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https://www.courtlistener.com/api/rest/v3/opinions/8493293/ | MEMORANDUM OPINION
ROBERT G. MAYER, Bankruptcy Judge.
THIS CHAPTER 13 CASE is before the court on the debtor’s objection to the tax penalties included in the Internal Revenue Service’s proof of claim. He asserts that the penalties were discharged in his prior chapter 7 case.
FACTS
Jonathan Ott Allen filed a voluntary petition in bankruptcy pursuant to chapter 7 of the United States Bankruptcy Code on March 8,1999. He received a discharge in that case on June 17, 1999. On August 14, 1999, he filed a voluntary petition in bankruptcy pursuant to chapter 13 of the United States Bankruptcy Code. The Internal Revenue Service filed a proof of claim in the chapter 13 case asserting unsecured priority claims for income taxes due for 1996, 1997, and 1998 and for penalties with respect to these taxes. The debtor objected to the proof of claim.
POSITIONS OF THE PARTIES
The debtor contends that the tax penalties were discharged in his chapter 7 proceeding. He argues that pursuant to § 727(b) all debts except those provided in § 523 are discharged. Section 523(a)(1)(A) provides that taxes of the kind and for the period specified in § 507(a)(8) are not discharged. Section 507(a)(8)(G), in turn, refers to “a penalty related to a claim of a type specified in this paragraph and in compensation for actual pecuniary loss”. The tax penalties in this case relate to *909priority taxes encompassed by § 507(a)(8)(A)(i) and are not in compensation for an actual pecuniary loss. The debtor concludes that the tax penalties are not included in § 507(a)(8)(G) and are, therefore, not excepted from discharge by the reference in § 523(a)(1)(A) to § 507(a)(8).
The Internal Revenue Service contends that the applicable code section is not § 523(a)(1) but rather § 523(a)(7)(B). This section provides that:
to the extent such debt is for a fine, penalty, or forfeiture payable to and for the benefit of a governmental unit, and is not compensation for actual pecuniary loss, other than a tax penalty—
(A) relating to a tax of a kind not specified in paragraph (1) of this subsection; or
(B) imposed with respect to a transaction or event that occurred before three years before the date of the filing of the petition
it is not discharged. The Internal Revenue Service agrees with the debtor that the tax penalty is not in compensation for an actual pecuniary loss. It was, however, imposed with respect to an event — the non-payment of taxes — that occurred within three years of the filing of the petition. The tax penalty is, therefore, not within the ambit of the exception contained in clause (B) and, is governed by the general rule of § 523(a)(7): a penalty not in compensation of an actual pecuniary loss is not discharged.
DISCUSSION
The distinction between a tax, a penalty and a debt has a well-established history in bankruptcy practice. The Supreme Court has on a number of occasions been called upon to determine whether a particular extraction, whether or not called a “tax” in the statute creating it, was in fact a tax for purposes of bankruptcy law. In each instance, the Supreme Court looked behind the label placed on the extraction and to the operation of the provision. United States v. Reorganized CF & I Fabricators of Utah, Inc., et al., 518 U.S. 213, 220, 116 S.Ct. 2106, 2111, 135 L.Ed.2d 506 (1996); City of New York v. Feiring, 313 U.S. 283, 61 S.Ct. 1028, 85 L.Ed. 1333 (1941); New Jersey v. Anderson, 203 U.S. 483, 492, 27 S.Ct. 137, 140, 51 L.Ed. 284 (1906); New York v. Jersawit, 263 U.S. 493, 495-496, 44 S.Ct. 167, 167-168, 68 L.Ed. 405 (1924); United States v. New York, 315 U.S. 510, 62 S.Ct. 712, 86 L.Ed. 998 (1942); United States v. Sotelo, 436 U.S. 268, 275, 98 S.Ct. 1795, 1800, 56 L.Ed.2d 275 (1978). It is not necessary here to discuss the analysis required to distinguish between a tax, a penalty and a debt, but only to note that the distinction has been well-established for over a century in bankruptcy practice, first under the Bankruptcy Act of 1898 and now the Bankruptcy Code of 1978. Congress was aware of the distinction between taxes and penalties when it enacted the Bankruptcy Code in 1978 and provided separately for taxes and penalties in § 523. Section 523(a)(1) deals with taxes only. It does not use the word “penalty” nor does it address “penalties”. Penalties are addressed in § 523(a)(7). Section 523(a)(7) does not address “taxes”. It is apparent both from the structure of § 523 and the established practice under the Bankruptcy Act, that when Congress enacted the Bankruptcy Code it intended to address taxes separately and distinctly from penalties with respect to discharge, with taxes being addressed in § 523(a)(1) and penalties in § 523(a)(7).
The Internal Revenue Service’s proof of claim must be divided into its components, each of which must be analyzed separately in order to resolve the question presented. The unsecured priori*910ty claims asserted in the proof of claim are for unpaid income taxes for 1996,1997, and 1998. They are evaluated under § 528(a)(1)(A). This section refers to § 507(a)(8). Section 507(a)(8)(A)(i) addresses income taxes “for a taxable year ending on or before the date of the filing of the petition for which a return, if required, is last due including extensions, after three years before the date of the filing of the petition.” The petition date in the chapter 7 case was March 8, 1999. Three years prior to the petition date was March 8, 1996. All of the taxes included in the proof of claim were due after March 8, 1996. The 1996 income taxes, the oldest taxes due, were due on April 15, 1997. Consequently, the taxes are unsecured priority claims. They were not discharged in the prior chapter 7 case.
The penalties on the unsecured priority taxes are evaluated under § 523(a)(7). They are not taxes. They are penalties. The penalties are not in compensation for an actual pecuniary loss. Under the general rule set out in § 523(a)(7), fines, penalties and forfeitures not in compensation of actual pecuniary loss are not discharged in bankruptcy. Without more, the tax penalties would not be discharged. But, there is a special exception for tax penalties. Tax penalties are exempt from the general rule and are dischargeable unless they fall under either clause (A) or clause (B). In this case, clause (B) is the applicable clause. The penalties were imposed with respect to a transaction or event — the non-payment of income taxes for the three years in question — that occurred within three years before the filing of the petition. The penalty was incurred no earlier than the date of the non-payment or non-filing. The earliest such penalty was April 16, 1997. Three years prior to the filing of the original chapter 7 case was March 8, 1996. A tax penalty incurred with respect to a transaction or event before March 8, 1996, would have been discharged in the prior proceeding.1 These tax penalties, however, fall within the three-year period and are not dischargeable. Roberts v. United States of America, 906 F.2d 1440 (10th Cir.1990); Burns v. United States of America, 887 F.2d 1541 (11th Cir.1989); Hanna v. United States of America, 872 F.2d 829 (8th Cir.1989); Polston v. United States of America, 239 B.R. 277 (Bankr. M.D.Pa.1999); Fox v. United States of America, 172 B.R. 247, (Bankr.E.D.Tenn. 1994).
CONCLUSION
The proper analysis of the proof of claim is first to determine the nature of the claim — whether it is a tax or penalty. The dischargeability of taxes is governed by § 523(a)(1) which incorporates by reference § 507(a)(8).2 The dischargeability of *911tax penalties is governed by § 523(a)(7). In this case, the claims are tax penalties that arose from events or transactions that occurred within three years prior to the filing of the chapter 7 petition in bankruptcy and were, therefore, not discharged in the prior case.
. The test for the determination of the dis-chargeability of a tax penalty is based on the date of the underlying transaction or event that gave rise to the penalty, not the dis-chargeability of the underlying tax. It is possible for the underlying tax to be discharged but the penalty not to be discharged. For example, a property tax is dischargeable if assessed before the commencement of the case and last payable without penalty more than one year before the filing of a petition. § 507(a)(8)(B). A penalty on such a property tax would not be discharged under § 523(a)(7)(B) until three years after the transaction or event giving rise to the penalty. Conversely, a tax required to be collected or withheld and for which the debtor is liable in any capacity — trust fund-type taxes — are not discharged. § 507(a)(8)(C). However, a penalty for non-payment is discharged if more than three years old. § 523(a)(7)(B).
. The reference to § 507(a)(8) is technically correct even though only § 507(a)(8)(A) through (F) will ever be consulted. Section 507(a)(8)(G) deals solely with penalties. Since the referring provision in § 523(a)(1) deals only with taxes, there will never be a *911need to invoke § 507(a)(8)(G) in a tax penalty analysis. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493294/ | CORRECTED MEMORANDUM OF DECISION GRANTING TRUSTEE’S MOTION TO SETTLE ADVERSARY PROCEEDING
STAN BERNSTEIN, Bankruptcy Judge.
The Issue:
The trustee has moved for authority to settle a pending adversary proceeding filed against Joseph Gowan under Fed. R. Bankr.P. 9019. After sending the customary notice of the proposed settlement to all parties in interest, the trustee received an objection from a judgment creditor, Carolyn Goodkin (Goodkin), averring that (i) the settlement was not fair or reasonable and not in the best interest of creditors, and (ii) the trustee had failed to present any detailed justification to support the settlement.
The Court held an exhaustive non-evi-dentiary hearing on this contested motion in which representations and arguments were made by the trustee, the defendant, and the judgment creditor. At the conclusion of the hearing, this contested matter was submitted for decision. For the following reasons, the Court grants the trustee’s motion and denies the judgment credi*6tor’s cross-motion.1
Background:
In the fall of 1995, the joint debtors arranged for the private mortgage financing of substantial improvements to their Italian restaurant doing business as Villa Portofino at 2024 Hillside Avenue, New Hyde Park, N.Y. (property). The business itself was operated by a corporation Villa Portofino, Inc., of which Carlo Gardi was the sole shareholder. The private mortgage lender was a local businessman, Joseph Gowan. The “pricing” of this $200,000 loan was written at 16% per an-num, the maximum rate of interest allowed under New York State’s usury law for loans made to individuals. Gen. Oblig. section 5-501; Banking Law 14-a; Cohen v. Eisenberg, 265 A.D.2d 365, 366, 697 N.Y.S.2d 625 (2d Dept.1999). The loan was structured as a non-amortizing five-year term note, with a lump sum payment of principal upon its maturity and with interest to be paid quarterly on the principal balance. This was a second mortgage loan, junior to an existing mortgage lien granted to Transmedia Network, Inc. The co-borrowers of the $200,000 loan were Villa Portofino, Inc., Carlo Gardi, Jeanne Gardi, and their son John Gardi, each jointly and severally liable for the payment and performance of the mortgage note.2
In connection with the closing of the loan, the co-borrowers also entered into a two-page agreement (side agreement) in which they agreed to serve the lender and his three guests an unlimited number of meals and drinks on a complimentary basis as long as the restaurant remained open and under the ownership of the co-borrowers. The implied consideration for the co-borrowers’ obligation was the lender’s promotion of the restaurant.
The entire text of the side agreement (omitting the signature blocks) is as follows:
AGREEMENT made this 14th day of September, 1995, by and between JOSEPH P. GOWAN, JR. (hereinafter referred to as “GOWAN”) and VILLA PORTOFINO, INC. its successors and assigns (hereinafter referred to as “PORTOFINO”), JOHN GARDI, CARLO GARDI and JEANNE GARDI, jointly and severally (all hereinafter referred to as “GARDI”).
WHEREAS, the parties are desirous of having GOWAN promote PORTOFI-NO; and
WHEREAS in consideration of services already rendered by GOWAN to PORTOFINO and GARDI, the parties enter this Agreement
NOW in consideration of this Agreement and other valuable consideration it is agreed as follows:
1. GOWAN, at any time shall be entitled to and shall receive, any and all food and drinks at the eating or drinking establishment, located at 2024 Hillside Avenue, New Hyde Park, N.Y., for himself and any guests accompanying GOW-*7AN, not to exceed three (3) guests (“permitted guest”), at no charge whatsoever to GOWAN and his permitted guests, for so long as there is an eating or drinking establishment at 2024 Hillside Avenue, New Hyde Park, N.Y. (hereinafter referred to as “Eating Establishment”) owned by PORTOFINO and/or GARDI.
2. GOWAN shall pay any sales tax which may arise from the receipt by GOWAN and his permitted guests of any and all food and drinks at the Eating Establishment, for which there shall be no charge to GOWAN or his permitted guests;
3. This Agreement shall be binding on “PORTOFINO” its successors and assigns, and “GARDI” and their heirs or assigns.
As it turned out, the debtor incurred substantial overruns in completing the construction of the improvements to the restaurant. Moreover, the cash flow from operations was insufficient to meet operating expenses, to pay all subcontractors, and to service the first and second mortgage indebtedness. After the second mortgage note went into default, Gowan initiated a state court foreclosure action. Although the co-debtors’ then counsel filed an appearance in the foreclosure action, no defense to the foreclosure action was tendered, and so a default judgment of foreclosure was entered on June 2, 1999. A public sale of the foreclosed premises was scheduled, but to stay the sale, the joint debtors filed for relief in this Court under chapter 11 of the Bankruptcy Code,
During the pendency of the chapter 11 case, the debtors retained new state court counsel to file a motion in the state court foreclosure action in order to vacate the default judgment on the ground that the interest rate on the transaction as a whole violated New York usury law. Before that motion was heard, the Court converted the ease filed under chapter 11 to one filed under chapter 7. The reason for the conversion was the failure of the debtors to file a plan of reorganization and the continuing prejudice to creditors arising from the fact that the debtors failed to sell the restaurant and underlying real estate at a price sufficient to satisfy all hens and return some equity to the debtors. After the conversion to chapter 7, the trustee moved to employ the new state court counsel as his special litigation counsel for the estate. In order to reduce the inefficiency of having the bankruptcy case await the outcome of the state court action, the trustee as the successor plaintiff removed the state action to this Court where it was then assigned a new adversary proceeding number.
The Cross-Motions for Summary Judgment:
Both parties filed cross-motions for summary judgment in the removed action. The trustee pointed out that as the side agreement is drafted, the first “whereas clause” is the only place in the agreement that makes any reference to any express or implied undertaking on the part of Gow-an to promote the restaurant. Within the dispositive provisions of the agreement, there is no specific description of any plan or program to promote the restaurant. From this the trustee argues that the only logical inference to be drawn is that Gow-an’s obligation is illusory, for there is no explicit objective standard or even a benchmark within the confines of the agreement for measuring Gowan’s performance (or non-performance). If the lender’s obligation to promote the restaurant is on its face illusory, then there is no consideration to support the borrowers’ never-ending obligation to provide complimentary meals to the lender and his guests. As such, the agreement is not enforceable. *8If, however, the restaurant had, in fact, provided the lender and his guests any complimentary meals and drinks, then the value of these items has to be deemed additional interest on the loan. Since the loan is written at the maximum rate, the payment of any additional interest causes the actual rate to be usurious, and mortgage loan becomes a nullity. The appropriate remedy is for this Court to issue an order avoiding the second mortgage lien, but preserving it for the benefit of estate. Thus, the trustee would step into the shoes of the second mortgagee, and any proceeds of sale of the collateral attributable to that lien would be paid to the estate.
Gowan’s cross-motion argued in opposition that the side agreement was an independent agreement that memorialized Gowan’s promise to promote the restaurant. Although the side agreement was executed at the closing of the mortgage loan agreement, it stands on its own feet. Gowan’s promise to promote the restaurant was bargained in exchange for the co-owners’ promise to provide him and his guests with complimentary meals and drinks. As such, the side agreement is valid and enforceable in accordance with its terms, and there is no justification under either state law or equity for deeming the complimentary meals and drinks as additional interest on the $200,000 mortgage loan. As to the transactional history, he recalls that he and his guests were served no more than two meals before John Gardi directed him to stop promoting the restaurant. Gowan further argued that it was the co-borrower’s accountant who first suggested the side agreement at the closing. The accountant wanted the corporate borrower to have a written agreement in its business records to justify its taking a deduction for the value of the complimentary meals and drinks to be served to Gowan and his guests. Indeed, it was this kind of analysis that allegedly caused the restaurant’s accountant also to insist upon including a provision that obligated Gowan to pay the sales tax on the complimentary meals because the restaurant would not be able to deduct the sales tax.
In construing the legal significance of the side agreement, if any, to the loan transaction, the Court would presumably have to take testimony about how many free meals and drinks Gowan or his guests were actually served, what the total retail value of those meals and drinks were, and what efforts Gowan made to promote the restaurant. Assume arguendo that this agreement is a sham. If the total value of those free meals actually provided to Gowan and his guests was less than $500, then this Court might very well conclude that the harm to the estate was de minimis, and dismiss the complaint. However strong the public policy is in nullifying usurious loans, there still has to be a rule of reason in applying that policy, given the severity of the remedy. In any event, this Court is not disposed to nullify the loan transaction for $200,000 because an imputed additional interest payment of $500 that would drive the transaction above the usury limit.
Based upon these considerations, the Court orally denied the cross-motions for summary judgment at the hearing on the ground that genuine issues of material fact were raised by the pleadings, the motion papers, the affidavits, and the representations and arguments of counsel. Despite the repeated submissions of counsel for the objecting creditor, the Court is not disposed to deny the trustee’s motion for authority to settle this dispute by now reconsidering its prior ruling on the summary judgment motions.
The Court would also be remiss if it did not point out that the parties agreed that *9the total time it would take to try the complaint was, at the outermost limit, a single day, and more likely less than a half-day. As a matter of judicial economy and practical judgment, it simply made more sense to the Court to schedule this adversary proceeding for trial rather than grant summary judgment to either party— that would have resulted in the long delay occasioned by the appellate process that cannot be justified under any rational cost-benefit analysis.
The Settlement:
Having lost its motion for summary judgment, the trustee negotiated a settlement with Gowan and the first mortgagee to reduce the costs and delay to the estate from having to prosecute the adversary proceeding and defend against any appeals. The nub of the settlement is that the trustee and the first and second mortgagees agreed that the commercial property on which the restaurant was located would be sold by an auctioneer retained by the bankruptcy estate. The proceeds of the auction sale would be applied first to pay the expenses of the sale, then to the outstanding real estate tax liens against the property, next to the mortgage indebtedness to the first mortgagee, and then to the mortgage indebtedness of the second mortgagee, with the balance, if any, to be paid to the holders of junior liens in the order of their state law priorities. The benefit to the estate was that from the proceeds applicable to the first mortgage lien, the first mortgagee would release and transfer $10,000 to the estate, and that from the proceeds applicable to the second mortgage lien, the second mortgagee would release and transfer to the estate the first $100,000 applicable to its second mortgage lien. In further consideration of this settlement, the trustee agreed that the amount released and transferred by the second mortgagee to the estate could be recaptured, as it were, by Gowan as a general unsecured claim, sharing pro rata with all other holders of general unsecured claims. This last provision seemed to have little real-world effect, for it did not appear that there would be sufficient proceeds of sale to pay all expenses of sale and all liens; thus, it was improbable that Gowan would ever recapture any part of his $100,000 as an unsecured creditor.
Once the motion to settle was noticed to creditors, it was only Goodkin who objected to the trustee’s motion. Although her counsel had earlier urged the trustee to settle this litigation for Gowan’s payment of $50,000 to the estate, he now took the zealous position that the settlement should be rejected, the trustee and the trustee’s special counsel should be removed, the litigation should proceed, and that he should be substituted as special counsel for the successor trustee to try the adversary proceeding. As noted above, Goodkin’s counsel continued to argue and reargue in post-hearing submissions that the Court should reconsider its earlier ruling and now grant the trustee’s motion for summary judgment against Gowan.
Goodkin, through her counsel, took the position that the objective of this entire settlement strategy was solely to generate a $110,000 fund with which to satisfy the sunk costs of professional fees incurred by the trustee, the trustee’s general counsel— his own firm, the trustee’s special counsel, and the trustee’s accountants, with very little remaining for distribution to junior lien creditors below the second mortgagee or to unsecured creditors. The only provision to the settlement that opposing counsel supported was the $10,000 carve-out from the proceeds otherwise payable to the first mortgagee.
Goodkin also emphasized that the trustee presented no detailed analysis of the expected value of this litigation to the *10estate — there was no statement of the probability of success on the merits, no discussion of the applicable case precedents, and no budget for the costs of continued litigation or appeal. There was, of course, no necessity for estimating collection risk because the recovery would be from the sale of the property. In order for the Court to be in a position to make an informed decision that the settlement was fair and in the best interest of creditors (other than the administrative expense claimants and the first and second mortgagees), it required just such a detailed justification. For instructive and detailed opinions denying inadequately justified Rule 9019 motions, see especially In re Lion Capital Group, 49 B.R. 163 (Bankr.S.D.N.Y.1985) and In re Spielfogel, 211 B.R. 133 (Bankr.E.D.N.Y.1997).
All that the trustee provided by way of a general justification was his statement that he was concerned with the credibility of John Gardi on any issues relevant to the intention of the parties and the transactional history because he was one of the joint and several judgment debtors under the Goodkin judgment. John Gardi would have to be the trustee’s primary, if not sole witness, because his elderly father was too ill to testify and his mother had played no active management role in the restaurant business. Obviously the Court should give due deference to an experienced trial counsel’s assessment of the credibility of his principal witness — he presumably has interviewed him at length and is in the best position to assess his credibility during trial. The trustee’s explicit assessment of Gardi’s credibility is, however, based upon the fact that this witness was found liable for sexual harassment against Ms. Goodkin in state court,3 and that his credibility would be impeached on the ground of bias. Indeed, if this is one of the purported main reasons the trustee is unwilling to try this case, it seems a rather flimsy excuse.
For the first time, the trustee also raised another threshold issue of fact and law, and that is whether the defense of usury is precluded from being raised as a collateral attack on the judgment of foreclosure on the conventional state law ground of res judicata. This issue had not been raised and therefore had not been considered by the Court in denying the cross-motions for summary judgement discussed above. The disposition of this additional issue requires a legal determination under state law whether there is any exception under the applicable provision of the New York Code of Civil Procedure and Practice to the debtor’s failure to raise an affirmative defense of usury before a default judgment of foreclosure became final.
In the state court foreclosure proceeding, the trustee’s special litigation counsel pointed out that the debtor had retained prior counsel and that attorney had filed an appearance instead of an answer. This raises the issue whether a simple notice of appearance constitutes an intentional waiver of any affirmative defenses to the enforceability of the note and mortgage. This limits the mortgagor to notice of the foreclosure sale, which preserves only the right to object to the referee’s report as to the amount of the indebtedness, to any defect in the sale procedure, including both failure to comply strictly with the notice and advertising provisions as well as any fraud or collusive bidding at the sale. Related to this same set of issues is the question whether there is so strong a public policy against usurious loans that a special exception from the general rule of *11proving excusable neglect has been recognized for delayed collateral attack on usury grounds upon a foreclosure judgment. The trustee and his special counsel submitted no memorandum of law that addressed this procedural issue.
In post-hearing submissions, Goodkin’s counsel presented citations to New York state cases that he zealously argues show that a mortgagor can collaterally attack a default judgment of foreclosure based upon the defense of usury, and that the great importance of the public policy against usury overrides the general rule that the mortgagor has to prove excusable neglect. The Court will provisionally address this particular argument in the discussion section below.
The Contested Motion for Approval of the Trustee’s Settlement:
Based upon these open questions of law and fact, the trustee had made an implicit assessment of the probabilities of success concerning each of the disputed issues of fact and law, his apprehension concerning the declining value of the restaurant property, the anticipated cost to the estate of litigating these issues to conclusion, and the costs to sell the property. The trustee then made a combined business and legal judgment to settle this complex litigation at a value he deemed to be at a level that did not fall “below the lowest point in the range of reasonableness,” the standard governing the approval of settlements in the Second Circuit.
In the end, the negotiated resolution was that the property would be sold such that the first $110,000 in net proceeds of sale (after paying closing costs and the broker’s commission) would be paid to the estate, and after crediting $100,000 against the then outstanding mortgage balance to Gowan, all valid liens of record would be paid to the extent of the remaining proceeds of sale in the order of their priority under state law. Conceptually, the $110,000 could be viewed as either a consensual surcharge or a carve-out to the estate under 11 U.S.C. section 506(c), or a consensual reduction in the secured loan balance by Transmedia and Gowan as mortgagees, in order to permit a trustee-controlled sale to go forward.
From Gowan’s standpoint, he treats this as a very expensive nuisance settlement in order to put an end to his mounting litigation costs so that he can recover the reduced balance without incurring any further reductions in recovery attributable to (i) accruing (a) interest on the first mortgage and (b) real estate taxes; and (ii) any further market risk of devaluation. As Gowan’s counsel has passionately and forcefully argued, he believes that the usury argument is sheer opportunism by the trustee’s special litigation counsel against a private mortgage lender who advanced $200,000 over five years ago to a friend, who has been paid very little in interest, who has had to incur substantial and now unrecoverable litigation costs in both state court and in this case, and who has been effectively given no real alternative except to write off most of the unpaid interest accrued over the last six years.
Assume that the trustee’s auctioneer is successful in selling the property for a gross price of $700,000. After deducting the proposed 10% commission payable to the auctioneer and other closing costs, the net proceeds would be approximately $615,000. If the trustee were to transfer the liens in order of priority to the net proceeds of sale, at first pass the application of proceeds would approximately be:4
*12Net Proceeds $615,000
Less:
1. Estate $110,000
2. Nassau County/Breen Capital $220,000
3. Transmedia Network $ 65,000
4. Gowan $220,000
There would be insufficient proceeds to pay any further recorded liens to any other prepetition creditors, which in order of priority were:
4. Bauda Designs $ 10,000
5. Goodkin $ 70,000
6. Cardiovascular $ 1,000
7. LI Beverages Systems, Inc. $ 4,000
The risk of nonpayment fell to Gowan, for if the property netted anything less than $615,000, as the last creditor “in the money,” the proceeds payable to him would be determined by the amount the property netted less the prior payments to the estate, Nassau County/Breen, and Transmedia, which totaled $395,000. So, for example, if the net proceeds were $515,000 (assuming a $600,000 gross sale price at the auction), then Gowan would be paid only $120,000. But he was willing to suffer that risk of loss in order to recover whatever he could from an auction sale without having to incur further attorney’s fees and the opportunity costs of delay in final payment.
The judgment creditor’s objection is that the trustee in his moving papers did not “do the math” and because of this, no creditor (nor the Court) is in a position to make a reasoned judgment whether this settlement is fair and reasonable' and in the best interest of creditors. In this respect, Goodkin forcefully argues the trustee failed to provide a detailed justification for this proposed settlement, as he is obligated to do as a matter of law, and, as such, the motion should be denied as substantively and procedurally defective.5 Moreover, the judgment creditor also raises the objection that the only persons or entities who seem to benefit from this settlement from the standpoint of the estate are the trustee, his general counsel, and his special counsel. From this creditor’s standpoint, no monetarily significant amount of the $110,000 recovery to the estate will trickle down to the class of unsecured creditors. Based upon the judgment creditor’s best estimate, after calculating the amount of secured indebtedness above her lien, she will find herself with a substantial deficiency, and thus will share pro-rata with the other unsecured creditors to the extent of her deficiency, treated as an unsecured claim. Finally, the judgment creditor asks that her counsel be substituted as special counsel to the trustee with the opportunity to continue the prosecution of the pending adversary proceeding with the expectation that Gow-an’s entire lien can be avoided. As this Court has recently held in In re Greenberg, 266 B.R. 45 (Bankr.E.D.N.Y.2001), if the judgment creditor wishes to purchase the estate claim, then it will have to make a bid in an amount that realizes at least the same amount the estate would yield, and the Court would have to determine whether approval of such a sale would be appropriate in the totality of the circumstances of this case. But no such offer was made so this alternative becomes moot.
Discussion
In Paragraphs 13 through 16 of his Application, the trustee has adequately and succinctly summarized the generalized standard of law purportedly governing a bankruptcy court’s approval of settlements.6 The “ur-text” or the foundational *13statement is 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, reh’g den., 391 U.S. 909, 88 S.Ct. 1649, 20 L.Ed.2d 425 (1968). The Court of Appeals has duly followed that precedent in the procedural context of what we now refer to as a Rule 9019 motion, beginning with Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599 (2d Cir.1983), citing Newman v. Stein, 464 F.2d 689, 693 (2d Cir.), cert denied sub. nom Benson v. Newman, 409 U.S. 1039, 93 S.Ct. 521, 34 L.Ed.2d 488 (1972) and its many progeny, including recently Depo v. Chase Lincoln First Bank, N.A. (In re Depo), 77 B.R. 381 (N.D.N.Y.1987), aff'd, 863 F.2d 45 (2d Cir.1988).
In this particular case, goaded by Good-kin’s counsel, the trustee remedied his earlier failure to justify the settlement in both his supplemental submission and in his oral representations and arguments during the extended hearing in open court. During the extended hearing, the Court was presented with all of the components that would ordinarily go into a formal decision analysis, and in this crucial respect, the Court is now satisfied that the trustee has satisfied the generalized standard under the case law in this Circuit.
The trustee has adequately explained that in this current real estate market, he would probably not receive a bona fide offer from a creditworthy purchaser for the restaurant and the underlying real estate for greater than $700,000. Indeed, there is some doubt on the part of the proposed auctioneer that the property will sell for a gross price greater than $500,000. This lower expectation is based upon the fact that the restaurant has been closed since January of 2001 and the considerable uncertainty in the market for restaurant properties in that part of Long Island following the horrific acts that occurred on September 11 at the World Trade Center less than 40 miles from the property. In the months of October and November, unemployment had increased nationally to 5.7%, and close to 100,000 jobs were lost in the Greater New City area. Many of the persons who would have frequented the restaurant are now out of work, and other retail businesses in the area are suffering from shrinking sales. Moreover, this property had been exposed to the market for more than six months before September 11, and the only offer for cash within that range was withdrawn before it could be approved by this Court. The prospective purchaser represented to the seller that after the horrific events of September 11, that commercial lenders were not prepared then to underwrite mortgage loans on pre-September 11 appraised values. At this juncture, the trustee is prepared to employ an experienced auctioneer to conduct an auction sale of the property, and the Gardis have consented to that mode of disposition.
Assume that an auction sale brings a gross amount of $500,000. The trustee has to discount this amount by the probability of success on the merits of his complaint, which in this context means obtaining a judgment that voids any obligation of the co-makers under the loan agreement based upon the conclusion of law that the loan was usurious. The trustee has had to consider as part of his analysis that if the corporate entity and the Gardis had filed a complaint alleging breach of performance by Gowan of his duty to promote the restaurant, whether a court would have granted any judgment for damages to the plaintiff because there is no objective benchmark or standard of performance made explicit under the provisions of the *14side agreement by which the performance of Gowan’s duty could be measured. And if instead Gowan had filed a complaint alleging damages against the corporate defendant and the Gardis because the restaurant refused to offer him and his three guests complimentary meals despite his claim of having promoted the restaurant, would a court have granted any judgment for damages to Gowan for the same reason? Alternatively, would a court have granted declaratory relief to the corporate boirower and the Gardis by holding that the side agreement was wholly unenforceable because its terms were illusory? Finally, the trustee has to consider whether a state court would take the next two steps by declaring that the value of the complimentary meals received by Gowan and his guests was additional interest, and, therefore, that the mortgage loan agreement was a nullity, and that the mortgage lien was void or avoidable.
Although perhaps for understandable reasons, the trustee is not willing to disclose his estimated range of probability of a favorable outcome, he has finally presented a sufficient argument for this Court to draw a reasonable inference that the trustee would not have better than a 50% probability of prevailing on his usury argument. Indeed, the trustee could have concluded that upon further research and reflection, the probability of prevailing was no better than 80%, especially given the de minimis value of the meals and drinks served to Gowan and his guests. And this estimate would have to take into consideration that the Court could rule that the agreement entailed a bargained-for exchange of promises, and that it could find an implied standard of performance for measuring Gowan’s promise to promote the restaurant.
The modern legal analysis of contracts generally tends to ignore the doctrine of consideration as by and large an outmoded and arid conceptualism, and identifies the bargained-for exchanges of promises instead as the basis for finding the agreement is an enforceable contract. To “save the appearances,” a modern court will occasionally characterize the bargained-for exchange of promises as supplying the “consideration” to support enforcement, but bowing to “consideration” is not necessary or useful in determining whether a disputed contract should be enforced. And ever since Judge Benjamin N. Cardozo’s opinion in Wood v. Lucy, Lady DuffGordon, 222 N.Y. 88, 118 N.E. 214 (1917), the state courts in this jurisdiction (and most others) read an implied standard of “reasonable performance” as the basis for rejecting the contention that the disputed contract is illusory.7 Under this approach, this Court could find the side agreement “instinct with an obligation” on the part of Gowan to engage in reasonable efforts to promote the restaurant, and if he failed to do so, then he would be materially in default of his obligation, and Portofino would be excused from its obligation to provide him and his permitted guests with complimentary meals and drinks.
Continuing with modern contract analysis, the courts usually find that a bilateral contract has been formed in a business setting, and then turn to the tougher task of concentrating on express or implied standards of performance or fashioning the appropriate remedy for breach of the contract. This Court is not disposed to invalidating a contract primarily on the ground that Gowan’s obligation is referenced in *15the recitals rather than in the substantive provisions of a side agreement. That promotes the worst kind of “form over substance.” Goodkin’s counsel also cites a recent decision of the District Court for the Southern District of New York for the proposition that every basic bargained for promise “should be expressed as such and not left to implication.”8 As a general statement of judicial preference, one can hardly disagree — if this advice were followed, there would perhaps be fewer opportunities for litigation. However, the language quoted by Goodkin’s counsel was not the basis for the decision in the Cram v. Pepsico case.
From this, it would follow that the agreement stood on its own as a separate agreement and that under the circumstances there was no basis in law for adding the value of the complimentary meals to the base interest rate in the mortgage note, and, therefore, the usury claim fails. If judgment were entered for the defendant Gowan, then his next step would be to renew his motion to lift the stay for there would be no equity in the restaurant property to be realized by the estate from the sale.
As part of his expected value analysis, the trustee had to consider this Court’s prior (and continuing) unwillingness to grant either party summary judgment. This would mean that the trustee has to assess the strength of his case in chief. This necessarily includes his assessment of who is available to testify to the “intention of the parties” under the contract with respect to Gowan’s promotional efforts, its transactional history, and how credible and persuasive their testimony will be. It is uncontested that John Gardi attended the closing of the Gowan mortgage loan and was an active participant in the negotiations. The prima facie claim of sexual harassment does not include the truthfulness or deceit of the tortfeasor as one of its elements. The fact that a court has found a tortfeasor liable for sexual harassment should not cause this Court to discount his testimony, even if the objecting creditor to the proposed settlement in this adversary proceeding holds a judgment which arose from his wrongful conduct.
The trustee also made this same point about the difficulty in proving the facts with respect to the number of complimentary meals that Gowan and his guests enjoyed. However, as the objecting judgment creditor acutely and persuasively commented, Gowan has already admitted to at least two meals in his pleadings and supplemental papers. If the value of the meals were as a matter of law to be added to the interest rate, then the trustee would require no testimony on the part of any of the Gardis if he could get past the contested issue of law.
The trustee made the further point in his supplementary pleadings and during his argument that he was not fully satisfied that he could meet his burden to reopen the judgment of foreclosure in the first instance. This is because, as he read the settled law of the State of New York, that law imposes not only strict time constraints under the applicable statute or rules of limitation to raise usury as a defense, but also that the filing of an appearance by the debtors’ initial counsel in the underlying foreclosure action and his allowing the entry of a default judgment to be entered may very well support Gowan’s averment that the Gardis are barred under the doctrine of res judicata from now collaterally attacking the judgment.
Although this Court declined to grant summary judgment to either party, this *16Court has now had a reasonable opportunity to read the cases cited in the last few weeks in Goodkin’s counsel’s cascading memoranda of law. The only cases cited by the trustee’s special counsel address very different fact situations, and it would require quite a stretching of his most favorable cases to reach the same substantive outcome. In the case upon which special counsel primarily relies, the state court permitted the claim of usury to be raised, not as to the underlying mortgage debt before the foreclosure sale, but only to the enforceability of a deficiency against the guarantors of the mortgage debt after the foreclosure sale was held. Surely a state court can perceive relevant equitable considerations to protecting individual guarantors from having to pay a deficiency amount that is qualitatively different from relieving the mortgagor from the entire judgment amount.
The trustee can now make a respectable argument, based upon recent case law, that the public policy against usury creates its own special exception to the general rule under N.Y. C.P.L.R. 5015(a)(3) that requires an adequate showing of excusable neglect to reopen a default judgment. It is not, however, necessary or appropriate at this juncture for the Court to present a detailed analysis whether this argument should prevail under the totality of the facts and circumstances of this case, but in fairness to the parties, it strikes this Court as tending to favor the trustee’s complaint.
Unfortunately, reopening the default judgment is not the kind of slam-dunk that Goodkin’s counsel characterizes the argument to be. From this Court’s review of the cases, the mortgagor’s showing of a defense of usury has to be substantial. The transactional facts of the published opinions cited by Goodkin’s counsel granting a motion to reopen a default judgment were in every case far more compelling than are the contested facts in this adversary proceeding. There is no doubt in the mind of this Court that the magnitude of the actual amount of the additional interest above the usury ceiling plays a determinative, if not decisive, role in the decisions of the state courts in deciding whether to reopen a default judgment. Moreover, in the case most favorable to the trustee, as cited by Goodkin’s counsel, National Travis Inc. v. Gialousakis, 120 Misc.2d 676, 466 N.Y.S.2d 624, aff'd 99 A.D.2d 800, 471 N.Y.S.2d 1023 (2d Dept.1984), the appellate court based its decision to reopen the default judgment largely on the mortgagee’s false representation to the foreclosure court that the loan did not bear any interest rate. The appellate court relied upon the mortgagor’s affidavit that alleged that only $25,000 was advanced by the mortgagee, even though the note was written for a thirty-six month term with level payments of “principal” of $1,000. The rationale in Gialousakis to justify reopening a default judgment of foreclosure has been followed by the Third Department in Rockefeller v. Jeckel, 557 N.Y.S.2d 648, 161 A.D.2d 1090 (3d Dept.1990). In Rockefeller, a note re-executed in March of 1987 after a default under the original loan agreement increased the interest rate beyond the usury limit of 24% applicable to a loan of that character. Although the Rockefeller court held the replacement note to be void, it limited the mortgagor’s remedy to reinstating the original note and crediting the mortgagor’s loan balance for any payments made under the replacement note.
Notwithstanding these two precedents, in the most recently reported decision, the Second Department summarily affirmed the trial court’s decision denying the mortgagor’s motion to set aside a foreclosure sale on the ground of usury. The appellate court expressly held:
*17a judgment of foreclosure and sale entered against a defendant is final as to all questions between the parties, and concludes all matters of defense which were or might have been litigated in the foreclosure action (citing cases). Accordingly, the defendants are barred from now raising usury as a defense to this action since they could have asserted such defense at an earlier time, but failed to do so.
Long Island Savings Bank, F.S.B. v. Mihalios, 269 A.D.2d 502, 704 N.Y.S.2d 483 (2000). In the face of these conflicting precedents from the Second Department, which encompasses Nassau and Suffolk Counties, it would appear that it would be a proper exercise of the trustee to estimate his probability of success in prevailing on the issue of res judicata as 50% at best.
The trustee was also legitimately concerned with adding to the estate’s estimated cost of prosecuting this adversary proceeding through final judgment, assuming no appeals, and the continued diminution of net value to the estate of the property (i) through the accrual of unpaid real estate taxes, interest on other mortgage liens, and taxes, as well as (ii) market uncertainties and fluctuations. During the hearing, the trustee stated that he would estimate the attorney’s fees to prosecute the case, including the time to prepare for the trial, to attend trial, and to submit post-trial proposed findings of fact and law and a supporting memorandum to have an extended time value of $15,000, assuming an aggregate of 549 hours at a blended rate of $275 an hour. Goodkin’s counsel argued that this projection was unduly exaggerated, and that he could do it for far less. As the Court commented during the oral argument, it is the trustee who has the statutory right to retain counsel; it is not an appropriate function of the Court to let the retention of the trustee’s special (or general) counsel out for bids.
Based upon these considerations, the Court can now construct a table of the basic components to this type of analysis.10
1. Maximum range of recovery: $315,000
2. ' Probability of success re overcoming res judicata: .3 to .5
3. Probability of success re: usury: .4 to .7
4. Costs of continued prosecution: $ 15,000
If the maximum expected value is less than $110,000», there is no need to take into further consideration deductions for accruing taxes, interest, and market risk.
Assuming the reasonableness of these valuations, the calculation of the net expected value, for the best case probabilities, is very straightforward:
$315.0
[.5 prob. — res jud.] x [.7 — prob. — integr. agr.] = [.35] x [$315] = $110.25
Less further litigation costs = $ 15.00
Net maximum recovery to the estate =■ $ 94.25
If one were to calculate for the lower case probabilities, then it would be:
*18$315.0
[.3 prob.' — res jud.] x [.4 — prob. — integr. agr.] = [.12] x [$315] = $ 37.8.
Less further litigation costs = $ 15.0
Net maximum recovery to the estate = $ 22.8
Obviously, further sensitivity analysis could be performed by modifying the value of each of these variables across a range, and inevitably there will be questions about the reasonableness of any assumptions for any of these values. However, the Court is reasonably satisfied that kind of analysis was supported by the range of representations and arguments made by each counsel and their prior pleadings and memoranda.
Under the general standards, any settlement that does not fall below the lowest point in the range of reasonableness should be approved. Clearly, if the maximum net recovery is $94,250, then it would probably be an abuse of the trustee’s fiduciary duty to decline this settlement. The trustee cannot treat the further prosecution of the litigation as a lottery, give up $110,000 in dollars on the table, and bet the entire estate by buying a $15,000 ticket (on credit) to win $315,000 when the odds of winning are at best 35%. Under the circumstances, the Court is sufficiently satisfied that the trustee has sustained his burden to justify granting his motion.
Since this Court has previously notified the panel of the case trustees that they should resort to formal decision analysis11 as the basis for justifying their motions for authority to settle contested matters or adversary proceedings under Fed. R. Bankr.P. 9019, this opinion demonstrates not only how to go about identifying the variables and “doing the math,” but it also presents a quantitative method or means for demonstrating that a proposed settlement satisfies the formulaic limit of the lowest point in the range of reasonableness. In other words, the lower limit of the decision analysis, if performed properly, may serve as the operational definition of the lowest point in the range of reasonableness. Decision analysis, when properly performed, serves then as a reality check to test the reasonableness of the assumptions that should underlie each settlement because the trustee has to think carefully through the components of the analysis and then assign probabilities to the most probable range of outcomes.
As two final points, the first is that whether the recovery to the estate may be substantially reduced by the payment of allowed administrative expenses is both largely irrelevant and premature to this Court’s determination of the reasonableness of a settlement. To be certain, there is something deeply disturbing to the public (and to this Court) about any litigation undertaken by a trustee whose primary goal is to maximize compensation for the professionals in the case, with no foreseeable benefit to the prepetition creditors of the estate. Surely that was the strongly voiced position of the district court in McCord v. Agard (In re Bean), 251 B.R. 196 (E.D.N.Y.2000). Howevex", the Court of Appeals properly pointed out that the issue of compensation for the trustee and his professional persons was a separate issue, and one that is propeiiy deferred to *19a hearing on final compensation. Id., 252 F.3d 113 (2d Cir.2001). This same logic applies to this case.
The Office of the United States trustee invariably objects to any final allowance of the trustee’s commission and the trustee’s general and special counsel’s attorneys’ fees that are not reasonably related to the benefit actually received by the priority and general unsecured creditors of the estate. In this fundamental respect, the objection of Goodkin on this point — that the bulk of the $110,000 will be exhausted in professional fees is wildly exaggerated and not informed by any knowledge of the actual and consistent practice of the bankruptcy judges in this Court. In any event, the judgment creditor, the United States trustee, and any other party in interest will have an opportunity to file objections to any requests for interim or final compensation by the trustee and his professional persons.
Conclusion:
Based upon these considerations, the trustee’s motion for authority to settle is granted, and the objections of the judgment creditor are overruled. SO ORDERED.12
. The Court does not, however, reach those branches of the judgment creditor’s cross-motion to remove the trustee and his special litigation counsel other than to defer ruling on their alleged merits until hearings on applications for final compensation. The decision to defer this ruling was supported by the Assistant United States trustee.
. There are some internal inconsistencies in the Loan Agreement in that Mr. and Mrs. Gardi are also referred to as guarantors, although there is no separate instrument denominated as "Guaranty.” In substance, it is sufficiently clear on the face of the instrument that the Gardis, were intended by Gowan to be personally liable as co-makers, and any ambiguity in the Loan Agreement whether they were primary guarantors must be construed against the draftsman.
. The judgment for damages arising from sexual harassment was the basis for her judgment lien again the mortgaged premises.
. There is some dispute between the trustee and Goodkin concerning the correct amounts of both the state tax lien and the non-punitive damages under her judgment lien.
. In re Spielfogel, 211 B.R. 133 (Bankr.E.D.N.Y.1997).
. Cosoff v. Rodman (In re W.T. Grant Co.), 699 F.2d 599 (2d Cir.1983), citing Newman v. Stein, 464 F.2d 689, 693 (2d Cir.), cert denied *13sub. nom Benson v. Newman, 409 U.S. 1039, 93 S.Ct. 521, 34 L.Ed.2d 488 (1972).
. See generally, E. Allen Farnsworth, Changing Your Mind: The Law of Regretted Decisions (1998). For a thoughtful retrospective on Cardozo's contributions to the common law, see A. Kaufman, Cardozo (1988), and his discussion of Lady Duff-Gordon at 316-18.
. See Cram v. Pepsico, Inc., 125 F.Supp.2d 102, 104 (S.D.N.Y.2000).
. This is based upon the active participation of both the trustee’s counsel and the trustee's special counsel in the further prosecution of this proceeding, with each spending 6 hours in final trial preparation, 12 hours of trial, and 9 hours in drafting post-trial submissions. 54 hrs x $275 = $14,850, + $150 in reimbursable expenses for electronic legal research and reproducing costs. The Court can just as readily assume that only one attorney would represent the estate, that the trial time would be reduced to 8 hours; that would drop the cost to 23 hrs x $275 + $150 in expenses.
. For purposes of this simplified analysis, we have excluded lost opportunity costs.
. Decision analysis has been applied to the analysis of settlements in litigation as part of the law and economics approach for over thirty years. See R. Posner, The Economics of Law (4th ed.1992) and R. Cooter and T. Ulen, Law and Economics (2d ed.1996).
. This opinion is intended to supersede in all respects the Memorandum of Decision issued on January 9, 2002. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493296/ | OPINION AND ORDER DISMISSING PLAINTIFF’S COMPLAINT TO DETERMINE DISCHARGEABILITY OF DEBT AS PREMATURE
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the plaintiffs complaint seeking a determination that any award of past-due child support for the period from March 19, 1981 and March 14, 1997 is dischargeable. The matter was set for trial on March 26, 2001, at which time only the plaintiff and his attorney appeared and presented evidence. The Court entered judgment on May 2, 2001 in favor of the plaintiff.
After receiving the May 2, 2001 order, defendants Lisa Sanchez, Nichole Smith, and Kimberly Smith filed a motion for new trial which was granted on July 2, 2001. The Court set the matter down for a continued trial to be held on September 4, 2001.
Counsel for the plaintiff and the aforementioned defendants appeared on September 4, 2001 for trial. Also appearing was counsel for defendant Cuyahoga County Child Support Enforcement Agency. This defendant joined in the other defendants’ argument that a duty of child support is nondischargeable under 11 U.S.C. § 523(a)(5), but conceded that in this case, the amount owed to the agency by the plaintiff was $0.
Many of the facts in this case are undisputed. The plaintiff and defendant Lisa Sanchez lived together in Corpus Christi, Texas, and San Diego, California, from 1980 until 1984. Two children, Nichole Smith and Kimberly Smith, were born of this relationship. On January 3, 1984, the Superior Court of California, County of San Diego, entered an order which reflected the plaintiffs acknowledgment of paternity and found that the plaintiff had the present ability and owed a duty of support. As the plaintiff and defendant were still living together with the children, no child support order was entered.
Defendant Lisa Sanchez subsequently left California with the children. Within a year of her departure, she contacted the *140plaintiff, and he left California to join her and the children in Cleveland, Ohio. He remained in Cleveland for two to four weeks until defendant Lisa Sanchez indicated she wanted him to leave. He then moved to southern Ohio where he resided with his mother. Over the next two years, she would contact him, he would go back to Cleveland, and then she would ask him to leave. The plaintiff eventually grew weary of this practice and lost contact with defendant Lisa Sanchez and the children. He continued to reside with his mother at the same address.
At some point in 1996, the plaintiff, with defendant Lisa Sanchez’ agreement, had custody of Nichole Smith. On November 4, 1996, a magistrate of the Cuyahoga County Juvenile Court entered an order incorporating this custody agreement and requiring the plaintiff to pay temporary child support of $50 per week for Kimberly Smith. On March 14, 1997, Judge Gallagher of the Cuyahoga County Juvenile Court, modified the custody arrangement between the parties with their consent to provide that defendant Sanchez would have custody of both children. The juvenile court thereupon ordered the plaintiff to pay child support of $100 per week. The magistrate’s temporary order and the juvenile court’s journal entry constituted the first child support orders entered by any court with respect to these children.
Defendant Lisa Sanchez and/or defendant Cuyahoga County Child Support Enforcement Agency also sought child support from the plaintiff for the period of March 19, 1981, when the first of the two children was born, until March 14, 1997. On March 14, 2000, Magistrate Strunk of the Cuyahoga County Juvenile Court rejected the plaintiffs laches defense and scheduled the matter for an evidentiary hearing to be held June 15, 2000. The plaintiff filed a petition for relief under chapter 7 of the Bankruptcy Code on March 13, 2000. He then commenced this adversary proceeding on June 9, 2000.
The plaintiff contends that 11 U.S.C. § 523(a)(5) contemplates only an actual award of child support and not merely a duty of support. The Court can find no case law which would uphold such a constrained reading. The statute simply provides that any debt to a child of the debtor in connection with an order of a court of record is nondischargeable. There is nothing in this language to suggest that an award of past child support made by a court of competent jurisdiction would not fall within the scope of § 523(a)(5).
Having rejected the plaintiffs legal argument against nondischargeability, the Court is faced with a situation where no such past child support order has been entered. If, as the defendants concede, the dischargeability of any such award would depend on resolution of the factors set forth in Long v. Calhoun (In re Calhoun), 715 F.2d 1103, 1109 (6th Cir.1983), this Court is in no position to determine the question of dischargeability in the absence of a specific award.
Based on the foregoing, the Court DISMISSES the plaintiffs complaint as premature. The plaintiff may seek to re-open this adversary once the issue of the past child support is finally determined by the state courts. This Court is hopeful that the Cuyahoga County Juvenile Court, in making its decision, will not mechanically apply the Ohio child support guidelines, but will consider the fact that the Cuya-hoga County Child Support Enforcement Agency is asserting no claim to any past child support.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493297/ | ORDER OVERRULING OBJECTION OF SCOTT LUMBER COMPANY TO CONFIRMATION OF PLAN
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the requested confirmation of the debtors’ second amended joint plan of reorganization (the “Plan”) and the objection of Scott Lumber Company. The Court heard the objection to confirmation on September 4, 2001.
Scott Lumber Company is the holder of a mechanic’s lien. Its claim is included in class 3 of the Plan along with two other mechanic’s lien holders. As a member of that class, Scott Lumber Company had the option of having its claim satisfied in one of three ways. It could elect to be paid the sum of $47,500 on or before December 31, 2001, in full satisfaction of its claim. As a second alternative, it could choose to have its allowed secured claim paid in full with a market rate of interest in forty (40) quarterly payments over ten (10) years. Lastly, it could elect treatment as a class 4 general unsecured in the amount of its allowed claim. Scott Lumber Company chose the first option.
Scott Lumber Company initially objects to certain provisions in the Plan which, in *147its view, improperly release claims against certain non-debtors. The debtors’ counsel conceded that the purported release contained in Article III B, section 3.03(1) of the claims of mechanic’s lien holders opting for the first alternative treatment should not have included non-debtor entities. He agreed, therefore, to amend the Plan to delete the release clause as it pertained to any of the debtors’ affiliates and to Bharati Patel, the wife of debtor Arvind Patel.
As for the release contained in section 3.02, subclass 2B, the debtors’ attorney represented at the hearing and in his memorandum in opposition to the objection that only the claims of Belmont National Bank would be affected, and that the provision would in no way discharge the claims of any third parties. The release is part of a settlement with Belmont National Bank under the terms of which the bank will receive two million dollars ($2,000,000). The Court finds the settlement with Belmont National Bank to be in the 'best interests of creditors. Without the settlement, the debtors would not be able to obtain the replacement financing required to reorganize. In that event, there is no guarantee that liquidation of the hotel property would even satisfy the secured claims of the Belmont County Treasurer and Belmont National Bank. In such a liquidation, the mechanic’s lien holders’ claims might or might not be satisfied in whole or in part, and unsecured claimants would likely receive nothing. Further, because Bharati Patel has pledged all of her assets to the proposed reorganization and has personally guaranteed the final $175,000 payment to Belmont National Bank, the Court determines the release contained in section 3.02, subclass 2B of the Plan, to be appropriate notwithstanding her status as a non-debtor.
Scott Lumber Company also objects to the proposed treatment of mechanic’s lien holders who elect either the second or third alternative. Specifically, it asserts that the second option fails to specify a market rate of interest and that the ten-year repayment period is excessive. The third choice is even more unfair in its view because under that provision, mechanic’s lien holders would be giving up their security.
As noted above, Scott Lumber Company made a conscious election to accept the treatment offered under the first alternative in satisfaction of its secured claim. Until the $47,500 is paid, Scott Lumber Company will retain its lien rights under the Plan. In the event this sum is not paid by December 31, 2001, or by a later date to which Scott Lumber Company expressly agrees, the debtors will be in default. If any such default is not subsequently cured under the terms of the confirmed Plan, Scott Lumber Company will be able to exercise any and all of the remedies available to it.
Because Scott Lumber Company did not elect either the second or the third alternative, it lacks standing to challenge the treatment it would be accorded had it chosen a different option. If it had elected, for example, the second alternative, it could then have challenged the interest and repayment terms. Having not done so, it simply cannot assert arguments which might have been raised by a mechanic’s lien holder who opted for a treatment different from the first alternative.
The Court has also considered the other objections raised by Scott Lumber Company and finds them to be without merit. The debtors have proposed the Plan in good faith. The Plan, as proposed, does not violate the absolute priority rule; nor does it substantively consolidate the debtors’ estates. Further, the Court deter*148mines that Scott Lumber Company has not demonstrated the need for an examiner to review any alleged inside transactions.
Based on the foregoing, Scott Lumber Company’s objection to confirmation of the Plan is OVERRULED so long as the debtors delete the non-debtor release provision as previously identified in Article III B, section 3.03(1).
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484536/ | Matter of Voges v DiNapoli (2022 NY Slip Op 06521)
Matter of Voges v DiNapoli
2022 NY Slip Op 06521
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
533838
[*1]In the Matter of Kerri Voges, Petitioner,
vThomas P. DiNapoli, as State Comptroller, Respondent.
Calendar Date:October 11, 2022
Before:Garry, P.J., Clark, Aarons, Pritzker and Fisher, JJ.
Schwab & Gasparini, PLLC, White Plains (Warren J. Roth of counsel), for petitioner.
Letitia James, Attorney General, Albany (Sarah L. Rosenbluth of counsel), for respondent.
Clark, J.
Proceeding pursuant to CPLR article 78 (transferred to this Court by order of the Supreme Court, entered in Albany County) to review a determination of respondent denying petitioner's application for accidental disability retirement benefits.
As petitioner, an operating room nurse at the Westchester County Medical Center, assisted in the performance of a surgery in January 2018, she was required to move a patient, allegedly sustaining injuries to her back and left hip in the process. Based upon these injuries, petitioner submitted an application for accidental disability retirement benefits, which was denied. Following a hearing, during which petitioner conceded she did not have 10 years of total service credit, the Hearing Officer upheld the denial as the injury was the result of a risk inherent in her employment duties and, therefore, not an accident within the meaning of Retirement and Social Security Law § 363. Respondent upheld the Hearing Officer's decision, prompting petitioner to commence this CPLR article 78 proceeding to challenge respondent's determination.
We confirm. As an applicant for accidental disability retirement benefits, "[p]etitioner bore the burden of establishing that her disability was the result of an accident within the meaning of the Retirement and Social Security Law, and the Comptroller's determination in this regard will be upheld if supported by substantial evidence" (Matter of Rizzo v DiNapoli, 201 AD3d 1098, 1099 [3d Dept 2022], affd ___ NY3d ___ [2022]; see Matter of Bohack v DiNapoli, 197 AD3d 1384, 1384 [3d Dept 2021]). "An injury-causing event is accidental when it is sudden, unexpected and not a risk of the work performed" (Matter of Valente v New York State Comptroller, 205 AD3d 1295, 1296 [3d Dept 2022] [internal quotation marks, brackets and citations omitted]; see Matter of Kenny v DiNapoli, 11 NY3d 873, 874 [2008]). "[T]he focus of the determination must be on the precipitating cause of injury, rather than on the petitioner's job assignment" (Matter of Kelly v DiNapoli, 30 NY3d 674, 682 [2018] [internal quotation marks, brackets and citation omitted]). "Thus, an injury that results from the performance of ordinary employment duties and is a risk inherent in such job duties is not considered accidental" (Matter of Castellano v DiNapoli, 197 AD3d 1478, 1479 [3d Dept 2021] [internal quotation marks and citations omitted]; see Matter of Crone v DiNapoli, 201 AD3d 1260, 1261 [3d Dept 2022], lv denied 38 NY3d 910 [2022]).
Petitioner testified that she was assisting in a surgery when she was asked by the surgeon to aid in moving the patient, who was beginning to desaturate. Although there were usually many people in the operating room including the "turn over tech," who was responsible for the "heavy lifting," at the time of the injury, petitioner and the surgeon were the only persons in the room who could move the patient. According to petitioner, there was no time to wait for assistance and, therefore, [*2]she was required to move the patient or face repercussions for disobeying the request of the surgeon. Petitioner acknowledged that, although moving a patient "wouldn't be [her] first choice," and that she had never done so with only the help of the surgeon, she had no choice "[i]f there was no one else available."
Despite her reliance upon the written job description, there is no dispute that petitioner was engaged in the performance of her ordinary employment duties in that she was assisting in the performance of a surgery. The risk that an operating room nurse may be required to lift and reposition a patient while assisting in surgery is an inherent risk of that employment. Thus, substantial evidence supports respondent's finding that petitioner did not sustain her burden of proving that the incident constituted an accident within the meaning of Retirement and Social Security Law § 363 (see Matter of Schoales v DiNapoli, 132 AD3d 1184, 1186 [3d Dept 2015]; Matter of Little v DiNapoli, 85 AD3d 1273, 1275 [3d Dept 2011]; Matter of Sinclair v New York State & Local Retirement Sys., 42 AD3d 595, 596 [3d Dept 2007]).
Garry, P.J., Aarons, Pritzker and Fisher, JJ., concur.
ADJUDGED that the determination is confirmed, without costs, and petition dismissed. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484548/ | Matter of Hankes (2022 NY Slip Op 06536)
Matter of Hankes
2022 NY Slip Op 06536
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-194-22
[*1]In the Matter of Robert John Hankes, an Attorney. (Attorney Registration No. 5304712.)
Calendar Date:August 1, 2022
Before:Egan Jr., J.P., Lynch, Aarons, Pritzker and McShan, JJ.
Monica A. Duffy, Attorney Grievance Committee for the Third Judicial Department, Albany (Michael K. Creaser, of counsel), for Attorney Grievance Committee for the Third Judicial Department.
Per Curiam.
Respondent was admitted to practice by this Court in 2015 and has no prior disciplinary history in New York. He previously listed a business address with the Office of Court Administration in Illinois, where he was admitted in 2006 and where he currently resides. By order dated January 20, 2022, the Supreme Court of Illinois suspended respondent from the practice of law in that jurisdiction for a period of three years based upon findings that respondent had violated a disciplinary rule by, among other things, fraudulently submitting invoices to clients and payment requests to his employer, an Illinois law firm (see Illinois Rules of Professional Conduct Rule 8.4 [c]). Respondent remains so suspended in Illinois to date.
The Attorney Grievance Committee for the Third Judicial Department (hereinafter AGC) now accordingly moves, by order to show cause marked returnable on August 1, 2022, and supported by affirmation of counsel, to impose discipline upon respondent pursuant to Rules for Attorney Disciplinary Matters (22 NYCRR) § 1240.13 and Rules of the Appellate Division, Third Department (22 NYCRR) § 806.13 based upon his established misconduct in Illinois. Respondent has not submitted a response to AGC's motion.
Pursuant to Rules for Attorney Disciplinary Matters (22 NYCRR) § 1240.13 (c), this Court may discipline an attorney for "misconduct committed in [a] foreign jurisdiction." In defense, an attorney may assert that the disciplinary proceedings in the foreign jurisdiction lacked due process; that there was an infirmity of proof establishing the misconduct; or that the alleged misconduct forming the basis for discipline in the foreign jurisdiction would not constitute misconduct in New York (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.13 [b]). Here, in light of respondent's failure to respond to AGC's motion, he has waived any available defenses and AGC's motion to impose discipline is granted (see Matter of Colby, 156 AD3d 1215, 1215-1216 [3d Dept 2017]; Matter of Tan, 149 AD3d 1344, 1345 [3d Dept 2017]; Matter of Halbfish, 144 AD3d 1263, 1263 [3d Dept 2016]).
Turning to the issue of the sanction to be imposed, we are not obliged to impose the same sanction that was imposed by the foreign tribunal, but rather are charged with crafting a sanction that protects the public, maintains the honor and integrity of the profession or deters others from engaging in similar misconduct (see Matter of Yiheng Lou, 206 AD3d 1221, 1224 [3d Dept 2022]; Matter of Hoines, 185 AD3d 1349, 1350 [3d Dept 2020]; see also Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.8 [b] [2]). Respondent's misconduct in Illinois, which he admitted to in the underlying Illinois disciplinary proceeding, is serious and, if perpetrated in New York, would similarly constitute serious misconduct under New York's analogous rule (see Rules of Professional Conduct [22 NYCRR 1200.0] rule 8.4 [c]).
In mitigation, we note that respondent appears compliant [*2]with the Illinois suspension order, provided some notice of his Illinois suspension (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.13 [d]) and has maintained his attorney registration in this state (compare Matter of Zankowski, 208 AD3d 1495, 1497 [3d Dept 2022]). In aggravation, we observe that respondent has failed to present any substantive mitigating circumstances beyond the factors presented during his Illinois disciplinary proceeding (see ABA Standards for Imposing Lawyer Sanctions standards 9.32 [a], [d], [l]) that would support a deviation from the seriousness of the discipline imposed in Illinois (see Matter of Ugwuonye, ___ AD3d ____, _____, 2022 NY Slip Op 06057, *1 [3d Dept 2022]) and his failure to participate in these proceedings demonstrates a disregard for his fate as an attorney in this state (see Matter of McSwiggan, 169 AD3d 1248, 1250 [3d Dept 2019]; Matter of Halbfish, 144 AD3d at 1264). Accordingly, we conclude that a three-year suspension from the practice of law, consistent with the sanction imposed in Illinois, is appropriate in this state. Furthermore, we condition any future application by respondent for his reinstatement in this state upon proof that he has been fully reinstated to the practice of law in Illinois.
Egan Jr., J.P., Lynch, Aarons, Pritzker and McShan, JJ., concur.
ORDERED that the motion of the Attorney Grievance Committee for the Third Judicial Department is granted; and it is further
ORDERED that respondent is suspended from the practice of law for a period of three years, effective immediately, and until further order of this Court (see generally Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.16); and it is further
ORDERED that, for the period of suspension, respondent 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 respondent 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 himself out in any way as an attorney and counselor-at-law in this State; and it is further
ORDERED that respondent shall comply with the provisions of the Rules for Attorney Disciplinary Matters regulating the conduct of suspended attorneys and shall duly certify to the same in his affidavit of compliance (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.15). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484537/ | Matter of Regney (2022 NY Slip Op 06533)
Matter of Regney
2022 NY Slip Op 06533
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-191-22
[*1]In the Matter of Gabrielle Anne Regney, an Attorney. (Attorney Registration No. 5793948.)
Calendar Date:November 14, 2022
Before:Egan Jr., J.P., Clark, Pritzker, Ceresia and McShan, JJ.
Gabrielle Anne Regney, Swanzey, New Hampshire, 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.
Gabrielle Anne Regney was admitted to practice by this Court in 2020 and lists a business address in Keene, New Hampshire with the Office of Court Administration. Regney 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 Regney's application.
Upon reading Regney's affidavit sworn to September 14, 2022 and filed September 16, 2022, and upon reading the November 4, 2022 correspondence in response by the Chief Attorney for AGC, and having determined that Regney is eligible to resign for nondisciplinary reasons, we grant her application and accept her resignation.
Egan Jr., J.P., Clark, Pritzker, Ceresia and McShan, JJ., concur.
ORDERED that Gabrielle Anne Regney's application for permission to resign is granted and her nondisciplinary resignation is accepted; and it is further
ORDERED that Gabrielle Anne Regney'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 Gabrielle Anne Regney 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 Regney 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 Gabrielle Anne Regney 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/8484551/ | Matter of Flannelly v Gardner (2022 NY Slip Op 06528)
Matter of Flannelly v Gardner
2022 NY Slip Op 06528
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
534791
[*1]In the Matter of John Flannelly, Petitioner,
vColleen C. Gardner, as Executive Deputy Comptroller of the State of New York, et al., Respondents.
Calendar Date:October 14, 2022
Before:Garry, P.J., Egan Jr., Clark, Ceresia and Fisher, JJ.
John F. Clennan, Ronkonkoma, for petitioner.
Letitia James, Attorney General, Albany (Sarah L. Rosenbluth of counsel), for respondents.
Fisher, J.
Proceeding pursuant to CPLR article 78 (transferred to this Court by order of the Supreme Court, entered in Albany County) to review a determination of respondent Comptroller denying petitioner's application for accidental disability retirement benefits.
Petitioner, a police sergeant, applied for accidental disability retirement benefits alleging that, when he was on patrol duty in 2015 and responded to a medical emergency of a possible drug overdose at a private residence, he was unexpectedly pushed by an individual and fell, sustaining injuries to his back. Petitioner's initial application was denied on the ground that the incident did not constitute an accident within the meaning of Retirement and Social Security Law § 363. Following a hearing, the Hearing Officer denied petitioner's application, finding, among other things, that the incident was not an accident as there was no unexpected event that was not an inherent risk of petitioner's job duties. Respondent Comptroller upheld the Hearing Officer's decision, and this CPLR article 78 proceeding ensued.
We confirm. For purposes of the Retirement and Social Security Law, an accident is defined as "a sudden, fortuitous mischance, unexpected, out of the ordinary, and injurious in impact" (Matter of Lichtenstein v Board of Trustees of Police Pension Fund of Police Dept. of City of N.Y., Art. II, 57 NY2d 1010, 1012 [1982] [internal quotation marks and citation omitted]; accord Matter of Roberts v DiNapoli, 117 AD3d 1166, 1166 [3d Dept 2014]). In determining whether an incident constitutes an accident, "the dispositive question is whether injury was caused by a precipitating accidental event which was not a risk of the work performed" (Matter of Kelly v DiNapoli, 30 NY3d 674, 684 [2018] [internal quotation marks, ellipsis and citations omitted]; see Matter of Fulton v New York State Comptroller, 122 AD3d 983, 983-984 [3d Dept 2014], lv denied 24 NY3d 915 [2015]). In other words, "[a]n injury which occurs without an unexpected event as the result of activity undertaken in the performance of ordinary employment duties, considered in view of the particular employment in question, is not an accidental injury" (Matter of Valente v New York State Comptroller, 205 AD3d 1295, 1296 [3d Dept 2022] [internal quotation marks and citations omitted]). It is the petitioner's burden to demonstrate that the injury-producing event is an accident, and the Comptroller's determination in that regard will be upheld if supported by substantial evidence (see Matter of Buckshaw v DiNapoli, 169 AD3d 1139, 1140 [3d Dept 2019], lv denied 33 NY3d 904 [2019]; Matter of Buckley v DiNapoli, 166 AD3d 1265, 1266 [3d Dept 2018]).
Petitioner testified that, on the night of the incident, he was on patrol duty and responded, along with another police officer, to a call for a possible drug overdose at a residential address. After the aided individual was removed from the home to an ambulance, the individual's father asked petitioner [*2]about the identity of a person sitting in a car in the driveway. Petitioner approached the vehicle and, upon inquiry, the subject told petitioner that he lived at the residence — which, upon returning and relaying that information to the father, the father refuted. Petitioner then returned to the vehicle, at which point the subject exited the vehicle and, according to petitioner's testimony, suddenly and unexpectedly pushed both him and the other police officer, causing petitioner to fall over the raised blocks on the driveway and sustain an injury to his back. The written report of the incident, which was signed by petitioner, differed with regard to the confrontation with the subject in that it noted that the subject exited the vehicle, became agitated, was yelling and appeared to be under the influence of an unknown substance. The report described the subject as becoming combative and that he started pushing, kicking and swinging his arms at the officers. Ultimately, the report notes that the subject was wrestled to the ground by petitioner and the other officer after resisting their initial attempt to gain control of him.
Although the Comptroller credited the report of the incident over the testimony of petitioner, the Comptroller found that, in either instance, petitioner was acting in the normal course of his police duties at the time of the injury. As restraining unruly or disruptive individuals has been found to be part of a police officer's inherent duties, we find that substantial evidence supports the Comptroller's determination that the incident did not constitute an accident within the meaning of the Retirement and Social Security Law (see Matter of Buckshaw v DiNapoli, 169 AD3d at 1141; Matter of Buckley v DiNapoli, 166 AD3d at 1267; Matter of Bodenmiller v DiNapoli, 157 AD3d 1120, 1121-1122 [3d Dept 2018]; Matter of Fulton v New York State Comptroller, 122 AD3d at 984; Matter of Roberts v DiNapoli, 117 AD3d at 1166-1167). Petitioner's contention that the accident occurred while he was doing out-of-title work is belied by the record, which reflects that, as a sergeant, his job duties included performing the function of a police officer when necessary. Moreover, to the extent that petitioner's brief references information as to, among other things, the racial composition of the "posh" community where petitioner was employed in support of his contention that the incident did not constitute an inherent risk in his employment duties, we note that such references are wholly irrelevant and inappropriate.
Garry, P.J., Egan Jr., Clark and Ceresia, JJ., concur.
ADJUDGED that the determination is confirmed, without costs, and petition dismissed. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484545/ | Matter of Hoyt (Paul Revere Life Ins. Co.--Commissioner of Labor) (2022 NY Slip Op 06518)
Matter of Hoyt (Paul Revere Life Ins. Co.--Commissioner of Labor)
2022 NY Slip Op 06518
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
533434
[*1]In the Matter of the Claim of William K. Hoyt Jr., Respondent, Paul Revere Life Insurance Company, Appellant. Commissioner of Labor, Respondent.
Calendar Date:October 20, 2022
Before:Egan Jr., J.P., Lynch, Aarons, Pritzker and McShan, JJ.
Kelley Drye & Warren LLP, New York City (Nicholas J. Kromka of counsel), for appellant.
Catherine A. Barber, Guilderland, for William K. Hoyt Jr., respondent.
Letitia James, Attorney General, New York City (Linda D. Joseph of counsel), for Commissioner of Labor, respondent.
McShan, J.
Appeals from two decisions of the Unemployment Insurance Appeal Board, filed December 16, 2020, which, among other things, ruled that Paul Revere Life Insurance Company was liable for unemployment insurance contributions on remuneration paid to claimant and others similarly situated.
Paul Revere Life Insurance Company sells various insurance products through licensed insurance agents such as claimant. Pursuant to the terms of a written contract, claimant performed services for Paul Revere between September 2017 and March 2018. When Paul Revere's office in Monroe County closed, claimant filed a claim for unemployment insurance benefits. The Department of Labor determined that claimant was eligible for benefits, and Paul Revere was liable for unemployment insurance contributions based upon remuneration paid to claimant and others similarly situated. Following the requested hearing, an Administrative Law Judge (hereinafter ALJ) upheld the original determination, concluding that the written agreement entered into between claimant and Paul Revere did not satisfy the requirements of Labor Law § 511 (21) and, therefore, the statute did not bar claimant's application for unemployment insurance benefits. The ALJ further found that there was evidence of an employment relationship under the traditional common-law test. Upon administrative review, the Unemployment Insurance Appeal Board affirmed the ALJ's decision, prompting this appeal.
We affirm. Labor Law § 511 (21) provides that "[t]he term 'employment' shall not include the services of a licensed insurance agent or broker if," among other things, "the services performed by the agent or broker are performed pursuant to a written contract" (Labor Law § 511 [21] [c]) that, in turn, contains seven statutorily enumerated provisions (see Labor Law § 511 [21] [d] [i]-[vii]; Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d 1199, 1200 [3d Dept 2021]; Matter of Joyce [Coface N. Am. Ins. Co.-Commissioner of Labor], 116 AD3d 1132, 1133 [3d Dept 2014]). Here, the Board concluded that two of the seven statutory requirements were absent from the written agreement entered into between claimant and Paul Revere — specifically, provisions demonstrating that claimant was "permitted to work any hours he . . . chooses" (Labor Law § 511 [21] [d] [iii]) and was "permitted to work out of his . . . own office or home or the office of the person for whom services are performed" (Labor Law § 511 [21] [d] [iv]). Paul Revere disagrees, contending that article XI (A) of the written contract satisfies such requirements by providing that "Paul Revere shall not exercise nor have the right to exercise direction or control over [claimant's] time, when or how [claimant] may work, or over the activities of [claimant]."
Preliminarily, we agree with the Board that the conclusory and sweeping language employed in article XI (A) of the contract does not satisfy the requirements of Labor Law § 511 (21) (d) (iii) and [*2](iv). That said, even assuming, without deciding, that the written agreement between Paul Revere and claimant did, as Paul Revere contends, fulfill all of the statutory requirements, we agree with the Board's further conclusion that the parties' conduct was inconsistent with the provisions of Labor Law § 511 (21) and, therefore, the services performed by claimant do not fall within the statutory exclusion.
As a recent decision of this Court makes clear, even in matters "where all seven statutory provisions are present in the parties' written agreement, the mere verbatim inclusion or rote incantation of the seven enumerated provisions will not automatically exclude an insurance agent's or broker's services from the definition of employment 'if it be proven' that the parties' conduct did not actually conform to the seven statutory provisions" (Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1201, quoting Labor Law § 511 [21]; see Matter of Paratore [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d 1196, 1197 [3d Dept 2021]). In other words, the statute requires both that the contract at issue contain the seven enumerated provisions and "that the services performed by the insurance agent or broker actually be consistent with those provisions" (Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1202; see Matter of Paratore [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1197). "To allow an employer to exclude an insurance agent's or broker's services from the scope of the term 'employment' by mere inclusion of the seven statutorily-enumerated provisions in their written agreement would — in cases where there is evidence demonstrating that the parties' conduct was contrary to, or inconsistent with, any one of the [statutory] provisions — elevate the form of such an agreement over the substance of the parties' actual relationship and undermine the purposes of Labor Law § 511 (21) and unemployment insurance benefits" (Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1202 [citation omitted]).
In this regard, claimant testified that he responded to a job posting and, following two interviews, was offered a written contract with Paul Revere. According to claimant, Mondays and Fridays were his "office days," during which time he would pursue leads, phone potential prospects, set up appointments and participate in group interviews with prospective sales agents, and he would spend Tuesday, Wednesday and Thursday each week "out in the field" going door-to-door to solicit business clients. Claimant testified that he worked at least 40 hours each week and that he was expected to work from roughly 9 a.m. to 5 p.m. regardless of whether he was in the office or in the field.
In terms of his daily activities, claimant testified that he was provided with company brochures, binders containing sales leads for his geographic territory, forms for tracking his calls [*3]and appointments and an approved sales call script that he was required to follow. Claimant also worked with Paul Revere's "corporate trainer" who, claimant testified, adopted a "hands on" approach to the sales process by, among other things, showing claimant and other agents how to structure their appointments, submit applications and track their phone calls. According to claimant, "[e]verything" was done through Paul Revere's territory manager and the corporate trainer, the latter of whom accompanied claimant and others on the majority of their sales calls. Finally, claimant testified that he had daily contact with the corporate trainer — most of which was in person — and that he was subject to daily electronic reporting requirements. Notably, claimant testified that if he failed to report his "numbers," i.e., appointments, phone calls and sales, by the end of each business day, the corporate trainer would call or text and tell him "to get the numbers in." Inasmuch as the foregoing proof "demonstrate[es] that at least some aspects of claimant's services were performed in a manner inconsistent with the statutorily-required provisions in the[] written agreement," substantial evidence supports the Board's finding that the requirements of Labor Law § 511 (21) were not met (Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1202).
Turning to the issue of whether claimant qualified as an employee under the common-law test,[FN1] "whether an employment relationship exists within the meaning of the unemployment insurance law is a question of fact, no one factor is determinative and the determination of the appeal board, if supported by substantial evidence on the record as a whole, is beyond further judicial review even though there is evidence in the record that would have supported a contrary decision" (Matter of Giampa [Quad Capital, LLC-Commissioner of Labor], 181 AD3d 1129, 1129 [3d Dept 2020] [internal quotation marks and citations omitted]; accord Matter of Rodriguez [Penn Mut. Life Ins. Co.-Commissioner of Labor], 193 AD3d 1190, 1191 [3d Dept 2021]; see Matter of Paratore [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1197). In reviewing the record, we must bear in mind that "[s]ubstantial evidence is a minimal standard requiring less than a preponderance of the evidence. As such, if the evidence reasonably supports the Board's choice, we may not interpose our judgment to reach a contrary conclusion" (Matter of Paratore [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1198 [internal quotation marks and citations omitted]; see Matter of Rodriguez [Penn Mut. Life Ins. Co.-Commissioner of Labor], 193 AD3d at 1191).
In addition to the evidence already discussed regarding claimant's work schedule and reporting requirements, as well as the training, sales leads and oversight provided by Paul Revere through its corporate trainer (see Matter of Slater [Kaufman Leasing Co. LLC-Commissioner of Labor], 156 [*4]AD3d 1277, 1278 [3d Dept 2017]), the record reflects that Paul Revere retained the right to accept or reject applications submitted by claimant (see Matter of Joyce [Coface N. Am Ins. Co.-Commissioner of Labor], 116 AD3d at 1134), and the written agreement between Paul Revere and claimant precluded claimant from soliciting or accepting sales of competing products during the period covered by — and for two years following the termination of — the agreement (see Matter of Rodriguez [Penn Mut. Life Ins. Co.-Commissioner of Labor], 193 AD3d at 1192). After interviewing for the agent position, claimant was subject to a background check (see id.; Matter of Giampa [Quad Capital, LLC-Commissioner of Labor], 181 AD3d at 1129-1130), was required to pass a test demonstrating his knowledge of the insurance products offered by Paul Revere and was paid on a commission basis (see Matter of Paratore [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1198). Although Paul Revere disputes much of claimant's testimony and criticizes the Board's purportedly selective reading thereof, such testimony — if credited — constitutes substantial evidence to support the Board's finding of an employment relationship between Paul Revere and claimant, notwithstanding other evidence that could support a contrary conclusion (see id. at 1199).
As a final matter, although the record does not reflect whether the Board expressly considered the relevant guidelines in ascertaining claimant's employment status as an insurance agent (see New York State Department of Labor, Guidelines for Determining Worker Status: Insurance Sales Industry [Dec. 2020]), "we discern no inconsistency between either the guidelines and the common-law employer-employee test or the guidelines and the Board's decision" (Matter of Rodriguez [Penn Mut. Life Ins. Co.-Commissioner of Labor], 193 AD3d at 1192-1193). To the extent that Paul Revere argues that the Board erred in applying its finding of employment to all others determined to be similarly situated to claimant, we disagree (see e.g. Matter of Gabel [Bankers Life & Cas. Co.-Commissioner of Labor], 199 AD3d at 1204). Paul Revere's remaining arguments have been examined and found to be lacking in merit.
Egan Jr., J.P., Lynch, Aarons and Pritzker, JJ., concur.
ORDERED that the decisions are affirmed, without costs.
Footnotes
Footnote 1: The Board's decision did not expressly address this issue, but it did affirm the ALJ's decision on this point, and Paul Revere contests this issue upon appeal. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484549/ | Matter of Grinnage v New York City Tr. Auth. (2022 NY Slip Op 06523)
Matter of Grinnage v New York City Tr. Auth.
2022 NY Slip Op 06523
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
534112
[*1]In the Matter of the Claim of Gregory Grinnage, Respondent,
vNew York City Transit Authority, Appellant. Workers' Compensation Board, Respondent.
Calendar Date:October 19, 2022
Before:Egan Jr., J.P., Clark, Pritzker, Reynolds Fitzgerald and Ceresia, JJ.
Weiss, Wexler & Wornow, PC, New York City (J. Evan Perigoe of counsel), for appellant.
Letitia James, Attorney General, New York City (Nina M. Sas of counsel), for Workers' Compensation Board, respondent.
Clark, J.
Appeals (1) from a decision of the Workers' Compensation Board, filed March 22, 2021, which ruled, among other things, that claimant sustained a causally-related occupational disease, and (2) from a decision of said Board, filed December 3, 2021, which denied the employer's application for reconsideration and/or full Board review.
Claimant worked as a bus driver for the self-insured employer for 31 years. On March 17, 2020, claimant sought treatment from Gideon Hedrych, a trauma and emergency medicine physician, for pain and limitations to his wrists, hands and knees and his left hip and shoulder, detailing his work duties and the use of his hands/wrists, legs/knees, hips and shoulders to perform the tasks required to operate a bus. Claimant reported that in 2005, his left shoulder symptoms began, for which he received cortisone injections, and that he sustained a sports-related right knee injury for which he underwent arthroscopic surgery. He then began to experience intermittent pain in both knees in 2008 or 2009. His pain and symptoms worsened in 2015, but he did not seek medical treatment. Then, upon experiencing increased right knee swelling and pain in 2018, he sought treatment involving draining fluid from his knee. Claimant's symptoms persisted, and, in March 2020, Hedrych first examined claimant and reviewed his medical records. Hedrych diagnosed claimant with work-related repetitive stress injuries including bilateral knee derangement with tendinitis, bilateral wrist/hand derangement with tendinitis, left shoulder and hip derangement with tendinitis, and three types of neuropathy including brachial plexopathy, and he memorialized such findings in a report dated March 17, 2020.
Claimant thereafter filed a claim for workers' compensation benefits asserting that his conditions were causally-related to the repetitive stress of his job duties; the employer controverted the claim. After a hearing, a Workers' Compensation Law Judge (hereinafter WCLJ) found that claimant had submitted prima facie medical evidence to support his claim based upon Hedrych's March 2020 report; the WCLJ directed claimant to produce his prior treatment records and directed the employer to produce an independent medical examination (hereinafter IME) within 90 days. Hedrych testified to his examination of claimant and the results of MRI tests to claimant's knees, left shoulder and wrists, and confirmed that he had memorialized his findings in the March 2020 report. Hedrych confirmed claimant's diagnoses and explained that claimant suffered from three types of peripheral neuropathies, including carpel tunnel syndrome in both wrists and brachial plexopathy in the left shoulder/arm, each of which he attributed to repetitive stress from claimant's specific work duties and movements as a bus driver for three decades. Claimant testified, detailing his work activities and symptoms, to which he attributed each medical condition.
During summations at the end of the hearing[*2], the employer requested additional time to produce an IME; the WCLJ denied the request. Although finding claimant to be credible, the WCLJ found that Hedrych was not fully aware of claimant's prior treatment history and did not review all of his medical records, some of which had not been produced. Thus, the WCLJ held that there was insufficient evidence to establish a causal link between claimant's work and his injuries and disallowed his claim. Upon administrative appeal, the Workers' Compensation Board reversed the decision of the WCLJ, finding that claimant had submitted sufficient, uncontradicted evidence to establish a recognizable link between his conditions and the repetitive nature of his job; the Board established the claim for causally-related injuries to claimant's left shoulder, left wrist and carpel tunnel syndrome, left thumb and hip and bilateral knees. The employer then applied for reconsideration and/or full Board review, which the Board denied. The employer appeals from both decisions.
We affirm. An occupational disease is "a disease resulting from the nature of [the] employment and contracted therein" (Workers' Compensation Law § 2 [15]), and "does not derive from a specific condition peculiar to an employee's place of work, nor from an environmental condition specific to the place of work" (Matter of Brancato v New York City Tr. Auth., 206 AD3d 1418, 1418 [3d Dept 2022] [internal quotation marks and citations omitted]). "To be entitled to workers' compensation benefits for an occupational disease, a claimant must establish a recognizable link between his or her condition and a distinctive feature of his or her occupation through the submission of competent medical evidence" (Matter of Sanchez v New York City Tr. Auth., 206 AD3d 1428, 1429 [3d Dept 2022] [internal quotation marks and citations omitted]). "Importantly, the Board's decision as to whether to classify a certain medical condition as an occupational disease is a factual determination that will not be disturbed if supported by substantial evidence" (Matter of Patalan v PAL Envtl., 202 AD3d 1252, 1253 [3d Dept 2022] [internal quotation marks and citations omitted]; see Matter of Molina v Delta Airlines Inc., 201 AD3d 1193, 1194 [3d Dept 2022]).
The unrefuted medical testimony provided by Hedrych established that claimant's left thumb, wrist and carpal tunnel syndrome injuries, as well as his left hip and shoulder and bilateral knee injuries, were causally related to the distinctive nature of his employment activities.[FN1] To that end, Hedrych recounted claimant's specific job activities over his three-decade career as a bus driver — as described by claimant and consistent with his testimony — and explained his medical findings and the specific bases for his conclusion that each condition was caused by the repetitive stress required by claimant's work activities. For example, Hedrych explained that cumulative trauma to the wrists caused by their frequent use in different [*3]positions and gripping the steering wheel all day with the force required to operate a bus contributed to claimant's carpel tunnel syndrome. In light of the foregoing uncontroverted evidence that repetitive actions were a distinctive feature of claimant's job duties and the medical evidence of a recognizable causal link between his conditions/diagnoses and distinctive features of his work, substantial evidence supports the Board's factual determination that his medical conditions constitute an occupational disease (see Matter of Molina v Delta Airlines Inc., 201 AD3d at 1194; Matter of DiGennaro v Greece Cent. Sch. Dist., 184 AD3d 917, 918-919 [3d Dept 2020]; compare Matter of Patalan v PAL Envtl., 202 AD3d at 1253; Matter of Barker v New York City Police Dept., 176 AD3d 1271, 1272-1273 [3d Dept 2019], lv denied 35 NY3d 902 [2020]).
To the extent the employer argues that the Board's decision must be reversed because the Board, at one point in its factual summary, misstated the reasons that the WCLJ disallowed the claim, we disagree. The WCLJ concluded that Hedrych was not fully aware of claimant's "prior treatment" in that he had not reviewed all of his prior medical treatment records, whereas the Board's factual summary stated that the WCLJ had found that Hedrych was not aware of claimant's "prior treatment for a neck and back condition." Although the Board appears to have misstated to which prior records the WCLJ was referring, the Board clearly concluded that, based on the uncontradicted evidence — including Hedrych's medical examination and testimony and claimant's testimony — claimant had established the requisite recognizable causal link between his condition and the nature of his job.
With regard to the employer's contention that it should have been granted an extension of time to procure an IME, we are not persuaded. Although the WCLJ directed the employer to procure an IME within 90 days of July 2, 2020, it failed to do so or to request an extension during that time period. The employer first, belatedly, asked for further time to schedule an IME after the close of proof at the final hearing on November 16, 2020, during its summation. Contrary to the employer's claim, it had Hedrych's records and could have either timely requested an extension of time or produced an IME based upon the available records, with an option to amend the IME report upon obtaining outstanding medical records.[FN2] Under these circumstances, we discern no basis upon which to disturb the denial of the employer's untimely request.
Finally, the employer argues that the Board erred in denying its application for full Board review and/or reconsideration. The application was premised upon the employer's claim that it "never received" claimant's administrative appeal (form RB-89) of the WCLJ's decision to the Board and, as a result, it did not have an opportunity to file a rebuttal thereto (see 12 NYCRR 300.13 [c]). However, claimant's application for administrative review[*4](form RB-89) included an attorney affirmation of service attesting that it was served by mail on the employer on December 21, 2020, to the attention of Robert Feldman at the employer's Brooklyn address (see 12 NYCRR 300.13 [b] [2] [iv]). In applying for full Board review and/or reconsideration, the employer did not dispute that this was a correct address or that other "necessary parties of interest" were not served (12 NYCRR 300.13 [a] [4]; [b] [2] [iv]). Instead, the employer's attorney submitted an affirmation stating that he had spoken to the employer's agency attorney, "who has confirmed that [the employer] ha[d] personnel working at [that address] to receive and deliver all workers' compensation appeals to [the employer's] agency counsel," and that the employer "did not receive a copy of [claimant's] application in the mail." Neither Feldman nor the named agency attorney submitted sworn affidavits to rebut the proof of service (see Doller v Prescott, 167 AD3d 1298, 1302 [3d Dept 2018]; compare Carver Fed. Sav. Bank v Shaker Gardens, Inc., 135 AD3d 1212, 1213-1214 [3d Dept 2016]). "To succeed on an application for reconsideration and/or full Board review, the applicant must demonstrate that newly discovered evidence exists, that there has been a material change in condition, or that the Board improperly failed to consider the issues raised in the application for review in making its initial determination" (Matter of Osorio v TVI Inc., 193 AD3d 1219, 1222 [3d Dept 2021] [internal quotation marks, brackets and citations omitted]). The employer made no such showing and, more to the point, did not establish that there were defects in claimant's proof of service (see Workers' Compensation Law § 23; 12 NYCRR 300.13 [b] [2] [iv]). Under these circumstances, we find no basis upon which to conclude that the Board abused its discretion or acted in an arbitrary and capricious manner in denying the employer's application for reconsideration and/or full Board review given claimant's compliance with the proof of service requirements (see 12 NYCRR 300.13 [a] [2]; Matter of Torres v C & S Wholesale, 202 AD3d 1177, 1178 [3d Dept 2022]; Matter of Levine v Health First [HF Mgt. Servs. LLC], 147 AD3d 1193, 1194-1195 [3d Dept 2017]). The employer's remaining contentions, to the extent not discussed herein, have been rejected.
Egan Jr., J.P., Pritzker, Reynolds Fitzgerald and Ceresia, JJ., concur.
ORDERED that the decisions are affirmed, without costs.
Footnotes
Footnote 1: The employer failed to obtain an IME as directed or to timely request an extension of time in which to do so.
Footnote 2: It is undisputed that claimant signed a release to allow the employer to obtain the records. The employer's new argument that claimant prevented the employer from procuring some of his records was not raised at the hearing. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484542/ | Matter of Johnson (Commissioner of Labor) (2022 NY Slip Op 06526)
Matter of Johnson (Commissioner of Labor)
2022 NY Slip Op 06526
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
534454
[*1]In the Matter of the Claim of Pamela Johnson, Appellant. Commissioner of Labor, Respondent.
Calendar Date:October 12, 2022
Before:Lynch, J.P., Aarons, Reynolds Fitzgerald, Fisher and McShan, JJ.
Pamela Johnson, Sunnyside, appellant pro se.
Letitia James, Attorney General, New York City (Camille J. Hart of counsel), for respondent.
McShan, J.
Appeal from a decision of the Unemployment Insurance Appeal Board, filed May 13, 2021, which, among other things, charged claimant with a recoverable overpayment of various unemployment insurance benefits.
Claimant, a banquet bartender, worked at a New York City hotel until the establishment closed in June 2019. Throughout her career, claimant was a member of a hotel workers' union that provided a pension to its members that, in turn, was fully funded by contributions from participating employers. After the hotel closed, claimant filed a claim for unemployment insurance benefits in July 2019, and her weekly benefit rate was established. Additionally, between April 2020 and July 2020, claimant received Pandemic Unemployment Assistance (hereinafter PUA) and Pandemic Emergency Unemployment Compensation (hereinafter PEUC) under the Coronavirus Aid, Relief and Economic Security Act of 2020 (the CARES Act) (see 15 USC § 9021, as added by Pub L 116-136, 134 US Stat 281, 313; see also 15 USC § 9025). When claimant's 2019 claim expired, she filed a new claim for unemployment insurance benefits effective July 6, 2020, and a weekly benefit rate again was established. Between July 2020 and October 2020, claimant received unemployment insurance benefits, as well as Federal Pandemic Unemployment Compensation (hereinafter FPUC) (see 15 USC § 9023) under the CARES Act and lost wage assistance (hereinafter LWA) pursuant to 44 CFR 206.120.
In August 2020, claimant submitted an application to collect her pension. Claimant's gross monthly payment was established, and her pension was made effective May 1, 2020. On or about September 1, 2020, claimant received a lump-sum check that included retroactive pension payments for May 2020 through August 2020. Thereafter, claimant continued to receive a monthly pension payment while simultaneously collecting weekly unemployment insurance benefits.
In October 2020, the Department of Labor issued notices of determination that, among other things, reduced claimant's weekly unemployment insurance benefit rate to zero (effective July 6, 2020) pursuant to Labor Law § 600 (1), ruled that she was ineligible to receive benefits from April 27, 2020 to July 12, 2020 and charged her with a recoverable overpayment of the unemployment insurance benefits paid, as well as the PEUC, PUA, FPUC and LWA payments she received, upon the ground that she received a retroactive payment of remuneration in the form of her pension. At the conclusion of the hearing that followed, an Administrative Law Judge upheld the original determinations finding, among other things, that claimant's pension payment reduced her benefit rate to zero and that she was properly charged with recoverable overpayments. Upon administrative appeal, the Unemployment Insurance Appeal Board affirmed, noting that claimant "may wish to contact the Department . . . to request a waiver of the repayment of the overpaid [f]ederal benefits." This appeal by claimant followed.
We [*2]affirm. Pursuant to Labor Law § 600 (1) (a), "the benefit rate of a claimant who is receiving a governmental or other pension shall be reduced if such pension payment is made under a plan maintained or contributed to by the base period employer and the claimant's employment with, or remuneration from, such employer after the beginning of the base period increased the amount of such pension" (Matter of Morganstern [Commissioner of Labor], 199 AD3d 1224, 1225 [3d Dept 2021 [internal quotation marks, ellipses and brackets omitted]). Claimant does not dispute that she received a monthly pension payment (effective May 1, 2020), that her base period employer contributed to such pension or that the work she performed during her base period employment affected her eligibility for or increased the amount of her pension. There also is no question that the prorated weekly amount of claimant's pension exceeded her weekly unemployment insurance benefits, thereby triggering the statutory reduction and reducing claimant's unemployment insurance benefit rate to zero (see id. at 1225-1226; Matter of Burger [Commissioner of Labor], 109 AD3d 1073, 1074 [3d Dept 2013]; Matter of Sanchez [Commissioner of Labor], 56 AD3d 846, 847 [3d Dept 2008]). Accordingly, claimant's sole argument upon appeal is that because she purportedly was advised by a Department representative that she could simultaneously collect her pension and receive unemployment insurance benefits, she should not be charged with a recoverable overpayment.
"[T]he conditional payment of unemployment insurance benefits prior to verification of the details of a claimant's pension is subject to review and recovery of an overpayment" — even in instances where the claimant has made the appropriate disclosures and is not at fault (Matter of Sanchez [Commissioner of Labor], 56 AD3d at 847; see Labor Law § 597 [3], [4]; Matter of Burger [Commissioner of Labor], 109 AD3d at 1074; Matter of Hosenfeld [Commissioner of Labor], 280 AD2d 738, 738 [3d Dept 2001]; Matter of Hammer [Commissioner of Labor], 263 AD2d 608, 608 [3d Dept 1999]).[FN1] Hence, claimant was properly charged with a recoverable overpayment of the unemployment insurance benefits that she received. Claimant's benefits in the form of FPUC, PEUC, PUA and LWA payments are similarly recoverable (see 15 USC §§ 9021 [d] [4]; 9023 [f] [2]; 9025 [e] [2]; 44 CFR 206.120 [f] [5]). Accordingly, we discern no basis upon which to disturb the Board's decision charging claimant with recoverable overpayments of each category of benefits received.
Lynch, J.P., Aarons, Reynolds Fitzgerald and Fisher, JJ., concur.
ORDERED that the decision is affirmed, without costs.
Footnotes
Footnote 1: The information with which claimant allegedly was provided, although arguably imprecise, was not inaccurate. Claimant's benefit rate was reduced to zero due to the amount of her pension benefit, not merely because she was receiving a pension payment in the first instance. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484539/ | Matter of Nunez v Young Men's Christian Assn. of Greater N.Y. (2022 NY Slip Op 06530)
Matter of Nunez v Young Men's Christian Assn. of Greater N.Y.
2022 NY Slip Op 06530
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
535140
[*1]In the Matter of the Claim of Fernando Nunez, Appellant,
vYoung Men's Christian Association of Greater New York et al., Respondents. Workers' Compensation Board, Respondent.
Calendar Date:October 12, 2022
Before:Lynch, J.P., Aarons, Reynolds Fitzgerald, Fisher and McShan, JJ.
John F. Clennan, Ronkonkoma, for appellant.
Vecchione, Vecchione, Connors & Cano, LLP, Garden City (Brian M. Anson of counsel), for Young Men's Christian Association of Greater New York and another, respondents.
Aarons, J.
Appeals (1) from a decision of the Workers' Compensation Board, filed September 13, 2021, which ruled that claimant did not sustain a further causally-related disability after March 24, 2019 and denied authorization for surgery to his lumbar spine, and (2) from a decision of said Board, filed December 15, 2021, which denied claimant's application for reconsideration and/or full Board review.
In July 2018, claimant, a maintenance worker, sustained work-related injuries to his hand, head and back. Claimant returned to work in September 2018. On Sunday, March 24, 2019, claimant bent down to pick something up on the floor at home at which time he became "paralyzed" and "couldn't move." Claimant did not return to work the following day or thereafter and sought medical treatment, which revealed, among other things, that he had a herniated disc at L4-L5 with facet hypertrophy and a bulging disc at L5-S1 with facet hypertrophy. By letter dated July 30, 2019, claimant informed his employer that he was resigning from his position due to a recent diagnosis and illness requiring extended treatment and recovery and that he was unable to perform his duties.
In October 2019, claimant's claim for workers' compensation benefits was established by a Workers' Compensation Law Judge (hereinafter WCLJ) for an injury to his lower back, and the WCLJ directed claimant to produce medical evidence for all periods of causally-related lost time. The employer and its workers' compensation carrier subsequently filed several notice of treatment bill disputes (C-8.1) on the ground that claimant's treatment was not causally related to the July 2018 work injury. Claimant requested a hearing to address his indemnity benefit request for lost time subsequent to March 22, 2019. Following hearings and obtaining deposition testimony, the WCLJ, in an April 2021 reserved decision, found, among other things, that the March 24, 2019 incident at home exacerbated claimant's July 2018 work-related injury and awarded indemnity benefits at the temporary total disability rate for lost time from March 25, 2019 to April 26, 2021 and continuing. Upon administrative review, the Workers' Compensation Board, in a September 2021 decision, modified the decision of the WCLJ, finding that claimant had submitted insufficient and incredible evidence that he had sustained a further causally-related disability subsequent to March 24, 2019. Claimant's subsequent application for reconsideration and/or full Board review was denied in a December 2021 decision. Claimant appeals from both decisions.
We affirm. "Initially, we note that there is no presumption of continuing disability under the Workers' Compensation Law" (Matter of Marable-Greene v All Tr., 190 AD3d 1078, 1078 [3d Dept 2021] [internal quotation marks and citations omitted]; see Matter of Cary v Salem Cent. School Dist., 91 AD3d 1000, 1001 [3d Dept 2012]). "The claimant bears the burden of demonstrating, through competent medical evidence, that the [*2]continued disability is causally related to the work-related injury" (Matter of Marable-Greene v All Tr., 190 AD3d at 1078 [citations omitted]). "The Board has broad authority to resolve factual issues based on credibility of witnesses and draw any reasonable inference from the evidence in the record" (Matter of Castro v Tishman Speyer Props., 303 AD2d 790, 791 [3d Dept 2003] [internal quotation marks and citations omitted]; see Matter of Cala v PAL Envtl. Safety Corp., 203 AD3d 1367, 1368 [3d Dept 2022]).
Claimant testified that, because of his March 2019 injury, he did not return to work and has not worked in any other job since. Claimant's manager testified that claimant called her in March 2019 about using sick days because he had an accident at home. However, after using sick days, claimant never returned to work. A surgeon who conducted an independent medical examination of claimant in May 2020 testified that, although he diagnosed claimant with a lumbar sprain, claimant did not report to him any prior work accidents or any subsequent injuries, including the March 2019 incident at home, during the examination and that he was unaware of claimant's employment history. That surgeon acknowledged that his medical findings, including his conclusion that claimant's condition was causally related to the July 2018 work-related injury, was based upon an incomplete history, which did not include a reporting of injuries or accidents subsequent to the July 2018 accident. Similarly, a physician who first examined claimant in April 2019 testified that he diagnosed claimant with lumbar radiculopathy and disc herniations at L4-L5 and L5-S1 and that these conditions were directly related to his July 2018 accident at work. The physician, however, conceded that claimant did not inform him about the incident at home on March 24, 2019 and that he was not aware that claimant returned to work after the July 2018 accident. An orthopedic surgeon testified that, when he examined claimant in June 2020, claimant's lumbar condition and disability were attributable to his July 2018 work-related accident. In arriving at that conclusion, he explained that he reviewed diagnostic imaging studies taken on March 26, 2019 but that he did not possess or review any diagnostic imaging studies or medical records from before March 26, 2019. The orthopedic surgeon also stated that he did not know if claimant returned to work after the July 2018 accident and was otherwise unaware of claimant's employment history.
Although the testimony of the medical examiners reflects that they each found claimant's lumbar disability to be causally related to his July 2018 injury, the opinions of those examiners concerning causation were based upon incomplete medical histories and inaccurate reports from claimant regarding both his March 2019 injury at home and his employment history. That said, the Board found these opinions to not be credible. Given that it is within the province of the Board to [*3]evaluate the medical evidence before it (see Matter of Marable-Greene v All Tr., 190 AD3d at 1078), the Board's finding that claimant failed to establish a further causally-related disability will not be disturbed (see Matter of Yolinsky v Village of Scarsdale, 202 AD3d 1262, 1265 [3d Dept 2022]; Matter of Hughes v World Trade Ctr. Volunteer Fund, 166 AD3d 1279, 1280-1281 [3d Dept 2018]; Matter of Valentin v THB Intermediaries Corp., 10 AD3d 826, 828 [3d Dept 2004]; Matter of Castro v Tishman Speyer Props., 303 AD2d at 791).
Turning to claimant's appeal from the Board's denial of his application for reconsideration and/or full Board review, claimant fails to allege or set forth any newly discovered evidence or a material change in condition, and the Board's decision fully considered the issues properly before it. Accordingly, no abuse of discretion exists in the denial of claimant's application (see Matter of Mascali v Town/Vil. of Harrison, 203 AD3d 1424, 1425-1426 [3d Dept 2022]; Matter of Eastman v Glens Falls Hosp., 202 AD3d 1232, 1233 [3d Dept 2022]). Claimant's remaining contentions, to the extent that they are properly before us, have been considered and found to be unavailing.
Lynch, J.P., Reynolds Fitzgerald, Fisher and McShan, JJ., concur.
ORDERED that the decisions are affirmed, with costs. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484540/ | Matter of Margolies v DiNapoli (2022 NY Slip Op 06519)
Matter of Margolies v DiNapoli
2022 NY Slip Op 06519
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
533543
[*1]In the Matter of Douglas Margolies, Petitioner,
vThomas P. DiNapoli, as State Comptroller, Respondent.
Calendar Date:October 14, 2022
Before:Garry, P.J., Egan Jr., Clark, Ceresia and Fisher, JJ.
Schwab & Gasparini, PLLC, White Plains (Warren J. Roth of counsel), for petitioner.
Letitia James, Attorney General, Albany (Kate H. Nepveu of counsel), for respondent.
Ceresia, J.
Proceeding pursuant to CPLR article 78 (transferred to this Court by order of the Supreme Court, entered in Albany County) to review a determination of respondent denying petitioner's application for accidental disability retirement benefits.
Petitioner, a firefighter, filed an application for accidental disability retirement benefits claiming that he was permanently disabled as a result of an injury to his left eye that was sustained during a mandatory firefighter training exercise in October 2015. The New York State and Local Police and Fire Retirement System denied petitioner's application upon the ground that the incident did not constitute an accident within the meaning of Retirement and Social Security Law § 363 and he thereafter retired, receiving performance of duty retirement benefits. Following a hearing and redetermination, the Hearing Officer denied petitioner's application, finding that the underlying incident was not an accident as it occurred during the course of petitioner's routine employment duties and was a risk inherent in the performance thereof. Respondent upheld the Hearing Officer's decision, prompting petitioner to commence this CPLR article 78 proceeding to challenge respondent's determination.
"As the applicant, petitioner bore the burden of establishing that his disability arose from an accident within the meaning of the Retirement and Social Security Law, and respondent's determination in this regard will be upheld if supported by substantial evidence" (Matter of Bohack v DiNapoli, 197 AD3d 1384, 1384 [3d Dept 2021] [internal quotation marks, brackets and citations omitted]). For purposes of the Retirement and Social Security Law, an accident is defined as "a sudden, fortuitous mischance, unexpected, out of the ordinary, and injurious in impact" (Matter of Kenny v DiNapoli, 11 NY3d 873, 874 [2008] [internal quotation marks and citation omitted]; accord Matter of Kelly v DiNapoli, 30 NY3d 674, 681 [2018]). Thus, "an injury that results from the performance of ordinary employment duties and is a risk inherent in such job duties is not considered accidental" (Matter of McGoey v. DiNapoli, 194 AD3d 1296, 1297 [3d Dept 2021] [internal quotation marks, brackets and citations omitted]; accord Matter of Bohack v DiNapoli, 197 AD3d at 1384).
Petitioner testified that, as part of his standard duties as a firefighter, he engaged in training exercises at the training center several times a year that included live-fire search and rescue operation drills. The drills involve entering a burning building where controlled fires were set, reducing visibility to zero, climbing stairs to a second floor and locating and removing a mannequin from the building. On the day in question, petitioner was engaged in such a drill, ascending a staircase on his hands and knees, followed by two other training firefighters, when his eye was injured by a firefighter from another fire company descending the stairs. According to the accident report [*2]prepared that day by the deputy chief to whom petitioner reported the incident, which petitioner signed, petitioner recounted that he was injured in a "collision with fellow firefighters" during the live-fire training exercises, a description he acknowledged providing during the hearing; petitioner confirmed that it was normal to bump into things during such zero-visibility exercises. Petitioner testified, in contrast, that he was injured when the descending firefighter, for unknown reasons, started "kicking [him] aggressively" in his face mask multiple times and, in response, petitioner pushed him away and exited the building. Although petitioner provided various explanations for describing the incident shortly after it occurred as the result of a collision rather than kicking, the Hearing Officer credited — as "more reliable, credible and plausible" — petitioner's more contemporaneous account of the incident reflected in the accident report, over his subsequent, inconsistent testimony, which was found to be "unsubstantiated," in concluding that the incident did not constitute an accident. The conflict in petitioner's accounts presented a credibility issue for the Hearing Officer and, ultimately, respondent to resolve (see Matter of Buckshaw v DiNapoli, 169 AD3d 1139, 1141 [3d Dept 2019], lv denied 33 NY3d 904 [2019]).
Under settled law, "an incident is not an accident within the meaning of the Retirement and Social Security Law where the underlying injuries result from an expected or foreseeable event arising during the performance of routine employment duties or occur during the course of a training program constituting an ordinary part of the employee's job duties and the normal risks arising therefrom" (Matter of O'Mahony v DiNapoli, 157 AD3d 1107, 1108 [3d Dept 2018] [internal quotation marks, ellipsis and citations omitted]; accord Matter of Bohack v DiNapoli, 197 AD3d at 1385). Given that "the record reflects that the training exercise program arose from, and was a required part of, petitioner's routine duties as a firefighter and given that the attendant risks of that training exercise were reasonably foreseeable, we find that substantial evidence supports the determination denying petitioner's application for accidental disability retirement benefits" (Matter of O'Mahony v DiNapoli, 157 AD3d at 1109; see Matter of Stancarone v DiNapoli, 161 AD3d 144, 148-149 [3d Dept 2018]).
Garry, P.J., Egan Jr., Clark and Fisher, JJ., concur.
ADJUDGED that the determination is confirmed, without costs, and petition dismissed. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484538/ | Matter of O'Donnell v Catapano (2022 NY Slip Op 06525)
Matter of O'Donnell v Catapano
2022 NY Slip Op 06525
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
534169
[*1]In the Matter of the Claim of James O'Donnell, Appellant,
vGrow Kiewi T. Catapano et al., Respondents. Workers' Compensation Board, Respondent.
Calendar Date:October 11, 2022
Before:Garry, P.J., Clark, Aarons, Pritzker and Fisher, JJ.
Pashman Stein Walder Hayden, Purchase (Marc M. Yenicag of counsel), for appellant.
James Fiedler, Acting General Attorney, State Insurance Fund, Albany (Rudolph Rosa Di Sant of counsel), for Grow Kiewi T. Catapano and another, respondents.
Garry, P.J.
Appeal from a decision of the Workers' Compensation Board, filed March 15, 2021, which ruled that the reopening of the claim was barred by Workers' Compensation Law § 123.
By decision filed August 24, 1999, claimant established a claim for Caisson disease resulting from his exposure to compressed air in connection with his employment as a construction worker. Per that decision, claimant's date of disablement was determined to be "July 23, 1999 which is the date of the first medical evidence for the condition." Claimant was found to have a 7.5% schedule loss of use (hereinafter SLU) of each arm and a 10% SLU of each leg, and he was awarded 104.4 weeks of benefits beginning July 23, 1998, with the last payment being made on August 1, 2000.
No further action was taken until submission of a Doctor's Initial Report in January 2017, noting claimant's increased impairment, which was followed by a Doctor's Report of MMI/Permanent Impairment form in March 2017, noting an increased SLU of each of claimant's extremities. In May 2017, claimant submitted a Request for Further Action to reopen the case and requested additional awards based upon an increase in the SLU of his extremities due to the progression of his Caisson disease. The employer's workers' compensation carrier opposed the reopening, asserting, among other things, that the application for further awards was untimely pursuant to Workers' Compensation Law § 123. Following a hearing, a Workers' Compensation Law Judge ruled, among other things, that Workers' Compensation Law § 123 applied. Upon administrative appeal, claimant asserted that Workers' Compensation Law § 123 did not apply given that the July 23, 1999 date of disablement set forth in the August 24, 1999 decision rendered his application to reopen timely. The Workers' Compensation Board, in a decision filed March 15, 2021, found, among other things, that the August 24, 1999 decision setting the date of disablement as July 23, 1999, rather than July 23, 1998, was an inadvertent error, and affirmed the Workers' Compensation Law Judge's decision that the application to reopen was untimely. Claimant appeals.
We affirm. Workers' Compensation Law § 123 vests the Board with continuing jurisdiction to reopen closed cases, except where the application to reopen "is made after a lapse of [18] years from the date of the injury or death and also a lapse of eight years from the date of the last payment of compensation" (see Matter of Zechmann v Canisteo Volunteer Fire Dept., 85 NY2d 747, 751 [1995]; Matter of Hopeck v Al Tech Specialty Steel Corp., 205 AD3d 1284, 1285 [3d Dept 2022]). The August 24, 1999 decision states that the date of disablement is July 23, 1999, as opposed to 1998. That decision, however, qualifies the date of disablement by further stating that it is also "the date of the first medical evidence for the condition." The record establishes that the first medical evidence of claimant's Caisson disease was the July 23, 1998 medical [*2]report of claimant's physician. The only other medical evaluation submitted prior to claimant's 2017 application to reopen was the May 28, 1999 medical evaluation by the carrier's physician, who specifically referenced and agreed with the July 23, 1998 medical report. Further, the August 24, 1999 decision clearly reflects that payment of claimant's SLU awards commenced on July 23, 1998, which would not have been possible if, as claimant asserts, the date of disablement occurred a year later. A review of the August 24, 1999 decision in its entirety establishes that the date of disablement was July 23, 1998. Under these circumstances, we find no abuse of discretion in the Board's determinations that the reference to 1999 as the year of disablement was an inadvertent error and, accordingly, that the application to reopen was untimely. To the extent that claimant's remaining contentions are not specifically addressed, including that claimant was prejudiced under these circumstances by the inadvertent error, we find them to be without merit.
Clark, Aarons, Pritzker and Fisher, JJ., concur.
ORDERED that the decision is affirmed, without costs. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484550/ | Matter of Grimaldi v Suffolk County Dept. of Health (2022 NY Slip Op 06527)
Matter of Grimaldi v Suffolk County Dept. of Health
2022 NY Slip Op 06527
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
534485
[*1]In the Matter of the Claim of William Grimaldi, Appellant,
vSuffolk County Department of Health c/o Suffolk County Risk Management, Respondent. Workers' Compensation Board, Respondent.
Calendar Date:October 12, 2022
Before:Lynch, J.P., Aarons, Reynolds Fitzgerald, Fisher and McShan, JJ.
Stephen J. Mastaitis, Saratoga Springs, for appellant.
Cherry, Edson & Kelly, LLP, Melville (William T. Burke of counsel), for Suffolk County Department of Health, respondent.
Reynolds Fitzgerald, J.
Appeal from a decision of the Workers' Compensation Board, filed May 14, 2021, which, among other things, established claimant's average weekly wage.
Claimant sustained a work-related injury to his right ankle, right hip and his back while working for the self-insured employer in February 2007. In 2008, claimant sustained a compensable injury to his right knee while working for a different employer. Benefits awarded were apportioned equally between the 2007 and 2008 injuries. Subsequently, a Workers' Compensation Law Judge (hereinafter WCLJ) found, in various decisions, that, as to the 2007 claim, claimant had a 75% permanent impairment and a 75% loss of wage-earning capacity and found that claimant had a 10% schedule loss of use of his right leg with respect to the 2008 claim. The WCLJ also determined that apportionment between the two claims terminated on December 23, 2013, after which time the self-insured employer would be 100% liable for all awards made on the 2007 claim. Upon review of these decisions, the Workers' Compensation Board, among other things, determined that awards payable on the 2007 claim should be based upon claimant's average weekly wage at the time of the 2008 injury. Claimant appealed and this Court concluded that the Board had erred in computing payments to claimant for the 2007 claim made after December 23, 2013 by using his average weekly wage at the time of the 2008 injury (191 AD3d 1051, 1052-1053 [3d Dept 2021]). We remitted the matter to the Board with instructions to compute the payment rate for the 2007 claim based upon claimant's average weekly wage at the time of the 2007 injury for awards made subsequent to December 23, 2013 (id.).
In a decision filed May 14, 2021, the Board established claimant's payment rate for his 2007 permanent partial disability using his weekly wage based upon his earnings at the time of the 2007 injury, but it limited the application of that rate to the time period of December 23, 2013 to April 26, 2016. The Board did not order that any payments on the 2007 claim be paid at that rate going forward. The Board also rejected the request by claimant's counsel for $6,613.55 in fees and disbursements, awarding counsel $3,613.55 instead. Claimant appeals.
On appeal, claimant argues that the Board did not follow this Court's direction when it limited the payment of awards on the 2007 claim at the rate based upon his 2007 earnings to payments made from December 23, 2013 to April 26, 2016, rather than ordering that any future payments on the claim after December 13, 2013 be made at that rate. Claimant also challenges the awarded counsel fees.[FN1] On May 3, 2022, while this appeal was pending, the Board's Office of General Counsel informed this Court and the parties that the Board, on its own motion, would be undertaking a review of the May 2021 decision to determine if reconsideration of that decision is warranted. In a decision filed June 8, 2022, the Board issued a decision amending the May [*2]2021 decision by directing that any continuing awards in the 2007 claim be paid at the rate based upon claimant's 2007 earnings and granted claimant's counsel a fee of $6,613.55 (Employer: Pleasant Valley Infirmary, 2022 WL 2189824, *3-*4, 2022 NY Wrk Comp LEXIS 03037, *6-*8 [WCB Nos. G021 2474, 4080 0027, June 8, 2022]). The Board's June 2022 decision amends and supersedes the May 2021 decision, rendering this appeal moot (see Matter of Djukanovic v Metropolitan Cleaning LLC, 177 AD3d 1060, 1060-1061 [3d Dept 2019]; Matter of Bleakley v Verizon Servs. Group, 104 AD3d 1099, 1100 [3d Dept 2013]).
Claimant also requests that the Board bear his costs for taking this appeal. Although the Board clearly is authorized to rescind or modify a prior Board panel decision (see Matter of Miller v Mo Maier Ltd., 201 AD3d 1101, 1103 [3d Dept 2022]), when the Board reopens or reexamines a decision during the pendency of an appeal, this Court may award costs for expenses incurred in good faith by an appellant in perfecting the appeal (see Matter of Bathrick v New York State Dept. of Transp., 278 AD2d 704, 705-706 [3d Dept 2000]; Fullington v Loomis Talc. Co., 59 AD2d 625, 625 [3d Dept 1977]; Matter of Hutton v Ford Motor Co., 3 AD2d 169, 171 [3d Dept 1957]). In our view, the Board's actions in this case warrant the assessment of the cost of perfecting claimant's appeal, which would have been unnecessary had the Board properly followed this Court's direction in its May 2021 decision or granted claimant's timely request for reconsideration of that decision.
Lynch, J.P., Aarons, Fisher and McShan, JJ., concur.
ORDERED that the appeal is dismissed, as moot, with costs to claimant against the Workers' Compensation Board.
Footnotes
Footnote 1: Claimant's request for reconsideration and/or full Board review of the Board's May 2021 decision on these same grounds was denied in a decision filed on August 20, 2021. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484547/ | Matter of Harris (Commissioner of Labor) (2022 NY Slip Op 06522)
Matter of Harris (Commissioner of Labor)
2022 NY Slip Op 06522
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
534068
[*1]In the Matter of the Claim of Darryl Harris, Appellant. Commissioner of Labor, Respondent.
Calendar Date:October 18, 2022
Before:Garry, P.J., Lynch, Reynolds Fitzgerald, Ceresia and McShan, JJ.
Darryl Harris, New York City, appellant pro se.
Letitia James, Attorney General, New York City (Dawn A. Foshee of counsel), for respondent.
Reynolds Fitzgerald, J.
Appeal from a decision of the Unemployment Insurance Appeal Board, filed December 21, 2020, which denied claimant's application to reopen and reconsider a prior decision.
In January 2020, the Department of Labor issued an initial determination finding claimant eligible to receive unemployment insurance benefits. The employer objected on the ground that claimant was discharged for misconduct. Following a February 13, 2020 hearing, at which claimant failed to appear, the Administrative Law Judge (hereinafter ALJ) sustained the employer's objection, overruled the initial determination and found that claimant was ineligible for benefits. The ALJ's decision was issued on February 14, 2020. In July 2020, claimant requested that the matter be reopened after he contacted the Department of Labor on an unrelated matter and was told of the existing overpayment of benefits. Following a hearing, at which both the employer and claimant appeared, the ALJ granted claimant's application to reopen, overruled the employer's objection and affirmed the Department's initial determination granting benefits. Upon administrative appeal by the employer, the Unemployment Insurance Appeal Board reversed the ALJ's determination and denied claimant's application to reopen, finding that the application was not made within a reasonable amount of time. Claimant appeals.
We affirm. "A case may be reopened following a default upon a showing of good cause if such request is made within a reasonable time" (Matter of Schuler [LaserShip, Inc.-Commissioner of Labor], 175 AD3d 1688, 1689 [3d Dept 2019] [internal quotation marks and citations omitted]; see Matter of Absolute Home Health Care, Inc. [Commissioner of Labor], 199 AD3d 1135, 1136 [3d Dept 2021]). "The decision as to whether to grant an application to reopen a claim will not be disturbed absent an abuse of the Board's sound discretion" (Matter of Knott [Commissioner of Labor], 121 AD3d 1154, 1154 [3d Dept 2014] [citations omitted]; see Matter of Zion [Commissioner of Labor], 175 AD3d 1683, 1685 [3d Dept 2019], lv dismissed 35 NY3d 938 [2020]).
Claimant testified that he received the letter containing the ALJ's February 14, 2020 decision but that he did not read it, admitting that he was "negligent" and had "tossed [the letter] to the side." Claimant did not provide any other explanation for delaying five months before he applied to reopen that decision. Under these circumstances, we cannot conclude that the Board abused its discretion in finding that claimant had not made the application to reopen within a reasonable time (see Matter of Zion [Commissioner of Labor], 175 AD3d at 1685; Matter of Knott [Commissioner of Labor], 121 AD3d at 1154). Accordingly, the Board's decision to deny the application will not be disturbed.
Garry, P.J., Lynch, Ceresia and McShan, JJ., concur.
ORDERED that the decision is affirmed, without costs. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484546/ | Matter of Hester v Stanford (2022 NY Slip Op 06520)
Matter of Hester v Stanford
2022 NY Slip Op 06520
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
533605
[*1]In the Matter of Eugene Hester, Appellant,
vTina M. Stanford, as Chair of the Board of Parole, Respondent.
Calendar Date:October 14, 2022
Before:Garry, P.J., Egan Jr., Clark, Ceresia and Fisher, JJ.
Eugene Hester, New York City, appellant pro se.
Letitia James, Attorney General, Albany (Frank Brady of counsel), for respondent.
Garry, P.J.
Appeal from a judgment of the Supreme Court (Patrick J. McGrath, J.), entered June 21, 2021 in Albany County, which dismissed petitioner's application, in a proceeding pursuant to CPLR article 78, to review a determination of respondent regarding petitioner's release date.
In 2013, petitioner was convicted of robbery in the second degree and was sentenced to 12 years in prison, to be followed by five years of postrelease supervision. The Department of Corrections and Community Supervision (hereinafter DOCCS) calculated that petitioner was eligible for a good time allowance of one year, eight months and 20 days (see Correction Law § 803 [c]). As such, petitioner's conditional release date was set as December 31, 2020 (see Penal Law § 70.40 [1] [b]). In October 2020, in anticipation of petitioner's release, the Board of Parole interviewed him and issued a notice advising him of special conditions that would apply to him upon his release. Prior to petitioner's conditional release date, the time allowance committee at petitioner's correctional facility recommended that his good time allowance be withheld because he had continually refused vocational and academic programming. The Acting Commissioner of DOCCS affirmed the recommendation, and, in light of the withholding of his good time allowance, petitioner was not released on the conditional release date.
In February 2021, petitioner commenced this proceeding, arguing that the Board's October 2020 notice advising him of the special conditions that would apply upon his release was a notice granting him an open parole date of December 31, 2020 and that his continued incarceration past that date constituted a recission of his parole release that was arbitrary and capricious and in violation of Board regulations. Supreme Court dismissed the petition, finding that the Board's notice informing petitioner of the special conditions of his release did not grant him parole release and, therefore, there was no recission of his parole release by the Board. Petitioner appeals.
We affirm. The record reflects that DOCCS calculated petitioner's conditional release date, taking into account his eligibility for good time allowance. Further, petitioner was not released on his conditional release date because DOCCS ultimately withheld his good time allowance for failing to complete vocational and academic programming (see Correction Law § 803 [1] [a]), not on account of any Board action or inaction.[FN1] Accordingly, we find that Supreme Court properly dismissed the petition. Petitioner's remaining argument regarding DOCCS's withholding of his good time allowance is raised for the first time on appeal and, therefore, is unpreserved for our review (see Matter of Olutosin v Annucci, 174 AD3d 1262, 1264 [3d Dept 2019], lv denied 34 NY3d 908 [2020]).
Egan Jr., Clark, Ceresia and Fisher, JJ., concur.
ORDERED that the judgment is affirmed, without costs.
Footnotes
Footnote 1: We note that the Board lacked the authority to release petitioner to parole, as discretionary release to parole by the Board is not authorized for persons serving only determinate sentences (see Penal Law § 70.40 [1] [a] [ii]; see also William C. Donnino, Practice Commentary, McKinney's Cons Laws of NY, Book 39, Penal Law § 70.40 at 399 [2021 ed]). The Board is charged, however, with supervising persons during their period of postrelease supervision, and the Board acted within its authority by issuing the notice outlining the special conditions petitioner was to follow upon the commencement of his period of postrelease supervision (see Executive Law § 259-c [2]; 9 NYCRR 8003.3). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484543/ | Matter of Jennings v Stop & Shop (2022 NY Slip Op 06531)
Matter of Jennings v Stop & Shop
2022 NY Slip Op 06531
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
535144
[*1]In the Matter of the Claim of Hope J. Jennings, Respondent,
vStop & Shop et al., Appellants. Workers' Compensation Board, Respondent.
Calendar Date:October 14, 2022
Before:Garry, P.J., Egan Jr., Clark, Ceresia and Fisher, JJ.
Fishman McIntyre Levine Samansky PC, New York City (Scott A. Frossman of counsel), for appellants.
Ouimette, Goldstein & Andrews, LLP, Poughkeepsie (Louis M. Dauerer of counsel), for Hope J. Jennings, respondent.
Letitia James, Attorney General, New York City (Alison Kent-Friedman of counsel), for Workers' Compensation Board, respondent.
Ceresia, J.
Appeal from a decision of the Workers' Compensation Board, filed October 20, 2021, which ruled, among other things, that claimant was entitled to temporary total disability benefits subsequent to the date of her cervical fusion surgery.
Claimant, a supermarket clerk, sustained a work-related injury to her left shoulder in November 2007 and underwent surgery approximately one year later. Her claim for workers' compensation benefits was established in June 2009, and benefits were awarded at the temporary total disability rate. Following additional awards at various temporary rates under Workers' Compensation Law § 15 (2) and (5), and upon stipulation of the parties, claimant was classified in November 2012 as having a nonschedule permanent partial disability with a 50% loss of wage earning capacity. As a result, claimant was entitled to wage loss benefits not to exceed 300 weeks (see Workers' Compensation Law § 15 [3] [w] [ix]) and was awarded ongoing weekly payments.
Claimant continued to experience pain and underwent causally-related shoulder surgery in December 2017. Following claimant's surgery, she was awarded temporary total disability benefits for a defined postoperative period (December 5, 2017 to February 13, 2018) — after which payments at the permanent partial disability rate resumed. The employer's workers' compensation carrier ceased making payments for lost wages in November 2018 when the durational cap for such benefits was reached. Claimant's pain persisted, however, and she underwent a causally-related anterior cervical discectomy and fusion in July 2019.
In September 2019, claimant filed a request for further action to determine whether she was entitled to additional awards. A hearing ensued — with claimant making two distinct claims for additional benefits. First, relying upon this Court's decision in Matter of Sanchez v Jacobi Med. Ctr. (182 AD3d 121 [3d Dept 2020]), claimant argued that periods of temporary total disability under Workers' Compensation Law § 15 (2) do not count towards the durational cap on permanent partial disability benefits set forth in Workers' Compensation Law § 15 (3) (w). Hence, claimant contended, she was entitled to an additional 10 weeks of permanent partial disability benefits based upon the 10 weeks of temporary total disability incurred following her December 2017 surgery. Second, claimant argued that, notwithstanding the fact that the cap on her permanent partial disability benefits was reached prior to her July 2019 surgery, she was entitled to ongoing temporary total disability benefits following such procedure.
The employer and carrier (hereinafter collectively referred to as the carrier) conceded the former point but disagreed with the latter argument, contending that because claimant's permanent partial disability benefits expired under the durational cap in November 2018, her entitlement to all indemnity benefits — including temporary total disability benefits — ceased at that point. [*2]A Workers' Compensation Law Judge awarded claimant an additional 10 weeks of permanent partial disability benefits (corresponding with claimant's postoperative period of temporary total disability following her December 2017 surgery) but agreed with the carrier that claimant was not entitled to temporary total disability benefits following her July 2019 surgery. Claimant objected to that ruling and reserved her right to seek reclassification.
Claimant subsequently applied for administrative review —seeking temporary total disability benefits following her July 2019 surgery. The carrier opposed the requested relief. By decision filed September 22, 2020, the Workers' Compensation Board declined to award claimant additional benefits, and claimant appealed to this Court. Claimant was granted various extensions of time to perfect her appeal and, during the pendency thereof, the Board — on its own motion — undertook further review of the September 2020 Board panel decision. Ultimately, the matter was accepted for full Board review, and the September 2020 decision was rescinded and remanded to the Board panel for further consideration.[FN1]
By decision filed October 20, 2021, the Board panel — following analysis of this Court's decision in Sanchez — concluded, among other things, that the expiration of the durational cap on claimant's permanent partial disability benefits did not preclude her from seeking temporary total disability benefits following her July 2019 surgery. Noting that claimant was deemed to be temporarily totally disabled following that procedure, the Board ruled that claimant was entitled to awards from July 16, 2019 to May 5, 2020 at the temporary total disability rate and directed the carrier to continue payments in that amount. This appeal by the carrier ensued.[FN2]
Simply put, the issue before this Court is whether claimant is entitled to temporary total disability benefits following a causally-related surgical procedure that occurred after the expiration of the durational cap on her permanent partial disability indemnity benefits. Based upon our analysis of the relevant provisions of Workers' Compensation Law § 15 and our decision in Sanchez, we are satisfied that the expiration of the durational cap has no impact upon claimant's postoperative ability to obtain temporary total disability benefits. Accordingly, the Board's decision is affirmed.
