burden shifts to the
spending spouse to show how the funds were spent or the property
disposed of by testifying or producing receipts or similar evidence. It
is not enough for a spouse to merely show the incurrence of
expenditures during the period of separation. The spouse also must
show a nexus between the payment of the expenses and the use of
the marital assets at issue.
6 The exhibit covers $13,730.13 for these items, but Heather agrees the court
attributed $6000.00 of this amount as an asset to Shaun for gambling losses.
7 Heather also notes in her appellate brief that Shaun wrote himself a check for
$30,000.00 from the business account for his “investment return” and provided
none of those funds to her. On appeal, she requests that this amount be included
as an asset to Shaun. The problem is that she did not raise this issue in district
court, where her dissipation claim was limited to the amounts identified above, plus
the new furniture and appliances Shaun bought when he moved to Iowa. So we
cannot provide her with relief on appeal. See Woods v. Charles Gabus Ford, Inc.,
962 N.W.2d 1, 5 (Iowa 2021) (“It is a fundamental doctrine of appellate review that
issues must ordinarily be both raised and decided by the district court before we
will decide them on appeal.” (citation omitted)).
17
Id. (internal citations and quotation marks omitted). If an evidentiary basis for the
expense is established, then “the court advances to the second prong, which asks
whether that purpose amounts to dissipation under the circumstances.” Id.
(citation and internal quotation marks omitted). This second assessment is based
on these factors:
(1) the proximity of the expenditure to the parties’ separation, (2)
whether the expenditure was typical of expenditures made by the
parties prior to the breakdown of the marriage, (3) whether the
expenditure benefited the “joint” marital enterprise or was for the
benefit of one spouse to the exclusion of the other, and (4) the need
for, and the amount of, the expenditure.
Id. (citation omitted).
The court based its property distribution upon “what it believe[d] to be the
most credible evidence in the record.” Of the more than $53,000.00 in assets
Heather claimed Shaun dissipated, the court only found $6000.00 in gambling
expenses amounted to dissipation. Heather claimed Shaun’s spending since
separation was extravagant when compared to his spending during the marriage,
while Shaun testified his spending was “[n]ot at all different.” He added that he
“like[s] to have cash in [his] pocket,” and would spend it on “little things,” gas, food,
necessities of life, etc.
The bank records, which show some of Shaun’s spending habits before the
parties’ separation, support Shaun’s testimony. See In re Marriage of Bischof,
No. 12-2005, 2013 WL 4769389, at *5 (Iowa Ct. App. Sept. 5, 2013) (finding
spouse’s testimony satisfied the burden to show no dissipation of marital assets
occurred). We also note that many of the expenses and cash withdrawals were
incurred after Shaun relocated to Iowa to be closer to the children. See In re
18
Marriage of Drenter, No. 17-1548, 2019 WL 478195, at *2 (Iowa Ct. App. Feb. 6,
2019) (“There are transitional expenses associated with a dissolution proceeding
as the parties transition from married life to single life.”). While the court did not
specifically say so, it is implicit that the court found Shaun more credible. We defer
to that credibility finding and, like the district court, find these expenditures do not
amount to dissipation. See Fennelly, 737 N.W.2d at 100 (giving weight to “trial
court’s factual findings, especially with respect to the credibility of the witnesses”
(citation omitted)).
In this same category, Heather argues that Shaun’s liquidation of his 401(k)
amounts to dissipation because it resulted in early withdrawal penalties of
$7946.26. She complains, absent liquidation, there would have been more in the
account to divide. But she never asserted at trial, or on appeal, that she did not
want the account to be liquidated and instead transferred to her through a qualified
domestic relations order to avoid those penalties. Cf. In re Marriage of Retz,
No. 11-0447, 2012 WL 3026786, at *2 (Iowa Ct. App. July 25, 2012) (“A balance
transfer avoids tax consequences of withdrawing funds from a retirement
account.”). Though we do not approve of Shaun’s unilateral action in cashing out
the account in violation of an asset-preservation order, we find no inequity to
Heather, especially considering that Shaun was ordered to “pay any remaining
taxes owed to the withdrawal.”
3. Purchased Assets
This leaves us with the property that Shaun purchased post-separation.
On that issue, Heather complains the district court’s balance sheet did not include
those items of property as assets, even though it did include the debt incurred for
19
buying at least some of those assets as liabilities. She points out that Shaun spent
$7198.68 on new furniture, $2448.44 on a stove and fridge, and $1580.77 on a
washer and dryer set, none of which was included on his side of the balance sheet
as assets. We agree this was inequitable given that the court awarded each of the
parties the personal property presently in their possession, determining “that
personal property to be of equal value,” and there was no evidence Heather bought
any personal property comparable in value to the assets Shaun purchased.
For relief, Heather requests either addition of the items as assets or removal
of them as debts from Shaun’s side of the ledger. Because we have a solid figure
on the remaining debt for the furniture bought on the Wells Fargo card, $6898.68
as shown on the court’s ledger, we modify the decree to remove that as a debt to
Shaun. The remaining furniture and appliances are a little trickier because no debt
is linked to those items. Instead, all we have is what was paid for the remaining
furniture and appliances, with no used value. According to our review of the
evidence, Shaun spent $3535.18 on other furniture and $4029.21 on appliances,
for a total of $7564.39. Because these purchases were made close in time to the
dissolution trial, we find it is equitable to attribute those amounts to Shaun as an
additional asset. We note this is also within the range of the parties’ own
valuations.8 With these adjustments, Shaun’s asset distribution would increase by
$7564.39, and his liability distribution would decrease by $6898.68.
8In their pretrial filing, Shaun valued the “[p]ersonal property [he] purchased for
new residence” at $6500.00, while Heather valued it at $10,000.00.
20
4. Attorney Fee Liabilities
Lastly, Heather challenges the district court’s decision to include the
$10,000.00 Shaun charged on his credit card shortly before trial for his attorney
fees but not include the $10,772.20 she borrowed from her father for her attorney
fees. She asks that these debts be treated similarly. We agree that is the equitable
thing to do.
“Attorneys’ fees incurred in dissolution proceedings are not marital debt.”
Hansen, 733 N.W.2d at 703. So any outstanding debt of either party should not
have been included as a marital liability and included in the balance sheet. Clearly,
$10,000.00 of the credit card debt assigned to Shaun was a debt stemming from
attorney fees. His debt assignment should therefore be reduced by another
$10,000.00.9 This will result in the parties’ outstanding attorney-fee liabilities being
“similarly” treated as personal liabilities outside the marital estate. See id.
5. Recalculation
For these reasons, Shaun’s assets assignment would be increased by
$7564.39, and his liability assignment would be decreased by a total of
$16,898.68. These adjustments increase Shaun’s equalization payment to a final
amount of $12,745.49. We modify the decree accordingly.
C. Trial Attorney Fees
Heather relatedly argues the court erred in denying her request for an award
of trial attorney fees of $18,089.70. But her request is conditioned on our court
declining to modify the property distribution to treat the parties’ outstanding
9Heather asks that the entirety of that credit card debt be wiped, but it only appears
$10,000.00 was attributable to attorney fees.
21
attorney fees similarly. Because we are modifying the dissolution decree in that
manner, the condition Heather puts on her request is not triggered. So we affirm
on this point.
D. Appellate Attorney Fees
Finally, Heather requests an award of appellate attorney fees of $23,730.00.
An award of appellate attorney fees is not a matter of right but rests within the
appellate court’s discretion. Berning, 745 N.W.2d at 94. The court considers “the
needs of the party seeking the award, the ability of the other party to pay, and the
relative merits of the appeal.” In re Marriage of Okland, 699 N.W.2d 260, 270
(Iowa 2005) (citation omitted). Both parties have similar incomes, and the costs of
this litigation no doubt ate up most, if not all, of the liquid value of the marital estate.
We accordingly decline Heather’s request, even though she was partially
successful on appeal. The costs of the appeal are assessed against Shaun.
IV. Conclusion
We modify the dissolution decree to place the parties’ children in Heather’s
physical care and remand to establish Shaun’s parenting schedule and child-
support obligation. We also modify the property distribution as detailed above,
increasing Shaun’s total equalization payment to $12,745.49. With equitable
treatment of the parties’ attorney-fee liabilities, we affirm the denial of trial attorney
fees to Heather. We also deny Heather’s request for appellate attorney fees, but
we assess the costs of the appeal against Shaun.
AFFIRMED AS MODIFIED AND REMANDED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484533/ | People v Blackburn (2022 NY Slip Op 06517)
People v Blackburn
2022 NY Slip Op 06517
Decided on November 17, 2022
Appellate Division, Third 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 and Entered:November 17, 2022
112191
[*1]The People of the State of New York, Respondent,
vJessica M. Blackburn, Appellant.
Calendar Date:October 11, 2022
Before:Garry, P.J., Clark, Aarons, Pritzker and Fisher, JJ.
Rural Law Center of New York, Castleton (Kelly L. Egan of counsel), for appellant.
Patrick A. Perfetti, District Attorney, Cortland, for respondent.
Fisher, J.
(1) Appeal from a judgment of the County Court of Cortland County (Julie A. Campbell, J.), rendered July 18, 2019, convicting defendant upon her plea of guilty of the crime of attempted assault in the first degree, and (2) motion to strike certain portions of the People's brief.
Defendant waived indictment and agreed to be prosecuted pursuant to a superior court information charging her with attempted assault in the first degree. The charge stemmed from an incident wherein defendant stabbed her former paramour, with whom she had a child, in the neck with a folding knife. Following negotiations, defendant agreed to plead guilty to the charged crime with the understanding that her sentence would be capped at eight years followed by five years of postrelease supervision and that she could argue for leniency at the time of sentencing. The plea agreement also required defendant to waive her right to appeal. Defendant pleaded guilty in conformity with the agreement, and the matter was adjourned for sentencing.
Prior to sentencing in July 2019, County Court, which also had presided over various Family Court proceedings involving defendant and her former paramour, provided the People and defense counsel with copies of certain orders entered in connection therewith. Those documents, together with a handwritten letter from defendant, the presentence investigation report and defendant's statement to law enforcement, were considered by the parties and County Court at sentencing. In conjunction therewith, the court recounted defendant's history as a victim of domestic violence and heard arguments from the Assistant District Attorney and defense counsel, both of whom requested that the court impose the minimum term of imprisonment for a second felony offender convicted of a class C violent felony, which ordinarily would be five years (see Penal Law §§ 70.06 [6] [b]; 110.00, 120.10 [1]).
When afforded an opportunity to speak, defendant indicated that she was dissatisfied with counsel's services but nonetheless expressed a desire to proceed with sentencing. In so doing, defendant argued that, as a victim of domestic violence, she should be afforded "a different standard of sentencing" — potentially a veiled reference to the provisions of Penal Law § 60.12 (effective May 14, 2019), which permits a sentencing court, upon finding that certain criteria have been met, to impose an alternative sentence for victims of domestic violence (see Penal Law § 60.12 [8] [b]). After undertaking what defendant characterizes as "the equivalent of a Penal Law § 60.12 hearing at the time of sentencing," County Court sentenced defendant as a second felony offender to a prison term of five years followed by five years of postrelease supervision. This appeal ensued.
We affirm. To be sure, County Court's oral waiver colloquy neither utilized the words "separate and distinct" nor delineated the appellate review that would survive defendant's waiver of the right to appeal. That said[*2], defendant was aware that a waiver of the right to appeal was a term and condition of her plea agreement, and the written waiver that defendant executed in open court after conferring with counsel both explained that the waiver of appeal was separate from the trial-related rights that defendant would be forfeiting by pleading guilty and recited the appellate issues that were not encompassed by the waiver. In response to County Court's questioning, defendant indicated that she had discussed the written waiver with counsel and understood its contents. Inasmuch as the written waiver was identical to — and County Court's oral waiver colloquy was substantially similar to — the waiver that this Court deemed to be valid in People v Allen (199 AD3d 1127 [3d Dept 2021], lv denied 38 NY3d 925 [2022]), People v Eaton (182 AD3d 922 [3d Dept 2020]) and People v Crawford (181 AD3d 1057 [3d Dept 2020]), we are satisfied that defendant knowingly, intelligently and voluntarily waived her right to appeal (see id. at 1058-1059). In light of the valid appeal waiver, defendant's claim that the sentence imposed is unduly harsh or severe is precluded (see People v LaPage, 207 AD3d 950, 951-952 [3d Dept 2022]).
Finally, defendant has moved to strike the People's brief on appeal, or specific portions thereof, that purportedly reference information outside the record. To the extent that the People's brief contains references to facts that are not either a matter of public record or otherwise reflected in the presentence investigation report and accompanying documents, this Court has ignored such references and has based its conclusions solely upon the materials appearing in the record on appeal. Accordingly, defendant's motion to strike is denied (see generally Matter of McMillian v Krygier, 197 AD3d 800, 800 n 1 [3d Dept 2021]).
Garry, P.J., Clark, Aarons and Pritzker, JJ., concur.
ORDERED that the judgment is affirmed.
ORDERED that the motion is denied. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484530/ | IN THE COURT OF APPEALS OF IOWA
No. 21-1421
Filed November 17, 2022
AUNDRE REDMOND WHITFIELD,
Plaintiff-Appellee,
vs.
CHELSEA R. CLAYTON,
Defendant-Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Webster County, Jennifer A. Miller,
Judge.
Chelsea Clayton appeals the physical care determination for her children
with Aundre Whitfield. AFFIRMED.
Chelsea Clayton, Ankeny, self-represented appellant.
Dani L. Eisentrager, Eagle Grove, for appellee.
Considered by Schumacher, P.J., Chicchelly, J., and Carr, S.J.*
*Senior judge assigned by order pursuant to Iowa Code section 602.9206
(2022).
2
CARR, Senior Judge.
Aundre Whitfield and Chelsea Clatyon are the never-married parents of two
children, born in 2016 and 2018. Additionally, Chelsea is the mother of T.C., born
in 2011. Aundre and his fiancé also have a child together, born a few days before
trial. The parties began living together in Fort Dodge in 2011, shortly after T.C.
was born. The parties briefly separated and reconciled around the time their older
child was born. The parties ultimately separated in 2018 shortly after their younger
child was born.
Aundre filed the petition to establish custody, visitation, and support in July
2020. At the time of trial, Aundre lives in the same home in Fort Dodge that the
parties lived in during their relationship. He works overnights, about 6:00 p.m. to
6:00 a.m., seven out of every fourteen days. He testified he sleeps during
downtime at his job and he occasionally naps during the day. Chelsea moved to
Ankeny in July 2021. She works more traditional hours, Monday through Friday
from about 8:30 a.m. to 4:30 p.m. After a trial in August 2021, the district court
granted joint legal custody, placed physical care with Aundre, ordered visitation
with Chelsea on every other weekend, and established Chelsea’s child support
obligation. The court provided the following explanation for its physical care
determination:
Aundre’s current employment allows him to be home with the
children during the day and he does not need to utilize daycare.
Aundre and the children also have a large family support system in
Fort Dodge which includes not only Aundre’s family but Chelsea’s
family as well, all of whom can assist with care of the children if
necessary. The children have lived in their home in Ft. Dodge their
entire lives, [the older child] has started to attend school in Ft. Dodge,
and the children have medical providers established in Ft. Dodge.
Remaining in Ft. Dodge affords the least amount of disruption in their
3
lives and provides them with an environment of familiarity and
frequent contact with family member[s] in addition to maximum time
with the custodial parent.
Chelsea appeals the decision to place physical care with Aundre.
We review the district court’s physical care determination de novo. In re
Marriage of Hynick, 727 N.W.2d 575, 577 (Iowa 2007). We give weight to the
court’s findings of fact, especially with regard to the credibility of witnesses, but we
are not bound by them. Id.; Iowa R. App. P. 6.904(3)(g).
“The objective of a physical care determination is to place the children in
the environment most likely to bring them to health, both physically and mentally,
and to social maturity.” In re Marriage of Hansen, 733 N.W.2d 683, 695 (Iowa
2007). In making this determination, our controlling consideration is the best
interests of the children. In re Marriage of Hoffman, 867 N.W.2d 26, 32 (Iowa
2015). Iowa courts “have generally emphasized that the best interest of children
is promoted by stability and continuity.” Hansen, 733 N.W.2d at 691.
Chelsea argues certain factors make her the more suitable parent to provide
physical care.1 First, Chelsea asserts she has historically been the children’s
primary caretaker, especially when the children primarily lived with her between
November 2018, when the parties separated, and August 2020, when the court
entered a temporary order for joint physical care. “[C]ourts have typically afforded
weight to the parent who has acted as the child's primary caretaker in the past.”
1 To the extent Chelsea argues for joint physical care, we agree with the district
court that the distance between the parties makes joint physical care impracticable
and not in the children’s best interests. Accord Thorpe v. Hostetler, 949 N.W.2d
1, 6 (Iowa Ct. App. 2020) (“Because the parents now reside an hour drive apart,
the shared-care arrangement is now unworkable and not in the best interests of
the child.”).
4
Ruden v. Peach, 904 N.W.2d 410, 414–15 (Iowa Ct. App. 2017). However, the
record does not show Chelsea assumed an overwhelming share of the parenting
duties. Both parents worked for much of the children’s lives, requiring them to rely
on others for childcare at times. While Aundre often worked two full-time jobs, he
was an active caretaker when not at work. And Aundre had equal parenting time
for the year prior to trial under the temporary order for joint physical care. Thus,
Chelsea’s history as primary caretaker has limited weight.
Second, Chelsea argues the court placed too much weight on Aundre’s
ability to watch the children during the day. She notes Aundre cannot watch the
children on the nights he works, meaning he will still rely on someone else for
childcare while the children are with him. However, Aundre only works seven of
every fourteen days, and his overnight shifts mean the children will be asleep for
most of the time he is at work. Thus, Aundre will only need someone else to
provide childcare on half the nights the children are in his care; even on those
worknights, the children will only need an active caregiver for a few hours between
the time Aundre leaves for work and the time the children go to sleep.
Furthermore, Aundre’s fiancé will typically provide this childcare in the couple’s
home, the same home the children have lived in for most of their lives. Thus, we
agree with the district court that Aundre’s ability to watch the children during the
day is a factor in his favor.
Third, Chelsea argues Aundre’s fiancé—who will spend considerable time
with the children—has significant “character flaws.” She notes the district court
found Aundre’s fiancé was not “truthful during her testimony.” On our review of the
transcript, Aundre’s fiancé made claims about her education, employment, and
5
medical history that are difficult to credit. She often claimed to forget key facts,
avoided clarifying questions, and refused to produce documents that could support
her claims. We find her entire testimony lacking in credibility. In addition, she
acknowledged her driver’s license was barred at one time, and we cannot accept
her claim that she now has a valid license. However, Aundre—not his fiancé—is
the parent at issue here. While Aundre’s seeming acceptance of his fiancé’s
character flaws gives us pause, the record shows she is appropriate with the
children. Chelsea acknowledged the children like Aundre’s fiancé, and she could
not point to any reason Aundre’s fiancé could not take care of the children other
than vague concerns “about her mental status.” While Aundre has the children,
he will be their primary caregiver during the day and the nights he does not work.
The record supports that he has been an active and involved parent. His fiancé’s
active time as sole caregiver will be limited to a few hours each worknight between
Aundre leaving for work and the children going to sleep. As to the fiancé driving
the children, Aundre told Chelsea over text about one month prior to trial that the
fiancé would no longer transport the children, and family in the area should be able
to help transport the children as needed while Aundre is at work. Thus, while we
share Chelsea’s concerns with the fiancé, we do not believe these concerns are
determinative.
Chelsea’s overarching argument is she wants stability and continuity for
their children. To that end, she also notes their children are bonded with T.C., who
remains in her care. Iowa courts have “a strong interest in keeping” siblings and
half-siblings together when making physical-care determinations. In re Marriage
of Orte, 389 N.W.2d 373, 374 (Iowa 1986). But see In re Marriage of Brauer, 511
6
N.W.2d 645, 647 (Iowa Ct. App. 1993) (finding the child’s best interests are served
by placing physical care with the mother despite the father having custody of a
half-sibling). While the district court’s decision separates the parties’ children from
T.C. for much of the time, the children now have another half-sibling in Aundre’s
home. Furthermore, Aundre has acted like a father to T.C. for much of the child’s
life, and the parties agreed on T.C. having regular visitation with Aundre. Thus,
the parties’ children will still have frequent contact with T.C. even when the children
are in Aundre’s care.
This is a close call. The parties are both fit parents. Chelsea’s arguments
are not without substance. However, we ultimately agree with the district court.
The record does not show either party is the superior parent. With this important
consideration at equipoise, we look to the provision of stability and continuity for
the children. Here, the scale tips toward Aundre. Placing the children with him will
allow them to live in the same home surrounded by familiar friends and extended
family while they continue to visit the same medical providers and attend the same
schools. We think this will best ameliorate impact of the parties’ separation on
them. We affirm the court’s decision to place physical care of the children with
Aundre.2
2 To the extent Chelsea also appeals the child support determination, she appears
to argue we should use the parties’ net incomes as they were measured at the
time of the temporary support order. She presents no argument to deviate from
the parties’ net incomes at the time of the permanent support order. See In re
Marriage of Powell, 474 N.W.2d 531, 534 (Iowa 1991) (stating the child support
guidelines begin with the parents’ “current net monthly income”). Thus, we reject
any challenge to the child support determination.
7
Aundre requests appellate attorney fees. “An award of attorney fees is not
a matter of right, but rests within the court's discretion and the parties' financial
positions.” Brauer, 511 N.W.2d at 647. “We are to consider the needs of the party
making the request, the ability of the other party to pay, and whether the party
making the request was obligated to defend the trial court's decision on appeal.”
Id. After accounting for the child support payments, both parties have similar net
incomes. We decline to award appellate attorney fees.
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484531/ | MAINE SUPREME JUDICIAL COURT Reporter of Decisions
Decision: 2022 ME 57
Docket: Was-22-75
Argued: October 6, 2022
Decided: November 17, 2022
Panel: STANFILL, C.J., and MEAD, JABAR, HORTON, CONNORS, and LAWRENCE, JJ.
FRANCIS JANUSZ et al.
v.
ERIC BACON1
STANFILL, C.J.
[¶1] Eric Bacon appeals from a judgment of foreclosure and order of sale
entered by the District Court (Calais, Budd, J.) in favor of Francis and
Maryann Janusz on the Januszes’ complaint for residential foreclosure. Bacon
argues the court erred in granting summary judgment to the Januszes because
(1) they failed to establish each statutory requirement for summary judgment
of foreclosure as outlined in M.R. Civ. P. 56(j), and (2) he was not served with
the Januszes’ motion for summary judgment and therefore could not file a
1 The Januszes filed an amended complaint purporting to add Maine Revenue Services as a
defendant in this case. Maine Revenue Services accepted service of the summons and complaint. The
Januszes filed the amended complaint after Bacon had filed his answer to the original complaint,
however, and they failed to seek leave of court or Bacon’s written consent to amend the complaint,
as required by M.R. Civ. P. 15(a). Thus, Maine Revenue Services has not been joined as a party to this
action. If the Januszes want to add Maine Revenue Services as a party, they should take appropriate
action on remand.
2
response to it. We agree that there is a genuine issue of material fact as to
whether the Januszes proved one of the statutory requirements of summary
judgment of foreclosure, namely, that foreclosure mediation was completed.
Accordingly, we vacate the summary judgment.
I. BACKGROUND
[¶2] The Januszes own a promissory note and mortgage on Bacon’s real
property in Crawford. In October 2019 the Januszes sent Bacon a notice of
default and right to cure regarding his default on the note. Two months later,
the Januszes served Bacon with a summons and complaint, which they filed in
the District Court in Calais on January 3, 2020. Representing himself, Bacon
filed a timely answer and request for mediation. The case was then transferred
from Calais to Ellsworth for the parties to participate in the Foreclosure
Division Program (FDP).
[¶3] The parties’ first and only FDP mediation was held on March 6,
2020. The mediator’s report stated that the parties agreed to continue
mediation and work together “to obtain [an] inspection and appraisal of the
property in hope of resolving the issues.” It further stated that the parties
would participate in a second mediation on April 10, 2020. However, the report
continued, if the Januszes’ attorney notified the court that an inspection and
3
appraisal had not been completed by that date, mediation would be cancelled,
and the report of March 6, 2020, would become final.
[¶4] On March 6, 2020, the court issued the scheduling notice for the
April 2020 mediation. A week later, we issued an emergency order postponing
indefinitely most in-person events in Maine courts because of the COVID-19
pandemic. See Emergency Order and Notice from the Maine Supreme Judicial
Court Courthouse Safety and Coronavirus (COVID-19) at 1-2 (Mar. 13, 2020).
In accordance with that emergency order, the court continued the second
mediation to an undetermined date after May 1, 2020. The continuation notice
to the parties instructed: “If your case has been scheduled for a hearing or
conference, do not come to the court or call the court. . . . You will be notified by
mail as soon as your case can be re-scheduled.”
[¶5] The case was transferred back to Calais. Thereafter, mediation was
not rescheduled for some time, presumably due to the COVID-19 pandemic and
scheduling priorities. Ultimately, on September 23, 2021, the case was again
transferred to Ellsworth for a second FDP mediation. No mediation was
scheduled, and without explanation in the record, the case was transferred back
to Calais on November 16, 2021.
4
[¶6] On November 22, 2021, the Januszes filed a motion for summary
judgment with supporting affidavits. The parties agree that Bacon was not
served with the motion, and therefore he did not file a response. The court
granted the Januszes’ motion and entered a judgment of foreclosure and order
of sale.2 Bacon timely appealed. 14 M.R.S. § 1901 (2022); M.R. App. P. 2B(c)(1).
II. DISCUSSION
[¶7] Bacon first challenges the court’s entry of summary judgment on the
ground that the Januszes did not establish each of the statutory requirements
necessary to obtain summary judgment in a foreclosure action as outlined in
M.R. Civ. P. 56(j). We review the evidence in the summary judgment record in
the light most favorable to Bacon to determine, de novo, whether there is any
genuine dispute of material fact and whether the Januszes are entitled to a
judgment as a matter of law. See M.R. Civ. P. 56(c); HSBC Bank USA, N.A. v. Gabay,
2The foreclosure judgment in this case directed the clerk “to enter this Order as a final judgment
pursuant to [M.R. Civ. P. 54(b)(1)]” but did not say that the order was made upon an express
determination that there was no just reason for delay, which is a determination required to convert
what would otherwise be an interlocutory partial judgment into an appealable final judgment. As we
have previously determined, however, a foreclosure judgment is a final judgment. See Camden Nat’l
Bank v. Peterson, 2008 ME 85, ¶ 14, 948 A.2d 1251 (concluding that a summary judgment of
foreclosure is a final judgment absent any remaining claims or a trial court finding that attorney fees
must be fixed before appeal). Therefore, although the language in this judgment would be ineffective
to provide finality, it was surplusage because the foreclosure judgment was a final judgment.
5
2011 ME 101, ¶ 8, 28 A.3d 1158; Beneficial Me. Inc. v. Carter, 2011 ME 77, ¶ 6,
25 A.3d 96.
[¶8] “We have repeatedly noted the importance of applying the summary
judgment rules strictly in the context of mortgage foreclosures.” Gabay, 2011
ME 101, ¶ 9, 28 A.3d 1158. Where, as here, the nonmoving party does not
submit an opposing statement of material facts, the moving party’s statement
of material facts is deemed admitted if, and only if, the moving party’s statement
is properly supported by record references. See Ocean Cmtys. Fed. Credit Union
v. Roberge, 2016 ME 118, ¶ 12, 144 A.3d 1178; M.R. Civ. P. 56(h)(4). The moving
party has the burden to properly put the “material facts before the court, or the
motion [cannot] be granted, regardless of the adequacy, or inadequacy, of the
nonmoving party’s response.” Cach, LLC v. Kulas, 2011 ME 70, ¶ 9, 21 A.3d 1015
(quotation marks omitted).
[¶9] To obtain a summary judgment of foreclosure, the moving party
must show that all steps mandated by statute have been strictly performed.
Camden Nat’l Bank v. Peterson, 2008 ME 85, ¶ 21, 948 A.2d 1251; see M.R. Civ.
P. 56(j). If the moving party fails to establish compliance with each
requirement, summary judgment is precluded. See Peterson, 2008 ME 85, ¶ 21,
948 A.2d 1251. When a case is in the FDP, one statutory requirement that must
6
be established by the movant is completion of mediation. See
14 M.R.S. § 6321-A(9), (13) (2022).
[¶10] When requested, mediation through the FDP is required in
mortgage foreclosure actions “on owner-occupied residential property with no
more than 4 units that is the primary residence of the owner-occupant.”
Id. § 6321-A(3), (6). Moreover, for foreclosure complaints “scheduled for
mediation in accordance with [section 6321-A], a final judgment may not issue
until a mediator’s report has been completed pursuant to subsection 13.”
Id. § 6321-A(9).3 The statutory requirements for the FDP, including mediation,
are implemented through M.R. Civ. P. 93. The court may not enter a summary
judgment or a default judgment of foreclosure in a case that is in the FDP absent
a determination that mediation has been completed. M.R. Civ. P. 55(b)(3),
56(j).4
3Among other requirements, the mediator’s report must “include a statement of all agreements
reached at mediation, with sufficient specificity to put all parties on notice of their obligations under
agreements reached at mediation, including but not limited to a description of all documents that
must be completed and provided pursuant to the agreements reached at mediation and the time
frame during which all actions are required to be taken by the parties.” 14 M.R.S. § 6321-A(13)
(2022).
4 M.R. Civ. P. 56(j) provides:
No summary judgment shall be entered in a foreclosure action filed pursuant to
Title 14, Chapter 713 of the Maine Revised Statutes except after review by the court
and determination that (i) the service and notice requirements of 14 M.R.S.
§ 6111 and these rules have been strictly performed; (ii) the plaintiff has properly
certified proof of ownership of the mortgage note and produced evidence of the
mortgage note, the mortgage, and all assignments and endorsements of the mortgage
7
[¶11] Here, the case entered the FDP, and mediation was held upon
Bacon’s request. Bacon contends that the Januszes did not prove that mediation
was completed, as required by statute. The Januszes’ statement of material
facts provides that the parties “have engaged in court-sponsored mediation as
part of this foreclosure case, but have failed to achieve a resolution of the case.”
In support, they cite only to Francis Janusz’s affidavit, which states the same.
This statement does not prove that mediation was completed but simply that
the parties “engaged in” mediation and failed to achieve a resolution.
[¶12] And, indeed, the court record makes clear that mediation was not
completed. Although the trial court “is neither required nor permitted to
independently search a record to find support for facts offered by a party,”
Gabay, 2011 ME 101, ¶ 8, 28 A.3d 1158 (quotation marks omitted), the trial
court has an independent obligation to ensure compliance with the rules for a
summary judgment of foreclosure, see M.R. Civ. P. 56(j) Advisory Note – August
2009. Rule 56(j) specifically requires that the court “determin[e]” that
note and the mortgage; and (iii) mediation, when required, has been completed or
has been waived or the defendant, after proper service and notice, has failed to appear
or respond and has been defaulted or is subject to default. In actions in which
mediation is mandatory, has not been waived, and the defendant has appeared, the
defendant’s opposition pursuant to Rule 56(c) to a motion for summary judgment
shall not be due any sooner than ten (10) days following the filing of the mediator’s
report.
8
mediation has been completed or waived. M.R. Civ. P. 56(j). Although the
mediator’s report was not included in the summary judgment record, a review
of the report and docket record makes clear that mediation was not completed.
The mediator’s report states:
A second mediation shall be scheduled for April 10, 2020 in
Ellsworth. If [plaintiffs’ attorney] notifies court that inspection and
appraisal have not been completed by that date, this shall become
a final report, (the second mediation shall be cancelled) and case
shall return to docket.
The report would have become final only if the Januszes’ attorney had notified
the court that the inspection and appraisal were not completed by April 10,
2020. No such notification appears in the court record and, indeed, the
Januszes’ attorney conceded at oral argument that he did not make such a
notification. The second mediation had been continued by the court, not
cancelled. Thus, it is apparent from the court record that mediation had not
been completed, and the entry of summary judgment was error.
[¶13] Bacon also argues that vacatur is required because he was not
served with the motion for summary judgment.5 Because the Januszes failed to
5Counsel for the Januszes notified the District Court that the motion had not been sent to Bacon
because he did not have a current mailing address. In fact, a staff member for the same attorney had
previously notified the court of Bacon’s new address, the same address to which the court sent, and
at which Bacon received, a copy of the foreclosure judgment.
9
establish that they were entitled to a summary judgment of foreclosure and we
accordingly vacate the judgment, we need not address the consequence of the
lack of notice of the motion.
The entry is:
Judgment vacated. Remanded for further
proceedings consistent with this opinion.
Jonathan E. Selkowitz, Esq. (orally), Pine Tree Legal Assistance, Inc., Portland,
for appellant Eric Bacon
William N. Palmer, Esq. (orally), Gray & Palmer, Bangor, for appellees Francis
and Maryann Janusz
Calais District Court docket number RE-2020-01
FOR CLERK REFERENCE ONLY | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493267/ | MEMORANDUM OPINION
TOM R. CORNISH, Bankruptcy Judge.
This matter came on for evidentiary hearing on the Complaint filed by Kenneth A. Rushton, the Chapter 7 trustee (“Trustee”), against DeAnna Williams (“DeAnna”) and Shelley A. Williams (“Shelley”), seeking approval pursuant to 11 U.S.C. § 363(h)1 to sell thirteen parcels of real property. Pursuant to a “Partial Settlement” filed with the Court on September 6, 2001, the parties have agreed that twelve of the thirteen parcels are jointly owned by the debtor and DeAnna and/or Shelley, and they have designated which of those jointly-owned parcels are subject to sale under § 363(h) or subject to partition. See Amended Pretrial Order ¶ 4. The only *665issue remaining for the Court to determine is whether DeAnna has an ownership interest in the thirteenth parcel, commonly referred to as “Parcel 10,” located at 1171 South West Temple in Salt Lake City, Utah. Id. at ¶¶ 4-5. This is an office building in which debtor conducts business. If she does, the parties have stipulated that pursuant to § 363(h)(1) and (2), partition in kind of Parcel 10 among the estate and DeAnna is impracticable, and that the sale of the estate’s undivided interest in Parcel 10 would realize significantly less for the estate than the sale of Parcel 10 free and clear of DeAnna’s interest. Id. at ¶ 4.e. Thus, assuming that the requirements of subsections (3) and (4) of § 363(h)2 are met, the Trustee will be authorized to sell Parcel 10, and will be required to pay DeAnna for her interest in the property pursuant to § 363(j). If, however, DeAnna is held to have no interest in Parcel 10, the Trustee will be authorized to sell it pursuant to § 363(b), and DeAnna will not be entitled to any share of the sale proceeds.
A trial was held by the Court on September 6, 2001. R. Kimball Mosier, Esq. of Parsons, Davies, Kinghorn & Peters, Salt Lake City, Utah, appeared on behalf of the Trustee. Howard P. Johnson, Esq. of Salt Lake City, Utah, appeared on behalf of the Defendants. The Court has considered the evidence, the pleadings filed by the parties, the arguments of counsel and all relevant authorities, and based thereon hereby concludes that De-Anna does not have an ownership interest in Parcel 10. Further, the Court determines that DeAnna does not have an equitable hen on Parcel 10. The following are the Court’s Findings of Fact and Conclusions of Law as required under Fed. R. Bankr.P. 7052(a). A separate judgment shall issue on this date as required under Fed. R. Bankr.P. 7052(a) and Fed.R.Civ.P. 58.
I.Findings of Fact
The following are the Court’s Findings of Fact. To the extent that any Finding of Fact is considered to be a Conclusion of Law, it is incorporated into the Conclusions of Law below.
1. On December 6, 1995, the debtor filed a petition seeking relief under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the District of Hawaii, Case No. 95-01859.
2. On August 6, 1997, the debtor’s Chapter 11 case was converted to a case under Chapter 7 of the Bankruptcy Code, and venue of the case was transferred to Utah.
3. On October 29, 1997, the Trustee was appointed.
4. DeAnna Williams, the debtor’s spouse, is a resident of Hawaii.
5. DeAnna has asserted various secured and unsecured claims against the debtor’s estate.
6. On January 31, 2000, the trustee filed a “Complaint to Obtain Approval Pursuant to U.S.C. § 363(h) [sic] to Sell Interest of Estate and Co-Owner in Property” thereby commencing the above-captioned adversary-proceeding.
7. On March 2, 2000, DeAnna answered the Trustee’s Complaint, and asserted a counterclaim against the Trustee (“Counterclaim”). In her first claim for relief, DeAnna seeks a determination that she has an undivided 1/2 interest in Parcel 10 “pursuant to her marital property rights.... ” Counterclaim ¶ 13. Her *666second claim for relief seeks a declaration that she has an equitable lien on Parcel 10, entitling her to a 1/2 interest in that Parcel. Finally, De-Anna’s third claim for relief requests that the Court partition Parcel 10 among herself and the debtor’s estate pursuant to Utah Code Ann. § 78-39 et seq.3
8. On March 13, 2000, the Trustee filed an answer to DeAnna’s Counterclaim, asserting eleven defenses, including estoppel and laches.
9. On September 6, 2001, the Court signed an Amended Pretrial Order which, pursuant to the parties’ Partial Settlement, limited the issue for trial to DeAnna’s ownership interest in Parcel 10. This Amended Pretrial Order governs and controls all issues raised by the parties and issues to be decided by the Court.
10. On September 6, 2001, the Court conducted a trial. At that trial, the Court, admitted the following Exhibits without objection from either party:
a.Plaintiffs Exhibit A: Warranty Deed dated August 1, 1973, under which Milton D. and Alice J. Hen-drickson and S. John and Madalyn Webber conveyed “Lots 2 and 3, Block 4, NORTH COLUMBIA SUBDIVISION, a subdivision of part of Block 22, Five Acre Plat A’, Big Field Survey” to the debt- or, “a married man[.]” The lot so described in Plaintiffs Exhibit A is Parcel 10, the parcel whose ownership is subject to this adversary proceeding. Hearing Transcript at 16.
b. Plaintiffs Exhibit B: Warranty Deed dated June 13, 1983, under which Viola Wilson conveyed “Lots 4 and 5, Block 4, NORTH COLUMBIA SUBDIVISION ...” to the debtor and DeAnna, “joint tenants with full right of survivorship]!]”
c. Plaintiffs Exhibit C: Warranty Deed dated April 4, 1978, under which Sterling G. and Mary P. Webber and James C. and Maxine C. Waller conveyed “Lots 6 and 7, Block 4, North Columbia Subdivision, a subdivision of part of Block 22, Five Acre Plat ‘A’. Big Field Survey” to the debtor and DeAn-na, as “husband and wife, as joint tenants[.]”
d. Plaintiffs Exhibit D: Warrant Deed dated May 4, 1978, under which several grantors conveyed a tract of land located in Salt Lake County, Utah (“Salt Lake Tract”) to the debtor.
e. Plaintiffs Exhibit E: Quit-Claim Deed dated June 28, 1978, under which the debtor as grantor quit-claimed the Salt Lake Tract to himself and DeAnna “as joint tenants with full rights of survivor-ship[.]”
f. Plaintiffs Exhibit F: QuiU-Claim Deed dated August 4, 1980, under which Kennecott Corporation as grantor quit-claimed a tract of land situated in Salt Lake and Tooele Counties (“Kennecott Tract”) to the debtor as grantee.
g. Plaintiffs Exhibit G: An exact copy of the document submitted as Exhibit D.
*667h. Defendant’s Exhibit 1: Trust Deed dated October 16, 1973, under which the debtor d/b/a Industrial Communications and DeAn-na, “his wife” granted Walker Bank & Trust Company an interest in Parcel 10 (“Trust Deed”). The document shows that it was recorded on October 24,1973.
i. Defendant’s Exhibit 2: Deed of Reconveyance dated November 24, 1980, under which Walker Bank & Trust Company, as trustee under the Trust Deed, reconveyed Parcel 10 to the “the person or persons entitled thereto[.]”
11. At trial, the parties stipulated that the Warranty Deed for Parcel 10, which has been admitted into evidence as Plaintiffs Exhibit A, does not name DeAnna as a grantee or joint owner of the property. “David R. Williams, a unmarried man,” is listed as the sole grantee.
12. DeAnna and the debtor testified at trial. The following is a summary of their testimony.
a. The debtor filed bankruptcy when a judgment in the approximate amount of $ 1 million was entered against him awarding a third party (“Judgment Creditor”) an ownership interest in “Industrial Communications,” a closely held corporation. DeAnna became a creditor of the debtor’s estate in large part because she purchased this Judgement Creditor’s ownership interest, resulting in a settlement of the judgment the debtor owed the Judgment Creditor. Hearing Transcript at 5-6.
b. DeAnna and the debtor married in 1963, and they have been married since that time. They have never been legally separated or divorced. Hearing Transcript at 7,13, 26.
c. DeAnna brought personal property and approximately $5,000.00 in cash into the marriage. The debt- or came into the marriage with an unstated sum of cash, personal property, and equipment. Hearing Transcript at 8.
d. DeAnna and the debtor were residents of Salt Lake City, Utah from 1966 to 1988. Hearing Transcript at 7.
e. In 1988 the couple moved to Hawaii, and they have been residents of Hawaii since that time. Hearing Transcript at 7-8, 46.
f. In the early 1980’s, DeAnna inherited approximately $100,000.00 from her mother and her grandmother. Hearing Transcript at 8-9.
g. DeAnna has a B.S. degree in accounting. Hearing Transcript at 9.
h. In 1963, just after DeAnna and the debtor married, she engaged in administrative work for Industrial Communications, which at that time, was a sole-proprietorship or “mom and pop” business. DeAnna and the debtor were the principals in Industrial Communications. DeAnna’s administrative duties at Industrial Communications included answering the telephone,. correspondence, receivables, payables, payroll,’ collecting tax information, and general office-work. These duties continued during all relevant times. Hearing Transcript at 9-11 & 40.
i. In approximately 1987, Industrial Communications was incorporated. Hearing Transcript at 10.