Preliminarily, to the extent that the carrier takes issue with the Board panel's effective reversal of its prior decision, we note that "the Board has continuing power and jurisdiction over each claim, and it may in its discretion modify or change an award 'as in its opinion may be just'" (Matter of Jones v Burrell Orchards, Inc., 184 AD3d 919, 921 [3d Dept 2020], quoting Workers' Compensation Law § 123). Additionally, "the [B]oard may, at any time, without regard to the date of accident, upon its own motion, or on application of any party in interest, reclassify a disability upon proof that [*3]there has been a change in condition" (Workers' Compensation Law § 15 [6-a]). Finally, the Board may depart from its prior precedent if it explains its rationale for doing so (compare Matter of Zaremski v New Visions, 136 AD3d 1176, 1177 [2016]).
As to the merits of the Board's analysis, we begin with the statute itself. Workers' Compensation Law § 15 (1)-(3) and (5) "provides compensation for four distinct classes of injury: permanent total disability, temporary total disability, permanent partial disability and temporary partial disability" (Matter of Sanchez v Jacobi Med. Ctr., 182 AD3d at 125). Compensation for a temporary total disability is governed by Workers' Compensation Law § 15 (2), which provides that such benefits "shall be paid to the employee during the continuance thereof, except as otherwise provided in this chapter." Where, as here, a claimant is classified as having a nonschedule permanent partial disability, Workers' Compensation Law § 15 (3) (w) provides that "[c]ompensation under [such] paragraph shall be payable during the continuance of such permanent partial disability" — subject to the durational limits set forth therein. Consistent with the statutory language, "at any particular time, a claimant can be classified under one, and only one, of the four categories of disability" (Matter of Sanchez v Jacobi Med. Ctr., 182 AD3d at 125). Accordingly, "if a claimant classified with a permanent partial disability experiences a setback or exacerbation that results in a reclassification of a temporary total disability, the earlier permanent partial disability classification is displaced, until further reclassification" (id. at 125-126).[FN3]
At the heart of the parties' dispute is whether the durational benefit caps for nonschedule awards under Workers' Compensation Law § 15 (3) (w) apply to all indemnity benefits — an issue that this Court addressed and decided in Sanchez. As we noted in that matter, "the durational benefit caps for nonschedule awards under Workers' Compensation Law § 15 (3) (w) apply to 'all compensation payable under this paragraph' . . . . However, benefits paid during a period of temporary total disability are payable under a separate paragraph, section 15 (2), and we are not persuaded . . . that the 'otherwise provided' language of Workers' Compensation Law § 15 (2) contemplates the durational limits of Workers' Compensation Law § 15 (3) (w) inasmuch as the former subdivision existed prior to the 2007 amendment of the latter" (Matter of Sanchez v Jacobi Med. Ctr., 182 AD3d at 127). In reaching this result, we focused on the "precise references to paragraphs and subdivisions thereof" throughout Workers' Compensation Law § 15 (Matter of Sanchez v Jacobi Med. Ctr., 182 AD3d at 127).
The carrier argues that Sanchez is distinguishable because that matter only addressed whether a nonschedule award for a permanent partial disability should include preceding or intervening periods of temporary total disability and, [*4]hence, did not resolve the issue now presented — namely, whether a claimant may seek temporary total disability benefits after the durational benefit cap for a nonschedule award under Workers' Compensation Law § 15 (3) (w) has expired. According to the carrier, the answer to that inquiry is "no" because the durational limits set forth in Workers' Compensation Law § 15 (3) (w) apply to all indemnity benefits. Support for that conclusion, the carrier contends, may be found in the last sentence of Workers' Compensation Law § 15 (3) (w), which provides that, "[f]or those claimants classified as permanently partially disabled who no longer receive indemnity payments because they have surpassed their number of maximum benefit weeks, . . . [t]here will be a presumption that medical services shall continue notwithstanding the completion of the time period for compensation set forth in this section" (Workers' Compensation Law § 15 [3] [w] [1]). Thus, according to the carrier, once the durational cap for permanent partial disability payments expires under Workers' Compensation Law § 15 (3) (w), the only ongoing benefit to which a claimant is entitled is the provision of medical services — notwithstanding any exacerbation or change in the claimant's condition or classification.
The carrier's analysis, in our view, overlooks two important points. First, although a claimant indeed may have but one classification at any given point in time, such classification — premised upon the underlying degree of disability — may change over time (see Matter of Sanchez v Jacobi Med. Ctr., 182 AD3d at 125-126). Second, and as noted previously, temporary total disability benefits (see Workers' Compensation Law § 15 [2]) and permanent partial disability benefits (see Workers' Compensation Law § 15 [3] [w]) are payable under two distinct statutory provisions, and the restrictive language employed under Workers' Compensation Law § 15 (3) (w) — "all compensation payable under this paragraph" (emphasis added) — makes clear that such paragraph does not, as the carrier now contends, encompass all indemnity benefits payable under Workers' Compensation Law § 15. Inasmuch as the Board's October 2021 decision was grounded upon thoughtful analysis of our decision in Sanchez and appropriate reconsideration of its impact upon claimant's request for temporary total disability benefits, we find that the Board's decision is supported by substantial evidence. The carrier's remaining arguments in support of reversal have been examined and found to be lacking in merit.
Garry, P.J., Egan Jr., Clark and Fisher, JJ., concur.
ORDERED that the decision is affirmed, with costs to claimant.
Footnotes
Footnote 1: As a result, claimant's earlier appeal was not perfected.
Footnote 2: Although the carrier challenges the Board's conclusion that claimant is entitled to temporary total disability awards pursuant to Workers' Compensation Law § 15 (2) following her July 2019 surgery, it does not dispute the Board's finding that claimant has been temporarily totally disabled since such surgery.
Footnote 3: Although the Board — in the context of its October 2021 decision — did not expressly reclassify claimant as having a temporary total disability, it effectively did so when it concluded that "the uncontroverted medical evidence reflects that claimant has been temporarily totally disabled since her July 16, 2019 surgery" and awarded her temporary total disability benefits upon that basis (see e.g. Matter of O'Flaherty v MRZ Trucking Corp., 194 AD3d 1205, 1208 [3d Dept 2021]). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484514/ | IN THE COURT OF APPEALS OF IOWA
No. 22-1466
Filed November 17, 2022
IN THE INTEREST OF M.O.,
Minor Child,
M.O., Father,
Appellant.
________________________________________________________________
Appeal from the Iowa District Court for Cherokee County, David C. Larson,
Judge.
A father appeals the termination of his parental rights to his child.
AFFIRMED.
Dean A. Fankhauser of Vriezelaar, Tigges, Edgington, Bottaro, Boden &
Lessman, L.L.P., for appellant father.
Thomas J. Miller, Attorney General, and Ellen Ramsey-Kacena, Assistant
Attorney General, for appellee State.
Lesley D. Rynell of Juvenile Law Center, Sioux City, attorney and guardian
ad litem for minor child.
Considered by Bower, C.J., and Greer and Badding, JJ.
2
BADDING, Judge.
When this child was two years old, his father killed his mother and unborn
baby sister in a drug-fueled car crash. The father went to prison, and the child was
placed into the guardianship of his maternal grandfather. Close to six years later,
the child was removed from the grandfather’s care. This removal led to the end of
the guardianship and termination of the father’s parental rights. The father
appeals. Though he agrees the statutory grounds for termination were met under
Iowa Code section 232.116(1)(b) and (f) (2022), the father claims termination is
not in the child’s best interests. We disagree on our de novo review of the record.1
The story of the mother’s death was told in an exhibit admitted into evidence
at the hearing to terminate the father’s parental rights. In March 2015,
[w]itnesses said that they saw [the mother’s] Chevy Blazer swerving
all over the road; the windows were down and they could hear [the
father] screaming at her, calling her [derogatory names]. The car
was going 120 miles per hour when it hit a patch of water and began
to skid off the road. It flipped three times before hitting a tree and
finally coming to rest in the swampland at the side of the highway.
A witness saw the father emerge from the wreck, pulling the couple’s two-year-old
child out after him. He left the child by the side of the highway and tried to flee
from the scene. A bystander climbed down to the car and found the mother, who
was nearly nine months pregnant, “crushed under it. . . . She was still alive . . . but
barely.” Once the paramedics arrived, they could not save the mother or her
1 In conducting our de novo review, we “give weight to the [juvenile court’s] factual
findings but are not bound by them.” In re L.B., 970 N.W.2d 311, 313 (Iowa 2022).
While “[w]e generally apply a three-step analysis to review termination of parental
rights,” id., we need only address the step raised by the father on appeal, that
being whether termination is in the child’s best interests. See In re P.L, 778
N.W.2d 33, 40 (Iowa 2010).
3
unborn child. The father was determined to have been driving, and his toxicity
screen was positive for alcohol, methamphetamine, marijuana, and synthetic
marijuana. Police later reported the father “was still so high and drunk as they
drove him from the hospital to the police station that he kept laughing and cracking
jokes and telling them to play him his favorite song.”2 The father had a history of
drug and alcohol abuse, and his relationship with the mother was violent until the
end.
The child was placed into the care of his maternal grandfather the night of
the crash. They later moved to Iowa. The father was convicted of vehicular
homicide and sentenced to prison in Louisiana, where the crash occurred, in 2017.
He has had no contact with the child since then. While the father believed he
would be released in early 2023, he acknowledged the child could “not be placed
with [him] immediately” and “there would be a very lengthy transition.”
Since this early trauma in his life, the child has suffered from mental-health
issues and aggressive behavior. Because of the child’s “difficulties with temper
tantrums, meltdowns,” defiance, and opposition, he has bounced from placement
to placement, with none able to manage his behaviors. As a result, the child was
living in a psychiatric medical institute for children (PMIC) at the time of the
termination hearing in July 2022. Although a social worker thought the child
remaining in State custody until he turns eighteen “could be a possibility,” she
pointed out that the child’s psychiatric placement was an opportunity for him to be
2 In his testimony at the termination hearing, the father downplayed his
culpability—denying being intoxicated, arguing with the mother in the vehicle, or
trying to leave the scene of the wreckage.
4
“somewhere that people won’t give up on him” and “really work on the immense
amount of trauma that he has been through in his life and work on his mental health
and get to a stable point.” So she was “hopeful that there is an adoptive home out
there” that could provide the child permanency.
With this backdrop in mind, we turn to the father’s best-interests challenge.
In considering whether termination is in a child’s best interests, 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).
In this connection, we look to the child’s long-range as well as
immediate interests. Hence we necessarily consider what the future
likely holds for the child if returned to his or her parents. Insight for
this determination can be gained from evidence of the parent’s past
performance, for that performance may be indicative of the quality of
the future care that parent is capable of providing.
In re Dameron, 306 N.W.2d 743, 745 (Iowa 1981).
The father argues termination is not in the child’s best interests because he,
“even though incarcerated, is the only relative for long-term placement for the
minor child.” In support of this argument, he highlights the child’s ongoing
behavioral issues and “multiple failed placements.” The father assumes this
means the child “will never experience a forever home and will remain in foster
care for the remainder of his childhood.” Based on that assumption, the father
maintains the child’s best interests require “allowing the minor child to remain in
foster care” until his presumed release from prison in early 2023, which could be
followed by “the institution of reunification efforts to reunify” the father and child.
5
We are not so hopeless for the child’s future, though we acknowledge the
father’s concern that the child’s behavioral and mental-health issues will continue
to serve as obstacles to permanency. Those obstacles, however, are far
outweighed by the impediments to reunification with the father. The goal of the
child’s current placement at a PMIC is to address the child’s trauma and stabilize
his mental health to help with his “out-of-control” behaviors. That goal would be
upended by returning the child to the father, who was the source of the child’s
trauma, not to mention the various circumstances preventing reunification with the
father. Those circumstances include the father’s lack of relationship with the child,
incarceration in a different state, and untreated substance-abuse and domestic-
violence issues.
While the father does not rely on the exception in Iowa Code
section 232.116(3)(d)—which authorizes the court to forgo termination when the
child is placed “for care and treatment and the continuation of the parent-child
relationship is not preventing a permanent family placement for a child”—the
child’s “placement in a PMIC d[oes] not change the termination equation,” given
that the father has no relationship with the child and no prospect for reunification
in the near future. In re S.O., 967 N.W.2d 198, 210 (Iowa Ct. App. 2021); accord
In re J.R. II, No. 12-1239, 2012 WL 4903048, at *3 (Iowa Ct. App. Oct. 17, 2012).
Under these circumstances, we find termination is in the child’s best interests, as
it will best provide for the child’s safety and long-term growth, as well as his
physical, mental, and emotional needs. See Iowa Code § 232.116(2); see also In
re J.B.L., 844 N.W.2d 703, 705–06 (Iowa Ct. App. 2014) (finding termination to be
in child’s best interests where father was incarcerated, had no relationship with the
6
child, could not resume care for four to six months at the earliest, and had a history
of criminal behavior and alcohol and substance abuse); see also In re R.R.,
No. 19-1849, 2020 WL 110450, at *1–2 (Iowa Ct. App. Jan. 9, 2020) (rejecting
father’s best-interests argument that “the children should wait for permanency
while he . . . earns release from prison” and concluding termination was in
children’s best interest where father “maintained no relationship with the children
since his incarceration”); In re J.D., No. 19-1457, 2019 WL 5791046, at *3 (Iowa
Ct. App. Nov. 6, 2019) (finding termination to be in child’s best interests where
parent had no relationship with child); In re K.T., No. 16-0204, 2016 WL 2744784,
at *2 (Iowa Ct. App. May 11, 2016) (same).
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484455/ | Supreme Court of Florida
____________
No. SC20-225
____________
MARK D. SIEVERS,
Appellant,
vs.
STATE OF FLORIDA,
Appellee.
November 17, 2022
PER CURIAM.
Mark D. Sievers appeals his first-degree murder conviction
and corresponding death sentence, as well as his conviction for
conspiracy to commit murder.1 We affirm in all respects.
FACTS AND PROCEDURAL BACKGROUND
Guilt Phase
On June 28, 2015, Dr. Teresa Sievers left a family vacation
and returned alone to her Bonita Springs home. After pulling into
the garage, she retrieved her luggage and walked into the house.
1. We have jurisdiction. See art. V, § 3(b)(1), Fla. Const.
Unbeknownst to Dr. Sievers, Curtis Wayne Wright, Jr., and Jimmy
Ray Rodgers were waiting inside to carry out the murder that her
husband—defendant Mark D. Sievers—had hired them to perform.
When Dr. Sievers entered the kitchen, Wright and Rodgers beat her
in the head with hammers until she died.
The murder marked the culmination of a plot that began
weeks earlier, when Sievers traveled to Missouri for Wright’s May
2015 wedding. Over the course of several conversations during the
wedding weekend, Sievers asked his longtime friend Wright to
murder Dr. Sievers as soon as possible. Initially uncertain, Wright
eventually agreed to “take care of it” for at least $100,000 in life
insurance proceeds.
Wright then recruited Rodgers by promising him part of the
life insurance money. In his trial testimony, Wright explained that
Rodgers had “been involved in other deaths” and characterized him
as “somebody that would actually do it.” Throughout the planning,
only Wright communicated with Rodgers; Sievers had explicitly told
Wright that he did not want to know the identity of any accomplice
Wright might hire. Sievers and Wright themselves used prepaid cell
phones for their calls about the plot, thinking those phones were
-2-
safer and more secure than their regular phones. Phone records
showed that their prepaid phones became active only after they
exchanged a code word on their regular lines.
Sievers envisioned two possible scenarios for the murder: June
28 at the Sieverses’ home (to look like a burglary) or June 29 at
Dr. Sievers’ medical office (to look like a mugging). Sievers knew his
wife was set to return home alone from a family vacation on June
28. He had booked her return flight, and he wanted to ensure that
he and their daughters would not be in town at the time of the
killing.
Sievers prepared in depth for each scenario. For the home
murder plan, Sievers tested going over the backyard fence, and he
trimmed bushes in the yard to carve out a path to the garage. He
also told Wright how to enter the house and disarm the security
system. For the office murder plan, Sievers sent Wright aerial
photographs of the building, identifying a secluded stairwell that
Dr. Sievers used when she left work late at night. He also gave
Wright the stairway access code. Sievers told Wright that,
regardless of where the murder took place, it should appear to have
been committed incident to a burglary or robbery.
-3-
Wright and Rodgers left Missouri on June 27, equipped with
detailed instructions and money from Sievers. They arrived in
Bonita Springs, Lee County, Florida, early the next morning.
Wright and Rodgers first stopped at the Sieverses’ home and left
after a brief visit. Then they drove past Dr. Sievers’ medical
practice to evaluate its potential as a murder location, but they
eliminated that option after feeling too exposed on the property. For
the remainder of the day, they napped in their rental car, shopped
at Walmart, and spent time at the beach.
Around 10:30 p.m., Wright and Rodgers returned to the
Sieverses’ residence. They put on coveralls and gloves and “pried
open” the already unlocked side door to mimic a burglary. Thinking
Dr. Sievers would arrive at midnight, Wright was taken aback when
he heard the garage door roll up shortly before 11:25 p.m. Wright
scrambled to conceal himself in the garage as he watched
Dr. Sievers park the car, retrieve her luggage, and enter the house.
Wright then followed her, picking up a hammer that was lying on
the garage freezer on his way inside.
As he walked into the kitchen, Wright stumbled on a dog dish,
startling Dr. Sievers, who turned toward Wright at the noise.
-4-
Wright struck her head once and swung two more times while she
put up her hands to defend herself. At this point, Rodgers began to
attack her, too. Using a different hammer, Rodgers bludgeoned her
in the head over and over. Eventually, Dr. Sievers went silent as
she fell to the floor, where Rodgers continued to hit her until Wright
made him stop. Certain that Dr. Sievers was dead, Wright and
Rodgers left the house and drove back to Missouri.
While Wright and Rodgers were carrying out the murder,
Sievers was still at his mother-in-law’s home in Connecticut, on
vacation with his two daughters. Earlier that day, Sievers out of the
blue called Dr. Mark Petrites, a family friend, to “check in” and
inform him of Dr. Sievers’ travel plans. The next morning, on June
29, Sievers heard from Dr. Sievers’ office that she did not show up
for work. Sievers again called Dr. Petrites and asked him to stop by
the house to check on his wife. Dr. Petrites found it odd that
Sievers gave him the garage code and instructed Dr. Petrites to just
walk in, rather than first knock on the front door. When he entered
the Sieverses’ home, Dr. Petrites found Dr. Sievers face down on the
kitchen floor in a pool of blood.
-5-
The first break in the subsequent police investigation came
two weeks later. Law enforcement in Illinois called lead detective
David Lebid with the news that someone had come forward with
information potentially related to the murder. Lebid traveled to
Illinois to conduct an in-person interview of the informant, and,
from that interview, Wright emerged as a suspect.
Eventually, police obtained a warrant to search Wright’s house
in Missouri. There, they seized Wright’s cell phone and the GPS
used on the trip to Florida, which in turn linked Wright to Rodgers.
While detectives executed a search warrant at Rodgers’ residence in
Missouri, Rodgers’ girlfriend, Taylor Shomaker, led authorities to
evidence connecting Rodgers to the crime, including the backpack,
shoes, shirts, and beverage cooler that had been purchased at a Lee
County Walmart on the day of the murder. Shomaker also brought
detectives to the sites where she and Rodgers had discarded the
coveralls worn during the murder and pieces of Rodgers’
deconstructed prepaid cell phone. Wright and Rodgers were then
arrested, interrogated, and charged.
Wright initially denied involvement in the murder. But he
later confessed, implicated Sievers in the crime, and agreed to a
-6-
plea deal. Sievers himself was indicted in May 2016 for first-degree
murder and conspiracy to commit murder.
At trial, the State proved its case principally through Wright’s
testimony; Rodgers did not testify. The State corroborated Wright’s
account with cell phone, GPS, and video surveillance records that
documented both Sievers’ painstaking planning and Wright’s
locations in the weeks before and immediately after the murder.
The State presented the backpack, shoes, shirts, and beverage
cooler that were purchased in Lee County on the day of the murder
and later found in Rodgers’ Missouri home. The State also
introduced fibers from Rodgers’ discarded coveralls worn during the
murder that were found on Dr. Sievers’ corpse and in the rental car.
Dr. Thomas Coyne, the Lee County medical examiner, testified
about the autopsy he performed on Dr. Sievers. He determined that
she died from blunt head trauma from multiple impact wounds to
the back of the skull that were consistent in size with the head of a
hammer.
Sievers did not testify at trial. His defense counsel argued in
closing that there was no credible evidence connecting Sievers to
the crime. According to defense counsel, the State had done
-7-
nothing more than prove that Wright and Rodgers—not Sievers—
murdered Dr. Sievers. The defense focused on Wright’s asserted
lack of credibility, highlighting his bipolar disorder, his status as a
five-time felon, and his admitted lies during the investigation. The
defense theorized that Wright, hoping to protect his wife from being
prosecuted for tampering in the murder investigation, was simply
parroting a narrative that had been fed to him by the State.
On December 4, 2019, the jury found Sievers guilty of first-
degree premeditated murder and conspiracy to commit murder.
Penalty Phase
The same jury returned a week later for the penalty phase.
The State presented victim impact evidence but otherwise relied on
evidence from the trial. Sievers presented mitigating evidence
through several relatives, all of whom testified to his loving
relationship with his family, especially with his daughters.
The State sought to prove two aggravators: murder committed
in a cold, calculated, and premeditated manner with no pretense of
moral or legal justification; and murder committed for pecuniary
gain. The jury unanimously found the CCP aggravator but not the
pecuniary gain aggravator. On the verdict form, it checked that no
-8-
mitigating circumstances had been proven, even though Sievers’
lack of criminal history had been conceded by the State. The jury
unanimously recommended a death sentence.
Spencer Hearing and Sentencing
The trial court held a Spencer 2 hearing on January 3, 2020.
Sievers entered his clean disciplinary record from the Lee County
Sheriff’s Office, a postcard from his daughter, and a letter that had
been written before the murder by Dr. Petrites’ wife, expressing her
affection for the Sievers family. The court noted for the record that
Sievers’ daughters did not want him to die. Sievers himself made a
statement to the court. He denied involvement in the murder, said
he loved Dr. Sievers and their two daughters, and asked to be
spared from the death penalty. The State introduced an additional
victim impact statement.
After a thirty-minute recess, the trial court sentenced Sievers
to death for the murder conviction and to a consecutive thirty-year
prison sentence for the conspiracy conviction. The court gave great
weight to the jury’s recommendation in favor of a death sentence. It
2. Spencer v. State, 615 So. 2d 688 (Fla. 1993).
-9-
found the CCP aggravator (but not the pecuniary gain aggravator)
proven beyond a reasonable doubt and gave it great weight. The
court found the following mitigating circumstances had been
established, but gave them little weight: that Sievers had no prior
criminal history; that he had a loving and supportive relationship
with his family; that his family would be negatively affected if he
were to be executed; and that he had engaged in charitable
activities that benefited the community. The court found that the
mitigating effect of Sievers’ positive relationship with his family was
undercut by his decision to procure the murder of his daughters’
mother. Finally, the court found that the evidence did not support
Sievers’ requested statutory mitigator for capital felony accomplices
whose participation was “relatively minor.”
This direct appeal followed.
ANALYSIS
Sievers raises myriad challenges to his convictions and death
sentence, none of them meritorious. We will address Sievers’ claims
in the order presented in his opening brief.
- 10 -
Guilt Phase Challenges
Issues I through III: Polygraph-Related Claims. A principal
theme of Sievers’ closing argument was that the State had not
subjected Wright to a polygraph examination, even though Wright’s
plea agreement gave the State the option to do so. Sievers’ counsel
ended closing argument by telling the jury: “When you weigh the
evidence and you look at all these facts, ultimately, the one
question you all have to ask yourselves: Do you trust Curtis Wayne
Wright? And would you feel different if a polygraph had been
administered?” After defense counsel finished, and outside the
presence of the jury, the State argued that this reference to a
polygraph was improper. Ultimately, the State persuaded the trial
court to instruct the jury as follows: “If Mr. Wright had actually
taken a polygraph, those results, if they were—if he passed, would
not have been admissible during this trial.” The State then
proceeded to give its rebuttal.
Sievers now argues that the trial court’s instruction misstated
the law, that it amounted to a comment to the jury on the
evidentiary weight of the State’s decision not to give Wright a
- 11 -
polygraph exam, and that it indirectly commented on Wright’s
credibility. We disagree.
As to the first point, Sievers forfeited any challenge to the
substance of the trial court’s instruction. During the parties’
discussion of this issue with the trial court, defense counsel did not
contest the instruction’s content. Instead, counsel told the trial
court that the State, rather than the court itself, should raise the
admissibility issue with the jury in the form of an argument.
Nor is there merit to Sievers’ claim that the trial court’s
instruction amounted to a comment on the evidence or on Wright’s
credibility. The jury could reasonably have taken defense counsel’s
closing argument to imply that the jury would have known the
results of any polygraph exam administered to Wright. Against that
backdrop, it was not error for the trial court to issue a clarifying
instruction. Importantly, the trial court gave Sievers free rein to
argue to the jury that the decision not to subject Wright to a
polygraph showed the State’s unwillingness to find the truth.
Sievers next maintains that the State, in rebuttal, falsely
suggested that Wright would be administered a polygraph exam
sometime between the end of trial and Wright’s sentencing. The
- 12 -
record does not support this claim. It is true that the State’s
rebuttal told the jury that Wright remained obligated to take a
polygraph at the State’s request, but the argument did not imply
that the State necessarily would avail itself of that option.
Sievers’ final polygraph-related claim has to do with the
testimony of lead detective Lebid. Lebid interviewed Wright in July
and August 2015, and he was present for Wright’s proffer in
January 2016 and sworn statement in February 2016. On cross-
examination, Lebid acknowledged that the State had not given
Wright a polygraph exam, even though Lebid knew that Wright lied
in the 2015 interviews and at the beginning of the January 2016
proffer. On redirect and over defense counsel’s objection, the
prosecution rhetorically asked Lebid if he needed a “lie detector
machine” to tell him when Wright was lying—to which Lebid
answered “no.” Sievers now argues that these questions and
answers implied that Lebid had a “natural ability” to detect Wright’s
truthfulness and thus improperly bolstered Wright’s credibility.
The record does not support Sievers’ argument. It was defense
counsel, during Lebid’s cross-examination, who first juxtaposed
Wright’s undisputed lies with the State’s failure to administer a
- 13 -
polygraph exam. In response, the State on redirect elicited
testimony that, at the time of Wright’s summer 2015 interviews,
Lebid was already aware of evidence (e.g., surveillance videos from a
Walmart in Florida) that directly exposed Wright’s lies. Read in its
entirety, the thrust of the testimony on redirect was not that Lebid
had an intuitive sense of Wright’s credibility, but rather that other
evidence available to Lebid showed when Wright was lying. We
conclude that no improper bolstering occurred.
Issue IV: Wright’s Reference to Prayer. On direct examination,
Wright acknowledged that he lied at the outset of his January 2016
proffer meeting when he said that he had stayed outside the
Sieverses’ home while Rodgers alone carried out the killing. Wright
explained the lie by testifying that he had “struggled with [his] own
personal involvement in it, the physical part of it.” But then he said
this about his decision to tell the truth: “I just couldn’t quite let go
of all that. And I took a break. I talked to my attorney. I prayed.”
Defense counsel objected, arguing that Wright’s reference to having
prayed violated section 90.611, Florida Statutes (2019). Sievers
now argues that this alleged violation appealed to “religious bias”
and improperly bolstered Wright’s credibility.
- 14 -
We find no violation of section 90.611. That law says:
“Evidence of the beliefs or opinions of a witness on matters of
religion is inadmissible to show that the witness’s credibility is
impaired or enhanced thereby.” Here, Wright made a fleeting
reference to prayer and explicitly equated it with talking to his
attorney and taking a break. The prosecution neither solicited
Wright’s prayer reference nor mentioned it again. Sievers’ argument
lacks merit.
Issue V: Wright’s February 2016 Meeting with the State. After
the January 2016 proffer, Wright again met with the State on
February 19, 2016. The latter meeting proceeded in two parts.
First, Wright discussed a plea agreement and agreed to cooperate
with the State. Second, Wright made a sworn statement about the
murder.
Part of the discussion at the February meeting focused on
Wright’s wife, Angela. The prosecutor told Wright that the
authorities were aware that Mrs. Wright had asked potential
witnesses in the investigation to change their statements. In that
context, the prosecutor referred to Wright’s wife as a “blip on [his]
radar screen” that he wanted “to go away.” But the prosecutor
- 15 -
explained that the plea agreement would not protect Wright’s wife
and that she would be prosecuted if the investigation revealed her
involvement in the murder. Wright acknowledged that he
understood and assented to the plea agreement. He then gave his
sworn statement.
At trial, after the State rested its case-in-chief, Sievers recalled
Lebid for the purpose of introducing into evidence the video of the
“blip” discussion at the February 2016 meeting. The State objected,
arguing that the disputed video footage was hearsay, that any
introduction of the video needed to occur during Sievers’ cross-
examination of Wright or Lebid, and that the video evidence would
be cumulative in light of Wright’s and Lebid’s testimony on direct
and cross-examination. Sievers countered that it was admissible
because the State had opened the door by asking Wright about his
truthfulness in its case-in-chief and because the video would show
Wright’s bias to protect his wife. The trial court excluded the video.
Sievers argues on appeal that the trial court erred by
excluding the video footage, but we disagree. Regardless of the
merits of the State’s hearsay objection or of the State’s objection to
the timing of Sievers’ attempt to introduce the footage, we conclude
- 16 -
that the video evidence was cumulative and therefore properly
excluded. See § 90.403, Fla. Stat. (2019) (“Relevant evidence is
inadmissible if its probative value is substantially outweighed by
the danger of unfair prejudice, confusion of issues, misleading the
jury, or needless presentation of cumulative evidence.”); Gutierrez v.
Vargas, 239 So. 3d 615, 625 (Fla. 2018) (“Courts should exercise
their discretion to avoid the needless waste of time through
unnecessary presentation of cumulative evidence.”).
The record shows that Sievers questioned both Lebid and
Wright about the February 2016 meeting. During Wright’s cross-
examination, defense counsel explicitly broached the “blip”
discussion that Sievers sought to introduce via the video:
DEFENSE: You had some concerns that Ms. Wright may
be charged in some capacity for this; is that correct?
WRIGHT: I had concerns that she was going to get—yeah.
DEFENSE: Yes.
WRIGHT: Yeah, I don’t know about a charge, but yeah.
DEFENSE: And do you recall that Mr. Hunter said that
Angie is a blip that will go away? Do you recall Mr.
Hunter saying that?
WRIGHT: Yeah.
...
DEFENSE: That made you feel better about giving your
testimony, protecting your wife, correct?
WRIGHT: Not about giving my testimony, but . . .
DEFENSE: You love your wife, correct?
WRIGHT: I do.
- 17 -
DEFENSE: You want to protect your wife, correct?
WRIGHT: I do.
DEFENSE: And so if you can make sure that she is
insulated from prosecution, that’s something you want,
isn’t it?
WRIGHT: Yeah, when she’s innocent.
On recross, defense counsel again asked if Wright remembered
the prosecutor calling Mrs. Wright a “blip” and read portions of the
transcript from the February 2016 meeting. Counsel even elicited
Wright’s acknowledgment that he wanted to protect his wife (though
Wright added that his participation in the plea agreement had
“nothing to do” with her).
Likewise, during Lebid’s cross-examination, defense counsel
asked about Mrs. Wright. He said:
DEFENSE: Mr. Hunter asked you about Angela Wright.
You said there was no evidence to show that Angela
Wright went to Florida; is that correct?
LEBID: Correct.
DEFENSE: Okay. And you said you could—you could
affirmatively rule out Angela Wright as a participate—
participant in the murder, correct?
LEBID: Correct.
...
DEFENSE: If Ms. Wright helped in the planning, she
could be charged, correct?
LEBID: Absolutely.
DEFENSE: If she helped Mr. Wright avoid detection, she
could be charged for this, correct?
LEBID: Absolutely.
- 18 -
And even after the trial court ruled to exclude the video,
counsel questioned Lebid about Mrs. Wright’s involvement in the
case and how Lebid was able to eliminate her as a suspect.
Finally, relying on the evidentiary foundation developed during
trial, defense counsel in closing argument pursued the theme that
Wright was lying to protect his wife. Counsel told the jury that Mrs.
Wright had tampered with witnesses, and he suggested that the
State could have charged her in connection with the murder.
Alluding to the prosecutor’s remarks at the February 2016 meeting,
counsel told the jury: “And why not prosecute Angie [Wright]?
Because she’s a blip. She’s a blip that only Curtis Wright can make
go away.”
We note that Sievers does not claim that Wright or Lebid gave
any trial testimony inconsistent with any statement in the excluded
video. On the contrary, their testimony appears to have accurately
recounted the exchanges at issue. We find no error in the trial
court’s decision to exclude this cumulative evidence.
Issue VI: Sexual Motive. During Wright’s cross-examination,
defense counsel inquired whether Lebid had asked Wright about his
“sexual preference” and about whether Sievers and Wright “had a
- 19 -
sexual relationship.” The trial court sustained the State’s
relevance-based objections before Wright could answer the
questions. In a sidebar, the court explained to counsel: “It’s not
relevant at this time, unless someone is going to get up and say
they had a relationship. I haven’t heard it, so I don’t see how it’s
even relevant, and I’m going to sustain the objection.” Sievers now
argues that the trial court’s ruling violated Sievers’ confrontation
rights and deprived him of an opportunity to explore Wright’s
motives for murdering Dr. Sievers.
“Limitations on the examination of a particular witness are
controlled in the sound discretion of the trial court, and the trial
court’s ruling in this area will only be reversed if the aggrieved party
demonstrates an abuse of that discretion.” Kormondy v. State, 845
So. 2d 41, 52 (Fla. 2003). We see no abuse of discretion here. It
was reasonable for the trial court, before allowing defense counsel
to proceed down a tangential and potentially distracting path, to
determine whether there was any evidence showing a potential
romantic relationship between Wright and Sievers. Absent any
proffer from defense counsel to that effect, the trial court acted
- 20 -
within its discretion by sustaining the State’s objection to defense
counsel’s questioning on this issue.
Issue VII: Neighbor’s Testimony. During the State’s case-in-
chief, the jury heard testimony from Kimberly Torres, the Sieverses’
next-door neighbor. Two aspects of Torres’s testimony are at issue
on appeal. First, Torres testified about unexpectedly encountering
Sievers on her backyard lanai several months before the murder.
Second, Torres recounted an argument she overheard between
Sievers and Dr. Sievers the month before the murder. Torres
testified that Dr. Sievers said, “I’m f-ing tired of this” and “I’m
leaving,” to which Sievers responded: “If that’s what you want to
do, fine, but we’ll see about that.” Sievers objected at trial to these
portions of Torres’s testimony.
Sievers now argues that the trial court should not have
allowed the testimony about the lanai encounter because it was
irrelevant, overly prejudicial, and evidence of prior bad acts. But we
see no error in the admission of this testimony. Torres’s testimony
tended to corroborate Wright’s account that Sievers had actively
scoped out his home as a possible murder location and investigated
- 21 -
jumping over the backyard fence as the best way to access the
home.
As to Torres’s testimony about the overheard argument,
Sievers maintains that the statements Torres attributed to
Dr. Sievers and him are hearsay and do not fall within any
exception to the hearsay rule. The State counters that the
statements qualify under exceptions for excited utterances and for
statements of then-existing state of mind. In particular, the State
says that Sievers’ “we’ll see about that” comment shows Sievers’
state of mind and helps explain his conduct in having his wife
killed.
We need not resolve the question whether the disputed
statements qualified for any hearsay exception or, indeed, whether
the statements even meet the definition of hearsay; after all, it is
not obvious that the statements contained assertions that were
offered to prove the truth of the matter asserted. Any error in
admitting Torres’s testimony about the Sievers’ argument was
harmless because there is no reasonable possibility that such error
contributed to the conviction.
- 22 -
To the extent it relied on Torres’s testimony at all, the State
focused on the lanai encounter, not the overheard argument. In
closing argument, the State emphasized what it called Sievers’
“recon mission” to Torres’s backyard. But the State did not even
mention the overheard argument. Nor did the State in closing
argue to the jury that marital problems explained the murder.
Instead, the State argued that Dr. Sievers’ substantial life insurance
gave Sievers a financial motive to commit the crime. Under these
circumstances, we believe the State has met its burden to prove
harmless error beyond a reasonable doubt.
Issue VIII: Autopsy Photographs. Sievers next challenges the
trial court’s decision to admit eleven autopsy photographs showing
trauma to Dr. Sievers’ head and body. The photographs depicted
injuries to her skull from multiple angles, as well as defensive
wounds on her body. Sievers argues that the photos’ prejudicial
effect substantially outweighed their probative value.
We find no abuse of discretion in the admission of the autopsy
photographs here. In this case, the photographs corroborated
Wright’s testimony about the murder and assisted the jury in
understanding the medical examiner’s testimony.
- 23 -
Issue IX: Cumulative Error. Sievers next argues for reversal
based on cumulative error. That doctrine applies where multiple
errors, though individually harmless, combine to deprive the
defendant of a fair and impartial trial. McDuffie v. State, 970 So. 2d
312, 328 (Fla. 2007). The cumulative error doctrine has no place in
this case because we have not found multiple errors. See Fletcher
v. State, 168 So. 3d 186, 220 (Fla. 2015); Pagan v. State, 830 So. 2d
792, 815 (Fla. 2002).
Issues X and XI: Motions for Judgment of Acquittal. Sievers
maintains that the trial court erred in denying his motions for
judgment of acquittal on the first-degree murder count and on the
conspiracy count. We review the denial of a motion for judgment of
acquittal de novo and uphold convictions supported by competent,
substantial evidence. Pagan, 830 So. 2d at 803. If, after viewing
the evidence in the light most favorable to the State, a rational trier
of fact could find the existence of the elements of the crime beyond
a reasonable doubt, sufficient evidence exists to sustain a
conviction. Id. For the reasons we explain, we affirm the trial
court’s denial of Sievers’ motions for judgment of acquittal on both
counts.
- 24 -
As to the first-degree murder count, the State had to prove
that Dr. Sievers was dead, that Sievers’ criminal act caused her
death, and that her death was premeditated. § 782.04(1)(a), Fla.
Stat. (2019). Because Sievers was not present at the murder, the
jury was instructed on the principal theory of liability. Under that
theory, Sievers could be found guilty of first-degree murder if he
had procured, hired, or aided Dr. Sievers’ killing. § 777.011, Fla.
Stat. (2019).
Wright’s testimony was sufficient to establish every necessary
element of the crime, and it is not for our Court to determine the
credibility of that testimony. Specifically, the jury could conclude
from Wright’s testimony that Sievers had promised to pay Wright to
murder Dr. Sievers, that Sievers and Wright carefully planned the
murder weeks in advance, and that Wright and Rodgers murdered
Dr. Sievers according to Sievers’ plan. As we have explained, the
State corroborated Wright’s testimony with cell phone evidence
showing their communications leading up to the murder. The State
also presented evidence corroborating Wright’s account of his and
Rodgers’ commission of the crime. We therefore reject Sievers’
claim, and, under our independent obligation to review the
- 25 -
sufficiency of the evidence, we conclude that competent, substantial
evidence supports Sievers’ first-degree murder conviction. See Fla.
R. App. P. 9.142(a)(5).
As to the conspiracy count, Sievers points to the fact that the
indictment alleged that he conspired with both Wright and Rodgers.
Sievers claims that he was entitled to a judgment of acquittal given
the undisputed evidence that Sievers never communicated with
Rodgers about the murder and told Wright that he did not want to
know the identity of any accomplice.
Sievers’ argument here misstates the law of conspiracy. To
sustain a conspiracy conviction, the government does not need to
prove that the defendant knew the identity of every other person
alleged to have been part of the conspiracy. It is enough that the
State prove that the alleged co-conspirators shared a common
purpose to commit the crime. See Blumenthal v. United States, 332
U.S. 539, 557 (1947) (“[T]he law rightly gives room for allowing the
conviction of those [members] discovered upon showing sufficiently
the essential nature of the plan and their connections with it,
without requiring evidence of knowledge of all its details or of the
participation of others.”); Pino v. State, 573 So. 2d 151, 152 (Fla. 3d
- 26 -
DCA 1991) (“Moreover, direct proof of the criminal agreement is not
necessary to establish a conspiracy; the jury may infer from all the
surrounding circumstances that a common purpose to commit a
crime existed.”). Here, Wright’s testimony was sufficient to support
a jury finding that Sievers, Wright, and Rodgers all were members
of a single plot to murder Dr. Sievers.
Penalty Phase Challenges
Issue XII: Notice of Intent to Seek the Death Penalty. Section
782.04(1)(b), Florida Statutes (2016) (effective Mar. 7, 2016), sets
out certain procedural requirements for death penalty cases. In
pertinent part it says:
If the prosecutor intends to seek the death penalty, the
prosecutor must give notice to the defendant and file the
notice with the court within 45 days after arraignment.
The notice must contain a list of the aggravating factors
the state intends to prove and has reason to believe it can
prove beyond a reasonable doubt. The court may allow
the prosecutor to amend the notice upon a showing of good
cause.
This provision went into effect in March 2016, and the State
concedes that it applied to Sievers’ prosecution. 3
3. Florida Rule of Criminal Procedure 3.181 also governs the
State’s notice to seek the death penalty, but that rule is
- 27 -
Sievers was arraigned on May 9, 2016. Forty-four days later—
that is, one day before the statutory deadline—the State filed a
notice of intent to seek the death penalty. But that notice did not
list the aggravating factors that the State intended to prove. The
omission was inadvertent, as the State appears to have been
unaware of the then relatively new requirements of section
782.04(1)(b). Instead, the State had filed the notice under the 2016
version of Criminal Procedure Rule 3.202, which pertained to
discovery in death penalty cases and did not require any
aggravators to be listed.
Sievers soon filed a motion to strike the State’s notice. That
same day—four days after the expiration of the 45-day deadline—
the State filed an amended, substantively compliant notice that
listed two aggravating factors. Sievers responded with a motion to
strike the State’s amended notice.
After a hearing, the trial court entered an order denying
Sievers’ motions to strike. The court concluded that the State’s
inapplicable here because the Court did not adopt it until months
later, on September 15, 2016.
- 28 -
initial filing, though defective for failing to list aggravators, was
timely. And the court further ruled that the State had shown good
cause for filing an amended, compliant motion—specifically, that
the delay was “negligible” and that Sievers was not prejudiced.
Sievers now argues that the trial court’s ruling was in error and
that the State’s failure to file a timely, compliant notice requires this
Court to reverse Sievers’ death sentence.
We affirm, but on grounds independent of the merits of the
trial court’s good cause determination. Guided by our Court’s
analysis in Massey v. State, 609 So. 2d 598 (Fla. 1992), the most
analogous precedent of which we are aware, we conclude that any
procedural defect here is subject to harmless error analysis.
In Massey, the state had failed to comply with a statute that
required notice to be served on the defendant before his sentencing
as a habitual felony offender. The defendant argued that the state’s
procedural misstep required vacatur of his sentence. Our Court
disagreed, relying on section 59.041, Florida Statutes (1989). That
statute instructs that a reviewing court may not set aside a criminal
judgment “for error as to any matter of pleading or procedure”
unless the court determines that “the error complained of has
- 29 -
resulted in a miscarriage of justice.” Our Court’s precedents equate
this statutory standard with the harmless error test. See State v.
Lee, 531 So. 2d 133, 136 n.1 (Fla. 1988). In Massey, we
emphasized: “[T]he issue in this case is not whether Massey must
show harm in order to assert the lack of notice as error but rather
whether the state, by affirmatively proving no harm, can bring this
technical error within the harmless error rule.” 609 So. 2d at 600.
Here, as in Massey, we are faced with a statute that imposes a
mandatory claim processing (i.e., nonjurisdictional) rule but does
not specify a remedy for noncompliance. Applying the harmless
error standard of review, we conclude that the State has shown
beyond a reasonable doubt that Sievers suffered no prejudice from
any delay in the State’s full compliance with section 782.04(1)(b).
In Sievers’ case, the State filed a compliant notice within four days
of the statutory deadline. At that time, discovery had not
commenced, and no hearings were scheduled. Sievers’ trial did not
begin until three and a half years later, in November 2019. Given
these circumstances, we find harmless error and therefore decline
to vacate Sievers’ death sentence.
- 30 -
Issue XIII: Prior Criminal History Mitigator. On the penalty
phase verdict form, the jury checked “no” to the statement: “One or
more individual jurors find that one or more mitigating
circumstances was established by the greater weight of the
evidence.” The jury did so even though the State, in its penalty
phase closing argument, twice conceded that Sievers had
established the statutory mitigator for “no significant history of
prior criminal activity.”
Sievers now maintains that the jury’s decision was a reaction
to a misstatement by the State in that same closing argument.
During a question-by-question explanation of the penalty phase
verdict form, the State told the jury: “So, if one or more individual
jurors find that one or more mitigating circumstances was
established by the greater weight of the evidence, check ‘no.’ It was
not.” Sievers claims that, through this misstatement, the State
“persuaded” the jury to reject an “important undisputed” mitigator
and thereby “corrupted the jury’s decision-making process.”
Because Sievers did not object to the disputed statement at
trial, we review this claim for fundamental error. And we find no
such error here. Almost immediately after the statement at issue,
- 31 -
in the same closing argument, the State again told the jury that
Sievers had no prior criminal history. After the State’s closing,
defense counsel reminded the jury about the State’s concession.
And finally, after the parties’ penalty phase closing arguments, the
trial court instructed the jury on the law of mitigating
circumstances and accurately explained the penalty phase verdict
form. Viewing the relevant record as a whole, we conclude that
Sievers has fallen far short of the high bar necessary to establish
fundamental error as to this claim. Santiago-Gonzalez v. State, 301
So. 3d 157, 175 (Fla. 2020) (reciting fundamental error standard).
Issue XIV: Postcard Redaction. As mitigation, Sievers
repeatedly emphasized his loving relationship with his family,
especially his two daughters. In addition to offering live testimony
from several relatives, Sievers sought to prove that relationship by
introducing into evidence a postcard his daughter had sent him
while he was in custody. The State objected to the postcard as
hearsay but agreed to its admission—including a portion of the
postcard saying “I love you”—subject to redaction of these three
sentences: “Is it possible they could kill you? I really hope NOT.
Please say no.” (Emphasis in original.) The postcard was redacted
- 32 -
over Sievers’ objection and admitted into evidence. Sievers now
argues that the redaction constituted reversible error.
Our precedent establishes that, in the penalty phase of a
capital trial, both the State and the defendant must be afforded the
opportunity to rebut hearsay evidence sought to be admitted by the
other side. Frances v. State, 970 So. 2d 806, 813-14 (Fla. 2007).
There is no question that the redacted portion of the postcard—
saying that the daughter did not want Sievers to be executed—was
hearsay. Here, neither of Sievers’ daughters testified, and the State
would have had no opportunity to cross-examine the author of the
postcard. We find no abuse of discretion in the trial court’s
evidentiary ruling.
Issue XV: Victim Impact Evidence. At the penalty phase trial,
the State presented victim impact evidence consisting of live
testimony from Dr. Sievers’ mother and a brief video clip of
Dr. Sievers herself. In the video, Dr. Sievers discusses her
commitment to practicing holistic and preventative medicine.
Sievers objected at trial, and he now argues that the admission of
the video, particularly in combination with the testimony of
Dr. Sievers’ mother, was reversible error.
- 33 -
We find no error in the admission of the victim impact
evidence here. Under Florida law, victim impact evidence is
admissible “to demonstrate the victim’s uniqueness as an individual
human being and the resultant loss to the community’s members
by the victim’s death.” § 921.141(8), Fla. Stat. (2019). Our Court
regularly upholds the admission of victim impact evidence that falls
within the statutory definition. See, e.g., Colley v. State, 310 So. 3d
2, 17 (Fla. 2020) (statement from victim’s friend detailing victim’s
unique characteristics permissible); Jordan v. State, 176 So. 3d
920, 932-33 (Fla. 2015) (statement from victim’s family detailing
loss permissible). In this case, the live testimony and the brief (less
than two-minute) video were relevant to show the loss suffered by
Dr. Sievers’ family and community, and this evidence was not
unduly prejudicial.
Issue XVI: Alleged Failure to Hold a Spencer Hearing. The
Spencer hearing is an aspect of the capital sentencing process that
typically occurs after the penalty phase trial and jury
recommendation, but before the trial court’s imposition of sentence.
We have explained that the purpose of a Spencer hearing is to:
- 34 -
(a) give the defendant, his counsel, and the State, an
opportunity to be heard; (b) afford, if appropriate, both the
State and the defendant an opportunity to present
additional evidence; (c) allow both sides to comment on or
rebut information in any presentence or medical report;
and (d) afford the defendant an opportunity to be heard in
person.
Spencer, 615 So. 2d at 691. In this case, the trial court on January
3, 2020, held a hearing at which all of these things occurred—
including an in-person statement from Sievers, argument from
defense counsel, and the admission of additional mitigating
evidence. After hearing from the parties, the trial court took a
recess to collect its thoughts. The court then returned and imposed
its sentence.
Although he did not object to the trial court’s procedure at the
time, Sievers now argues that our Court’s decision in Spencer
required the trial court to impose sentence on a separate day after
the Spencer hearing. Sievers maintains that the procedure that the
court followed here amounted to a failure to hold a Spencer hearing
at all, and that this was fundamental error.
Sievers’ argument lacks merit. Our decision in Spencer does
not categorically preclude the trial court from holding a Spencer
hearing and imposing sentence on the same day. Nor does Florida’s
- 35 -
death penalty statute say that a Spencer hearing and the imposition
of sentence must occur on different days. § 921.141, Fla. Stat.
(2019). We find no error—much less fundamental error—in the
procedure that the trial court followed here. See Robertson v. State,
187 So. 3d 1207, 1216-17 (Fla. 2016) (combining Spencer hearing
and imposition of sentence in one proceeding did not violate due
process where defendant presented evidence and addressed the
court before imposition of sentence).
Issue XVII: Cold, Calculated, and Premeditated Aggravator.
Sievers argues that the jury’s CCP finding lacks a constitutional
basis because it depended entirely on Wright’s (allegedly uncredible)
testimony. We reject this claim for the same reason that we
rejected Sievers’ challenge to the denial of his motion for judgment
of acquittal. It is the jury’s role, not ours, to evaluate witnesses’
credibility and weigh the evidence.
Issue XVIII: Proportionality Review. Sievers lastly urges us to
undertake a proportionality review. We held in Lawrence v. State,
308 So. 3d 544 (Fla. 2020), however, that this Court lacks
constitutional or statutory authority to do so. We decline to revisit
Lawrence here.
- 36 -
CONCLUSION
We affirm Sievers’ first-degree murder conviction and
corresponding death sentence, as well as his conviction for
conspiracy to commit murder.
It is so ordered.
MUÑIZ, C.J., and CANADY, POLSTON, COURIEL, and
GROSSHANS, JJ., concur.
LABARGA, J., concurs in result with an opinion.
FRANCIS, J., did not participate.
NOT FINAL UNTIL TIME EXPIRES TO FILE REHEARING MOTION
AND, IF FILED, DETERMINED.
LABARGA, J., concurring in result.
Because I continue to adhere to my dissent in Lawrence v.
State, 308 So. 3d 544 (Fla. 2020), wherein this Court abandoned
this Court’s decades-long practice of comparative proportionality
review in direct appeal cases, I can only concur in the result.
An Appeal from the Circuit Court in and for Lee County,
Bruce E. Kyle, Judge – Case No. 362015CF000673000BCH
Howard L. “Rex” Dimmig, II, Public Defender, and Karen M. Kinney,
Assistant Public Defender, Tenth Judicial Circuit, Bartow, Florida,
for Appellant
Ashley Moody, Attorney General, Tallahassee, Florida, and
Christina Z. Pacheco, Assistant Attorney General, Tampa, Florida,
- 37 -
for Appellee
- 38 - | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484552/ | Matter of Attorneys in Violation of Judiciary Law § 468-a (Policastro) (2022 NY Slip Op 06532)
Matter of Attorneys in Violation of Judiciary Law § 468-a (Policastro)
2022 NY Slip Op 06532
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-190-22
[*1]In the Matter of Attorneys in Violation of Judiciary Law § 468-a. Committee on Professional Standards, Now Known as Attorney Grievance Committee for the Third Judicial Department, Petitioner; Marc David Policastro, Respondent. (Attorney Registration No. 2535003.)
Calendar Date:July 18, 2022
Before:Lynch, J.P., Pritzker, Reynolds Fitzgerald, Fisher and McShan, JJ.
Monica A. Duffy, Attorney Grievance Committee for the Third Judicial Department, Albany, for petitioner.
Marc David Policastro, Rumson, New Jersey, respondent pro se.
Per Curiam.
Respondent was admitted to practice by this Court in 1993 and was previously admitted in 1990 in his home jurisdiction of New Jersey, where he currently resides and practices law. Respondent was suspended from practice by September 2009 order of this Court for conduct prejudicial to the administration of justice arising from his failure to comply with his attorney registration obligations beginning in 2008 (Matter of Attorneys in Violation of Judiciary Law § 468-a, 65 AD3d 1447, 1472 [3d Dept 2009]; see Judiciary Law § 468-a [5]; Rules of Professional Conduct [22 NYCRR 1200.0] rule 8.4 [d]). He cured his registration delinquency in May 2021 and now moves for his reinstatement. Petitioner opposes respondent's application, noting various deficiencies. In an attempt to address petitioner's concerns, respondent submits a supplemental affidavit, together with additional supporting documentation.
Initially, we find that respondent has substantially fulfilled the procedural requirements for an attorney seeking reinstatement to the practice of law from a suspension of more than six months (see Matter of Attorneys in Violation of Judiciary Law § 468-a [Nenninger], 180 AD3d 1317, 1318 [3d Dept 2020]). To this end, he has, among other things, submitted a sworn affidavit in the proper form set forth in appendix C to Rules for Attorney Disciplinary Matters (22 NYCRR) part 1240 (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.16 [b]) together with the necessary supporting documentation.[FN1] Moreover, Office of Court Administration records reflect that respondent has cured his registration delinquency and remains current in his registration requirements. Although respondent submits proof of his recent successful passage of the Multistate Professional Responsibility Examination (hereinafter MPRE) (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.16 [b]), he admits his failure to file the instant application within one year of having taken the exam, as required, and accordingly requests a waiver of the MPRE requirement. To qualify for such a waiver, an applicant must demonstrate, as is pertinent here, "that additional MPRE testing would be unnecessary under the circumstances" (Matter of Attorneys in Violation of Judiciary Law § 468-a [Alimanova], 156 AD3d 1223, 1224 [3d Dept 2017]; accord Matter of Attorneys in Violation of Judiciary Law § 468-a [Demenge], 206 AD3d 1217, 1218 [3d Dept 2022]). In view of respondent's recent MPRE passage, his otherwise unblemished disciplinary history, his good standing in his home jurisdiction and his consistent participation in legal ethics training, we find that a waiver is appropriate in this instance and therefore grant his request (see Matter of Attorneys in Violation of Judiciary Law § 468-a [Garcia-Bokor], 203 AD3d 1384, 1385 [3d Dept 2022]; Matter of Attorneys in Violation of Judiciary Law § 468-a [Whitaker], 199 AD3d 1161, 1162 [3d Dept 2021]; Matter of Attorneys in Violation of Judiciary Law § 468[*2]-a [Colston], 199 AD3d 1159, 1160 [3d Dept 2021]).
Turning to the merits of respondent's application, we first find that respondent's failure to file the required affidavit of compliance following the order of suspension has been cured by his statements included in his appendix C affidavit (see Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.15 [c]; Rules for Attorney Disciplinary Matters [22 NYCRR] part 1240, appendix C, ¶ 21; Matter of Attorneys in Violation of Judiciary Law § 468—a [Kelly], 190 AD3d 1253, 1254 [3d Dept 2021]). Taking respondent's statements and submissions collectively, we further determine that he has satisfied the three-part test applicable to all attorneys seeking reinstatement from suspension or disbarment (see Matter of Attorneys in Violation of Judiciary Law § 468-a [Oncu], 184 AD3d 1071, 1072 [3d Dept 2020]; Rules for Attorney Disciplinary Matters [22 NYCRR] § 1240.16 [a]), inasmuch as he has clearly and convincingly demonstrated his compliance with the order of suspension and the Rules of this Court, that he possesses the requisite character and fitness for the practice of law, and that it would be in the public's interest to reinstate him to the practice of law in New York (see Matter of Attorneys in Violation of Judiciary Law § 468-a [Patel], 187 AD3d 1489, 1490 [3d Dept 2020]; Matter of Attorneys in Violation of Judiciary Law § 468-a [Wilson], 186 AD3d 1874, 1875 [3d Dept 2020]; Matter of Attorneys in Violation of Judiciary Law § 468-a [Thompson], 185 AD3d 1379, 1381 [3d Dept 2020]; compare Matter of Sullivan, 153 AD3d 1484, 1484 [3d Dept 2017]). Accordingly, we grant respondent's motion.
Lynch, J.P., Pritzker, Reynolds Fitzgerald, Fisher and McShan, JJ., concur.
ORDERED that respondent's motion for reinstatement is granted; and it is further
ORDERED that respondent is reinstated as an attorney and counselor-at-law in the State of New York, effective immediately.
Footnotes
Footnote 1: Respondent filed his application for reinstatement prior to the September 1, 2022 effective date of recent amendments to this Court's Rules, which would have otherwise altered the procedural requirements for respondent's motion (see Rules of App Div, 3d Dept [22 NYCRR] § 806.16 [c]). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484555/ | USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 1 of 8
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-13046
Non-Argument Calendar
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
ANDRES FELIPE MACHADO OVIEDO,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 8:17-cr-00456-JSM-CPT-4
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 2 of 8
2 Opinion of the Court 21-13046
____________________
Before JILL PRYOR, BRASHER, and ANDERSON, Circuit Judges.
PER CURIAM:
Andres Felipe Machado Oviedo, a federal prisoner proceed-
ing with counsel, appeals the district court’s denial of his motion
for compassionate release under 18 U.S.C. § 3582(c)(1)(A), as
amended by § 603(b) of the First Step Act of 2018. He argues that
the district court abused its discretion in denying his motion. The
government moved to dismiss the appeal as untimely, and we car-
ried the motion with the case. After careful review, we grant the
government’s motion.
I.
Oviedo pled guilty to (1) conspiracy to possess with intent
to distribute and to distribute cocaine while aboard a vessel subject
to the jurisdiction of the United States and (2) possession with in-
tent to distribute cocaine while aboard a vessel subject to the juris-
diction of the United States. The court sentenced Oviedo to 120
months’ imprisonment and five years’ supervised release. 1
Years later, Oviedo filed the instant pro se motion for com-
passionate release under the First Step Act. He asserted that
COVID-19 was rampant where he was housed and that his medical
1 Oviedo later moved to vacate, set aside, or correct his sentence under
28 U.S.C. § 2255. The district court denied the motion.
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 3 of 8
21-13046 Opinion of the Court 3
conditions put him at particular risk of complications from con-
tracting COVID-19 such that he had demonstrated extraordinary
and compelling reasons warranting his release. He explained that
he had “severe respiratory distress, orthostatic hypertension, pneu-
monia cephalalgia (headaches), depression, weak immune system,
and lung damage[]” due to a previous COVID-19 infection, all of
which put him at increased risk of contracting the virus again and
suffering particularly serious symptoms from reinfection. Doc. 112
at 8. 2
On June 11, 2021, following the government’s response, the
district court denied the motion, concluding that Oviedo failed to
show extraordinary and compelling reasons for release. The court
also explained that it had considered the 28 U.S.C. § 3553(a) factors,
concluding that they did not support Oviedo’s release.
Oviedo then filed a motion for leave to reply to the govern-
ment’s response. The district court denied the motion as moot.
On July 20, 2021, Oviedo filed a pro se “Motion for Appeal,”
which initiated Appeal No. 21-12541 (“First Appeal”). He did not
clearly indicate which order he was appealing, but the district court
docketed his filing as a notice of appeal from the order denying his
motion for compassionate release. On August 27, 2021, Oviedo
filed a second “Motion for Appeal,” which initiated the instant ap-
peal (“Second Appeal”). He asked the court to “grant [the] motion
2 “Doc.” numbers are the district court docket entries.
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 4 of 8
4 Opinion of the Court 21-13046
for the reasons stated below in the judgment of this case” but did
not include in the filing any reasons for granting his motion.
We issued a jurisdictional question to the parties, asking
them to address (1) what order or orders the Second Appeal in-
tended to appeal and (2) whether the Second Appeal was duplica-
tive of the First Appeal, such that either appeal should be dismissed.
The government responded to the jurisdictional question,
arguing that we should dismiss Oviedo’s Second Appeal because
the notice of appeal was ambiguous and did not comply with Fed-
eral Rule of Appellate Procedure 3. The government contended
that there were no orders or judgments on the district-court docket
from which Oviedo could have taken a valid appeal, including the
February 2018 criminal judgment. The government also asserted
that an appeal from the order denying Oviedo’s motion for com-
passionate release would be duplicative of the First Appeal. The
government did not argue that Oviedo’s notice of appeal was un-
timely to challenge the order denying compassionate release.
We later clerically dismissed Oviedo’s First Appeal for want
of prosecution because he failed to file a timely merits brief. Then,
we construed from the government’s response to the jurisdictional
question a motion to dismiss Oviedo’s Second Appeal as untimely,
granted the motion, and dismissed the appeal in part. 3 We
3 We determined that his appeal was untimely as to his February 2018 criminal
judgment and his § 2255 motion.
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 5 of 8
21-13046 Opinion of the Court 5
concluded that Oviedo’s Second Appeal could proceed solely as to
the district court’s orders denying his motion for compassionate
release and denying as moot his motion for leave to file a reply in
support of his motion for compassionate release. We noted that the
Second Appeal was not duplicative of the First Appeal because the
First Appeal had been clerically dismissed.
Oviedo filed his initial brief, challenging the district court’s
denial of his motion for compassionate release. 4 Before filing its
response brief, the government filed the instant motion to dismiss
Oviedo’s Second Appeal as untimely. The government argued that
Oviedo’s notice of appeal—filed on August 27, 2021—was filed
more than two months after the 14-day deadline to appeal the de-
nial of his motion for compassionate release had passed. 5 We or-
dered that the government’s motion to dismiss be carried with the
case.
II.
To be timely, a criminal defendant’s notice of appeal must
be filed within 14 days6 after entry of the judgment or order being
4 In his initial brief, Oviedo failed to challenge the district court’s denial of his
motion for leave to reply to the government’s response and has thus aban-
doned the issue. See Sapuppo v. Allstate Floridian Ins. Co., 739 F.3d 678, 680
(11th Cir. 2014).
5 Oviedo did not respond to the government’s motion.
6 Under the “prison mailbox rule,” a pro se prisoner’s notice of appeal is
deemed filed on the date that it is delivered for mailing if he uses “the
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 6 of 8
6 Opinion of the Court 21-13046
appealed. Fed. R. App. P. 4(b)(1)(A). “Upon a finding of excusable
neglect or good cause, the district court may—before or after the
time has expired, with or without motion and notice—extend the
time to file a notice of appeal for a period not to exceed 30 days
from the expiration of the time otherwise prescribed by this Rule
4(b).” Fed. R. App. P. 4(b)(4).
The Rule 4(b)(1)(A) time limit is not jurisdictional and in-
stead represents a claim-processing rule. United States v. Lopez,
562 F.3d 1309, 1313 (11th Cir. 2009). Nevertheless, if the govern-
ment objects to the timeliness of a criminal appeal, we “must apply
the time limits of Rule 4(b).” Id. at 1313–14. “Unlike jurisdictional
rules, mandatory claim-processing rules may be forfeited if the
party asserting the rule waits too long to raise the point. If a party
properly raises them, however, they are unalterable.” Manrique v.
United States, 137 S. Ct. 1266, 1272 (2017) (internal quotation
marks omitted). The government can properly raise the timeliness
argument “for the first time” in its response brief on appeal. Lopez,
562 F.3d at 1313. “There is no provision in the Federal Rules of
Criminal Procedure or the Federal Rules of Appellate Procedure
requiring earlier objection to a late notice of appeal.” Id. (internal
quotation marks omitted).
institution’s internal mail system.” See Fed. R. App. P. 4(c); Williams v.
McNeil, 557 F.3d 1287, 1290 n.2 (11th Cir. 2009). Absent contrary evidence,
we will assume that a prisoner’s filing was delivered to prison authorities on
the day that he signed it. Washington v. United States, 243 F.3d 1299, 1301
(11th Cir. 2001).
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 7 of 8
21-13046 Opinion of the Court 7
In Lopez, the period for filing a notice of appeal had expired
on February 21, 2007, the 30-day period for extending the time to
file a notice of appeal had expired on March 23, and Lopez, acting
pro se, filed his “Motion for Appeal” on March 29. Id. at 1310–11.
Initially, we sua sponte dismissed Lopez’s appeal for lack of juris-
diction, but on remand from the Supreme Court, we acknowl-
edged that the deadline in Federal Rule of Appellate Procedure 4(b)
for a defendant to file a notice of appeal in a criminal case was not
jurisdictional. Id. at 1311–13. We then addressed whether the gov-
ernment had forfeited its objection to Lopez’s untimely notice of
appeal by failing to raise that issue before the district court. Id. at
1313–14. We determined that the government had not forfeited its
objection to Lopez’s notice of appeal, reasoning that the district
court, divested of jurisdiction once the notice of appeal was filed,
was not “the appropriate arbiter of the issue” of the notice’s time-
liness—this Court was. Id. at 1313. Thus, the government’s objec-
tion to the notice of appeal properly was directed to this Court in
the first instance. Id.
Here, the government did not forfeit its timeliness challenge
by failing to raise that issue in its response to our jurisdictional
question. See id. Because the government properly raised the time-
liness issue, we must apply the time limits of Rule 4(b). See id. at
1313–14. Oviedo failed to file his notice of appeal within 14 days
after the district court’s order denying his motion for compassion-
ate release, or within the 30 days after that 14-day period, during
which the district court could have extended the time for filing a
USCA11 Case: 21-13046 Date Filed: 11/17/2022 Page: 8 of 8
8 Opinion of the Court 21-13046
notice of appeal for excusable neglect or good cause. See Fed. R.
App. P. 4(b)(1)(A), (b)(4). Accordingly, the government’s motion to
dismiss is GRANTED, and Oviedo’s appeal is DISMISSED as un-
timely.7
7 Even if we were to reach the merits, we would affirm the district court. The
district court did not abuse its discretion in denying Oviedo’s motion for com-
passionate release because the court correctly concluded that Oviedo had not
shown “extraordinary and compelling” reasons justifying compassionate re-
lease. See U.S. Sent’g Guidelines Manual § 1B1.13 (U.S. Sent’g Comm’n 2018);
United States v. Tinker, 14 F.4th 1234, 1237 (11th Cir. 2021). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484554/ | USCA11 Case: 21-14039 Date Filed: 11/17/2022 Page: 1 of 2
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-14039
Non-Argument Calendar
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
BRANDEN WASHINGTON,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Southern District of Florida
D.C. Docket No. 1:21-cr-20029-KMM-1
____________________
USCA11 Case: 21-14039 Date Filed: 11/17/2022 Page: 2 of 2
2 Opinion of the Court 21-14039
Before LUCK, LAGOA, and BRASHER, Circuit Judges.
PER CURIAM:
Erik Cruz, appointed counsel for Branden Washington in
this direct criminal appeal, has moved to withdraw from further
representation of the appellant and filed a brief pursuant to Anders
v. California, 386 U.S. 738 (1967). Our independent review of the
entire record reveals that counsel’s assessment of the relative merit
of the appeal is correct. Because independent examination of the
entire record reveals no arguable issues of merit, counsel’s motion
to withdraw is GRANTED, and Washington’s convictions and sen-
tences are AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484559/ | NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
STATE OF ARIZONA, Respondent,
v.
MICHAEL BLUHM, Petitioner.
No. 1 CA-CR 22-0117 PRPC
FILED 11-17-2022
Appeal from the Superior Court in Navajo County
No. S0900CR201500591
The Honorable Dale P. Nielson, Judge
REVIEW GRANTED; RELIEF DENIED
COUNSEL
Jones Skelton & Hochuli, Phoenix
By Michael R. Shumway
Counsel for Respondent
DuMond Law Firm PLLC, Phoenix
By Samantha Kelli DuMond
Counsel for Petitioner
STATE v. BLUHM
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Samuel A. Thumma delivered the decision of the Court, in
which Judge Cynthia J. Bailey and Vice Chief Judge David B. Gass joined.
T H U M M A, Judge:
¶1 Petitioner Michael Bluhm seeks review of the dismissal of his
petition for post-conviction relief. For the reasons that follow, this court
grants review but denies relief.
FACTS AND PROCEDURAL HISTORY
¶2 In July 2015, Bluhm was indicted on 20 counts of sexual
exploitation of a minor. The grand jury heard testimony that Bluhm
possessed images and videos of child pornography, including children
under the age of ten, on his computer hard drive. Bluhm admitted to
searching for, downloading and viewing images of child pornography for
17 years.
¶3 In March 2016, Bluhm pled guilty to one count of sexual
exploitation of a minor and one count of attempted sexual exploitation of a
minor, both dangerous crimes against children (DCAC). In the written plea
agreement, Bluhm stipulated to a 20-year flat prison sentence followed by
lifetime probation, with the State dismissing the remaining counts. After a
colloquy, the superior court found Bluhm knowingly, intelligently and
voluntarily entered the plea agreement and that it was supported by a
factual basis. After accepting the plea, the court sentenced Bluhm according
to its terms. In July 2016, Bluhm filed an untimely notice of post-conviction
relief, which the superior court summarily dismissed. Bluhm did not seek
review of that ruling.
¶4 In February 2019, Bluhm filed this second notice of post-
conviction relief, alleging that Wright v. Gates, 243 Ariz. 118 (2017), was a
significant change in the law. Counsel was appointed to represent Bluhm,
who filed a petition arguing the DCAC sentencing enhancements should
2
STATE v. BLUHM
Decision of the Court
not apply because Bluhm had no contact with the minor victims.1 The
superior court granted Bluhm’s request for an evidentiary hearing, but at
the hearing, only heard argument. After additional briefing, the court
dismissed the petition. This timely petition for review followed.
DISCUSSION
¶5 Bluhm repeats his arguments that the DCAC sentencing
enhancements should not apply to cases when there is no contact with the
victim and the DCAC sentencing enhancements in his plea agreement were
contrary to law and should be removed. This court reviews the denial of a
petition for post-conviction relief for an abuse of discretion, State v.
Gutierrez, 229 Ariz. 573, 577 ¶ 19 (2012), reviewing issues of statutory
interpretation de novo, State v. Hansen, 215 Ariz. 287, 289 ¶ 6 (2007).
¶6 Claims under Rule 33.1(a) must be filed “within 90 days after
the oral pronouncement of sentence.” Ariz. R. Crim. P. 33.4(b)(3)(A). Claims
under Rule 33.1(a) also are precluded if they were waived in a prior post-
conviction proceeding. Ariz. R. Crim. P. 33.2(a)(3). While claims for relief
under Rules 33.1(b) through (h) cannot be waived in a prior proceeding, “in
a successive or untimely post-conviction notice, the defendant must explain
the reasons for not raising the claim in a previous notice or petition, or for
not raising the claim in a timely manner.” Ariz. R. Crim. P. 33.2(b)(1); see
also Ariz. R. Crim. P. 33.4(b)(3)(B) (“A defendant must file the notice for a
claim under Rules 33.1(b) through (h) within a reasonable time after
discovering the basis for the claim.”). This court may find an issue is
precluded, even if the State does not raise preclusion. Ariz. Rev. Stat.
(A.R.S.) § 13-4232(C); see also Ariz. R. Crim. P. 33.2(b)(1).
¶7 This is Bluhm’s second post-conviction relief proceeding filed
nearly three years after entry of his plea and sentencing. Because this is a
successive and untimely proceeding, Bluhm is precluded from relief based
on Rule 33.1(a). To the extent Bluhm raises a claim based on Rules 33.1(b)
through (h), he is likewise precluded. Bluhm does not explain the reasons
for failing to raise these claims -- challenging a stipulated sentence in a plea
agreement -- in a previous or timely proceeding. See State v. Carriger, 143
1 Bluhm’s petition did not argue that Wright was a significant change in the
law, meaning that issue is waived. See Ariz. R. Crim. P. 33.16(c)(2)(B)
(petition for review by this court must contain issues decided by the
superior court that defendant is presenting for review); State v. Stefanovich,
232 Ariz. 154, 158 ¶ 16 (App. 2013) (failing to develop argument in
meaningful way constitutes waiver).
3
STATE v. BLUHM
Decision of the Court
Ariz. 142, 146 (1984) (failure to strictly comply with the rules constitutes
waiver). For these reasons, the superior court did not err in dismissing
Bluhm’s petition.
¶8 Apart from preclusion, Bluhm has shown no basis for relief.
Bluhm claims that applying the DCAC enhancement in sexual exploitation
of a minor cases when there is no victim contact creates ambiguity in the
statute by deviating from the Legislature’s “intent.” But beyond the vague
Legislative-intent claims, Bluhm makes no specific allegation that the
sexual exploitation or DCAC sentencing statutes are unclear. Nor has he
shown that the Legislature’s statutory language must yield to vague claims
about Legislative intent.
¶9 Sexual exploitation of a minor includes “possessing . . . any
visual depiction in which a minor is engaged in exploitive exhibition or
other sexual conduct.” A.R.S. § 13-3553(A)(2). “Sexual exploitation of a
minor is a class 2 felony and if the minor is under fifteen years of age it is
punishable pursuant to § 13-705,” the DCAC statute. A.R.S. § 13-3553(C).
Section 13-705, in turn, states that DCAC offenses include “[s]exual
exploitation of a minor” if “committed against a minor who is under fifteen
years of age.” A.R.S. § 13-705(T)(1)(g). When the statutory language is clear,
as it is here, a court must “follow the text as written without employing
other rules of statutory construction.” State v. Givens, 206 Ariz. 186, 188 ¶ 5
(App. 2003).
¶10 Bluhm’s contention that the DCAC enhancement requires a
“hands-on” offense is contrary to the text of the statute. There is no such
requirement imposed by the Legislature. And the DCAC statute
encompasses crimes that do not necessitate a “hands-on” offense. Sexual
exploitation of a minor and commercial exploitation of a minor meet this
definition. See A.R.S. §§ 13-705(T)(1)(g) & (f). So do preparatory offenses,
which are also defined as DCAC offenses. See A.R.S. § 13-705 (R); see also
Wright, 243 Ariz. at 121 ¶ 11 (rejecting narrow reading of DCAC
enhancement applying to preparatory offenses). The DCAC statute is not
limited to “hands-on” offenses.
¶11 Bluhm relies on State v. Bartlett, 171 Ariz. 302 (1992) and State
v. Davis, 206 Ariz. 377 (2003) in arguing that DCAC enhancements require
“something more,” such as physical “dangerousness” to a child. Bartlett
and Davis involved young male defendants who had consensual sex with
post-pubescent females and received long prison sentences under the
DCAC enhancement. Bartlett, 171 Ariz. at 311; Davis, 206 Ariz. at 384 ¶ 36.
The Arizona Supreme Court concluded the prison sentences were grossly
4
STATE v. BLUHM
Decision of the Court
disproportionate to the crimes under an Eighth Amendment analysis and
vacated their sentences. Bartlett, 171 Ariz. at 311; Davis, 206 Ariz. at 391 ¶
72. The court’s recognition of proportionality in sentencing -- noting a
defendant “whose crime involved no violence and whose victims willingly
consented, [should] be treated much less severely than those who commit
violent sexual crimes against young children” -- does not create an
exception for crimes with no victim contact. Bartlett, 171 Ariz. at 309.
¶12 Bartlett and Davis noted their analysis was limited to the
specific facts and circumstances of those cases, which were (and are)
“exceedingly rare.” Bartlett, 171 Ariz. at 305 n.3; Davis, 206 Ariz. at 382 ¶ 20
& 388 ¶ 49. The issues in those cases are quite different from those here.
Bluhm does not argue that his stipulated sentence violates the Eighth
Amendment. And unlike Bartlett and Davis, this case involves a 33-year old
man who spent more than a decade searching for, and downloading,
images of nonconsensual sexual conduct with minors, some less than 10
years old.
¶13 Nor has Bluhm shown that applying DCAC enhancements to
child pornography offenders in the internet age is not captured by the
statute. Because offenders are now able to download and view child
pornography, Bluhm claims these crimes are no longer violent toward a
child as envisioned by the Legislature in 1985. The Legislature, however,
enacted the DCAC enhancements “to deter and punish those who
participate in the child pornography industry.” State v. Berger, 212 Ariz. 473,
483 ¶ 51 (2006); see also State v. Wagstaff, 164 Ariz. 485, 490–91 (1990)
(“Protecting the children of Arizona and punishing severely those who
prey on them certainly are two legislative goals.”). In Berger, the defendant
downloaded and viewed child pornography on his computer for six years,
and the court concluded that 20 consecutive 10-year sentences for sexual
exploitation of a minor met those Legislative goals. 212 Ariz. at 475 ¶ 5, at
483 ¶ 51. Bluhm’s stipulated 20-year sentence does so as well, even though
he obtained the illicit materials on the internet and regardless of whether
he did so outside or inside the home. Bluhm’s conclusory arguments about
an internet user having less culpability are without merit and do not change
the scope of the statute.
¶14 Bluhm further asserts that there was no finding that Bluhm’s
crimes were committed against a minor. Construing this as a challenge to
the factual basis of his plea, Bluhm’s argument fails. The factual basis to
support a plea may be ascertained from the record, including the plea
colloquy and grand jury transcripts. State v. Sodders, 130 Ariz. 23, 25 (1981).
The record here contains sufficient evidence to satisfy the factual basis for
5
STATE v. BLUHM
Decision of the Court
both the convictions and the DCAC enhancement. Looking at language out
of context, Bluhm relies on Wright to support his contention that additional
findings were required. Wright, however, was limited to holding there must
be an actual child victim for DCAC enhancements to apply. 243 Ariz. at 122
¶ 18. There has been no evidence that the minors depicted in the images
charged in the indictment were not actual child victims.
¶15 Bluhm’s attempt to create an exception for crimes that do not
involve contact with the minor victim fails as the plain language and
legislative history support the DCAC enhancement when applied to sexual
exploitation of a minor. Though Bartlett, Davis and Wright recognize limits
on applying the DCAC enhancements, they are rare exceptions. Bluhm fails
to show that any of these exceptions apply here.
CONCLUSION
¶16 Although granting review, this court denies relief.
AMY M. WOOD • Clerk of the Court
FILED: AA
6 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484560/ | NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
IN RE TERMINATION OF PARENTAL
RIGHTS AS TO D.C.
No. 1 CA-JV 22-0173
FILED 11-17-2022
Appeal from the Superior Court in Maricopa County
No. JD533416
The Honorable Ashley V. Halvorson, Judge
AFFIRMED
COUNSEL
John L. Popilek, P.C., Scottsdale
By John L. Popilek
Counsel for Appellant
Arizona Attorney General’s Office, Mesa
By Amanda Adams
Counsel for Appellee, Department of Child Safety
MEMORANDUM DECISION
Vice Chief Judge David B. Gass delivered the decision of the court, in which
Presiding Judge Samuel A. Thumma and Judge Cynthia J. Bailey joined.
IN RE TERM OF PARENTAL RIGHTS AS TO D.C.
Decision of the Court
G A S S, Vice Chief Judge:
¶1 Father appeals the superior court’s order terminating his
parental rights to D.C., his biological child. D.C.’s mother is not a party to
this appeal. We affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 This court views the evidence, and reasonable inferences
drawn from it, in the light most favorable to affirming the superior court’s
ruling. See Jesus M. v. Ariz. Dep’t of Econ. Sec., 203 Ariz. 278, 282, ¶ 13 (App.
2002).
¶3 Father and mother began a relationship in 2015. In November
2016, mother gave birth to D.C. Father and mother had an extensive history
of domestic violence. In September 2017, police arrested father for twice
punching mother in the face with a closed fist while she was holding D.C.
Father pled guilty to assault, a domestic violence offense, and marijuana
possession. The superior court placed father on probation.
¶4 Father’s probation prohibited contact with mother without
prior written approval. In October 2019, the superior court issued a warrant
for father’s arrest because he stopped contacting his probation officer. In
May 2020, the Department of Child Safety (DCS) received reports of
domestic violence and found father living with mother and D.C. without
written consent. When the police arrived at the home, father initially tried
to run, and when apprehended, gave the police a false name. DCS took
temporary custody of D.C. and became concerned when D.C. displayed
signs of trauma and anxiety. In behavioral therapy, D.C. repeatedly
mentioned father and described how he “makes Mommy cry and hurts
Mommy’s head.”
¶5 In June 2020, DCS filed a petition alleging D.C. dependent
because of father’s history of domestic violence and substance abuse. Father
participated in an initial dependency hearing, during which the superior
court advised him it might terminate his parental rights to D.C. if he did
not participate in services. DCS conditioned reunification on father
completing services and a psychological evaluation.
¶6 In September 2020, father pled no contest to DCS’s
dependency action. The superior court found D.C. dependent as to father
and adopted a family reunification case plan. At that point, the superior
court noted father was in contact with DCS until August 2020 but did not
2
IN RE TERM OF PARENTAL RIGHTS AS TO D.C.
Decision of the Court
engage in reunification services. DCS again offered father services
including drug testing and treatment, supervised visitation, and a
psychological evaluation. Between the September 2020 dependency finding
and December 2021, father stopped participating in the dependency. Father
later sought to explain why he did not participate during that time,
including he was incarcerated and he thought the case had resolved.
¶7 In September 2021, the superior court changed the case plan
to termination and adoption, and DCS filed a motion to terminate father’s
parental rights based on abandonment and nine- and fifteen-months out-
of-home placement grounds. In December 2021, father appeared for the
continued initial termination hearing. The superior court continued the
hearing until March 2022, and DCS again referred father for services,
including a psychological evaluation.
¶8 In March 2022, father completed his psychological evaluation.
The evaluator concluded at the time father had a “poor prognosis” for
becoming an effective parent in the foreseeable future. According to the
evaluator, father denied personal responsibility for DCS’s involvement,
refused forthcoming participation, and lacked insight into ways he could
improve as a parent. The evaluator recommended services for father and
expressed concern about father having visits because of the earlier trauma
father caused D.C. In April 2022, DCS moved to suspend visits between
father and D.C. based on the evaluator’s concern. The superior court denied
the motion.
¶9 In May 2022, at the termination adjudication, the superior
court heard testimony from father, father’s fiancé, and DCS’s caseworker.
Father claimed his case manager never returned his calls, but the superior
court found father’s explanations “were not credible.” Additionally, the
superior court found father never participated in services and questioned
the legitimacy of a paystub father submitted into evidence.
¶10 After weighing the evidence and the witnesses’ credibility,
the superior court found DCS proved all three grounds for termination.
After finding termination was in D.C.’s best interests, the superior court
terminated father’s parental rights. Father timely appealed. This court has
jurisdiction under article VI, section 9, of the Arizona Constitution, and
A.R.S. §§ 8-235, 12-120.21.A, and 12-2101.A.1.
ANALYSIS
¶11 On appeal, father argues DCS failed to make diligent efforts
to provide appropriate reunification services because it did not comply
3
IN RE TERM OF PARENTAL RIGHTS AS TO D.C.
Decision of the Court
with his belated request to have supervised visits with D.C. and violated
his statutory and constitutional rights by withholding those requested visits
on “pure speculation as to the impact on D.C.” Though the superior court
found sufficient evidence to grant termination on three separate grounds,
this court will not reverse if one of the grounds was appropriate. See A.R.S.
§ 8-533.B; Michael J. v. Ariz. Dep’t of Econ. Sec., 196 Ariz. 246, 249, ¶ 12 (2000).
Here, that ground is abandonment.
¶12 To terminate parental rights, the superior court must find
DCS proved both by clear and convincing evidence one of the statutory
grounds for termination and by a preponderance of evidence termination
is in the child’s best interests. Alma S. v. Dep’t of Child Safety, 245 Ariz. 146,
149–50, ¶ 8 (2018). In reviewing the superior court’s findings, this court does
not reweigh the evidence because the superior court is in “the best position
to weigh the evidence, observe the parties, judge the credibility of
witnesses, and resolve disputed facts.” Jordan C. v. Dep’t of Econ. Sec., 223
Ariz. 86, 93, ¶ 18 (App. 2009) (citations omitted).
¶13 Arizona law defines “abandonment” as:
the failure of a parent to provide reasonable support and to
maintain regular contact with the child, including providing
normal supervision. Abandonment includes a judicial finding
that a parent has made only minimal efforts to support and
communicate with the child. Failure to maintain a normal
parental relationship with the child without just cause for a
period of six months constitutes prima facie evidence of
abandonment.
A.R.S. § 8-531(1). Abandonment does not consider subjective intent, only
objective conduct. Michael J., 196 Ariz. at 249, ¶ 18.
¶14 To begin, father offers no credible evidence he provided
“reasonable support” and maintained “regular contact” with D.C. during
the dependency. At best, he says he had virtual contact with D.C. through
mother, though mother also did not have D.C. during that time. He does
not suggest he provided “normal supervision.” Indeed, nothing in the
record suggests father made even “minimal efforts to support and
communicate with” D.C.
¶15 Even so, father argues termination was improper because
DCS did not make diligent efforts when he reengaged in the case in
December 2021. DCS has a constitutional obligation to make reasonable
efforts to unite a family to protect the parent’s due process rights. See Donald
4
IN RE TERM OF PARENTAL RIGHTS AS TO D.C.
Decision of the Court
W. v. Dep’t of Child Safety, 247 Ariz. 9, 22, ¶ 46 (App. 2019). While parents
have a fundamental right to raise their children, the State has a right to
protect children from abusive parents and may impose reasonable
requirements like therapy or counseling. Minh T. v. Ariz. Dep’t of Econ. Sec.,
202 Ariz. 76, 80, ¶ 14 (App. 2001). A parent may not prevent termination by
refusing to participate in reasonably required services. See Maricopa Cnty.
Juv. Action No. JS-501904, 180 Ariz. 348, 353 (App. 1994).
¶16 The superior court found DCS’s visitation requirements were
reasonable because father made D.C. anxious and fearful. The superior
court also found father did not attempt to visit D.C. after her June 2020
removal until his belated efforts in early 2022—more than 18 months later.
And at the outset of the case, the superior court warned father it could
terminate his parental rights if he failed to participate in services. Father did
not heed the warning.
¶17 DCS produced substantial evidence of father’s failure and its
own attempts to contact father, including progress reports and case worker
testimony. Yet, despite DCS’s continued attempts to contact him, father
absented himself from the case for more than 14 months, from September
2020 to December 2021. In October 2020, father also absconded from
probation. True, after father spent more than 18 months refusing services,
he completed a psychological evaluation. But the superior court considered
this belated participation “too little, too late,” especially considering the
evaluator believed father was not forthcoming. See Maricopa Cnty. Juv.
Action No. JS-501568, 177 Ariz. 571, 577 (App. 1994) (saying State need not
keep the “window of opportunity for remediation open indefinitely”
because doing so is not in the child’s or parent’s best interests).
Additionally, father told the evaluator his parenting skills did not require
improvement. Considering father’s non-involvement, history of domestic
violence, and failure to acknowledge any parenting issues, the superior
court had sufficient evidence to find DCS’s actions reasonable.
¶18 Father challenged DCS’s evidence, but the superior court did
not find father’s evidence credible. This court does not reweigh the
evidence, including the credibility of witnesses. See Jordan C., 223 Ariz. at
93, ¶ 18.
¶19 The record supports the superior court’s credibility findings.
To begin, father provided contradictory and confusing explanations for his
absence. Father argued he thought the dependency case had ended and
mother had D.C., but he offered no evidence to support his alleged belief
beyond testimony from himself and his fiancé. Notably, father stopped
5
IN RE TERM OF PARENTAL RIGHTS AS TO D.C.
Decision of the Court
participating in the dependency at the same time he absconded from
probation. And father confusingly faults DCS for his actions while at the
same time saying he thought DCS was out of the picture. Father also claims
he could not participate in DCS’s services because he was in jail, but father
was incarcerated for only 7 days over his 13-month absence.
¶20 As a final point, father submitted a pay stub as evidence of his
financial capacity to support D.C. But cross-examination established the
paystub’s flaws. The superior court, thus, reasonably found the paystub
substantially undermined father’s credibility because it was full of
irregularities. These few examples support the superior court’s credibility
findings.
¶21 Reasonable evidence supports the superior court’s finding
DCS acted reasonably and provided diligent efforts to reunify father and
D.C. Father does not challenge the superior court’s best-interests
determination, “and the record reflects the juvenile court reasonably
concluded that terminating [father’s] parental rights would benefit or
prevent harm to [D.C.]. Because the record supports these findings . . . , we
will not disturb them on appeal.” Alice M. v. Dep’t of Child Safety, 237 Ariz.
70, 73–74, ¶ 13 (App. 2015).
CONCLUSION
¶22 We affirm.
AMY M. WOOD • Clerk of the Court
FILED: AA
6 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484561/ | Filed 11/17/22 P. v. Heinrichs CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
THE PEOPLE, 2d Crim. No. B315645
(Super. Ct. No. 21F-00822)
Plaintiff and Respondent, (San Luis Obispo County)
v.
JAMES HEINRICHS,
Defendant and Appellant.
James Heinrichs appeals from the judgment after the trial
court’s denial of his motion to suppress evidence seized during a
traffic stop. He contends the police unconstitutionally prolonged
the traffic stop beyond the time in which a reasonably diligent
officer would have completed the mission of the stop. We
conclude the police did not unduly prolong the stop. We affirm.
FACTUAL AND PROCEDURAL BACKGROUND
On February 11, 2021, at approximately 9:50 a.m., Officer
Christopher Siglin of the Pismo Beach Police Department
observed Heinrichs’s vehicle leaving the parking lot of a motel
known for “significant . . . narcotics activity.” The officer followed
Heinrichs, who was exceeding the posted speed limit. Heinrichs’s
vehicle also had a malfunctioning center brake light. Siglin
initiated a traffic stop based on those violations.
After contacting Heinrichs, Siglin relayed Heinrichs’s
driver’s license information to dispatch to “[c]heck his license
status” and to check for any warrants or probation referrals.
While waiting for a response, the officer observed closed
containers of “Smirnoff Ice” on the front passenger seat and noted
that Heinrichs’s “eyes were glassy.” After confirming Heinrichs
was not intoxicated, Siglin asked him whether he was caught up
on his tickets and if he had missed any court hearings. Heinrichs
admitted he had been arrested in September 2020 for narcotics
possession and had missed a court hearing in that matter, but
reported his attorney had appeared for him.
Thereafter, a dispatch officer informed Siglin that
Heinrichs had no warrants or probation referrals. The trial court
determined that within 45 seconds of the receipt of that
information, the officer asked Heinrichs whether he had anything
in the vehicle the officer should know about, such as narcotics or
drug paraphernalia.
Our review of Officer Siglin’s body camera video reveals a
much shorter time frame. After speaking with the dispatch
officer, Siglin said “10-4,” turned to Heinrichs and asked whether
he had any narcotics or drug paraphernalia in his car. The
inquiry took two seconds. Heinrichs immediately admitted there
“might be a pipe or two in there.”
After Siglin requested an assisting police unit, Heinrichs
admitted he also had narcotics in the vehicle. A subsequent
search of the vehicle revealed methamphetamine.
An information charged Heinrichs with possession for sale
of a controlled substance (Health & Saf. Code, § 11378) and
transportation of a controlled substance (id. § 11379, subd. (a).)
2
It was further alleged that Heinrichs was released on bail in two
other cases (Pen. Code, § 12022.1) and had a prior strike
conviction (id., §§ 667, subds. (d) & (e), 1170.12, subds. (b) & (c).)
Defense counsel moved to suppress the evidence seized
during the traffic stop search. (Pen. Code, § 1538.5.) Officer
Siglin testified as the sole witness. Videos from the officer’s dash
and body cameras were admitted. Siglin testified that as soon as
dispatch confirmed there were no pending warrants or probation
referrals, he “was going to cite [Heinrichs] for the . . . equipment
violation, but because [Heinrichs] had mentioned the prior arrest
for a possession of narcotics, I figured I’d ask him really quick if
there was anything illegal inside the car.”
The trial court denied the motion to suppress, finding that
Siglin properly stopped Heinrichs for motor vehicle infractions
and that the traffic stop was not unduly prolonged.
Heinrichs pled no contest to transporting a controlled
substance and admitted the prior strike violation. The trial court
sentenced Heinrichs to the middle term of three years, doubled to
six years for the prior strike.
DISCUSSION
Standard of Review
“In ruling on a motion to suppress, the trial court must find
the historical facts, select the rule of law, and apply it to the facts
in order to determine whether the law as applied has been
violated. [Citation.] We review the court’s resolution of the
factual inquiry under the deferential substantial evidence
standard. The ruling on whether the applicable law applies to
the facts is a mixed question of law and fact that is subject to
independent review. [Citation.]” (People v. Ramos (2004) 34
Cal.4th 494, 505.)
3
Substantial Evidence Supports the Trial Court’s
Denial of Heinrichs’s Motion to Suppress
The Fourth Amendment’s proscription on unreasonable
searches and seizures requires that an arrest be based on
probable cause to believe a crime has been committed (People v.
Celis (2004) 33 Cal.4th 667, 673), while a detention may be based
on a reasonable suspicion of criminal activity. (Id. at p. 674.) A
traffic stop based on a suspicion that the driver has committed a
traffic infraction is an example of a brief investigatory detention,
permissible to determine whether a crime has been committed.
But an investigatory traffic stop must remain a relatively brief
encounter. Absent indications of criminal activity beyond the
initially observed infraction, officers may not extend a stop’s
duration beyond the time necessary to address the traffic
violation and attend to officer safety concerns. (Rodriguez v.
United States (2015) 575 U.S. 348, 354 [191 L.Ed.2d 492].)
During a stop, an officer is allowed to inquire into matters
unrelated to the suspected traffic violation. (Arizona v. Johnson
(2009) 555 U.S. 323, 333 [172 L.Ed.2d 694].) However, if those
inquiries “measurably extend the duration of the stop,” it may
become an unconstitutional seizure. (Ibid.)
The trial court found that “when . . . Officer Siglin asked
Mr. Heinrichs if he had any paraphernalia or illegal objects on
him, there had been a passage of a total of I believe 45 seconds
from when he received [the dispatch] information. I can’t find
that that’s unreasonably prolonged. The officer has the right to
ask that question. Mr. Heinrichs answered that question, and
that, from that point forward, gave the officer further reason to
go forward. In fact, it was less than another, I believe 40, 45
seconds before Mr. Heinrichs acknowledged that he actually had
the drugs in the car. So I don’t believe the stop was unduly
prolonged.”
4
We agree with Heinrichs that Officer Siglin’s question
regarding whether he had any paraphernalia or illegal objects in
the vehicle was unrelated to the issuance of a citation for the
traffic infractions. But we cannot agree that the record shows
that the question measurably extended the traffic stop’s duration.
It is undisputed the police were entitled to wait until dispatch
advised whether Heinrichs had any warrants or probation
referrals.
Officer Siglin’s body camera video confirms that his inquiry
to Heinrichs occurred in even less than the 45 seconds found by
the trial court. Siglin concluded his transmission with dispatch,
turned to Heinrich and asked him whether he had any
paraphernalia or illegal objects. Heinrichs admitted to having “a
pipe or two.” The exchange took only a few seconds. Such a brief
continued detention beyond the period needed to check for
warrants and probation was not unreasonable.
DISPOSITION
The order denying the motion to suppress evidence is
affirmed.
NOT TO BE PUBLISHED.
CODY, J.*
We concur:
YEGAN, Acting P.J. BALTODANO, J.
*Judge of the Ventura Superior Court assigned by the
Chief Justice pursuant to article VI, section 6 of the California
constitution.
5
Timothy S. Covello, Judge
Dodie A. Harman, Judge
Superior Court County of San Luis Obispo
______________________________
Richard L. Fitzer, under appointment by the Court of
Appeal, for Defendant and Appellant.
Rob Bonta, Attorney General, Lance E. Winters, Chief
Assistant Attorney General, Susan Sullivan Pithey, Senior
Assistant Attorney General, Noah P. Hill, Supervising Deputy
Attorney General, and Nima Razfar, Deputy Attorney General,
for Plaintiff and Respondent.
6 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484553/ | USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 1 of 25
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-11253
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
DANIEL POSEY, III,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Northern District of Alabama
D.C. Docket No. 2:20-cr-00235-ACA-GMB-1
____________________
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 2 of 25
2 Opinion of the Court 21-11253
Before GRANT, LUCK, and ANDERSON, Circuit Judges.
LUCK, Circuit Judge:
After pleading guilty, Daniel Posey appeals his sixty-month
sentence for possessing a firearm as a convicted felon, in violation
of 18 U.S.C. section 922(g)(1). Posey argues that the district court
made three errors in calculating his advisory guideline range. First,
Posey contends that the district court erred in determining his base
offense level as twenty under guideline section 2K2.1(a)(4)(A) be-
cause his prior Alabama conviction for possessing marijuana for
other than personal use wasn’t a “controlled substance offense.”
Second, Posey asserts that the district court erred in applying a two-
level enhancement under guideline section 2K2.1(b)(1)(A) because
he possessed fewer than three firearms. And third, Posey maintains
that the district court erred in applying a four-level enhancement
under guideline section 2K2.1(b)(6)(B) because he didn’t possess
the firearms “in connection with another felony offense.” We af-
firm.
FACTUAL BACKGROUND AND PROCEDURAL HISTORY
Offense Conduct and Guilty Plea
In May 2020, law enforcement officers in Bessemer, Ala-
bama found a known drug dealer shot in Posey’s backyard. The
officers obtained an arrest warrant and used a confidential inform-
ant to arrange a controlled buy of heroin from Posey so that they
could arrest him. The officers arrested Posey when he got into the
confidential informant’s car at the prearranged location—a Metro
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 3 of 25
21-11253 Opinion of the Court 3
PCS store—and found three guns: an AR-15 pistol and Glock 37 in
Posey’s car and a Glock 23 in the confidential informant’s car.
A federal grand jury indicted Posey in a one-count indict-
ment for possessing a firearm as a convicted felon. Posey pleaded
not guilty at his initial appearance but later entered a “blind plea”
of guilty. As Posey’s counsel explained at the change of plea hear-
ing, Posey entered “a plea without benefit of the plea agreement”
to avoid “stipulating to the facts for sentencing purposes.”
Presentence Investigation Report
The probation officer prepared a presentence investigation
report that recommended: (1) a base offense level of twenty under
guideline section 2K2.1(a)(4)(A) because Posey “committed the in-
stant offense subsequent to sustaining a felony conviction for a con-
trolled substance offense”; (2) a two-level enhancement under
guideline section 2K2.1(b)(1)(A) because the offense involved three
firearms; (3) a four-level enhancement under guideline sec-
tion 2K2.1(b)(6)(B) because Posey “possessed firearms in connec-
tion with other felony offenses”; and (4) a three-level decrease un-
der guideline section 3E1.1 for accepting responsibility. The
presentence investigation report used Posey’s 2016 Alabama con-
viction for possessing marijuana for other than personal use, in vi-
olation of Alabama Code section 13A-12-213(a)(1), as his prior
“controlled substance offense” under guideline sec-
tion 2K2.1(a)(4)(A). And the presentence investigation report listed
the “other felony offenses” under guideline section 2K2.1(b)(6)(B)
as: (1) Posey’s pending state charges for “conspiracy to distribute a
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 4 of 25
4 Opinion of the Court 21-11253
controlled substance” and “attempt to commit a controlled sub-
stance crime” that arose from the controlled sale of heroin to the
confidential informant; and (2) “an alternative theory” that Posey
“planned to rob the [confidential informant].” Based on a total of-
fense level of twenty-three and a criminal history category of II, the
probation officer calculated Posey’s guideline range to be fifty-one
to sixty-three months of imprisonment.
Posey’s Objections to the Presentence Investigation Report
Posey objected to the presentence investigation report’s:
(1) calculation of his base offense level as twenty under sec-
tion 2K2.1(a)(4)(A); (2) two-level enhancement for possessing three
firearms under section 2K2.1(b)(1)(A); and (3) four-level enhance-
ment for possessing a firearm in connection with another felony
offense under section 2K2.1(b)(6)(B). Posey objected to the use of
his Alabama marijuana conviction as a “controlled substance of-
fense” under section 2K2.1(a)(4)(A). Posey argued that his mariju-
ana conviction was not “categorically” a “controlled substance of-
fense” because: (1) section 13A-12-213(a) “ma[de] it a crime to pos-
sess mari[j]uana for other than personal use and possessing
mari[j]uana after prior convictions”; and (2) “[s]imple possession of
drugs” did not have the “intent to distribute” required for a “con-
trolled substance offense” under section 2K2.1(a)(4)(A).
Posey also objected to the finding that his offense involved
three firearms under section 2K2.1(b)(1)(A) because “[t]he number
of weapons in [his] actual or constructive possession [was] less than
three.” And he objected to the finding that he possessed a firearm
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 5 of 25
21-11253 Opinion of the Court 5
in connection with another felony offense under sec-
tion 2K2.1(b)(6)(B) because “[t]here were no drugs found on or
around [him] . . . and there [was] no evidence of robbery or other
criminal offenses.”
Sentencing
At sentencing, Posey made the same “three primary objec-
tions” to the presentence investigation report. First, Posey “pre-
serve[d] [his] objection and continue[d] to state that [he] believe[d]
that [possession of marijuana for other than personal use], as de-
fined under Alabama law, [was] overly broad and should not be
counted as a controlled substances offense.” The district court
overruled the objection and noted that “it[ was] on the record for
appeal.” Second, Posey objected to the finding that he had actual
or constructive possession of the AR-15 pistol, the Glock 37, and
the Glock 23 because he “would like the government to prove that
all three of those weapons were associated with the offense.” And
third, Posey objected to the finding that Posey possessed a firearm
“in furtherance of another crime.”
The government presented evidence to support the en-
hancements for possessing three firearms and for possessing the
firearms in connection with another felony offense. The govern-
ment introduced video from Metro PCS’s security camera and pho-
tos of the guns that the officers found inside Posey’s and the confi-
dential informant’s cars. The government also called Officer
Charles White, a detective with the Bessemer Police Department.
Officer White testified about the shooting in Posey’s backyard, the
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 6 of 25
6 Opinion of the Court 21-11253
controlled buy between Posey and the confidential informant,
Posey’s arrest, and the evidence the officers collected.
Officer White testified that he responded to the scene of the
shooting in Posey’s backyard. Officer White was familiar with
Posey because Posey had been arrested in Bessemer at least five
times. After the victim told law enforcement that Posey was the
shooter, the officers got an arrest warrant for Posey.
The day after the shooting, Officer White arranged for the
confidential informant to set up a controlled buy of heroin from
Posey so that the officers could arrest him. Officer White in-
structed the confidential informant to send text messages to Posey
saying that she wanted to buy $60 worth of heroin, which Officer
White explained would be about three-tenths of a gram. Officer
White was present when the confidential informant sent the text
messages. Officer White explained that the confidential informant
and Posey arranged to meet at the Western Hills Mall in Fairfield,
Alabama.
Before the confidential informant drove to meet Posey, Of-
ficer White searched her and every part of her car and confirmed
that there was no money, “contraband,” or firearms. Officer White
gave the confidential informant $60, placed a “wire” on her, and
followed her as she drove to the Western Hills Mall. During the
drive, the confidential informant told Officer White that Posey had
called her and changed the meeting location to a Metro PCS store
across the street from the Western Hills Mall. Officer White never
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 7 of 25
21-11253 Opinion of the Court 7
lost sight of the confidential informant’s car as she drove to meet
Posey.
Video from Metro PCS’s security camera showed that Posey
arrived at Metro PCS with two other people in a Nissan Sentra be-
fore the confidential informant arrived. Posey was in the front pas-
senger seat, Maceo Williams was the driver, and Victoria Smith
was in the backseat. When the confidential informant arrived, she
pulled into a parking spot next to the Sentra. Officer White ob-
served Posey get out of the Sentra and into the front passenger seat
of the confidential informant’s car.
Law enforcement officers arrested Posey before he could
even shut the door to the confidential informant’s car. Williams—
the Sentra’s driver—took off running but was caught and arrested.
Smith—the Sentra’s other passenger—complied with the officers’
instructions and remained at the scene.
The officers searched the confidential informant’s car and
found a Glock 23 on the floorboard behind the driver’s seat. When
the officers searched the Sentra, they found a digital scale that Of-
ficer White testified was of the type commonly used to weigh nar-
cotics. The officers also found two guns in the Sentra: (1) a
Glock 37 between the center console and the driver’s seat; and
(2) an American Tactical AR-15 pistol leaned against the center
console on the passenger’s side. Officer White testified that the
Glock 37 was visible and reachable from the passenger’s seat and
that all three guns were loaded and ready to be fired.
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 8 of 25
8 Opinion of the Court 21-11253
The officers did not find any heroin at the scene. Officer
White explained that “$60 worth of heroin can easily be thrown in
the floor, drag your foot across it, you scrub it, you’ll never find it.”
Officer White said that he took the $60 back from the confidential
informant because she never gave the money to Posey.
Finally, Officer White testified that he interviewed Smith—
the backseat passenger—at the jail. Officer White said that Smith
told him that “she knew that they were there [at Metro PCS] for
. . . Posey and to sell narcotics or sell drugs” and that “she didn’t
know whose gun was whose.”
After the government presented its evidence, the district
court overruled Posey’s two remaining objections because it found
that “Posey had actual or constructive possession of those three
guns” and “that the possession of those guns w[as] in furtherance
of a drug offense.” The district court agreed with the presentence
investigation report’s determination that Posey’s total offense level
was twenty-three and that his criminal history category was II,
making his guidelines range fifty-one to sixty-three months. The
district court sentenced Posey to sixty months of imprisonment.
Posey timely appealed.
STANDARD OF REVIEW
“We review the interpretation and application of the Sen-
tencing Guidelines de novo, and we review underlying findings of
fact for clear error.” United States v. Jackson, 997 F.3d 1138, 1140
(11th Cir. 2021). We review for plain error sentencing issues that
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 9 of 25
21-11253 Opinion of the Court 9
were not preserved with an objection in the district court. United
States v. Rodriguez, 398 F.3d 1291, 1298 (11th Cir. 2005).
DISCUSSION
Posey raises three issues on appeal. First, he argues that the
district court erred in concluding that his Alabama marijuana con-
viction was a predicate “controlled substance offense” under sec-
tion 2K2.1(a)(4)(A). Next, Posey contends that the district court
erred in finding that Posey possessed three firearms under sec-
tion 2K2.1(b)(1)(A). And, finally, Posey argues that the district
court erred in finding that he possessed the firearms “in connection
with” another felony offense under section 2K2.1(b)(6)(B).
Section 2K2.1(a)(4)(A)—“Controlled Substance Offense”
Section 2K2.1(a)(4)(A) provides that a defendant’s base of-
fense level is twenty “if . . . the defendant committed any part of
the instant offense subsequent to sustaining one felony conviction
of either a crime of violence or a controlled substance offense.”
U.S.S.G. § 2K2.1(a)(4)(A) (Nov. 2018). A “controlled substance of-
fense” is “an offense under federal or state law, punishable by im-
prisonment for a term exceeding one year, that prohibits the man-
ufacture, import, export, distribution, or dispensing of a controlled
substance . . . or the possession of a controlled substance . . . with
intent to manufacture, import, export, distribute, or dispense.” Id.
§ 4B1.2(b); see id. §2K2.1 cmt. n.1. “We apply the categorical ap-
proach to determine what constitutes a controlled substance of-
fense, which means that we compare the definition in the
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 10 of 25
10 Opinion of the Court 21-11253
[g]uidelines with the statutory offense, not the conduct underlying
the conviction.” United States v. Lange, 862 F.3d 1290, 1293 (11th
Cir. 2017) (quotation omitted).
Section 13A-12-213(a)(1) of the Alabama Code makes it a fel-
ony for a person to “possess[] mari[j]uana for other than personal
use.” Ala. Code § 13A-12-213(a)(1). At the time of Posey’s sec-
tion 13A-12-213(a)(1) conviction, Alabama law defined marijuana
to include hemp, see Ala. Code § 20-2-2(14) (2001) (defining mari-
juana as “[a]ll parts of the plant Cannabis sativa L.”), as did the fed-
eral Controlled Substances Act, see 21 U.S.C. § 802(16) (2014)
(same). After Posey’s section 13A-12-213(a)(1) conviction but be-
fore his federal sentencing, however, Alabama amended the defini-
tion of marijuana to exclude hemp, see 2019 Ala. Laws 2019-502;
see also Ala. Code § 20-2-2(14) (2019), as did Congress, see Agricul-
ture Improvement Act of 2018, Pub. L. No. 115-334, 132 Stat. 4490;
see also 21 U.S.C. § 802(16)(B)(i). Because the definition of mariju-
ana under Alabama and federal law included hemp at the time of
his section 13A-12-213(a)(1) conviction but excluded hemp at the
time of his federal sentencing, Posey argues that his section 13A-
12-213(a)(1) conviction wasn’t categorically a “controlled sub-
stance offense” under section 2K2.1(a)(4)(A).
We review Posey’s argument for plain error
At the outset, the government responds that we should re-
view Posey’s argument for plain error because Posey didn’t argue
in the district court that hemp wasn’t a controlled substance. The
government contends that the district court never had the
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 11 of 25
21-11253 Opinion of the Court 11
opportunity to rule on whether hemp’s decriminalization made
section 13A-12-213(a)(1) categorically overbroad because the only
basis for Posey’s objection was that section 13A-12-213(a)(1) crimi-
nalized possession of marijuana without requiring an intent to dis-
tribute. We agree.
“We have held that to preserve an objection to a sentencing
determination, a party ‘must raise that point in such clear and sim-
ple language that the trial court may not misunderstand it.’”
United States v. Brown, 934 F.3d 1278, 1306 (11th Cir. 2019) (quot-
ing United States v. Massey, 443 F.3d 814, 819 (11th Cir. 2006)).
The objection must be “sufficient to apprise the trial court and the
opposing party of the particular grounds upon which appellate re-
lief will later be sought.” United States v. Straub, 508 F.3d 1003,
1011 (11th Cir. 2007) (quotation omitted); see United States v.
Hoffer, 129 F.3d 1196, 1202 (11th Cir. 1997) (“To preserve an issue
for appeal, an objection must be sufficiently detailed to allow the
trial court an opportunity to correct any arguable errors before an
appeal is taken.”). We don’t “expect some sort of ritualistic incan-
tation from trial lawyers to make an effective objection; but we can
and do expect plain talk sufficient to direct the presiding officer’s
attention to the existence of an objection and to the specific ground
that underlies the objection.” United States v. Madruga, 810 F.2d
1010, 1014 (11th Cir. 1987); see United States v. Corbett, 921 F.3d
1032, 1043 (11th Cir. 2019) (“We remind the defense bar of the im-
portance of specific factual and legal argumentation at every stage
of sentencing proceedings.”).
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 12 of 25
12 Opinion of the Court 21-11253
We require parties to state the specific ground for an objec-
tion “to provide the trial judge an opportunity to avoid or correct
any error, and thus avoid the costs of reversal.” United States v.
Sorondo, 845 F.2d 945, 948–49 (11th Cir. 1988) (quotation omitted);
see United States v. DiFalco, 837 F.3d 1207, 1220 n.2 (11th Cir.
2016) (“The purpose behind imposing the requirements of plain[-
]error review is to enforce the requirement that these kinds of ob-
jections should first be made in district court so that the trial court
may address and resolve them contemporaneously.”). “[T]he dis-
trict court is not expected to read minds or independently conceive
of every possible argument a party might raise in support of an ob-
jection.” United States v. Zinn, 321 F.3d 1084, 1090 n.7 (11th Cir.
2003); see Madruga, 810 F.2d at 1014 (“We decline to add the duty
to interpret imaginatively what lawyers say to the long list of re-
sponsibilities of magistrates and other trial judges.”). Thus, an is-
sue isn’t properly preserved for appeal if a defendant doesn’t clearly
state the “legal basis for the objection” and the “legal theory” that
supports it. Massey, 443 F.3d at 819.
Posey’s objection to his base offense level under sec-
tion 2K2.1(a)(4)(A) neither informed the district court that hemp’s
decriminalization was “the particular ground[] upon which appel-
late relief w[ould] later be sought,” see Straub, 508 F.3d at 1011,
nor provided the district court an “opportunity to avoid or correct
any error,” see Sorondo, 845 F.2d at 948–49. Although Posey now
contends that his section 13A-12-213(a)(1) conviction isn’t categor-
ically a “controlled substance offense” because hemp wasn’t a
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21-11253 Opinion of the Court 13
controlled substance at the time of his sentencing, that was not the
argument he made to the district court. In his objections to the
presentence investigation report, Posey objected that his sec-
tion 13A-12-213(a)(1) conviction wasn’t categorically a “controlled
substance offense” for a specific reason—section 13A-12-213(a)(2)
criminalized only the possession of marijuana after prior convic-
tions. Posey argued that because section 13A-12-213(a) criminal-
ized “[s]imple possession” without “an intent to distribute,” his
conviction wasn’t categorically a “controlled substance offense”
under section 2K2.1(a)(4)(A), which requires possession with intent
to distribute. And at the sentencing hearing, Posey “preserve[d]”
and “continue[d] to state” that specific objection.
Put simply, Posey never mentioned the word “hemp,” let
alone argued that hemp’s decriminalization was the legal basis of
his objection. His objection in the district court centered on the act
of possession while his new argument centers on the type of sub-
stance he possessed. The district court wasn’t required to read
Posey’s mind or to “independently conceive of every possible ar-
gument” Posey could’ve raised in support of his objection. See
Zinn, 321 F.3d at 1090 n.7.
Posey contends that we should review his argument
de novo because his objection in the district court “preserved the
specific issue of whether [section 13A-12-213(a)(1)] was overly
broad” and he is therefore “free to make any argument to support
that position.” Posey is right that “once a party has preserved an
issue, it may ‘make any argument in support of that claim; parties
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 14 of 25
14 Opinion of the Court 21-11253
are not limited to the precise arguments they made below.’”
Brown, 934 F.3d at 1306–07 (quoting Yee v. City of Escondido, 503
U.S. 519, 534 (1992)). But while there “may be a fine line between
a new ‘claim’ or ‘objection’ on the one hand, and a new ‘twist’ on
a preserved claim on the other,” United States v. Green, 996 F.3d
176, 184 (4th Cir. 2021) (citations omitted), we’ve said that a sen-
tencing objection in the district court that is “substantively differ-
ent” from the argument raised on appeal fails to preserve the ob-
jection, United States v. Ramirez-Flores, 743 F.3d 816, 821 (11th
Cir. 2014). And the objection Posey made to his sentence in the
district court is “substantively different” from the argument he
makes for the first time on appeal.
Two of our decisions—Ramirez-Flores and United States v.
Weeks, 711 F.3d 1255 (11th Cir. 2013), abrogated on other grounds
by Descamps v. United States, 570 U.S. 254 (2013)—show when an
objection is “substantively different” from an argument raised on
appeal. In Ramirez-Flores, the defendant pleaded guilty to illegal
re-entry after deportation. 743 F.3d at 819. The defendant’s
presentence investigation report found that his prior South Caro-
lina conviction for burglary of a dwelling qualified as a “crime of
violence,” leading to a sixteen-level enhancement under the guide-
lines. Id. The defendant objected to the enhancement, arguing
“that the South Carolina burglary conviction did not constitute a
‘crime of violence’ because the corresponding judgment described
the offense as ‘Burglary (Non-Violent)’” and “speculat[ing] that,
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 15 of 25
21-11253 Opinion of the Court 15
while the indictment charged him with entering the ‘dwelling’ of
the victim, he may have pled guilty to a lesser offense.” Id.
The district court overruled the objection and the defendant
appealed his sentence, arguing for the first time that his South Car-
olina burglary conviction wasn’t categorically a crime of violence
because the South Carolina burglary statute wasn’t divisible. See
id. at 819–21. We reviewed for plain error because the defendant’s
objections in the district court were “substantively different from
the argument” the defendant raised on appeal. Id. at 821.
And in Weeks, the defendant pleaded guilty to being a felon
in possession of a firearm. 711 F.3d at 1257. The defendant’s
presentence investigation report found that he qualified for an en-
hanced mandatory minimum sentence under the Armed Career
Criminal Act because he had four prior convictions for violent fel-
onies that were “committed on occasions different from one an-
other,” including three convictions for burglary of a structure. Id.
The defendant objected to the enhancement, arguing that two of
the burglaries were not “separate and distinct offenses” because
they happened on the same day and “the spatial and temporal prox-
imity of [the two burglarized structures] did not leave him with
enough time ‘to make a new and different intent to enter into a
separate building.’” Id. at 1258. The district court overruled the
defendant’s objection, finding that his prior burglary offenses were
“each separate and distinct.” Id.
The defendant appealed his sentence, arguing for the first
time that the district court erred in determining that the two
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 16 of 25
16 Opinion of the Court 21-11253
burglary offenses were separate predicate offenses because it was
“impossible to determine whether he himself burglarized more
than one structure or whether the burglaries were committed suc-
cessively” because “he could have remained in one of the burglar-
ized buildings while his two accomplices simultaneously burglar-
ized the other.” Id. at 1260–61. We reviewed for plain error be-
cause the defendant “did not make that argument before the dis-
trict court.” Id. at 1261.
Like the defendants in Ramirez-Flores and Weeks, Posey
makes an argument on appeal that is “substantively different” from
his objection in the district court. If the Ramirez-Flores defendant’s
objection that his prior conviction wasn’t a “crime of violence” be-
cause he was convicted of non-violent burglary didn’t preserve his
argument that the statute of conviction was indivisible, then
Posey’s objection that his Alabama marijuana conviction wasn’t
categorically a “controlled substance offense” because section 13A-
12-213(a)(2) criminalized possession without intent to distribute
didn’t preserve his argument that hemp isn’t a controlled sub-
stance. Similarly, if the Weeks defendant’s objection that his prior
burglary convictions weren’t “separate and distinct offenses” be-
cause he didn’t have time to form a separate intent didn’t preserve
his argument that he burglarized only one building, then Posey’s
“simple possession” objection didn’t preserve his hemp argument.
Posey’s substantively different objection did not tee up the specific
issue of whether hemp was a controlled substance so that the
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 17 of 25
21-11253 Opinion of the Court 17
district court had “an opportunity to avoid or correct any error.”
See Sorondo, 845 F.2d at 948–49.
Because Posey didn’t preserve the hemp issue at sentencing,
our review is only for plain error. See Rodriguez, 398 F.3d at 1298.
Under plain-error review, Posey “must show that there is (1) ‘error’
(2) that is ‘plain’ and (3) that ‘affect[s] substantial rights.” See
United States v. Lejarde-Rada, 319 F.3d 1288, 1290 (11th Cir. 2003)
(alteration in original) (quoting United States v. Olano, 507 U.S.
725, 732 (1993)). If Posey shows that all three conditions are met,
then we may “exercise [our] discretion to notice a forfeited error,
but only if (4) the error ‘seriously affect[s] the fairness, integrity, or
public reputation of judicial proceedings.’” Id. (alteration in origi-
nal) (quoting Johnson v. United States, 520 U.S. 461, 467 (1997)).
The district court did not plainly err
Any error by the district court in determining Posey’s base
offense level as twenty under section 2K2.1(a)(4)(A) wasn’t plain.
“An error is ‘plain’ if it is ‘obvious’ or ‘clear under current law.’”
United States v. Wims, 245 F.3d 1269, 1272 (11th Cir. 2001) (quot-
ing Olano, 507 U.S. at 734). And an error is “obvious” or “clear” “if
‘the explicit language of a statute or rule’ or ‘precedent from the
Supreme Court or this Court directly resolv[es]’ the issue.” United
States v. Innocent, 977 F.3d 1077, 1081 (11th Cir. 2020) (alteration
in original and emphasis added) (quoting United States v. Hesser,
800 F.3d 1310, 1325 (11th Cir. 2015)). Neither we nor the Supreme
Court has ever addressed whether a state marijuana conviction
continues to qualify as a predicate “controlled substance offense”
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 18 of 25
18 Opinion of the Court 21-11253
under section 2K2.1(a)(4)(A) when hemp has been delisted from
both the state and federal drug schedules before a defendant’s fed-
eral sentencing. Because our precedent does not directly resolve
whether Posey’s section 13A-12-213(a)(1) conviction is categori-
cally a “controlled substance offense” under section 2K2.1(a)(4)(A),
the district court did not plainly err in concluding that it was. See
Lejarde-Rada, 319 F.3d at 1291.
Section 2K2.1(b)(1)(A)—Possession of Three Firearms
Posey also argues that the district court erred by enhancing
his sentence two levels for possessing three firearms under sec-
tion 2K2.1(b)(1)(A). Posey contends that the government’s evi-
dence at sentencing does not support the district court’s finding
that he “had actual or constructive possession” of two of the fire-
arms—the Glock 37 and Glock 23.
Section 2K2.1(b)(1)(A) requires a two-level enhancement
“[i]f the offense involved” three firearms. U.S.S.G.
§ 2K2.1(b)(1)(A). “For purposes of calculating the number of fire-
arms under subsection (b)(1), [the district court] count[s] only
those firearms that were unlawfully sought to be obtained, unlaw-
fully possessed, or unlawfully distributed . . . .” Id. § 2K2.1(b)(1)
cmt. n.5. “For sentencing purposes, possession of a firearm in-
volves a factual finding, which we review for clear error.” United
States v. Stallings, 463 F.3d 1218, 1220 (11th Cir. 2006).
“When a defendant challenges one of the factual bases of a
sentence enhancement, the [g]overnment has the burden of
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 19 of 25
21-11253 Opinion of the Court 19
establishing the disputed fact by a preponderance of the evidence.”
United States v. Matthews, 3 F.4th 1286, 1289 (11th Cir. 2021). The
district court’s factual findings may be based on “evidence pre-
sented at the sentencing hearing,” and the district court may “make
reasonable inferences from the evidence.” Id.; see United States v.
Philidor, 717 F.3d 883, 885 (11th Cir. 2013) (explaining that a sen-
tencing court may make inferences “based on common sense and
ordinary human experience”). The district court’s finding that
Posey possessed the Glock 37 and Glock 23 wasn’t clearly errone-
ous because the evidence presented at the sentencing hearing sup-
ported a reasonable inference that Posey possessed both firearms.
“Possession of a firearm may be either actual or construc-
tive.” United States v. Perez, 661 F.3d 568, 576 (11th Cir. 2011).
“Constructive possession of a firearm exists when a defendant does
not have actual possession but instead knowingly has the power or
right, and intention to exercise dominion and control over the fire-
arm.” Id. “As long as the [g]overnment proves, through either di-
rect or circumstantial evidence that the defendant (1) was aware or
knew of the firearm’s presence and (2) had the ability and intent to
later exercise dominion and control over that firearm, the defend-
ant’s constructive possession of that firearm is shown.” Id. “How-
ever, a defendant’s mere presence in the area of [a firearm] or
awareness of its location is not sufficient to establish possession.”
United States v. Green, 873 F.3d 846, 852–53 (11th Cir. 2017) (quo-
tation omitted).
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 20 of 25
20 Opinion of the Court 21-11253
The evidence presented at the sentencing hearing supported
a reasonable inference that Posey had constructive possession of
the Glock 37. The district court reasonably inferred that Posey was
aware of the Glock 37’s presence between the center console and
the driver’s seat and that he had the ability to control it because it
was visible and accessible from where he sat in the Sentra’s passen-
ger seat. And as to Posey’s intent to later exercise dominion and
control over the Glock 37, “the connection between drug-dealing
and firearm possession is an appropriate one to be drawn during a
felon-in-possession case.” United States v. McLellan, 958 F.3d 1110,
1115 (11th Cir. 2020); see United States v. Thomas, 242 F.3d 1028,
1032 (11th Cir. 2001) (holding “that the evidence of [the defend-
ant]’s drug trafficking was in sufficiently close proximity, tempo-
rally and physically, to be relevant to proving that [the defendant]
knowingly possessed the weapons”). The evidence showed that
Posey had shot another drug dealer the day before, that the
Glock 37 was loaded and ready to fire, and that he brought the
Glock 37 with him to Metro PCS for a drug deal. It wasn’t clearly
erroneous for the district court to infer that Posey intended to use
the Glock 37 if the drug deal didn’t go as planned.
The evidence also supported a reasonable inference that
Posey actually possessed the Glock 23. Officer White testified that
there weren’t any weapons in the confidential informant’s car
when she left to meet Posey, that he followed her as she drove to
meet Posey, and that he never lost sight of the confidential inform-
ant’s car during the drive. When the confidential informant arrived
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 21 of 25
21-11253 Opinion of the Court 21
at Metro PCS, Posey left the Sentra and got into the front passenger
seat of the confidential informant’s car. And the officers found the
Glock 23 in the confidential informant’s car after Posey was ar-
rested in the passenger seat. These circumstances support a rea-
sonable, common-sense inference that Posey brought the Glock 23
with him as he left the Sentra to sell heroin to the confidential in-
formant in her car. See Philidor, 717 F.3d at 885; McLellan, 958
F.3d at 1115.
Posey argues that the district court could not have found
that he possessed the Glock 23 “absent improper speculation” be-
cause “there was a period of time between the takedown and the
post-takedown vehicle search during which the [confidential in-
formant]’s vehicle was unaccounted for.” But even if another rea-
sonable inference could have been made from the evidence, that
doesn’t mean that the district court clearly erred by not making it.
“Where there are two permissible views of the evidence, the fact-
finder’s choice between them cannot be clearly erroneous.” United
States v. Saingerard, 621 F.3d 1341, 1343 (11th Cir. 2010) (quotation
omitted). Here, it was reasonable for the district court to find that
the Glock 23 came from Posey and not from someone else in the
time between the takedown and the search.
Section 2K2.1(b)(6)(B)—“Another Felony Offense”
“Section 2K2.1(b)(6)(B) increases the defendant’s offense
level by four if he unlawfully possessed a firearm and he did so
‘with knowledge, intent, or reason to believe that it would be used
or possessed in connection with another felony offense.’” United
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 22 of 25
22 Opinion of the Court 21-11253
States v. Martinez, 964 F.3d 1329, 1333 (11th Cir. 2020) (quoting
U.S.S.G. § 2K2.1(b)(6)(B)). “[S]ection 2K2.1(b)(6)(B) applies ‘if the
firearm . . . facilitated, or had the potential of facilitating, another
felony offense.’” Id. at 1336 (quoting U.S.S.G. § 2K2.1 cmt.
n.14(A)). “The determination that a defendant possessed a firearm
‘in connection with’ another felony is a finding of fact.’” Jackson,
997 F.3d at 1140. Here, the district court found that Posey pos-
sessed the AR-15 pistol, Glock 37, and Glock 23 “in furtherance of
a drug offense”—his conspiracy and attempt to sell heroin to the
confidential informant. The district court’s finding is not clearly
erroneous.
The evidence showed that Posey’s firearms “had the poten-
tial of facilitating” Posey’s conspiracy and attempt to traffic heroin
because he brought them to a drug deal. See Martinez, 964 F.3d at
1336. The confidential informant texted Posey to set up a heroin
deal, Posey showed up at the prearranged location with three
loaded firearms and a digital scale used for weighing drugs, and
Posey left the Sentra and got into the confidential informant’s car
with the Glock 23 to make the sale. Williams, the Sentra’s driver,
fled as soon as the officers arrived, and Smith, the Sentra’s other
passenger, told Officer White that “they were there for . . . Posey
and to sell narcotics or sell drugs.” Based on this evidence, it wasn’t
clearly erroneous for the district court to infer that Posey brought
the firearms with him to facilitate a drug deal. See United States v.
Jackson, 276 F.3d 1231, 1234–35 (11th Cir. 2001) (concluding “that
possession of a firearm with intent to use it to facilitate the
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 23 of 25
21-11253 Opinion of the Court 23
commission of a felony offense, or with intent to use it should it
become necessary to facilitate that crime, is possession ‘in connec-
tion with’ that offense” because “it made sense to conclude that the
firearm potentially emboldened the defendant to undertake illicit
drug sales” and because there was a reasonable “inference that the
defendants would have, if necessary, used their firearms in further-
ance of their crimes”); Thomas, 242 F.3d at 1032 n.5 (explaining
that evidence that the defendant sold drugs from his residence,
used a firearm in connection with a robbery during a drug-related
transaction, and stored a large amount of cash in his residence “sup-
port[ed] the inference that [the defendant] was using the weapons
found at his residence to protect the drug business he was conduct-
ing there”).