*668j. DeAnna is not and has not been on Industrial Communications’s payroll. She and the debtor have “split” the income received from operating the business. Hearing Transcript at 12.
k. During the period of 1963 through 1973, DeAnna and the debtor maintained a joint personal bank account (“Personal Account”). Hearing Transcript at 12.
l. During the period of 1963 through 1973, Industrial Communications had separate business bank accounts in its name (collectively, the “Business Account”). Both the debtor and DeAnna were signatories on the Business Account. Hearing Transcript at 12, 13-14.
m. The debtor and DeAnna’s income from Industrial Communications was paid to them from the Business Account, and would be deposited into their Personal Account. Hearing Transcript at 12.
n. The couple’s household expenses were paid out of the Personal Account. Hearing Transcript at 12.
o. DeAnna wrote most of the checks from the Business Account. Hearing Transcript at 14.
p. Parcel 10 was acquired in August, 1973, at a time when Industrial Communications was not incorporated. Hearing Transcript at 17.
q. The debtor and DeAnna participated in the decision to purchase Parcel 10, and DeAnna was involved in the purchase. Hearing Transcript at 18, 46. The decision to purchase Parcel 10 was a joint decision. Hearing Transcript at 47.
r. There was no formal closing related to the purchase of Parcel 10. Rather, the debtor gave one of the sellers, who was also a realtor, a check for the purchase price, and approximately one month later he received Plaintiffs Exhibit A, the Warranty Deed, in the mail. Hearing Transcript at 47-48, 61.
s. When the debtor bought Parcel 10, he told the realtor-seller that “it was to be put under the name” of the debtor and DeAnna because anytime he purchases property that is how it is done. Hearing Transcript at 50.
t. When the debtor purchased other tracts of real property he put them in the name of himself and DeAnna so that they would pass to DeAnna in the event of his death, and also because the debtor feels strongly that, as a married couple, the properties should belong to them both. Hearing Transcript at 50.
u. Parcel 10 was not the first parcel of real property purchased by the debtor. Hearing Transcript at 61.
v. The debtor does not have a will. Hearing Transcript at 50.
w. Neither the debtor nor DeAnna realized that DeAnna was not named on Plaintiffs Exhibit A, the Warranty Deed for Parcel 10, until the debtor filed bankruptcy. Hearing Transcript at 50.
x. At the time of purchase, Parcel 10 was a vacant lot on which DeAnna and the debtor intended build an office building to house the family business operations. Hearing Transcript at 18.
y. Approximately $15,000.00 was disbursed from the Business Account to pay for Parcel 10 in full. Hearing Transcript at 18-19, 64.
*669z. The funds used from the Business Account belonged to the debtor and DeAnna. Hearing Transcript at 64-65.
aa. In October 1973, DeAnna and the debtor borrowed $57,000 from Walker Bank & Trust Company to build a two-story office building on Parcel 10, from which Industrial Communications was to be and has been operated. The loan was backed by the SBA. Hearing Transcript at 21-22, 63.
bb. The Bank required that Parcel 10 serve as security for the loan. Hearing Transcript at 63.
ce. DeAnna wrote checks from the Business Account to pay off the loan. The loan was repaid early, and a Deed of Reconveyance, Defendant’s Exhibit 2, was issued on November 24, 1980. Hearing Transcript at 22-23.
dd. Two other parcels of property near Parcel 10 were acquired after Parcel 10 was acquired, as reflected in Plaintiffs Exhibits B and C. DeAnna and the debtor are record title owners of those properties. Hearing Transcript at 24 & 33-34.
ee. Other parcels of real property were purchased by the debtor and DeAnna using funds from Business Account. Hearing Transcript at 26-27.
ff. DeAnna owns approximately a 49% interest in Industrial Communications. Hearing Transcript at 41.
gg. DeAnna has less than a 45% interest in other business ventures of the marriage. Hearing Transcript at 41.
hh. DeAnna has been involved in virtually all of the debtor’s business ventures. Hearing Transcript at 41, 51.
ii. Industrial Communications does not pay rent for use of Parcel 10. Hearing Transcript at 43.
jj. DeAnna gave conflicting testimony as to whether she saw Plaintiffs Exhibit A at the time that Parcel 10 was purchased. Hearing Transcript at 34, 41-42.
kk. The debtor testified that he was sure that he had must have seen Plaintiffs Exhibit A, the Warranty Deed to Parcel 10, at the time that Parcel 10 was purchased. Hearing Transcript at 49. But, he also testified that he could not remember receiving possession of the Warranty Deed, because it came in an envelope from the seller-realtor with a lot of official looking stuff, and he did not review the documents in the envelope, but rather just placed them in a safety deposit box. Hearing Transcript at 52.
11. DeAnna provided no indication as to why Plaintiffs Exhibit A is in the name of “David R. Williams, a married man,” other than to state that: “I imagine that’s what he told the Realtor.” Hearing Transcript at 17.
II. Conclusions of Law
To the extent that any of the Conclusions of Law contained below are considered to be Findings of Fact, they are incorporated above.
1. Controlling Law
A debtor’s interest in property is determined under applicable state law. *670Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). De-Anna summarily states in her post-trial Memorandum of Points and Authorities that she will only discuss the application of Utah law, but that, because she is a resident of Hawaii, Hawaii community property law should control. Since DeAnna has not provided any analysis under Hawaii law, the Court deems this argument to be waived. Furthermore, the Court applies Utah law because Parcel 10 is located in Utah, all contracts and deeds related thereto were executed in Utah, and DeAn-na and the debtor were residents of Utah at the time all material transactions related to Parcel 10 occurred.
2. DeAnna’s Counterclaim
DeAnna does not dispute that she is not listed on the Warranty Deed as an owner of Parcel 10. Rather, DeAnna has asserted a 1/2 ownership interest in Parcel 10 based on two legal theories. In her first claim for relief, DeAnna argues that her 1/2 ownership interest arises “pursuant to her marital property rights.... ” Counterclaim ¶ 13. In her second claim for relief. DeAnna requests that the Court impose an equitable lien on Parcel 10 due to the error of the realtor-grantor in falling to put her name on the Warranty Deed. Counterclaim ¶¶ 16-17.
A. First Claim for Relief-Marital Property Rights
DeAnna’s first claim for relief is that she has a marital property right in Parcel 10. This claim of ownership is based on Utah divorce law which distributes property acquired during a marriage based on principles of equitable distribution. While the divorce law cited by De-Anna is accurate, it applies to situations in which a couple is seeking a divorce. It is not disputed, and it was testified to by DeAnna and the debtor, that she and the debtor have never been legally separated or divorced. Thus, this law, allowing division of marital assets regardless of legal title, has no application in this case. Equitable division of marital assets vests only upon the filing of a divorce case, and determinations related to title are governed by title 57 of the Utah Code. DeAnna has no interest in Parcel 10 under the provisions of title 57.
Related to this discussion is a defense not plead by DeAnna, claiming an elective share in Parcel 10 pursuant to Utah Code Ann. § 75-2-202. This argument, raised for the first time in DeAnna’s post-trial memorandum, would have no application in this case, unless the debtor died. Moreover, even if DeAnna could claim an elective share under Utah law, Parcel 10 would not be property included in the debtor’s augmented estate as defined under Utah Code Ann. § 75-2-203, unless the debtor died within two years from the date that Parcel 10 is transferred. See Utah Code Ann. § 75-2-205(3)(c).4 Furthermore, if the debtor were to die within two years of the trustee’s § 363(h) sale, *671the issue of elective share is moot because DeAnna is the transferee of Parcel 10 pursuant to the September 14, 2000 auction which was authorized pursuant to an Order entered by the Court on September 15, 2000. See Utah Code Ann. § 75-2-210 (defining the personal liability of recipients of a transfer of property included within the augmented estate). At this auction, DeAnna purchased certain parcels of real property, including Parcel 10, from the estate pursuant to a credit bid. The issue of ownership raised herein is necessary only to allow a distribution pursuant to an “Order Approving Stipulation Re: Procedures for Credit Bid on Sale of Real Property” which was executed by the Court on February 6, 2001.
B. DeAnna' Second Claim for Relief-Equitable Lien
DeAnna next claims that she has a 1/2 ownership interest in Parcel 10 based on principles of equity. DeAnna claims that the realtor-grantor erred in failing to place her name on Exhibit A, the Warranty Deed. Due to this mistake, and her contribution to the purchase of Parcel 10, DeAn-na claims that she is entitled to an equitable hen on the property.5
Although it is plead in her Counterclaim, DeAnna has failed to provide any analysis of this argument in her post-trial brief. The Court, however, will address the issue below.
DeAnna’s claim of equitable hen does not give her an ownership interest in Parcel 10. The Supreme Court has stated:
Liens, whether equitable or legal, are merely a means to the end of satisfying a claim for the recovery of money. Indeed, equitable hens by their nature constitute substitute or compensatory relief rather than specific relief. An equitable hen does not “give the plaintiff the very thing to which he was entitled,” [Bowen v. Massachusetts, 487 U.S. 879, 895, 108 S.Ct. 2722, 101 L.Ed.2d 749 (1988)] (citations and internal quotation marks omitted); instead, it merely grants a plaintiff “a security interest in the property, which [the plaintiff] can then use to satisfy a money claim,” usually a claim for unjust enrichment, 1 D. Dobbs, Law of Remedies § 4.3(3), p. 601 (2d ed.1993); see also Laycock, The Scope and Significance of Restitution, 67 Texas L.Rev. 1277, 1290 (1989) (“The equitable lien is a hybrid, granting a money judgment and securing its collection with a lien on the specific thing”). Commentators have warned not to view equitable hens as anything more than substitute relief:
“[T]he form of the remedy requires that [a] hen or charge should be established, and then enforced, and the amount due obtained by a sale total or partial of the fund, or by a sequestration of its rents, profits, and proceeds. These preliminary steps may, on a casual view, be misleading as to the nature of the remedy, and may cause it to appear to be something more than compensatory; but a closer view shows that all these steps are merely auxiliary, and that the real remedy, the final object of the proceeding, is the pecuniary recovery.” 1 J. Pomer-oy, Equity Jurisprudence § 112, p. 148 (5th ed.1941).
*672See also Dobbs, supra, at 601 (equitable lien foreclosure “results in only a monetary payment to the plaintiff and obviously does not carry with it the advantages of recovering specific property.”).
Dept. of the Army v. Blue Fox, Inc., 525 U.S. 255, 262-63, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999) (initial citations omitted) (emphasis in the original). Utah courts have concurred in this characterization of an equitable hen. See, e.g., Osguthorpe v. Osguthorpe, 804 P.2d 530 (Utah Ct.App.1990) (per curiam) (“an equitable lien, unlike a judgment, only gives the lienholder the right to cohect the debt out of the charged property.”) (citing Citizens Bank v. Elks Bldg., N.V., 663 P.2d 56, 58 (Utah 1983)). Since no ownership interest can arise based on an equitable lien, § 363(h) does not apply inasmuch as De-Anna does not jointly own Parcel 10 with the debtor. Citizens Bank, 663 P.2d at 59; 53 C.J.S. Liens, § 3.b. Rather, if DeAnna has an equitable lien, she is entitled to a lien on any sale proceeds, or a credit for any amount that she has paid or will pay for Parcel 10 as part of her court-approved purchase of the property. The amount of her lien would be limited to 1/2 of the original $15,000 purchase price. That was her contribution toward the original purchase. An equitable lien does not allow DeAnna to payment of any appreciated value of Parcel 10.
Utah recognizes the. imposition of equitable liens based on “general principles of equity and justice” “only upon a showing of equitable facts warranting such an action.” Sandall v. Hoskins, 104 Utah 50, 137 P.2d 819, 824 (1943). Such equitable facts must be proven by DeAnna, the party claiming an equitable lien, by clear and convincing evidence. See Parks v. Zions First Nafl Bank, 673 P.2d 590, 596 (Utah 1983) (clear and convincing evidence necessary to prove existence of equitable remedy of constructive trust). Unjust enrichment is generally considered to be grounds for imposition of an equitable hen.
DeAnna would maintain, had she expressly argued the matter, that the following facts give rise to the imposition of an equitable lien. At the time that Parcel 10 was purchased. Industrial Communications was a sole-proprietorship in which she and the debtor were principals. Parcel 10 was purchased using funds from the Business Account, the separate account of Industrial Communications. The funds used from the Business Account belonged to the debtor and DeAnna, inasmuch as they jointly operated Industrial Communications and “split” its profits. The debtor told the realtor-grantor of Parcel 10 to put the title to the property in both his name and DeAnna’s name. Neither DeAnna nor the debtor noticed the deficiency in title at the time of purchase, because they assumed that title was appropriate. Neither DeAnna nor the debtor knew of any alleged title defect until approximately twenty-two years later when the debtor filed bankruptcy. After the property was purchased, both DeAnna and the debtor became jointly hable for a debt incurred to improve Parcel 10, which was secured by Parcel 10. Industrial Communication’s funds, which belonged jointly to DeAnna and the debtor, were used to payoff the mortgage debt. Finally, DeAnna and the debtor have jointly operated the business from the building built on Parcel 10.
Even if the Court were to find that such facts give rise to an equitable lien, DeAn-na’s claim is barred. Utah holds that the four-year statute of limitations set forth in Utah Code Ann. § 78-12-25(1) applies to equitable actions, and in particular to claims of equitable lien. Brown v. Cleverly, 93 Utah 54, 70 P.2d 881 (1937) (applying predecessor to Utah Code Ann. § 78-12-25); see American Tierra v. City of *673West Jordan, 840 P.2d 757, 760 (Utah 1992) (recognizing general rule of application to equitable actions and the rule in Brown). Here, DeAnna and the debtor testified that they did not discover that the Warranty Deed to Parcel 10 omitted De-Anna’s name until the debtor filed bankruptcy in December 1995. Despite learning of the alleged error in title in late 1995, DeAnna did not affirmatively raise an equitable lien claim until her Counterclaim was filed on March 2, 2000. Under these circumstances, DeAnna’s claim would be barred under § 78-12-25(1) if the statute of limitations had been plead by the Trustee. See Utah Rules of Civil Procedure 8(c) (statute of limitations is a defense that must be specifically plead); American Coal Co. v. Sandstrom, 689 P.2d 1 (Utah 1984) (statute of limitations is waived if not plead), overruled in part on other grounds. State v. South, 924 P.2d 354 (Utah 1996); Staker v. Huntington Cleveland Irrigation Co., 664 P.2d 1188 (Utah 1983) (same). The Trustee did, however, raise laches and estoppel as a defense to DeAnna’s Counterclaim, and “relief in equity may yet be denied on the grounds of [DeAnna’s] lach-es even when a statute of limitations is not a bar.” American Tierra, 840 P.2d at 763. The Restatement states: “[I]n the absence of evidence of other circumstances the complaint normally is barred if the period of the statute of limitations applicable to actions at law in analogous situations would have run, beginning at the time when the facts were known .... ” Restatement, Restitution, § 148, Comment on subsection (1), comment b. Based on this law, DeAnna’s equitable lien action is barred. This conclusion is further supported by the fact that at the time that DeAnna formally raised her equitable lien claim, the Trustee was time-barred from avoiding it under §§ 546(a)(1)(B) and 544(a). See Starzynski v. Sequoia Forest Indus., 72 F.3d 816, 822 (10th Cir.1995) (court suggests, without deciding issue, that § 546(a) is jurisdictional and cannot be waived).
C. Other Nour-Plead Claims Raised by DeAnna
In her post-trial memorandum, DeAnna claims, with a two paragraph analysis, an ownership interest in Parcel 10 by way of adverse possession. This claim is deemed waived by the Court because it was not plead by DeAnna in her Counterclaim; raised in the Amended Pretrial Order; or otherwise adequately tried or argued.
III. Conclusion
Accordingly, for the reasons set forth above, the Court concludes that DeAnna does not have an ownership interest in or an equitable lien on Parcel 10. Judgment shall be entered in favor of the Trustee.
. Unless otherwise stated, all future statutory references are to title 11 of the United States Code.
. The parties have not stipulated as to subsections (3) or (4) of § 363(h), and they did not present evidence related to these subsections at the trial.
. This third claim for relief is moot pursuant to the parties' stipulation that "partition in kind of Parcel 10 among the Estate and De-Anna ... is impracticable!!]” Amended Pretrial Order ¶ 4.e.
. The presumption in Utah Code Ann. § 57-4a-4(h)(ii) that a recorded document executed by a person as an individual creates a presumption that joinder of a non-executing spouse for elective share purposes is unnecessary does not apply to this case. First, it is not clear what application § 57-4a-4 has under current Utah law, because elective share law was amended in 1998. The reference in § 57-4a-4 to elective share law has no relevance under the amended Utah law. Second, even if that section still is pertinent, its application in this case crates no presumptions which aid in determining DeAnna’s ownership of Parcel 10. That section merely states that if one of the grantors who executed Exhibit A signed as an individual when it was clear that they were married, the sale would be presumed to be a waiver of the grantor’s spouse’s elective share, thereby excluding the property in question from the grantor’s augmented estate.
. The Trustee has assumed that DeAnna is asserting a constructive trust, which is a separate remedy for fraud or unjust enrichment. Restatement, Restitution, §§ 160-61 (1936); Fibre Form Corp. v. Slamin (In re Nova Tool & Engineering, Inc.), 228 B.R. 678, 682 (Bankr.N.D.Ind.1998). Since constructive trust was not plead by DeAnna or argued by her in her post-trial brief, the Court will not analyze whether DeAnna has a constructive trust on Parcel 10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493268/ | *734
RULING DENYING MOTIONS FOR PARTIAL SUMMARY JUDGMENT
ROBERT L. KRECHEVSKY, Bankruptcy Judge.
I.
The United States of America, acting on behalf of the United States Mint (“the Mint”), on May 7, 2001, filed two amended complaints (“the complaint” or “the complaints”) in the jointly-administered Chapter 11 cases of Handy & Harman Refining Group, Inc. (“HHRG”) and Attleboro Refining Company, Inc. (“ARC”). One complaint contains twelve counts against five defendants — Fleet National Bank and Fleet Precious Metals, Inc. (together, “Fleet”), HHRG, ARC and Credit Suisse First Boston International (“Credit Suisse”). The other complaint contains ten counts against eight defendants— HHRG, ARC, and six members of a banking' syndicate (collectively, “the Banking Syndicate”) which comprises Credit Suisse, Fleet, Bayerisehe Hypo-Und Vereinsbank, AG, Royal Bank of Canada, and N.M. Rothschild & Sons Ltd. HHRG and its wholly-owned subsidiary, ARC, are metal refining companies. Fleet and the Banking Syndicate are financial institutions which, in various ways, had funded HHRG’s and ARC’s business operations.1
Prepetition, on March 25, 1999, the Mint and HHRG entered into a contract (“the Contract”) for the refining by HHRG of 8,000,000 ounces of contaminated silver bullion delivered to it by the Mint. HHRG agreed to refine this bullion to 99.95% pure silver and 90.0% silver and 10% copper for a price of nine cents and seventeen cents per ounce respectively. In November 1999, HHRG and the Mint modified the Contract to increase the amount of silver bullion to be refined to approximately 16,000,000 ounces. When, on March 28, 2000, HHRG and ARC filed their bankruptcy petitions (and subsequently ceased operation), HHRG had insufficient silver on hand to satisfy its 400 customers. See In re Handy & Harman Refining Group, 266 B.R. 24, 27 (Bankr.D.Conn.2001). On the petition date, HHRG either owed or failed to return to the Mint 2,660,382.34 ounces of silver.
In certain counts of the complaints (“the bailment counts”), the Mint seeks damages based upon its allegation that the terms of the Contract created a bailment2 of the silver bullion that the Mint delivered to HHRG for refining. Accordingly, the bailment counts aver, that when HHRG and ARC wrongfully caused the Mint-owned silver to be transferred and/or sold to Fleet and the Banking Syndicate, all defendants became liable to the Mint for the value of such silver. HHRG has filed a motion for partial summary judgment as to the bailment counts in each complaint (“the motions”).3 HHRG contends in the motions that the Contract provides, not for a bailment of the Mint-furnished silver bullion, but for a sale of refined silver from *735HHRG to the Mint, thereby making the conceded transfers or sales not per se Contract violations.4 The Mint opposes the motions on numerous grounds, but only its initial objection — that there exists genuine issues of material fact as to the intentions of the contracting parties — need be addressed.5
II.
A
HHRG, to support its motions, submitted the Contract, its analysis of the Contract provisions, and a concession that HHRG had transferred the Mint-furnished silver to Fleet and the Banking Syndicate. The Mint, in opposition to the motions, submitted a counter analysis of the Contract and affidavits of Robert A. Campbell, the Mint’s Contracting Officer who executed the Contract. The affidavits are to the effect that, inter alia, the Contract did not involve a sale of silver bullion to HHRG, and that it was not the Mint’s intention that HHRG would take title to the silver bullion once it was delivered to HHRG by the Mint.
The Contract, which is twenty-one pages long, plus attachments, contains no clear statements as to whether a bailment or a sale of the silver was intended. Attached to this ruling are Contract Sections H.23, upon which HHRG largely relies, and 1.1, which the Mint cites, in advancing their respective arguments.
B.
In support of its argument that a sale of the refined silver was intended, HHRG notes that in Section H.23, the Contract “required [HHRG] to warrant clear title in the refined silver to the Mint, and specifically delineated when title would pass from [HHRG] to the Mint.” (HHRG’s Br. at 3.) HHRG concludes that a provision for the passage of title from HHRG to the Mint indicates that the parties contemplated a sale by HHRG to the Mint of refined silver. HHRG further notes that the language in Section H.23(b) referred to “conditions of sale,” and that the Contract elsewhere provided that the deliveries of refined silver be “FOB Origin.” HHRG contends that according to Article 2 of the Uniform Commercial Code, this sort of arrangement indicates that the seller, in this case HHRG, had a duty to ship the goods and bear the expense and risk of loss until it reached the point of origin, whereupon title to the goods was to pass from the seller, HHRG, to the buyer, the Mint. Finally, HHRG contends that the Contract did not create a bailment arrangement in light of the sale language in the Contract, the lack of any requirement that HHRG return the identical silver that the Mint furnished for refining, and the omission of any bailment language in the Contract.
In opposing the motions, the Mint asserts that there are genuine issues of material fact, and submits that the Contract represents a bailment agreement and not a sales agreement. The Mint asserts that the Contract language in Section 1.1 provided for a bailment when it required that the Mint deliver its contaminated silver to HHRG, that HHRG refine the silver, and that HHRG return the Mint-furnished silver back to the Mint. The Mint contends that the Contract also provided that HHRG must maintain insurance covering the Mint’s silver for 150% of its value with *736the Mint being the named beneficiary under the policy. Moreover, if HHRG failed to maintain insurance on the silver, the Contract stated that the Mint could then terminate the Contract and obtain all of the Mint-furnished silver from HHRG. The Mint notes that there is no language in the Contract referring to a sale price or a sale, that the Contract described only the refining services that HHRG must perform for a fee, and that the language of “clear title” in Section 11.23(c) is not a reference to the silver, but concerned the copper that HHRG would utilize in the process of refining a portion of the Mint-furnished silver to 90% purity with a 10% copper content.
III.
A.
Summary judgment is not proper unless no genuine issue of material fact exists, and unless the undisputed facts mandate judgment for the movant as a matter of law. See Fed.R.Civ.P. 56(c); I.V. Serv. of America v. Trustees of American Consulting Engineers, 136 F.3d 114, 119 (2d Cir.1998). “In assessing the record to determine whether there is a genuine issue as to any material fact, the court is required to resolve all ambiguities and draw all factual inferences in favor of the party against whom summary judgment is sought.” Duse v. International Business Machines Corporation, 252 F.3d 151, 158 (2d Cir.2001). “Summary judgment is appropriate only when the language of a contract is ‘wholly unambiguous.’ ” Schiavone v. Pearce, 79 F.3d 248, 252 (2d Cir.1996). “The question of whether contract language is plain or ambiguous is to be determined by the court as a matter of law.” Id.
B.
The issue of whether a contract represents a bailment or a sale is not an uncommon problem in industries, such as refining, where a company must make arrangements with another entity to process its raw materials. See William D. Harrington, A Caveat for Commodity Processing Industries: Insolvent Processors’ Creditors vs. Putative Owners of Raw Material, 16 UCC L.J. 322 (1984) (noting how arrangements in the commodity processing industries, such as grain, crude oil, and precious metals, often include attributes of both bailments and sales, leaving the courts with the task of interpreting the parties’ intentions). See also James J. White & Robert S. Summers, Quasi Consignment, 4 Uniform Commercial Code § 30-5 (4th Ed.1995) (discussing the recent litigation over whether agreements for processing are bailments).
Courts dealing with contracts having both bailment and sale characteristics look beyond the four corners of the contract and examine the various circumstances that led to the contractual arrangement. See e.g., In re Sitkin Smelting & Refining, Inc., 639 F.2d 1213, 1217 (5th Cir.1981) (concluding that a contract to process film waste was a bailment after considering the contract language, how the waste was stored, the circumstances of the parties, and whether the parties listed the waste as inventory in their bookkeeping); In re Sitkin Smelting & Refining, Inc., 648 F.2d 252, 254 (5th Cir.1981) (concluding that a contract to refine scrap metal was a sale and not a bailment after considering the contract language and the surrounding circumstances of the parties); In re Medomak Canning Co., 1977 WL 25603, at *4-8 (Bankr.D.Me.), aff'd 588 F.2d 818 (1st Cir.1978) (concluding a bailment was intended when a food producer supplied ingredients, packaging, and shipping materials, and the debtor contracted to process and package the ingredients into a final product. The *737court, after examining the contract language and finding that it contained both bailment and sale language, proceeded to consider evidence of pre-contract negotiations, the accounting records of both parties, the business structure and financial capabilities of each party, the initial drafts of the contract, and the needs and interests of both parties.).
C.
In the instant proceedings, the court, after examining the Contract and finding both language of bailment and sale, concludes that the Contract is ambiguous, and, therefore, inappropriate for summary judgment. See Alicea v. Empire Blue Cross and Blue Shield, 274 F.3d 90, 98 (2d Cir.2001) (concluding that summary judgment entered by the trial court was inappropriate because the documents at issue were ambiguous, the circuit court instructed the trial court “to allow the parties to present extrinsic evidence concerning the meaning of [the] ambiguous provisions.”). “If the language is susceptible to different reasonable interpretations, and where there is relevant extrinsic evidence of the parties’ actual intent, then the contract’s meaning becomes an issue of fact precluding summary judgment.” Sayers v. Rochester Telephone Corp., 7 F.3d 1091, 1094 (2d Cir.1993) (Internal quotation marks omitted.) A decision by this court as to whether the parties agreed to a bailment or a sale requires the court to consider evidence outside the Contract to resolve the Contract’s ambiguous language. There exists issues of material fact with respect to what the parties intended in the Contract. The motions for partial summary judgment must be denied.
IV.
CONCLUSION
For the foregoing reasons, HHRG’s respective motions for partial summary judgment as to counts one, two, eight, nine, ten, eleven, and twelve in Adversary Proceeding No. 01-2026, and counts one, two, six, seven, and ten in Adversary Proceeding No. 01-2027 are denied. It is
SO ORDERED.
ATTACHMENT
H.23 WARRANTIES AND REPRESENTATIONS (JUN1998)
a) In addition to any standard commercial warranty provided by the Contractor, Contractor warrants that the goods and/or services comply with all requirements of this contract and are free from defects in workmanship for a period of three years after acceptance. Latent defects shall be corrected by the Contractor, notwithstanding the period of the warranty. Failure of the Contractor to correct latent defects shall entitle the Mint to correct the latent defect or replace the equipment or supplies and charge the Contractor accordingly.
b) Contractor warrants and represents that all information provided by the Contractor to the Mint is and will be true and correct. Contractor further warrants and represents the goods and/or services delivered do not infringe upon any copyright, trademark or patent right found in Federal or state law and that all goods and/or services delivered or provided under this contract were manufactured or provided in compliance with United States law and regulations and any applicable local law. Contractor acknowledges that in entering into this agreement, the Mint has specifically relied upon the warranties and representations contained herein. All warranties and representations of Contractor, both express and implied, shall constitute conditions of sale and shall survive inspection, testing, acceptance, payment and use.
*738c) For goods delivered under this contract, Contractor warrants clear title to all goods and, upon delivery, acceptance and payment by the Mint, title shall pass to the Mint free and clear of all liens, claims, debts and rights of any third party. Contractor warrants and represents the goods are new, genuine and are not falsely labeled.
d) The Mint shall give the Contractor notice of any defects or breach of any warranty or representation. At the Mint’s option the Mint may 1) have the Contractor correct any defects in the goods and/or services at no cost 2) correct or replace the defective goods or services with similar goods and/or services and charge the Contractor the cost of repair or replacement or 3) make an equitable adjustment to the contract price. Any goods or services corrected by the Contractor shall be subject to this clause to the same extent as goods/services initially provided or performed. In addition, the contractor will be liable for any and all other foreseeable consequential damages, including but not limited to, damages for injuries caused by defective goods or services.
LI MINT-FURNISHED PROPERTY
(Clause # 1-050, Mar 1996)
The Mint shall furnish for the Contractor’s use, at the time and location(s) stated in this contract, the following Mint-furnished property (MFP):
Bars of 999 silver with varying degrees of contamination to be refined to remove the contaminates.
If that property, suitable for its intended use, is not delivered to the Contractor, the Contracting Officer shall equitably adjust affected provisions of this contract in accordance with the changes clause when the facts warrant an equitable adjustment.
The Contractor shall use MFP only in connection with this contract, assume the risk for loss or damage, and return the MFP to the Mint refined silver per specifications in Section C.
. The Mint alleges that Credit Suisse is the lead member of the Banking Syndicate.
. "A relationship of bailor-bailee arises when the owner, while retaining general title, delivers personal property to another for some particular purpose upon an express or implied contract to redeliver the goods where the purpose has been fulfilled, or to otherwise deal with the goods according to the bailor's directions.” B.A. Ballou & Co. v. Citytrust, 218 Conn. 749, 753, 591 A.2d 126 (1991) (Internal quotation marks omitted.)
.In Adversary Proceeding No, 01-2026, the motion is as to counts one, two, eight, nine, ten, eleven and twelve. Counts six and seven were withdrawn. In Adversary Proceeding No. 01-2027, the motion is as to counts one, two, six, seven, and ten. Counts eight and nine were withdrawn.
. HHRG and the Mint agree that the Mint holds a valid breach of contract claim against HHRG's bankruptcy estate of $13,474,836.56, subject only to possible offsets.
. Because the respective amended complaints and motions for partial summary judgment concern essentially identical facts and arguments, this ruling addresses both motions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493271/ | MEMORANDUM
MARCIA PHILLIPS PARSONS, Bankruptcy Judge.
In this adversary proceeding, the plaintiff, CainRash Architectural Group, Inc. (“CainRash”), seeks to enforce its architectural lien against property of the estate and a determination that its lien is superi- or to the mortgage held by First Tennessee Bank National Association (“First Tennessee”). Presently before the court is First Tennessee’s motion to dismiss pursuant to Fed. R. Bankr.P. 7012(b). At issue is the construction of Tenn. Code Ann. § 66-ll-102(e), the statute which grants an architect a lien for architectural services. The question presented is which lien has priority under this statute: an earlier in time unrecorded lien of an architect or a subsequently recorded mortgage whose holder was not provided written notice of the architectural lien? Because the court concludes the latter, First Tennessee’s motion to dismiss will be granted.1 This is a core proceeding. See 28 U.S.C. § 157(b)(2)(E).
I.
Based on the representations of the parties as set forth in their respective memo-randa of law, it appears undisputed that by contract dated January 20, 1999, CainRash agreed to provide architectural services for the construction of what came to be known as the Carnegie Hotel in Washington County, Tennessee owned by the debtor, Premier Hotel Development Group (“Premier”). On March 23, 2000, some fourteen months after the architectural services contract was executed, a deed of trust securing a debt owed by Premier in the amount of $8.25 million in favor of First Tennessee was recorded in the register’s office for Washington County, Tennessee.
Thereafter, on March 14, 2001, Cain-Rash filed suit in the Chancery Court for Washington County, Tennessee against Premier, First Tennessee, and others as*815serting an interest in the Carnegie Hotel. CainRash alleged in the complaint initiating that action that it was owed the sum of $298,937 for architectural services performed by it and requested a judgment against Premier in this amount. CainRash also alleged that it held a lien against the Carnegie Hotel to secure payment of the amount owed to it. In order to enforce this lien, CainRash requested that an attachment issue and be levied on the Carnegie Hotel, that the hotel be sold in satisfaction of the requested judgment, and that its lien be declared superior to the deed of trust, i.e., mortgage, held by First Tennessee. Shortly after CainRash filed its complaint, Premier filed for chapter 11 relief on March 15, 2001, commencing the underlying bankruptcy case. Then on April 19, 2001, Premier removed CainRash’s state court action to this court, initiating the present adversary proceeding.
In its motion to dismiss, First Tennessee asserts that Tenn. Code Ann. § 66 — 11— 102(c), the statute which creates the lien in favor of architects, specifically provides that such hens are subordinate to any mortgage unless the architectural lien claimant gives written notice to the mortgage holder prior to recordation of the mortgage. First Tennessee states that it is undisputed that CainRash did not give written notice to First Tennessee of its lien claim prior to the recording of First Tennessee’s mortgage on March 23, 2000. Thus, according to First Tennessee, under the plain language of Tenn. Code Ann. § 66-ll-102(c), CainRash’s lien is inferior to First Tennessee’s mortgage.
In response to the motion to dismiss, CainRash does not deny that it did not provide First Tennessee prior notice of its lien. Instead, CainRash asserts that First Tennessee has misconstrued Tenn. Code Ann. § 66 — 11—102(c). According to Cain-Rash, § 66-ll-102(c) does not provide that unnoticed architectural hens are inferior to ah mortgages, only mortgages of record when the architectural hen attached. Because First Tennessee’s mortgage was not of record when CainRash’s hen attached, it is inferior asserts CainRash.
II.
As recognized by the parties, Tenn. Code Ann. § 66-ll-102(c) is the controlling statute. The first paragraph of this statute creates the hen in favor of architects:
There shall be a hen upon any lot of ground or tract of land upon which a house or structure has been erected, demolished, altered, repaired, or improvements made, by special contract with the owner or the owner’s agent, in favor of any person hcensed to practice architecture or engineering under title 62, chapter 2, for architectural or engineering services performed on such tract or building. The hen shall secure the agreed contract price thereof or a reasonable price for the services performed by such architect or engineer.
Tenn. Code Ann. § 66 — 11—102(c)(1). The parties do not dispute that based on the language of this paragraph, CainRash has a hen for the architectural services rendered in connection with Carnegie Hotel.
The second paragraph of § 66-ll-102(c) describes the effective date of an architect’s lien and its relative priority:
The hen provided for in subdivision (c)(1) shall relate to and take effect from the time of visible commencement of operations as provided in § 66-11-104. Any such architectural or engineering lien shall be subordinate to the hen of any mortgagee unless the lienor has given written notice of the lienor’s hen to such mortgagee prior to the recordation of the mortgage.
*816Tenn. Code Ann. § 66-ll-102(c)(2). Under the first sentence of this provision, an architectural lien takes effect or attaches upon “visible commencement of operations,” see Tenn. Code Ann. § 66-11-1042; which the Tennessee Code defines as “the first actual work of improving upon the land .... ” See TenN. Code Ann. § 66 — 11— 101(17).3 CainRash asserts that “visible commencement of operations” took place more than a year before First Tennessee’s lien was recorded, a fact which is not disputed by First Tennessee, and, thus, CainRash’s lien attached prior to the re-cordation of First Tennessee’s mortgage.
Which lien has priority turns on the proper interpretation of the second sentence in Tenn. Code Ann. § 66 — 11— 102(c)(2), which as quoted above provides: “Any such architectural or engineering lien shall be subordinate to the lien of any mortgagee unless the lienor has given written notice of the lienor’s lien to such mortgagee prior to the recordation of the mortgage.” From a reading of § 66 — 11— 102(c)(2) in its entirety, the phrase “any such architectural or engineering lien” refers to the lien created under subdivision (c)(1), and therefore would include Cain-Rash’s architectural lien. And, the phrase “the hen of any mortgagee” would appear to include the deed of trust held by First Tennessee since the word “any” is used. Substituting the names of the parties in this case for the generic terms in the second sentence of § 66-ll-102(c)(2) produces the statement: “CainRash’s lien shall be subordinate to the lien of First Tennessee unless CainRash has given written notice of its lien to First Tennessee prior to the recordation of First Tennessee’s mortgage.” Thus, as First Tennessee argues, a straight-forward reading of the statute indicates that CainRash’s lien is inferior to First Tennessee’s mortgage because CainRash did not give written notice of its lien to First Tennessee before First Tennessee recorded its mortgage.
Contrary to this interpretation, Cain-Rash argues that the phrase “the lien of any mortgagee” must be construed to refer only to recorded mortgages in place when the architectural lien attaches. Ca-inRash bases this contention on the statute’s use of the present tense “any such lien ... shall be subordinate.” CainRash argues that “had the [Tennessee] legislature intended for the architect’s lien to be subordinate to mortgages that were recorded after visible commencement of operations, it would have said ‘any such lien shall become subordinate.’ ” CainRash also maintains that “[i]t would be impossible for an architect to give notice of its lien to a mortgagee who wasn’t a mortgagee when the architect agreed to perform architectural services” because it “is almost always the case” that the architect is employed before financing is obtained. In light of these circumstances, an architect would always have an inferior lien if the *817interpretation of First Tennessee were adopted, a result that the state legislature could not have intended asserts CainRash.
Lastly, CainRash argues that its interpretation is supported by § 66-ll-102(c)’s legislative history which indicates that the statute would give “architects and engineers the same right as materialmen in regard to a lien on a project.” H.R. 1435, 92d Gen. Assem., 2d Reg. Legis. Sess. (Tenn.1982) (transcript of March 17, 1982 floor statement by Rep. McKinney). As noted by CainRash, a mechanic or materi-alman who supplies labor or material under contract with the owner has a lien which relates to and takes effect from the time of the visible commencement of operations. See Tenn. Code Ann. §§ 66-11-102 and 66-11-104. Because under Tennessee law a mechanic’s or a materialman’s hen has priority over a subsequently recorded mortgage, a architectural hen should also contends CainRash.
III.
Unfortunately, no reported decision, either in the state or federal courts, has addressed the proper construction of Tenn. Code Ann. § 66-ll-102(c). Even so, the Tennessee Supreme Court has often expressed general rules of statutory construction. As stated recently by that court:
The cardinal rule of statutory construction is to follow the plain meaning of the statute where the language is clear and unambiguous on its face. “Legislative intent or purpose is to be ascertained primarily from the natural and ordinary meaning of the language used, without forced or subtle construction that would limit or extend the meaning of the language.”
Jackson v. General Motors Corp., 60 S.W.3d 800, 804 (Tenn.2001) (quoting Hamblen County Educ. Ass’n v. Hamblen County Bd. of Educ., 892 S.W.2d 428, 431 (Tenn.App.1994)).
In this same vein, the Tennessee Supreme Court has observed that
In construing legislative enactments, the principal goals are to ascertain the legislative intent and give it effect without unduly restricting or expanding its coverage beyond its limited scope. [Citation omitted.] That intent is primarily discerned from the language of the enactment. [Citation omitted.] “Courts are restricted to the natural and ordinary meaning of the language used by the legislature in the statute, unless an ambiguity requires resort elsewhere to ascertain legislative intent.” [Citation omitted.] Where different meanings are possible from the language, an ambiguity exists.
Halbert v. Shelby County Election Comm’n, 31 S.W.3d 246, 248 (Tenn.2000).
Applying these principles to Tenn. Code Ann. § 66-ll-102(c)(2), this court agrees with First Tennessee that the statute is clear and unambiguous on its face. Accordingly, its plain meaning, that an unnoticed architectural lien is inferior to any mortgage, must be followed. To limit the “any mortgage” language to “any mortgage in place at the time the architectural lien attaches,” as CainRash urges, would “unduly restrict” the statute in contravention of the intent of the legislature as expressed by its chosen verbiage. Cain-Rash’s argument that the Tennessee legislature would have used “become,” the future tense of “to be,” if the statute had been designed to apply to subsequent mortgages is not necessarily accurate. The use of the words “shall be” in conjunction with the use of “any mortgagee” could just as logically reflect the desire that the architect’s lien be subordinate to any mortgage regardless of those presently in existence or those which may arise in the *818future. Furthermore, one of the meanings of “be” is “to make, cause to become,” see AMERICAN Heritage Diotionaby 159 (3d ed.1992); and the word “shall” when placed before a verb such as “be” not only indicates an imperative, but also “something that will take place or exist in the future.” Id. at 1656. If the word “become” had been actually utilized by the legislature, the statute would be unclear because the word suggests a future condition which must occur before subordination takes place.
CainRash’s argument that First Tennessee’s interpretation would result in the architect’s lien always being inferior due to the typical timing of architectural agreements in relation to construction financing arrangements is without merit as the facts of the instant case illustrate. CainRash’s contract was entered into and visible commencement of operations occurred more than a year before First Tennessee’s mortgage was recorded. Thus, CainRash had over a year in which it could have given notice so that it would have priority over any subsequent mortgagees such as First Tennessee. The assertion that it could not give notice since it would not know the identity of the mortgagee until it records its deed of trust is simply ludicrous because CainRash could have filed a notice of lien with the county register’s office which would have constituted notice to the entire world of CainRash’s prior lien. See Tenn. Code Ann. § 66-26-102 (“All of such instruments so registered shall be notice to all the world .... ”).
Similarly, CainRash’s argument that First Tennessee’s proffered construction is contrary to Tenn. Code Ann. § 66-ll-102(c)(2)’s legislative history must be rejected. In this regard, it must first be noted that courts generally only turn to the legislative history of a statute for guidance if the language of the statute is ambiguous and capable of different meanings. “In instances when the language of the statute is clear on its face, we need not reach the question of the legislature’s intent in enacting the law .... ” ATS Southeast, Inc. v. Carrier Corp., 18 S.W.3d 626, 630 (Tenn.2000). Because the Tennessee legislature’s intent in enacting Tenn. Code Ann. § 66-ll-102(c)(2) is evident from the language utilized, resort to legislative history is unnecessary.