Posey contends that the district court clearly erred because
of “[t]hree glaring shortcomings in the [g]overnment’s evidence”
and because the district court “fail[ed] to make specific factual find-
ings regarding the reliability of the [confidential informant]’s hear-
say statements.” First, Posey argues, there was no heroin found at
the scene. But, as Officer White testified, just because heroin
wasn’t found doesn’t mean it wasn’t there because Posey could’ve
“easily . . . thrown [it] in the floor, drag[ged his] foot across it . . .
[and] scrub[bed] it.” Posey texted the confidential informant to set
up a drug sale, he showed up to the drug sale, he had a digital scale
with him, and the Sentra’s other passenger told Officer White it
was a drug sale. For these reasons, the district court’s finding that
Posey possessed the firearms in connection with his conspiracy and
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 24 of 25
24 Opinion of the Court 21-11253
attempt to sell heroin to the confidential informant wasn’t clearly
erroneous.
Second, Posey argues that Officer White’s testimony about
what the confidential informant told him was unreliable hearsay.
And because the confidential informant’s hearsay statements were
unreliable, Posey asserts, the district court clearly erred because it
didn’t make “specific findings” about their reliability. But there is
no need for specific reliability findings when the hearsay state-
ment’s reliability “is apparent from the record.” See United States
v. Baptiste, 935 F.3d 1304, 1316 (11th Cir. 2019) (quoting United
States v. Gordon, 231 F.3d 750, 761 (11th Cir. 2000)). Here, it was.
The confidential informant’s hearsay statements “aligned with” Of-
ficer White’s non-hearsay testimony, Metro PCS’s security video,
the guns and digital scale found in the Sentra, the Glock 23 found
in the confidential informant’s car, and Officer White’s testimony
that Smith told him “they were there . . . to sell narcotics or sell
drugs.” See id. at 1317 (concluding that hearsay testimony had suf-
ficient “indicia of reliability” where it “aligned with” other evi-
dence); Gordon, 231 F.3d at 761 (concluding that hearsay evidence
was sufficiently reliable where the hearsay statements from three
individuals were “materially consistent” and “corroborate[d] each
other on the key points”). Because the confidential informant’s
hearsay statements had “sufficient indicia of reliability,” the district
court didn’t err by relying on them. See Baptiste, 935 F.3d at 1319.
Third, Posey argues that the district court was “required to
make additional findings as to how Posey’s firearm[s] facilitated a
USCA11 Case: 21-11253 Date Filed: 11/17/2022 Page: 25 of 25
21-11253 Opinion of the Court 25
felony” because “no drugs were found at the scene.” But, as we’ve
explained, the district court reasonably credited Officer White’s
testimony about how Posey could’ve disposed of the heroin before
the officers arrested him. And in any event, Posey’s other felony
offenses—his conspiracy and attempt to sell heroin to the confiden-
tial informant—didn’t require drugs to be found to be complete.
Section 2K2.1(b)(6)(B) only requires the firearms to have had “the
potential of facilitating” Posey’s other felony offenses. Martinez,
964 F.3d at 1336 (quotation omitted and emphasis added). Just be-
cause law enforcement arrested Posey before he could consum-
mate the sale doesn’t mean that he didn’t possess the firearms “in
connection with” his conspiracy and attempt to sell drugs. Drug
dealers keep firearms around to protect themselves, to use them if
things go bad, and to embolden themselves to do the deal. See
Jackson, 276 F.3d at 1234–35; Thomas, 242 F.3d at 1032 n.5. The
district court had plenty of evidence to find that Posey’s firearms
“had the potential of facilitating” his felony drug offenses, even if
the sale never happened. See U.S.S.G. § 2K2.1 cmt. n.14(A).
AFFIRMED. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484557/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
CENTER FOR BIOLOGICAL
DIVERSITY, et al.,
Plaintiffs,
v. Civil Action No. 18-112 (JEB)
GINA RAIMONDO, in her official capacity
as Secretary of Commerce, et al.,
Defendants,
and
MASSACHUSETTS LOBSTERMEN’S
ASSOCIATION, INC., et al.,
Defendant-Intervenors.
MEMORANDUM OPINION AND ORDER
Earlier this year, this Court issued a Memorandum Opinion that “h[e]ld the 2021
Biological Opinion and the 2021 Final Rule” issued by the National Marine Fisheries Service “to
be invalid” as they relate to the American lobster fishery. Ctr. for Biological Diversity v.
Raimondo, No. 18-112, 2022 WL 2643535, at *1 (D.D.C. July 8, 2022). Understanding the
substantial impact of that holding on both the endangered right whale and the lobster industry,
the Court ordered supplemental briefing on potential remedies. Id. at *20. With that phase of
the litigation now complete, the Court will mandate certain agency actions and stay its hand in
regard to others.
First, the easy part. Plaintiff conservation groups, Defendant NMFS, and Intervenor
lobstermen are largely on the same page with respect to NMFS’s 2021 Final Rule. They agree
1
(albeit with some Intervenor dissent) that the Rule should be remanded without vacatur to the
agency along with an Order requiring NMFS to issue a new Rule consistent with the Court’s
Opinion by December 9, 2024. Such Rule “will include measures designed to reduce the North
Atlantic right whale’s annual mortality and significant injury rate below its potential biological
removal level.” ECF No. 238 (Def. Motion for Oral Argument) at 3. The Court is pleased to
endorse this agreement and appreciates the parties’ good-faith efforts to bridge their differences
on this front.
The parties, unfortunately, do not reach consensus beyond this. To begin, they disagree
on whether the Court’s Opinion invalidated the entire BiOp as it relates to the lobster fishery or
only the Incidental Take Statement, its critical component. That Opinion clearly held the entire
BiOp “invalid” because it inextricably relied on an infirm ITS. See CBD, 2022 WL 2643535, at
*9; see also id. (holding BiOp “cannot stand”); id. at *11 (holding ITS’s failure meant that “the
BiOp cannot survive”). The Court does not here reconsider that holding.
More centrally, the parties dispute the conditions under which the Court should remand
the BiOp to the agency: Plaintiffs seek remand with vacatur, and NMFS and the Intervenors ask
for no vacatur. In Allied-Signal v. United States Nuclear Regulatory Commission, 988 F.2d 146
(D.C. Cir. 1993), the D.C. Circuit laid out the operative test for whether to vacate a deficient
agency action during remand. First, a court must consider “the seriousness of the order’s
deficiencies (and thus the extent of doubt whether the agency chose correctly).” Id. at 150
(quoting Int’l Union, United Mine Workers of Am. v. Fed. Mine Safety & Health Admin., 920
F.2d 960, 967 (D.C. Cir. 1990)). Second, it must analyze “the disruptive consequences” that
vacatur would engender. Id. at 150–51 (quoting Int’l Union, 920 F.2d at 967). “Because vacatur
2
is the default remedy, . . . defendants bear the burden to prove that vacatur is unnecessary.”
Nat’l Parks Conservation Ass’n v. Semonite, 422 F. Supp. 3d 92, 99 (D.D.C. 2019).
Here, the two Allied-Signal factors point in opposite directions. The first weighs in favor
of vacatur. The Court’s task in considering this factor is to determine whether there is “a
significant possibility that the [agency] may find an adequate explanation for its actions” on
remand. Williston Basin Interstate Pipeline Co. v. FERC, 519 F.3d 497, 504 (D.C. Cir. 2008).
Here, however, NMFS’s error clearly cannot be explained away on remand because “the defects
in the challenged [BiOp] go far beyond a mere failure in explanation.” Humane Soc’y of the
United States v. Jewell, 76 F. Supp. 3d 69, 137 (D.D.C. 2014); see also Ctr. for Biological
Diversity v. Ross, 480 F. Supp. 3d 236, 245 (D.D.C. 2020). The Court appreciates that NMFS is
hard at work developing a new Final Rule with the Atlantic Large Whale Take Reduction Team.
It nonetheless remains the case that the agency will need to produce a new BiOp to comply with
the demands of the Endangered Species Act and the Marine Mammal Protection Act, not just
clarify points it made in the old one.
The second factor, however, tilts the other way because of the considerable hardship such
an order would inflict on the lobster industry and the states of Maine and Massachusetts. Under
this factor, courts typically look to “significant harm to the public health or the environment” that
vacatur would cause, State of Wisconsin v. EPA, 938 F.3d 303, 336 (D.C. Cir. 2019), but, where
warranted, they may also consider “disrupt[ion] to the [affected] industries.” Am. Water Works
Ass’n v. EPA, 40 F.3d 1266, 1273 (D.C. Cir. 1994). Here, the disruption to the lobster industry
would be quite significant. NMFS has explained in several declarations the “massive
shutdowns” that vacatur, even if deferred somewhat, could inflict, a consequence this Court has
long sought to avoid. See ECF No. 228 (Def. Remedy Response) at 25–27. NMFS also adds
3
that a near-term vacatur would likely shift lobstering from federal to state waters, concentrating
vertical lines there and “substantially offsetting gains in risk reduction from shutting federal
fisheries.” Id. at 27. Although the parties dispute the extent to which such a shift would occur
and what damage to the whales it would cause, see ECF No. 237 (Pl. Remedy Reply) at 17–18, it
nonetheless appears to the Court that there are at least open questions concerning the species
benefits that would accompany these great costs to the lobstermen.
Adopting a more restrained position, the conservation groups in their Reply propose
vacatur with a two-year stay, which they believe offers sufficient time for a new BiOp. See Pl.
Reply at 16. NMFS rejoins that, while it is working hard to reduce right-whale mortality, such a
timeline is unrealistic inasmuch as a 2024 BiOp will have very little likelihood of including a
compliant ITS and negligible-impact determination (NID). This is because major technological
advances, such as widespread implementation of ropeless fishing gear, are unlikely before 2030.
See Def. Response at 5. Indeed, at the remedy hearing, the agency represented that in such a
circumstance it would turn its attention to state waters since it would be unable to issue a
compliant ITS and NID. The Court is thus presented with three options: 1) remand without
vacatur and wait until 2030, as NMFS proposes; 2) remand with vacatur, but stay vacatur for two
years, as Plaintiffs counsel; or 3) remand but hold the vacatur decision in abeyance. The Court
chooses the third option.
It believes that this decision is the wisest course because facts on the ground are shifting
rapidly, as new data emerge on right-whale migratory patterns, mortality factors, technological
change, and more. See Maine Lobstermen’s Ass’n, Inc. v. NMFS, No. 21-2509, 2022 WL
4392642, at *15 (D.D.C. Sept. 8, 2022) (“As the science improves and the climate shifts, new
data and new literature appear to be developing every day.”). Because the two Allied-Signal
4
factors are divergent and their proper balance is not obvious, and because even Plaintiffs propose
that any vacatur should be stayed for two years, the Court believes it prudent to wait for as much
information as possible before making a vacatur decision in this consequential matter. Cf. Am.
Petrol. Inst. v. EPA, 683 F.3d 382, 386–87 (D.C. Cir. 2012) (noting in separate context that
postponing decision on agency action “can at least solidify or simplify the factual context and
narrow the legal issues at play, allowing for more intelligent resolution of any remaining
claims”). The Court’s approach will allow the federal lobster fishery some stability to keep
operating, while all stakeholders continue their shared work of implementing corrective
measures to secure the future of the right whale in the long term.
The Court expects that after the promulgation of the Rule in December 2024, it will seek
briefing from the parties on whether to vacate the BiOp and in what timeframe. While this
decision means that no new BiOp is required in the next two years, the Court would expect to
ultimately order one closer to that timeframe than to the 2030 date NMFS proposes. In the
interim, the Court will require status updates every six months, beginning July 10, 2023, and
continuing thereafter.
As it once again articulated in last week’s hearing, the Court’s goal in this process
remains to allow all stakeholders — conservationists, scientists, lobstermen, and others — to
work collaboratively to ensure the survival of both the right whale and the lobster industry.
While the Court is duty bound to ensure compliance with the law — here, the Endangered
Species Act and the Marine Mammal Protection Act — it does not wish to usurp the role of the
experts, especially given how quickly circumstances change. The Court appreciates that the
agency has a steep climb ahead: in addition to helping the industry onto a path towards
widespread adoption of ropeless technology, it must carefully weigh the scientific data in an
5
ever-evolving field. It is not for the Court to propose policy solutions; its role is only to ensure
compliance with the law while, in its equitable discretion, offering all sides some breathing room
to work in good faith towards a solution. The Court believes that this Order is the best of the
difficult options available for doing so.
The Court, accordingly, ORDERS that:
1. Plaintiffs’ [226] Motion for Order on Remedy is GRANTED IN PART and DENIED
IN PART;
2. NMFS’s Atlantic Large Whale Take Reduction Plan Amendment Rule entitled
“Taking of Marine Mammals Incidental to Commercial Fishing Operations; Atlantic
Large Whale Take Reduction Plan Regulations; Atlantic Coastal Fisheries
Cooperative Management Act Provisions; American Lobster Fishery,” 86 Fed. Reg.
51,970 (Sept. 17, 2021), is REMANDED to the Agency WITHOUT VACATUR;
3. NMFS shall finalize a new Atlantic Large Whale Take Reduction Plan Amendment
Rule consistent with this Court’s Memorandum Opinion of July 8, 2022, by no later
than December 9, 2024;
4. NMFS’s May 27, 2021, Endangered Species Act Section 7 Consultation on the: (a)
Authorization of the American Lobster, Atlantic Bluefish, Atlantic Deep-Sea Red
Crab, Mackerel/Squid/Butterfish, Monkfish, Northeast Multispecies, Northeast Skate
Complex, Spiny Dogfish, Summer Flounder/Scup/Black Sea Bass, and Jonah Crab
Fisheries and (b) Implementation of the New England Fishery Management Council’s
Omnibus Essential Fish Habitat Amendment 2 [Consultation No. GARFO-2017-
00031] (“2021 BiOp”), concerning effects of the federal fixed gear fisheries on North
Atlantic right whales, is REMANDED to the Agency;
6
5. The question of vacatur of the 2021 BiOp is HELD IN ABEYANCE pending further
briefing after issuance of the Final Rule; and
6. The parties shall file a joint status report by July 10, 2023, and every six months
thereafter, detailing progress in complying with this Order.
/s/ James E. Boasberg
JAMES E. BOASBERG
United States District Judge
Date: November 17, 2022
7 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484558/ | NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
STATE OF ARIZONA, Appellee,
v.
JILL MARIE KNOX, Appellant.
No. 1 CA-CR 22-0185
FILED 11-17-2022
Appeal from the Superior Court in Yavapai County
No. V1300CR202080343
The Honorable Michael R. Bluff, Judge
AFFIRMED
COUNSEL
Arizona Attorney General’s Office, Phoenix
By Joshua C. Smith
Counsel for Appellee
Law Offices of Stephen L. Duncan PLC, Scottsdale
By Stephen L. Duncan
Counsel for Appellant
STATE v. KNOX
Decision of the Court
MEMORANDUM DECISION
Presiding Judge Samuel A. Thumma delivered the decision of the Court, in
which Judge Cynthia J. Bailey and Vice Chief Judge David B. Gass joined.
T H U M M A, Judge:
¶1 Defendant Jill Marie Knox appeals her convictions for
manslaughter, aggravated assault, criminal damage and aggravated
driving while under the influence with a passenger under 15 years of age.
Because she has shown no error, her convictions and sentences are
affirmed.
FACTS AND PROCEDURAL HISTORY
¶2 One afternoon in February 2020, Knox was driving in Yavapai
County with her five-year-old daughter in the back seat. Her daughter was
sitting in the middle seat, restrained only by the lap belt. Several witnesses
saw Knox driving erratically, tailgating other vehicles and swerving in and
out of her lane. At one point, she veered off the side of the road, swerved
back into her lane, and crossed the double-line into oncoming traffic. Knox
collided head-on with an oncoming vehicle. Knox did not apply her brakes
before impact.
¶3 As a result of the crash, Knox’ daughter sustained significant
head injuries, later dying of blunt force brain trauma. The driver of the
oncoming vehicle was severely injured, with an acute fracture to his leg
requiring multiple corrective surgeries. His vehicle, valued at $5,000, “was
completely totaled.”
¶4 When questioned by officers, Knox admitted to smoking
medical marijuana and taking a number of prescription drugs earlier that
day. Knox said she began feeling tired before the crash “must have blacked
out.” She claimed to have restrained her daughter using only a lap belt
because their dog vomited in her car seat. Although officers located a car
seat in the vehicle, they did not recall seeing vomit on the seat.
2
STATE v. KNOX
Decision of the Court
¶5 Officers located prescription bottles, medical marijuana and
pipes in Knox’ vehicle. The labels on the prescription bottles specified that
the drugs may cause drowsiness and the user should exercise care when
operating a vehicle. Similarly, Knox’ medical marijuana card stated that the
drug could impair the user’s ability to drive a vehicle.
¶6 An analysis of Knox’ blood revealed the presence of
carisoprodol, meprobamate, gabapentin and tetrahydrocannabinol (THC)
in her system. A forensic scientist later testified these drugs, all of which
have depressant-like effects, can impair a person’s ability to drive. She
further testified that the impact of the drugs when taken together would be
“more enhanced than if there was just one of those drugs alone.”
¶7 The State charged Knox with one count of manslaughter, a
Class 2 felony and dangerous offense; aggravated assault, a Class 4 felony
and dangerous offense; criminal damage, a Class 5 felony; and aggravated
driving while under the influence with a passenger under 15 years of age,
a Class 6 felony.1 At trial, the State presented evidence from the forensic
scientist, eyewitnesses, responding officers, firefighters and medical
examiners. Knox unsuccessfully moved for a judgment of acquittal at the
close of the State’s case. See Ariz. R. Crim. P. 20(a) (2022).2 Knox elected not
to testify, as was her right. She did, however, call a number of witnesses
including a physician assistant with knowledge of her prescription history.
¶8 The jury convicted Knox on all counts. The superior court
sentenced Knox to an aggregate term of 13 years in prison. This court has
jurisdiction over Knox’ timely appeal under Article 6, Section 9, of the
Arizona Constitution and Arizona Revised Statutes (A.R.S.) sections 12-
120.21(A)(1), 13-4031 and 13-4033(A).
DISCUSSION
I. The Trial Evidence Was Sufficient to Support the Convictions.
¶9 Knox argues the superior court erred in denying her motion
for judgment of acquittal, claiming the State failed to present sufficient
evidence she committed manslaughter or acted recklessly. This court
reviews de novo the denial of a motion for judgment of acquittal and the
1 Before trial, the court dismissed another count of aggravated driving while
under the influence with a passenger under 15 years of age, a Class 6 felony.
2Absent material revisions after the relevant dates, statutes and rules cited
refer to the current version unless otherwise indicated.
3
STATE v. KNOX
Decision of the Court
sufficiency of the evidence to support a conviction. See State v. Bible, 175
Ariz. 549, 595 (1993).
¶10 A judgment of acquittal is appropriate only “if there is no
substantial evidence to support a conviction.” Ariz. R. Crim. P. 20(a).
Substantial evidence is such proof that “reasonable persons could accept as
adequate and sufficient to support a conclusion of defendant’s guilt beyond
a reasonable doubt.” State v. Jones, 125 Ariz. 417, 419 (1980). “The sufficiency
of the evidence must be tested against the statutorily required elements of
the offense.” State v. Pena, 209 Ariz. 503, 505 ¶ 8 (App. 2005).
¶11 To prove Knox committed manslaughter, the evidence had to
show she recklessly caused her daughter’s death. See A.R.S. § 13-1103(A)(1).
The State was also required to prove Knox acted recklessly in committing
aggravated assault and criminal damage. See A.R.S. §§ 13-1203(A)(1)
(assault), -1204(A)(3) (aggravated assault), -1602(A)(1) (criminal damage).
A person acts recklessly when the person “is aware of and consciously
disregards a substantial and unjustifiable risk.” A.R.S. § 13-105(10)(c). This
“risk must be of such nature and degree that disregard of such risk
constitutes a gross deviation from the standard of conduct that a reasonable
person would observe in the situation.” Id.
¶12 The State presented evidence that Knox had multiple
prescriptions drugs and THC in her system at the time of the crash. Each of
these drugs alone could have impaired her ability to drive, and the effect of
the drugs when combined enhanced that risk. The labels on the prescription
bottles, and the disclaimer on her medical marijuana card, warned her of
the risks associated with driving while using those drugs. The evidence
established that Knox was driving erratically, she did not attempt to pull
over, and she did not apply her brakes before colliding with the oncoming
vehicle. Her daughter was not restrained in a car seat at the time of the
crash, even though a functioning car seat was found in the vehicle. Thus,
the State presented sufficient evidence that Knox was aware of and
consciously disregarded the risk she posed to her minor daughter and all
other vehicles on the roadway.
¶13 After viewing the evidence in the light most favorable to the
prosecution, a “rational trier of fact could have found the essential elements
of the crime beyond a reasonable doubt.” Jackson v. Virginia, 443 U.S. 307,
319 (1979). Accordingly, the superior court did not err in denying Knox’
motion for judgment of acquittal.
4
STATE v. KNOX
Decision of the Court
II. Admission of Gabapentin Testimony Was Not Error.
¶14 Knox challenges the admissibility of testimony concerning a
toxicology report showing she had gabapentin in her system at the time of
the crash. Knox argues that the State untimely disclosed the report and
prevented her from hiring an expert witness to review and potentially
refute the report’s findings. The decision to preclude evidence because of
untimely disclosure is within the discretion of the superior court. See State
v. Rienhardt, 190 Ariz. 579, 586 (1997). This court will overrule the court’s
decision only if the defendant shows the delayed disclosure resulted in
prejudice. Id.
¶15 Due process requires that the State timely disclose material
evidence. See State v. Gulbrandson, 184 Ariz. 46, 63 (1995). One of the
purposes of timely disclosure is to avoid undue delay and surprise. See State
v. Stewart, 139 Ariz. 50, 59 (1984). The superior court has the authority to
impose the appropriate sanction for a disclosure violation, and that
sanction should be proportional to the degree of prejudice caused. See Ariz.
R. Crim. P. 15.7; State v. Ramos, 239 Ariz. 501, 504 ¶ 9 (App. 2016). The factors
to consider include the importance of the evidence, prejudice to the defense
and whether the violation involved bad faith. See State v. Towery, 186 Ariz.
168, 186 (1996).
¶16 Early in the case, the State disclosed the initial toxicology
report showing Knox had carisoprodol, meprobamate, and THC in her
blood at the time of the collision. At that time, the instrument used to
analyze blood could not test for gabapentin. Shortly before trial, the State
learned that the forensic scientist could test for gabapentin using a new
instrument obtained by the laboratory. The forensic scientist retested the
blood and completed a second toxicology report showing gabapentin was
present in Knox’ system at the time of the collision. The State promptly
disclosed the report to Knox.
¶17 On the first day of trial, Knox moved to preclude any mention
of the second toxicology report, arguing the State’s late disclosure impacted
her ability to hire an expert witness and challenge the evidence. The State
argued that Knox admitted to taking gabapentin on the date of the offenses
and knew her use of the drug would be discussed at trial. The superior court
denied the motion to preclude, and Knox did not request a continuance. At
trial, officers testified that they located a bottle of gabapentin in Knox’
vehicle and she admitted to taking the drug prior to the collision. The
forensic scientist testified regarding the first and second toxicology reports,
confirming that the laboratory’s new instrument could screen for
5
STATE v. KNOX
Decision of the Court
gabapentin and the test revealed the presence of gabapentin in Knox’ blood.
Knox’ physician assistant testified that she had been prescribed gabapentin
as a pain medication and she did not appear to be abusing the drug.
¶18 The delayed disclosure of the second toxicology report did
not subject Knox to undue surprise. See Stewart, 139 Ariz. at 59. The State
provided Knox with sufficient notice of which prescription drugs would be
discussed at trial, including gabapentin. Based on Knox’ admissions and
the evidence located in her vehicle, she knew her gabapentin use would be
relevant to the offenses and chose not to secure an expert witness to
challenge that evidence. Upon learning the forensic scientist could test for
gabapentin, the State requested, received and disclosed the results before
trial. Knox did not ask for a continuance to investigate the issue. And
finally, Knox was able to present testimony from her physician assistant
regarding her prescribed, therapeutic use of the drug.
¶19 Without any showing that the late disclosure resulted from
bad faith on the State’s part or that Knox suffered prejudice, there was no
abuse of discretion in permitting the testimony.
III. Admission of Medical Examiner Testimony Was Not Error.
¶20 Knox further contends the superior court erred in allowing
testimony from two medical examiners. She argues that the testimony was
unfairly prejudicial and cumulative. Because she did not object to this
testimony below, this court reviews only for fundamental, prejudicial error.
See State v. Escalante, 245 Ariz. 135, 142 ¶ 21 (2018).
¶21 Relevant evidence is admissible unless “its probative value is
substantially outweighed by a danger of . . . unfair prejudice, confusing the
issues, misleading the jury, undue delay, wasting time, or needlessly
presenting cumulative evidence.” Ariz. R. Evid. 401, 403. Not all harmful
evidence results in unfair prejudice. See State v. Shurz, 176 Ariz. 46, 52 (1993).
“After all, evidence which is relevant and material will generally be adverse
to the opponent.” Id. Although the details of a victim’s cause of death tend
to be tragic, such evidence is admissible unless presented “for the sole
purpose of inflaming the jury.” State v. Gerlaugh, 134 Ariz. 164, 169 (1983);
see also State v. Spreitz, 190 Ariz. 129, 142 (1997) (noting the facts surrounding
a victim’s cause of death are always relevant in a homicide case). Moreover,
evidence that provides “different perspectives” of what occurred is not
considered needlessly cumulative. State v. Escalante-Orozco, 241 Ariz. 254,
279, ¶ 86 (2017), abrogated on other grounds by Escalante, 245 Ariz. at 140, ¶15.
6
STATE v. KNOX
Decision of the Court
¶22 The State elicited testimony, without objection, from two
medical examiners regarding injuries and cause of death. The first medical
examiner, who conducted the autopsy, testified that Knox’ daughter
sustained numerous injuries to her torso, spinal cord, and brain. He
testified that complications from blunt force injuries and blood loss to her
brain caused her death. The second medical examiner, a neuropathologist,
testified that she specifically examined injuries to her brain and spinal cord
after the autopsy. She provided a more detailed cause of death, testifying
that her “primary brain injury [was] the hypoxic-ischemic
encephalopathy,” which meant she was not receiving blood or oxygen to
her brain resulting in cardiac arrest. The State did not admit any reports or
photographs associated with the autopsy or post-autopsy examinations.
¶23 As noted above, the State was required to prove the crash
caused the death. See A.R.S. § 13-1103(A)(1). The testimony provided by the
medical examiners was relevant to establish the cause of death, as well as
the significant injuries she sustained. The first medical examiner was
necessary in describing the results of the autopsy, and the second medical
examiner provided an additional neuropathological diagnosis and more
detailed cause of death. Although the witnesses both testified as to brain
and spinal cord injuries, their testimony was necessary in fully explaining
and contextualizing her cause of death. See Rienhardt, 190 Ariz. at 584
(finding no error where the admission of graphic “photographs of a murder
victim are relevant if they help to illustrate what occurred”). The testimony
was neither admitted for an improper purpose nor needlessly cumulative.
See Ariz. R. Evid. 403. Knox has failed to establish error, fundamental or
otherwise.
CONCLUSION
¶24 Knox’ convictions and resulting sentences are affirmed.
AMY M. WOOD • Clerk of the Court
FILED: AA
7 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484564/ | STATE OF LOUISIANA
COURT OF APPEAL
FIRST CIRCUIT
2022 KA 0502
STATE OF LOUISIANA
VS.
KEVIN ABIMAEL GUZMAN
Judgment Rendered: Nov 17 2022
On Appeal from the
Nineteenth Judicial District Court
In and for the Parish of East Baton Rouge
State of Louisiana
No. 12- 16- 0217
The Honorable Fred T. Crifasi, Judge Presiding
Hillar C. Moore, III Attorneys for Appellee
District Attorney State of Louisiana
Dylan C. Alge
Assistant District Attorney
Baton Rouge, Louisiana
James Stokes Holt, IV Attorney for Defendant/Appellant
Baton Rouge, Louisiana Kevin Abimael Guzman
BEFORE: McDONALD, McCLENDON, AND HOLDRIDGE, JJ.
HOLDRIDGE, I
The defendant, Kevin Abimael Guzman, was charged by bill of information
with sexual battery of M.Z. ( a victim under the age of thirteen years), ( count I);
sexual battery of J.P. ( a victim under the age of thirteen years) ( count II); and sexual
battery of J.P. ( count I1I), violations of La. R.S. 14: 43, 1.'
He pled not guilty on all
counts.
Following a jury trial, on count I, he was found not guilty, and on counts II
and III, he was found guilty as charged by nonunanimous verdicts. He moved to
vacate the verdicts on counts II and 111, and the motion was granted. See Ramos v.
Louisiana, _ U.S. _, 140 S. Ct. 1390, 206 L.Ed.2d 583 ( 2020).
Thereafter, the defendant was charged by amended bill of information with
sexual battery of J.P. ( a victim under the age of thirteen years) ( count I); and sexual
battery of J.P. ( count Il), violations of La. R. S. 14: 43. 1. He pled not guilty on both
counts.
Following a jury trial, on counts I and II, he was found guilty as charged by
unanimous verdicts. On count 1, he was sentenced to twenty- five years
imprisonment at hard labor without benefit of probation, parole, or suspension of
sentence. On count II, he was sentenced to ten years imprisonment at hard labor
without benefit of probation, parole, or suspension of sentence, two years to run
consecutively to count I, and eight years to run concurrently with count I. He now
appeals raising three assignments of error. For the following reasons, we affirm the
convictions and sentences.
FACTS
The victim, J. P., testified at trial. Her date of birth is September 3, 1999. She
went to Park Forest Elementary School for sixth and seventh grades. During that
period, she lived with her parents and two brothers in an apartment on North
Sherwood Forest Boulevard in Baton Rouge, Louisiana. J. P. and her family were
1 We reference J. P., who at the time of the commission of the offense was a minor under eighteen
years of age and a victim of sex offenses, only by her initials. See La. R.S. 46: 1844( W).
2
active in Communidad Misionera Natanael ( Natanael) - a church that was located
next to their apartment complex.
In the summer of 2012, when J. P. was twelve years old, she and her family
usually attended Friday and Sunday services at Natanael. The defendant was also a
member of the church, where he did " production work." According to J.P., the
defendant had visited her home to play video games with her brothers.
J.P.' s first time sleeping away from home was in June 2012 at a Natanael
sponsored family retreat in Lake Charles. She attended the event with her uncle,
aunt, and three-year-old cousin. J.P. was permitted to arrive early for the retreat with
her aunt and some other church members, including the defendant, because her aunt
worked at the church.
On the ride to the retreat, the defendant asked J. P. if she wanted to " make
cheesecake."
J.P. thought the defendant was talking about baking. When the
defendant put his hand on her thigh, she " realized that making cheesecake wasn' t
exactly what [ she] thought it was." The defendant moved his hand up J.P.' s thigh,
but she moved it away. J.P.' s aunt and cousin were also in the vehicle, but had both
fallen asleep.
The retreat facility was " like a campus." Suites were available for rent so that
families could stay together. Additionally, two residential buildings, one for the men
and one for the women, were on either side of a building where services were held.
J. P. shared a suite with her uncle, aunt, and cousin.
After arriving at the retreat, J. P.' s aunt asked her to go to the men' s residential
building, At the residential building, J.P. was approached by the defendant and his
friend, Jose. No one else was present because the attendees were arriving later that
evening. The defendant grabbed J. P.' s forearm and pushed her into a room with a
bed. Jose grabbed J.P.' s cousin and took him away. The defendant tried to kiss J.P.
3
on her mouth and neck. She was in shock. She told the defendant that she " didn' t
want to do that[.]" The defendant grabbed her hand and forearm and took her to the
bathroom. The defendant put J. P. against a wall and told her to take her pants off
J. P. was still in shock and did not respond. The defendant then unbuttoned J.P.' s
shorts and pulled them and her underwear down. J. P. asked the defendant what he
was doing. He replied, " open your legs up." J. P. stated, " No." J.P. indicated the
defendant put his fingers on her vagina. The defendant then stopped for a minute
and took out a condom. He attempted to put the condom on, but stated, "[ o] h sh**,
my condom ripped." J. P. " hurried up and put [her] bottoms back on, and ... ran out
of the room[.]" Jose was outside of the room with J. P.' s cousin. J. P. took her cousin
away from Jose and went back to her suite. She remained at the retreat the entire
weekend, and she rode back home with her family.
J.P. did not report the incident to her aunt or mother because she was in shock
about what had happened. When asked why she had not reported the incident to her
mother when she called J. P. at the retreat, she stated:
I did want to tell her, but it was -- the environment we had grown
up in at church was always condemning any type of sexual acts or
anything to do with that. And I had thought to myself who is going to
believe a 12 year old girl compared to a guy who is much older.
Following the incident, J. P. continued attending Natanael with her family.
She did so because she had not told her family about the incident. She also continued
to see the defendant at Natanael.
According to J.P., the defendant assaulted her again approximately a few
weeks or a month later. J. P. was still twelve years old. On the day of this incident,
during the lunch hour, the defendant came to the apartment where J. P. lived with her
family. The only person at home with J.P. was a child she was babysitting.
Someone knocked on the front door, and J.P. opened the door to see who was there
and it was the defendant. The defendant asked if J. P.' s brothers were home. J.P.
4
told the defendant her brothers were not there and nobody was home. The defendant
lingered at the door and asked if he could come in. J. P. said, " no, there is nobody
home." The defendant moved closer to the door and entered the apartment. J.P. told
the defendant " no," but did not want to cause a commotion or alert other people in
the apartment complex.
Once inside the apartment, the defendant gave the child J.P. was babysitting
a video game and told him to go upstairs. The defendant told J. P., " let' s try to do ...
what we were trying to do last time." J.P. said, " no" multiple times. Every time she
said " no," however, the defendant moved closer to her " as if he was trying to
intimidate [ her]." J.P. then told the defendant that she was not going to do that. He
grabbed her forearm, took her to the downstairs half bathroom, and closed the door.
He told J.P. to get on her knees. When she did not comply, he used his hands to
force down her shoulders until she was down on her knees. He then pulled down his
pants and told her " you have to suck it." J.P. testified, " I didn' t want to put it in my
mouth, and so what [ the defendant] did was he grabbed ... the back of my head, and
he pulled me forward, and as I was doing what he told me to do[,] he said don' t bite."
J. P. began gagging as the defendant kept his hands on the back of her head. She felt
ashamed and was in a panic. The defendant ejaculated and told J.P. she had to
swallow it. The defendant then pulled up his pants. J. P. was crying and turned her
body to face the sink. The defendant told her she " did a good job" and left. J.P. did
not tell anyone about the incident because she was ashamed of what had occurred.
According to J. P., the defendant assaulted her a third time a few months after
the incident at the apartment. J. P. was thirteen years old at the time of this incident.
It occurred when she was at Natanael on a Saturday for a youth gathering. After a
sermon, the pastor' s wife asked J. P. to go fetch the defendant from the production
room in one of the other buildings. J. P. did not want to go and did not want to be
5
alone with the defendant, but she did as instructed to avoid having to tell the pastor' s
wife about what the defendant had done.
J.P, went to the production room and opened the door. The defendant was
sitting in a chair with wheels and turned to see who was there. While standing at the
door, J.P. told the defendant that the pastor' s wife needed him. Before J. P. could
leave, the defendant rolled over to her and said, " no, wait, come here." The
defendant grabbed J.P. by the wrists and pulled her into the room. He forced her to
sit on his lap. He put his arm over her mid area. She was " really afraid," and tried
to find the courage to fight back and get out. The defendant realized that J.P. was
resisting and got up and grabbed her arm. He took her into the soundproof room and
closed the door.
J. P. had never been in the room because only authorized people
were allowed in the room. The defendant told J.P. to get on her knees and " suck his
d***." J.P. refused, stating " I am not doing this again[.]" The defendant used his
hands to force down J. P.' s shoulders until she was down on her knees. He then
pulled his pants and underwear down and grabbed the back of her head. He put his
penis in J. P.' s mouth and forced her to suck it until he ejaculated. He then removed
his hands from her head. He told J. P. she did a good job and offered her a coke and
a pat on the back. J. P. testified she felt ashamed, dirty, and " in a sense useless."
She told the defendant that what was happening " wasn' t right." J. P. stated, "[ the
defendant] nudged it off, ... basically saying like who is going to believe you." She
explained "[
the defendant] was insinuating that he was much older, and that it could
be seen as I just had a crush on him and I was making it all up." J. P. did not think
anyone would believe her. J. P. did not disclose the assaults until she was fifteen or
sixteen years old. She then told her mother about the assaults after her mother told
her that one of her family members had been molested at Natanael.
T
The defendant testified at trial. His date of birth is November 23, 1992. He
was nineteen in 2012. He admitted he sat next to J. P. on the ride to the retreat, but
denied putting his hand on her knee. He also denied saying anything sexual to her.
He indicated he was never alone with J.P. at the retreat, and denied pulling her into
a side room.
He denied sexually assaulting J.P. at the retreat. He also denied ever
going to the apartment where J.P. lived or assaulting her there. Lastly, he denied
ever being in the audio room of Natanael with J. P. and denied sexually assaulting
her there.
The defendant testified he was a part-time employee of Natanael and
described his position as " technical." He stated that the pastor of Natanael had sent
him to Panama for a month to work with the pastor' s son- in-law at his company
which produced T.V. commercials. The defendant indicated he was not a deacon at
the church because he was too young. The defendant also testified that only
authorized people were allowed to be in the production room of Natanael, but he
was authorized.
RIGHT TO PRESENT A DEFENSE
In assignment of error number one, the defendant contends the trial court erred
in overruling his objection to the court' s granting of the State' s pre- trial motion in
limine. He argues the granting of the motion in limine restricted his defense on
cross-examination by preventing him from impeaching a witness by stating there
was a previous trial. He does not specify which witness, if any, he was prevented
from impeaching.
The effect of granting a new trial is to set aside the verdict or judgment and to
permit retrial of the case with as little prejudice to either party as if it had never been
tried. La. Code Crim. P. art. 857. At a minimum, Article 857 is intended to mask
from the jury members the fact that a defendant before them has previously been
7
tried, with the jury' s possible conclusion that he has previously been convicted.
State v. Reed, 324 So. 2d 373, 380 ( La. 1975). It is a jury' s duty to determine a
criminal defendant' s guilt or innocence on the strength of the evidence presented to
it, uninfluenced by the fact that on an earlier occasion ( and under circumstances so
defective as to invalidate the conviction), he had been found guilty of the offense by
a different jury. When a jury is informed by the State that the accused was convicted
of the crime on a previous occasion, the defendant' s right to a fair trial ... has been
violated. State v. Lee, 346 So. 2d 682, 684 ( La. 1977)
A criminal defendant' s right to present a defense is guaranteed by the Sixth
Amendment of the United States Constitution and Article I, § 16 of the Louisiana
Constitution. Evidentiary rules may not supersede the fundamental right to present
a defense. See U. S. Const. amend. VI; La. Const. art. I, § 16; State v. Van Winkle,
94- 0947 ( La. 6/ 30/ 95), 658 So. 2d 198, 201- 02. However, constitutional guarantees
do not assure the defendant the right to the admissibility of any type of evidence;
only that which is deemed trustworthy and has probative value can be admitted. See
State v. Governor, 331 So. 2d 443, 449 ( La. 1976). Although relevant, evidence
may be excluded if its probative value is substantially outweighed by the danger of
unfair prejudice, confusion of the issues, misleading the jury, or by considerations
of undue delay or waste of time. La. Code Evid. art. 403. Ultimately, questions of
relevancy and admissibility of evidence are discretion calls for the district court.
Such determinations regarding relevancy and admissibility should not be overturned
absent a clear abuse of discretion. See State v. Mosby, 595 So. 2d 1135, 1139 ( La.
1992); State v. Bridges, 2014- 0777 ( La. App. 1st Cir. 316/ 15), 2015 WL 997162,
4, writ denied, 2015- 0675 ( La. 2126116), 187 So. 3d 467.
Prior to trial, the State filed a motion in limine seeking to exclude evidence
that there was a prior trial and a prior not guilty verdict, to -wit:
The State looks to [ La. Code Crim. P. art.] 857 regarding the
effects of granting a new trial. The article clearly states that on the
retrial there should be as little prejudice to either party as if it had never
been tried. To bring up the fact that there was a prior trial and one of
the counts for that trial was not even regarding the current victim, J.P.,
is irrelevant and confusing to the jury. Should issues of impeachment
come about during the trial, the State requests that it be handled by
stating " during a previous proceeding under oath" as a way to address
impeachment if necessary.
The trial court granted the motion. The defendant objected to the ruling ofthe
court,
arguing it restricted, or would operate to restrict, the defense on cross-
examination.
At trial, defense counsel asked the defendant if he knew of any reason why
J.P. would make the allegations against him. The defendant replied, "[ w] ell, I
speculate the main thing is, you know, the event with her cousin." Defense counsel
replied, "[
p] ardon me?" Thereafter, the State objected as the defendant answered,
t] he event with her cousin where she too —made a false accusation."
At a sidebar conference, the State objected to speculation. The State argued
the defendant did not know why "[ J. P. had] said the things she said." Additionally,
the State argued the defendant was " trying to get in desperately that there was a
cousin ( M.Z.) that also accused him." Defense counsel stated that he thought the
defendant was going to answer, " No, I don' t know." The court ruled:
This court previously excluded from evidence any reference to
the other matter that was included in the first trial, but that the State
agreed not to introduce in this case. And that was the understanding
going forward. So[,] consistent with that[,] I am going to sustain the
objection.
There was no clear abuse of discretion in the trial court's ruling on the State's
motion in limine. The defendant was only prohibited from referencing the prior trial
and the count concerning M.Z. He was not prevented from presenting a defense to
the allegations of J. P. in the instant trial. The State made no reference in the instant
trial to any prior allegations of M.Z. Further, the defense candidly admitted the only
answer it was looking for from the defendant was that he did not know why J.P.
would make accusations against him. Thus, the probative value, ifany, of testimony
concerning alleged " false allegations" of M.Z. from a former trial in the instant trial
concerning only J. P.' s allegations was substantially outweighed by the danger of
unfair prejudice to the State, confusion of the issues, and misleading the jury. See
State v. Nixon, 2017- 1582 ( La. App. 1st Cir. 4/ 13/ 18), 250 So. 3d 273, 280, writ
denied, 2018- 0770 ( La. 11/ 14/ 18), 256 So. 3d 290 (" Rahe fundamental right to
present a defense does not require the trial court to admit irrelevant evidence or
evidence with such little probative value that it is substantially outweighed by other
legitimate considerations.")
This assignment of error is without merit.
OBJECTION TO TESTIMONY
In assignment of error number two, the defendant contends the trial court erred
in overruling his objection to the victim' s brother, a State witness' s, description of
the defendant as a leader in the church. He argues A.P., J. P.' s brother, was not
familiar with the defendant' s position in the church.
Louisiana Code of Evidence article 701 provides:
If the witness is not testifying as an expert, his testimony in the
form of opinions or inferences is limited to those opinions or inferences
which are:
1) Rationally based on the perception of the witness; and
2) Helpful to a clear understanding of his testimony or the
determination of a fact in issue.
The trial court is vested with much discretion in determining which opinion
testimony shall be received into evidence as lay or expert testimony. State v.
Morgan, 2012- 2060 ( La. App. 1st Cir. 6/ 7/ 13), 119 So. 3d 817, 527. Thus, if the
testimony constitutes a natural inference from what was observed, no prohibition
against it as the opinion of a non -expert exists as long as the lay witness states the
U
observed facts as well. Therefore, the reviewing court must ask two pertinent
questions to determine whether the trial court properly allowed such testimony: ( 1)
was the testimony speculative opinion evidence or simply a recitation of or
inferences from fact based upon the witness' s observations; and ( 2) if erroneously
admitted, was the testimony so prejudicial to the defense as to constitute reversible
error.
State v. Bringier, 2021- 0476 ( La. App. 1 st Cir. 12/ 30/ 21), 340 So. 3d 975,
983, writ denied, 2022- 00157 ( La. 4/ 5/ 22), 335 So.3d 837.
A.P. testified he was the brother of J. P.1 He lived with her, his brother, and
his parents in an apartment on North Sherwood Forest Boulevard. He was not best
friends with the defendant, but " knew him from [ Natanael]" and he played soccer
and video games with the defendant. According to A.P., the defendant had been to
his house " a couple of times." The State asked A.P. if the defendant was " unique in
the church in some way[.]" A.P. replied, "[ the defendant] was -- he was up there.
He was like a —kind of like a deacon, a crew leader." The defense objected, arguing
the question called for speculation. The court overruled the objection, noting that
A.P. had indicated he was familiar with the defendant and his role in the church.
Thereafter, the State asked A.P. if the defendant had been a deacon, and A.P. replied
affirmatively. The State asked A.F. "[ w]hat other types of things did [the defendant]
do that was his role in the church besides being a deacon?" A.P, replied, "[ the
defendant] was over the media like the audio, the production area." A.P. elaborated,
the defendant] would put on slide shows for the pastor. [ The defendant] would
mess with the music during his services, I mean, the cameras, photography." On
cross- examination, A.P. stated he knew the defendant was a deacon in the church
2 In order to protect the identity of J. P., we reference this witness only by his initials. See La.
R.S. 46: 1844( W); State v. Anderson, 2015- 1043 ( La. App. 1st Cir. 2/24/ 16), 2016 WL 759166,
1 n. 3.
11
because he operated the media equipment, and he would get appointed by the pastor
to do special things for him.
There was no abuse of discretion in the overruling of the defense objection.
A.P. socialized with the defendant. AR' s opinions that the defendant was " kind of
like a deacon," or " a crew leader," or " a deacon"
at Natanael were rationally based
on his perception and helpful to a clear understanding of his testimony and the
determination of a fact in issue, i. e., the defendant' s access to a restricted area where
he allegedly assaulted J. P.
This assignment of error is without merit.
AUTHENTICATION OF A DOCUMENT
In assignment of error number three, the defendant contends the trial court
erred in overruling his objection to the introduction into evidence of a document. He
argues another State witness, J. P.' s mother, verified the authenticity of the
document, but her husband signed it.
Louisiana Code of Evidence article 901, in pertinent part, provides:
A. General provision. The requirement of authentication or
identification as a condition precedent to admissibility is satisfied by
evidence sufficient to support a finding that the matter in question is
what its proponent claims.
B. Illustrations. By way of illustration only, and not by way of
limitation, the following are examples of authentication or
identification conforming with the requirements of this Article:
1) Testimony of witness with knowledge. Testimony that a matter is
what it is claimed to be.
2) Nonexpert opinion on handwriting. Nonexpert opinion as to the
genuineness of handwriting, based upon familiarity not acquired for
purposes of the litigation.
Questions of admissibility of evidence are discretion calls for the trial court
and should not be overturned absent a clear abuse of that discretion. For admission,
it suffices if the custodial evidence establishes that it was more probable than not
12
that the object is the one connected to the case. A preponderance of the evidence is
sufficient.
Moreover, any lack of positive identification or a defect in the chain of
custody goes to the weight of the evidence rather than its admissibility. Ultimately,
a chain of custody or connexity of the physical evidence is a factual matter to be
determined by thejury. State v. Dillon, 2018- 0027 (La. App. 1 st Cir. 9121118), 2018
WL 4520463, * 7.
F. P. E. testified at trial through an interpreter.' She was the mother of J. P. In
2012, she lived with her husband and children at the North Sherwood Forest
apartment. At that time, J.P. was twelve years old and attended Park Forest Middle
School. The family moved to Central, Louisiana around the last week of July, 2012.
During her testimony, the State presented a Universal Transfer and
Withdrawal Form ( UTWF) to F.P. E to show the timeline when the victim and her
family moved to Central. She stated the form " had to be done so that [ J. P.] could go
to school in Central." F. P. E. indicated her husband could read English, and she
could read some English. F. P. E. testified she was familiar with her husband' s
signature after twenty- nine years of marriage and the UTWF, specifically the front
page (purportedly bearing her husband' s signature), was familiar to her. In response
to questioning by the defense, F. P.E. stated she was present when her husband signed
the forth. F. P.E. further testified she did not understand everything on the form, but
it was read to her and her husband.
The defense objected to the introduction of the form, arguing F. P. E. had not
signed the form. The court overruled the objection, finding F.P.E. had recognized
the document, explained how she was familiar with it, testified she was able to read
a portion of it, testified that it was read and explained to her, and had identified its
purpose.
3 In order to protect the identity of J. P.. we reference this witness only by her initials. See footnote
2, supra
13
There was no clear abuse of discretion in the overruling of the defense
objection.
The challenged document was sufficiently authenticated. The State
established it was more probable than not that the document was connected to the
case.
F.P. E.' s testimony indicated the form offered by the State was the UTWF
prepared to allow J.P. to go to school in Central and that it was signed by F.P. E.' s
husband in her presence. See La. Code Evid. art. 901( B)( 1) & ( 2).
This assignment of error is without merit.
CONCLUSION
For the foregoing reasons, we affirm the defendant' s convictions and
sentences.
AFFIRMED.
14 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484565/ | STATE OF LOUISIANA
COURT OF APPEAL
FIRST CIRCUIT
2022 KA 0561
STATE OF LOUISIANA
VERSUS
BRITTANY JOILE PALMER SULLIVAN
Judgment Rendered: NOV 17 2022
On Appeal from the Twenty -First Judicial District Court
In and for the Parish of Livingston
State of Louisiana
Docket No. 41072
Honorable Erika W. Sledge, Judge Presiding
Scott M. Perrilloux Counsel for Plaintiff/ Appellee
District Attorney State of Louisiana
and
Zachary Daniels
Assistant District Attorney
Livingston, Louisiana
Peggy J. Sullivan Counsel for Defendant/ Appellant
Louisiana Appellate Project Brittany Joile Palmer Sullivan
Monroe, Louisiana
BEFORE: McDONALD, McCLENDON, AND HOLDRIDGE, 33.
U
McCLENDON, J.
Defendant, Brittany Joile Palmer Sullivan, was charged by amended bill of
information with principal to possession with intent to distribute less than 28 grams of
methamphetamine, a schedule II controlled dangerous substance ( CDS), a violation of
LSA- R. S. 40: 967( A) & ( B)( 1)( a). She pled not guilty. Following a jury trial, defendant
was found guilty as charged. She moved for a post -verdict judgment of acquittal.
Thereafter, the State filed a habitual offender bill of information against defendant,
alleging she was a third -felony habitual offender.' During the hearing on the habitual
offender bill, the court denied the motion for post -verdict judgment of acquittal,' and
immediately thereafter, defendant was adjudged a third -felony habitual offender and
sentenced to fifteen years at hard labor without benefit of probation, parole, or suspension
of sentence. Defendant moved for reconsideration of sentence, but the motion was denied.
She now appeals, challenging the sentence imposed as constitutionally excessive,
challenging the failure to observe a delay between the denial of the motion for post -
verdict judgment of acquittal and sentencing, and challenging the restriction of parole.
For the following reasons, we affirm the conviction and habitual offender adjudication,
vacate the sentence, and remand for resentencing.
FACTS
On March 4, 2020, the Livingston Parish Sheriff's Office executed a search warrant
for the residence and property of Charles Sullivan in Livingston Parish. During the search,
the police officers discovered defendant in her bedroom with three young children between
the ages of three and five years old. After being advised of her Miranda3 rights, defendant
1 Predicate # 1 was set forth as defendant's March 25, 2013 no contest plea, under Twenty- first Judicial
District Court docket # 28549, to possession of methamphetamine, a schedule II CDS. Predicate # 2 was
set forth as defendant' s May 5, 2014 no contest plea, under Twenty-first Judicial District Court docket
30705 to creation or operation of a clandestine laboratory (count I), and possession of methamphetamine,
a schedule II CDS ( count II).
2 The transcript of the habitual offender hearing contains two statements reflecting the trial court's belief
that defendant' s motion for post -verdict judgment of acquittal had been resolved on a previous date;
however, there is nothing in the record supporting those statements, and the State concedes in its appellate
brief that the motion for post -verdict judgment of acquittal was denied on the same day the sentence was
imposed. Thus, it appears that the trial court's belief that defendant's motion for post -verdict judgment of
acquittal had been resolved on a previous date was incorrect. Regardless, the trial court definitively denied
the post -verdict judgment of acquittal during the hearing by explicitly stating, " Just out of an abundance
of caution, the Court will just state again for the record that that motion is denied."
3 Miranda v. Arizona, 384 U. S. 436, 86 S.Ct. 1502, 16 L. Ed. 2d 694 ( 1966).
2
indicated there were narcotics in a lunch box in the closet. The lunch box contained a
digital weight scale, plastic bags with approximately fifteen grams of suspected
methamphetamine, a small bag containing methamphetamine, a methamphetamine
smoking pipe, numerous small plastic bags, and a plastic spoon. Thereafter, defendant
admitted that she and Charles Sullivan had been distributing methamphetamine.
EXCESSIVE SENTENCE
In assignment of error number 1, defendant contends the sentence imposed was
constitutionally excessive considering the facts and circumstances of the case and her
background. In assignment of error number 2, she contends the trial court erred in
denying the motion to reconsider sentence because the sentence was excessive. She
combines these assignments of error for purposes of argument. She argues that neither
her predicate offenses nor the unanimous verdict should have been considered
aggravating factors. Additionally, she argues that the trial court failed to set forth the
aggravating and mitigating factors considered. Our disposition of assignment of error
number 3 causes us to pretermit consideration of these assignments of error.
FAILURE TO OBSERVE DELAY
In assignment of error number 3, defendant contends the trial court failed to
observe a twenty -four- hour delay between the denial of the motion for post -verdict
judgment of acquittal and sentencing. She argues in the absence of an express waiver,
she was entitled to a twenty -four- hour delay between the denial of the motion for post -
verdict judgment of acquittal and sentencing. The State concedes that this assignment of
error has merit, and we agree.
Louisiana Code of Criminal Procedure article 873 mandates that a sentence shall
not be imposed until at least twenty-four hours after a motion for new trial, or in arrest
of judgment, is overruled, unless " the defendant expressly waives" the required delay or
pleads guilty. See State v. Landry, 2019- 0486 ( La. App. 1 Cir. 2/ 21/ 20), 297 So -3d 8,
22. Although LSA-C. Cr. P. art. 873 does not explicitly mandate that a sentence shall not
be imposed until at least twenty-four hours after a motion for post -verdict judgment of
acquittal is overruled, this Court has previously applied the twenty-four hour delay
See
required by LSA- C. Cr.P. art. 873 to motions for a post -verdict judgment of acquittal.
3
State v. Landry, 297 So. 3d at 22 n. 5. Where a defendant does not expressly waive the
delay required by LSA- C. Cr. P. art. 873 and challenges the sentence on appeal, the
sentence must be vacated and the matter must be remanded so that a sentence can be
legally imposed. State v. Gardner, 2016- 0192 ( La. App. 1 Cir. 9/ 19/ 16), 204 So. 3d 265,
270. Nevertheless, the Louisiana Supreme Court has indicated that in the absence of
prejudice to the defendant, such as when the sentence is mandatory, reversal of the
sentence is not warranted .4 See State v. Seals, 95- 0305 ( La. 11/ 25/ 96), 684 So. 2d 368,
380, cert. denied, 520 U. S. 1199, 117 S. Ct. 1558, 137 L. Ed. 2d 705 ( 1997).
In the instant matter, the trial court denied defendant's motion for post -verdict
judgment of acquittal during the same hearing at which defendant was adjudged and
sentenced as an habitual offender. Consequently, the trial court did not observe the
required twenty-four hour delay between denying defendant's motion for post -verdict
judgment of acquittal and imposing defendant's sentence. ( R. 590, 615- 16). The record
reflects that defendant did not expressly waive the delay, nor did she plead guilty.
Moreover, the sentence imposed was not mandatory, and defendant has challenged her
sentence on appeal. Accordingly, we are required to vacate the sentence and remand
this matter for resentencing. See State v. Gardner, 204 So. 3d at 270- 71. This
assignment of error has merit.
ILLEGAL SENTENCE
In assignment of error number 4, defendant contends the trial court erred in ordering
the sentence to be served without the possibility of parole. She argues the trial court had
no authority to deny parole in this matter. The State concedes that this assignment of error
has merit. We agrees
Defendant's sentencing exposure was imprisonment, with or without hard labor,
for not less than one year nor more than ten years, and a fine, at the discretion of the trial
court, of not more than fifty thousand dollars. LSA- R.S. 40: 967( B)( 1)( a). Following
defendant's adjudication as a third -felony habitual offender, her sentencing exposure
4 The Supreme Court reasoned, " Delay or no delay, the sentence the judge was required to impose would
have been the same. Thus, no prejudice could possibly have resulted from the failure of the court to comply
with the delay." State v. Seals, 684 So. 2d at 380.
5 We address this assignment of error because it involves an issue that will be presented upon remand.
2
increased to imprisonment for a determinate term not less than one- half the longest
possible sentence for the conviction and not more than twice the longest possible
sentence prescribed for a first conviction, i.e., imprisonment, at hard labor, for not less
than five years nor more than twenty years without benefit of probation or suspension of
sentence. See LSA- R. S. 15: 529. 1( A)( 3)( a) & ( G), & State v. Bruins, 407 So. 2d 685, 687
La. 1981) (" It is not a crime to be an habitual offender. The statute increases the
sentence for a recidivist. The penalty increase is computed by reference to the sentencing
provisions of the underlying offense. Similarly, the conditions imposed on the sentence
are those called for in the reference statute."). Defendant was sentenced to fifteen years
at hard labor without benefit of probation, parole, or suspension of sentence. There was
6
no authority to restrict parole in this matter. Accordingly, this assignment of error has
merit.
CONVICTION AND HABITUAL OFFENDER ADJUDICATION AFFIRMED;
SENTENCE VACATED; REMANDED WITH INSTRUCTIONS.
fl The Child Endangerment Law ( CEL), LSA- R. S. 40: 967( B)( 2)( b), provides for a minimum mandatory
sentence of fifteen years without benefit of parole, probation, or suspension of sentence when the State
proves that " a minor child twelve years of age or younger is present in the home, mobile home or other
inhabited dwelling at the time of the commission of the offense[.]" In this matter, however, neither the
amended indictment nor the verdict form referenced the presence of any children ( or their ages) at the
time of the offense. Nor did defendant admit that triggering fact. Further, the jury was not charged
regarding the CEL. Thus, the CEL also provided no authority to restrict parole in this matter. See Apprendi
v. New Jersey, 530 U. S. 466, 476, 120 s.Ct. 2348, 2355, 147 L. Ed. 2d 435 ( 2000) ("[ A] ny fact (other than
prior conviction) that increases the maximum penalty for a crime must be charged in an indictment,
submitted to a jury, and proven beyond a reasonable doubt.'); Blakely v. Washington, 542 U. S. 296,
303, 124 S. Ct. 2531, 2537, 159 L. Ed. 2d 403 ( 2004) ("[ T] he' statutory maximum' for Apprendi purposes
is the maximum sentence a judge may impose solely on the basis of the facts reflected in thejury verdict
or admitted by the defendant.).
5
STATE OF LOUISIANA STATE OF LOUISIANA
VERSUS COURT OF APPEAL
BRITTANY JOILE PALMER FIRST CIRCUIT
SULLIVAN
2022 KA 0561
HOLDRIDGE, J., respectfully concurs.
I would not address assignment of error four regarding the trial court' s order
that the sentence be served without parole. This court is vacating the sentence and
remanding for resentencing by the trial court. We should not be advising the trial
court as to the manner or substance of the sentence to be imposed. | 01-04-2023 | 11-17-2022 |
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Case Information: 83212-COA
Short Caption:ILIESCU, JR. VS. THE REG'L TRANSP. COMM'N OF WASHOE CTY. C/W 83756Court:Court of Appeals
Consolidated:83212-COA*, 83756-COARelated Case(s):81753, 81753-COA, 83212, 83756, 83756-COA
Lower Court Case(s):Washoe Co. - Second Judicial District - CV1900459Classification:Civil Appeal - General - Other
Disqualifications:Case Status:Disposition Filed
Replacement:Panel Assigned:
Panel
To SP/Judge:SP Status:
Oral Argument:Oral Argument Location:
Submission Date:How Submitted:
+
Party Information
RoleParty NameRepresented By
AppellantJohn Iliescu, Jr.D. Chris Albright
(Albright Stoddard Warnick & Albright)
AppellantJohn Iliescu, Jr. and Sonnia Iliescu 1992 Family Trust AgreementD. Chris Albright
(Albright Stoddard Warnick & Albright)
AppellantSonnia IliescuD. Chris Albright
(Albright Stoddard Warnick & Albright)
RespondentRegional Transportation Commission of Washoe CountyDane W. Anderson
(Woodburn & Wedge)
Bronagh M. Kelly
(Woodburn & Wedge)
+
Due Items
Due DateStatusDue ItemDue From
12/12/2022OpenRemittitur
Docket Entries
DateTypeDescriptionPending?Document
05/04/2022Case Status UpdateTransferred from Supreme Court. Nos. 83212/83756 (COA).
11/17/2022Opinion/DispositionalFiled Authored Opinion. "Affirmed in part, reversed in part, vacated in part, and remanded." Before the Court of Appeals. Author: Gibbons, C.J. Majority: Gibbons/Tao/Bulla. 138 Nev. Adv. Opn. No. 72. Court of Appeals-MG/JT/BB. Nos. 83212/83756 (COA).22-36120
Combined Case View | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484569/ | 138 Nev., Advance Opinion 71
IN THE SUPREME COURT OF THE STATE OF NEVADA
CHRISTOPHER BEAVOR, AN No. 81964
INDIVIDUAL,
Appellant,
vs. FILE
JOSHUA L. TOMSHECK, AN
NOV I 0 2027
INDIVIDUAL,
EUZ
Respondent. CLEM' URT
BNI
11EF DEPUTY CLERK
Appeal from a district court order granting summary judgment
in a legal malpractice action. Eighth Judicial District Court, Clark County;
James Crockett, Judge.
Affirmed in part, reversed in part, and remanded.
E. Brent Bryson, P.C., and E. Brent Bryson, Las Vegas; Cohen Johnson,
LLC, and H. Stan Johnson and Ryan D. Johnson, Las Vegas,
for Appellant.
Olson, Cannon, Gormley & Stoberski and Max E. Corrick, II, Las Vegas,
for Respondent.
BEFORE THE SUPREME COURT, HARDESTY, STIGLICH, and
HERNDON, JJ.
OPINION
By the Court, HARDESTY, J.:
In this appeal, we are asked to decide whether the proceeds
from a legal malpractice claim may be assigned to an adversary in the same
litigation that gave rise to the alleged legal malpractice. We have
SUPREME COURT
OF
NEVADA
35-1-1(c,
101 1447A
previously held that the assignment of a legal malpractice claim is
prohibited as a matter of public policy. See Tower Hoines, LLC v. Heaton,
132 Nev. 628, 635, 377 P.3d 118, 122 (2016); Chaffee v. Smith, 98 Nev. 222,
223-24, 645 P.2d 966, 966 (1982). Allowing a client who is damaged by his
or her attorney to assign the malpractice claim to a third party threatens
the integrity of the highly personal and confidential attorney-client
relationship and creates an incentive for the client to file a malpractice
claim against the attorney and sell it to the highest bidder, even if the claim
lacks merit.
At issue in this case is the assignability of the proceeds from a
legal malpractice action, rather than the action itself. We limit our
consideration of this issue to the specific context presented in this case—the
assignment of proceeds to an adverse party in the underlying litigation from
which the alleged malpractice arose. Because such an assignment would
allow parties to use legal malpractice claims as a bargaining chip in
settlement negotiations, as occurred here, we conclude that public policy
prohibits an assignment of proceeds from a legal malpractice claim to an
adversary in the underlying litigation. For this reason, the district court
properly invalidated the assignment at issue. However, we also conclude
that an invalid assignment does not, by itself, preclude an injured client
from pursuing the legal malpractice claim where the assignment has been
set aside. Thus, we affirm in part and reverse in part the district court's
order granting summary judgment, and we remand this matter for further
proceedings consistent with this opinion.
FACTS AND PROCEDURAL HISTORY
This dispute began when Yacov Hefetz loaned $2.2 million to
Toluca Lake Village, LLC, to fund the purchase of property. The loan was
secured by appellant Christopher Beavor's personal residence in a guaranty
SUPREME COURT
OF
NEVADA
2
agreement. Toluca Lake filed bankruptcy, and Beavor did not repay the
$2.2 million loan. Hefetz sued Beavor for breaching the guaranty
agreement. The jury returned a verdict in favor of Beavor.
After the verdict, Hefetz hired a new attorney, H. Stan Johnson,
and filed a motion for a new trial. Beavor also hired a new attorney,
respondent Joshua Tomsheck, who filed an opposition arguing only that
Hefetz's motion for a new trial was untimely. The district court concluded
that the motion was timely and granted a new trial because Beavor did not
substantively oppose Hefetz's arguments. Beavor did not timely appeal this
ruling. The lawsuit proceeded, and Tomsheck withdrew as Beavor's
attorney. Later, Beavor sent a letter to Tomsheck informing him that he
might file a legal malpractice claim based on Tomsheck's allegedly deficient
performance. Beavor hired another attorney and filed a motion to dismiss
Hefetz's complaint, which the district court granted. We reversed for
reasons that do not affect the analysis in the instant appeal. See Hefetz v.
Beauor, 133 Nev. 323, 331, 397 P.3d 472, 478 (2017).
On remand, Hefetz and Beavor reached a settlement agreement
to dismiss the litigation. In addition to settlement payments in the amount
of $300,000, Beavor agreed to prosecute his legal malpractice claim against
Tomsheck and to "irrevocably assign [ 1 any recovery or proceeds" from that
claim to Hefetz. To effectuate the assignment, Beavor agreed that he would
sign a conflict waiver to allow Johnson—Hefetz's attorney—to represent
him regarding the legal malpractice claim. The parties agreed that Hefetz
would pay Johnson to prosecute Beavor's claim. Beavor further agreed that
he would provide Johnson with all documents relating to Tomsheck's
representation and do nothing intentional to impair the value of any
recovery. The agreement, however, provided that Beavor would retain the
SUPREME COURT
OF
NEVADA
3
tl' 14747A c5f4a.
right to decide whether he would settle the litigation with Tornsheck. The
agreement also required Beavor to execute a confession ofjudgment in favor
of Hefetz in the amount of $2 million, which would be recorded should
Beavor breach his obligations under the settlement agreement.
Beavor complied with the settlement agreement by suing
Tomsheck for legal malpractice. Tomsheck moved for summary judgment
on the ground that Beavor impermissibly assigned his claim to Hefetz. In
opposition, Beavor argued that the assignment did not violate public policy
because he still retained control of the lawsuit and assigned only the
proceeds of the action to Hefetz. The district court concluded that the
assignment was invalid because Beavor transferred control of the litigation
to Hefetz and the assignment was to an adversary from the same litigation
in which the malpractice arose. The district court also concluded that the
assignment was framed as an assignment of proceeds to circumvent the
public policy that would otherwise bar such an assignment. Finally, the
district court concluded that Beavor could not reassert his claim against
Tomsheck because the assignment was irrevocable. Thus, the district court
granted summary judgment to Tomsheck. This appeal followed.
DISCUSSION
A summary judgment will be affirmed if this court's de novo
review of the evidence—viewed in the light most favorable to the
nonmovant—shows "that no genuine issue as to any material fact [remains]
and that the moving party is entitled to a judgment as a matter of law."
Wood v. Safeway, Inc., 121 Nev. 724, 729, 121 P.3d 1026, 1029 (2005)
(alteration in original) (internal quotation marks omitted).
SUPREME COURT
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4
II )1 N-17 A AV) ,
Assigning the proceeds of a legal malpractice claim to an adversary from the
same litigation that gave rise to the malpractice claim violates public policy
Beavor argues that the district court erred in granting
summary judgment against him because our precedents allow parties to
assign the proceeds from legal malpractice claims if the damaged client
retains control of the litigation and was the party who pursued the
malpractice claim. He contends that he controlled the litigation and
previously pursued the claim, so the assignment of the proceeds was valid.
Tomsheck argues that legal malpractice claims and the proceeds from such
claims cannot be assigned to a former adversary from the same litigation
that gave rise to the alleged malpractice. Thus, Tomsheck asserts that the
district court properly invalidated the assignment.
Our precedents governing the assignment of legal malpractice
claims detail the policy concerns associated with such an assignment. In
Chaffee v. Smith, we held that "[a] s a matter of public policy, we cannot
permit enforcement of a legal malpractice action which has been transferred
by assignment . . . but which was never pursued by the original client." 98
Nev. 222, 223-24, 645 P.2d 966, 966 (1982). We explained that "Mlle
decision as to whether to bring a malpractice action against an attorney is
one peculiarly vested in the client." Id. at 224, 645 P.2d at 966. Later, in
Tower Homes, LLC v. Heaton, we held that an assignment of a legal
malpractice claim violates public policy because the assignor no longer
controls the claim. 132 Nev. 628, 635, 377 P.3d 118, 122 (2016). Relying on
the California Court of Appeal's decision in Goodley v. Wank & Wank, Inc.,
we explained that allowing the assignee of a legal malpractice claim to
control the litigation against the assignor's attorney "embarrass[es] the
attorney-client relationship and imperil[s] the sanctity of the highly
confidential and fiduciary relationship existing between attorney and
SUPREME COURT
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5
r( k) 1947A
client." Id. at 635, 377 P.3d at 123 (quoting Goodley v. Wank & Wank, Inc.,
133 Cal. Rptr. 83, 87 (Ct. App. 1976)). The Goodley court reasoned that
allowing the assignment of a legal malpractice claim effectively "convert[s]
it to a commodity. [that is] transferred to economic bidders who have
never had a professional relationship with the attorney and to whom the
attorney has never owed a legal duty." 133 Cal. Rptr. at 87. This would
allow legal malpractice claims to be exploited, presenting a plethora of
"probabilities that could only debase the legal profession." Id. It is our duty
to prevent a practice that could jeopardize or harm members of the legal
profession or the public. For that reason, our precedents bar the assignment
of a legal malpractice c]aim.
While this court has previously addressed assignments of legal
malpractice claims, we have not considered whether the proceeds of such
claims can be assigned. In other contexts, we have held that the assignment
of the proceeds of a personal-injury claim, rather than the claim itself, is
permissible because such an assignment permits the injured plaintiff to
retain control of the litigation without interference from the assignee. See
Achrern v. Expressway Plaza Ltd. P'ship, 112 Nev. 737, 741, 917 P.2c1 447,
449 (1996); see also Reynolds v. Tufenkjian, 136 Nev. 145, 149, 461 P.3d 147,
151 (2020). Beavor invites us to allow a damaged client to assign the
proceeds from a legal malpractice claim if the client retains control of the
litigation. He asserts that, under this proposed rule, his assignment to
Hefetz was permissible.
To resolve this case, we need not accept Beavor's invitation to
answer the broader question of whether assigning the proceeds of a legal
malpractice claim is prohibited in all instances, but instead confine our
decision to assignments to an adverse party in the underlying litigation. We
SUPREME COURT
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6
10} 1,447A
hold, like the Supreme Court of Connecticut in Gurski v. Rosenbluin &
Filan, LLC, "that neither a legal malpractice claim nor the proceeds from
such a claim can be assigned to an adversary in the same litigation that
gave rise to the alleged malpractice." 885 A.2d 163, 167 (Conn. 2005). As
the Gurski court determined, the assignment of a legal malpractice claim—
or the proceeds of such a claim—to the adversary in the litigation that gave
rise to the malpractice "creates the opportunity and incentive for collusion
in stipulating to damages in exchange for an agreement not to execute on
the judgment in the underlying litigation." Id. at 174; see also, e.g., Skipper
v. ACE Prop. & Cas. Ins. Co., 775 S.E.2d 37, 38 (S.C. 2015) ("Were we to
permit such assignments, plaintiffs and defendants would be incentivized
to collude against the defendant's attorney."); Kenco Enters. Nw., LLC v.
Wiese, 291 P.3d 261, 263 (Wash. Ct. App. 2013) (noting that the mere
opportunity for collusion, regardless of whether collusion actually occurs,
"converts legal malpractice into a commodity").
In addition to the potential of collusion, the assignability of a
malpractice claim to an adversary carries the risk that the malpractice
claim will be used to settle a client's case. As the Indiana Supreme Court
warned in Picadilly, Inc. v. Raikos, such assignments "would become an
important bargaining chip in the negotiation of settlements—particularly
for clients without a deep pocket." 582 N.E.2d 338, 343 (Ind. 1991),
abrogated on other grounds by Liggett v. Young, 877 N.E.2d 178 (Ind. 2007).
If such assignments were permitted, adversaries could offer financially
strapped parties a favorable settlement in exchange for their legal
malpractice claims. Id. Not only could this undermine attorney-client
relationships and confidences, but it implicates the same policy concerns
discussed by the Goodley court—that a malpractice claim could be turned
SUPREME COURT
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7
(I fp 1)47A
into a "commodity to be exploited," which would encourage unjustified
lawsuits against attorneys, increase legal malpractice litigation, and
ultimately debase the legal profession. 133 Cal. Rptr. at 87.
The concerns discussed above apply with equal force when only
the proceeds of a legal malpractice claim are assigned to the adverse party
in the underlying litigation. Regardless of whether the client assigns the
malpractice claim itself or only the future proceeds from that claim to an
adversary, the result is the same—the adversary will have an interest in
any recovery frorn the legal malpractice claim. Thus, the same potential for
turning a legal malpractice claim into a commodity or bargaining chip exists
when only the proceeds of those claims are assigned, as this case illustrates.
Here, as part of the settlement agreement between Beavor and Hefetz,
Beavor had to prosecute his legal malpractice claim and transfer his
recovery from that claim to Hefetz. Though Beavor did not assign the
malpractice claim to Hefetz, he agreed to litigate his malpractice claim for
the benefit of Hefetz, effectively using the legal malpractice claim as a
bargaining chip. This is the exact danger Picadilly warned against.
Because public policy prohibits the assignment of proceeds from a legal
malpractice claim to the adversary in the underlying litigation, we conclude
that the district court correctly invalidated Beavor's assignment to Hefetz.1
1We assume without deciding that the assignment is properly
characterized here as an assignment of proceeds rather than an assignment
of the legal malpractice claim. In light of our conclusion, we need not
determine whether Beavor retained control of the litigation such that he
assigned only the proceeds of the malpractice claim.
SUPREME COURT
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8
1(1, 1)47A
Beavor retains the claim against Tomsheck even though the assignment of
proceeds is invalid
Relying on cases from other jurisdictions, Beavor argues that
even if the assignment of proceeds is invalid, he retains the right to assert
his legal malpractice claim on his own behalf against Tomsheck. Tomsheck
argues that we held in Tower Homes that a legal malpractice claim is
extinguished following an invalid assignment. We disagree with
Tomsheck's reading of Tower Homes and join with other jurisdictions that
recognize that an injured client may pursue a legal malpractice claim
following an invalid assignment of the proceeds of that claim.
In Tower Homes, the bankruptcy court entered an order
authorizing the bankruptcy trustee to permit a group of creditors to pursue
Tower Homes' malpractice claim against its former attorneys. 132 Nev. at
631-32, 377 P.3d at 120-21. The creditors controlled the litigation and
would receive all financial benefits from the claim. Id. While recognizing
that bankruptcy statutes permit bankruptcy creditors to bring debtor
malpractice claims on behalf of the bankruptcy estate under certain
conditions, this court determined that the creditors were not actually
bringing a claim on behalf of the estate and thus the bankruptcy court's
order constituted an impermissible assignment of a legal malpractice claim
to them in violation of Chaffee, 98 Nev. at 223-24, 645 P.2d at 966. Tower
Homes, 132 Nev. at 633-34, 377 P.3d at 121-22. The creditors argued that
"the portion of the bankruptcy court order allowing [them] to retain any
recovery should be ignored and the proceeds should revert back to the
estate." Id. at 635 n.2, 377 P.3d at 123 n.2. However, we rejected that
argument because the creditors "cited no authority to support a remedy that
would result in rewriting the bankruptcy court's order severing [their]
rights to the proceeds" from the invalid assignment. Thus, Tower Homes
SUPREME COURT
OP
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9
did not address whether the claim was extinguished, but only whether the
creditors could pursue it.
In distinguishing Tower Homes, Beavor directs our attention to
several persuasive authorities that lead to the relatively straightforward
conclusion that Beavor should be able to assert his claim for legal
malpractice notwithstanding the invalid assignment. See generally
Kommavongsa v. Haskell, 67 P.3d 1068, 1070-72, 1083 (Wash. 2003)
(allowing the injured client to pursue the legal malpractice claim following
the invalid assignment of that claim); see also Weston v. Dowty, 414 N.W.2d
165, 167 (Mich. Ct. App. 1987) (explaining that an invalid assignment does
not warrant dismissal of a legal malpractice claim); Tate v. Goins,
Underkofler, Crawford & Langdon, 24 S.W.3d 627, 634 (Tex. Ct. App. 2000)
("[T]he plaintiff's right to bring his own cause of action for [legal]
malpractice is not vitiated by [an] invalid assignment."). We therefore hold
that a legal malpractice claim is vested in the client, and an invalid
assignment, by itself, does not prevent an injured client from pursuing a
legal malpractice claim where the assignment has been set aside. For that
reason, we reverse the district court's grant of summary judgment on that
issue and remand for further proceedings consistent with this opinion.2
2Tomsheck also argues that the settlement agreement provided for an
irrevocable assignment of the legal malpractice claim, thus precluding
Beavor from pursuing the claim in his own name. Beavor maintains that
the settlement agreement contains a severance clause, so any invalid
portion of the claim still leaves the settlement agreement intact. We decline
to interpret the settlement agreement because Tomsheck is not a party to
it.
SUPREME COURT
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10
(4)1 1947A
CONCLUSION
We hold that neither a legal malpractice claim nor the proceeds
from such a claim can be assigned to an adversary from the same litigation
that gave rise to the alleged malpractice. Thus, we conclude that the district
court correctly invalidated Beavor's assignment to Hefetz. However, we
further hold that a legal malpractice claim is vested in the injured client
and, generally, an invalid assignment of the claim or proceeds does not
warrant dismissal of the legal malpractice claim. Accordingly, we reverse
that portion of the district court's order granting summary judgment, and
we remand this matter for further proceedings consistent with this opinion.
Hardesty
We concur:
Aie•‘.5c;,0
Stiglich
Herndon
11 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484572/ | NOTICE: NOT FOR OFFICIAL PUBLICATION.
UNDER ARIZONA RULE OF THE SUPREME COURT 111(c), THIS DECISION IS NOT PRECEDENTIAL
AND MAY BE CITED ONLY AS AUTHORIZED BY RULE.
IN THE
ARIZONA COURT OF APPEALS
DIVISION ONE
SHAWN OAKLIEF, Petitioner/Appellant,
v.
EMILY THOMAS, Respondent/Appellee.
No. 1 CA-CV 22-0383 FC
FILED 11-17-2022
Appeal from the Superior Court in Maricopa County
No. FC2007-092087
The Honorable Lisa Wahlin, Judge
AFFIRMED
APPEARANCES
Shawn Oaklief, Mesa
Petitioner/Appellant
OAKLIEF v. THOMAS
Decision of the Court
MEMORANDUM DECISION
Judge D. Steven Williams delivered the decision of the court, in which
Presiding Judge David D. Weinzweig and Judge Randall M. Howe joined.
W I L L I A M S, Judge:
¶1 Shawn Oaklief (“Father”) appeals the superior court’s legal
decision-making and parenting time order. For the following reasons, we
affirm.
FACTUAL AND PROCEDURAL HISTORY
¶2 Father and Emily Thomas (“Mother”) never married but have
one child in common. The child is now 16 years old.
¶3 In 2020, the child was diagnosed with a condition that makes
her vulnerable to a variety of health risks. As a result, the child has received
a series of medical treatments. When Father first disagreed with the child’s
medical treatment, he became “aggressive and threatening” towards staff
and treating physicians. The hospital ultimately refused to treat the child
because of Father’s continued aggression and false accusations towards
medical staff.
¶4 Around the same time, Father behaved similarly towards the
child’s high school principal and was barred from the school as a result.
¶5 On another occasion, Father became upset when the child did
not respond to his text messages while she was receiving a medical
treatment. Father texted the child that “[t]he war has commenced. You are
. . . not 18. Get that through your head asap. If [you] think it ends today you
are absolutely wrong.” Father continued, “I do[n’]t care about your
feeling[s] any longer,” and “the war has begun.”
¶6 In 2021, Mother petitioned the superior court to modify legal
decision-making and parenting time. Specifically, Mother requested she be
awarded sole legal decision-making for the child and that Father only be
allowed to contact the child through email.
¶7 Following an evidentiary hearing, the court granted Mother’s
request for sole legal decision-making authority finding it to be in the
2
OAKLIEF v. THOMAS
Decision of the Court
child’s best interests. The court limited Father’s parenting time to occur
only “at [the child’s] discretion” and directed Mother to mail a letter each
month to Father “summarizing the child’s medical care, school updates,
and any other relevant information regarding the child.”
¶8 Father timely appealed the superior court’s order. We have
jurisdiction under Article 6, Section 9, of the Arizona Constitution and
A.R.S. §§ 12-120.21(A)(1) and -2101(A)(1).
DISCUSSION1
¶9 We review legal decision-making and parenting time orders
for an abuse of discretion. Gonzalez-Gunter v. Gunter, 249 Ariz. 489, 491, ¶ 9
(App. 2020) (as amended); Owen v. Blackhawk, 206 Ariz. 418, 420, ¶ 7 (App.
2003). In doing so, we defer to the superior court’s findings of fact unless
those findings are clearly erroneous. Engstrom v. McCarthy, 243 Ariz. 469,
471, ¶ 4 (App. 2018).
¶10 Father’s opening brief does not appropriately cite to the
record, nor does he provide any legal authority to support his contention
that the superior court erred in issuing its order. ARCAP 13(a)(7)(A)
(requiring arguments on appeal to contain “supporting reasons for each
contention, and with citations of legal authorities and appropriate
references to the portions of the record on which appellant relies”); In re
Aubuchon, 233 Ariz. 62, 64–65, ¶ 6 (2013) (holding that arguments on appeal
not supported by adequate explanation, citations to the record, or legal
authority are waived).
¶11 Further, though Father contends the court’s order was not
supported by and/or was contrary to the evidence, he has not provided this
court with a transcript of the evidentiary hearing. See ARCAP 11(c)(1)(B).
In the absence of a transcript, this court presumes the missing record
supports the superior court’s ruling. Kohler v. Kohler, 211 Ariz. 106, 108, ¶ 8
n.1 (App. 2005).
1 Mother failed to file an answering brief. In our discretion we decline to
treat Mother’s failure as a concession of reversible error, see Nydam v.
Crawford, 181 Ariz. 101, 101 (App. 1994), and instead consider the merits of
Father’s appeal to the extent he developed his arguments, see Bugh v. Bugh,
125 Ariz. 190, 191 (App. 1980).
3
OAKLIEF v. THOMAS
Decision of the Court
¶12 On this limited record, Father has shown no abuse of
discretion.
CONCLUSION
¶13 The superior court’s order is affirmed.
AMY M. WOOD • Clerk of the Court
FILED: AA
4 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484575/ | IN THE SUPREME COURT OF
CALIFORNIA
THE PEOPLE,
Plaintiff and Respondent,
v.
LEVEL OMEGA HENDERSON,
Defendant and Appellant.
S265172
Second Appellate District, Division Seven
B298366
Los Angeles County Superior Court
BA437882
November 17, 2022
Justice Corrigan authored the opinion of the Court, in which
Chief Justice Cantil-Sakauye and Justices Liu, Kruger,
Groban, Jenkins, and Guerrero concurred.
PEOPLE v. HENDERSON
S265172
Opinion of the Court by Corrigan, J.
This case considers if and when a court may impose
concurrent sentences in cases falling under the habitual
criminal, or “Three Strikes,” sentencing scheme. People v.
Hendrix (1997) 16 Cal.4th 508, 512 (Hendrix) observed that
scheme required imposition of consecutive sentences for
multiple current felonies that were not “committed on the same
occasion” or did not “aris[e] from the same set of operative facts.”
(Pen. Code, §§ 667, subd. (c)(6); 1170.12, subd. (a)(6).) It
clarified, however, that a trial court retained discretion to
impose concurrent terms for those felonies that were committed
on the same occasion or arose from the same set of operative
facts, even if the felonies qualified as serious or violent. (See
Hendrix, at pp. 513–514.) The question here is whether
Proposition 36, the Three Strikes Reform Act of 2012
(Proposition 36, the Reform Act, or the Act), changed the law
and stripped sentencing courts of that discretion, thus
abrogating the Hendrix rule. We conclude the Reform Act did
not have that effect. Following Proposition 36, the court retains
its Hendrix concurrent sentencing discretion, and the total
sentence imposed for multiple current counts of serious or
violent felonies must be ordered to run consecutively to the term
imposed for offenses that do not qualify as serious or violent
felonies. We reverse the Court of Appeal’s contrary judgment
and remand with directions to order a new sentencing hearing.
1
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
I. BACKGROUND
While working at an apartment complex in Los Angeles,
William Aguilar saw defendant Level Omega Henderson and
the manager, Daniel Tillett, trading blows in the courtyard.
Aguilar called police when he saw defendant walk to his car and
retrieve a gun. Tillet and his girlfriend were standing in the
courtyard when defendant returned holding the weapon. He hit
Tillet in the head with the gun butt and punched him with his
other hand. When the girlfriend began yelling, defendant
pointed the gun at her and Aguilar. Aguilar ran and flagged
down a police car. Officers saw defendant strike Tillett several
times, run into a vacant apartment, then emerge a few minutes
later, unarmed. A handgun was recovered from an atrium
directly below the apartment window.
Defendant was charged with assault by means of force
likely to produce great bodily injury, possession of a firearm by
a felon, and two counts of assaulting Tillett and Aguilar with a
semiautomatic firearm.1 The information also alleged
defendant had suffered four prior strike and two prior serious
felony convictions, and had served four prior prison terms. 2 The
1
See Penal Code sections 245, subdivisions (a)(4), (b);
29800, subdivision (a)(1). The information also alleged that
defendant had possessed a firearm after being convicted of a
violent felony (Pen. Code, § 29900, subd. (a)(1)), but the court
dismissed this count on the People’s motion. Defendant was not
charged with assaulting Tillet’s girlfriend.
2
See Penal Code sections 667, subdivisions (a)(1), (b)–(i);
1170.12; 667.5, subdivision (b). Both the Three Strikes law and
the prior serious felony enhancement statute share the same
definition of what constitutes a prior serious felony conviction.
(Pen. Code, § 1192.7, subd. (c); see Pen. Code, §§ 667, subds.
2
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
jury convicted defendant as charged, and, in a bifurcated
proceeding, the court found the prior conviction allegations to be
true. On defendant’s motion, the trial court struck all of the
prior conviction allegations except for one prior strike and one
prior serious felony conviction. It sentenced defendant as a
second striker (see Pen. Code, §§ 667, subd. (e)(1); 1170.12, subd.
(c)(1)), imposing the upper term of nine years for one
semiautomatic firearm assault, doubled to 18 years; a
consecutive four-year term for the second assault (one third the
midterm doubled); and five years for the prior serious felony
conviction. The total term imposed was 27 years. 3 With respect
to consecutive sentencing for the assaults on Aguilar and Tillett,
the court said, “[T]he Three Strikes law requires that on serious
or violent felonies, two or more, that they be sentenced
consecutively.”
On appeal, defendant argued the trial court erroneously
believed it had no discretion to impose concurrent terms for the
assaults on Aguilar and Tillett, even though they occurred on
the same occasion. (See Pen. Code, §§ 667, subd. (c)(6), 1170.12,
subd. (a)(6).) The Court of Appeal affirmed, concluding the court
lacked discretion to impose concurrent terms on multiple serious
or violent felonies after passage of the Reform Act. (See People
(a)(4), (d)(1); 1170.12, subd. (b)(1).) “[T]he trial court may use
the prior convictions both under the Three Strikes law and as
serious felony enhancements.” (People v. Acosta (2002) 29
Cal.4th 105, 139, fn. 4; see People v. Dotson (1997) 16 Cal.4th
547, 554–560.)
3
The court stayed imposition of sentence on the other two
counts as required under Penal Code section 654, subdivision
(a).
3
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
v. Henderson (2020) 54 Cal.App.5th 612, 620–627 (Henderson).)
We reverse.
II. DISCUSSION
A. Structure and Evolution of the Three Strikes
Law and Clarification of Terms
The Three Strikes law was “[e]nacted ‘to ensure longer
prison sentences and greater punishment for those who commit
a felony and have been previously convicted of serious and/or
violent felony offenses’ (Pen. Code, former § 667, subd. (b), as
amended by Stats. 1994, ch. 12, § 1, pp. 71, 72), [and] ‘consists
of two, nearly identical statutory schemes.’ ” (People v. Conley
(2016) 63 Cal.4th 646, 652.) In March 1994, the Legislature
codified its version of the Three Strikes law by adding
subdivisions (b) through (i) to Penal Code4 section 667. A ballot
initiative in November of the same year added a new provision,
section 1170.12. These two parallel enactments have reposed,
somewhat cumbersomely, in the code since that time.5
Proposition 36 made amendments to various provisions of both
sections 667 and 1170.12. However, the amendments did not
treat the language regarding consecutive sentences in the same
way. This disparate amendatory treatment lies at the heart of
the dispute here.
Generally, the Three Strikes law “increases punishment
for second strike defendants by doubling any determinate terms
they otherwise would have received . . . .” (People v. Sasser
(2015) 61 Cal.4th 1, 11.) Third strike offenders were made
4
Subsequent statutory references will be to the Penal Code.
5
For a more extended discussion of the history of the Three
Strikes law, see People v. Superior Court (Romero) (1996) 13
Cal.4th 497, 504–506 (Romero).
4
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
subject to an indeterminate life sentence for the current felony.
(See Teal v. Superior Court (2014) 60 Cal.4th 595, 596.)
The parsing of legislative and initiative language requires
application of a variety of terms. We pause at the outset to
provide some context. The Three Strikes law is a separate
sentencing scheme. As the court explained in Romero: “The
Three Strikes law, when applicable, takes the place of whatever
law would otherwise determine a defendant’s sentence for the
current offense.” (Romero, supra, 13 Cal.4th at p. 524.) The
totality of the Three Strikes law is not found in a single free-
standing section of the Penal Code. Instead, it has been
implemented by the addition or amendment of various, often
cross-referenced, provisions.
The Three Strikes scheme comes into play when a
defendant is charged with new felony offenses but has
previously been convicted of designated serious or violent
felonies. Although these prior convictions are sometimes
referred to as “strikes,” the Three Strikes law itself does not use
that term, instead defining “serious” or “violent” felonies with
specificity.6 Serious felonies are defined in section 1192.7,
6
Some of the legislative and initiative history, as well as
cases interpreting the law, refer to “strikes,” but that term
seldom appears in the Penal Code. In the ballot materials
regarding Proposition 36, the Legislative Analyst explained the
distinctions between serious and violent felonies in the Three
Strikes law: “Existing law classifies some felonies as ‘violent’ or
‘serious,’ or both. Examples of felonies currently defined as
violent include murder, robbery, and rape. While almost all
violent felonies are also considered serious, other felonies are
defined only as serious, such as assault with intent to commit
robbery. Felonies that are not classified as violent or serious
5
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
subdivision (c), while the violent felony definition appears in
section 667.5, subdivision (c).7 There is substantial overlap
between the two defining lists. (See Hendrix, supra, 16 Cal.4th
at p. 514.) The previously suffered convictions that subject a
defendant to the Three Strikes scheme are often referred to as
prior convictions, and are distinguished from newly filed
charges, referred to as current felonies.
In order to constitute a “strike,” a prior conviction must
qualify under the statutory definitions of a serious or violent
felony. Under the original Three Strikes provisions, a person
who had been convicted of two prior strike offenses was subject
to an indeterminate life sentence if later convicted of any new
felony. (See People v. Frierson (2017) 4 Cal.5th 225, 230.) After
passage of Proposition 36, however, the requirement of
indeterminate life sentences for a defendant with two prior
strikes does not apply to all current felonies. Instead, a life term
is only authorized when the new offense is also a serious or
violent felony or when the defendant’s past or current offenses
fall under provisions of amended sections 667 or 1170.12.8 In
order to effect these changes, Proposition 36 added virtually
identical language to sections 667 and 1170.12. (See §§ 667,
include grand theft (not involving a firearm) and possession of a
controlled substance.” (Voter Information Guide, Gen. Elec.
(Nov. 6, 2012) analysis of Prop. 36 by Legis. Analyst, p. 48.)
7
Offenses are described in terms of the kind of crime and,
in some cases, degree, circumstances of commission,
characteristics of the victim, and other factors.
8
Those provisions include: some current drug offenses and
sex crimes; current crimes involving the arming with or use of a
firearm, or the intent to inflict great bodily injury; or prior
strikes for a subset of enumerated serious or violent felonies.
6
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
subd. (e)(2)(C); 1170.12, subd. (c)(2)(C).) A new indictment or
information may include allegations charging both serious
and/or violent felonies, as well as other felonies that do not
qualify under those definitions. Here, we will sometimes refer
to prior convictions for serious or violent felonies as “strike
priors” or “prior strike convictions.” We sometimes refer to new
felony charges that qualify as serious or violent felonies as
“qualifying offenses.”
The trial court here found, in a bifurcated phase of trial,
that defendant had suffered four prior strike convictions. If
those true findings were allowed to stand, the Three Strikes
scheme would have required indeterminate life sentences for
each of the automatic weapon assaults on Aguilar and Tillett.
(See §§ 667, subds. (d)(1), (e)(2)(A); 1170.12, subds. (b)(1),
(c)(2)(A); 1192.7, subd. (c)(31).) However, Romero clarified that
a sentencing court has discretion to dismiss findings as to prior
convictions, in furtherance of justice, under the authority of
section 1385, subdivision (a). (See Romero, supra, 13 Cal.4th at
pp. 507–532.) The result of such a dismissal is that a defendant
with two or more strike priors and a conviction for a new
qualifying offense may be removed from the strictures of the
Three Strikes scheme altogether if all of his strike priors are
dismissed, or he may be sentenced as a “second striker” if only
one strike prior remains in connection with a newly charged
qualifying offense. The sentencing court here adopted the latter
approach.
Under both the determinate sentencing law (see § 1170)
and the Three Strikes scheme, when a defendant stands newly
convicted of multiple offenses, the court must generally decide
whether sentences on each count will be ordered to run
consecutively or concurrently to some or all of the others. (See
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
§§ 1170, subd. (a); 1170.1, subd. (a); 1170.3; Cal. Rules of Court,
rule 4.425; People v. Sandoval (2007) 41 Cal.4th 825, 850–851.)
Here again, the Three Strikes scheme imposes restrictions on
that sentencing choice. (See §§ 667, subd. (c)(6), (7); 1170.12,
subd. (a)(6), (7).) It is the scope of that consecutive/concurrent
restriction that is at issue here. As the Romero court noted, both
versions of the Three Strikes law were intended to “restrict
courts’ discretion in sentencing repeat offenders. . . . But to say
the intent of a law was to restrict judicial discretion begs the
question of how judicial discretion was to be restricted. The
answer to that question can be found only by examining the
language of the act” (Romero, supra, 13 Cal.4th at p. 528) or,
here, the language of the Reform Act.
B. Hendrix, Consecutive Sentencing, and the
Extent of Discretion
When the Three Strikes scheme applies, sentences for
current qualifying offenses must be ordered to run consecutively
to each other if the current offenses occur on separate occasions
and do not arise from the same set of operative facts. (See
§§ 667, subd. (c)(6); 1170.12, subd. (a)(6).) People v. Lawrence
(2000) 24 Cal.4th 219 explained that, for section 667,
subdivision (c)(6) purposes, felonies are committed “on the same
occasion” if they were committed within “close temporal and
spacial proximity” of one another. (Lawrence, at p. 233.)
Offenses arise “from the same set of operative facts” when they
“shar[e] common acts or criminal conduct that serves to
establish the elements of the current felony offenses of which
defendant stands convicted.” (Ibid.) Here, it is undisputed that
the assaults on Tillis and Aguilar were committed “on the same
occasion.” To avoid unnecessary repetition, we will not always
repeat the “same set of operative facts” formulation. But the
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
“same occasion” analysis we employ here would apply equally
when multiple felonies are committed under the “same set of
operative facts.”
To make these applications less abstract, consider a
hypothetical defendant who has two prior strikes and is then
convicted of robbing two stores, on two different days, as well as
two separate and unrelated counts of auto theft. The
defendant’s current robberies are qualifying offenses and the
prior strikes bring him under the Three Strikes scheme. Using
its authority under section 1385, subdivision (a), the court
dismisses one strike. (See Romero, supra, 13 Cal.4th at pp. 529–
532.) As a result, the defendant will be sentenced as a “second
striker” rather than be subject to an indeterminate life term. As
we explain below, the two robbery sentences must be ordered to
run consecutively to each other because they occurred on
separate occasions. A second question is whether the total
consecutive robbery sentences must be ordered to run
consecutively to the auto theft terms.
Contrast that scenario with an alternative one. The
defendant has two prior strikes. His charged offenses result in
convictions for two separate felony auto thefts and two counts of
robbery. The robberies occurred when he went into a store,
robbed the clerk and, on his way out, also robbed a patron. The
court dismisses one strike, so an indeterminate life term is not
called for. If the Hendrix rule continues to apply, the court
would have discretion to order the robbery sentences to be
served concurrently because they were committed on the same
occasion. Again, the question remains whether the total robbery
sentences must run consecutively to the nonqualifying auto
theft sentences.
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
In evaluating the extent of consecutive sentencing
discretion, Hendrix focused its attention on subdivision (c)(6)
and (c)(7) of section 667, the legislative version of the Three
Strikes law. At the time, the initiative version, section 1170.12,
subdivision (a)(6) and (a)(7), contained identical language on
this topic, so a separate consideration was not needed. As we
explain in greater detail below, the Reform Act amended the
relevant provisions of section 1170.12 dealing with consecutive
sentencing but did not modify the corresponding provisions of
section 667. It is the significance of Proposition 36’s treatment
of the separate legislative and initiative versions of the Three
Strikes scheme that is in dispute. We first discuss Hendrix, then
consider whether the new language of the Reform Act abrogates
the Hendrix rule.
The question in Hendrix was whether, in sentencing a
Three Strikes defendant, the court must always impose
consecutive sentences for every current qualifying felony or
whether it retained discretion to order some terms to run
concurrently. Hendrix looked to the language of section 667,
subdivision (c)(6) and (c)(7) to resolve the question. These
provisions stated, as they do now, “(6) If there is a current
conviction for more than one felony count not committed on the
same occasion, and not arising from the same set of operative
facts, the court shall sentence the defendant consecutively on
each count pursuant to subdivision (e) [describing enhanced
sentences called for under the Three Strikes scheme]. [¶] (7) If
there is a current conviction for more than one serious or violent
felony as described in paragraph (6), the court shall impose the
sentence for each conviction consecutive to the sentence for any
other conviction for which the defendant may be consecutively
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
sentenced in the manner prescribed by law.” (§ 667, subd. (c)(6)–
(7), italics added.)
Hendrix explained that, by its terms, subdivision (c)(6)
required the imposition of consecutive sentences for each
current felony not committed on the same occasion and not
arising from the same set of operative facts. (See Hendrix,
supra, 16 Cal.4th at p. 512.) Conversely, “[b]y implication,
consecutive sentences are not mandatory under subdivision
(c)(6) if the multiple current felony convictions are ‘committed
on the same occasion’ or ‘aris[e] from the same set of operative
facts.’ ” (Id. at pp. 512–513.) In those circumstances, the court
has discretion to impose concurrent terms.
Section 667, subdivision (c)(7), on the other hand, does not
refer simply to a conviction for multiple felonies. Instead, it
specifically addresses multiple serious or violent felonies, i.e.,
qualifying felonies. Under that provision, when a current
sentence is imposed for qualifying felonies “as described in
paragraph (6),” they must be ordered to run consecutively to the
sentence for “any other conviction.” (§ 667, subd. (c)(7).) Some
parsing is required here. Under subdivision (c)(7), the
qualifying felony “described in paragraph (6)” is one that
occurred on a separate occasion and did not arise from the same
set of operative facts. A sentence for those qualifying felonies
was required to run consecutively to “ ‘any other conviction.’ ”
(Hendrix, supra, 16 Cal.4th at p. 514.)
The Hendrix holding itself provides only part of the
resolution for this case. Hendrix had approached four people
sitting together at a shopping center, pointing a gun at them and
demanding money. Two victims complied and two said they had
no money. Hendrix was convicted of two counts of robbery and
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
two of attempted robbery, all with the use of a firearm. All four
substantive offenses were qualifying felonies. Hendrix admitted
three serious felony convictions, bringing him under the Three
Strikes scheme, and was sentenced to four consecutive life
terms, with additional determinate terms for enhancements.
(See Hendrix, supra, 16 Cal.4th at pp. 510–511.)
Because all the offenses at issue in Hendrix were
committed against separate victims but on the same occasion,
the question was whether the court had the discretion to order
those sentences to run concurrently to each other. The Hendrix
court held that it did have that discretion based on the language
of section 667, subdivision (c)(6) and (c)(7). Hendrix explained
that subdivision (c)(6) encompassed sentences imposed for all
felonies, qualifying or not, but required consecutive sentencing
only for felonies committed on separate occasions and not
arising from the same set of operative facts. Subdivision (c)(7)
also imposed a consecutive sentencing mandate but only as to
qualifying felonies. Additionally, the reference in subdivision
(c)(7) to serious or violent felonies “as described in
paragraph (6)” incorporated the same occasion/operative facts
limitation to the consecutive sentencing proviso for qualifying
felonies. (Hendrix, supra, 16 Cal.4th at p. 513.)
Thus, under Hendrix, if a Three Strikes defendant is
convicted of current qualifying felonies that were not committed
on the same occasion or under the same set of operative facts,
the court is required to impose the serious or violent felony
terms consecutive to each other and those terms must also be
ordered to run consecutively to any other terms imposed for
nonqualifying offenses as well. (Hendrix, supra, 16 Cal.4th at
pp. 513–514.) But in Hendrix, the serious or violent felonies
were all committed on the same occasion. As a result, the
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
consecutive sentencing mandate of subdivision (c)(7) did not
apply and the court had discretion to impose sentences on those
qualifying offenses either consecutively or concurrently to each
other under subdivision (c)(6). In Hendrix, there were no
convictions for nonqualifying offenses. However, its discussion
of the import of subdivision (c)(7) clarified that a sentence for
serious or violent felonies not committed on the same occasion
must be ordered to run consecutively to any sentence imposed
for nonqualifying convictions. As we discuss, we apply the
Hendrix analysis to our explication of the rule.
C. The Reform Act, Subsequent Cases, and
Resolution Here
The Reform Act was passed in 2012 as Proposition 36.
Under its terms, and as relevant here, a defendant who has
suffered prior strike convictions still falls under the Three
Strikes scheme. But if the current conviction is not for a serious
or violent felony, the previously required indeterminate life
term was replaced by a double-the-base-term sentence for the
current felony, unless an exception applied. (See discussion
ante.) This modification has a limitation, however. Even if the
current offense was not a serious or violent felony, an
indeterminate life term is still required if either the current
offense or one of the prior strike convictions is for an offense
enumerated in the statutes. (See §§ 667, subd. (e)(2)(C)(i)–(iv);
1170.12, subd. (c)(2)(C)(i)–(iv).) In addition, the Reform Act
made changes to the Three Strikes law consistent with its stated
intent to “[p]revent the early release of dangerous criminals who
are currently being released early because jails and prisons are
overcrowded with low-risk, non-violent inmates serving life
sentences for petty crimes.” (Voter Information Guide, Gen.
Elec., supra, text of Prop. 36, § 1, par. 5, p. 105.)
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
The Act made amendments to both sections 667 and
1170.12 to achieve these purposes. However, a court’s
concurrent or consecutive sentencing authority was addressed
differently for section 667, the legislative version, and 1170.12,
the initiative version. Section 667, subdivision (c)(6) and (c)(7)
were not changed. Thus, the analytical basis for the Hendrix
rule was not affected. Yet, the language of section 1170.12,
subdivision (a)(6) and (a)(7), which previously had been identical
to section 667, subdivision (c)(6) and (c)(7), was partially
modified. Section 1170.12, subdivision (a)(6), pertaining to all
current felonies, regardless of type, remained the same as its
counterpart in the legislative version. It continued to require
consecutive sentencing for each new felony unless the current
offenses were committed on the same occasion or arose from the
same operative facts.
However, as to the consecutive term requirement when
the current offense is a serious or violent felony, section 1170.12,
subdivision (a)(7) was amended. It no longer refers to the
preceding paragraph, subdivision (a)(6), which contains the
same occasion/operative facts language. Instead it now reads:
“If there is a current conviction for more than one serious or
violent felony as described in subdivision (b) [which defines
those felonies], the court shall impose the sentence for each
conviction consecutive to the sentence for any other conviction
for which the defendant may be consecutively sentenced in the
manner proscribed by law.” (§ 1170.12, subd. (a)(7), italics
added.) As is apparent, the reference to the same
occasion/operative fact exception “as described in paragraph (6)”
was removed from section 1170.12, subdivision (a)(7). The
Attorney General argues that this omission reflects an intent to
remove the Hendrix concurrent sentencing discretion. The
14
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
Attorney General asserts that, after Proposition 36, when a
defendant is sentenced under the Three Strikes scheme, all
sentences for each qualifying felony must run consecutively to
each other, regardless of whether those offenses were committed
on the same occasion or arose from the same set of operative
facts.
Courts of Appeal have disagreed about the effect wrought
by that amendment as it relates to a trial court’s concurrent
sentencing discretion. The Court of Appeal below held the
change in language now forecloses that discretion and requires
that all sentences for qualifying offenses must run consecutively
regardless of whether they were committed on the same
occasion or arose from the same operative facts. It is this
question we granted review to resolve.
The first case to address the issue, People v. Torres (2018)
23 Cal.App.5th 185 (Torres), concluded the discretion recognized
in Hendrix survived the Reform Act’s amendments. Three
subsequent published Court of Appeal cases agreed with the
Torres analysis, although with divided panels. (See People v.
Marcus (2020) 45 Cal.App.5th 201, 211–214 (Marcus); People v.
Gangl (2019) 42 Cal.App.5th 58, 69–71 (Gangl); People v.
Buchanan (2019) 39 Cal.App.5th 385, 391–392 (Buchanan).)
Dissenting opinions in these subsequent cases maintained that
the change to section 1170.12, subdivision (a)(7) did signal an
intent to remove that discretion, as the Attorney General argues
here. (See Marcus, at p. 215 (conc. & dis. opn. of Krause, J.);
Gangl, at pp. 72–80 (conc. & dis. opn. of Krause, J.); Buchanan,
at pp. 393–398 (conc. & dis. opn. of Needham, J.).)
“ ‘In interpreting a voter initiative . . . , we apply the same
principles that govern statutory construction.’ [Citation.]
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
Where a law is adopted by the voters, ‘their intent governs.’
[Citation.] In determining that intent, ‘we turn first to the
language of the statute, giving the words their ordinary
meaning.’ [Citation.] But the statutory language must also be
construed in the context of the statute as a whole and the overall
statutory scheme. [Citation.] We apply a presumption, as we
similarly do with regard to the Legislature, that the voters, in
adopting an initiative, did so being ‘aware of existing laws at the
time the initiative was enacted.’ ” (People v. Buycks (2018) 5
Cal.5th 857, 879–880 (Buycks); see People v. Raybon (2021) 11
Cal.5th 1056, 1065.)
The Reform Act amended section 1170.12, subdivision
(a)(7), replacing its prior reference to subdivision (a)(6), which
set out the same occasion/operative facts proviso. Instead,
subdivision (a)(7) now refers, not to subdivision (a)(6), but to
subdivision (b), which simply defines a serious or violent felony.
The question is whether, by making that change, voters
intended to abrogate the Hendrix rule as to the court’s
concurrent sentencing discretion. Nothing in the ballot
materials speaks directly to voters’ intent on this topic. In
trying to discern the electorate’s intent, the various majority
and dissenting opinions pointed to a variety of linguistic clues
from which that intent might be gleaned. The majority opinions
observed that subdivision (a)(6) remained unchanged and
encompassed all current felony convictions, whether qualifying
or not. As such, the amendment of subdivision (a)(7) made by
the Reform Act only requires that the sentence imposed for
qualifying felonies be ordered to run consecutively to the
sentence imposed for nonqualifying felonies. (See Marcus,
supra, 45 Cal.App.5th at pp. 212–214; Gangl, supra, 42
Cal.App.5th at pp. 69–70; Torres, supra, 23 Cal.App.5th at
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
p. 201.) Conversely, the dissenting opinions concluded the
amendment of subdivision (a)(7) swept more broadly. It deleted
the reference to subdivision (a)(6), which contained the same
occasion/operative facts provisions. As a result, they concluded
the amendment reflected an intent that all qualifying current
felonies be sentenced consecutively to each other, whether or not
they were committed on the same occasion or arose from the
same set of operative facts. (See Gangl, supra, 42 Cal.App.5th
at pp. 78–79 (conc. & dis. opn. of Krause, J.); Buchanan, supra,
39 Cal.App.5th at pp. 394–395 (conc. & dis. opn. of Needham,
J.).)
The Attorney General argues that because the amended
subdivision (a)(7) no longer refers to subdivision (a)(6), the
foundation for the Hendrix rule no longer exists and its holding
has been abrogated. At the end of the day, the language of the
initiative is simply unclear. “When the language of a statute is
ambiguous — that is, when the words of the statute are
susceptible to more than one reasonable meaning, given their
usual and ordinary meaning and considered in the context of the
statute as a whole — we consult other indicia of the
Legislature’s [or electorate’s] intent, including such extrinsic
aids as legislative history and public policy. [Citations.] If there
is no ambiguity, ‘ “ ‘ “we presume the Legislature meant what it
said and the plain meaning of the statute governs.” ’ ” ’ ” (Union
of Medical Marijuana Patients, Inc. v. City of San Diego (2019)
7 Cal.5th 1171, 1184.)
We conclude section 1170.12, subdivision (a)(7) is
ambiguous with respect to whether it requires that multiple
qualifying felonies must be sentenced consecutively to each
other. The ambiguity resides in the provision’s use of the term
“conviction.” “If there is a current conviction for more than one
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
serious or violent felony as described in subdivision (b), the court
shall impose the sentence for each conviction consecutive to the
sentence for any other conviction for which the defendant may
be consecutively sentenced in the manner prescribed by law.”
(§ 1170.12, subd. (a)(7), italics added.) In suggesting the “plain
language” of the provision now “ ‘require[d] the court to sentence
multiple current serious or violent felonies consecutively,
whether or not they occurred on the same occasion or out of the
same set of operative facts’ ” (Henderson, supra, 54 Cal.App.5th
at pp. 623, 624), the Court of Appeal below equated a
“conviction” with an individual count or offense. As such, “each
conviction” for a qualifying felony must be imposed “consecutive
to the sentence for any other conviction,” i.e., other qualifying
felonies. (§ 1170.12, subd. (a)(7); see also Gangl, supra, 42
Cal.App.5th at p. 79 (conc. & dis. opn. of Krause, J.); Buchanan,
supra, 39 Cal.App.5th at p. 397 (conc. & dis. opn. of Needham,
J.).)
This interpretation would seem a plausible one consistent
with the colloquial understanding that a “conviction” refers to a
finding of guilt on a single count. (Cf. § 15.)9 However, even
before the Reform Act, section 1170.12, subdivision (a)(6) and
(a)(7) used the term “conviction” as a collective term describing
multiple, relevant counts for which the defendant has been
convicted. Subdivision (a)(6) refers to “a current conviction for
more than one felony count.” (§ 1170.12, subd. (a)(6), italics
added.) Likewise, by stating its mandate applies to “a current
9
Section 15 defines a crime or public offense as “an act
committed or omitted in violation of a law forbidding or
commanding it, and to which is annexed, upon conviction, either
of the following [enumerated] punishments . . . .” (Italics
added.)
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
conviction for more than one serious or violent felony as
described in subdivision (b)” (italics added), subdivision (a)(7) as
amended continues to use “conviction” to refer collectively to a
grouping of multiple offenses. If “conviction” is so understood,
section 1170.12, subdivision (a)(7)’s rule reads much differently:
the court must impose sentence on “each conviction,” i.e., the
group of current qualifying felonies, consecutively to “any other
conviction,” that is to say the group of any nonqualifying
offenses. Such an interpretation would also seem plausible,
especially in conjunction with the fact that subdivision (a)(6)
employs the phrase “each count” in stating its consecutive
sentencing rule, a phrase absent in subdivision (a)(7).
In light of the statutory ambiguity, we look to the overall
context of the initiative, take into account that it was adopted to
reform an existing scheme, and look to the ballot materials as a
tool to deduce voter intent. (See People v. Arroyo (2016) 62
Cal.4th 589, 593.) The overarching stated intent of the Reform
Act appears threefold: 1. To “[r]estore the Three Strikes law to
the public’s original understanding by requiring life sentences
only when a defendant’s current conviction is for a violent or
serious crime” (Voter Information Guide, Gen. Elec., supra, text
of Prop. 36, § 1, p. 105); 2. to punish a current felony more
harshly, but in cases where the current offense is not a serious
or violent felony, to moderate that harsher penalty by requiring
a multiplied base term, as opposed to an indeterminate life term,
unless an exception applies; and 3. to ensure, by virtue of those
exceptions, that particularly designated repeat offenders receive
a life sentence, even if the current offense is not serious or
dangerous felony.
The debate over Proposition 36 did not feature a focus on
the consecutive/concurrent discretion question. As a result, it is
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
difficult to discern just what the electorate intended on this topic
or whether they considered it at all. One thing, however, is
clear: By passing the Reform Act, the electorate intended to
mitigate some of the more stringent applications of the Three
Strikes scheme while retaining rigorous penalties for those
offenders whose criminal history reveals they remain a
significant threat to public safety. A new requirement of
mandatory consecutive sentences in cases where it did not exist
before would not be completely inconsistent with that goal but,
as Romero pointed out, “to say the intent of a law was to restrict
judicial discretion begs the question of how judicial discretion
was to be restricted.” (Romero, supra, 13 Cal.4th at p. 528.)
We cannot say that the voters spoke with a clear voice on
that topic, particularly when they took pains to make their
intent much more manifest on other aspects of the reforms they
adopted. However, it is significant that the Reform Act did not
alter the specific language granting a court’s discretion to
impose consecutive sentences if, in its judgment, such a penalty
was appropriate, even when current convictions were committed
on the same occasion. (See §§ 667, subd. (c)(6); 1170.12, subd.
(a)(6).) It is also notable that Proposition 36 specifically sets out
when consecutive life sentences are still required for current
felonies, even if those offenses do not qualify as serious or violent
felonies. (See §§ 667, subd. (e)(2)(B); 1170.12, subd. (c)(2)(B)–
(C).) These changes enacted in Proposition 36 reflected a
recalibration of some of the more stringent Three Strikes
requirements. The voters intended to reduce penalties in many
instances when the new felony was not serious or violent.
However, they retained the harsher penalties when either the
new, or previous, offenses were deemed particularly
blameworthy.
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
Had the drafters intended to change sentencing discretion
in the same occasion/operative facts context, the drafters were
clearly aware of how to make that intent clear. We also presume
that the voters were aware of the longstanding Hendrix rule
when they passed Proposition 36. “Proposition 36 neither refers
to Hendrix nor states its express intent to overrule long-
standing Supreme Court precedent.” (Marcus, supra, 45
Cal.App.5th at p. 214.) We “ ‘cannot presume that . . . the voters
intended the initiative to effect a change in law that was not
expressed or strongly implied in either the text of the initiative
or the analyses and arguments in the official ballot pamphlet.’ ”
(People v. Valencia (2017) 3 Cal.5th 347, 364.) In light of all
these factors, we cannot discern a clear intent to withdraw
discretion that has been recognized for a quarter century.
D. Arguments by the Attorney General and
Dissenting Opinions
The People’s arguments for a contrary resolution fail. The
Attorney General’s analysis would create an apparent conflict
between section 1170.12, subdivision (a)(6) and (a)(7) as
amended. Subdivision (a)(6), by implication, grants a court
discretion to impose concurrent terms for any current felony
committed on the same occasion. But the Attorney General now
argues that consecutive terms are mandatory under subdivision
(a)(7) for any current qualifying felony whether or not they were
committed on the same occasion. Under the People’s
interpretation, subdivision (a)(6) seemingly grants a court
discretion that subdivision (a)(7) forbids. (See Marcus, supra,
45 Cal.App.5th at pp. 213–214; Torres, supra, 23 Cal.App.5th at
p. 201.)
The Court of Appeal below suggested that section 1170.12,
subdivision (a)(6) and (a)(7) could be harmonized by recognizing
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Opinion of the Court by Corrigan, J.
that subdivision (a)(6) sets out a general rule for all felonies,
with subdivision (a)(7) providing an exception that abrogates
that general discretionary authority. (See Henderson, supra, 54
Cal.App.5th at p. 626.) The difficulty is that nothing in the
language of these provisions supports an interpretation that
section 1170.12, subdivision (a)(6) specifies a “general” rule and
subdivision (a)(7) an exception. That interpretation would seem
at odds with the structure of subdivision (a) generally. As
Marcus observed, under standard rules of statutory
construction, we “read a statute, and its various subdivisions, as
a cohesive whole.” (Marcus, supra, 45 Cal.App.5th at pp. 213–
214.) Subdivision (a) provides that “[n]otwithstanding any other
law, if a defendant has been convicted of a felony and it has been
pled and proved that the defendant has one or more prior serious
or violent felony convictions, as defined in subdivision b, the
court shall adhere to each of the following.” (§ 1170.12, subd.
(a), italics added.) The statute then lists various provisions to
which the court must adhere. These provisions forbid a grant of
probation or diversion, require imposition of a prison sentence,
limit prison conduct credits, ban consideration of the lapse of
time between the strike and current offenses, and eliminate
limits for consecutive sentences on subsequent convictions. (See
§ 1170.12, subd. (a)(1)–(a)(5).) None of these individual
subdivisions refer to any other or suggest that any states a
“general” rule while some other provision states an exception.
Indeed, by providing that the rules enumerated in subdivision
(a) apply “[n]otwithstanding any other law,” the statutory
scheme clearly requires that the Three Strikes framework takes
precedence over any conflicting provision. By contrast, when
the Reform Act amended subdivision (a)(7), it did not use the
formulation “notwithstanding subdivision (a)(6),” or any other
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PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
provision. This omission strongly suggests that the drafters did
not consider the two subdivisions to be in conflict or intended
that they be so understood.
As Marcus reasoned, “subdivision (a)(6) continues to apply
to all felonies” (Marcus, supra, 45 Cal.App.5th at p. 214), and
makes no reference to an exception. Similarly, subdivision (a)(7)
contains no language suggesting it would apply notwithstanding
that subdivision (a)(6) would appear to support a contrary rule.
“Had the voters disagreed with Hendrix’s conclusion and
intended to reject its holding that subdivision (a)(6) applies to
all felonies, the voters could have easily amended subdivision
(a)(6) to explicitly refer only to nonserious and nonviolent
felonies. This [change] would effectively create two classes of
crimes to which two different sentencing rules would apply:
(1) nonviolent/nonserious felonies covered by subdivision (a)(6);
and (2) serious/violent felonies covered exclusively by
subdivision (a)(7). The voters did not do so.” (Marcus, at p. 214.)
Following the Reform Act, the rules as to consecutive
sentencing apply as follows. When a strike defendant is
convicted of any group of new felony offenses, the sentence
imposed for each felony count must run consecutively to all the
others not committed on the same occasion. The court retains
discretion to impose concurrent sentences for new offenses,
whether qualifying felonies or not, that were committed on the
same occasion.
One further variation occurs when a defendant stands
convicted of a group of new qualifying offenses along with
nonqualifying offenses. In that circumstance, new terms for all
felonies committed on separate occasions must run
consecutively to each other under section 1170.12, subdivision
23
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
(a)(6). Additionally, under subdivision (a)(7), the total term for
all qualifying offenses must run consecutively to the total term
imposed for nonqualifying offenses. 10
We return, then, to the contrasting examples set out
above. (See ante, at p. 9.) In the first example, a defendant with
two prior strikes is newly convicted of robbing two stores on two
different days, as well as two separate and unrelated counts of
auto theft. His current second degree robberies are qualifying
offenses and the prior strikes bring him under the Three Strikes
scheme. Using its authority under section 1385, subdivision (a),
the court dismisses one strike. (See Romero, supra, 13 Cal.4th
at pp. 529–532.) Under the interpretation we adopt here, the
court would sentence him on the first robbery to a base term
chosen from the available determinate sentencing triad of two,
three, or five years (§ 213, subd. (a)(2)), doubled because of the
remaining strike prior. The term for the second robbery would
be one-third of the midterm, doubled, resulting in a two-year
term. (§ 1170.1, subd. (a).) The two-year term must be ordered
to run consecutively to the first because both offenses were
committed on separate occasions and did not arise from the
10
The Attorney General argues, and the Court of Appeal
here reasoned, that removing the court’s Hendrix concurrent
sentencing authority is consistent with the Reform Act’s stated
intent to punish more harshly those convicted of current serious
or violent felonies. (Henderson, supra, 54 Cal.App.5th at p. 627;
see Buchanan, supra, 39 Cal.App.5th at pp. 395–396 (conc. &
dis. opn. of Needham, J.).) However, as explained, under the
interpretation we adopt here, those defendants with multiple
qualifying felonies will be treated more harshly by virtue of the
consecutive sentences that will still be required for both
qualifying and nonqualifying felonies. Proposition 36’s general
statement of intent is thus given effect.
24
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
same set of operative facts. (§§ 667, subd. (c)(6); 1170.12, subd.
(a)(6).) The felony auto thefts are not qualifying offenses, but
the court must also order the robbery sentences to be served
consecutively to “any other conviction,” which would include
terms imposed for the auto thefts. (§ 1170.12, subd. (a)(7).) The
auto theft sentences called for by the standard determinate
sentencing statutes can be ordered to run consecutively or
concurrently to each other. If the court chooses the upper term
for the first robbery, it would order the defendant to serve a total
of 12 years (10 years plus two years) for the two qualifying
robberies consecutive to the combined sentence imposed for the
auto thefts.
In the second example, the defendant has two prior
strikes. His charged offenses result in convictions for two
separate felony auto thefts and two counts of second degree
robbery. The robberies occurred when he went into a store,
robbed the clerk and, on his way out, also robbed a patron. The
court dismisses one strike, and none of the exceptions in section
1170.12 subdivision (c) apply, so an indeterminate life term is
not called for. Sentencing would progress as follows. The term
for the robbery of the clerk would be the base term chosen from
the triad, then doubled. The term for robbing the patron would
be one-third of the midterm, doubled. The two robberies are
qualifying offenses, but they were committed on the same
occasion. As a result, under subdivision (a)(6), the court would
have the discretion to order the sentence for each robbery to run
either consecutively or concurrently to each other. (Hendrix,
supra, 16 Cal.4th at pp. 513–514.) As in the prior example, the
auto thefts would not be qualifying offenses, but whatever
sentence is imposed for the qualifying robberies must be ordered
25
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
to run consecutively to the total term imposed for the auto
thefts.
In sum, we conclude that, after the Reform Act, a trial
court retains the Hendrix concurrent sentencing discretion
when sentencing on qualifying offenses committed on the same
occasion or arising from the same set of operative facts. Because
the trial court’s comments at sentencing suggested it did not
believe it had that discretion, we remand the matter for a new
sentencing hearing. (See Buycks, supra, 5 Cal.5th at pp. 893–
895.) At that hearing, the full resentencing rule, which “allows
a court to revisit all prior sentencing decisions when
resentencing a defendant” (People v. Valenzuela (2019) 7 Cal.5th
415, 424–425), applies. Further, because “ ‘a defendant should
not be required to risk being given greater punishment . . . for
the privilege of exercising his right to appeal’ ” (People v. Hanson
(2000) 23 Cal.4th 355, 359, quoting People v. Ali (1967) 66 Cal.2d
277, 281), the court on remand may not impose an aggregate
sentence greater than the one defendant initially received.
26
PEOPLE v. HENDERSON
Opinion of the Court by Corrigan, J.
III. DISPOSITION
The judgment of the Court of Appeal is reversed with
directions to remand the matter to the superior court for a new
sentencing hearing.
CORRIGAN, J.
We Concur:
CANTIL-SAKAUYE, C. J.
LIU, J.
KRUGER, J.
GROBAN, J.
JENKINS, J.
GUERRERO, J.
27
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion People v. Henderson
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding
Review Granted (published) XX 54 Cal.App.5th 612
Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S265172
Date Filed: November 17, 2022
__________________________________________________________
Court: Superior
County: Los Angeles
Judge: Fred N. Wapner
__________________________________________________________
Counsel:
Rudolph J. Alejo, under appointment by the Supreme Court, for
Defendant and Appellant.
Xavier Becerra and Rob Bonta, Attorneys General, Lance E. Winters,
Chief Assistant Attorney General, Susan Sullivan Pithey, Assistant
Attorney General, Scott A. Taryle, Blythe J. Leszkay, Kristen J. Inberg
and Kimberley A. Donohue, Deputy Attorneys General, for Plaintiff
and Respondent.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Rudolph J. Alejo
Attorney at Law
520 South Grand Avenue, Unit 400
Los Angeles, CA 90071
(510) 842-5356
Kimberley A. Donohue
Deputy Attorney General
1300 I Street
Sacramento, CA 95814
(916) 210-6135 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484590/ | People v Conyers (2022 NY Slip Op 06560)
People v Conyers
2022 NY Slip Op 06560
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Ind No. 2504/16 3121/16 Appeal No. 16687 Case No. 2018-04277
[*1]The People of the State of New York, Respondent,
vArnold Conyers, Defendant-Appellant.
Robert S. Dean, Center for Appellate Litigation, New York (Claudia Trupp of counsel), for appellant.
Alvin L. Bragg, Jr., District Attorney, New York (Samuel Z. Goldfine of counsel), for respondent.
Judgment, Supreme Court, New York County (Maxwell Wiley, J. at consolidation motion; Erika M. Edwards, J. at jury trial and sentencing), rendered July 30, 2018, convicting defendant of 21 counts of criminal possession of a forged instrument in the second degree, and sentencing him, as a second felony offender, to an aggregate term of 3½ to 7 years, unanimously affirmed.
The court properly denied defendant's application pursuant to Batson v Kentucky (476 US 79 [1986]). Assuming defendant preserved his substantive and procedural Batson objections and assuming defendant made a prima facie showing that preemptory challenges were purposefully used by the People in a discriminatory manner, we find that the record supports the court's finding that the nondiscriminatory reasons provided by the People for the challenges in question were not pretextual. Given the general deference afforded the fact-finding court, we find no basis to conclude the court erred in this determination (see People v Hernandez, 75 NY2d 350,356 [1990], affd 500 US 352 [1991]).
The motion court providently exercised its discretion in granting the People's motion to consolidate the two indictments relating to separate incidents. The charges were legally similar (see CPL 200.20[2][c]), and defendant has not demonstrated any risk that the jury would be unable to consider the charges separately (see People v Lane, 56 NY2d 1 [1982]; People v Ndeye, 159 AD2d 397 [1st Dept 1990], lv denied 76 NY2d 793 [1990]). Furthermore, evidence of defendant's knowledge that the concert tickets he possessed in each incident were counterfeit and his intent to use them to defraud others would have been material and admissible at both trials if the indictments had not been consolidated (see CPL 200.20[2][b]; People v Molineux, 168 NY 264, 297-298 [1901]; People v Hernandez, 103 AD3d 433 [1st Dept 2013], lv denied 22 NY3d 1041 [2013]). The probative value of the overlapping evidence outweighed any potential for prejudice, and the trial court provided limiting instructions (see People v Forbes, 166AD3d 414, 415 [1st Dept 2018]).
We perceive no basis for reducing defendant's sentence.
We have considered defendant's remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484573/ | IN THE SUPREME COURT OF
CALIFORNIA
YAHOO INC.,
Plaintiff and Appellant,
v.
NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA,
Defendant and Respondent.
S253593
Ninth Circuit 17-16452
Northern District of California
No. 5:17-cv-00447-NC
November 17, 2022
Justice Jenkins authored the opinion of the Court, in which
Chief Justice Cantil-Sakauye and Justices Corrigan, Liu,
Kruger, Groban, and Guerrero concurred.
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE
COMPANY OF PITTSBURGH, PA
S253593
Opinion of the Court by Jenkins, J.
The law of privacy recognizes, among other things, a right
to secrecy and a right to seclusion. “[A] person claiming the
privacy right of seclusion asserts the right to be free, in a
particular location, from disturbance by others. A person
claiming the privacy right of secrecy asserts the right to prevent
disclosure of personal information to others. Invasion of the
privacy right of seclusion involves the means, manner, and
method of communication in a location (or at a time) which
disturbs the recipient’s seclusion. By contrast, invasion of the
privacy right of secrecy involves the content of communication
that occurs when someone’s private, personal information is
disclosed to a third person.” (ACS Systems, Inc. v. St. Paul Fire
& Marine Ins. Co. (2007) 147 Cal.App.4th 137, 148–149 (ACS
Systems).)1
Privacy injuries that involve the right of seclusion are
sometimes actionable under the federal Telephone Consumer
Protection Act of 1991 (TCPA) (47 U.S.C. § 227 (section 227)),
provided the violation involves the use of telephonic equipment.
1
Our case law also recognizes two other types of privacy
violations. Stated in general terms, these are: (1) “publicity
placing a person in a false light,” and (2) “misappropriation of a
person’s name or likeness.” (Hill v. National Collegiate Athletic
Assn. (1994) 7 Cal.4th 1, 24; see Fellows v. National Enquirer,
Inc. (1986) 42 Cal.3d 234, 238.)
1
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
Specifically, the TCPA protects the seclusion interests of
telephone users by placing restrictions on automated telephone
calls (“robocalls”) and unsolicited facsimile machine
advertisements (“junk faxes”). (See § 227; Duguid v. Facebook,
Inc. (9th Cir. 2019) 926 F.3d 1146, 1149.) Subject to certain
exceptions, the TCPA prohibits making “any call . . . using any
automatic telephone dialing system . . . to any telephone
number assigned to a . . . cellular telephone service.”
(§ 227(b)(1)(A)(iii).) The TCPA also prohibits, again subject to
exceptions, using “any . . . device to send, to a telephone
facsimile machine, an unsolicited advertisement.” (Id.,
§ 227(b)(1)(C).) Significantly, the TCPA’s prohibitions have
been interpreted to apply to text messages (“robotexts”), not just
to voice telephone calls. (Duguid, supra, 926 F.3d at p. 1149;
Satterfield v. Simon & Schuster, Inc. (9th Cir. 2009) 569 F.3d
946, 954.)
Many commercial general liability (CGL) insurance
policies provide coverage against liability for privacy violations,
but it is not always clear what specific types of privacy violations
are covered. The insurance policy at issue here, for example,
provides liability coverage for injuries “arising out of . . . [o]ral
or written publication, in any manner, of material that violates
a person’s right of privacy.” The question we must resolve is
whether this language provides liability coverage for right-of-
seclusion violations litigated under the TCPA. We conclude that
it does, assuming such coverage is consistent with the insured’s
reasonable expectations.
I. FACTS AND PROCEDURAL BACKGROUND
When defendant National Union Fire Insurance Company
of Pittsburgh, PA (National Union) declined to defend or
2
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
indemnify plaintiff Yahoo Inc. (Yahoo!) in a series of putative
class action lawsuits alleging that Yahoo!’s unsolicited text
messaging had violated the TCPA, Yahoo! sued National Union
in federal district court, alleging breach of contract and seeking
to obtain coverage. According to the complaint, National Union
sold Yahoo! a CGL policy covering the period when the alleged
TCPA violations occurred.2 The policy was in the form of
National Union’s standard CGL policy, modified by various
endorsements including a negotiated endorsement called
endorsement No. 1 (Endorsement No. 1).
The standard version of National Union’s policy provided
liability coverage for “personal and advertising injury,” which
the policy defined as injury arising out of any of seven specified
offenses, including “[o]ral or written publication, in any manner,
of material that violates a person’s right of privacy.” The
standard policy, however, excluded injuries arising from the
distribution of material in violation of the TCPA.
Endorsement No. 1 modified National Union’s standard
policy in three important ways. First, Endorsement No. 1
2
National Union actually sold Yahoo! four consecutive
policies, covering the period from May 31, 2008, to May 31, 2012,
each containing the same relevant terms. For the sake of
simplicity, we refer to these four policies collectively as if they
were a single policy. The complaint also alleges coverage under
a fifth consecutive policy, but Yahoo! concedes that this was
error because the fifth policy was materially different from the
others. Yahoo! states that it plans to amend its complaint to
correct this error.
3
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
removed the exclusion for injuries arising from violations of the
TCPA.3
Second, Endorsement No. 1 provided liability coverage
only for “personal injury” (as compared to “personal and
advertising injury” in the standard version of the policy), and it
defined “personal injury” to include injury arising from any of
five offenses (as compared to seven offenses in the standard
version of the policy). The list of five offenses, however, still
included injuries arising from “[o]ral or written publication, in
any manner, of material that violates a person’s right of
privacy.”4 Therefore, although Endorsement No. 1 removed
3
A separate endorsement — the “Statute Endorsement” —
added an exclusion for liability arising from “any act that
violates any statute . . . of any federal [or] state . . .
government, . . . that . . . addresses or applies to the sending,
transmitting or communicating of any material or information,
by any means whatsoever.” (Italics added.) The existence of the
Statute Endorsement caused the Ninth Circuit to consider
whether the removal of the more specific exclusion for TCPA
liability had been without substantive effect. The Ninth Circuit
asked for supplemental briefing on the question, and Yahoo!
argued that Endorsement No. 1 superseded the Statute
Endorsement. We express no view on the question.
4
The five personal injury offenses are: “a. False arrest,
detention, or imprisonment; [¶] b. Malicious prosecution; [¶] c.
The wrongful eviction from, wrongful entry into, or invasion of
the right of private occupancy of a room, dwelling or premises
that a person occupies, committed by or on behalf of its owner,
landlord or lessor; [¶] d. Oral or written publication, in any
manner, of material that slanders or libels a person or
organization or disparages a person’s or organization’s goods,
products or services; or [¶] e. Oral or written publication, in any
manner, of material that violates a person’s right of privacy.”
4
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
coverage for advertising injuries, coverage for injuries to privacy
remained.
Third, and related to the second change, Endorsement
No. 1 expressly excluded liability coverage for “advertising
injury,” which it defined as injury arising from any of four
offenses, including “[o]ral or written publication, in any manner,
of material in your ‘advertisement’ that violates a person’s right
of privacy.”5 (Italics added.) Therefore, although Endorsement
No. 1’s coverage provision created liability coverage for privacy
injuries, the same endorsement expressly carved out liability
coverage for privacy injuries caused by material in a Yahoo!
advertisement.
Yahoo! argues that its policy — as modified by
Endorsement No. 1 — gave rise, at the very least, to the
potential for coverage of the TCPA claims alleged against it in
the underlying putative class action lawsuits, and therefore
National Union was obligated to defend Yahoo! in those suits,
and it breached its contract by declining to do so. (See Gray v.
Zurich Ins. Co. (1966) 65 Cal.2d 263, 276–277.) The federal
district court rejected that argument. It granted National
Union’s motion to dismiss, concluding that the TCPA lawsuits
do not fall within the policy’s coverage provision because they do
5
The four advertising injury offenses are: “a. Oral or
written publication, in any manner, of material in your
‘advertisement’ that slanders or libels a person or organization
or disparages a person’s or organization’s goods, products or
services; [¶] b. Oral or written publication, in any manner, of
material in your ‘advertisement’ that violates a person’s right of
privacy; [¶] c. The use of another’s advertising idea in your
‘advertisement’; or [¶] d. Infringing upon another’s copyright,
trade dress or slogan in your ‘advertisement.’ ”
5
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
not allege an injury arising out of the “publication . . . of
material that violates a person’s right of privacy.” (Italics
added.) Focusing on the italicized language quoted above, the
district court concluded that this language covers liability for
right-of-secrecy violations but that it does not cover right-of-
seclusion violations, including right-of-seclusion violations
litigated under the TCPA. In reaching this conclusion, the
district court applied the rule of the last antecedent, a rule of
construction under which a restrictive clause modifies only the
word or phrase that immediately precedes it. Applying that
rule, the court read the clause “that violates a person’s right of
privacy” as modifying only the word “material,” meaning that
for the policy to provide liability coverage, the alleged privacy
violation must relate to the content of the published material.
Finding that the TCPA claims asserted against Yahoo! focused
on the transmission of unsolicited text messages rather than the
content of those messages, the federal district court dismissed
Yahoo!’s insurance coverage action, entering judgment for
National Union.
Yahoo! appealed, and the United States Court of Appeals
for the Ninth Circuit certified a question of state law to this
court. We granted the Ninth Circuit’s request and rephrased its
question (see Cal. Rules of Court, rule 8.548(f)(5)). As
rephrased, we are called upon to answer the following question:
“Does a commercial general liability insurance policy that
provides coverage for ‘personal injury,’ defined as ‘injury . . .
arising out of . . . [o]ral or written publication, in any manner, of
material that violates a person’s right of privacy,’ and that has
been modified by endorsement with regard to advertising
injuries, trigger the insurer’s duty to defend the insured against
6
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
a claim that the insured violated the [TCPA] of 1991 (47 U.S.C.
§ 227) by sending unsolicited text message advertisements that
did not reveal any private information?”6
II. DISCUSSION
The parties agree that the TCPA creates a statutory cause
of action to redress telephonic intrusions that can, depending on
the factual circumstances, violate the common law right of
seclusion, and the parties also agree that the TCPA is not
concerned with disclosures that violate the common law right of
secrecy. (See Los Angeles Lakers, Inc. v. Federal Ins. Co. (9th
Cir. 2017) 869 F.3d 795, 806 [“ ‘[c]ourts have consistently held
the TCPA protects a species of privacy interest in the sense of
seclusion’ ”]; Auto-Owners Ins. Co. v. Websolv Computing, Inc.
(7th Cir. 2009) 580 F.3d 543, 549 [“The underlying [TCPA] suit
here only involves seclusion interests”]; Resource Bankshares
Corp. v. St. Paul Mercury Ins. Co. (4th Cir. 2005) 407 F.3d 631,
642 [“the TCPA’s unsolicited fax prohibition protects ‘seclusion’
privacy, for which content is irrelevant”]; American States Ins.
Co. v. Capital Associates of Jackson County (7th Cir. 2004) 392
F.3d 939, 943 [the TCPA “condemns a particular means of
communicating an advertisement, rather than the contents of
that advertisement”].) Therefore, if the policy at issue here does
not cover liability for violations of the right of seclusion, then it
6
The phrase “by sending unsolicited text message
advertisements” appears both in the Ninth Circuit’s original
certified question and in our rephrasing of the question.
Nonetheless, our statement of the certified question should not
be interpreted to express this court’s opinion as to whether the
text messages at issue in the underlying TCPA lawsuits were,
in fact, advertisements as defined in the policy.
7
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
does not cover Yahoo!’s potential TCPA liability in the
underlying lawsuits.
Whether Yahoo!’s policy covers liability for violations of
the right of seclusion, like all questions concerning the scope of
insurance coverage, is subject to de novo review. (Waller v.
Truck Ins. Exchange (1995) 11 Cal.4th 1, 18.) The relevant
principles are well settled. In Palmer v. Truck Ins. Exchange,
we said: “ ‘While insurance contracts have special features, they
are still contracts to which the ordinary rules of contractual
interpretation apply.’ [Citation.] Thus, ‘the mutual intention of
the parties at the time the contract is formed governs
interpretation.’ [Citation.] If possible, we infer this intent solely
from the written provisions of the insurance policy. [Citation.]
If the policy language ‘is clear and explicit, it governs.’ ” (Palmer
v. Truck Ins. Exchange (1999) 21 Cal.4th 1109, 1115 (Palmer).)
Similarly, in Boghos v. Certain Underwriters at Lloyd’s of
London, we said: “Our goal in construing insurance contracts,
as with contracts generally, is to give effect to the parties’
mutual intentions. [Citations.] ‘If contractual language is clear
and explicit, it governs.’ [Citations.] If the terms are ambiguous
[i.e., susceptible of more than one reasonable interpretation], we
interpret them to protect ‘ “the objectively reasonable
expectations of the insured.” ’ [Citations.] Only if these rules do
not resolve a claimed ambiguity do we resort to the rule that
ambiguities are to be resolved against the insurer.” (Boghos v.
8
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
Certain Underwriters at Lloyd’s of London (2005) 36 Cal.4th
495, 501.)7
When coverage is in dispute, the initial burden is on the
insured — Yahoo! in this case — to prove that its claim falls
within the scope of potential coverage. (See Waller v. Truck Ins.
Exchange, supra, 11 Cal.4th at p. 16.) If the insured establishes
that the policy provides at least the potential for coverage, the
burden shifts to the insurer — National Union in this case — to
show the claim falls within one of the policy’s exclusions. (See
ibid.; see also Liberty Surplus Ins. Corp. v. Ledesma & Meyer
Construction Co., Inc. (2018) 5 Cal.5th 216, 222 [“ ‘ “[T]he
insured must prove the existence of a potential for coverage,
while the insurer must establish the absence of any such
potential. In other words, the insured need only show that the
7
We have, in the past, formulated this inquiry slightly
differently. (See, e.g., State of California v. Continental Ins. Co.
(2012) 55 Cal.4th 186, 195 [“ ‘If an asserted ambiguity is not
eliminated by the language and context of the policy, courts then
invoke the principle that ambiguities are generally construed
against the party who caused the uncertainty to exist (i.e., the
insurer) in order to protect the insured’s reasonable expectation
of coverage.’ ”], quoting La Jolla Beach & Tennis Club, Inc. v.
Industrial Indemnity Co. (1994) 9 Cal.4th 27, 37); Producers
Dairy Delivery Co. v. Sentry Ins. Co. (1986) 41 Cal.3d 903, 912
[“It is a basic principle of insurance contract interpretation that
doubts, uncertainties and ambiguities arising out of policy
language ordinarily should be resolved in favor of the insured in
order to protect his reasonable expectation of coverage.”].) To
the extent these prior formulations are inconsistent with our
description of the inquiry here, our formulation in this opinion
controls.
9
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
underlying claim may fall within policy coverage; the insurer
must prove it cannot” ’ ”].)8
A. The Coverage Provision of Yahoo!’s Policy
The policy at issue here provides liability coverage for
injuries “arising out of . . . [o]ral or written publication, in any
manner, of material that violates a person’s right of privacy.”
We take the word “material” in this context to refer to
“[i]nformation, ideas, data, documents, or other things that are
used in reports, books, films, studies, etc.” (Black’s Law Dict.
(10th ed. 2014) p. 1124, col. 2.) The clause “that violates a
person’s right of privacy” is a restrictive relative clause with the
word “that” as its relative pronoun. According to the rules
governing word order in the English language, a restrictive
relative clause usually modifies the noun that immediately
precedes it, which in this case is the word “material.” In fact, if
a restrictive relative clause is located in a place that is remote
from the noun it modifies, it is usually described as a misplaced
modifier. Hence, Strunk and White advise that a “relative
pronoun should come, in most instances, immediately after its
antecedent.” (Strunk and White, The Elements of Style (4th ed.
2000) p. 29; see id. at pp. 28–31.) Sometimes, however, the
antecedent of a relative pronoun consists of a group of words. In
that case, “the relative [pronoun] comes at the end of the group,
unless this would cause ambiguity.” (Id. at p. 30.)
Here, it is unclear whether the restrictive clause “that
violates a person’s right of privacy” modifies a group of words or
8
The Ninth Circuit has only asked us to address the scope
of the coverage provision of Yahoo!’s policy; therefore, we do not
consider the exclusions.
10
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
just a single word. Specifically, it is ambiguous whether the
clause modifies the entire phrase “[o]ral or written publication,
in any manner, of material” or whether it modifies only the word
“material.” If the former, then the intrusive way the material is
published, not just its informational content, might give rise to
the privacy violation at issue, and the violation would,
nonetheless, be covered by the policy. Under this reading, even
if the published material were something that was not in the
least private (for example, weather forecasts or sports scores),
its publication in a manner that violated a person’s right of
seclusion would still amount to a covered privacy violation. But
if the clause “that violates a person’s right of privacy” modifies
only the word “material,” then it follows that something about
the material itself, viewed in isolation, must violate a person’s
right of privacy, which in turn implies that it must do so by
reason of its informational content. Thus, the coverage
provision is facially ambiguous, and the ambiguity is critical to
resolution of the question of coverage in this case.
In such situations, our first step is to consider whether the
standard rules of contract interpretation can resolve the facial
ambiguity in the policy’s language. Then, if the application of
those rules fails to resolve the ambiguity, we interpret the
provision in favor of protecting the insured’s reasonable
expectations. “Only if these rules do not resolve a claimed
ambiguity do we resort to the rule that ambiguities are to be
resolved against the insurer.” (Boghos v. Certain Underwriters
at Lloyd’s of London, supra, 36 Cal.4th at p. 501; see Minkler v.
Safeco Ins. Co. (2010) 49 Cal.4th 315, 321–322; Bank of the West
v. Superior Court (1992) 2 Cal.4th 1254, 1264–1265.)
11
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
1. Application of the Standard Rules of Contract
Interpretation
“The mere fact that a word or phrase in a policy may have
multiple meanings does not create an ambiguity.” (Palmer,
supra, 21 Cal.4th at p. 1118.) Rather, the meaning of the word
or phrase must be considered in light of its context. (See State
of California v. Continental Ins. Co., supra, 55 Cal.4th at p. 195;
Minkler v. Safeco Ins. Co., supra, 49 Cal.4th at p. 322; Bank of
the West v. Superior Court, supra, 2 Cal.4th at p. 1265.) Several
aspects of the policy at issue here suggest that in the policy’s
coverage provision, the restrictive clause “that violates a
person’s right of privacy” modifies only the word “material,”
meaning that, for there to be coverage, the material itself — that
is, its informational content — must give rise to the privacy
violation.
Courts will favor an interpretation that gives meaning to
each word in a contract over an interpretation that makes part
of the writing redundant. (See Carson v. Mercury Ins. Co. (2012)
210 Cal.App.4th 409, 420.) Reading the restrictive clause “that
violates a person’s right of privacy” as modifying the entire
phrase “[o]ral or written publication, in any manner, of
material,” and thus as creating liability coverage for right-of-
seclusion violations, might be seen as somewhat unnatural
because it is a reading that arguably makes the word “material”
superfluous. In other words, if the policy were intended to cover
liability for any publication that violated a person’s right of
privacy, whether by disclosing a person’s secrets or intruding
upon a person’s seclusion, or otherwise, then the word
“material” could simply have been omitted from the coverage
provision altogether. But the coverage provision at issue here
12
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
includes the word “material.” The addition of the word
“material” immediately before the restrictive clause “that
violates a person’s right of privacy” arguably suggests that
something about the content of the material itself, viewed in
isolation, must violate a person’s right of privacy. Thus, since
content is irrelevant to right-of-seclusion violations, the
inclusion of the word “material” implies that the policy does not
cover right-of-seclusion liability.
This reading of the coverage language finds support in
various other provisions of Yahoo!’s policy. As modified by
Endorsement No. 1, the policy provides liability coverage for
“personal injury,” which it defines to include injury arising from
any of five offenses. One of those offenses is the one we have
been discussing here (“[o]ral or written publication, in any
manner, of material that violates a person’s right of privacy”),
but another offense, one not at issue here, uses parallel phrasing
(“[o]ral or written publication, in any manner, of material that
slanders or libels a person or organization or disparages a
person’s or organization’s goods, products or services”).
Although the latter offense is not implicated here directly, it is
nonetheless relevant. Published material can slander, libel, or
disparage a person only by reason of its informational content —
it cannot do so in any other way. Therefore, the parallel
phrasing between these two offenses supports an inference that
both offenses are concerned with the informational content of
the published material. (See E.M.M.I. Inc. v. Zurich American
Ins. Co. (2004) 32 Cal.4th 465, 475 [“the same word used in an
instrument is generally given the same meaning unless the
policy indicates otherwise”].) And that, in turn, suggests that
13
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
the liability coverage for privacy injuries does not extend to
violations of the right of seclusion.
In addition, the policy at issue here excludes “[o]ral or
written publication, in any manner, of material in your
‘advertisement’ that violates a person’s right of privacy.” With
respect to this advertisement injury exclusion, the content of the
advertisement is clearly referenced by the word “material”
because the provision uses the phrase “material in your
‘advertisement.’ ” (Italics added.) Again, because this
advertisement provision, like the slander provision discussed
above, uses phrasing that parallels the provision we are
interpreting in this case, a plausible argument can be made that
the latter provision is likewise concerned with the content of
what is being published. (See E.M.M.I. Inc. v. Zurich American
Ins. Co., supra, 32 Cal.4th at p. 475.)
Yet other aspects of Yahoo!’s policy suggest that in the
policy’s coverage provision, the restrictive clause “that violates
a person’s right of privacy” modifies the entire phrase “[o]ral or
written publication, in any manner, of material,” thus creating
coverage for any publication-based right-of-privacy violation,
including right-of-seclusion violations. For example, even if the
slander provision and the advertising injury exclusion refer only
to content-based injuries, those provisions are worded
differently from the provision now before us. The specific
provision at issue here (“[o]ral or written publication, in any
manner, of material that violates a person’s right of privacy”)
does not include language that similarly requires such a narrow
interpretation.
Moreover, it may be that the parties affirmatively
intended to modify the policy to cover right-of-seclusion injuries
14
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
litigated under the TCPA. In its brief in this court, Yahoo! says:
“In the National Union Policies, the ‘personal injury’ coverage
was deliberately expanded by manuscript endorsement [(i.e.,
Endorsement No. 1)] to cover specialized risks beyond what was
covered by the standard form language. The endorsement
removed certain exclusions, including the TCPA liability
exclusion, and provided expanded coverage for conduct-based
‘personal injury’ offenses, separate and distinct from content-
based ‘advertising injury’ offenses.” (Italics added.) Relying on
this conduct-content distinction, Yahoo! argues that, in the
context of the coverage provision, the restrictive clause “that
violates a person’s right of privacy” should be interpreted
broadly to include conduct that violates a person’s right of
privacy (i.e., right-of-seclusion violations), whereas in the
context of the advertising injury exclusion, the same restrictive
clause should be limited to content that violates a person’s right
of privacy (i.e., right-of-secrecy violations).
The arguments favoring Yahoo!’s broad reading of the
coverage provision at issue are far from conclusive. However,
Yahoo!’s arguments serve to persuade us that the policy remains
ambiguous even when we apply the standard rules of contract
interpretation in an effort to clarify the policy’s meaning. The
restrictive clause “that violates a person’s right of privacy” can
reasonably be read to modify the entire phrase “[o]ral or written
publication, in any manner, of material,” and the standard rules
of contract interpretation do not foreclose that reading. 9
9
Insurance companies can easily avoid the ambiguous
language used here, by revising the language to clarify the scope
of the coverage they are providing.
15
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
2. Insured’s Reasonable Expectations and Other
Considerations
Where, as here, the standard rules of contract
interpretation do not resolve an ambiguity in the operative
language of an insurance policy, “we interpret [that language]
to protect ‘ “the objectively reasonable expectations of the
insured.” ’ ” (Boghos v. Certain Underwriters at Lloyd’s of
London, supra, 36 Cal.4th at p. 501.) As noted above, “[o]nly if
these rules do not resolve a claimed ambiguity do we resort to
the rule that ambiguities are to be resolved against the insurer.”
(Ibid.; see Minkler v. Safeco Ins. Co., supra, 49 Cal.4th at p. 321;
State of California v. Allstate Ins. Co. (2009) 45 Cal.4th 1008,
1018.)
Therefore, “a court that is faced with an argument for
coverage based on assertedly ambiguous policy language must
first attempt to determine whether coverage is consistent with
the insured’s objectively reasonable expectations.” (Bank of the
West v. Superior Court, supra, 2 Cal.4th at p. 1265.) Here,
however, the question whether it was objectively reasonable for
Yahoo! to expect coverage of its TCPA liability cannot be
resolved without further litigation focusing on the scope of the
Statute Endorsement, the scope of the advertising injury
exclusion, the specific factual circumstances of the alleged TCPA
violations (i.e., whether they amount to a right-of-seclusion
violation under California law), and perhaps other unresolved
issues not presented to this court. In this context, it also merits
noting that merely removing an exclusion for TCPA liability is
not, by itself, enough to establish coverage of such liability. (See
Waller v. Truck Ins. Exchange, supra, 11 Cal.4th at p. 16.)
16
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
As regards the next and final step — the rule that we
interpret unresolvable ambiguities in favor of the insured — the
application of that rule must take into consideration the specific
circumstances in which the policy was drafted. The rule derives
from the principle of contra proferentem (“against the drafter”),
and it is justified on the grounds that the drafter of a contract
should bear the responsibility for ambiguities the drafter could
have resolved. (See Abraham, A Theory of Insurance Policy
Interpretation (1996) 95 Mich. L.Rev. 531, 533.) Therefore, the
rule favoring the insured does not necessarily apply where the
insured is one of the contract’s drafters.
Here, sophisticated parties have bargained over the terms
of a manuscript endorsement, and the ambiguous coverage
provision appears in that manuscript endorsement. In this
situation, it is appropriate to ask whether the insurer can be
considered the sole drafter of the provision and therefore
whether the insurer is solely responsible for the ambiguity in
that provision. But even in the case of a manuscript
endorsement, ambiguities should be resolved in favor of
coverage when the specific ambiguous language is “adopted
verbatim from standard form policies used throughout the
country.” (AIU Ins. Co. v. Superior Court (1990) 51 Cal.3d 807,
823, fn. 9; see id. at pp. 823–824.) In the present case, despite
the characterization of Endorsement No. 1 as a manuscript
endorsement — which would normally imply that it contains
nonstandard, negotiated provisions — the disputed coverage
language under review is standard form language adopted
verbatim from insurer-drafted policies. Under such
circumstances, the insured — Yahoo! — cannot be charged with
creating the ambiguity that led to the dispute, and therefore it
17
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
is appropriate for courts to interpret any unresolvable
ambiguities in Yahoo!’s favor. (See Minkler v. Safeco Ins. Co.,
supra, 49 Cal.4th at p. 321; State of California v. Allstate Ins.
Co., supra, 45 Cal.4th at p. 1018.)
To summarize, we do not find Yahoo!’s broad reading of
the coverage provision to be conclusive. Rather, we agree with
Yahoo! that the coverage provision is ambiguous and that the
standard rules of contract interpretation do not resolve the
ambiguity. Because the provision is ambiguous, we conclude
that it must be interpreted in a way that fulfills Yahoo!’s
objectively reasonable expectations, which must be determined
in further litigation. Finally, if the foregoing procedures do not
resolve the ambiguity, then we resort to the rule that
ambiguities are to be resolved against the drafter, and here the
insurer is considered to be the drafter of the specific coverage
language whose meaning is in dispute.
The federal district court, however, took a different
approach, a point that we now address.
B. The Rule of the Last Antecedent
As noted above, the district court relied on the rule of the
last antecedent in arriving at its conclusion that the policy in
question did not cover the claims asserted against Yahoo!.
According to the last antecedent rule, “[r]elative and qualifying
words and phrases, grammatically and legally, where no
contrary intention appears, refer solely to the last antecedent.”
(Sutherland, Statutes and Statutory Construction (1891) § 267,
p. 349; see Black’s Law Dict., supra, pp. 1532–1533.) This rule
of construction has been repeatedly recognized and applied by
the United States Supreme Court (see, e.g., Lockhart v. United
States (2016) 577 U.S. 347, 351; Barnhart v. Thomas (2003) 540
18
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
U.S. 20, 26–27; FTC v. Mandel Brothers, Inc. (1959) 359 U.S.
385, 389–390), and it was mentioned by the high court as early
as 1799 (see Sims Lessee v. Irvine (1799) 3 U.S. 425, 444, fn. *).
In California, reliance on the last antecedent rule dates
back at least a century. As formulated by this court, the rule
provides that “ ‘ “qualifying words, phrases and clauses are to be
applied to the words or phrases immediately preceding [them]
and are not to be construed as extending to or including other[]
[words or phrases] more remote.” ’ ” (Renee J. v. Superior Court
(2001) 26 Cal.4th 735, 743, quoting White v. County of
Sacramento (1982) 31 Cal.3d 676, 680; see Los Angeles County
v. Graves (1930) 210 Cal. 21, 26–27.) The last antecedent rule
is often applied where there is a list of terms, and the qualifying
words or phrases follow the last item in the list. (See People ex
rel. Lockyer v. R.J. Reynolds Tobacco Co. (2003) 107 Cal.App.4th
516, 530 [“The exemplar application of the last antecedent rule
is a case where a modifying phrase appears after a list of
multiple items or phrases”].) But more generally, the last
antecedent rule can be understood to express the same rules of
English word order discussed in part II.A., ante, meaning that a
restrictive relative clause usually modifies the noun
immediately preceding it. Employing the last antecedent rule
in this manner, California courts have held that insurance
policies using language similar to the language at issue here
cover only right-of-secrecy liability, not right-of-seclusion
liability.
In ACS Systems, supra, 147 Cal.App.4th 137, for example,
the court applied the last antecedent rule to a group of insurance
policies that covered liability for “ ‘[m]aking known to any
person or organization written or spoken material that violates
19
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
an individual’s right of privacy.’ ” (Id. at p. 143.) The ACS
Systems court read the clause “ ‘that violates an individual’s
right of privacy’ ” as modifying only the word “ ‘material,’ ” not
as modifying the phrase “ ‘[m]aking known.’ ” (Id. at p. 150.)
Hence, the court concluded that for there to be liability coverage,
the content of the material, not the manner of making it known,
had to violate someone’s privacy, meaning that the policy
provided liability coverage only for disclosures that violated the
right of secrecy. (Id. at pp. 150, 152.) A few years later, State
Farm General Ins. Co. v. JT’s Frames, Inc. (2010) 181
Cal.App.4th 429 (JT’s Frames) reached the same conclusion in
a case in which the relevant insurance policies, like the policy at
issue here, used the phrase “ ‘publication of,’ ” not the phrase
“ ‘making known.’ ” (Id. at p. 447.)10
Not surprisingly, National Union relies on ACS Systems
and JT’s Frames, but Yahoo! directs our attention to decisions
from other jurisdictions that have rejected the rule of the last
antecedent in the present context. Yahoo! relies, for example,
10
Courts in several other jurisdictions have also reached the
same conclusion as the court in ACS Systems. (See Auto-Owners
Ins. Co. v. Websolv Computing, Inc., supra, 580 F.3d at pp. 550–
551 [7th Cir. reaching same conclusion as ACS Systems, relying
on the word “publication,” which, the court said, suggests the
disclosure of secrets]; Subclass 2 of Master Class of Plaintiffs v.
Melrose Hotel (3d Cir. 2007) 503 F.3d 339, 340 [3d Cir. reaching
same conclusion as ACS Systems by approving a district court
analysis similar to that of ACS Systems]; Resource Bankshares
Corp. v. St. Paul Mercury Ins. Co., supra, 407 F.3d at p. 640 [4th
Cir. reaching the same conclusion as ACS Systems]; American
States Ins. Co. v. Capital Associates of Jackson County, supra,
392 F.3d at p. 943 [7th Cir. reaching the same conclusion as ACS
Systems].)
20
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
on Penzer v. Transp. Ins. Co. (Fla. 2010) 29 So.3d 1000. In
Penzer, the Florida Supreme Court downplayed the significance
of the rule of the last antecedent, noting that it is “not an
absolute rule.” (Id. at p. 1007.) Interpreting policy language
nearly identical to the language at issue here,11 the Penzer court
concluded that the restrictive clause “that violates a person’s
right of privacy” modifies both the word “publication” and the
word “material.” The court therefore held that the policy at
issue in that case provided liability coverage when the manner
of publication, not just the content of the published material,
violated someone’s privacy. (Ibid.)
In our view, the rule of the last antecedent, as articulated
in our case law, does not resolve the ambiguity in the policy
language at issue here. The rule of the last antecedent states
that “ ‘ “qualifying words, phrases and clauses are to be applied
to the words or phrases immediately preceding [them] . . . .” ’ ”
(Renee J. v. Superior Court, supra, 26 Cal.4th at p. 743, italics
added.) As noted above, the rule is most readily applied where
there is a list of several items, and the modifier comes
immediately after the last item on the list. (See People ex rel.
Lockyer v. R.J. Reynolds Tobacco Co., supra, 107 Cal.App.4th at
p. 530; see also Sutherland, Statutes and Statutory
Construction, supra, § 267, pp. 349–351.) Here, however, there
is no list of items followed immediately by a modifier; instead,
there is the phrase “[o]ral or written publication, in any manner,
of material” followed immediately by a modifier. In applying the
11
The policy language at issue in Penzer omitted the words
“in any manner” after the word “publication” but was otherwise
the same as the language at issue here.
21
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
rule of the last antecedent, if we identify the possible
antecedents as either (1) the word “publication,” or (2) the word
“material,” then the word “material” would be the last
antecedent. But if, instead, we identify the possible antecedents
as either (1) the entire phrase “[o]ral or written publication, in
any manner, of material,” or (2) merely the final word of that
phrase, “material,” then both potential antecedents would
qualify as the last antecedent, as each would immediately
precede the modifying restrictive clause. Accordingly, the rule
does not resolve, in the present case, whether the relative clause
“that violates a person’s right of privacy” modifies just the word
that immediately precedes it (i.e., the word “material”) or
whether the clause modifies the entire phrase that immediately
precedes it (i.e., the phrase “[o]ral or written publication, in any
manner, of material”). Therefore, we reach a different
conclusion from the courts in ACS Systems, supra, 147
Cal.App.4th 137 and JT’s Frames, supra, 181 Cal.App.4th 429,
and find that the rule of the last antecedent does not resolve the
ambiguity that characterizes coverage provisions like the one at
issue here.12
C. The Advertising Injury Exclusion
National Union asks us to apply the advertising injury
exclusion of the policy to conclude that the policy does not cover
12
The case before us does not involve the phrase “making
known,” a phrase that was at issue in ACS Systems, supra, 147
Cal.App.4th 137, and that some courts have interpreted more
narrowly than the phrase “publication of.” (See Cynosure, Inc.
v. St. Paul Fire and Marine Ins. Co. (1st Cir. 2011) 645 F.3d 1.)
Therefore, we express no view on whether ACS Systems was
correctly decided.
22
YAHOO INC. v. NATIONAL UNION FIRE INSURANCE COMPANY OF
PITTSBURGH, PA
Opinion of the Court by Jenkins, J.
Yahoo!’s potential TCPA liability in the underlying lawsuits. In
the proceedings up to this point, however, National Union has
not litigated the case based on the advertising injury exclusion,
and the record before us does not indicate whether the text
messages at issue here were advertisements as that term is
defined in the policy. Accordingly, we express no view on the
question.
III. CONCLUSION
We answer the Ninth Circuit’s question as follows: A CGL
insurance policy that provides coverage for “personal injury,”
defined, in part, as “injury . . . arising out of . . . [o]ral or written
publication, in any manner, of material that violates a person’s
right of privacy,” can cover liability for violations of the right of
seclusion if such coverage is consistent with the insured’s
objectively reasonable expectations. Such a policy can also
trigger the insurer’s duty to defend the insured against a claim
that the insured violated the TCPA by sending unsolicited text
messages that did not reveal any private or secret information,
provided that the alleged TCPA violation amounts to a right-of-
seclusion violation under California law. The fact that such a
policy has been modified by an endorsement with regard to
advertising injuries may affect such coverage and such duty to
defend, but we have no occasion to decide that issue here.
JENKINS, J.
We Concur:
CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
LIU, J.
KRUGER, J.
GROBAN, J.
GUERRERO, J.
23
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion Yahoo Inc. v. National Union Fire Insurance
Company of Pittsburgh, PA
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal
Original Proceeding XX on request by 9th Circuit (Cal. Rules of
Court, rule 8.548)
Review Granted (published)
Review Granted (unpublished)
Rehearing Granted
________________________________________________________
Opinion No. S253593
Date Filed: November 17, 2022
__________________________________________________________
Court:
County:
Judge:
__________________________________________________________
Counsel:
Jassy Vick Carolan and William T. Um for Plaintiff and Appellant.
Hunton Andrews Kurth, Lorelie S. Masters, Kevin V. Small,
Alexandrea H. Young; Reed Smith, Timothy P. Law and Andrew B.
Breidenbach for United Policyholders as Amicus Curiae on behalf of
Plaintiff and Appellant.
Horvitz & Levy, Mitchell C. Tilner, Steven S. Fleischman, Emily V.
Cuatto; Nicolaides Fink Thorpe Michaelides Sullivan, Richard H.
Nicolaides, Jr., Daniel I. Graham, Jr., and Jodi S. Green for Defendant
and Respondent.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
William T. Um
Jassy Vick Carolan LLP
355 South Grand Avenue, Suite 2450
Los Angeles, CA 90071
(310) 870-7048
Steven S. Fleischman
Horvitz & Levy LLP
3601 West Olive Avenue, 8th Floor
Burbank, CA 91505
(818) 995-5824 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484570/ | NOT PRECEDENTIAL
UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
________________
Nos. 22-1032, 22-1033
________________
UNITED STATES OF AMERICA
v.
ERIC CLANCY
Appellant
_____________
On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Criminal Nos. 2-17-cr-00031-001, 2-19-cv-0004)
District Judge: Honorable Mark R. Hornak
________________
Submitted Pursuant to Third Circuit L.A.R. 34.1(a)
on October 18, 2022
Before: GREENAWAY, JR., MATEY and ROTH, Circuit Judges
(Filed: November 17, 2022)
________________
OPINION*
________________
*
This disposition is not an opinion of the full Court and pursuant to I.O.P. 5.7 does
not constitute binding precedent.
MATEY, Circuit Judge.
Eric Clancy appeals the denial of his motion claiming ineffective assistance of
counsel. Finding no error, we will affirm.
I.
Clancy pleaded guilty to narcotics and firearms offenses in violation of 21 U.S.C.
§§ 841(a)(1) and 841(b)(1)(C), and 18 U.S.C. § 924(c)(1)(A)(i). Denying Clancy’s request
for a variance, the District Court sentenced Clancy to ninety months incarceration, a term
within the Advisory Guidelines’ range.
Clancy did not appeal, a decision he blames on his counsel Kenneth Haber. So he
filed a motion under 28 U.S.C. § 2255 to vacate his sentence alleging ineffective assistance.
The District Court held an evidentiary hearing on the motion, and Clancy and Haber
testified. Both told a similar story. Clancy testified that, after the District Court announced
his sentence, he asked Haber, “we’re appealing, right[?]” App. 249. Haber repeatedly
testified he did not hear that question. But he explained that, requested or not, he would
have filed a notice of appeal, or at least discussed the possibility with Clancy, if he thought
meritorious grounds existed. Finding Haber’s representation was not deficient, the District
Court denied the motion but certified two issues for appeal:
(1) whether counsel has—and in this case had—a constitutional duty to
consult with the Defendant regarding an appeal when the Defendant
‘reasonably demonstrates’ an interest in appealing but counsel does not know
or have reason to know of that interest; [and] (2) whether on the factual
record here, counsel nonetheless had a duty to make inquiry of the Defendant
2
on the topic of an appeal regardless of whether counsel was aware of the
Defendant’s subjective interest in appealing.1
App. 34. Finding no error on either, we will affirm.2
II.
Ineffective assistance requires an objectively deficient performance that prejudiced
the defendant. Strickland v. Washington, 466 U.S. 668, 687 (1984). When a defendant
claims counsel failed to file an appeal, “a defendant must demonstrate that there is a
reasonable probability that, but for counsel’s deficient failure to consult with him about an
appeal, he would have timely appealed.” Roe v. Flores-Ortega, 528 U.S. 470, 484 (2000).
“[T]he prejudice inquiry we have described is not wholly dissimilar form the inquiry used
to determine whether counsel performed deficiently in the first place.” Id. at 486.
Nonetheless, the inquiries are distinct. “To prove deficient performance, a defendant can
rely on evidence that he sufficiently demonstrated to counsel his interest in an appeal. But
such evidence alone is insufficient to establish that, had the defendant received reasonable
advice from counsel about the appeal, he would have instructed his counsel to file an
1
The parties dispute the wording of the issues in the certificate of appealability. We
do not perceive the same ambiguity and, in any event, “the merits panel may expand the
certificate of appealability as required in the circumstances of a particular case.” 3d Cir.
L.A.R. 22.1(b). Accordingly, we consider whether Haber had a duty to discuss a possible
appeal with Clancy whether or not counsel was aware of Clancy’s interest.
2
The District Court had jurisdiction under 28 U.S.C. § 2255. We have jurisdiction
under 28 U.S.C. §§ 1291 and 2253. “In a [§ 2255] proceeding, we exercise plenary review
of the district court’s legal conclusions and apply a clearly erroneous standard to the court’s
factual findings.” United States v. Travillion, 759 F.3d 281, 289 (3d Cir. 2014) (quoting
Lambert v. Blackwell, 134 F.3d 506, 512 (3d Cir. 1997)).
3
appeal.” Id. As the District Court properly concluded, Clancy does not meet this
requirement.
To begin, the District Court found that Haber “didn’t hear Mr. Clancy,” and did not
“otherwise know of an interest on Mr. Clancy’s part in an appeal.” App. 21. These were
factual determinations reached after a full hearing that we will not disturb.
Nor did Haber have a duty to consult Clancy about a possible appeal given the
totality of the circumstances. Flores-Ortega, 528 U.S. at 480 (holding that “counsel has a
constitutionally imposed duty to consult with the defendant about an appeal when there is
reason to think either (1) that a rational defendant would want to appeal (for example,
because there are nonfrivolous grounds for appeal), or (2) that this particular defendant
reasonably demonstrated to counsel that he was interested in appealing”). As the District
Court explained, Clancy’s sentence was at the lower end of the guidelines range, and his
plea agreement contained a broad appellate waiver. The above facts show that “a
reasonable lawyer in Mr. Haber’s shoes did not have reason to conclude that a rational
defendant in Mr. Clancy’s position would have wanted to appeal.” App. 29.
It is not enough to argue, as Clancy does, that Haber should have confirmed the
decision to forgo an appeal. His counsel discussed the plea agreement before sentencing,
and Clancy knew that he might not succeed on his motion for a variance. And the plea
agreement explained the Government could file an information establishing a prior
4
conviction leading to a more significant sentence.3 On those facts, we cannot find error in
the District Court’s conclusions.
III.
For these reasons, we will affirm the District Court’s judgment.
3
The Government also stated, without objection, that it would file the information
after the plea hearing. Nor was this argument raised before the District Court.
5 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484579/ | Filed 11/17/22 Carp Property v. Corona CA2/6
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions
not certified for publication or ordered published, except as specified by rule 8.1115(b). This opinion
has not been certified for publication or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
CARP PROPERTY, LLC, 2d Civil No. B316354
(Super. Ct. No. 19CV04212)
Plaintiff and Appellant, (Santa Barbara County)
v.
EFRAIN CORONA, Individually
and as Trustee, etc.,
Defendant and Respondent.
Appellant Carp Property, LLC (Carp) bought a mixed-use
property with a gym on the first floor and apartments on the
second floor. Two of the residential tenants soon moved out
because the members of the gym made too much noise. Carp
accused the seller and brokers of concealing pre-sale noise
complaints and sued them for over $2 million in compensatory
damages plus punitive damages and attorney’s fees.
Carp litigated the case for two years before concluding it
would recover much less than expected. It settled with some of
the defendants for $90,000 and offered respondent Efrain Corona
(Corona) a walk-away settlement in exchange for a waiver of
costs. When Corona rejected this offer, Carp dismissed him
without prejudice. Corona later obtained attorney’s fees of
$200,000 as a prevailing party. Carp appeals the award. It
contends, among other things, the figure so exceeds the amount
in controversy as to violate public policy.
We affirm the judgment in full.
FACTUAL AND PROCEDURAL HISTORY
Corona is trustee of The Efrain Corona Family 2005
Revocable Trust (Trust). The Trust owned a mixed-use building
in Carpinteria that housed a gym on the first floor and four
residential units on the second floor. Carp agreed to buy the
building from the Trust. Radius, real estate brokers, represented
both parties in the transaction.1 Escrow closed in August 2016.
Two of the building’s four residential tenants moved out
after Carp took title. Carp accused Corona and Radius of
concealing pre-sale complaints about noise levels at the gym as
well as floor damage caused by gym members dropping weights
during workouts. It sought compensatory and punitive damages
from all defendants, alleging it would have refrained from buying
the building or offered less money had it known about these
defects. In addition, Carp sought attorney fees from Corona
pursuant to a provision in their “Residential Income Property
Purchase Agreement and Joint Escrow Instructions” (Agreement)
stating: “ATTORNEY FEES: In any action, proceeding, or
arbitration between Buyer and Seller arising out of this
1 Different associate brokers within Radius represented the
buyer and seller: defendant Gene S. Deering (Carp Property) and
defendant Paul J. Gamberdella (Trust). Defendants William
Cordero and Filippini Wealth Management, Inc. were also
involved in the transaction. None are parties to this appeal.
2
Agreement, the prevailing Buyer or Seller shall be entitled to
reasonable attorneys fees and costs from the non-prevailing
Buyer or Seller . . . .”
Radius settled with Carp for $90,000. The trial court
granted Radius’s motion for determination of good faith
settlement over Corona’s opposition. (Code Civ. Proc., § 877.6.)
Carp then served Corona with a statutory offer to settle the case
in exchange for a waiver of costs and fees. (Id., § 998.) Corona
did not accept the offer.
Carp voluntarily dismissed Corona without prejudice three
weeks before trial “to avoid further costs and expenses.” Corona
then moved for $228,000 in attorney’s fees under Civil Code
section 1717.2 The trial court found Corona to be the prevailing
party and awarded him $200,000.
DISCUSSION
Standard of Review
We review the order awarding Corona attorney’s fees for
abuse of discretion, reversing only if “the award shocks the
conscience or is not supported by the evidence. [Citations.]”
(Jones v. Union Bank of California (2005) 127 Cal.App.4th 542,
549-550; Akins v. Enterprise Rent-A-Car Co. (2000) 79
Cal.App.4th 1127, 1134 (Akins) [“The only proper basis of
reversal of the amount of an attorney fees award is if the amount
2 Civil Code, section 1717, subdivision (a) states in relevant
part: “In any action on a contract, where the contract specifically
provides that attorney’s fees and costs, which are incurred to
enforce that contract, shall be awarded either to one of the
parties or to the prevailing party, then the party who is
determined to be the party prevailing on the contract, whether he
or she is the party specified in the contract or not, shall be
entitled to reasonable attorney’s fees in addition to other costs.”
All further statutory references are to the Civil Code.
3
awarded is so large or small that it shocks the conscience and
suggests that passion and prejudice influenced the
determination”].)
The Trial Court Did Not Abuse Its Discretion
by Awarding Corona $200,000 in Attorney’s Fees
The court determined Corona to be the prevailing party
because he achieved his litigation objectives, i.e., dismissal from
the case. Carp challenges this finding. It cites its $90,000
settlement with Radius as showing it, not Corona, achieved its
litigation objectives. (See Silver v. Boatwright Home Inspection,
Inc. (2002) 97 Cal.App.4th 443, 452, italics omitted [plaintiff may
achieve its litigation objectives when it “obtains a settlement
from a party other than a defendant who has been voluntarily
dismissed prior to trial and who is asserting entitlement to
contractual attorney’s fees”].) We do not agree.
A prevailing party analysis under section 1717 requires the
trial court “to compare the relief awarded on the contract claim or
claims with the parties’ demands on those same claims and their
litigation objectives as disclosed by the pleadings, trial briefs,
opening statements, and similar sources.” (Hsu v. Abbara (1995)
9 Cal.4th 863, 876.) Carp’s $90,000 settlement with Radius
contrasts starkly with the $2,120,000 it initially sought from
defendants. In contrast, Corona obtained a voluntary dismissal
from the case despite rejecting Carp’s walk away offer. The trial
court’s determination that Corona prevailed under these
circumstances was well within its discretion, and, more
specifically, a product of the court’s careful consideration of the
parties’ “pleadings, trial briefs, opening statements, and similar
sources” of information.
Carp argues there can be no prevailing party under section
1717 where, as here, the defendant is dismissed without
4
prejudice. (See § 1717, subd. (b)(2) [“Where an action has been
voluntarily dismissed or dismissed pursuant to a settlement of
the case, there shall be no prevailing party for purposes of this
section”].) This is true when the dismissed claims are based
solely on contract. Carp, however, brought claims in both tort
and contract against Corona. The record supports the finding
that these claims were “inextricably intertwined.” (See Santisas
v. Goodin (1998) 17 Cal.4th 599, 621 [section 1717(b)(2) does not
“encompass tort and other noncontract claims arising from
contracts containing broadly worded attorney fee provisions”];
Calvo Fisher & Jacob LLP v. Lujan (2015) 234 Cal.App.4th 608,
625-626 [court need not apportion fees award to prevailing party
when contract claims were intertwined with tort claims].)
Carp next argues Corona could not seek attorney’s fees as
an individual because he signed the Agreement in his capacity as
trustee of his family trust. We note Carp nevertheless sued
Corona as an individual and sought attorney’s fees against him
individually under the Agreement. Holding Corona could not
seek the same against Carp would contravene the purpose of
section 1717: “to ensure mutuality of remedy for attorney fee
claims under contractual attorney fee provisions.” (Santisas,
supra, 17 Cal.4th at p. 610.)
Carp attacks the reasonableness of the Corona’s $200,000
attorney’s fees award as well. It describes this amount as so
disproportionate to the case’s probable outcome as to violate
public policy. (See Harrington v. Payroll Entertainment Services,
Inc. (2008) 160 Cal.App.4th 589 [$46,000 fees request in a wage
and hour dispute involving a $44.63 underpayment to plaintiff].)
Carp proposes $90,000 as the benchmark value of its case
because the trial court approved this figure as a good faith
settlement of Carp’s claims against the Radius defendants. We
5
are not persuaded. Carp’s modest but reasonable settlement with
Radius bears no relationship to the amount Corona spent to
defend what the trial court described as “an important case” in
which “Carp was seeking substantial compensatory damages . . .
as well as punitive damages and attorneys’ fees.”
Carp highlights how the invoices submitted by Corona’s
counsel in support of the motion contained block billed time
entries and instances where high-level attorneys performed tasks
better suited to lower-level attorneys. The trial court noted these
concerns and directed Corona’s counsel to submit additional
information about his invoices. It eventually trimmed around
$28,000 from Corona’s request. There is no basis to disturb this
exercise of discretion considering its familiarity with this
litigation and local billing practices. (See Serrano v. Priest (1977)
20 Cal.3d 25, 49, quoting Harrison v. Bloomfield Building
Industries, Inc. (6th Cir. 1970) 435 F.2d 1192, 1196 [an
“‘experienced trial judge is the best judge of the value of
professional services rendered in his court, and while his
judgment is of course subject to review, it will not be disturbed
unless the appellate court is convinced that it is clearly wrong’”].)
Carp lastly argues the trial court abused its discretion by
awarding Corona the fees he incurred after rejecting Carp’s “walk
away” settlement offer, which totaled about $95,000 of the
$228,000 he sought. Accepting the offer, Carp reasons, would
have achieved his dismissal without the time and expense of
further litigation. The trial court considered this information in
its reasonableness analysis. The $200,000 award neither “shocks
the conscience” nor “suggests . . . passion and prejudice.” (Akins,
supra, 79 Cal.App.4th at p. 1134.)
6
CONCLUSION
The trial court’s order awarding Corona attorney’s fees is
affirmed. Corona shall recover his costs on appeal.
NOT TO BE PUBLISHED.
CODY, J.*
We concur:
YEGAN, Acting P.J.
BALTODANO, J.
*Judge of the Ventura Superior Court assigned by the
Chief Justice pursuant to article VI, section 6 of the California
constitution.
7
Thomas P. Anderle, Judge
Superior Court County of Santa Barbara
______________________________
Law Offices of James W. Bates, James W. Bates, for
Plaintiff and Appellant.
McCarthy & Kroes, Patrick McCarthy and Briana E.
McCarthy, for Defendant and Respondent.
8 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484580/ | Filed 11/17/22 Alston v. McCormick Barstow CA5
NOT TO BE PUBLISHED IN THE OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication
or ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIFTH APPELLATE DISTRICT
ERIC ALSTON,
F082618
Plaintiff and Appellant,
(Super. Ct. No. 20CECG02657)
v.
MCCORMICK BARSTOW LLP, OPINION
Defendant and Respondent.
APPEAL from an order of the Superior Court of Fresno County. D. Tyler Tharpe,
Judge.
Eric Alston, in pro. per., for Plaintiff and Appellant.
McCormick, Barstow, Sheppard, Wayte & Carruth LLP and Todd W. Baxter for
Defendant and Respondent.
-ooOoo-
Plaintiff Eric Alston, who has been a self-represented litigant throughout these
proceedings, sued defendants McCormick Barstow LLP and two of its attorneys, Jessica
Boujikian and Anil Pai (collectively, McCormick Barstow), for providing Alston’s
mental health records, which contained his social security number, to an expert witness
McCormick Barstow retained to offer an opinion on the standard of care in a professional
negligence action Alston brought against McCormick Barstow’s client. Alston alleged
by providing his mental health records to their retained expert, McCormick Barstow
invaded his privacy and violated Welfare and Institutions Code section 5330 and Civil
Code section 1798.85 et seq.
McCormick Barstow responded by filing an anti-SLAPP motion pursuant to Code
of Civil Procedure section 425.16.1 McCormick Barstow contended Alston’s claims
arose from protected activity, specifically their legal representation of their client in the
professional negligence case, and Alston could not establish a reasonable probability he
would prevail on any of his claims because the litigation privilege protected their actions.
The trial court agreed and granted the motion to strike.
Based on our independent review of the record, we agree with the trial court and
conclude: (1) Alston’s claims arose from McCormick Barstow’s litigation conduct,
which is protected by section 425.16, subdivision (e)(2); and (2) Alston failed to carry his
burden of showing a reasonable probability he would prevail on his claims because the
litigation privilege bars his claims. We therefore affirm the order.
FACTUAL AND PROCEDURAL BACKGROUND
The Sacramento Action
In July 2018, Alston commenced an action in Sacramento County Superior Court
in case No. 34-2018-00236505 against various defendants including Maria Candalla,
R.N. McCormick Barstow served as Candalla’s counsel of record. In December 2018,
Alston filed another complaint in Sacramento County Superior Court in case No. 34-
2018-00247179 (the Sacramento action), which also named Candalla as a defendant and
alleged a claim of professional negligence against her.2
1 A “SLAPP” is a strategic lawsuit against public participation and a special motion
to strike under section 425.16 is referred to as an anti-SLAPP motion. (Bonni v. St.
Joseph Health System (2021) 11 Cal.5th 995, 1007, fn. 1.) Undesignated statutory
references are to the Code of Civil Procedure.
2 The complaint also alleged a cause of action for violation of Civil Code
section 52.1, but the court sustained McCormick Barstow’s demurrer to that claim and
while Alston was given leave to amend, he did not do so.
2.
In the professional negligence claim, Alston alleged Sacramento County
Correctional Health Services knew of his ailments and medical information, including
that he was allergic to Naproxen, as the last time Correctional Health Services gave him
the medication he could not breathe and almost died in his cell. Alston attached a portion
of his medical records from Correctional Health Services from the years 2013 and 2017
to the complaint and asserted it should be clear from those records that he cannot take
Naproxen because he is allergic to it. He alleged that while in the Sacramento County
jail, Candalla breached her professional duties when she tried to give him Naproxen to
treat his claimed injuries despite his protestations that he was allergic to it and by not
providing him with medical services.
In the scope of their representation of Candalla, McCormick Barstow retained
Kimberly Pearson, R.N., as an expert witness to provide opinions on the standard of care
provided to Alston with respect to the acts alleged in the complaint and whether Candalla
caused, contributed to, or was a substantial factor in causing Alston’s alleged injuries. To
facilitate Pearson’s ability to form an expert opinion, McCormick Barstow provided her
with Alston’s medical records from the Sacramento County Department of Health
Services, Correctional Health Services Medical Records Unit (Correctional Health
Services). McCormick Barstow provided Alston’s medical records to Pearson for the
sole purpose of representing Candalla in the Sacramento action.
In September 2019, McCormick Barstow filed an opposition to Alston’s summary
judgment motion on Candalla’s behalf, which included a statement of evidence and
Pearson’s declaration which provided her expert opinion on the standard of care. Pearson
stated in her declaration that she reviewed Alston’s “medical records” from Correctional
Health Services. McCormick Barstow later filed a notice of errata and correction to the
statement of evidence to include Pearson’s signed declaration.
3.
This Lawsuit
Alston commenced this action against McCormick Barstow in Sacramento County
Superior Court in February 2020. Alston’s complaint alleges the action arises from
McCormick Barstow’s “disseminating privileged documents to their Nurse Expert
Witness voluntarily.” The complaint alleges McCormick Barstow issued a subpoena for
Alston’s medical records from Correctional Health Services on June 28, 2019, and
McCormick Barstow later filed Pearson’s declaration in the Sacramento action in which
she attested to reviewing Alston’s medical records, which included his mental health
records and contained his social security number. The complaint charges that
McCormick Barstow “voluntarily disseminated Plaintiff[’s] Mental Health Records and
Social Security number to a Nurse Expert witness” and in doing so, McCormick Barstow
“violated the Plaintiff[’]s right of privacy to Both his Mental Health records and Social
Security Number.” Alston alleges the dissemination of his mental health records caused
him “discomfort, harm, unwarranted suffering, mental anguish, mental damages/injuries,
sleep disturbance, anger depression, damages to reputation, and dignity and loss of legal
right to privacy, and other emotional damages.”
The complaint alleges three causes of action: (1) invasion of privacy under
article I, section 1 of the California Constitution; (2) dissemination of Alston’s mental
health records to Pearson in violation of Welfare and Institutions Code section 5330; and
(3) dissemination of his social security number to Pearson in violation of Civil Code
section 1798.85 et seq. Alston seeks $10 million in compensatory, general, and special
damages, as well as punitive and exemplary damages.
The Anti-SLAPP Motion
In March 2020, McCormick Barstow filed a special motion to strike Alston’s
complaint pursuant to section 425.16, asserting Alston’s action arose from protected
activity, namely, McCormick Barstow’s legal representation in the Sacramento action,
and Alston could not establish a probability of prevailing on his claims because the
4.
litigation privilege protected McCormick Barstow’s actions. Before the motion was
heard, the lawsuit was transferred to Fresno County Superior Court on McCormick
Barstow’s motion to transfer. McCormick Barstow refiled the motion in Fresno County
Superior Court in November 2020.
Alston filed his opposition to the motion in December 2020. Alston argued:
(1) his mental health records were not covered by the subpoena; therefore, McCormick
Barstow received them inadvertently and was obligated to refrain from examining them
and to notify the sender that it received privileged documents; (2) the anti-SLAPP statute
does not apply because McCormick Barstow’s conduct was illegal as a matter of law; and
(3) his causes of action are exempt from the litigation privilege. Alston did not provide
any evidence in support of his claims.
On February 3, 2021, McCormick Barstow filed a reply to Alston’s opposition
along with a declaration from attorney Todd W. Baxter. McCormick Barstow argued
Alston failed to demonstrate why the litigation privilege did not apply to his claims and
contrary to Alston’s assertion, the subpoena covered Alston’s mental health records.
McCormick Barstow provided a copy of a subpoena dated July 19, 2019, with Baxter’s
declaration. McCormick Barstow further argued it did nothing illegal and Alston’s
claims were not exempt from the litigation privilege.
On March 3, 2021, Alston filed an objection to McCormick Barstow’s evidence
submitted with the reply and asserted McCormick Barstow committed perjury and fraud
because the subpoena was not related to this case and the “true and correct subpoena”
does not ask for mental health records or social security numbers. Alston submitted what
he asserted was the true and correct subpoena with his declaration. The deposition
subpoena dated June 28, 2019, requests medical records from Correctional Health
Services3 and shows that Alston was served with a notice to consumer advising him
3 The deposition subpoena requests the following records: “MEDICAL RECORDS
– Complete medical records from the first date of treatment to the present, including but
5.
Candalla was seeking records from Correctional Health Services, as specified in the
subpoena, and explaining what he must do if he objected to the production of the records.
The register of actions shows that McCormick Barstow filed a response to Alston’s
objection, along with Baxter’s declaration, on March 12, 2021, but those documents are
not in the record.
Following oral argument on March 18, 2021, the trial court took the matter under
submission and adopted its tentative ruling granting the motion and striking the complaint
as its order. The trial court first found there was no need to sustain Alston’s objection;
while McCormick Barstow submitted the wrong subpoena with its reply, there was no
fraud on the court and Alston clarified the record by submitting the correct subpoena,
which he should have submitted with his opposition. The trial court found the complaint
arose from constitutionally protected speech, namely, litigation activity, and Alston could
not show a probability of success on his claims because they are barred by the litigation
privilege.
DISCUSSION
I. Anti-SLAPP Motions and the Standard of Review
Section 425.16 provides an expedited procedure for dismissing lawsuits filed
primarily to inhibit the valid exercise of the constitutionally protected rights of speech or
petition. (§ 425.16, subd. (a).) Subdivision (b)(1) of section 425.16 provides: “A cause
of action against a person arising from any act of that person in furtherance of the
not limited to any records/documents that may be stored digitally and/or electronically:
documents, correspondence, correspondence from the patient or patient’s attorney, intake
forms, medical reports, doctor’s entries, nurse’s notes, medication administration records,
office notes, progress reports, cardiology reports, radiology reports, x-ray reports, MRI
reports, CT reports, myelogram reports, lab reports, pathology reports, monitor strips,
physical therapy records, occupational therapy records, case history, emergency records,
outpatient records, diagnosis and prognosis documentation, admit and discharge records,
notation(s) on any file folder, All emails between physicians and the patient regarding
physical complaints, symptoms, and treatment, including secure messages.”
6.
person’s right of petition or free speech under the United States Constitution or the
California Constitution in connection with a public issue shall be subject to a special
motion to strike, unless the court determines that the plaintiff has established that there is
a probability that the plaintiff will prevail on the claim.”
This provision has been interpreted as creating a “two-step inquiry” for resolving
anti-SLAPP motions. (Flatley v. Mauro (2006) 39 Cal.4th 299, 317 (Flatley).) “First,
the defendant must establish that the challenged claim arises from activity protected by
section 425.16. [Citation.] If the defendant makes the required showing, the burden
shifts to the plaintiff to demonstrate the merit of the claim by establishing a probability of
success.” (Baral v. Schnitt (2016) 1 Cal.5th 376, 384.) Consequently, a plaintiff can
defeat an anti-SLAPP motion (1) by showing the defendant did not establish a claim
arose from protected activity or (2) by demonstrating a probability of success on the
merits of the claims. Under the second step, the plaintiff must demonstrate the pleading
is legally sufficient and the claim alleged is supported by sufficient evidence to make a
prima facie showing of facts that would sustain a favorable judgment. (Rusheen v. Cohen
(2006) 37 Cal.4th 1048, 1056.)
“Review of an order granting or denying a motion to strike under section 425.16 is
de novo.” (Soukup v. Law Offices of Herbert Hafif (2006) 39 Cal.4th 260, 269, fn. 3.)
An appellate court must “consider the pleadings, and supporting and opposing affidavits
stating the facts upon which the liability or defense is based.” (§ 425.16, subd. (b)(2).)
Neither trial nor appellate courts weigh credibility or compare the weight of the evidence.
(Soukup, at p. 269, fn. 3.) “Rather, the court’s responsibility is to accept as true the
evidence favorable to the plaintiff [citation] and evaluate the defendant’s evidence only to
determine if it has defeated that submitted by the plaintiff as a matter of law.” (HMS
Capital, Inc. v. Lawyers Title Co. (2004) 118 Cal.App.4th 204, 212.)
7.
II. Protected Activity
We first consider whether Alston’s claims arise from an act in furtherance of
McCormick Barstow’s right of free speech or right of petition under one of the
circumstances set forth in section 425.16, subdivision (e). (Finton Construction, Inc. v.
Bidna & Keys, APLC (2015) 238 Cal.App.4th 200, 209 (Finton).) “In doing so, ‘[w]e
examine the principal thrust or gravamen of a plaintiff’s cause of action to determine
whether the anti-SLAPP statute applies….’ ” (Ibid.) This requires “ ‘identifying “[t]he
allegedly wrongful and injury-producing conduct … that provides the foundation for the
claim,” ’ ” keeping in mind “ ‘the critical consideration is whether the cause of action is
based on the defendant’s protected free speech or petitioning activity.’ ” (Id. at pp. 209‒
210.)
Section 425.16, subdivision (e) expressly defines an “ ‘act in furtherance of a
person’s right of petition’ ” to include “any written or oral statement or writing made
before a … judicial proceeding, or any other official proceeding authorized by law” and
“any written or oral statement or writing made in connection with an issue under
consideration or review by a … judicial body.” (§ 425.16, subd. (e)(1) & (2).) A cause
of action that arises from a defendant’s litigation activity may be the subject of a section
425.16 motion to strike. (Rusheen v. Cohen, supra, 37 Cal.4th at p. 1056.) “ ‘Any act’
includes communicative conduct such as the filing, funding, and prosecution of a civil
action[,]” including “qualifying acts committed by attorneys in representing clients in
litigation.” (Ibid.; see Coretronic Corp. v. Cozen O’Connor (2011) 192 Cal.App.4th
1381, 1388 [“[t]he anti-SLAPP statutes protect not only the litigants, but also their
attorneys’ litigation-related statements”].)
Cases construing the anti-SLAPP statute hold that “a statement is ‘in connection
with’ litigation under section 425.16, subdivision (e)(2) if it relates to the substantive
issues in the litigation and is directed to persons having some interest in the litigation.”
(Neville v. Chudacoff (2008) 160 Cal.App.4th 1255, 1266; accord, Briggs v. Eden
8.
Council for Hope & Opportunity (1999) 19 Cal.4th 1106, 1115; Crossroads Investors,
L.P. v. Federal National Mortgage Assn. (2017) 13 Cal.App.5th 757, 779; Bergstein v.
Stroock & Stroock & Lavan LLP (2015) 236 Cal.App.4th 793, 803‒804.)
In fact, courts have adopted “a fairly expansive view of what constitutes litigation-
related activities within the scope of section 425.16.” (Kashian v. Harriman (2002)
98 Cal.App.4th 892, 908 (Kashian); see Finton, supra, 238 Cal.App.4th at p. 210 [“ ‘all
communicative acts performed by attorneys as part of their representation of a client in a
judicial proceeding or other petitioning context are per se protected as petitioning activity
by the anti-SLAPP statute’ ”]; Kolar v. Donahue, McIntosh & Hammerton (2006)
145 Cal.App.4th 1532, 1537 [“anti-SLAPP protection for petitioning activities applies
not only to the filing of lawsuits, but extends to conduct that relates to such litigation,
including statements made in connection with … litigation”].)
Here, Alston’s claims are all based on McCormick Barstow’s transmission of his
medical records to the expert McCormick Barstow retained to prepare a declaration in
support of their client’s opposition to Alston’s summary judgment motion. This is clearly
a litigation-related activity which qualifies as protected activity under section 425.16.
(See, e.g., Finton, supra, 238 Cal.App.4th at pp. 207‒208, 210 [lawsuit’s claims arose
from protected activity where defendant law firm was sued for receiving and retaining an
allegedly stolen hard drive since the law firm was counsel in the underlying matter and
the hard drive constituted potential evidence in that matter].)
Alston does not directly argue McCormick Barstow’s conduct was not protected
activity under the anti-SLAPP statute. Instead, he argues his mental health records and
social security number were inadvertently disclosed because they were not specifically
requested in the subpoena; therefore, McCormick Barstow was obligated to refrain from
examining the materials and immediately notify the sender as required under State Comp.
Ins. Fund v. WPS, Inc. (1999) 70 Cal.App.4th 644. Alston further argues the subpoena
9.
was ineffective because an affidavit was not attached to it explaining the need for the
records, which he asserts was required by section 1985.
Alston raises the argument concerning the effectiveness of the subpoena for the
first time on appeal. His failure to raise the argument in the trial court forfeits the claim
on appeal. (Premier Medical Management Systems, Inc. v. California Ins. Guarantee
Assn. (2008) 163 Cal.App.4th 550, 564 [“ ‘ “ ‘[I]t is fundamental that a reviewing court
will ordinarily not consider claims made for the first time on appeal which could have
been but were not presented to the trial court’ ” ’ ”]; Newton v. Clemons (2003)
110 Cal.App.4th 1, 11 [reviewing court will “ ‘ignore arguments, authority, and facts not
presented and litigated in the trial court’ ”].)
Even if not forfeited, the claim fails. Section 2020.410, subdivision (c), which is
part of the Civil Discovery Act (§ 2016.010 et seq.), sets forth the requirements for a
deposition subpoena that commands only the production of business records for copying.
That section requires the deposition subpoena to “designate the business records to be
produced either by specifically describing each individual item or by reasonably
particularizing each category of item,” but specifically provides that it “need not be
accompanied by an affidavit or declaration showing good cause for the production of the
business records designated in it.” (§ 2020.410, subds. (a) & (c).)
Here, the deposition subpoena McCormick Barstow served on Correctional Health
Services was governed by the requirements of section 2020.410, as it compelled
production of material at a deposition, as distinguished from attendance and production at
trial. The deposition subpoena reasonably particularized the categories of Alston’s
medical records they were seeking, as we set forth ante in footnote three, but because it
commanded only the production of business records for copying, an affidavit or
declaration was not required. (§ 2020.410, subd. (c).)
Alston relies on McClatchy Newspapers v. Superior Court (1945) 26 Cal.2d 386,
396, for the proposition that an affidavit was required. While section 1985,
10.
subdivision (b), states that an affidavit must be served with a subpoena duces tecum
issued before trial that sets forth good cause for production of the matters described in the
subpoena, the Civil Discovery Act controls over that section. (See, e.g., Terry v. SLICO
(2009) 175 Cal.App.4th 352, 355, 356‒359 [§ 2020.510, subd. (b)’s provision that a
deposition subpoena that commands the testimony of the deponent need not be
accompanied by an affidavit or declaration showing good cause for production of the
documents controls over § 1987.5’s affidavit requirement].) Since section 2020.410
controls, an affidavit was not required.
As for Alston’s claim that his mental health records and social security number
were inadvertently disclosed, we agree with the trial court that the subpoena was broad
enough to encompass them, as the subpoena requested all of Alston’s medical records,
and social security numbers are commonly found in medical records. Thus, from
McCormick Barstow’s perspective, the records they received were exactly what they
asked for and there is nothing to indicate they thought Correctional Health Services
inadvertently released Alston’s mental health records or social security number.
For this reason, Alston’s reliance on State Comp. Ins. Fund v. WPS, Inc. is
misplaced. There, the court held an attorney could comply with ethical standards, and
not be disqualified, if upon receipt of confidential and privileged documents apparently
sent inadvertently the attorney refrains from examining the documents beyond
ascertaining their privileged nature, and immediately notifies the sender the attorney
possesses material which appears to be privileged. (State Comp. Ins. Fund v. WPS, Inc.,
supra, 70 Cal.App.4th at pp. 656‒657.) Since there was not an inadvertent disclosure, the
State Comp. Ins. Fund rule does not apply.4 The case also is inapplicable because it does
not address section 425.16 or the litigation privilege.
4 While Alston also cites Rico v. Mitsubishi Motors Corp. (2007) 42 Cal.4th 807,
that case applies the rule from State Comp. Ins. Fund, and therefore also is inapplicable
here.
11.
In sum, Alston’s claims clearly arise from an act in furtherance of McCormick
Barstow’s right of free speech or right of petition under section 425.16, subdivision (e).
III. Probability of Prevailing
“In the second step of the anti-SLAPP analysis, ‘the burden shifts to the plaintiff
to demonstrate that each challenged claim based on protected activity is legally sufficient
and factually substantiated. The court, without resolving evidentiary conflicts, must
determine whether the plaintiff’s showing, if accepted by the trier of fact, would be
sufficient to sustain a favorable judgment. If not, the claim is stricken. Allegations of
protected activity supporting the stricken claim are eliminated from the complaint, unless
they also support a distinct claim on which the plaintiff has shown a probability of
prevailing.’ (Baral[v. Schnitt], supra, 1 Cal.5th at p. 396.) The plaintiff must
demonstrate this probability of success with admissible evidence.” (Laker v. Board of
Trustees of California State University (2019) 32 Cal.App.5th 745, 768.) The plaintiff
cannot rely on the allegations of the complaint, even if verified, but must produce
evidence that would be admissible at trial. (HMS Capital, Inc. v. Lawyers Title Co.,
supra, 118 Cal.App.4th at p. 212.)
McCormick Barstow contends Alston cannot prevail on his claims because they
rely entirely on acts which are absolutely privileged because they occurred “[i]n any …
judicial proceeding.” (Civ. Code, § 47, subd. (b)(2).) We agree.
Civil Code section 47, subdivision (b)(2) creates an absolute litigation privilege,
barring all tort claims other than for malicious prosecution based on statements or other
communications made in a judicial proceeding. (Flatley, supra, 39 Cal.4th at p. 322.)
“The principal purpose of [Civil Code] section 47[, subdivision (b),] is to afford litigants
and witnesses [citation] the utmost freedom of access to the courts without fear of being
harassed subsequently by derivative tort actions.” (Silberg v. Anderson (1990) 50 Cal.3d
205, 213 (Silberg).) The privilege also “promotes the effectiveness of judicial
12.
proceedings by encouraging attorneys to zealously protect their clients’ interests.” (Id. at
p. 214.)
“Finally, in immunizing participants from liability for torts arising from
communications made during judicial proceedings, the law places upon litigants the
burden of exposing during trial the bias of witnesses and the falsity of evidence, thereby
enhancing the finality of judgments and avoiding an unending roundelay of litigation, an
evil far worse than an occasional unfair result.” (Silberg, supra, 50 Cal.3d at p. 214.)
“To further these purposes, the privilege has been broadly applied.” (Jacob B. v. County
of Shasta (2007) 40 Cal.4th 948, 955.)
The “privilege applies to any communication (1) made in judicial or quasi-judicial
proceedings; (2) by litigants or other participants authorized by law; (3) to achieve the
objects of the litigation; and (4) that have some connection or logical relation to the
action.” (Silberg, supra, 50 Cal.3d at p. 212; see Adams v. Superior Court (1992)
2 Cal.App.4th 521, 529 [litigation privilege bars cause of action “provided that there is
some reasonable connection between the act claimed to be privileged and the legitimate
objects of the lawsuit in which that act took place”].) The privilege is absolute and “it
applies, if at all, regardless whether the communication was made with malice or the
intent to harm. [Citation.] … [¶] If there is no dispute as to the operative facts, the
applicability of the litigation privilege is a question of law. [Citation.] Any doubt about
whether the privilege applies is resolved in favor of applying it.” (Kashian, supra,
98 Cal.App.4th at p. 913; see Kenne v. Stennis (2014) 230 Cal.App.4th 953, 965
[“[b]ecause Civil Code section 47, subdivision (b) protects any statements or writings
that have ‘ “some relation” ’ to a lawsuit, communications made both during and in
anticipation of litigation are covered by the statute”].)
Moreover, “ ‘communications made in connection with litigation do not
necessarily fall outside the privilege merely because they are, or are alleged to be,
fraudulent, perjurious, unethical, or even illegal’ assuming they are logically related to
13.
litigation.” (Blanchard v. DIRECTV, Inc. (2004) 123 Cal.App.4th 903, 921; accord,
Kashian, supra, 98 Cal.App.4th at p. 920; see Jacob B. v. County of Shasta, supra,
40 Cal.4th at p. 956 [“the privilege extends even to civil actions based on perjury”];
Flatley, supra, 39 Cal.4th at p. 322 [“[t]he litigation privilege has been applied in
‘numerous cases’ involving ‘fraudulent communication or perjured testimony’ ”]; Finton,
supra, 238 Cal.App.4th at pp. 212‒213 [litigation privilege applied to defendant law
firm’s actions in receiving and retaining an alleged stolen hard drive during a lawsuit
until it was turned over pursuant to the court’s order in the underlying case]; Contreras v.
Dowling (2016) 5 Cal.App.5th 394, 416 [rejecting tenant’s argument the litigation
privilege did not apply because tenant was suing landlord’s lawyer for conspiracy and
aiding and abetting his clients’ illegal entries into the apartment]; Home Ins. Co. v. Zurich
Ins. Co. (2002) 96 Cal.App.4th 17, 20, 24–26 [litigation privilege applied to attorney’s
misrepresentation of available insurance policy limits to induce the settlement of a
lawsuit].)5
“ ‘A plaintiff cannot establish a probability of prevailing [in responding to an anti-
SLAPP motion] if the litigation privilege precludes the defendant’s liability on the
claim.’ ” (Bergstein v. Stroock & Stroock & Lavan LLP, supra, 236 Cal.App.4th at
p. 814; see Flatley, supra, 39 Cal.4th at p. 323 [litigation privilege may present a
substantive defense the plaintiff must overcome to demonstrate a probability of
prevailing].)
Alston’s claims against McCormick Barstow are based on its communicative
conduct in a judicial proceeding to achieve the objects of the litigation. Disseminating
5 As our Supreme Court has recognized, where an attorney’s privileged
communication rises to the level of criminal conduct, “other remedies aside from a
derivative suit for compensation will exist,” including “criminal prosecution under
Business and Professions Code, section 6128[,] and State Bar disciplinary proceedings
for violation of Business and Professions Code, section 6068, subdivision (d).” (Silberg,
supra, 50 Cal.3d at pp. 218‒219, fn. omitted.)
14.
information for litigation purposes qualifies as communicative conduct subject to the
litigation privilege. (MMM Holdings, Inc. v. Reich (2018) 21 Cal.App.5th 167, 174‒175,
187 [attorney’s sharing of documents containing confidential company information to co-
counsel and other counsel in a related arbitration protected by the litigation privilege
because the documents were reasonably relevant to pending or contemplated litigation].)
McCormick Barstow’s dissemination of Alston’s medical records, which they obtained
from Correctional Health Services pursuant to the deposition subpoena,6 to their retained
expert so she could render an expert opinion in Alston’s professional negligence action is
clearly protected by the litigation privilege.
As in the trial court, Alston contends the litigation privilege gives way to the more
specific protections alleged in the three causes of action. The litigation privilege,
however, precludes causes of action for invasion of privacy. (Jacob B. v. County of
Shasta, supra, 40 Cal.4th at p. 960.) It also applies to a cause of action arising from a
purported violation of Civil Code section 1798.85 et seq., which is Alston’s third cause of
action. (See Banga v. Equifax (N.D. Cal. 2015) 2015 WL 3799546 *6 [granting
judgment on the pleadings on plaintiff’s claim for violation of Civ. Code, § 1798.85
based exclusively on the filing of her credit reports containing her social security
number].)
Alston contends the Information Practices Act “is absolute to the litigation
privilege.” The Information Practices Act of 1977 (Civ. Code, § 1798 et seq.) (IPA)
“generally imposes limitations on the right of governmental agencies to disclose personal
information about an individual.” (Jennifer M. v. Redwood Women’s Health Center
(2001) 88 Cal.App.4th 81, 87.) “[T]he Information Practices Act is aimed at barring or
6 While Alston alleged the medical records Correctional Health Services produced
pursuant to the subpoena and which McCormick Barstow provided to Pearson contained
his mental health records and social security number, Alston did not produce any
admissible evidence to support these allegations.
15.
limiting the dissemination of confidential personal information—and preventing the
misuses of such information—by government agencies.” (Id. at p. 89.) Government
agencies do not include local agencies, such as cities and counties. (Civ. Code, § 1798.3,
subd. (b)(4); Gov. Code, § 6252.) Since McCormick Barstow is not a government
agency or entity as defined by Civil Code section 1798.3, subdivision (b), the IPA does
not apply to their disclosure of Alston’s medical records to the retained expert.
Moreover, Alston does not cite any authority to support his assertion that the
litigation privilege is barred by the IPA. While he cites two cases, one was ordered not to
be published (see Randall v. Scovis (Mar. 5, 2001) D036508, opn. ordered nonpub.
June 13, 2001), and therefore cannot be cited as legal authority or precedent. (Schmier v.
Supreme Court (2000) 78 Cal.App.4th 703, 706; Cal. Rules of Court, rule 8.1115(a).)
The other case states there was an issue raised concerning whether the litigation privilege
bars a claim under the IPA, but the case was only partially published, and that issue is not
addressed in the published portion. (Hurley v. Department of Parks & Recreation (2018)
20 Cal.App.5th 634, 638.) Alston contends McCormick Barstow was required to redact
his social security number before providing his medical records to the retained expert, but
the statute he cites, Government Code section 6254.29, which is part of the California
Public Records Act, applies only to “local agencies,” which is defined as government
agencies such as cities and counties. (Gov. Code, §§ 6251, 6252.) As we have stated,
McCormick Barstow is not a local agency; therefore, the California Public Records Act
does not apply to them.
Alston also has not shown a likelihood of prevailing on the second cause of action
for violation of Welfare and Institutions Code section 5330, which is part of the
Lanterman-Petris-Short Act and authorizes a civil action for knowing release of certain
confidential information or records concerning the plaintiff. Confidential information
and records, however, may be disclosed “[t]o the courts, as necessary to the
administration of justice.” (Welf. & Inst. Code, § 5328, subd. (a)(6).) The trial court
16.
found that because the records in the underlying action were released pursuant to a
subpoena, which is effectively a court order to produce records with disobedience
punishable by contempt, Correctional Health Services’ production of Alston’s medical
records and McCormick Barstow’s receipt of the documents and transmission to the
retained expert witness were disclosures to the courts.
While Alston objects to the trial court’s finding, he does not cite any authority to
show the trial court erred. Alston cites cases which state the authorization for disclosure
to the courts pursuant to Welfare and Institutions Code section 5328, subdivision (a)(6),
which contemplates use of the information or records in a pending judicial action or
proceeding, does not override privileges such as the psychotherapist-patient privilege.
(Boling v. Superior Court (1980) 105 Cal.App.3d 430, 443; Mavroudis v. Superior Court
(1980) 102 Cal.App.3d 594, 602; In re S.W. (1978) 79 Cal.App.3d 719, 722 [Welf. &
Inst. Code, § 5328 exception for disclosure of records in judicial proceedings “does not
authorize a court to order disclosure of matter which the Evidence Code makes
privileged”].) These cases, however, addressed situations where the privilege was raised
in response to discovery requests or as an objection to the admissibility of evidence.
Alston apparently did not raise a privilege objection to Correctional Health Services’
disclosure of his mental health records or in response to the use of the retained expert’s
declaration in opposition to his summary judgment motion. Having failed to object, any
argument that the records were privileged has been forfeited.
Alston asserts the records were protected by the psychotherapist-patient privilege
of Evidence Code section 1014, and therefore the trial court was required to determine if
he waived the privilege, citing Roberts v. Superior Court (1973) 9 Cal.3d 330. That case,
however, does not stand for the proposition that the trial court has a sua sponte duty to
determine whether Alston waived the privilege. “Privileges are preserved unless the
holders fail to object in a proceeding where they have standing and the opportunity to
claim them.” (Monarch Healthcare v. Superior Court (2000) 78 Cal.App.4th 1282,
17.
1290; Evid. Code, § 912, subd. (a).) Alston never objected to the production of the
records, and therefore waived any objection based on the psychotherapist-patient
privilege.
Finally, Alston complains Correctional Health Services was required to invoke
Evidence Code section 1040 and turn the records over to the court before producing them
to McCormick Barstow.7 Alston, however, essentially is attacking Correctional Health
Services for turning over the records. This has nothing to do with McCormick Barstow’s
use of the records in defending its client or whether the litigation privilege applies to
Alston’s claims.
In sum, Alston “failed to ‘ “demonstrate that the complaint is both legally
sufficient and supported by a sufficient prima facie showing of facts to sustain a
favorable judgment if the evidence submitted by the plaintiff is credited.” ’ ” (Finton,
supra, 238 Cal.App.4th at p. 214.) Therefore, the anti-SLAPP motion was properly
granted.
DISPOSITION
The March 18, 2021 order granting the motion to strike is affirmed. Respondent is
awarded its costs on appeal.
DE SANTOS, J.
WE CONCUR:
POOCHIGIAN, ACTING P. J.
DETJEN, J.
7 Alston cites one case in support of this contention, Macomber v. State Personnel
Bd. (Dec. 17, 1987, C000604) [opn. ordered nonpub. Mar. 17, 1988], but it was ordered
not to be published and therefore cannot be cited or relied upon.
18. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484574/ | IN THE SUPREME COURT OF
CALIFORNIA
THE PEOPLE,
Plaintiff and Respondent,
v.
VICTOR M. MIRANDA-GUERRERO,
Defendant and Appellant.
S118147
Orange County Superior Court
00WF1146
November 17, 2022
Justice Liu authored the opinion of the Court, in which Chief
Justice Cantil-Sakauye and Justices Corrigan, Kruger,
Groban, Jenkins, and Guerrero concurred.
PEOPLE v. MIRANDA-GUERRERO
S118147
Opinion of the Court by Liu, J.
Defendant Victor M. Miranda-Guerrero was charged with
six crimes and convicted of five: kidnapping to commit rape,
murder, attempted carjacking, assault with intent to commit
rape, and receiving stolen property. The jury could not reach a
verdict on an additional assault charge, and it was dismissed.
Although Miranda-Guerrero pleaded not guilty to all counts, the
defense contested only the murder and assault allegations at
trial. The jury found true a special circumstance that the
murder occurred during the commission or attempted
commission of rape, and it returned a death verdict. We affirm.
I. FACTS
A. Guilt Phase
The charged offenses occurred in Huntington Beach
between September 1999 and May 2000.
1. September 1999 Kidnapping of Jamie H.
On September 12, 1999, Jamie H. was asleep in her car in
a parking structure in downtown Huntington Beach when she
was awakened by the driver’s side window breaking.
Miranda-Guerrero was standing outside Jamie’s car, and he
began punching her in the face. She fought back and tried to
start the car. Miranda-Guerrero grabbed her hair and slammed
her head into the car door. He opened the car door, pushed her
into the passenger seat, and got into the driver’s seat. He threw
1
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
a backpack into the back seat and told Jamie in broken English
that he had “fire,” which she took to mean that he had a gun.
Miranda-Guerrero started the car and drove to a
residential area. He pulled over, and he and Jamie continued to
fight. He unzipped his pants, exposed his erect penis, and told
Jamie to get on top of him. She refused. He took a condom out
of his pocket, put it on, and tried to kiss Jamie, but she turned
away. He started driving again, and when he reached a stop
sign, Jamie jumped out of the car. Miranda-Guerrero caught
her shirt and dragged her along the street briefly before letting
go, at which point she was able to escape with the help of a
nearby driver.
Jamie had abrasions on her thigh, elbow, and buttocks
from the attack, and a clump of her hair was missing. She got
stitches on her eye and lip. A few days later, her car was found
with a brick, broken glass, hair, keys, and blood in it. Blood
found on Jamie’s boots after the attack matched
Miranda-Guerrero’s DNA.
2. November 1999 Murder of Bridgette Ballas
a. Prosecution Case
On the night of November 26, 1999, Bridgette Ballas went
out for drinks with a friend in downtown Huntington Beach.
They went to Gallagher’s Bar for a while and then walked to
Aloha Grill, where they met several other people. Ballas’s friend
left around 1:00 or 1:30 a.m., but Ballas stayed at the bar. Her
friend testified that, at that point, Ballas was not staggering or
otherwise showing significant signs of impairment. She told
police the next day that Ballas had five or six drinks during the
time they were together.
2
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
Soon after her friend went home, Ballas left Aloha Grill
with a small group of people, including an acquaintance with
whom they had been sitting. The group walked a short distance
to the house of Jason H., where they continued to hang out and
drink. One woman who was part of that group testified that
Ballas did not appear drunk and was not stumbling during the
walk to Jason’s house. Ballas told her at one point that she felt
“kind of funny” because she did not know anyone at Jason’s, and
she left the house after 30 or 40 minutes.
Early in the morning of November 27, Richard B. heard
someone scream “Oh my God” three times in quick succession.
He looked out his window but did not see anything. When he
went outside later that morning, he found Ballas lying partially
in the street with her head on the curb. She was between two
vehicles. Her pants were pulled down and her shirt was pulled
up above her breasts, and she was nonresponsive when Richard
tried to speak to her. The location where he found her was about
seven-tenths of a mile from Jason’s house and about a tenth of
a mile from her apartment. He covered her with a blanket and
called 911.
Ballas was breathing when Officer Juan Munoz arrived,
so Munoz called for medical care. She was taken to Western
Medical Center for emergency treatment. At that point, she was
in a coma. A CT scan showed swelling of her brain and a blood
clot on the left side of her brain, which was then surgically
removed by Dr. Israel Chambi. Part of her temporal lobe was
removed to provide more space for her brain to swell; it was
damaged and soft. Dr. Chambi testified that he believed her
injuries were consistent with blunt trauma resulting from likely
more than one impact.
3
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
The doctor who performed Ballas’s autopsy later came to
a similar conclusion. Ballas also had an ear injury that
appeared to come from pulling or tugging rather than from blunt
trauma. No defensive wounds were found on her body, and no
foreign DNA was found under her fingernails. Small pieces of
gravel were found inside Ballas’s labia, and several abrasions
were found inside her vagina that, in the opinion of the doctor
who conducted the sexual assault examination, were consistent
with injuries often seen in women who have been forcibly
penetrated. Saliva collected from a swab of one of Ballas’s
breasts matched Miranda-Guerrero’s DNA. Despite treatment,
she died after a few days from the severity of the swelling of her
brain.
Miranda-Guerrero presented an alternative narrative
that Ballas fell down and hit her head on the curb after
urinating in the street. Police swabbed an area of the street
around where Ballas was found for evidence. Part of a nearby
gutter appeared damp in crime scene photographs, but that area
was not swabbed. No urine was found on the swabs that were
collected.
Over Miranda-Guerrero’s motion to suppress, several
hours of video from his interviews with police were played for
the jury, including a portion of the interviews in which he told
the officers that he had hit Ballas.
b. Defense Case
As noted, the theory of Miranda-Guerrero’s defense was
that the brain injury that killed Ballas resulted from her falling
and hitting her head on the curb because she was intoxicated.
Defense counsel argued that Miranda-Guerrero had met Ballas
after she left Jason’s house and that he was walking with her
4
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
when she stopped to urinate between the two cars where she
was found. After urinating, she stood up and fell over.
Miranda-Guerrero conceded that he raped her after she was
knocked unconscious by the fall.
Jason testified that Ballas seemed intoxicated when he
met her on the night of November 26; he said her eyes were
glassy and her eyelids were “a little droopy.” But he said she
did not fall down or seem unsteady on her feet during the time
he was with her that evening. A criminalist who conducted an
analysis of Ballas’s blood the morning she was found testified
that she likely had a blood-alcohol level of 0.15 to 0.19 grams
percent around 2:30 a.m. on November 27. He testified that the
degree to which this blood alcohol level would affect a person’s
gross motor skills depends on the individual.
An officer who arrived at the scene before Ballas was
taken to the hospital testified that the ground underneath her
pelvic area on the street appeared wet, and the wetness drained
toward the gutter. He tried to smell the wet spot after Ballas
was taken away, and he said it did not smell like urine. A palm
print from Ballas’s right hand was also found on the tailgate of
the car parked immediately in front of where she was found.
The fingers on the print were pointing nearly straight up, with
the thumb facing the street.
The radiologist who conducted the CT scan of Ballas
testified that her injuries could have been caused by a fall from
full height if she hit her head on the curb without breaking her
fall. He said the injuries would also be consistent with her head
being slammed into the curb by an attacker. And he said he had
only seen a fall cause injuries like Ballas’s when the patient was
geriatric or when the person fell from a height or the fall
5
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
occurred during activities like bicycling, skateboarding, or
rollerblading.
According to an officer who interviewed Richard after
Ballas was found, Richard stated that the voice he heard yelling
early in the morning on November 27 might have been male.
3. May 2000 Attempted Carjacking of Heidi D.
On the night of May 25, 2000, Heidi D. went out with a
few of her friends in downtown Huntington Beach. They
returned around midnight to the parking garage where they had
left their car. Miranda-Guerrero approached the group as they
got to the car. He started talking to the women, but he was
incoherent. He tried to grab the keys from Heidi, and they
started fighting over the keys near the driver’s side door. She
eventually let Miranda-Guerrero take the keys, and he got into
the car.
One of Heidi’s friends went to the driver’s side door and
told Miranda-Guerrero to give her the keys. He grabbed her by
the back of her head and pulled her into the car. This conduct
was the basis of the additional assault charge on which the jury
could not reach a verdict. Another of her friends opened the
passenger door and started hitting Miranda-Guerrero and
trying to get the keys out of the ignition. He hit her back with
his elbow. Heidi and a third friend ran to a nearby bar to get
help, and the other two friends soon got away and joined them.
Miranda-Guerrero was gone by the time they all got back to the
car.
4. May 2000 Assault on Deena L.
a. Prosecution Case
Deena L. testified that on the evening of May 25, 2000, she
went with her boyfriend and a few friends to Gallagher’s Bar in
6
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
downtown Huntington Beach. She stayed until shortly before
midnight and then left to walk home. Her friends and boyfriend
remained at the bar. This was within an hour of the attack on
Heidi and her friends. Deena noticed that a man was following
her as she walked home, and when she turned around to return
to an area with more people, he ran and caught up to her. He
grabbed her hair and put his other hand over her mouth, and he
pushed her down onto the sidewalk. She bit his fingers to try to
get him to release her.
At that point, the man started slamming Deena’s head
against a brick planter next to the sidewalk. She testified that
he slammed her head against the planter four to six times. She
started to lose consciousness, but she was able to get out of the
man’s grasp and hit him. He ran away at that point. Deena
found a police officer in a coffee shop and told him what had
happened. When she and the officer left the coffee shop, they
spotted Miranda-Guerrero walking in a nearby alley, and he
was arrested.
Deena identified Miranda-Guerrero as the man who had
attacked her. DNA collected from under Deena’s fingernails and
between her teeth matched Miranda-Guerrero’s.
b. Defense Case
The defense theory was that the evidence was insufficient
to show Miranda-Guerrero specifically intended to rape Deena
when he attacked her.
A security worker at Gallagher’s Bar testified that
Miranda-Guerrero had come to the bar twice on the evening of
May 25. The worker turned him away both times because he
was too intoxicated. The first time Miranda-Guerrero came to
7
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
the bar was around 11:30 p.m.; the second time was around
midnight, just before the assault on Deena.
5. Receiving Stolen Property
Christine J.’s car was broken into on September 1999
while parked in a parking structure in Huntington Beach. A
purse and phone were taken. After Miranda-Guerrero was
arrested, police obtained his backpack from the restaurant
where he worked and found Christine’s phone inside.
B. Penalty Phase
The prosecutor’s case in aggravation consisted of victim
impact testimony from Ballas’s parents and sisters. The
prosecutor also discussed the facts of the other charged offenses
and the circumstances of Ballas’s death.
Miranda-Guerrero’s case in mitigation consisted
principally of testimony about his childhood in Mexico and
testimony from five psychologists about his cognitive
functioning. Miranda-Guerrero was one of eight children and
grew up very poor. His father drank too much and abused
Miranda-Guerrero’s mother. Miranda-Guerrero started
working at a restaurant when he was about eight years old and
left school when he was eleven or twelve.
Around the time Miranda-Guerrero stopped attending
school, he went to work with Hector Ortega, the son of the
woman for whom he had been working at the restaurant. He
and Ortega manufactured leather belts in a room in the home of
Ortega’s mother. Ortega testified that this process involved
smearing glue onto the belts with their hands without gloves or
masks in a room with no fans, and that they eventually made
hundreds of belts per day. The glue had a strong odor, and they
would get headaches as they worked with it.
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Opinion of the Court by Liu, J.
Dr. Antonio Puente interviewed Miranda-Guerrero and
administered a series of neuropsychological tests. He found that
Miranda-Guerrero’s IQ was around 70, in the bottom two
percentiles of the population, which he characterized as falling
into “the mild mental retardation range or borderline
retardation range.” He described Miranda-Guerrero as “highly
compromised intellectually, somewhat compromised
educationally, and in some ways challenged
neuropsychologically as well.”
Dr. Robert Owen evaluated Miranda-Guerrero and
administered a test to assess whether he showed antisocial or
psychopathic characteristics. Dr. Owen testified that
Miranda-Guerrero showed a much lower degree of antisocial
and psychopathic characteristics than the general population of
men in the criminal justice system.
Dr. Ricardo Weinstein examined Miranda-Guerrero on
three occasions and conducted a quantitative
electroencephalogram (QEEG) analysis, a type of
neurophysiological measurement. Dr. Weinstein testified that
Miranda-Guerrero had an IQ between 75 and 82 and was
functioning at the borderline of “what we consider mental
retardation.” He testified that Miranda-Guerrero’s cognitive
functioning is typically equivalent to that of a person between
the ages of six and ten, but when he is intoxicated, that level of
functioning may deteriorate further. Dr. Barry Sterman
reviewed the QEEG data collected by Dr. Weinstein and
testified that there was evidence of “significant brain
disturbance,” particularly in areas related to moral judgment
and impulse control.
Finally, Dr. Mark Cunningham reviewed various records
and reports but did not personally examine Miranda-Guerrero.
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Opinion of the Court by Liu, J.
He testified that Miranda-Guerrero has developmental
impairments and “distinct brain abnormalities” that “provide
some physiological basis for judgment, emotional and behavior
disturbances.”
In addition to cross-examining the defense witnesses, the
prosecutor called Dr. David Frecker, who described the QEEG
test used by Dr. Weinstein and Dr. Sterman as “fraught with
many problems” and said his practice did not use that test
because they “find it to be unreliable.” In closing argument, the
prosecutor played parts of the videotape of Miranda-Guerrero’s
interviews with police and argued that his conduct during those
interviews demonstrated that his cognitive capacities were
greater than the doctors’ evaluations had shown.
II. GUILT PHASE ISSUES
A. Admission of Statements to Police
Miranda-Guerrero challenges the admission at his trial of
statements he made to police officers during three custodial
interrogations, which collectively spanned 12 hours between
May 26 and May 29, 2000. He argues that his statements were
obtained in violation of Miranda v. Arizona (1966) 384 U.S. 436
(Miranda) and that they were involuntary in light of the totality
of the circumstances. He expresses particular concern about the
effect of admitting statements he made near the end of his
second interview, in which he said he may have hit Bridgette
Ballas “maybe two times.” We find no error.
1. Facts
Miranda-Guerrero was arrested early in the morning on
May 26, 2000, immediately after the attack on Deena. His first
interview began about six hours later. He was interviewed by
two detectives of the Huntington Beach Police Department,
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Dave Dierking and Sam Lopez. Miranda-Guerrero’s first
question to the officers was whether they spoke Spanish. Early
in the interview, before Miranda-Guerrero received his Miranda
advisement, Dierking asked in which language he was more
comfortable proceeding. Because his response — “maybe more
I speak Spanish because maybe I don’t understand
everything” — indicated that his command of English was
uncertain, Lopez served as translator for the remainder of the
interrogation.
After some preliminary questions, the detectives asked
Miranda-Guerrero how long he had been in the United States.
He said he had been in the country two or three years. Lopez
then gave him an advisement as to his Miranda rights. The full
transcript of the advisement is reproduced below as it appeared
in the exhibits used at Miranda-Guerrero’s trial. The
statements in brackets are translations included in the superior
court’s exhibit that it used to evaluate whether
Miranda-Guerrero’s statements should be suppressed.
“[LOPEZ]: Okay. Lo voy hacer dos modos, Ingles y
Espanol, okay? You have the right to remain silent.
Entiendes eso? [Do you understand that?]
“[MIRANDA-GUERRERO]: Of course.
“[LOPEZ]: Anything you say may be used against
you in court. Entiendes eso?
“[MIRANDA-GUERRERO]: Si, si antes estaba en la
corte? [If, if I was in court before?]
“[LOPEZ]: Todo que usted me dice, lo puedo usar en
corte contra used [sic]. [Everything that you say may
be used in court against you.]
“[MIRANDA-GUERRERO]: Yeah.
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“[LOPEZ]: Okay, primero Ingles y entonces Espanol,
okay? [[F]irst English and then Spanish.] Usted
tiene el derecho . . . usted tiene el derecho, uh . . . [You
have the right . . . you have the right, uh . . .] or, or
you have the right to remain silent. Anything you
say may be used against you in court. You have the
right to the presence of an attorney before and
during any questioning. If you cannot afford an
attorney, one will be appointed for you free of charge
before any questioning if you want.
“De primero. Usted tiene el derecho para meser [sic]
silencio. [First of all, you have the right to remain
silent.] Usted no tienes que decir nada si quieres.
Entiendes eso? Porque aqi [sic] en este los Estados
Unidos tene [sic] derechos. Todo que usted me dice,
lo puedo user . . . usar en corte contra used [sic].
Entiendes eso? [You do not have to say anything if
you want. Do you understand that? Because here
in the United States you have rights. Everything
that you tell me can be used, used in court against
you. Do you understand that?] Okay.
“Usted tiene el derecho a tener un abogado. Y si no
tienes dinero para un abogado, el corte de [sic] da uno
gratris [sic] de costa. Entiendes eso? Eh, eh . . . usted
tiene el derecho obtener un abogado durante unos . . .
unas preguntas. Entiendes eso? Si o no? Digame si.
[You have the right to have an attorney. If you do
not have money for an attorney, the court will
provide one free of charge. Do you understand that?
Eh, eh . . . you have the right to obtain an attorney
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PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
during the, the questions. Do you understand? Yes
or no? Tell me . . . yes.]
“[MIRANDA-GUERRERO]: Mm hm.
“[LOPEZ]: Okay, porque es importante [because it’s
important].
“[DIERKING]: Just so I know, I speak a little, is
that a si or no?
“[MIRANDA-GUERRERO]: Yeah.
“[LOPEZ]: Si. Si no tienes dinero por un abogado,
el corte te da una gratis de costa. Entiendes eso? El
corte te da uno. Entiendes eso? [If you do not have
money for an attorney, the court will give you one
free of charge. Do you understand that? The court
will give you one. Do you understand that?]
“[MIRANDA-GUERRERO]: Mm hm.
“[LOPEZ]: Entonces con estos derechos en mento,
quieres hablar con nosotros . . . sobre los cargos?
[Then, with these rights in mind, do you want to talk
with us . . . about the charges?]
“[MIRANDA-GUERRERO]: Pues no se . . . como de
que? [Well, I don’t know . . . like about what?]
“[LOPEZ]: Si o no? Quires [sic] hablar sobre los
cargos? Quires [sic] hablar con nosotros? [Yes or no?
Do you want to talk about the charges? Do you want
to talk with us?]
“[MIRANDA-GUERRERO]: Pues si pe — [Well yes,
bu —]
“[LOPEZ]: Okay.
“[DIERKING]: Okay, do you understand those?
Okay? Now you, you sorta indicated that you were
just walking?”
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The interview proceeded for about two hours without
further advisement. As the parties agreed during the superior
court’s hearing on Miranda-Guerrero’s suppression motion, the
officers did not inform him of any rights he may have had under
the Vienna Convention on Consular Relations, and “the subject
of consular consultations did not come up.”
Miranda-Guerrero’s second interview began when
Dierking and Lopez woke him up shortly after midnight that
evening. At the start of the interview, Lopez asked
Miranda-Guerrero the following question: “Te acuerdas cuando
hablamos de los derechos? Que tienes . . . permanecer silencio y
todo eso.” The superior court’s exhibit indicates that Lopez’s
Spanish was deficient, but it translates his question as “Do you
remember when we talked about the rights? That you have . . .
to remain silent and all that.” Miranda-Guerrero replied “Um-
hmm.” Lopez then asked in Spanish if Miranda-Guerrero
wanted to talk to them again with those rights in mind. He said
yes, and the interview proceeded.
The third interview was conducted two days later. At the
beginning of the interview, Lopez read Miranda-Guerrero’s
rights to him from a card on which they were correctly
translated into Spanish. He had Miranda-Guerrero read the
card as well.
Although various statements Miranda-Guerrero made
during his interviews were introduced at trial, the most
incriminating statement regarding his murder charge came
during the second interrogation. Miranda-Guerrero’s
explanation of the circumstances of Ballas’s death changed over
the course of his interviews. He claimed at first that he had
never seen Ballas, then that he was walking with her on the
night she died but that he left before she was hurt, and
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Opinion of the Court by Liu, J.
eventually that she fell and hit her head, the position he
maintained at trial. At the end of his second interview, which
spanned more than seven hours, he told the officers that he may
have hit Ballas twice. On further questioning, he said he could
not recall any other details with certainty. Asked when he hit
her, he said, “Maybe when she had fallen down . . . . Maybe . . .
maybe that’s when maybe I . . . when maybe I hit her. Because
I hadn’t remember [sic] that I had hit her.” Asked if he now
remembered hitting her, he responded, “Well . . . you’re saying
(I did). But I . . . . Really, I . . . . Well, I haven’t remembered,
but . . . but like, like, you’d say that (. . . ?) . . . no, no, no.” When
the officers asked again if he remembered hitting Ballas, he
responded, “No man. But if I hit her maybe it was two. But no,
I don’t remember.”
About three hours of video from the interviews were
played during the trial. The prosecutor discussed
Miranda-Guerrero’s statements and changing story,
emphasizing them particularly in rebuttal to the defense’s
closing argument. As he told the jury, “[i]t took hours and hours
and hours of questions. . . . He didn’t admit anything.” The
prosecutor pointed out that the first thing Miranda-Guerrero
said when asked if he knew what had happened to Ballas, at a
time when he was still denying that he had ever seen her, was
“[p]erhaps she was killed.” “What innocent person in the
position of the defendant would ever say that?” he asked. “He
repeatedly tells the police he never saw her fall,” the prosecutor
said. “And then only four hours into the second interview, six
hours total, he finally tells the police the truth. And he tells the
police, perhaps he hit her twice.”
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2. Miranda Analysis
The Fifth Amendment to the United States Constitution
provides that “[n]o person . . . shall be compelled in any criminal
case to be a witness against himself.” To safeguard a suspect’s
Fifth Amendment privilege against self-incrimination from the
“inherently compelling pressures” of the custodial setting
(Miranda, supra, 384 U.S. at p. 467), the high court adopted a
set of prophylactic measures requiring law enforcement officers
to advise a suspect of his right to remain silent and to have
counsel present prior to any custodial interrogation (id. at
pp. 444–445). “A suspect who has heard and understood these
rights may waive them,” but the prosecutor “ ‘bears the burden
of establishing by a preponderance of the evidence that the
waiver was knowing, intelligent, and voluntary under the
totality of the circumstances.’ ” (People v. Leon (2020) 8 Cal.5th
831, 843 (Leon).) “The totality approach permits — indeed, it
mandates — inquiry into all the circumstances surrounding the
interrogation,” including the defendant’s “age, experience,
education, background, and intelligence,” and “whether he has
the capacity to understand the warnings given him, the nature
of his Fifth Amendment rights, and the consequences of waiving
those rights.” (Fare v. Michael C. (1979) 442 U.S. 707, 725.)
“A statement obtained in violation of a suspect’s Miranda
rights may not be admitted to establish guilt in a criminal case.”
(People v. Jackson (2016) 1 Cal.5th 269, 339.) When evaluating
the admissibility of a defendant’s statements on appeal, we
accept the trial court’s resolution of disputed facts if supported
by substantial evidence, and we independently determine from
the undisputed facts and the facts properly found by the trial
court whether the statements were illegally obtained. (Ibid.)
Miranda-Guerrero challenges the adequacy of the Miranda
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advisory and waiver only with respect to the first two of his three
interviews, although he also challenges the voluntariness of his
statements from the third interview.
Miranda-Guerrero did not argue before the trial court that
his Miranda rights were violated due to a lack of English
comprehension. But the record raises some question about
whether his English fluency was adequate for him to
understand his rights when he was advised of them in English.
His response to the warning that what he said could be used
against him — “if, if I was in court before?” — indicated that he
did not grasp that relatively straightforward admonition. At
several points, he struggled with questions put to him in
English, for instance responding “Uh, it’s where?” when asked
with whom he lived, and answering “My brother?” when asked
if he had ever had problems with women. When Dierking
thanked him for cooperating with the officers during the first
interview and said that the case would be given to the district
attorney, Miranda-Guerrero admitted to Lopez that he didn’t
understand what Dierking had said. When asked where he first
saw Deena L., he answered, “Oh because, because she’s angry
and because she said it.” At some points, however, Miranda-
Guerrero did respond appropriately and was able to ask
clarifying questions.
We need not decide whether the Miranda advisement
given in English was sufficient. Recognizing the language
barrier, Lopez advised Miranda-Guerrero in Spanish as well.
Some translation difficulties made the Spanish advisement
suboptimal; it is not clear why the officers, who had access to a
printed card with properly translated Miranda advisements,
chose to advise Miranda-Guerrero at the first interview with a
Spanish translation developed on the fly. However, we conclude
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that under the totality of the circumstances, the Spanish
admonition adequately informed Miranda-Guerrero of his
rights.
As to the right to remain silent and the right to court
appointment of counsel, Lopez’s Spanish advisement was
sufficient. He explained that Miranda-Guerrero had the right
to silence, that he did not have to say anything if he did not want
to, and that whatever he said could be used against him. He
instructed Miranda-Guerrero twice that he had the right to a
court-appointed attorney if he could not pay for counsel, and he
took steps to phrase the right in clear and simple terms.
It is a closer question whether Lopez adequately advised
Miranda-Guerrero of his right to consult with an attorney prior
to his interrogation and to have an attorney present throughout
the interview. Miranda admonitions require no “talismanic
incantation,” but they must contain each of the mandatory
warnings, either as the high court set them out in Miranda itself
or by some “ ‘fully effective equivalent.’ ” (California v. Prysock
(1981) 453 U.S. 355, 359–360 (per curiam), quoting Miranda,
supra, 384 U.S. at p. 476.) Notifying a suspect that he or she
has the right to a court-appointed attorney without explaining
that this includes the right to have an attorney present before
and during any custodial interviews is an insufficient
admonition. (Duckworth v. Eagan (1989) 492 U.S. 195, 205.)
According to the translation in the superior court’s exhibit,
Lopez instructed Miranda-Guerrero that “you have the right to
obtain an attorney during the, the questions.” He did not specify
which “questions” he was referring to, and nothing else in the
advisement explained that Miranda-Guerrero’s right to an
attorney applied not just during court proceedings, but before
and during any interrogation. Nor did Lopez take any steps to
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clarify the ambiguous admonition, instead immediately asking
Miranda-Guerrero to declare whether he understood the right.
In context, however, it would be reasonable for a suspect
in Miranda-Guerrero’s position to presume that “the questions”
to which Lopez referred were the questions that the detectives
were about to ask him. And while Miranda-Guerrero may not
have understood every aspect of the Miranda advisement he
was given in English, the full and accurate recitation of his
rights in English may have helped clarify any ambiguity about
what questions Lopez was referencing in the Spanish
admonition. Perhaps most significantly, Miranda-Guerrero
agreed at the beginning of the third interview that the rights he
was advised of then — which included the right to have counsel
present, explained multiple times and in accurate Spanish —
were the same as the rights the detectives had discussed with
him during the first interview. Considering the totality of the
circumstances, we conclude that the admonition at the first
interview was adequate to advise Miranda-Guerrero of his right
to the presence of an attorney during the interrogation.
Miranda-Guerrero argues that even if he was adequately
advised of his rights, he did not understand or waive them. He
says he did not understand his rights because his initial
response when asked if he understood them was “Mm hm”
rather than something more affirmative. But when advised of
his rights at the third interview, Miranda-Guerrero clearly
indicated not only that he understood his rights, but that they
were the same rights of which he had been advised at the first
interview. Miranda-Guerrero similarly says he did not waive
his rights because his initial response when asked if he wanted
to talk to the detectives was “Pues si pe —,” which the court’s
transcript translates as “Well yes, bu —.” But he proceeded
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immediately to speak with the officers, answered their questions
without hesitation, and said nothing “ ‘that could be construed
as an invocation of his’ ” Miranda rights. (People v. Flores (2020)
9 Cal.5th 371, 417.) Under these circumstances, we cannot
conclude that his initial answers when asked at the first
interview if he wanted to talk, standing alone, are sufficient to
show he did not understand or waive his rights. (See ibid. [“ ‘A
suspect’s expressed willingness to answer questions after
acknowledging an understanding of his or her Miranda rights
has itself been held sufficient to constitute an implied waiver of
such rights.’ ”].)
Miranda-Guerrero also argues that the totality of the
circumstances suggests he did not knowingly and intelligently
waive his rights, notwithstanding the proper advisement,
because of his relative youth and limited education, his lack of
experience with the American legal system, and his difficulty
understanding English. As noted, he also claims he did not
sufficiently express to the officers that he understood his rights
because he answered “Mm hm” rather than something more
affirmative when first asked whether he understood the
advisement at his initial interview.
Miranda-Guerrero was 22 years old at the time of his
police interviews, and he had left school when he was eleven or
twelve. In Leon, we upheld the waiver of a defendant of similar
age who had failed sixth grade, “consistently performed in the
borderline range on intelligence tests,” whose “knowledge of the
legal system came mainly from Mexican soap operas,” and who
answered “ ‘uhm-hm’ ” when first asked if he understood his
rights. (Leon, supra, 8 Cal.5th at pp. 840–841.) Certain aspects
of the record in Leon were more indicative of a knowing and
intelligent waiver than the evidence before us here. In
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particular, the Spanish advisement in that case was given from
a pre-printed form, and the interviewer, a native Spanish
speaker, took care to give the advisement in a Spanish dialect
with which the defendant was familiar. (Id. at p. 840.) But
there are additional, affirmative indications in this case that
Miranda-Guerrero understood the advisement he was given.
Most notably, Miranda-Guerrero made clear at the start of the
third interview that his understanding of the rights Lopez read
him then from an accurately translated Spanish-language form
was the same as his understanding from the first interview. We
conclude that under these circumstances Miranda-Guerrero’s
waiver at the first interview was knowing and intelligent.
The Attorney General does not dispute that
Miranda-Guerrero was not fully advised of his rights at the
beginning of the second interview; the sole admonition provided
was the question, in what the translator termed deficient
Spanish, “Do you remember when we talked about the rights?
That you have . . . to remain silent and all that.” However, no
readvisement was required.
Readvisement is not necessary following a valid
admonition and waiver when the “subsequent interrogation is
reasonably contemporaneous.” (People v. Spencer (2018) 5
Cal.5th 642, 668.) “In determining whether a subsequent
interrogation is reasonably contemporaneous, we consider the
totality of the circumstances. Relevant considerations include:
‘1) the amount of time that has passed since the initial waiver;
2) any change in the identity of the interrogator or location of
the interrogation; 3) an official reminder of the prior
advisement; 4) the suspect’s sophistication or past experience
with law enforcement; and 5) further indicia that the defendant
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subjectively understands and waives his rights.’ ” (Ibid.,
quoting People v. Smith (2007) 40 Cal.4th 483, 504.)
We have held that interrogations taking place as long as
40 hours after a Miranda warning and waiver do not require
readvisement when conducted by the same officers in the same
location with an experienced defendant who “evinced no
reluctance to be interviewed.” (People v. Williams (2010) 49
Cal.4th 405, 434–435.) Miranda-Guerrero did not have
experience with the criminal justice system at the time of his
interviews, and he expressed some hesitation about proceeding
when he was advised of his Miranda rights at the first
interview. But his second interview took place fourteen hours
after the first interview, in the same location and with the same
detectives. He was also reminded, albeit briefly, of the original
Miranda admonition at the beginning of the second interview.
Considering all of the circumstances, we conclude that no
readvisement was required at the second interview.
3. Voluntariness Analysis
Miranda-Guerrero also argues that his statements to
officers were involuntary because the officers’ methods were
coercive, because he was not advised of his consular rights under
the Vienna Convention, and because of his personal
characteristics, including his limited education, inexperience
with the criminal justice system, and lack of English proficiency.
Under our precedents, his confession was not involuntary.
Involuntary statements to police are inadmissible for all
purposes. (People v. Peevy (1998) 17 Cal.4th 1184, 1193.)
Statements are involuntary when they are not the product of “ ‘a
rational intellect and free will.’ ” (People v. Maury (2003) 30
Cal.4th 342, 404, quoting Mincey v. Arizona (1978) 437 U.S. 385,
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398.) To use a defendant’s statements to police at trial, the
prosecutor must prove by a preponderance of the evidence that
they were voluntary. (People v. Peoples (2016) 62 Cal.4th 718,
740 (Peoples).) On appeal, the voluntariness of the statements
“is reviewed independently in light of the record in its entirety,
including ‘all the surrounding circumstances — both the
characteristics of the accused and the details of the
interrogation.’ ” (People v. Benson (1990) 52 Cal.3d 754, 779.)
We “ ‘ “examine the uncontradicted facts surrounding the
making of the statements to determine independently whether
the prosecution met its burden.” ’ ” (Maury, at p. 404.) When
testimony in the record is conflicting, we “ ‘ “must ‘accept that
version of events which is most favorable to the People, to the
extent that it is supported by the record.’ ” ’ ” (Ibid.)
“[C]oercive police activity is a necessary predicate to the
finding that a confession is not ‘voluntary’. . . .” (Colorado v.
Connelly (1986) 479 U.S. 157, 167.) Coercion is not limited to
physical abuse; it may involve “more subtle forms of
psychological persuasion.” (Id. at p. 164.) These techniques
include “ ‘repeated suggestion and prolonged interrogation.’ ”
(People v. Hogan (1982) 31 Cal.3d 815, 843, disapproved on
another ground in People v. Cooper (1991) 53 Cal.3d 771.) They
also include deprivation of sleep and food (Greenwald v.
Wisconsin (1968) 390 U.S. 519, 521 (per curiam)), as well as
“deception or communication of false information” (Hogan, at
p. 840).
If coercive police conduct is present, we evaluate the
totality of the circumstances to determine whether a defendant’s
statements were freely given. (People v. Maury, supra, 30
Cal.4th at p. 404.) Factors that we consider include the coercion
discussed above, as well as “the length of the interrogation and
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its location and continuity, and the defendant’s maturity,
education, and physical and mental health.” (Peoples, supra, 62
Cal.4th at p. 740.) A defendant’s “inexperience” and “low
intelligence” may weigh against a finding of voluntariness, as do
“deprivation and isolation imposed on [the] defendant during his
confinement.” (People v. Neal (2003) 31 Cal.4th 63, 68.)
Miranda-Guerrero asserts that several circumstances of
the second interview raise concerns about the voluntariness of
his confession at the end of that interview. The officers began
interviewing him just after midnight, and the interrogation
continued for more than seven hours until Miranda-Guerrero
said he might have hit Ballas twice. Miranda-Guerrero notes
that he “showed some signs of fatigue” (Peoples, supra, 62
Cal.4th at p. 741), telling the detectives at one point that he was
“very sleepy.” Further, the officers repeatedly emphasized
Miranda-Guerrero’s isolation and referred to the absence of any
relationships in Miranda-Guerrero’s life and the distance from
his family as reasons why he might have attacked Ballas. In
repeated accusations over the course of the night, the officers
asserted dozens of times that he “beat,” “hit,” or “punched”
Ballas.
While these aspects of the second interrogation of
Miranda-Guerrero are relevant, they ultimately do not
distinguish this case from prior cases in which we have declined
to find involuntary a confession given in response to overnight
questioning. In Peoples, for instance, we affirmed a finding of
voluntariness in a case involving a twelve-hour overnight
interview in which the police questioned the defendant
“constantly for the first 10 hours of the interview.” (Peoples,
supra, 62 Cal.4th at p. 739.) An expert testified in that case that
“the detectives used coercive techniques . . . over 50 times
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during the 12-hour interrogation.” (Id. at p. 740.) The interview
in Peoples was both longer and more coercive than
Miranda-Guerrero’s second interview. Moreover, as in Peoples,
Miranda-Guerrero “was given numerous breaks, drinks, and
food,” and the officers “never offered him leniency for his
confession and never threatened a harsher penalty if he
remained silent.” (Id. at p. 741.) The defendant in Peoples also
showed considerably greater signs of exhaustion than
Miranda-Guerrero — “sweating, pulling out his hair, rubbing
his skin, twitching his facial muscles, grinding his teeth, and at
times appearing to fall asleep.” (Id. at p. 739.)
Miranda-Guerrero says his confession was nevertheless
involuntary because the detectives did not advise him of his
right under Article 36 of the Vienna Convention on Consular
Relations, April 24, 1963, 21 U.S.T. 77, T.I.A.S. No. 6820 (Article
36) to have the Mexican consulate notified of his detention, even
though the detectives became aware early in the interviews that
he was likely not a citizen of the United States. Although the
failure to notify a suspect of his or her consular rights does not
by itself require suppression of the suspect’s statements, this
court and the United States Supreme Court have recognized
that “[a] consular notification claim may be raised as part of a
broader challenge to the voluntariness of a confession.” (Leon,
supra, 8 Cal.5th at p. 846, citing Sanchez-Llamas v. Oregon
(2006) 548 U.S. 331, 350.) But “[i]n most circumstances, there
is likely to be little connection between an Article 36 violation
and evidence or statements obtained by police.”
(Sanchez-Llamas, at p. 349.) Miranda-Guerrero says he would
have invoked his Miranda rights to counsel and to remain silent
if he had been advised of his consular rights or received consular
assistance. But this argument is too speculative given the
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record in this case. (See Leon, supra, 8 Cal.5th at p. 847; People
v. Vargas (2020) 9 Cal.5th 793, 833.) Considering the totality of
the circumstances and our independent review of the video of
Miranda-Guerrero’s interrogation, we cannot conclude that his
confession during his second custodial interview was
involuntary.
Furthermore, the first and third interviews exhibited few
of the troubling features of the second interview. The first
interview took place at 8:00 a.m. and lasted just over two hours.
The third took place several days later at 10:00 a.m. and also
lasted only a few hours. The questioning during the first
interview was not aggressive or coercive, and while there were
periods of insistent questioning in the third interview, they were
relatively brief. We therefore conclude that Miranda-Guerrero’s
statements from the first and third interviews were voluntarily
given as well.
B. Consular Notification
Miranda-Guerrero seeks a “comprehensive judicial ‘review
and reconsideration’ of his conviction and sentence” because of
the interviewing officers’ failure to inform him of his right to the
assistance of the Mexican consulate under Article 36. This
review, he says, must “ ‘examine the facts’ ” of the conviction and
sentence, “and in particular the prejudice” resulting from the
violation of the convention. He claims this entitlement flows
from the decision of the International Court of Justice in Avena
and Other Mexican Nationals (Mexico v. U.S.) 2004 I.C.J. 12
(judg. of Mar. 31) (Avena), in which the court instructed that
such review and reconsideration would be the appropriate
remedy for violations of foreign nationals’ consular rights. (Id.
at pp. 59–60, ¶¶ 121–122.)
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California codified the requirements of Article 36 in Penal
Code section 834c. (Leon, supra, 8 Cal.5th at p. 845.) In Leon,
we assumed without deciding that the rights found in Article 36
and section 834c are individually enforceable (Leon, at p. 846),
and we do so here as well. But even if Miranda-Guerrero is
authorized to enforce Article 36 and entitled to the remedy
described in Avena, we have already found that he has not
shown prejudice on this record from the violation of his consular
rights. Any matters outside the record suggesting that
Miranda-Guerrero was prejudiced may be raised in a petition
for habeas corpus; we express no view here on the validity of
such a claim. (See In re Carpenter (1995) 9 Cal.4th 634, 646
[review on direct appeal “is limited to the four corners of the
record on appeal”].)
C. Denial of Presence at Certain Proceedings
Miranda-Guerrero claims he was prejudicially denied his
constitutional and statutory rights to be present during five trial
proceedings: (1) a meeting on juror misconduct; (2) discussions
regarding spectator misconduct; (3) a meeting concerning the
portions of his police interview to be played at trial; (4) a
conference on jury instructions; and (5) a proceeding regarding
a response to a jury question. We disagree.
A criminal defendant has both constitutional and
statutory rights to be present at certain trial proceedings.
(People v. Cole (2004) 33 Cal.4th 1158, 1230.) “The federal
Constitution provides a defendant the right to be present if ‘ “(1)
the proceeding is critical to the outcome of the case, and (2) the
defendant’s presence would contribute to the fairness of the
proceeding,” ’ ” and the state constitutional right is largely
equivalent. (People v. Caro (2019) 7 Cal.5th 463, 478–479; see
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Opinion of the Court by Liu, J.
People v. Harris (2008) 43 Cal.4th 1269, 1306.) The statutory
right is coextensive with the state constitutional right but can
only be waived in writing. (Cole, at p. 1231; People v. Wall (2017)
3 Cal.5th 1048, 1060.)
Miranda-Guerrero claims that his absence from the five
proceedings constitutes structural error, but we have said that
“[e]rroneous exclusion of the defendant is . . . trial error that is
reversible only if the defendant proves prejudice.” (People v.
Perry (2006) 38 Cal.4th 302, 312.)
1. Meeting on Potential Juror Misconduct
Between the guilt and penalty phases, the court informed
the parties, in Miranda-Guerrero’s presence, that Juror No. 11
had told the bailiff that Juror No. 1 called her spouse after the
verdict was reached. The following afternoon in chambers, in
Miranda-Guerrero’s absence and without a waiver, the parties
indicated it was unnecessary to question the jurors.
Miranda-Guerrero had no right to be present at the
in-chambers meeting. In Harris, we held that “[t]he dismissal
of a juror for misconduct is not a matter for which the defendant
must be present.” (People v. Harris, supra, 43 Cal.4th at
p. 1309.) Deciding whether to investigate misconduct cannot be
said to be more “ ‘ “critical to the outcome of the case” ’ ” than
deciding whether to dismiss a juror for misconduct. (People v.
Caro, supra, 7 Cal.5th at pp. 478–479.) Miranda-Guerrero
claims that he may “have perceived something about Juror
No. 1” that warranted investigation or dismissal. But we have
rejected similarly speculative theories about how a defendant
“could have contributed to the fairness of the proceedings.”
(Harris, at p. 1307.) Moreover, any error was not prejudicial.
Miranda-Guerrero was present when the court first announced
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Opinion of the Court by Liu, J.
the Juror No. 1 issue and was aware that his counsel was given
an option to request further investigation. He had ample
opportunity to raise any concerns he may have had about Juror
No. 1. “[N]othing in the record indicates” that Miranda-
Guerrero’s presence at the in-chambers meeting would have led
to further inquiry or dismissal of the juror. (Caro, at p. 479.)
2. Meetings on Spectator Misconduct
During the trial, the parties and the court met in
chambers twice without Miranda-Guerrero to discuss spectator
misconduct. It was decided at the first meeting that the court
would give a general admonition, and at the second meeting it
was determined that the court would individually admonish an
audience member. Miranda-Guerrero did not have a
constitutional or statutory right to be present at either
proceeding because they involved discussions on spectator
misconduct and admonitions, which are “routine procedural
discussions on matters that do not affect the outcome of the
trial.” (People v. Perry, supra, 38 Cal.4th at p. 312.) Conducting
the meetings on spectator misconduct without Miranda-
Guerrero present was not error.
3. Conference on Interview Excerpts To Be Played at
Trial
After the court ruled on the admissibility of Miranda-
Guerrero’s police interview in his presence, the prosecutor
indicated that the parties were going to work together to select
which portions would be played to the jury. The parties agreed
on the selected portions and informed the court of their
agreement at an in-chambers meeting the following afternoon
without Miranda-Guerrero present. The parties and the court
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Opinion of the Court by Liu, J.
then discussed the timeline and process for verifying and
playing the tapes to the jury.
In People v. Davis (2005) 36 Cal.4th 510, we held that a
defendant had both a statutory and constitutional right to be
present at a “hearing during which the contents of [a] jailhouse
tape were discussed and agreed upon” because the defendant
“could have assisted his attorneys in deciphering the tape” since
he was present when it was made. (Id. at p. 531.) Miranda-
Guerrero argues he had a right to be present because, as in
Davis, he was “most familiar with the contents of the
statements” in the tape and therefore could have “assisted his
attorneys” in selecting the excerpts. But unlike in Davis, the
court here had already ruled on the admissibility of the tapes,
and the determination of which excerpts would be played was
made by counsel before the in-chambers meeting. Accordingly,
Miranda-Guerrero’s presence at the meeting could not have
“ ‘ “contribute[d] to the fairness of the proceeding.” ’ ” (People v.
Caro, supra, 7 Cal.5th at p. 479.) Nor is it clear how a meeting
discussing the logistics of playing preapproved portions of the
tape could have been “ ‘critical to the outcome of the case.’ ” (Id.
at pp. 478–479.)
In any event, no substantive decisions on the admissibility
of the tape or its selected excerpts were made during the
meeting. Miranda-Guerrero has not shown how excluding him
from this logistical discussion could have “ ‘ “prejudiced his case
or denied him a fair and impartial trial.” ’ ” (People v. Caro,
supra, 7 Cal.5th at p. 479.) Any error in excluding him was not
prejudicial.
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4. Conference on Jury Instructions
At the end of the guilt phase, in Miranda-Guerrero’s
absence, the court discussed with counsel the jury instructions
for lesser included offenses. We have repeatedly held that
defendants “may ordinarily be excluded from conferences on
questions of law, even if those questions are critical to the
outcome of the case, because the defendant’s presence would not
contribute to the fairness of the proceeding.” (People v. Perry,
supra, 38 Cal.4th at p. 312.) These include “conference[s] on
jury instructions.” (Ibid.) Excluding Miranda-Guerrero from
this conference was not error.
5. Meeting on Response to Jury Question
During jury deliberations at the guilt phase, the court and
parties met to discuss jury questions with Miranda-Guerrero
absent. The court read out the jury’s latest question: “When
establishing intent in a count, may we take into consideration
established and agreed upon intents in other counts?” The court
directed counsel to meet and confer about a proposed response.
When the court reconvened, still without Miranda-Guerrero
present, the court and parties settled on redirecting the jury to
several CALJIC instructions.