Nonetheless, even if the court were to find § 66-ll-102(c)(2) ambiguous, its legislative history does not conclusively support CainRash’s proposed construction. Granted, when a Tennessee state representative was introducing the legislation on the House floor in 1982, he did state “this bill ... gives architects and engineers the same right as materialmen in regard to a lien on a project.”4 H.R. 1435, 92d Gen. *819Assem., 2d Reg. Legis. Sess. (Tenn.1982) (transcript of March 17, 1982 floor statement by Rep. McKinney). On the other hand, a statement made on the Senate floor indicates that the specific language in paragraph (2) of § 66-ll-102(c) was an amendment to the proposed Senate bill creating architect and engineer liens. In introducing this amendment, Sen. Henry explained that “what it does is provide protection in the lending process so that you can get a clear title under the normal manner without worrying about whether there’s a lien on there you can’t find.” S. 1476, 92d Gen. Assem., 2d Reg. Leg. Sess. (Tenn.1982) (transcript of February 25, 1982 floor statement by Sen. Henry). First Tennessee’s interpretation of Tenn. Code ANN. § 66-ll-102(c)(2) is the only one that provides protection to lenders from secret hens by subordinating these hens to any mortgage unless notice is given. In contrast, CainRash’s construction leaves lenders vulnerable to any undisclosed architectural or engineering hen.
The statement by the House member that the statute will give architects and engineers the same hen rights as material-men must be disregarded to the extent that it is contrary to the plain language of the statute. D. Canale & Co. v. Celauro, 765 S.W.2d 736, 738 (Tenn.1989) (“Where there is no ambiguity in the language of an act, comments of legislators, or even sponsors of the legislation, before its passage are not effective to change the clear meaning of the language of the act.”); Bell-South Telecommunications, Inc. v. Greer, 972 S.W.2d 663 (Tenn.App.1997) (“[W]hen a statute’s text and legislative history disagree, the text controls.”). Furthermore, contrary to the House member’s assertion, while the enactment of Tenn. Code Ann. § 66-ll-102(c) did give architects and engineers liens similar to that held by mate-rialmen, the lien rights are not identical at least with respect to the relative priority over mortgages. This distinction in treatment is attributable to the specific addition of paragraph (2) to Tenn. Code Ann. § 66-ll-102(c), which as previously noted was not included in the original draft of the bffl.
An examination of the lien statutory scheme as a whole evidences that paragraph (2) was specifically designed to render architectural and engineering liens inferior to any mortgage not just mortgages in existence at the time the lien attached as CainRash contends. Subsection (a) of Tenn. Code Ann. § 66-11-102 establishes the lien on behalf of mechanics and materi-almen and subsection (b) grants a similar lien for land ■ surveyors. Both of these provisions where already in effect when subsection (c) on behalf of architects and engineers was added in 1982. Also already in effect in 1982 was Tenn. Code ANN. § 66-11-1085 which provides a proce*820dure for liens granted under Tenn. Code Ann. § 66-11-102 to have priority over existing mortgages. Under § 66-11-108, a lien created under § 66-11-102 will be superior to a recorded mortgage in existence at the time the lien attaches if the prospective lienholder gives written notice to the mortgagee before the work is begun or materials furnished and the mortgagee fails to object within ten days after receipt of notice. Unless this procedure is followed, the § 66-11-102 hen is subordinate to that of the mortgagee.
Thus, prior to the enactment of Tenn. Code Ann. § 66-11-102(e), the Tennessee hen statutory scheme already contained a mechanism for hens created under Tenn. Code Ann. § 66-11-102 to have priority over existing mortgages. It is simply not logical that the Tennessee legislature would create a special provision advising architects and engineers how they may obtain priority over existing mortgages when an almost identical provision which applied to ah lienholders under § 66-11-102(c) was already on the books, so to speak. Because CainRash’s interpretation of paragraph (2) of Tenn. Code Ann. § 66-ll-102(c) would render it superfluous in light of Tenn. Code Ann. § 66-11-108, that interpretation must be rejected. See State v. Peele, 58 S.W.3d 701, 704 (Tenn.2001) (“[Statutes should be construed so that no part will be inoperative, superfluous, void, or insignificant .... ”); State v. Turner, 913 S.W.2d 158, 160 (Tenn.1995) (“In interpreting statutes, we are required to construe them as a whole, read them in conjunction with their surrounding parts, and view them consistently with the legislative purpose.”).
Finally, the court must note that even if the House member making the statement about materialmen’s hens had intended architects to have exactly the same rights as mechanics and material-men, this intention is not controlling. As observed on one occasion by the Tennessee Court of Appeals:
The subjective beliefs of legislators can never substitute for what was, in fact, enacted. There is a distinction between what the legislature intended to say in the law and what various legislators, as individuals, expected or hoped the consequences of the law would be. The answer to the former question is what courts pursue when they consult legislative history; the latter question is not within the courts’ domain.
Greer, 972 S.W.2d at 673.
“When the language contained within the four corners of a statute is plain, clear, and unambiguous, the duty of the courts is simple and obvious, ‘to say sic lex scripta, and obey it.’ ” Hawks v. City of Westmoreland, 960 S.W.2d 10, 16 (Tenn.1997). Tenn. Code Ann. § 66-11-102(c)(2) plainly and unambiguously provides that architectural liens shall be subordinate to the lien of any mortgagee unless the lienor gives prior notice to the mortgagee. Because such notice was not given, Cain-Rash’s lien is inferior to that of First Tennessee’s mortgage. Therefore, First Tennessee’s motion to dismiss must be granted.
IV.
In accordance with the foregoing, an order will be entered contemporaneously with the filing of this memorandum opinion.
. First Tennessee also asserts as a basis for dismissal that CainRash failed to perfect its lien through issuance of a proper attachment because the attachment bond was not for an amount twice the amount owed to CainRash as required by Tenn. Code Ann. § 29-6-117(c). Because the court concludes that CainRash's lien is inferior to First Tennessee's mortgage under Tenn. Code Ann. § 66-11-102(c), it is not necessary to address the attachment issue.
. Tenn. Code Ann. § 66-11-104, entitled “Time of attachment of lien,” provides in part that:
(a) Such lien shall relate to and take effect from the time of the visible commencement of operations, excluding however, demolition, surveying, excavating, clearing, filling or grading, placement of sewer or drainage lines or other underground utility lines or work preparatory therefor, erection of temporary security fencing and the delivery of materials therefor.
. Tenn. Code Ann § 66-11-101(17) states as follows:
"Visible commencement of operations” means the first actual work of improving upon the land or the first delivery to the site of the improvement of materials which remain thereon until actually incorporated in the improvement, of such manifest and substantial character as to notify interested persons that an improvement is being made or is about to be made on the land.
. The following is the full text of Rep. McKinney's statement, as set forth in the transcript prepared by Legislative Research, Inc. and submitted by CainRash:
Mr. Speaker, ladies and gentlemen of the house, what this bill does, it gives architects and engineers the same right as material-men in regard to a lien on a project. The Senate amended which would not apply to one and two family unit residences, and also that they would have no right of lien until after the actual construction had started. So, which would put in front of any mortgage, and would, behind any mortgage that might be on the property. So pending any questions, I move the adoption of Senate Bill 1476 on third and final consideration.
CainRash contends that not only does the first sentence of this statement support its argument, but also the third sentence where Rep. McKinney states "[s]o which would put in front of any mortgage, and would, behind any mortgage that might be on the property.”
On the other hand, the transcript submitted by First Tennessee is slightly different. It deletes the word "so” at the beginning of the third sentence, combines the second and third *819sentences into one, and puts pauses between a couple of phrases, as if to indicate a misstatement and immediate correction. According to First Tennessee's transcript, the clause at the end of the second sentence reads "which would put them in front of any mortgage that would — behind any mortgage — that might be on the property.” Because, as set forth in the text of this memorandum, the court does not find the legislative history to be determinative of the issue before it, it unnecessary to ascertain which transcription is the correct one.
. Tenn. Code Ann. § 66-11-108, entitled "Priority over mortgage,” states that:
If the contract is made with the mortgagor, and the mortgagee has written notice of the same by certified or registered mail before the work is begun or materials furnished, and the mortgagee gives written consent thereto, the lien shall have priority over the mortgage; and if the mortgagee fails to object, in writing, within ten (10) days after receipt of the notice, the mortgagee’s consent shall be implied; provided, that the person giving notice shall include a name *820and return address to which the written objection shall be mailed by certified or registered mail. Otherwise, the lien shall have no priority over the mortgage. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493272/ | MEMORANDUM OPINION AND ORDER GRANTING PLAINTIFF’S EMERGENCY MOTION FOR REMAND AND REMANDING THE ACTION TO THE CIRCUIT COURT FOR CARROLL COUNTY
E. STEPHEN DERBY, Bankruptcy Judge.
Before the court is Plaintiffs Emergency Motion for Remand (P. 5) and supporting memorandum (P. 6), and Defendant’s response in opposition (P. 7). Because the court lacks subject matter jurisdiction over the removed action, the court will grant the Plaintiffs motion and remand this proceeding to the Circuit Court for Carroll County (Maryland).
On May 8,. 2001 Plaintiff, Family Medical Associates, L.L.C. (“FMA”) initiated a civil action in the Circuit Court for Carroll County. The action requested preliminary and permanent injunctive relief to enforce certain restrictive covenants contained in a Physician Employment Agreement between FMA and the Debtor, Dr. Sharon Alongi. The Circuit Court issued a temporary restraining order against Dr. Alongi on May 15, 2001, which expired at 5:00 p.m. on May 23, 2001.
On May 16, 2001, the day after the Circuit Court issued a temporary restraining order against Dr. Alongi, Dr. Alongi filed a Notice of Removal in which she removed the Circuit Court action to this court pursuant to Fed.R.Bankr.P. 9027(a). Two days later, FMA filed an Emergency Motion for Remand. In its motion, FMA primarily argues the court lacks jurisdiction to hear the removed case because it is not a core proceeding, it does not arise under the Bankruptcy Code, it does not arise in the bankruptcy case and it is not related to the bankruptcy case. FMA emphasizes that the court has already ruled the restrictive covenants contained in the Physician Employment Agreement between Dr. Alongi and FMA survived rejection of the employment agreement, became effective post-petition upon Dr. Alongi’s termination of her employment FMA, and were enforceable against Dr. Alongi. In a supporting memorandum filed on May 25, 2001, FMA addresses equitable factors the court should consider if it had subject matter jurisdiction over the removed action.
Dr. Alongi opposes FMA’s request to remand this action. In her Notice of Removal, Dr. Alongi asserted the underlying action was a “core” proceeding pursuant to 28 U.S.C. § 157. Although she does not provide any additional jurisdictional basis in her memorandum opposing FMA’s motion to remand, she correctly points out that when FMA filed a very similar action in this court several months ago, FMA too claimed the action was a core proceeding. Addressing equitable factors, Dr. Alongi notes that she has recently filed a motion to consolidate this action with another adversary proceeding involving the same two parties and many of the same operative facts. She contends that consolidating the two matters would best serve the interests of judicial economy because the court has already reviewed the contractual provisions at issue. She also contends denying the motion to remand would allow her to avoid unnecessary costs.
Discussion
In evaluating a motion to remand pursuant to 28 U.S.C. § 1452(b), the Court must first determine whether the action was properly removed. See Montague Pipeline Tech. Corp. v. Grace/Lansing (In re Montague Pipeline Tech. Corp.), 209 B.R. 295, 298 (Bankr.E.D.N.Y.1997); 9281 Shore Road Owners Corp. v. Seminole Realty Co. (In re 9281 Shore Road Owners Corp.), 214 B.R. 676, 695 (Bankr.E.D.N.Y. *1591997). Removal is governed by 28 U.S.C. § 1452(a) which states, in pertinent part,
“[a] party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 ...”
28 U.S.C. § 1452(a). Section 1334(a) grants federal district courts “original and exclusive jurisdiction of all cases under title 11” and section 1334(b) grants courts original but not exclusive jurisdiction of “all civil proceedings arising under title 11, or arising in or related to cases under title 11.” 28 U.S.C. §§ 1334(a) and (b).
It is not necessary to distinguish between proceedings “arising in,” “arising under,” or “related to” bankruptcy cases under Title 11. Legislative History indicates that the phrases were not used to refer to different matters, but to “operate conjunctively to define the scope of jurisdiction.” Wood v. Wood (In re Wood), 825 F.2d 90, 93 (5th Cir.1987), citing S.Rep. No. 989, 95th Cong., 2d Sess., 153-54 (1987), U.S.Code Cong. & AdmimNews 1978, pp. 5787, 5866-67. The only necessary determination here is whether the proceeding is related to the bankruptcy. In re Wood, 825 F.2d at 93.
FMA’s claims are not “related to” Dr. Alongi’s title 11 bankruptcy case. In Owens-Illinois, Inc. v. Rapid American Corp. (In re Celotex Corp.), 124 F.3d 619, 625-626 (4th Cir.1997), the Court of Appeals for the Fourth Circuit adopted the test set forth in Pacor, Inc. v. Higgins, 743 F.2d 984 (3rd. Cir.1984), for determining whether a civil proceeding “relates to” a bankruptcy case. According to that test:
[W]hether a civil proceeding is related to bankruptcy is [determined by] whether the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy. Thus, the proceeding need not necessarily be against the debtor or against the debtor’s property. An action is related to bankruptcy if the outcome could alter the debtor’s rights, liabilities, options, or freedom of action (either positively or negatively) and which in any way impacts upon the handling and administration of the bankruptcy estate.
Pacor, 743 F.2d at 994 (emphasis in original) (citations omitted). The Court of Appeals for the Fourth Circuit has construed the Pacor test broadly, stating that the test “does not require certain or likely alteration of the debtor’s rights, liabilities, options or freedom of action, nor does it require certain or likely impact upon the handling and administration of the bankruptcy estate. The possibility of such alteration or impact is sufficient to confer jurisdiction.” In re Celotex Corp., 124 F.3d at 626.,
In Celotex, Celotex Corporation (“Celo-tex”) and Owens-Illinois, Inc. (“Owens”) were found jointly and severally liable for personal injuries caused by products containing asbestos. Owens satisfied both its own and Celotex’s allocated shares of the judgment. Id. at 622. Celotex then filed a Chapter 11 petition and Owens sued another jointly-liable tortfeasor, Rapid American Corporation (“Rapid”) for contribution. Id. at 623. Rapid removed the action to federal district court, and Owens moved to remand to state court because, inter alia, the federal court lacked jurisdiction over the removed action. Id. The Fourth Circuit found the federal court had jurisdiction over the contribution action because, it related to Celotex’s bankruptcy case. Id. at 626. In support of its decision, the court found that any recovery by Owens in the contribution action would reduce Owens’s claim against the Celotex bankruptcy estate by the same amount, which would alter the liabilities of the Cel-*160otex bankruptcy estate. It also ruled that because of an indemnity agreement between Rapid and Celotex, any recovery by Owens in its contribution action against Rapid would “affect the handling and administration of the Celotex bankruptcy estate by changing the character of Rapid’s indemnification claim against Celotex from contingent and unliquidated to certain and liquidated.” Id. The court also found this significant because it “would obviate the need to estimate the amount of Rapid’s claim under Bankruptcy Code § 502(c), which requires that a contingent or unliq-uidated claim be estimated if the bankruptcy court determines that the fixing or liquidation of a claim would unduly delay the administration of the bankruptcy case.” Id.
The court rejected Owens’s argument in Celotex that regardless of which company, Owens or Rapid, brought an action for contribution against Celotex, the bankruptcy estate would have the same amount of potential liability. According to Owens, since Celotex faced the same amount of potential liability to either prospective plaintiff, the civil action between Owens and Rapid “would reduce its claim against the Celotex bankruptcy estate by the same amount that it would increase Rapid’s claim against it.” Id. The court rejected this argument because the indemnity agreement between Rapid and Celotex covered costs Rapid incurred defending itself in the contribution action. If Owens had sued Celotex, it would not have recovered such costs. As a result, the court found that Celotex would actually face greater potential liability if sued by Rapid than if sued by Owens. This difference in potential liability could have conceivably affected the administration of the bankruptcy estate. Therefore the court deemed the contribution action between Owens and Rapid related to Celotex’s bankruptcy case.
The facts in this ease do not approach even the expansive view of “related to” jurisdiction in Celotex. This court has already ruled that the conduct giving rise to FMA’s claim occurred post-petition and is not property of the estate under 11 U.S.C. § 541. See Case No. 00-5-9616-SD, Mem. Op. and Order Granting in Part and Denying in Part Debtor’s Request for Declaratory Relief. In addition, this is a Chapter 7 liquidation in which the Trustee has already filed a report of no distribution. This is not a Chapter 11 reorganization, as was the case in Celotex. Therefore, whether or not FMA successfully enforces the covenants at issue, such relief would not affect compliance with a plan of reorganization, nor would it change the character or amount of any claim against Dr. Alongi’s bankruptcy estate. In sum, if the court were to hear and decide this action, it would not have any conceivable effect on the administration of Dr. Alongi’s bankruptcy estate.
Because the court lacks subject matter jurisdiction over the removed proceeding, it will be remanded to the Circuit Court for Carroll County pursuant to 28 U.S.C. § 1447(c).1
FMA has requested that Dr. Alongi be required to pay FMA’s attorney fees and costs incurred in this matter, and 28 U.S.C. § 1447(c) authorizes the court, in its discretion, to award actual expenses incurred as a result of the removal. Such an award, in this proceeding, however, would be inappropriate. It is very unbe*161coming that FMA should even request attorney fees and costs when they filed and later voluntarily dismissed a nearly identical action for injunctive relief in this court and later opposed Dr. Alongi’s request for an award of attorney fees. Adv. No. 01-5086-SD. Dr. Alongi’s request for attorney’s fees was denied in that adversary proceeding, and accordingly, FMA’s request for costs, fees and expenses will be denied here. Dr. Alongi has also requested attorney fees and costs; however, she has not provided any statutory or other basis for this request. Consequently, this request will also be denied.
Therefore, it is, this_day of June 2001, by the United States Bankruptcy Court for the District of Maryland,
ORDERED, that Plaintiffs Emergency Motion for Remand this action to the Circuit Court for Carroll County pursuant to 28 U.S.C. § 1452(b) is GRANTED; and it is further
ORDERED, that this Adversary Proceeding, No. 01-5260-SD, is remanded to the Circuit Court for Carroll County; and it is further
ORDERED, that Family Medical Associates’ request for attorney fees and expenses is DENIED; and it is further
ORDERED, that Dr. Alongi’s request for attorney fees and expenses is DENIED.
. 28 U.S.C. § 1447(c) provides, in relevant part: "If at any time before final judgment it appears that the district court lacks subject matter jurisdiction, the case shall be remanded. An order remanding the case may require payment of just costs and any actual expenses, including attorney fees, incurred as a result of the removal.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493273/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This case is before the Court upon Debtors’ Motion for Summary Judgment Regarding Objections to Debtors’ Insurance Policies Exemption filed on August 14, 2001. (Doc. 78.) On September 24, 2001 Cadle Company II, Inc. (“Cadle”) filed Cross-Motion for Summary Judgment. (Doc. 77.) On November 26, 2001 Debtors filed response to Cadle’s Cross-Motion for Summary Judgment. (Doc. 89.) Upon review of Debtors’ Motion for Summary Judgment, Cadle’s Cross-Motion for Summary Judgment and Debtors’ Response, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
Debtors are residents of the State of Florida. On Schedule C of their bankruptcy petition, Debtors claimed the cash surrender value of the following six life insurance policies as exempt pursuant to Fla. Stat. § 222.14:
Policy Number 1-Jackson National Life-Debtor Charles V. Lowery is both the insured and the owner of the policy.
Policy Number 2-Liberty National-Debtor Charles V. Lowery is the insured and Debtor Suzanne H. Lowery is the owner of the policy.
Policy Number 3-Liberty National-Steven P. Lowery is the insured and Debtor Charles V. Lowery is the owner of the policy.
Policies Number 4 and 5-Monumental Life-William C. Lowery, II and Chance V. Lowery are the insureds and Charles Y. Lowery is the owner of the policy.
Policy Number 6-New England Financial (Metlife)-Debtor Suzanne H. Lowery is the insured and Debtor Charles V. Lowery is the owner of the policy.
William C. Lowery, II and Chance V. Lowery, Debtors’ grandsons, are residents of Michigan.
On their Statement of Financial Affairs, Debtors did not indicate that any of the insurance policies were held for another person.
On October 4, 2000 the Chapter 7 Trustee filed Objection to Debtors’ Claim of Exemption in the insurance policies. On October 26, 2000 Cadle filed Objection to Debtors’ Claim of Exemption in the insurance policies. The Court scheduled hearings on both objections, but upon request of the Trustee, continued the hearings until further order of the Court.
Debtors filed amendments to Schedule B of their petition and their Statement of Financial Affairs on September 24, 2001. (Doc. 74.) The amendments reflect that Debtor Charles V. Lowery holds only legal title to policies 4 and 5 as trustee for William C. Lowery, II and Chance V. Lowery.
*319
CONCLUSIONS OF LAW
Debtors seek summary judgment in their favor as to policies 1, 2, 4, 5, and 6.1 Debtors argue that the cash surrender value of policies 1, 2, and 6 is exempt pursuant to § 222.14 of the Florida Statutes. Debtors argue that policies 4 and 5 are not property of the estate because Debtor Charles Lowery holds only legal title, while the beneficial interest is held by William C. Lowery, II and Chance V. Lowery, Debtors’ grandsons.
Cadle seeks summary judgment as to policies 1-6. Cadle argues the cash surrender value of policies 2 and 6 is not exempt because the requirements of § 222.14 are not satisfied. Cadle does not dispute that policy 1 satisfies the requirements of § 222.14 but asserts that most of the cash surrender value of the policy was created by a series of fraudulent transfers or the conversion of non-exempt funds into exempt assets in contravention of §§ 222.29 and 222.30 of the Florida Statutes. Finally, Cadle argues that policies 4 and 5 are not held in a trust and are therefore property of the estate.
Summary judgment under Rule 56 is appropriate “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.” Fed.R.Civ.P. 56(c)(2001). A moving party bears the initial burden of showing a court that there are no genuine issues of material fact that should be decided at trial. See Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); see also Clark v. Coats & Clark, Inc., 929 F.2d 604, 607 (11th Cir.1991). A moving party discharges its burden on a motion for summary judgment by “showing” or “pointing out” to a court that there is an absence of evidence to support a non-moving party’s case. See Celotex Corp., 477 U.S. at 325, 106 S.Ct. 2548. In determining whether a moving party has met its burden of establishing that there is no genuine issue as to any material fact and that it is entitled to judgment as a matter of law, a court must draw inferences from the evidence in the light most favorable to a non-movant and resolve all reasonable doubts in that party’s favor. See Spence v. Zimmerman, 873 F.2d 256 (11th Cir.1989). If a moving party satisfies this burden, then a nonmoving party must come forward with specific facts showing that there is a genuine issue for trial. See Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). A nonmoving party must do more than simply show that there is some metaphysical doubt as to the material facts. See id.
Therefore, the burden is on Debtors to show that there is no genuine dispute over the qualification of policies 1, 2 and 6 as exempt pursuant to § 222.14 of the Florida Statutes and that there is no genuine dispute that policies 4 and 5 are held in a trust by Debtor Charles V. Lowery and are therefore not property of the estate. The burden is on Cadle to show there is no genuine dispute that policies 2 and 6 do not qualify as exempt pursuant to § 222.14 and that there is no genuine dispute that the cash surrender value of policy 1 resulted from a fraudulent conveyance or the conversion of non-exempt assets into exempt life insurance. Finally, Cadle must show there is no genuine dispute that poli*320cies 4 and 5 are not held in a trust and are therefore property of the estate.
Fla. Stat. § 222.14 provides as follows:
Exemption of cash surrender value of life insurance policies and annuity contracts from legal process
The cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state and the proceeds of annuity contracts issued to citizens or residents of the state, upon whatever form, shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured or of any creditor of the person who is the beneficiary of such annuity contract, unless the insurance policy or annuity contract was effected for the benefit of such creditor.
Fla. Stat. § 222.14.
Policies 2 and 6
Debtors contend they are entitled to summary judgment as to policies 2 and 6 because they are both residents of Florida and Cadle is a creditor of the person whose life is insured by the policy. Cadle argues that § 222.14 requires that the owner of the policy claiming the exemption must be identical to the insured. Cadle contends that policies 2 and 6 are not exempt because the owner of the policy and the insured are not the same person. As to policy 2, Debtor Charles V. Lowery is the insured and Debtor Suzanne H. Lowery is the owner. As to policy 6, Debtor Suzanne H. Lowery is the insured and Debtor Charles V. Lowery is the owner.
Debtors argue that the statute exempts the cash surrender value of life insurance policies from three types of claims: attachment, garnishment, or creditors of the person whose life is insured. Debtors argue that the statute’s use of the disjunctive “or” rather than the conjunctive “and” to link “garnishment” and “creditors of the person whose life is insured” means there is no requirement that the owner of the policy and the insured be the same person.
Debtors assert that Judge Proctor’s previous holding in In re Allen, 203 B.R. 786, 795 (Bankr.M.D.Fla.1996) that the individual claiming the exemption must also be the insured was an erroneous interpretation of the statute. The only other reported decision addressing the issue is In re Butcher, 62 B.R. 162 (Bankr.E.D.Tenn. 1986) aff'd 75 B.R. 441 (E.D.Tenn.1987), aff'd 848 F.2d 189 (6th Cir.1988). In Butcher, the trustee objected to a debtor’s claim of exemption of the cash surrender value of certain life insurance policies because the debtor, who was the owner and beneficiary of the policy, was not the insured. The debtor argued that the purpose of § 222.14 was to protect the cash surrender value of insurance policies from creditors of all policy owners, not just owner-insureds. Rejecting the debtor’s reasoning, the court stated “[t]his statute ... prevents] creditors of the insured from reaching proceeds intended for the beneficiary. Th[i]s[ ] statute[ ][was] obviously not intended to protect such proceeds from the claims of the beneficiary’s own creditors. This court does not believe ... that § 222.14 was intended to prevent a creditor of the beneficiary from reaching the cash surrender value of the policy where the beneficiary, by virtue of ownership of the policy, has a right to those proceeds prior to the insured’s death.” (emphasis in original). Id. at 168-169.
The Court holds that § 222.14 only exempts the cash surrender value of life insurance policies of which the debtor is both the owner and the insured. The use of “or” to link “garnishment” and “creditors of the person whose life is insured” does not negate the statute’s plain mean*321ing and the requirement that the owner and the insured be the same person. Because Debtor Suzanne H. Lowery owns policy 2 while Debtor Charles V. Lowery is the insured, the statutory requirements as to policy 2 are not met. There is therefore no genuine issue of material fact as to policy 2. Because Debtor Charles V. Lowery owns policy 6 while Debtor Suzanne H. Lowery is the insured, the statutory requirements as to policy 6 are not met. There is therefore no genuine issue of material fact as to policy 6. The Court will therefore grant Cadle’s Cross Motion for Summary Judgment as to policies 2 and 6. The cash surrender value of Policies 2 and 6 is not exempt.
Policy 1
It is clear that Policy 1 satisfies the requirements of § 222.14. Debtor Charles Lowery, the owner of the policy and the insured, is a resident of the state of Florida. However, Cadle asserts that most of the cash value of policy 1 was created by a series of fraudulent transfers of the conversion of non-exempt funds into exempt assets in contravention of §§ 222.29 and 222.30 of the Florida Statutes.
Debtors point out that this court expressly rejected the disallowance of an exemption based upon the conversion of a non-exempt asset into an exempt asset in In re Barker, 168 B.R. 773, 776 (Bankr. M.D.Fla.1994). In Barker the Court rejected the notion that the Bankruptcy Code permits the disallowance of an otherwise valid exemption. However, the Court pointed to the availability of § 222.30 as a basis for the disallowance of an exemption resulting from the conversion of a nonexempt asset to an exempt asset with the intent to hinder, delay, or defraud a creditor.2
§§ 222.29 and 222.30
Fla. Stat. § 222.29 provides as follows:
No exemption for fraudulent transfers
An exemption from attachment, garnishment, or legal process provided by this chapter is not effective if it results from a fraudulent transfer or conveyance as provided in chapter 726. Fla. Stat. 222.29.
Fla. Stat. § 222.30 provides in pertinent part:
Fraudulent asset conversions
(1) As used in this section, “conversion” means every mode, direct or indirect, absolute or conditional, of changing or disposing of an asset, such that the products or proceeds of the asset become immune or exempt by law from claims of creditors of the debtor and the products or proceeds of the asset remain property of the debtor. The definitions of chapter 726 apply to this section unless the application of a definition would be unreasonable.
(2) Any conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of a creditor of the debtor is a fraudulent asset conversion as to the creditor, whether the creditor’s claim to the asset arose before or after the conversion of the asset, if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor.
Fla. Stat. § 222.30.
Debtors argue that policy 1 is a long standing policy. Debtors assert that they did not know there was a remaining obligation in the mortgage foreclosure proceeding that is the source of the liability to Cadle until March of 2000 or that life *322insurance policies may be exempt. Debtors assert that the premiums for Policy 1 were funded solely with exempt funds, resulting in no diminution of assets available to creditors.
The Court finds there is a genuine issue of material fact as to whether the cash surrender value of policy 1 is the result of a fraudulent transfer or the conversion of non-exempt assets into exempt life insurance and is subject to disallowance pursuant to § 222.29 or § 222.30 of the Florida Statutes. The Court will therefore deny Debtors’ Motion for Summary Judgment and Cadle’s Cross-Motion for Summary Judgment as to Policy 1.
Policies 4 and 5
Although Debtors initially claimed policies 4 and 5 as exempt, Debtors now assert that they are not property of the estate. Debtors contend that Debtor Charles Lowery holds only legal title to policies 4 and 5 as trustee for the insureds, William C. Lowery, II and Chance V. Lowery, Debtors’ grandsons, and that the beneficial interest is not property of the estate. Debtors contend that the terms of the trust are set forth in a letter attached to an affidavit accompanying the Motion for Summary Judgment. Cadle argues that Debtors’ reliance on an affidavit which contradicts their original bankruptcy schedules is insufficient to grant summary judgment in favor of Debtors.
The Court finds that there is a genuine issue of material fact as to whether Debtor Charles Lowery holds only a legal interest in policies 4 and 5. The Court will therefore deny Debtors’ Motion for Summary Judgment and Cadle’s Cross-Motion for Summary Judgment as to policies 4 and 5.
Additionally, Cadle argues that the cash value of policies 4 and 5 was created by the conversion of non-exempt assets to exempt life insurance. However, the Court need not address Cadle’s fraudulent conversion argument as to policies 4 and 5 because the issue as to those policies is whether they are property of the estate, not whether they are exempt. Debtors are not claiming policies 4 and 5 as exempt. Debtors acknowledge that the insured are not residents of Florida and the requirements of § 222.14 are therefore not met. If the Court finds that policies 4 and 5 are property of the estate, it is clear that they are not exempt.
CONCLUSION
Because the owner and insured of policies 2 and 6 are not identical, the cash surrender value of the policies is not exempt as a matter of law. The Court will grant Cadle’s Motion for Summary Judgment as to policies 2 and 6. Because there is a genuine issue as to whether the cash surrender value of policy 1 is the result of a fraudulent transfer or the conversion of non-exempt assets into exempt life insurance, the Court will deny Debtors’ Motion for Summary Judgment and Cadle’s Cross-Motion for Summary Judgment as to policy 1. Because there is a genuine issue as to whether Debtor Charles Lowery holds only the legal interest in policies 4 and 5, the Court will deny Debtors’ Motion for Summary Judgment and Ca-dle’s Cross-Motion for Summary Judgment as to policies 4 and 5. The Court will enter an order sustaining Cadle’s objection to policy 3. The Court will enter a separate order consistent with these Findings of Fact and Conclusions of Law.
. Debtors concede that Cadle is entitled to an order sustaining its objection to the exemption of policy 3. Section 222.14 exempts the cash surrender value of life insurance policies from the claims of a creditor of the person whose life is insured. Because the insured, Steven P. Lowery, is not a debtor, § 222.14 is not satisfied.
. Section 222.30 was not an available remedy in Barker because the annuities that were the subject of the objection were purchased prior to the effective date of § 222.30. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493275/ | FINDINGS OF FACT AND CONCLUSIONS OF LAW
JERRY A. FUNK, Bankruptcy Judge.
This proceeding came before the Court upon the complaint of Gregory K. Crews, the Chapter 7 Trustee of Debtor’s estate, (“Plaintiff’) seeking to recover real property transferred to Barbara Burch Wright, Debtor’s sister, Bobby Burch, Jr., Debtor’s brother, Veronica Burch, Debtor’s sister, Robert and Twilla Burch Parker, Debtor’s sister and brother-in-law, Cynthia McGuire Moore, Debtor’s niece, and Brenda Burch, Debtor’s sister-in-law (collectively “Defendants”) pursuant to 11 U.S.C. §§ 548, 549 and 550. The Court conducted a trial on August 7, 2001.
Debtor’s mother, Murtice Williams Burch (“Mrs. Burch”) testified that in 1985 she learned of the availability of undeveloped real property in Baxley, Georgia for $500.00 per acre. Mrs. Burch testified she contacted her children to inquire whether they wanted to purchase any of the property. According to Mrs. Burch, Debtor and Defendants responded affirmatively. Mrs. Burch testified she purchased one 10-12 acre parcel of property.1 Debtor, *362Defendants, and Mrs. Burch testified the purchase was on behalf of and funded by Debtor and Defendants, each contributing $500.00 per acre for their portion.2 Although Defendants contend that a warranty deed transferring the property to Mrs. Burch was issued, they did not offer it into evidence. Additionally, Defendants did not offer documentary evidence such as receipts or cancelled checks showing that they provided the money to Mrs. Burch to purchase the property on their behalf.
Defendants testified that after the date of the purchase each family member paid his or her portion of the property taxes and other expenses that arose in connection with the property. However, Defendants presented no documentary evidence of any such contributions.
Debtor testified that Mrs. Burch transferred the property to her in 1997. According to Debtor, each year Defendants sent her the money for their proportional share of the property taxes, which she then forwarded to the tax collector. Defendants presented receipts that purportedly represent the payments they made to Debtor for the property taxes. (Defs.’ Ex. 1.) However, Debtor admitted she created the receipts a few months before the trial of this adversary proceeding. Defendants also introduced a check stub for $50 dated October 7, 1996 from Defendant Bobby Burch to Debtor. (Defs.’ Ex. 2.) The purpose of the $50 is not stated on the check.
In lieu of closing argument the Court instructed the parties to submit memoran-da of law, proposed findings of facts and conclusions of law, and proposed judgments. Upon review of the evidence presented and the submissions of the parties, the Court makes the following Findings of Fact and Conclusions of Law.
FINDINGS OF FACT
On October 23, 2000 a survey of the property was completed and the property was platted into 1 to 3 acre lots. (Pl.’s Ex. 2.) Between October 30, 2001 and November 2, 2001 Debtor executed warranty deeds of the surveyed property to Defendants as follows: 2 acres to Barbara Burch Wright, 3 acres to Bobby Burch, Jr.,3 1 acre to Veronica Burch, 1 acre to Robert and Twill Burch Parker, 1 acre to Cynthia McGuire Moore, and 1 acre to Brenda Burch. (Pl.’s Ex. 1.) The deeds transferring the real property to Defendants recited the consideration for each tract of land as a “gift.” (Id.)
On November 22, 2000 Debtor filed a petition under Chapter 7 of the Bankruptcy Code. (Doc. 1.) Plaintiff was appointed Chapter 7 Trustee.
On Schedule A of her petition, Debtor indicated she owned a 1/7 interest in 12 undeveloped acres in Baxley, Georgia. On her Statement of Affairs, Debtor indicated she had not transferred any property within one year prior to the filing of the petition.
On December 6, 2000 the warranty deeds were recorded in the Official Records of Appling County, Georgia. (Pl.’s Ex. 1.)
On February 7, 2001, Plaintiff filed this adversary proceeding against Defendants *363seeking relief pursuant to 11 U.S.C. §§ 548, 549 and 550 (2001). Defendants answered the complaint asserting as affirmative defenses that: (i) the real property is not property of Debtor’s bankruptcy estate; and (ii) the real property was owned in a resulting trust with ownership interest in Defendants separately.
CONCLUSIONS OF LAW
At trial the Court concluded that the Trustee proved either a fraudulent transfer pursuant to § 548 or a post-petition transfer pursuant to § 549.
The delivery of a deed conveys title to the grantee. See Jones v. Phillips, 227 Ga.App. 94, 488 S.E.2d 692, 694 (1997). Furthermore, the recording of a deed is prima facie evidence of its delivery. Mays v. Fletcher, 137 Ga. 27, 72 S.E. 408, 409 (1911). Therefore, the transfer of Debt- or’s interest in the real property, the delivery of the deeds, occurred sometime between the date the deeds were executed and the date they were recorded. If Debt- or delivered the deed prior to the filing of the petition, the transfer of the real property is a fraudulent transfer pursuant to § 548. Debtor received nothing in exchange for the conveyance of the real property, clearly less than a reasonably equivalent value. Additionally, it is clear that Debtor was insolvent when she executed the deeds, some 3 weeks prior to the filing of the petition. If the deeds were delivered after the filing of the petition, the transfer of the property was an unauthorized post-petition transfer pursuant to § 549. The only remaining issue is whether the real property transferred was an interest of Debtor in property or property of the estate.
The bankruptcy estate consists of all legal and equitable interests of the Debtor. 11 U.S.C. § 541(a)(l)(2001). Federal law governs what is property of the estate, but state law determines the nature of the Debtor’s property interest. Charles R. Hall Motors, Inc. v. Lewis (In re Lewis), 137 F.3d 1280, 1283 (11th Cir. 1998). Because the real property is located in Georgia, the Court must look to Georgia law to determine the nature of Debtor’s interest.
Defendants argue that the real property is not property of Debtor’s bankruptcy estate because it was held in a purchase money resulting trust for the benefit of Defendants. Plaintiff argues that Defendants’ uncorroborated testimony that they provided Mrs. Burch $500.00 per acre to purchase the property is insufficient to establish a purchase money resulting trust.
Under the Georgia Trust Act, a purchase money resulting trust may be implied when legal title is in one person, but the beneficial interest is wholly or partially in another person as a result of payment of the purchase money.4 Ellenberg v. Bouldin (In re Bouldin), 196 B.R. 202, 208 (Bankr.N.D.Ga.1996).
Section 53-12-91 of the Georgia Trust Act defines a resulting trust as follows:
A resulting trust is a trust implied for the benefit of the settlor or the settlor’s successors in interest when it is determined that the settlor did not intend that the holder of the legal title to the trust property also should have the beneficial interest in the property, under any of the following circumstances:
(1) A trust is created but fails, in whole or in part for any reason;
(2) A trust is fully performed without exhausting all the trust property; or
*364(3) A purchase money resulting trust as defined in subsection (a) of code Section 53-12-92 is established.
Ga.Code Ann. § 53-12-91 (2000) (emphasis added).
Section 53-12-92 of the Georgia Trust Act defines a purchase money resulting trust as follows:
(a) A purchase money resulting trust is a resulting trust implied for the benefit of the person paying consideration for the transfer to another person of legal title to real or personal property.
(b) Except as provided in subsection (c)of this Code section, such payment of consideration shall create a presumption in favor of a resulting trust, but this presumption is rebuttable by a preponderance of the evidence.
(e) If the payor of consideration and transferee of the property are husband and wife, parent and child, or siblings, a gift shall be presumed, but this presumption is rebuttable by clear and convincing evidence. Ga.Code Ann. § 53-12-92(c) (2000) (emphasis added).
Ga.Code Ann. § 53-12-92 (2001).
Proof required to establish the existence of a purchase money resulting trust
The burden of proving the existence of a resulting trust is on the party claiming to be the beneficiary of such a trust. Freeman v. Saxton, 243 Ga. 571, 255 S.E.2d 28, 30 (1979). First, a party claiming to be the beneficiary of a resulting trust must prove that he or she provided the purchase money. Secondly, a purported beneficiary who is the husband, wife, parent, child, or sibling of the transferee of the property must prove by clear and convincing evidence that the payment of the purchase money was not a gift. In order to rebut the presumption of a gift, one must show that such a trust was contemplated by both parties by way of an agreement that is either express or implied by the circumstances or conduct of the parties, and such an agreement must have existed at the time the transaction was consummated. Burt v. Skrzyniarz, 272 Ga. 35, 526 S.E.2d 848 (2000). Although the agreement itself must have existed at the time the transaction was consummated, subsequent conduct may be examined to determine that such an agreement existed. “The conduct of the payor and of the transferee subsequent to the transfer, however, may be such as to show that at the time of the transfer the payor did not intend to make a gift to the transferee. Thus, the fact that the payor manages the property, collects rents, pays taxes and insurance, pays for repairs and improvements, or otherwise asserts ownership, and the acquiescence by the transferee in such assertion of ownership, is evidence to rebut the inference of an intention by the payor to make a gift to the transferee.” Restatement (Second) of Trusts § 443 cmt. a (1957). As to all other payors of consideration, there is a presumption in favor of a resulting trust, rebuttable by a preponderance of the evidence.
Application of law to the facts of the instant case
In order to accept Defendants’ argument that the property was held for their benefit in a purchase money resulting trust, the Court must first find that Defendants paid the purchase money. Defendants point out that the testimony by Defendants, Mrs. Burch, and Debtor that Defendants provided the purchase money is undisputed. However, Plaintiff does not *365have the burden of proving that Defendants did not pay the purchase money; Defendants have the burden of proving they did. The testimony offered by Defendants, uncorroborated by any documentary evidence whatsoever, is simply insufficient to warrant a finding that they provided the purchase money. Additionally, Debtor’s testimony is completely undermined by the fact that she indicated on her Statement of Financial Affairs that she had not transferred any property within one year prior to the filing of the petition when she had in fact deeded the 2 acres representing her portion of the real property to Bobby Burch, Jr. only 3 weeks prior to the filing of the petition. Such inconsistency raises the specter of suspicion. Finally, the recitation of consideration on the deeds transferring the real property from Debtor to defendants as a “gift” is inconsistent with Defendants having paid the purchase money.
An additional omission, perhaps the most telling and troubling of all, is Defendants’ failure to produce a shred of documentary evidence to corroborate the testimony that the property was initially titled in Mrs. Burch’s name. Defendants failed to produce a copy of the deed transferring the property to Mrs. Burch or a copy of the deed transferring the property from Mrs. Burch to Debtor.
Having found that Defendants failed to prove that they provided the purchase money for the real property or that the real property was ever titled in Mrs. Burch’s name, the Court need not address the remaining elements of proof.
CONCLUSION
Defendants failed to establish that the real property was held in a resulting trust for their benefit because they failed to prove that they paid the purchase price or that the property was ever titled in Mrs. Burch’s name. Because Defendants had no beneficial interest in the real property, Debtor or her estate held the real property in fee simple title when she transferred it. Accordingly, the delivery of the warranty deeds transferring the property to Defendants is either a fraudulent transfer pursuant to 11 U.S.C. § 548 or an unauthorized post-petition transfer pursuant to 11 U.S.C. § 549 and is subject to turnover to Plaintiff pursuant to 11 U.S.C. § 550. The Court will enter a separate Judgment in accordance with these Findings of Fact and Conclusions of Law.
. Defendants’ proposed Findings of Fact and Conclusions of Law indicates Mrs. Burch pur*362chased one 9 acre parcel of property.
. The purported purchases were as follows: Debtor-2 acres, Barbara Burch Wright-2 acres, Bobby Burch, Jr.-l acre, Veronica . Burch-1 acre, Robert and Twilla Burch Parker-1 acre, Linda McGuire, the mother of Defendant Cynthia McGuire Moore-1 acre, and Brenda Burch-1 acre.
. Debtor concedes that 2 of the 3 acres transferred to Bobby Burch, Jr. represent Debtor's proportional interest in the property and are thus property of the bankruptcy estate.
. Settlor (paying consideration) -* Trustee (holding title) -» Beneficiary (settlor) | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493276/ | MEMORANDUM DECISION GRANTING MOTION TO CONFIRM AWARD
BURTON R. LIFLAND, Bankruptcy Judge.
The following is a memorandum decision supplementing this court’s ruling on the record at the December 21, 2000, hearing regarding Dion Friedland’s motion (the “Motion to Confirm”) (i) to confirm an arbitrator’s award concerning the joint liability of Resort Entities dated October 2000, and (ii) thereafter, to reinstate the deficiency judgment jointly and severally against Leeward Isles Resorts, Limited (“LIR”) and Maundays Bay Management Limited (“MBM”). An objection to the motion was interposed by Charles C. Hick-ox on the grounds that (i) Friedland waived his right to arbitration; (ii) Hickox could not be compelled to. arbitrate, and (iii) the Mediator’s award should not be confirmed because it is based on a “completely irrational” interpretation of a settlement agreement dated May 6, 1996 (the “Settlement Agreement”). The salient facts surrounding this dispute are set forth in the district court’s decision, Hickox v. *392Friedland, 1999 WL 970454 (S.D.N.Y. October 25, 1999)(Koeltl, J.) and will not be repeated herein.
I. Waiver of Right to Arbitrate
Federal policy strongly favors arbitration as an alternative means of dispute resolution. This preference for arbitration has led to its corollary that any doubts concerning whether there has been a waiver are resolved in favor of arbitration. Thus, the caselaw in this circuit instructs that waiver of arbitration is not to be lightly inferred. In re Crysen/Montenay Energy Co. 226 F.3d 160, 162-63 (2d Cir.2000). Nonetheless, a party may waive its right to arbitration when it engages in protracted litigation that prejudices the opposing party. Prejudice as defined by the Second Circuit Court of Appeals refers to the inherent unfairness in terms of delay, expense, or damage to a party’s legal position — that occurs when the party’s opponent forces it to litigate an issue and later seeks to arbitrate that same issue. Incurring legal expenses inherent in the litigation, without more, is insufficient evidence of prejudice to justify a finding of waiver. Id. citing PPG Industries, Inc. v. Webster Auto Parts Inc., 128 F.3d 103, 107-08 (2d Cir.1997).
In determining whether a party has waived its right to arbitration, the court must consider such factors as (1) the time elapsed from commencement of litigation to the request for arbitration, (2) the amount of litigation (including any substantive motions and discovery), and (3) proof of prejudice. There is no bright-line rule, however, for determining when a party has waived its right to arbitration: the determination of waiver depends on the particular facts of each case. PPG Industries, Inc. v. Webster Auto Parts Inc., 128 F.3d at 107-08.
Hickox argues that Friedland waived his right to arbitrate because Friedland chose to litigate first. Hickox made this same waiver argument to Judge Koeltl. Although Judge Koeltl did not directly address the waiver argument in his opinion, he did suggest that this court consider referring the dispute to the Mediator. See Hickox v. Friedland, supra at *7 (“If it is unclear that whether the specific dispute has been decided by the Mediator, the Court should consider whether the dispute should be submitted to the Mediator in view of the very broad dispute resolution powers of the Mediator and the parties’ agreement to refer disputes to the Mediator.”) To the extent that Hickox’s waiver argument was not completely disposed of by the district court, I find it to be frivolous. Friedland’s application to this court for an order granting the deficiency judgment, the amount of which had been calculated by the Mediator, was a ministerial act. It was not the type of “litigation” considered by courts to constitute waiver. The “litigation,” that is, the subsequent appeal filed by Hickox, was obviously commenced by Hickox and in no way constituted a waiver on the part of Friedland to arbitrate.
II. Compelling Hickox to Arbitrate
Hickox argues that he cannot be compelled to arbitrate this dispute because he was not a party, individually, to the settlement. However, whether Hickox is a party individually to the Settlement Agreement is irrelevant. The issue referred to the Mediator is the liability of LIR and MBM to Friedland. While Hickox was not a party individually to the Settlement Agreement, he did sign off on it in his capacity as an officer of the Debtor, LIR and MBM at a point in time when he controlled all three entities (the “Resort Entities”). And the Settlement Agreement clearly provides for this dispute to be de-*393terrained by the Mediator. Paragraph 17 of the Settlement Agreement provides that:
Any disputes or determinations arising under, relating to or in connection with this Settlement Agreement, its interpretation, performance or enforcement shall be determined solely and exclusively by the Mediator, whose decision shall be final and binding and nonappealable.
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The Mediator shall also be authorized to determine the scope of this provision. In interpreting this Settlement Agreement in resolving any disputes hereunder, the Mediator shall implement the spirit and intent of the parties.
Accordingly, I find that this dispute was properly within the purview of the Mediator pursuant to the terms of the Settlement Agreement.
III. Confirmation of Award
The Mediator found that 1) based upon his independent recollection, the intent of parties was that LIR and MBM should be liable to Friedland; 2) the conduct of the parties subsequent to the Settlement Agreement demonstrates that it was the spirit and intent of the parties that LIR and MBM be liable to Friedland, and 3) a full and objective reading of the Settlement Agreement demonstrates it creates liability to Friedland on the part of LIR and MBM.
Under both New York State and Federal law, the scope of judicial review of arbitral awards is narrow. New York CPLR article 75 evidences in numerous ways the intent of the Legislature that, once it is clear that a valid agreement to arbitrate has been made and complied with and that the claim sought to be arbitrated is not barred by limitations, the authority of the arbitrator is plenary consistent with the public policy in favor of arbitration. See N.Y. CPLR § 7501; Silverman v. Benmor Coats, Inc., 61 N.Y.2d 299, 300, 473 N.Y.S.2d 774, 461 N.E.2d 1261 (1984). The grounds specified in CPLR § 75111 for vacating or modifying an arbitration award are few in number and are narrowly applied. “Courts are reluctant to disturb the decisions of arbitrators lest the value of this method of resolving controversies be undermined.” Goldfinger v. Lisker, 68 N.Y.2d 225, 230, 508 N.Y.S.2d 159, 500 N.E.2d 857 (1986) (citations omitted). Thus, the list of potential objections in CPLR 7511(b) and (c) is exclusive. Geneseo Police Benevolent Ass’n, Council 82 v. Village of Geneseo, 91 A.D.2d 858, 458 N.Y.S.2d 384 (4th Dep’t 1982), aff'd 59 N.Y.2d 726, 463 N.Y.S.2d 440, 450 N.E.2d 246 (1983). The only basis upon which an award can be vacated at the behest of a party who participated in the arbitration or was served with notice of intention to arbitrate is that the rights of that party were prejudiced by corruption, fraud or misconduct in procuring the award, par*394tiality of an arbitrator, that the arbitrator exceeded his power or failed to make a final and definite award, or a procedural failure that was not waived. Silverman v. Benmor Coats, Inc., 61 N.Y.2d at 307, 473 N.Y.S.2d 774, 461 N.E.2d 1261 (citing N.Y. CPLR § 7511(b)l). An arbitrator will be deemed to have “exceeded his power” within the meaning of CPLR § 7511(b)(l)(iii) only when one of the following three circumstances is shown: (1) the arbitrator has exceeded a specifically enumerated limitation on his authority; (2) the decision is totally irrational; or (3) the award is violative of a strong public policy. Board of Education of the Dover Union Free School District v. Dover-Wingdale Teachers’ Ass’n, 61 N.Y.2d 913, 915, 474 N.Y.S.2d 716, 463 N.E.2d 32 (1984); Rochester City School District v. Rochester Teachers Ass’n, 41 N.Y.2d 578, 582, 394 N.Y.S.2d 179, 362 N.E.2d 977 (1977).
Federal law is similar. The showing required to avoid summary confirmation of an arbitration award is high, Ottley v. Schwartzberg, 819 F.2d 373, 376 (2d Cir.1987), and a party moving to vacate the award has the burden of proof. Matter of Andros Compania Maritima, S.A. of Kissavos (Marc Rich & Co., AG.), 579 F.2d 691, 700 (2d Cir.1978); Folkways Music Publishers, Inc. v. Weiss, 989 F.2d 108, 111 (2d Cir.1993). “Arbitration awards are subject to very limited review in order to avoid undermining the twin goals of arbitration, namely, settling disputes efficiently and avoiding long and expensive litigation.” Folkways Music Publishers, Inc. v. Weiss, 989 F.2d at 111. See also Amicizia Societa Navegazione v. Chilean Nitrate & Iodine Sales Corp., 274 F.2d 805, 808 (2d Cir.)(court’s function in confirming or vacating an arbitration award is severely limited), cert. denied, 363 U.S. 843, 80 S.Ct. 1612, 4 L.Ed.2d 1727 (1960).
Section 10 of the Federal Arbitration Act provides, in pertinent part that an award may be vacated:
(1) Where the award was procured by corruption, fraud, or undue means.
(2) Where there was evident partiality or corruption in the arbitrators, or either of them.
(3) Where the arbitrators were guilty of misconduct in refusing to postpone the hearing, upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; or of any other misbehavior by which the rights of any party have been prejudiced.
(4) Where the arbitrators exceeded their powers, or so imperfectly executed them that a mutual, final, and definite award upon the subject matter submitted was not made.
See 9 U.S.C. § 10. In addition to these statutory grounds, an award may be vacated where the arbitrator acts in manifest disregard of the law. See Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d 9, 12 (2d Cir.1997). The “manifest disregard” test requires “something beyond and different from a mere error in the law or failure on the part of the arbitrators to understand or apply the law.” Id. citing Siegel v. Titan Indus. Corp., 779 F.2d 891, 892 (2d Cir.1985) (per curiam). Manifest disregard of the law may be found if the arbitrator understood and correctly stated the law but proceeded to ignore it. Id. (citations omitted). However, if there is “even a barely colorable justification for the outcome reached,” the court must confirm the arbitration award. Willemijn Houdstermaatschappij, BV v. Standard Microsystems Corp., 103 F.3d at 13 citing Matter of Andros Compania Maritima, S.A. of Kissavos (Marc Rich & Co., A.G.), 579 F.2d at 704.
*395Hickox argues that the Mediator’s award and his interpretation of the Settlement Agreement is “totally irrational.” I disagree. The ultimate issue determined by the Mediator was that it was the intent of the parties that LIR and MBM be liable to Friedland for the payment obligations under the Settlement Agreement. The Mediator based his determination on three separate grounds, any one of which supports his award. The Settlement Agreement specifically directs that in resolving any dispute relating to such agreement that the Mediator “shall implement the spirit and intent of the parties.” (See Settlement Agreement, ¶ 17). The Mediator was directly involved in the negotiating and drafting of the Settlement Agreement and is more than qualified to determine the parties intent with respect to such agreement and this court, finding the Mediators conclusions rational, may not disturb that award. See Silverman v. Benmor Coats, Inc., 61 N.Y.2d at 308, 473 N.Y.S.2d 774, 461 N.E.2d 1261 (the arbitrator “may do justice as he sees it, applying his own sense of law and equity to the facts as he finds them to be and making an award reflecting the spirit rather than the letter of the agreement — ”).
Accordingly, the Motion to Confirm is granted.
ORDER (i) CONFIRMING ARBITRATOR’S AWARD AND (ii) DIRECTING THAT A DEFICIENCY JUDGMENT BE REINSTATED JOINTLY AND SEVERALLY AGAINST LEEWARD ISLES RESORTS, LIMITED AND MAUNDAYS BAY MANAGEMENT, LIMITED, TOGETHER WITH HBLS, L.P., DEBTOR, AS WAS PREVIOUSLY ENTERED
Dion Friedland (“Friedland”), a creditor of HBLS, L.P. (“HBLS” or at times, the “Debtor”), having moved for an order (i) confirming an arbitrator’s award concerning the joint liability of Resort Entities, dated October 2000, and (ii) thereafter, to reinstate the deficiency judgment jointly and severally against Leeward Isles Resorts, Limited (“LIR”) and Maundays Bay Management Limited (“MBM”) (HBLS, LIR and MBM, being at times referred to collectively as the “Resort Entities”); and Charles C. Hickox (“Hickox”), formerly an officer, director and shareholder of LIR and MBM and the President of the corporate general partner of HBLS, having filed an objection to the motion on the grounds that (i) Friedland purportedly waived his right to arbitration; (ii) Hickox could not be compelled to arbitrate; and (iii) the Mediator’s award should not be confirmed because it is purportedly based on a “completely irrational” interpretation of a settlement agreement dated May 6, 1996 (the “Settlement Agreement”); and upon review of the entire record as submitted by the parties and after due deliberation thereon; and the Court having heard and considered oral argument on the motion and the objection by counsel for the respective parties on December 21, 2000; and this Court having stated its initial rulings on the record at the conclusion of the oral argument held on December 21, 2000 in granting the motion and indicating that it would thereafter issue a written memorandum decision supplementing its rulings; and thereafter this Court having supplemented its rulings on the record by issuing a Memorandum Decision Granting Motion to Confirm Award, dated December 22, 2000, inter alia, directing counsel to submit an order consistent with the Court’s decision; and
Upon motion of Kravet & Vogel, LLP, attorneys for Friedland, and upon full consideration of the entire record and after due deliberation thereon; it is
ORDERED, that the Motion is granted; and it is further
*396ORDERED, that the Arbitrator’s Award, as defined above, is hereby confirmed and shall have the same force and effect as an order of this Bankruptcy Court; and it is further
ORDERED, that the joint and several liability of LIR and MBM under the Deficiency Judgment, together with HBLS, is hereby reinstated as previously entered; and it is further
ORDERED, ADJUDGED AND DECREED that Dion Friedland, as judgment creditor, having a residence at 15 Third Avenue, Lower Houghton, Johannesburg 2198, South Africa, shall recover and have judgment jointly and severally against the Debtor, HBLS, L.P., whose last known principal place of business was c/o Cap Juluca, Inc., its general partner, c/o Ash-land Management Corporation, 26 Broadway, New York, New York 10004 on his Deficiency Claim in the sum of $4,378,820.53 as of June 9, 1998, plus interest thereon from the date of entry until paid at the rate provided for under 28 U.S.C. § 1961; and it is further
ORDERED, ADJUDGED AND DECREED that Dion Friedland, as judgment creditor, having a residence at 15 Third Avenue, Lower Houghton, Johannesburg 2198, South Africa, shall recover and have judgment jointly and severally against Leeward Isles Resorts, Limited, whose last known principal place of business was c/o On-Island (Anguilla) Corporate Services Limited, 43 Caribbean Commercial Center, The Valley, Anguilla, on his Deficiency Claim in the sum of $4,378,820.53 as of June 9, 1998, plus interest thereon from the date of entry until paid at the rate provided for under 28 U.S.C. § 1961; and it is further
ORDERED, ADJUDGED AND DECREED that Dion Friedland, as judgment creditor, having a residence at 15 Third Avenue, Lower Houghton, Johannesburg 2198, South Africa, shall recover and have judgment jointly and severally against Maundays Bay Management, Limited, whose last known principal place of business was c/o On-Island (Anguilla) Corporate Services Limited, 43 Caribbean Commercial Center, The Valley, Anguilla, on his Deficiency Claim in the sum of $4,378,820.53 as of June 9, 1998, plus interest thereon from the date of entry until paid at the rate provided for under 28 U.S.C. § 1961; and it is further
ORDERED, that the Clerk is hereby directed to enter this order and judgment forthwith and that judgment creditor shall hereafter have execution thereon and have the right following entry to execute upon the assets of judgment debtors named above wherever such assets may be located up to the amount of the aforesaid judgment, plus interest thereon as permitted by law.
. NYCPLR § 7511 provides in relevant part:
(b) Grounds for vacating.
1. The award shall be vacated on the application of a party who either participated in the arbitration or was served with a notice of intention to arbitrate if the court finds that the rights of that party were prejudiced by:
(i) corruption, fraud or misconduct in procuring the award; or
(ii) partiality of an arbitrator appointed as a neutral, except where the award was by confession; or
(iii) an arbitrator, or agency or person making the award exceeded his power or so imperfectly executed it that a final and definite award upon the subject matter submitted was not made; or
(iv) failure to follow the procedure of this article, unless the party applying to vacate the award continued with the arbitration with notice of the defect and without objection. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493277/ | FINDINGS OF FACT, CONCLUSIONS OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Bankruptcy Judge.
It is important to note, at the outset, what is and what is not involved in the precise matter under consideration. In this Chapter 7 case of John Kevin and Maria Kristina Leopard (Debtors), this Court is not reviewing an appeal of a decision of the Lee County Construction Licensing Board (Board), which revoked the license of the Debtor, as a contractor to install tile and marble. Clearly, it is not within the competence of this Court to pass on the correctness of that decision. What is involved here is the issue of whether the decision of the Board was based on the sole fact that the Debtor sought relief in the bankruptcy court and obtained a discharge, and therefore, whether or not the Board violated 11 U.S.C. § 525(a). This precise issue is clearly within the competence of this Court.
The two pleadings that have framed the issue before this Court are as follows: (1) an Order To Show Cause (to Lee County), entered by this Court on October 26, 2000, and (2) Debtor’s Motion for Summary Judgment, filed by the Debtor on August 31, 2001.
Based upon the Debtor’s filing of the Motion for Summary Judgment, it is the Debtor’s contention that there are no genuine issues of material fact that are in dispute, and based on the pleadings of record, this Court should, by summary judgment, find in favor of the Debtor. It is the Debtor’s contention that the Board violated the protection granted to him by virtue of Section 525(a) of the Code because the permanent revocation of his license was based on the sole fact that he sought relief under Chapter 7 of the Code and obtained a discharge of his debts, including the debts incurred by him in connection with the operation of his contracting business.
In support of the this contention, the Debtor relies upon the following undisputed facts: that on April 2,1998, the Debtors filed for Chapter 7 relief pursuant to 11 U.S.C. § 301; that on July 13, 1998, the Debtors received their discharge; that on October 8, 1998, the Board issued a probable cause finding (or in essence, an order to show cause) as to why the Board should not revoke the Tile and Marble Certification of Competency for the Debtor; and that on December 1, 1998, the Board held a hearing, revoked the Debtor’s certification, and made a determination in violation of Section 525(a) of the Code. These facts are not disputed by the Board.
The record of this case established that there was an evidentiary hearing on December 1, 1998, before the Board, to consider several complaints lodged with the Board by customers who engaged the services of “Kevin Leopard,” the Debtor. The Board charged the Debtor with incompetence and with several violations of the Lee County Ordinance No. 96-20. Specifically,'the Board charged the Debtor with and concluded as follows:
1. The Debtor obtained his license with the submission of an improperly executed and procured letter of recommendation;
*5092. The Debtor was guilty of incompetence or misconduct in conducting his business in violation of § 9.A. 16 of the Lee County Ordinance (LCO);
3. The Debtor violated § 8.K.10 of the LCO for operating his business and employing persons without obtaining workers’ compensation insurance;
4. The Debtor failed to satisfy the requirement of verification of experience § 9.A.1 of the LCO;
5. The Debtor failed to complete jobs and failed to satisfy a civil judgment § 9.A.20 of the LCO; and
6. The Debtor committed mismanagement and misconduct in the practice of contracting causing financial loss to customers in violation of § 9.A.20 of the LCO and § 9.A.8.b. of the LCO for abandonment of jobs.
Based on the forgoing, the Board ruled that the Debtor’s contractor’s license be revoked permanently and fined the Debtor $1,000.
Section 525(a) of the Code prohibits governmental units from denying, revoking, suspending, or refusing to renew a license, permit, charter, franchise, or other similar grant of a person who has been a debtor under the Code. The prohibition does not prohibit consideration of other factors such as future financial responsibility or ability. H.R.Rep. No. 595, 95th Cong. 1st Sess. 366-367 (1977); S.Rep. No. 989, 95th Cong.2d Sess. 81 (1978), U.S.Code Cong. & Admin.News 1977, pp. 5963, 5787. In the case of Laracuente v. Chase Manhattan Bank, 891 F.2d 17 (1st Cir.1989), the court held that the mere allegation of discrimination is not sufficient if there exists a sufficient non-bankruptcy justification for termination of employment. Although Section 525(b) of the Code was at issue in Laracuente, the analysis is applicable to the case at hand. See also In re Exquisito Services, Inc., 823 F.2d 151 (5th Cir.1987)(narrowly construing section 525(a)).
The evidence established at the hearing is totally devoid of any proof that the Debtor’s license was revoked because he was a debtor under Chapter 7 of the Code. The closest charge relevant to a claimed violation of Section 525 was the Board’s findings and conclusions that the Debtor violated § 9.A.20 of the LCO for failing to satisfy, within a reasonable time, a civil judgment. This inference from the record, even if it is justified, far outweighs numerous other totally independent non-bankruptcy related grounds that certainly would have fully supported the Board’s decision. While it is true that one might conclude that the punishment may have been too harsh, that is a non sequitur and has no relevance to the precise issue before this Court.
This being the case, this Court is satisfied that the record is sufficient for this Court to determine that the Debtor is not entitled to any relief from this Court based on any violation by the Board.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Debtor’s Motion for Summary Judgment be, and the same is hereby, denied. It is further
ORDERED, ADJUDGED AND DECREED that the Order To Show Cause be, and the same is hereby, discharged as against the Board of County Commissioners of Lee County. This Court finds that the Lee County Construction Licensing Board, the board established by the Board of County Commissioners for Lee County, is not in violation of Section 525(a) of the Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493278/ | MEMORANDUM
JAMES J. BARTA, Bankruptcy Judge.
The matter being considered here is the motion of Balloon Society of St. Louis, Inc. (“Plaintiff’) for summary judgment on its Adversary Complaint as Amended to determine the dischargeability of a judgment debt owed by Randy Graham (“Defendant” or “Debtor”). The determinations set out herein are based upon a consideration of the record as a whole, including the Debt- or’s responses to the Plaintiffs allegations, the legal memoranda, affidavits and other exhibits submitted by the Parties.
This is a core proceeding pursuant to Section 157(b)(2)(I) of Title 28 of the United States Code. The Court has jurisdiction over the parties and this matter pursuant to 28 U.S.C. Sections 151, 157 and 1334, and Rule 81-9.01 of the Local Rules of the United States District Court for the Eastern District of Missouri.
For several years prior to the commencement of this Chapter 7 Bankruptcy *707case, the Debtor was employed by the Plaintiff as its business manager, vice president and chief executive officer. The Plaintiff provided hot air balloon rides in the St. Louis area for a fee. The Debtor was terminated from his employment by David Rapp, the Plaintiffs President, on January 21, 1998, “for irregularities in the bookkeeping system, for failure to file the necessary tax returns, for failure to pay necessary taxes on payroll accounts, and for failure to disclose the correct income of the company.” Exhibit 3 to Memorandum in Support of Plaintiffs Motion for Summary Judgment, Transcript of Motion for Default Judgment Hearing, January 8,1999, page 7.
On October 7, 1998, the Plaintiff corporation and its president, David Rapp, filed a two count Petition in St. Louis County Circuit Court seeking damages from the Debtor. On the Plaintiffs’ Motion for Default Judgment, and after the Plaintiffs submitted testimony and evidence on the record, the Circuit Court entered a Judgment and Order against the Debtor on January 8, 1999. As to Count I of the Petition, the Circuit Court found in favor of David L. Rapp, individually, and against the Debtor, and awarded Mr. Rapp the sum of $4,965.65. As to Count II of the Petition, the Circuit Court found in favor of the Plaintiff corporation and against the Debtor and awarded the Plaintiff the sum of $126,874.43. The Debtor had failed to file a response to the Petition, and had not appeared at the Circuit Court trial. This Adversary Proceeding addresses only the dischargeability of the judgment awarded to the Plaintiff corporation on Count II of the Circuit Court Petition.
In Count II of the Circuit Court Petition the Plaintiff alleged that as an officer and employee of the Plaintiff, the Debtor owed the Plaintiff a fiduciary duty of due care, honesty, loyalty and prudence in the exercise of his duties; that he breached his fiduciary duties by failing to keep adequate records of sales and by failing to withhold sales taxes; that he misappropriated the Plaintiffs funds; and that he converted property of the “defendant” for his own use.1
At the hearing on the Plaintiffs’ Petition, the Circuit Court declared the Debtor to be in default, and proceeded with the hearing. The Court received sworn testimony from David L. Rapp, the president and sole stockholder of the Plaintiff here. Mr. Rapp testified that the Debtor had been the general manager of the business and essentially ran the day to day operations. The Debtor had performed all the bookkeeping activities and had hired most of the other employees.
As a result of a sales tax audit by the Missouri Department of Revenue, Mr. Rapp became aware of certain irregularities in the operation of the Balloon Society of St. Louis, Inc., including the fact that there had been no cash deposits to the company’s bank account for the two years preceding the Debtor’s termination; and that in lieu of cash payments, the Debtor had accepted certificates for meals to certain restaurants, and certificates from an oil change company, in exchange for certificates for balloon rides. The Debtor used the restaurant and oil change certificates for his personal benefit. Mr. Rapp also testified that the Debtor had failed to file company payroll tax returns that had been prepared by an accountant. As a result, the business incurred penalties for failure to pay taxes.
Mr. Rapp testified further that as a result of the examination of the company *708books, he determined that a cold air inflatable balloon and a personal computer were missing; and that the Debtor made unauthorized advances of corporate funds to himself for personal items. These actions were hidden from Mr. Rapp until the books were examined in connection with the audits. In his testimony, Mr. Rapp concluded that the Debtor’s actions were intentional and calculated, because they were done surreptitiously. Mr. Rapp calculated that the amount of damages that resulted from these actions by the Debtor was $26,874.43. On the day that the Debt- or left his employment with the Plaintiff, all bank deposit slips, all cash sales receipt tickets, and a book that contained the company’s flight schedules were removed.
In response to questions from the St. Louis County Circuit Court, Mr. Rapp outlined the method used by the Department of Revenue and the company’s accountant in determining the losses and constructing the damage amounts. In a separate affidavit submitted in support of the Circuit Court action, Mr. Rapp stated that the Debtor’s actions described in the complaint were not authorized, that his actions “were fraudulent and the result of fraud or defalcation while acting in a fiduciary capacity for the sole purpose of embezzling and stealing monies and property belonging to the employer corporation or otherwise causing willful and malicious injury to plaintiff and its property.” Plaintiffs Exhibit No. 4, Affidavit of David L. Rapp, December 8, 1998. The affidavit was part of the record that was submitted to the Circuit Court for its consideration prior to entry of the judgment. On January 8, 1999, the Circuit Court entered its “Judgment and Order” finding in favor of the Plaintiff on each count. Plaintiffs Exhibit 2, Plaintiffs Memorandum in Support of Plaintiffs Motion for Summary Judgment, Document 16, filed August 18, 2000.
The Debtor commenced this Chapter 7 case by filing a voluntary petition for relief on October 15, 1999. This Adversary Complaint was filed on November 12, 1999 and amended on July 17, 2000. On July 24, 2000, the Debtor filed an Answer to the Amended Complaint that denied the Plaintiffs substantive allegations.
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. Fed.R.Civ.P. 56; Fed. R. Bankr.P. 7056. The moving party bears the burden of proving the elements necessary to obtain a judgment. Id.
By filing the Chapter 7 Petition, the Debtor has requested that the Court enter a discharge of his obligations, including the debt that is the judgment awarded to the Plaintiff. In the Amended Complaint in this matter, the Plaintiff has responded to the Debtor’s Chapter 7 Petition by arguing in part that the Debtor is collaterally es-topped from re-litigating in the Bankruptcy Court the issues that had been previously decided in the State Court.
In the “Amendment of Complaint” filed on July 17, 2000 (Document No. 11), the Plaintiff substituted paragraph 10 of the original complaint with the following paragraph:
10. The debt owed by defendant to plaintiff is nondischargeable under Section 523(a) of the United States Bankruptcy Code.
The Plaintiff has argued that the evidence and documentation in this Adversary Proceeding have established that the State Court judgment is a debt for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny, and *709that it is not dischargeable under Section 523(a)(4). He has argued further that the doctrine of collateral estoppel should operate to bar relitigation by the Debtor of these substantive issues because they had been determined in the earlier State Court proceeding.
The doctrine of collateral estoppel provides that an issue judicially determined in one action may not be relitigated in another action. Shahan v. Shahcm, 988 S.W.2d 529, 532 (Mo. Banc 1999). Collateral estoppel principles apply to preclude relitigation of issues in dischargeability proceedings before the bankruptcy court. See Bilandzic v. Fishman, 215 B.R. 733, 735 (Bankr.E.D.Ark.1997). In considering the applicability of the doctrine of collateral estoppel, a federal court is to refer to the preclusion law of the State in which the judgment was rendered. Bay Area Factors, A Division of Dimmitt & Owens Financial, Inc. v. Calvert, 105 F.3d 315, 317 (6th Cir.1997).
In Missouri, the elements of collateral estoppel are: (1) the issue decided in the first action must be identical to the issue in the second action; (2) the prior litigation must have resulted in a final judgment on the merits; (3) the party to be estopped must have been a party to or in privity with a party to the prior adjudication; and (4) that party must have had a full and fair opportunity to litigate the issue in the prior suit. St. Louis University v. Hesselberg Drug Company, 35 S.W.3d 451, 455 (Mo.Ct.App.E.D.2001); Scarborough v. Fischer, 34 S.W.3d 263, 264 (Mo.Ct.App.W.D.2000), citations omitted. All four of the elements must be established if the doctrine is to apply.
Both res judicata and collateral estoppel are premised on a finding that there has been an adjudication on the merits in a prior proceeding. Gall v. South Branch National Bank of South Dakota, of Sioux Falls, S.D., 783 F.2d 125, 127 (8th Cir.1986).
The record here has not established that the prior Circuit Court litigation resulted in a judgment on the merits. The Debtor as the Defendant in the prior litigation failed to file an answer or other response and failed to appear at the trial. The Circuit Court judgment was a default judgment, and the matters that must be considered in this Adversary Proceeding were not at issue in the default proceeding. See In re Quinn (Vaughn v. Quinn), 170 B.R. 1013, 1016-1017 (Bankr.E.D.Mo. 1994). Absent a specific pre-emption by Congressional or legislative action, a default judgment is normally not given preclusive effect under the collateral estoppel doctrine because no issue has been actually litigated. Meyer v. Rigdon, 36 F.3d 1375, 1379 (7th Cir.1994); Hangley v. American Family Mutual Insurance Company, 872 S.W.2d 544, 547-548 (Mo. Ct.App.W.D.1994). A default proceeding is not a trial on the merits. State of Missouri ex rel. Brooks Erection & Construction Company v. Gaertner, 639 S.W.2d 848, 849 (Mo.Ct.App.E.D.1982). Having determined that one of the required elements has not been established, it is not necessary to address the three remaining elements of collateral estoppel.
The prior litigation having not resulted in a judgment on the merits, the doctrine of collateral estoppel does not operate in this Adversary Proceeding to preclude the Defendant from prosecuting his response to the Plaintiffs request to determine the dischargeability of this debt. The pleadings in this matter have shown that genuine issues as to material facts remain to be determined in this matter. The Plaintiffs motion for Summary Judgment will be denied.
*710
ORDER
On consideration of the record as a whole, and consistent with the determinations set out in the Memorandum in this matter,
IT IS ORDERED that the motion of Balloon Society of St. Louis, Inc., Plaintiff, for Summary Judgment is denied; and
That this matter is continued and reset to February 20, 2002 at 10:00 a.m. in the United States Bankruptcy Court, 7th Floor South, Thomas F. Eayleton United States Courthouse, 111 South Tenth Street, St. Louis, Missouri as a continued pretrial hearing to receive the Parties’ requests concerning other and further proceedings in this matter.
. The reference to property of the "defendant” is apparently an error. Other refer-enees in the Petition refer to property of the Plaintiff. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493280/ | ORDER GRANTING IN PART AND DENYING IN PART MOTIONS FOR SUMMARY JUDGMENT
(Doc. Nos. 31 and 33)
ALEXANDER L. PASKAY, Chief Judge.
The matter under consideration is a sequel to the dissolution of marriage proceeding of Eli Baron (Debtor) and his former spouse, Mary Armbruster Baron (Ms. Baron), which was concluded on January 15 1996, with the entry of a Final Judgment of Dissolution of Marriage (Final Judgment), entered by the Circuit Court of Collier County, Florida.
The immediate matters under consideration are the following: (1) a Motion for Summary Judgment, filed by the Debtor and (2) a Motion for Summary Judgment, filed by Ms. Baron. The Motions are filed in an adversary proceeding (Adv. No. GO-771), commenced by a Complaint, filed by Ms. Baron and naming the Debtor as the defendant. Ms Baron has sought a determination in Count I of the Complaint that the unspecified obligations set forth in a certain Mediation Agreement, approved and incorporated in the Final Judgment, are in the nature of support and should be determined by this Court to be nondis-chargeable. Although the basis for the relief sought is not specified, it is not disputed that it is based on Section 523(a)(5) of the Bankruptcy Code. The claim of nondischargeability in Count II of the Complaint is based on Section 523(a)(15) of the Code, and claims that certain unspecified sums set forth in the Mediation Agreement are in the nature of property settlement (sic) and should be declared nondischargeable.
In due course, the Debtor, rather than attacking the sufficiency of the allegations as pled, filed a perfunctory answer admitting and denying some of the allegations set forth in Complaint, without specifically addressing the allegations in both Counts, but merely referring to certain paragraphs in both Counts.
On May 10, 2001, this Court entered an Order scheduling the Final Evidentiary Hearing for June 13, 2001. On May 15, 2001, prior to the scheduled trial, the Debtor filed a Motion to Dismiss Count II of the Complaint. This was granted with the entry of an Order dated June 26, 2001. This leaves for consideration the claim set forth in Count I of the Complaint, based on Section 523(a)(5) of the Code.
The first Motion for Summary Judgment was filed by the Debtor on October 18, 2001. In support of his Motion, the Debtor filed Defendant’s Affidavit in Support of Defendant’s Motion for Summary Judgment (his own Affidavit). Attached to the Affidavit, is (a) the Mediation Agreement, (b) the Final Judgment of Dissolution of Marriage, (c) Notice of Filing and Husband’s Temporary Financial Affidavit, (d) a copy of check in the amount of $500,000, payable to Mary Armbruster and drawn on the trust account of the law firm of Woodward, Pires, Lombardo, P.A., and *787(e) a closing statement with respect to the sale of a condominium. There is no contention in the Motion that there are no genuine issues of material facts, merely that the remaining obligation, fixed by the Mediation Agreement, should be discharged and the “Plaintiffs Complaint” be dismissed.
On October 26, 2001, Ms. Baron filed her Motion for Summary Judgment. In her Motion, she contends that there are no genuine issues of facts, that the following obligations of the Debtor, fixed by the Mediation Agreement, are in the nature of support, and therefore, they are nondis-chargeable pursuant to Section 523(a)(5) of the Code. The obligations that she claims are in the nature of support are the following:
(a) monthly support of 4,000;
(b) $500,000 to be paid at four (4%) percent interest in lump sum payments of $50,000 a year with a balloon payment of all remaining sums in five (5) years;
(c) lump sum payments for two years of $238,615 per year; and
(d) a home for Ms. Baron and the children.
In support of her Motion, she filed three exhibits: (1) her own Affidavit (Exh. B to her Motion), (2) the Affidavit of Christopher Lombardo (Exh. A to her Motion) and (3) the Mediation Agreement (Exh. C to her Motion). In addition, attached as exhibits to the affidavits are the following documents: (a) the Husband’s Temporary Financial Affidavit, (b) the Notice of Filing of the Husband’s Temporary Financial Affidavit, (c) the Financial Affidavit, and (d) the Notice of Filing the Financial Affidavit. These are the relevant documents that reveal the following facts that are without dispute.
The Debtor and his ex-wife, Ms. Baron, were married in 1984. At the time of their divorce (in 1995), there were three children from the marriage, ages 9, 7 and 5 respectively. As part of the dissolution of marriage proceeding in 1995, the parties agreed to resolve their differences through mediation. On November 13, 1995, the Mediator filed and submitted a mediation agreement (Mediation Agreement) to the Circuit Court where the divorce proceeding was pending. On January 25, 1996, the Circuit Court approved the Mediation Agreement and incorporated the same into the Final Judgment.
The Mediation Agreement provided, inter alia, in Paragraph (1) that the Debtor shall purchase a home for Ms. Baron which shall be free and clear of any liens for a purchase price not to exceed $450,000, or in the event a home is not purchased to pay Ms. Baron $450,000 in cash.
In Paragraph (2) of the Mediation Agreement, the Debtor was required to make a temporary support in an unspecified amount which, apparently, had been fixed before the Circuit Court until the home was purchased, or if not purchased the sum of $450,000 was paid.
Paragraph (3) of the Mediation Agreement provided an extensive detailed provision for child support and required the Debtor to pay $3,000 per month as child support until each child attained the age of 18, or is between the age of 18 and 19 and still in high school, up to graduation or the 19th birthday, whichever last occurs. In addition, the Debtor was required to pay the sums necessary for numerous items, including clothing, medical and dental insurance, preschool and school expenses, and college education, which includes tuition, room and board, fees, books and supplies and reasonable transportation.
To assure that these provisions for the children are met, the Debtor was required *788to maintain a life insurance policy in the amount sufficient to provide the necessary support for the children for the items as outlined above. In addition, the Debtor was also required to maintain life insurance that was in effect at that time on the life of the children.
Paragraph (4) of the Mediation Agreement entitled “Alimony” set forth the following provisions. The Debtor was required to pay Ms. Baron a non-modifiable permanent alimony in the amount of $1,000 per month, which would terminate only upon the wife’s remarriage or death, the husband’s death, or 13 years from the date of the Mediation Agreement, whichever occurs first. This obligation shall start once Ms. Baron moves into the house described earlier or receives the $450,000, but in no event later than 6 months from the date of the Mediation Agreement. .The alimony shall be deductible to the husband and taxable to the wife.
Paragraph (5) of the Mediation Agreement sets forth specific provisions as to the disposition of personal properties, including a 1994 Plymouth Voyager automobile.
Paragraph (8) entitled “equitable distribution” requires the Debtor to pay to Ms. Baron any refund he might receive from the IRS concerning the 1992 tax returns based on the net operating losses. In the event the refund is not paid by the IRS, or the Debtor fails to request a refund, then the Debtor is required to pay to the wife the net operating loss of $477,231.00 as follows: (1) on July 1, 1997, the sum of $238,615 and (2) on July 1, 1998, in the same amount.
In addition, as equitable distribution, the Debtor is required to pay Ms. Baron $500,000 with interest at the rate of four (4%) percent per annum for five (5) years in the following installments: (1) $2,000 toward principal and interest commencing six months from the date of the agreement or closing to the residence to be purchased, or if not purchased the receipt of $450,000 whichever occurred first; (2) on January 1, 1997, $50,000 for principal reduction and thereafter annual payments on January of each year in the amount of $50,000 per year, until the entire $500,000, plus accrued interest has been paid in full. If there is an amount that remains unpaid at the end of five years, the Debtor shall pay, in full, the balloon balance of the remaining and outstanding amount of principal and interest.
Paragraph (9) the Mediation Agreement provides that the husband will not attempt to discharge any of his obligations to the wife in bankruptcy. The Debtor stipulated that the alimony amount set forth in Paragraph (8) is premised on the assumption that the wife will receive her equitable distribution in full. The Debtor further acknowledged that the wife’s support needs and of the children are being partially met by the equitable distribution award.
These are basically the essential features of the Mediation Agreement that have been approved by the Circuit Court. And, according to the Motion for Summary Judgment filed by Ms. Baron, the following amounts shall be excepted from the overall protection of the bankruptcy discharge pursuant to Section 523(a)(5) of the Code:
a. monthly support of $4,000;
b. $500,000 to be paid in five years;
c. lump sum support payments for 2 years in the amount of $238,615 per year; and
d. either the purchase of a home or if not purchased the sum of $450,000.
Paragraph (5) provides that these provisions purportedly represent the clear intent of the parties and they are in the *789nature of support and not equitable distribution.
It appears from the Affidavit filed by the Debtor, in support of his Motion for Summary Judgment, that at the time of the divorce, he had no income, had expenses of $11,145.00 per month, and had liabilities exceeding his assets by more than $7 million. The Debtor, in his Affidavit, further states that in September of 1999, he paid Ms. Baron the $500,000 pursuant to the Mediation Agreement.
In addition, in 1998 the Debtor gave the proceeds of the sale of a lot in the amount of $205,000 to Ms. Baron as distribution of assets, not as support. Moreover, counsel for Ms. Baron purchased mortgages encumbering a certain condominium unit owned by the Debtor, completed the foreclosure and sold the unit for $998,000 and received $933,314 as net proceeds.
In her Affidavit filed in support of her Motion for Summary Judgment, Ms. Baron basically reiterates that the provisions in the Mediation Agreement were in the nature of support, notwithstanding the characterization of certain obligations as equitable distribution; that it was clearly always the intent of the parties that the provisions identified earlier were in the nature of support, and were only labeled as equitable distribution at the request of the Debtor who did not want to have the obligation be modifiable and did not want any tax consequences to flow from the support payments, and wanted a definite termination date for the obligations.