In People v. Jennings (2010) 50 Cal.4th 616, 682, we held
that a defendant “did not have a constitutional or statutory right
to be personally present during the in-chambers discussion
regarding how to respond to [a] jury’s question” about an issue
of law. This is because “[t]he formulation of an appropriate
response to this question was a legal matter,” and “a defendant
does not have the right to be personally present during
proceedings, held in-chambers and outside of the jury’s
presence, concerning questions of law.” (Ibid.)
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Miranda-Guerrero claims Jennings is distinguishable
because “the question and proposed response” in Jennings “were
read in defendant’s presence.” But that is a distinction without
a difference; our holding in Jennings turned on the fact that the
jury’s question and the response to it involved legal issues.
(People v. Jennings, supra, 50 Cal.4th at p. 682.) As in Jennings,
“[t]he formulation of an appropriate response” to the jury’s
intent question here was a legal matter. (Ibid.) Accordingly,
Miranda-Guerrero did not have a constitutional or statutory
right to be present at the proceeding.
D. Juror Misconduct
Miranda-Guerrero claims that his conviction must be
reversed because the trial court failed to discharge one of the
jurors for misconduct and failed to hold a hearing into the juror’s
ability to serve after a suggestion of misconduct was raised.
Even assuming the juror’s actions were misconduct,
Miranda-Guerrero was not prejudiced.
As noted, after the jury reached its guilt phase verdict but
before the verdict was announced, Juror No. 1 informed her
spouse on a phone call that she would be done later than
expected. She also told her spouse that the jury had reached a
verdict. The jury foreperson informed the bailiff of this call, the
bailiff informed the court, and the court informed the parties. It
was not clear whether Juror No. 1 told her spouse what the
verdict was, but the court instructed the parties to assume she
had for the purposes of deciding what to do about the issue.
In the court’s view, the actions of Juror No. 1 did not
constitute misconduct. Its position was that there was no need
to discuss the issue further with the jury foreperson who
reported the conversation, but it deferred to the parties about
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Opinion of the Court by Liu, J.
whether to pursue further inquiry either with the foreperson or
with Juror No. 1. After considering the issue, the parties
advised the court that they did not believe there was need for
further inquiry.
“It is misconduct for a juror during the course of trial to
discuss the case with a nonjuror.” (People v. Danks (2004) 32
Cal.4th 269, 304.) Juror misconduct raises a “presumption of
prejudice,” but that presumption is rebutted when the reviewing
court determines, based on the record as a whole, that “ ‘ “there
is no substantial likelihood that the complaining party suffered
actual harm.” ’ ” (People v. Lewis (2009) 46 Cal.4th 1255, 1309.)
The jurors in this case were admonished not to talk about
the proceedings with anyone outside the jury. Assuming
without deciding that Juror No. 1 committed misconduct when
she told her spouse that a verdict had been reached, no prejudice
flowed from her actions. Juror No. 1 told her spouse that she
would be done late, that a verdict had been reached, and possibly
what the verdict was. There is no reasonable probability that
conveying this information to her spouse biased Juror No. 1
against Miranda-Guerrero or made her incapable of serving as
a penalty phase juror. (See People v. Harris, supra, 43 Cal.4th
at p. 1303.) Miranda-Guerrero also argues that the trial court
erred by declining to hold a hearing to inquire further into the
juror’s alleged misconduct. But “ ‘ “ ‘[a] hearing is required only
where the court possesses information which, if proven to be
true, would constitute “good cause” to doubt a juror’s ability to
perform his duties . . . .’ ” ’ ” (People v. Cowan (2010) 50 Cal.4th
401, 506.) The trial court assumed that Juror No. 1 told her
spouse what verdict the jury had reached and properly
concluded that Miranda-Guerrero was not harmed even under
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those circumstances. It was not required to hold a hearing to
further investigate the juror’s actions.
E. Motion for a New Trial
Shortly after the trial concluded, a newspaper article was
published detailing various lawsuits and disciplinary actions
against one of the prosecutor’s medical experts, Dr. Israel
Chambi, who was the medical witness most skeptical of
Miranda-Guerrero’s theory that a fall caused Ballas’s injury.
Miranda-Guerrero moved for a new trial, arguing that the
article constituted new evidence “that could have affected the
outcome of both the guilt and penalty phase of the trial.” The
court denied his motion.
Miranda-Guerrero asks that we remand the matter for the
superior court to reconsider its ruling on the motion for a new
trial in light of additional evidence he presents here in a request
for judicial notice. This evidence consists of two unpublished
Court of Appeal opinions from 2002 in suits against Dr. Chambi,
which he says substantiate “several of the incidents documented
in the newspaper article.” We take judicial notice of the
existence of the opinions but not the statements of fact contained
therein. (See People v. Woodell (1998) 17 Cal.4th 448, 455.)
Under Penal Code section 1181, a new trial is warranted
“[w]hen new evidence is discovered material to the defendant,
and which he could not, with reasonable diligence, have
discovered and produced at the trial.” (Pen. Code, § 1181,
subd. 8.) “ ‘ “To grant a new trial on the basis of newly
discovered evidence, the evidence must make a different result
probable on retrial.” [Citation.] “[T]he trial court has broad
discretion in ruling on a new trial motion . . . ,” and its “ruling
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Opinion of the Court by Liu, J.
will be disturbed only for clear abuse of that discretion.” ’ ”
(People v. Beck and Cruz (2019) 8 Cal.5th 548, 667.)
Miranda-Guerrero is not entitled to a remand for a further
hearing on his new trial motion. He does not claim that the trial
court abused its discretion in denying the motion based on the
evidence before the court at the time. And our review on direct
appeal “is limited to the four corners of the record on appeal.”
(In re Carpenter, supra, 9 Cal.4th at p. 646.) We decline to
remand on the basis of evidence not presented to the trial court.
Nor in any event would the outcome be different on
remand as a result of the Court of Appeal opinions he presents
in his request for judicial notice. Those opinions were available
when the trial took place. They would not be an appropriate
basis for a new trial because Miranda-Guerrero could, “with
reasonable diligence, have discovered and produced” them at his
original trial. (Pen. Code, § 1181, subd. 8.)
Miranda-Guerrero also contends that the due process
principles expressed in Brady v. Maryland (1963) 373 U.S. 83
required the prosecutor “to investigate the credibility” of Dr.
Chambi before calling him as “a critical expert witness.” He
does not claim a Brady violation, but he suggests that the
prosecutor’s failure to investigate supports his request for
remand to reconsider his new trial motion.
We are not persuaded by Miranda-Guerrero’s claim that
he is entitled to reconsideration of his new trial motion because
of the prosecutor’s failure to investigate Dr. Chambi. He argues
that if the prosecutor had investigated Dr. Chambi’s credibility,
the prosecutor “would have found” the Court of Appeal opinions
that Miranda-Guerrero presents in his request for judicial
notice. Again, these opinions would not have supported his new
trial motion because they were available at the time of the trial.
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Opinion of the Court by Liu, J.
(See Pen. Code, § 1181, subd. 8.) He further suggests that the
prosecutor’s investigation might have revealed “information at
the Medical Board of California about the professional status of
its witness, Dr. Chambi.” But he does not provide any such
records, nor does he claim that the prosecutor’s failure to
uncover this information violated Brady or that there is a
Brady-based duty to investigate witness credibility.
In sum, Miranda-Guerrero does not argue that the court
abused its discretion in denying that motion on the basis of the
record before it, and he has not demonstrated that the evidence
he now proffers to support his new trial motion was unavailable
at the time of trial. In light of the limited scope of our review of
a trial court’s decision to deny a new trial motion,
Miranda-Guerrero is not entitled to a remand for further
proceedings on his motion.
Finally, Miranda-Guerrero argues in passing that the fact
that the impeachment evidence against Dr. Chambi was not
introduced at trial made the proceedings “fundamentally unfair
and violated appellant’s rights to due process, to confront and
cross-examine witnesses, to the effective assistance of counsel
and to a reliable penalty determination.” Again, he does not
claim a Brady violation, nor does he claim that the trial court
improperly limited his impeachment of Dr. Chambi. In the
absence of argument to support these constitutional claims, we
conclude they supply no basis for relief.
F. Prosecutorial Misconduct
Miranda-Guerrero claims that two groups of statements
made by the prosecutor constituted misconduct and deprived
him of a fair trial: comments about the police investigation,
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PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
which Miranda-Guerrero claims amounted to improper
vouching, and derogatory comments directed at defense counsel.
During opening and closing argument, the prosecutor
mentioned the quality of the work of the police officers who
investigated Miranda-Guerrero’s case. At the time these
statements were made, Miranda-Guerrero did not clearly object
or ask for a jury admonition. Midway through the prosecutor’s
closing argument, after almost all of these statements had
occurred, defense counsel asked to speak with the court and
prosecutor outside the presence of the jury and expressed
concern that “we’re getting into the area of improper personal
vouching for the police department.” Counsel noted that the
defense had “not objected this far, but I think we’re getting a
little bit astray.” Counsel’s statement was insufficient to
preserve a claim of prosecutorial misconduct. The defendant
must generally object “in a timely fashion — and on the same
ground,” and must “request[] that the jury be admonished to
disregard the impropriety.” (People v. Samayoa (1997) 15
Cal.4th 795, 841.) Because defense counsel did neither,
Miranda-Guerrero has forfeited this claim.
Miranda-Guerrero also argues that his trial was tainted
by two parts of the prosecutor’s closing argument in which he
discussed defense counsel’s conduct: questions about why
defense counsel had elicited evidence regarding Ballas’s liver
and a kiss she shared with Jason on the night in question, and
statements that an argument made by defense counsel was
“ ‘intellectually dishonest’ ” and “ ‘an insult’ ” to the jury’s
intelligence. The questions about the defense’s evidence
immediately prompted the sidebar at which defense counsel
mentioned concerns about vouching. Before raising the issue of
improper vouching, counsel expressed concern that the
37
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
prosecutor had been “insinuati[ng] that the defense is doing
something underhanded.” Defense counsel further expressed
that the prosecutor’s comments could not “go any further
without running some serious risks in the case in terms of
potential misconduct.” After the prosecutor said he did not
intend to go further, the court told the attorneys that it had “not
noted any error by the district attorney.”
Later in the prosecutor’s argument, defense counsel
objected to the statement that part of the defense’s argument
had been “intellectually dishonest,” though counsel did not
reiterate that objection when the prosecutor subsequently said
the argument was insulting to the jury. Counsel did not state
the basis for the objection, and in context it is not clear that the
objection was about the disparagement of the defense’s position.
In any event, even if these comments and the discussion of the
defense’s evidence strayed beyond appropriate commentary on
the strength of the defense’s argument into personal
commentary on defense counsel, they were not so egregious that
they made the trial unfair, nor is it reasonably probable that the
jury would have come to a different outcome if the prosecutor
had not made these statements. (See People v. Dykes (2009) 46
Cal.4th 731, 760, 772.)
G. Instructional Errors
Miranda-Guerrero raises a number of claims concerning
the guilt phase jury instructions, each of which we have rejected
previously. First, he argues that it was error for the superior
court to instruct the jury on theories of first degree murder and
felony murder because the information charged him only with a
violation of Penal Code section 187, which he says describes only
second degree murder. We have rejected this claim when it has
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Opinion of the Court by Liu, J.
been brought in the past. (See, e.g., People v. Contreras (2013)
58 Cal.4th 123, 148 (Contreras).) We decline to reconsider our
precedent on this issue.
Second, Miranda-Guerrero argues that the Sixth and
Fourteenth Amendments to the federal Constitution, as
interpreted in Apprendi v. New Jersey (2000) 530 U.S. 466,
require more specificity in the charging instrument. We have
rejected this claim as well (People v. Nelson (2016) 1 Cal.5th 513,
555) and decline to revisit our precedent.
Third, Miranda-Guerrero contends that six jury
instructions used during his trial undermined the requirement
of proof beyond a reasonable doubt. We have previously rejected
this claim as to all of the instructions he identifies. (People v.
Nelson, supra, 1 Cal.5th at pp. 553–554 [CALJIC Nos. 2.01,
2.02, 2.21.2, 2.22, 2.27]; People v. Carey (2007) 41 Cal.4th 109,
130 [CALJIC No. 2.21.1].) Miranda-Guerrero presents no
persuasive reason why we should reconsider our holdings on
this issue.
Fourth, he argues that the superior court erred by not
requiring the jury to come to a unanimous verdict about which
theory of first degree murder applied (premeditated murder or
felony murder), so long as the jury unanimously concluded that
he was guilty of first degree murder under some theory. As he
acknowledges, we have rejected this claim before. (People v.
Jones (2013) 57 Cal.4th 899, 973.) He presents no persuasive
reason why we should reconsider our past holdings on this issue.
H. Cumulative Error
Miranda-Guerrero contends that the cumulative effect of
the errors he claims occurred at the guilt phase warrants
reversal even if no individual error does so. The only potential
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Opinion of the Court by Liu, J.
errors, such as the possibility that a few comments by the
prosecutor exceeded the bounds of appropriate argument, were
minor. The cumulative effect of these errors does not rise to the
level of prejudice necessary to reverse any of his convictions.
III. PENALTY PHASE ISSUES
Miranda-Guerrero argues that the admission of the
statements he made in his police interviews requires reversal of
his death sentence because the prosecutor used his statements
to counter evidence of his cognitive impairments. Because we
find no error in the admission of his statements, we need not
consider their effect on the penalty verdict.
Miranda-Guerrero also argues that the death sentence is
grossly disproportionate to the crime of felony murder absent a
showing of some particular mens rea as to the killing. We have
rejected this argument before (Contreras, supra, 58 Cal.4th at
p. 163), and we do so again here. He also argues that imposing
the death penalty for felony murder violates international law
and that this international law principle is binding on our state
because of the supremacy clause of the federal Constitution. We
have rejected this claim as well. (Contreras, at pp. 165–166.)
Miranda-Guerrero argues that various other aspects of
California’s death penalty scheme are unconstitutional, while
noting that our court has rejected these arguments in the past.
He argues that our death penalty statutes are
unconstitutionally overbroad because of the number of potential
special circumstances; that the aggravating factor related to the
circumstances of the crime is overbroad as well; that the lack of
jury instruction regarding a burden of proof in the weighing of
aggravating and mitigating factors undermined his
constitutional rights; that the phrase “so substantial” in the jury
40
PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
instruction on the weighing of aggravating and mitigating
circumstances is impermissibly vague; that the jury should have
been instructed to find whether death is “appropriate” rather
than whether it is “warranted”; that the jury should have been
instructed that there is a presumption favoring a sentence of life
without the possibility of parole; that the jury should have been
required to make written findings during the penalty phase;
that the use of adjectives such as “extreme” and “substantial” in
the sentencing factors creates an improper barrier to the
consideration of mitigating evidence; that the jury should have
been instructed as to which of the factors were mitigating and
which were aggravating; that intercase proportionality review
is required; and that equal protection requires more procedural
protections for capital defendants than California law provides.
We have rejected all of these arguments. (Contreras, supra, 58
Cal.4th at pp. 169–170, 172–173.)
He also argues that the jury should have been instructed
that it must return a sentence of life without the possibility of
parole if the mitigating factors outweighed the aggravating
factors, and he says that California’s use of the death penalty as
a “regular form of punishment” violates international norms.
We have rejected these arguments as well. (People v. Jackson,
supra, 1 Cal.5th at pp. 373–374.)
Miranda-Guerrero further claims that California’s death
penalty scheme is constitutionally deficient because it does not
require unanimous jury findings as to the aggravating
circumstances and does not require the jury to find beyond a
reasonable doubt any aggravating factors except prior felony
convictions or violent crimes that did not result in a conviction.
We have rejected these claims in the past (People v. McDaniel
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PEOPLE v. MIRANDA-GUERRERO
Opinion of the Court by Liu, J.
(2021) 12 Cal.5th 97, 142–143; People v. Anderson (2001) 25
Cal.4th 543, 601) and decline to revisit our precedent here.
Finally, because we find no error in the penalty phase, we
reject Miranda-Guerrero’s claim that cumulative error infected
the penalty determination.
IV. CONCLUSION
The judgment is affirmed.
LIU, J.
We C oncur:
CANTIL-SAKAUYE, C. J.
CORRIGAN, J.
KRUGER, J.
GROBAN, J.
JENKINS, J.
GUERRERO, J.
42
See next page for addresses and telephone numbers for counsel who
argued in Supreme Court.
Name of Opinion People v. Miranda-Guerrero
__________________________________________________________
Procedural Posture (see XX below)
Original Appeal XX
Original Proceeding
Review Granted (published)
Review Granted (unpublished)
Rehearing Granted
__________________________________________________________
Opinion No. S118147
Date Filed: November 17, 2022
__________________________________________________________
Court: Superior
County: Orange
Judge: Francisco P. Briseño
__________________________________________________________
Counsel:
Michael J. Hersek, State Public Defender, under appointment by the
Supreme Court, Denise Kendall, Assistant State Public Defender, and
Evan Young, Deputy State Public Defender, for Defendant and
Appellant.
Kamala D. Harris and Rob Bonta, Attorneys General, Dane R. Gillette,
Chief Assistant Attorney General, Julie L. Garland, Assistant Attorney
General, Holly D. Wilkens, Kristine A. Gutierrez and Meredith S.
White, Deputy Attorneys General, for Plaintiff and Respondent.
Counsel who argued in Supreme Court (not intended for
publication with opinion):
Denise Kendall
Assistant State Public Defender
1111 Broadway, Suite 1000
Oakland, CA 94607
(510) 267-3300
Meredith S. White
Deputy Attorney General
600 West Broadway, Suite 1800
San Diego, CA 92101
(619) 738-9069 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484582/ | Walsh v West Gramercy Assoc. LLC (2022 NY Slip Op 06570)
Walsh v West Gramercy Assoc. LLC
2022 NY Slip Op 06570
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 151154/14 Appeal No. 16706 Case No. 2021-03859
[*1]Desmond A. Walsh, Plaintiff-Appellant,
vWest Gramercy Associates LLC, et al., Defendants-Respondents, Allstar Elevator & Escalator Inspection Agency, Inc., Defendant.
Michael H. Zhu, PC, New York (Michael H. Zhu of counsel), for appellant.
Gordon Rees Scully & Mansukhani, LLP, Harrison (Michael J. Schacher of counsel), for West Gramercy Associates LLC, Josephson LLC and S&S Equities of NY & NJ Inc., respondents.
Malapero Prisco & Klauber LLP, New York (John J. Peplinski of counsel), for Nouveau Elevator Industries, Inc., respondent.
Order, Supreme Court, New York County (Paul A. Goetz, J.), entered September 20, 2021, which, to the extent appealed from, denied plaintiff's motion pursuant to CPLR 3124 to compel defendants Nouveau Elevator Industries, Inc., West Gramercy Associates LLC, Josephson, LLC d/b/a The Moinian Group, and S&S Equities of NY & NJ Inc. to provide supplemental responses to his May 4 and May 26, 2021 post-deposition demands, unanimously affirmed, without costs.
In February 2014, plaintiff Desmond A. Walsh commenced this negligence action alleging that on March 27, 2012, while working as a US postal carrier, he tripped when he entered a misleveled rear freight elevator on the first floor of 10 West 18th Street in Manhattan. Defendant West Gramercy owned the building, defendant Moinian provided operation and management services to the owner, defendant S&S was the building's former property manager, and defendant Nouveau was the building's elevator maintenance company hired by West Gramercy and S&S. Plaintiff alleged that the dangerous condition was caused or created by Nouveau and the owner defendants, and that they had actual and constructive notice of the condition.
The court providently exercised its discretion in denying plaintiff's motion for supplemental responses to its post-deposition demands (see Matter of U.S. Pioneer Elecs. Corp. [Nikko Elec. Corp. of Am.] , 47 NY2d 914, 916 [1979]). Defendants have responded to and complied with numerous discovery demands and orders throughout this seven-year litigation. Defendants have produced multiple deposition witnesses, provided all available items, including the exchange of countless maintenance/work tickets, whose entries duplicate the missing logbook, and provided sufficient Jackson affidavits that described their reasonable and diligent search for the rear elevator maintenance contract and the March 2012 logbook pertaining to the rear elevator that is the subject of plaintiff's negligence action (see CPLR 3101[a]; Allen v Crowell-Collier Publ. Co. , 21 NY2d 403, 406 [1968]; see generally Andon v 302-304Mott St. , 94 NY2d 740, 746 [2000]). Accordingly, plaintiff failed to establish entitlement to supplemental
responses to his May 4, 2021 and May 26, 2021 post-deposition demands or supplemental Jackson affidavits.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493548/ | MEMORANDUM OPINION
ARTHUR B. FEDERMAN, Chief Judge.
Ameriquest Mortgage Company has filed an adversary action in which it requests a determination of the validity and priority of hens against certain real estate which is property of the estate of Debtor Anthony Robert Elwood.1 The Court has *707jurisdiction over this matter and these parties and may enter final orders pursuant to 28 U.S.C. §§ 1384, 157(a), and 157(b)(1).
ISSUES PRESENTED
Was an Order Reviving Judgment entered by the Associate Division of the Circuit Court of Greene County, Missouri, which referred to the underlying Judgment entered by the Associate Division, rather than the transcription of the Judgment in the Circuit Court, effective to revive the judgment creditor’s judgment and lien?
DECISION
The Order Reviving Judgment entered by the Associate Division of the Circuit Court properly revived the judgment creditor’s judgment and lien. The judgment creditor’s lien, therefore, has priority over a Deed of Trust filed in the intervening period.
FACTUAL BACKGROUND
According to the Stipulation of Facts and exhibits filed at the hearing on this action, Contractors Supply Company filed suit, pursuant to Chapter 517 of the Revised Missouri Statutes, in the Circuit Court for Greene County, Missouri, Associate Division Number Twenty-Three, against Anthony R. Elwood, the Debtor herein, on September 14, 1998.2 On February 2,1999, the Circuit Court for Greene County, Missouri, Associate Division Number Twenty-Three, entered a Judgment in favor of Contractors Supply, in the amount of $27,407.52, plus attorney’s fees and costs, with interest at 18% per annum.3 A transcript of the Judgment was filed with the Clerk of the Circuit Court for Greene County, Missouri, on February 11, 1999, who duly recorded the transcript in the permanent records of the Circuit Court Judgments.4
On December 30, 1999, Sharon Kay Williams and Anthony Elwood executed a Deed of Trust securing repayment of an obligation to Keith Jones as trustee for Conseco Financing Services Corporation, with a maximum limit of $129,235.69. This Deed of Trust was filed with the Green County Recorder’s office on June 26, 2000.5
On August 15, 2000, Sharon Kay Williams transferred title in the real estate to Anthony Elwood, by General Warranty Deed filed that same date in the Greene County Recorder’s office.6
On April 12, 2001, Anthony Elwood and his wife, Rachel Elwood, conveyed the real estate to American Property Management, Inc., by Quit Claim Deed filed in the Greene County Recorder of Deeds Office. On September 22, 2001, American Property Management, Inc., conveyed the real property to Anthony Elwood. The Warranty Deed by Corporation was filed with the Greene County Recorders Office on October 5, 2001.7
Also on September 22, 2001, Ameriquest Mortgage Company loaned to Anthony Elwood the sum of $174,150 by way of an Adjustable Rate Note. Part of the proceeds from the Ameriquest loan were used to pay off Conseco’s debt and so Conseco *708released its Deed of Trust on the real estate.8 The repayment of the obligation to Ameriquest was secured by a Deed of Trust on the real estate, dated September 22, 2001, and filed with the Greene County Recorder’s Office on October 5, 2001.9
On December 26, 2001, Contractors Supply filed a Motion to Revive Judgment in the Circuit Court of Greene County, Missouri, Associate Division Number Twenty-Two. That same date, the associate circuit judge of that division issued an order for Anthony Elwood to show cause why the judgment should not be revived.10 After notice and hearing, the Circuit Court for Green County, Missouri, Associate Division Number Twenty-Two, entered an Order Reviving Judgment on January 29, 2002.11 A transcript of the Order Reviving Judgment was filed with the Clerk of the Circuit Court for Greene County, Missouri, on January 29, 2002, and it was recorded it in the permanent records of Circuit Court Judgments.12
Anthony Elwood filed his Chapter 13 Bankruptcy Petition on August 20, 2002. As of February 28, 2003, Elwood owed Contractors Supply the sum of $50,229.85 on the Greene County Judgment.13
LEGAL ANALYSIS
Initially, Ameriquest filed its Complaint in two counts, but it announced at hearing that it was dropping its second count. In its sole remaining count, Ameri-quest asserts, in sum, that the lien created by its Deed of Trust is superior to Contractors Supply’s prior judgment lien because Contractors Supply’s lien was not properly revived and therefore lapsed.
The parties do not dispute that, pursuant to Missouri Statutes and Rules,14 Contractors Supply’s recorded Transcript of Judgment became a hen against any real estate owned or acquired by Elwood in Greene County and, as a result, Contractors Supply’s judgment lien attached to the disputed real estate on August 15, 2000, the date Elwood acquired title to it. Contractors Supply’s lien, therefore, was prior to and superior to Ameriquest’s subsequently filed Deed of Trust which was filed on October 5, 2001. Pursuant to Rule 74.08,15 Contractors Supply’s lien continued for a period of three years from the entry of the judgment, and therefore, unless Contractors Supply revived its judgment hen, it would have expired on February 10, 2002.
Contractors Supply’s revival of its Judgment is the subject of this dispute. As stated above, Contractors Supply filed its Motion to Revive Judgment in the Associate Division of the Circuit Court for Greene County, Missouri. The Order Reviving Judgment was entered on January 29, 2002, by the Associate Circuit Judge and it was recorded with the Circuit Court Clerk’s Office that same day, ah before the expiration of the three-year revival period.
Ameriquest asserts this revival was not effective and the hen therefore lapsed, giving its Deed of Trust first priority. The crux of Ameriquest’s argument is that the judgment that should have been revived is the judgment that created the hen, which would be the February 11, 1999 Circuit *709Court transcript of Judgment, and not the February 2, 1999 Associate Circuit Court Judgment. Because the Motion to Revive Judgment and the Order of Revival were filed in the Associate Circuit Court and referred to the February 2 Judgment, Am-eriquest asserts the Order revived the wrong judgment and was, therefore, ineffective to extend Contractors Supply’s lien.
I have concluded that Ameriquest’s argument must fail. Pursuant to § 511.350 of the Missouri statutes, “Judgments and decrees rendered by the associate divisions of the circuit courts shall not be liens on the real estate of the person against whom they are rendered until such judgments or decrees are filed with the clerk of the circuit court pursuant to sections 517.141 and 517.151, RSMo.”16 Section 517.141, in turn, provides:
Transcript of judgment, treatment of— duty of clerk
On demand of any person interested therein, whether by assignment or otherwise, every clerk or officer who shall be in possession of the record of judgment shall give to such person a certified transcript of such judgment. Upon production of any such transcript, the clerk of the circuit court of the county in which the judgment was rendered shall record the same in his permanent record of the circuit court judgments, and note therein the date and hour of its filing.17
Section 517.151 provides, in pertinent part:
Judgment to be lien on real estate from time of filing transcript — fees for filing — revival of lien
From the time of filing the transcript, every such judgment shall have the same lien on the real estate of the defendant in the county as is given judgments rendered by circuit judges.... The revival of any such lien upon real estate shall be under the same procedures as with judgments originally rendered by a circuit judge, shall be made from the record of the transcripted judgment so filed in the office of the circuit clerk, and may be revived under proceedings before either a circuit or an associate circuit judge.18
According to the Rule 74.08 of the Missouri Rules of Civil Procedure, unless revived by a revival of the judgment, the lien of a judgment continues for three years.19 Revival of judgments is addressed in Rule 74.09:
(a) When and by Whom. A judgment may be revived by order of the court that entered it pursuant to a motion for revival filed by a judgment creditor within ten years after entry of the judgment or the last prior revival of the judgment.
(b) Order to Show Cause. Upon the filing of a motion of revival of a judgment, an order shall issue to the judgment debtor to show cause on a day certain why such judgment should not be revived. The order to show cause shall be served pursuant to Rule 54 on the judgment debtor, his successors in interest, or his legal representatives.
(c) Judgment of Revival. If the judgment debtor, his successors in interest, or legal representatives fail to appear and show cause why the judgment should not be revived, the court shall enter an order reviving the judgment.20
*710Although the topic was discussed at length at the hearing, I have no doubt that a motion for revival may be brought and entered in the Associate Division of the Circuit Court. First of all, as set out above, § 517.151 specifically provides that a judgment may be revived before either a circuit or an associate circuit judge. Furthermore, under the current version of the Missouri statutes regarding the jurisdiction and authority of the circuit courts, which were significantly amended in 1989, “Circuit judges and associate circuit judges may hear and determine all cases and matters within the jurisdiction of their circuit courts.”21
Missouri courts, when analyzing these changes, have consistently held that the legislature intended to abolish the jurisdictional differences between the two categories of judges; that although other statutes or local court rules may place limitations on what judge is assigned to hear a particular case or class of cases, it is clear that both circuit and associate circuit judges now have statutory jurisdiction to hear and determine all cases within the jurisdiction of their circuit court. Moreover, these cases hold that statutes or local rules that limit what judge can be assigned to hear a case or class of cases are merely procedural guidelines that do not affect the subject matter jurisdiction of the judge; consequently, a party waives any complaint about non compliance with an assignment directive by not timely objecting about such failure.22
Thus, having determined that the Associate Division of the Circuit Court had the authority to revive the judgment, the question, then, is whether the Court revived the correct judgment. Again, both the Motion to Revive Judgment and the Order Reviving Judgment refer to the February 2 Judgment entered by the Associate Division, and not the February 11 transeripted judgment. Noting that there is no caselaw on the issue, Ameriquest asserts that Contractors Supply should have revived the February 11 transeripted judgment and that the revival of the February 2 judgment was ineffective. I disagree.
Underlying Ameriquest’s argument is the notion that a separate judgment is created upon the recording of the transcript with the Circuit Court. However, I could find no legal authority supporting that notion. As set out above, § 511.350 provides that judgments rendered by the Circuit Courts “shall be liens on the real estate of the person against whom they are rendered,” whereas “[jjudgments and decrees rendered by the associate divisions of the circuit courts shall not be liens on the real estate of the person against whom they are rendered until such judgments or decrees are filed with the clerk of the circuit court.”23 In other words, judgments of Associate Divisions of the Circuit Court become liens on real estate when they are filed with the Clerk of the Circuit Court. As I interpret this statute, then, the recording of the transcript with the Circuit Court Clerk’s Office merely creates the hen which would automatically accompany Circuit Court judgments; it does not, it appears to me, create a new or separate judgment in the Circuit Court.
*711This conclusion is supported elsewhere in the Missouri statutes and rules. Missouri statutes define “judgment” as “the final determination of the right of the parties in the action.”24 In this case, the final determination of the parties’ rights occurred with the February 2 Judgment, and not the recording of the transcript of that Judgment. In addition, according to the Missouri Rules of Civil Procedure:
“Judgment” as used in these rules includes a decree and any order from which an appeal lies. A judgment is rendered when entered. A judgment is entered when a writing signed by the judge and denominated “judgment” or “decree” is filed. The judgment may be a separate document or entry on the docket sheet of the case. A docket sheet entry complying with these requirements is a judgment unless the docket sheet entry indicates that the court will enter the judgment in a separate document. The separate document shall be the judgment when entered.25
With certain exceptions not applicable here, an appeal may be taken from the judgment of the Associate Division of the Circuit Court.26 I have found no provision providing for an appeal from the recording of a transcript of a judgment. Further, the entries on the docket sheet in this particular case do not support the notion that a separate judgment was entered when the Associate Division Judgment was transcripted. Particularly, the docket sheet shows for February 2, 1999: “PLT BY ATTY PARKER. DEFT FAILS TO APPEAR. JUDGMENT FOR FORMAL [sic]. MEF/MKD.”27 In contrast, a docket entry for February 10, 1999, merely shows: “Judgment transcripted to Circuit Court.”28 There is no docket entry on February 11, 1999.29 Moreover, the February 2 Judgment is, naturally, signed by the Associate Circuit Judge.30 What purports to be the transcripted judgment, as submitted as an exhibit here, merely contains the front page of the February 2 Judgment filestamped by the Circuit Court Clerk on February 11, 1999. It contains the signature of no judge and the signature page of the February 2 Judgment is even missing.31 These facts, therefore, support the conclusion that the February 11 recording of the transcript was not a “judgment” as defined by the rules.
Consequently, I conclude that the February 11 recording of the transcript by the Circuit Court Clerk’s office did not create a new judgment for purposes of revival. Rather, it was a procedural formality for purposes of creating the accompanying judgment hen. As a result, the Order Reviving Judgment, which referred to the February 2 Judgment, was effective to revive Contractors Supply’s lien. It therefore has priority over Ameriquest’s Deed of Trust.
An Order consistent with this Memorandum Opinion will be entered this date.
. The real estate, located in Greene County, Missouri, is described as follows:
All of Lot Fifty (50) Amended Plat of JAMES RIVER ADDITION, in Greene County, Missouri and all of that real estate designated as "Reserved” on the Amended Plat of James River Addition, a subdivision in Greene County, Missouri, north of those *707numbered lots designated as Lots 46 through 50 inclusive.
See Stipulation of Facts, p. 1-2.
. Id. at 2; Exhibit 1.
. Id.; Exhibit 2.
. Id.; Exhibit 2.
. Id.; Exhibit 3.
. Id.; Exhibit 4.
. Id. at 3; Exhibits 5 and 6.
. Id. at 3-4; Exhibits 9 and 10.
. Id. at 3; Exhibits 7 and 8.
. Id.; Exhibit 11.
. Id; Exhibit 12.
. Id; Exhibit 12; see also Exhibit 13.
. Id.; Exhibit 14.
. See Mo.Rev.Stat. § 517.151; Mo. R. Civ. P. 74.08.
. Mo. R. Civ. P. 74.08.
. Mo.Rev.Stat. § 511.350.2.
. Mo.Rev.Stat. § 517.141.
. Mo.Rev.Stat. § 517.151.
. Mo. R. Civ. P. 74.08, made applicable to this case by § 517.021.
. Mo. R. Civ. P. 74.09
. Mo.Rev.Stat. § 478.220.
. Cooper v. Bluff City Mobile Home Sales, Inc., 78 S.W.3d 157, 167-68 (S.D.Mo.App.2002) (emphasis in original; citations and quotemarks omitted); see also State v. Williams, 46 S.W.3d 35, 38 (E.D.Mo.App.2001); Drienik v. Clifford, 944 S.W.2d 266, 268 (E.D.Mo.App.1997).
.Mo.Rev.Stat. § 511.350.1 and 2.
. Mo.Rev.Stat. § 511.020.
. Mo. R. Civ. P. 74.01(a).
. See Mo.Rev.Stat. § 512.180.
. Exhibit 13. Note that the initials MEF likely stand for Mark E. Fitzsimmons, Associate Circuit Judge for Division 23.
. Id.
u
. Exhibit 2.
^ | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493550/ | OPINION AND ORDER GRANTING DEFENDANT’S MOTION TO DISMISS AND DENYING PLAINTIFF’S MOTION FOR LEAVE TO AMEND COMPLAINT
BARBARA J. SELLERS, Bankruptcy Judge.
This matter is before the Court on the motion to dismiss for failure to state a claim filed by defendant United Midwest Savings Bank (“United Midwest”). Plaintiff Hotel Builders of Ohio, Inc. (“Hotel Builders”) opposes the motion and has also sought leave to amend its complaint. United Midwest filed a memorandum contra the motion for leave to amend.
This court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and the General Order of Reference entered in this district. This is a core proceeding which this bankruptcy judge may hear and determine under 28 U.S.C. § 157(b)(2)(K).
Hotel Builders brought this action for a determination that its mechanic’s lien is a first and best lien on certain real property owned by the Debtor and situated in Union County, Ohio. United Midwest has an open-end mortgage against this same real property which mortgage Hotel Builders alleges is inferior to its mechanic’s lien.
Motions to dismiss for failure to state a claim are not favored. Such a motion, however, will be granted where “it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957).
Hotel Builders original complaint stated that it caused to be filed a Notice of Commencement on April 6, 2001, in the Office of the Union County Recorder. According to its Affidavit of Mechanic’s Lien, Hotel Builders performed work and furnished materials with respect to improvements on the Debtor’s real estate from July 15, 2001, to June 14, 2002. See Exhibit C to Complaint. The complaint further alleges that United Midwest filed its open-end mortgage in the Union County Recorder’s Office on April 9, 2001, at 10:26 a.m. Hotel Builders contended that because its mechanic’s lien related back to the Notice of Commencement, the effective date was April 6, 2001. This would mean that the *440mechanic’s lien was superior to United Midwest’s mortgage. See Ohio Rev.Code § 1311.13(F).
On October 7, 2002, Hotel Builders amended its complaint to clarify that the actual filing date of the Notice of Commencement was April 9, 2001. This amendment is borne out by the time stamp of the Union County Recorder which shows the filing occurred on April 9, 2001, at 10:31 a.m. See Exhibit D to Complaint. Thus, the Notice of Commencement was, in fact, filed after United Midwest’s mortgage.
United Midwest initially argued that in light of the order in which the hens were filed, Ohio Rev.Code § 1311.14 established the priority of its mortgage over Hotel Builders’ mechanic’s lien. In response to that argument, Hotel Builders countered that to be entitled to the priority afforded by § 1311.14, United Midwest must show that the mortgage proceeds were used and applied for the purposes of the statute. Upon further reflection, United Midwest then determined that § 1311.14 was inapplicable to the question of priority in this case because this statute only applied to situations where the construction mortgage was recorded after the Notice of Commencement. Instead, United Midwest points to Ohio Rev.Code § 5301.232 as the controlling statute in this case.
The Court agrees with United Midwest’s realization that § 1311.14 has no application to this dispute. See French’s Inc. v. Dominic Constr., Inc., 1995 WL 1100094 (Ohio App. 11 Dist. June 30, 1995) (statute applies only to construction mortgages filed after the commencement of improvements). Where, as in this case, the mortgage is an open-end mortgage recorded before the commencement of improvements, Ohio Rev.Code § 5301.232 governs its priority.
An open-end mortgage that complies with the requirements of § 5301.232(A) is a hen on the premises from the date of recording regardless of when advances are made. Ohio Rev.Code § 5301.232(B). Hotel Builders does not allege that United Midwest’ mortgage is not a proper open-end mortgage for purposes of § 5301.232(A). Furthermore, the Court’s own review of the open-end mortgage, which is attached as Exhibit E to the complaint, indicates no basis for concluding that the mortgage does not satisfy the requirements of § 5301.232(A).
Under § 5301.232(B), then, United Midwest had a valid hen against the Debtor’s real property prior to the filing of the Notice of Commencement. Because Hotel Builder’s mechanic’s hen relates back only to the time the Notice of Commencement was filed, it is subordinate to the open-end mortgage. The only way United Midwest would lose its priority under § 5301.232(B) is if it made advances after receiving written notice of an intervening lien and such advances were not obligatory. Colonial Mortg. Service Co. v. Southard, 56 Ohio St.2d 347, 384 N.E.2d 250, 252 (1978).
Hotel Builders filed its mechanic’s hen on July 18, 2002. Because Hotel Builders did not allege that United Midwest made any advances after that date, its mechanic’s hen would remain subordinate to the entire unpaid balance of United Midwest’s mortgage even if all of the factual allegations in the complaint are accepted as true.
Hotel Builders’ second amended complaint would further ahege that United Midwest failed to comply with the payment provisions of Ohio Rev.Code § 1311.14. While the Court is mindful that leave to amend should be freely granted when justice requires, it has already determined that § 1311.14 does not apply to this dispute. In light of this determination, Hotel *441Builders’ proposed amendment would be futile.
Based on the foregoing, the Court GRANTS United Midwest’s motion to dismiss for failure to state a claim and DENIES Hotel Builder’s motion for leave to amend its complaint.
IT IS SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493551/ | MEMORANDUM OPINION1
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the Motion filed by defendant EVS Holding Company (“EVS”) *34for Summary Judgment in the breach of contract action commenced by CYCH, Inc. (“CYCH”). For the reasons set forth below, the Motion will be denied.
I. FACTUAL BACKGROUND
CYCH, f/k/a CyberCash, Inc., filed a voluntary chapter 11 petition on March 2, 2001. On November 26, 2001, CYCH filed an adversary proceeding against EVS, alleging breach of contract and seeking judgment in the amount of $60,000.
Prior to filing its petition, CYCH provided services in e-commerce transactions, including electronic payment services, to both the business-to-consumer and business-to-business markets. On or about April 1, 2001, CYCH and EVS entered into a CyberCash Payment Card Service Reseller Agreement(“the Agreement”), which allowed EVS to act as a reseller of CYCH’s payment card services to EVS’ customers. EVS was to pay CYCH a monthly service fee, based on the number of EVS’ customers utilizing CYCH’s services subject to a minimum fee of $15,000.
When EVS failed to pay for services provided from January to April 2001, totaling $60,000, CYCH filed suit. EVS filed a Motion for Summary Judgment asserting that the Agreement had been terminated by it on January 10, 2001, and that consequently nothing was due from it. EVS also asserted that, even if it does owe anything, under the terms of the Agreement CYCH has agreed to indemnify it thereby precluding any recovery by CYCH. The parties have briefed the issues raised by the Summary Judgment Motion and it is ripe for decision.
II. JURISDICTION
This Court has jurisdiction over this proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (E), and (O).
III.DISCUSSION
A. Standard for Summary Judgment
The underlying purpose of summary judgment is to avoid a pointless trial in cases where it is unnecessary and would only cause delay and expense. Goodman v. Mead Johnson & Co., 534 F.2d 566, 573 (3d Cir.1976), cert. denied, 429 U.S. 1038, 97 S.Ct. 732, 50 L.Ed.2d 748 (1977). Under Fed.R.Civ.P. 56(c), summary judgment 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 a judgment as a matter of law.” See Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In deciding a motion for summary judgment, all facts must be viewed and all reasonable inferences must be drawn in favor of the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986).
B. Termination
In support of its Motion for Summary Judgment, EVS asserts that it terminated the Agreement on January 10, 2001. Paragraph 12(c) of the Agreement provided that “EVS shall have the right to terminate this Agreement for any reason after August 31, 2000.” EVS asserts that it terminated the Agreement by providing the written notice required by Paragraph 13(m) by email with a confirming paper copy to the address on the cover page of the Agreement.
CYCH disputes the alleged termination. It submitted affidavits attesting to the fact that the notice was never received and that the paper copy was sent to the wrong person. EVS argues, however, that the Agreement required merely that notice be *35sent, not that it be received. However, all inferences are required to be drawn in favor of CYCH, and one inference that could be drawn from the fact that the notice was never received is that it was not sent.
CYCH’s affidavits also state that EVS continued to use its services through April 2001 and even registered new customers after the alleged termination date. From that it could also be inferred that EVS never terminated the Agreement.
Finally, CYCH asserts that EVS has waived its right to assert that the Agreement was terminated because EVS failed to object to the assumption and assignment of the Agreement to Verisign, Inc., which was approved by this Court on April 17, 2001.
We must view the evidence submitted in the light most favorable to CYCH. CYCH has produced credible evidence, which if correct, would refute EVS’ assertion that the Agreement was terminated. Consequently, we conclude that genuine issues of material fact exist which preclude the entry of summary judgment in favor of EVS.
C. Indemnification
EVS also asserts that it is entitled to indemnification from CYCH pursuant to Paragraph 9 of the Agreement, which provides that “CyberCash shall indemnify, defend, and hold harmless EVS against all loss, damage, or expense of any kind, including attorneys’ fees and costs of litigation, arising from a claim of a third party.” CYCH opposes EVS’ indemnification argument because CYCH asserts that indemnification is only due if there is a dispute arising from the claim of a third party. EVS argues that Paragraph 9’s indemnification is not limited to claims of third parties but covers all claims that EVS may have for loss or damage.
We agree with CYCH that Paragraph 9(a) of the Agreement indemnifies only claims “arising from a claim of a third party.” In interpreting a contract, courts must “not treat any word or clause as meaningless if any reasonable interpretation consistent with the other portions of the contract can be ascribed to it.” Chantilly Constr. Corp. v. Commonwealth, 6 Va.App. 282, 369 S.E.2d 438, 445 (1988).2
EVS asserts that the “third party” reference in Paragraph 9 is simply another in the list of damages that are “included” in the indemnification provision. Thus, according to EVS’ interpretation of Paragraph 9, CYCH must indemnify EVS from all losses associated with the contract including (1) attorneys’ fees, (2) costs, and (3) those arising from the claim of a third party. We disagree. If EVS were correct the phrase would substitute a comma for the “and” between “fees and costs” and replace “arising” with “and.”
Furthermore, EVS’ interpretation would render that clause so broad as to be meaningless. It would for example require CYCH to cover any loss which EVS would suffer from its resale of services to customers, any loss from its performance under the contract, and its attorneys’ fees incurred in drafting or reviewing the contract. That is not a fair reading of the provision.
Finally, if EVS’ reading of Paragraph 9(a) were correct and indemnification was not limited to third-party claims, EVS would be able breach the contract with impunity because CYCH would be required to indemnify EVS for costs associated with its own breach. That is not a logical reading of the contract.
*36To read Paragraph 9(a) as EVS suggests would make what was once a complete sentence an incomplete one. As currently written, the Paragraph requires CYCH to indemnify EVS for costs, including attorneys’ fees and costs of litigation, that arise in connection with a claim by a third party. Accepting EVS’ reading, the Paragraph would require CYCH to indemnify EVS for costs “including ... arising from a claim of a third party,” which is nonsensical.
EVS also argues in a footnote in its Reply Brief that CYCH is a third party since the Agreement has since been assigned. However, CYCH was a party to the contract at the time the alleged breach occurred and is suing to enforce the rights it has as a party to the contract. Further, to the extent CYCH is a third party by virtue of having assigned its rights and obligations under the contract to Verisign, the duty to indemnify would also have passed to Verisign.
Consequently, we conclude that EVS is not entitled to summary judgment on its indemnification argument.
IV. CONCLUSION
For the foregoing reasons, the Motion of EVS for Summary Judgment will be denied.
An appropriate Order is attached.
ORDER
AND NOW, this 4TH day of APRIL, 2003, upon consideration of the Defendant’s Motion for Summary Judgment and the response of the Plaintiff, it is hereby
ORDERED that the Motion is hereby DENIED.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
. Paragraph 13(d) of the Agreement states that Virginia law governs. The parties do not dispute the validity of this choice of law clause. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493552/ | Opinion
STEVEN W. RHODES, Chief Judge.
Capital One Bank brought this adversary proceeding to determine the dis-chargeability of the debt owed to it by Joseph and Kara Ferro. Capital One asserts that the debt is nondischargeable pursuant to 11 U.S.C. § 523(a)(2) because the Ferros did not have the intent to repay at the time the debt was incurred. The Court conducted a trial on December 19, 2002 and took the matter under advisement. The Court now concludes that Capital One has established by a preponderance of the evidence that the debt is nondischargeable.
I.
In December 2001, Capital One issued the Ferros a Mastercard credit card. Capital One solicited Kara Ferro to open a Mastercard by sending a “quick application.” Mrs. Ferro asserts that she initially disregarded the application, but filled it out after being prompted by a solicitation phone call by Capital One. At the time of the application, Mr. Ferro had been unemployed for ten months. Prior to his unemployment, the Ferros’ highest annual income had been $70,000. On the application, the Ferros stated that their combined annual income was $108,000. Mrs. Ferro asserts that the telephone solicitor urged her to speculate what their income would be under the best circumstances and state that income on the application. After the credit card was issued, the Fer-ros transferred $16,700 in balances from other credit cards. Additionally, the Fer-ros charged $1,198.07 on the card between December 26, 2001 and January 25, 2002. They made one payment on the balance in the amount of $600. On March, 12, 2002, the Ferros filed a chapter 7 bankruptcy petition. On that date, they owed Capital One $17,442.13.
II.
11 U.S.C. § 523(a)(2)(A) addresses the dischargeability of a debt when a creditor alleges fraud, false pretenses or false representation:
*162(a) A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(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 or an insider’s financial condition!)]
11 U.S.C. § 523(a)(2)(A).
The creditor has the burden of proving by a preponderance of the evidence that a debt is nondischargeable under § 523(a)(2)(A). Grogan v. Garner, 498 U.S. 279, 286-87, 111 S.Ct. 654, 659, 112 L.Ed.2d 755 (1991).
In Rembert v. AT & T Universal Card, Servs., Inc. (In re Rembert), 141 F.3d 277 (6th Cir.1998), the court of appeals clarified that under § 523(a)(2), the creditor must prove the following elements:
(1) the debtor obtained money through a material misrepresentation that, at the time, the debtor knew was false or made with gross recklessness as to its truth;
(2) the debtor intended to deceive the creditor; (3) the creditor justifiably relied on the false representation; and (4) its reliance was the proximate cause of loss.
Id. at 280-81 (footnote omitted) (citing Longo v. McLaren (In re McLaren), 3 F.3d 958, 961 (6th Cir.1993)).
In Providian Bancorp v. Shartz (In re Shartz), 221 B.R. 397 (6th Cir. BAP 1998), the panel addressed the state of the law regarding dischargeability under § 523 in the Sixth Circuit after Rembert.
The Sixth Circuit recently clarified that “[t]he use of a credit card represents either an actual or implied intent to repay the debt incurred.” Rembert, 141 F.3d at 281. However, the court noted that use of a credit card does not imply that the user has the present ability to repay the debt. Id. Rather, the court held that fraudulent intent must be determined from the totality of the circumstances and should not be implied solely based on use of a credit card when there is no immediate ability to repay. Id. at 281-82.
Shartz, 221 B.R. at 399-400.
Thus, Rembert and Shartz hold that a debtor’s inability to pay the debt, by itself, is not enough to prove fraud or intent not to pay. Rather, the debtor’s intent must be determined from the totality of the circumstances. Factors which may be helpful in evaluating a debtor’s subjective intent to repay a credit card debt include:
(1) the length of time between the charges made and the filing of bankruptcy; (2) whether or not an attorney has been consulted concerning the filing of bankruptcy before the charges were made; (3) the number of charges made;
(4) the amount of the charges; (5) the financial condition of the debtor at the time the charges are made; (6) whether the charges were above the credit limit of the account; (7) whether the debtor made multiple charges on the same day; (8) whether or not the debtor was employed; (9) the debtor’s prospects for employment; (10) financial sophistication of the debtor; (11) whether there was a sudden change in the debtor’s buying habits; and (12) whether the purchases were made for luxuries or necessities.
Rembert, 141 F.3d at 282, n. 3.
III.
In the present case, Capital One asserts that the Ferros obtained $17,442.13 *163through false representations because each time they used the credit card they represented that they had an intent to repay the debt when in fact they did not have such an intention. Capital One also asserts that the Ferros made a false representation of their ability to pay when they made payments on the debt by using cash advances from a different card, a scheme commonly known as credit card kiting.
The Ferros assert that they did intend to repay the debt.
Accordingly, the Court must consider the totality of circumstances to determine if there was fraudulent intent. The Court finds that several factors suggest that the Ferros did not have the intent to repay the debt.
First, there was a very short length of time between the opening of the credit card account and the Ferros’ bankruptcy filing — only four months.
Second, the Ferros’ financial condition at the time they opened the credit card account was extremely poor. Mr. Ferro had been unemployed for ten months at the time the account was opened. Mr. Ferro testified that each month they only had a surplus of approximately $61 to pay on credit card debt. Mr. Ferro’s prospects for employment at that time were not good. When he was initially laid off, he had been told it would be for three months. However, at the time the account was opened, he had been laid off for ten months. Mr. Ferro testified that each month he would call to find out his chances of being re-employed and was told “maybe next month.”
Third, even though their financial condition was bad, the Ferros continued to gamble heavily. The Ferros testified that they continued to do so even though they had never won big and even though they did not expect to be able to repay their debts through gambling.
Finally, and perhaps most importantly in this case, the Ferros lied about their income on the credit application to Capital One. They represented that their annual household income was $108,000 when in fact it had never been higher than $70,000. Furthermore, they did not disclose that Mr. Ferro had been laid off for ten months at the time they submitted the application.
The Ferros assert that several facts show that they did have an intent to repay their debts. First, they argue that they transferred balances to the Capital One credit card in order to obtain a lower interest rate and that if they did not intend to pay back the debt, there would be no reason to seek a lower rate. Second, they argue that the payment of $600, which was $200 above the minimum payment, indicates a desire to pay off the debt.1 Third, they assert that their history of refinancing their home to pay off prior credit card debt indicates a desire to repay the debt rather than to discharge it.
The Court finds that the Ferros’ assertion that they intended to repay the debt is simply not credible. The Ferros’ testimony at trial differed significantly from their testimony at their Rule 2004 examination on a number of subjects, such as when they became aware they had a gambling problem, how much they owed in credit card debt at the time of their refinancing, whether or not they used the credit cards for necessities like gas and groceries, when they became aware of their financial problems, and whether or not they expected to be able to repay the debt through gambling winnings. The Court finds that Mr. Ferro’s testimony that “I just — I wanted *164to try to win so I could pay everybody off — pay the bills off’ is especially self-serving and lacking credibility. He testified at the Rule 2004 examination that he did not expect to be able to pay off his debts through winnings, however at trial he and his wife testified that they hoped it would be a source to pay off debts.
Cases such as this one, involving card-use to finance gambling, with the claim of intent to pay with gambling winnings, present a particularly difficult challenge for determining whether the debtor, at card-use, subjectively intended to pay. Obviously, gamblers gamble with the hope of winning, not losing.... But, hoping to win is not synonymous with intending to pay. “A statement of intent (I will repay) is distinguishable from a hope or a desire to [do so. It] ... suggests a plan to repay [, and] ... an anticipated source of funds from which [it] might be made.”
AT & T Universal Card Servs. v. Mercer (In re Mercer), 246 F.3d 391, 409-10 (5th Cir.2001) (emphasis in original) (citation and footnote omitted).
The Ferros’ other assertions regarding their intent to repay are equally unconvincing. A balance transfer to obtain a lower interest rate might be indicative of an intent to repay in some cases. However, in the present case, where the transfer is accompanied by new debt, and the Fer-ros made payments through cash transfers from other accounts, it is more likely that the transfer shows an intent to continue to be able to obtain credit when there is no ability to repay it.
In the present case, the Court finds that the totality of the circumstances indicate that the Ferros did not have the subjective intent to repay the debt.
IV.
In sum, the Court finds: (1) the Ferros obtained money through a material misrepresentation that they had the intent to repay the debt; (2) at the time, the Ferros knew this representation was false or made with gross recklessness as to its truth; (3) the Ferros intended to deceive Capital One; (4) Capital One justifiably relied on the false representation; and (5) its reliance was the proximate cause of loss.
The Court finds that Capital One has proven the elements of 11 U.S.C. § 523(a)(2)(A) by a preponderance of the evidence. Accordingly, discharge of the debt is denied pursuant to § 523(a)(2)(A).
The Court will enter an appropriate order.
. Although the Ferros asserted they paid $200 more than the minimum payment, they actually only paid $99 more than the minimum payment, which was $501. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493554/ | ORDER ON CROSS MOTIONS FOR SUMMARY JUDGMENT
NILES L. JACKSON, Bankruptcy Judge.
INTRODUCTION
This case is before the Court on Plaintiff/Debtor’s Motion for Summary Judgment and Defendant/Bank’s response thereto, and Defendant’s Cross-Motion for Summary Judgment, Plaintiffs Response to the Cross-Motion, and Defendant’s Reply to that response. The issue presented questions the timing of avoidance of an unsecured lien: when should it occur — at confirmation of the Chapter 12 Plan, upon entry of the Chapter 12 discharge, or post-Chapter 12 discharge?
More specifically in this case, the question becomes whether a Creditor/Bank, whose Debtor/Farmer defaulted on an extended loan payment schedule after discharge of a Chapter 12 plan, should be allowed to execute on the entire (secured and unsecured) pre-bankruptcy loan amount, or only that portion of the loan that was treated as secured under the plan and upon which payment extended beyond the term of the plan.
FACTS
Plaintiff commenced this case by the filing of his Chapter 12 petition. Thereafter, Defendant filed a proof of claim, asserting a secured claim (arising out of a state court foreclosure judgement) against Plaintiff in the amount of $315,342.48. In January 1998 the Court confirmed Plaintiffs plan that provided, inter alia, that Plaintiff would surrender 6,624 bushels of wheat in satisfaction of that portion of Defendant’s claim secured by wheat, that the full amount of Defendant’s claims secured by cattle would be paid by a date certain, and that Defendant would be given a secured claim in the amount of $75,000, to be secured by a second mortgage on ten tracts of land. Pursuant to the plan, payment on the $75,000 claim secured by the land was to extend beyond the term of the plan with semi-annual payments of $4,188.38 until December 31, 2004, at which time Plaintiff was to make a balloon payment of the balance due (as authorized by 11 U.S.C. § 1222(b)(9)). The plan treated as unsecured the remainder of the debt owed Defendant by Plaintiff.
Plaintiff completed the payments due under the plan, received a discharge, and the case was closed. Subsequently, Plaintiff defaulted on two of the post-discharge payments due Defendant. Upon such default, Defendant asserted the case of Kinder v. Security Bank & Trust Co. (In re *206Kinder), 139 B.R. 743 (Bankr.W.D.Okla.1992) authorized it to collect the full amount of its pre-bankruptcy claim, both the secured and the unsecured portion, and thereafter brought an action in state court to collect the entire amount of the loan as evidenced by its pre-bankruptcy judgment. Because Plaintiff argues Defendant’s pre-bankruptcy claim was “permanently modified” by the Chapter 12 plan, and that Defendant’s claim is now limited to the $75,000 secured claim provided in the plan, Plaintiff filed, and the Court granted, a motion to reopen the bankruptcy case to enforce the discharge injunction of 11 U.S.C. § 524. Plaintiff then filed this adversary proceeding asking this Court to resolve the legal dispute now before us.
APPLICABLE LAW AND DISCUSSION
The parties muse that the issue is of some provincial interest because two judges in this same district issued opinions addressing this issue, with conflicting results, just four months apart: In re Kinder (cited previously) and In re Leverett, 145 B.R. 709 (Bankr.W.D.Okla.1992). Kinder and Leverett have quite similar fact situations. Both cases involved debtors in Chapter 12 reorganizations. The plans in both cases bifurcated mortgage liens into secured and unsecured portions under 11 U.S.C. § 506(a). Further, both plans provided that certain secured claims would be paid out after the debtor had completed the plan and received a discharge.1
The debtors in both cases sought avoidance of the unsecured claims at issue at the time of plan confirmation, a prayer both courts rejected outright. That left the following single issue that divided the Kinder and Leverett courts: whether the lien securing the unsecured portion of the claim should be avoided at the time the discharge is granted, or upon final payment of the secured claim, which typically will not occur until long after the debtor has received a discharge. The Leverett court adopted the former position while the Kinder court sided with the latter.
While both courts agreed that “[t]he personal liability of debtors for the unsecured portion of the debt would remain intact until the entry of their discharge,” see Leverett, 145 B.R. at 713, the Kinder court carved out its position based upon concern that debtors would not complete payment of the creditor’s secured claim. It appears the court was sympathetic to the creditor’s argument that debtors, if granted lien avoidance at the time of confirmation, might encumber or sell the property before paying its secured claim in full, thus creating difficult post-discharge collection problems for creditor. Id. at 744. The creditor had specifically asked the court to find the debtors were “not entitled to the avoidance of any part of [creditor’s] lien until the later of the successful completion of their Chapter 12 Plan or satisfaction of [creditor’s] allowed secured claim,” and the court stated that “[s]o conditioning the extinction of [creditor’s] lien averts problems likely to arise should Debtors fail to complete the plan and satisfy [creditor’s] allowed secured claim.” Id. at 744 — 45 (emphasis added by the Court).
In essence, both courts agreed that avoidance of such lien should not occur at least until completion of the plan and issuance of the discharge. The Kinder court *207went farther and granted to the creditor the maximum relief requested.
In reviewing the statutory law applicable to this issue, the Court notes that the discharge provision of Chapter 12 is quite specific:
As soon as practicable after completion by the debtor of all payments under the plan, other than payments to holders of allowed claims provided for under section ... 1222(b)(9) ... the court shall grant the debtor a discharge of all debts provided for by the plan ... except any debt—
(1) provided for under section ... 1222(b)(9) of this title ....
11 U.S.C. § 1228. Collier’s explains that:
Section 1228(a) lists two types of debts that are excepted from a full-compliance discharge. The first is secured claims that the plan provides will be paid over a period of time extending beyond the payment period for unsecured claims. The reason for this exception is obvious. If the plan provides that a secured claim is to be paid over twenty years, the debtor’s obligation to pay that claim cannot be discharged at the end of three years. Such a claim will be discharged only at such time as the claim is paid. It should be noted, however, that the exception extends only to the secured portion of the claim. If the creditor’s claim was bifurcated into a secured and an unsecured portion under section 506(a), the unsecured portion is subject to discharge along with other unsecured claims and the exception to discharge applies only to the secured portion.
8 Collier on BaNKruptoy ¶ 1228.02[3][a] (15th ed. rev.) (emphasis added by the Court) (footnote omitted).
DECISION
Based upon the foregoing, the Court concludes that the $75,000 allowed post-discharge secured debt in this fact pattern constitutes the debt that is excepted from discharge under 11 U.S.C. § 1228, and the unsecured portion of the debt owed to Defendant by Plaintiff was discharged when Plaintiff completed his Chapter 12 Plan and was granted a discharge. This ruling renders moot Defendant’s request to execute upon the unsecured portion of its claim post-discharge.
Accordingly, PlaintiffiDebtor’s Motion for Summary Judgment is sustained and the Defendant/Bank’s Motion for Summary Judgment is denied.
. Such a provision, is not uncommon for restructured long term debt in Chapter 12 plans. See Leverett, 145 B.R. at 712 n. 10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493556/ | CARL L. BUCKI, Bankruptcy Judge.
The United States has moved to dismiss that portion of the debtor’s complaint which seeks to determine the discharge-ability of student loans held by the Department of Education. The central issue is whether the plaintiff can establish this cause of action even before these particular student loans have first become due.
Michelle J. Lavoie filed a petition for relief under chapter 7 of the Bankruptcy Code on July 16, 2002, at a time when she was still a student at the State University of New York at Buffalo. In schedules submitted with that petition, Lavoie reported that she owed $112,500 on educational loans held by three creditors, namely the United States Department of Education, SLM Corporation, and the New York State Higher Education Services Corporation. These entities are now defendants in the present adversary proceeding. Commenced by Lavoie less than one week after this court granted an order of discharge on October 17, 2002, this action seeks a declaration that the outstanding student loans are dischargeable as hardship obligations under 11 U.S.C. § 523(a)(8).
In her complaint, Lavoie states that from 1990 to 1994, she attended Buffalo State College, where she obtained an undergraduate degree. Sometime thereafter, she enrolled in a masters program at the State University of New York at Buffalo, and continued in that program through 2002. Presently she works as a librarian at the State University, where she earns approximately $81,000 per year. Lavoie is a divorced mother, has three minor children, and receives no child support. She alleges that she owns no significant non-exempt assets, that she is incapable of making payments on her student loans, and that to require such payments would cause her to suffer an undue hardship. In response, the Department of Education asks that the complaint be dismissed under Bankruptcy Rule 7012(b) and Federal Rule of Civil Procedure 12(b)(6), for failure to state a cause of action. For the reasons stated herein, the court will treat this motion as a request for relief under Bankruptcy Rule 7056 and thereby grants summary judgment to the Department of Education.
Lavoie’s complaint seeks relief under section 523(a)(8) of the Bankruptcy Code. This section provides that a discharge under chapter 7 will not discharge an individual from any debt “for an educational benefit overpayment or loan ... unless excepting such debt from discharge under this paragraph will impose an undue hardship on the debtor and the debtor’s dependents.” In the Second Circuit, the starting point for any analysis of this provision is the decision of the Court of Appeals in Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395 (2d Cir.1987). Under this holding, the demonstration of “undue hardship” requires a three part showing:
(1) that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the debt- or has made good faith efforts to repay the loans.
831 F.2d at 396. In the present instance, Lavoie’s position is fundamentally flawed *506with respect to the third requirement of a good faith effort to repay.
Through its counsel, the Department of Education represents it that holds 18 loans that were extended to Michelle Lavoie between 1996 and 2002 under the William P. Ford Direct Loan Program, and that the most recent disbursement was made on May 21, 2002. The Department’s records confirm that Ms. Lavoie was a student both when she filed her petition for bankruptcy relief and when she commenced the present adversary proceeding. Because she has been a student, the Department of Education has deferred payment on its loans, so that installments will first become due six months after Lavoie finishes her studies. In responding to the motion to dismiss, Lavoie has submitted an affidavit that confirms the Department’s essential factual assertions. She acknowledges that she attended school during the fall semester of 2002, that her loans obligations to the Department of Education “are currently in deferment status,” and that the loans will first become due in June of 2003.
The third element of the Brunner test is that a debtor must have made a good faith effort to repay her student loans. With respect to the loans of the Department of Education for graduate study, Lavoie has not only failed to make a good faith effort to repay. She has made no effort to repay. Under the terms of the loans, repayment is deferred for six months after completion of studies. This deferral allows an opportunity to explore options for the better employment that students hope to derive from higher education. By her own admission, the debtor commenced the present action before the six month period even began. Thus, upon filing her complaint, Lavoie had made no use of the automatic deferment in order to seek a job that would allow her to satisfy the loan obligations without undue hardship. For difficult circumstances, the Department of Education offers a number of payment and deferral programs. By filing her petition and complaint before the loans were due, Lavoie could not have explored these options. She has paid nothing on account of her indebtedness. Clearly, Lavoie has made no good faith effort to repay. Accordingly, by reason of the third prong of the Brunner standard, Lavoie may not discharge her obligations to the Department of Education.
On a motion to dismiss for failure to state a claim, the movant must show that based upon the complaint alone, the plaintiff will be unable to establish any possible state of facts that will entitle her to relief. In the present instance, the complaint alleges that Lavoie obtained student loans to finance her undergraduate education, and then after an interlude, accepted additional loans to support her graduate studies. Consistent with that pleading is the possibility that during the interval between college and graduate school, Lavoie might have attempted in good faith to repay certain of her earlier obligations. Having alleged an inability to maintain a minimal standard of living if forced to repay her loans, Lavoie might be able to discharge some of her older debts upon a showing that her subsequent education will not enhance her income potential. However, nothing in the complaint identifies which of the three defendants is now the owner of a loan that was extended at any particular point in the educational process. Accordingly, this court is unable to dismiss the complaint itself for any failure to state a claim. Nonetheless, an alternative basis for disposition is recognized by the following text of Rule 12(b) of the Federal Rules of Civil Procedure:
If, on a motion asserting the defense numbered (6) to dismiss for failure of the pleading to state a claim upon which relief can be granted, matters outside *507the pleading are presented to and not excluded by the court, the motion shall be treated as one for summary judgment and disposed of as provided in Rule 56, and all parties shall be given reasonable opportunity to present all material made pertinent to such a motion by Rule 56.
Here, outside the complaint, undisputed facts establish the inherent defect of the debtor’s claim as against the Department of Education. By means of an affidavit in support of its motion to dismiss, the Department of Education shows that it did not finance the debtor’s undergraduate education, but that its loans were given exclusively for graduate studies between 1996 and 2002. Then, in her responding affidavit, Lavoie concedes that these obligations have yet to first become due. For this reason alone, Lavoie will be unable to show any good faith effort to repay the Department of Education. Accordingly, as to this defendant, under the standard in In re Brunner, the court must grant summary judgment.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493558/ | MEMORANDUM ON UNITED STATES’ MOTION FOR SUMMARY JUDGMENT
RICHARD S. STAIR, Jr., Bankruptcy Judge.
On October 19, 2001, the Plaintiffs, Kenneth and Peggy Hunley, filed the Complaint initiating this adversary proceeding in which they seek equitable relief from this court setting aside certain recorded deeds transferring the Plaintiffs’ real property, which the Plaintiffs claim were fraudulently obtained by the Debtor, Ragip Si-nan Mungan d/b/a Mortgage Masters, Inc. The United States of America, “by and through the Internal Revenue Service” (IRS) is named as a defendant due to federal tax liens levied against the real property on account of taxes assessed against the Plaintiffs and Defendant Mortgage Masters, Inc. (Mortgage Masters).
Before the court is a Motion for Summary Judgment (Motion) filed by the IRS on October 4, 2002, asserting that regardless of which entity actually owns the real property at issue, the Plaintiffs or Mort*616gage Masters, the IRS has liens encumbering the real property based on recorded federal tax liens. The Plaintiffs filed a “Plaintiffs’ Response to United States’ Motion for Summary Judgment” on October 15, 2002, stating that their tax liability has been satisfied pursuant to payment and settlement with the IRS. Neither Mortgage Masters, the Longs, nor any other defendant filed a response to the Motion. Accordingly, no defendant opposes the Motion.1
This is a core proceeding. 28 U.S.C.A. § 157(b)(2)(A), (K), and (O). (West 1993).
I
The facts, as pertinent to the Motion, are set forth in the Plaintiffs’ Complaint and the Motion. Prior to December 1997, the Plaintiffs owned two parcels of real property, one located at 4220 Van Dyke Drive, Knoxville, Tennessee, and the other located at 610 Jade Road, Knoxville, Tennessee (collectively, the Real Property). For reasons in dispute and still to be litigated, the Plaintiffs transferred the Van Dyke property to Defendants Michael and Robin Hunley and transferred the Jade Road property to Defendants Robert and Melissa Long sometime after August 1, 1999. The Van Dyke property was subsequently transferred to Mortgage Masters. By this adversary proceeding, the Plaintiffs are seeking to set aside these conveyances as fraudulent.
The IRS filed four federal tax liens against the Plaintiffs: (1) on August 15, 1994, in the aggregate amount of $12,920.98; (2) on September 29, 1994, in the amount of $1,617.00; (3) on February 10, 1998, in the aggregate amount of $2,285.64; and (4) on March 23, 2001, in the amount of $1,083.34 (the Federal Tax Liens).2 The IRS claims that these tax liens are secured by the Real Property, regardless of whether it is owned by the Plaintiffs, the Longs, or Mortgage Masters. The IRS argues that if the Plaintiffs still own the Real Property, the 1994 tax liens attached to it prior to any alleged fraudulent conveyances or other encumbrances. Additionally, if the court later determines that the Real Property is owned by Mortgage Masters and/or the Longs, the IRS again claims to be a secured creditor by virtue of its tax liens.3
II
Rule 56 of the Federal Rules of Civil Procedure provides for 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 a judgment as a matter of law.” Fed. R. Civ. P. 56(c). Rule 56(c) is made applicable to this adversary proceeding by Rule 7056 of the Federal Rules of Bankruptcy Procedure.
*617The IRS, as the moving party, bears the initial burden of proving both that there is no genuine issue of material fact and that it is entitled to judgment as a matter of law. Owens Corning v. Nat’l Union Fire Ins. Co., 257 F.3d 484, 491 (6th Cir.2001). The burden then shifts to the nonmoving party, in this case, the Plaintiffs, to produce specific facts showing that there is, in fact, a genuine issue for trial. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986) (citing Fed. R. Civ. P. 56(e)). In doing so, the nonmoving party must cite specific evidence and may not merely rely upon allegations contained in the pleadings. Harris v. Gen. Motors Corp., 201 F.3d 800, 802 (6th Cir.2000). The facts, and all resulting inferences, must be viewed in the light most favorable to the nonmovant. Matsushita, 106 S.Ct. at 1356. The court must then decide whether “the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986).
Ill
In support of its Motion for Summary Judgment, the IRS attached copies of the Federal Tax Liens recorded against both the Plaintiffs and Mortgage Masters. The Federal Tax Liens concerning the Plaintiffs are itemized as follows:
(1) Lien filed August 15, 1994, which includes taxes in the amount of $12,920.98 for the periods ending December 31, 1989, and December 31, 1992.These taxes were assessed on May 28, 1990, and October 4, 1993, respectively.
(2) Lien filed September 29, 1994, which includes taxes in the amount of $1,617.00 for the period ending December 31, 1993, which were assessed on September 5,1994.
(3) Lien filed February 10, 1998, which includes taxes in the amount of $2,285.64 for the periods ending December 31, 1994, December 31, 1995, and December 31, 1996. These taxes were assessed on October 2, 1995, September 9, 1996, and September 29,1997, respectively.
(4) Lien filed March 23, 2001, which includes taxes in the amount of $1,083.34 for the period ending December 31, 1997, and assessed on November 16, 1998.
In response, the Plaintiffs rely upon the Affidavit of the Plaintiff, Kenneth Hunley, together with a payment receipt showing payment to the IRS in the amount of $359.84 on October 9, 2001, and a second copy of the payment receipt with a handwritten “Paid in full. D. Sester ID 62-11031” and marked “Received October 10, 2001 Internal Revenue Service, W & I Area 3, Territory 4, Knoxville, Tennessee.” In his Affidavit, the Plaintiff states that Ms. Sester, an employee of the IRS in Knoxville, Tennessee, told him that payment of the $359.84 would clear the Plaintiffs’ debt with the IRS because “the rest of the debt was in a ‘non-collectable [sic] status.’ ” The Plaintiff also avers that Ms. Sester told the Plaintiffs that “the uncol-lectable [sic] debt liens would be gone or expire by the end of 2003.” The Plaintiffs therefore contend that their debt to the IRS has been “fully satisfied and paid in full.”
IV
Federal Tax Liens are governed by the Internal Revenue Code (I.R.C.), located at title 26 of the United States Code. The statutes pertinent to this action are, as follows:
§ 6321. Lien for taxes.
*618If any person liable to pay any tax neglects or refuses to pay the same after demand, the amount (including any interest, additional amount, addition to tax, or assessable penalty, together with any costs that may accrue in addition thereto) shall be a lien in favor of the United States upon all property and rights to property, whether real or personal, belonging to such person.
I.R.C. § 6321 (West 2002).
§ 6322. Period of lien.
Unless another date is specifically fixed by law, the hen imposed by section 6321 shall arise at the time the assessment is made and shall continue until the liability for the amount so assessed (or a judgment against the taxpayer arising out of such liability) is satisfied or becomes unenforceable by reason of lapse of time.
I.R.C. § 6322 (West 2002).
§ 6325. Release of lien or discharge of property.
(a) Release of hen. — Subject to such regulations as the Secretary may prescribe, the Secretary shah issue a certificate of release of any hen imposed with respect to any internal revenue tax not later than 30 days after the day on which—
(1)Liability satisfied or unenforceable.' — The Secretary finds that the liability for the amount assessed, together with all interest in respect thereof, has been fully satisfied or has become legally unenforceable; ...
(f) Effect of certificate.—
(1) Conclusiveness. — ... [I]f a certificate is issued pursuant to this section by the Secretary and is filed in the same office as the notice of hen to which it relates (if such notice of hen has been filed) such certificate shall have the following effect:
(A) in the case of a certificate of release, such certificate shall be conclusive that the hen referred to in such certificate is extinguished;
(B) in the case of a certificate of discharge, such certificate shall be conclusive that the property covered by such certificate is discharged from the hen[.]
I.R.C. § 6325(a)(1) (West 2002).
§ 7122. Compromises.
(a) Authorization. — The Secretary may compromise any civil or criminal case arising under the internal revenue laws prior to reference to the Department of Justice for prosecution or defense; ...
(b) Record. — Whenever a compromise is made by the Secretary in any case, there shah be placed on file in the office of the Secretary the opinion of the General Counsel for the Department of the Treasury or his delegate, with his reasons therefor, with a statement of—
(1) The amount of tax assessed,
(2) The amount of interest, additional amount, addition to the tax, or assessable penalty, imposed by law on the person against whom the tax is assessed, and
(3) The amount actually paid in accordance with the terms of the compromise.
Notwithstanding the foregoing provisions of this subsection, no such opinion shah be required with respect to the compromise of any civil case in which the unpaid amount of tax assessed (including any interest, additional amount, addition to the tax, or assessable penalty) is less than $50,000. However, such *619compromise shall be subject to continuing quality review by the Secretary.
I.R.C. § 7122 (West 2002).
In summary, a valid tax lien, once recorded, remains as long as the underlying tax liability is enforceable. I.R.C. § 6322; United States v. Hodes, 355 F.2d 746, 748 (2d Cir.1966). There are only three methods for releasing an IRS tax hen: “(1) the tax lien becomes unenforceable by operation of time, (2) the debt which is the basis of the hen is paid in full or (3) an Offer in Compromise is accepted by the IRS which would settle the debt and any tax hen associated with the debt would be no longer enforceable and have to be released.” United States v. Alfano, 34 F.Supp.2d 827, 840 (E.D.N.Y.1999) (quoting In re Robert Turner Optical, Inc., Bankr.No. 93-01004, 1994 WL 779352, at *4 (Bankr.N.D.Ala. Sept.8, 1994)). To be unenforceable under I.R.C. § 6322, “all of the [IRS’s] remedies ... must be extinguished.” Id. at 839 (quoting Dillard v. United States (In re Dillard), 118 B.R. 89, 93 (Bankr.N.D.Ill.1990)).
V
In the present case, there is no question that the Federal Tax Liens have not become unenforceable by operation of time. As noted on the Federal Tax Liens, with the exception of the 1989 assessments, the re-file deadlines have not yet expired. As such, the Liens would still be enforceable.4 Additionally, there is no question that the Plaintiffs have not paid in full the total amounts assessed and covered by the Federal Tax Liens.
The first issue is whether the Plaintiffs’ $359.84 payment to the IRS constituted a compromise for the entire amount of tax liability owed by the Plaintiffs, such that it would release the Federal Tax Liens on the Real Property.
“An offer to compromise a tax liability must be made in writing, must be signed by the taxpayer under penalty of perjury, and must contain all of the information prescribed or requested by the Secretary.” 26 C.F.R. § 301.7122-1(d)(1). The offer must also be accepted by an IRS delegate authorized to accept such compromises. See Foulds v. Comm’r, 56 T.C.M. (CCH) 1112, 1989 WL 1740 (1989). “An offer to compromise has not been accepted until the IRS issues a written notification of acceptance to the taxpayer or the taxpayer’s representative.” 26 C.F.R. § 301.7122-1(e)(1). These regulations are strictly construed and compliance therewith is mandatory. Delohery v. Internal Revenue Serv., 843 F.Supp. 666, 669 (D.Colo.1994) (citing Boulez v. Comm’r, 810 F.2d 209, 215 (D.C.Cir.1987)). These regulations provide the only means by which a compromise with the IRS may be effectuated. Id. (citing Klein v. Comm’r, 899 F.2d 1149, 1152 (11th Cir.1990); Laurins v. Comm’r, 889 F.2d 910, 912 (9th Cir.1989); Brooks v. United States, 833 F.2d 1136, 1145 (4th Cir.1987)).
An informal “agreement” does not constitute a compromise under the I.R.C. and does not bind the government. See Botany Worsted Mills v. United States, 278 U.S. 282, 49 S.Ct. 129, 132, 73 L.Ed. 379 (1929). Therefore, “even if sub*620ordinate revenue officials at a conference informally [agree] to accept the taxpayer’s payment of a lien in full satisfaction of [his] tax liability, that agreement would not bind [the IRS].” Foulds, 56 T.C.M. (CCH) 1112 (citing Parks v. Comm’r, 38 T.C. 298, 301, 1959 WL 941 (1959)).
The Plaintiffs have the burden of proving that their payment of $359.84 was a compromise of their entire tax liability of $17,906.96. Id. (citing Welch v. Helvering, 290 U.S. 111, 54 S.Ct. 8, 78 L.Ed. 212 (1933)). The Plaintiffs must likewise prove that D. Sester, as the government official who allegedly formed a compromise with them, had the actual authority to bind the IRS to such agreement. See Brubaker v. United States, 342 F.2d 655, 662 (7th Cir.1965); Buesing v. United States, 42 Fed.Cl. 679, 688 (1999) (citing, among others, City of El Centro v. United States, 922 F.2d 816, 820 (Fed.Cir.1990)).
The documents provided by the Plaintiffs do not convince the court that the Plaintiffs and the IRS entered into a compromise whereby the Plaintiffs were released from their total $17,906.96 tax liability by the payment of $359.84. First, there was no offer to compromise in writing, as required by 26 C.F.R. 301.7122-1(d)(1), nor was there a written acceptance by the IRS of an offer of compromise, as required by 26 C.F.R. § 301.7122-1(e)(1). The receipt of payment evidencing the handwritten “Paid in full. D. Sester ID 62-11031” and marked “Received October 10, 2001 Internal Revenue Service, W & I Area 3, Territory 4, Knoxville, Tennessee” does not satisfy this requirement.
Moreover, after reviewing these documents, it is obvious to the court that the $359.84 payment made by the Plaintiffs was in satisfaction of their past due 1999 taxes, for which the IRS has not recorded or asserted a lien. The taxes covered by the Federal Tax Liens are for the years 1989, 1992, 1993, 1994, 1995, 1996, and 1997.
Second, the IRS did not file a certificate of release pertaining to the Federal Tax Liens with the Knox County Register of Deeds, as it is required to do in the event of a party’s satisfaction. See I.R.C. § 6325. A certificate of release of the hen must be filed, otherwise, the tax hen is not released. United States v. Waite, Inc., 480 F.Supp. 1235, 1239-40 (W.D.Pa.1979). Clearly, the IRS did not intend for the Plaintiffs’ $359.84 payment to satisfy the entire $17,906.96 balance owed by the Plaintiffs and secured by the Federal Tax Liens.5
VI
The next issue before the court is whether the Federal Tax Liens which attached to the Real Property prior to any aheged conveyances or transfers would still attach regardless of the current owner of the Real Property.
Federal tax hens attach to the property and property rights of the delinquent taxpayer. Pronto Enters., Inc. v. United States, 188 B.R. 590, 592 (W.D.Mo.1995). This includes real and personal property owned at the time of assessment and after-acquired. United States v. Gen. Motors Corp., 929 F.2d 249, 251 (6th Cir.1991). Once a federal tax lien has attached, the delinquent taxpayer “cannot avoid or defeat liability by disclaiming or renouncing interest in the property or *621transferring or conveying the interest.” United States v. Jepsen, 131 F.Supp.2d 1076, 1085 (W.D.Ark.2000) (citing United States v. Rodgers, 461 U.S. 677, 103 S.Ct. 2132, 2141 n. 16, 76 L.Ed.2d 236 (1983)). Likewise, once the lien has attached, any subsequent purchaser of the property takes subject to the IRS lien. See United States v. Bess, 357 U.S. 51, 78 S.Ct. 1054, 1058, 2 L.Ed.2d 1135 (1958) (“The transfer of property subsequent to the attachment of the lien does not affect the lien .... ”); United States v. Donahue, 905 F.2d 1325, 1331 (9th Cir.1990) (“[A] lien continues to attach to a taxpayer’s property regardless of any subsequent transfer of the property”).
It does not matter whether the Real Property is presently owned by the Plaintiffs, by the Longs, or by Mortgage Masters. In either event, the IRS maintains a security interest in the Real Property pursuant to its Federal Tax Liens filed prior to any sort of transfer. Accordingly, if the Plaintiffs still own the Real Property, it is encumbered by the Federal Tax Liens filed in their names. However, if Mortgage Masters is the owner of the Van Dyke property, that property is encumbered not only by the Federal Tax Liens in Mortgage Masters’ name, but also by the Federal Tax Liens filed in the Plaintiffs’ names prior to the first date of transfer, ie., all Federal Tax Liens filed prior to August 1, 1999. Likewise, the Jade Road property allegedly transferred to the Longs is encumbered with the Federal Tax Liens in the Plaintiffs’ names prior to and at the time of the transfer.
VII
Taking all facts and inferences in the light most favorable to the Plaintiffs, the court finds that there is no genuine issue of material fact. There was no compromise of the total tax liability evidenced by the Federal Tax Liens. Additionally, pursuant to the Internal Revenue Code, the Federal Tax Liens attaching the Real Property remain until either released or satisfied. As such, the IRS is entitled to summary judgment as a matter of law.
An order consistent with this Memorandum will be entered.
ORDER
Pursuant to the Memorandum on United States’ Motion for Summary Judgment filed this date, the court directs the following:
1. The United States’ Motion for Summary Judgment filed October 4, 2002, by the Defendant United States of America, on behalf of its agency, the Internal Revenue Service, is GRANTED.
2. The Federal Tax Liens filed against the Plaintiffs by the Internal Revenue Service on August 15, 1994, September 29, 1994, February 10, 1998, and March 23, 2001, unless otherwise released by the Internal Revenue Service, continue to encumber the real property known as 4220 Van Dyke Drive, Knoxville, Tennessee, and 610 Jade Road, Knoxville, Tennessee, and the interest of the Defendant United States in these properties is superior to all subsequently filed interests in the properties.
3. The Federal Tax Liens filed against the Defendant Mortgage Masters, Inc., by the Internal Revenue Service on February 23, 2001, April 10, 2001, and October 29, 2001, continue to encumber the real property known as 4220 Van Dyke Drive, Knoxville, Tennessee, and the interest of the United States in this property is superior to all subsequently filed interests in this property.
SO ORDERED.
. Pursuant to E.D. Term. LBR 7007-1, a party opposing a motion for summary judgment "shall respond within twenty days after the date of the filing of the motion.... A failure to respond shall be construed by the court to mean that the respondent does not oppose the relief requested by the motion.”
. Additionally, the IRS filed the following three Federal Tax Liens against Mortgage Masters: (1) February 23, 2001, in the aggregate amount of $65,897.03; (2) April 10, 2001, in the amount of $1,650.00; and (3) October 29, 2001, in the amount of $7,363.61. Because Mortgage Masters and Robert and Melissa Long do not oppose the Motion, summary judgment will be granted the IRS as to them. See supra n. 1.
. Summary judgment is being granted on this claim, so if Mortgage Masters and the Longs are deemed to own the Real Property, the Real Property is subject to the IRS liens.
. The Federal Tax Lien notices each provide that:
With respect to each assessment below, unless notice of lien is refiled by the date in column (e), this notice shall constitute the certificate of release of lien as defined in IRC 6325(a).
The deadline for re-filing the Federal Tax Lien as to the 1989 assessment was June 27, 2000. It appears that the 1989 assessment was not re-filed, and if so, the tax liability therefor, in the amount of $11,079.25, was in fact released.
. As noted earlier, however, if the IRS did not re-file its Federal Tax Lien for the 1989 assessment prior to June 27, 2000, the Notice of Tax Lien recorded on August 15, 1994, will, in fact, serve as the Certificate of Release of Lien as to $11,079.25 in tax liability, thus leaving the Plaintiffs' total tax liability as $6,827.71. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493559/ | DECISION AND ORDER
ARTHUR N. VOTOLATO, Bankruptcy Judge.
Heard on the Debtor’s Motions to reopen this no-asset, Chapter 7 bankruptcy case, and amend Schedule F to add William and Debra Woodcock as unsecured creditors. At issue is whether the Debt- or’s Motion to Amend is made in good faith, or whether the Woodcocks were intentionally omitted from his schedules by the Debtor.
The first question, i.e., whether to re-open, is easy, and that request is GRANTED.1 As for the second and more difficult issue, the standard to be used in determining whether to allow the Debtor to add a creditor is found in Fed R. Bankr.P. 9006(b)(1):
subject to exceptions not applicable here, when the bankruptcy rules require that an act be done, or permit it to be done, within a specified period and the movant moves to enlarge the period only after it expires, “the court for cause shown may at any time in its discretion ... permit the act to be done where the failure to act was the result of excusable neglect.” F.R. Bankr.P. 9006(b)(1). Therefore, a debtor seeking to schedule a creditor after the case is closed bears the burden of establishing (1) that failure to amend the list of creditors and the schedule of liabilities before the close of the case — that is, within the time permitted by Rule 1009(a) — was the result of excusable neglect and (2) that cause exists to schedule the creditor. The determination of whether particular circumstances constitute cause to amend is entrusted to the sound discretion of the bankruptcy judge. F.R.Bankr.P. 9006(b)(1) (“the court ... may ... in its discretion ... permit the act to be done” (emphasis added)).
In re Moretti, 260 B.R. 602, 607-08 (1st Cir. BAP 2001).
Disputes like this one are very fact specific, and the facts, as established by the veracity of the testimony, rule the outcome. The Debtor here, a contractor, testified that he was renovating the Woodcock’s home, that things were going very well, and that the project was all but complete. This was a $40,000 contract and the Woodcocks had paid Eacueo the full amount before the parties parted company. Eacueo insists that the Woodcocks were very pleased with all of his work until the day he failed to return a phone call by *728Mrs. Woodcock. He testified, unconvincingly, that this single incident caused the Woodcocks to throw him off the job, hold his tools hostage, file criminal assault charges against him, and to pay another contractor to complete the contract. He denied, in cross examination, the suggestion that the Woodcocks were becoming increasingly dissatisfied with his work during the project.
The objective evidence is that just prior to filing his bankruptcy petition on May 10, 2001, Eacueo pleaded nolo contendere in the Providence County Superior Court to the charge of criminal assault. Eacueo says that he pleaded to the criminal charge “to get the matter behind me and to save legal expenses.” On cross examination, Eacueo conceded that he was represented by a public defender and was not paying for his defense. Damaging his credibility even more, Eacueo now insists that he is not guilty of the assault charge and that the accusations against him are false. After the criminal matter was concluded, the Woodcocks filed a civil action against Ea-cueo in Superior Court on May 18, 2001— merely eight days after the Chapter 7 filing, with service of the summons and complaint on July 25, 2001. Despite all of this, it never occurred to Chapter 7 Debtor Eacueo to include the Woodcocks as creditors in his schedules, or to inform his bankruptcy attorney that he was being sued for a pre-petition debt. He explains that he was preoccupied with issues of marital discord and financial burdens, and that is why he did not think to list the Woodcocks in his bankruptcy. On October 1, 2001, the Superior Court entered a default against Eacueo for failing to answer the complaint, and it was only after entry of the default that the Woodcocks first learned of the bankruptcy filing.
Although Eacueo’s testimony concerning all of the operative facts is uncontradicted,2 it is not believable, and is rejected. Lovell & Hart, Inc. v. Commissioner, 456 F.2d 145, 148 (6th Cir.1972)(a Court does not have to accept testimony, even if unrebut-ted, where the circumstances surrounding the events do not lend credence to that testimony). The Debtor’s version of the facts makes no sense in the context of this dispute, and is not worthy of any consideration. The Woodcocks were on his heels during the project, then criminally, and then civilly, in a scenario described by Eacueo as a builder/customer paradise.
Even under the virtually non-existent movant’s burden under Pioneer, I find that the Debtor has failed to establish excusable neglect as the reason for his failure to list the Woodcocks as creditors. Whatever his reasons, this Debtor has not and is not now acting in good faith, and for that reason the Motion to Amend Schedule F to add the Woodcocks as creditors is DENIED, with prejudice.
Enter Judgment consistent with this opinion.
. The Debtor has other motions pending involving unrelated creditors.
. Creditor counsel’s decision not to have the Woodcocks testify was a risky one, and could have been fatal to their cause, were it not for the Debtor s lack of credibility and his utter failure to establish his version of what took place. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493560/ | DECISION & ORDER
JOHN C. NINFO, II, Chief Judge.
BACKGROUND
On March 6, 2003, a Decision & Order was entered in this case (the “Denial Decision”) that was reported at 290 B.R. 202 (Bankr.W.D.N.Y.2003).1 The Denial Decision determined that the Greece Pediatric Judgment, entered against the Debtors nearly two years after their Chapter 7 case was closed, for an unpaid debt they incurred in a Chapter 13 case prior to its voluntary conversion to the Chapter 7 case, was nondischargeable under Section 523(a)(3)(A). This Court determined that the facts and circumstances presented indicated that: (1) the Debtors had recklessly, if not intentionally, failed to schedule Greece Pediatric as a creditor when they converted to Chapter 7; and (2) Greece Pediatric had been sufficiently economically prejudiced by the Debtors’ actions and inactions that discharging the Greece Pediatric Judgment would not be justified under this Court’s decision in In re Tucker, 143 B.R. 330 (Bankr.W.D.N.Y.1992) *731aff'd, No. 92-CV-6407 (W.D.N.Y. July 28, 1998) (“Tucker”).2
On March 14, 2003, the Debtor filed a motion to amend the Denial Decision (the “Motion to Amend”) which requested that the Court determine that the Greece Pediatric Judgment had been discharged. The Motion and a related Reply Memorandum asserted that: (1) contrary to Tucker and the Denial Decision, the decision in In re Refino, 288 B.R. 320 (Bankr.D.Conn.2003) (“Refino ”) and various cases cited in Refino had correctly determined that in a closed No Asset Notice Chapter 7 case equitable factors such as those set forth in Tucker were irrelevant to the determination of dischargeability under Section 523(a)(3), even if a debtor intentionally failed to schedule a creditor3; (2) this Court erroneously determined in Tucker and the Denial Decision that, once the case was closed, a debtor in a Chapter 7 case who failed to schedule a creditor, including a debtor who had failed to schedule a post-petition pre-conversion Chapter 13 debt, was required to do more than simply advise the unscheduled creditor that there had been a bankruptcy;4 and (3) in a closed No Asset Notice Chapter 7 case the only right of an unscheduled creditor that the Court must protect is that creditor’s right to share in any future distribution.
DISCUSSION
I. Equitable Factors
It is important to keep in mind that this Court has elected, for administrative convenience only, to utilize the option afforded by Rule 2002(e)5 to employ the No Asset Notice procedure. As a result, the Clerk’s Office does not have to file and process thousands of claims in no asset cases, unnecessarily expending the time of deputy clerks and creating the need for additional *732storage.6 As discussed in Tucker, had this Court not opted for the No Asset Notice administrative convenience procedure, a bar date would have been established in the Debtors’ case, and, based upon the facts and circumstances presented, the Greece Pediatric Judgment would have been determined to be nondischargeable under Section 523(a)(3)(A).
The utilization of an optional administrative convenience procedure was never intended by this Court to reward a Chapter 7 debtor by allowing that debtor to pull out and hide behind a bankruptcy discharge trump card after he or she had: (1) intentionally, recklessly or, in some cases perhaps maliciously, failed to perform the scheduling duties required by Section 521 and Rule 1007, or Rule 1019 in cases converted from Chapter 13; and (2) prejudiced an unscheduled creditor by knowingly allowing that creditor to expend unnecessary time and incur substantial costs and expenses in prosecuting or collecting its unscheduled debt.
A holding, such as in Tucker and the Denial Decision, that unscheduled debts are not automatically discharged in a closed No Asset Notice Chapter 7 case affords the unscheduled creditor the opportunity to raise the limited equitable issues detailed in Tucker before the Bankruptcy Court or a State Court with concurrent jurisdiction. This will ensure that those courts can address any abuse of the bankruptcy system or unnecessary prejudice to an unscheduled creditor caused by debtors who fail to meet their scheduling obligations and other obligations to the bankruptcy system and their creditors.
In some cases the actions or in-actions of such a debtor may have caused sufficient economic prejudice to the unscheduled creditor that, given a relatively small balance due on the unscheduled debt, it is easier for the Court to simply determine the debt to be nondischargeable under Section 523(a)(3)(A), as this Court did in the Denial Decision. That saves the court from having to: (1) hold additional expensive hearings in order to determine the reasonable value of attorney’s fees and other costs incurred by the unscheduled creditor;7 and (2) issue an order requiring that debtor to compensate the unscheduled creditor for its economic loss. In other cases, when the balance due on the unscheduled debt is large when compared to the economic prejudice to the unscheduled creditor, the Court may require the unscheduled creditor to be made whole for the unnecessary time it expended and the expenses it incurred, and then discharge the balance of the unscheduled debt. In other cases, depending upon all of the facts and circumstances, the Court can fashion appropriate relief.
II. Obligations of the Debtor to Unscheduled Creditors
I agree with the Debtors that in an open Chapter 7 case, if an unscheduled creditor receives notice or actual knowledge of the pending Chapter 7 case from the debtor or otherwise, the creditor has the burden to take the necessary steps to protect its claim and ensure that *733it does not violate the automatic stay provided by Section 362. However, as stated in Tucker and the Denial Decision, this Court believes that once a No Asset Notice Chapter 7 case is closed, when the debtor becomes aware that an unscheduled prepetition creditor is taking actions to enforce or collect its debt, the burden shifts to the debtor to fully advise the unscheduled creditor of: (1) the details of the closed bankruptcy case; (2) the reasons why the creditor was not scheduled; (3) the fact that the Bankruptcy Court for the Western District of New York utilizes the optional Rule 2002(e) No Asset Notice procedure; and (4) the Court’s decision in Tucker, or the Denial Decision in a case converted from Chapter 13, emphasizing that it is the debtor’s intention to ensure that there will be no additional economic prejudice to the unscheduled creditor in connection with its unscheduled debt.
III. Rights of the Unscheduled Creditor
Unlike the Debtors, this Court believes that an unscheduled creditor in a closed No Asset Notice Chapter 7 case is entitled to more than a mere right to share in any distribution. The unscheduled creditor is entitled to be treated fairly and in good faith by a debtor who has failed to perform its statutory scheduling duties. Such fair treatment specifically includes the right not to be prejudiced, economically or otherwise, by that debtor’s failure to immediately take any and all steps necessary to prevent any prejudice to the unscheduled creditor, once the debtor becomes aware that the unscheduled creditor is expending time or incurring expenses to collect its debt because it has no knowledge of the debtor’s bankruptcy.
The Debtors have advanced a “no harm, no foul” argument. However, the substantial prejudice to Greece Pediatric and its attorneys, detailed in the Denial Decision, caused by the Debtors’ failure to schedule the Greece Pediatric Judgment or address the scheduling failure at the earliest possible point in time, resulted in substantial and unnecessary economic “harm” to Greece Pediatric.8
CONCLUSION
For the reasons set forth in the Denial Decision and this Decision & Order, the Motion to Amend is denied. The Court finds, as it did in its Denial Decision, that the Greece Pediatric Judgment is nondischargeable pursuant to Section 523(a)(3)(A). In the alternative, the Court finds that the Debtors must compensate Greece Pediatric for the unnecessary economic prejudice that they have caused in an amount equivalent to the balance due on the Greece Pediatric Judgment as of the date of this Decision & Order, which amount shall accrue interest at nine percent (9%) per annum on the unpaid principal amount of the original Judgment until paid in full.
IT IS SO ORDERED.
. This Decision & Order will use the same defined terms as used in the Denial Decision.
. In Tucker, this Court held that if there is a closed, no asset case where an optional No Asset Notice has been utilized pursuant to Rule 2002(e), so that no bar date has been set and the time to file proofs of claim has not expired, all that is required for the claim of the unscheduled creditor to be discharged is that: (1) the creditor receive notice or actual knowledge of the case so that it can timely file a proof of claim; and (2) there has been no intentional or reckless failure to schedule the creditor, fraudulent scheme, intentional lach-es or prejudice to the creditor. The determination of whether any of these limiting equitable circumstances exist may be made either in a state court proceeding where a debtor can raise his or her discharges in an affirmative defense, or in an adversary proceeding commenced in the Bankruptcy Court pursuant to Rule 7001(6).
. In a footnote in Refino, the Court, referencing In re Boland, 275 B.R. 675 (Bankr.D.Conn.2002), noted that "it is never appropriate for a debtor to omit a claim intentionally from a debtor's schedules [even if the debt- or intended that such debt not be discharged] ... because a debtor has a statutory duty to file an accurate schedule with claims.” Refino, 288 B.R. at 322
. The Debtors asserted that the decision in In re Medaglia, 52 F.3d 451 (2d Cir.1995) made it clear that in a Chapter 7 case an unscheduled creditor, having obtained notice or knowledge of a bankruptcy, has the burden to determine whether, under all of the facts and circumstances surrounding that debtor's bankruptcy, its unscheduled debt is dis-chargeable.
. Rule 2002. Notices to Creditors, Equity Security Holders, United States, and United States Trustee.
(e) Notice of no dividend
In a chapter 7 liquidation case, if it appears from the schedules that there are no assets from which a dividend can be paid, the notice of the meeting of creditors may include a statement to that effect; that it is unnecessary to file claims; and that if sufficient assets become available for the payment of a dividend, further notice will be given for the filing of claims.
FED. R. Bankr.P. Rule 2002(e).
. When Case Management/Electronic Case Filing is fully implemented in the Bankruptcy Court system and proofs of claims are effectively treated, it may be that Bankruptcy Courts will no longer utilize the No Asset Notice procedure, because electronically filed claims will not present additional workload and storage problems for the Clerk’s Office.
. If the debt is determined to be nondis-chargeable, the time expended and the costs and fees incurred would presumably be approximately the same as they would have been if there had been no bankruptcy.
. In this case the Debtors should have addressed the Greece Pediatric debt when they continued to receive unpaid statements during their Chapter 7 case before it was closed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493561/ | MEMORANDUM OF DECISION ON TRUSTEE’S MOTION FOR WRITS OF ATTACHMENT AND TRUSTEE PROCESS
COLLEEN A. BROWN, Bankruptcy Judge.
On March 19, 2003, the Chapter 7 Trustee (hereafter, “the Trustee”) filed a motion seeking (i) an ex parte order of attachment pursuant to V.R.C.P. Rule 4.1 and Fed. R. Bankr.P. Rule 7064 and (ii) an ex parte trustee process order pursuant to V.R.C.P. Rule 4.2 and Fed. R. Bankr.P. Rule 7064. For the reasons set forth in the Order dated March 24, 2003, the Court denied relief on an ex parte basis and directed the *798Trustee to supplement the motion with a precise description of the property he sought to attach and of the trustee process which he sought to enforce, if he wished to proceed with a motion on notice. The Trustee filed a motion dated March 25, 2003, seeking an order of attachment and trustee process on notice (hereafter, “the Motion”) (doc. # 14) and a hearing was held on April 7, 2003. Counsel representing defendants Carol Cappocia, Andrew Capoccia and Eugene Bizzarro (hereafter “Defendants’ Counsel”) filed papers in opposition to the Motion and appeared at the hearing. None of the other defendants responded to the Motion.
This Court has jurisdiction over this proceeding under 28 U.S.C. §§ 157 and 1334.
Pursuant to Fed. R. Bankr.P. Rule 7064, pre-judgment relief such as attachment and trustee process is available under the circumstances and in the manner provided by the law of the state in which the federal case is pending. Vermont law, therefore, determines the criteria which must be met in this proceeding in order for pre-judgment attachment and trustee process to be authorized. Applying the relevant provisions of V.R.C.P. Rule 4.1, the Court holds that, in order to obtain an attachment order in this proceeding, the Trustee must demonstrate: (1) a reasonable likelihood that he will recover judgment in this adversary proceeding; (2) that the defendant does not have a bond or other insurance sufficient to cover the anticipated amount of judgment; and (3) that there is a clear danger — shown by specific facts — that the attachable property will be sold to a bona fide purchaser, removed, concealed, damaged or destroyed by the defendant. See V.R.C.P. Rule 4.1(b)(2) and (4). All three components of this burden of proof must be met as to each defendant against whom the Trustee seeks an order of attachment. The Trustee’s burden to obtain an order authorizing trustee process is identical. See V.R.C.P. Rule 4.2.
The Second Circuit Court of Appeals has emphasized the unusual nature of this relief and the importance of courts insisting upon careful and thorough demonstration of the necessary elements of proof. See, e.g., Brastex Corp. v. Allen Intern., Inc., 702 F.2d 326 (2d Cir.1983). Affirming the district court, the Second Circuit quoted the lower court’s instruction: “ We all know the Supreme Court has indicated that attachment is a drastic remedy and one not lightly to be given.’ ” Id. at 328. The Second Circuit went on to instruct that “since attachment is an extraordinary remedy created by statute in derogation of common law, the provision should be strictly construed in favor of those against whom it is employed.” Id. at 332 (citing Siegel v. Northern Boulevard & 80th St. Corp., 31 A.D.2d 182, 183, 295 N.Y.S.2d 804, 806 (1st Dep’t 1968)).
In assessing whether the Trustee has met his burden of proof, the Court will divide its analysis between two categories of defendants: those against whom the Trustee presented evidence at the April 7th hearing and those against whom he presented no evidence at the hearing.
A. Reasonable Likelihood of Success on the Merits of the Complaint Regarding Defendants Against Whom No Evidence Was Introduced
At the April 7th hearing, the Trustee did not introduce any evidence with regard to the likelihood of success on the merits vis a vis defendants Howard Sinnott, Thomas J. Daly, Shirley Dinatale, Rodger Kolsky, Carlo Spano or Eugene A. Bizzarro. Therefore, the Court finds the Trustee failed to meet the V.R.C.P. Rule 4.1 and Rule 4.2 criteria for attachment or trustee *799process against these defendants, and that there is no record upon which to find that the Trustee has a reasonable likelihood of success on the merits of the Complaint as against these defendants.
At the conclusion of the hearing, counsel for Eugene Bizzarro moved for dismissal of the Trustee’s Motion as to Mr. Bizzarro. Finding there had been no testimony at the hearing with respect to the likelihood of success on the merits regarding Mr. Bizzarro, and being informed by Trustee’s counsel that the assets of Mr. Bizzarro were not the ones that were most at risk, the Court granted the motion.1
B. Reasonable Likelihood of Success on the Merits of the Complaint Regarding Andrew Capoccia and Carol Ca-poccia
The Trustee did introduce evidence against defendants Carol Cappoccia, Andrew Capoccia, and Debt Settlement Associates, Ltd. (hereafter, “DSA”). However, the Trustee’s efforts to build the necessary evidentiary record were disorganized, inconsistent with the Federal Rules of Evidence and, ultimately, unsuccessful. The Trustee’s efforts reflected inadequate preparation to build the necessary eviden-tiary record2 and were handicapped by a very vague Complaint.
The documents the Trustee was able to admit into evidence came in through two witnesses, Mr. Brian Keith, a former employee of the Debtor, and John R. Canney, III, Esq., the case trustee. The evidence admitted was limited to bank statements of the Debtor during the time of Mr. Keith’s employment with the Debtor, two promissory notes between the Debtor and DSA, and the papers filed in the instant adversary proceeding and the civil forfeiture action pending before the United States District Court for the District of Vermont, entitled United States of America v. Contents in Account No. 059-644190-69, in the name of or for the benefit of Carol Capoccia, LLC, at Prudential Securities, et al., including a federal indictment against the instant defendants. During his testimony, the Trustee asserted that he had seen documents prepared by the Department of Justice (“DOJ”) which showed that the DOJ had evidence to support the allegations raised in the Trustee’s Corn-*800plaint against defendants Andrew Capoc-cia, Carol Capoccia and DSA. This testimony might have served as the basis for establishing a reasonable likelihood of success on the merits if the Trustee had connected how the documents he had seen and a conviction on the referenced counts of the federal indictment against the defendants would establish particular causes of action raised in the Complaint against each of these three defendants.
In addition to having very little admissible proof at the hearing, the Trustee had only a barebones complaint to reference in attempting to meet his burden. For example, in his state law cause of action for fraudulent conveyance, it is not clear whether the Trustee is seeking judgment under 9 V.S.A. § 2285 et seq. (for which there is a 1-year statute of limitation for general fraud and a 4-year statute of limitation for intentional fraud) or under Vermont common law. The Complaint does not cite any statutory reference other than in Count 1, where the Trustee articulates that he is seeking relief under 11 U.S.C. § 548. As Defendants’ Counsel accurately pointed out, there was not a scintilla of evidence presented to demonstrate scien-ter. Therefore, for purposes of the attachment and trustee process hearing, the Court finds that the Trustee is not prosecuting an intentional fraud claim. This places the largest alleged transfers beyond the scope of this cause of action.3
Further, the Complaint contains eight causes of action, and the Trustee did not present his evidence in a way that linked each element of the evidence to a particular cause of action. Since it is the Trustee’s burden to create a record demonstrating a likelihood of success against each defendant on each particular cause of action, this approach further impeded the Trustee’s ability to prevail. The first seven causes of action seek a monetary judgment and will be analyzed in the context of the Trustee’s burden of proof as to each of the three defendants against whom evidence was introduced. (The eighth cause of action seeks declaratory relief and is presumed to be irrelevant to the orders sought in the instant Motion.)
(i) Cause of Action # 2 [§ 518 Fraudulent Conveyance], and Cause of Action # 3 [State Law Fraudulent Conveyance]
Mr. Keith, the Trustee’s first witness, testified that the monies allegedly misappropriated to the defendants were from client escrow accounts. Defendants’ Counsel argued that if the funds in question are client funds, then they are not property of the estate pursuant to 11 U.S.C. § 541, and thus would not be subject to recovery under the fraudulent transfer provisions of either the Bankruptcy Code or state law. The Trustee presented no proof that the funds allegedly transferred were property of the estate, nor did he cite any law in his post-hearing memorandum to support his power to avoid transfers by the Debtor of trust funds belonging to another. See generally, Bear, Stearns Securities Corp. v. Gredd, 275 B.R. 190, 194-96 (S.D.N.Y.2002) (instructing that a debtor must have an interest in the property before a trustee can avoid a transfer, and citing Begier v. Internal Revenue Serv., 496 U.S. 53, 110 S.Ct. 2258, 110 L.Ed.2d 46 (1990)).
*801During his testimony, Mr. Canney read from the indictment certain allegations against defendant Andrew Capoccia with regard to alleged transfers of funds from the Debtor, but there was no evidence admitted or testimony proffered regarding alleged transfers of funds to accounts owned by defendant Andrew Capoccia. Similarly, the Trustee was unable to admit any evidence that transfers from the Debt- or’s escrow accounts eventually went to accounts owned by defendant Carol Capoc-cia.
Thus, in light of Mr. Keith’s testimony that the funds alleged to have been inappropriately transferred were escrow funds and the lack of any evidence supporting the Trustee’s right to avoid these alleged fraudulent conveyances to the Capoccia defendants, the Court cannot, on the current evidentiary record, find that the Trastee has a reasonable likelihood of success on the second or third causes of action against either Andrew Cappoccia or Carol Capoc-cia.
(ii) Came of Action # 7 [Conversion and Theft]
The Trustee read from the federal indictment and referred to some of the Debtor’s bank statements, but presented no documentary evidence to substantiate his claim that he is reasonably likely to succeed on the merits of his Complaint against defendants Carol Capoccia and Andrew Capoccia on the conversion and theft cause of action. This cause of action is set forth in the Complaint in just two paragraphs:
25. The plaintiff restates the allegations in paragraphs 1 through 24 of this complaint.
26. The Defendants participated in a scheme, and activities in furtherance of the scheme, to take and divert monies and other property owned by the Debtor (some of such funds may have been trust funds held for the beneficial interest of others) for their own benefit and in furtherance of their scheme and with damages resulting.
The Complaint does not specify the details of the scheme, identify the activities in furtherance of the scheme or itemize the property alleged to have been diverted. The Trustee’s use of the federal indictment and bank statements did little to elucidate the Trustee’s claims and together are not sufficient to demonstrate that the Trustee is likely to succeed on his claim of conversion and theft. Limited by the rather nebulous allegations of the Complaint and dearth of evidence presented at the hearing on this cause of action, the Court cannot find that the Trustee has developed a sufficient record to show that he is reasonably likely to recover judgment against either Andrew Capoccia or Carol Capoccia on Count 7 of the Complaint.
(Hi) Came of Action # 1 [Breach of Fiduciary Duty], Cause of Action #k [Negligence], Cause of Action # 5 [Punitive Damages] and Cause of Action # 6 [Piercing the Corporate Veil]
The Trustee did not present any evidence as to the duty owed by either of the Capoccia defendants to the Debtor nor as to the relationship between these defendants and the Debtor. See, e.g., Association of Haystack Property Owners, Inc. v. Sprague, 145 Vt. 443, 447-48, 494 A.2d 122, 125 (1985) (recognizing that a breach of fiduciary duty cause of action depends on the establishment of a fiduciary duty owed); see also, e.g., Dangle v. Kurkul, 146 Vt. 513, 516, 510 A.2d 1301, 1303 (1986) (stating the four requirements for a negligence cause of action are duty owed, breach of duty, proximate cause, and damages; and instructing that where no duty *802is found, no cause of action exists). With no specific facts alleged in the Complaint, and no evidence presented at the hearing, to establish these prerequisites for a breach of duty cause of action, the Court does not have sufficient evidence before it to find that the Trustee has demonstrated a likelihood of success on the merits of Counts 1, 4, 5, or 6 of his Complaint against either Andrew Capoccia or Carol Capoccia.
C. Reasonable Likelihood of Success on the Merits of the Complaint Regarding Defendant DSA
(i) Cause of Action #1 [Breach of Fiduciary Duty], Cause of Action # U [Negligence], Cause of Action # 5 [Punitive Damages] and Cause of Action # 6 [Piercing the Corporate Veil]
Trustee’s Count 1: Breach of Fiduciary Duty is premised on the Trustee’s ability to show that DSA had a fiduciary duty to the Debtor, that such duty was breached, and that damages resulted from that breach of duty. See, e.g., Sprague, 145 Vt. at 443, 447-48, 494 A.2d 122. The Trustee did not introduce any evidence of any duty which DSA owes to the Debtor. Since the Trustee failed to establish a fiduciary duty by DSA, the Court cannot find that the Trustee has demonstrated a likelihood of prevailing in his claim that DSA breached that duty. Thus, the Court finds there is no reasonable likelihood that the Trustee can succeed on the merits of the first cause of action. Likewise, since the Trustee has failed to establish any duty owed by DSA to the Debtor, there is no basis upon which to make a finding of reasonable likelihood of success against DSA on the negligence cause of action. See, e.g., Langle, 146 Vt. at 516, 510 A.2d 1301.
The record is also devoid of any evidence of conduct by DSA that is willful, egregious or malicious. Therefore, at this stage, the Court cannot make a finding of reasonable likelihood of success regarding Count 5: Punitive Damages.
Similarly, the Trustee has failed to introduce any evidence of conduct that gives cause for piercing DSA’s corporate veil.4 See, e.g., Agway, Inc. v. Brooks, 173 Vt. 259, 790 A.2d 438 (2001) (piercing of corporate veil appropriate where it is necessary to prevent fraud or injustice). At this point, without either a proffer of evidence or specific allegations in the Complaint, there is not a sufficient record to sustain a finding that the Trustee is likely to obtain judgment against DSA on the sixth cause of action.
(ii) Cause of Action #2 [§ 5J+8 Fraudulent Conveyance]. Cause of Action #8 [State Law Fraudulent Conveyance] and Cause of Action # 7 [Conversion and Theft]
In order to demonstrate the reasonable likelihood of his success against DSA on Counts 2, 3 and 7, regarding fraudulent conveyance, conversion, and theft, respectively, the Trustee introduced two promissory notes from DSA to the Debtor. The Court finds that these documents, in combination with support for the allegations in the federal indictment as provided by Mr. Canney’s testimony, did establish that the Trustee has a reasonable likelihood of success on the merits of these three causes of action against DSA.
*803
D. The Two Other Components of the Trustee’s Burden
As stated above, in order to obtain an order approving pre-judgment attachment and trustee process under Bankruptcy Rule 7064 the Trustee must establish three prongs of proof against each defendant: (1) that it is reasonably likely he will recover judgment against that defendant in this adversary proceeding; (2) that the defendant does not have a bond or other insurance sufficient to cover the anticipated amount of judgment against it, him or her; and (3) that there is a clear danger— shown by specific facts — that the defendant’s attachable property will be sold to a bona fide purchaser, removed, concealed, damaged or destroyed by the defendant. See V.R.C.P. Rule 4.1(b)(2) and (4); V.R.C.P. Rule 4.2(b)(2).
(i)Bond or Other Insurance to Pay Judgment
In support of his original ex parte motion, the Trustee submitted an affidavit that stated in part:
I do not believe that there are insurance policies, bonds or assets otherwise available to satisfy amount that may be awarded to the estate in this litigation. I am aware that Mr. Sinnott represented to the Court in Timothy Smyth’s chapter 13 proceeding that there was no malpractice insurance available to satisfy claims.
Trustee’s Affidavit in Support of Ex-Parte Motion at ¶ 3 (doc. # 5). Based on both this affidavit and the lack of objection or rebuttal by the appearing defendants, the Court finds the Trustee has demonstrated that the defendants do not have a bond or other insurance sufficient to cover the anticipated amount of judgment.
(ii) Clear Danger of Dissipation or Loss of the Attachable Property
The Trustee has created the requisite evidentiary record of a clear danger that the attachable property of this defendant might be dissipated by admission of Carol Capoccia’s Declaration in Support of Application for Release of Funds (attached to the Trustee’s Affidavit (doc. # 5)). See V.R.C.P. Rule 4.1(b)(2) and (4). However, the Trustee has not established any record to sustain this component of his burden of proof as to any other defendant.
(iii) Identification of Attachable Property
The Trustee must identify the property he seeks to attach and affirm that it is property of the defendants named in this lawsuit. See generally, Spaulding v. Cahill, 147 Vt. 273, 514 A.2d 714 (1986) (holding that writ of attachment which did not contain description of property was defective). Exhibit 1 attached to the Trustee’s Motion (doc. # 14) lists the property the Trustee seeks to attach and/or place under trustee process, and includes the contents of accounts No. 059-644190-69, No. 35-740-093, and No. 325450051868. However, as noted in this exhibit, these accounts are identified as property of Carol Capoccia, LLC, and that LLC entity is not a named defendant in the Complaint or a party to the Motion. Similarly, the content of account No. TBJ967131E6 is identified as property of Valentino Enterprises, Inc., and this corporate entity is not a named defendant in the Complaint or Motion either. Thus, even if the Trustee were able to establish the evidentiary record necessary for pre-judgment attachment and trustee process, these assets would not be available to satisfy a judgment entered in the instant adversary proceeding.
*804
E. Conclusion
The schedules in this case disclose approximately 19,000 consumer creditors who claim funds due from the Debtor’s various law firms. During oral argument on another motion in this case, the U.S. Attorney asserted that the DOJ’s scrutiny of the Debtor’s records indicates that even if the government prevailed in the extensive forfeiture action currently pending, the amount necessary to provide restitution to the Debtor’s prior clients could exceed the amount available by as much as $4 million. Since it appears that the only other likely source of money to satisfy claims of former clients is the bankruptcy estate, there are particularly compelling public policy reasons to locate and protect funds that could be used to satisfy a judgment entered in this adversary proceeding.
However, the controlling statues and case law prohibit this Court from granting pre-judgment attachment unless the Trustee creates an evidentiary record establishing: (1) a reasonable likelihood that he will succeed on the merits of his Complaint; (2) the defendants lack a bond or insurance to protect the Trustee’s right to collect judgment; and (3) there is a genuine risk of dissipation or loss of the attachable property. The Trustee has failed to produce the evidentiary prerequisites for pre-judgment attachment and trustee process against any of the defendants. The Trustee has shown a reasonable likelihood of success on the merits against DSA and that DSA lacks a bond or insurance, but failed to prove risk of dissipation of assets against that defendant. The Trustee has proved that defendant Carol Capoccia lacks a bond or other insurance to pay a judgment and that there is a risk that her assets might be dissipated if not attached, but faded to prove that he is likely to succeed on the merits of his Complaint against her. The evidence the Trustee presented against defendant Andrew Ca-poccia was insufficient to establish either reasonable likelihood of success on the merits or risk of dissipation. Finally, the Trustee did not offer any evidence on likelihood of success on the merits or risk of dissipation of asset against defendants Howard Sinnott, Thomas J. Daly, Shirley Dinatale, Rodger Kolsky, Carlo Spano or Eugene A. Bizzarro.
Consequently, based upon the current record, the Trustee’s motion must be denied in toto. This Memorandum constitutes the Court’s findings of facts and conclusions of law.
. The Trustee’s counsel opposed the motion to dismiss against Defendant Bizzarro on the ground that there were allegations against Mr. Bizzarro in the federal indictment upon which the Court could rely to find a reasonable likelihood of success on the merits against that defendant in the adversary proceeding. However, Trustee's counsel acknowledged that this was indirect evidence. The Court ruled that the burden was on the Trustee to prove the "reasonable likelihood” element, and that mere submission of the indictment for the Court's review was not sufficient to establish the Trustee's burden.
. The Court took several recesses in order to give the Trustee an opportunity to copy, organize and show opposing counsel exhibits. Moreover, more than once, Trustee's counsel apologized for his failure to have the witnesses or documents he needed in order to gain admission of documents that would more thoroughly address certain components of his burden. However, Trustee’s counsel had no response to the Court's inquiry about why the Trustee had not acquiesced to, or joined, the motion by Defendants’ Counsel to adjourn the April 7th hearing to a later date so he could more thoroughly prepare. Typically, time is of the essence in these motions for pre-judgment remedies. Here, however, by virtue of the district court’s forfeiture order, the United States government has frozen all of the assets sought in this proceeding. Moreover, the forfeiture order will continue until at least the end of April 2003. See United States of America v. Contents in Account No. 059-644190-69, in the name of or for the benefit of Carol Capoccia, LLC, at Prudential Securities, et al., 253 F.Supp.2d 789 (D.Vt.2003), and order (D.Vt. Apr. 15, 2003).
. The Trustee introduced Exhibit 1 (as stipulated) and Exhibit 3A to demonstrate there were seven transfers totaling $187,500, from the Debtor's bank accounts to bank accounts of defendant Carol Capoccia. However, even assuming, arguendo, that these transfers did occur as alleged, only three of these transfers occurred within one year of the filing of Debt- or's bankruptcy petition: (1) a $12,500 transfer on January 9, 2002; (2) a $12,500 transfer on January 23, 2002; and (3) a $37,500 transfer on February 6, 2002.
. Further, DSA's president, Rodger Kolsky, is not a named defendant. Thus, even if there were a reasonable likelihood of success on the merit on this count, it is not clear who the Trustee seeks to hold responsible for the damages allegedly caused by defendant DSA. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493565/ | OPINION
LARRY L. LESSEN, Bankruptcy Judge.
This matter is before the Court on the Plaintiffs Motion for Summary Judgment on Count I of her Complaint and the Defendant’s Response thereto.
Plaintiff and Defendant were married on November 10, 1984. Two children were born to the parties — one in May, 1985; the other in September, 1988. The marriage was dissolved on February 9, 2000, by a Judgment of Dissolution of Marriage (“Judgment”) entered in Adams County, Illinois. Physical custody of the children was awarded to Plaintiff with reasonable rights of visitation granted to Defendant. Paragraph C of the Judgment states as follows:
C. [Mr. Waters] hereby agrees to pay to [Mrs. Waters] the sum of $75.00 per week in child support commencing the date of this Judgment for Dissolution of Marriage and continuing until such time as the debt on the marital residence is reduced from the sale of the house across the street at which time child support will be increased to $125 per week. Said child support shall continue until the youngest child reaches age 18 or graduates from highschool [sic], whichever is the latter of the two.
Paragraph E of the Judgment provides in part as follows:
E. [Mrs. Waters] is hereby awarded the real property located at 801 W. Quincy, Pleasant Hill, Pike County, Illinois. [Mr. Waters] agrees to continue paying the indebtedness on the marital residence until such time as the debt is reduced to $18,000. At said time, [Mrs. Waters] agrees to assume and pay the remaining indebtedness thereafter.
Paragraph F of the Judgment provides as follows:
F. [Mr. Waters] is hereby awarded the real estate located at 802 W. Quincy, Pleasant Hill, Pike County, Illinois. Said real estate is current on the commercial real estate market for sale and at the time of the sale of the property, the net proceeds shall be applied to the outstanding indebtedness on the marital residence located at 801 W. Quincy, Pleasant Hill, Pike County, Illinois.
*909On April 8, 2002, Defendant filed his voluntary Chapter 7 petition in bankruptcy. On July 29, 2002, Plaintiff commenced this adversary proceeding with a two-count Complaint. Plaintiff seeks a determination that Defendant’s debt to Plaintiff arising out of the Judgment is nondischargeable pursuant to 11 U.S.C. § 528(a)(5) [Count I] or 11 U.S.C. § 523(a)(15) [Count II].
Plaintiff and the parties’ two children have continuously resided at 801 W. Quincy, Pleasant Hill, Pike County, Illinois, which is also referred to as the “marital residence” in the Judgment.1 Defendant stopped making payments on the mortgage on the marital residence in October, 2001. Plaintiff has made all payments on the mortgage on the marital residence since October, 2001. Defendant sold the property located at 802 W. Quincy, Pleasant Hill, Pike County, Illinois — also known as “the house across the street” in the Judgment — but did not apply the proceeds, or any part thereof, from the sale against the mortgage on the marital residence. The current balance on the mortgage on the marital residence is in excess of $18,000.00.
In order to prevail on a motion for summary judgment, Plaintiff must meet the statutory criteria set forth in Rule 56 of the Federal Rules of Civil Procedure, made applicable to adversary proceedings by Federal Rule of Bankruptcy Procedure 7056. Rule 56(c) states in part as follows:
[T]he judgment sought shall be rendered forthwith 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.
Fed.R.Civ.P. 56(c). See also Dugan v. Smerwick Sewerage Co., 142 F.3d 398, 402 (7th Cir.1998). The primary purpose for granting a summary judgment motion is to avoid unnecessary trials when there is no genuine issue of material fact in dispute. Trautvetter v. Quick, 916 F.2d 1140, 1147 (7th Cir.1990). The burden is on the moving party to show that no genuine issue of material fact is in dispute. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-86, 106 S.Ct. 1348, 89 L.Ed.2d 538; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). All reasonable inference drawn from the underlying facts must be viewed in a light most favorable to the party opposing the motion. Parkins v. Civil Constructors of Illinois, Inc., 163 F.3d 1027, 1032 (7th Cir.1998). “Summary judgment is not an appropriate occasion for weighing the evidence; rather the inquiry is limited to determining if there is a genuine issue for trial.” Lohorn v. Michal, 913 F.2d 327, 331 (7th Cir.1990).
Section 523(a)(5) provides in relevant part as follows:
(a) A discharge under section 727... of this title does not discharge an individual debtor from any debt—
(5) 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, *910determination made in accordance with State or territorial law by a governmental unit, or property settlement agreement....
11 U.S.C. § 523(a)(5).
A debt owed to a former spouse or a debt to be paid to a third party in the nature of alimony, maintenance, or support pursuant to a divorce decree is nondischargeable in bankruptcy under 11 U.S.C. § 523(a)(5). See In re Coil, 680 F.2d 1170, 1171 (7th Cir.1982); In re Maitlen, 658 F.2d 466, 468 (7th Cir.1981); In re Bradaric, 142 B.R. 267, 269 (Bankr.N.D.Ill.1992). Obligations that arise as part of the division of marital property, however, are dischargeable under that section. Coil, supra, 680 F.2d at 1171.
The determination of whether a debt is in the nature of alimony, maintenance, or support is a matter of federal bankruptcy law rather than state law. In re Haas, 129 B.R. 531, 536 (Bankr.N.D.Ill.1989); In re Seidel, 48 B.R. 371, 373 (Bankr.C.D.Ill.1984). In making this determination, the Court must look to the substance of the obligation and not to labels imposed by state law. See Maitlen, supra, 658 F.2d at 468; In re Cockhill, 72 B.R. 339, 341 (Bankr.N.D.Ill.1987). The critical and principal inquiry is whether the intent of the divorce court and the parties was to provide support or divide marital property and debts. In re Wright, 184 B.R. 318, 321 (Bankr.N.D.Ill.1995).
In this case, and viewing the facts in a light most favorable to the Defendant, it is clear that the subject obligation is in the nature of a support obligation and is nondischargeable pursuant to 11 U.S.C. § 523(a)(5). It is patently obvious that the divorce court intended that the Defendant pay down the mortgage on the marital residence with the proceeds from the sale of “the house across the street” as additional support for the minor children. The Judgment awarded physical custody of the two minor children to the Plaintiff, so it is inferential that providing shelter to the children is in the nature of support. In addition, Paragraph C of the Judgment makes clear that Defendant’s cash child support obligation was reduced until “the house across the street” could be sold and the sale proceeds applied to reduce the mortgage on the marital residence, thereby abrogating Defendant’s responsibility to continue paying the indebtedness on the marital residence. It would be hard to conceive a clearer nexus between a child support obligation and an obligation to pay a mortgage payment.
For the reasons set forth above, Plaintiffs Motion for Summary Judgment is granted and the subject debt is deemed nondischargeable pursuant to 11 U.S.C. § 523(a)(5).
This Opinion is to serve as Findings of Fact and Conclusions of Law pursuant to Rule 7052 of the Rules of Bankruptcy Procedure.
. Paragraph 4 of Plaintiff's Affidavit contains a typographical error. Plaintiff states that she resides "at 802 W. Quincy, Pleasant Hill, Pike County, Illinois, which is also referred to as the ‘marital residence' in the Judgment for Dissolution of Marriage.” (emphasis added). All of the other pleadings and exhibits filed in this case refer to 801 W. Quincy as "the marital residence” and 802 W. Quincy as "the house across the street”. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493566/ | ORDER SUSTAINING IN PART AND DENYING IN PART TRUSTEE’S MOTION TO RECONSIDER
NILES L. JACKSON, Bankruptcy Judge.
Background
Debtors filed their Chapter 13 Petition and Plan on February 1, 2002. The proposed plan provided for a monthly mortgage payment in the amount of $752.10. The Court entered the Order confirming Debtors’ plan on April 29, 2002, which provided for ongoing mortgage payments in the amount of $752.10.
On February 23, 2003, Debtors objected to the monthly mortgage payment portion of the proof of claim filed pre-confirmation by The Leader Mortgage Company.1 According to the objection, the claim was incorrect because the creditor continued to collect mortgage life insurance premiums after said insurance had been cancelled. The Debtors’ objection asked that the monthly mortgage payment be reduced from $752.10 to $701.78, and also asked the Court to direct the mortgage company to pay Debtors’ attorney $500 “for its failure to timely reduce its monthly payment
The objection drew no response, and counsel for Debtors submitted an order to the Court granting all requested relief. The Court entered this Order on April 1, 2003, and the order was filed by the Clerk of the Court on April 4, 2003.
Pending before the Court is the motion of the Office of the United States Trustee (hereinafter the “UST”) to reconsider the Order Sustaining Objection to Proof of Claim filed April 4, 2003, insofar as it granted Debtors’ attorney a fee of $500. The Court conducted a hearing on the UST’s motion and Debtors’ response thereto, at the conclusion of which the Court took the matter under advisement. Having reviewed the file, the pleadings, the arguments of the parties, and the applicable law, the Court finds as follows.
Contentions of the Parties
The UST objects to the granting of such fee, arguing there is no authority for awarding an attorney fee under these circumstances, other than through filing a motion for sanctions under § 9011(c). During the hearing on the motion to reconsider, the UST cited In re Smith, 230 B.R. 437 (Bankr.N.D.Fla.1999), to support his argument.
Counsel for Debtors responded, explaining it was necessary to object to the proof of claim because the mortgage company had failed to amend its claim to reflect cancellation of the mortgage life insurance. Debtors’ counsel believed the mortgage company should pay his fee for researching the problem and prosecuting the objection which was prompted by its failure to act. Other reasons cited by Debtors’ counsel in support of his argument were: 1) there was no response to the objection to the proof of claim, so he should there*74fore receive all relief requested; 2) the Debtors should be characterized as a “prevailing party” in an action to collect an account and be awarded an attorney’s fee pursuant to Okla. Stat. tit. 12, § 936; and 3) fees are awarded to attorneys for mortgage companies for filing proofs of claim, so fees should likewise be awarded against the mortgage companies when a debtor’s attorney has to take action to correct the claim.
Applicable Law and Discussion
The Court will first address the question raised by Debtors’s counsel as to whether the UST had standing to file a motion to reconsider this Court’s order, especially since the standing Chapter 13 Trustee received notice of the objection and did not respond.2 Although no authority was cited by either side, the Court’s research revealed statutory authority providing that the UST “shall ... whenever the [UST] considers it appropriate ... review[ ] ... applications filed for compensation ... under section 330 ... and [file] with the court comments ... and, if ... appropriate, objections to such application.” 28 U.S.C. § 586(a)(3)(A). This language is also referenced in the comments to § 330. Accordingly, the Court finds the UST did have standing to file the motion to reconsider.
Next, the Court wishes to address deficiencies in the record. The objection filed by Debtors states that it objects to the “monthly mortgage payment portion of the Proof of Claim filed by [the mortgage company] ... in the amount of $752.10.” The Court has examined the proof of claim and finds that nowhere does it state that the monthly mortgage payment is $752.10. There are several references to other payment amounts-—the arrearage calculation on the second page of attachments reflects four late payments at $701.78 and one late payment of $752.56, and the printout on the fifth page of attachments reflects the payment amount is $701.78. Thus, the Court is puzzled as to the origin of this figure. Further, there is nothing in the file explaining when the purported mortgage life insurance was initiated nor when it was terminated. How then, did Debtors’ counsel know that the mortgage company was charging Debtors for such insurance, and how did he know the insurance had been cancelled? If such cancellation occurred, was it pre- or post-confirmation? Though these questions were not raised by the UST during the hearing, they cast doubt in the mind of the Court regarding the validity of the objection.
Solely for purposes of addressing the merits of the motion, the Court will assume Debtors had a valid basis for objecting to the proof of claim. The main prong of the argument made by Debtors’ counsel rests upon Okla. Stat. tit. 12, § 936, which allows a prevailing party to collect an attorney fee in “any civil action to recover on an open account, a statement of account, account stated, note, bill, negotiable instrument ..., unless otherwise provided by law or the contract which is subject to the action ....” It is the Court’s opinion that § 936 is inapplicable herein because the embedded phrase “unless otherwise provided by law” brings into play 11 U.S.C. § 330 from which this Court derives its authority to award attorney fees in bankruptcy cases.
Debtors’s other argument-equity-has appeal to this Court, but counsel did not cite any supporting legal authority. If *75the facts are correct as stated by counsel, albeit not substantiated by the record, and if Debtors were paying premiums on mortgage insurance that was cancelled post-confirmation, this Court agrees that the payment being made by Debtors should have been reduced. The mortgage company’s failure to notify the Chapter IB Trustee or take action to correct the situation justified some type of action by Debtors’ counsel.
During the hearing, Debtors’s counsel agreed with the UST’s argument that he could have served the mortgage company with an objection to the ostensibly offending proof of claim combined with a request for sanctions under Fed. R. Bankr. P. 9011(c), allowed the twenty-one day “safe harbor” response time to elapse, then he could have filed the motion with the Court and sought an attorney fee as part of the sanctions against the mortgage company for failing to withdraw or correct the proof of claim.3 It appears to the Court this may have been the appropriate way to proceed, based upon the prayer in Debtors’ objection that the mortgage company “be directed to pay Debtors’ attorney $500.00 for its failure to timely reduce its monthly payment ...,” which language sounds more like it seeks to punish the mortgage company and deter the conduct in the future rather than simply seeking reimbursement of fees.
Nonetheless, Debtors’ counsel then asked what would happen if the creditor withdrew the offending proof of claim during the safe harbor period? Who would pay the debtor’s attorney for researching, drafting, and filing the document to obtain that result, particularly when these matters arise post-confirmation and the attorney fee has already been fixed in the confirmation order?
The UST’s answer is that a debtors’s counsel has no fee recourse for the action he took to correct the errant creditor’s mistake, except that such additional work must of necessity be considered as part of the overall attorney fee awarded in the case, even though done post-confirmation. The Smith case, cited by the UST, states without reservation: “No code provision exists for awarding attorney’s fees in objecting to a claim.” 230 B.R. at 440. Nor did the mortgage contract involved in Smith provide for payment of fees to the debtor’s attorney. Neither party could show the Court such a provision in the contract involved in this case either.
Having determined that Oxla. Stat. tit. 12, § 936 is not applicable, and it appearing that Fed. R. BankR. P. 9011 may not adequately address this particular situation, we thus return to § 330 of the Bankruptcy Code which provides that:
In a chapter 12 or chapter 13 case in which the debtor is an individual, the court may allow reasonable compensation to the debtor’s attorney for representing the interests of the debtor in connection with the bankruptcy case based on a consideration of the benefit and necessity of such services to the debtor ....
11 U.S.C. § 330(a)(4)(B). In this district, this code section is supplemented by the attorney fee provisions of this Court’s recently amended Chapter 13 Guidelines. The Guidelines provide for an attorney fee of up to $250 for post-confirmation services, but further provide that in cases filed April 1, 2003, or thereafter, the fee awarded upon confirmation of a chapter 13 case “shall constitute compensation for *76fees and expenses incurred for all pre-confirmation services and nominal post-confirmation services, including ... objecting to proofs of claim .... ” This case was filed prior to April 1, 2003, and upon the facts of this case, Debtors’ counsel’s objection to the proof of claim was obviously beneficial to the Debtors, even if only by default. As counsel already had been awarded attorney fees for his work through confirmation of this chapter 13 case, if this court fails to allow attorney fees for counsel’s post-confirmation work under this fact situation, there is no incentive for him to do such work in the future that is necessary and beneficial to a debt- or.
The Court also feels compelled to consider counsel’s equitable argument that the mortgage company wholly failed to respond to Debtors’ objection to its proof of claim and, as previously mentioned, said objection contained clear notice that Debtors’ counsel was requesting a $500 attorney fee.
Decision
Based upon the foregoing, the Court concludes that, given the specific facts in this case, where counsel could not reasonably have anticipated this problem pre-confirmation, Debtors’ counsel may be entitled to a reasonable attorney fee for his work in successfully resolving the disputed mortgage payment amount. After consideration of the apparent simplicity of research and work involved in drafting the objection, which was less than one page in length and contained a one-sentence argument, and in light of the fact that the Court was not provided with all relevant facts, it is the Court’s opinion that a reasonable fee in this case is $200. Such fee will be awarded once Debtors’ counsel cures the deficiencies in the record set out on page four of this Order, and such amount is to be included when calculating the total fee received by Debtors’ counsel in this case.
Finally, and left for another day is the issue addressed in the Smith case, cited by the UST, as to the propriety of awarding a flat fee to counsel representing mortgage lenders.
Based upon the reasons and authority stated above, the UST’s motion to reconsider is sustained in part and denied in part.
. The Leader Mortgage Company filed its Proof of Claim on March 5, 2002.
. The attorney for the Chapter 13 Trustee represented that office did not file a responsive pleading because the granting of the attorney fee would have no effect on the Chapter 13 Plan or property of the bankruptcy estate.
. The Court questions whether this procedure would comply with the requirement that "[a] motion for sanctions under this rule shall be made separately from other motions or requests ....” Fed. R. Bankr P. 9011(c)(1)(a) (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493567/ | *78
MEMORANDUM OPINION
ROBERT F. HERSHNER, Jr., Chief Judge.
J. Coleman Tidwell, Chapter 7 Trustee, Trustee, filed objections to the allowance of certain claims on October 24, 2002. A & M Check Cashing, Inc. and Ingleside Florist (collectively “Respondents”) filed responses on November 29, 2002. David L. Arrington, Debtor, filed objections to Respondents’ claims on December 26, 2002, and January 21, 2003. The objections to claims came on for hearing on January 22, 2003, and February 25, 2003. The Court, having considered the record and the arguments of counsel, now publishes this memorandum opinion.
Debtor owned an interest in certain commercial real property (the “realty”).1 There was a pending contract to sell the realty for more than $1 million. Respondents believed that Debtor’s share of the net proceeds would total some $300,000. Respondents and a third creditor, Snead & Associates, were concerned that Debtor would sell the realty, but would not use the proceeds to satisfy his obligations.
Respondents and Snead & Associates filed on April 4, 2002, an^involuntary petition under Chapter 7 of the Bankruptcy Code against Debtor.2 The Court entered an order scheduling an expedited hearing for the appointment of an interim trustee. The hearing was set for April 11, 2002. Debtor filed on April 11, 2002, a number of motions in response to the involuntary petition.3
An amendment to the involuntary petition was filed on April 11, 2002. The amendment adds Larry A. Williams and Pete Welborne as petitioning creditors.
Debtor reached an agreement with Respondents and the other petitioning creditors. The terms of the settlement agreement were announced in open court on April 11, 2002. Debtor consented to the entry of an order for relief under Chapter 7 of the Bankruptcy Code.4 Debtor agreed to withdraw his motions. Respondents and the other petitioning creditors agreed to file their proofs of claim within ten days.5 Mark Roadarmel, Assistant United States Trustee, announced that he would expedite the appointment of a Chapter 7 trustee so that the trustee could review the pending sale of Debtor’s realty.6 The settlement agreement announced in open court did not address the consequences of any party’s failure to perform under the terms of the agreement.
Debtor, on April 11, 2002, withdrew his motions filed in response to the involuntary petition. The Court entered on April 11, 2002, an order for relief under 11 U.S.C.A. § 303. J. Coleman Tidwell was appointed to be the Chapter 7 Trustee.
Respondents and the other petitioning creditors failed to file proofs of claim within ten days (that is, by April 21, 2002). Respondents’ counsel concedes that he simply neglected to file the proofs of claim.
The Clerk of Court sent a notice dated April 19, 2002, advising that creditors must file proofs of claim on or before July 18, *792002, (“the bar date”).7 Respondents,8 Mr. Williams, Mr. Welborne,9 and a number of other creditors filed proofs of claim prior to the bar date. Snead & Associates did not file a proof of claim.
Debtor filed his bankruptcy schedules on April 26, 2002. Debtor listed as disputed his obligations to Respondents. Debtor noted on an attachment to Schedule F that the claims of Respondents and the other petitioning creditors “are barred by failure to comply with the agreement. The claims were not filed within [ten] days.”
The Court entered an order on July 19, 2002, granting Debtor a discharge from all dischargeable obligations. Trustee has liquidated Debtor’s commercial realty. The assets of the bankruptcy estate may be sufficient to pay all claims in full and return a dividend to Debtor.
Trustee and Debtor argue that Respondents’ claims should be disallowed because the claims were not filed within ten days.10 Debtor argues that he relied upon the ten-day commitment in agreeing to dismiss his motions.
In Schwartz v. Florida Board of Regents,11 the Eleventh Circuit Court of Appeals stated, in part, as follows:
The construction of the settlement agreement is a question of law subject to de novo review by this court. A settlement agreement is a contract and, as such, its construction and enforcement are governed by principles of Florida’s general contract law. Words in a contract are to be given their plain and ordinary meaning, and it is not for the court to add or subtract any language from the face of a clearly worded agreement. Nor is the court to add to a settlement terms that were not contemplated by the parties. The court’s role is to determine the intention of the parties from the language of the agreement, the apparent objects to be accomplished, other provisions in the agreement that cast light on the question, and the circumstances prevailing at the time of the agreement.
807 F.2d at 905.
“An agreement to settle a legal dispute is a contract.... The enforceability of settlement agreements is governed by familiar principles of contract law. A settlement contract may not be unilaterally rescinded. Upon breach by one party, the other party may obtain damages or specific performance as appropriate.” Village of Kaktovik v. Watt, 689 F.2d 222, 230 (D.C.Cir.1982).
‘Where the parties, acting in good faith, settle a controversy, the courts will enforce the compromise without regard to what the result might, or would have been, had the parties chosen to litigate rather than settle.” J. Kahn & Co. v. Clark, 178 F.2d 111, 114 (5th Cir.1949).
“[T]he fact that the [settlement] agreement is not in writing does not render it unenforceable.” Hensley v. Alcon *80Laboratories, Inc., 277 F.3d 535, 540 (4th Cir.2002).
Georgia law may provide the remedy for Respondents’ breach of the settlement agreement. Resnick v. Uccello Immobilien GMBH, Inc., 227 F.3d 1347, 1350 n. 4 (11th Cir.2000) (“Because this settlement agreement is between two private parties, federal common law does not apply.”) (state contract law applies even though settlement agreement arose under the American with Disabilities Act); Hayes v. National Service Industries, 196 F.3d 1252 (11th Cir.1999) (applying Georgia law to construction and enforceability of settlement agreement arising under federal employment discrimination claim).
Under both federal law and state law, the usual remedy for breach of a settlement agreement is monetary damages or specific performance. See Penobscot Indian Nation v. Key Bank of Maine, 112 F.3d 538, 558 n. 28 (1st Cir.), cert. denied, 522 U.S. 913, 118 S.Ct. 297, 139 L.Ed.2d 229 (1997); TNT Marketing, Inc. v. Agresti 796 F.2d 276, 278 (9th Cir.1986); Hayes, 196 F.3d at 1253-54 (vacating liquidated damages award that was grossly disproportionate to damages reasonably expected to flow from breach of settlement agreement); Paul Dean Corp. v. Kilgore, 252 Ga.App. 587, 556 S.E.2d 228, 234 (2001) (punitive damages not recoverable for breach of settlement agreement even if breaching party acted in bad faith).
The usual remedy for breach of contract is monetary damages. See United States v. Winstar Corp., 518 U.S. 839, 116 S.Ct. 2432, 2460, 135 L.Ed.2d 964 (1996) (“damages are always the default remedy for breach of contract”).
A settlement agreement is a contract under Georgia law. Gray v. Higgins, 205 Ga.App. 52, 421 S.E.2d 341, 344 (1992); Hall v. Coram Healthcare Corp., 157 F.3d 1286, 1289 (11th Cir.1998), cert. denied, 526 U.S. 1114, 119 S.Ct. 1760, 143 L.Ed.2d 791 (1999); Wong v. Bailey, 752 F.2d 619, 621 (11th Cir.1985).
It is undisputed that Respondents breached the settlement agreement by failing to file their claims within ten days. The issue presented is the proper remedy for Respondents’ breach.
The settlement agreement does not address the remedy for a breach of the agreement. The Court can only conclude that the usual remedy for a breach should apply. The Court is persuaded that an award of monetary damages is the appropriate remedy for Respondents’ breach. The Court notes that specific performance is not possible because the ten-day period has long since expired. Rescission of the settlement agreement is not possible.12 Trustee has substantially administered Debtor’s bankruptcy estate.
Debtor argues that the remedy for Respondents’ breach should be disallowance of Respondents’ claims. The Court notes that neither law nor equity favors forfeitures. See Hendrix v. W.R. Altman Lumber Co., 145 F.2d 501, 504 (5th Cir.1944); Ory v. Tate, 211 Ga. 256, 85 S.E.2d 36, 39 (1954); APAC-Georgia, Inc. v. Dept. of Transportation, 221 Ga.App. 604, 472 S.E.2d 97, 99 (1996), cert. denied, (all ambiguities in a contract are resolved against existence of a forfeiture).
“[Debtor] cannot be placed in a better position than he would have been in if the contract had not been breached.” Gainesville Glass Co. v. Don Hammond, Inc., 157 Ga.App. 640, 278 S.E.2d 182, 186 (1981).
If Respondents had filed their claims within ten days, the claims would have *81been allowed unless Debtor successfully contested the merits of the claims. Forfeiture would put Debtor in a better position than if Respondents had timely filed their claims.
Respondents argue that the consequences of not filing their claims within ten days should be the subordination of their claims to other claims filed before the bar date. See 11 U.S.C.A. § 726(a)(3) (West 1993) (allowed unsecured claim proof of which is tardily filed receives distribution after timely filed claims and before distribution to debtor). The Court is not persuaded by Respondents’ argument. Respondents breached the settlement agreement and the remedy is damages caused by the breach.
Debtor hotly contests the merits of Respondents’ claims. Debtor argues that he could have successfully controverted the involuntary petition. Respondents, on the other hand, argue that the involuntary petition was a “slam dunk.” Respondents suggest certain misconduct by Debtor pri- or to the involuntary petition.
These arguments, however, are not relevant to the remedy for Respondents’ breach of the settlement agreement. See J. Kahn & Co., 178 F.2d at 114. The issue is what damages, if any, Debtor suffered because Respondents did not file their claims within ten days.
Debtor bears the burden of proving his damages. The Court, from the record and arguments of counsel, cannot determine the amount of damages, if any, that Debtor may have suffered.
Trustee advises that an evidentiary hearing would be needed to consider the merits of Respondents’ claims. Debtor should present evidence of his damages at that hearing.
An order in accordance with this memorandum opinion will be entered this date.
. Debtor’s sister and other entities also owned interests in the realty.
. 11 U.S.C.A. § 303(b)(1) (West 1993).
. Debtor filed a motion to dismiss the involuntary petition, a motion to continue the hearing set for April 11, 2002, and a motion to require Respondents to post bond.
. 11 U.S.C.A. § 303(h) (West 1993).
. Transcript of Hearing at 5-7.
. Id. at 6.
. See Fed. R. Bankr.P. 3002(c)(5). The notice was sent after Trustee determined that assets may exist to pay claims.
. A & M Check Cashing, Inc. filed on May 1, 2002, a proof of claim for $50,722.82. Ingle-side Florist filed on June 18, 2002, a proof of claim for $9,192.00.
. Trustee filed objections to the claims filed by Mr. Williams and Mr. Welborne. Trustee announced that these creditors have agreed to accept 85% of their claim amount.
. Trustee and Debtor also dispute the merits of Respondents' claims. Trustee advises that an evidentiary hearing would be needed to consider the merits of the claims.
. 807 F.2d 901 (11th Cir.1987).
. Respondents suggest that Debtor could be allowed to contest the involuntary petition. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493711/ | MEMORANDUM OPINION
JAMES D. WALKER, JR., Bankruptcy Judge.
This matter comes before the Court on Clyde W. Royals’ motion to set aside order on motion to disgorge attorney fees and sanctions. This is a core matter within the meaning of 28 U.S.C. § 157(b)(2)(0). After considering the pleadings, the evidence, and the 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
Attorney Clyde W. Royals filed a Chapter 7 petition on behalf of the Georgia corporation Pioneer Housing Systems, Inc. on March 18, 2004, for which he received $5,000 in attorney fees paid by one or more shareholders of Pioneer. Mary Jane Cardwell was appointed Interim Trustee for the case. Shares in Pioneer are held by four individuals. Two of those people— Elijah Waldron, who holds 49 percent of the shares, and Kyle Waldron, who holds 17 percent of the shares' — had individual Chapter 7 cases pending on the date of the Pioneer filing. Neither Elijah Waldron nor Kyle Waldron claimed their shares as exempt; thus, the shares (a total of 66 percent of outstanding shares) became property of the Waldrons’ respective bankruptcy estates under the control of the Trustee, Ms. Cardwell.
Ms. Cardwell filed a motion to disgorge attorney fees from Mr. Royals, to sanction Mr. Royals, and to dismiss Pioneer’s bankruptcy case. Ms. Cardwell argued that Pioneer’s bankruptcy filing was unauthorized because it was done without her approval as the majority shareholder. She sought disgorgement of attorney fees because, having been paid by the shareholders, the fees may have been property of the bankruptcy estates of Elijah or Kyle Waldron or both. Finally, she sought sanctions of $1,500 to cover her fees and expenses.
Although the Court rejected the argument that the filing was unauthorized for lack of shareholder approval, it nevertheless dismissed the case as an unauthorized filing. The Court determined that under Georgia law, a resolution by the board of directors is the only necessary authority for filing a corporate bankruptcy case.1 *458However, the Court also concluded that Georgia law requires such a resolution, even if made informally, to be reduced to writing. At a hearing on the Trustee’s motion on May 27, 2004, the Court urged Mr. Royals to produce the writing authorizing the bankruptcy filing. Mr. Royals said he was unable to do so, and the Court granted the Trustee’s motion, ordering Mr. Royals to turn over to the Trustee $5,000 in attorney fees, and sanctioning Mr. Royals $1,500, payable to the Trustee. In addition, the Court dismissed Pioneer’s bankruptcy case.
Mr. Royals filed a motion to set aside the disgorgement of fees and the sanctions. He did not request reconsideration of the decision to dismiss the bankruptcy case. The Court held the first hearing on the motion on July 29, 2004. At that hearing, the Court agreed to reconsider the decision and required Mr. Royals to produce the document he had announced previously that he was unable to produce. The Court instructed Mr. Royals that a writing was required to authorize the filing of the corporate bankruptcy case, and that testimony of directors about decisions made at a meeting would not serve as a suitable substitute for the document. The Court held a second hearing on the motion on September 2, 2004. At that hearing, Mr. Royals produced a document purporting to be the original minutes from a special meeting of Pioneer’s board of directors held on February 10, 2004, in which the board approved the filing of a Chapter 7 petition on behalf of Pioneer. While the circumstances surrounding the document, first its nonexistence in May and its later discovery within days of the September hearing, suggests a cautious regard for its authenticity, no other evidence was introduced to dispute the allegation that it was prepared and signed as indicated on the face of the document. Therefore, a preponderance of the evidence shows, albeit belatedly, that Mr. Royals had the necessary authority to file a bankruptcy petition on behalf of Pioneer even though at the time he filed the case he had no proof of any such written authorization.
Conclusions of Law
In a corporate bankruptcy, the petition requires the corporate official executing documents on behalf of the debtor — in this case, Elijah Waldron — to swear to the following statement: “I declare under penalty of perjury that the information provided in this petition is true and correct, and that I have been authorized to file this petition on behalf of the debtor.”
As Pioneer’s attorney, Mr. Royals is bound by Federal Rule of Bankruptcy Procedure 9011, which provides as follows:
By presenting to the court (whether by signing, filing, submitting, or later advocating) a petition, pleading, written motion, or other paper, an attorney or unrepresented party is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances,
(3) the allegations and other factual contentions have evidentiary support. ...
Fed. R. Bankr.P. 9011(b)(3). Failure to comply with this rule, subjects the attorney to sanctions. Id. 9011(C). Thus, at issue is the factual assertion made in Pioneer’s bankruptcy petition that Elijah Wal-*459dron was authorized by Pioneer to seek bankruptcy protection for the corporation.
Corporate decisions are made by the board of directors at formal meetings and must be documented in the minutes. O.C.G.A. § 14-2-1601(a) (2003); see also 1 Ga. Corporation, LP & LLC § 10-10 (2003 ed.). The board may act without a meeting if the directors are acting unanimously and the action is documented in writing and signed by all the directors. O.C.G.A. § 14-2-821(a). As explained in the findings of fact, Mr. Royals has produced documentary evidence that the board of directors held a meeting on February 10, 2004, more than one month before the petition in this case was filed, at which it authorized Pioneer to file the bankruptcy case. Consequently, the Court concludes that Mr. Royals has not violated Rule 9011. What was once represented by Mr. Royals as fact without any evidentiary support and without any reasonable assurance that such fact could be proven will not in this case be construed as a violation of Rule 11 when happenstance intervenes later to properly authenticate the alleged fact.
In light of this conclusion, the Court will vacate that part of its order sanctioning Mr. Royals and ordering him to pay $1,500 to the Trustee. Furthermore, because the bankruptcy filing has been proven to have been authorized, Mr. Royals may be entitled to attorney fees for his work in the case. Therefore, the Trustee is ordered to return to Mr. Royals the $5,000 disgorged from him by the Court’s previous order. Mr. Royals is ordered to hold that $5,000 in trust pending further order of this Court. Mr. Royals will have 20 days from the date of this opinion to apply for attorney fees in the Pioneer case. Likewise, the Trustee will have 20 days from the date of this opinion to seek turnover of the $5,000 if she believes the funds were disbursed without authority from an individual case where she serves as trustee.
An Order in accordance with this Opinion will be entered on this date.
ORDER
In accordance with the Memorandum Opinion entered on this date, the Court hereby GRANTS the motion of Clyde W. Royals to set aside its order disgorging him of attorney fees and sanctioning him. The Order entered June 17, 2004 is hereby VACATED.
It is further hereby ORDERED that Chapter 7 Trustee Mary Jane Cardwell pay over to Mr. Royals the $5,000 attorney fees disgorged from him by the June 17, 2004 Order.
It is further hereby ORDERED that Mr. Royals shall hold the $5,000 in trust until further order of this Court.
It is further hereby ORDERED that the parties will have 20 days from the date of this Order to assert any claims they may have against the $5,000 held in trust.
So ORDERED, this 23rd day of September, 2004.
. The Trustee had not taken any action to remove officers and/or directors in her capac*458ity as the holder of 66% of the outstanding shares of the corporation. The court ruled that, in the absence of a resignation or any action by the Trustee to remove officers and/or directors, they would be authorized and required to continue to exercise their corporate duties. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484578/ | Filed 11/17/22 In re D.M. CA1/3
NOT TO BE PUBLISHED IN OFFICIAL REPORTS
California Rules of Court, rule 8.1115(a), prohibits courts and parties from citing or relying on opinions not certified for
publication or ordered published, except as specified by rule 8.1115(b). This opinion has not been certified for publication or
ordered published for purposes of rule 8.1115.
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION THREE
In re D.M., a Person Coming
Under the Juvenile Court Law.
THE PEOPLE, A164363
Plaintiff and Respondent, (Solano County
v. Sup. Ct. No. J44703)
D.M.,
Defendant and Appellant.
MEMORANDUM OPINION1
In 2019, the People filed a juvenile wardship petition charging D.M.
with grand theft of personal property, murder, robbery, and conspiracy; it
also alleged he personally and intentionally discharged a firearm causing
death. The People moved to transfer D.M. from juvenile court to a criminal
court. (Welf. & Inst. Code, § 707, subd. (a)(1), undesignated statutory
references are to this code.) The court granted the motion after finding the
Consistent with the California Standards of Judicial Administration,
1
section 8.1, subdivision (1), we conclude this case is properly resolved through
a memorandum opinion.
1
preponderance of the evidence established D.M. was not a suitable candidate
for treatment under the juvenile court system.
While D.M.’s appeal2 was pending, the Governor signed Assembly Bill
No. 2361 (2021–2022 Reg. Sess.), requiring the prosecution to demonstrate by
clear and convincing evidence, rather than preponderance of the evidence,
that “the minor is not amenable to rehabilitation while under the jurisdiction
of the juvenile court” before transferring a minor’s case to adult criminal
court. (Stats. 2022, ch. 330, §1; § 707, subd. (a)(3).) It further requires
a court ordering a transfer to recite the basis for its decision, including the
reasons supporting its finding “that the minor is not amenable to
rehabilitation while under” the juvenile court’s jurisdiction. (Ibid.)
In their supplemental briefs, the parties agree these amendments,
effective January 1, 2023, will apply retroactively to D.M. because his case
will not be final when the law takes effect. We likewise agree. (People v.
Superior Court (Lara) (2018) 4 Cal.5th 299, 306–308; In re Estrada (1965)
63 Cal.2d 740, 744–745.) We therefore reverse and remand for a new hearing
and determination on the motion to transfer D.M. consistent with new
legislation. (People v. Garcia (2018) 30 Cal.App.5th 316, 324–325.) The new
hearing must occur after Assembly Bill No. 2361 becomes effective on
January 1, 2023. (People v. Garcia (2018) 28 Cal.App.5th 961, 973
[remanding matter for hearing to occur after effective date of new
legislation].)
2 Assembly Bill No. 624 (2021–2022 Reg. Sess.) authorized a defendant
to appeal, not just pursue writ relief, from a juvenile court’s transfer decision
if the notice of appeal is filed, as it was here, within 30 days. (Stats. 2021,
ch. 195, § 1, eff. Jan. 1, 2022; § 801, subd. (a).)
2
DISPOSITION
The order is reversed. The matter is remanded to the juvenile court for
a new hearing to occur after January 1, 2023.
3
_________________________
Rodríguez, J.
WE CONCUR:
_________________________
Tucher, P. J.
_________________________
Fujisaki, J.
A164363
4 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484589/ | People v Cruz (2022 NY Slip Op 06561)
People v Cruz
2022 NY Slip Op 06561
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Pitt, Higgitt, JJ.
SCI No. 946/18 Appeal No. 16676 Case No. 2019-5721
[*1]The People of The State of New York, Respondent,
vHector Cruz, Defendant-Appellant.
Justine M. Luongo, The Legal Aid Society, New York (Nao Terai of counsel), and Kramer Levin Naftalis & Frankel LLP, New York (Scott Eckl of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Nicole Neckles of counsel), for respondent.
An appeal having been taken to this Court by the above-named appellant from a judgment of the Supreme Court, Bronx County (Laurence Busching, J.), rendered July 11, 2018,
Said appeal having been argued by counsel for the respective parties, due deliberation having been had thereon, and finding the sentence not excessive,
It is unanimously ordered that the judgment so appealed from be and the same is hereby affirmed.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Counsel for appellant is referred to
§ 606.5, Rules of the Appellate Division,
First Department. | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484585/ | People v Williams (2022 NY Slip Op 06559)
People v Williams
2022 NY Slip Op 06559
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Ind No. 925/08 Appeal No. 16694 Case No. 2020-02278
[*1]The People of the State of New York, Respondent,
vHerbert Williams, Defendant-Appellant.
Robert S. Dean, Center for Appellate Litigation, New York (Alma D. Gonzalez of counsel), for appellant.
Darcel D. Clark, District Attorney, Bronx (Stephanie L. Nelson of counsel), for respondent.
Order, Supreme Court, Bronx County (Judith Lieb, J.) entered on or about March 5, 2020, which adjudicated defendant a level three sexually violent offender pursuant to the Sex Offender Registration Act (Correction Law art 6-C), unanimously affirmed, without costs.
The court correctly assessed 15 points under the risk factor for drug abuse (see People v Ramos, 171 AD3d 483, 484 [1st Dept 2019], lv denied 33 NY3d 912 [2019]; People v Greene, 154 AD3d 583 [1st Dept 2017], lv denied 30 NY3d 913 [2018]).
The court providently exercised its discretion when it declined to grant a downward departure (see People v Gillotti, 23 NY3d 841, 861-864 [2014]). There were no mitigating factors that were not adequately taken into account by the guidelines or outweighed by the seriousness of the underlying crime. We note that defendant's claims of rehabilitation while he was incarcerated are undermined by his unsatisfactory prison disciplinary record.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484598/ | Lanzetta v Montefiore Med. Ctr. (2022 NY Slip Op 06554)
Lanzetta v Montefiore Med. Ctr.
2022 NY Slip Op 06554
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 27712/19E Appeal No. 16701-,16701A-,16701B Case No. 2021-01401, 2021-03674
[*1]Joseph Lanzetta, as Executor of the Estate of Pasquale Lanzetta, Deceased, Plaintiff-Appellant,
vMontefiore Medical Center et al., Defendants-Respondents.
Lazar Grunsfeld Elnadav, LLP, Brooklyn (Gerald Grunsfeld of counsel), for appellant.
Wilson Elser Moskowitz Edelman & Dicker LLP, New York (Judy C. Selmeci of counsel), for Montefiore Medical Center and Robert Potenza, M.D., respondents.
Garson & Jakub LLP, New York (Andrew Harrison of counsel), for Howard Hochster, M.D., respondent.
Order, Supreme Court, Bronx County (John R. Higgitt, J.), entered on or about March 17, 2021, which granted defendant Howard Hochster, M.D.'s motion for summary judgment dismissing the complaint and cross claims as against him, unanimously reversed, on the law, without costs, and the motion denied.
Judgment, Supreme Court, Bronx County (Doris M. Gonzalez, J.) entered September 1, 2021, granting codefendants Montefiore Medical Center (Montefiore) and Robert Potenza, M.D.'s motion for summary judgment dismissing the complaint and cross claims as against them, unanimously reversed, on the law, without costs, the judgment vacated, and the complaint reinstated as to these defendants. Appeal from order, same court and Justice, entered July 22, 2021, unanimously dismissed, without costs, as subsumed in the appeal from the judgment.
For the reasons set forth in Greenberg v Montefiore New Rochelle Hosp. (205 AD3d 47 [1st Dept 2022]), plaintiff has a cognizable claim to pursue a medical malpractice action against these defendants for pain and suffering of the decedent on the theory that their failure to follow decedent's directives in his living will and health care proxy was a departure from the standard of care, and a proximate cause of his pain and suffering.
In December 1993, decedent Pasquale Lanzetta signed a health care proxy, which appointed his wife as his health care agent, and his son, plaintiff executor Joseph Lanzetta, as an alternate. The health care proxy directed his agents to adhere to his wishes as set forth in the attached living will. In the event decedent became terminally ill, the living will directed the attending physician to withhold or withdraw treatment that serves only to prolong death; limited treatment to pain relief and other measures to maintain comfort; and declined cardiac resuscitation, mechanical respiration, antibiotics, and feeding tubes for nutrition or hydration. The living will authorized the agents listed in the health care proxy to make decisions on decedent's behalf. In July 2016, decedent sought treatment at Montefiore and completed a new healthcare proxy appointing his daughter as his health care agent, and his son as an alternate. That health care proxy directed the agent to "use any means necessary to save [his] life".
On April 7, 2017, after decedent was at Montefiore for another 20 days for treatment of another medical incident, decedent's son and attending physician defendant Dr. Hochster completed and signed a "Forgoing Life-Sustaining Treatment Including DNR" ("FLST") form. The form advised medical staff of decedent's wishes to not be resuscitated or intubated. Allegedly plaintiff was told by the defendants that decedent's condition was terminal on April 15, 2017. Decedent received medical treatment until he died on May 6, 2017.
Plaintiff commenced an action against defendants alleging medical malpractice based on the various health proxies and forms. Plaintiff claims that defendants breached their [*2]agreement with the decedent by administering antibiotics and IV Hydration from April 15, 2017 onwards that prolonged his life.
Here, there are issues of fact that preclude summary judgment. It is unclear whether the 1993 healthcare proxy (and the living will), the 2016 healthcare proxy or the 2017 FLST governed this dispute and whether the 2016 health care proxy was revoked by decedent through conversations with his agents, pursuant to Public Health Law § 2985(a). Significantly, it is not clear from the record whether the treatment prolonged decedent's life, as neither side submits an expert affidavit. There is also a question as to whether decedent's health care agents approved the very treatment for which they now seek to hold defendants liable. THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484594/ | Matter of Maseto v A.O. Smith Corp. (2022 NY Slip Op 06557)
Matter of Maseto v A.O. Smith Corp.
2022 NY Slip Op 06557
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 190209/19 Appeal No. 16699 Case No. 2021-04245
[*1]In the Matter of New York City Asbestos Litigation Ernest Maseto, etc., Plaintiff-Respondent,
vA.O. Smith Corporation et al., Defendants, Burnham LLC, Defendant-Appellant.
Clyde & Co US LLP, New York (Peter J. Dinunzio of counsel), for appellant.
Simmons Hanly Conroy LLC, New York (John B. Wetmore of counsel), for respondent.
Order, Supreme Court, New York County (Adam Silvera, J.), entered April 27, 2021, which denied defendant Burnham LLC's motion to vacate a ruling of the Special Master, dated May 5, 2020, directing it to appear for deposition on issues concerning punitive damages, and confirmed the ruling, unanimously affirmed, without costs.
According to the case management order (CMO) entered June 26, 2017 — which remains the CMO governing New York City Asbestos Litigation (NYCAL) — "Where plaintiff asserts a punitive damages claim against a defendant, . . . defendant shall answer plaintiff['s] standard interrogatories and document requests seeking information related to punitive damages" (NY St Cts Elec Filing [NYSCEF] Doc No. 1, case management order at 17, in Matter of New York City Asbestos Litig. [All NYCAL Cases], Sup Ct, NY County, index No. 782000/2017, affd 159 AD3d 576 [1st Dept 2018], appeal dismissed 32 NY3d 945 [2018]). In addition, "no later than immediately prior to the commencement of jury selection, defendant shall provide plaintiff with reliable financial disclosure" (id. at 38). The CMO also appoints a Special Master, who is charged with supervising compliance with discovery, including the "adequacy of the plaintiffs' and defendants' responses to standard interrogatories, production of documents, expert disclosure, the conduct of depositions, and other discovery disputes that may arise" (id. at 2-3). Plaintiffs may only depose defendants beyond prior depositions taken in NYCAL cases "upon stipulation of the parties or application to the Special Master" (id. at 21).
The Special Master providently exercised her discretion in directing Burnham to appear for deposition on punitive damages-related issues after finding that Burnham's responses to plaintiffs' standard punitive damages interrogatories were inadequate; the motion court likewise providently exercised its discretion in confirming that recommendation (see Those Certain Underwriters at Lloyds, London v Occidental Gems, Inc., 11 NY3d 843, 845 [2008]). Burnham's reliance on authority in non-asbestos or -toxic tort cases holding that discovery on punitive damages should await a finding that it is, in fact, liable to plaintiff for punitive damages (e.g. Suozzi v Parente, 161 AD2d 232 [1st Dept 1990]; Prior v Brown Transp. Corp., 103 AD2d 1042 [4th Dept 1984]) is misplaced, given the exceptional needs of asbestos cases and litigants, which justified the CMO and its deviations, where necessary, from the CPLR in the first place (see Matter of New York City Asbestos Litig. [All NYCAL Cases], 159 AD3d at 576-577).
Nor did the Special Master's recommendation contravene the CMO. The Special Master was well within her discretion to direct Burnham to appear for deposition upon finding that its responses to plaintiff's standard punitive damages interrogatories were inadequate (see generally CPLR 3126).
Burnham's remaining argument that the Special Master's ruling, confirmed by the motion court, deprives [*2]it of due process of law and the equal protection of the laws is improperly raised for the first time on appeal (see e.g. Matter of Dailey v City of New York, 301 AD2d 439, 440 [1st Dept 2003]).
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484591/ | Matter of Thomas Anthony Holdings LLC v Goodbody (2022 NY Slip Op 06569)
Matter of Thomas Anthony Holdings LLC v Goodbody
2022 NY Slip Op 06569
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 157008/21 Appeal No. 16685 Case No. 2022-02621
[*1]In the Matter of Thomas Anthony Holdings LLC, Petitioner-Respondent,
vBridget Goodbody et al., Respondents-Appellants.
Kane Kessler, P.C., New York (David A. Gold of counsel), for appellants.
Tuttle Yick LLP, New York (Eli D. Raider of counsel), for respondent.
Order, Supreme Court, New York County (Verna L. Saunders, J.), entered on or about February 24, 2022, which denied respondents' motion for a default judgment on their counterclaims pursuant to CPLR 3012(d) and granted petitioner's cross motion to serve a late reply to the counterclaims pursuant to CPLR 3215, unanimously affirmed, with costs.
The court providently exercised its discretion in granting petitioner's cross motion to serve a late reply to respondents' counterclaims, and denying as moot respondent's motion for a default judgment on the counterclaims, especially in view of the strong public policy to dispose of cases on their merits (see HSBC Bank USA v Lugo, 127 AD3d 502 [1st Dept 2015]). Although petitioner's excuse that it overlooked the counterclaims in respondents' answer was "hardly overwhelming," it was adequate given that the delay was minimal, was not willful, and did not prejudice respondents (Jones v 414 Equities LLC, 57 AD3d 65, 81 [1st Dept 2008]; see generally Emigrant Bank v Rosabianca, 156 AD3d 468, 472-473 [1st Dept 2017]). Furthermore, petitioner demonstrated potentially meritorious defenses to the counterclaims (see Emigrant Bank, 156 AD3d at 473).THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484600/ | Kalnit v 141 E. 88th St., LLC (2022 NY Slip Op 06552)
Kalnit v 141 E. 88th St., LLC
2022 NY Slip Op 06552
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 155832/18, 595014/20, 595227/20 Appeal No. 16679 Case No. 2021-02634
[*1]Charlotte Kalnit, Plaintiff-Respondent,
v141 East 88th Street, LLC, Defendant, Philip House Condominium et al., Defendants-Respondents-Appellants, DJM NYC LLC, Defendant-Appellant-Respondent.
DJM NYC LLC, Third-Party Plaintiff-Appellant-Respondent,
vThe City of New York et al., Third-Party Defendants.
Rock Group NY Corp., Second Third-Party Plaintiff-Respondent- Appellant,
vMAGA Contracting Corp., Second Third-Party Defendant.
McMahon Martine & Gallagher, LLP, Brooklyn (Andrew D. Showers of counsel), for appellant-respondent.
Morris Duffy Alonso Faley & Pitcoff, New York (Iryna S. Krauchanka and Kevin G. Faley of counsel), for Philip House Condominium, respondent-appellant.
Kaufman Borgeest & Ryan LLP, Valhalla (Lisa Fleischmann of counsel), for Rock Group NY Corp., respondent-appellant.
Weiss & Rosenbloom, P.C., New York (Andrea R. Krugman of counsel), for respondent.
Order, Supreme Court, New York County (J. Machelle Sweeting, J.), entered June 22, 2021, which, to the extent appealed from, denied defendants Philip House Condominium's, Rock Group NY Corp.'s, and DJM NYC LLC's motions for summary judgment dismissing the amended complaint against them and denied Philip House's motion for summary judgment on its cross claim for contractual indemnification against DJM, unanimously reversed, on the law, without costs, and the motions granted. The Clerk is directed to enter judgment accordingly.
The record established as a matter of law that the sidewalk shed was not a proximate cause of plaintiff's injuries. Plaintiff testified that the support pole for the sidewalk shed was placed in the middle of the sidewalk, dividing the area into two paths that were three feet wide on each side, and that she and her husband elected to walk side-by-side on the path to the left nearest the tree well. Plaintiff stated that her husband "nudged" her to the left, and her foot touched the edge of the tree well, which was not level with the sidewalk, causing her to fall. This testimony established that the placement of the sidewalk shed support pole did not compel plaintiff to step into the tree well to proceed forward, but that its placement merely facilitated the accident or furnished the occasion for it (see Wood v City of New York, 98 AD3d 845, 847 [1st Dept 2012]; see also Chulpayeva v 109-01 Realty Co., LLC, 170 AD3d 798, 799 [2d Dept 2019]).
The affidavit of plaintiff's expert concerning violations of the Building Code was insufficient to raise a triable issue of fact because, at the time the expert visited the scene, the configuration of the support poles and the sidewalk shed had changed. His opinion concerning violations of the Building Code was speculative and unsupported by any evidentiary foundation (see Vitucci v Durst Pyramid LLC, 205 AD3d 441, 442-443 [1st Dept 2022]). In any event, the violations the expert cited did not proximately cause the accident (see Igbodudu-Edwards v Board of Mgrs. of the Parkchester N. Condominium, Inc., 105 AD3d 448, 449 [1st Dept 2013]).
Philip House is entitled to summary judgment on its cross claim for contractual indemnification against DJM. Article 13.01 of the parties' agreement required DJM to "indemnify, defend, reimburse and hold harmless [Philip House] from and against any and all loss, cost, damage, demand, claim, cause of action, penalty, injury (including death), liability and/or expense paid or incurred by [Philip House], or asserted against [it] (including reasonable attorneys' fees, court costs and disbursements) caused by, arising directly or indirectly out of, or resulting from or related to, in whole or in part" DJM's work. Plaintiff's claim arose at least in part from DJM's work. There is no evidence that Philip House's negligence contributed to the accident and, by the provision's plain terms, DJM's duty to indemnify was triggered regardless of DJM's negligence (see [*2]Ging v F.J. Sciame Constr. Co., Inc., 193 AD3d 415, 418 [1st Dept
2021]). Although the complaint is dismissed against Philip House, DMJ is still required to indemnify for attorneys' fees and costs.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484597/ | Maffei v A.O. Smith Water Prods. Co. (2022 NY Slip Op 06555)
Maffei v A.O. Smith Water Prods. Co.
2022 NY Slip Op 06555
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 190378/18 Appeal No. 16680 Case No. 2021-04690
[*1]Romeo Maffei, Plaintiff-Respondent,
vA.O. Smith Water Products Co., et al., Defendants, J-M Manufacturing Company, Inc., Defendant-Appellant.
Manning Gross + Massenburg, LLP, New York (Anna Hwang of counsel), for appellant.
Weitz & Luxenberg, P.C., New York (Jason P. Weinstein of counsel), for respondent.
Order, Supreme Court, New York County (Adam Silvera, J.), entered on or about June 4, 2021, which, to the extent appealed from, denied the motion of defendant J-M Manufacturing Company (JMM) for summary judgment dismissing plaintiff's punitive damages demand, unanimously reversed, on the law, without costs, and the motion granted.
Defendant is a former distributor of asbestos cement pipe (ACP). Plaintiff, a commercial contractor, alleges that he was exposed to asbestos when he worked with ACP sold by defendant. In support of his contention for punitive damages, plaintiff asserts that defendant concealed the hazardous nature of its product by failing to affix warning labels to all the pipes it distributed.
Despite plaintiff's contentions, the demand for punitive damages should have been stricken. "Even where there is gross negligence, punitive damages are awarded only in 'singularly rare cases' such as cases involving an improper state of mind or malice or cases involving wrongdoing to the public" (Anonymous v Streitferdt, 172 AD2d 440, 441 [1st Dept 1991], quoting Rand & Paseka Mfg. Co. v Holmes Protection, 130 AD2d 429, 431 [1st Dept 1987], lv denied 70 NY2d 615 [1988]). This is not such a singularly rare case (see Matter of New York City Asbestos Litig., 225 AD2d 414, 415 [1st Dept 1996], affd 89 NY2d 955 [1997]; see also Matter of Eighth Jud. Dist. Asbestos Litig., 92 AD3d 1259 [4th Dept 2012], lv denied 19 NY3d 803 [2012]). There is no evidence of a concerted effort to suppress information about the dangers of asbestos. To the contrary, the product came with multiple warnings that it could not safely be worked with using dry saws or the like. To the extent that those warnings were not present on each piece of pipe might evidence negligence, it does not evidence malice (compare Matter of 91st St. Crane Collapse Litig., 154 AD3d 139 [1st Dept 2017]). THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484596/ | Matter of Attorneys Who are in Violation of Judiciary Law Section 468-a (2022 NY Slip Op 06558)
Matter of Attorneys Who are in Violation of Judiciary Law Section 468-a
2022 NY Slip Op 06558
Decided on November 17, 2022
Appellate Division, First Department
Per Curiam
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided and Entered: November 17, 2022
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Dianne T. Renwick,J.P.,
Judith J. Gische
Barbara R. Kapnick
Angela M. Mazzarelli
Jeffrey K. Oing, JJ.
Motion No. 2022-03603 Case No. 2022-04014
[*1]In the Matter of Attorneys Who Are In Violation of Judiciary Law Section 468-a For Failing to Register — Whose Last Names Begin with A Through Z: Attorney Grievance Committee For the First Judicial Department, Petitioner, Attorneys In Violation of Judiciary Law Section 468-a Respondents.
Disciplinary proceedings instituted by the Attorney Grievance Committee for the First Judicial Department.
Jorge Dopico, Chief Attorney, Attorney Grievance
Committee, New York, for petitioner.
No appearances for respondents.
Per Curiam
Section 468-a of the Judiciary Law requires every resident and nonresident attorney admitted to practice in the State of New York to file a biennial registration statement with the administrative office of the courts. A biennial registration fee must be paid, if applicable, at the time the statement is filed. This registration statement, which is mailed every two years by the Office of Court Administration to every attorney so admitted, must be timely filed and any applicable fees paid regardless of whether the attorney is actually engaged in the practice of law in New York or elsewhere. Attorneys who certify to the Chief Administrator of the Courts that they have retired from the practice of law are exempt from paying the registration fee at the time the statement is filed. Subdivision (5) of the statute provides further that "[n]oncompliance by an attorney with the provisions of this section and the rules promulgated hereunder shall constitute conduct prejudicial to the administration of justice and shall be referred to the appropriate appellate division of the supreme court for disciplinary action."
Pursuant to this provision, petitioner Attorney Grievance Committee seeks an order suspending from the practice of law certain attorneys (whose last name begins with the letters A through Z) who are in violation of the statute, in that they have failed to file the registration statement and pay any applicable registration fees for one or more registration periods after due purported notification. This Court has previously held that failure to register or re-register, and pay the applicable biennial registration fee constitutes professional misconduct warranting discipline (see Matter of Morgado, 159 AD3d 50 [1st Dept 2018]). Since 1997 this Court has granted similar motions and suspended attorneys en masse for such failure to register or re-register, and pay any applicable registration fee pursuant to Judiciary Law § 468-a (see Matter of Attorneys in Violation of Judiciary Law § 468-a, 183 AD3d 67 [1st Dept 2020]).
The attorneys in question have been duly notified of their noncompliance and given an opportunity to cure their default. The Office of Court Administration mailed or emailed each of the defaulting attorneys a biennial registration form to their last known home address, a second notice to their last known business address and, when necessary, a final notice to their home address. Attorneys who remained in default following these notices were referred to the Grievance Committee. On August 1, 2022, this Court published notice in the New York Law Journal that the Grievance Committee would institute an omnibus disciplinary proceeding seeking immediate suspension from the practice of law against those attorneys who did not cure their default by September [*2]2, 2022. Thereafter, a list of approximately 3,250 attorneys who failed to submit satisfactory proof of registration and payment of applicable fees was forwarded to the Committee, which filed a motion for service by publication of the notice of petition to suspend.
Pursuant to the order of this Court entered September 8, 2022, which authorized service of the notice of petition to suspend by publication in the New York Law Journal for five consecutive days, a list of the defaulting attorneys along with their last known business addresses, was so published commencing September 19, 2022. A notice was also posted on the websites of this Court and the New York Law Journal. The order further provided that attorneys on the default list may submit proof from the Office of Court Administration that they are in compliance with all the registration requirements (including payment of any applicable registration fees), within thirty (30) days of the last date the notice appeared in the New York Law Journal, or they would be subject to a further order of the Court immediately suspending them from the practice of law in the State of New York.
The attorneys who remain in noncompliance with Judiciary Law § 468-a despite the notification process described above are the subject of the Grievance Committee's instant motion to suspend. No opposition has been filed.
Accordingly, due to the continued failure to comply with the statute, petitioner's motion to suspend such attorneys shall be granted to the extent of suspending those attorneys whose names are enumerated in the suspension list found on this Court's website from the practice of law in the State of New York, effective immediately.
All concur.
Orders filed. November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484595/ | Matter of Makhani v Kiesel (2022 NY Slip Op 06556)
Matter of Makhani v Kiesel
2022 NY Slip Op 06556
Decided on November 17, 2022
Appellate Division, First Department
HIGGITT, J.
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
SUPREME COURT, APPELLATE DIVISION
First Judicial Department
Dianne T. Renwick
David Friedman Anil C. Singh Martin Shulman John R. Higgitt
Ind No. 1420/21 Appeal No. 16444 Case No. 2022-03338
[*1]In the Matter of Joseph Makhani, Petitioner,
vThe Honorable Diane Kiesel, etc. et al., Respondents.
In this original proceeding pursuant to article 78 of the Civil Practice Law and Rules, petitioner seeks a writ of prohibition to enjoin and prohibit respondents from directing that the indictment against petitioner proceed to trial.
Friedman Kaplan Seiler & Adelman LLP, New York (Robert S. Smith and Philip J. Biegler, of counsel), and NechelesLaw LLP, New York (Gedalia M. Stern and Susan R. Necheles of counsel), for petitioner.
Letitia James, Attorney General, New York, (Melissa Ysaguirre and Elizabeth Figueira0 of counsel), for Letitia James, respondent.
HIGGITT, J.
This CPLR article 78 proceeding seeking a writ of prohibition raises an issue of apparent first impression: whether the Attorney General may criminally prosecute an individual based on an Executive Law § 63(3) referral from the Chief Administrative Judge of the Unified Court System. Executive Law § 63(3) authorizes the Attorney General of the State of New York, "[u]pon request of the governor, comptroller, secretary of state, commissioner of transportation, superintendent of financial services, commissioner of taxation and finance, commissioner of motor vehicles, or the state inspector general, or the head of any other department, authority, division or agency of the state," to investigate and prosecute criminality relating to any matter connected with the referring entity. Petitioner, the subject of the criminal prosecution initiated and maintained by the AG based on the purported Executive Law § 63(3) referral by an officer within the Unified Court System, commenced this special proceeding for a writ of prohibition challenging the validity of the referral and the legality of the AG's authority to prosecute him. We hold that an Executive Law § 63(3) referral can come only from an agency within the executive branch. Therefore, a referral from an officer within the Unified Court System that is, the judicial branch of government is not permitted by the statute, and, for the reasons discussed below, we grant prohibition relief to petitioner.
I.
The issues presented in this proceeding emanate from a January 4, 2016 letter a special counsel in the AG's Criminal Division sent to the Unified Court System's Inspector General's Office. The letter regarded "[f]orgery and [o]ther [c]rimes committed on New York State Courts." The special counsel advised that he was investigating allegations of forgery, attempted larceny, and deed theft, and that one of the targets of the investigation was petitioner. The special counsel wrote that petitioner had forged signatures on deeds that were recorded in the Office of the City Register, and that petitioner had used the forged deeds as exhibits in real property actions in New York State courts. Petitioner's conduct was directed primarily at the elderly and other vulnerable members of society. The special counsel also advised that petitioner had "committed additional frauds upon the courts and the citizens of New York State": petitioner [*2]filed motions in New York State courts in an effort to fraudulently obtain unclaimed or abandoned funds to which he had no right. The penultimate paragraph of the letter stated that the AG "respectfully requests a referral pursuant to New York Executive Law Section 63(3) to investigate and, if appropriate, prosecute the alleged commission by [petitioner] for any indictable offense arising out of a violation of the Penal Law or any other applicable state law or regulation promulgated thereunder."
On February 1, 2016, Chief Administrative Judge Lawrence K. Marks responded to the AG's January 4, 2016 letter. Judge Marks requested that the AG accept his February 1 letter as a request under Executive Law § 63(3) that the AG investigate petitioner's alleged offenses relating to forged deeds and fraudulent court filings. A second letter from Judge Marks to the AG followed on March 18, 2016. The March letter was substantially similar to the February letter and included the additional request that the AG prosecute petitioner for any relevant crimes or offenses.
The AG subsequently presented the matter to a New York County grand jury, that, in June 2021, returned a seven-count indictment against petitioner. The indictment charged petitioner with criminal possession of stolen property in the first degree (Penal Law § 165.54), criminal possession of stolen property in the second degree (Penal Law § 165.52), residential mortgage fraud in the first degree (Penal Law § 187.25), residential mortgage fraud in the second degree (Penal Law § 187.20), scheme to defraud in the first degree (Penal Law § 190.65[1][b]), and two counts of falsifying business records in the first degree (Penal Law § 175.10). The charges related to petitioner's efforts to fraudulently obtain title to two Manhattan properties.
In the ensuing criminal proceeding People v Makhani (NY County indictment No. 1420/21) petitioner made an omnibus motion seeking, among other things, dismissal of the indictment on various grounds; however, petitioner did not raise any issue in his omnibus motion regarding the AG's authority to prosecute the proceeding. Supreme Court (Kiesel, J.) denied most of the relief requested in the omnibus motion, and the prosecution continued.
In March 2022, petitioner again sought dismissal of the indictment, this time arguing that the purported referral from Chief Administrative Judge Marks did not confer on the AG the requisite jurisdiction to serve as a prosecuting authority. According to petitioner, Executive Law § 63(3), the authority on which the AG relied to serve as the prosecutor, did not permit a referral from the Unified Court System. Further, petitioner asserted that even if a referral could come from the Unified Court System, the referral had to come from the Chief Judge of the Court of Appeals (then-Chief Judge DiFiore), not Chief Administrative Judge Marks.
The AG opposed the second motion to dismiss, arguing, among other things, that the [*3]Unified Court System can make a valid referral to the AG under Executive Law § 63(3), and that Chief Administrative Judge Marks was empowered to make the referral.
By a June 10, 2022 decision and order, Supreme Court (Kiesel, J.) denied petitioner's second motion to dismiss.
II.
After the denial of his second motion to dismiss, petitioner brought the present special proceeding in this Court seeking a writ of prohibition against the AG and Justice Kiesel (see CPLR 506[b], 7804[b]). Petitioner requests that we vacate Justice Kiesel's June 10, 2022 decision and order, prohibit her from continuing to exercise jurisdiction over his criminal proceeding, prohibit the AG from continuing to prosecute him, and dismiss the indictment. The crux of petitioner's special proceeding is that the AG lacks the power to prosecute him, and is thus acting without jurisdiction (as is Justice Kiesel by permitting his continued prosecution). Prohibition is warranted, asserts petitioner, because the prosecution of the criminal proceeding by one without the power to do so is a jurisdictional deficiency that implicates the legality of the entire proceeding.
Petitioner stresses that, absent a grant of prosecutorial power by statute, the AG lacks criminal jurisdiction over a matter, and argues that Executive Law § 63(3) does not confer upon the AG jurisdiction to prosecute him. As he did in his second motion to dismiss before Supreme Court, petitioner maintains that the Unified Court System is not authorized to make a referral; rather, only departments, authorities, divisions, and agencies within the executive branch are permitted to make such referrals. Petitioner repeats his contention that, even assuming that an Executive Law § 63(3) referral could come from the Unified Court System, Chief Administrative Judge Marks could not issue a valid referral because he is not the "head" of the Unified Court System and was not delegated the power to make the referral by the Chief Judge of the Court of Appeals.
In opposition to the petition, the AG contends that petitioner failed to show a clear legal right to a writ of prohibition, and, in any event, that petitioner has an adequate remedy at law: an appeal from any resulting judgment of conviction. With respect to the former argument, the AG maintains that the Unified Court System is a "department, authority, division or agency of the state" (Executive Law § 63[3]) and, therefore, a valid referral can come from it. The AG observes that nothing in Executive Law § 63(3) suggests that a referral can come only from an agency within the executive branch. The AG also maintains that, while the Chief Judge of the Court of Appeals is the chief judicial officer of the State (see NY Const, art VI, § 28[a]; Judiciary Law § 210), Chief Administrative Judge Marks was delegated the requisite authority to make referrals by various constitutional, statutory, and regulatory provisions (see NY Const, art VI, § 28[b]; Judiciary Law § 212[[*4]1]; 22 NYCRR part 80).
Regarding petitioner's remedies, the AG notes that petitioner could raise his jurisdictional challenge on a direct appeal from any judgment of conviction, and that no compelling reason exists to permit petitioner to avail himself of the extraordinary remedy of prohibition.
III.
A.
We cannot examine the merits of petitioner's claim without first determining whether the issue presented by the petition is the type for which the extraordinary remedy of prohibition may lie (see Matter of B.T. Prods. v Barr, 44 NY2d 226, 231 [1978]; see also Matter of Dondi v Jones, 40 NY2d 8, 12 [1976]).
The remedy of prohibition, a common-law device now codified in CPLR 7803(2), prevents or controls extra-jurisdictional judicial or quasi-judicial action. "[P]rohibition lies only where there is a clear legal right and only when the body or officer acts or threatens to act without jurisdiction in a matter over which it has no power over the subject matter or where it exceed[ed] its authorized powers in a proceeding over which it has jurisdiction" (Dondi v Jones, 40 NY2d at 13; see Matter of Holtzman v Goldman, 71 NY2d 564, 569 [1988]; Matter of Rush v Mordue, 68 NY2d 348, 352 [1986]; Matter of Schumer v Holtzman, 60 NY2d 46, 51 [1983]). "To demonstrate a clear legal right to the extraordinary writ of prohibition, a petitioner is required to show that the challenged action was 'in reality so serious an excess of power incontrovertibly justifying and requiring summary correction'" (Matter of Soares v Carter, 25 NY3d 1011, 1013 [2015], quoting LaRocca v Lane, 37 NY2d 575, 580 [1975]).
"A public prosecutor is a quasi-judicial officer, who performs important duties within our judicial system, and is subject to prohibition under proper circumstances not alone confined to double jeopardy situations" (Dondi v Jones, 40 NY2d at 13; see Rush v Mordue, 68 NY2d at 353 n 3; Schumer v Holtzman, 60 NY2d at 52; Matter of McGinley v Hynes, 51 NY2d 116, 123 [1980]; B.T. Prods., Inc. v Barr, 44 NY2d at 232). This includes the AG when that Office is exercising or threatening to exercise an ultra vires prosecutorial function (Matter of Haggerty v Himelein, 89 NY2d 431, 435 [1997]).
The discretionary remedy of prohibition is not available to correct procedural or substantive errors of law, no matter how egregious an error may be (Rush v Mordue, 68 NY2d at 353; LaRocca v Lane, 37 NY2d at 579; see Schumer v Holtzman, 60 NY2d at 51; Matter of Steingut v Gold, 42 NY2d 311, 315 [1977]; see also Dondi v Jones, 40 NY2d at 13). Rather, prohibition is available only when a court or prosecuting authority exceeds its jurisdiction or power in such a manner as to implicate the legality of the entire criminal proceeding (Rush v Mordue, 68 NY2d at 352-353; see Steingut v Gold, 42 NY2d at 315 [writ of prohibition lies "only where the very jurisdiction and power of the court are in issue"]). "Although the distinction between legal errors and actions in excess of power is not [*5]always easily made, abuses of power may be identified by their impact upon the entire proceeding as distinguished from an error in a proceeding itself" (Holtzman v Goldman, 71 NY2d at 569; see Matter of State of New York v King, 36 NY2d 59, 64 [1975]).
Here, petitioner demonstrated a clear legal right to be free from prosecution by one without the jurisdiction to prosecute and alleges that the AG is acting without jurisdiction as the prosecuting authority and Supreme Court is exceeding its powers by permitting the continued prosecution of the criminal proceeding. Moreover, petitioner's claim does not raise a mere error of procedural or substantive law; instead, petitioner's claim goes to the legality of the entire criminal proceeding: without valid authority to prosecute this matter, the AG lacked jurisdiction from the inception of (and throughout) the criminal proceeding.
Requiring petitioner to wait until he is convicted and seek redress on an appeal from an ensuing judgment of conviction is not appropriate. Of course, petitioner's jurisdictional argument could be pressed on an appeal from a judgment of conviction (see e.g. People v Gilmour, 98 NY2d 126 [2002]; People v Romero, 91 NY2d 750 [1998]), but the availability of an appellate remedy does not invariably foreclose the remedy of prohibition. When the remedial effectiveness of prohibition is superior to that of an appellate remedy, prohibition may be employed (see Rush v Mordue, 68 NY2d at 354; Dondi v Jones, 40 NY2d at 14; see also Matter of Lee v County Ct. of Erie County, 27 NY2d 432, 437 [1971] [writ of prohibition "is not available ordinarily as a method of premature appeal. Nevertheless, where the lower court is exceeding its jurisdiction and the writ . . . furnishes a more effective remedy, it may be availed of although the error might be corrected by appeal."]).
As the Court of Appeals has stated,
"[w]hen the validity of the appointment of a prosecutor is in question, the question should where possible be given a prompt and definite answer. It is not in the public interest to allow a prosecutor to carry out a lengthy investigation [and prosecution] when there is doubt that his or her appointment is valid, and to run the risk that the process will have to start all over again with a different prosecutor" (Matter of Working Families Party v Fisher, 23 NY3d 539, 544 [2014]).
Indeed, permitting a potentially improper prosecutor to proceed with a criminal proceeding may result in duplication of expense and effort in prosecuting the defendant (Schumer v Holtzman, 60 NY2d at 54). Additionally, resolution of the jurisdictional question posed by petitioner has import outside the confines of the underlying criminal proceeding: the legal issue of whether a valid referral may come from the Unified Court System may impact other prosecutions (see Dondi v Jones, 40 NY2d at 14 ["In the exercise of discretion, a court may consider the desirability of the prompt settlement of an [*6]important jurisdictional question so that a multiplicity of void proceedings in other cases will be prevented."]).
Thus, this special proceeding seeking a writ of prohibition is a proper vehicle for deciding the merits of petitioner's claim that the AG has no valid prosecutorial authority in the criminal proceeding (see Working Families Party v Fisher, 23 NY3d at 545; see also Schumer v Holtzman at 51-52; B.T. Prods., Inc. v Barr at 232; Dondi v Jones at 14).
B.
Having concluded that a writ of prohibition may, in the exercise of our discretion, lie in this matter, we turn to the merits of petitioner's jurisdictional claim.
The legislature has delegated the primary responsibility for prosecuting persons accused of crimes to district attorneys, the public officers entrusted with the general prosecutorial authority for the crimes occurring within their respective counties (Della Pietra v State of New York, 71 NY2d 792, 796 [1988]). In contrast, the AG has no general criminal prosecutorial authority. Instead, the AG's authority to prosecute is limited strictly to those matters permitted by statute (id.; see People v Cuttita, 7 NY3d 500, 507 [2006]; People v Gilmour, 98 NY2d at 131; People v Romero, 91 NY2d at 754). Therefore, the AG has no prosecutorial power other than that given to it by the legislature (Della Pietra v State, 71 NY2d at 796-797; see People v Gilmour, 98 NY2d at 132).
Whether the AG has the power to prosecute the underlying criminal proceeding turns on the meaning and scope of Executive Law § 63(3), and the primary issue of statutory interpretation before us is whether a valid referral can come from the Unified Court System under that provision. In resolving that issue, we start with the statute's text.
Executive Law § 63(3) states that the AG shall,
"[u]pon request of the governor, comptroller, secretary of state, commissioner of transportation, superintendent of financial services, commissioner of taxation and finance, commissioner of motor vehicles, or the state inspector general, or the head of any other department, authority, division or agency of the state, investigate the alleged commission of any indictable offense or offenses in violation of the law which the officer making the request is especially required to execute or in relation to any matters connected with such department, and to prosecute the person or persons believed to have committed the same and any crime or offense arising out of such investigation or prosecution or both, including but not limited to appearing before and presenting all such matters to a grand jury."
Neither the Unified Court System nor any of the officers therein (e.g., the Chief Judge of the Court of Appeals, the Chief Administrative Judge) is specifically enumerated in the statute. Thus, a valid referral can come from the Unified Court System only if it is a "department, authority, division or agency of the state," within the meaning of Executive Law § 63(3), whose "head[*7]" is authorized to make such a referral.
In determining whether the Unified Court System is a "department, authority, division or agency of the state," we are guided by cardinal principles of statutory interpretation. First, we give primacy to the intention of the legislature (People v Galindo, 38 NY3d 199, 203 [2022]; Riley v County of Broome, 95 NY2d 455, 463 [2000]; McKinney's Cons Laws of NY, Book 1, Statutes § 92[a], at 176-177; see McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 352-353), the clearest indicator of which is the statutory text (Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d 577, 583 [1998]; see Riley v County of Broome, 95 NY2d at 463; McKinney's Cons Laws of NY, Book 1, Statutes §§ 92[b], 191, at 182, 352). Second, we enforce the plain meaning of the statutory text, giving the text its ordinary and accepted meaning (see Majewski v Broadalbin-Perth Cent. School Dist., 91 NY2d at 583; McKinney's Cons Laws of NY, Book 1, Statutes §§ 94, 232, at 188, 392), and interpreting the words thereof according to their ordinary and popular significance (see McKinney's Cons Laws of NY, Book 1, Statutes § 232, at 392-393).
Giving the operative text "department, authority, division or agency of the state" its ordinary and accepted meaning, the legislature's intention is clear: an agency within the executive branch may make a referral, but the judicial branch cannot. The words chosen by the legislature are, based on their ordinary and popular significance, the nomenclature of executive branch administrative agencies (see e.g. Executive Law §§ 31 [listing divisions within the executive branch], 40 [Department of Audit and Control], 60 [Department of Law], 90 [Department of State], 180 [Division of Budget], 210 [Division of State Police], 260 [Division of Housing and Community Renewal], 270 [Division of Alcoholic Beverage Control, State Liquor Authority], 709 [Division of Homeland Security and Emergency Services], 803 [Adirondack Park Agency], 836 [Division of Criminal Justice Services]).
Moreover, Executive Law § 63(3) requires that a referral come from "the head" of a department, authority, division or agency (see People v Gilmour, supra). A "head" in this context plainly refers to an officer within the executive branch (see e.g. NY Const, article V, § 4 ["Department heads"]; Executive Law §§ 30, 40[1], 52[1], 60, 90, 155, 180, 200, 210, 240, 260, 293[1], 351, 500[1], 652). The Chief Judge of the Court of Appeals is "the chief judge of the state" and "the chief judicial officer of the unified court system" (NY Const, article VI, § 28[a]; Judiciary Law § 210[1]); neither the Chief Judge nor the Chief Administrative Judge is characterized in the Constitution or the Judiciary Law as "the head" of the Unified Court System.
The Unified Court System the judicial branch of New York State government (see NY Const, article VI, § 1; Canales-Jacobs v New York State Off. of Ct. Admin., 640 F Supp2d 482, 488 [SDNY 2009])[*8] is not, in common parlance, a department, authority, division or agency. Had the legislature intended to permit the Unified Court System to make a referral it would have done so in language reflecting such an intent (see generally People v Gilmour, 98 NY2d 133). The legislature knows how to refer to the judiciary when it intends to do so (see e.g. Executive Law § 63[2] ["supreme court"], [7] ["court of record"], [12] ["supreme court"]).[FN1] We cannot expand the plain meaning of the text of Executive Law § 63(3) to force the law to say something that it does not (see McKinney's Cons Laws of NY, Book 1, Statutes § 94, at 190-191; see also Matter of Butler v New York City Health & Hosps. Corp., 82 AD2d 136, 143 [1st Dept 1981]; Matter of Agioritis, 52 AD2d 128, 135 [1st Dept 1976]). Similarly, we cannot expand the statute to cover something that the legislature could have easily expressed had it intended to do so (see McKinney's Cons Laws of NY, Book 1, Statutes§§ 74, 94, at 157, 194; see also People v Gray, 2 AD3d 275 [1st Dept 2003]; Butler v New York City Health & Hosps. Corp., 82 AD2d at 143).
The legislature's omission of the Unified Court System and any specified officers thereof in Executive Law § 63(3) is telling: "the failure of the Legislature to include a matter within the scope of an act may be construed as an indication that its exclusion was intended" (McKinney's Cons Laws of NY, Book 1, Statutes § 74, at 157; see Matter of Diegelman v City of Buffalo, 28 NY3d 231, 237 [2016]; People v Tychanski, 78 NY2d 909, 911-912 [1991]; Pajak v Pajak, 56 NY2d 394, 397 [1982]). This principle has particular force where, as here, an expansive interpretation of the statute to include that which is not expressly mentioned in it would result in a significant practical change to an established rule of law (McKinney's Cons Laws of NY, Book 1, Statutes, § 74, at 158; see Morell v Balasubramanian, 70 NY2d 297, 302-303 [1987]; PB-7 Doe v Amherst Cent. Sch. Dist., 196 AD3d 9, 12 [4th Dept 2021]). If we interpreted Executive Law § 63(3) in the manner suggested by the AG, the statute would, for the first time, allow for a referral from the Unified Court System.[FN2] We cannot impute to the legislature an intention to make a significant change to a long-established rule (particularly one relating to the criminal jurisdiction of a prosecuting authority) in the absence of a clear manifestation of such an intention (see McKinney's Cons Laws of NY, Book 1, Statutes § 153, at 332; see also Town of Aurora v Village of E. Aurora, 32 NY3d 366, 375 [2018]; see generally McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 353). Thus, the legislature's failure to include the Unified Court System or any specified officers thereof in Executive Law § 63(3) indicates that the exclusion was intentional.
Our reading of the plain meaning of Executive Law § 63(3) is confirmed by the statute's legislative history (see Riley v County of Broome, 95 NY2d at 463-465).[FN3] Executive [*9]Law § 63(3) was enacted in 1951, and provided that the following executive branch officers could make a referral to the AG: the Governor, the Secretary of State, the Comptroller, the Superintendent of Public Works, and the Commissioner of Taxation and Finance (L 1951, ch 800). From 1955 to 1968, the legislature added additional executive branch agencies to Executive Law § 63(3) (see L 1955, ch 586 [Superintendent of Insurance]; L 1956, ch 118 [Superintendent of Banks]; L 1965, ch 790 [Commissioner of Motor Vehicles]; L 1968, ch 420 [Commissioner of Transportation]).[FN4]
In 1969, the legislature, at the prompting of the AG, amended Executive Law § 63(3) "to include the head of any department, authority, division or agency of the State among the officers of the State" who may make a referral to the AG (Memo of State Dept. of Law, 1969 McKinney's Session Laws of NY, at 2460). According to then-AG Louis J. Lefkowitz's Office,
"[w]hatever may have been the earlier reasons for limiting the [AG's] authority in such matters to offenses reported by the officers now named in the statute, experience in recent years has demonstrated the wisdom of expanding the [AG's] jurisdiction to include offenses called to [the AG's] attention by the head of any State department or agency. And by including all departments and agencies there will be no future need to amend the statute on a piece-meal basis to add other State agencies" (id.).
Neither the AG, nor the Judicial Conference of the State of New York (which was asked to comment on the amendment), nor the Division of Budget (which prepared a budget report relating to the amendment) indicated in their respective legislative memoranda that the result of the amendment would be to include the Unified Court System among the State entities that could make a referral (Memo of State Law Dept., Letter from State Judicial Conference, Budget Rpt on Bill, Bill Jacket, L 1969, ch 814). Thus, nothing in the legislative history of Executive Law § 63(3) supports the notion that the Unified Court System can make a referral (see generally People v Romero, 91 NY2d at 756-757]).
The purpose of the 1969 amendment, which is an important indicator of the legislature's intention in passing it (see McKinney's Cons Laws of NY, Book 1, Statutes § 96, at 202; People v Thomas, 33 NY3d 1, 5-6 [2019]; see also Riley v County of Broome, 95 NY2d at 463; McKinney's Cons Laws of NY, Book 1, Statutes § 191, at 353), was to provide every agency within the executive branch the ability to make a referral to the AG, not expand to the judiciary the ability to make such a referral. The history underlying Executive Law § 63(3), which is another important indicator of the legislature's intention in passing the 1969 amendment (see McKinney's Cons Laws of NY, Book 1, Statutes §§ 124, 191, at 251-255, 353; see also Consedine v Portville Cent. School Dist., 12 NY3d 286, 290-292 [2009]), reflects that the prerogative to make referrals was always enjoyed by [*10]entities within the executive branch, and the course of the legislation relating to that provision a series of amendments incrementally expanding those entities within the executive branch empowered to make referrals, culminating in the 1969 amendment demonstrates that the legislature did not intend to authorize the Unified Court System to make referrals (see McKinney's Cons Laws of NY, Book 1, Statutes § 124, at 255; see also People v Nuccio, 78 NY2d 102, 104-105 [1991]; Ferres v City of New Rochelle, 68 NY2d 446, 451-454 [1986]).
The rule of statutory construction ejusdem generis further buttresses the conclusion that the legislature did not intend to empower the Unified Court System to make a referral. Under that rule, a court should limit the meaning of general language of a statute by the specific phrases that preceded the general language, provided such a construction does not contradict the intention of the legislature (McKinney's Cons Laws of NY, Book 1, Statutes § 239[b], at 407; see People v Bartkow, 96 NY2d 770, 772 [2001]; Avella v City of New York, 131 AD3d 77, 85 [2015]). Thus, the meaning of general language may be ascertained by reference to the specific company it keeps (People v Illardo, 48 NY2d 408, 416 [1979]). "Where[, as here,] a statute enumerates several classes of things, and immediately following and classed with such enumeration the clause embraces 'other' persons or things, the word 'other' will generally be read as 'other such like,' so that persons or things therein comprised may be read as ejusdem generis with, and not of a quality superior to or different from, those specifically enumerated" (McKinney's Cons Laws of NY, Book 1, Statutes § 239[b], 409-410; People v Panitz, 251 AD 276, 278 [1st Dept 1937]). Because the specific agencies enumerated in Executive Law § 63(3) are all within the executive branch, it is reasonable to infer that the "the other department[s], authorit[ies], division[s] or agenc[ies]" must lie within that branch as well.
Accordingly, because the Unified Court System could not make the referral, the AG lacks the power to prosecute petitioner in the criminal proceeding, and we are, in light of the manner in which the parties have litigated this special proceeding, constrained to dismiss the indictment (see People v Gilmour at 132; People v Romero at 758; see also People v Cuttita at 507; People v Leahy, 72 NY2d 510 [1988]; cf. People v Codina, 297 AD2d 539 [1st Dept 2002]).
In light of our conclusion that the Unified Court System cannot make an Executive Law § 63(3) referral to the AG, we need not and do not pass on petitioner's contention that the referral was infirm because it did not come from "the head" of the Unified Court System.
The parties have not addressed whether any appropriate prosecuting authority could subsequently prosecute petitioner for the charged crimes (see generally People v Di Falco, 44 NY2d 482 [1978]; People v Fox, 253 AD2d 192 [3d Dept 1999], lv denied 93 [*11]NY2d 1018 [1999]). Accordingly, we take no position on that issue.
Accordingly, the petition pursuant to CPLR article 78 for a writ of prohibition should be granted to the extent that respondent Attorney General of the State of New York be prohibited from continuing to prosecute petitioner in the criminal proceeding entitled People v Makhani (N.Y. County Ind. No. 1420/21), respondent Hon. Diane Kiesel should be prohibited from continuing to exercise jurisdiction over that criminal proceeding, and the indictment is dismissed.
Finally, we note that Justice Kiesel has elected, pursuant to CPLR 7804 (i), not to appear in this proceeding.
Opinion by Higgitt, J. All concur.
Writ granted and indictment dismissed.
Renwick, J.P., Friedman, Singh, Shulman, Higgitt, JJ.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022
Footnotes
Footnote 1: Given that the legislature has "delineate[d] meticulously the prosecutorial power of the Attorney General" (People v Gilmour, 98 NY2d at 132; see People v Romero, 90 NY2d at 757-758), it strains credulity that the legislature would refer to the Unified Court System in an oblique manner if it intended to permit the judiciary to make referrals.
Footnote 2: The AG has identified no case, reported or otherwise, in which that Office has served as the prosecuting authority in a criminal proceeding based on a referral from the Unified Court System.
Footnote 3: In People v Gilmour, the Court of Appeals traced the origins of the AG's prosecutorial powers from colonial to modern times, and reviewed certain aspects of Executive Law § 63(3)'s legislative history (98 NY2d at 129-132).
Footnote 4: Executive Law § 63(3) was amended several times to reflect changes to the makeup and organization of the executive branch (e.g., elimination of Departments of Public Works, Insurance, and Banks, and creation of Department of Financial Services). | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484592/ | Matter of State of New York-Unified Ct. Sys. v Civil Serv. Empls. Assn., Inc. (2022 NY Slip Op 06567)
Matter of State of New York-Unified Ct. Sys. v Civil Serv. Empls. Assn., Inc.
2022 NY Slip Op 06567
Decided on November 17, 2022
Appellate Division, First 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
Before: Gische, J.P., Kern, Gesmer, Scarpulla, Rodriguez, JJ.
Index No. 450983/21 Appeal No. 16513 Case No. 2022-00608
[*1]In the Matter of State of New York-Unified Court System, Petitioner-Respondent,
vCivil Service Employees Association, Inc., Local 1000, AFSCME, AFL-CIO, Respondent-Appellant.
Daren J. Rylewicz, Albany (Sarah M. Coligan of counsel), for appellant.
Craig E. Penn, Office of Court Administration, New York (Robyn L. Rothman of counsel), for respondent.
Order, Supreme Court, New York County (Eileen A. Rakower, J.), entered October 27, 2021, which, to the extent appealed from, granted petitioner State of New York-Unified Court System (UCS) leave to reargue its petition to permanently stay arbitration and CSEA's cross motion to compel arbitration, unanimously affirmed, without costs.
This proceeding concerns a dispute over whether mandatory stay-at-home work during the Covid-19 pandemic, which affected court officer trainees' (COTs) completion of probationary periods and, consequently, their compensation, is governed by their collective bargaining agreement (CBA), making the grievance arbitrable, or by administrative policies established by the Chief Judge, as codified in The Rules of the Chief Judge (22 NYCRR) § 25.22, making such grievance nonarbitrable.
The motion court properly granted reargument and such relief was warranted on the ground that the compensation issue in the CBA was necessarily intertwined with the question of UCS's authority to extend officers' probationary periods, which is governed by 22 NYCRR 25.22. The parties did not agree in the CBA to arbitrate the propriety of statutory extensions of the probationary periods. CSEA argues that it limits its grievance to the compensation issue, claiming only a violation of Article 7.4 of the CBA, and that it expressly forgoes any claim based on UCS's determination of probation extensions under 22 NYCRR 25.22. UCS persuasively argues, however, that CSEA's limiting its claim to Article 7.4 alone does not account for the cause of the reduced pay increases (i.e. , the probation extensions). It is inconceivable that an arbitrator could "fashion a remedy adequately narrowed to encompass only" the arbitrable issue of the CBA's compensation guarantees without considering the probation extensions under 22 NYCRR 25.22. Consequently, a stay of arbitration was warranted (Matter of Babylon Union Free School Dist. v Babylon Teachers Assn. , 79 NY2d 773, 775 [1991][internal quotation marks omitted]). THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484602/ | Gonzalez v Georgetown Plaza (2022 NY Slip Op 06551)
Gonzalez v Georgetown Plaza
2022 NY Slip Op 06551
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 155065/18 Appeal No. 16693 Case No. 2022-00665
[*1]Maria Cristina Gonzalez et al., Plaintiffs-Appellants,
vGeorgetown Plaza et al., Defendants-Respondents.
Vernon & Ginsburg, LLP, New York (Yoram Silagy of counsel), for appellants.
Mauro Lilling Naparty LLP, Woodbury (Jamie Greenwood of counsel), for Georgetown Plaza, Rose Terra Management and Rose Associates, respondents.
Devitt Spellman Barrett, LLP, Smithtown (Christi M. Kunzig of counsel), for Sathya Matheswaran and Durairaj Matheswaran, respondents.
Order, Supreme Court, New York County (Verna L. Saunders, J.), entered on or about July 19, 2021, which granted defendants' motions for summary judgment dismissing the complaint, unanimously affirmed, without costs.
The court correctly concluded that the record established as a matter of law that defendants Sathya Matheswaran and Durairaj Matheswaran (landlord defendants) satisfied their duty to take minimal precautions to protect tenant plaintiffs from the burglary of their apartment (see Burgos v Aqueduct Realty Corp., 92 NY2d 544, 548 [1998]; Astupina v West Farms Sq. Hous. Dev. Fund Corp., 195 AD3d 461, 462 [1st Dept 2021). It is undisputed that landlord defendants installed a cylinder deadbolt lock on the front door of the apartment, in addition to the locks already installed by the building, and that they provided a key to the lock only to plaintiffs. Because landlord defendants had no knowledge of the two prior burglaries in the building, they had no duty to provide additional security measures (see George v 855 Ocean Ave., LLC, 165 AD3d 1060, 1062 [2d Dept 2018]).
Similarly, the record established that defendants Georgetown Plaza, Rose Terra Management, and Rose Associates (building defendants) satisfied their duty of taking minimal precautions to protect against the burglary (see Burgos, 92 NY2d at 548; Astupina, 195 AD3d at 462). In addition to the locks to the apartment door, they also provided extensive building security measures, including a 24-hour manned security desk, over 20 security cameras throughout the common areas, a key tracking system, and a door alarm notification system, which notifies the front desk when an apartment door is opened. Plaintiffs contend that they were unaware of the door alarm notification system, and that building defendants should have notified them of the system, especially given that two similar burglaries had previously occurred in the building. However, the resident manager testified that residents were made aware of the door alarm notification system through newsletters and the Building Link resident portal. In any event, even if plaintiffs were unaware of the system, the two prior burglaries, which occurred in 2012 and 2015, did not render the present burglary, which occurred in 2017, foreseeable so as to impose a duty on the building defendants to provide further security measures (see Gross v Empire State Bldg. Assoc., 4 AD3d 45, 47 [1st Dept 2004], lv denied 3 NY3d 605 [2004]; Leyva v Riverbay Corp., 206 AD2d 150, 154 [1st Dept 1994]).
The record also established that any failure of building defendants to notify plaintiff of the door alarm notification system or to provide adequate security was not a proximate cause of the burglary (see Burgos, 92 NY2d at 548; Astupina, 195 AD3d at 462). Building defendants submitted a report of its expert concluding that the building security measures were adequate and that nothing building defendants "did, or failed to do, led or contributed to the burglary[*2]." Plaintiffs did not submit any proof in opposition to raise a triable issue of fact. Furthermore, if, as plaintiffs contend, the burglary was an "inside job," any reasonable security measures would not have deterred the criminal participants (see Cerda v 2962 Decatur Ave. Owners Corp., 306 AD2d 169, 169-170 [1st Dept 2003]; Rivera v New York City Hous. Auth., 239 AD2d 114, 115 [1st Dept 1997]). Rather, as the motion court found, the record established that the sole proximate cause of the burglary was plaintiffs' failure to use the deadbolt lock provided by landlord defendants.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484616/ | Polito v Escorcia (2022 NY Slip Op 06447)
Polito v Escorcia
2022 NY Slip Op 06447
Decided on November 15, 2022
Appellate Division, First 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 15, 2022
Before: Manzanet-Daniels, J.P., Webber, Mazzarelli, Friedman, Shulman, JJ.
Index No. 155206/18 Appeal No. 16659 Case No. 2021-04099
[*1]Michele Polito, Plaintiff-Respondent,
vKatherine Escorcia et al., Defendants, The City of New York, Defendant-Appellant.
Georgia M. Pestana, Corporation Counsel, New York (Chloe Moon of counsel), for appellant.
The Licatesi Law Group, LLP, Uniondale (Michael Licatesi of counsel), for respondent.
Order, Supreme Court, New York County (J. Machelle Sweeting, J.), entered July 26, 2021, which, to the extent appealed from as limited by the briefs, denied defendant City of New York's motion to dismiss the complaint, unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment accordingly.
Neither the notice of claim nor the complaint alleges the factual predicate for the special relationship theory between plaintiff and the City, as required to hold the City liable for plaintiff's injuries based on a traffic officer's alleged negligence in directing traffic and pedestrians at an intersection where plaintiff was crossing the street (see Puello v City of New York, 118 AD3d 492, 492 [1st Dept 2014]; see also Cuffy v City of New York, 69 NY2d 255, 260 [1987]). Plaintiff also did not sufficiently allege that the officer, in directing traffic, took control of "a known and dangerous safety condition" so as to set forth the existence of a special duty (Ferreira v City of Binghamton, 38 NY3d 298, 310 [2022] [internal quotation marks omitted]). Plaintiff alleged only that the traffic officer negligently directed a vehicle at the intersection, causing the vehicle to hit her, thereby creating a dangerous condition; however, the dangerous condition must exist prior to the traffic officer's assumption of any duty (see e.g. Smullen v City of New York, 28 NY2d 66, 70-71 [1971]). Plaintiff did not assert that the intersection was inherently dangerous or that the drivers of the cars at the intersection were violating any safety laws before the officer was directing pedestrians.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484610/ | Bchakjan v City of New York (2022 NY Slip Op 06543)
Bchakjan v City of New York
2022 NY Slip Op 06543
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Pitt, Higgitt, JJ.
Index No. 158738/17 Appeal No. 16670 Case No. 2021-02770
[*1]Anne Bchakjan, Plaintiff-Appellant,
vThe City of New York, Defendant-Respondent, Gateway Realty LLC et al., Defendants.
Mischel & Horn, P.C., New York (Lauren E. Bryant of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Eva L. Jerome of counsel), for respondent.
Order, Supreme Court, New York County (J. Machelle Sweeting, J.), entered July 22, 2021, which, to the extent appealed from as limited by the briefs, granted defendant City of New York's motion to dismiss the complaint pursuant to CPLR 3211 (a) (7) and motion for summary judgment dismissing the complaint, unanimously reversed, on the law, without costs, plaintiff's claim reinstated, the complaint deemed amended to allege that the City had prior written notice, and the matter remanded for further proceedings consistent with this decision.
The City demonstrated prima facie entitlement to dismissal of the complaint pursuant to CPLR 3211 (a) (7) by showing that plaintiff had not pleaded that the City had prior written notice of the alleged sidewalk defect that caused plaintiff to trip and fall (see Kales v City of New York, 169 AD3d 585, 585 [1st Dept 2019]; see generally Administrative Code of the City of New York § 7-201 [c] [2]; Katz v City of New York, 87 NY2d 241, 243 [1995]). In support of its summary judgment motion, the City submitted evidence, including the most recent Big Apple Map received by the City prior to plaintiff's accident, and argued that the Map did not depict the type of sidewalk defect that plaintiff testified caused her accident.
Based on all the evidence submitted, including the Big Apple Map and photographs of the sidewalk defect, plaintiff raised a triable issue of fact as to whether the City had prior written notice of the alleged dangerous condition (see Sanchez v City of New York, 176 AD3d 490, 491 [1st Dept 2019]). The City's contention that the Big Apple Map had been rendered inapplicable by subsequent sidewalk repairs is unavailing. Aside from the fact that this argument was improperly raised for the first time on reply, the City's submissions indicated that the defect remained unchanged. Further, the issue of whether the Big Apple Map was sufficiently close in time to provide prior written notice, and whether the area had remained unchanged, was a question for the jury (see Rosell v City of Kingston, 92 AD3d 1123, 1124-1125 [3d Dept 2012]).
The evidence submitted by plaintiff in opposition to the City's motion may be considered to correct the deficiency in the pleadings regarding prior written notice (see Rovello v Orofino Realty Co., 40 NY2d 633 [1976]; Becker v City of New York, 131 AD2d 413, 415 [2d Dept 1987]). Because plaintiff previously pleaded actual notice and the City has been aware of the Big Apple Map, the City would not be prejudiced by an amendment of the pleadings to conform to the evidence, and we deem the pleadings so amended (see CPLR 3025 [c]; O'Neill v New York Univ., 97 AD3d 199, 209 [1st Dept 2012]; Reyes v City of New York, 63 AD3d 615, 616 [1st Dept 2009], lv denied 13 NY3d 710 [2009]).
To the extent the City contends that the notice of claim was insufficient absent an allegation of prior written notice, we find that it satisfied its purpose, which is to provide a description so that "municipal [*2]authorities can locate the place, fix the time and understand the nature of the accident" (Brown v City of New York, 95 NY2d 389, 393 [2000]).
The matter is remanded for determination of plaintiff's motions pertaining to discovery and trial preference, which were denied as moot.THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484615/ | Rivera v City of New York (2022 NY Slip Op 06449)
Rivera v City of New York
2022 NY Slip Op 06449
Decided on November 15, 2022
Appellate Division, First 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 15, 2022
Before: Gische, J.P., Kapnick, Kern, Higgitt, JJ.
Index No. 159520/16 Appeal No. 16638 Case No. 2020-03940
[*1]Clementina Rivera, Plaintiff-Appellant,
vThe City of New York, Defendant-Respondent, KWNY Management, LLC, et al., Defendants.
The Barnes Firm, New York (Josh C. Olmstead of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Julie Steiner of counsel), for respondent.
Order, Supreme Court, New York County (Lyle E. Frank, J.), entered September 3, 2020, which, to the extent appealed from, granted so much of defendant City of New York's motion for summary judgment dismissing the complaint as against it, unanimously affirmed, without costs.
Contrary to plaintiff's argument, whether her accident occurred, as a matter of law, on the sidewalk or the curb is irrelevant, given that there is no viable means for her to recover against the City under either applicable standard. Specifically, the City first established prima facie that, if plaintiff's accident occurred on the sidewalk, then it could not be held liable, pursuant to Administrative Code of City of NY § 7-210 (c), because the adjacent property was neither owned by the City nor a "one-, two- or three-family residential real property that is (i) in whole or in part, owner occupied, and (ii) used exclusively for residential purposes" (see e.g. Bowe v Valentine, 195 AD3d 463 [1st Dept 2021]). The City also established prima facie that, if plaintiff's accident occurred on the curb, then it could not be held liable because it lacked prior "written notice of the defective, unsafe, dangerous or obstructed condition," as required by Administrative Code § 7-201 (c) (2) (see e.g. Correa v Mana Constr. Group Ltd., 192 AD3d 555 [1st Dept 2021]; Hued v City of New York, 170 AD3d 571 [1st Dept 2019]).
Plaintiff failed to raise an issue of fact in opposition. Her reliance on the Big Apple Map that the City produced is misplaced, as the key to the Big Apple Map indicates that curb-related defects are indicated with an "X," and no such symbol appears on the Big Apple Map in front of the property at which plaintiff's accident occurred (compare Bagley v 1122 E. 180th St. Corp., 203 AD3d 502, 502-503 [1st Dept 2022]).
Furthermore , plaintiff failed to establish that the City's motion was premature, since she did not show that "'it appear[s] . . . that facts essential to justify opposition may exist but cannot . . . be stated' (CPLR 3212 [f]) because they lie within [the City's] exclusive knowledge" or control (Corona v HHSC 13th St. Dev. Corp., 197 AD3d 1025, 1026 [1st Dept 2021]; see e.g. Greca v Choice Assoc. LLC, 200 AD3d 415, 416 [1st Dept 2021]; compare e.g. Lyons v New York City Economic Dev. Corp., 182 AD3d 499 [1st Dept 2020]; Marabyan v 511 W. 179 Realty Corp., 165 AD3d 581, 581-582 [1st Dept 2018]).
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484611/ | Arana v A.O. Smith Water Prods. Co. (2022 NY Slip Op 06542)
Arana v A.O. Smith Water Prods. Co.
2022 NY Slip Op 06542
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 190261/19 Appeal No. 16681 Case No. 2021-04739
[*1]Victor Arana, as Administrator for the Estate of Gloria M. Maryn, Plaintiff-Respondent,
vA.O. Smith Water Products Co., et al., Defendants, J-M Manufacturing Company, Inc., Defendant-Appellant.
Manning Gross + Massenburg, LLP, New York (Anna Hwang of counsel), for appellant.
Weitz & Luxenberg, P.C., New York (Jason P. Weinstein of counsel), for respondent.
Order, Supreme Court, New York County (Adam Silvera, J.), entered on or about October 8, 2021, which, to the extent appealed from, denied the motion of defendant J-M Manufacturing Company (JMM) for summary judgment dismissing the complaint as against it, unanimously modified, on the law, to dismiss plaintiff's punitive damages demand, and otherwise affirmed, without costs.
Defendant is a former distributor of asbestos cement pipe (ACP). Plaintiff Arana, a plumber's laborer, alleges that he worked with ACP distributed by JMM and that his mother, Gloria M. Maryn, was secondarily exposed to asbestos-containing dust while she laundered his clothes.
Questions of fact and credibility exist as to whether plaintiff Arana worked with ACP distributed by JMM (see Comeau v W.R. Grace & Co.-Conn., 216 AD2d 79, 80 [1st Dept 1995]; see also Matter of New York City Asbestos Litig., 7 AD3d 285 [1st Dept 2004]; Dollas v Grace & Co., 225 AD2d 319 [1st Dept 1996]).
There is insufficient evidence, however, to support plaintiff's punitive damages demand. "Even where there is gross negligence, punitive damages are awarded only in 'singularly rare cases' such as cases involving an improper state of mind or malice or cases involving wrongdoing to the public" (Anonymous v Streitferdt, 172 AD2d 440, 441 [1st Dept 1991], quoting Rand & Paseka Mfg. Co. v Holmes Protection, 130 AD2d 429, 431 [1st Dept 1987], lv denied 70 NY2d 615 [1988]). This is not such a singularly rare case (see Matter of New York City Asbestos Litig., 225 AD2d 414, 415 [1st Dept 1996], affd 89 NY2d 955 [1997]; see also Matter of Eighth Jud. Dist. Asbestos Litig., 92 AD3d 1259 [4th Dept 2012], lv denied 19 NY3d 803 [2012]). There is no evidence of a concerted effort to suppress information about the dangers of asbestos. To the contrary, the product came with multiple warnings that it could not safely be worked with using dry saws or the like. To the extent those warnings were not present on each piece of pipe may evidence negligence, it does not evidence malice (compare Matter of 91st St. Crane Collapse Litig., 154 AD3d 139 [1st Dept 2017]).
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484608/ | Courtois v TOMS Capital Mgt. LP (2022 NY Slip Op 06545)
Courtois v TOMS Capital Mgt. LP
2022 NY Slip Op 06545
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 161028/20 Appeal No. 16698 Case No. 2022-01744
[*1]Kevin S. Courtois, Plaintiff-Respondent,
vTOMS Capital Management LP, Defendant-Appellant, Kiwi Los Angeles LLC et al., Defendants.
Dontzin Nagy & Fleissig LLP, New York (David A. Fleissig of counsel), for appellant.
Ancona Associates, Mineola (Vincent J. Ancona of counsel), for respondent.
Order, Supreme Court, New York County (Louis Nock, J.), entered October 27, 2021, which, to the extent appealed from, denied so much of defendant TOMS Capital Management LP's (TOMS) motion to dismiss the third cause of action for unjust enrichment and eighth cause of action for negligence against it based on the theory of respondeat superior, unanimously reversed, on the law, with costs, the motion granted as to those causes of action, and the complaint against TOMS dismissed in its entirety. The Clerk is directed to enter judgment accordingly.
Plaintiff alleges that a TOMS employee, defendant Alex Rosner, whom plaintiff met at a private social event, began providing plaintiff with investment advice in or about February 2020. Plaintiff initially made "large trading gains" on his private brokerage account based on the advice, and paid Rosner for the trade gains via Venmo. At some point, Rosner directed plaintiff to communicate with him by means of Signal, an app in which messages are encrypted and erased after six hours.
In or about June 2020, Rosner allegedly began an affair with plaintiff's wife. They then allegedly conspired to develop a scheme to deplete plaintiff's assets. In furtherance of this scheme, Rosner began to advise plaintiff to invest in high-risk stock options which Rosner knew were not suitable for plaintiff and would not be profitable for him. Plaintiff followed the advice and sustained trading losses in excess of $300,000. Plaintiff alleges that this investment advice was part of a scheme by TOMS and Rosner to "better position the stock options," in which TOMS was also allegedly participating, to benefit TOMS and Rosner and their clients.
The motion court incorrectly determined that the allegations in the complaint sufficiently supported claims for unjust enrichment and negligence against TOMS under a theory of respondeat superior. Even construed in the light most favorable to plaintiff (see Rovello v Orofino Realty Co., 40 NY2d 633, 634 [1976]), the alleged acts by Rosner clearly were not made within the scope of his employment or in furtherance of TOMS's business, but rather, for his own personal gain (see Rivera v State of New York, 34 NY3d 383, 389 [2019]).THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484604/ | Ferguson v City of New York (2022 NY Slip Op 06549)
Ferguson v City of New York
2022 NY Slip Op 06549
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 157402/17 Appeal No. 16692 Case No. 2022-00956
[*1]Tanya Ferguson, Plaintiff-Appellant,
vThe City of New York, Defendant-Respondent, Metropolitan Transportation Authority et al., Defendants.
William Schwitzer & Associates, P.C., New York (Travis Wong of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Benjamin H. Pollak of counsel), for respondent.
Order, Supreme Court, New York County (Lyle E. Frank, J.), entered August 23, 2021, which granted the motion of defendant the City of New York for summary judgment dismissing the complaint as against it, unanimously affirmed, without costs.
Plaintiff alleges that in February 2017, as she was walking on the pedestrian walkway through the overpass at East 108th Street and Park Avenue, she slipped on ice on the walkway and fell. According to plaintiff, while it was cold on the day of the accident it was not raining or snowing. Plaintiff testified that as she took about five steps into the tunnel, she fell on the ice on the walkway that was nearly as wide as the entrance. After the accident, plaintiff noticed water leaking from the roof of the tunnel onto the walls, as well as icicles hanging from the ceiling.
As a threshold matter, the City failed to establish its entitlement to the storm-in-progress defense. The City failed to eliminate all triable issues of fact of whether plaintiff's accident occurred while the storm was still in progress or whether there was a significant lull in the storm that afforded the City a reasonable opportunity to clear the pedestrian walkway (see Rodriguez v Woods, 121 AD3d 474, 476 [1st Dept 2014]; Hoenig v Park Royal Owners, 260 AD2d 250, 251 [1st Dept 1999]).
However, the City established its entitlement to summary judgment by making a prima facie showing that although it is responsible for maintaining the pedestrian walkway, it had no actual notice of the alleged icy condition. The record shows that the City did not receive any complaints about the walkway before the accident. Its witness from the Department of Sanitation testified that it never removed snow or ice from the walkway during ongoing storms, focusing instead on the roads. In addition, plaintiff testified that she never saw the City working in the tunnel before her fall, never complained to the City about the tunnel's condition, and was unaware if anyone else complained about the condition. Plaintiff also testified that she did not see any ice on the pedestrian walkway when she walked through the tunnel, four days before the accident.
In response to the City's prima facie showing, plaintiff failed to raise a triable issue of fact regarding actual or constructive notice. Plaintiff failed to submit any evidence as to when the ice formed on the walkway (see Early v Hilton Hotels Corp., 73 AD3d 559, 561 [1st Dept 2010]; Katz v City of New York, 11 AD3d 391, 392 [1st Dept 2004]), or any evidence of an ongoing and recurring dangerous condition that the City was aware of but routinely left unaddressed (see Irizarry v 15 Mosholu Four, LLC, 24 AD3d 373, 373 [1st Dept 2005]). Plaintiff's deposition testimony does not establish that water was routinely dripping from the tunnel's ceiling and forming icy conditions on the walkway, or that the ice was caused by water dripping from above. While the inspection reports created by defendant Metro North Commuter [*2]Railroad, which co-owned the overpass with defendant Metropolitan Transportation Authority, indicate that the tunnel was allowing water to leak in, there is no evidence those reports were provided to the City prior to the accident (see Gordon v American Museum of Natural History, 67 NY2d 836, 837 [1986]).
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484613/ | Williams v City of New York (2022 NY Slip Op 06452)
Williams v City of New York
2022 NY Slip Op 06452
Decided on November 15, 2022
Appellate Division, First 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 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 158117/19 Appeal No. 16636 Case No. 2021-02682
[*1]Stefan Williams, Plaintiff-Appellant,
vThe City of New York et al., Defendants-Respondents.
Caitlin Robin & Associates PLLC, New York (Caitlin A. Robin of counsel), for appellant.
Sylvia O. Hinds-Radix, Corporation Counsel, New York (Elizabeth I. Freedman of counsel), for respondents.
Order, Supreme Court, New York County (Lyle E. Frank, J.), entered on or about July 14, 2021, which, to the extent appealed from as limited by the briefs, granted defendants' motion for summary judgment dismissing the false arrest, false imprisonment, and malicious prosecution claims, unanimously affirmed, without costs.
The claims were correctly dismissed because the officers' testimony and corroborating video evidence established prima facie probable cause for plaintiff's arrest for criminal trespass in the third degree, and plaintiff failed to raise a triable issue of fact (see Flavin v City of New York, 171 AD3d 633, 634 [1st Dept 2019]). Plaintiff does not dispute that defendant sergeant ordered him to leave the precinct and warned him that he would be arrested if he did not leave (see Penal Law §§ 140.00, 140.10[a]). Plaintiff's contention that he was in fact leaving the premises is not supported by the testimonial or video evidence; rather, the body camera footage at the precinct showed that, despite the sergeant's repeated orders to leave, plaintiff continued to engage and argue, and he ultimately proffered his wrists and challenged the sergeant to arrest him. Plaintiff also admitted on the footage, as he did at his deposition, that he was trying to provoke the officer. Under these circumstances, the officers reasonably believed that plaintiff was committing the offense of criminal trespass in the third degree (see People v Bigelow, 66 NY2d 417, 423 [1985]; Colon v City of New York, 60 NY2d 78, 82 [1983]). Accordingly, defendants made an unrebutted prima facie showing of probable cause for plaintiff's arrest, which constitutes a complete defense to the claims of false arrest, false imprisonment, and malicious prosecution (see Gann v City of New York, 197 AD3d 1035, 1036 [1st Dept 2021]).
Plaintiff failed to preserve his argument that the sergeant's order directing him to leave the precinct violated his friend's constitutional right to counsel. In any event, the argument is unavailing.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484603/ | Florez v 215 E. 68th St. L.P. (2022 NY Slip Op 06550)
Florez v 215 E. 68th St. L.P.
2022 NY Slip Op 06550
Decided on November 17, 2022
Appellate Division, First 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
Before: Gische, J.P., Kern, Gesmer, Rodriguez, Pitt, JJ.
Index No. 152831/18 Appeal No. 16383 Case No. 2022-01459
[*1]Maria Florez, Plaintiff-Respondent,
v215 East 68th Street L.P., et al., Defendants-Appellants, Otis Elevator Company, Defendant-Respondent.
Wood Smith Henning & Berman LLP, New York (Courtney G. Swartz of counsel), for appellants.
Burns & Harris, New York (Mariel Crippen of counsel), for Maria Florez, respondent.
McNamara & Horowitz LLP, Bronx (Katryna L. Kristoferson of counsel), for Otis Elevator Company, respondent.
Order, Supreme Court, New York County (Arlene P. Bluth, J.), entered on or about March 4, 2022, which, to the extent appealed from, granted Otis Elevator Company's (Otis) motion for summary judgment dismissing the complaint as against it, granted Otis's motion for summary judgment dismissing the Rudin defendants' cross claims for contribution and common-law indemnity, denied the Rudin defendants' motion for summary judgment on their cross claims against Otis, denied the Rudin defendants' motion for summary judgment dismissing Otis's cross claims, and denied plaintiff's motion for summary judgment on liability as against Otis, unanimously affirmed, without costs.
Otis established its entitlement to summary judgment by eliminating all triable issues regarding its negligence in the service and maintenance of the elevator including any notice, actual or constructive, or any misleveling relating to the October 25, 2017 incident (see Leo v Mt. St. Michael Academy, 272 AD2d 145, 145-146 [1st Dept 2000]). Plaintiff has not appealed the trial court's determination that Otis was not negligent.
In view of plaintiff's failure to appeal and consequent inability to recover from Otis, any recovery for plaintiff will result from a showing of the Rudin defendants' negligence. Otis is therefore not obligated to indemnify or contribute to the Rudin defendants (see e.g. Ramirez v Almah, LLC, 169 AD3d 508, 509-510 [1st Dept 2019]; see also McCarthy v Turner Constr., Inc., 17 NY3d 369, 377 [2011]; Sotarriba v 346 W. 17th St. LLC, 179 AD3d 599, 601 [1st Dept 2020]; People v Grasso, 53 AD3d 403, 403 [1st Dept 2008]). Rudin's arguments, largely based on its own expert, that no dangerous condition existed does not change this result. Accordingly, the Rudin defendants' cross claims for indemnification and contribution must be dismissed. Moreover, the motion court properly denied the Rudin defendants' summary judgment motion on their cross claims and their motion for summary judgment dismissing Otis's cross claims. THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484606/ | Dashdevs LLC v Capital Mkts. Placement, Inc. (2022 NY Slip Op 06547)
Dashdevs LLC v Capital Mkts. Placement, Inc.
2022 NY Slip Op 06547
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 655993/18 Appeal No. 16700 Case No. 2021-04191
[*1]Dashdevs LLC, Plaintiff-Respondent,
vCapital Markets Placement, Inc., Defendant-Appellant.
Long & Associates PLLC, New York (Ryan E. Long of counsel), for appellant.
Borg Law LLP, New York (Jonathan M. Borg of counsel), for respondent.
Order, Supreme Court, New York County (Nancy M. Bannon, J.), entered October 15, 2021, which, to the extent appealed from as limited by the briefs, granted plaintiff's motion to dismiss defendant's counterclaims for tortious interference with contract, abuse of process, and fraud, and granted plaintiff's alternative motion for summary judgment dismissing defendant's counterclaim for defamation, unanimously affirmed, with costs.
Defendant failed to state a cause of action for tortious interference with contract, as it failed to allege the existence of a contract between defendant and its clients that had been breached (see Amato v New York City Dept. of Parks & Recreation, 110 AD3d 439, 440 [1st Dept 2013]; see generally Foster v Churchill, 87 NY2d 744, 749-750 [1996]). Further, the allegations that plaintiff caused defendant's clients to terminate their relationship with defendant by "defam[ing]" defendant and "woo[ing]" the clients were vague, conclusory, and based on speculation (see Carlyle, LLC v Quik Park 1633 Garage LLC, 160 AD3d 476, 477 [1st Dept 2018]).
The court correctly granted plaintiff summary judgment dismissing the counterclaim for defamation on the ground that it was barred by the one-year statute of limitations (see CPLR 215 [3]). The alleged defamatory statements by plaintiff occurred in July 2018, over two years before defendant served its answer containing the counterclaim (see CPLR 215 [3]; Melious v Besignano, 125 AD3d 727, 728 [2d Dept 2015]). Defendant's allegation that the defamation was "ongoing" was "wholly speculative" (Smulyan v New York Liquidation Bur., 158 AD3d 456, 457 [1st Dept 2018]).
The counterclaim for abuse of process was correctly dismissed. Defendant failed to set forth facts showing that plaintiff's service of subpoenas and restraining notices was motivated by an intent to do harm, or to achieve any purpose other than the legitimate purpose of enforcing its judgment (see Zeckendorf v Kerry H. Lutz, P.C., 282 AD2d 295, 295-296 [1st Dept 2001]; Stroock & Stroock & Lavan v Beltramini, 157 AD2d 590, 591 [1st Dept 1990]). Defendant also failed to allege facts showing that plaintiff's failure to serve its motion for a default judgment, or copies of the subpoenas with restraining notices, on defendant's counsel was motivated by an improper purpose.
Furthermore, defendant failed to plead its counterclaim for fraud with the requisite particularity (see CPLR 3016 [b]). The allegations made "upon information and belief" were insufficient to support the claim (see Facebook, Inc. v DLA Piper LLP (US), 134 AD3d 610, 615 [1st Dept 2015], lv denied 28 NY3d 903 [2016]), and defendant failed to allege any facts from which it could be reasonably inferred that the invoices submitted by plaintiff were in fact falsely inflated, or that it justifiably relied on the allegedly inflated invoices to its detriment (see Katz 737 Corp. v Cohen, 104 AD3d 144, 151 [1st Dept 2012], lv denied 21 NY3d 864 [2013]; see generally Eurycleia [*2]Partners, LP v Seward & Kissel, LLP, 12 NY3d 553, 559 [2009]).
We have reviewed defendant's remaining arguments and find them unavailing. THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484614/ | Steigelman v Transervice Lease Corp. (2022 NY Slip Op 06451)
Steigelman v Transervice Lease Corp.
2022 NY Slip Op 06451
Decided on November 15, 2022
Appellate Division, First 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 15, 2022
Before: Gische, J.P., Kapnick, Kern, Gesmer, Higgitt, JJ.
Index No. 21805/14 Appeal No. 16645 Case No. 2022-02184
[*1]Stephanie Steigelman et al., Plaintiffs-Appellants,
vTranservice Lease Corp. et al, Defendants-Respondents, Tony Stroud et al., Defendants.
Ogen & Sedaghati, P.C., New York (Eitan Alexander Ogen of counsel), for appellants.
Hannum Feretic Prendergast & Merlino, LLC, New York (Adam S. Oustatcher of counsel), for respondents.
Order, Supreme Court, Bronx County (Veronica G. Hummel, J.), entered March 15, 2022, which granted defendants Transervice Lease Corp. and Wakefern Food Corp.'s motion for leave to amend their answer and to dismiss the complaint as against them pursuant to CPLR 3211(a)(7) and 3212, unanimously modified, on the law, to deny the motion to dismiss the complaint and reinstate the complaint against them, and otherwise affirmed, without costs.
The court providently exercised its discretion in granting defendants leave to amend their answer in the absence of a showing of prejudice by plaintiffs (CPLR 3025 [b]; Edenwald Contr. Co. v City of New York, 60 NY2d 957, 959 [1983]; Disla v Biggs, 191 AD3d 501, 504 [1st Dept 2021]).
The court also properly considered defendants' present motion, despite the prior award of partial summary judgment on the issue of liability in plaintiffs' favor (see Steigelman v Transervice Lease Corp., 145 AD3d 439 [1st Dept 2016]). The finding of liability on the prior appeal was based on defendant driver Tony Stroud's violation of Vehicle and Traffic Law § 1128 (a), and the issue of whether Transervice and Wakefern are exempt from liability under the Graves Amendment (49 USC § 30106) was not addressed (see Lewis v Hertz Corp., 212 AD2d 476, 477 [1st Dept 1995], lv denied 85 NY2d 810 [1995]).
However, the court should not have granted defendants' motion to dismiss, as they failed to establish as a matter of law that they were immune from liability. "Under the Graves Amendment, the owner of a leased or rented motor vehicle cannot be held vicariously liable 'for harm to persons or property that results or arises out of the use, operation, or possession of the vehicle during the period of the rental or lease, if—(1) the owner (or an affiliate of the owner) is engaged in the trade or business of renting or leasing motor vehicles; and (2) there is no negligence or criminal wrongdoing on the part of the owner (or an affiliate of the owner)'" (Villa-Capellan v Mendoza, 135 AD3d 555, 556 [1st Dept 2016], quoting 49 USC § 30106 [a]). Here, the documentary evidence annexed to defendants' motion did not establish prima facie that the tractor-trailer that Stroud was driving at the time of the accident was rented or leased by either (cf. Kalair v Fajerman, 202 AD3d 625, 626-627 [1st Dept 2022]). While Transervice claims that "Schedule A" of its Equipment Lease Agreement listed the subject tractor as one of the vehicles that it leased out, that document was not submitted with the agreement. Likewise, the invoice did not reference the specific vehicle. Wakefern's submissions did not establish as a matter of law that it was engaged in the trade or business of renting or leasing motor vehicles. Rather, its evidence showed that it was in the business of providing groceries and related products, and that it contracted for shipping services for its refrigerated trailers (see Brown v McKenzie, 169 AD3d 595, 595 [1st Dept 2019]).
The record also raises [*2]a triable issue of fact as to whether Stroud was employed by Transervice at the time of the accident.
THIS CONSTITUTES THE DECISION AND ORDER OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 15, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484605/ | Emigrant Bank v Rosabianca (2022 NY Slip Op 06548)
Emigrant Bank v Rosabianca
2022 NY Slip Op 06548
Decided on November 17, 2022
Appellate Division, First 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
Before: Kapnick, J.P., Webber, Friedman, Gesmer, Singh, JJ.
Index No. 850136/14 Appeal No. 16695 Case No. 2022-00599
[*1]Emigrant Bank, as Successor-by-Merger With Emigrant Savings Bank - Manhattan, Plaintiff-Respondent,
vLuigi Rosabianca et al., Defendants, Secured Lending LLC, Defendant-Appellant.
The Law Offices of Mitchell Cantor, New York (Mitchell Cantor of counsel), for appellant.
Adam Leitman Bailey, P.C., New York (Jeffrey R. Metz of counsel), for respondent.
Order, Supreme Court, New York County (Gerald Lebovits, J.), entered November 22, 2021, which, to the extent appealed from, granted plaintiff Emigrant Bank's motion to dismiss defendant Secured Lending LLC's first affirmative defense, unanimously reversed, on the law, with costs, and the motion denied.
"When moving to dismiss an affirmative defense pursuant to CPLR 3211(b), the plaintiff bears the heavy burden of showing that the defense is without merit as a matter of law (Alpha Capital Anstalt v General Biotechnology Corp., 191 AD3d 515, 515 [1st Dept 2021])." "The allegations in the answer must be viewed in the light most favorable to the defendant (id.), and the defendant is entitled to the benefit of every reasonable intendment of the pleading, which is to be liberally construed" (Pugh v New York City Hous. Auth., 159 AD3d 643, 643 [1st Dept 2018]). Secured's first affirmative defense to plaintiff's complaint, equitable subrogation, asserts: "[P]laintiff cannot demonstrate . . . that Defendant could have had actual or constructive notice of the facts alleged by Plaintiff. And as such Defendant's lien takes priority over Plaintiff's." That was sufficient to state a defense based on the priority of Secured's lien on the foreclosed property (see Tenzer, Greenblatt, Fallon & Kaplan v Ellenberg, 199 AD2d 45, 45 [1st Dept 1993]; Matter of Ideal Mut. Ins. Co., 140 AD2d 62, 67 [1st Dept 1988]).
"[T]he statute of limitations governs the commencement of an action, not the assertion of a defense" (CPLR 203[d]; Tauber v Village of Spring Val., 56 AD3d 660, 661 [2d Dept 2008]). Secured's participation in the foreclosure action, as well as the filing of a cross claim, counterclaim, affirmative defenses, and stipulation, put all parties with an interest in the property on notice that Secured was asserting a right to a priority lien on the Wall Street property (see Bennardo v Del Monte Caterers, Inc., 27 AD3d 503, 505 [2d Dept 2006]; see also NYCTL 1997-1 Trust v Stell, 184 AD3d 9, 17 [2d Dept 2020]).
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8484607/ | Cruz v City of New York (2022 NY Slip Op 06546)
Cruz v City of New York
2022 NY Slip Op 06546
Decided on November 17, 2022
Appellate Division, First 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
Before: Kern, J.P., Scarpulla, Rodriguez, Pitt, Higgitt, JJ.
Index No. 33774/18E Appeal No. 16668 Case No. 2021-03821
[*1]Angel Cruz, Plaintiff-Respondent,
vCity of New York et al., Defendants-Respondents.
City of New York et al., Third-Party Plaintiffs-Respondents,
vKomatsu America Corp., et al., Third-Party Defendants, Miller UK Ltd et al., Third-Party Defendants-Appellants, HydraForce, Inc., et al., Third-Party Defendants-Respondents. [And Other Third-Party Actions]
Littleton Park Joyce Ughetta & Kelly LLP, New York (Michael H. Bai of counsel), for appellants.
Pollack, Pollack, Isaac & DeCicco, LLP, New York (Brian J. Isaac of counsel), for Angel Cruz, respondent.
Gerber Ciano Kelly Brady LLP, Garden City (Brendan T. Fitzpatrick of counsel), for City of New York, Port Authority of New York and New Jersey and Delta Air Lines, Inc., respondents.
Gartner + Bloom, P.C., New York (Susan P. Mahon of counsel), for Hydraforce, Inc. and Hydraforce Hydraulic Systems (Changzhou) Co., Ltd., respondents.
Order, Supreme Court, Bronx County (Lucindo Suarez, J.), entered on or about April 13, 2021, which, to the extent appealed from, denied the motion of third-party defendants Miller UK Ltd (Miller UK) and Miller International Ltd. (Miller International; together, Miller parties) to dismiss the third-party complaint as against them for lack of personal jurisdiction, unanimously reversed, on the law, without costs, and the motion granted. The Clerk is directed to enter judgment dismissing the third-party complaint as against the Miller parties.
Plaintiff was injured when, while working on the Terminal D rehabilitation project at LaGuardia Airport, the bucket of an excavator, which was hoisting rebar and bundles, detached or decoupled and fell, striking him. He commenced this action in Bronx County and asserted Labor Law and common-law negligence claims, as well as a strict products liability claim. Defendants, in turn, commenced a third-party action against the Miller parties, among others, alleging, as relevant here, that the Miller parties defectively manufactured the coupler in the excavator that failed, and asserting claims for indemnification and contribution. As relevant here, the Miller parties' co-third-party defendants, HydraForce, Inc. and HydraForce Hydraulic Systems, (Changzhou) Co., Ltd. (together, HydraForce parties), allegedly designed, manufactured, or sold a defective spool valve that was used in the Miller coupler, and which also failed at the time of plaintiff's accident.
The Miller parties' motion to dismiss should have been granted on the basis of lack of personal jurisdiction. As an initial matter, defendants have failed to establish general jurisdiction over the Miller parties. General jurisdiction exists over a corporate entity only in the state(s) in which it is incorporated and has its principal place of business (see Aybar v Aybar, 37 NY3d 274, 289 [2021]; Motorola Credit Corp. v Standard Chartered Bank, 24 NY3d 149, 160 n 4 [2014], citing Daimler AG v Bauman, 571 US 117, 137-138 [2014]). As Miller UK is a United Kingdom company with its principal place of business in the United Kingdom and Miller International is a Gibraltar company with its principal place of business in Gibraltar, there is no general jurisdiction over the Miller parties.
Defendants have also failed to establish specific jurisdiction over the Miller parties pursuant to CPLR 302(a)(1), CPLR 302 (a)(3)(i) or CPLR 302 (a)(3)(ii). Although the Miller parties might have placed the coupler involved in plaintiff's accident into the stream of commerce, and while they tout having a global customer base and business model, the Supreme Court of the United States has made clear that "the 'fortuitous circumstance' that a product sold in another state later makes its way into the forum jurisdiction through no marketing or other effort of [the] defendant," or "'the mere likelihood that a product will find its way into the forum[,]' cannot establish the requisite connection [*2]between [the] defendant and the forum" to support an exercise of specific personal jurisdiction (Williams, 33 NY3d at 528-529, quoting World-Wide Volkswagen Corp. v Woodson, 444 US 286, 295, 297 [1980]). As for the Miller parties' retention of New York-based patent lawyers and prolix litigation in Illinois federal court, there is no evidence that plaintiff's accident arose out of these contacts with New York State, or even the United States (see generally D&R Global Selections, S.L. v Bodega Olegario Falcon Pineiro, 29 NY3d 292, 298-299 [2017]). For the same reason, the social media posts on which defendants, plaintiff, and the HydraForce parties rely, all postdate plaintiff's accident. Thus, even if they were to be considered part of a marketing strategy that the Miller parties deployed to market and sell their products in New York State — which, the Miller parties make clear, they were not — they still cannot establish a connection between plaintiff's accident and the Miller parties' presence in the State. In light of our conclusion that defendants have failed to establish personal jurisdiction over the Miller parties pursuant to the CPLR, we do not reach the due process arguments.
Furthermore, defendants, plaintiff and the HydraForce parties are not entitled to jurisdictional discovery from the Miller parties, as they did not make "a sufficient start" to show that "essential jurisdictional facts are not presently known . . . [and] within the exclusive control of the moving party" (Peterson v Spartan Indus., 33 NY2d 463, 466-467 [1974]; see CPLR 3211 [d]). All of the information that defendants claim jurisdictional discovery could reveal to support exercising jurisdiction over the Miller parties either is expressly negated by the affirmations from Miller UK's chief financial officer and the Miller International director, irrelevant to the jurisdictional issues in this case, or not within the Miller parties' exclusive control.
We have considered the remaining arguments and find them unavailing.
THIS CONSTITUTES THE DECISION AND ORDER
OF THE SUPREME COURT, APPELLATE DIVISION, FIRST DEPARTMENT.
ENTERED: November 17, 2022 | 01-04-2023 | 11-17-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493713/ | MEMORANDUM OPINION
1
PAUL B. LINDSEY, Bankruptcy Judge.
The matter before the Court is the Motion for Summary Judgment as to Defendant’s Liability under Count I of Complaint and as to Defendant’s Ordinary Course, Contemporaneous Exchange for New Value, and Res Judicata Defenses (“the Motion”) filed on January 5, 2005 by the Official Committee of Unsecured Creditors of Network Access Solutions Corporation and NASOP, Inc., Plaintiff in the above-captioned adversary proceeding (hereinafter referred to as “Plaintiff’). Upon consideration of the Motion and the supporting exhibits; and the Opposition of Juniper Communications, Inc. and the supporting affidavits attached thereto, the Motion for Summary Judgment will be granted in part, and denied in part.
I. Background
This adversary proceeding was filed on June 2, 2004 by Plaintiff, to avoid and recover three allegedly preferential transfers made by the Debtors to Juniper Communications, Inc. (hereinafter referred to as “Defendant”) in the amount of $65,660.56. Defendant filed its answer on July 23, 2004 denying that the alleged transfers were avoidable and Plaintiff was therefore not entitled to recover them.
Pursuant to the General Order RE: Procedures in Adversary Proceedings, promulgated April 7, 2004 by Chief Judge Mary F. Walrath, the parties engaged in mandatory mediation on December 15, 2004, which proved to be unsuccessful in resolving this dispute. Trial in this proceeding is currently scheduled for February 23, 2005.
II. Jurisdiction
This Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(1) and it is a core proceeding under 28 U.S.C. § 157(b)(2), (A), (F), and (O). Venue is proper in this jurisdiction pursuant to 28 U.S.C. § 1409.
III. Standard for Summary Judgment
Federal Rule of Civil Procedure 56(c), made applicable to this adversary proceeding pursuant to Federal Rule of Bankruptcy Procedure 7056, provides that summary *576judgment should be granted when “the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law.” See also, Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). In deciding a motion for summary judgment, all factual inferences must be viewed in the light most favorable to the non-moving party. Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S. 574, 587-588, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986) (quoting United States v. Diebold, Inc., 369 U.S. 654, 655, 82 S.Ct. 993, 8 L.Ed.2d 176 (1962)). After sufficient proof has been presented to support the motion, the burden shifts to the non-moving party to show that genuine issues of material fact still exist and that summary judgment is not appropriate. Matsushita at 587, 106 S.Ct. 1348. A genuine issue of material fact is present when “the evidence is such that a reasonable jury could return a verdict for the nonmoving party.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
IV. Discussion
Plaintiff asserts in its Motion for Summary Judgment that it is entitled to avoid and recover pursuant to §§ 547(b) and 550,2 certain transfers made during the preference period3 to Defendant. In order to be entitled to summary judgment under § 547(b), Plaintiff must prove by a preponderance of the evidence each element:
Except as provided in subsection (c) of this section, the trustee may avoid any transfer of an interest of the debtor in property—
(1) to or for the benefit of a creditor;
(2) for or on account of an antecedent debt owed by the debtor before such transfer was made;
(3) made while the debtor was insolvent;
(4) made—
(A) on or within 90 days before the date of the filing of the petition; or
(B) between 90 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.
Plaintiff first argues that the transfers were interests in property of the Debtor. As evidenced by check number 34483 for $19,233.05, check number 34598 for $15,127.13, and check number 1547024 for $31,300.38, the transfers were payments of money from Debtor’s account at Bank of America and made payable to Defendant. Plaintiff then contends that the transfers were to and for the benefit of Defendant because the checks were made payable to Juniper Communications, Inc. and Defendant was a creditor of Debtors.
*577Plaintiff asserts, and Defendant admits, that the checks were transferred to satisfy debts incurred prior to the Plaintiffs bankruptcy petition and were, therefore, on account of an antecedent debt. Plaintiff further contends that Debtors were insolvent throughout the preference period and are entitled to the statutory presumption of insolvency under § 547(f).4 Defendant has not contested nor put forth any evidence to rebut the presumption of insolvency. Lastly, Plaintiff maintains that the transfers enabled Defendant to receive more than it would have received under a hypothetical Chapter 7 case. Plaintiff points to the Debtors’ Plan of Reorganization, which contemplates that the distribution on allowed unsecured claims will not exceed 5.55% of the allowed claims.
Notably, Defendant has not contested the elements of § 547(b), but rather opposes Plaintiffs Motion for Summary Judgment on the grounds that Plaintiff cannot avoid the transfers at issue because they are subject to certain affirmative defenses, such as, the ordinary course of business, new value, and res judicata defenses. Defendant argues there is a genuine issue of material fact whether the transfers are avoidable pursuant to § 547(c), and accordingly, urges that Plaintiffs Motion should be denied.
V. Decision
THE COURT FINDS there are no genuine issues of material fact that the three transfers made to Defendant are avoidable preferences under § 547(b) of the Bankruptcy Code.