She also concedes, however, that the obligation imposed on the Debtor, in the amount set forth in Paragraph (8) of $500,000, was made on the assumption that she will receive her equitable distribution in its entirety. She also concedes that the $500,000 award would meet, in part, the support of her and the children. In her Affidavit, she then concludes that the total amount of support which should be excluded from the overall protection of the discharge $1,058,582 plus interest from June 13, 2001, to the present.
Ms. Baron does not acknowledge in her Affidavit any of the payments claimed to have been made by the Debtor in his Affidavit, particularly the sum of $500,000 paid to her on September 3, 1999, which allegation is supported by a copy of a check attached thereto. She also does not acknowledge the receipt of the sum of $205,000 from the proceeds of the sale of a lot and the sum of $933,314 received from the foreclosure of the condominium unit owned by the Debtor in Naples.
These are basically the facts that are undisputed, and this leaves for consideration the respective positions of the parties concerning a determination by this Court of the true nature of the obligations, and particularly the binding effect of the Mediation Agreement.
Chapter 7 of the Bankruptcy Code provides for a general discharge to a debt- or from “all debts that arose before the date of the order for relief.” 11 U.S.C. § 727(b). There are exceptions to this general discharge, including Section 523(a)(5), which provides as follows: *79011 U.S.C. § 523(a)(5). Pursuant to Section 523(a)(5), “a given domestic obligation is not dischargeable if it is ‘actually in the nature of alimony, maintenance, or support.” In re Harrell, 754 F.2d 902, 904 (11th Cir.1985).
*789A discharge under section 727 ... does not discharge an individual debtor from any debt — to a spouse, former spouse, or child of the debtor, for alimony to, maintenance for, or support of such spouse or child, in connection with a separation agreement, divorce decree or other order of a court of record, ... but not to the extent that—
(B) such a debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.
*790In general terms of the application of state law to Section 523(a)(5), case law is clear that bankruptcy courts are not bound to the label attached by the divorce court in the context of a written agreement or judgment. In re Strickland, 90 F.3d 444 (11th Cir.1996)(holding that although federal law controls, state law provides guidance in determining whether the obligation should be considered “support” under § 523(a)(5)). See also In re Goin, 808 F.2d 1391, 1392 (10th Cir.1987)(bankruptcy courts not bound by state laws defining an item as maintenance or property settlement, nor are they bound to accept divorce decree’s characterization of award); Williams v. Williams (In re Williams), 703 F.2d 1055, 1057 (8th Cir.1983)(bankruptcy courts are not bound by state law or by the divorce decree definitions or characterizations of an item as either maintenance or property settlement).
A debt is in the nature of support or alimony if at the time of its creation the parties intended the obligation to function as support or alimony. Cummings v. Cummings, 244 F.3d 1263, 1265 (11th Cir. 2001) (citations omitted). The party seeking to hold the debt nondischargeable has the burden of proving by a preponderance of the evidence that the parties intended the obligation as support. Id.
In the case of Horton v. Horton (In re Horton), 69 B.R. 42 (Bankr.E.D.Mo.1986), the former wife filed a complaint seeking to except from discharge certain of debt- or’s obligations arising from state court decree dissolving their marriage. The bankruptcy court held that the debtor’s obligation to indemnify and hold former spouse harmless from loss or expense was in the nature of alimony and support, and not dischargeable. The bankruptcy court, in examining the “Separation Agreement” specifically quoted the unambiguous language of the agreement wherein it stated “... respondent understand that this indemnification agreement is non-discharge-able in bankruptcy.” The bankruptcy court determined that while the state court characterization does not bind the bankruptcy court, where “it is unequivocal and there is no evidence whatsoever that the indemnity and hold harmless promise had any other purpose, it is sufficient for a declaration of nondischargeability.” Horton, 69 B.R. at 45. See also Ianke v. Ianke (In re Ianke), 185 B.R. 297 (Bankr. E.D.Mo.1995). In Ianke, the Separation Agreement, in two distinct instances specifically stated “Respondent is prohibited from discharging Respondent’s obligations to Petitioner through bankruptcy.” The bankruptcy court determined that this specific reference is only one of several requirements to hold a debt nondischargeable under Section 523(a)(5). Ianke, 185 B.R. at 299. The bankruptcy court, nevertheless, determined that the debts were nondischargeable as to the former-spouse, as a result of their characterization as alimony, maintenance, or support. Id. at 301. See also Krein v. Hanagan (In re Krein), 230 B.R. 379 (Bankr.N.D.Iowa 1999)(bankruptcy court determined that debt was nondischargeable, based upon language of parties, specific reference that debt would be nondischargeable, coupled with other factors).
However, courts are hardly in agreement with the impact of language that specifically terms a debt as nondischargeable. In the case of Miller v. Gentry (In re Miller), 169 B.R. 715 (D.Kan.1994), aff'd, 55 F.3d 1487 (10th Cir.1995), cert. denied, 516 U.S. 916, 116 S.Ct. 305, 133 *791L.Ed.2d 210 (1995), the bankruptcy court determined that notwithstanding the express language in the judgment that stated “being in the nature of support on behalf of the parties’ minor children, is specifically not dischargeable in bankruptcy,” the fees incurred by a guardian ad litem were dischargeable. Although the district court reversed the bankruptcy court on other grounds, the district court confirmed that the bankruptcy court did not err in its conclusion that the state court’s determination of the issue of dischargeability bound it to that same determination. Miller, 169 B.R. at 719. See also, In re MacDonald, 194 B.R. 283 (Bankr.N.D.Ga. 1996)(“A determination regarding dis-chargeability, however, cannot be made in advance of the filing a bankruptcy petition, and such a provision in a settlement agreement is unenforceable as in conflict with the purpose and policies of the bankruptcy process.”)
In the Eleventh Circuit, the Court of Appeals has made it clear that the trial court must discern the intent of the parties in determining whether a particular obligation is in the nature of support regardless of the label. Cummings, 244 F.3d at 1266. In Cummings, the Eleventh Circuit vacated the judgment entered by the bankruptcy court and remanded to the bankruptcy court for reconsideration the case in light of its opinion, that courts must take into account the intent of the divorce court as reflected in the judgment and settlement agreement. Swpra, at 1267.
In light of the foregoing authority and based upon the pleadings of record, this Court is satisfied that it was the intent of the parties, at the time of the execution of the Mediation Agreement and the entry of the Final Judgment, for child support payments in the amount of $3,000, and all other related child support, alimony payments in the amount of $1,000, and the purchase of a house to be in the nature of alimony, maintenance, or support. However, with respect to the $500,000 payment and the two $238,615 payments, this Court, cannot on summary judgment, determine the intent of the parties with respect to whether or not the “equitable distribution” is in the nature of alimony, maintenance, or support. Moreover, it appears from the Affidavit of the Debtor, which is not contradicted by Ms. Baron, that Ms. Baron received far more monies from the Debtor than any provision set forth in the Mediation Agreement (she appears to have received $500,000, $205,000, and $933,314). Although not well articulated, it could be deemed that these payments, in the respective amounts of $500,000, $205,000 and $933,314 are in partial satisfaction of the obligations set forth in the Mediation Agreement. The record is not sufficient for this Court to make a finding regarding the nature of these payments. Therefore, this Court shall set for final evidentiary hearing the issue of whether or not the remaining obligations are in the nature of alimony, maintenance, or support and whether or not the Debtor’s purported payments are in satisfaction of those obligations. Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion For Summary Judgment, filed by the Debtor be, and the same is hereby denied. Summary judgment is specifically denied with respect to the following obligations:
a) all payments of child support and related support, as referenced in Paragraph 3 of the Mediation Agreement;
b) payments of alimony to Ms. Baron, as referenced in Paragraph 4 of the Mediation Agreement; and
c) the purchase of a house, as referenced in Paragraph 1 of the Mediation Agreement.
*792The foregoing obligations are determined to be in the nature of alimony, maintenance, or support and therefore, nondis-chargeable. With respect to the remaining obligations, summary judgment is denied and the matter shall be set for final evidentiary hearing. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment, filed by Ms. Baron be, and the same is hereby granted in part and denied in part. Summary judgment is granted to Mr. Baron with respect to the following obligations:
a) all payments of child support and related support, as referenced in Paragraph 3 of the Mediation Agreement;
b) payments of alimony to Ms. Baron, as referenced in Paragraph 4 of the Mediation Agreement; and
c) the purchase of a house, as referenced in Paragraph 1 of the Mediation Agreement.
The foregoing obligations are determined to be in the nature of alimony, maintenance, or support and therefore, nondis-chargeable. This Court shall enter a separate partial final judgment in favor of Ms. Baron and against the Debtor. With respect to the remaining obligations, summary judgment is denied. It is further
ORDERED, ADJUDGED AND DECREED that a pre-trial conference shall be held on January 31, 2002, beginning at 10:00 a.m. at the United States Bankruptcy Courthouse, Fort Myers, Federal Building and Federal Courthouse, Room 4-117, Courtroom D, 2110 First Street, Fort Myers, Florida, to consider the matters specifically denied herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493281/ | ORDER GRANTING IN PART AND DENYING IN PART MOTION FOR SUMMARY JUDGMENT
(Doc. No. 7)
ALEXANDER L. PASKAY, Chief Judge.
The matter in this yet-to-be-confirmed Chapter 11 case presently before this Court is a Motion for Summary Judgment, filed by Deer Creek Ltd. (Deer Ltd.); Deer Creek Golf & Tennis RV Resort, Phase III-A Homeowners Association, Inc. (Deer III-A); and Deer Creek Golf & Tennis RV Resort Phase III-G Homeowners Association, Inc. (Deer III-G) (collectively, Deer Creek), some of the named defendants in this adversary proceeding. The Motion is addressed to all five counts set forth in the Third Amended Complaint (Complaint), filed by 21st Century Satellite Communications, Inc. (Debtor).
The claim in Count I is an action for breach of contract against Deer Ltd. and the relief sought is judgment for damages. The claim in Count II is a replevin action against Deer Creek that seeks to recover certain equipment allegedly currently in possession of Deer Creek. The claim in Count III seeks money damages based on the theory of quantum meruit against, inter alia, Deer Ltd. The claim in Count IV *799seeks damages on the theory of unjust enrichment against, inter alia, Deer Ltd. The claim in Count V, seeks the imposition of an equitable lien on certain real property owned by Deer Ltd.
The facts relevant and controlling of the disposition of the Motion under consideration appear from the following documents:
(i) the contract entered into on April 27, 1998, by the Debtor with Deer Ltd. (Agreement) and an addendum (Addendum) (Exhibits A and B to the Complaint, respectively);
(ii) a letter by Time Warner Communications, Inc. (Time Warner), dated May 4, 1998, to Timothy Campbell, the principal of Deer Ltd. (Exhibit F to the Complaint and an exhibit to the Affidavit of George Bochis);
(hi) an Affidavit of George Bochis, an employee of Deer Ltd., with exhibits;
(iv) a letter by Deer Ltd. to the Debtor, dated September 3, 1998 (Exhibit D to the Complaint); and
(v) an Affidavit of Don Ireland, a V.P. of the Debtor, with exhibits.
It appears from the documents that at the time relevant, Deer Ltd. was the owner and operator of a real estate development and originally had a contract with the firm TeleMedia Company of Southeast Florida, Inc. (TeleMedia), who furnished cable services to the residents of the development. TeleMedia assigned its contract to Time Warner. In early 1998, Deer Ltd. had problems with services rendered by Time Warner and notified Time Warner that it was going to cancel the agreement with Time Warner. Time Warner disputed Deer Ltd.’s right to cancel the contract, although at that time no legal proceeding had been instituted by either Deer Ltd. or by Time Warner.
Deer Ltd., in order to find a replacement for the cable services furnished by Time Warner, commenced and negotiated with other suppliers, including the Debtor. Negotiations with the Debtor culminated into the execution of the Agreement (Exh. A). During negotiations, Deer Ltd. informed the Debtor that the cable services were currently provided by Time Warner and that it would cancel the Time Warner contract. The right by Deer Ltd. to cancel the contract with Time Warner is in dispute and the dispute is yet to be resolved.
As a result, to take care of this contingency, the executed Addendum (Exh. B) specifically provided as follows:
In the event that the Recipient is required to comply with the Time Warner agreement, whether by court order, mediation, or Recipient’s decision as a result of legal advice with respect to a lawsuit or threat of lawsuit by Time Warner, this Agreement shall be null and void, and Recipient shall have no further obligations to Provider.
The Agreement provided that if that occurs, the Provider (Debtor) shall be entitled to recover its equipment but shall leave the property in as good as a condition as before the provided equipment was installed.
It is without dispute that the Addendum stated that the Time Warner contract had been terminated, albeit, the dispute with Time Warner had not been resolved. Shortly after the execution of the Agreement, the Debtor began the installation of its equipment on the property of Deer Ltd.
On May 4, 1998, Time Warner wrote to Mr. Campbell, a principal of Deer Ltd., that Time Warner would take legal action to enforce its rights under the contract. It was not until August 17, 1998, while the work in installing the equipment was going on, that Deer Ltd. informed the Debtor of the position taken by Time Warner. Deer *800Ltd. also informed the Debtor that they were informed by their attorney of the position taken by Time Warner, and relying on the language in the Addendum, Deer Ltd. wrote a letter to the Debtor indicating to the Debtor that the Agreement was rendered null and void. Based upon these undisputed facts, Deer Creek asserts that it is entitled to summary judgment as a matter of law.
According to Deer Ltd., based on the plain and clear language of the Addendum, it had an absolute right to cancel its contract with the Debtor, and therefore the Debtor’s claim set forth in Count I of the Complaint is meritless as a matter of law, and its Motion addressed to this count should be granted.
Concerning the claim in Count II, which is a replevin action, Deer Ltd. contends that it has offered for the Debtor to take its equipment. Deer Ltd. contends that the Debtor has failed to accept this offer. Deer Ltd. contends that under Florida Statutes § 78.055, a replevin action must be based on the wrongful detention of the property of another and under the effect of this case, Deer Ltd. has not retained the Debtor’s property wrongfully. On the contrary, Deer Ltd. offered the Debtor to recover its property, as provided for by the Agreement. The Debtor concedes that this claim cannot be maintained and does not oppose granting the Motion, with respect to Count II of the Complaint.
As noted earlier, the claim in Count III is based on the theory of quantum meruit. Concerning its Motion which is directed to this claim, Deer Ltd. relies on the well recognized legal principle that there cannot be a claim based on quantum meruit if the claim is covered by a clear and unambiguous contract. For this proposition, Deer Ltd. cites the following cases Kovtan v. Frederiksen, 449 So.2d 1 (Fla. 2d DCA 1984); Commerce Partnership 8098 Limited Partnership v. Equity Contracting Company, Inc., 695 So.2d 383 (Fla. 4th DCA 1997); and Corn v. Greco, 694 So.2d 833 (Fla. 2d DCA 1997). These cases stand for the proposition that quantum meruit relief is founded on the legal proposition of an implied contract; thus, this fiction cannot be maintained if the rights of the parties are spelled out clearly in a written contract. This appears to be a correct statement of the law of this State; thus, the claim set forth in Count III of the Complaint equally cannot be maintained. The Motion addressing this count should be granted.
The claim in Count IV of the Complaint is based on unjust enrichment. This claim corollary the earlier claim based on quantum meruit, and is a contract implied in law. To recover for unjust enrichment, you have to convey a benefit and the benefit has to be accepted. Deer Ltd. contends that the contract in question provides that upon termination, the Debtor has the right to recover its equipment; and therefore, an essential element for unjust enrichment is lacking. In support thereof, Deer Ltd. cites Craig W. Sharp, P.A. v. Adalia Bayfront Condominium, Ltd., 547 So.2d 674 (Fla. 2d DCA 1989). In this case, the court held that, “such a claim requires proof of the benefit conferred upon the defendant by the plaintiff, appreciation by the defendant of the benefit, and acceptance of the benefit by the defendant under circumstances that make it inequitable for him to retain the benefit without paying the value thereof.” Id. at 677.
The last claim (Count V) in the Complaint is a request for an equitable lien to be imposed on the property of Deer Ltd. to secure the amount of money damages the Debtor is entitled to recover under any of the theories outlined above. Having concluded that the Debtor has no viable claim in Count II (replevin) and Count III *801(quantum meruit), the Debtor is likewise not entitled to any protection of an equitable lien for these counts. This leaves for consideration only two claims that require some detailed discussion.
These are the claims for breach of contract (Count I) and the unjust enrichment (Count IV). The Debtor concedes that, based on the literal reading of the relevant terms of the Addendum, Deer Ltd. had the right to cancel its contract with the Debtor by letter dated September 3, 1998. However, the Debtor contends that every contract has an implied requirement that the party must act in good faith and deal fairly. Notwithstanding the right of Deer Ltd. to terminate the Agreement with the Debtor pursuant to the express provisions of the Addendum, Deer Ltd. still had the legal obligation to deal fairly and in good faith with the Debtor, and failure to do so should not be permitted to escape the consequences of such conduct.
In support of its contention that Deer Ltd. acted in bad faith, the Debtor relies on the following undisputed facts: The Addendum stated in paragraph I, “Recipient has terminated, said agreement in accordance with its terms.” It is clear that on April 27th, it did not terminate the Time Warner contract, which appears from the May 4th letter, which states that Time Warner acknowledged the receipt of a letter of termination by Deer Ltd. to Time Warner dated April 30th. This is three days after the execution of the Addendum, which stated that it had already terminated the contract with Time Warner. According to the Debtor, this is a clear indication of bad faith: that Deer Ltd. did not inform the Debtor, when the Addendum was executed on April 27th, that the contract with Time Warner was not yet terminated. The short answer to this proposition is the fact that the facially incorrect statement in the Addendum does not contradict the fact that it was terminated three days after and, that at the time the Addendum was signed, Deer Ltd. did intend to terminate the Time Warner contract.
This Court agrees with the proposition that the party to a contract cannot act in an arbitrary or capricious manner. Cox v. CSX Intermodal, Inc., 732 So.2d 1092 (Fla. 1st DCA 1999). The inference suggested by the Debtor defies common sense and the fact that the actual termination letter was not sent until three days after the April 27th date is without consequence.
Debtor also contends that the actual lawsuit by Time Warner was not communicated to the Debtor until the September 3rd termination letter, even though the Debtor knew since August 17th of the legal action taken by Time Warner concerning the cancellation of its contract. It is without dispute that between May 4th and September 3rd, the Debtor continued with the installation of its equipment; that Deer Ltd. did not tell the Debtor during this time to stop the installation; and apparently expected to use the services of the Debtor and the equipment installed on its property. Concerning the conduct of the parties, in light of the conflicting statements that appear from the affidavits of Mr. Bochis and Mr. Ireland, it would be improper to dispose of the claim of breach of contract and unjust enrichment by summary judgment. Therefore, the Motion addressed to these two counts, Count I and Count IV, and in part Count V, as to the equitable lien with respect to the unjust enrichment count, should be denied and promptly set down for a pretrial conference to prepare the remaining issues for trial.
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment directed to Counts II, III, and a part of Count V be, and the same is here*802by, granted. A partial final judgment shall be entered in favor of Deer Creek against the Debtor dismissing the claims with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that the Motion for Summary Judgment directed to Counts I, IV, and Count V (only to the extent that the same can be found in conjunction with the unjust enrichment theory) be, and the same is hereby, denied.
ORDERED, ADJUDGED AND DECREED that a pre-trial conference shall be held on February 5, 2002, beginning at 9:00 a.m. at Courtroom 9A, Sam M. Gibbons United States Courthouse, 801 N. Florida Ave., Tampa, Florida, to consider the matters specifically denied herein. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493283/ | CARL L. BUCKI, Bankruptcy Judge.
The relevant facts are fully recited in my two previously published decisions in this case. See In re Price, 260 B.R. 653 (Bankr.W.D.N.Y.2001) and In re Price, 266 B.R. 572 (Bankr.W.D.N.Y.2001). Now, for the third time, counsel for the Manufacturers and Traders Trust Company (“M & T”) seeks an order granting summary judgment in its favor. On this occasion, however, it argues the continuing authority of In re Riddervold, 647 F.2d 342 (2nd Cir.1981). In Riddervold, the Court of Appeals held that an income execution in New York is a continuing levy from its service upon an employer, such that a subsequent payment to the creditor does not constitute a “transfer of property of the debtor” within the meaning of subsection (b)(4)(A) of the preference statute (11 U.S.C. § 547). In cross moving for summary judgment, the plaintiff urges reliance on the recent decision of my colleague, the Honorable Michael J. Kaplan, in In re Arway, 227 B.R. 216 (Bankr.W.D.N.Y. 1998). Judge Kaplan there held that the Supreme Court’s decision in Barnhill v. Johnson, 503 U.S. 393, 112 S.Ct. 1386, 118 L.Ed.2d 39 (1992) had undermined the reasoning of Riddervold, to the effect that a transfer of property is to be determined by federal rather than state law. In applying a federal standard, Arway concluded that the withholding of wages is an event of transfer, which may be avoided as a preference under 11 U.S.C. § 547.
This judge adopts fully the analysis of my colleague in In re Arway. I agree that in light of Barnhill v. Johnson, the decision of the court in Riddervold is no longer binding. Through application of the predictive model and for all of the reasons stated in Arway, I too believe that the Court of Appeals would now conclude that the levy of the debtor’s wages is a transfer that occurred at the time of the payment of wages.
Although the decision in Arway addresses fully the issues now before this court, I would give special emphasis to the import of 11 U.S.C. § 547(e)(3). It states that for purposes of the preference statute, “a transfer is not made until the debtor has acquired rights in the property transferred.” The essence of M & T’s argument is that under New York law, a judgment creditor acquires a right to future wages as of the moment of service of the levy upon the employer. The lesson of Barnhill v. Johnson, however, is that in determining “ ‘[w]hat constitutes a preference and when it is complete,’ ” guidelines of state law are not to be followed when in conflict with the Bankruptcy Code. 503 U.S. at 397, 112 S.Ct. 1386, quoting McKenzie v. Irving Trust Co., 323 U.S. 365, 369-370, 65 S.Ct. 405, 89 L.Ed. 305 (1945). The present dispute involves not some prospective entitlement, but moneys actually withheld from the debtor’s wages in the amount of $1,231.12. As to these funds, the debtor acquired an interest only *824when they were earned at a time within ninety days of the filing of Price’s petition in bankruptcy. Thus, pursuant to section 547(e)(3), the garnished funds are subject to recovery as a preference.
M & T argues that the debtor never held an interest in the garnished funds, so that no transfer from the debtor to M & T could ever have occurred. The unmistakable reality, however, is that M & T is now possessed of $1,231.12, and that the only possible source of those funds is a right or interest of Carlton Ivory Price. Necessarily, a transfer has occurred. By reason of section 547(e)(3), that transfer could only occur when the debtor acquired a right to his wages, that being a date within the preference period.
The motion of M & T is denied, and the plaintiffs cross motion is granted. Accordingly, Carlton Ivory Price is awarded judgment in the amount of $1,231.12, together with interest and costs.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493284/ | MEMORANDUM OF DECISION ASSESSING ATTORNEY FEES AND DENYING MOTIONS FOR RECONSIDERATION
COLLEEN A. BROWN, Bankruptcy Judge.
This Court entered its Final Judgment in the above adversary proceeding on October 24, 2001, while reserving jurisdiction for the limited purpose of determining the amount of an award of reasonable attorneys fees and costs in favor of the defendants, Educational Credit Management Corporation (“ECMC”) and The Education Resource Institute (“TERI”). ECMC filed the Affidavit of Gary L. Franklin in Support of Award of Sanctions [Dkt. # 216-1] on November 5, 2001 and TERI filed the Affidavit of Gregory A. Weimer in Support of Attorneys Fees [Dkt. # 215-1]. The plaintiff, Clare Creek (LeDuff) Kelsey, filed her Objections to Defendants’ Applications for Legal Fees Relating to Spoliation of Evidence [Dkt. 232-1] on November 30, 2001 and her trial counsel filed his Objections by John Thrasher to Fee Applications Filed by Defendant’s Counsel on November 26, 2001. Mr. Thrasher also filed a Motion for Leave to File a Belated Motion to Reconsider [Dkt. #225-1] accompanied by his Motion to Reconsider Decision Granting Defendants’ Motion for Sanctions Dut [sic] to Spoliation of Evidence [Dkt. # 227-1], which was joined by the Debtor’s Motion for Leave to Join in Motion to Reconsider [Dkt. # 233-1]. The motions to reconsider are opposed by ECMC, which has drawn a reply by Mr. Thrasher. For the following reasons, this Court hereby denies the various motions related to the reconsideration request on procedural and substantive grounds, overrules the objections to the defendants’ fee applications in part, and grants an award of reasonable attorneys fees in favor of the defendants.
1. Motions for Reconsideration
The first order of business are the motions for reconsideration of this Court’s decision granting in part the defendants’ joint motion for sanctions against the plaintiff and her counsel related to the spoliation of evidence dispute in the underlying adversary proceeding. As indicated above, plaintiffs counsel acknowledges that the time for filing a motion for reconsideration has expired and seeks leave to file the motion belatedly. The plaintiff joins in Mr. Thrasher’s “belated” motion. However, the motions to reconsider do not set forth any basis in law or fact, or provide any procedural basis under the Federal Rules of Bankruptcy Procedure (Fed. R. Bankr.P.) or case law. The Bankruptcy Rules, which incorporate certain procedural requirements of the Federal Rules of Civil Procedure (Fed.R.Civ.P.), do not specifically address motions to vacate or reconsideration and generally consider such motions under Rule 59(e), Fed. R. Civ.P., which is incorporated by Bankruptcy Rule 9023, Fed. R. Bankr.P. See In re Village Craftsman, Inc., 160 B.R. 740, 744 (Bankr. *827D.N.J.1993)(and collected cases). Under Bankruptcy Rule 9023 and Rule 59(e), plaintiff and her trial counsel fail to provide legally sufficient grounds to demonstrate excusable neglect for the late filing, and the motions for reconsideration are denied accordingly as untimely.
Even assuming arguendo that relief is sought pursuant to Bankruptcy Rule 9024, incorporating Rule 60(b), there has been no showing of a manifest error of law or fact or any legal basis to permit this Court to consider any new evidence, thereby precluding the movants from obtaining their requested “second bite at the apple.” See In re Arms, 238 B.R. 259, 261 (Bankr. D.Vt.1999); see also West v. Goodyear Tire and Rubber Co., 167 F.3d 776, 779 (2nd Cir.1999)(a court has broad discretion in applying appropriate sanctions for spoliation of evidence); Turner v. Hudson Transit Lines, Inc., 142 F.R.D. 68, 77 (S.D.N.Y.1991)(courts have discretion to impose adverse inference and monetary sanctions for spoliation of evidence); see also In re Start the Engines, Inc., 219 B.R. 264 (Bankr.C.D.Cal.1998)(court has discretion to impose monetary sanction against party and legal counsel, jointly and severally); In re Dubrowsky, 206 B.R. 30 (Bankr.E.D.N.Y.1997)(monetary sanctions may be imposed against debtor and debt- or’s attorney, jointly and severally). Therefore, the motions related to reconsideration of the final judgment of this Court are denied on procedural and substantive grounds.
2. Defendants’ Requests for Attorneys Fees and Costs
In approaching the various claims for compensable attorneys’ fees and related objections, the Court initially examines the order or judgment allowing the attorneys’ fee award to determine the parameters or limitations, if any, pertaining to the award. In this instance, the Final Judgment dated October 24, 2001 grants the defendants’ entitlement to attorneys fees related to the plaintiffs spoliation of evidence as set for in the related Memorandum of Decision, which states in pertinent part:
Regarding the monetary sanction, the Court finds that the defendants are entitled to an award of reasonable legal fees and costs incurred as a result of the spoliation of the subject handwritten notes. The monetary sanction shall be an award of reasonable attorneys’ fees and costs attributable to (1) investigating, researching, preparing, and arguing evidentiary motions as to the notes and motions for sanctions based upon the loss of the original notes; (2) discovery, such as depositions, interrogatories and supplemental discovery demands, directly associated with the circumstances of the lost evidence; and (3) any other time and effort required of counsel because of the plaintiffs loss of the subject documents and her failure to notify the Court and counsel of the loss in a timely manner.
Memorandum of Decision Granting in Part Defendants’ Motion for Sanctions and Costs Due to Spoliation of Evidence, at pp. 9-10. The plaintiff and her counsel would have this Court apply the foregoing language narrowly to strictly limit any award essentially to the preparation of the defendants’ joint sanction motion. Defendants, on the other hand, would have this Court take a sweeping approach in allowing a broad range of legal services as compensa-ble fees and costs, including mixed entries for trial preparation, opposing plaintiffs motion to suppress, and taking the deposition of plaintiffs medical expert. Inasmuch as the plaintiff was able to overcome the adverse evidentiary inference at trial surrounding the loss of the subject handwritten notes, it is improbable that these defense tasks would have been obviated *828had the plaintiff preserved the original handwritten notes for use at trial. Nonetheless, this Court rejects the scope of attorneys fees advocated by the litigants in favor of a plain reading and impartial application of the language authorizing recovery of the subject fees.
Next, in determining a fair and reasonable attorneys fee award in favor of the applicants, this Court is guided by several well settled and fundamental principles applicable to such fee requests. The Court initially looks at the amount of time spent on each task as documented by contemporaneous time records of the moving party to determine the number of hours that are properly compensable. See Thomas E. Hoar, Inc. v. Sara Lee Corp., 900 F.2d 522, 528 (2nd Cir.), cert. den., 498 U.S. 846, 111 S.Ct. 132, 112 L.Ed.2d 100 (1990); Miele v. New York State Teamsters Conf. Pension and Retirement Fund, 831 F.2d 407, 408 (2nd Cir.1987). The Court then decides how much attorney time was reasonably spent on each task. “In calculating the number of ‘reasonable hours,’ the court looks to ‘its own familiarity with the case and its experience with the case and its experience generally as well as to the evidentiary submissions and arguments of the parties.’ ” Clarke v. Frank, 960 F.2d 1146, 1153 (2nd Cir.1992)(quoting DiFilippo v. Morizio, 759 F.2d 231, 234 (2nd Cir.1985)). The party applying for legal fees bears the burden of proving the reasonableness of the fees and, to sustain that burden, the party must present a carefully detailed application and supporting documentation. See In re S.T.N. Enterprises, Inc., 70 B.R. 823, 832 (Bankr.D.Vt.1987). At the very least, every application for attorneys fees in a bankruptcy case in this District must include a specific analysis of each task for which compensation is sought, since lumping together compensable services with non-compensable services makes it impossible for the Court to determine whether the time allotted for each task is compen-sable or reasonable. Id. The Bankruptcy Court will disallow time for discrete legal services merged together or lacking the requisite specificity in an application for attorneys fees. Id. at 832, 834-35. The moving party may also be entitled to recover fees for the preparation of its fee application, but the amount of time spent on the preparation must be reasonable. Id., at 839. Similarly, those challenging an attorney’s fee application must articulate their objection with specificity, indicating particular entries that seem unreasonable, rather than expounding conclusory statements that applicant is seeking too much compensation. Id., at 840.
As for the appropriate hourly rate, the Court is governed by the rates prevailing in the community for similar services by lawyers of reasonably comparable skill, experience and reputation. See Blum v. Stenson, 465 U.S. 886, 896 n. 11, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984); Algie v. RCA Global Communications, Inc., 891 F.Supp. 875, 894-95 (S.D.N.Y. 1994). While the defendants do not submit specific evidentiary authority concerning an acceptable prevailing rate in this District, this Court is- familiar with the reasonable and customary rates concerning the type of services rendered herein pursuant to its regular review and approval of attorneys fee applications in the ordinary course of its business. See Emery v. Hunt, 272 F.3d 1042, 1048 (8th Cir.2001)(reasonable hourly rate for attorneys fees is usually ordinary rate for similar work in community where case has been filed); Schmidt v. Cline, 171 F.Supp.2d 1178, 1182 (D.Kan.2001)(federal court has discretion to use other relevant factors, including its own knowledge of prevailing market rates in community, and take judicial notice of prevailing attorneys fee hourly rates); Coalition to Save Our Children v. State Board of Education of Delaware, 901 F.Supp. 824, 832-33 *829(D.Dela.1995)(although movant failed to provide evidence of prevailing market rate, federal court may take judicial notice of prevailing attorneys fee rate in the community).
It should also be noted that this Court has taken into consideration the evidence of the debtor’s financial circumstances presented during the trial underlying this Court’s final judgment granting an undue hardship discharge of her substantial student loan obligations, the reasonableness of the defendants’ attorneys fee claims, the minimum sanction necessary to deter future spoliation of evidence, the sanctioned parties’ ability to pay, and the magnitude of the offense herein in reaching its determination as to the appropriate amount of an award in this matter. Compare In re Computer Dynamics, Inc., 252 B.R. 50, 65 (Bankr.E.D.Va.1997).
In applying the foregoing legal principles to the subject fee applications, this Court has determined that a substantial number of the task entries include mixed matters, some of which are beyond the scope of this Court’s sanction award. Because this Court is unable to ascertain which entries relate solely to the spoliation issue, as opposed to pre-trial or trial preparations, the plaintiffs motions to suppress and for Rule 9011 sanctions or other unrelated discovery and motions1, these entries are deemed legally insufficient and disallowed in toto.
Based upon a careful review of the affidavits submitted by defense counsel in support of the sanction award, and the opposition filed by the plaintiff and her trial counsel, the Court determines that the reasonable amount of compensable attorney time incurred by counsel for TERI is 4.4 hours and a reasonable amount of compensable attorney time incurred by counsel for ECMC is 14.4 hours.2 ECMC also requests $610.50 (apparently 3.7 hours at $165/hr.) for time spent in preparing counsel’s attorney fee affidavit. However, ECMC’s fee affidavit is overbroad in scope, and appears to be at least partly clerical in nature, therefore warranting a reduction in the compensable time incurred to 2.0 hours. Thus, this Court concludes that ECMC’s aggregate com-pensable time is 16.4 hours.3
As indicated above, defense counsel for TERI and ECMC have requested compensation at the hourly rate of $145 and $165, respectively. While plaintiff and her counsel object generally, they do not present *830any countervailing typical hourly rate or specific amount by which the requested rate should be reduced. Based upon this Court’s experience with fee applications and familiarity with the customary prevailing rates in this District for similar matters, the Court deems the $145.00 per hour and $165.00 per hour requested by counsel as reasonable hourly rates, in light of the complexities and the circumstances of the adversary proceeding.
Based upon the foregoing, TERI is awarded $638.00 [for 4.4 hours at $145/hr] and ECMC is awarded $2,706.00 [for 16.4 hours at $165/hr], with each judgment to be entered against the plaintiff and her trial counsel, John Thrasher, jointly and severally, for defendants’ attorneys fees incurred in connection with the spoliation of evidence herein; and the motions related to the reconsideration requests filed by the plaintiff and her trial counsel are denied.
.For typical examples of such task description deficiencies, see TERI’s billing entries for 1/17/01, 1/22/01, 1/23/01, 1/25/01, 1/29/01, 1/30/01, 2/11/01, 2/12/01, 2/28/01, 3/1/01, 4/11/01; and ECMC's entries dated 1/24/01, 1/25/01, 1/30/01, 2/12/01, 2/26/01, 3/1/01, 3/5/01. While not a factor in evaluating the entries for compensability and likely attributable to other circumstances, it is noted that the respective entries concerning telephone conferences between defense counsel are inconsistent. See TERI's telephone entries on 1/22/01, 1/25/01, 4/11/01; and ECMC’s entries on 1/23/01, 1/24/01, 2/2/01, 2/07/01, 2/8/012/16/01. These inconsistent telephone call entries are mentioned simply because they illustrate the cause for the Court’s difficulty in attempting to allocate time incurred by defense counsel when mixed entries are presented.
. The attorneys’ fee entries allowed are as follows;
TERI: 2/1/01 (.3); 2/6/01 (.2); 3/1/01 (3.0); 3/5/01 (.9). Total: 4.4 hrs.
ECMC: 2/1/01 (.4); 2/201 (.3); 2/6/01 (.6); 2/7/01 (.6); 2/8/01 (1.8); 2/16/01 (.8); 2/20/01 (1.5); 2/28/01 (4.7); 3/1/01 (1.5); 3/5/01 (1.7); 3/13/01 (.2); 3/21/01 (.3); fee application (2.0).
. The defendants are not entitled to recover the professional fees charged to defendants for taking the deposition of Dr. Barney or the independent psychological evaluation of the plaintiff, as the defendants have not demonstrated that these expenses were incurred as the result of spoliation of evidence. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493285/ | *833MEMORANDUM OPINION
PETER J. WALSH, Bankruptcy Judge.
Before the Court is the motion (Doc. # 5) of defendant Robert Schoeberl (“Defendant”) to dismiss the complaint of plaintiff Montgomery Ward Holding Corp. (“Montgomery Ward”) or alternatively, for a more definite statement. Defendant filed a $1,430,000.00 proof of claim in Montgomery Ward’s bankruptcy case based on a promissory note Montgomery Ward issued as partial payment for redeemed stock. In its complaint, Montgomery Ward requests contractual, statutory and equitable subordination of Defendant’s claim under 11 U.S.C. § 510 based on the note’s origins as payment for equity and Defendant’s status as a former shareholder.
For the reasons set forth below, I grant Defendant’s motion to dismiss the count for statutory subordination under § 510(b)1 and grant Defendant’s motion for a more definite statement on the remaining two counts.
BACKGROUND
Montgomery Ward is the parent company of Montgomery Ward, LLC, formerly known as Montgomery Ward & Co., Inc., a nationwide retail merchandiser. On July 7, 1997, Montgomery Ward and its affiliates (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On July 15, 1999, an order was entered confirming the Debtors’ chapter 11 plan (“Plan”).
Montgomery Ward commenced this adversary proceeding on November 2, 1999. It makes the following allegations which Defendant does not dispute: On December 16, 1996, Montgomery Ward exercised its rights under a 1988 Stockholders’ Agreement (“Stockholders Agreement”) to redeem 200,000 shares of Montgomery Ward common stock from Defendant, a former employee. To purchase the shares, Montgomery Ward paid a certain amount of cash and issued a $3,975,000.00 promissory note (“Note”) for the balance. The Note is payable in three equal annual installments of $1,325,000.00. Installments under the Note were unpaid as of the Debtors’ petition date and form the basis of Defendant’s proof of claim (Claim No. 9209) (“Claim”).
Montgomery Ward’s performance under the Note is subject to Article IV of the Stockholders’ Agreement. Article IV establishes certain restrictions on Montgomery Ward’s rights and obligations to redeem stock. In particular, Section 4 relieves Montgomery Ward from paying on the Note if payment violates: (1) any applicable state law in Montgomery Ward’s state of incorporation; (2) any provisions of Montgomery Ward’s material contracts or Certificate of Incorporation; and (3) any cash payment limitation then in effect as defined in the Stockholders’ Agreement.
The Claim includes an addendum which asserts a right to recover “costs and expenses of enforcement, including, without limitation, attorneys’ fees” incurred in enforcing Montgomery Ward’s obligations under the Note. Proof of Claim # 9209, Exh. A, ¶ 1. The addendum asserts contingent, unliquidated claims based on rights to indemnification and contribution arising under Montgomery Ward’s certificate of incorporation, bylaws, contract, or otherwise. Id., ¶ 11. This assertion was “filed only to preserve any and all rights and entitlements” of Defendant. Id.
*834In Count I of its complaint, Montgomery Ward requests contractual subordination of the Claim under § 510(a) based on the terms of the Note and Section 4 of the Stockholders’ Agreement. In Count II, Montgomery Ward requests statutory subordination under § 510(b) because it alleges the Claim is one for damages arising from the purchase or sale of its securities. In Count III, Montgomery Ward requests equitable subordination of the Claim under § 510(c) based on the Note’s origins as payment for redeemed stock. Defendant seeks to dismiss all three counts under F.R.Civ.P. 12(b)(6) or in the alternative, for a more definite statement of each under F.R.Civ.P. 12(e)2.
BACKGROUND
When apprising the sufficiency of a complaint for purposes of Rule 12(b)(6), the accepted standard is that “a complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of [its] claim which would entitle [the plaintiff] to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 102, 2 L.Ed.2d 80 (1957). The liberal pleading standard of the Federal Rules of Civil Procedure requires only a statement of jurisdiction and “a short and plain statement of the claim showing that the pleader is entitled to relief.” Schaedler v. Reading Eagle Publ’n, Inc., 370 F.2d 795, 798 (3d Cir.1967). The complaint must afford the adversary fair notice of the nature and basis of the claim asserted and a general indication of the type of litigation involved. Id. The Federal Rules do not require that a complaint state all facts necessary to constitute a cause of action. Id.
In contrast, Rule 12(e) does not address the legal sufficiency of a pleading but permits the defendant to request clarification of an ambiguous pleading to prepare a meaningful response. See, e.g., Sisk v. Texas Parks and Wildlife Dep’t, 644 F.2d 1056, 1059 (5th Cir.1981) citing 5 Wright & Miller, Fed. Practice & Procedure: Civil § 1356 at 590-91; Schaedler, 370 F.2d at 798-99. Under Rule 12(e), I may allow a plaintiff to amend a complaint to avoid the “draconian remedy” of dismissal if the complaint is inarticulate or vague. Schaedler, 370 F.2d at 799.
Rule 12(b)(6), however, authorizes a court to dismiss a claim based on a dispositive issue of law. Neitzke v. Williams, 490 U.S. 319, 326, 109 S.Ct. 1827, 1832, 104 L.Ed.2d 338 (1989) citing Hishon v. King & Spalding, 467 U.S. 69, 73, 104 S.Ct. 2229, 2232, 81 L.Ed.2d 59 (1984). In these circumstances, dismissal is without regard to whether the complaint is based on an outlandish legal theory or on a close but ultimately unavailing one. Id. at 327, 109 S.Ct. at 1832. This procedure, operating on the assumption that the factual allegations in the complaint are true, streamlines litigation by dispensing with needless discovery and fact finding. Id. at 326-27, 109 S.Ct. at 1832.
I. Contractual Subordination.
I find that dismissal of Count I for contractual subordination under § 510(a) is not appropriate under these standards. However, I agree with Defendant that Montgomery Ward should amend Count I of the complaint to identify which contractual provisions and correlating facts allegedly trigger subordination.