THE COURT FURTHER FINDS that there remain genuine issues of material fact as to whether the transfers are subject to the affirmative defenses asserted by Defendant.
Therefore, the Plaintiffs Motion for Summary Judgment will be granted in part, as to the elements of § 547(b), and denied in all other respects.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052.
. 11 U.S.C. §§ 101 et seq. Hereafter, refer-enees to statutory provisions by section number only will be to provisions of the Bankruptcy Code, unless the context requires otherwise.
. Debtors' bankruptcy petitions were each filed on June 4, 2002; hence, the preference period is March 6, 2002 through June 3, 2002.
. Section 547(f) states in material part, "the debtor is presumed to have been insolvent on and during the 90 days immediately preceding the date of the tiling of the petition.” | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493714/ | MEMORANDUM OPINION AND ORDER
STEVEN A. FELSENTHAL, Chief Judge.
ServiceLane.com, the plaintiff, moves the court to remand this adversary proceeding to the 192nd Judicial District Court of Dallas County, Texas. The defendants oppose the motion. The court conducted a hearing on the motion on January 10, 2005.
The sole issue presented by the motion is whether the defendants timely removed this litigation from state court. Although simply stated, the analysis of the issue is more complicated.
ServiceLane.com filed its original petition against the defendants on April 28, 2003. ServiceLane.com served the petition on the defendants on June 9, 2003. The defendants filed their notice of removal, based on 28 U.S.C. §§ 1334, 1452, 1441 *616and 1446, on July 21, 2004. Service-Lane.com contends that the defendants did not timely file the notice of removal and, accordingly, move to remand under 28 U.S.C. § 1447(c).
Defendants desiring to remove a civil action from state court to federal court must file in the United States District Court a notice of removal. 28 U.S.C. § 1446(a). The United States Code provides:
(b) The notice of removal of a civil action or proceeding shall be filed within thirty days after the receipt by the defendant, through service or otherwise, of a copy of the initial pleading setting forth the claim for relief upon which such action or proceeding is based, or within thirty days after the service of summons upon the defendant if such initial pleading has then been filed in court and is not required to be served on the defendant, whichever period is shorter.
If the case stated by the initial pleading is not removable, a notice of removal may be filed within thirty days after receipt by the defendant, through service or otherwise, of a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable, except that a case may not be removed on the basis of jurisdiction conferred by section 1332 of this title more than 1 year after commencement of the action.
28 U.S.C. § 1446(b).
ServiceLane.com contends that the initial petition sets forth the claim for relief that forms the basis for the notice of removal, thereby triggering the thirty day time period of the first paragraph of § 1446(b). The defendants contend that the initial petition does not set forth a removable claim, but alleges only state law claims for relief. The defendants maintain that only upon the discovery of a bankruptcy court order did they learn with certainty of a federal bankruptcy claim, thereby triggering the thirty day time period of the second paragraph of § 1446(b).
As the Fifth Circuit has explained, the two paragraphs of § 1446(b) describe the documents that trigger the time limits for notices of removal. The first paragraph governs notices based on the “initial pleading setting forth the claim for relief upon which such action or proceeding is based.” By contrast, the second paragraph governs notices of removal based on “a copy of an amended pleading, motion, order or other paper from which it may first be ascertained that the case is one which is or has become removable.” Bosky v. Kroger Texas, LP, 288 F.3d 208, 209 (5th Cir.2002)(emphasis added). For purposes of the first paragraph, the thirty day time period starts to run from the defendant’s receipt of the initial pleading only when the “pleading affirmatively reveals on its face” that the plaintiff has raised a federal question. Id., at 210 (discussing removal based on diversity). The pleading must contain a specific allegation raising a federal question. The defendants have no obligation to engage in due diligence to determine if the case is removable. The subjective knowledge of the defendants cannot convert a case into a removable action. Id. The “affirmatively reveals on its face” standard does not apply to the second paragraph of § 1446(b), “but rather the information supporting removal in a copy of an amended pleading, motion, order or other paper must be ‘unequivocally clear and certain’ to start the time running for a notice of removal under the second paragraph of § 1446(b).” Id., at 211.
*617The initial petition alleges at ¶ 2 that ServiceLane.com is a Delaware corporation in a Chapter 7 bankruptcy case pending in the United States Bankruptcy Court for the Northern District of Texas, case no. 01-36044-HCA. The petition further alleges, at ¶ 8, that the defendants, beginning on December 15, 2000, committed acts while they had conflicts of interest. The petition further alleges that ServiceLane.com then filed its bankruptcy petition. The petition continues that despite the filing of the bankruptcy petition, the defendants continued to use Service-Lane.com’s name, good will and its assets, and that they diverted its assets. Based on those allegations, the petition alleges claims for breach of fiduciary duty (¶ 9), usurpation of corporate opportunities (¶¶ 10, 11), and conversion (¶ 12). ServiceLane.com seeks damages on those causes of action. (¶ 13).
The petition affirmatively reveals on its face that the plaintiff is a Chapter 7 debt- or. The petition affirmatively reveals allegations of pre-bankruptcy activity giving rise to state law causes of action. Upon the filing of the bankruptcy case, those causes of action become property of the bankruptcy estate, 11 U.S.C. § 541, under the jurisdiction of the federal court. 28 U.S.C. § 1334(e). Liquidation of those causes of action could have a conceivable effect on the administration of the bankruptcy estate. 28 U.S.C. § 1334(b); Matter of Wood, 825 F.2d 90, 96-97 (5th Cir.1987). The petition affirmatively reveals allegations that the defendants exercised control over the debtor’s assets after the filing of the bankruptcy case. Without leave of the bankruptcy court, a person, other than the bankruptcy trustee, may not exercise control over property of the bankruptcy estate. 11 U.S.C. § 362(a)(3). An action to protect property of the bankruptcy estate would affect the administration of the estate. The initial petition thereby affirmatively reveals a basis for federal bankruptcy jurisdiction. The initial petition triggered the thirty day period to file a notice of removal. The defendants did not timely file their notice of removal.
The defendants argue, however, that the initial pleading does not affirmatively reveal a federal bankruptcy question. The defendants contend that the “gist” of the petition alleges acts committed after Servi-ceLane.com filed its bankruptcy petition. The defendants concede that the debtor’s pre-petition causes of action became property of the bankruptcy estate. But the defendants argue that ServiceLane.com alleged post-petition causes of action in the initial petition, which would not be property of the bankruptcy estate. The defendants statement of their position refutes it. The defendants state that the allegation of post-petition use of the debtor’s assets raise post-petition causes of action that do not belong to the bankruptcy estate. As stated above, the Bankruptcy Code imposes an automatic stay against the “exercise of control over property of the estate.” 11 U.S.C. § 362(a)(3). The petition reveals a federal question.
The defendants observe that the Chapter 7 trustee has not filed the petition. The debtor filed the petition. The defendants infer that means the debtor must be alleging causes of action that arise post-petition, and that do not belong to the bankruptcy estate. The petition, however, alleges that the defendants used the debt- or’s assets after the filing of the bankruptcy case. That allegation reveals a federal question. The defendants raise a standing issue more appropriately addressed by a motion to dismiss than by an explanation for applying the second paragraph of § 1446(b). In a Chapter 7 bankruptcy case, the trustee has standing to liquidate claims belonging to the bankruptcy estate. The petition does not allege that the bank*618ruptcy court granted the debtor leave to prosecute, on behalf of the trustee, claims belonging to the bankruptcy estate. See In re Enron Corp., 319 B.R. 128, 2004 WL 3059178 (Bankr.S.D.Tex.2004), citing Louisiana World Exposition, 832 F.2d 1391 (5th Cir.1987).
As explained above, the defendants have no obligation to engage in due diligence to determine whether a state court petition reveals a federal question. But, in analyzing issues raised by the defendants, the court may consider its record in the underlying bankruptcy case. On October 16, 2002, the trustee filed an application to employ the Hill Gilstrap law firm as special counsel to litigate the claims of breach of fiduciary duty, usurpation of corporate opportunities and conversion of intellectual property. The law firm would be compensated based on a contingency fee. On January 28, 2003, the bankruptcy court entered an order authorizing the law firm “to represent it [the trustee] as debtor, on the terms stated on the Application, in the case under Chapter 7 of the Bankruptcy Code.” Hill Gilstrap then filed the state court petition, naming the debtor as plaintiff, and stating that the firm represented the debtor. The court has not located an order granting the debtor standing to prosecute on behalf of the trustee. Accordingly, the defendants have observed a standing issue to be tested by an appropriate motion. The standing issue does not, however, implicate the timeliness of the notice of removal.
The court could, alternatively, read the defendants’ argument to suggest that the initial petition did not allege any basis for federal jurisdiction, let alone affirmatively reveal a federal question. At the hearing on the motion to remand, the parties clarified that they did not differ on the existence of a basis for federal jurisdiction but rather differed on the timeliness of the removal. The absence of a federal bankruptcy question in the initial petition would have been fatal to a removal. If the Servi-ceLane.com petition does not contain a basis for federal jurisdiction, an affirmative defense of collateral estoppel of a bankruptcy court order cannot be used to establish a federal question for removal. State of Arkansas Teacher Retirement System v. Merrill Lynch & Co., Inc. (In re LJM2 Co.-Investment, L.P.), 319 B.R. 495 (Bankr.N.D.Tex.2005)(memorandum opinion and order entered January 14, 2005, adv. proc. no. 04-3525, doc. no. 94), applying Rivet v. Regions Bank of Louisiana, 522 U.S. 470, 118 S.Ct. 921, 139 L.Ed.2d 912 (1998), to removal under 28 U.S.C. § 1334 and 1452. Consequently, if the defendants argue that the bankruptcy court order approving a settlement provides the basis for federal bankruptcy jurisdiction, removal would not be appropriate.
If the defendants argue that only upon discovery of the bankruptcy court order did they realize that the petition contained a federal question, then their contention that the court should apply the second paragraph of § 1446(b) follows. The defendants discovered the bankruptcy court order on June 21, 2004. They filed the notice of removal on July 21, 2004. ServiceLane.com responds that the bankruptcy court order does not constitute “an amended pleading, motion, order or other paper” under the second paragraph of § 1446(b). ServiceLane.com argues that it has not filed an amended document to trigger the second paragraph. That argument does not avail ServiceLane.com’s position. ServiceLane.com apparently contends that it must have filed an amended pleading to trigger the second paragraph of § 1446(b). ServiceLane.com then argues that the bankruptcy court order does not constitute an amended pleading. If *619the defendants were correct that the initial pleading does not affirmatively reveal a federal question and, yet, if Service-Lane.com was correct that the discovery of the court’s order did not trigger the second paragraph, then the time to file a notice of removal would still not yet begin to run, since the plaintiff has not filed an amended pleading. That ruling would totally defeat the Fifth Circuit’s explanation that § 1446 promotes certainty and judicial efficiency. Bosky, 288 F.3d at 210-11. If the initial pleading had not affirmatively revealed the federal question, then the bankruptcy court settlement order would meet the statutory requirement of notice in an order from which the defendants could argue that it first ascertained that the case is or has become removable. The statute requires an amended pleading or a motion or an order or another paper. The discovery of the order would trigger the second paragraph if the first paragraph of § 1446(b) does apply. Since the initial pleading does affirmatively reveal the federal question, the first paragraph of § 1446(b) does apply and the second paragraph of § 1446(b) does not apply.
The defendants also argue that had they removed the petition within thirty days of service, the court would have been obliged to abstain. 28 U.S.C. § 1334(c)(2). Abstention does not inform the court’s decision on the timeliness of a notice of removal. The parties argue whether a collateral attack on a bankruptcy court’s order raises a core matter. The court does not address that issue to resolve the removal issue. As explained above, an affirmative defense cannot be invoked to establish a federal question for removal if the state court petition does not contain a federal question. The dis-positive issue before the court addresses whether the initial pleading affirmatively reveals a basis for federal bankruptcy jurisdiction, pursuant to 28 U.S.C. § 1334. Whether the petition presents a core or non-core matter under 28 U.S.C. § 157 does not inform that jurisdictional decision. The court does not render an advisory opinion on whether a proceeding properly before this court involving the issue of a collateral attack on an order of this court raises a core matter. The defendants also argue that they did not realize that the petition involved a core matter until they discovered the court order. Even if the proceeding involved a core matter, the discovery of a basis to assert that position does not inform the court’s decision of whether the initial petition affirmatively revealed a federal question. Lastly, the defendants assert that the court should equitably toll the time for removal because of the manner that Servi-ceLane.com has plead in state court. The court will not apply any doctrine of equitable tolling, as the court has concluded that the defendants may present their issue in a motion to dismiss for lack of standing.
Order
Based on the foregoing,
IT IS ORDERED that the motion to remand is GRANTED.
IT IS FURTHER ORDERED that this matter is remanded to the 192nd Judicial District Court of Dallas County, Texas. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493715/ | DECISION
1
ROBERT E. GRANT, Bankruptcy Judge.
Prior to filing bankruptcy, through a series of transactions, the debtor fraudulently conveyed $34,100 to the defendant. This adversary proceeding is one result. By itself, that is nothing unusual. Actions involving fraudulent transfers are a bread and butter staple of bankruptcy litigation. What makes this matter a bit different is not the facts upon which it is based, but the relief the plaintiff/trustee seeks. Rather than just seeking to avoid the transfers and recover the money, the trustee seeks treble damages and attorney fees, for a total judgment in excess of $102,000. The action is based upon Indiana law and is being asserted through the powers the trustee has been given by § 544(b) of the United States Bankruptcy Code. 11 U.S.C. § 544(b).
Fraudulent conveyances can be challenged under Indiana’s version of the Uniform Fraudulent Transfer Act, which has been codified at I.C. 32-18-2 et seq. The trustee contends, however, that Indiana law does more than just give creditors a cause of action as a result of a debtor’s fraudulently conveying assets. She points out that it is a crime to transfer property with the intent to defraud one’s creditors, I.C. 35-43-5-4(8), and that the transferee commits the same offense by knowingly or intentionally assisting someone in doing so. 1.C. 35-41-2-4. Indiana law also allows the victims of certain crimes to recover up to three times their actual damages and attorney fees from the person who caused the loss. I.C. 34-24-3-1. One of these crimes is defrauding creditors- — I.C. 35-43-5^4. Putting it all together, the trustee argues that the defendant committed the crime of defrauding creditors, by having knowingly or intentionally aided the debtor in making transfers with the intent to defraud creditors, so that an actual creditor of the debtor could bring an action for treble damages and attorney fees. Through § 544(b), the trustee contends that she can bring that same action for the benefit of all debtor’s creditors.2
*669It is often said that § 544(b) allows the trustee to step into the shoes of a debtor’s creditors and take advantage of state law concerning fraudulent conveyances. In re Agricultural Research & Technology Group, 916 F.2d 528, 534 (9th Cir.1990); In re Douglas, 190 B.R. 831, 836 (Bankr.S.D.Ohio 1995). That is exactly what the trustee contends she is doing here: stepping into the shoes of an actual creditor of the debtor — Hoosier Insurance Company3 — and asserting its rights under Indiana law as the result of the fraudulent conveyances to the defendant, rights which she believes include the opportunity to recover treble damages and attorney fees. Yet, regardless of whether the trustee’s view of Indiana law is correct, her argument overlooks a significant structural limitation on the rights the trustee is given by § 544(b). That portion of the Bankruptcy Code does not give the trustee the power to pursue any action that might be brought by a debtor’s creditors. Wayne Film Systems Corp. v. Film Recovery Systems Corp., 64 B.R. 45, 51 (N.D.Ill.1986). See also, In re Teligent, 307 B.R. 744, 749 (Bankr.S.D.N.Y.2004); In re Dow, 132 B.R. 853, 861-62 (Bankr.S.D.Ohio 1991); In re Southwest Equipment Rental, Inc., 102 B.R. 132 (E.D.Tenn.1989). It is only the power “to avoid” transfers or obligations that the trustee receives through § 544(b). 11 U.S.C. § 544(b)(emphasis added); In re Teligent, 307 B.R. at 749. Thus, the trustee is limited to the avoidance claim Hoosier Insurance could assert under the IUFTA; not the expanded version of that claim that might exist through I.C. 34-24-3-1. If the trustee seeks to do something other than avoid a particular transaction, the power to do so must come from somewhere other than § 544(b).
Section 544(a), which gives the trustee the status of a hypothetical creditor coming into existence on the date of the petition, is a source of authority for the trustee to do more than just avoid transactions. It also allows the trustee to take advantage of state law, but, while § 544(b) only allows the trustee to avoid transactions, section 544(a) gives the trustee all “the rights and powers of’ that perfect hypothetical creditor, not just its ability to avoid.4 11 U.S.C. § 544(a). The trustee’s *670counsel seems to have had § 544(a) in mind when, at oral argument, he emphasized that this action should be viewed as a “general” claim which should be prosecuted for the benefit all creditors, rather than one which is “personal” to a particular creditor, because it involves factual allegations and conduct that are common to all debtor’s creditors.5 All that is true. Since the debtor acted with the intent to hinder, delay or defraud when making the transfers to the defendant, those transfers could be challenged by any creditor regardless of whether the claim arose before or after the transfers were made. I.C. 32-18-2-14. As a result, the trustee was not limited to invoking § 544(b). Exercising the rights and powers of the hypothetical lien creditor, the trustee could have challenged the transactions through § 544(a). That would not, however, have allowed the trustee to recover treble damages and attorney fees pursuant to I.C. 34-24-3-1. That statute can only be invoked by one who “suffers a pecuniary loss” because of the underlying crime, and the hypothetical creditor whose powers the trustee wields through § 544(a) sustains no such loss and has no “actual damages” that are capable of being multiplied. Cf., In re Johnson, 28 B.R. 292, 296 (Bankr.N.D.Ill.1983)(by invoking § 544(a) the trustee “steps into the shoes of a non-existent creditor.”).
Section 550 of the Bankruptcy Code also acts as a limitation upon the trustee’s ability to recover treble damages because it specifies the transferee’s liability as the result of an avoided transaction. The trustee may recover “either the property transferred or ... the value of such property.” 11 U.S.C. § 550(a). Consequently, it is the Bankruptcy Code and not state law that determines the defendant’s liability when a transfer is avoided. The trustee’s argument has overlooked this fact. State law only determines the right to recover, by supplying the rules that decide whether a transaction is avoidable; if it is, the Bankruptcy Code determines what may be recovered. In re Acequia, Inc. 34 F.3d 800, 809 (9th Cir.1994).
Section 550 is often seen as freeing the trustee from restrictions that might be imposed by state law when the trustee proceeds through § 544(b). State law could limit the trustee’s recovery to the amount owed the creditor whose rights were invoked. In re Integrated Agri, Inc., 313 B.R. 419 428 (Bankr.C.D.Ill.2004). See also, I.C. 32-18-2-18(b)(creditor may recover the lesser of the value of the property transferred or the amount needed to satisfy the creditor’s claim). Section 550 cuts the trustee loose from this limitation and allows it to recover the entire value of the property transferred, even if it exceeds the debt to the creditor that provided the basis for the action. Matter of Leonard, 125 F.3d 543, 544-45 (7th Cir.1997); In re Acequia, Inc., 34 F.3d at 809; In re Integrated Agri, Inc., 313 B.R. at 428. While § 550 often works to enhance the trustee’s recovery beyond what state law would allow, in this case it has a different effect, and reduces the trustee’s recovery to something less than what the creditor might have been able to recover.
In response to the suggestion that there might be a difference between what Hoosier Insurance could potentially recov*671er under state law and what the trustee may recover by taking advantage of that creditor’s rights via § 544(b), counsel argued that it makes no sense for the trustee to recover less than what the creditor might when the trustee is prosecuting the very same cause of action but doing so for the benefit of all creditors, not just for a single creditor. As for whether it makes sense for there to be a difference between what the trustee and a creditor can recover by prosecuting the same cause of action, that is a decision Congress made when it enacted § 550 and the court’s job is to enforce the statute as written, not redraft or try to improve upon it. Hartford Underwriters Ins. Co. v. Union Planters Bank, NA, 530 U.S. 1, 6, 120 S.Ct. 1942, 1947, 147 L.Ed.2d 1 (2000). Moreover, the state law fraudulent conveyance action the trustee can bring through § 544(b) is not the same cause of action as the claim for treble damages and attorney fees under I.C. 34-24-3-1. Under the Indiana UFTA, the intent of the transferee is not relevant. It is the debtor/transferor who must act with the intent to hinder, delay or defraud for a transfer to be avoidable as actually fraudulent. I.C. 32-18-2-14. To recover treble damages, however, the plaintiff would be required to prove not only that the debtor acted with the intent to defraud, I.C. 35-43-5-4(8), but also that the transferee “knowingly and intentionally” aided the debtor in carrying out its plan. I.C. 35^41-2-4. Thus, the treble damage claim requires proof of everything needed to successfully avoid an actual fraudulent conveyance and more. As such, the two claims are not the same.6 Burrell v. Jean, 196 Ind. 187, 146 N.E. 754, 759 (1925).
The Trustee is entitled to recover the sum of $34,100 from the defendant, Wesley C. Stewart, together with the costs of this action. Judgment will be entered accordingly.
. This matter is before the court following trial of the issues raised in this adversary proceeding. This decision supplements the findings of fact and conclusions of law previously announced in open court.
. The court is not aware of any decisions that have even considered whether a plaintiff may use I.C. 34-24-3-1 to recover treble damages and attorney fees from the transferee of a fraudulent conveyance. The court also notes *669that whether Indiana’s version of the Uniform Fraudulent Transfer Act allows a plaintiff to recover punitive damages is an open question, which the Seventh Circuit has recently certified to the Indiana Supreme Court. DFS Secured Healthcare Receivables Trust v. Caregivers Great Lakes, Inc., 384 F.3d 338 (7th Cir.2004). Given the court’s conclusion about the scope of the trustee’s powers, the court accepts, without question, the trustee's view of Indiana law concerning the recovery of treble damages and attorney fees.
. There is no dispute that Hoosier Insurance Company is a qualifying creditor of the purposes of § 544(b).
. The difference between being given all the rights and powers of a hypothetical creditor and only the avoiding powers of actual creditors is a subtle but important distinction between § 544(a) and § 544(b). It is, however, a distinction that helps explain such seemingly contradictory decisions as those which hold that only the trustee may prosecute an alter ego claim to pierce the veil of a corporate debtor, and hold its shareholders liable for the corporation's debts, and those which hold that the trustee has no standing to seek to hold a corporate debtor's shareholders liable for a particular debt. Compare, Koch Refining v. Farmers Union Central Exchange, Inc., 831 F.2d 1339 (7th Cir.1987) with, Steinberg v. Buczynski, 40 F.3d 890 (7th Cir.1994). In the first instance, the trustee would be acting pursuant to § 544(a) and exercising the broader "rights and powers” of a hypothetical creditor. In the second, because no one other than the creditor itself would be interested in piercing the corporate veil as to a particular debt, the trustee would be acting as an actual creditor pursuant to § 544(b), and could only exercise the limited power "to avoid” transactions.
. Although § 544 does not use either term, characterizing a particular claim as personal or general has become a shorthand — and not entirely clear — way of trying to distinguish between transactions, such as contracts, torts, and guarantees, that create rights belonging only to the particular parties involved and other transactions, such as fraudulent conveyances, that create rights that can be asserted by those not involved in the conduct giving rise to those rights.
. That the two claims may be different does not mean that creditors may pursue treble damage and attorney fee claims free from the constraints of the bankruptcy and the automatic stay. See e.g., Fisher v. Apostolou, 155 F.3d 876 (7th Cir.1998); Bankers Trust Co. v. Rhoades, 859 F.2d 1096 (2nd Cir.1988). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493717/ | ORDER GRANTING MOTION FOR STAY RELIEF FILED BY ACHIEVA CREDIT UNION
MICHAEL G. WILLIAMSON, Bankruptcy Judge.
This case came on for consideration on the motion for relief from the automatic stay (“Motion”) filed by Achieva Credit Union (“Credit Union”). The debtor, Teresa Ward (“Debtor”), has filed a response (“Response”) in which she states in defense of the Motion: “In my Independent Debtor’s Statement of Intention I stated, ‘Debtor will retain collateral and continue to make regular payments’ in regard to ...” her automobile. This defense to the Motion is insufficient as a matter of law for two reasons.
First, it is clear that the Debtor has failed to comply with the duties imposed upon her under section 521 of the Bankruptcy Code. This section mandates that an individual debtor “shall file ... a statement of [her] intention with respect to the retention or surrender” of property securing a consumer debt specifying, if such property is claimed as exempt and the debtor intends to retain it, whether the debtor will redeem the property under Bankruptcy Code section 722 or reaffirm the debt under Bankruptcy Code section 524(c). In re Waters, 248 B.R. 916, 917 (Bankr.M.D.Fla.2000).
It is clear that section 521 does not provide the right to the Debtor to retain the collateral by continuing to make the monthly payments without reaffirming the underlying debt. Id. at 917-18. In effect, the Debtor wants to turn a recourse obligation into a nonrecourse obligation. The Debtor would benefit by continuing to use the collateral until such time as she determined the collateral was no longer worth keeping. She then could abandon the collateral with impunity for any deterioration or damage to the collateral which occurs during the period of its use. While this result is appealing from a debtor’s perspective, it is the very result that the Eleventh Circuit has explicitly rejected in its holding in Taylor v. AGE Fed. Credit Union, 3 F.3d 1512, 1516 (11th Cir.1993).
Implicit in the Debtor’s response to the Motion is the assumption that a debtor as a matter of law may keep a vehicle simply by making the payments without reaffirming the debt. This is a question of state law in that the discharge injunction of Bankruptcy Code section 524 does not protect property upon which a creditor has a lien, only the debtor from in personam liability on a pre-petition debt *762that has not been reaffirmed. Further, it appears that under state law, a debtor’s failure to reaffirm would result in a material change to the contractual undertaking of the debtor when the loan was made. Under such circumstances, a secured creditor may deem itself insecure to declare a default and avail itself of its repossession rights. See, e.g., Quest v. Barnett Bank of Pensacola, 397 So.2d 1020, 1021 (Fla. 1st DCA 1981)(citing § 671.208, Fla. Stat., for the proposition that “insecurity” clauses allowed under U.C.C. § 1-208 permit an acceleration of a note provided the creditor “in good faith believes that the prospect of payment of performance is impaired”); In re Belanger, 118 B.R. 368, 372 (Bankr.E.D.N.C.1990)(“In fact, default clauses which permit the lender to declare a default in the event that the creditor deems its security interest insecure are specifically authorized by the Uniform Commercial Code and may be exercised by a secured lender if it has a good faith belief that the prospect for payment is impaired.”).
The second reason that in rem relief from stay is appropriate is because the collateral is no longer property of the estate as it was claimed as exempt by the Debtor and the trustee has fully administered the estate without objecting to the Debtor’s claim of exemption. Under Bankruptcy Code section 362(c)(1), the automatic stay continues “until such property is no longer property of the estate.” The Debtor’s automobile is no longer property of the estate, and her property interest in the automobile is no longer protected by the automatic stay.
Accordingly, it is
ORDERED:
1. The Motion is granted.
2. The automatic stay is hereby modified, and Movant may avail itself of its remedies to the extent provided for under applicable state law, to take possession of and sell its collateral:
2001 Toyota Camry 4T1BG22K61U783569
3. The relief granted hereunder is for in rem relief only, that is, Movant may take action only against the collateral, and the stay shall remain in effect to prevent Movant from seeking in personam relief against the Debtor. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493718/ | ORDER DENYING OBJECTION TO CONFIRMATION
A. THOMAS SMALL, Bankruptcy Judge.
The matter before the court is the Internal Revenue Service’s objection to confirmation of the debtors’ chapter 13 plan. A hearing took place in Raleigh, North Carolina on December 7, 2004.
Charles A. White, Jr. and Anita D. White filed a petition for relief under chapter 13 of the Bankruptcy Code on January 13, 2004. They listed the IRS as a creditor holding an unsecured priority claim in the amount of $1,203 and a general unsecured claim in the amount of $30,648. The IRS filed a proof of claim on June 21, 2004, *830asserting a secured claim in the amount of $7,006, an unsecured priority claim in the amount of $3,896.31, and a general unsecured claim in the amount of $19,477.79.
On June 14, 2004, the Whites’ attorney wrote to the IRS and requested that the IRS amend its claim because the debtors decided to surrender their interest in certain personal property in which the IRS claimed a security interest. The property included a 1995 Plymouth Voyager, household goods, wearing apparel, and jewelry totaling $4,533 in value. The debtors indicated that the surrendered value should be added to the unsecured general claim. The IRS declined by letter dated August 10, 2004, to amend its claim stating that case law does not allow bifurcation of its claim and a partial surrender.
On June 8, 2004, the chapter 13 trustee filed a motion to dismiss, citing the debtors’ effort to surrender some of the IRS’s collateral and retain the remainder, thus reducing the value of the IRS’s secured claim. In an order dated September 24, 2004, the court held that bifurcation and partial surrender are not impermissible per se. In re White, Case No. 04-00141-5-ATS (Bankr.E.D.N.C. Sept.24, 2004). The court noted that in some cases it may be unfair to allow a partial surrender, and that it would consider the issue at confirmation.
On October 4, 2004, the trustee filed a motion to confirm the debtors’ plan, which provides for payments of $1,373 per month for 38 months. The plan identifies a secured claim in favor of the IRS in the amount of $2,473, priority claims totaling $4,241 ($3,896 to the IRS and $345 to the Wake County Department of Revenue), and provides for a pro rata distribution to unsecured creditors. The IRS objected to confirmation of the plan as proposed.
The IRS contends that the plan should not be confirmed because (1) by proposing bifurcation, the plan fails to provide for full payment of the IRS’s secured claim in violation of 11 U.S.C. § 1325(a)(5) and (6); (2) the property the debtors propose to surrender is necessary for them to comply with the plan, rendering the plan infeasible in violation of § 1325(a)(6); (3) the debtors do not intend to surrender the collateral and thus the plan is proposed in bad faith in violation of § 1352(a)(3); and (4) debtors are prohibited by 26 U.S.C. §§ 6311 and 6316 from paying their tax liabilities with personal property, and thus the plan proposes a means of payment forbidden by law in violation of 11 U.S.C. § 1325(a)(3). The IRS also argued that it does not have a mechanism for accepting surrender of collateral and converting it to cash payments, and that by law it is prohibited from levying on personal property.
The IRS failed to make a compelling argument as to why partial surrender is impermissible, and the court will not change its prior determination that a partial surrender is allowable. Indeed, the IRS is really contending that any surrender, even a full surrender, is not a proper way to satisfy an IRS lien. The crux of the IRS’s argument is that it cannot convert a lien on personal property into cash, and thus it is entitled to a secured claim that must be paid in full, in cash, through the plan.
The IRS asserts a secured claim in the amount of $7,006. The debtors’ schedules show that the security consists entirely of personal property, including the items listed above that the debtors wish to surrender (valued at $4,533), plus equity in a 1996 Chevrolet Silverado in the amount of $2,093 and two IRA accounts with a combined value of $380. The IRS contends that its claim is secured by a lien on property that it cannot levy upon, cannot accept from the debtors as payment, and cannot otherwise use to satisfy its debt.
A “lien” is a “charge against or interest in property to secure payment of a debt or *831performance of an obligation.” 11 U.S.C. § 101(37). If the IRS has no ability to convert its lien on personal property to payment, then the property does not “secure payment” and it has no value to the IRS. The effect of the IRS’s inability to enforce its lien and collect payment is that its claim is not a secured claim, but is an unsecured claim.
Based on the foregoing, the objection to confirmation is DENIED. The IRS’s allegedly secured claim in the amount of $7,006 is unsecured, and this amount must be added to the general unsecured claims to be paid through the plan.
SO ORDERED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493719/ | MEMORANDUM OPINION ON CROSS MOTIONS FOR SUMMARY JUDGMENT REGARDING DISCHARGE OF LUMP SUM ALIMONY
K. RODNEY MAY, Bankruptcy Judge.
THIS CASE came on for hearing on cross motions for summary judgment filed by the debtor (Document No. 29) and by the defendant, the debtor’s former spouse (Document No. 37).
This proceeding arises from a 1996 divorce judgment, which has been contested for more than eight years, and from Mr. Battaglia’s intervening bankruptcy case. He filed this adversary proceeding after reopening his Chapter 7 case.1
The debtor seeks an injunction and sanctions against his former wife, to prohibit her from collecting “lump sum alimony” awarded in the divorce proceeding.2 *70He asserts that the “lump sum alimony” is in the nature of a property settlement obligation and was discharged in his Chapter 7 case. Therefore, he argues, the former wife’s collection efforts violate the statutory “discharge” injunction. 11 U.S.C. § 524(a). The former wife contends that the obligation is in the nature of alimony or support and was not discharged; the debtor counters that she is collaterally estopped from contesting the dischargeability of this debt, which he argues has already been determined in post-judgment proceedings in state court.
The Court has considered the record in the Chapter 7 case, the motions for summary judgment and the exhibits and supplements thereto, as well as argument of counsel. For the reasons set forth below, the Court denies both motions for summary judgment and directs the parties to return to the divorce court to obtain a clarification of whether the award of “lump sum alimony” was intended to function, at least in part, as support for the former wife.
BACKGROUND
The parties were divorced on December 26, 1996, nearly four years before Mr. Battaglia filed this Chapter 7 case. A Final Judgment of Dissolution of Marriage (the “Final Judgment”), was entered by the Circuit Court for Hillsborough County after a trial.
The Final Judgment provided for a division of property (Paragraphs 7-13) and required the debtor to pay:
(a)four levels of child support, of up to $790.62 per month, for four minor children, then ages 12 to 17, with specified reductions as each child reached majority or graduated from high school;
(b) “permanent periodic alimony” of $300.00 per month, commencing January 1, 1997, and continuing until the former wife died or remarried; and
(c) “lump sum alimony” in the amount of $27,826.00 plus 10% interest per year, payable at $300.00 per month commencing August 1, 1998.3
The Final Judgment distinguishes between “lump sum alimony,” dealt with in Paragraph 14, and “permanent alimony,” dealt with separately in Paragraph 15. Paragraph M of the Final Judgment recites that the award of “permanent alimony” is the result of the Court’s consideration of the length of the marriage, Ms. Battaglia’s contribution to the marriage, her severe need for assistance, and the husband’s ability to pay.
Paragraph 14 of the Final Judgment reads in pertinent part:
The above distribution [Paragraphs 7-13] leaves the Husband with a net worth of $70,422.00 and the Wife with a net worth of $23,259.00. In addition, this distribution does not reflect the Husband’s dissipation of the Putnam Account of $8,500.00. The Wife is therefore entitled to lump sum alimony of $27,826.00 in order to effect an equitable distribution of the assets and in order to secure the Wife’s economic future, (emphasis added)
The Former Husband’s Bankruptcy Case
On June 15, 2000, Mr. Battaglia filed a petition for relief under Chapter 7. He *71listed his former wife as a general unsecured creditor holding a claim of $83,000.00 (principal plus accrued interest) for a “1996 property settlement.” According to the parties, the debtor has never made any of the lump sum alimony payments. The former wife appeared at the debtor’s Section 341 creditors’. meeting, but she did not file an adversary proceeding to determine the dischargeability of the lump sum alimony. See 11 U.S.C. § 523(c); Fed. R. Bankr.P. 4007(c). The debtor received his discharge on September 19, 2000.
The Post-Judgment Proceedings in State Court
The Final Judgment provided that the lump sum alimony payments were to be made through the Central Governmental Depository, by an Income Deduction Order. On April 14, 2000, the state court entered an order modifying the Final Judgment, to provide that “lump sum alimony should not be subject to the income deduction order.” The debtor contends that this modification was to correct the erroneous treatment of the lump sum alimony as support;4 but, the divorce court’s order itself does not explain why this modification was made or what issues the court considered. The former wife was not represented by counsel in connection with the modification of the Final Judgment.
On April 3, 2001, the divorce court entered another post-judgment order, this time denying the former wife’s motion to hold the debtor in contempt. The divorce court ruled that “[t]he Former Husband ... cannot be held in contempt regarding the lump sum alimony as the same was discharged in bankruptcy.” The order sets forth no findings or reasons why the court regarded the obligation as having been “discharged.” Again, the former wife was not represented by counsel.
On or about March 26, 2003, the former wife filed a complaint in another state court, the Circuit Court for Pasco County where she now resides, again seeking to hold the debtor in contempt for failing to pay the lump sum alimony.5
On September 21, 2004, the Pasco County Circuit Court dismissed her complaint, with prejudice, finding that the lump sum alimony “was an award of property pursuant to the trial court’s equitable distribution plan.” The court also found that a payor cannot, as a matter of law, be held in contempt for the non-payment of a property distribution. The hearing was “non-evidentiary” and the former wife was not represented by counsel. This order is currently on appeal.
DISCUSSION
An obligation arising from the dissolution of marriage is not dischargeable so long as it is in the nature of alimony, maintenance or support. 11 U.S.C. § 523(a)(5). Other, non-support, obligations arising from dissolution of marriage may be non-dischargeable as well, but only if an action to determine the dischargeability of the obligation is timely brought in the bankruptcy court (i.e., within 60 days from the first scheduled Section 341 meeting of creditors) and the bankruptcy court declines to make either of the determinations required by 11 U.S.C. § 523(a)(15)(A) or (B).
In this case the deadline to seek a ruling that the “lump sum alimony” is *72dischargeable under Section 523(a)(15) has long since passed. The only issue is whether the lump sum alimony is in the nature of support. State courts have concurrent jurisdiction over that issue. Cummings v. Cummings, 244 F.3d 1263, 1267 (11th Cir.2001).6
The Eleventh Circuit has articulated the applicable legal standard:
.... Whether a given debt is in the nature of support is an issue of federal law. Although federal law controls, state law does provide guidance in determining whether the obligation should be considered ‘support’ under § 523(a)(5). To make this determination a bankruptcy court should undertake a simple inquiry as to whether the obligation can legitimately be characterized as support, that is, whether it is in the nature of support. The court must therefore look beyond the label to examine whether the debt actually is in the nature of support or alimony. 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.
Id. at 1265 (citations omitted).
In Cummings, the Eleventh Circuit reversed the bankruptcy court’s determination that a $6.3 million divorce obligation (to be paid in three $2.1 million installments) was not alimony or support, even though the divorce court had expressly denied the wife any permanent alimony. The Court of Appeals noted that although the bankruptcy court had considered various relevant “factors” in reaching its decision, it had “failed to take into account the intent of the divorce court as reflected in the Divorce Judgment.” Id. at 1266.
In so holding, the Court of Appeals observed that the divorce court’s denial of permanent alimony was premised on its stated belief that the former wife could support herself, and her children, with the proceeds of the equitable distribution. Id. Thus, the divorce decree itself revealed that “at least some portion” of the equitable distribution to Mrs. Cummings was to function as support. Id.
Cummings illustrates the problem: the separate categories of “support” and “equitable distribution of property” may well overlap. The need for on-going support may “depend on how much property the less well-off spouse is given outright.” Werthen v. Werthen (In re Wertken), 329 F.3d 269, 273 (1st Cir.2003) (upholding bankruptcy court’s determination that an obligation labeled by divorce court as a property division, awarded in addition to child support payments, was intended to function as child and spousal support and therefore non-dischargeable); See also Wright v. Wright (In re Wright), 184 B.R. 318 (Bankr.N.D.Ill.1995) (finding divorce court’s award of lump sum of $135,000, in addition to “support” of $5,500 per month, was in the nature of alimony where state court had expressly observed that former wife would need a portion of the $135,000 for her support).
A. The Debtor’s Motion for Summa'ry Judgment
The debtor seeks summary judgment on the basis of the doctrine of collateral estoppel. In order to give collateral estoppel effect to a state court judgment, a bankruptcy court must apply that state’s law of collateral estoppel. See St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672, 676 (11th Cir.1993). Under Florida law, the party relying on the doctrine must *73show that: (1) the identical issue has been fully litigated, (2) by the same parties, and (3) a final decision has been rendered by a court of competent jurisdiction. In re Zoernack, 289 B.R. 220, 226 (Bankr.M.D.Fla.2003)(citing Community Bank of Homestead v. Torcise, 162 F.3d 1084, 1086 (11th Cir.1998)). The record in this case, however, fails to demonstrate that the threshold issue required for a determination of dischargeability (i.e., whether the divorce court intended at least some portion of the lump sum alimony to function as support) was actually litigated in the post-judgment proceedings.
For example, the first post-judgment proceeding, where the Final Judgment was modified to remove the lump sum alimony from the income deduction order, took place before the husband filed for Chapter 7 relief. It is unlikely that the former wife or the divorce court contemplated the dis-chargeability issue at that time. See Cummings, 244 F.3d at 1265. In the absence of a transcript of the hearing, this Court is unable to determine why the divorce court changed the mechanism for payment of the lump sum alimony, or whether it considered the extent, if any, to which its award of lump sum alimony was to function as support. See Smith v. Smith (In re Smith), 263 B.R. 910, 918 (Bankr.M.D.Fla.2001) (declining to draw the inference, due to the absence of transcripts, that the issuance of a writ of garnishment, where state law exempts alimony from garnishment, necessarily meant that lump sum alimony was not to function as support).
The former wife was not represented by counsel at the hearing on February 9, 2001, which led to the second post-judgment order. It is not clear why the divorce court stated, in its April 2001 order, that the obligation to pay lump sum alimony had been discharged in bankruptcy. Again, the transcript of the hearing is not in the present record. As a result, this court cannot discern whether the divorce court actually considered the function of the award of lump sum alimony, or whether the divorce court accepted the discharge as a “given” based on argument of counsel.
The transcript of the non-evidentiary hearing in the Pasco County Circuit Court is in the record; but, it clearly reveals that the court did not undertake the required functional analysis of the divorce court’s award of lump sum alimony. Again, the former wife was not represented by counsel.
B. The Former Wife’s Motion for Summary Judgment
The Court will also deny the former wife’s motion for summary judgment. Essentially, she restates her severe need for funds and the debtor’s ability to pay as bases for arguing that the divorce court must have intended the lump sum alimony to be for her support. Further, she argues that the debtor engaged in a fraudulent scheme during the divorce proceedings to conceal assets, including the allegation that he was the actual owner of “his father’s” business. Her motion and these allegations raise disputed factual issues which are not appropriate for summary judgment.
C. Deference to State Court
The intention of the divorce court is not readily discernable from the Final Judgment. On the one hand, the award of lump sum alimony is linked to the calculation, in Paragraphs 7 through 13, of the disparity in the assets and liabilities; only the award of “permanent alimony” is linked to the wife’s severe need for support and the husband’s ability to provide that support; the amount of the lump sum alimony, $27,826.50, is said to be made to precisely equalize the parties’ respective net worths; and, the lump sum alimony is *74neither modifiable, nor is it terminable on death or remarriage. These factors suggest that the obligation is a property settlement.
On the other hand, the divorce court highlighted the disparity of the parties’ incomes and initially required the lump sum alimony to be paid through an income deduction order; the monthly installments of “lump sum alimony” were not to begin until after a reduction of child support when the parties’ second child attained majority; and, Paragraph 14 of the Final Judgment provides that the lump sum alimony award is made to “secure the wife’s economic future.” All of these factors suggest that at least some portion of the lump sum alimony may have been intended by the divorce court to function as spousal support.
When a divorce decree is crafted by a state court after a trial, as in this case, and there have been post-judgment proceedings interpreting or enforcing the divorce decree, the divorce court is in a better position to determine the extent, if any, to which it intended the lump sum alimony to function as support.7 In this case, there is also an appeal pending from the other state court’s ruling on the Final Judgment. In these circumstances, it would not be appropriate, or even helpful to the parties, for this court to pronounce its interpretation of the intent of the divorce court.
In Cummings, the Court of Appeals suggested that the bankruptcy court might choose to await clarification by the state court regarding the function of the obligation at issue. The Court of Appeals also advised bankruptcy courts to avoid incursions into such state court matters. 244 F.3d at 1266.
Accordingly, this court will defer further proceedings, so that the parties may return to the divorce court to seek a ruling on the extent, if any, to which the award of lump sum alimony was intended by that court to function as spousal support.
CONCLUSION
The threshold issue to a determination of dischargeability is whether the original divorce court’s award of lump sum alimony was intended to function, in whole or in part, as support for the former wife. On the present record, this court is unable to conclude that that issue was actually litigated in the post-judgment proceedings in state court. Nor is this court able to conclude, on this record, that the divorce court necessarily meant for the lump sum alimony to be in the nature of support. Therefore, both motions for summary judgment are denied.
The court will defer its own determination of the nature of the lump sum alimony to allow the parties to return to the divorce court for a clarification of whether the award of lump sum alimony was intended by that court to function, at least in part, as spousal support. The court will enter separate orders consistent with this opinion.
The trial in this adversary proceeding shall be abated until the divorce court has ruled on this issue.
. The Chapter 7 case was closed on June 19, 2001. The case was re-opened on April 9, 2004, for the limited purpose of allowing the debtor to file this adversary proceeding, which he did on May 20, 2004.
. The Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. This matter is a *70core proceeding pursuant to 28 U.S.C. § 157(b)(2)(I). This Opinion and Order constitutes findings of fact and conclusions of law made pursuant to Federal Rule of Bankruptcy Procedure 7052.
. The lump sum alimony does not terminate upon the former wife’s re-marriage or death.
. The debtor argues that under Florida law only support obligations are to be payable by income deduction through the state disbursement agency. See § 61.1301, Fla. Stat.
. Under Section 61.17, Fla. Stat., a person seeking to enforce payment of support may do so in the Circuit Court for the jurisdiction where such person resides.
. Bankruptcy courts have exclusive jurisdiction to determine whether a non-support obligation is dischargeable. 11 U.S.C. § 523(a)(15) and (c).
. In those instances where a divorce decree is based on the parties' settlement agreement, this court can hear their testimony and determine the parties' shared intent at the time the agreement was made. See In re Smith, 263 B.R. at 918, n. 8. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493720/ | FINDING OF FACTS, CONCLUSION OF LAW AND MEMORANDUM OPINION
ALEXANDER L. PASKAY, Bankruptcy Judge.
THE MATTER under consideration in this Chapter 13 case of Gregory J. Smith and his wife, Deborah K. Smith (the “Debtors”), is a Complaint to Estimate the Claims of Theresa F. Wilson (“Ms. Wilson”), individually and as Trustee of the Wilson 1992 Trust and her daughter, Karen M. Judson (“Ms. Judson”), individually and as Trustee of the Wilson 1992 Trust and as Trustee of The Karen Mary Judson Separate Property Trust dated June 7, 2001. Ms. Wilson and Ms. Judson filed a Proof of Claim in the Debtors’ Chapter 13 case in the amount of $700,000, which according to Schedule 1 of the Proof of Claim is composed of the following:
*76Compensatory damages, actual loss $400,000
Interest for 4 years to Nov. 2003 (10%/yr., California Statute) $160,000
Recoverable cost, anticipated $ 40,000
Attorney Fees (4th Cause of Action Elder Abuse). $100,000
Although the Proof of Claim filed by the Plaintiffs fails to state that the claim is an unliquidated claim, there is no question that the claim is, in fact, unsecured and unliquidated. The matter under consideration has its genesis in claims asserted by the Claimants, residents of California, in a lawsuit filed by them against the Debtors, among others, originally in the Superior Court of California, County of San Diego, East County Division on August 15, 2002.
In the original Complaint in California, the Plaintiffs set forth seven causes of action which are as follows:
First Cause of Action: Professional Negligence
Second Cause of Action: Breach of Fiduciary Duty, Constructive Fraud
Third Cause of Action: Violation of the California Corporate Securities Law of 1968
Fourth Cause of Action: Violation of the California Elder Abuse Act
Fifth Cause of Action: Violation of the Investment Advisors Act of 1940
Sixth Cause of Action: Fraud
Seventh Cause of Action: Negligent Misrepresentations
The litigation in California never reached the trial stage and, of course, came to a halt when the Debtors file their Petition for Relief under Chapter 13 in this Court on June 30, 2003.
Although, the matter under consideration is ordinarily treated under Section 9014 of the Federal Rules of Bankruptcy Procedure as a contested matter, this Rule also authorizes the Court to make use of some or all provisions of Part VII. Based on this provision, this Court ordered that the Claimants should commence an adversary proceeding in order to resolve the Motion to Estimate Claim.
On December 6, 2003, the Claimants filed their Complaint setting forth seven separate Causes of Action, which this Court is treating as seven separate Counts that are virtually identical to the claims asserted by the Claimants in the California law suit.
At the final evidentiary hearing the following relevant facts were established as to whether the claim of the Plaintiffs is allowable and, if allowable, the amount. The facts are as follows.
On January 30, 1992, Ms. Wilson’s husband died unexpectedly. Several months after his death, Ms. Wilson retained a local attorney to create a trust naming her daughter as the beneficiary of the trust (The Wilson 1992 Trust). At that time, Ms. Wilson owned Certificate of Deposit’s (“CD’s”), Individual Retirement Accounts (“IRA”), and Checking accounts with a total value of $301,978.64. Of that money, $166,010.46 was in an IRA retirement account handled by Dean Witter. All the investments of Ms. Wilson were very conservative and very low risk and, consequently, produced very modest returns.
Ms. Judson lived with her mother, Ms. Wilson, and shared all living expenses with her mother. Ms. Judson owned an Individual Retirement Account with $99,174.93.
In March 1998, Ms. Wilson’s account executive at Dean Witter notified her that he would not be handling her account any more because Dean Witter gave him a promotion. After this conversation, Ms. Wilson decided she needed to get someone to give her financial advice. One of Ms. Wilson’s neighbors recommended Gregory Smith (“Mr. Smith”) as someone who had given them financial advice in the past. At the request of Ms. Wilson, the neighbors *77called Mr. Smith, and told him to contact Ms. Wilson. Mr. Smith called Ms. Wilson and set up an assessment with her.
They met at the appointment time. Ms. Judson also participated in the discussion. The record shows that Ms. Wilson and Ms. Judson’s assets were in accounts with very low risk and with modest returns. At this meeting, Mr. Smith recommended that they take all of their investments and purchase annuities from the IL Annuity and Life Insurance Company, which Smith represented. The IL Annuity made monthly payments of $500. Although Ms. Wilson would be incurring some penalties for early withdrawal from her current CD’s investments, Mr. Smith convinced Ms. Wilson that they would make up that loss through the new investment.
Approximately in August, 1998, Ms. Wilson contacted Mr. Smith because she was interested in purchasing long-term care insurance. Mr. Smith recommended Ms. Wilson purchase a policy from American Travelers. In April 1999, Mr. Smith recommended Ms. Wilson to switch her insurance policy to Bankers United because Mr. Smith believed it was a better fit for her. Ms. Wilson agreed to switch her long term insurance. At a later point in time, Ms. Judson also purchased the same policy.
On November 1999, Mr. Smith met with Ms. Wilson and Ms.» Judson again and suggested the possibility of investing in Alpha Telecom/ATC (“ATC”). The parties are in disagreement as to how the idea to switch investments began, but this Court is satisfied that prior to this, neither Ms. Wilson nor Ms. Judson had ever heard of ATC. Mr. Smith claims that either Ms. Wilson or Ms. Judson expressed the need for a higher monthly income than what they were receiving from the IL Annuity. Ms. Wilson and Ms. Judson claim that Mr. Smith initiated the discussion and that they were satisfied with their current investments. During this meeting, Mr. Smith presented the ATC investment as a way for Ms. Wilson and Ms. Judson to increase their monthly income. The investment called for the investor to purchase pay phones that would be placed on the East Coast. The phones were supposed to have a minimum monthly return of $58.34. (Tr., Vol. IP. 2-14; Vol. VI. P. 13-20)1
Mr. Smith claims to have gotten the information on the opportunity from his broker dealer Mike Catania (“Mr. Cata-nia”). Mr. Smith claims that Mr. Catania had previously investigated the deal through his Certified Public Accountant (“CPA”) and determined it was not a security. In addition, Mr. Smith claims that he also made some phone calls to other investors and to the company itself.
Ms. Wilson and Ms. Judson claimed that Mr. Smith told them that he had personally visited the company and that the investment was safe, guaranteed, and insured by Lloyd’s of London.
Ms. Wilson expressed concern about the penalties she would incur from the termination of the IL Annuity. However, Mr. Smith again assured her that she would make up the difference with the profits from the ATC investment. After this conversation, Ms. Wilson and Ms. Judson agreed to switch the investments from the Annuity to ATC. Ms. Wilson purchased 53 phones for $265,000 and Ms. Judson purchased 20 phones for $100,000. Plaintiffs received the monthly payments from January 2000 to January 2001. After this date the payments stopped.
*78In May 2001, Mr. Smith volunteered to have a legal organization review the trust and estate plans created in 1992. Mr. Smith used an organization called Legacy Prepaid Legal Services. This organization recommended significant changes in the estate plan of Ms. Wilson and Ms. Judson. Mr. Smith charged Ms. Wilson and Ms. Judson $750 each, out of which Mr. Smith paid to Legacy $320, and kept the remaining balance for filling out all the required worksheets.
In mid 2001, Ms. Wilson inherited $67,000 worth of stock from her late husband’s stepmother. Ms. Wilson arranged for Mr. Smith to liquidate her stock because Ms. Wilson did not like the high level of risk in the stock market. The transfer was done and $40,000 was placed in a variable annuity called American Legacy III, a product of Lincoln National Life. The rest was retained by Ms. Wilson. This investment was done through Clarke Lanzen Scalla money managers.
At some point in the end of the summer of 2001, Ms. Wilson and Ms. Judson attempted to exercise a “buy back” option of their ATC investment when they became alarmed due to the cessation of monthly payments. ATC filled for bankruptcy in the fall 2001. In October 2001, Ms. Wilson and Ms. Judson received correspondence from Thomas Lennon, Receiver for ATC appointed by the United States District Court in Oregon. Ms. Wilson and Ms. Judson were unable to recover any of their investment from the bankruptcy case of ATC.
Based on the foregoing, Ms. Wilson and Ms. Judson contend that they have an allowable claim in this Chapter 13 case of Mr. Smith in the total amount of $700,000 based on the several components outlined earlier. It should be noted at the outset that initial inquiry must be addressed to the legal basis of the claims asserted by Ms. Wilson and Ms. Judson.
As noted earlier, the claims under consideration are based on several legal theories, several of them not supported by this record. This Court is satisfied that this record fails to support any of the following theories advanced by Ms. Wilson and Ms. Judson; Violation of California Corporate Securities Law of 1968 (Count III), Violation of California Elder Abuse Act (Count IV), Violation of the Investment Advisor Act of 1940 (Count V), Fraud (Count VI), and Negligent Misrepresentation (Count VII). Therefore, these Counts should be dismissed.
This leaves for consideration the claims based on Professional Negligence (Count I) and Breach of Fiduciary Duty, Constructive Trust (Count II). Of course before one can consider a breach by one of a fiduciary duty it is essential to find that the party charged with the breach owed a fiduciary duty to the party charging the breach.
In the present instance, both Ms. Wilson and Ms. Judson were parties devoid of any financial sophistication. On the other hand, Mr. Smith claimed to be and, in fact, was a “financial advisor” who certainly possessed a far superior expertise concerning investments than either Ms. Wilson or Ms. Judson. Mr. Smith was fully aware of the financial conditions of both considering their age and their situation in life. Ms. Wilson was retired and Ms. Judson was working as an administrative assistant for a healthcare provider. Mr. Smith not only should have known but actually knew that Ms. Wilson and Ms. Judson could not afford to enter into a high risk investment and that the telephone scheme was, in fact, a high risk investment. Now we know that ATC investment was nothing more than a Ponzi scheme which, like all of them, is doomed to fail from the outset. *79Be that as it may, ATC was placed into a receivership by the United States District Court of Oregon and ultimately ended up in the Bankruptcy Court, sealing the fate of all investors and the ultimate demise of the finances of all who were persuaded to purchase public phones from ATC in the age of cell phones.
Even to suggest and recommend, let alone persuade Ms. Wilson and Ms. Judson to invest their entire retirement assets in such a scheme, was while not fraudulent, certainly amounted to a breach of the fiduciary duty owed by Mr. Smith to Ms. Wilson and Ms. Judson. In addition, Mr. Smith was clearly a professional and, without doubt, failed to live up to even a modicum of reasonable care when he recommended the ATC investment to Ms. Wilson and Ms. Judson without conducting any meaningful due diligence. Mr. Smith claims his broker dealer investigated the soundness of the ATC through his CPA and determined it was not a security, which allowed him more flexibility as he sold it to his clients. There is not one iota of credible evidence in the record that Mr. Smith ever obtained any financial records, operating history, or empirical data on ATC operations. In sum, his conduct fell far below the standard of care required from a professional.
Based on the foregoing, this Court is satisfied that the Plaintiffs have met their burden of proof and should prevail on Count 1 (Professional Negligence) and Count II (Breach of Fiduciary Duty, Constructive Trust). Ms. Wilson and Ms. Judson have an allowable claim in the Chapter 13 case of Mr. Smith. Now that liability has been established on the claim of the Plaintiffs, the only remaining question is the amount of their claim.
Before considering the proper amount of the claim, it is necessary to determine how much is the claim of Ms. Wilson and how much is the claim of Ms. Judson. The estimation is complicated from the fact that the Complaint to Estimate the Claim was filed by Ms. Wilson, individually and as Trustee of the Wilson 1992 Trust, dated August 7, 1992; and by Ms. Judson, individually, and as Trustee of the Wilson 1992 Trust, dated August 7, 1992; and as Trustee of the Karen Mary Judson Separate Property Trust, dated June 17, 2001, yet the Proof of Claim was filed only by Ms. Wilson and Ms. Judson.
This Court believes that Ms. Wilson and Ms. Judson’s estimated claim should reflect the amount of money they would have earned but for Mr. Smith’s negligent recommendation to invest in ATC minus any money received from the annuities prior to its conversion. As a result, this Court is going to treat the Complaint to estimate as a request for declaratory relief. The claim of Theresa Wilson, individually and as Trustee of The Wilson 1992 Trust, dated August 7, 1992, shall be set at $449,850, which includes the money earned on the two annuities minus payments collected from the annuity and from the monthly payments received in the ATC scam. In addition, the claim of Ms. Judson, individually and as Trustee of the Wilson 1992 Trust, dated August 7, 1992, and as Trustee of the Karen Mary Judson Separate property Trust dated June 7, 2001, shall be set at $172,118 for the money she would had received in the annuity minus the payments made by ATC.
A separate final judgment shall be entered in accordance with the foregoing.
FINAL JUDGMENT
THIS CAUSE came on for consideration upon the Court’s own Motion for the purpose of entering a Final Judgment in the above-captioned adversary proceeding. The Court has considered the record and finds that this Court has entered its Findings of Fact, Conclusions of Law, and *80Memorandum Opinion. Therefore, it appears appropriate to enter this Final Judgment.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that Final Judgment be, and the same is hereby, entered in favor of the Defendants, Gregory J. Smith and Deborah K. Smith, and against Plaintiffs, Theresa F. Wilson individually and as Trustee of the Wilson 1992 Trust, dated August 7, 1992, and Karen M. Judson, individually and as Trustee of the Wilson 1992 Trust and as Trustee of the Karen Mary Judson Separate Property Trust dated June 17, 2001, on Count III (Violation of the California Corporate Securities Law of 1968); Count IV (Violation of the California Elder Abuse Act); Count V (Violation of the Investment Advisors Act of 1940); Count VI (Fraud); and Count VII (Negligent Misrepresentation) and these Counts are dismissed with prejudice. It is further
ORDERED, ADJUDGED AND DECREED that Final Judgment be, and the same is hereby, entered in favor of the Plaintiffs, Theresa F. Wilson individually and as Trustee of the Wilson 1992 Trust, dated August 7, 1992, and Karen M. Judson, individually and as Trustee of the Wilson 1992 Trust and as Trustee of the Karen Mary Judson Separate Property Trust dated June 17, 2001, and against Defendants, Gregory J. Smith and Deborah K. Smith, as to Count I (Professional Negligence) and Count II (Breach of Fiduciary Duty, Constructive Fraud). The claim filed by Theresa F. Wilson and Karen M. Judson is hereby estimated to be in the amount of $449,850 for Theresa F. Wilson and in the amount of $172,118 for Karen M. Judson.
. Theresa Wilson v. Gregory Smith, Case No. 04-00003, United States Bankruptcy Court for the Middle District of Florida, Tampa Division. Tr. is in reference to the Transcript of the Final Evidentiary Hearing held on, October 19, 2004. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493721/ | MEMORANDUM OPINION
JAMES D. WALKER, JR., Bankruptcy Judge.
This matter comes before the Court on Debtor’s Objection to the Chapter 13 Trustee’s Fees. This is a core matter within the meaning of 28 U.S.C. § 157(b)(2)(A). After considering the pleadings, the evidence, and the 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
Debtor Jackqueline Jackson filed for relief under Chapter 13 of the Bankruptcy Code on December 12, 2003. Her plan was confirmed on July 14, 2004. Debtor filed an objection to the Chapter 13 Trustee’s fees on August 12, 2004, contending that the Chapter 13 Trustee charged a percentage fee greater than authorized by statute, resulting in higher plan payments. The Court held a hearing on Debtor’s objection on November 9, 2004.
In support of her position, Debtor provided the Court with a copy of a document entitled “Exhibit A,” which was produced by the Trustee’s office on June 28, 2004. These exhibits are routinely used by the Trustee’s office in Chapter 13 cases to estimate how claims will be paid. While the amounts shown on Exhibit A may change during the pendency of the case, it provides insight as to how the Trustee calculates her percentage fee. The Exhibit A provided to the Court shows that the Trustee was to pay out $67,903.62 in secured claims, $7,484.10 in unsecured claims, and $2,939.28 in projected interest, which add up to $78,327.00 to be paid to creditors. In addition, the Trustee estimated her fee at $8,703.00, which brought the overall amount to be paid by Debtor to $87,030.00. The Trustee’s estimated fee of *96$8,703.00 amounts to 11.11% of the $78,327.00 to be paid to creditors. In contrast, the Trustee’s fee is 10% of the total $87,030.00 received. The Trustee stated that the fee shown on Exhibit A is for estimation purposes only. While Exhibit A evidences a fee of 10% of the $87,030.00 amount, the Trustee was really only collecting a fee of 8.5% of all amounts received at the time of Debtor’s objection.1 The Trustee explained that estimating the fee at 10% provides the plan with a cushion. If a debtor pays all amounts estimated in a timely manner, his case will be discharged earlier than projected. If a debtor falls behind in his payments, the cushion provided by the excess trustee fee is used to cover at least some of the shortfall. Regardless, Debtor here concedes that the actual fee being received by the Trustee in her ease is less than 10%.
Conclusions of Law
At issue in this case, is whether the Trustee is charging Debtor a fee in excess of that permitted by statute. The statute provides as follows:
(e)(1) The Attorney General, after consultation with a United States trustee that has appointed an individual under subsection (b) of this section to serve as standing trustee in cases under chapter 12 or 13 of title 11, shall fix—
(B) a percentage fee not to exceed—
(i) in the case of a debtor who is not a family farmer, ten percent; or
(ii) in the case of a debtor who is a family farmer, the sum of—
(I) not to exceed ten percent of the payments made under the plan of such debtor ...[.]
(2) Such individual [trustee] shall collect such percentage fee from all payments received by such individual under plans in the cases under chapter 12 or 13 of title 11 for which such individual serves as standing trustee.
28 U.S.C.A. § 586(e)(1) & (2) (West 1993).
The statute authorizes the Attorney General (“AG”) to set the Trustee’s fee. The parties have stipulated that the AG has properly delegated his authority to the Executive Office for the United States Trustee (“EOUST”). The current Handbook for Standing Trustees, promulgated by EOUST, describes the calculation of the fee as follows:
The percentage fee is applied from all payments received by the standing trustee from the debtor under the plan. Thus, on a $1,000 payment received from a debtor, a standing trustee whose percentage fee is 6% would pay $60 to the standing trustee’s expense account and disburse $940 to creditors.
Handbook for Standing Trustees, at 11-1 (December 1,1998).
Because of the express delegation in the statute, the Trustee has argued that the Court is obliged to give the EOUST’s interpretation of the statute “Chevron” deference. The Supreme Court set forth a two-part test for reviewing an agency’s interpretation of a statute it is charged with administering. First, the Court must determine whether the question is answered by the plain language of the statute, which binds all parties. Second, if the statute is vague or ambiguous, the Court must determine whether the agency’s interpretation is a permissible one. If it is permissible, the Court must defer to that interpretation. Chevron, U.S.A., Inc. v. Natural Resources Defense Council, 467 *97U.S. 837, 842-43, 104 S.Ct. 2778, 2781-82, 81 L.Ed.2d 694 (1984) (footnotes omitted).
However, Chevron deference only applies “when it appears that Congress delegated authority to the agency generally to make rules carrying the force of law....” United States v. Mead Corp., 533 U.S. 218, 226-27, 121 S.Ct. 2164, 2171, 150 L.Ed.2d 292 (2001). To carry the force of law, the agency’s interpretation usually must have been the subject of “notice-and-comment rulemaking or formal adjudication.” Id. at 230, 121 S.Ct. at 2173. Chevron deference generally does not apply to interpretations found in “policy statements, agency manuals, and enforcement guidelines.... ” Christensen v. Harris County, 529 U.S. 576, 587 120 S.Ct. 1655, 1662 (2000). In this case, the EOUST’s interpretation is set forth in a handbook and was not subject to the sort of formal rulemaking contemplated by Chevron. See Bolen v. Dengel (In re Dengel), 340 F.3d 300, 310 (5th Cir.2003) (declining to apply Chevron deference to interpretation of § 586(e) set forth in Handbook for Chapter 12 Standing Trustees).2 Nevertheless, if the question at issue is unanswered by the plain language of the statute, the EOUST’s interpretation may be entitled considerable weight in the Court’s analysis. Mead, 533 U.S. at 228, 121 S.Ct. at 2172. “The weight of such a judgment in a particular case will depend upon the thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade, if lacking power to control.” Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 164, 89 L.Ed. 124 (1944).
In any event, the Court’s analysis must start with the plain language of the statute. The statute provides for a “percentage fee.” It does not specify the percentage to be assessed by the standing Chapter 13 trustee. Rather, it delegates to the AG the authority to set the percentage. In this case, the EOUST set the percentage at 8.5% and later adjusted it to 7.8%. Thus, the Court is left with the question of whether the Trustee charged 8.5% and 7.8% at the relevant times. The Court will use 7.8% for illustrative purposes.
A percentage is merely a ratio. Out of every $100, $7.80 goes to the Trustee. The real question here, then, is how many hundreds of dollars are there? In other words, what is the “pot” from which the Trustee draws her 7.8% fee? Through the policy set forth in the trustee handbook, the EOUST instructed the Trustee that the pot is all payments she receives from Debtor. According to Debtor — and contrary to the EOUST’s position — the statute provides that the pot is the total of payments the Trustee disburses to creditors under the plan. In this case, the plain language of the statute supports neither party’s position. In the context of a Chapter 12 case, the statute prohibits the AG from setting a percentage that exceeds 10% of “payments made under the plan.” 28 U.S.C.A. § 586(e)(l)(B)(ii)(I). This might settle the matter in Debtor’s favor if this were a Chapter 12 case. However, Congress made no similar provision for Chapter 13 cases. In the Trustee’s favor, Congress did state that the fee must be paid out of all “payments received,” by the Trustee, but this merely directs the Trustee to collect her fee from Debtor rather than some other source. It does not re*98quire that the amount of the fee be based on a percentage of payments received.
The statute is silent on the issue of which pot the percentage fee should be drawn from. Therefore, the Court must look to other sources to derive congressional intent. The parties have pointed to the surrounding statutory provisions to fill the gap. But, as explained above, those provisions hardly elucidate the matter; instead, they support conflicting positions. The legislative history also is unhelpful. Section 586 of the Judicial Code (title 28) was promulgated as part of the Bankruptcy Reform Act of 1978. In its original form, the statute provided in relevant part as follows:
(e)(1) The Attorney General, after consultation with a United States trustee that has appointed an individual under subsection (b) of this section to serve as standing trustee in cases under chapter 13 of title 11, shall fix—
(B) a percentage fee, not to exceed ten percent, based on such maximum annual compensation and the actual, necessary expenses incurred by such individual as standing trustee.
(2) Such individual shall collect such percentage fee from all payments under plans in the cases under chapter 13 of title 11 for which such individual serves as standing trustee.
Pub.L. 95-598, Title II, § 224(a), 92 Stat. 2663. Sections 586(e)(1)(B) and (e)(2) were amended to their present form as part of the Bankruptcy Judges, U.S. Trustees, and Family Farmer Bankruptcy Act of 1986, Pub.L. No. 99-554. The most significant change is that under subsection (e)(2), the fee is now to be collected from payments received by the Trustee rather than from payments under the plan.
The Court was unable to locate any relevant legislative history with respect to the amendment. However, when the original version of the statute was passed, the Report of the Committee on the Judiciary, in discussing the administration of individual repayment plan cases, stated as follows: “The percentage fee may not exceed ten percent of the amount paid under plans in cases for which the trustee serves.” H.R.Rep. No. 95-595, 95th Congr., 1st Session (1977), U.S.Code Cong. & Admin.News 1978, p. 5963, reprinted in C Collier on Bankruptcy App. Pt. 4-1194 (14th ed. rev’d 2005). At first blush, this would seem to support Debtor’s position. But, all it really does is set a means for calculating the maximum amount of dollars the Trustee can collect as a fee. If $10,000 is paid under the plan, the Trustee’s fee cannot exceed $1,000. However, nothing in the language requires the percentage set by the AG to be a percentage of the amount disbursed to creditors.
In the absence of any direction from the language of the statute or from the legislative history, the Court finds that the policy set forth by the EOUST complies with the statute. The statute directs the AG to set a percentage fee; the AG has done so through the EOUST. Neither the statute nor the legislative history state what pot the percentage should be drawn from. The EOUST has. Its policy of drawing the percentage fee from the total of payments received has been in place for at least five years. It is a simple, easy to apply formula. Furthermore, because the percentage is set based on the costs of Chapter 13 administration, requiring the EOUST to change the method of calculation will not, as a practical matter, result in lower trustee fees paid by Debtor. Instead, if the EOUST has a smaller pot to pick from, it likely will have to set the percentage at a higher rate to collect the same amount of money. In these cireum-*99stances, the Court is persuaded that the Trustee has not violated § 586 by basing her percentage fee on the payments she receives from Debtor — in compliance with EOUST policy — rather than on distributions made under the plan. As a result, Debtor’s objection will be overruled.
An Order in accordance with this Opinion will be entered on this date.
. Prior to October 1, 2004, the Chapter 13 standing trustee’s percentage fee was fixed at 8.5% of all amounts received. As of October 1, 2004, the fee was fixed at 7.8%.
. Compare 28 U.S.C. § 586(d), which directs the AG to "prescribe by rule” the qualifications for standing trustees. Those rules and others are codified at 28 C.R.F. Pt. 58. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493722/ | MEMORANDUM DECISION ON (1) DEFENDANT HSA RESIDENTIAL MORTGAGE SERVICES OF TEXAS, INC.’S MOTION FOR SUMMARY JUDGMENT AND SUMMARY ADJUDICATION and (2) PLAINTIFF NANCY KNUPFER, CHAPTER 7 TRUSTEE OF THE ESTATE OF LAU CAPITAL FUNDING, INC.’S MOTION FOR PARTIAL SUMMARY ADJUDICATION
MAUREEN A. TIGHE, Bankruptcy Judge.
On July 20, 1999 Lau Capital Funding (“LCF”) filed a voluntary Chapter 11 petition. Thereafter, the Chapter 11 case was converted voluntarily by the Debtor to Chapter 7 on November 2, 1999. The Chapter 7 Trustee, Nancy Knupfer (“Trustee” or “plaintiff’), initiated an adversary action against HSA Residential Mortgage Services of Texas, Inc. (“HSA”, “RMST” or “defendant”) on March 12, 2002 based on the following claims: breach of contract, avoidance, turnover, fraud, conversion, goods sold and delivered, declaratory relief, waste, and special relief. Defendant HSA has filed a motion for summary judgment on all of the Trustee’s claims, in addition to moving for summary adjudication on the Trustee’s request for lost profits.
The Trustee opposes HSA’s motion and has filed a cross-motion for partial summary adjudication regarding the issues of breach of contract and conversion.
These motions came on for hearing on December 2, 2004 in this Court. The Court will address each of the ten issues for which the defendant requested summary judgment and summary adjudication. Additionally, where appropriate, the Court will rule on the plaintiffs cross-motions for summary adjudication.
On December 22, 2004, the Trustee filed a motion for adverse inference due to concealment of discovery and/or spoliation of evidence and for sanctions in the courtroom of Judge Erithe A. Smith.1 The hearing is to occur on February 17, 2005. In the Trustee’s motion, she alleges that HSA has withheld, concealed, or destroyed evidence regarding the extent to which HSA did business with 18 former Lau customers and regarding HSA’s intentions during negotiations. Specifically, the Trustee seeks credit committee meeting minutes, source accounting data for all of the customers with which HSA actually did business, and credit recommendations composed by Trevino on each of the 18 customers. At oral argument, the Trustee argued that the ruling on the spoliation motion affects the cross-motions for summary judgment.
*293The Court hereby issues this memorandum in support of its decision.
BACKGROUND
Before filing its bankruptcy, LCF had been a mortgage warehouse lender, a company that loans money to mortgage companies that would, in turn, make residential mortgage loans to consumers. By providing interim financing to mortgage companies, LCF, as a lender, would receive a loan set-up fee and interest for use of its credit. HSA was also in the mortgage warehouse lending business. HSA was a wholly-owned subsidiary of AIG International Group, Inc.
After losing an important line of credit, LCF filed for Chapter 11 bankruptcy on July 20, 1999. In an effort to reorganize under its plan, LCF entered an Asset Purchase Agreement (the “Agreement”) (Plaintiffs Complaint, Exhibit A) on October 1, 1999 with HSA. The parties dispute the meaning of the Agreement’s contents, especially, section 3.4. Section 3.4 states the following regarding the selection of mortgage originators:
The selection of mortgage originators by Buyer of those of Seller’s Customers with whom Buyer will execute Mortgage Purchase Agreements shall be in Buyer’s sole discretion. The funding of individual loans from such mortgage originators and the discontinuance of any relationship with such mortgage originators shall be in Buyer’s sole discretion.
The Purchase Price, as described in section 3.1, to be paid from HSA to LCF was the amount over $20.00 that HSA received from a listed customer on each loan funded through September 30, 2009.
Defendant HSA claims that the Agreement gave HSA the right to solicit any of the 18 LCF’s customers on the list, attached to the Agreement as an exhibit, all of which were residential mortgage originators. HSA alleges that the Agreement did not obligate HSA to enter into mortgage purchase contracts with any of the 18 LCF customers on the customer list (Defendant’s Request for Judicial Notice, Exhibit A). Consequently, LCF would receive a loan set-up fee only if HSA actually entered into a mortgage purchase contract with one of the named LCF customers.
In contrast, LCF argues that the Agreement manifests that HSA would enter into relationships with all 18 preselected LCF customers, from which LCF would receive a loan set-up fee. According to LCF’s interpretation, the “sole discretion” referenced in the first sentence of section 3.4 was the initial discretion of HSA to choose which companies to do business with out of LCF’s 41 existing mortgage originator customers. After selecting customers, LCF’s understanding was that HSA would enter into contractual relationships with each of the selected customers and that the only discretion HSA had was to terminate relationships with the mortgage originators for underwriting reasons.
Section 6.4 of the Agreement contains a provision that required Bankruptcy Court approval of LCF’s customer list: “Seller shall, immediately upon execution of this Agreement, file a motion with the United States Bankruptcy Court, Central District of California seeking an order approving the terms of this Agreement.” Nevertheless, LCF never sought Bankruptcy Court approval.
HSA admits that it entered into mortgage purchase agreements with four LCF customers and that it has not yet paid any proceeds from these mortgages to LCF. However, HSA alleges that it has kept track of the amounts owed to LCF under the Agreement and has continued to do so after conversion of the case to Chapter 7. The accrued amount is approximately *294$135,000. HSA further claims that following the Chapter 7 conversion, HSA attempted to contact the Chapter 7 Trustee to discuss payment delivery, but that the Chapter 7 Trustee never returned its telephone calls. LCF disputes that HSA has properly accounted for money owed under the Agreement and also disputes that HSA ever tried to telephone the Trustee.
HSA did not enter agreements with the remaining 14 LCF customers on the list. The Trustee’s position is that HSA’s failure to pursue relationships with the other 14 LCF customers was a tactic to prevent HSA competitors in the mortgage warehouse financing business from obtaining these accounts. Moreover, by purchasing the customer list but failing to solidify relationships with the customers, the Trustee argues that HSA wasted LCF’s most valuable asset and therefore is liable for damages to the estate either in tort or contract.
HSA went out of business in 2002.
LEGAL STANDARD FOR SUMMARY JUDGMENT
“[A]t the summary judgment stage the judge’s function is not himself to weigh the evidence and determine the truth of the matter but to determine whether there is a genuine issue for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). In deciding a motion for summary judgment, partial or otherwise, the court must view the evidence, as well as all justifiable inferences drawn from that evidence, in the light most favorable to the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. at 255, 106 S.Ct. 2505.
“A party seeking summary judgment always bears the initial responsibility of informing the [court] of the basis for-its motion, and identifying those portions of ‘the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any,’ which it believes demonstrate the absence of a genuine issue of material fact.” Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The moving party bears the initial burden of demonstrating the absence of a “genuine issue of material fact for trial.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 256, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). On the other hand, a party opposing a motion for summary judgment may not rest upon the mere allegations or denials of his pleading, but must set forth specific facts showing that there is a genuine issue for trial. Id. at 248, 106 S.Ct. 2505. The entry of summary judgment is proper when the non-moving party fails to make a showing sufficient to establish the existence of an element essential of that party’s case, and on which that party will bear the burden of proof at trial. Celotex, 477 U.S. at 322, 106 S.Ct. 2548.
If the Court finds that summary judgment is not proper, the Court may still consider granting partial summary judgment pursuant to Federal Rule of Civil Procedure 56(d). “The procedure prescribed in subdivision 56(d) is designed to be ancillary to a motion for summary judgment.” 10B Wright, Miller & Kane, Federal Practice and Procedure: Civil 3d § 2737 (West 1998). See In re Data General Corp. Antitrust Litigation, 490 F.Supp. 1089, 1103 (N.D.Cal.1980) (“The purpose of a Rule 56(d) order, which is analogous to a pretrial order under Rule 16, is to salvage all constructive results of summary judgment proceedings.”); Lovejoy Electronics, Inc. v. O’Berto, 616 F.Supp. 1464 (D.C.Ill.1985) (“[Partial summary judgment’s] purpose is to salvage some results from the judicial effort involved in the denial of a motion for summary judgment and to frame narrow tri*295able issues if the court finds that the order would be helpful with the progress of litigation.” (Internal citations omitted)). The ultimate purpose of partial summary judgment is to narrow the issues for trial. “The [Rule 56(d)] procedure was intended to avoid a useless trial of facts and issues over which there was really never any controversy and which would tend to confuse and complicate a lawsuit.” Luria Steel & Trading Corp. v. Ford, 9 F.R.D. 479, 481 (D.Neb.1949).
BREACH OF CONTRACT
(1st Claim for Relief)
A threshold inquiry in analyzing a breach of contract claim is whether or not a valid, enforceable contract exists. Defendant HSA makes two arguments in support of its motion for summary judgment on the Trustee’s breach of contract claim: (1) the contract was void and unenforceable because both a condition precedent and a condition subsequent were not met, and (2) HSA did not breach the Agreement.
The Court finds that the debtor’s failure to comply with the condition precedent, bankruptcy court approval, creates a voidable contract rather than a void contract. Even if the approval of section 363(b) was not satisfied, the omission causes the sale to be voidable, but does not void the contract entirely. Matter of Met-L-Wood Corp., 861 F.2d 1012, 1018 (7th Cir.1988) (asserting that a sale of property that fails to comply with notice or hearing requirements and applicable bankruptcy rules may be set aside but is not void). The Trustee cites a law review article, P. Scho-vanec, The Sale of Property Under Section 363: The Validity of Sales Conducted Without Proper Notice, 46 Okla. L.Rev. 489, that finds an emerging trend of courts balancing the equitable and economic interests of the parties affected by the sale to determine whether or not to uphold an otherwise defective sale. The Trustee’s arguments, as well as this article, are persuasive that the contract should not be set aside where bankruptcy court approval was not sought. HSA benefited substantially from the contract and took possession of the customer list without waiting for court approval.
With respect to the condition subsequent, the Court concludes that because the debtor voluntarily converted the case to chapter 7, section 6.5 was never triggered. The terms of section 6.5 only make the Agreement null and void when “any petitioner is successful in changing the Bankruptcy Case to involuntary bankruptcy proceedings under Title 7.” However, in this case, the debtor himself moved the Court for voluntary conversion of the bankruptcy case. Thus, the contract cannot be invalidated based on section 6.5.
In addition, the Trustee is correct that the provisions of 11 U.S.C. § 541 supercede section 6.5 of the Agreement. Section 541(c)(1) states that “an interest of the debtor in property becomes property of the estate ... notwithstanding any provision in an agreement, transfer instrument, or applicable nonbankruptcy law— (A) that restricts or conditions transfer of such interest by the debtor; or (B) that is conditioned ... on the commencement of a case under this title ... and that effects or gives an option to effect a forfeiture, modification, or termination of the debtor’s interest in property.” Property of the estate includes “all legal or equitable interests of the debtor in property as of the commencement of the case” and the “proceeds, ... profits of or from property of the estate ....” 11 U.S.C. § 541(a)(1), (a)(6). Virtually all property interests of the debtor are property of the estate irrespective of any restriction or conditions on transfer. Furthermore, “[a]bsent court *296approval, private contractual agreements may not override an express provision of the Federal Bankruptcy Code.” In re Flynn, 143 B.R. 798, 800 (Bankr.D.R.I.1992) (citing Testa v. Katt, 330 U.SA. 386 (1947)). Thus, LCF’s proceeds of the contract became property of the estate regardless of section 6.5.
The Trustee’s unclean hands defense is inapplicable in this case because unclean hands bars recovery in equity and here, HSA has not asked for anything in equity.
Because the condition precedent makes the contract voidable, and not void, and because the condition subsequent was never satisfied, a contract exists between HSA and LCF.
Having established the existence of a contract, the Court looks to the second argument that HSA did not breach the Agreement. A breach of contract claim requires that the Trustee show (1) there was a contract, (2) LCF performed, was willing to perform, or was excused from performing, (3) HSA breached the contract, and (4) LCF or the estate was damaged. Careau & Co. v. Security Pacific Business Credit, Inc., 222 Cal.App.3d 1371, 1388, 272 Cal.Rptr. 387 (1990). In this case, whether or not HSA breached the Agreement and the extent to which HSA may have breached the Agreement depend on how the Agreement is interpreted. “Under California law, the interpretation of the contract is a question of law” for the courts to decide. In re Bennett, 298 F.3d 1059, 1064 (9th Cir.2002). The purpose of this rule is to allow the mutual intent of the parties to control. Id.; In re Marriage of Simundza, 121 Cal.App.4th 1513, 18 Cal.Rptr.3d 377 (2004). If the contract is clear and explicit, the contract will govern. In re Bennett, 298 F.3d at 1064; In re Marriage of Simundza, 121 Cal.App.4th 1513, 18 Cal.Rptr.3d 377.
Generally, parol evidence is not admissible to vary, alter or add to the terms of an integrated written instrument. Cal. Civ.Code. §§ 1625, 1856; Casa Herrera, Inc. v. Beydoun, 32 Cal.4th 336, 9 Cal.Rptr.3d 97, 83 P.3d 497 (2004). However, if the terms of the written contract are “reasonably susceptible” to an interpretation that can be explained by extrinsic evidence, that evidence will be admissible notwithstanding the general rule. Casa Herrera, 32 Cal.4th at 343, 9 Cal.Rptr.3d 97, 83 P.3d 497; Pacific Gas & Elec. Co. v. G.W. Thomas Dray age & Rigging Co., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641, 644 (1968). Thus, a court must provisionally receive, without actually admitting, all credible evidence pertaining to the parties intentions to determine whether the contract language is “reasonably susceptible” to the interpretation being advocated. Wolf v. Superior Court, 114 Cal.App.4th 1343, 1351, 8 Cal.Rptr.3d 649 (2004). Only if the court decides that the contract language is “reasonably susceptible” to the advocated interpretation may the court actually admit the extrinsic evidence to interpret the contract. Id. In the event that the parties present two equally plausible interpretations, parol evidence is admissible to interpret the contract and summary judgment is improper if the evidence is contradictory because a question of fact would exist. Id. Unexpressed intentions or ideas, however, may not be admitted as parol evidence under California law. United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir.1992) (stating that “the true intent of a party is irrelevant if it is unexpressed”); Morey v. Vannucci, 64 Cal.App.4th 904, 912, 75 Cal.Rptr.2d 573 (1998); Winet v. Price, 4 Cal.App.4th 1159, 1166, 6 Cal.Rptr.2d 554 (1992).
The Trustee’s objection to the admissibility of Harriet Welch’s testimony is *297sustained because she did not draft section 3.4 of the contract and based on her deposition testimony, does not possess personal knowledge regarding the meaning of section 3.4.
The Court has provisionally admitted the parol evidence submitted and considered it to see if the terms of the written contract are “reasonably susceptible” to the Trustee’s interpretation that HSA’s discretion only extended to the initial selection of customers. Even considering the parol evidence, the terms of the contract are not reasonably susceptible to the Trustee’s interpretation. The contract language is clear — it says that “[t]he selection of mortgage originators by Buyer of those of Seller’s Customers with whom Buyer will execute Mortgage Purchase Agreements shall be in Buyer’s sole discretion.” Furthermore, the contract states that “[t]he funding of individual loans from such mortgage originators and the discontinuance of any relationship with such mortgage originators shall be in Buyer’s sole discretion.”
The depositions of Emil Lau and Larry Trevino demonstrate that no specific side agreement existed which contradicted the explicit contract language and that no par-ol evidence contradicts or changes the contract. Trevino testified in the following manner:
Q: The first part of that sentence, “The selection of RMST of mortgage originators currently serviced by LCF ... with which RMST will choose to enter into relationships will be solely within RMST’s discretion.”
A: Uh-huh.
Q: What did you mean by that sentence alone?
A: Well, you know, there was a population of originators. We’re not committed to take every one of them.
Q: Okay.
A. And based on what I see, whether you agree with me or not on my basis for making that decision to exclude or include makes no difference. It’s my sole discretion.
(Trevino Depo., 122:19-123:6).
* * * * * *
Q: Did you have an understanding that if RMST failed to pursue arrangements with those 18 — forget about whether they would do business with you or not — but if RMST for one reason or another simply did not pursue a relationship with one of them, that that was contrary to the expectations you and Emil had in entering into this agreement?
A: No.
Q: Okay. What were — what was your expectation?
A: My expectation was these were the relationships — that we were going to attempt to establish relationships. These were the originators we were going to attempt to establish relationships with.
Q: Okay. Let me ask the question one more time because there’s a fine point here, and I want your answer: Did you have an understanding that if RMST didn’t even attempt — after getting to this 18 didn’t even attempt to enter into relationships with those 18, that that would be contrary to what you and Emil had discussed?
A: No.
Q: Why not?
A: Because I didn’t.
Q: Okay.
A: That was not my understanding.
Q: What did you understand?
A: I understood that Emil said, “I need to give you these relationships or *298give you the opportunity to take on these relationships in consideration of some fee.”
Q: You didn’t see that as an obligation on RMST at least to try to enter into those relationships after having gone through everything that you went through?
A: No.
(Trevino Depo., 180:14-181:21).
* * * * * *
Q: But he had no expectations that you were going to try your best to create the relationships contemplated?
A: ... I know on day one my intent was, we will do our best to establish relationships with these people. You know, it’s not my intent to say, “Well, now that I have this, maybe I will, maybe I won’t.”
No. “We will — it will be our best effort, but there are a lot of variables here.”
Even though I’m saying, “I like what I see,” there’s still a lot of variables that are going to enter into this final decision that may have some of those originators fall off the short list.
(Trevino Depo., 182:2,183:23-184:8).
Trevino’s deposition manifests intentions of the parties that distinctly align with the plain language of the Agreement. The language of section 3.4 states that HSA has “sole discretion” to decide with which, if any, of the 18 customers to do business. Even though Lau disagrees as to the correct interpretation of the Agreement, Lau could not point to any evidence outside the Agreement to corroborate his position:
Q: Is there anything outside this agreement that supports the testimony you just gave, namely that RMST couldn’t simply put these 18 customers on the shelf, to use your expression?
A: Not that I recall at the moment.
(Lau Depo., 175:8-12).
While Lau testifies extensively about his understanding of the agreement and what his intent was, he never provides any basis to believe his understanding of the terms was the same as Trevino’s. He does not appear to have communicated his understanding to Trevino or any other representative of HSA. On this basis, the terms of the contract must control the Court’s interpretation.
Having considered all of the submitted Trevino and Lau depositions, as well as admissible parol evidence, the only conclusion that can be drawn by the Court is that Lau and Trevino did this deal very quickly and that Trevino conducted extensive due diligence in a short period of time. It was clear to both parties that HSA was very concerned about the quality of the originators it was accepting, and section 3.4 was drafted the way it was to allow the deal to go forward while still protecting HSA.
Clearly, at the time the parties entered into the contract, the goal for both Lau and Trevino was for HSA to take on as much of the business as possible from LCF as long as it met HSA’s criteria. Although Trevino intended to pursue relationships with each of the 18 customers on the list, no oral agreement with Lau required him to do so, and the duties HSA had were explicitly detailed in the contract. Furthermore, no one testified and no document supports the proposition that Lau and Trevino explicitly agreed with each other that HSA would be required to enter into a relationship with the 18 customers it had selected after its due diligence. While Lau testified that he understood HSA would go forward with all 18 customers and believed they were required to do so, he provides no evidence at all that he and Trevino actually agreed that this was the *299case. Uncommunicated intentions or words are not admissible as evidence in court. United Commercial Ins. Serv., Inc. v. Paymaster Corp., 962 F.2d 853, 856 (9th Cir.1992); Morey v. Vannucci, 64 Cal.App.4th 904, 912, 75 Cal.Rptr.2d 573 (1998); Winet v. Price, 4 Cal.App.4th 1159, 1166, 6 Cal.Rptr.2d 554 (1992).
Trevino and Lau’s good intentions are one thing, but what they communicated to each other is another. The deal between HSA and LCF was an asset purchase and the asset purchased was the customer list: “Buyer shall purchase from Seller, and Seller shall sell, transfer, assign and deliver to Buyer, subject to the terms and conditions of [the] Agreement, all of the Seller’s right, title and interest in, to and under its customer lists (‘Seller’s Customers’) and its customer relationships for those customers listed on the attached Exhibit A” (Complaint, Exhibit A). At no time was HSA under any obligation to do more than purchase LCF’s customer list to use at its own discretion. The contract clearly states that HSA has the sole discretion to select among Seller’s customers to determine with which of the 18 it wished to do business. Therefore, HSA did not breach the Agreement in failing to enter relationships with all 18 customers.
Good Faith and Fair Dealing
The Trustee maintains that HSA’s interpretation of the Agreement would defy California’s implied covenant of good faith and fair dealing for every contract, which requires that “neither party will do anything that [will] injure the right of the other to receive the benefits of the agreement.” Agosta v. Astor, 120 Cal.App.4th 596, 15 Cal.Rptr.3d 565, 572-73 (2004). The Trustee cites Third Story Music, Inc. v. Waits, 41 Cal.App.4th 798, 48 Cal.Rptr.2d 747 (1995), for the proposition that the implied covenant of good faith and fair dealing is applicable to an agreement to limit a party’s unfettered discretion when no other or additional consideration has been paid. Because LCF was only to be paid if HSA entered contracts with LCF’s customers and actually funded loans through the customer and because HSA’s interpretation of the Agreement gives HSA complete discretion to fund or not fund loans through LCF’s customers without having to pay independent consideration, the Trustee claims that California law requires that the implied covenant of good faith and fair dealing apply to the Agreement. The argument is that by taking possession of LCF’s customer list, but failing to pursue relationships with 14 of the 18 customers on the list, HSA did not maximize the value of the asset as LCF intended when it conveyed the property to HSA.
The Trustee’s good faith argument ignores the import of Third Story Music and PMC., Inc. v. Porthole Yachts, Ltd., 65 Cal.App.4th 882, 76 Cal.Rptr.2d 832 (1998). Third Story clarifies that the explicit reservation of a discretionary power in a contract cannot be contradicted by the implied covenant of good faith and fair dealing. Third Story, at 41 Cal.App.4th at 809, 48 Cal.Rptr.2d 747. “Courts are not at liberty to imply a covenant directly at odds with a contract’s express grant of discretionary power except in those relatively rare instances when reading the provision literally would, contrary to the parties’ clear intention, result in an unenforceable, illusory agreement.” Id.
Here, the contract itself provides for limits to HSA’s unfettered discretion. Paragraph 3.1 requires HSA to “act in good faith in funding loans presented by Customers” and prohibits HSA from entering into side agreements to evade payments to Lau. The purpose of the contract itself was not frustrated. Although Lau was no longer able to service these cus*300tomers, LCF received the benefit of the bargain in retaining the possibility of still profiting from their former customers through HSA’s work.
The contract also provides consideration for Lau Capital. HSA promises to pay Lau the excess of $20 of any loan set-up fee. Trevino and his HSA team also conducted extensive due diligence at both Lau Capital’s office and the offices of at least 10 of the 18 customers on the list. Under PMC, Inc., that detriment to HSA is sufficient consideration. Thus, the discretionary right in the contract should not be overridden by any implied covenant of good faith.
After reading and considering the Trustee’s motion for adverse inference and/or spoliation, the Court has concluded that the Trustee has failed to allege sufficient facts in that motion that could alter the Court’s decision on the breach of contract claim. Even assuming that the Trustee is successful on her motion before Judge Smith, the breach of contract ruling would not change. The evidence the Trustee accuses HSA of concealing is not admissible parol evidence. Credit committee meeting minutes and credit recommendations compiled by Trevino would not reveal a conveyed understanding between HSA and LCF. Meeting minutes and credit recommendations are internal documents that are not necessarily conveyed to outside parties. Without evidence that the thoughts or intentions manifested in the meeting minutes and credit recommendations were actually expressed by HSA to LCF, the Court cannot interpret those documents as accurately reflecting the intentions of the parties. Likewise, the alleged concealment of source accounting data does not affect the breach of contract issue. Obtaining missing source accounting data may be pertinent to the issue of how much damages the Court should award, but does not affect the Court’s ruling on the breach of contract claim. Therefore, the only reliable evidence of the parties’ intent remains the Agreement itself. Accordingly, HSA retained the discretion to decide, even after the contract was signed, whether or not to formally enter into relationships with the 18 customers.
The Court notes, however, that the clear language of the contract does nothing to alter the fact that HSA still owes the Trustee whatever fees it derived from those mortgage lending relationships into which it did enter.
The defendant’s motion for summary judgment on the contract claim is therefore denied on the argument that it is void, but granted on the basis that HSA did not breach the contract. Consequently, the plaintiffs motion for summary judgment on this issue is denied.
AVOIDANCE
(2nd Claim for Relief)
Under an avoidance action, 11 U.S.C. § 549(a), the Trustee can “avoid a transfer of property of the estate — (1) that occurs after the commencement of the case; and (2)(A) that is authorized only under section 303(f) or 542(c) of this title; or (B) that is not authorized under this title or by the court.” Defendant HSA’s argument for summary judgment on the Trustee’s avoidance claim relies on the expiration of section 549’s statute of limitations. Section 549(d) states that an avoidance claim is not valid if it is commenced later than two years after the date of the transfer to be avoided or after the time the case is closed or dismissed, whichever is earlier. 11 U.S.C. § 549(d). In special circumstances of excusable ignorance or if the defendant’s wrongful conduct prevents a timely filing, the statute of limitations *301may be equitably tolled. In re Olsen, 36 F.3d 71, 73 (9th Cir.1994). The Trustee has the burden of proving reasonable diligence. In re Lyons, 130 B.R. 272, 280 (Bankr.N.D.Ill.1991). “One who fails to act diligently cannot invoke equitable principles to excuse that lack of diligence.” Baldwin County Welcome Ctr. v. Brown, 466 U.S. 147, 151, 104 S.Ct. 1723, 80 L.Ed.2d 196 (1984).
The transfer sought to be avoided, the selling of the customer list, occurred on October 1, 1999. The complaint in this case, alleging avoidance among other claims, was filed on March 12, 2002 — over two years after the Agreement occurred. Thus, the Trustee’s avoidance claim is barred by section 549(d). Because the 2-year statute of limitations period has clearly passed, the only issue on summary judgment is whether the limitations period should be equitably tolled.
The Trustee only discovered the Agreement in late 2001. As reasons to toll the statute of limitations, the Trustee argues that the Agreement was not mentioned during the 341(a) meeting, and that there had never been any payments made under the Agreement to put the Trustee on notice of the relationship between HSA and LCF. Furthermore, although the Trustee had the records of the estate to review, the Trustee says that the fact that there were about 400 boxes of documents prevented her from discovering the Agreement within the two year state of limitations. The Trustee also disputes the fact that HSA has ever contacted the Trustee. By failing to contact the Trustee when HSA had gained possession of the customer list, the estates most valuable asset, the Trustee asserts that HSA affirmatively defrauded the bankruptcy proceedings and the Trustee. Based on these grounds, the Trustee contends that her avoidance claim should be deemed timely.
The Trustee has provided no evidence that HSA affirmatively hid the claim. The Trustee argues that her avoidance claim should be allowed because Defendant deceived the Trustee and the bankruptcy proceedings by failing to disclose its acquisition of the customer list. However, the only fact the Trustee alleges is that HSA never contacted the Trustee and simply kept LCF’s customer list. Even resolving all disputed facts in favor of the Trustee and drawing all inferences in her favor, these are insufficient facts to demonstrate that HSA covered up this transfer from the Trustee. The Trustee would have the burden of proof at trial on the equitable tolling issue, and these facts do not show that the wrongful conduct of the defendant caused the delay.
Neither has the Trustee stated sufficient facts to show excusable neglect in failing to discover the Agreement and to file her claim within the statute of limitations. The undisputed evidence is that the Trustee had multiple opportunities to discover her claim. The parties were arguing over the value of the Asset Purchase Agreement as part of the creditor’s motion to appoint a trustee (See Exhibit B, p. 5 and Exhibit C, p. 17 to Defendant’s Request for Judicial Notice), and thus, the Trustee had notice of HSA and LCF’s relationship. (See Docket No. 78, Reply to Objection filed by Banc One Capital Partners, p. 2). The Trustee had sufficient time, through conducting the 341(a) meeting, reviewing the court docket, and hiring a field representative to uncover this contract. Failing to discover the Agreement under these circumstances does not rise to the level of excusable neglect contemplated by the special circumstances required to waive a statute of limitations. Therefore, the Trustee’s avoidance claim must fail because the statute of limitations has expired and the Trustee has not met her *302burden of proof to justify equitably tolling the limitations period.
Regardless of the outcome on the Trustee’s motion for adverse inference and/or spoliation, the statute of limitations period has passed and should not be equitably tolled. None of the evidence sought by the Trustee in the adverse inference and/or spoliation motion is alleged to show that HSA did anything to prevent the discovery and filing of the Trustee’s claims against HSA. Evidence that could be obtained from the credit committee meeting minutes is most pertinent to the issue of whether or not HSA attempted to enter into relationships with all 18 preselected customers. Yet, even so, as discussed in the breach of contract section, credit committee meeting minutes would not reflect communicated ideas. Furthermore, credit committee meeting minutes, source accounting data, and credit recommendations, even if proven to have been concealed from the Trustee, do not warrant tolling the statute of limitations because the Trustee sought these documents after their claim had already been discovered. Only if the defendant’s wrongful conduct actually prevented the plaintiff from timely filing a claim will the statute of limitations be tolled. While these documents might be relevant to proving damages, they fail to justify equitable tolling.
The Defendant’s motion for summary judgment on the Trustee’s claim for avoidance is granted.
TURNOVER
(3rd Claim for Relief)
In the turnover claim, the Trustee seeks the return of the customer list as well as payment of the debt owed to LCF under the Agreement. “[A]n entity that owes a debt that is property of the estate and that is matured, payable on demand, or payable on order, shall pay such debt to, or on the order of, the trustee.” 11 U.S.C. § 542. HSA’s first argument for summary judgment on the Trustee’s turnover claim is that the claim is time-barred. Section 542 has the same two-year statute of limitations as the § 549 avoidance claim. Smith v. Mark Twain National Bank, 805 F.2d 278, 292 (8th Cir.1986).
For the same reasons regarding the second claim for relief based on avoidance, the Trustee’s turnover claim is time-barred because it was brought outside the allowable statute of limitations. Defendant HSA did not hide evidence of the Agreement, and the Trustee had an adequate opportunity to discover the Agreement. Furthermore, similar to the Court’s determination on the avoidance claim, and based on identical grounds, the statute of limitations will not be tolled by the forthcoming judgment on the Trustee’s motion for adverse inference and/or spoliation.
Defendant’s motion for summary judgment on the Trustee’s turnover claim is granted.
FRAUD
(4th Claim for Relief)
In a claim for fraud, the plaintiff must prove the following:
(1) Defendant made representations;
(2) At the time of making the representations, defendant knew they were false;
(3) Defendant made representations with the intent and purpose of deceiving the plaintiff;
(4) The plaintiff justifiably relied on the defendant’s representations; and
(5) The plaintiff sustained a loss and damage as a proximate cause of the defendant’s representations.
*303See Molko v. Holy Spirit Assn., 46 Cal.3d 1092, 1108, 252 Cal.Rptr. 122, 762 P.2d 46 (1988); Prosser & Keeton on Torts § 105, at 728 (5th ed.1984).
The Court’s ruling on the breach of contract claim disposes of the Trustee’s arguments that the Agreement, and also California law of implied good faith and fair dealing, required HSA to enter relationships with all 18 customers after selecting from the larger group of 41 LCF customers. Because the language of the contract indicates that HSA had sole discretion and was under no obligation to fund all or any of the 18 LCF customers, HSA did not make any false representation in section 3.4 of the Agreement. Furthermore, LCF has no basis to claim justifiable reliance on a representation that HSA would enter into and continue funding loans to all 18 customers until September 2009.
To the extent that the Trustee argues that Trevino’s representation that he intended to pursue the 18 customer relationships was fraudulent, the provisions of the contract itself make this theory untenable. As Judge Carter noted in Baymiller v. Guarantee Mutual Life Co., 2000 WL 33774562 (C.D.Cal.2000), “there cannot be reasonable reliance upon misrepresentations or a failure to disclose that are contradicted by the express language of the ... contract.” While Lau may have relied on the intention expressed by Trevino to pursue the relationships, that reliance was not justified in light of the contractual provisions giving HSA such broad discretion.
Although the fraud claim may not proceed based on the theory that the representations in section 3.4 of the contract were fraudulent, the Trustee argues in her adverse inference and/or spoliation motion that HSA concocted the deal with LCF with the intention of eliminating LCF as a competitor and frustrating LCF’s reorganization effort. She argues that this is a possibility in light of the fact that HSA failed to enter relationships with 14 of the 18 customers on the preselected list and has thus far failed to return the asset. Additionally, the Trustee notes that HSA has not produced its minutes and other documents pertaining to its decision whether or not to create the 18 relationships, even though document requests have been made and Mr. Trevino testified that he recommended relationships with all 18 customers to the credit committee.
Because all reasonable inferences must be drawn in favor of the Trustee in this motion, the one theory that the Trustee may pursue is the allegation in the fourth claim for relief that defendant’s actions in pursuing the agreement was in itself fraudulent because it was a secret plan to eliminate a competitor. There are sufficient disputed facts and inferences that this allegation must be left for the trier of fact, at least until the Trustee’s spoliation motion is decided.
Because the Trustee has raised sufficient facts to raise the question, the motion for summary judgment on the Trustee’s fraud claim is denied without prejudice, to renew at a later date.
CONVERSION
(5th Claim for Relief)
“Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiffs ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages.” Farmers Insurance Exchange v. Zerin, 53 Cal.App.4th 445, 451, 61 Cal.Rptr.2d 707 (1997) (internal citations omitted). “Money cannot be *304the subject of conversion unless a specific, identifiable sum, is involved.” 5 Witkin, Summary of California Law, Torts, § 614 (9th ed.2004); see also Zerin, 53 Cal. App.4th at 452, 61 Cal.Rptr.2d 707. “A mere claim of ownership or a statement of intention to interfere with the property under an asserted right will not of itself amount to a conversion.” 5 Witkin, Summary of California Law, Torts, § 615 (9th ed.2004).
On December 2, 2004 when the Court heard oral arguments on the parties’ cross-motions for summary judgment, the Court requested supplemental briefing on the issue of the “election of remedies” doctrine. “The doctrine of election of remedies acts as a bar precluding a plaintiff from seeking an inconsistent remedy as the result of his previous conduct or election.” Roam v. Koop, 41 Cal.App.3d 1035, 1039, 116 Cal.Rptr. 539 (1974); see Haphey v. Linn County, 924 F.2d 1512 (9th Cir.1991).
In this case, the Court finds that the “election of remedies” doctrine is inapplicable. Although the Trustee’s request for recovery on both its breach of contract and conversion claims is certainly inconsistent, LCF has not taken action in a way that demonstrates it has chosen one remedy over the other. Here, plaintiff has requested summary judgment on both its breach of contract and conversion claims, a contract and tort claim respectively, but has not taken any action outside this motion. There has been no previous conduct or election and thus, the election of remedies doctrine would not apply to preclude the Trustee from pursuing either her breach of contract or conversion claim.
Nonetheless, the Court recognizes that “inconsistent verdicts ai-e ‘against the law.’ ” Shaw v. Hughes Aircraft Co., 83 Cal.App.4th 1336, 1344, 100 Cal.Rptr.2d 446 (2000) (citing Morris v. McCauley’s Quality Transmission Service, 60 Cal.App.3d 964, 970, 132 Cal.Rptr. 37 (1976)). The Court, having already determined that a contract existed between HSA and LCF, finds that the plaintiffs conversion claim must necessarily fail. “Conversion is the wrongful exercise of dominion over the property of another. The elements of a conversion are the plaintiffs ownership or right to possession of the property at the time of the conversion; the defendant’s conversion by a wrongful act or disposition of property rights; and damages.” Farmers Insurance Exchange v. Zerin, 53 Cal.App.4th 445, 451, 61 Cal.Rptr.2d 707 (1997) (internal citations omitted). A transfer that is voluntary is not wrongful because a voluntary transfer is consensual and thus, is not wrongful. Through the Agreement, “LAU agreed to sell, and HSA agreed to purchase, LAU’s customer lists and relationships” (Complaint, ¶ 17). “[A] mere contractual right to payment, without more, does not entitle the obligee to the immediate possession necessary to establish a cause of action for the tort of conversion.” In re Bailey, 197 F.3d 997, 1000 (9th Cir.1999); In re Cruz, 198 B.R. 330, 333 (S.D.Cal.1996); Klett v. Security Acceptance Co., 38 Cal.2d 770, 789, 242 P.2d 873 (1952).
In this case, defendant HSA received possession of the customer list lawfully, and the only obligation that remains outstanding is payment according to the contract. HSA has not yet paid LCF for the four customers to which it extended loans because of the disagreement between HSA and LCF as to how much HSA owes. Conversion, however, is not the appropriate claim to collect on the outstanding amount due to LCF, as HSA’s possession of the customer list was not wrongful.
The defendant’s motion for summary judgment on the conversion claim is grant*305ed. It follows that the plaintiffs motion for summary judgment on the same issue is denied.
GOODS SOLD AND DELIVERED; DECLARATORY RELIEF; WASTE; AND SPECIAL RELIEF (6th — 9th Claims for Relie©
On each of these claims, HSA argues that summary judgment is warranted because each claim is based on an erroneous reading of the Agreement that HSA was obligated to fund a specific number of loans to all 18 customers until September 2009.
HSA, as the moving party needs to demonstrate that no material issues of fact remain on each element of each claim. Although the Court’s finding for HSA on the contract claim may in fact undermine the Trustee’s recovery on claims six through nine, it is not clear to the Court from HSA’s moving papers that this is the case. HSA has failed to meet its burden.
While the Trustee’s arguments regarding damages based on her interpretation of section 3.4 of the contract must fail, any damages arising out of a more limited reading of the contract are still at issue. The factual issues concerning what HSA actually derived from this contract appear to be in dispute, thus precluding summary judgment on these claims, at this time.
The defendant’s motion for summary judgment on claims six through nine are denied without prejudice.
SUMMARY ADJUDICATION ON TRUSTEE’S REQUEST FOR LOST PROFITS
With respect to each of the nine claims in the Trustee’s complaint, the Trustee seeks lost profits. Defendant HSA requests summary adjudication in its favor because it alleges that there is no “substantial controversy” regarding the fact that the Trustee cannot establish her claim to lost profits. The Court does find that the Agreement did not require HSA to fund a minimum number of loans for any particular amount of time to all 18 LCF customers until September 2009. Much of the Trustee’s damages evidence will need to be revised in light of this finding, but it is not clear at this stage that they are completely eliminated.
HSA also argues that the Trustee may not recover lost profits because the profit calculation would be too speculative. “No damages can be recovered for a breach of contract which are not clearly ascertainable in both their nature and origin.” Cal.Civ.Code 3301; Continental Car-Na-Var Corp. v. Moseley, 24 Cal.2d 104, 113, 148 P.2d 9 (1944); California Shoppers, Inc. v. Royal Globe Ins. Co., 175 Cal.App.3d 1, 62, 221 Cal.Rptr. 171 (1985); Vestar Development II, LLC v. General Dynamics Corp., 249 F.3d 958, 961-62 (9th Cir.2001).
While the Trustee’s claims for lost profits damages are, in part, speculative, “[w]here the fact of damages is certain, ... the amount of damages need not be calculated with absolute certainty .... The law requires only that some reasonable basis of computation be used, and the result reached can be a reasonable approximation.” Acree v. General Motors Acceptance Corporation, 92 Cal.App.4th 385, 398, 112 Cal.Rptr.2d 99 (2001). Summary judgment should not be granted on this issue because the fact-finder should determine the reasonableness of the expert opinions submitted. Arntz Contracting Co. v. St. Paul Fire & Marine Ins. Co., 47 Cal.App.4th 464, 489-90, 54 Cal.Rptr.2d 888 (1996). The Trustee has raised sufficient issues of material fact that summary judgment on this issue is premature.
Summary judgment on the profits issue is denied without prejudice, to renew7 once the spoliation motion and any further prof*306its or damages analysis is done in light of the Court’s findings on other issues.
CONCLUSION
For the foregoing reasons, the Court rules on the parties’ motions for summary judgment and summary adjudication in the following manner:
Claim 1: HSA’s motion for summary judgment on the Trustee’s breach of contract claim is granted in part and denied in part. The Trustee’s motion for summary judgment on this issue is denied.
Claim 2: HSA’s motion for summary judgment on the Trustee’s avoidance claim is granted.
Claim 3: HSA’s motion for summary judgment on the Trustee’s turnover claim is granted.
Claim k- HSA’s motion for summary judgment on the Trustee’s fraud claim is denied without prejudice.
Claim 5: HSA’s motion for summary judgment on the Trustee’s conversion claim is granted. The Trustee’s motion for summary judgment on this issue is therefore denied.
Claim 6: HSA’s motion for summary judgment on the Trustee’s goods sold and delivered claim is denied without prejudice.
Claim 7: HSA’s motion for summary judgment on the Trustee’s declaratory relief claim is denied without prejudice.
Claim 8: HSA’s motion for summary judgment on the Trustee’s waste claim is denied without prejudice.
Claim 9: HSA’s motion for summary judgment on the Trustee’s special relief claim is denied without prejudice.
Lost Profits: HSA’s motion for summary adjudication on the Trustee’s claim for lost profits is denied without prejudice.
An appropriate order will issue.
. This case is assigned to Judge Smith. Solely the cross-motions for summary judgment were transferred to this court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493724/ | ORDER
RICHARD D. TAYLOR, Bankruptcy Judge.
Before the Court is separate defendant J.M. Capital Finance, Ltd.’s [J.M. Capital] motion for summary judgment or, in the alternative, motion for reconsideration filed on November 29, 2004. Also before the Court is the plaintiffs’ response to J.M. *517Capital’s motion for summary judgment and their cross motion for summary judgment filed on January 3, 2005.
This Court has jurisdiction over this matter under 28 U.S.C. § 1384 and 28 U.S.C. § 157, and it is a core proceeding under 28 U.S.C. § 157(b)(2)(A)(B)(K) and (0). For the reasons stated below, the Court denies J.M. Capital’s motion for summary judgment and motion for reconsideration and the plaintiffs’ cross motion for summary judgment.
The plaintiffs, Leesa Bunch and McMasker Enterprises, Inc., filed their complaint on August 6, 2004. In the complaint, the plaintiffs ask the Court to (1) reconsider the liens granted as adequate protection to J.M. Capital as a result of this Court’s cash collateral order entered in the main case on November 21, 2001 [the Cash Collateral Order], (2) disallow the claim of J.M. Capital, or reclassify the claim of J.M. Capital from debt to equity (capital contribution), (3) find that J.M. Capital engaged in usurious lending practices in the State of Arkansas, (4) disallow the claim of Arrowhead Insurance Co. [Arrowhead], or reclassify the claim of Arrowhead from debt to equity, (5) in the alternative, offset the claim of Arrowhead against any excess premium redundancy that enures to the debtor’s benefit, and/or (6) equitably subordinate the claims and liens of J.M. Capital and Arrowhead to the claims and liens of the plaintiffs and all other creditors of the debtor.
On August 18, 2004, J.M. Capital responded by filing a motion to dismiss. The gravamen of J.M. Capital’s motion related to Federal Rule of Bankruptcy Procedure 9024, which incorporates Federal Rule of Civil Procedure 60. According to J.M. Capital, the plaintiffs did not bring their adversary proceeding seeking reconsideration of the November 21, 2001, Cash Collateral Order within the one year time limit allowed by the rule. Further, to the extent the one year time limitation did not apply, the plaintiffs did not seek reconsideration within a reasonable time as required by the rule. On September 30, 2004, the Court heard J.M. Capital’s motion to dismiss, after which the Court made specific findings on the record (which will be discussed below) and denied J.M. Capital’s motion.
On November 29, 2004, J.M. Capital filed its motion for summary judgment. In its motion, J.M. Capital argues that the November 21, 2001, Cash Collateral Order is a final order from which the plaintiffs did not appeal. Included in that order and the Agreement For PosNPetition Financing and For Use of Cash Collateral [Agreement] was a 90 day period of time during which the debtor could have asserted or otherwise pursued “any and all defenses, affirmative defenses, counterclaims, claims, causes of action, rights of set-off the Debtor may have against JM [Capital] or any other objections to the claims or liens of JM [Capital], whether pre-petition or post-petition ... (the MM Causes of Action’).” At the conclusion of that 90 day period, if the debtor failed to assert or pursue an action against J.M. Capital, “the Creditor’s Committee or other party in interest may assert or otherwise pursue the JM Causes of Action within one hundred twenty (120) days following the entry of the final order ... granting the Motion and approving the use of cash collateral pursuant to this Agreement.” The plaintiffs did not assert or otherwise pursue the “JM Causes of Action” and, according to J.M. Capital, are now barred by the doctrine of res judicath from litigating the claims and liens. J.M. Capital also again argues that Federal Rule of Bankruptcy Procedure 9024 places a one year limitation on reconsideration of a final order based on fraud between the parties or *518newly discovered evidence, and that there was no allegation by the plaintiffs of bribery of a judge or manufacture of evidence to allow the unrestricted reconsideration of the order based upon fraud on the court. Finally, it relies on the doctrine of latches to counter the plaintiffs’ alleged delay in bringing this action.
On January 3, 2005, the plaintiffs responded to J.M. Capital’s motion for summary judgment and included in their response a cross motion for summary judgment. In their cross motion, the plaintiffs argue, inter alia, that the J.M. Capital claim should be equitably subordinated to the general unsecured claims or reclassified from debt to equity. They also suggest that J.M. Capital’s claim should be disallowed for failure to attach supporting documentation, and to the extent its proof of claim is overstated.
Summary Judgment
Federal Rule of Bankruptcy Procedure 7056 provides that Federal Rule of Civil Procedure 56 applies in adversary proceedings. Rule 56 states that summary judgment shall be rendered “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.” Fed. R.Civ.P. 56(e). The burden is on the mov-ant to establish the absence of material fact and identify portions of pleadings, depositions, answers to interrogatories, admissions on file, and affidavits that demonstrate the absence of a genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The burden then shifts to the non-moving party, who must then “go beyond the pleadings” and by his or her own affidavits, depositions, answers to interrogatories, and/or admissions on file, designate specific facts to demonstrate that there is a genuine issue for trial. Id. at 324, 106 S.Ct. 2548. When ruling on a summary judgment motion, the Court must view the facts in the light most favorable to the non-moving party and allow that party the benefit of all reasonable inferences to be drawn from the evidence. Ferguson v. Cape Girardeau Cty., 88 F.3d 647, 650 (8th Cir.1996).
Res Judicata
J.M. Capital asserts that this Court’s November 21, 2001, Cash Collateral Order requires summary judgment on the basis of res judicata. The elements of res judicata are clear in the Eighth Circuit:
In applying the Eighth Circuit test for whether the doctrine of res judicata bars litigation of a claim, we examine whether (1) a court of competent jurisdiction rendered the prior judgment, (2) the prior judgment was a final judgment on the merits, and (3) both cases involve the same cause of action and the same parties.
Canady v. Allstate Ins. Co., 282 F.3d 1005, 1014 (8th Cir.2002).
Because the prior judgment referred to by J.M. Capital was entered by this Court, there is no dispute that the first element is met.1 The parties disagree that the prior judgment was a final judgment on the merits regardless of its caption: Final Order Authorizing Debtor to Use Cash Collateral and Obtain Posfi-Petition Secured Credit. However, even assuming that it is a final judgment on the merits (although the Court is not making a finding in this *519regard), the third element cannot be met. The term “cause of action” has evolved in the context of res judicata. In Ruple v. City of Vermillion, S.D., the Eighth Circuit Court of Appeals stated that,
the phrase “cause of action,” or “claim,” the term now favored by most courts, has been given a more practical construction. It is now said, in general, that if a case arises out of the same nucleus of operative fact, or is based upon the same factual predicate, as a former action, that the two cases are really the same “claim” or “cause of action” for purposes of res judicata.
Ruple v. City of Vermillion, S.D., 714 F.2d 860, 861 (8th Cir.1983).
The third element of res judicata requires that both cases involve the same cause of action and the same parties. The factual predicate of the cash collateral hearing involved determining whether, and under what conditions, the debtor could use cash collateral. The order contained a provision preserving the debtor’s rights to explore and pursue certain causes of action. To the extent the plaintiffs are now attempting to assert or pursue the debtor’s defenses, claims, or causes of action against J.M. Capital, they may be barred. Only a final decision after the trial of this adversary proceeding will clarify that issue. However, the adversary proceeding now before the Court does involve in principal part Leesa Bunch’s and McMasker Enterprises, Inc.’s claims and causes of actions against J.M. Capital, not the debt- or’s.
Applying res judicata in this instance would be inconsistent with the Eighth Circuit’s definition of cause of action or claim. This requires that the issues before each court, or the same court in two separate proceedings, arise out of the same nucleus of operative facts or the same factual predicates.
The principal purpose of a cash collateral hearing is to afford the debtor an opportunity to continue operations post-petition using cash collateral that it otherwise could not use absent court permission. These are almost plenary hearings generally held immediately post-petition.2 The principle issues relate to the debtor’s need to use the cash collateral and its ability to offer adequate protection as required by the code. These hearings occur well before other parties are fully educated and engaged in the case. Often, no discovery has taken place and the parties’ efforts are driven by the principle issues being the debtor’s survivability and use of cash collateral. Generally, language preserving certain debtor defenses are negotiated by the parties or inserted at the court’s insistence based on a clear recognition that at this early stage the parties are not in a position to understand fully the financing relationships involved and conduct full and suitable inquiry. Quite simply, the parties at a cash collateral hearing are not examining the history of the credit, the full relationship of the parties, or even, as now, whether, in fact, the credit in question was ever extended. The focus is on the debt- or’s need for the collateral with respect to its survivability. Neither Bunch or any other creditor at that hearing was armed with complete discovery or otherwise prepared for a full trial on the merits of the issues now before the Court.
*520At the cash collateral hearing, the only-issue before the Court relating to J.M. Capital was the debtor’s motion to use J.M. Capital’s cash collateral in exchange for a superpriority administrative expense claim. That motion was granted. Included in the order was language that granted parties in interest 30 days after the conclusion of a 90 day “exclusivity” period “to assert or otherwise pursue any and all defenses, affirmative defenses, counterclaims, claims, causes of action, rights of set-off the Debtor may have against JM [Capital] or any other objections to the claims or liens of JM [Capital], whether pre-petition or post-petition .... ” These defenses, claims, and causes of actions were referred to as the “JM Causes of Action.” The JM Causes of Action were the defenses, claims, and causes of actions that the debtor may have had against J.M. Capital. In the absence of the debtor asserting or pursuing the JM Causes of Action, a party in interest could then assert or pursue the debtor’s defenses, claims, and causes of action against J.M. Capital. Again, only a trial on the merits will clarify this issue.
Further, as the Court noted at the hearing on J.M. Capital’s motion to dismiss, J.M. Capital did not even file its proof of claim until after the 120 day period had expired. Even if the plaintiffs had wanted to object to J.M. Capital’s claim within the 120 day period mentioned in the November 21, 2001, Cash Collateral Order, they were not able to do so until after the limitations period had run. Without the claim, the present adversary proceeding and the earlier cash collateral hearing could not have been based on the same factual predicate. Accordingly, res judica-ta is not appropriate in this instance.
Federal Rule of Bankruptcy Procedure 9024
J.M. Capital also raises Federal Rule of Bankruptcy Procedure 9024, which incorporates Federal Rule of Civil Procedure 60, as a basis for its motion for summary judgment. J.M. Capital once again relies on Rule 60 in its argument that any pleading to reconsider this Court’s November 21, 2001, Cash Collateral Order should have been brought within one year from the entry of that order. The Court addressed this argument at the hearing on J.M. Capital’s motion to dismiss. The Court made it clear that at least two provisions of Rule 9024 (incorporating Rule 60) relate to this adversary proceeding. First, Federal Rule of Civil Procedure 60(b)(6) allows a court to issue relief from an order for “any other reason justifying relief from the operation of the judgment,” which must be brought within a reasonable time. The Court found specifically that the adversary proceeding was filed within a reasonable time and stated that “the complaint, taken at its face, which this Court must do and read it in a light most favorable to the initiating party, does state reasons that, if proven, would justify relief from the operation of the judgment.”
Second, additional language contained in Rule 60 states that “[t]his rule does not limit the power of a court to entertain an independent action to relieve a party from a judgment, order, or proceeding, ... or to set aside a judgment for fraud on the court.” Fed.R.Civ.P. 60(b). The Court stated that “[t]he pleadings, if taken again at face value, would suggest a fraud on the Court for which there would be serious ramifications ... for the filing of a false proof of claim.” J.M. Capital argues in its motion for summary judgment that the plaintiffs did not raise any allegations of bribery or manufacturing of evidence — -two examples of fraud on the court — in their complaint. However, Federal Rule of Civil Procedure 60 recognizes specifically that *521a court can entertain an independent action to investigate fraud on the court without reliance on what the plaintiffs did, or did not, raise in their complaint. See 11 U.S.C. § 105.
Further, if the facts alleged in the complaint are true, then the evidence may demonstrate that credit had not been extended as was represented and suggested by the debtor and J.M. Capital at the cash collateral hearing. In that event, it would be clear that the supporting evidence, including testimony, was indeed manufactured and would constitute a serious fraud on the Court that could warrant, depending on the facts and law, substantial civil and criminal penalties, including disgorgement of legal fees.
The Court also addressed two other provisions that would allow it to hear this adversary proceeding. First, to the extent that J.M. Capital’s claim is an allowed claim (but not making a finding that it is an allowed claim), Federal Rule of Bankruptcy Procedure 3008 allows a party in interest to move the Court to reconsider an order allowing a claim, which the plaintiffs have done. Second, the code gives the Court the right to reconsider a claim for cause, and allow or disallow the claim according to the equities of the case. 11 U.S.C. § 502(j). At the hearing on J.M. Capital’s motion to dismiss, the Court found that “the equities of the case would dictate a reconsideration, and that cause does exist based upon the language stated [in the complaint] .... ”
Equitable Subordination
To the extent J.M. Capital has an allowed claim, the plaintiffs have moved the Court to reclassify the claim from debt to equity, or subordinate that claim based on the principles of equitable subordination. J.M. Capital stated in its motion for summary judgment that “on the merits Plaintiffs’ claims for reclassification or equitable subordination fail as a matter of law.” J.M. Capital then lists a series of actions that it states the plaintiffs “cannot show”: (1) “that JM Capital, in its arms-length transaction with HI [Hoffinger Industries, Inc.], engaged in any inequitable misconduct”; (2) “that they [the plaintiffs] were damaged as a result of JM Capital’s loan to a highly-solvent HI”; and (3) “that reasonable people would believe the HI and JM Capital transaction to be anything less than a true loan transaction, or that it was done with the intent to defraud Bunch.”
According to the Eighth Circuit, reclassification of a loan is a mixed question of fact and law. J.S. Biritz Const. Co. v. Commissioner of Internal Revenue, 387 F.2d 451, 455 (1967)(“The factual question is intertwined with the applicable principles of law that should be accorded recognition in making the factual determination.”). Similarly, in discussing equitable subordination, the United States Supreme Court recognized that a court can make exceptions to the general priority rules established by Congress when justified by particular facts. United States v. Noland, 517 U.S. 535, 540, 116 S.Ct. 1524, 134 L.Ed.2d 748 (1996). In this instance, summary judgment with regard to reclassification and equitable subordination cannot be granted as a matter of law as suggested by J.M. Capital.
Plaintiffs’ Cross Motion For Summary Judgment
The plaintiffs make four separate arguments in their cross motion for summary judgment relating to the J.M. Capital claim: the claim should be (1) equitably subordinated to a general unsecured claim, (2) reclassified from debt to equity, (3) disallowed for failure to attach supporting documentation, and (4) disallowed to the extent its proof of claim is overstated. As stated above, summary judgment is appro*522priate when there is no genuine issue as to any material fact. Reclassification and equitable subordination turn on facts, the substance of which are disputed by both parties. Equally, the sufficiency and accuracy of J.M. Capital’s proof of claim involves questions of fact and law for which the Court will need to hear evidence. Each one of the plaintiffs’ arguments for summary judgment are fact-based, and summary judgment is not appropriate.
For the reasons stated above, J.M. Capital’s motion for summary judgment and motion for reconsideration and the plaintiffs’ cross motion for summary judgment are denied.
IT IS SO ORDERED.
. The November 21, 2001, Cash Collateral Order was entered in the main case by the Honorable James G. Mixon. An order of re-cusal was entered on November 25, 2003, and the main case was transferred to the Honorable Richard D. Taylor on that date.
. The main case was filed on September 13, 2001. The debtor’s application to use cash collateral was filed on October 10, 2001. An interim order allowing the use of cash collateral was entered on October 11, 2001. The hearing on the final order allowing the use of cash collateral was held on November 2, 2001, which resulted in the November 21, 2001, Cash Collateral Order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493726/ | MEMORANDUM OPINION AND ORDER IMPOSING SANCTIONS ON DEBTOR
A. BENJAMIN GOLDGAR, Bankruptcy Judge.
This matter is before the court on its own motion to enforce the provisions of its final pretrial order in an adversary proceeding against debtor Melanie Khan.
The adversary proceeding is currently set for trial on February 16, 2005. On December 8, 2004, when the trial date was set, the court entered a final pretrial or*711der. The final pretrial order required the parties on or before January 26, 2005, to exchange and file with the court a list of witnesses to be called, a list of exhibits to be introduced into evidence, and a marked set of the exhibits themselves. It also required the parties to file on or before February 9, 2005, a trial brief detailing what they believed the evidence would show, identifying the legal issues, and providing a thorough and complete argument with citations to legal authority supporting them contentions on the merits.
The final pretrial order made clear that sanctions “will follow” (not “might” follow or “could” follow) from a failure to comply with the order’s requirements, and it described some of those sanctions. It said:
a. Any exhibit not listed and exchanged in accordance with this Order will not be admitted into evidence. A party who fails to exchange and file the list of exhibits that this Order requires will be precluded from introducing any exhibits into evidence.
b. Any witness not identified and listed in accordance with this Order will be barred from testifying at trial. A party who fails to exchange and file with the court the list of witnesses that this Order requires will be barred from presenting any witnesses....
d. Failure to file a trial brief will bar a party from presenting any witnesses or introducing any evidence at trial.
(Final Pretrial Order dated December 8, 2004).