*835Section 510(a) provides that a subordination agreement is enforceable in bankruptcy to the same extent the agreement is enforceable under applicable non-bankruptcy law. 11 U.S.C. § 510(a). In Count I Montgomery Ward alleges that the Note by its terms is subordinate to Section 4.1 of the Stockholders’ Agreement and that both the Note and the Stockholders’ Agreement are enforceable under Illinois law. These allegations strike me as sufficient to withstand a Rule 12(b)(6) dismissal. The complaint adequately puts Defendant on notice that Montgomery Ward will try to prove the Note and relevant section of the Stockholders’ Agreement are valid and permit a § 510(a) subordination of the Claim to those of general unsecured creditors.
I nevertheless agree with Defendant that a motion for a more definite statement is justified. Given the complexity of the contracts, Defendant is entitled to more than Montgomery Ward’s simple assertion that treatment of his Claim on par with other unsecured claims violates the Note and Section 4.1 of the Stockholders’ Agreement. Principles of fair notice dictate Defendant is entitled to enough information at the outset of the case to identify the predicate facts and contractual provisions Montgomery Ward relies upon to permit subordination under § 510(a).
Consequently, although a request for a more definite statement is generally not favored, see Begier v. Cleveland Pneumatic (In re American Int’l Airways, Inc.), 66 B.R. 642, 645 (Bankr.E.D.Pa. 1986), I am satisfied that Count I is vague and ambiguous for purposes of Rule 12(e). I think Defendant’s motion fairly identifies the type of facts Montgomery Ward should set forth in an amended complaint (e.g., the relevant time and extent of capital impairment, if any, which of the defined contractual limitations apply, etc.). Defendant’s Motion to Dismiss, or in the Alternative, for More Definite Statement, Doc. #5, pp. 6-10, ¶¶ 20-28. Accordingly, I grant Defendant’s motion for a more definite statement on Count I.
II. Statutory Subordination
In Count II of its complaint Montgomery Ward requests subordination of Defendant’s Claim to the “extent [it] seeks damages of the type referenced in section 510(b) of the Bankruptcy Code.” Complaint to Subordinate Redemption Note Claim, Doc. # 1, p. 6, ¶ 25. Section 510(b) mandates subordination of a claim for damages “arising from” the purchase or sale of securities of the debtor. The critical inquiry here is whether a claim based solely on the nonpayment of a prbmissory note issued by a debtor to consummate the repurchase of its own stock is one for damages “arising from” the purchase or sale of its securities. Under the plain language of § 510(b) I hold that it is not.3
The starting point for any case involving construction of a statute is the language itself. See United States v. Ron Pair Enters., Inc., 489 U.S. 235, 242, 109 *836S.Ct. 1026, 1031, 103 L.Ed.2d 290 (1989). Section 510(b) states in relevant part:
[A] claim arising from rescission of a purchase or sale of a security of the debtor ..., for damages arising from the purchase or sale of such a security, or for reimbursement or contribution allowed under section 502 on account of such a claim, shall be subordinated to all claims or interests that are senior to or equal the claim or interest represented by such security...
11 U.S.C. § 510(b).
The statute contemplates three kinds of claims subject to automatic subordination: (1) a claim based on the rescission or attempted rescission of a purchase or sale of a debtor’s securities; (2) a claim based on damages that arise from the purchase or sale of a debtor’s securities; and (3) a claim based on reimbursement or contribution allowed under § 502 on account of either (1) or (2).
At issue is the second category of claims. Montgomery Ward alleges the Note represents a debt based on the redemption of its common stock. It argues that any claim for damages under the Note therefore “arises from” the purchase or sale of its securities within the meaning of § 510(b).
Montgomery Ward’s argument is premised on a distended interpretation of the causal relationship between the purchase or sale of the securities and the type of claim subject to subordination. The plain language of § 510(b) is more limited. It applies only to a claim that directly concerns the stock transaction itself, i.e., the actual purchase and sale of the debt- or’s security must give rise to the contested claim. E.g., Nugent v. American Broadcasting Sys., Inc. (In re Betacom of Phoenix, Inc.), 225 B.R. 703, 706 (D.Ariz. 1998) (“The plain meaning of section 510(b) mandates that a claim must arise from the actual purchase or sale of a security”); In re Wyeth Co., 134 B.R. 920, 921 (Bankr. W.D.Mo.1991) (claim “must directly concern the stock transaction” to come within § 510(b)).
The use of “damages” in § 510(b) supports this conclusion. The term connotes a recovery broader than a simple claim on an unpaid debt. In re Wyeth Co., 134 B.R. at 921 (term “damages” implies some defect concerning the purchase or sale of securities); In re Blondheim Real Estate, Inc., 91 B.R. 639, 640 (Bankr. D.N.H.1988) (term “damages” means more than simple recovery of an unpaid debt due on an instrument). The term “damages” implies a tortious injury, as for example, one suffered from the fraudulent issue, purchase or sale of securities. In re Wyeth Co., 134 B.R. at 921; In re Blondheim Real Estate, Inc., 91 B.R. at 640. It also serves to include claims by investors who technically do not have a claim for rescission but who still have a securities fraud claim. In re Blondheim Real Estate, Inc., 91 B.R. at 641; accord In re Mid-American Waste Sys., 228 B.R. 816, 825 n. 5 (Bankr.D.Del.1999) (noting that “claims based on § 510(b) can also be based on other case law and statutory law dealing with fraudulent conduct generally, breach of fiduciary duty and similar types of misconduct” related to the purchase or sale of a debtor’s security).
The legislative history of § 510(b) supports a conclusion that the plain language of the statute limits automatic subordination to claims that directly concern the stock transaction itself. Existing case law uniformly agrees that Congress enacted § 510(b) to prevent equity investors from converting their interests into higher priority general unsecured claims by asserting fraud or rescission claims. E.g., Christian Life Ctr. Litigation Defense *837Comm. v. Silva (In re Christian Life Ctr.), 821 F.2d 1370, 1375 (9th Cir.1987); Washington Bancorporation v. F.D.I.C. (In re Washington Bancorporation), 1996 WL 148533, *19 n. 18 (D.D.C.1996); The Ltd. Partners Comm. of Amarex v. Official Trade Creditors’ Comm. of Amarex (In re Amarex, Inc.), 78 B.R. 605, 609 (W.D.Ok. 1987).
Congress wanted to implement a policy which allocates the risk of securities fraud onto the investor. In re Amarex, Inc., 78 B.R. at 609-10; In re Wyeth Co., 134 B.R. at 921. Allowing an equity holder to share pari passu with unsecured creditors by asserting a rescission or tort damage claim defeats this goal. In re Wyeth Co., 134 B.R. at 921-22. Thus § 510(b), by subordinating rescission or tort damage claims arising from an illegal stock transaction, keeps the risk where Congress intended to place it — on the investor. Id.
These policy considerations are notably absent in the present case. Defendant is not an equity holder trying to better his position by undoing the purchase transaction with a rescission or damage claim. Defendant is attempting to enforce the sale of stock to Montgomery Ward. Nor is Defendant attempting to reallocate the risk of an unlawful issuance of securities onto the backs of general unsecured creditors. No one contends that the shares of stock Montgomery Ward purchased were illegally issued. Thus I am satisfied that the facts of this case do not fit within the purpose or meaning of § 510(b).
My conclusion is in keeping with the decisions of other courts that have addressed automatic subordination under § 510(b). Not surprisingly, most of these cases involve shareholder claims for rescission or damages based on the fraudulent sale of securities or related fraudulent conduct. E.g., Levine, BRS v. Resolution Trust Corp. (In re Coronet Capital Co.), 1995 WL 429494, *8-9 (S.D.N.Y.1995) (section 510(b) applies to claims by notehold-ers for rescission of subordinated notes based on debtor’s fraud and misrepresentations when issuing notes); In re Granite Partners, L.P., 208 B.R. 332, 334 (Bankr. S.D.N.Y.1997) (concluding that § 510(b) applies to claims based on allegations of post-investment fraud); In re Stern-Slegman-Prins Co., 86 B.R. 994, 999-1000 (Bankr.W.D.Mo.1988) (collecting cases applying § 510(b) to claims related to securities fraud).
The few courts that have considered statutory subordination in light of a claim based solely on enforcement of a debt instrument have concluded § 510(b) does not apply. See In re Washington Bancorporation, 1996 WL 148533, *20 (section 510(b) does not apply to a claim seeking to recover on commercial paper because the claim seeks only recovery on the debtor’s debt obligations rather than on a tort claim in the sale of the paper); In re Wyeth Co., 134 B.R. at 921 (holding that claims based on notes issued by debtor to redeem stock neither fall under the plain language of § 510(b) nor “bear any relationship whatever” to its underlying policy concerns); In re Blondheim Real Estate, Inc., 91 B.R. at 640, 642 (section 510(b) does not apply to claims based on debtor’s notes because such claims are for simple recovery of an unpaid debt due upon an instrument); In re Stem-Slegman-Prins Co., 86 B.R. at 1000 (claim of deceased shareholder’s estate to enforce sale of stock to corporate debtor not subject to mandatory subordination because facts surrounding valid stock redemption agreement do not fit within purpose or meaning of § 510(b)).
The cases Montgomery Ward cites in support of its position are inapposite. Although it is true these cases interpret “damages arising from” under § 510(b) “broadly,” I do not agree they support the *838proposition that a claim to enforce a stock redemption note is subject to mandatory subordination.
First, the cases Montgomery Ward cites are distinguishable because they all involve allegations by securities holders of fraud or wrongdoing by the debtor. See In re NAL Financial Group, Inc., 237 B.R. 225 (Bankr.S.D.Fla.1999); In re Granite Partners, 208 B.R. at 334; In re Public Service Co. of New Hampshire, 129 B.R. 3 (Bankr. D.N.H.1991).
Second, the cases that read § 510(b) broadly confront an issue not implicated by a claim seeking simple recovery on a debt. These courts are concerned that a restrictive reading of § 510(b) arbitrarily excludes a claim based on fraud related to the purchase or sale of the debtor’s securities but not caused by the initial purchase or sale transaction. Thus they read § 510(b) broadly to include a claim based on fraudulent activity after the original investment transaction, or a claim based on non-securities law dealing with fraudulent conduct generally related to the security transaction. These courts reason that the legislative policy that allocates the risk of securities fraud to investors demands subordination of all investor claims based on fraud connected to the purchase or sale of the debtor’s securities, regardless of when the fraud occurred or on which legal cause of action the claimant proceeds.
It appears to me that the critical causal nexus in these cases is the alleged illegal or fraudulent conduct, not simply the claim’s origin as one based on the claimant’s status as a former stockholder. The leading case advocating a broad reading of § 510(b) illustrates this point. See In re Granite Partners, L.P., 208 B.R. 332 (Bankr.S.D.N.Y.1997).
In Granite Partners, the court had to decide whether “damages arising from” encompasses a claim for damages based on fraudulent inducement to retain the securities. 208 B.R. at 336. In that case, the shareholder claimants asserted damages based on the debtor’s post investment fraud which they argued induced them to retain their stock instead of selling earlier. Id. at 335-36. The court held that § 510(b) was broad enough to apply to the investors’ claims because the causality established by “arising from” could include a claim for damages based on a debtor’s fraud following the initial sale of its securities. Id. at 339, 342 (a “broader reading [of § 510(b) ] suggests that the purchase or sale must be part of the causal link although the injury may flow from a subsequent event.”); See also In re NAL Financial Group, 237 B.R. at 234 (adopting Granite Partners’ approach and holding that claimant’s causes of action for breach of contract, breach of fiduciary duty, and fraudulent inducement stem from agreement to buy debtor’s securities and therefore arise from the purchase or sale of the debtor’s securities within the meaning of § 510(b)); In re Public Service Co., of New Hampshire, 129 B.R. at 5 (court subordinated investor’s claim based on debt- or’s alleged fraud, violations of securities law, and breach of contract because “the language of § 510(b) is broad enough to include breach of contract and related actions as well”); but see In re Amarex, Inc., 78 B.R. at 610 (legislative history, clear language, and purpose of § 510(b) limits mandatory subordination to initial illegality and does not encompass claims based upon later conduct by issuer of security).
Accordingly, absent an allegation of fraud in the purchase, sale or issuance of the debt instrument, § 510(b) does not apply to a claim seeking simple recovery of an unpaid debt due upon a promissory note. Indeed, Montgomery Ward’s characterization of its default on Defendant’s Note as giving rise to damages under *839§ 510(b) could lead to the untenable result that any claim based on default of a corporate bond or debenture is automatically subordinated to the claims of other unsecured creditors given the definition of “security” in § 101(49)(A). I do not believe Congress intended this result.
I note in closing that Montgomery Ward seems to be making the implicit argument that Defendant’s status as a former shareholder somehow differentiates his Claim from that of other note holders or general unsecured creditors. I am not persuaded that the Note’s origin as payment for stock is relevant under § 510(b). The provision is mandatory and the equity powers of this Court do not permit me to override specific statutory language. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 206, 108 S.Ct. 963, 969, 99 L.Ed.2d 169 (1988). To the extent Montgomery Ward requests subordination based on its depiction of the Claim as an attempt to recover on an equity interest, Montgomery Ward must proceed under § 510(c).
I am also not persuaded by Montgomery Ward’s final argument that the addendum to the Claim includes a request for “damages” of the kind subject to § 510(b). The addendum simply asserts a right to payment for damages incidental to enforcement of the Note. It does not allege damages based on the stock redemption transaction itself. Similarly, the addendum’s “indemnification claim” is merely a reservation of rights and does not of itself allege damages based on the purchase or sale of Montgomery Ward’s securities.
I therefore conclude that neither the plain language of § 510(b) nor its underlying policies apply to Defendant’s Claim. Accordingly, I grant Defendant’s motion to dismiss Count II of the Complaint.
III. Equitable Subordination.
In its final count, Montgomery Ward requests subordination of Defendant’s Claim under § 510(c). Section 510(c) permits subordination of all or part of an allowed claim based on principles of equitable subordination. Montgomery Ward asserts the Claim is simply a delayed distribution of assets on account of its common stock and as a matter of equity the Claim should be treated as a shareholder interest.
Defendant responds by arguing that § 510(c) does not permit equitable subordination without a showing of creditor misconduct. The situation here does not dictate an extended discussion. In a recent opinion, I found that equitable subordination under § 510(c) may be permitted even in the absence of inequitable conduct by the creditor, i.e., the Third Circuit recognizes a claim of “no fault” equitable subordination. Montgomery Ward Holding Corp. v. McCaffery (In re Montgomery Ward Holding Corp.), Ch. 11 Case No. 97-1409(PJW), Adv. No. 99-561, (Bankr. D.Del. Dec. 11, 2000); see also Burden v. United States, 917 F.2d 115, 120-21 (3d Cir.1990). Accordingly, I find that Count III of the Complaint states a claim upon which relief may be granted, even without allegations that Defendant engaged in wrongdoing.
However, “no fault” equitable subordination does not permit the categorical subordination of a claim simply because it is based on a stock redemption note. A court must “explore the particular facts and circumstances presented in each case before determining whether subordination of a claim is warranted.” Burden, 917 F.2d at 120.
Montgomery Ward’s Complaint, however, is bereft of any allegation other than that the Claim is based on a note it *840issued as payment to redeem stock. This alone does not form the basis for relief under § 510(c). Thus, I agree with Defendant that a more definite statement under Rule 12(e) is warranted. Fair notice requires that Montgomery Ward state the equitable facts and factors which it believes warrant subordination under § 510(c). For example, but without so finding, equitable subordination may be appropriate if in the aggregate the stock repurchase transactions resulted in an impairment of Montgomery Ward’s capital as defined by relevant state corporate law.
Accordingly I grant Defendant’s motion for a more definite statement under Rule 12(e) on Count III of the Complaint.
CONCLUSION
For the reasons set forth above, I will grant Defendant’s motion to dismiss Count II of the Complaint. Count II fails to state a claim on which relief can be granted because as a matter of law § 510(b) does not apply to Defendant’s Claim based solely on recovery on a stock redemption note. I will also grant Defendant’s motion for a more definite statement pursuant to Rule 12(e) on Count I and Count III. Montgomery Ward does not identify the relevant facts and factors underlying its request for contractual and equitable subordination and I agree that Defendant is entitled to more specificity prior to filing a responsive pleading. However, I find that both remaining counts plead viable claims. Dismissal of Counts I and III under Rule 12(b)(6) is therefore not warranted.
ORDER
For the reasons set forth in the Court’s Memorandum Opinion of this date, the motion (Doc. #5) of defendant Robert Schoeberl to dismiss the complaint of Montgomery Ward Holding Corp., or in the alternative, for a more definite statement, is granted in part. Count II of the complaint is dismissed. The motion to dismiss Counts I and III is denied. The motion for a more definite statement as to Count I and Count III of the complaint is granted. Montgomery Ward Holding Corp. is directed to amend its complaint to set forth a more definite statement in support of Count I for contractual subordination of the defendant’s proof of claim (Claim No. 9209) under 11 U.S.C. § 510(a) and Count III for equitable subordination of the defendant’s proof of claim (Claim No. 9209) under 11 U.S.C. § 510(c). The amended complaint shall be filed within thirty days from the entry of this order.
. Unless otherwise indicated, all references to "§ _" are to a section of the Bankruptcy Code, 11 U.S.C. § 101 etseq.
. With modifications not relevant here, F.R.Bank.P. 7012 makes F.R.Civ.P. 12 applicable to adversary proceedings in bankruptcy.
. I note that a Rule 12(b)(6) motion to dismiss is treated as one for summary judgment and disposed of as provided in Rule 56 if the parties present matters outside the complaint on which the Court relies. To the extent Rule 56 is applicable to the present controversy, I find that its pleading standards have been met. The parties have fully briefed the relevant issues. See Defendant's Motion to Dismiss (Doc. # 5); Plaintiff's Memorandum of Law in Opposition to Defendants’ Motions to Dismiss or, in the Alternative, for a More Definite Statement (Doc. # 6); Response to Plaintiff's Memorandum of Law in Opposition to Defendant's Motion to Dismiss, or in the Alternative, for a More Definite Statement (Doc. # 7). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493289/ | MEMORANDUM OPINION1
JUDITH K. FITZGERALD, Chief Judge.
The matter before the court is Debtor’s motion for reconsideration of our order entered December 4, 2001, in connection with a Memorandum Opinion of the same date. The December 4th order stated only that the motion to dismiss the complaint filed on behalf of defendant Liberty Furnace was denied and that the Debtor’s claim against Liberty Furnace was not barred by the statute of limitations under the Pennsylvania Home Improvement Finance Act.2 The “wherefore” clause of the motion for reconsideration asks that we “find that the Debtor be allowed to proceed with the above-listed causes of action against” Liberty Furnace. Docket No. 46. Those causes of action are stated to be the Unfair Trade Practices and Consumer Protection Law (UTPCPL), the Home Improvement Finance Act, fraud, and negligence. Our December 4th Memorandum Opinion and Order dealt with the Home Improvement Finance Act and we do not revisit that issue here. The brief filed in support of the motion states that Debtor filed the instant motion for reconsideration “as to Debtor’s causes of action against Liberty Furnace Corp., Inc. and the statute of limitations applicable for each.” Id. at Docket No. 50. Debtor then proceeds to state that the statute of limitations for breach of contract actions is four years pursuant to 13 Pa.Cons.Stat.Ann. § 2725 and six years under the UTPCPL, 73 P.S. § 201-2(4). Section 2725(a) of title 13 of the Pennsylvania Consolidated Statutes states that the statute of limitations on a contract for sale is four years.
Section 201-2 of title 73 is a definitional section and does not state a statute of limitations. The six year statute of limitations of 42 Pa.Cons.Stat.Ann. § 5527 applies to causes of action under the UTPCPL. See Gabriel v. O’Hara, 368 Pa.Super. 383, 534 A.2d 488, 496 (1987).
Any civil action or proceeding which is neither subject to another limitation specified in this subchapter nor excluded from the application of a period of limitation by section 5531 (relating to no limitation) must be commenced within six years.
42 Pa.Cons.Stat.Ann. § 5527. Nonetheless, we agree that the time period of the statutes of limitations for breach of contract and the Unfair Trade Practices and Consumer Protection Law are as Debtor states.3
*861Whether or not Debtor can prove her claims is a not a matter that can be decided on the pleadings or by way of a motion for reconsideration. Debtor will have to prove at trial the elements of each of her causes of action.
An appropriate order will be entered.
ORDER
AND NOW, this 31st day of January, 2002, it is ORDERED that Debtor’s Motion for Reconsideration concerning the statutes of limitations for breach of contract and under the Unfair Trade Practices and Consumer Protection Law is granted insofar as the former is four years and the latter is six years.
. The court’s jurisdiction was not at issue. This Memorandum Opinion constitutes our findings of fact and conclusions of law.
. Liberty Furnace was added as a defendant in the Amended Complaint. See Docket No. 11. (The Amended Complaint is not titled as such but the docket reflects that entry 11 is the Amended Complaint.) In the Amended Complaint Debtor alleged certain facts concerning Liberty Furnace. She alleged rescission rights under the Truth in Lending Act and under the Pennsylvania Home Improvement Finance Act, 69 P.S. § 1201 et seq., as well as a usury claim under HIFA, but only against Wendover. She alleged violations of the Home Owner’s Equity Protection Act, 15 U.S.C. § 1639, only against Wendover.
The only counts in the Amended Complaint applicable to Liberty Furnace are those raising the Unfair Trade Practices and Consumer Protection Law, breach of contract, negligence, fraud, and breach of fiduciaiy duty.
.This statement does not constitute a finding that 13 Pa.Cons.Stat.Ann. § 2725 is the applicable section. See 42 Pa.Cons.Stat.Ann. § 5525 which states that
*861The following actions and proceedings must be commenced within four years:
(1) An action upon a contract, under seal or otherwise, for the sale, construction or furnishing of tangible personal property or fixtures.
(2) Any action subject to 13 Pa.C.S. § 2725 (relating to statute of limitations in contracts for sale).
(3) An action upon an express contract not founded upon an instrument in writing.
(4) An action upon a contract implied in law, except an action subject to another limitation specified in this subchapter.
(5) An action upon a judgment or decree of any court of the United States or of any state.
(6) An action upon any official bond of a public official, officer or employee.
(7) An action upon a negotiable or nonnegotiable bond, note or other similar instrument in writing. Where such an instrument is payable upon demand, the time within which an action on it must be commenced shall be computed from the later of either demand or any payment of principal of or interest on the instrument.
(8) An action upon a contract, obligation or liability founded upon a writing not specified in paragraph (7), under seal or otherwise, except an action subject to another limitation specified in this subchapter.
Which section is applicable is immaterial for purposes of this motion for reconsideration inasmuch as the time period is four years under each. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493290/ | ORDER
WM. THURMOND BISHOP, Chief Judge.
Before the Court in this adversary proceeding are the cross-motions for summary judgment filed by the Plaintiff, Bank of America, N.A. (BOA), and the Defendant, ORIX Credit Alliance, Inc. n/k/a ORIX Financial Services, Inc. (ORIX).1 Based upon the record in this proceeding, the arguments of counsel, and a review of applicable law, the Court concludes that ORIX’s motion for summary judgment should be granted and BOA’s motion for summary judgment should be denied.
*863
FINDINGS OF FACT
BOA and ORIX stipulated to the following facts:
1. This is an action to determine the validity, extent and priority of liens arising in the above-captioned case filed on July 14, 2000, by K & P Logging, Inc. (hereinafter K & P Logging or the Debtor).2
2. The Debtor is a South Carolina corporation with its principal place of business in Greenwood County, South Carolina. The Debtor is a timber logging company that owns and uses various items of equipment in the ordinary course of its business.
3. As of the date of filing of the petition, the Debtor owned a number of pieces of logging equipment, including two specific items in which BOA and ORIX assert competing security interests (the Disputed Collateral):
a. Timberjack 460 skidder s/n 985584 with 100" Esco grapple s/n SNSP22611; and
b. Hydro-Ax 511 EX cutter s/n 6663; with 20" Koehring sawhead s/n 980828.
4. On August 28, 1996, NationsBank, N.A. (NationsBank) made a loan to K & P Logging, Inc., Phillip E. Wood, and Kimberley M. Wood in the original principal amount of $522,000.00, which loan was guaranteed by the U.S. Small Business Administration (the SBA Loan). As security for the SBA Loan, BOA asserts that K & P Logging, Inc. granted to NationsBank a security interest in all of its then-existing and after-acquired equipment and machinery (along with other collateral not relevant to this action). The SBA Loan is evidenced by the following relevant loan documents prepared by the SBA and/or NationsBank:
a. U.S. Small Business Administration Note;
b. Loan Agreement;
c. Security Agreement (SBA Form);
d. Security Agreement (NationsBank Form); and
e. UCC-1 Financing Statement.
5. Subsequent to the making of the SBA Loan, ORIX (or its assignor) financed the Debtor’s purchases of a number of items of equipment. Each sale is evidenced by a Conditional Sale Contract Note prepared by ORIX (or its assignor) and signed by the Debtor, copies of which are attached to the UCC-1 Financing Statements referenced below.
6. The SBA Loan held by BOA (as successor by merger to NationsBank) remained unpaid as of the commencement of the Debtor’s Chapter 11 case.
7. Five of the six obligations owed to ORIX, including the obligations evidenced by the two Conditional Sale Contract Notes by which the Disputed Collateral were financed, remained unpaid as of the commencement of the Debtor’s Chapter 11 case.
8. BOA and ORIX rely upon the following UCC-1 Financing Statements signed by the Debtor and filed with the South Carolina Secretary of State to establish their claims to the Disputed Collateral:
Secured
Filing Date_Certificate No. Party_Collateral Description_
September 19, 1996 960919-113244A BOA All equipment, machinery, FF & E
*864October 7,1997 971007-102204A ORIX The property and/or the equipment and all other types of collateral as described in the attached entire agreement and in any schedule attached thereto. The attached security agreement and any schedule attached thereto are being submitted for filing as a financing statement. The specific “property” was a Hydro Ax 411 EX s/n 6455, and the “collateral” included, among other things, all equipment then owned or thereafter acquired by __the Debtor._
November 4,1997 971104-124805B ORIX The property and/or the equipment and all other types of collateral as described in the attached entire agreement and in any schedule attached thereto. The attached security agreement and any schedule attached thereto are being submitted for filing as a financing statement. The specific “property” was an Evans Tandem 25-ton Skidder Trailer s/n 1J9E145B8V1003867 and Evans Drop Frame Pulpwood Trailer s/nlJ9G14QBlV1003884, and the “collateral” included, among other things, all equipment then owned or thereafter acquired _by the Debtor._
December 19,1997 971219-101247C ORIX The property and/or the equipment and all other types of collateral as described in the attached entire agreement and in any schedule attached thereto. The attached security agreement and any schedule attached thereto are being submitted for filing as a financing statement. The specific “property” was a Pitts log trailer Mod. LP40-4L, and the “collateral” included, among other things, all equipment then owned or thereafter acquired _by the Debtor._
October 5,1998 981005-140058A ORIX The property and/or the equipment and all other types of collateral as described in the attached entire agreement and in any schedule attached thereto. The attached security agreement and any schedule attached thereto are being submitted for filing as a financing statement. The specific “property” was a Timberjack 460 s/n 985584 with 100"Esco Grapple s/n SNSP22511, and the “collateral” included, among other things, all equipment *865then owned or thereafter acquired _by the Debtor._
March 3,1999 990303-090153A ORIX The property and/or the equipment and all other types of collateral as described in the attached entire agreement and in any schedule attached thereto. The attached security agreement and any schedule attached thereto are being submitted for filing as a financing statement. The specific “property” was a Hydro Ax 511 EX s/n 6663; 20" Koehring sawhead s/n 980828, and the “collateral” included, among other things, all equipment then owned or thereafter acquired by the Debtor.
9. ORIX attached copies of its Conditional Sale Contract Notes as exhibits to its UCC-1 Financing Statements. The specific items financed by ORIX are listed on the face of each Note, and ORIX holds a purchase money security interest as to those items. ORIX’s Notes further contain grants of a blanket lien in all of the Debtor’s then-existing and after-acquired equipment (and other items) as additional collateral for the obligations referenced in the Notes.
10. ORIX’s Financing Statements contemporaneously executed in connection with the sale of the Timberjack skidder (UCC-1 filed on October 5, 1998) and in connection with the sale of the Hydro AX cutter (UCC-1 filed on March 3, 1999) were filed more than ten (10) days after the date on which the Debtor took possession of each item.
11. ORIX relies upon the filing of the October 7, 1997 Financing Statement, and/or the Financing Statements filed on November 4, 1997 and December 19, 1997, in asserting perfection of purchase money security interests in the Disputed Collateral. At the time K & P acquired rights in the Disputed Collateral, each of the obligations secured by these Financing Statements was still outstanding.
STANDARD FOR SUMMARY JUDGMENT
Rule 56(c) of the Federal Rules of Civil Procedure, made applicable to this adversary proceeding by Federal Rule of Bankruptcy Procedure 7056(c), provides that summary judgment shall be granted “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 a judgment as a matter of law.” Summary judgment is no longer regarded as a disfavored procedural short-cut; it is a salutary method of disposition “designed ‘to secure the just, speedy and inexpensive determination of every action.’ ” The Exchange Bank of Kingstree v. South Carolina Nat’l Bank (In re Dig It, Inc.), 129 B.R. 65, 66 (Bankr.D.S.C.1991), citing Sweats Fashions, Inc. v. Pannill Knitting Company, Inc., 833 F.2d 1560 (Fed.Cir. 1987), citing Celotex Corp. v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). Because BOA and ORIX stipulated to the relevant facts, summary judgment is appropriate. See Mitchell v. Data General Corp., 12 F.3d 1310 (4th Cir.1993).
*866
CONCLUSIONS OF LAW
BOA and ORIX agree that Article 9 of the Uniform Commercial Code (UCC), as adopted in South Carolina, controls the disposition of this lien priority dispute.
A. ORIX’s PURCHASE MONEY SECURITY INTERESTS IN THE DISPUTED COLLATERAL HAVE PRIORITY PURSUANT TO S.C. CODE ANN § 36-9-312(4).
Between September 1997 and March 1999, ORIX financed the acquisition by K & P of various items of equipment, including three titled vehicles, in six separate transactions. Each of the transactions was documented on a Conditional Sale Contract Note. It is the lien priority on the two items of equipment financed on the last two transactions which is the subject of this dispute. NationsBank, N.A., as predecessor to BOA, extended financing to K & P and its owners, Kim and Phil Wood, in 1996.
The Joint Stipulation of Facts sets forth the transactions entered into between ORIX and the Debtor and also identifies the chronological filings of UCC-1 financing statements by BOA and ORIX relating to the Debtor’s equipment items. ORIX’s first three financing statements, filed with the South Carolina Secretary of State on October 7, 1997, November 4, 1997, and December 19, 1997, are collectively referred to herein as the “Prior Financing Statements.” ORIX’s two later financing statements, signed by the Debtor contemporaneously with the Debtor’s purchase of the Disputed Collateral and filed on October 5, 1998 (Timberjack) and March 3, 1999 (Hydro Ax) are collectively referred to herein as the “Contemporaneous Financing Statements.”
BOA asserts a senior priority security interest in the Disputed Collateral on the grounds that ORIX’s Contemporaneous Financing Statements were not filed with the Secretary of State within ten days after the Debtor received possession of the Disputed Collateral. As analyzed below, however, it is ORIX’s filing of the Prior Financing Statements-not the Contemporaneous Financing Statements-that establishes the priority of ORIX’s purchase money security interests in the Disputed Collateral over the security interest asserted by BOA.
“A security interest is a ‘purchase money security interest’ to the extent that it is: (a) taken or retained by the seller of the collateral to secure all or part of its price.” S.C.Code Ann. § 36-9-107(a) (Law. Coop.1976 & Supp.2000). Priority issues aside, BOA does not dispute that ORIX’s security interests in the Disputed Collateral involve “purchase money” financing.
South Carolina Code Ann. § 36-9-312(4) provides that:
A purchase money security interest in collateral other than inventory has priority over a conflicting security interest in the same collateral or its proceeds if the purchase money security interest is perfected at the time the debtor receives possession of the collateral or within ten days thereafter.3
A security interest is “perfected” when it has “attached” and, in the case of equipment, a financing statement has been filed in the Office of the Secretary of State. See S.C.Code Ann. § 36-9-303(1) (Law. Co-op.1976 & Supp.2000). A security in*867terest does not “attach” unless: “(a) ... the debtor has signed a security agreement which contains a description of the collateral...; (b) value has been given; [and] (c) the debtor has rights in the collateral.” S.C.Code Ann. § 36-9-203(1) (Law. Co-op.1976 & Supp.2000). “[Attachment occurs as soon as all of the events specified in subsection (1) have taken place.” S.C.Code Ann. § 36-9-203(2) (Law. Coop.1976 & Supp.2000). Pursuant to the South Carolina Code, ORIX’s purchase money security interests “attached” at the time that the Debtor executed each of the two Conditional Sale Contract Notes, pursuant to which the Debtor acquired rights in the Disputed Collateral and ORIX (or its assignor) gave value in the form of purchase money financing.
Section 36-9-402(1) provides that “[a] financing statement may be filed before a security agreement is made or a security interest otherwise attaches.” In this case, ORIX had properly filed the three Prior Financing Statements with the Secretary of State before the attachment of its purchase money security interests in the Disputed Collateral. Section 36-9-303(1) specifically states that “[i]f the steps [for perfection] are taken before the security interest attaches, it is perfected at the time when it attaches.” Official Comment 1 to § 36-9-303 adds that “[i]f the steps for perfection have been taken in advance (as when the secured party files a financing statement before giving value or before the debtor acquires rights in the collateral), then the interest is perfected automatically when it attaches.” (emphasis added).
Section 36-9^102(1) also provides that a financing statement is sufficient if it “contains a statement indicating the types, or describing the items, of collateral.” Official Comment 2 to § 36-9-402 states that:
“the financing statement is effective to encompass transactions under a security agreement not in existence and not contemplated at the time the notice was filed, if the description of collateral in the financing statement is broad enough to encompass them. Similarly, the financing statement is valid to cover after-acquired property and future advances under security agreements whether or not mentioned in the financing statement.”
In this case, each of ORIX’s Prior Financing Statements describes the collateral as:
THE PROPERTY AND/OR THE EQUIPMENT AND ALL OTHER TYPES OF COLLATERAL AS DESCRIBED IN THE ATTACHED . ENTIRE AGREEMENT AND IN ANY SCHEDULE ATTACHED THERETO. THE ATTACHED SECURITY AGREEMENT AND ANY SCHEDULE ATTACHED THERETO ARE BEING SUBMITTED FOR FILING AS A FINANCING STATEMENT.
In addition to describing the specific “Property” which the Debtor purchased pursuant to the corresponding Conditional Sale Contract Notes, each of the Notes contains the following provision:
The Buyer grants to Holder a security interest in the Property and any and all documents, instruments, chattel paper, goods, general intangibles, inventory, machinery, contract rights, equipment, fixtures, accounts and insurance in which Buyer now or hereafter has any right or interest (all of the foregoing, together with all accessories, attachments, replacements, substitutions and accessions thereto, wherever located, and all proceeds, products and rents therefrom collectively called “Collateral”) and agrees that said security interest secures the payment, performance and fulfillment of all obligations of *868Buyer to Holder or any affiliate of Holder whether such obligations are now existing or hereafter incurred or arising, are contingent or non-contingent, are direct or indirect, arise by assignment or otherwise or are contemplated or not contemplated as of the date of this contract note, (emphasis added).
Each of the Prior Financing Statements thus included “equipment” as a type of covered collateral. The Prior Financing Statements, which attached and incorporated the corresponding Notes, were thus sufficient to perfect security interests in the Disputed Collateral, e.g., equipment thereafter acquired by the Debtor. See, e.g., Credit Alliance Corp. v. Jebco Coal Co., Inc., 688 F.2d 10 (3rd Cir.1982); In re Rivet, 299 F.Supp. 374 (E.D.Mich.1969); Fifth Third Bank v. Orix Credit Alliance (In re Leslie Brock & Sons), 147 B.R. 426 (Bankr.S.D.Ohio 1992); Official Comment 2 to S.C.Code Ann. § 36-9-402 (Law. Coop.1976 & Supp.2000).
When the Debtor executed the respective Notes for the purchase of the Disputed Collateral, the Debtor granted ORIX, as “Holder,” purchase money security interests in the Disputed Collateral. Those security interests were automatically perfected by virtue of the Prior Financing Statements covering “equipment” which were previously filed with the South Carolina Secretary of State. See In re Tenpenny, 64 B.R. 217 (Bankr.E.D.Tenn. 1986). Although ORIX also filed the Contemporaneous Financing Statements in conjunction with the Debtor’s purchase of the Disputed Collateral, those additional filings were not necessary to perfect its purchase money security interests in the Disputed Collateral. See Giddens v. Pioneer Credit (In re Giddens), 205 B.R. 349, 353 (Bankr.M.D.Ga.1997) (holding “second UCC-1 will be deemed to be a back-up financing statement with its own separately established priority”).
At the moment the Debtor received possession of the Disputed Collateral items, ORIX’s purchase money security interests attached, were automatically perfected by virtue of the Prior Financing Statements, and are therefore entitled to purchase money priority over BOA under S.C.Code Ann. § 36-9-312(4).
B. ADEQUACY OF DESCRIPTION
BOA asserts that ORIX’s loan documents do not adequately describe the Disputed Collateral items. Pursuant to § 36-9-110, “any description of personal property or real estate is sufficient whether or not it is specific if it reasonably identifies what is described.” The Disputed Collateral items are “equipment” that is expressly covered by ORIX’s three Prior Financing Statements filed with the Secretary of State before the attachment of its purchase money security interests in the Disputed Collateral. The purpose of “notice filing” is to give third parties notice that the Debtor’s property may be encumbered. ORIX’s Prior Financing Statements satisfy that purpose, and any third party making further inquiry would learn of ORIX’s purchase money security interests in the Disputed Collateral. BOA cites no authority for the proposition that the general collateral description authorized by § 36-9-110 does not apply to purchase money security interests. To the contrary, Revised UCC § 9-108(b), while not yet adopted in South Carolina, clarifies that a description of collateral by Article 9 “type” (e.g., “equipment”) suffices to describe the collateral in commercial transactions.
BOA’s argument that ORIX’s existing “blanket lien” filing was ineffective to perfect the subsequent security interests in the Disputed Collateral is not supported by the UCC, which provides that a financ*869ing statement is sufficient if it identifies the collateral by item or type, equipment being an example of “type.” See S.C.Code Ann. § 36-9-402(1) (Law.Co-op.1976). The UCC also provides that a financing statement can be filed even before a security interest is granted. BOA itself relies on its filing against “equipment” to claim its security interest in the Disputed Collateral. ORIX’s contracts grant a security interest in the “Property and .. .all.. .equipment.” The contracts also provide for future advances. ORIX could have filed a single financing statement— even before K & P granted ORIX any security interest — and such filing would have been sufficient to perfect all subsequent purchase money transactions at the moment the Debtor obtained rights in the collateral. The fact that ORIX filed subsequent financing statements does not alter the effect of its first filing; rather, it is simply a matter of “belt and suspenders.” See Giddens v. Pioneer Credit (In re Giddens), 205 B.R. at 353 (Bankr.M.D.Ga. 1997). Nor does the fact that ORIX’s financing statement which identified both items and types lessen the effectiveness of the filing as to one or the other. Hixon v. Credit Alliance Corp., 235 Va. 466, 369 S.E.2d 169 (1988).
A number of cases support the conclusion that ORIX’s blanket reference to after-acquired “equipment” in the Prior Financing Statements adequately described the subsequently financed Disputed Collateral items. In John Deere Co. v. Production Credit Ass’n, 686 S.W.2d 904 (Tenn. Ct.App.1984), the Production Credit Association perfected a security interest in 1980 in “all farm machinery and equipment, including but not limited to all tractors, tilling and harvesting equipment” then owned or thereafter acquired by the borrower. Id. at 904-05. At that time, the borrower owned a John Deere 6600 Combine. In 1981, the combine burned. Thereafter, the Production Credit Association loaned additional monies to the borrower to be used as a down payment on the purchase of a new combine. The Production Credit Association did not obtain a new security agreement from the borrower, and no new financing statement was filed. Nevertheless, the court held that the Production Credit Association had a first priority purchase money security interest in the new combine:
Deere asserts that a new. financing statement had to be filed for P.C.A. to obtain a purchase money security interest in the combine. We see no reason for a second filing of a financing statement by P.C.A. to insure a purchase money security interest. The first filing was notice to the world of a security interest in farm equipment and after-acquired property, and any further notice filing would be, in our opinion, supererogation.
Id. at 907.
In James Talcott, Inc. v. Franklin Nat’l Bank of Minneapolis, 292 Minn. 277, 194 N.W.2d 775 (1972), the plaintiff Talcott made a loan to a borrower for the purchase of two trucks and some other construction equipment. In the financing statement, Talcott described the collateral as “construction equipment; motor vehicles.” After Talcott filed its financing statement, the borrower granted the defendant bank a security interest in three other trucks and equipment. Subsequently, the borrower and Talcott executed a second security agreement in connection with an extension agreement. In the second security agreement, the borrower granted Talcott a security interest in the collateral in which the bank asserted a security interest. Talcott did not file an additional financing statement in connection with the second security agreement. The Supreme Court of Minnesota deter*870mined that Talcott’s original financing statement was sufficient to give notice of the original security agreement and the second security agreement. The Court referred to the authorization, contained in UCC Section 9-402(1), permitting the filing of a financing statement even before a security agreement is made. The court went on to state:
The whole purpose of notice filing would be nullified if a financing statement had to be filed whenever a new transaction took place between a secured party and a debtor. Once a financing statement is on file describing property by type, the entire world is warned, not only that the secured party may already have a security interest in the property of that type (as did plaintiff in the property originally financed), but that it may later acquire a perfected security interest in property of the same type acquired by the debtor in the future. When the debtor does acquire more property of the type referred to in the financing statement already on file, and when a security interest attaches to that property, the perfection is instantaneous and automatic. [UCC Section 9-303(1) ].
Id., 194 N.W.2d at 783.
Because of the unusual time gap involved, In re Gilchrist Co., 403 F.Supp. 197 (E.D.Pa.1975), is an interesting example of the line of cases which follows Tal-cott and applies the concept that a duly filed financing statement, showing the same debtor, the same secured party, and the same type of collateral, serves to perfect a security interest created in a transaction other than that for which the financing statement was originally filed. In Gilchrist, a bank filed a financing statement at the time of the original loan to a borrower in 1959. That financing statement was still in effect at the time the bank made a new loan agreement with the borrower in 1974. Between the original loan in 1959 and the new loan in 1974, there was an intervening two-year period in which all bank loans were unsecured, and by 1972 all loans then outstanding had been repaid in full. Nevertheless, the court concluded that the bank, which had never been requested to terminate the financing statement, was not required to file a new financing statement in connection with the 1974 loan.
The case of Frank v. James Talcott, Inc., 692 F.2d 734 (11th Cir.1982) further supports the concept that a financing statement which adequately describes collateral can serve to perfect a security interest not contemplated by the parties at the time of the filing of the financing statement. Talcott and LSI entered into a loan agreement in 1973 providing Talcott with a security interest in the sales contracts from units 12-19 of a land development in Florida. Talcott filed a financing statement in 1973 describing the collateral as “all of LSI’s present and future installment sales contracts, including the proceeds thereof.” Id. at 737. Talcott and LSI amended the 1973 loan agreement in 1974, granting Talcott a security interest in the contracts from units 1-11. The court concluded that Talcott’s 1973 financing statement automatically perfected its interest in this additional collateral granted in 1974. After noting the specification in UCC Section 9-402(1) that a financing statement may be filed before a security agreement is made or a security interest otherwise attaches, the court stated:
The Uniform Commercial Code contains no requirement that a financing statement refer to any security agreement that may exist between the parties designated in the financing statement. The central purpose of filing a financing statement is to provide notice that the *871creditor may have a security interest in the named collateral, the details of which can be ascertained upon further inquiry of the named parties. Moreover, consideration of the commercial realities of modern day financing militates against a requirement that a secured creditor must refile each time it enters into a new loan agreement with a debtor to whom the creditor lends money on a regular basis. Therefore, we agree that a financing statement which adequately describes the collateral can serve to perfect a security interest not contemplated by the parties at the time of the initial filing.
Id. at 738 (citations omitted).
C. “TRANSFORMATION” VERSUS “DUAL STATUS” RULES
BOA also asks this Court to make new law in South Carolina and the Fourth Circuit by applying the so-called “transformation” rule in a commercial context. Specifically, BOA asks this Court to hold that a cross-collateralization provision, commonly utilized in commercial transactions, destroys a purchase money security interest since the lien secures more than the purchase price for a particular item. In support of this argument, BOA cites several consumer cases in this district pertaining to lien avoidance under 11 U.S.C. § 522(f). See, e.g., Rosen v. Associates Fin. Services Co., 18 B.R. 723 (Bankr. D.S.C.1981); In re Haus, 18 B.R. 413 (Bankr.D.S.C.1982); In re Farmer, No. 96-71977-B (Bankr.D.S.C. filed July 23, 1996); In re Mosely, No. 96-71639-W (Bankr.D.S.C. filed May 15,1996). These eases are inapplicable for several reasons:
(1)The cited cases deal with consumer goods, whereas this adversary proceeding involves commercial transactions dealing with equipment-an entirely different category of collateral. See S.C.Code Ann. § 36-9-109(1) and (2).4
(2) The cited cases involve the “fresh start” policy underlying consumer bankruptcies. 11 U.S.d § 522(f) furthers the “fresh start” policy by allowing consumer debtors to retain a certain amount of their household goods if there is no creditor with a purchase money security interest in the goods. This adversary proceeding does not involve lien avoidance issues or policies. In fact, it does not directly involve the Debtor, but rather two creditors asserting priority of their lien.
(3) The cited cases all involve refinances and/or debt consolidations, whereas this adversary proceeding does not involve either a refinance or a debt consolidation. To the contrary, the Debtor and ORIX have always maintained separate and distinct accounts regarding each purchase money collateral item financed by ORIX.
Even in the consumer context, courts are split over whether to apply the “transformation” rule or the so-called “dual status” rule. Sears, Roebuck & Co. v. Nelson (In re Nelson), No. 7:90-1942-3 (D.S.C. filed Jan. 25, 1991), contains the following explanation of both rules:
The dual status rule states that the existence of a nonpurchase money security interest in goods does not terminate a purchase money security interest in those goods, to the extent that the collateral continues to secure its own price. The rationale behind the dual status rule comes from the language of the U.C.C. § 9-107, which allows a purchase money *872security interest in goods “to the extent” that it secures the purchase price of the goods.
This is in contrast to what is known as the “Transformation Rule”, which states,
[T]hat if collateral secures its own purchase price as well as the purchase price of other goods, the purchase money security interest existing prior to the “add on” contract is transformed into a non-purchase money security interest. The transformation rule, however, is typically applied in cases where neither the consolidated contract, nor state statute, allocates payments between the various debts. The policy underlying this rule is to prevent over-reaching creditors from retaining titled [sic] to all items covered under the consolidated contract until the last item purchased is paid for.
Id. at 7 (citations omitted).
Pursuant to the “dual status” rule, 'a creditor retains a purchase money security interest in goods that also secure other obligations to the extent the original items secure the unpaid part of their own price. Some courts reason that tolerance of cross-collateralization provisions carries out the purposes of the Uniform Commercial Code to give special priority to purchase money security interests and to simplify repeat transactions between the same buyer and seller. See, e.g., Pristas v. Landaus of Plymouth, Inc., 742 F.2d 797 (3rd Cir.1984).
Unable to find any law within the Fourth Circuit supporting the application of the “transformation” rule in a commercial context, BOA cites decisions within the Eleventh Circuit which do so. See, e.g., ORIX Credit Alliance, Inc. v. Bank of Tuscaloosa (In re Brookwood Sand and Gravel, Inc.), 174 B.R. 309 (Bankr. N.D.Ala.1994) and Southtrust Bank of Alabama v. Borg-Warner Acceptance Corp., 760 F.2d 1240 (11th Cir.1985).5 A number of courts have rejected the Eleventh Circuit’s approach, and have instead applied the “dual status” rule in the commercial context. See, e.g., First Nat’l Bank of Boston v. Shugrue (In re Ionosphere Clubs, Inc.), 123 B.R. 166 (S.D.N.Y. 1991); In re Express Air. Inc., 136 B.R. 328 (Bankr.D.Mass.1992); John Deere Co. v. Production Credit Ass’n, 686 S.W.2d 904 (Tenn.Ct.App.1984). The noted Uniform Commercial Code commentators, Professor James J. White and Professor Robert S. Summers, support the “dual status” approach as demonstrated by the following discussion of the John Deere Co. v. Production Credit Association case:
Unlike the court in Southtrust \v. Borg-Wamer ], the court here declined to follow the reasoning of In re Manuel [507 F.2d 990 (5th Cir.1975)] and other similar cases in the consumer bankruptcy context. It concluded that a creditor can be a purchase money lender irrespective of its cross-collateralization clause or the terms of its security agreement, provided it can show that its loan actually went for the purchase of the particular collateral covered by the financing statement and to the extent that it can show that only that part of the debt is being asserted on a purchase money basis against the particular collateral. We applaud the John Deere reasoning.
James J. White & Robert S. Summers, Uniform Commercial Code Practitioner Treatise Series, § 33-5 at 330 (4th ed. Supp.2000).
*873The proposed revisions to Article 9 of the Uniform Commercial Code, while not yet adopted in South Carolina, make clear that the “dual status” rule is the correct application in the commercial context. See Revised UCC § 9-103(e) and (f) and Official Comment 7.
BOA does not dispute that ORIX’s security interests in the Disputed Collateral involve “purchase money” financing. The record in this case, including the Consent Order Approving Agreement Between Debtor and ORIX Financial Services, Inc. entered by this Court on April 4, 2001, demonstrates that the purchase money debt balances owed on each of the Disputed Collateral items exceed the values of the Disputed Collateral items. BOA has not raised any issues concerning ORIX’s application of payments received by the Debtor. Accordingly, application of the “dual status” rule is appropriate under the facts of this case.
CONCLUSION
The issue in this case is whether ORIX had, on file, a financing statement describing the Disputed Collateral by item or type when the Debtor obtained rights in the equipment or within 10 days thereafter. This Court concludes that it did. Orix also provided the purchase money financing that allowed K & P to acquire rights in the Disputed Collateral. The contracts by which K & P purchased the Disputed Collateral contained their own grant of a security interest in the equipment. Coupled with the Prior Financing Statements covering equipment, the purchase money security interests in the Disputed Collateral were automatically perfected at the moment K & P acquired rights in the equipment.
For the foregoing reasons, it is hereby
ORDERED that ORIX’s motion for summary judgment is granted, and BOA’s motion for summary judgment is denied. It is further
ORDERED that ORIX holds first priority perfected purchase money security interests in the Disputed Collateral.
SO ORDERED.
. Issues involving the other Defendants will be addressed in separate orders of the Court.
. The case was originally filed under Chapter 11 of the Bankruptcy Code, but subsequently converted to Chapter 7 during the pendency of this adversary proceeding.
. This statute was amended in 2000 to extend the time for perfection of a purchase money security interest from ten to twenty days after a debtor receives possession of collateral. All statutory citations herein refer to the applicable Uniform Commercial Code statutes as adopted in South Carolina at the time of the disputed transactions.
. Unlike equipment such as that at issue here, no UCC filing is necessary to perfect a purchase money security interest in consumer goods. § 36-9-302(l)(d).
. The Bankruptcy Court in AmSouth Bank. N.A. v. Orix Credit Alliance, Inc. (In re Delta Resources, Inc.), 162 B.R. 562, 568 (Bankr. N.D.Ala.1993), noted that, "if [it] were writing on a clean slate ... it might well reject the transformation rule.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493291/ | MEMORANDUM OPINION
ROBERT G. MAYER, Bankruptcy Judge.
This case is before the court to determine the proper disposition of $378,325.34 deposited into the registry of the court. The reorganized chapter 11 debtor asserts that the funds are unclaimed funds that should be paid to it pursuant to §§ 347 and 1143 of the Bankruptcy Code while the creditors assert that the funds should be distributed to them.
IBIS Corporation filed a voluntary petition in bankruptcy pursuant to chapter 11 of the Bankruptcy Code on February 26, 1992. A chapter 11 plan was confirmed on December 7, 1993. The plan provided for periodic payments to the Plan Trustee, who was responsible for distributing the payments to creditors.1 The debtor compromised its obligation to make periodic payments by agreeing to make a single payment of $1,075,000 to the Plan Trustee. The compromise was approved by court orders entered on January 19, 1995, and February 21, 1995. The payment was made on February 22,1995.
The Plan Trustee filed five avoidance actions on February 28, 1994, as he was authorized to do pursuant to the confirmed plan, and 19 objections to proofs of claims on March 23, 1995. On March 10, 1995, prior to the Plan Trustee objecting to the 19 proofs of claims and prior to the resolution of the adversary proceedings, the debtor filed a motion requesting the entry of a Final Decree. The motion was granted and the decree was entered on the docket on March 8, 1996. The Final Decree reserved continuing jurisdiction in this court limited to final disbursement by the Plan Trustee, adversary proceedings then pending and claims objections. The Plan Trustee resolved all of the adversary proceedings and final orders were entered on February 13, 1997. The claims objections were never resolved.
The Plan Trustee made three distributions: August 16,1994, December 29,1994, and April 1, 1995. This did not disburse all of the money he had received. As of April 13, 1995, he had $364,675.47 which was withheld from distributions to creditors whose claims were in dispute: $23,122.05 in checks returned by the United States Postal Service as undeliverable; and $8,541.66 in outstanding checks which were neither returned nor cashed. After *880April 13, 1995, he received $64,702.00 from settlement of the adversary proceedings.2
The Plan Trustee took no significant action to resolve the disputed claims or to locate the missing creditors whose distribution checks were returned in the mail. Except for a change of address notification filed by the Plan Trustee on March 26, 1998, no papers were filed in the bankruptcy case from May 1, 1995, through June 21, 2000, when the debtor moved to reopen the case to seek an accounting and to claim the undistributed funds in the hands of the Plan Trustee. The case was reopened on June 27, 2000. The funds were ordered to be paid into the registry of the court for safe keeping because the Plan Trustee was unable to provide an immediate accounting and appeared to have abandoned his duties. The debtor’s motion to require the funds to be distributed to the debtor was continued to allow the debtor, the creditors and the United States Trustee to obtain an accounting from the Plan Trustee. That accounting has been made. After providing his accounting, the Plan Trustee resigned and a successor Plan Trustee was appointed. The debtor’s motion is now mature for consideration.
Debtor’s Position
The debtor asserts that all the money in the registry of the court belongs to the debtor and should be disbursed to it.3 The debtor argues that §§ 347(b) and 1143 provide the rule for decision in this case. Section 347(b) states:
Any security, money, or other property remaining unclaimed at the expiration of the time allowed in a case under chapter 9, 11, or 12 of this title for the presentation of a security or the performance of any other act as a condition to participation in the distribution under any plan confirmed under section 943(b), 1124, 1173,- or 1225 of this title, as the case may be, becomes the property of the debtor or of the entity acquiring the assets of the debtor under the plan, as the case may be.
The phrase “the presentation of a security or the performance of any other act as a condition to participation in the distribution” in § 347(b) is substantially repeated in § 1143 which states:
If a plan requires presentment or surrender of a security or the performance of any other act as a condition to participation in distribution under the plan, such action shall be taken not later than five years after the date of the entry of the order of confirmation. Any entity that has not within such time presented or surrendered such entity’s security or taken any such other action that the plan requires may hot participate in distribution under the plan,
IBIS argues that a creditor’s “performance of any other act as a condition to participation in distribution under the plan” includes cashing distribution checks received, keeping the Plan Trustee advised of any change of address and resolving any objection to its claim. Since the creditors did not satisfy these requirements within five years after confirmation, the funds that would otherwise have been distributed to them became the debtor’s property no *881later than February 21, 2000, and possibly as early as December 7,1998.4
Creditors’ Position
The creditors assert that the time limit contained in §§ 347(b) and 1143 is not applicable because they are not required to do anything, that is, they may safely sit back, do nothing and wait for a distribution. No security is required to be presented or surrendered. No act is required to be performed as a condition precedent to participation in the distribution under the confirmed plan. Consequently, the funds in the registry of the court should be distributed to them. Moreover, to the extent that some creditors have not cashed distribution checks, those funds should be redistributed among the remaining creditors because the plan provides that all distributions will be pro rata among the creditors.
Discussion
Bankruptcy Code §§ 347(b) and 1143 control the disposition of unclaimed funds in the registry of the court.5 The plain language of § 347(b) when read in conjunction with § 1143 provides that unclaimed funds become property of the debtor five years after confirmation. There are only two conditions precedent to the application of § 347(b): (i) that the funds be unclaimed and (ii) that five years have elapsed after confirmation. If these two conditions have been met, then the unclaimed funds belong to the debtor. See TLI, Inc. v. Lynn (In re TLI, Inc.), 213 B.R. 946, 950, 954 (N.D.Tex.1997) aff'd 159 F.3d 1355 (5th Cir.1998) (Table); In re Goldblatt Bros., Inc., 132 B.R. 736, 738 (Bankr.N.D.Ill.1991). A third condition is added by § 1143. If a plan requires presentment or surrender of a security or the performance of any other act as a condition to participation in the distribution under the plan, the action must be taken within the five-year period. If the action is not taken within the five-year period, the creditor or security holder is barred from participating in the distribution under the plan. Section 1143 acts as a bar date to take certain actions. See Duebler v. Sherneth Corp., 160 F.2d 472, 474 (2nd Cir. 1947) (decided under §§ 204 and 205 of the Bankruptcy Act of 1898).
This case presents two issues: whether the funds in the registry of the court are unclaimed and whether the creditors were required to take any specific action in order to be eligible to participate in the distribution under the plan. If they were required to take any actions, it is conceded that they have not and are now time-barred from doing so.
Requirement of Performance of an Act
The creditors assert that they were not required to perform any act and con-*882elude, therefore, that § 347(b) is not applicable. The debtor argues that they were required to do several things. They were required to resolve their claims, cash their distribution checks, and maintain contact with the Plan Trustee, that is provide the Plan Trustee with a current address and apprize him of any change of address. If these actions are required to be performed by the creditors, it is conceded that they were not completed within five-years after confirmation, are now time barred under § 1143 and cannot now be performed. The funds would, therefore, be paid to the debtor.
The terms of the confirmed plan determine whether a creditor is required to take any action in order to participate in the distribution under the confirmed plan. The plan in this case does not contain any such requirement. The plan only requires the debtor to make payments to the Plan Trustee and the Plan Trustee to distribute the payments to the creditors. Nothing in the plan requires the creditors to do anything in order to participate in the Plan Trustee’s distribution.
The debtor argues that the plan implicitly required creditors to take certain actions within the five-year period. Section 1143 cannot be read to impose implicit requirements on creditors and security holders. To do so would permit unwary creditors to be ensnared in hidden traps. Creditors are entitled to fair notice of the terms of a plan affecting their ability to participate, in the plan. See In re Linkous, 990 F.2d 160, 162 (4th Cir.1993). They cannot be required to construe a plan or guess as to the eligibility requirements to participate in the plan.
In any event, the implicit requirements suggested by the debtor are inconsistent with § 1143. None of the three implicit duties suggested by the debtor — resolving objections to claims, cashing distribution checks and maintaining a current mailing address with the Plan Trustee — are the kind of requirements addressed by § 1143 itself. Neither cashing the distribution check nor maintaining a current address is necessary to establish eligibility to participate in the distribution under the plan. In fact, three distributions were made within five years after confirmation, none of which is challenged by the debtor. Clearly, the creditors to whom those distributions were mailed have done everything required to be eligible for participation in distributions under the plan. This is true even if the checks were never cashed or were returned to the Plan Trustee by the Postal Service. The checks would never have been mailed to the creditors if they were not eligible to receive them. Whether the uncashed or undelivered checks are now unclaimed is a different issue. But see In re George Rodman, Inc., 50 B.R. 313 (Bankr.W.D.Ok.1985) (holding that cashing a check is an act required by § 1143).6
*883No distribution was made to creditors whose claims were objected to by the Plan Trustee. The debtor asserts that these creditors were required to resolve their claims within five years after confirmation; 7 otherwise the funds reserved for them pending resolution of their claims become the debtor’s on the expiration of the five-year period. The claims allowance process is carefully and specifically provided for in the Bankruptcy Code and the Federal Rules of Bankruptcy Procedure. 11 U.S.C. §§ 501, 502; Fed.R.Bankr.P. 3001-3008. It imposes no deadline on the completion of litigation over objections to claims. Section 1143, on the other hand, is a general statutory provision. If there is a conflict between the specific Code and Rule provisions governing the claims allowance process, and the more general provisions of § 1143, the more general provisions of § 1143 must yield to the more specific claims allowance provisions. If § 1143 were to include an unexpressed time requirement to resolve all objections to a creditor’s claim, the Code would place an arbitrary limitation on a creditor which may not be within the control of the creditor to satisfy. While most claims litigation is of brief duration, some can become quite contentious and take a substantial period of time to resolve, particularly if there are appeals. A creditor should not be prejudiced because he runs out of time to complete complex litigation. Moreover, such a rule would unfairly benefit dilatory or obstreperous debtors. The debtor’s argument that § 1143 imposes a five-year deadline on completion of the claims objection process makes no distinction between simple claims litigation that can be completed within the five-year time period and complex claims litigation that might not be completed within the time period. It does not take into account an exception for complex litigation or objections filed long after confirmations8 and — because it is an absolute deadline — cannot include an exception for claims litigation diligently pursued. For these reasons, the claims allowance process cannot be governed by or limited by § 1143. A code provision that does not specifically address the claims allowance process should not implicitly set limitations on it.
The three implicit acts suggested by the debtor to be required by § 1143 are acts that may in some cases be required to be performed after the five-year period has expired. Cashing distribution checks issued more than five years after confirmation cannot reasonably be included within the provisions § 1143. Such provisions are not uncommon and were not unforeseen by Congress in enacting the Bankruptcy Code. Priority tax claims may be paid over a six-year period after assessment, a period which may extend more than five years after confirmation. 11 U.S.C. § 1129(a)(9)(C). Many confirmed chapter 11 plans anticipate distributions *884being made more than five years after confirmation. The initial 10-year duration of the plan in this case is not unusual. The debtor’s argument that distribution checks must be cashed within five years after confirmation does not address distribution checks issued more than five years after confirmation. Nor is there any way to account for them under the debtor’s construction of § 1143. Similarly, a creditor may move after the expiration of the five-year period. He would not be able to apprize the Plan Trustee of the new address within the five-year period. As discussed above, objections to claims may be made very late or may take a long time to resolve, both of which through no fault of the creditor, may extend beyond five years after confirmation.
The court finds that neither the plan itself nor § 347(b) read in conjunction with § 1143 impose any requirement, either explicit or implicit, oh any creditor to take any act within five years after confirmation. Goldblatt, 132 B.R. at 740-41. Both the debtor’s argument — that any such hypothetical act cannot now be accomplished, thereby causing the funds in the registry of the court to revert to the debt- or — and the creditors’ argument — that §§ 347(b) and 1143 are irrelevant because no act is required to participate in the distribution — miss the point. The purpose of § 347 is to deal with unclaimed funds that exist at a certain time. In a chapter 11 case, that time is five years after confirmation. The focus in this case should not be on any acts required to be performed— there are none — but whether there are unclaimed funds. There are certainly funds in the registry of the court, but are they unclaimed ?
Unclaimed Funds
Funds are unclaimed when the disbursement agent, which may be the reorganized debtor, has done everything he is required to do to distribute the funds, reasonable notice of the availability of the funds has been given to the intended recipient and the intended recipient has done nothing for a period of time sufficient to evince a lack of interest in the funds or an abandonment of his right to the funds. For example, a check mailed to a creditor at the creditor’s last known address, not returned by the Postal Service and not cashed within a reasonable period of time is unclaimed. Mailing the check is the last act the disbursement agent is required to perform in order to pay the creditor’s claim. It is presumed that mail properly addressed is delivered to the addressee. It, therefore, constitutes notice of the availability of the funds. See, e.g., Hagner v. United States, 285 U.S. 427, 430, 52 S.Ct. 417, 419, 76 L.Ed. 861, 864 (1932); Russell, Bankruptcy Evidence Manual. (2001 ed.), § 301.8. The failure to cash the check within a reasonable time evinces an absence of interest or an abandonment of the creditor’s right to the funds. Cf. TLI, 213 B.R. at 956 (reaching the same result but holding that cashing a distribution check is an act required by § 1143). This rule is more satisfactory than holding that cashing a check is an act required by § 1143. An act required to be performed under § 1143 must be performed within five years after confirmation and does not address checks that are not issued until more than five years after distribution. The rule expressed in this case applies to all checks, whenever issued. Of course, checks issued earlier than five years after confirmation and neither cashed nor returned would not revert to the debtor until the expiration of the five-year deadline.
A check that is returned in the mail does not satisfy the requirements for unclaimed funds. The presumption of delivery cannot be sustained because the mail was itself returned. Consequently, it *885cannot be presumed that the creditor was aware of the availability of the funds. In these circumstances, the disbursement agent must exercise due diligence in attempting to locate the creditor. Goldblatt, 132 B.R. at 741. If after a reasonable search, reasonable notice, and the passage of a reasonable period of time within which it would be expected that an interested creditor would seek out the disbursement agent, the creditor cannot be found or does not appear, it may be presumed that the funds are unclaimed.
The debtor argues that the Plan Trustee’s failure to distribute the funds within the five-year period9 renders the funds unclaimed for purposes of § 347(b).10 The difficulty with this argument is simply that the Plan Trustee is not a creditor. He is an independent third party. His actions or inactions do not determine whether the creditors have left money unclaimed. The funds in his hands are certainly unpaid funds, but not necessarily unclaimed funds. Recognizing this limitation, the debtor seeks to attribute the Plan Trustee’s failure to timely discharge his duties to the creditors. This attribution is somewhat circuitous. The debtor asserts that the Plan Trustee was under the control and direction of a the Permanent Creditors’ Committee, that this control imposed an obligation on the Permanent Creditors’ Committee to supervise the Plan Trustee and to assure that he timely discharged his obligations and that the Committee failed to do so. Finally, if this obligation to act cannot be further attributed to all creditors, at least the creditors on the Permanent Creditors’ Committee should be charged with it and be barred from participation in further distributions under the plan.
This argument cannot be accepted.11 The Permanent Creditors’ Commit*886tee does have supervisory duties but its failure to discharge its duties does not mean that all creditors abandoned their interest in receiving a distribution or do not claim funds that may be due to them. Goldblatt, 132 B.R. at 741. That is especially true here where the Permanent Creditors’ Committee appears to have dissolved without notice to the creditors. During the past five or six years, no meetings were held by the Committee; the Plan Trustee did not consult the Committee; and there were no communications between the Plan Trustee and the Committee or between the creditors and the Committee. The Committee members were employees of corporate creditors. In many instances, it appears that the members are no longer employed by the corporate creditor. During this time, counsel for one creditor, the Department of the Army, informally asked the Plan Trustee what was happening and when distributions could be expected. The Plan Trustee always indicated that he was still active and was resolving matters. While the comments were vague, they were sufficient to reassure counsel. These circumstances do not indicate that the money due to the creditors is unclaimed. The creditors do claim the money. They were merely waiting for the Plan Trustee to resolve administrative matters. They expected a distribution when it was available. They did not know that the Plan Trustee had effectively abandoned his duties or that the Permanent Creditors’ Committee had effectively disbanded. This is brought home by the creditors’ responses to the debtor’s motion to disburse the funds in the registry of the court to the debtor. They reestablished the Permanent Creditors’ Committee which has hired counsel and which is actively involved in opposing this motion. Many have hired individual counsel who are actively engaged in opposing the motion. The failure of the Plan Trustee or of the Permanent Creditors’ Committee to properly discharge their duties cannot prejudice the creditors or cause the funds to be unclaimed. In re The Signature Group, 172 B.R. 501, 502 (Bankr. D.R.I.1994). Whether the funds are unclaimed depends on the actions or inac-tions of the individual creditors, not the Plan Trustee or the Permanent Creditors’ Committee.
The debtor argues that the creditors’ failure to prosecute the claims objections evinces their disinterest in the funds and shows that the funds of these creditors are unclaimed. Claims are allowed unless an objection is filed. 11 U.S.C. § 502(a). The Plan Trustee filed 19 objections to claims on March 23, 1995. No response was filed to 18 of the objections. None has ever been resolved. The Plan Trustee did not make a distribution to any of the 19 creditors, but did withhold funds sufficient to pay them if his objections were ultimately overruled. The debtor asserts that the failure to resolve the claims renders the funds reserved for payment of the claims unclaimed.
While the failure of a creditor to resolve an objection to its claim within a reasonable time is arguably a factor in determining whether the creditor has abandoned its claim12 the debtor’s argument fails in this case for several reasons. First, a final decree was entered on May 1, 1995, and *887the case was closed. At that time the objections to claims were outstanding and unresolved. While the plan reserved jurisdiction in this court to adjudicate all controversies regarding the classification or allowance of claims, such an adjudication can only be made while the case is pending, that is, open.13 The plan did not confer jurisdiction on the court to hear the then-pending objections after the case was closed. Mason v. Hitchcock, 108 F.2d 134 (1st Cir.1939); Holly’s, Inc. v. City of Kentwood (In re Holly’s, Inc.), 172 B.R. 545 (Bankr.W.D.Mich.1994). It merely provided a mechanism that would enable the court to re-open the case to make these determinations if the occasion arose. The objections became moot when the case was closed. The claims became allowed claims at that time.
Second, the creditors were under no obligation to respond to the objections because none was properly served. Sixteen of the creditors whose claims were objected to are corporations. Objections to proofs of claims are contested matters governed by Fed.R.Bankr.P. 9014. The objection must be served in accordance with Fed.R.Bankr.P. 7004. Rule 7004(b)(3) provides for service:
upon a domestic or foreign corporation or upon a partnership or other unincorporated association, by mailing a copy of the summons and complaint to the attention of an officer, a managing or general agent, or to any other agent authorized by appointment or by law to receive service of process and, if the agent is one authorized by statute to receive service and the statute so requires, by also mailing a copy to the defendant.
Here, none of the objections to corporate claims was served as required by Rule 7004(b)(3). See In re Boykin, 246 B.R. 825 (Bankr.E.D.Va.2000). None of the creditors had any obligation to respond to the objection to its claim or to take any action to resolve it.
The Plan Trustee objected to three proofs of claims filed by governmental units: Fairfax County, Virginia; the Town of Herndon, Virginia; and South Burlington, Vermont. These objections were also not properly served. The objection to the proof of claim filed by Fairfax County was addressed and mailed to “County of Fair-fax, Office of Finance” at a specific street address. Fed.R.Bankr.P. 7004(a)(6) provides that service on a state or municipal corporation or other governmental organization may be made:
by mailing a copy of the summons and complaint to the person or office upon whom process is prescribed to be served by the law of the state in which service is made when an action is brought against such a defendant in the courts of general jurisdiction of that state, or in the absence of the designation of any such person or office by state law, then to the chief executive officer thereof.
Service of process on a Virginia city, county or town is governed by § 8.01-300 of the Code of Virginia. Service is made upon the city, county or town attorney if there is such a position, otherwise on the mayor, manager or trustee of a town or *888city, or in the case of a county, the Commonwealth attorney. In Vermont, service of process is made upon a city by delivering a copy of the summons and complaint to the clerk, treasurer or manager. Vt. Code R.Civ.P. 4(d)(5). None of the three governmental units was properly served. As with the corporate creditors, none had an obligation to respond to the objection.14
The debtor’s argument has a final flaw. If the objections to the claims were sustained, the reserved funds would be distributed to all other creditors. All unsecured creditors receive a pro rata distribution. This means that they share in accordance to their claims among all allowed claims. If a claim is disallowed, the distribution that would have gone to that creditor had its claim been allowed does not revert to the debtor, but is distributed among the remaining creditors with allowed claims. The disallowance of a claim decreases the size of the pot of allowed claims, thereby increasing each remaining creditor’s share in the distribution. If the creditors whose claims were objected to were disallowed, the reserved funds are not unclaimed, but should be distributed to the remaining creditors. Only if a remaining creditor leaves his share unclaimed would that unclaimed share revert to the debtor under § 347(b).
Application to Registry Funds
The funds in the registry of the court may be divided into several categories. The first group consists of outstanding checks that were mailed and delivered but neither returned nor cashed. This consists of checks in the amount of $8,541.66. These checks have been outstanding for many years and are by any definition stale. The Plan Trustee did everything he was required to do and the creditors, because the checks were presumably delivered to them, are presumed to have had notice of the availability of the funds. The creditors presumably decided not to cash them. These funds are unclaimed.
The next group of funds consists of checks returned by the Postal Service as undeliverable. They amount to $23,122.05. This group cannot be accorded the presumption given to the funds in the first group — that the checks were delivered to the creditors. It may be that some of the funds in this group will become unclaimed, but notice must first be given to the creditor that its distribution is available. Since the addresses were not good addresses when the checks were mailed, the Plan Trustee must undertake a good faith search for the creditors. See Goldblatt, 132 B.R. at 741 (“the Creditors’ Committee ... had a duty under the Plan to find the creditors and make distributions.”); Rod-man, 50 B.R. at 313 (the trustee made diligent efforts to locate missing creditors). The failure of the original Plan Trustee to undertake a due diligent search cannot prejudice the rights of creditors to receive distributions when they were unaware that there was a distribution to be received.15 *889Here the five-year period has passed. After a reasonable search for these missing creditors and notice sufficient under the circumstances, any funds due to the then-still missing creditors may be deemed to be unclaimed. Goldblatt, 132 B.R. at 737, 741 (trustee had published a notice giving missing creditors notice that unclaimed funds remaining on a fixed date would be paid to debtor; court imposed additional requirement to employ firm experienced in searching for missing creditors); Rodman, 50 B.R. at 314; In re Riverside Nursing Home, 137 B.R. 134, 138 (Bankr.S.D.N.Y. 1992) (relying on § 1142(b) to order reorganized debtor to perform an act necessary for the consummation of the plan).
The last group of creditors consists of those from whom the Plan Trustee was withholding distribution because he had objected to their proofs of claims. This accounts for $364,675.47. While it is appropriate for the Plan Trustee to reserve funds from the distributions to pay creditors if their claims are subsequently allowed, the failure to resolve these claims or to pay the funds to the creditors does not affect their rights to their distributions. The funds are not unclaimed. Unless the new Plan Trustee files and properly serves new objections to the proofs of claims within a reasonable time, the reserved funds must be distributed to the creditors.
Redistribution of Unclaimed Funds Among Creditors
An additional creditors’ argument remains: Unclaimed funds should be reallocated among the creditors still active in the case and should not be paid to the debtor. The creditors argue that the funds should be reallocated because the plan provides that the funds will be distributed to the creditors pro rata, that is, that the confirmed plan modifies the statutory scheme of returning unclaimed funds to the debtor by requiring that the funds be distributed pro rata among all creditors. The unclaimed funds, they argue, should be redistributed among all creditors who received and cashed their distribution check. This proposition was rejected in Goldblatt and Rodman.
There have been unclaimed funds since the enactment of the Bankruptcy Act in 1898. The failure to claim funds may be deliberate. Some creditors may consider a small distribution too costly to process or return. The cost to identify an account, record the payment and process the check may exceed the distribution. Other creditors may have been paid in full by a third party. Often the failure to claim funds is not deliberate. The creditor has simply moved or the debtor initially provided a bad address. The creditor may not know that there is money available to satisfy his claim in full or in part. However, there must be finality. See TLI, 213 B.R. at 956; Goldblatt, 132 B.R. at 738. The trustee must make a final accounting. The court must close the case. The debtor is entitled to a fresh start unfettered by past entanglements.
There are four principle possible dispositions of unclaimed funds: they can be held by someone indefinitely for the benefit of the creditor; they can escheat to the government, either federal or state; they can *890be redistributed among the participating creditors; or they can be returned to the debtor or the debtor’s successor. Different schemes were adopted by Congress for chapter YII and XIII case than for reorganization cases. Initially, Congress chose the redistribution scheme in chapter VII and chapter XIII cases. The Bankruptcy Act of 1898 provided that dividends remaining unclaimed for six months after the final dividend were to be paid into the court. Bankruptcy Act of July 1, 1898, ch. 541, § 66a, 30 Stat. 544 (repealed 1978); 3 Collier on Bankruptcy ¶ 347.LH, at 347-11 (15th ed. rev., 2000). Dividends unclaimed after one year were redistributed to the remaining creditors. If those creditors were paid in full, together with interest, the surplus was returned to the debtor. Bankruptcy Act of July 1, 1898, ch. 541, § 66b, 30 Stat. 544 (repealed 1978); 3 Collier on Bankruptcy ¶ 347.LH[1], at 347-13 (15th ed. rev., 2000). In 1938, § 66 was amended to include all unclaimed money, not just dividends.
This system was altered in 1956 when § 66b was repealed. See Act of August 1, 1956, Pub.L. No. 84-868. The redistribution scheme was changed to the stakeholder scheme with the United States Treasury being the ultimate stakeholder for unclaimed funds. Unclaimed funds were deposited into the registry of the court and held pursuant to 28 U.S.C. § 2042, which provides that after the funds have been held in the registry of the court for five years, they are deposited to the Treasury in the name and to the credit of the United States. The rightful owner, however, may claim the deposited funds. This amendment eliminated unclaimed funds from escheating to the states and made the disposition of unclaimed bankruptcy funds uniform throughout the United States. It also brought the procedures for handling unclaimed bankruptcy funds into the same system as district courts used for other unclaimed funds. The redistribution to the more diligent creditors was abolished because redistributions were, in fact, unusual and produced undesirable results in some cases. 3 Collier on Bankruptcy ¶ 347.LH[2], at 347-15 (15th ed. rev., 2000). The Bankruptcy Code of 1978 essentially continued this same treatment of unclaimed funds in chapter 7 and 13 cases. See 11 U.S.C. § 347(a).
Sections 347(b) and 1143 of the Bankruptcy Code relate to unclaimed funds in chapter 11 cases and are derived from §§ 204 and 205 of the Bankruptcy Act. Section 204 stated:
Upon distribution, as provided in section 224 of this Act, the judge may, upon notice to all persons affected, fix a time, to expire not sooner than five years after the final decree closing the estate, within which, as provided in the plan or final decree—
(1) the creditors, other than holders of securities, shall file, assign, transfer, or release their claims; and
(2) the holders of securities shall present or surrender their securities. After such time no such claim or stock shall participate in the distribution under the plan.
Section 205 stated:
The securities or cash remaining unclaimed at the expiration of the time fixed as provided in section 204 of this Act, or of any extension thereof, shall become the property of the debtor or of the new corporation acquiring the assets of the debtor under the plan, as the case may be, free and clear of any and all claims and interests.
Congress rejected, in chapter 11 cases, thé redistribution of unclaimed funds to the remaining participating creditors, the escheat of unclaimed funds to either the federal or state governments and the hold*891ing of the funds by a stakeholder for an indefinite period of time. This is especially apparent from the legislative history and from a comparison of the statutory scheme for unclaimed funds in chapter 7 and 13 cases the statutory scheme in chapter 11 cases. The Bankruptcy Code continued the practice under the Bankruptcy Act of returning unclaimed funds to the debtor.
With this legislative history, a provision in a chapter 11 plan that deviates from the preferred statutory scheme must be clear. Here is it not. The requirement in this plan is directed to assuring that the distribution to creditors will be pro rata among the creditors. The distribution scheme does not affect the reversion of unclaimed funds to the debtor.
The IRS Levy
There is one final matter to be considered. The debtor is entitled to at least $8,541.66 in unclaimed funds; however, in April, 1999, the IRS levied on the Plan Trustee’s bank account to satisfy recent unpaid federal taxes of the reorganized debtor. The IRS seized $162,290.84. These funds were property of the creditors, not the debtor. While the debtor was aware of the levy and determined that the source of the funds was from the creditors’ fund, neither the debtor nor the Plan Trustee took any action to correct the situation. The levy was improper in that the money seized belonged not to the reorganized debtor but to the creditors. Had the debtor or the Plan Trustee taken any action with respect to the levy, the funds seized would have been restored to the creditors’ fund. As it stands, the debtor has been unjustly enriched by the improper levy and its failure to take any action to restore the creditors’ money to the Plan Trustee. While the debtor has a duty to restore the funds that improperly benefit-ted it, as a matter of equity, the Plan Trustee will set off the amount of unclaimed funds that would otherwise have reverted to the debtor against the amount seized by the IRS plus interest that would otherwise have been earned by the Plan Trustee. The set off will not affect the obligation of the debtor to repay the balance of the funds required to make the Plan Trustee whole.
Conclusion
The debtor’s motion will be denied except for $8,541.66. The funds held in the registry of the court will be disbursed to the new Plan Trustee for distribution in accordance with this opinion. Subject to the setoff of the funds levied by the IRS plus interest, unclaimed funds will revert to the debtor.
. The Plan Trustee was independent of the debtor and acted subject to the advice of the Permanent Creditors’ Committee.
. In addition, interest has accrued on the account. The total exceeds the amount paid into the registry of the court because the Internal Revenue Service levied on the account in April 1999 for post-confirmation taxes due by the reorganized debtor. The levy was $162,290.84. The Plan Trustee did nothing to recover the levied funds.
. It follows that the fund belonged to the debtor at the time of the IRS levy, that the levy was proper to satisfy IBIS' post-confirmation tax liability and that IBIS is not liable to the Plan Trustee for the amount seized by the IRS.
. It does not matter in this case whether the five-year period set forth in § 1143 starts anew upon entry of the order modifying the confirmed plan because the acts identified by the debtor were not performed within five years of the later order.
. The confirmed plan of reorganization makes no provision for the circumstances presented by this case. It is, therefore, unnecessary to decide whether the five-year deadline can be reduced or extended in a chapter 11 plan. See TLI, Inc. v. Lynn (In re TLI, Inc.), 213 B.R. 946, 949 (N.D.Tex.1997) (plan provided that property remaining unclaimed after the later of three years after confirmation, or 60 days after the final order allowing the claim, would return to claims fund for distribution to other claimants); In re Goldblatt Bros., Inc., 132 B.R. 736, 739 (Bankr.N.D.Ill.1991) (as an alternative holding, assumed without deciding that a confirmed plan could override express requirements of § 347(b)); In re George Rodman, Inc., 50 B.R. 313, 314 (Bankr.W.D.Ok.1985) ("Since no period has be fixed in this case, by implication the trustee holds the funds for the maximum [five-year] period.”)
. The court is aware of the reference to cashing checks in the legislative history. S.Rep. No. 95-989 (1978) at 48, U.S.Code Cong. & Admin.News 1978, at 5787, 5834 ("Conditions to participation under a plan include such acts as cashing a check, surrendering securities for cancellation, and so on."). If the legislative history were considered, the court would not give it significant weight. The comment is somewhat misplaced. It appears as an explanation to § 347, not § 1143. Section 347 only addresses unclaimed funds. Section 1143 addresses actions required to be taken in order to participate in a distribution under a plan. The brief passage does not reflect a considered interpretation of either § 347 or § 1143. It is illustrative only and not explanatory. Collier's suggests the passage is "unfortunate language.” 8 Lawrence P. Ring et ah, Collier on Bankruptcy, ¶ 1143.03[3] n. 2 (15th ed. rev.2000). Collier’s concludes that cashing a check is not a requirement of § 1143. Id. at ¶ 143.03[3], The Senate Report statement may well accu*883rately state the result in many cases. An uncashed check may revert to the debtor, not because the creditor failed to perform an act within five years — e.g., cashing the check— but because at the expiration of the five-year period the funds were unclaimed. This court reaches that conclusion as to some of the funds in issue. The Senate report presumably assumed that the check is received by the creditor.
. A claim is allowed unless an objection has been filed. 11 U.S.C. § 502(a).
. In some cases, particularly where funding for the distribution depends on the liquidation of an asset, debtors may not object to claims until the asset is sold and it is clear that there will be funds available to pay creditors. Earlier objections may result in useless expenses for both the debtor and the creditors if there is no money to distribute. Neither the Bankruptcy Code nor the Bankruptcy Rules establish a deadline to object to claims. There is no bar date unless set by the court.
. The five-year period is relevant for only two purposes. First, if the five-year period had not expired the creditors could still successfully claim the funds. Second, five years is a lengthy time. It is an indicia of a creditor’s lack of interest and, hence, the fact that the funds are unclaimed.
. Section 1143 does not address whether funds are unclaimed, only the time limit within which certain actions must be taken. Even if applicable here, it addresses creditor responsibilities, not the administrative responsibilities of a plan administrator. The failure of a plan administrator to properly and promptly discharge his duties is different from the requirement of § 1143 for the creditors to take particular actions in order to be eligible to receive a distribution from an estate. Section 1143 is directed to those actions a creditor is required to take to in order to qualify for participate in a distribution under the plan, not to the actions required by the plan administrator in preparing for or in making a distribution.
. The debtor casts this argument more in the nature of a § 1143 argument, actions required within five years after confirmation. It is quite clear that the Permanent Creditors’ Committee's supervisory obligations would not have been completed within five years after confirmation because the original plan was itself a ten-year plan. The debtor’s argument suggests that the obvious impossibility of the Permanent Creditors’ Committee performing its supervisory duties that would have been performed after the fifth year within the first five-year period would result in any funds that would otherwise have been paid after the fifth year to revert to the debtor. The better interpretation of the plan is that these duties — whenever performed, if ever performed — are not required in order for creditors to "participate in distribution under the plan.” They are the administrative actions necessary to properly administer the plan and while they are necessary to create the fund to be distributed and to properly distribute it to the creditors, they are not actions creditors must take in order to be able to participate. Section 1143 relates to those acts required by creditors to participate in the distribution under the plan that establish their qualification to receive distributions. It does not include administrative actions that may be required to effect the distribution. Once a *886creditor has done everything the plan requires to qualify to receive a distribution, there is no requirement imposed under § 1143 to take any further action.
. It can be more plausibly argued that the party objecting to the claim has abandoned the objection and that the objection — not the proof of claim — should be dismissed for failure to prosecute in which case the claim would be allowed.
. The Final Decree states that this court’s continuing jurisdiction is "limited to final disbursement by the Plan Administrator, objections to claims, and adversary proceedings currently pending herein.” This provision does not change the requirement that matters relating to disbursements and objections to claims be adjudicated in a pending case, that is, that the case be re-opened to consider such matters. The closing of a case does not itself moot or cause the dismissal of an adversary proceeding. Adversary proceedings are independent of the main case and continue to completion notwithstanding the closing of bankruptcy case. In re Higgins, 161 B.R. 993 n. 4 (W.D.Mo.1993).
. The Plan Trustee did not set the objections for hearing and did not give a negative notice, that is, notice that unless the creditor requested a hearing or filed an opposition within a fixed time, the claim would be disallowed.
. The debtor argues that the missing creditors have a continuing a duty to keep the Plan Trustee apprized of their current addresses and that the failure to do so is either a failure to perform an act required under § 1143 or is a factor to be considered in determining whether the funds are unclaimed. The § 1143 argument has been addressed above. While there is such a responsibility, as a practical matter, it is well known that many chapter 11 plans are not completed as intended. Many creditors, not expecting anything significant, do not remember to notify the debtor or the disbursing agent of a change of address. Balancing the creditor's responsibility with reality requires the Plan Trustee to undertake *889a reasonable effort to locate missing creditors and to give some notice, perhaps by publication, before the creditor's failure should be given significant weight in determining whether the funds can be deemed to be unclaimed. It may be appropriate to charge any expenses of attempting to locate the missing creditors against this portion of the fund. Other creditors who have maintained contact with the Plan Trustee should not be disadvantaged by actions designed to assure the proper treatment of the missing creditors. That, however, is a matter that need not be resolved today. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493292/ | MEMORANDUM OPINION
ROBERT G. MAYER, Bankruptcy Judge.
The issues before the court concern the retention and compensation of special counsel to the chapter 7 trustee. Computer Learning Centers, Inc. (“CLC”) filed a voluntary petition in bankruptcy pursuant to chapter 7 of the Bankruptcy Code on January 25, 2001. Immediately prior to filing, it provided computer-related training to more than 9,000 students and employed more than 1,600 people at 25 schools located throughout the United States. Classes were suspended three days before the filing. The employees quit. Rent accrued at the rate of more than a million dollars a month. There were no funds available to operate the schools. Time was of the essence.
A chapter 7 trustee was immediately appointed. He sought to sell the schools as going concerns before they completely collapsed. He organized and conducted a sealed bid auction. It was extensively publicized. The publicity included national newspaper advertising in the Wall Street Journal, the Washington Post, the Chronicle of Higher Education, and other newspapers; direct mailings to more than 8,740 computer instruction companies, 5,000 computer dealers and 4,000 commercial leasing brokers; an extensive internet marketing effort; and an aggressive telemarketing campaign. The auction was exceptionally successful. He received 47 bids from 27 different bidders. Most of the bids were for the schools on a going concern basis. This was critical because the sales as going concerns not only maximized the value of the assets but also minimized potential student claims by permitting the students enrolled in the schools to complete their studies with minimal interruption and minimized lease rejection claims. At the time of filing, the debtor estimated that the liquidation value of its assets was $6 million. To date, the trustee has received about $27 million.1
*895In the course of the administration of the case, the trustee was authorized to retain five law firms to represent the estate.2 An application to employ a sixth law firm is pending. The trustee was also authorized to employ an auctioneer and a certified public accountant. Eighteen fee applications seeking $8,238,463.10 in professional and trustee fees and $149,138.08 for expenses have been filed. Fees in the amount of $1,653,492.30 and expenses in the amount of $81,181.85 have been awarded. Requests for fees totaling $1,048,180.71 and expenses totaling $22,137.87 have been denied. This opinion addresses the application to employ a sixth law firm and two fee applications.
I. Application to Employ McKenna & Cuneo
A. The Employment Application
The trustee seeks to employ a sixth law firm. The firm, McKenna & Cuneo, LLP, is proposed to be retained as special counsel to assist the trustee with respect to insurance matters. The application states that the bankruptcy estate is the owner of “certain insurance policies insuring the Debtor and its operations” and that the trustee believes that the polices “covered claims and losses for which the respective insurance carriers either failed or refused to cover.” Application, ¶¶4, 5 (Docket Entry 424). No additional information was given about the matters to be referred to counsel. The individual attorney sought to be retained is Robert L. Carter, Jr., a 1990 graduate of the Columbus School of Law at Catholic University and co-chair of the firm’s 15-attorney Insurance Recovery Group. His hourly rate is $375.00. The trustee and the firm proposed compensation at the reduced hourly rate of $200.00 plus a contingent fee of one-third of any amounts recovered for the benefit of the debtor. This fee arrangement was an “effort to minimize the professional expenses relating to the Debtor’s insurance coverage issues.” Application, ¶ 14.
The application was properly noticed. No objections were filed. The trustee submitted a proposed order endorsed by the United States Trustee granting the application. The court set the application for hearing noting that neither the specific nature nor scope of the proposed representation was identified; that the basis for the contingent fee was unclear, particularly in that the amounts in controversy and the risks involved were not articulated; and that the proposed reduced hourly rate exceeded the hourly rate of many practition*896ers in the Northern Virginia legal community.
The trustee filed a supplemental memorandum addressing some of the court’s concerns. He elaborated on the proposed representation. The trustee stated that when he first approached McKenna & Cu-neo:
[T]he insurance situation for CLC was in disarray. The Trustee did not know:
(1) what insurance policies were in place;
(2) for the claims-made insurance policies, whether extended reporting periods should be purchased to allow the estate to report claims after the termination of the policies;
(3) whether notice had been given for all appropriate claims under the policies;
(4) whether any of the lawsuits against CLC were covered under the policies;
(5) what had been paid by the insurers under the policies;
(6) what premium refunds may be owed under the policies;
(7) whether any claims against CLC were covered under the policies;
(8) whether any insurers had improperly denied coverage under the policies;
(9) whether any insurers had improperly refused to pay defense costs under the policies; and
(10) whether the insurance broker had carried out its duties and obligations to CLC.
The Trustee sought McKenna & Cu-neo’s assistance in answering the questions set forth above and any other insurance related issues they could uncover. In short, the Trustee sought to have McKenna & Cuneo identify potential sources of insurance recovery and then pursue that recovery for the benefit of CLC’s estate.
Supplemental Memorandum at 1-2 (Docket Entry 476) (“Supp.Memo.”).
McKenna & Cuneo, as of the date of the supplemental memorandum, had already “assembled the various insurance policies, interviewed the insurance brokers, and recommended the purchase of extended reporting periods.” Supp.Memo. at 3. The firm had also assembled and analyzed the papers in various lawsuits to determine whether defense costs were recoverable under any of the policies.
The trustee anticipated that after the law firm identified potential recoveries the law firm would pursue them through “negotiations, discussions of specialized legal issues, and if necessary, litigation.” Supp. Memo, at 3. With two exceptions, no specific matters were identified. The first matter identified concerns the directors’ and officers’ liability policy — whether two separate lawsuits arising out of the same wrongful act are a single claim subject to the “per claim” policy limit of $5 million or are two claims, thereby effectively increasing potential coverage for the wrongful act to $10 million. The trustee stated, “The significance of that interpretation may mean the difference between $5 million and $10 million available to the estate.” Supp.Memo. at 3. Later in his supplemental memorandum, the trustee stated, “Until a thorough investigation is completed, the Trustee cannot determine the amount in controversy.” Supp.Memo. at 4. The second potential matter identified was a defense-cost reimbursement claim of $500,000. He did not elaborate on the claim. It is not known whether a claim has been filed or whether it is or is likely to be contested. A list of 21 suits to which CLC had been a party within three years prior to the filing of the petition was attached to the supplemental memorandum. *897No additional information was presented at the hearing on the application.
B. The Standard for Employment
The trustee, subject to the court’s approval, has broad discretion in his selection of counsel and the terms of employment. There are, however, two threshold requirements that the trustee must satisfy. First, the trustee must demonstrate that the attorney proposed to be employed meets certain statutory standards. See, e.g., 11 U.S.C. § 327(a) (disinterestedness); 11 U.S.C. § 327(f) (disqualification of prior examiner); Harold & Williams Development Co. v. United States Trustee (In re Harold & Williams Development Co.), 977 F.2d 906, 910 (4th Cir.1992). Second, the employment must be reasonably necessary. See 3 Collier on Bankruptcy, ¶ 327.02[1] (15th ed.2001). If the threshold matters are satisfied, the trustee’s selection should not be lightly disregarded by the court. “The relationship between attorney and client is highly confidential, demanding personal faith and confidence in order that they may work together harmoniously.” Palmer v. Kennedy (In re Mandell), 69 F.2d 830, 831 (2nd Cir.1934). In Palmer, the attorney selected by the trustee represented a large creditor of the estate. The district court denied the requested appointment and substituted another attorney of the court’s selection. The Second Circuit.found that the denial of the application was proper but that “no reason appears why the trustee should not have been allowed to nominate another attorney satisfactory both to himself and to the court.” Id. at 831. See also In re Allard, 23 B.R. 517 (E.D.Mich., 1982).
The court exercises its discretion in reviewing employment applications. It should exercise its discretion in a manner that:
best serves the objectives of the bankruptcy system. Among the ultimate considerations for the bankruptcy courts in making these decisions must be the protection of the interests of the bankruptcy estate and its creditors, and the efficient, expeditious, and economical resolution of the bankruptcy proceeding.
Harold & Williams, 977 F.2d at 910. To achieve this, the court must be able to determine the scope of the proposed employment, the reason why it is necessary, how it may benefit the estate and the projected cost.
C. The Trustee’s Reasons for Employment
The trustee must be able to articulate the reasons why counsel is necessary and why he selected the particular applicant. Fed.R.Bankr.P.2014(a). See In re Abraham, 163 B.R. 772 (Bankr. W.D.Tex.1994).3 Here, the trustee has properly identified insurance policies as assets of the bankruptcy estate and potential sources of funds for the estate. But, he has neither sufficiently articulated a reason for hiring counsel nor adequately defined the scope of employment.
It is well established that counsel or another professional may not be hired by the estate or compensated at the expense of the estate to perform the trustee’s duties. 11 U.S.C. § 328(b),4 United States Trustee v. Porter, Wright, Morris & Arthur (In re J.W. Knapp Company), 930 *898F.2d 386, 388 (4th Cir.1991) (“[C]ourts may not compensate an attorney for services statutorily required by the trustee.”) In order to avoid this problem,
courts consistently have requested that the demarcation between the trustee’s services and the attorney’s services be clear and distinct in the attorney’s application, and that the specific subject matter and the nature of the problem that implicated legal services be apparent from the records.
In re King, 88 B.R. 768 (Bankr.E.D.Va. 1988) (Bostetter, C.J.). See also In re Perkins, 244 B.R. 836, 838 (Bankr.D.Mont. 2000); In re Shades of Beauty, Inc., 95 B.R. 17, 18 (E.D.N.Y.1988); In re McKenna, 93 B.R. 238, 241 (Bankr.E.D.Cal.1988).
This application seeks to retain counsel to perform the trustee’s administrative duties. “Trustees must perform all ministerial and administrative duties of the estate.” King, 88 B.R. at 770 (citations omitted). It is the trustee’s responsibility to assemble insurance policies, file claims, and, in the first instance, seek payment from the insurance companies. King, 88 B.R. at 770. (“[Attorneys have been denied compensation for ... arranging insurance coverage for the estate” and for examining the debtor’s books and records.) (citing In re McAuley Textile Corp., 11 B.R. 646 (Bankr.D.Me.1981)). It is the trustee’s duty to determine what insurance policies are in place, what notices of claims have been given, and what claims have been paid. He initially looks into whether refunds are due, whether there are claims under the policies that have not been paid or asserted, and whether any submitted claims have been erroneously or wrongfully denied. These are all typical business activities that any businessperson would, in the first instance, undertake. All fall within the trustee’s administrative duties. 11 U.S.C. § 704(4) (“investigate the financial affairs of the debtor”). All are “trustee’s duties that are generally performed by a trustee without the assistance of an attorney or accountant.” 11 U.S.C. § 328(b). They do not require professional legal skills or expertise beyond the ordinary knowledge and skill of a trustee. King, 88 B.R. at 770 (“[Attorneys appointed to represent the trustee must exercise professional legal skills and expertise beyond the ordinary knowledge and skill of the trustee to receive compensation.”) The services identified in the application and the supplemental memorandum do not support employment of counsel.5
D. The Scope of Employment and Compensation
The scope of counsel’s employment— whether general or special — is usually ap*899parent from the reasons giving rise to counsel’s employment. However, the reasons for the employment and the scope of the employment are distinct. The reasons for the appointment justify the appointment and are generally found in the employment application. The scope of the employment describes with some specificity what counsel is to do and is generally found in the employment order. While the scope of employment flows from the reasons necessitating the appointment, they are not identical. In this case, until the trustee has completed his work and laid the foundation for the appointment of special counsel, the court cannot review the scope of the proposed representation or the reasonableness of the proposed compensation.
A well-defined scope of employment is essential. King, 88 B.R. at 770. It identifies the tasks to be accomplished, permits the trustee to properly manage the professional, and enables the court to properly evaluate a later fee application. Here, the law firm is sought to be employed as special counsel under § 327(e). A vague description, such as to “identify potential sources of insurance recovery,” is inconsistent with § 327(e) which permits appointment of counsel only for “a specified purpose.” A vague description is susceptible to an expansive — even an unlimited — interpretation which is at odds with the appointment of special counsel.6 The description also blurs the distinction between the trustee’s duties that may not be delegated to the professional and the professional’s work. It is open-ended and permits the professional to roam far and wide.
The failure to establish the professional’s objectives also prevents the court from effectively reviewing the proposed compensation. There are two aspects to the review in this case. The first is whether retaining an attorney engaged in a specialized area of the law, at higher rates, is necessary. The second is whether the proposed contingent fee is reasonable. While the selection of a particular lawyer is within the sound business judgment of the trustee and will not normally be upset, it must be balanced with his duties to properly manage the estate’s assets and to efficiently and expeditiously resolve the bankruptcy proceeding. Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 752-754 (4th Cir.1993); Harold & Williams, 977 F.2d at 910. See also 11 U.S.C. § 704(1). Simply stated, the trustee must be sensitive to the cost of professional services. He should seek counsel who can competently represent the estate at a reasonable rate, which will usually be the prevailing market rate. Ballard v. Schweiker, 724 F.2d 1094 (4th Cir. 1984). If counsel is not available in the local community, the trustee may expand his search beyond the local area. If specialized counsel is necessary at higher rates, the prevailing rate of the specialized bar will be a factor in setting a reasonable rate. In re Geofreeze Corporation, 50 B.R. 200 (Bankr.E.D.Va.1985) (Bostetter, J.).
Here, the regular hourly rate of the proposed attorney is $375.00. This is far in excess of the typical hourly rate in the Northern Virginia legal market. The trustee states that, “Rates for insurance coverage counsel with McKenna & Cuneo’s *900expertise may exceed $500 per hour in the Washington, D.C. legal market.” Supp. Memo, at 5. Be that as it may, until the trustee completes his initial review, it is impossible to determine what counsel will be retained to do, whether specialized counsel is appropriate, and whether other counsel is available in the local community. In re Nova Real Estate Investment, 25 B.R. 252 (Bankr.E.D.Va.1982) (Bostetter, J.).
The second issue relating to compensation is whether the proposed contingent fee is reasonable. A contingent fee is, as the trustee suggests, a device to control expenses and allocate risk. The classical contingent fee balances the risk to the client of paying large legal fees with the risk of losing the case. In return for eliminating legal fees if the case is lost, the client pays a premium if the case is won. It is not appropriate in every case and when proposed, the terms must be carefully reviewed. Information about the proposed undertaking is necessary to determine potential legal fees under a traditional hourly fee agreement, the likelihood of prevailing, and the magnitude of the recovery.
A trustee’s review of the proposed suit normally generates the information needed to evaluate a contingent fee proposal. Here, the record is devoid of any information that would permit an informed evaluation. The trustee identified only two potential issues. The first relates to the interpretation of the director’s and officer’s liability policy. He candidly states that the answer to this question is the difference between $5 million and $10 million. There are several factors missing. The first is risk. If the claim is clearly covered by the insurance policy, there is no risk in recovering the first $5 million. The risk is one of contractual interpretation, that is, whether the policy limit is $5 million or $10 million. In this instance, the proposed contingent fee could range from $1.67 million to $3.33 million depending on the outcome of the contractual interpretation argument. It is not clear what benefit the estate derives from a contingent fee that includes the recovery of the first $5 million. The second factor missing is the fee that would likely be incurred under a traditional hourly retainer. If the issue is one of contractual interpretation, is it reasonably likely to take more than 4,000 hours of legal services?7
The trustee also identified a potential defense cost recovery of $500,000. Again, there is no information to evaluate the proposed fee arrangement. It is not known if a claim was timely submitted; whether, if submitted, it was denied; and if denied, why it was denied. It is not possible to evaluate the risks to the estate of proceeding with the proposed matter or the benefits that may be attained.
The record in this case is insufficient to allow the court to approve the employment. The trustee may submit a new application when he can reasonably identify the need for counsel, the specific tasks requiring counsel, and the basis for the proposed compensation.
*901
II. Pepper Hamilton Fee Application
Pepper Hamilton’s renewed first interim fee application requests legal fees in the amount of $53,256.50 and expenses of $426.48 for the period from April 11, 2001 through August 6, 2001.8 The court reviewed the time records in light of the statutory factors set out in § 330 and the judicial factors set out in Blum, v. Stenson, 465 U.S. 886, 104 S.Ct. 1541, 79 L.Ed.2d 891 (1984) and Johnson v. Georgia Highway Express, Inc., 488 F.2d 714 (5th Cir. 1974) as explained in Daly v. Hill, 790 F.2d 1071 (4th Cir.1986), Ballard v. Schweiker, 724 F.2d 1094 (4th Cir.1984), Arnold v. Burger King Corporation, 719 F.2d 63 (4th Cir.1983) and Barber v. Kimbrell’s, Inc., 577 F.2d 216 (4th Cir.1978). While none of these cases was a bankruptcy case, Harman v. Levin, 772 F.2d 1150 (4th Cir.1985) makes clear that the same factors are to be considered in fee applications for professionals in bankruptcy cases.
The two weakest aspects of the fee application are the absence of information permitting the court to determine the reasonableness of the time devoted to the various tasks and the necessity of the services. Section § 330(a)(3)(A) and (D) of the Bankruptcy Code require information as to the task itself and the relationship of the task to the overall bankruptcy case. An unimportant task that cannot reasonably be expected to result in any significant recovery to the estate or avoidance of liability by the estate cannot command disproportionate resources. That is, the trustee cannot spend $10,000 to recover *902$2,000, viewed at the time the services are rendered.9 Many times, the task itself, its overall parameters and its relationship to the bankruptcy case are self-evident, or at least, apparent from the time records and the pleadings in the case. That is not the case with respect to the matters denoted as “KMO-361 Realty Associates” and “Employment Law Matters.” The application itself does not describe the nature of the cases or the amount in controversy. This information is necessary to evaluate the novelty and difficulty of the issues presented, the complexity of the cases, the desirability or undesirability of accepting the representation, and the reasonableness of the amount of time expended.
Counsel provided additional information with respect to the KMO-361 matter at the hearing on the fee application. This information together with the complaint filed in this court on November 14, 2001, and the proof of claim filed on behalf of KMO-361 Realty Associates provide sufficient information to permit the court to fully consider this aspect of the fee application. Upon consideration the court will approve the fee requested with respect to this matter, subject to adjustment at the conclusion of the representation.10
Counsel was given leave to file a supplemental memorandum with respect to the Employment Law Matters. The memorandum assists the court in reviewing the Employment Law Matters portion of the fee application. It, however, raises questions concerning the necessity of the services rendered. The burden of proof with respect to a fee application is on the applicant Perkins, 244 B.R. at 838; McKenna, 93 B.R. at 242; King, 88 B.R. at 770-71 (“The burden, however, is entirely on the attorney requesting compensation to justify the services rendered.”).
The supplemental memorandum reflects that there were five employment related complaints pending when CLC filed bankruptcy on January 25, 2001. Three complaints were pending before state or local human rights agencies and two had matured into actual law suits pending in federal court. Pepper Hamilton contacted CLC’s pre-petition counsel in the matters, discussed the cases with them, and obtained their files. Pepper Hamilton evaluated the merits of the cases, communicated with the human rights agencies involved, and sought dismissal or abatement of the investigations. Two human rights agency investigations were terminated, one be*903cause the agency does not pursue cases against businesses that have closed. The third agency stated that it would not abate its investigation, but has not pursued it to date. The two law suits were stayed by virtue of 11 U.S.C. § 362. Counsel stated that all five matters were weak, that notice should be given under CLC’s employment practices insurance coverage, and that a proof of claim was filed by only one of the claimants.
The time records lumped all five employment matters under one billing task. It is not entirely clear how much time was spent on each task. About 40% of the time is not clearly allocable to any particular matter and could apply to any or all of the employment matters. The time not allocable to particular matters includes communications with the trustee and the preparation of the omnibus letter to the trustee, apparently concerning the merits and status of the five matters.11 Of the time that can be allocated to particular matters, it appears that four of the five matters consumed approximately equal amounts of time while the fifth consumed very little time.
The first question with the Employment Law Matters portion of the fee application is whether Pepper Hamilton performed trustee duties. One of the trustee’s duties is to determine what litigation is pending and preliminarily evaluate it. He should initially communicate with the debtor’s existing counsel to obtain the status of pending legal matters and, if appropriate, the files relating to them. He needs to determine the urgency of the pending legal matters, whether they are subject to the automatic stay and whether the matter should be removed to the bankruptcy court. While he may need the assistance of counsel to fully evaluate the matters, the initial work of identifying the cases and obtaining the basic information is administrative. It is within the ambit of the trustee’s duties.
The second question is the necessity of the legal work expended. CLC was the defendant in all five matters. The two district court suits were clearly stayed as to the debtor.12 11 U.S.C. § 362. Only one of the three human rights agencies refused to acknowledge that it would hon- or the automatic stay, apparently asserting that its investigation was an exercise of the state’s police power. It, however, has taken no further action. Almost all of the work was done before the bar date for filing proofs of claims had expired. More than $10,000 was spent to evaluate claims, four of which never matured into proofs of claims. Without a timely filed proof of claim, the estate has no interest in the outcome of the investigations or the law suits. There can be no per se rule in these circumstances — that is, whether legal services should be performed before a proof of claim is filed. The trustee needs discretion to evaluate legal matters at an early stage. It is not clear, however, that counsel’s work benefitted the estate. It is possible that counsel’s efforts convinced four claimants to abandon their claims and not file proofs of claims, thereby avoiding a later contest over objections to proofs of claims.13 However, even this is not clear as one claimant did file a proof of claim.
*904The third question is the reasonableness of the amount of time expended on the Employment Law Matters. One factor is the amount in controversy. As stated above, only one proof of claim was filed. It asserts a claim in the amount of $200,000. While the final distribution to creditors cannot be known with certainty at this time, general unsecured creditors are not likely to receive a distribution greater than 10 or 20 percent. The amount of preliminary legal fees expended on these matters is a significant percent of the maximum distribution on the filed proof of claim. It is not clear if counsel’s efforts dissuaded the filing of the other four proofs of claims. However, in reviewing the time records as a whole, the court finds that the services rendered were not completed within a reasonable amount of time. The services rendered were essentially a review of five employment matters with the intention of advising the trustee on a course of action. This should not have consumed the amount of time expended.
After having considered the Johnson factors and the distinction between work that the trustee must perform and legal work for which counsel may be compensated, the court will allow all of the fee requested for the Employment Law Matters billing task, but reduced by $4,000.
There are several items in the fee application that cannot be approved. The page rates for photocopies and telecopies are not disclosed. Counsel must disclose the page rates or the requested expenses will be disallowed because the court cannot determine whether they are reasonable. It is the applicant’s burden to show that expenses are both necessary and reasonable. Local mileage is not an allowable expense. Non-local travel time is a more difficult issue. There is diversity in the practices of bankruptcy courts regarding the reimbursement of non-local travel expenses. Some courts allow all of it; others allow none, treating travel time as part of an attorney’s overhead. Others recognize that a lawyer cannot represent a client unless he is in the right place at the right time and that the lawyer could have been back in the office billing another client rather than being on the road. Each approach has its own appeal. This court has historically allowed one-half the reasonable travel time unless legal work is actually performed during the trip. However, the trip must be necessary. Alternatives must be considered and, if appropriate, used.
All expenses requested will be allowed except for one-half non-local travel in the amount of $1,387.50, local travel in the amount of $22.85, and photocopies and te-lecopies for which no per page rate was disclosed.
III. Dow, Lohnes & Albertson, PLLC Fee Application
Dow, Lohnes & Albertson, PLLC was retained as special counsel for education regulatory matters by order entered on February 8, 2001. The scope of the proposed services described in the application was vague, however, it was clear that the trustee needed counsel experienced in education law. The application was approved, but compensation was limited to a maximum of $10,000. In less than a month, the trustee requested that the budget for special counsel be increased to $30,000. Fees incurred through February 22, 2001, the date of the request for the increased budget, were $18,000. The requested increase was approved. The trustee was at that time actively seeking to *905sell the schools as going concerns, but the Department of Education asserted that any purchaser would be ineligible to participate in federal educational loan programs because of the disqualification of the debtor. The disqualification followed the assets. The trustee and special counsel sought to convince the Department of Education that the disqualification should be waived. It was expected that the schools would be substantially more valuable if the disqualification were waived. Michael B. Goldstein of Dow Lohnes, working with the trustee, was successful in this endeavor. The trustee was able to sell the schools for a greatly enhanced value. The results obtained in the compressed time available were excellent.
Dow Lohnes’ first fee application sought $76,571.50 for fees and $2,667.03 for expenses for the period from January 25, 2001, the date of the filing of the petition, through May 31, 2001. The United States Trustee objected because the application far exceeded the $30,000 maximum previously established. The court was satisfied that the combination of the trustee’s bankruptcy expertise and Mr. Goldstein’s expertise, coupled with the Department of Education’s own self-interest14 and the best interests of the students enrolled in CLC classes at the time, resulted in the remarkable achievement. During that period, there was little time to make a further application to increase the budgeted compensation. All of the parties were working feverishly to sell the schools, which were, effectively, perishable commodities. The budgeted amount would have been increaséd had a motion been made. To have denied the fee application would have penalized special counsel and required additional unnecessary work that would have had a fairly predicable result. Given all the circumstances, particularly the lack of time and the propriety of the relief that should have been requested, the application, with only minor adjustments, was approved.
All substantial organizations operate from a budget. The budget making process requires management to look forward to. determine where they would like to go. It establishes the means of how the organization will get there. During the year, the budget provides benchmarks and permits a fair evaluation of where the organization has been and where it has yet to go. The budgeted amount for Dow Lohnes was intended to achieve these objectives as well. Both the trustee and special counsel must be aware of the budget limits if they are to be effective. Counsel needs to be sensitive to the progress and expense of the work undertaken and keep the trustee advised particularly as he approaches the limit in the employment order. The beneficiary of the limit, though, is the trustee. “To properly perform the duties necessary for an orderly and efficient administration, a trustee is expected at all times to exercise sound business judgment, especially when incurring expenses to be paid from the assets of the estate.” In re Wake, 222 B.R. 35, 39 (Bankr.W.D.N.Y.1998). A budget limit in an employment order protects him from unanticipated expenses that might be avoidable or may, when they become apparent, cause him to reconsider the matter. Every trustee must be, and this trustee is, sensitive to both the need for competent counsel and the associated administrative expense. “A balance must be struck between two competing interests: that the cost of bankruptcy should not itself consume the very res the proceedings are designed to protect; and that fees allowed be such as not to discourage corn-*906petent counsel from active and effective participation.” Jacobowitz v. Double Seven Corp., 378 F.2d 405, 409 (9th Cir.1967) (Merrill, J., dissenting) (Bankruptcy Act case increasing attorney’s fee awarded on incorrect application of economy of administration standard). A budget limitation assists in reaching this balance. It provides the trustee with the ability to control and properly manage professionals.
No motion to increase the budget over $80,000 has been filed. The court is now faced with the second interim application for Dow Lohnes. Special counsel requests $10,586.00 for fees and $544.42 for expenses. The United States Trustee did not object to this application even though it exceeds the budget cap, perhaps because he believed that budget caps are not enforced and are meaningless. Therein lies the first problem. If budget caps are to have any meaning, they must be enforced. But, if this budget cap is strictly enforced, counsel whose work benefitted the estate will be prejudiced. Budget caps are not intended to be inflexibly applied. If circumstances change, they can be modified. In fact, the initial cap here was increased from $10,000 to $30,000 and would have been increased to $76,000 had a proper motion been made.
At the hearing on the fee application, the trustee orally requested that the budget cap be increased to permit the payment of the fees requested. The circumstances are different now than at the time of the first fee application. During the first fee application period, both the trustee and special counsel were consumed with the sale of the schools. Almost all of their attention was directed to that effort. It would have been perverse to have penalized either of them for placing their dedication to the estate over their own self-interest. But, the all-consuming nature of the case abated by April 2001, with the sales of the schools. Both knew from at least May 31, 2001, that the budget cap had been exceeded. There was ample time to seek an increase. The trustee is the party who must seek the increase and did not do so. He offered no explanation.
This does not mean that the court cannot exercise its equitable powers to consider raising the budget cap again. The first fee application was granted notwithstanding the budget cap in part because of the excellent result obtained which was self-evident. Some of the time expended during the second fee application period was related to the matters undertaken during the first period and sought to complete them. This is primarily the time relating to the disposition of student records that the trustee did not sell. Student records are important to the former students. The trustee is in the process of disposing of them, principally to state government repositories. This time can be considered part of the sales effort and should be treated in the same manner as the time on the first fee application, that is, be allowed notwithstanding the budget cap.
There was, however, a whole new area undertaken by Dow Lohnes. About half of the second fee application relates to time expended on insurance matters, principally communicating with McKenna & Cuneo, reviewing its files and preparing them for transmittal to McKenna & Cuneo and providing information concerning matters in which it had been involved so that McKen-na & Cuneo could advise the trustee with respect to insurance coverage and other insurance related matters. Much of this work is outside the scope of the employment of Dow Lohnes which was retained as special counsel on federal and state education regulatory matters. This is partially recognized by the trustee in the second fee application. The trustee stated:
*907As explained in detail below, during the [second] Interim Period, Dow Lohnes has worked diligently with the Trustee, the Debtor and other professionals and creditors in order to liquidate the assets of the Debtor.
Application, ¶ 4 (Docket Entry 492).
Dow Lohnes was not engaged as general counsel to the trustee to generally assist the trustee in liquidating the estate; the trustee’s own law firm was retained for this purpose. Dow Lohnes was not engaged with respect to insurance matters, but rather education regulatory matters. Clearly defined scopes of employment in the employment application and budget caps in the employment order are designed to keep special counsel within the parameters of the task for which they were employed. In this case, Dow Lohnes did not initiate the insurance work. It was initiated by the trustee directly and through McKenna & Cuneo.15 The court is faced with the situation of Dow Lohnes exceeding the scope of its employment by working with a law firm whose employment application had not been submitted to the court and has now been denied. There is no reason why Dow Lohnes should have known of the unauthorized status of McKenna & Cuneo or should have inquired. But, is should have been sensitive to the limited scope of its employment.
The court is satisfied that Dow Lohnes exercised sound professional judgment in the time it expended on the tasks it undertook. In ordinary circumstances, the fee application, to the extent that the services rendered were within the scope of the firm’s employment, would, with one exception have been approved as submitted. The exception concerns the time entries on the insurance task that state, “Review of documents and preparation of files for McKenna & Cuneo” and “Work on obtaining files.” These services are billed at $195.00 and $380.00 per hour. They appear to have been administrative in nature and, if allowed, would be allowed at clerical rates only.
In consideration of all the circumstances presented, the court will increase the budget cap almost enough to permit payment for the services covered by the fee application except for insurance work not related to education regulatory advice. In light of the failure to seek a timely increase in the budget cap, the budget cap will not be increased to pay all the requested fees that would otherwise have been approved. The difference will be modest.16 However, no further fees will be approved in excess of the budget cap. If further work is required, the budget cap must be increased in advance of the services to be rendered.
. The debtor was unable to reorganize. The United States Department of Education asserted a liability of $187,000,000 for various violations of Title IV of the Higher Education Act of 1965. The Department originally took the position that any purchaser of a school would not be eligible to participate, at the school purchased, in federal student financial assistance programs authorized by Title IV for a period of two years after the purchase of the "tainted” assets. Participation is essential to most schools like CLC. This position — which is well supported by statute and regulation— substantially limited the value of the assets *895and effectively precluded going concern sales. Based on this position, the debtor estimated that the liquidation value of its assets was under $6,000,000. The trustee, with the able assistance of Michael B. Goldstein of Dow, Lohnes & Albertson, PLLC, convinced the Department that it was in the government's and the students' best interests to waive the disqualification. With the waiver, which was approved by the court on March 7, 2001, the trustee received $20,000,000 from the sale of the schools. The debtor would not have been able to have effected this settlement.
. The trustee retained his own law firm, Gold Morrison & Laughlin, as general counsel; Pepper Hamilton as special counsel for securities law matters and specific litigation; Dow, Lohnes & Albertson as special counsel for education law matters; Ridberg, Press & Sherbill, effectively, as a temporary assistant general counsel; Bosley Hutzelman as special counsel for pension plan matters; Frank & Company as accountant; and an auctioneer. To date, Gold Morrison & Laughlin has requested fees of $367,016.50 and expenses of $69,707.81; Dow, Lohnes & Albertson, $87,157.50 and $3,211.45; Ridbery, Press & Sherbill, $23,725.00 and $58.25; Bosley Hut-zelman, $60,937.50 and $2,013.34; Frank & Company, $482,920.85 and $22,215.73; and the trustee, $195,677.25 for trustee fees. The auctioneer requested fees of $1,967,772.00 and expenses of $51,505.02 but was awarded fees of $941,979.16 and expenses of $48,079.62.
. "Judges should feel no compunctions about requiring trustees to justify their retention of professionals, and to deny approval when the • facts and circumstances of the case confirm that the particular duty can be done effectively by the trustee herself without assistance.” Abraham, 163 B.R. at 778-79.
. Section 328(b) states:
If the court has authorized a trustee to serve as an attorney or accountant for the *898estate under section 327(d) of this title, the court may allow compensation for the trustee's services as such attorney or accountant only to the extent that the trustee performed services as attorney or accountant for the estate and not for performance of any of the trustee's duties that are generally performed by a trustee without the assistance of an attorney or accountant for the estate,
. This does not prohibit the trustee himself from hiring staff or others to physically perform these functions. However, the trustee bears the expense of his staff in performing his duties. In re Hagan, 145 B.R. 515, 519 (Bankr.E.D.Va. 1992) (Shelley, J.) (“[I]f the trustee needed a paralegal to perform trustee duties that the trustee would otherwise have to perform, then no court approval [of employment of the paralegal] is necessary, but the paralegal's compensation comes out of the trustee's statutory payment.'') But see, In re Abraham, 163 B.R. 772, 792 (Bankr.W.D.Tex. 1994) (holding that paralegal expenses are compensable without regard to cap on trustee’s compensation, noting, however, that ''[a] trustee’s own compensation, meanwhile, capped by section 326(a), may (perhaps should) vary depending on the extent to which her duties have been delegated to others.”)
. The appointment standards for special counsel are less stringent than for general counsel. The usual standard under § 327(a) requires the applicant to be a disinterested person and not hold or represent an interest adverse to the estate. Section 327(e) eliminates the disinterested requirement and limits the adverse interest test to the "matter on which such attorney is to be employed.”
. At $375 per hour, the firm would have to expend more than 4.444 hours (more than two lawyer-years) to earn $1.67 million. If the anticipated time for the case were 2,000 hours, the firm would be paid — if it were successful in recovering $10 million— $3,733,333.00, about $3.3 million from the contingency and $400,000 from the proposed reduced hourly rate of $200. That is an hourly fee of $1,866.67. Win, lose or draw, the estate would be liable for $400,000 plus expenses. Under an hourly rate employment, the case, if it were to take 2,000 hours, would cost the estate $750,000. Is saving $350,000 if the case is lost worth paying a $3 million premium if the case is won? An analysis of these options is necessary to determine whether a contingent fee is appropriate.
. The supporting time records for Pepper Hamilton's first interim fee application were unilaterally filed under seal because the trustee asserted that they were privileged. While time records may contain privileged material, they must nonetheless provide the basis for the requested fees. Chaudhry v. Gallerizzo, 174 F.3d 394, 402 (4th Cir.1999); In re Grand Jury Proceedings, Thursday Special Grand Jury September Term, 1991, 33 F.3d 342, 354 (4th Cir. 1994). They should reflect the attorney who performed the services, the date of the services, the amount of time expended and a description of the services. It is not required that the actual communication between the attorney and the client be revealed in the time records. Privileged material is not usually included in original time records; however, if it is included in the firm’s copy of the time records, it may be redacted from the filed document. Nonetheless, sufficient non-privileged information must be provided so that the court can evaluate the application.
Pepper Hamilton did not follow this established procedure. The time records filed under seal aggregated more than 85 hours of legal services provided over more than 30 days into a single 19-line narrative description. There was no indication who performed what service on a particular date or the time expended. Nor was any portion of the narrative privileged. It revealed no privileged communications. The narrative stated, for example, that Pepper Hamilton "discussed the facts, theories, and status of the matter with former counsel"; "reviewed the file”; "arranged for the case files to be transferred to Pepper Hamilton LLP”; "reviewed procedures of the U.S.D.Ct. for New Jersey”; “obtained and reviewed the court docket sheet"; "discussed the options with counsel for the Trustee and the Trustee's Counsel” (sic); "prepared notice of appearances and pro hac vice motions and orders”; "reviewed files re trial strategy and considered trial strategy”; and "prepared a 30 page letter to the Trustee regarding the facts, theories, status of the matter and initial recommendations for trial preparation and settlement strategy”.
The document filed under seal was wholly insufficient to support the fee application. Moreover, filing it under seal deprived interested creditors from any meaningful review of the fee application. They, of course, are the very ones who are, effectively, paying Pepper Hamilton. The court issued a rule to show cause why the time records should not be unsealed and filed among the public papers of this case. Despite the trustee's continued assertion of attorney-client privilege, the document was ordered to be filed among the public papers of this case. (Docket Entry No. 484). ■ The fee application was denied without prejudice and is now again before the court, this time with proper time records.
. Not every action commenced by a chapter 7 trustee will be successful. Neither the trustee nor his counsel should be penalized for pursuing apparently worthwhile claims that fail to materialize. Consequently, the focus should be at the time the services are rendered. 11 U.S.C. § 330(a)(3)(C). Otherwise, an obstreperous opponent may erroneously conclude that if he is successful in delaying the inevitable and increasing the trustee's costs, the trustee will settle for less to preserve his fee or, even fade away.
. While the application is proper, the court is concerned with the magnitude of the fees charged to date and the potential magnitude of future fees. CLC filed suit against KMO-361 and others in the United States District Court for the District of New Jersey on August 27, 1998. A motion for partial summary judgment had been argued and a 109-page final pretrial order entered. The case was apparently administratively dismissed in August 2001. Neither the original complaint in New Jersey nor the complaint filed in this court reflect a novel legal theory. While millions of dollars are in issue, the case is not unusually complex. Pepper Hamilton billed $30,402.50 to this matter through August 6, 2001, almost all within a single 30-day period. This essentially was a review of the case that culminated in a 30-page letter to the trustee. The complaint in this court was filed on November 14, 2001. Counsel in the New Jersey suit filed a proof of claim for $89,833.03 for services rendered from January 2, 2001 through January 23, 2001.
.Much of the communication was with an attorney in the trustee's law firm who acted as a liaison between special counsel and the trustee. His time is included in the pending fee application for the trustee’s law firm. See King, 88 B.R. at 772.
. There were additional defendants, former employees whose conduct allegedly created the liability. Pepper Hamilton expended time to determine whether CLC should defend the former employees.
. The advice to notify the insurance carrier of the claims was something that the trustee *904should have considered without the intervention of legal counsel. Knowledge of the debt- or's insurance situation is an administrative matter for the trustee.
. The Department asserts the single largest claim, approximately $187 million.
. Most of the insurance work was done before McKenna & Cuneo's employment application was filed with the court. All the insurance work was done before McKenna & Cuneo's employment application was denied.
. The trustee also bears responsibility for allowing the budget limitation to be exceeded. This matter is better addressed when the trustee’s application for compensation is considered. | 01-04-2023 | 11-22-2022 |
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