In compliance with the final pretrial order, plaintiffs George Michael and Susan Michael duly filed and served their exhibit and witness lists and their exhibits on January 26. They also filed their trial brief on February 9. Defendant Khan, on the other hand, did nothing. As of today, more than two weeks after the January 26 deadline, Khan still has filed no list of witnesses, no list of exhibits, and no exhibits. She has not filed a trial brief, either. Nor has Khan ever sought additional time to file these materials. It appears instead that Khan has chosen simply to ignore these critical parts of the final pretrial order (although for some reason she did sign the joint stipulation of facts the order requires).
This will not do. The court relies on the final pretrial order and the materials filed pursuant to it to be properly prepared for trial. More important, parties depend on the final pretrial order for their own trial preparation. They expect to know in advance the witnesses they will hear and the exhibits they will see. They expect to know, as well, the nature of the opposing legal theory and what authority (if any) supports that theory. And rightly so. Compliance with the pretrial order prevents the proverbial “trial by ambush” that the Federal Rules of Civil Procedure are designed in part to prevent. See Erskine v. Consolidated Rail Corp., 814 F.2d 266, 272 (6th Cir.1987).
Because a pretrial order is a critical tool for “narrowing the issues and expediting the trial,” In re Maurice, 21 F.3d 767, 773 (7th Cir.1994), failure to comply with the court’s final pretrial order is sanctionable under Rule 16(f). See Fed. R.Civ.P. 16(f) (made applicable by Fed. R. Bankr.P. 7016). Federal trial courts have broad (though not limitless) discretion in choosing a suitable sanction for a party’s violation of a pretrial order. Hatton v. Spencer (In re Hatton), 204 B.R. 477, 486 (E.D.Va.1997); Schilling v. O’Bryan, 246 B.R. 271, 278 (Bankr.W.D.Ky.1999).
One available sanction is an order barring the offending party from offering evidence at trial. Rule 16(f) incorporates Rule 37(b)(2)(B), which permits an order “refusing to allow the disobedient party to *712support or oppose designated claims or defenses, or prohibiting that party from introducing designated matters in evidence.” Fed.R.Civ.P. 37(b)(2)(B). In Maurice, the court of appeals for this circuit approved just such a sanction, stating: “When one party fails to comply with a court’s pre-hearing order without justifiable excuse, thus frustrating the purposes of the pre-hearing order, the court is certainly within its authority to prohibit that party from introducing witnesses or evidence as a sanction.” Maurice, 21 F.3d at 773; see also Schechter v. McAniff (In re McAniff), 2004 WL 1630493, at *1 (Bankr.N.D.Ill.July 21, 2004) (imposing this sanction); Hartwick v. Craig (In re Craig), 2004 WL 1490427, at *2 (Bankr.N.D.Ill. June 29, 2004) (same); People ex rel. Ryan v. Monahan (In re Monahan), 2000 WL 527753, at *3-4 (Bankr.N.D.Ill. May 1, 2000) (same).
An order of this kind against Khan is entirely appropriate here. The final pretrial order made quite clear that the parties “must exchange and file” exhibits, “must exchange and file” a list of the exhibits, and “must exchange and file” a list of witnesses, all by January 26. It made clear that the parties “must file and serve a trial brief’ by February 9. There was no ambiguity whatever about the order. Yet despite its unambiguous requirements, Khan did not file what she had to file. As a consequence, neither the court nor the plaintiffs has the slightest idea what is coming at trial.
If it was Khan’s plan to lie in wait and then pounce on her unsuspecting opponents at trial next week, that plan must— and will — be foiled.
Accordingly, IT IS HEREBY ORDERED:
Debtor Melanie Khan is barred from calling any witnesses and introducing any exhibits at the trial in this matter set for February 16, 2005. The debtor’s participation at trial is limited to cross-examination and argument. See Smith v. Chicago School Reform Bd. of Trustees, 165 F.3d 1142, 1145 (7th Cir.1999). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493727/ | MEMORANDUM OF DECISION AND ORDER
Determining Matter to be Core Proceeding, Denying Defendant’s Motion to Transfer And Adjourning Pretrial Conference
COLLEEN A. BROWN, Bankruptcy Judge.
In her Complaint, Lisa Mayo (the “Plaintiff’) alleges that the her former employer, Union Bank, N.A. (“Union Bank”) discriminated against her, in violation of § 525(b) 1, when it terminated her position as branch manager based upon her repre*760sentation that she intended to file for bankruptcy relief (doc. # 1). On December 27, 2004, the Plaintiff moved for summary judgment (doc. # 31) on this ground as well as Union Bank’s allegedly discriminatory conduct in refusing to re-hire the Plaintiff after her bankruptcy filing. On January 18, 2005, Union Bank filed a Motion to Transfer to District Court (the “Motion to Transfer”) (doc. # 38), and on January 19, 2005, Union Bank filed a memorandum in opposition to the Plaintiffs motion for summary judgment (doc. # 40). The Plaintiff has objected to the Motion to Transfer and has filed a motion for determination that the instant adversary proceeding is a core proceeding (“Motion for Determination”)(does. ##42 and 43, respectively).
In light of the pending motion for summary judgment, the Court relieves the parties of the obligation to file a Joint Final Pre-Trial Statement by February 24, 2005 and cancels the Pre-Trial Conference currently scheduled for March 1, 2005. If a trial is necessary, the Court will set the due date for the Joint Final PreTrial Statement after ruling on the summary judgment motion, and hold a PreTrial Conference on April 5, 2005.
Within this memorandum of decision and order, the Court will address the Motion to Transfer and the Motion for Determination on the merits.
This Court has jurisdiction over the subject motions pursuant to 28 U.S.C. §§ 157(b)(3), 157(b)(2)(A), and 1334.
In the Motion to Transfer, Union Bank requests that this Court transfer the adversary proceeding to the District Court for a trial by jury (doc. # 38). Based upon Union Bank’s arguments, the Court will treat the Motion to Transfer as a motion to withdraw the reference under 28 U.S.C. § 157(d).
The jurisdiction of the bankruptcy court is set forth in 28 U.S.C. § 157. Bankruptcy proceedings are divided into two principal categories: “core” and “non-core.” 28 U.S.C. § 157 (2001); Luan Investment v. Franklin 115 Corp., et al. (In re Petrie Retail, Inc.), 304 F.3d 223, 228 (2d Cir.2002); United States Lines, Inc. v. Am. Steamship Owners Mut. Protection and Indem. Ass’n, Inc. (In re United States Lines, Inc.), 197 F.3d 631, 636 (2d Cir.1999). 28 U.S.C. § 157(d) provides: “The district court may withdraw, in whole or in part, any case or proceeding referred under this section, on its own motion or on timely motion of any party, for good cause shown.” (Emphasis added). Although the determination of whether to withdraw the reference rests with the district court, under 28 U.S.C. § 157(b)(3), the Bankruptcy Court should first determine whether a proceeding is core or non-core, an inquiry which affects whether the Bankruptcy Court ultimately may try the matter. In re Orion Pictures Corp., 4 F.3d 1095, 1101 (2d Cir.1993).
In core proceedings, the bankruptcy court has comprehensive power and may enter appropriate orders and judgments. 28 U.S.C. § 157(b)(1); S.G. Phillips Constrs., Inc. v. City of Burlington (In re S.G. Phillips Constrs., Inc.), 45 F.3d 702, 704 (2d Cir.1995). In proceedings which are non-core, but which otherwise relate to a bankruptcy case under title 11, “the bankruptcy judge shall submit proposed findings of fact and conclusions of law to the district court [.]” 28 U.S.C. § 157(c)(1). Even in a non-core proceeding, a bankruptcy judge may adjudicate pre-trial matters not requiring a final order or judgment reserved to a district court. 28 U.S.C. § 157(c)(1). In re Costello, No. 1:04MC51 (D. Ct. Vt. filed September 30, 2004) (holding that motion to withdraw reference is not ripe until the matter is *761ready for trial) (citing, In re CIS Corp., 172 B.R. 748, 764 (S.D.N.Y.1994)).
Because the Plaintiff seeks redress of allegedly discriminatory conduct that is actionable by the language of the Bankruptcy Code itself, the Court finds this adversary proceeding to be a core proceeding “arising under” title 11. See, e.g., In re Betty Owen Schools, Inc., 195 B.R. 28, 29 (Bankr.S.D.N.Y.1996); Bradley v. Barnes (In re Bradley), 989 F.2d 802, 804 (5th Cir.1993); Morrow v. Torrance Bank (In re Morrow), 189 B.R. 793, 796 (Bankr.C.D.Cal.1995); and Jacobs v. State of Oklahoma (In re Jacobs), 149 B.R. 983, 989 (Bankr.N.D.Okl.1993). Consequently, the Court has jurisdiction over this adversary proceeding.
Notwithstanding that a motion to withdraw the reference is properly filed with the district court, this Court recognizes that a motion for summary judgment is currently pending in the adversary proceeding, rendering the Motion to Transfer premature. See In re Costello, No. 1:04MC51 (D. Ct. Vt. filed September 30, 2004). Therefore, the Court denies Union Bank’s Motion to Transfer without prejudice.
Conclusion
For the reasons set forth above, the Court holds that this adversary proceeding is a core proceeding, determines that it has jurisdiction over this proceeding, and denies the motion to withdraw the reference.
Accordingly, IT IS HEREBY ORDERED that the Parties are excused from filing their Joint Pre-Trial statement until further order of the Court.
IT IS FURTHER ORDERED that the Status Conference currently scheduled for March 1, 2005 at 11:30 AM is adjourned until April 5, 2005 at 11:30 AM at the United States Post Office and Courthouse in Burlington, Vermont, if a pre-trial conference is deemed necessary. In any event, the Court will issue its memorandum of decision and order on the Plaintiffs Motion for Summary Judgment in the interim. Should a pre-trial conference be necessary, the Court will notify the Parties as to when their Joint Pre-Trial Statement should be filed.
SO ORDERED.
. Unless otherwise indicated, all statutory references are to the United States Bankruptcy Code. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493730/ | MEMORANDUM OPINION, FINDINGS OF FACT, AND CONCLUSIONS OF LAW
THOMAS S. UTSCHIG, Bankruptcy Judge.
The Court conducted the trial in this adversary proceeding on November 17, 2004. The plaintiff, Lerneda J. Blossfield, was represented by Maris Rushevics, while the debtors, Todd and Maria Blossfield, were represented by William G. Weiland. The plaintiff is the mother of the debtor, Todd Alan Blossfield. Mr. Blossfield and his wife, Maria, moved into the plaintiffs home in the early 1990s. At the time, the plaintiff had lived in the house for some forty years and raised her family on the property, a rural farmstead consisting of the house and approximately forty acres of land. There were no mortgages against the property at the time Todd and Maria moved into the house.
The plaintiff had worked in a nursing home for a number of years and had be*915come worried about what might happen to her home in the event she became incapacitated and was required to enter such a facility. She and Todd began discussing various options, including the transfer of the property into his name. According to the largely uncontroverted testimony, her goal was to maintain the home “in the family” and live on the premises as long as she possibly could. Ultimately, the parties visited a lawyer, who prepared a deed transferring title to Todd and Maria but which reserved a “life estate” in the property in favor of the plaintiff.
It is also uncontroverted that shortly after this deed was executed, Todd sought a loan from a local credit union in order to make certain renovations to the home. The lender was apparently concerned about the existence of the life estate, and according to Todd he was informed that the life estate would need to be removed in order for him to receive the financing. The principal disparity in the testimony of the parties revolves around whether Todd clearly sought his mother’s permission to eliminate the life estate. In his testimony he indicates that he believes he spoke with her “about” the subject, but she adamantly denies ever giving her consent or even discussing the matter.
Remarkably — and undoubtedly tragically for all involved — there is absolutely no written document which indicates that the plaintiff agreed to the termination of her life estate. According to Todd, he contacted the lawyer, who in turn simply took the prior deed, crossed out the language about the life estate, and refiled the document in the county records without ever obtaining the plaintiffs signature on the revised deed. This constitutes circumstantial evidence that the plaintiff was unaware of the destruction of her “life estate” in the property until much later.
Todd obtained a $40,000.00 loan to perform the remodeling of the home. A couple of years later, he and Maria obtained a second $40,000.00 loan; this one was largely used to consolidate some of the couple’s credit card debt, purchase a vehicle, and perform a few additional renovations to the house. Meanwhile, the relationship between the parties deteriorated (the testimony indicated that the primary tension was between the plaintiff and Maria). Ultimately, the plaintiff left the house. While there was some disagreement in the testimony about whether she was told to leave or whether all three of them agreed that she should, it is clear that she left and did not return.
The debtors thereafter obtained a third loan, again using the property as collateral, this time for $30,000.00. They indicated that a portion of this money was intended to “pay” the plaintiff for the house, but they both acknowledged that no payment was ever made and that they used the funds for their own purposes (admittedly, there was a small payment of under $1,500.00 for some damaged personal property, but there was no payment on the real estate itself). Todd and Maria subsequently divorced, and the property was sold during the divorce proceedings for an amount which approximated the outstanding liens on the property — all of which had been incurred by Todd and Maria after the termination of the plaintiffs life estate interest. The plaintiff subsequently sued Todd and Maria in state court (along with the attorney who prepared the deed) and obtained a consent judgment against Todd and Maria for $27,500.00.1 It is that judgment which is the subject of this adversary proceeding.
The plaintiffs complaint in this case broadly pleads that the obligation in *916question is nondischargeable under 11 U.S.C. § 523. Much of the focus of the pleadings was on allegations of fraud, but in the plaintiffs trial brief the plaintiff also specifically argued that the debt was non-dischargeable under 11 U.S.C. § 523(a)(6) as a debt “for willful and malicious injury” to the property of another. The evidence does not reflect an overt intention to defraud the plaintiff at the time the original deed was executed, and given the disparity in testimony over the removal of the life estate interest, it is unclear that Todd made any specific misrepresentations to his mother about his plans to use the home as collateral for a loan. However, the plaintiffs interest in the real estate was destroyed not by her action but by Todd’s efforts to mortgage the property. There is no indication from the record that he clearly obtained his mother’s consent to terminate the life estate, nor any written document to memorialize it. The question is whether his efforts represent a “willful and malicious” injury to the plaintiffs life estate interest.
In order for an injury to be “willful and malicious,” the debtor must have purposefully inflicted the injury or acted with substantial certainty that injury would result. In re Conte, 33 F.3d 303 (3rd Cir.1994). The term “willful” means that the act was deliberate or intentional. In re Costarella, 104 B.R. 465 (Bankr.M.D.Fla.1989). “Malicious” means an act done deliberately, knowingly, and without just cause or excuse. In re Lampi, 152 B.R. 543 (C.D.Ill.1993). The debtor clearly intended to terminate the life estate, and he took advantage of that termination to remove all of the equity from the home. The result was completely contrary to the plaintiffs stated desire to remain in the home as long as her health would permit. The termination and dissipation of her life estate interest were deliberate and knowing; the debtor clearly acted with substantial certainty that the loss of the life estate would result from his actions. Even the debtor’s own testimony fails to reflect that he clearly obtained his mother’s consent, but he proceeded nonetheless down a path that cost his mother the home she had lived in the better part of her life.
Therefore, the debtor’s obligation to the plaintiff is nondischargeable within the meaning of 11 U.S.C. § 523(a)(6). Given that there was insufficient evidence regarding the direct involvement of Maria Blossfleld in the initial effort to terminate the life estate, however, the plaintiff did not demonstrate that she acted in a similar “willful and malicious” manner. Therefore, the Court concludes that the $27,500.00 judgment debt is dischargeable as to her.
Accordingly, as to Maria Blossfleld, the obligation to the plaintiff is discharged. As to Todd Blossfleld, the $27,500.00 state court judgment is nondischargeable under 11 U.S.C. § 523(a)(6) as it constitutes a “willful and malicious injury” to the property interest of another.
This decision shall constitute findings of fact and conclusions of law pursuant to Bankruptcy Rule 7052 and Rule 52 of the Federal Rules of Civil Procedure.
. According to the testimony, the plaintiff set-tied with the attorney for $15,000.00. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493731/ | MEMORANDUM DECISION GRANTING THE MOTION OF FLEET CREDIT CARD SERVICES, L.P. FOR DEFAULT JUDGMENT
ELIZABETH S. STONG, Bankruptcy Judge.
Before the Court is the motion for default judgment (the “Motion”) of Fleet Credit Card Services, L.P. (“Fleet”) in the above-captioned adversary proceeding (the “Adversary Proceeding”). Fleet filed a complaint (the “Complaint”) commencing this Adversary Proceeding against the debtor, Rodrigo A. Macias (the “Defendant”), on April 26, 2004. The Complaint seeks a finding that certain credit card debt owed to Fleet by the Defendant is nondischargeable under 11 U.S.C. § 523(a)(2)(A), on grounds that the Defendant obtained the extension of credit through fraud, false pretenses, and false *185representations. Fleet also seeks a judgment in the amount of $5,339.53 plus interest, attorneys’ fees, and costs.
Pre-trial conferences in this Adversary Proceeding were held on June 14, 2004, and September 7, 2004, at which Fleet, by counsel, appeared and was heard. Fleet filed this Motion on August 13, 2004, and a hearing was held on this Motion on September 7, 2004 (the “Hearing”), at which Fleet, by counsel, appeared and was heard. The Defendant did not appear at the pretrial conferences, respond to the Complaint, or oppose the Motion. After consideration of the record and the relevant factors, the Motion is granted as set forth below.
Jurisdiction
The Court has jurisdiction to hear this Adversary Proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(I). The following are the Court’s findings of fact and conclusions of law under Rule 52 of the Federal Rules of Civil Procedure, as made applicable herein by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Background
The Defendant filed a petition (the “Petition”) for relief under Chapter 7 of Title 11 of the United States Code (the “Bankruptcy Code”) on January 29, 2004 (the “Petition Date”). The Petition shows that the Defendant has a monthly income from unemployment benefits of $1,580, and monthly expenses of $1,866. Petition, Schedules I and J. The Petition also shows that the Defendant had an annual income of $55,000 in 2001, $59,000 in 2002, and income of $40,000 in 2003 until he became unemployed. Statement of Financial Affairs, Item 1. The Defendant lists $39,900, in unsecured nonpriority debt, of which $9,500 is owed to Fleet in connection with the account at issue. Petition, Schedule F.
Fleet asserts, and the record reflects, that in fourteen days, between November 13, 2003, and November 26, 2003, the Defendant made seventeen charges on his account. Complaint, ¶ 9. These charges include credit card charges on November 13, 2003, at Dry Harbor Service Station in the amount of $577.83 and Modell’s in the amount of $33.85; on November 14, 2003, at P.C. Richard and Son in the amount of $195.49, Ah Chihuahua Restaurant in the amount of $26, and Thomas A. Law, M.D., in the amount of $1,000; on November 17, 2003, at CVS in the amount of $39.13; on November 18, 2003, at Ticketmaster in the amount of $129.95; on November 19, 2003, at TGI Fridays in the amount of $66.32; on November 20, 2003, at Spadium in the amount of $130; on November 22, 2003, at Key Food in the amount of $39.51, Focal Point Optical in the amount of $125, and again at Focal Point Optical in the amount of $175; on November 23, 2003, at College Point in the amount of $19.50 and The Home Depot in the amount of $15.75; on November 24, 2003, at Tamago in the amount of $729.40 and Holy Basil in the amount of $37; and on November 26, 2003, at Thomas A. Law, M.D., in the amount of $2,000. Complaint, ¶ 9; Motion, Exh. A (credit card statement for December 15, 2003, closing date).
The Defendant’s account statement for the period ending January 15, 2004, shows that he did not make a payment in that period. Motion, Exh. A (credit card statement for January 15, 2004, closing date). The Defendant’s account statement for the period ending December 15, 2003, shows that he made one payment of $200 on November 24, 2003. Motion, Exh. A (credit card statement for December 15, 2003, closing date).
Fleet asserts that these amounts are nondischargeable because “the merchandise charges and services ... were ob*186tained through false pretenses, a false representation, or actual fraud by the Defendant at the time that the merchandise charges and services were incurred.” Complaint, ¶ 12. Fleet argues that “the merchandise charges and services ... were incurred by the Defendant without the intent to repay the balance at the time that the merchandise charges and services were incurred,” and also that “the merchandise charges and services ... were incurred by the Defendant without the ability to repay the merchandise charges and services at the time that the merchandise charges and services were incurred.” Complaint, ¶¶ 10, 11. For these reasons, Fleet argues that it is entitled to a finding that these charges are not dischargeable, and a judgment in the amount of $5,339.53, plus interest, attorneys’ fees, and costs.
Discussion
A. The Standard for Default Judgment
In this Circuit, “a debtor named as defendant in an adversary proceeding in his own bankruptcy case is always deemed to have ‘appeared’ in the adversary proceeding so as to require notice of a motion for a default judgment.” Batstone v. Emmerling (In re Emmerling), 223 B.R. 860, 867 (2nd Cir. BAP 1997). A default occurs if the defendant does not respond to the complaint within thirty days after the issuance of the summons. See Fed. R. Bankr.P. 7012(a). Here, the summons was issued on April 27, 2004, and the Defendant, who was represented by counsel in his bankruptcy case, has not responded. Docket Entry 2. Therefore, under Bankruptcy Rule 7055, Fleet may move for a default judgment. See Nicholas v. Boccio (In re Boccio), 281 B.R. 171, 174 (Bankr.E.D.N.Y.2002).
The Defendant’s failure to respond to the Complaint does not, standing alone, entitle Fleet to judgment. At the outset, the court must determine “ “whether the unchallenged facts constitute a legitimate cause of action, since a party in default does not admit mere conclusions of law.’ ” Smith v. Household Fin. Realty Corp. of N.Y. (In re Smith), 262 B.R. 594, 597 (Bankr.E.D.N.Y.2001) (quoting C. Wright & A. Miller, Federal PRACTICE & ProceduRE: Civil § 2688 at 280-81, 282 (1998)). Next, the court must “[accept] as true all of the factual allegations of the complaint, except those relating to damages,” and draw “all reasonable inferences from the evidence offered.” Au Bon Pain Corp. v. Artect, Inc., 653 F.2d 61, 65 (2d Cir.1981). And where the claim sounds in fraud, the court must evaluate the evidence presented to assure that the plaintiff has presented a prima facie case. American Express Centurion Bank v. Truong (In re Truong), 271 B.R. 738, 742 (Bankr.D.Conn.2002). “[T]o satisfy the requirements of the prima facie case the plaintiff must present evidence from which a fact-finder could reasonably find every element that the plaintiff must ultimately prove to prevail in the action.” Fisher v. Vassar College, 114 F.3d 1332, 1336 (2d Cir.1997) (en banc), cert. denied, 522 U.S. 1075, 118 S.Ct. 851, 139 L.Ed.2d 752 (1998).
B. Establishing Nondischargeability Under Section 523(a)(2)(A)
Section 523 of the Bankruptcy Codes provides:
(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 or an insider’s financial condition.
*18711 U.S.C. § 523(a)(2)(A). Here, the Complaint plainly states a “legitimate cause of action” as to the dischargeability of the charges at issue. See Universal Bank, N.A. v. Owen (In re Owen), 234 B.R. 857, 859 (Bankr.D.Conn.1999).
Exceptions to discharge under Section 523 are construed narrowly and in favor of the debtor, in order to give effect to the Bankruptcy Code’s objective of providing “the debtor ‘a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’ ” Cazenovia College v. Renshaw (In re Renshaw), 222 F.3d 82, 86 (2d Cir.2000) (quoting Local Loan Co. v. Hunt, 292 U.S. 234, 54 S.Ct. 695, 78 L.Ed. 1230 (1934)). See 4 CollieR On BanKRuptoy ¶ 523.05 (15th ed. rev. 2004). The creditor bears the burden of proof by a preponderance of the evidence. Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Five elements must be established: first, that the debtor made a false representation; second, that the debtor knew the representation was false at the time it was made; third, that the debtor made the false representation with the intent to deceive the creditor; fourth, that the creditor justifiably relied on the representation; and finally, that the creditor sustained a loss that was proximately caused by the false representation. Chase Manhattan Bank, USA N.A. v. Giuffrida (In re Giuffrida), 302 B.R. 119, 123 (Bankr.E.D.N.Y.2003). Where the debtor has defaulted, the creditor must make out a prima facie case as to each element in order to be entitled to relief. Accordingly, the Court will consider the elements in turn.
1. Whether the debtor made a false representation
The first element that must be established is whether the debtor made a false representation to the creditor. In re Giuffrida, 302 B.R. at 123. Fleet argues that by using his credit card, the Defendant promised to repay the obligation incurred and impliedly represented that he had both the intent and the ability to do so.
As many courts, including this Court, have held, by using a credit card, the credit card holder impliedly represents to the issuing bank that he or she has the present intent to repay the debt incurred. See In re Giuffrida, 302 B.R. at 125; Colonial Nat’l Bank USA v. Leventhal (In re Leventhal), 194 B.R. 26, 30 (Bankr.S.D.N.Y.1996); F.C.C. Nat’l Bank v. Cacciatore (In re Cacciatore), 1998 WL 412644, at *1 (E.D.N.Y.1998); Citicorp Nat’l Credit & Mortgage Serv. for Citibank, N.A. v. Welch (In re Welch), 208 B.R. 107, 110 (S.D.N.Y.1997); Bank of America v. Jarczyk (In re Jarczyk), 268 B.R. 17, 21 (W.D.N.Y.2001); AT&T Universal Card Serv. v. Mercer (In re Mercer), 246 F.3d 391, 404 (5th Cir.2001); Rembert v. AT & T Universal Card Serv. (In re Rembert), 141 F.3d 277, 281 (6th Cir.), cert. denied, 525 U.S. 978, 119 S.Ct. 438, 142 L.Ed.2d 357 (1998); Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1285 (9th Cir.1996); see also Citibank (South Dakota), N.A v. Olwan (In re Olwan), 312 B.R. 476, 483 (Bankr.E.D.N.Y.2004); Citibank (South Dakota), N.A. v. Spradley (In re Johnson), 313 B.R. 119, 128 (Bankr.E.D.N.Y.2004).
But the same is not true as to the ability to repay the debt. As many courts, including this Court, have held, by using a credit card, the credit card holder does not necessarily represent that he or she has the present ability to repay the debt incurred. See In re Anastas, 94 F.3d at 1285; In re Giuffrida, 302 B.R. at 125; In re Jarczyk, 268 B.R. at 23; MBNA Am. v. *188Parkhurst (In re Parkhurst), 202 B.R. 816, 822 (Bankr.N.D.N.Y.1996); In re Leventhal, 194 B.R. at 30; see also In re Olwan, 312 B.R. at 483; In re Johnson, 313 B.R. at 128. But see First Card Serv., Inc. v. Flynn (In re Flynn), 184 B.R. 8, 9 (Bankr.E.D.N.Y.1995).
Here, the record shows that Fleet has alleged facts sufficient to support a prima facie case that the Defendant made representations as to his intent to repay that proved to be false. It does not, without more, support an inference that the Defendant made representations as to his ability to repay that proved to be false.
2. Whether the debtor knew the representation was false at the time it was made
The second element that must be established is whether, at the time the debtor made the implied representation of an intent to repay, the debtor knew the representation was false. In re Giuffrida, 302 B.R. at 123. See In re Mercer, 246 F.3d at 407. This element turns on the debtor’s “actual state of mind ... at the time the charges were incurred.” In re Parkhurst, 202 B.R. at 822. The debtor’s failure to repay, standing alone, does not establish a lack of intent to repay when the debt was incurred. In re Leventhal, 194 B.R. at 31. Rather, the creditor must show that the “ ‘debtor knew full well that any professed intention to repay was false or was known by the debtor not to be well-grounded, and that he or she nonetheless deliberately used the card to obtain goods he or she knew were beyond his or her ability to pay.’ ” In re Parkhurst, 202 B.R. at 822 (quoting J.C. Penney Co. v. Shanahan (In re Shanahan), 151 B.R. 44, 47 (Bankr.W.D.N.Y.1993)).
Courts have identified many objective factors that may lend support to the inference that the debtor knew that the representation as to his or her intent to repay was false when it was made. Many of these are interrelated, and not every factor will apply in every case. These factors arise in the context of four questions, as described below.
In some cases, the question of the timing of the charges at issue may loom large, and may lend persuasive support to an inference of fraudulent intent. Factors including the length of time between the charges at issue and the debtor’s consultation with a bankruptcy attorney, and the length of time between the charges and the debtor’s filing of his or her bankruptcy petition, relate to this question. See Manufacturers Hanover Trust v. Dougherty (In re Dougherty), 143 B.R. 23, 25 (Bankr.E.D.N.Y.1992) (noting that “the length of time between the charges and the filing of bankruptcy” and “whether an attorney has been consulted concerning the filing of bankruptcy before the charges were made” are among objective factors to be considered).
Another important question to be addressed is the frequency and amount of the charges at issue. Factors including the number and amount of the charges at issue, whether the charges exceeded the credit limit of the account, and whether multiple charges were made on the same day, inform this inquiry. See In re Dougherty, 143 B.R. at 25 (noting that “the number of charges,” “the amount of the charges,” “whether the charges exceeded the credit limit of the account,” and “whether there were multiple charges on the same day” are among objective factors to be considered).
A third question of significance is the nature of the charges at issue. As other courts have found, and as the presumption of Section 523(a)(2)(C) confirms, the question of dischargeability is viewed *189in a different light when the charges at issue arise from the debtor’s use of credit for the necessities of life rather than for luxuries. See In re Dougherty, 143 B.R. at 25 (noting that “whether the purchases were made for luxuries or necessities” is among objective factors to be considered); 11 U.S.C. § 523(a)(2)(C). In addition, while many obligations that are the subject of dischargeability claims under Section 523(a)(2)(A) arise from a debtor obtaining new credit, in the form of new credit card charges, cash advances, or loans, other obligations may arise from a debtor restructuring his or her financial situation through credit card balance transfers, including transfers to take advantage of a lower interest rate or other more attractive credit terms, without increasing his or her total debt outstanding. Obligations arising from balance transfers may not implicate the same concerns.1
And finally, a fourth question that must be considered is the debtor’s situation when the charges at issue were incurred. Courts have identified several factors that relate to this inquiry, including the debtor’s financial condition, whether the debtor was employed, the debtor’s financial sophistication, and whether the debtor’s spending habits changed dramatically. In re Dougherty, 143 B.R. at 25 (noting that “the financial condition of the debtor when charges were made,” “whether the debtor was employed,” “the financial sophistication of the debtor,” and “whether the debtor’s spending habits suddenly changed” are among objective factors to be considered). Courts also consider whether the debtor had an objective ability to repay, and “a complete lack of ability to repay is one factor that may be considered.” Jarczyk, 268 B.R. at 23. See In re Dougherty, 143 B.R. at 25; In re Giuffrida, 302 B.R. at 125; In re Leventhal, 194 B.R. at 30.
The timing of the charges at issue
Fleet alleges, and the record shows, that the seventeen charges at issue were made by the Defendant between November 13, 2003, and November 26, 2003, and the Defendant filed his bankruptcy petition on January 29, 2004. Complaint, ¶¶ 6, 9. The record also shows that the Defendant met with his bankruptcy lawyer on December 8, 2003. Petition, Statement Pursuant to Local Rule 10(f). Thus, the Defendant incurred the charges at issue between nine and eleven weeks before he filed for bankruptcy, and two to four weeks before he met with his bankruptcy lawyer. While the charges were incurred outside of the sixty-day statutory period prescribed by 11 U.S.C. § 523(a)(2)(C), they were made in sufficient proximity to when the Defendant met with his bankruptcy lawyer and to the Petition Date to suggest that the Defendant may have been considering seeking bankruptcy relief, and a discharge of these debts, at the time the charges *190were made. And the Defendant has not appeared to offer a different explanation of these circumstances. Thus, the timing of the charges at issue supports an inference of fraudulent intent.
The frequency and amount of the charges at issue
Fleet alleges, and the record shows, that the Debtor made a total of seventeen charges over a period of fourteen days. See Motion, Exh. A (credit card statement for December 15, 2003, closing date). The amount of the charges within the fourteen-day period, $5,339.53, is more than one and one-half times the previous balance of $3,503.55. This is comparable to circumstances present in many successful challenges to dischargeability where debtors used their credit accounts freely and frequently in the period immediately preceding their bankruptcy filing. See, e.g., In re Jarczyk, 268 B.R. at 19-20 (summary judgment for debtor reversed where debt- or charged over $7,000 in six months before filing for bankruptcy); In re Johnson, 313 B.R. at 130 (default judgment for creditor granted where debtor made seventeen transactions in eight weeks); cf In re Olwan, 312 B.R. at 486 (default judgment for creditor denied where three transactions in a five-week period were at issue).
Fleet also alleges, and the record shows, that many of the charges at issue were made on the same day. In particular, the record shows that the Defendant made three charges on November 14, 2003, three charges on November 22, 2003, and two charges on November 24, 2003. See Motion, Exh. A (credit card statement for December 15, 2003, closing date). For these reasons, the frequency and amount of the charges at issue supports an inference of fraudulent intent.
The nature of the charges at issue
Fleet alleges, and the record shows, that the Defendant made several charges for items that are more in the nature of luxuries than necessities, including charges at a sporting goods store, a consumer electronics store, several restaurants, and a ticket service. See Motion, Exh. A (credit card statement for December 15, 2003, closing date).2 In the absence of an explanation or contrary argument by the Defendant, the record supports an inference that some, and perhaps many, of the charges at issue were for items that were more in the nature of luxuries than necessities. Thus, the nature of the charges at issue supports an inference of fraudulent intent.
The Defendant’s situation at the time of the charges at issue
The record shows that the Defendant’s annual income was $55,000 in 2001 and $59,000 in 2002, and that at some point in 2003, the Defendant became unemployed and began to receive monthly unemployment benefits of $1,580.3 See Petition, Statement of Financial Affairs, Items 1 and 2. The Debtor’s Petition also shows total debt of $39,900 and an excess of *191expenses over income of $286 per month.4 See Petition, Schedules F, I, and J. Thus, when the charges at issue were made, the Defendant was unemployed, had substantial debt, and had expenses that exceeded his income. A difficult financial situation does not necessarily indicate that a debtor does not intend to repay a debt when it is incurred, and indeed, such circumstances may lead debtors to access credit. But the Defendant has not come forward to offer an alternative explanation of his situation.
The record shows that the Defendant was employed as a structural engineer for a portion of 2003, and that at some point in that year, he became unemployed and began to receive monthly unemployment benefits of $1,580. Petition, Statement of Financial Affairs, Items 1 and 2. Thus, the record supports an inference that, at the time the charges at issue were made — just over two months before the Petition Date — -the Debtor was not employed, and may not have been employed for some months. See Schedule I.5
Fleet alleges, and the record shows, that the Defendant’s account was opened in August 1997 and that the Defendant had an account balance of $3,503.55, before the charges at issue were made. Complaint, ¶ 3; Motion, Exh. A (credit card statement for December 15, 2003, closing date). The record also shows that in the fourteen days in which the charges at issue were made, the Defendant increased his balance by $5,339.53, or more than one and one-half times the pre-existing balance on the account. This suggests that the charges at issue were a change from the Defendant’s prior spending pattern.
Taken together, the factors relevant to this inquiry, including the Defendant’s lack of employment, his substantial debt and expenses that exceeded his income, and the increase in his use of the credit card account, indicate that the Defendant’s situation at the time of the charges at issue supports an inference of fraudulent intent.
In sum, the record shows that Fleet has alleged facts sufficient to support a prima facie case that the Defendant knew the representations as to his intent to repay the charges at issue were false at the time they were made. This conclusion is based on the undisputed allegations and the inferences that they support, including that the charges at issue were incurred two to four weeks before the Defendant met with his bankruptcy lawyer and just over two months before the Defendant filed for bankruptcy; that the seventeen charges at issue were incurred in a period of fourteen days and in a total amount that was one and one-half times greater than the then-outstanding account balance; that the Defendant made multiple charges on the same day on more than one occasion within the fourteen-day period; that many of the charges at issue were more in the nature of luxuries than necessities; and that the Defendant was unemployed and had some $39,900 in unsecured debt and expenses that exceeded his income by $286 per month when the charges at issue were incurred. This conclusion is also based on the fact that the Defendant has not appeared in this matter to deny or offer an alternative explanation for Fleet’s allegations.
*192
3. Whether the debtor made the representation with the intent to deceive the creditor
The third element that must be established is whether at the time the debtor made the false representation, he or she did so with the intent to deceive the creditor. In re Giuffrida, 302 B.R. at 123. That is, Fleet must allege facts sufficient to support a prima facie case that the Defendant made the false representations as to his intent to repay with the intent to deceive it. Because the “intent to defraud is rarely proven by direct evidence,” courts assess this element using a “ ‘totality of the circumstances’ ” approach to discern the defendant’s subjective intent. In re Truong, 271 B.R. at 745 (quoting In re Owen, 234 B.R. at 860). In making this determination, it is appropriate to consider the same questions that are relevant to the second element, whether the debtor knew the representation was false at the time it was made. Colonial Nat’l Bank v. Carrier (In re Carrier), 181 B.R. 742, 747 (Bankr.S.D.N.Y.1995).
Here, the totality of circumstances surrounding the charges at issue support the conclusion that the Defendant made false representations as to his intent to repay with the intent to deceive Fleet. These circumstances include the timing of the charges, including their proximity to the Defendant’s consultation with a bankruptcy lawyer and filing for bankruptcy. These circumstances also include the frequency and amount of the charges, including the fact that many charges were' incurred in quick succession in a two-week period, several were made on the same or successive days, and they were in an amount that substantially exceeded the prior account balance. These circumstances further include the nature of the charges, in that many of the charges appear to be for items or services that are more in the nature of luxuries than the necessities of life. And finally, these circumstances include the Defendant’s situation when the charges at issue were made, including the fact that he was unemployed, had a large amount of unsecured debt, and had expenses that substantially exceeded his monthly income. These circumstances, taken together with the Defendant’s failure to offer any alternative explanation, show that Fleet has made out a prima facie case that the Defendant made false representations as to his intent to repay the charges at issue with the intent to deceive Fleet.
A Whether the creditor justifiably relied on the representation
The fourth element that must be established is whether the creditor justifiably relied on the debtor’s false representation. In re Giuffrida, 302 B.R. at 123. Thus, Fleet must show that it justifiably relied on the Defendant’s false representations in extending credit to him. See Restatement (Second) Of ToRts § 537 (1977) (“The recipient of a fraudulent misrepresentation can recover against its maker for pecuniary loss resulting from it if, but only if, ... his reliance is justifiable”). This calls for the Court to consider “whether [Fleet], based on its credit screening and its relationship with [the Defendant] during [his] ... card-use, had reason to believe [he] would not carry out [his] representation, through card-use, of intent to pay.” In re Mercer, 246 F.3d at 423 (emphasis in original).
As the Supreme Court has stated, a creditor “is ‘required to use [its] senses, and cannot recover if [it] blindly relies upon a misrepresentation the falsity of which would be patent to [it] if [it] had utilized [its] opportunity to make a cursory examination or investigation.’ ” Field v. Mans, 516 U.S. 59, 71, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995) (quoting RESTATEMENT *193(Second) Op ToRts § 541 (1976)). At the same time, the required inquiry is not onerous, and indeed, “need be no more than cursory.” Daly v. Braizblot (In re Braizblot), 194 B.R. 14, 21 (Bankr.E.D.N.Y.1996). See In re Anastas, 94 F.3d at 1286 (“the credit card issuer justifiably relies on a representation of intent to repay as long as the account is not in default and any initial investigations into a credit report do not raise red flags that would make reliance unjustifiable.”).
Thus, if at the time the charges at issue were incurred, the debtor maintained a balance within his or her credit limits and made the payments required under the credit agreement, that would show an absence of “red flags” and lend support to an inference that the creditor justifiably relied on the debtor’s false representations as to his or her intent to repay. And alternatively, if the debtor was in default at the time the charges at issue were incurred, or the creditor’s initial investigation of the debtor should have raised a serious question as to the reasonableness of opening the account, those circumstances would amount to “red flags” suggesting that the creditor was not justified in relying on the debtor’s false representations.
Here, Fleet does not allege, and the record does not show, that any “red flags” should have alerted Fleet not to rely on the Defendant’s false representations as to his intent to repay the charges at issue. Rather, Fleet alleges that “the Plaintiff issued the credit card on the subject account to the Defendant based upon Defendant’s representation of income when applying for credit and Defendant’s debt to income ratio.” Complaint, ¶ 4. Fleet further alleges:
[It] transacted the $5,339.53 in merchandise charges and services upon the Defendant’s representations of his intent and ability to repay this debt [in] accordance with the terms of the agreement for the Account ... [t]he account was opened based upon the Defendant’s representation of income when applying for credit and the Defendant’s debt to income ratio.
Affidavit of Robert Scott Leavelsey in Support of Motion for Summary Judgment dated June 22, 2004, ¶¶ 9, 12. The record also shows that the Defendant’s account balance was within his credit limit as of the December 15, 2003, billing cycle, and indeed, that he was “selected to receive” a credit line increase as of that billing cycle. Motion, Exh. A (credit card statement for December 15, 2003, closing date). And here again, the Defendant has not disputed Fleet’s allegations, or suggested an alternative explanation as to why Fleet’s reliance was not justified. For these reasons, Fleet has made out a prima facie case that it justifiably relied on the Defendant’s false representations.
5. Whether the creditor sustained loss or damage as the proximate consequence of the false representations
The final element that must be established is whether the debtor’s false representations proximately caused the creditor to sustain loss or damage. In re Giuffrida, 302 B.R. at 123. If the creditor has shown that it incurred an expense through the extension of credit, and has not been repaid, then this element is likely to be satisfied. “[I]t is the debtor’s use of the credit card that prompts the issuer to extend credit, and thereby results in loss to the issuer when the debt is not repaid.” Jarczyk, 268 B.R. at 25. See also In re Mercer, 246 F.3d at 414-15.
Here, Fleet alleges, and the record shows, that credit was extended by Fleet to the Defendant on some seventeen occasions between November 13, 2003, and November 26, 2003, in the form of credit card charges, in reliance on his false representations that he intended to repay the *194amounts incurred. Fleet also alleges that those amounts have not been repaid, and the Defendant has not shown otherwise. See Complaint, ¶7; Petition, Schedule F (listing the Defendant’s unsecured nonpri-ority obligation to Fleet in the amount of $9,500). Accordingly, Fleet has established a prima facie cas'e that it sustained a loss that was proximately caused by the false representations of the Defendant.
Conclusion
On a motion for a default judgment in an action under Section 523(a)(2)(A) of the Bankruptcy Code, the plaintiff must present a prima facie case from which “a fact-finder could reasonably find every element that the plaintiff must ultimately prove to prevail in the action.” Fisher, 114 F.3d at 1336. The Court should accept as true “all of the factual allegations of the complaint, except those relating to damages,” and draw “all reasonable inferences from the evidence offered.” Au Bon Pain Corp., 653 F.2d at 65.
Here, the undisputed allegations of the Complaint, the reasonable inferences that they support, and the record before the Court, make out a prima facie case that the Defendant knowingly made false representations as to his intent to repay, with the intent to deceive Fleet, at the time that he made the charges at issue. They also make out a prima facie case that Fleet justifiably relied on the Defendant’s false representations, and suffered a loss that was proximately caused by those false representations. Finally, the Defendant has not appeared to oppose the Complaint, or to offer any alternative explanation for the matters alleged. For these reasons, the Motion for a Default Judgment will be granted to the extent that the charges at issue, totaling $5,339.53, are declared non-dischargeable under 11 U.S.C. § 523(a)(2)(A). An order in accordance with this Memorandum Decision shall be entered simultaneously herewith.
ORDER GRANTING THE MOTION OF FLEET CREDIT CARD SERVICES, L.P. FOR DEFAULT JUDGMENT
Upon the filing of the motion for default judgment by Fleet Credit Card Services, L.P. (“Fleet”), on August 13, 2004, in this Adversary Proceeding commenced by Fleet on April 26, 2004, to determine the nondischargeability of a certain debt; and the Court having considered the arguments presented by the papers and the oral arguments of Fleet presented at the June 14, 2004, and September 7, 2004, hearings; and for the reasons set forth in this Court’s Memorandum Decision dated December 28, 2004; it is hereby
ORDERED, that Fleet’s motion for default judgment is granted to the extent that the charges at issue, totaling $5,339.53, are declared nondischargeable under 11 U.S.C. § 523(a)(2)(A).
. As Congress has observed:
Excessive debts incurred within a short period prior to the filing of the petition present a special problem: that of "loading up” in contemplation of bankruptcy. A debtor planning a[sic] file a petition with the bankruptcy court has a strong economic incentive to incur dischargeable debts for either consumable goods or exempt property. In many instances, the debtor will go on a credit buying spree in contemplation of bankruptcy at a time when the debtor is, in fact, insolvent. Not only does this result in direct loses for the creditors that are the victims of the spree, but it also creates a higher absolute level of debt so that all creditors receive less in liquidation.
Citibank (South Dakota), N.A. v. Eashai (In re Eashai), 87 F.3d 1082, 1092 (9th Cir.1996) (quoting S.Rep. No. 65, 98th Cong., 1st Sess. 9 (1983)). "Loading up” does not seem to be implicated in the context of obligations arising from balance transfers.
. Other of the charges at issue may also be more in the nature of luxuries than necessities. Fleet alleges, and the record shows, that the Defendant made a charge in the amount of $1,000 and $2,000 at Thomas A. Law, M.D., on November 14, 2003, and November 26, 2003, respectively, and at Focal Point Optical in the amounts of $125 and $175 on November 22, 2003. While it is certainly possible that such charges were for necessary medical expenses, it is also possible that these charges were for discretionary or luxury items or services.
. The Defendant's Statement of Financial Affairs shows 2002 annual income of $59,000, 2003 annual income of $40,000 and 2003 unemployment benefits of $1,580 per month. This supports an inference that the Defendant had been unemployed for several months when the charges at issue were incurred.
. The Petition states that the Defendant’s monthly expenses are $1,866 and his monthly income is $1,580. Petition, Schedules I and J.
. As noted above, the Defendant’s Statement of Financial Affairs shows 2002 annual income of $59,000, 2003 annual income of $40,000 and 2003 unemployment benefits of $1,580 per month. This supports an inference that the Defendant had been unemployed for several months as of the Petition Date. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493732/ | DECISION AND ORDER
CARL L. BUCKI, Bankruptcy Judge.
In this adversary proceeding, the plaintiff seeks to discharge her student loans on the basis that payment would adversely impact her psychiatric health. Although this court understands how the burden of debt repayment may become a source of stress, the potential for such stress does not by itself satisfy the stringent prerequisites for the discharge of a student loan.
This court previously granted an order discharging the debtor from all dis-chargeable debts. Pursuant to 11 U.S.C. § 523(a)(8), however, such an order will not operate to discharge a student loan, “unless excepting such debt from discharge ... will impose an undue hardship on the debtor and the debtor’s dependents.” Under the standard established in Brunner v. New York State Higher Education Services, 831 F.2d 395, 396 (1987), hardship occurs only when the debtor makes a three-part showing: “(1) that the debtor cannot maintain, based on current income and expenses, a ‘minimal’ standard of living for herself and her dependents if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and (3) that the *509debtor has made good faith efforts to repay the loans.”
The debtor is an attorney. She claims, however, that due to a psychiatric condition, she can no longer handle the stress of private practice. At the time of trial, the debtor was employed in the development office of a cultural organization, where she earns an annual salary of approximately $28,000. The debtor has no dependants, but lives by herself in an apartment in the town of Grand Island, New York.
The debtor graduated from college in 1980 and from law school in 1984. To finance her education, she obtained student loans totaling $22,500. On various occasions during the past twenty years, the repayment of these obligations was deferred, and the loans were consolidated, assigned, and restructured. Altogether, on account of her student loans, the debtor has made payments that exceed the dollar amount of her original indebtedness. Nonetheless, due to the impact of interest accruals, the debtor still owed an outstanding balance of $41,850.80 to the Educational Credit Management Corporation, as of the day of trial.
Pursuant to the William D. Ford Direct Loan Program, the debtor is eligible to participate in an extended repayment plan. As of the trial date, available options included a plan for repayment over ten years at a monthly rate of $513.30; an extended plan for a twenty-five year term with monthly payments of $329.97; and a graduated plan requiring initial monthly payments of $287.72, but with provision for increasing payments over the remaining term of twenty-five years. If the debtor had chosen the extended option, she could have satisfied the indebtedness by means of an annual commitment of less than $4,000.
The parties presented evidence and argument about many of the expenditures that the debtor had included in her budget. For example, counsel for the Educational Credit Management Corporation questioned various recreational expenses, seemingly high expenditures for the care of a pet cat, non-traditional health care expenditures, and an apartment lease at a cost of approximately $700 per month. The creditor also demonstrated that the location of the debtor’s residence had limited her access to public transportation and had necessitated additional expenses of transportation.
In the view of this court, the debtor fails to satisfy the first prong of the test in Brunner v. New York Higher Education Services. Accordingly, the court need not now consider either of the other two requirements of that case.
It is not the function of this court to micro-manage a debtor’s budget or to control any particular item of expense. Rather, under the first prong of the Brunner test, the central issue is whether repayment of the student loan would preclude the debtor from maintaining a minimal standard of living. Here, the creditor presented evidence that for 2004-2005, the Department of Health and Human Services has set a poverty guideline of $9,310 for a family of one individual. In the present context, this court does not need to decide whether the poverty guideline serves to define an absolute minimal standard of living. With an annual income approximately $19,000 greater than the poverty standard for her family size, however, the debtor would appear to earn sufficient income both to pay the student loan and to enjoy some discretionary expenditures in excess of her minimal needs. Indeed, the debtor testified that between 1995 and 2000, she made monthly payments of $337.04 on account of her student loan, all at a time when her yearly *510income averaged less than the debtor’s present compensation. Unless the debtor can demonstrate extraordinary circumstances, I must find that the debtor earns sufficient income both to pay $4,000 per year on account of her student loan and to maintain a minimal living standard. The issue, therefore, is whether such extraordinary circumstances exist.
The debtor’s primary contention is that her psychiatric health might be affected adversely if she were compelled to repay the student loan. The debtor testified that she has suffered from a depressive disorder, as well as from anxiety and panic attacks. These conditions have required hospitalization, as well as ongoing treatment by a psychiatrist. As the debtor’s treating physician, Dr. Wendy Weinstein confirmed a diagnosis of depression with a suicidal ideation and anxiety. Having observed an improvement in the debtor’s mental health after termination of her practice, Dr. Weinstein expressed concern that a return to the legal profession could adversely affect the debtor’s mental health. Additionally, Dr. Weinstein identified a high risk of mental illness, in the event that the debtor were forced to change her current pattern of discretionary spending.
The Educational Credit Management Corporation presented the expert testimony of Dr. Brian Joseph, a physician with 29 years of experience in the practice of psychiatry. Based on his examination of the debtor and of her medical records, Dr. Joseph concluded that the debtor was capable of returning to the practice of law, and that the debtor’s decision to terminate her legal practice was a matter of choice rather than medical necessity. Finally, Dr. Joseph stated that it would be preposterous to say “that unless she lives in the circumstances she has now,” the debtor would risk a deterioration of her mental health.
Counsel devoted considerable argument to the question of whether the debtor could return to the practice of law. This issue might hold significance if the court were inclined to predicate its decision on Brunner’s second prong, namely whether circumstances indicate that the debtor’s state of affairs is likely to persist. Even as to that issue, the Bankruptcy Code imposes no obligation to accept future employment that would be detrimental to the health or safety of a particular individual. Because the first prong of Brunner will determine the outcome of the present dispute, however, the court does not need to decide whether the debtor could resume the stressful practice of law.
The first prong of Brunner considers whether the debtor can maintain a minimal standard of living, “based on current income and expenses.” 831 F.2d at 396. At the present time, the debtor enjoys an income that is stable and that exceeds her previous level of earnings from the practice of law. Essentially, prior experience shows that for this debtor, the resumption of her legal profession would entail greater risk and the probable realization of less income. For this reason, the court attaches no significance to the possibility of legal practice, even if the debtor’s health would allow it. Rather, in this case, the critical issue is whether the debtor’s mental health can tolerate the budgetary adjustments needed to effect loan repayment from current income.
The debtor’s mental health might well benefit from the avoidance of stress resulting from payment of her student loan obligation. Unfortunately, this fact provides insufficient justification to disregard the fundamental standard of the first prong of Brunner. In the present instance, no one suggests that the debtor *511maintains a lifestyle that is luxurious or excessive. Indeed, the debtor presents a fair and reasonable budget. Rather, she fails to satisfy Brunner’s first prong, because even reasonable expenses can exceed those which are necessary for a minimal standard of living.
As the plaintiff in this adversary proceeding, the debtor carries the burden to demonstrate that excepting the student loan from discharge would “impose an undue hardship on the debtor and the debt- or’s dependents.” 11 U.S.C. § 523(a)(8). See In re Maulin, 190 B.R. 153, 156 (Bankr.W.D.N.Y.1995). Presently, the debtor earns income that exceeds the poverty guideline by a factor of more that two and one-half. The debtor does not satisfy her burden of proof merely by establishing a budget and daring the defendant to show the unreasonableness of her expenses. Of course it is reasonable to want a comfortable home, reliable transportation, cultural enrichment, and recreation. However, the controlling standard of Brunner does not incorporate these considerations. Rather, the test is whether repayment of the student loan will preclude a minimal standard of living. Although medical needs may necessitate additional expenditures to satisfy that minimal standard, the debtor carries the burden to show that any such additional expenditure is actually required for that purpose. Here, where income exceeds the poverty guideline by such a large multiple, the proof provides an insufficient demonstration that the necessities of the debtor’s circumstances would preclude payment of her outstanding educational loans.
Life is filled with many sources of stress. Because no one can eliminate every stress, mental health must incorporate the ability to cope with and to respond to unavoidably stressful circumstances. While allowing the debtor to discharge many other sources of economic stress, the Bankruptcy Code creates an exclusion for the stressful repayment of student loans. In the present instance, section 523(a)(8) of the Bankruptcy Code essentially compels the debtor to address rather than to avoid the challenge of student loan repayment. The court may discharge a student loan only when payment would necessarily impair the debtor’s ability to maintain a minimal standard of living. Because the debt- or now derives sufficient income both to pay her student loan and to preserve a minimal living standard, her student loan obligations are not dischargeable in the present instance.
This court is obliged to apply the standard that the Second Circuit adopted in its decision in Brunner v. New York State Higher Education Services, 831 F.2d 395 (1987). Accordingly, for all of the reasons stated herein, this court must grant judgment to the Educational Credit Management Corporation.
So ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493734/ | MEMORANDUM OPINION
PETER J. WALSH, Bankruptcy Judge.
This is the Court’s ruling following a one-day trial on HomePlace of America, Inc.’s (“HomePlace”) Code § 547 complaint against Toastmaster, Inc. (“Toastmaster”) to recover $390,579.10 of transfers made during the preference period. For the reasons set forth below, the Court finds in part for HomePlace and in part for Toastmaster.
Toastmaster is an affiliate of Saltón, Inc. (“Salton”). The trial of the subject adversary proceeding was conducted immediately following the trial in the matter of HomePlace of America, Inc. v. Salton, Inc., Adv. Proc. No. 02-07101 (the “Relat*537ed Proceeding”). The record in the Related Proceeding is also applicable here. Reference is made to the Court’s memorandum opinion of this date in the Related Proceeding (the “Salton Opinion”) for a discussion of matters pertinent to this opinion, including the factual background, the Code § 547(b) findings, the Industry1 practices, and the law relating to the Code §§ 547(c)(2) and 547(c)(4) defenses. The following discussion supplements the Salton Opinion as needed to focus on the specific facts relating to the Toastmaster transactions.
SUPPLEMENTAL BACKGROUND
Toastmaster is a small appliance vendor and manufacturer, with its principal place of business in Columbia, Missouri. In July 1999, Saltón purchased Toastmaster and Toastmaster is now a wholly-owned subsidiary of Saltón.
Prior to Salton’s acquisition of Toastmaster, HomePlace purchased Toastmaster products through a third-party distributor, Professional Housewares Distributors. HomePlace began ordering products directly from Toastmaster in May of 2000. HomePlace and Toastmaster continued transacting business with each other up to the time HomePlace filed its chapter 11 petition.
All orders that HomePlace made before the end of June of 2000 were subject to “Extended Dating” or “Big Buy” terms. (Richter, Tr. 3, p. 144, 1.17-18.) The terms for the Big Buy program were offered to Terry McAllister (“McAllister”), a buyer for HomePlace, by Greg Richter (“Richter”), Eastern Sales Director for Toastmaster, and Jim O’Brien (“O’Brien”), an independent sales representative for Toastmaster. Such terms called for “split dating” with 50% of the program to be paid on November 10 and the remaining 50% due on December 10. (Richter, Tr. 3, p. 145,1.16-18.)
All orders placed after July 1 were subject to “net 30” days terms. (Richter, Tr. 3, pp. 150, 1.25 — 151, 1.15.) Such terms provided that payments were due “net 30” days from the date of receipt of the goods or receipt of the invoice, whichever was later.
During the ninety days preceding the petition date, HomePlace made payments to or for the benefit of Toastmaster in the aggregate amount of $390,579.10 (the “Transfers”). The Transfers were made as follows:
Check Payment Payment Receipt Date Date Amount Date
11/13/00 11/22/00 $329,498.30 11/21/00
12/11/00 12/19/00 $ 61,080.80 12/18/00
Total $390,579.10
DISCUSSION
Code § 547(c)(2)
Toastmaster asserts that the Transfers are protected by the “ordinary course of business” defense provided by Code § 547(c)(2).
In its post-trial briefs, Toastmaster separates the invoices that were paid by the Transfers into two groups: one subject to the Big Buy program (the “Big Buy Invoices”) and the other that were subject to the default “net 30” terms (the “Net 30 Invoices”). (Doc. # 110, pp. 8-9; Doc. # 116, p. 12.)
The Big Buy Invoices
As to Toastmaster’s use of Big Buy arrangements, Richter testified that Toastmaster began offering Big Buys because of Salton’s influence after the merger in 1999. (Tr. 3, p. 137, 1.13-17.) Richter testified that HomePlace decided to do a Big Buy with Toastmaster in 2000. (Tr. 3, pp. 142, *5381.17 — 143, 1.10.) HomePlace’s chief financial officer, David Frost (“Frost”) testified that he was not positive as to the program’s existence, but he believes there was a program based on the invoices and testimony that he reviewed. (Tr. 3, p. 172, 1.14-24.) Kennedy confirmed that it was ordinary in the Industry for the parties to begin their direct relationship with a Big Buy because of the time of year of the orders. (Tr. 3, p. 184,1.10-22.)
Based on these reasons and the related discussion in the Saltón Opinion, the Court finds there were Big Buy terms between the parties and that such terms were ordinary for the Industry.
To establish which of the invoices were Big Buy Invoices, Toastmaster offered Richter’s testimony. Richter examined all of the purchase orders and invoices that were the subject of the Transfers looking for factors indicating they were part of the Big Buy program. (Tr. 3, p. 150, 1.3-8.) Such factors included order dates, promised ship dates, sequence of invoice and purchase order numbers, and long cancellation dates. (Tr. 3, p. 150, 1. 6-8; Tr. 3, p. 153, 1. 7-9.) Defendant’s Exhibit 9 represents all of the invoices Richter determined were Big Buy Invoices. (Tr. 3, p. 150, 1.3-8.) HomePlace did not contest this evidence in any meaningful way and therefore the Court accepts that Exhibit 9 represents the Big Buy Invoices.
Therefore, the Court finds that Toastmaster is entitled to protect the entire amount of $243,310 in Big Buy Invoices paid pursuant to Code § 547(c)(2).
The Net 30 Invoices
As for the Net 30 Invoices paid by the Transfers, the salient factor in the ordinary course analysis is the timing of the payments. On this issue, Kennedy testified that the Industry norm was for non-Big Buy invoices to be paid 10 to 25 days late (i.e., 10 to 25 days after the expiration of the “net 30” days terms). (Tr. 2, p. 35, 1.11-16.) While the parties did not have a pre-preference period relationship, Frost testified that HomePlace’s standard practice was to pay invoices 15 days late. (Tr. 3, p. 196,1.5-13.)
To establish the parties’ ordinary course practice, Toastmaster introduced Defendant’s Exhibit 5. Exhibit 5 demonstrates that during the preference period, payments were made on average 16.9 days beyond the “net 30” terms. (Def. Exh. 5; Lutz, Tr. 3, p. 177, 1. 19-22.) In arriving at this figure, Toastmaster assumed a due date for each invoice of 37 days after invoice date. (Lutz, Tr. 3, p. 177, 1.24-25.)
However, similar to my findings in the Saltón Opinion, I find here that Defendant’s Exhibit 5 is misleading because it includes the Big Buy Invoices in calculating the average. The Big Buy Invoices are listed on Exhibit 5 as having been paid 2 to 4 days after the agreed November 10 and December 10 payment dates, whereas the Net 30 Invoices on Exhibit 5 show the number of dates late from the 37 days after the invoice date. It does not make sense for Toastmaster to shield the payments on the Big Buy Invoices as an alternative ordinary course arrangement and, in addition, include those invoices in a calculation of the average number of days late for the payment of Net 30 Invoices. Richter confirmed this point when he testified that “[t]he agreed upon terms were different” for the Big Buy Invoices and the Net 30 Invoices. (Tr. 3, p. 146, 1.3-5.) Looking to Plaintiffs Exhibits 12 and 13 which list the invoices attached to the payment checks, I have calculated that the Net 30 Invoices were paid an average of 64 days after invoice date.
Thus, the payments were made on average 34 days beyond the “net 30” terms. This is outside the range of 10-25 days *539that Kennedy testified to as being normal for the Industry. In addition, this is well outside the 15 days late that Frost testified to as being HomePlace’s standard practice. (Tr. 3, p. 196, 1.5-13.) Therefore, the Court finds that the Net 30 Invoices paid by the Transfers, which total $147,269.10, are not protected pursuant to Code § 547(c)(2).
Code § 547(c)(4)
The parties agree that Toastmaster provided $14,745.60 in new value during the preference period that remained unpaid as of the Petition Date. (Doc. # 110, pp. 23-24; Doc. # 114, p. 27.) Therefore, under Third Circuit precedent, Toastmaster is entitled to a setoff in the amount of $14,745.60.
CONCLUSION
Based on the foregoing, Toastmaster is entitled to protect a total of $258,055.60 from avoidance: $243,310 pursuant to Code § 547(c)(2) and $14,745.60 pursuant to Code § 547(c)(4). Therefore, of the $390,579.10 originally sought to be recovered by the complaint, HomePlace is entitled to recover $132,523.50 pursuant to Code §§ 547 and 550.
JUDGMENT ORDER
For the reasons set forth in the Court’s memorandum opinion of this date, pursuant to 11 U.S.C. §§ 547 and 550, the Plaintiff is granted judgment in the amount of $132,523.50.
. As defined in the Saltón Opinion, Industry refers to the small appliance industry. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493735/ | MEMORANDUM OPINION DENYING DEFENDANTS’ MOTIONS TO DISMISS COMPLAINTS
ARTHUR J. GONZALEZ, Bankruptcy Judge.
The issue presented is whether payments made by various entities in connection with certain transactions involving short-term commercial paper are “settlement payments” within the context of 11 U.S.C. § 546(e) which would, as a matter of law, preclude the relief sought by the plaintiff in the adversary proceedings and warrant dismissal of such proceedings pursuant to Federal Rule of Bankruptcy Procedure 7012 and Fed. Rule of Civil Procedure 12(b)(6).
The Court concludes that in order for a payment to qualify as a settlement payment protected by § 546(e) from a trustee’s avoidance powers, such payment must be common within the securities trade. Thus, whether payments that are made with respect to short-term commercial paper prior to the maturity date, at significantly above market prices and contrary to the offering documents, qualify as settlement payments is a factual issue requiring a trial. Therefore, dismissal of the adversary proceedings at this stage is improper.
FACTS
Commencing on December 2, 2001, and from time to time continuing thereafter, Enron Corporation (“Enron”) and certain of its affiliated entities, (collectively, the “Debtors”) filed voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”). On July 15, 2004, the Court entered an Order confirming the Debtors’ Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors (the “Plan”) in these cases. The Plan became effective on November 17, 2004.
On 2003, Enron filed a complaint commencing an adversary proceeding against J.P. Morgan Securities, Inc. (“J.P.Morgan”) and various other defendants (together with J.P. Morgan, the “J.P. Morgan Defendants”) and filed a separate complaint commencing an adversary proceeding against Mass Mutual Life Insurance Company (“Mass Mutual”) and various other defendants (together with Mass Mutual, the “Mass Mutual Defendants”). In each adversary proceeding, Enron sought to avoid and recover certain transfers to the defendants that it alleged were preferential or otherwise avoidable. On December 1, 2003, Enron filed amended complaints with respect to each of the adversary proceedings (each individually, as amended, the “Complaint” and together, the “Complaints”).1
*679In the Complaint filed against the J.P. Morgan Defendants, Enron seeks to recover transfers made by Enron between October 26, and November 6, 2001 to the J.P. Morgan Defendants totaling $892,275,859.66. In the Complaint filed against the Mass Mutual Defendants, Enron seeks to recover transfers made by Enron between October 26 and November 6, 2001 to the Mass Mutual Defendants totaling $238,677,604.88 (the transfers made to the J.P. Morgan Defendants and the transfers made to the Mass Mutual Defendants are collectively referred to as the “Transfers”).
Prior to the petition date, Enron issued and sold unsecured commercial paper to various entities. The commercial paper was uncertificated and had maturities of up to 270 days. Pursuant to Issuing and Paying Agency Agreements between Enron and JP Morgan Chase Bank and its predecessors in interest (collectively, the “Chase Paying Agent”), the Chase Paying Agent served as issuing and paying agent in connection with Enron’s commercial paper.
The purchase and sale of Enron’s commercial paper, including each commercial paper note identified in the amended com*680plaints (the “Notes”), were made pursuant to terms set forth in an Offering Memorandum, dated September 14, 2001. The Offering Memorandum provided as follows: “The Notes are not redeemable or subject to voluntary prepayment by [Enron] prior to maturity.” Moreover, the terms of the Enron commercial paper notes did not have a provision allowing prepayment or early redemption of the commercial paper notes.
Each of J.P. Morgan, Goldman, Sachs & Co. (“Goldman”) and Lehman Commercial Paper Inc. (“Lehman”) acquired the Enron commercial paper for its own account, as a market maker, and on behalf of its respective customers, as a dealer. Those customers purchasing the Notes through one of these dealers bought them either from Enron itself or from other holders of outstanding Enron commercial paper who sold certain of their holdings before maturity. J.P. Morgan, Goldman and Lehman documented their and their customer’s purchases of Enron commercial paper through trading confirmation records (the “Confirmations”). The payment for the purchases were made through Depository Trust Company (“DTC”), a clearing agency-
As previously noted, in a series of transactions commencing on October 26 and concluding on November 6, 2001, Enron transferred over one billion dollars in connection with the Notes — $892,275,859.66 to the J.P. Morgan Defendants and $233,677,604.88 to the Mass Mutual Defendants. In the Complaints, Enron maintains that the Transfers were for the purpose of prepaying the Notes that had been sold to J.P. Morgan, Goldman, Lehman and other entities when issued. Enron maintains that the Transfers were made by Enron to prepay individual Notes prior to the maturity date of those Notes. As Enron paid approximate accrued par value2 for the Notes, which was significantly more than their market value, Enron characterizes the Transfers as being made for the early redemption of the Notes. Enron further maintains that such Transfers were in violations of the terms of sale of those Notes because the terms expressly prohibited any early redemption or prepayment of the Notes. In the Complaints, Enron delineates the individual transfers that it seeks to avoid against the various defendants in each of the actions.
In the Complaints, Enron alleges that, prior to making the Transfers, some or all of the other defendants in each of the adversary proceedings were aware that the Transfers might be subject to avoidance as J.P. Morgan, Goldman and/or Lehman had informed them that these Transfers could be subject to avoidance as preferential transfers.
In Count I of the each Complaint, Enron seeks avoidance of the Transfers as preferential payments under section 547(b) of the Bankruptcy Code. In Count III of each Complaint, Enron seeks avoidance of the Transfers as fraudulent conveyances under section 548(a) of the Bankruptcy Code. In Count V of each Complaint, Enron seeks avoidance of the Transfers as fraudulent, pursuant to section 544(b) of the Bankruptcy Code and any applicable state fraudulent conveyance or transfer law. In Counts II, IV and VI of each Complaint, Enron seeks recovery, pursuant to section 550 of the Bankruptcy Code, of any of the Transfers that are deemed avoided, under Counts I, III and V of the respective Complaints, as preferential transfers or fraudu*681lent conveyances or transfers. In Count VII of each Complaint, Enron seeks disal-lowance of any claims of each defendant against Enron unless and until such defendant turns over, or pays the value, to Enron of any transferred property for which the defendant is determined to be liable to Enron pursuant to section 550 of the Bankruptcy Code.
On February 18 and 19, 2004, substantially all of the defendants in each of the adversary proceedings filed motions to dismiss their respective Amended Complaints.3 or joined in those motions to dismiss filed by others (the defendants who filed and/or joined in motions to dismiss are referred to collectively as, the “Defendants”). In the motions to dismiss, the Defendants argue that the counts of the Complaints seeking to avoid the Transfers as preferential payments, pursuant to section 547(b) of the Bankruptcy Code, and as fraudulent conveyances, pursuant to sections 544(b) and 548(a) of the Bankruptcy Code should be dismissed because the Transfers were “settlement payments” made to complete securities transactions and, as a matter of law, are protected from avoidance by sections 546(e) and 548(d)(2)(B) of the Bankruptcy Code' — the “safe harbor” provisions. The Defendants contend that the Transfers were payments by Enron for purchases of its outstanding commercial paper qualifying them as “settlement payments” to complete securities transactions. Further, the Defendants assert that because the Transfers were made by or to a stockbroker, financial institution or through a securities clearing agency, they are settlement payments protected by the “safe harbor” provisions of the Bankruptcy Code.
In addition, the Defendants argue that as a consequence of the Transfers not being subject to avoidance, the Counts of the Complaints which seek recovery of any avoided transfers, pursuant to section 550 of the Bankruptcy Code, or disallowance, pursuant to section 502(d) of the Bankruptcy Code, of other claims by the Defendants until the avoided Transfers are recovered also must be rejected. Certain of the Defendants also move to dismiss the counts of the Complaints seeking to disallow their other claims based on the fact that they have not filed any proofs of claim against the Debtors.
Enron opposes the Motions to Dismiss. Enron argues that, as a matter of law, the safe harbor provided for securities transactions by the Bankruptcy Code does not apply to the Transfers. First, Enron contends that the Transfers are not within the ambit of the protection afforded by the safe harbor provisions of the Bankruptcy Code because the Transfers were not purchases of securities. Rather, Enron maintains that the Transfers were payments for the early redemption of the Notes. Further, Enron contends that as prepayments for the Notes, the transactions were contrary to the terms of the pertinent offering documents. Enron maintains that it prepaid and redeemed the commercial paper by making full payment prior to its maturity. Therefore, Enron argues that the Transfers, made for early redemption of commercial paper at significantly above market price and contrary to the terms of the offering documents which prohibited such prepayments, were not “settlement payments” commonly used in the securities trade as required by section 546(e) of the Bankruptcy Code. Enron also argues *682that the safe harbor does not apply because its protection only extends to qualifying purchases and sales of securities, not to the payment or retirement of debt. Here, Enron argues, there was no trade or exchange of ownership of a security but, rather, the payment of a debt which extinguished the instrument. In addition, Enron contends that the safe harbor protection does not apply to the commercial paper because the question of whether it qualifies as a security, within the scope of section 546(c) of the Bankruptcy Code, is made by reference to the securities trade which does not recognize short-term commercial paper as a security. More specifically, Enron maintains that short-term, debt instruments, that are issued for the purpose of funding current operations and not for investment, are not commonly recognized as securities by the securities trade.
Enron concedes that a finding that there is an avoidable transfer is a predicate to its recovery, pursuant to section 550 of the Bankruptcy Code, or to the disallowance of defendants’ other claims, pursuant to section 502(d) of the Bankruptcy Code. Enron, however, maintains that the Transfers are not protected from avoidance by the safe harbor provisions of the Bankruptcy Code and, therefore, can be recovered and that until the payments or their value are recovered, they form the basis upon which to disallow defendants’ other claims. Enron, however, does not oppose the request of those Defendants who did not file a proof of claim to be excluded from Enron’s disallowance claim under section 502(d) of the Bankruptcy Code.4
A hearing on this matter was held before the Court on September 21, 2004.5
DISCUSSION
Fed.R.CivP. 12(b)(6) is incorporated into bankruptcy procedure by Fed. R. BankrP. 7012(b). In considering a Fed.R.Civ.P. 12(b)(6) motion to dismiss for failure to state a claim for relief, the court accepts as true all material facts alleged in the complaint and draws all reasonable inferences in favor of the plaintiff. Walker v. City of New York, 974 F.2d 293, 298 (2d Cir.1992). The motion to dismiss is granted only if no set of facts can be established to entitle the plaintiff to relief. Id.
In considering such a motion, although a court accepts all the factual allegations in the complaint as true, the court is “not bound to accept as true a legal conclusion couched as a factual allegation.” Papasan v. Attain, 478 U.S. 265, 286 106 S.Ct. 2932, 2944 92 L.Ed.2d 209 (1986). Thus, where more specific allegations of the complaint contradict such legal conclusions, “[g]eneral, conclusory allegations need not be credited.” Hirsch v. Arthur Andersen & Co., 72 F.3d 1085, 1092 (2d Cir.1995). Rather, to withstand a motion to dismiss, there must be specific and detailed factual allegations to support the claim. Friedl v. City of New York, 210 F.3d 79, 85-86 (2d Cir.2000).
“Although bald assertions and conclusions of law are insufficient, the pleading standard is nonetheless a liberal one.” Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir.1998). Pursuant to Fed.R.CivP. 8(a), which is made applicable to adversary proceedings by Fed. R. Bankr.P. 7008, in asserting a claim, the pleader need only set forth a short and plain statement of the claim showing that the pleader is entitled *683to relief. The purpose of the statement is to provide “fair notice” of the claim and “the grounds upon which it rests.” Conley v. Gibson, 355 U.S. 41, 47, 78 S.Ct. 99, 103, 2 L.Ed.2d 80 (1957). The simplicity required by the rule recognizes the ample opportunity afforded for discovery and other pre-trial procedures which permit the parties to obtain more detail as to the basis of the claim and as to the disputed facts and issues. Id. 355 U.S. at 47-48, 78 5.Ct. at 103. Based upon the liberal pleading standard established by Fed. R.Civ.P. 8(a), even the failure to cite a statute, or to cite the correct statute, will not affect the merits of the claim. Northrop v. Hoffman of Simsbury, Inc., 134 F.3d 41, 46 (2d Cir.1997). In considering a motion to dismiss, it is not the legal theory but, rather, the factual allegations that matter. Id.
In reviewing a Fed.R.Civ.P. 12(b)(6) motion, a court may consider the allegations in the complaint; exhibits attached to the complaint or incorporated therein by reference; matters of which judicial notice may be taken; Brass v. Am. Film Technologies, Inc., 987 F.2d 142, 150 (2d Cir.1993); and documents of which plaintiff has notice and on which it relied in bringing its claim or that are integral to its claim. Cortec Indus, v. Sum Holding, L.P., 949 F.2d 42, 48 (2d Cir.1991). However, mere notice or possession of the document is not sufficient. Chambers v. Time Warner, Inc., 282 F.3d 147, 153 (2d Cir. 2002). Rather, a necessary prerequisite for a court’s consideration of the document is that a plaintiff relied “on the terms and effect of a document in drafting the complaint.” Id. As such, the document relied upon in framing the complaint is considered to be merged into the pleading. Id. at 153 n. 3 (citation omitted). In contrast, when assessing the sufficiency of the complaint, the Court does not consider extraneous material because considering such would run counter to the liberal pleading standard which requires only a short and plain statement of the claim showing entitlement to relief. Id. at 154. Nevertheless, in considering a Rule 12(b)(6) motion, a court may consider facts as to which the court may properly take judicial notice under Fed.R.Evid. 201. In re Merrill Lynch & Co., Inc., 273 F.Supp.2d 351, 357 (S.D.N.Y.2003), citing, Chambers, 282 F.3d at 153.
To survive a motion to dismiss, a plaintiff only has to allege sufficient facts, not prove them. Koppel v. 1987 Corp., 167 F.3d 125, 133 (2d Cir.1999). A court’s role in ruling on a motion to dismiss is to evaluate the legal feasibility of the complaint, not to undertake to weigh the evidence which may be offered to support it. Cooper v. Parsky, 140 F.3d 433, 440 (2d Cir.1998).
Thus, for the purposes of the Motion to Dismiss, the Court accepts as true all of the material allegations in the Plaintiffs complaint.6
*684
The Safe Harbor Provisions
Section 546 of the Bankruptcy Code provides a “safe harbor” for certain types of transactions. The purpose of section 546 is “to protect the nation’s financial markets from the instability caused by the reversal of settled securities transactions.” Kaiser Steel Corp. v. Charles Schwab & Co., Inc. (In re Kaiser Steel Corp.), 913 F.2d 846, 848 (10th Cir.1990) (hereinafter, “Kaiser I”).
The routine purchase and sale of a security includes two opportunities for settlement, “street-side settlement” between the brokers and the clearing agencies and “customer-side settlement” between the broker and its customer. See Kaiser Steel Corp. v. Pearl Brewing Co. (In re Kaiser Steel Corp.), 952 F.2d 1230, 1237-38 (10th Cir.1991) (hereinafter “Kaiser II”). The proper functioning of the system depends on the “guarantees of performance made by all the parties in the chain affirming that they will honor their obligations despite a default by another party in the system.” See Jackson v. Mishkin (In re Adler, Coleman Clearing Corp.), 263 B.R. 406, 476 n. 47 (S.D.N.Y.2001).
In the securities industry, “any transfer of cash or securities made to complete a securities transaction is considered a settlement payment.” Walsh v. The Toledo Hosp. (In re Fin. Mgmt. Seis., Inc.), 261 B.R. 150, 154 (Bankr.W.D.Pa.2001). A settlement payment is a payment made to discharge a settlement obligation. Kaiser II, 952 F.2d at 1238 (citing Division of Market Regulation, Securities and Exchange Commission, The October 1987 Market Break at 10-5 (1988) (SEC Report)).
In enacting the section 546(e) exception to the avoidance powers, the goal was to preserve the stability of these settled transactions to the extent that they are not fraudulent as defined in section 548(a)(1)(A) of the Bankruptcy Code. Jackson v. Mishkin (In re Adler, Coleman Clearing Corp.), 263 B.R. 406, 477 (S.D.N.Y.2001). If settled transactions could be reversed, it would undermine confidence in the system of guarantees and could lead to the “ripple effect” of bankruptcy filings by other participants in the chain of guarantees. Id. The purpose of section 546(e) of the Bankruptcy Code was “to minimize the displacement caused in the commodities and securities markets in the event of a major bankruptcy affecting those industries.” Jewel Recovery, L.P. v. Gordon, 196 B.R. 348, 353 (N.D.Tex.1996) (quoting, H. Rep. No. 420, 97th Cong.2d Sess. 1 (1982), reprinted in 1982 U.S.C.C.A.N. 583).
When first enacted, section 546 of the Bankruptcy Code only applied to commodities market, however, in 1982, its scope was expanded to protect the securities market. Kaiser I, 913 F.2d at 848-49. Section 546(e) of the Bankruptcy Code provides that
Notwithstanding sections 544, 545, 547, 548(a)(1)(B), and 548(b) of this title, the trustee may not avoid a transfer that is a margin payment, as defined in section 101, 741, or 761 of this title, or settlement payment, as defined in section 101 or 741 of this title, made by or to a commodity broker, forward contract merchant, stockbroker, financial institution, or securities clearing agency, that is made before the commencement of the case, except under section 548(a)(1)(A) of this title.
11 U.S.C. § 546(e).
Section 548(d)(2)(B) of the Bankruptcy Code provides, in relevant part, that
a ... stockbroker, financial institution, or securities clearing agency that receives a ... settlement payment, as de*685fined in section ... 741 of this title, takes for value to the extent of such payment.
11 U.S.C. § 548(d)(2)(B).
Thus, section 546(e) and section 548(d)(2)(B) provides a safe harbor for settlement payments. In connection with the securities trade, “settlement payment” is defined in section 741(8) of the Bankruptcy Code which provides that:
“settlement payment” means a preliminary settlement payment, a partial settlement payment, an interim settlement payment, a settlement payment on account, a final settlement payment, or any other similar payment commonly used in the securities trade.
11 U.S.C. § 741(8).
In Enron Corp. v. Bear Stearns Int’l Ltd. (In re Enron Corp.), 323 B.R. 857, 865 (Bankr.S.D.N.Y.2005), this Court considered the arguments concerning the breadth of the term “settlement payment” and concluded that because the definition merely lists types of settlement payments, the reference in section 741(8) to “or any other similar payment commonly used in the securities trade” provided a basis upon which to get around the circularity of the definition and discern the meaning of the term “settlement payment.” Id. at 870. In Kipperman v. Circle Trust F.B.O. (In re Grafton Partners, L.P.), 321 B.R. 527, 538 (9th Cir. BAP 2005), the bankruptcy appellate panel determined that the clause made clear that to come within the definition, the payment must be “restricted to the securities trade and must be ‘commonly used.’” Id.
Even where a broad interpretation has been ascribed to the term “settlement payment,” it has been observed that the term had to be interpreted as it was “plainly understood within the securities industry.” See Kaiser II, 952 F.2d at 1237; see also, Official Comm, of Unsecured Creditors v. Asea Brown Boveri, Inc. (In re Grand Eagle Cos., Inc.), 288 B.R. 484, 492 (Bankr.N.D.Ohio 2003) (noting that the term settlement payment has been characterized as a technical word or term of art which requires reference to the industry usage of the term at the time of enactment); Adler, 263 B.R. at 475 (noting that it is clear that the provision is to be “defined with reference to the common understanding, practice and usage in the securities industry”). As such, to discern whether a payment is protected by the safe harbor provisions, a court must examine the operation of trades in the securities industry. Grafton, 321 B.R. at 538.
The transactions at issue were made prior to the maturity date of the Commercial Paper and contrary to the terms of the pertinent Offering Memorandum, which prohibited prepayment. Moreover, Enron has alleged that the payments were made at par, which was significantly more than the prevailing market price at the time of the Transfers. Enron maintains that early redemptions and prepayments are rare in the Commercial Paper market, especially when contrary to governing documents and at prices significantly higher than the prevailing market price, and therefore are unique and cannot be considered common in the securities industry. As the payments were contrary to the parties’ intentions at the time of the issuance of the offering documents, Enron argues that the Transfers were not to settle securities trades but, rather, were to prepay debt similar to the manner in which any borrower repays the principal and interest on a loan. At a minimum, Enron argues that evidence must be presented for the Court to determine whether the prepayment of commercial debt is ordinary or routine.
The Court concludes that because the § 546(e) safe harbor only pro*686tects from avoidance those settlement payments that are “commonly used in the securities trade” and because, on a motion to dismiss, the Court must accept Enron’s allegations as true, evidence must be presented as to whether payments made with respect to short-term commercial paper prior to the maturity date, at significantly above market prices and contrary to the offering documents in the midst of coercion by the holders of the commercial paper resulting from public announcements that make clear that the company is in a severe financial crisis constitute settlement payments commonly used in the securities trade.7 Thus, evidence must be presented as to whether this “particular transaction” could be “ ‘normally regarded’ as part of the settlement process.” Grafton, 321 B.R. at 540, citing, Adler, 263 B.R. at 431. Moreover, as noted by the Grafton court, the “decisions that involve outright illegality or transparent manipulation reject § 546(e) protection.” Grafton, 321 B.R. at 539. Thus, evidence must be presented on the issue of whether the Transfers were the result of the defendants’ manipulation.
Further, evidence is also necessary as to whether the Transfers were made to retire and extinguish the debt or to trade the securities. If the payments were made to retire the debt, the Court would need to address the issue of whether such payments — which were not then for the purchase, sale or loan of securities but were to satisfy the underlying debt obligation — are nonetheless settlement payments for purposes of § 546(e).
In opposing the constructive fraud claims, certain Defendants argue that the transfers were made for value, because they retired antecedent debt. This argument, however, is premature. First, a trial is required to resolve the factual issue of whether the Transfers were made to repurchase the Notes or to retire the debt represented by the Notes. At that juncture, if the Court concluded that the Transfers were made to repurchase the Notes, then there would be no transaction involving the payment of an antecedent debt to which to apply the “transfer for value” argument. Nevertheless, even upon such a finding, the Court would yet have to address the issue of whether the short-term commercial paper at issue qualifies as a security within the scope of section 546(e) of the Bankruptcy Code. The Court, however, would not have to address this latter issue if it were determined that the Transfers were made to retire the debt represented by the Notes.8
*687
CONCLUSION
The Court concludes that to qualify as a settlement payment protected by section 546(e) of the Bankruptcy Code from avoidance, the payment must be common in the securities trade. This is a factual issue requiring a trial. Further, evidence is required on whether the Transfers were a result of the defendants’ manipulation. Therefore, the defendants’ request for dismissal of the adversary proceedings at this stage should be denied.
If, after trial, it is found that the payments were to retire and extinguish the debt, the Court would need to address the issue of whether such payments qualify as settlement payments for purposes of § 546(e).
Further, the Defendants’ arguments with respect to “transfer of value” concerning the constructive fraud claims are premature as a trial is required to resolve the factual issue of whether the Transfers were made to repurchase the Notes or to retire the debt represented by the Notes. This is because if the Transfers were to purchase the Notes, there would be no antecedent debt to which to apply the value argument.
In addition, even if the payments were to repurchase the Notes, the Court would have to address the issue of whether the short-term commercial paper at issue qualifies as a security within the scope of section 546(e) of the Bankruptcy Code.
Counsel for the Debtors is to settle an order consistent with this Court’s Memorandum Opinion.
. The J.P. Morgan defendants are J.P. Morgan Securities Inc.; Goldman, Sachs & Co.; Lehman Commercial Paper Inc.; Allstate Life Insurance Company; DNB Asset Management (US), Inc., formerly known as Skandia Asset Management Inc.; UBS Global Asset Management (Americas) Inc., formerly known as Brinson Partners, Inc.; UBS Short-Term *678Relationship Fund, also known as BRF Short Term Fund; UBS Global Allocation Fund, also known as Global FD SEC; GMDD; Ban-co CentroAmericano de Integración Económi-ca, also known as Central American Bank for Economic Integration and 148621 Cabie A; Banco de Guatemala, also known as 148520 Banco Guatemala; UBS Global Securities Relationship Fund, also known as BRF GSP SEC Lending; UBS Global Asset Management (New York) Inc., also known as UBS Brinson; Saltash Enterprises; Harald and Joann McPike; J.P. Morgan Chase Bank N.A.; The Northern Trust Company; Kamilche Company; Collective Short Term Investment Fund of the Northern Trust Company; PIC Realty Company; Prudential Insurance Company of America; Prudential Plan-Futures Investment Fund; FRU/General Lending Collateral Acct. # PIC00006; Prudential Capital Management; Prudential International Insurance ABS Fund; PRU/PHMCMM7PIC00183; Prudential International Insurance High Yield Fund; Prudential Home Mortgage Co., Inc.; Prudential Merged Retirement Plan; US BanCorp Investments, Inc; FBS Investment Services; EchoStar Communications Corporation; Winco Foods Inc.; Electroim-pact Inc.; J.P. Morgan Securities of Texas, Inc., formerly known as Chase Securities of Texas, Inc.; Wilmington Trust Company; New Castle County; The Belo Company; GMP Companies, Inc.; Capital Assurance Company, Inc., also known as CAP Assur Co.; Marlon Management Services, Inc., also known as Marlon Insurance Company Ltd.; Brahms Funding Corporation; Dresdner Bank AG; Lehman Brothers International (Europe); Merrill Lynch Investment Managers, L.P., formerly known as Merrill Lynch Asset Management; Mitsubishi Trust and Banking Corporation; Merrill Lynch Tan-chuki Bond Open Mother Fund; Menlo Life Insurance Co,; Fremont General Corp.; Fremont Indemnity Co.; Fremong Pacific Insurance Co.; Abercrombie & Fitch Co., also known as Abercrombie & Fifth; Abercrombie & Fitch Stores, Inc.; Abercrombie Fitch Management Co.; Institutional AIM Floating Rate Fund; Inverban S.A., also known as Inver-bank S.A. HIC; San Faustin N.V.; Techint Financial Corporation Ltd.; Techint Curacao N.V.; Techint Investments N.V.; Techint Limited; Cascade Investments LLC; Cascade Driver Account-Larson Banco National de Mexico; Kelly Properties, Inc.; Aetna Inc.; Healthcare-Carolinas; US Health Care (N.Y. Health Care Plan Mid-Atlantic); Aetna Services Inc.; U.S. Healthcare of Pa.; Healthcare of Connecticut; Lion Connecticut Holdings Inc., formerly known as Aetna Life & Casualty; Health Plans of Texas; Health Plans of Florida; Frontier Health Plans; Health Plans of Arizona; Short Term Pool; Health and Life Insurance Co. Investment Croup; Banca Serfin S.A.; Charles Schwab Investment Management, Inc.,; Schwab Yield Plus Fund Money Market Fund Dept.; Banco Provincial Overseas, N.V.; Banco Espirito Santo, S.A., formerly known as Banco Espiri-to Santo & Commercial de Lisboa S.A., New York Branch; Scott & White Memorial Hospital Scott & White Clinic; Scott, Sherwood and Brindley Foundation; Fiserv Securities, Inc.; Lewis & Clark College; Dell Computer Products Europe Ltd., also known as Dell Products Ireland; Mony Life Insurance Company, formerly known as The Mutual Life Insurance Company of New York; 31 Series Fund-Money Market; 05 Div Govt/Corp Bond Port; 10 Div Intermed Govt. Port; 06 Div Equity Income; 76 MONY CB Acct.; 84 Usfl Life Insurance Co.; 06 Div Equity Income; The Mony Group Inc.; 07 Pooled Account # 7; Citibank, N.A.; Citi Institutional U.S. Corporate & Mortgage Bond Fund; Mony Capital Management, Inc.; Enterprise MM Portfolio, Acct. # 29; The Enterprise Money Market Portfolio; U.S. Financial Life Insurance Company (USFL); Enterprise Capital Management, Inc.; Diversified Investment Advisors, Inc.; Trusco Capital Management, Inc.; AXA Investment Managers, Inc. Also known as AXA Investment Managers North America, Inc.; AXA Court Terme; AXA IM EURO Liquidity; Fleet Capital Markets, a division of Fleet Securities, Inc.; Fleet National Bank; Analog Devices Inc.; UBS AG; Thri-vent Financial for Lutherans Investment Dept.; AAL Savings Plan International Money Market Investment Department; Mitsubishi Tokyo Financial Group; Brown Forman Corp.; Longnorth Ltd; TMS Bridge; ALFA, S.A. de C.V.
The Mass Mutual Defendants are Mass Mutual Life Insurance Co.; J.P. Morgan Securities Inc.; Goldman Sachs & Co.; David L. Babson & Company, Inc.; MTB Investment Advisors, Inc. Dk/a Allied Investment Advisors Inc.; Bank One Ohio Trust Company; Mass Mutual Prime Fund; CM Life Surplus Inv. Account; Mass Mutual Holding Co. — Seg. 83; Mass Mutual Core Bond Fund; CIA Internal Hedge Fund; Mass Mutual Balanced Fund; Mass Mutual Life Ins. Co. Gia Pooled Short Term Inv.; Mass Mutual; Investors Bank & *679Trust; The Northern Trust Company; American Society of Anesthesiologists; American Bar Endowment; American Dental Hygienists Associates; the Rock Foundation; Arthur Rock, Trustee of the Rock 1994 Charitable Remainder Unitrust Dtd 12/21/94; The Ara-gon Group Inc.; Jay H. Baker — Personal Account; Ridgestone Corporation; Merrill Lynch The Center for Radiation Therapy; Chicago Zoological Society — General Fund; Richard & Helen Devos Foundation; Jerry L. and Marcia D. Tubergen Foundation; Guil-ford Glazer, Trustee of the Guilford Glazer Trust of 1984 Dated May 15, 1984; Sengar; Bule Limited Partnership; Northern Trust Bank of Texas, Agent for the Estate of Ruth Ray Hunt — Mt Vernon SP. Agency Adv. Account; William I. Koch — Cash Account; Michael P. Krasny, Trustee of the Michael P. Krasny Revocable Trust Dated July 1, 1993; Edward T. McGowan, Mid Oaks Investments LLC, Furman C. Moseley & Susan R. Moseley, Coling Moseley, Eleanor M. Pollnow and Francisca M. Johnson, Co-Trustees of the Qualified Personal Residence Trust for Fur-man C. Moseley U/A December 30, 1992; Neal Family Foundation; Neal Family Revocable Family Trust; Douglas C. Roberts Trust; David K. Roberts Trust Dtd 9/27/89; Steven S. Roberts Trust Dtd 9/27/89; Jeffrey K. Roberts Trust Dtd 9/27/89; Seattle Center Foun-datin for McCaw Hall Campaign-Kreiel-sheimer; S. York and T. Torino, Co-Trustees of the Francis P. Torino Living Trust; Walton Enterprises II, LP; Mark White and Dana White Shea, Trustees of the Mark White Exempt Trust; Verisign, Inc.; University of Florida Foundation; Nuclear Electric Insurance LTD.; Collective Short Term Investment Fund of the Northern Trust Company; Merrill Lynch Investment Managers, L.P., formerly known as Merrill Lynch Asset Management; 7ME4-GM Cash Mgmt Master Trust; GMAM Investment Funds Trust, A Successor to General Motors Employees Global Group Pension Trust; General Motors Corporation; General Motors Investment Management Corporation; The General Motors Hourly-Rate Employees Pension Plan; The General Motors Retirement Program for Salaried Employees; The G.M. Special Pension Plan; Promark Enhanced Income Fund; General Motors Trust Company; State Street Bank & Trust Company; Nomura Asset Management USA Inc.; Nomura Bond Select Trust L-BST; Global Fund Management S.A.; Nomura Bank (Luxembourg) S.A.; The Bank of New York Company, Inc.; Blackrock Capital Management, Inc.; Deutsche Bank Securities, Inc., formerly known as Deutsche Banc Alex, Brown Inc.; Veritas Software Investment Corp.; Wilmington Trust Company; New Castle County; General Motors Welfare Benefit Trust; Enhanced Libor Plus; The Rock 1994 Charitable Remainder Unitrust Dated 12/21/94; The Guilford Glazer Trust of 1984 Dated May 15, 1984; The Estate of Ruth Ray Hunt; The Michael P. Krasny Revocable Trust Dated July 1, 1993, The Qualified Personal Residence Trust for Furman C. Moseley U/A December 30, 1992; The Francis P. Torino Living Trust; The Mark White Exempt Trust; Aeltus Investment Management Inc.; AIAF Equity 31R-500; ING VP Balanced Portfolio, Inc.; Lehman Commercial Paper Inc.; and AETNA Bond VP (AIS).
. The approximate accrued par value paid was the price originally paid for the commercial paper plus accrued interest.
. Several of the defendants filed pleadings indicating that they joined in the motions to dismiss filed by others and certain of those defendants filed their own motions to dismiss in addition to joining in the motions filed by others. Also, a few defendants filed their motions to dismiss subsequent to February 18 or 19, 2004.
. Enron, however, does oppose such relief with respect to Banco Espirito Santo which, according to Enron, did file a proof of claim contrary to the assertion in its motion.
. Pursuant to various stipulations and orders entered by the Court, certain of the defendants have been dismissed from these adversary proceedings.
. The Defendants attached a copy of the Confirmations to their motion and contend that even though Enron did not attach them to the Complaint, it relied on them in formulating the Complaint and therefore, the Confirmations can be considered by the Court. Enron argues that the Confirmations were not integral to the Complaint and that Enron only used them to ascertain the names of the parties to sue and the amounts of the trades. The Court finds that whether or not it considers the Confirmations is irrelevant to the outcome of this motion to dismiss because the characterizations of the transaction in the Confirmations are not dispositive. The Confirmations were created by the defendants without any input from or ratification by Enron. Under the circumstances present here, Enron cannot be bound, on a substantive basis, by the descriptions of the transactions contained in the Confirmations.
. The Defendants argue that even assuming that the “commonly used in the securities trade” phrase modifies all of the entries in § 741(8), it is the payment itself and not the transaction that must be common in the securities trade and that payment of money must be considered common in the securities trade. The Court, however, concludes that the analysis is not as narrowly focused as suggested by the Defendants. Rather, it is the payment as associated with the transaction that must be considered as a whole in determining whether the settlement payment is common in the securities trade.
. As a preliminary matter, certain of the foreign defendants alleged that they have insufficient contact with the forum to warrant a finding that they are subject to personal jurisdiction. For the reasons argued by Enron, including that the causes of action in the Complaints stem from the commercial paper transaction which the defendants conducted here, either directly or through an agent, the Court concludes that, at least for the purposes of the motion to dismiss, Enron has made a prima facie showing of the minimum contacts required to support specific jurisdiction over those defendants.
The Court has also considered the other arguments raised by certain Defendants in support of their respective motions to dismiss and finds them insufficient to warrant dismissal of the Complaints. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493737/ | MEMORANDUM-OPINION
JOAN LLOYD COOPER, Bankruptcy Judge.
This matter came before the Court for trial on the Motion to Enforce Injunction entered by the Court on February 4, 2003 of Plaintiff Kentucky Orthopedic Rehab Team, P.S.C. (“KORT”) against Defendants/Debtor PT Specialists PLLC a/k/a Physical Therapy Specialists, P.S.C. (“PTS” or “Debtor”) and Maltón Schex-neider (“Schexneider”). The Court having considered the testimony of the witnesses at trial, the submissions of the parties and the arguments of counsel, finds in favor of KORT on its Motion to Enforce this Court’s Order of February 4, 2003. The following constitutes the Court’s Findings of Fact and Conclusions of Law pursuant to Fed. R. Bankr.P. 7052.
FINDINGS OF FACT
On February 4, 2003, this Court entered an injunction in favor of KORT on its Verified Complaint restraining Defendants, their employees or agents from any future use or dissemination of KORT’s Policy and Procedures Manual and other KORT property for a period of five (5) years. For further background on the dispute resulting in the injunction, see the *620Court’s Findings of Fact and Conclusions of Law entered February 4, 2003.
On December 15, 2004, KORT filed its Motion to Reopen this adversary proceeding. In the Motion, KORT alleged that Defendants had violated the 2003 injunction and asserted a claim for monetary and injunctive relief. KORT specifically alleged that Debtor, Schexneider and then-agents and employees instructed third parties to use KORT’s Policy and Procedures Manual to obtain credentialing with health insurance companies and that they failed to return the Manual to KORT in violation of the injunction.
In December of 2004, Lawrence Benz, the CEO of KORT, received a telephone call from an individual involved in medical services who reported to him that Schex-neider and PTS were using KORT’s materials. This individual, Anthony Conti, later obtained a copy of the documents and gave them to Benz. The documents were identified as KORT’s Policy and Procedures Manual.
Benz contacted Schexneider and warned him not to continue his use of the Manual. Schexneider responded that it was a work-in-progress. Benz asked if he could come to PTS and evaluate the Manual. Schex-neider agreed to this request.
In January of 2005, Kim Maddox and Jason Chambers of KORT reviewed the documents that PTS claimed constituted its written Policy and Procedures Manual. They also interviewed PTS employee, Kristen Williams. Williams indicated that KORT’s Policy and Procedures Manual was still on PTS’ server and that PTS was continuing to use it. After this meeting, Benz was certain that Defendants were using KORT’s Policy and Procedures Manual in violation of the injunction.
Dana DeYoung, an employee of a company called Physician Practice Administration of Kentucky, Inc. (“PPAK”) had been hired by PTS to do billing and credentialing for PTS in 2002. PPAK helps medical practices with tasks such as collection, pre-certification of benefits and billing. In order to get the medical practice credentialed with a particular insurance company, DeYoung provided specifically requested information from the medical practice to the insurance company. This information included such things as copies of the medical malpractice policy declarations page, copies of licenses, and certain policies and procedures from the practice’s policies and procedures manual. In her initial discussions with PTS, she was asked to assist with credentialing. In order to perform these tasks she was given a PTS Policy and Procedures Manual. She identified the document as Exhibit 1. She last used the manual in PTS’ business in January and February 2003. No one with PTS asked her to return the manual. She gave the manual to Anthony Conti who returned it to Lawrence Bentz sometime in the fall of 2004.
In June of 2003, DeYoung was asked by Schexneider and Arnold Steyn to help with credentialing for a company called Spine Rehab Center.1 Steyn and Schexneider told her to use the same manual she had used for PTS. DeYoung identified portions of the KORT manual that she used in credentialing Spine Rehab Center.
Kim Maddox is the Vice President of Marketing for KORT. She helped put portions of the KORT manual together and helped customized it for each client. Maddox testified that she was one of the indi*621viduals who met with Schexneider and Williams to review the Policy and Procedures Manual that PTS was using in January of 2005. Williams told her that the KORT manual was still on their server and that they had continued to use the manual. The manual PTS was using contained much of the same information that KORT had used and that PTS was required to return to KORT pursuant to the injunction entered February 4, 2003.
Steyn, the controller for PTS was asked by Schexneider to prepare a new manual for PTS. He acknowledged that he used the index of the KORT manual as an outline for what they needed for PTS’ manual. Following entry of the 2003 injunction, Steyn was charged with gathering and returning all KORT materials to KORT. He was unaware that the KORT manual was on PTS’ server. Steyn disputed DeY-oung’s testimony that he gave DeYoung a copy of the KORT manual for credentialing purposes.
Williams, an employee of PTS, testified that in the spring of 2003 she was asked by Schexneider and Arnold Steyn to prepare a new policy and procedures manual for PTS. Steyn worked on the manual first and then gave it to her. She testified that she prepared parts of the manual by using the KORT manual that was still on PTS’ server. She incorporated parts from the KORT manual, changed headings, deleted and added parts. She completed the manual in May or June of 2003. She acknowledged that parts of the 2003 PTS manual are identical to KORT’s manual because she cut and pasted portions of the manual from the one on the PTS server. When she subsequently learned that use of the KORT manual violated a Court injunction, she prepared a third policy and procedur-als manual in February of 2005 without using the KORT manual.
Schexneider acknowledged'that the copy of the KORT manual on PTS’ server should have been destroyed in order to comply with the injunction. Schexneider also acknowledged that PTS did not create a new policy and procedures manual from scratch. It was his understanding that parts of the KORT manual were used by Williams in creating the PTS manual.
CONCLUSIONS OF LAW
The record is clear that Defendants violated the Court’s February 2003 injunction by failing to remove the KORT manual from its server. This violation was further compounded when Defendants’ employees used parts of the KORT manual to put together a new PTS policy and procedures manual. The issue before the Court is whether sanctions should be awarded for these violations.
The Court begins its analysis with Section 105 of Title 11 of the United States Bankruptcy Code. Section 105 provides, in pertinent part:
(a) The court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing for the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or appropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
This section of the Code vests bankruptcy courts with statutory contempt powers. Pertuso v. Ford Motor Credit Co., 233 F.3d 417, 423 n. 1 (6th Cir.2000).
KORT contends that this Court should find that PTS and Schexneider’s actions constitute both criminal and civil contempt. The difference between a finding of criminal contempt and a finding of *622civil contempt depends upon the nature of the sanction issued. Civil contempt sanctions are meant to coerce compliance or compensate a complainant for his actual losses. In re Stockbridge Funding Corp., 158 B.R. 914, 918 (S.D.N.Y.1993), citing United States v. United Mine Workers of Am., 330 U.S. 258, 302-04, 67 S.Ct. 677, 91 L.Ed. 884 (1947). Criminal contempt sanctions are intended to punish the wrongdoer or to vindicate a court’s authority. Id. Based upon the record before the Court, civil contempt sanctions are appropriate in this case.
Civil contempt sanctions for purposes of coercing Defendants’ compliance with the 2003 injunction would be meaningless at this stage. Subsequent to discovering that the KORT manual was still on PTS’ server and used by its employees to create part of the PTS manual, the copy on the server was deleted and PTS created another manual without using the KORT manual. The Court is persuaded at Defendants’ lack of bad faith by the evidence that Defendants voluntarily allowed KORT representatives to interview PTS’ employees and to view their PTS manual in January of 2005. This evidence helped establish that the use of the KORT manual was unwittingly used by Williams who had no knowledge of the terms of the 2003 injunction. This negates any finding of bad faith or malicious conduct on the part of Defendants in using the KORT manual.
An appropriate sanction in this instance would be compensation to KORT for the wrongful use of its proprietary property by PTS. The prior management agreement between KORT and PTS required PTS to pay KORT 9% of its monthly gross revenues. This agreement included services other than the creation of the Policy and Procedures Manual. Given the Court’s finding of lack of bad faith on PTS’ part and the absence of evidence on damages, other than the use of parts of the KORT manual, the Court finds an award to KORT of monetary damages equaling 2% of PTS’ monthly gross revenues for the period PTS used KORT’s materials is appropriate. The Court determines that this period of time was February 3, 2003, the date of the injunction, to February 1, 2005. The Court declines to award KORT its attorney’s fees.
CONCLUSION
For all of the above reasons, the Court GRANTS the Motion to Enforce Injunction of Plaintiff Kentucky Orthopedic Rehab Team, P.S.C. An Order incorporating the findings herein accompanies this Memorandum-Opinion.
ORDER
Pursuant to the Memorandum-Opinion entered this date and incorporated hereby by reference,
IT IS HEREBY ORDERED, ADJUDGED AND DECREED that the Motion to Enforce Injunction of Plaintiff Kentucky Orthopedic Rehab Team, P.S.C., be and hereby is, GRANTED.
IT IS FURTHER ORDERED, ADJUDGED AND DECREED that Defendants PT Specialists PLLC a/k/a/ Physical Therapy Specialists, P.S.C. and Maltón Schexneider shall pay Plaintiff Kentucky Orthopedic Rehab Team, P.S.C. 2% of its monthly gross revenues from February 3, 2003 to February 1, 2005.
. Spine Rehab Center is a company owned one-third by Schexneider, one-third by Anthony Conti and one-third by DeYoung's husband, Eric DeYoung. Eric DeYoung is currently in litigation with Schexneider regarding ownership of that company. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493738/ | ORDER GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
LEWIS M. KILLIAN, JR., Bankruptcy Judge.
THIS MATTER came before the Court for hearing on May 5, 2005, upon the Motion for Summary Judgment filed by Plaintiff Moltech Power Systems (“Moltech”), the debtor-in-possession in the Chapter 11 case. Moltech seeks to avoid as preferences certain payments it made to creditor Tooh Dineh. 11 U.S.C. § 547(b). Tooh Dineh claims these payments cannot be avoided because they were made within the ordinary course of business. 11 U.S.C. § 547(c)(2). This Court has jurisdiction under 28 U.S.C. § 1334, and this is a core proceeding under 28 U.S.C. § 157(b)(2)(F).
FACTS
Tooh Dineh and Moltech started doing business together in August, 1999. As Moltech’s supplier, Tooh Dineh procured electronic components and assembled electronic modules, which Moltech then used to manufacture batteries. The parties continued conducting business together until the end of April, 2001. On May 23, 2001, Moltech filed its Chapter 11 bankruptcy petition.
The uncontroverted facts upon which this opinion is based are reflected in the spreadsheet of payments and invoices provided by Tooh Dineh. According to this payment history, the amount of Moltech’s payments to Tooh Dineh in the time before the preference period averaged $15,097, and ranged between $90 and $77,768; over 85% of Moltech’s payments to Tooh Dineh were for less than $25,000. These payments were made an average of 47 days after the date of invoice, ranging between 26 and 109 days. 82% Of the payments Moltech made to Tooh Dineh were made within 60 days. In addition, Moltech made payments to Tooh Dineh in “batches” (where more than one invoice is paid with one check) throughout the course of their business relationship. Before the preference period, average batch size was about three invoices and ranged from 1-10; 82% of payments had a batch size of three or less.
During the 90 days preceding the date of filing of the bankruptcy petition, Mol-tech made three payments to Tooh Dineh totaling $148,323.62. Moltech concedes that, after crediting Tooh Dineh for the amount subject to the contemporaneous exchange defense and the amount for , new value, the amount of net preferences is $82,474. Moltech now seeks to avoid these payments as preferences under § 547(b). 11 U.S.C. § 547(b). In response, Tooh Dineh asserts the affirmative defense of § 547(c)(2), arguing that the payments were made in the “ordinary course of business.” ■ 11 U.S.C. § 547(c)(2). The issue is whether the challenged payments were in fact made in the ordinary course of business. For the reasons set forth herein, the motion for summary judgment will be granted because I find the challenged payments were not made in the ordinary course of business and, therefore, may be avoided.
*679DISCUSSION
Summary judgment is appropriate only “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.” Fed.R.Bankr.P. 7056(c) (making Fed. R.Civ.P. 56 applicable in' bankruptcy cases). No genuine issues of material fact remain unresolved in this case. “In reviewing a motion for summary judgment, the court must consider all the evidence in the light most favorable to the non-mov-ant.” Earley v. Champion Int’l. Corp., 907 F.2d 1077, 1080 (11th Cir.1990). Thus, the court will view the evidence in a light most favorable to non-movant Tooh Dineh. Accordingly, this court will rely upon the payment history chart provided by Tooh Dineh which represents the amount and date of all invoices and which has been attached as an appendix to this opinion.
The trustee or debtor-in-possession may avoid any transfer of property made to or for the benefit of a non-insider creditor within 90 days of filing for bankruptcy if the transfer was made while the Debtor was insolvent, on account of an antecedent debt, and enables the creditor to receive more than it would have in Chapter 7 liquidation. 11 U.S.C. §§ 547(b) and 1107. The purposes of the preference avoidance provision are to facilitate the policy of equal distribution among creditors and to frustrate extraordinary transactions which cause a race to the courthouse, inevitably resulting in dismemberment of the debtor. In re Marino, 193 B.R. 907 (9th Cir. BAP 1996). The parties do not dispute that the three challenged payments of March 5, 2001, March 22, 2001, and April 9, 2001 are preferential under § 547(b). However, the parties disagree as to whether these payments fall within the “ordinary course of business” exception. 11 U.S.C. § 547(c)(2).
Section 547(c)(2) provides an affirmative defense to creditors that receive payments which would otherwise be voidable preferences if those payments were made in the ordinary course of business. The burden is on creditor Tooh Dineh to establish this defense. In re A.W. & Associates, Inc., 136 F.3d 1439, 1441 (11th Cir.1998). The ordinary course of business exception has competing, yet complementary, objectives to the preference avoidance provision. In contrast to the provision allowing avoidance of preferences, the purpose of the ordinary course of business exception is to protect the normal, ordinary relationship between debtors and creditors engaged in recurring credit transactions. This exception was created to encourage creditors to continue to deal with troubled debtors without fear of having to disgorge payments, thus stalling bankruptcy and enabling the debtor to continue in business as a going concern, if appropriate. In re Issac Leaseco, 389 F.3d 1205 (11th Cir.2004); In re Molded Acoustical Products, Inc., 18 F.3d 217 (3rd Cir.1994); In re Furrs Supermarkets, Inc., 296 B.R. 33, 39 (Bankr.D.N.M.2003).
In order to find refuge in the ordinary course of business safe harbor, the creditor must prove: the debt was incurred by the debtor in the ordinary course of business; the payment was made in the ordinary course of business of the debtor; and, the transfer was made according to ordinary business terms. 11 U.S.C. §§ 547(c)(2)(A)-(C). This is a conjunctive test requiring the court to evaluate both the subjective business relationship as it existed between the parties, as well as objective industry standards in order to determine whether a given transaction was “ordinary.” In re A.W. & Associ*680ates, Inc., 136 F.3d 1439, 1442 (11th Cir.1998).
The parties do not dispute that Moltech incurred the debt underlying the challenged payments in its ordinary course of business, so § 547(c)(2)(A) is satisfied. The parties disagree as to whether the other two prongs of the ordinary course of business test have been met; that is, whether the payments were consistent with the subjective course of dealings that existed between the parties (as required by § 547(c)(2)(B)), and whether the payments were made according to objective industry standards (as required by § 547(c)(2)(C)).
The subjective, or vertical, prong of the ordinary course of business test evaluates the relationship that existed between the parties themselves and is a fact-intensive inquiry by nature. Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir.1991); See In re A.W. & Associates, Inc., 136 F.3d 1439, 1441-42 (11th Cir.1998); In re Furrs Supermarkets, Inc., 296 B.R. 33 (Bankr.D.N.M.2003). In essence, whether a given transaction was within the subjective ordinary course of business that had developed between the parties is a broad, fact-based inquiry requiring historic examination of the parties’ pre-preference period relations. These past relations are then compared to the subsequent business practices that occurred during the preference period to determine whether they were consistent with each other. In short, the question is whether the parties altered their credit arrangement. See In re Issac Leaseco, 389 F.3d 1205, 1210 (11th Cir.2004).
Under the subjective prong (§ 547(c)(2)(B)), the court will evaluate the parties’ prior course of dealings, the amount of payments, the timing of payments, and the circumstances surrounding the payment. In re L. Bee Furniture Co., 206 B.R. 989, (Bankr.M.D.Fla.1997); In re Empire Pipe and Development, Inc., 152 B.R. 1012 (Bankr.M.D.Fla.1993); In re Speco Corp., 218 B.R. 390 (Bankr.S.D.Ohio 1998). Stated more formally, the court will consider (among other factors): (1) the length of time the parties were engaged in the transaction in issue; (2) whether the amount or form of tender differed from past practices; (3) whether the debtor or creditor engaged in any unusual collection or payment activity; and (4) the circumstances under which the payment was made. In re Johns-Manville Corp., 60 B.R. 612 (Bankr.S.D.N.Y.1986); In re A.W. & Associates, Inc., 196 B.R. 900 (Bankr.N.D.Fla.1996), rev’d on other grounds 136 F.3d 1439 (11th Cir.1998); In re Homes of Port Charlotte, 109 B.R. 489 (Bankr.M.D.Fla.1990) (citing In re Websco, Inc., 92 B.R. 1 (Bankr.D.Me.1988)); In re Furrs Supermarkets, Inc., 296 B.R. 33, 40-41 (Bankr.D.N.M.2003) (noting that some courts use a different fourth factor, which is, “whether the creditor took advantage of the debtor’s deteriorating financial condition”).
Thus, the court will examine the pre-preference period business practice that existed between the parties in order to establish the ordinary course of business. After the ordinary course of business has been established, the transactions during the preference period are compared to determine whether they were made in a similar manner. In re Empire Pipe and Development, 152 B.R. 1012 (Bankr.M.D.Fla.1993). The relations of the debt- or and creditor are placed in a vacuum, and then the transfer in question is scrutinized for anything unusual or different from those relations. In re Furrs Supermarkets, Inc., 296 B.R. at 40-41. Though the entire course of dealing should be considered, some courts have indicated that the pre-preference baseline should be es*681tablished by focusing on a period well before the debtor started experiencing financial problems. Id. In addition, some courts have indicated that the ordinary course of business exception should be narrowly construed. In re M & L Business Machine Co., Inc., 84 F.3d 1330, 1339 (10th Cir.1996); In re Furrs Supermarkets, Inc., 296 B.R. at 41;
Courts have several mathematical tools at their disposal for establishing the ordinary course of business and comparing pre-preference transactions with preference period transactions. Most courts tend to use the range of terms that define the transaction, rather than considering only averages. In re Speco Corp., 218 B.R. 390, 399 (Bankr.S.D.Ohio 1998); See In re Furrs Supermarkets, Inc., 296 B.R. at 44 (discussing the virtues of ranges over averages when analyzing whether the third, objective prong of the ordinary course of business exception had been met). These courts have stated that averages alone can be misleading because they do not take into account seasonal variations and other considerations, resulting in inaccurate depictions of what the ordinary course of business actually was. In re Speco Corp., 218 B.R. at 399. However, use of range alone is not always appropriate, and averages are often taken into account as well. See In re Speco Corp., 218 B.R. at 399; In re Tennessee Valley Steel Corp., 203 B.R. 949, 955 (Bankr.E.D.Tenn.1996); In re National Enterprises, Inc., 172 B.R. 829, 832-33 (Bankr.E.D.Va.1994); In re CCG 1355, Inc., 276 B.R. 377, 383 (Bankr.D.N.J.2002); See also In re Global Tissue, 106 Fed.Appx. 99 (3rd Cir.2004) (criticizing averages, nonetheless).
It must be noted, however, that analysis by range under the subjective prong (§ 547(c)(2)(B)) is different from analysis by range , under the objective prong (§ 547(c)(2)(C)). Under the subjective prong of the ordinary course of business analysis, ranges should not be viewed in terms of absolute numbers between which the challenged preference period payments must fall. Rather, the range established before the preference period should be comparable to the range of payment terms during the preference period on both the low and high end to ensure that the range is not skewed by aberrational transactions. This is because common sense would seem to indicate that the court should be hesitant to embrace analysis by range when so doing would incorporate aberrations that artificially widen the range, thus presenting an inaccurate portrait of the actual ordinary course of business between the parties. See In re Speco Corp., 218 B.R. 390, 399 (Bankr.S.D.Ohio 1998).
Use of percentages in analysis, by the nature of the calculation itself, takes into account aberrations and variations that are skewed by use of ranges or averages. By evaluating the percentage that certain types of transactions took place between the parties, a more accurate depiction of the actual business relationship may be gleaned since the use of percentages automatically-represents the degree to which such transactions were recurring.
Thus, there is no single mathematical formula the court must use. In re Daedalean, Inc., 193 B.R. 204 (Bankr.D.Md.1996); See also Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497-98 (8th Cir.1991). Instead, the court may use any or all of these mathematical methods as tools by which to determine what the ordinary course of business between the parties actually was. Nevertheless, courts have-provided some guidance for establishing the ordinary course of business between the parties. For example, Lovett determined that, when certain business *682terms are adhered to only 21% of the time before the preference period, they are not ordinary. Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 499 (8th Cir.1991). Aberrational transactions should not define the ordinary course of business.
Once the ordinary course of business has been established, the question becomes how much preference period transfers must differ from pre-preference transactions before they become extraordinary. Courts have found that some consistency with the pre-preference period is necessary in order for the challenged payments to be held within the ordinary course of business. Lovett at 497-98 (finding that “substantial and significant delays in paying the bulk of invoices” during both the pre-preference and preference periods provided the requisite consistency). The Speco court determined that, when the creditor and debtor engaged in certain transactions on 21 separate occasions prior to the preference period, then similar transactions made during the preference period are within the ordinary course of business. In re Speco Corp., 218 B.R. 390, 398-99 (Bankr.S.D.Ohio 1998). Graphic Productions concluded that a challenged preference period payment made 84 days after the invoice date is within the ordinary course of business when pre-preference payments ranged from 64-148 days from invoice date and the average payment was 86 days from the invoice date. In re Graphic Productions, 176 B.R. 65, 70 (Bankr.S.D.Fla.1994). Julien held that a slight change of three to four days in the average number of days for payment does not take a transaction out of the ordinary course of business. In re Julien Co., 157 B.R. 834, 841-42 (Bankr.W.D.Tenn.1993) (emphasis added).
On the other hand, a lack of consistency between pre-preference and preference period transactions indicates that the latter were not made within the ordinary course of business. Courts have found that preference period transactions are not within the ordinary course of business when they substantially deviate from pre-preference period transactions. See In re Tennessee Chemical, 112 F.3d 234, 238 (6th Cir.1997). In Homes of Port Charlotte, there were generally 28-76 days between invoice and payment before the preference period; the court found an increase to 63-109 days during the preference period to be “clearly” outside the ordinary course of business. In re Homes of Port Charlotte, 109 B.R. 489, 490-91 (Bankr.M.D.Fla.1990) (emphasis added). Molded Acoustical Products held that an increase in the average number of days between invoice and payment from 58 before the preference period to 89 during the preference period is outside the ordinary course of business. In re Molded Acoustical Products, Inc., 18 F.3d 217, 228 (3rd Cir.1994). In CCG 1355, the court determined that the challenged payments were outside the ordinary course of business because all of the preference period payments were made later than 80 days after invoice, yet the average number of days between invoice and payment throughout the entire business relationship was 66.47, and only 16% of the pre-preference period payments were older than 80 days. In re CCG 1355, Inc., 276 B.R. 377, 381-82, 384 (Bankr.D.N.J.2002). The court found the jump in the average interval between invoice and payment from 66.47 to 89.5 (a difference of about 23 days) to be outside of the ordinary course of business. Id. at 382-84. The court buttressed its conclusion by noting that the challenged payments were considerably greater in amount than all but two of the pre-preference payments. Id. at 382, 384. With these guidelines in mind, I now turn to the transactions at issue in this case.
*683In evaluating the ordinary course of business defense, the first factor is the length of time the parties were engaged in the transaction at issue. The business relationship between Moltech and Tooh Dineh lasted from August, 1999 to April, 2001 (approximately 20 months). • The prepreference period lasted for 17 months, from August 13, 1999 (the date of the first invoice) to February 23, 2001 (90 days before the petition for bankruptcy was filed on May 23, 2001). This 17-month period establishes the ordinary course of business between the parties under § 547(c)(2)(B). During this pre-preference period, Moltech made 22 payments on 60 invoices to Tooh Dineh.
The second factor is whether the amount or form of tender differed from past practices. Before the preference period, over 85% of Moltech’s payments were for an amount less than $25,000. The average payment amount during this time period was $15,097. The payment amounts ranged from $90 — $77,768; however, reliance on range alone could result in an inaccurate depiction of the actual ordinary course of business because only 2 out of 22 payments before the preference period were for amounts greater than $40,213 (those made on October 4, 2000 and December 19, 2000, representing only 9.1% of the total payments).
In addition, Moltech made payments in “batches” (where multiple invoices are paid with one check) during the entire business relationship. 82% of the payments Moltech made before the preference period were in batches of three or less. Average batch size before the preference period was 2.95. Batch sizes ranged from 1-10 before the preference period. However, there was an unusually large batch of ten for the payment on October 4, 2000, which might be described as aberrational, as the next highest batch size was six.
The third factor is whether the debtor or creditor engaged in any unusual collection or payment activity. Moltech’s invoices indicate that payment was due within 30 days. However, late payments are not necessarily outside of the ordinary course of business if paying late was historically part of the ordinary course of business that had developed between the parties before the preference period. In re A.W. & Associates, Inc., 136 F.3d 1439, 1441-42 n. 7 (11th Cir.1998). Before the preference period, 82% of Moltech’s prepreference payments were made within 60 days of invoice. On average, Moltech paid the invoices within 47 days. The absolute range of Moltech’s pre-preference payments was 26-109 days after invoice; however, two payments might be viewed as aberrational: the 5/30/00 payment, which was made 83 and 109 days after invoice, and the 12/8/00 payment, which was made 39 and 94 days after invoice. Thus, Moltech generally made payments between 30 and 76 days after invoice.
The fourth factor is the circumstances under which the payment was made. In this case there has been no argument that there were any special circumstances surrounding the challenged transactions. Some courts consider whether the creditor took advantage of debtor’s deteriorating financial condition. In re Furrs Supermarkets, Inc., 296 B.R. 33, 40-41 (Bankr.D.N.M.2003). In the 11th Circuit, however, the creditor’s state of mind is immaterial in finding a preference. In re Craig Oil Co., 785 F.2d 1563, 1566 (11th Cir.1986).
Having established the ordinary course of business between the parties, the transfers made during the preference period are compared for consistency. In this case, the timing and amount of payments are the primary indicators that the preference period payments were not made in the ordinary course of business.
*684The date of delivery of the check determines the relevant date for purposes of the ordinary course of business exception under § 547(c). In re A.W. & Associates, Inc., 196 B.R. 900, 904 (Bankr.N.D.Fla.1996), rev’d on other grounds 136 F.3d 1439 (11th Cir.1998). Thus, the payment délivered on March 5, 2001 falls within the 90-day preference period, which began on February 21, 2001.
The March 5, 2001 payment was for a batch of 7 invoices, made 82-91 days after the invoices, for an amount of $49,178. At first glance, the March 5, 2001 payment seems to be within the absolute range of payment amounts ($90 — $77,768). However, only two payments made during the preference period were for more than $40,214. Cf. In re Speco, 218 B.R. at 399; Mossay v. Hallwood Petroluem, Inc., 1997 WL 222921 at *4 (N.D.Tx.1997). 86% of the pre-preference payments were for less than $25,000 (roughly half the amount of the challenged payment). Cf. Lovett 931 F.2d at 497-99. Furthermore, the average pre-preference payment amount was only $15,097, which is substantially lower than the March 5, 2001 payment (for $49,178). See In re CCG 1355, Inc., 276 B.R. 377, 382, 384 (Bankr.D.N.J.2002). An accurate representation of the ordinary course of business leads me to conclude that the amount of the March 5, 2001 payment was substantially higher than what had been established as ordinary in the time before the preference period.
The March 5, 2001 payment was for invoices 82-91 days old, which is quite different from the pre-preference absolute range of 26-109 days on the low end (compare 26 to 82). In addition, Moltech generally paid invoices within 30-76 days; when this range is compared to the March 5, 2001 payment range of 82-91, it would seem to be outside of the ordinary course of business. See Homes of Port Charlotte, 109 B.R. at 490-91. In addition, the average number of days between invoice and payment increased substantially (from 47 to 86, a difference of 39). See In re CCG 1355, Inc., 276 B.R. 377, 381-84 (Bankr.D.N.J.2002); In re Molded Acoustical Products, 18 F.3d at 228; In re Homes of Port Charlotte, 109 B.R. at 490-91; In re National Enterprises, 172 B.R. at 833. Further, only two payments took longer than 76 days before the preference period. Cf. In re Speco, 218 B.R. at 399. This is validated by the fact that only 18% of pre-preference payments took longer than 60 days. See Lovett 931 F.2d at 499; In re CCG 1355, 276 B.R. at 381-84 (Bankr.D.N.J.2002). Hence, the March 5, 2001 payment made 82-91 days after invoice took substantially longer than payments made before the preference period.
Furthermore, the change in batch size provides additional support for the conclusion that the March 5, 2001 payment was later and for a higher amount than what was ordinary before the preference period. Before the preference period, batch size ranged from 1-10; average batch size before the preference period was 2.95; 82% of the pre-preference payments were in batches of three or less. The batch size of the March 5, 2001 payment was seven. An increase in batch size of only one or two invoices standing alone is probably not enough to constitute “substantial deviation.” See In re Tennessee Chemical, 112 F.3d 234, 238 (6th Cir.1997); In re Speco, 218 B.R. 390, 399-400 (Bankr.S.D.Ohio 1998). However, the increase in batch size of roughly four here provides additional evidence that the payments made during the preference period were not ordinary.
The March 5, 2001 payment took substantially longer than almost all of the payments made before the preference period began. In addition, the payment was for a substantially higher amount than al*685most all of the payments made before the preference period. Furthermore, the payment included a larger batch size than most of the pre-preference payments. In light of these facts, the March 5, 2001 payment substantially deviated from past conduct and, therefore, cannot be said to be in the ordinary course of business.
The March 22, 2001 payment was for a batch of eight invoices, made 56-70 days after the invoices, for an amount of $49,084. The payment amount of $49,084 substantially deviated from the ordinary course of business for the same reasons that the March 5, 2001 payment of $49,178 constituted substantial deviation from the ordinary course of business in terms of amount.
Whether the number of days between invoice and payment before the preference period substantially deviated from the March 22, 2001 payment presents a closer question. The March 22, 2001 payment was made 56-70 days after the date of invoices. When this range is compared to the range established before the preference period (26-109), it is apparent that the low ends of the ranges are not consistent (compare 26 with 56). In addition, only 5 of 22(23%) pre-preference payments took longer than 56 days. See Lovett, 931 F.2d at 499; In re CCG 1355, Inc., 276 B.R. at 381-84; Cf. In re Speco, 218 B.R. at 399. Furthermore, the number of days between invoice and payment jumped from an average of 46.9 days before the preference period to an average of 63.9 days during the preference period, a 17-day difference. See In re Molded Acoustical Products, 18 F.3d at 228; Lovett, 931 F.2d at 497-99; In re CCG 1355, Inc., 276 B.R. at 381-84. Thus, this payment was significantly later than ordinary payments had been before the preference period.
The increase in batch size of the March 22, 2001 provides additional evidence that the payment was not made in the ordinary course of business. Like the March 5, 2001 payment, the batch size of eight is markedly higher than the pre-preference batch size (an average of three). When viewed in context, the March 22, 2001 transfer cannot be said to be in the ordinary course of business. The payment amount substantially deviated from the ordinary course of business, and the number of days between invoice and payment together with the batch size increased substantially.
The April 9, 2001 payment is quite similar to the March 22, 2001 payment. The April payment was for a batch of seven invoices, made 61-70 days after invoice, in the amount of $50,061. Based on the analysis for the March 5 and March 22 payments, this payment is also outside of the ordinary course of business. After having concluded that the March 5, 2001 payment amount of $49,178 substantially deviated from the ordinary course of business, it follows that the April 9, 2001 payment of $50,063 is also too high to be considered within the ordinary course of business. The April 9, 2001 payment, made 61-70 days after the invoices, is later than the March 22, 2001 payment already found to have been a substantial deviation. In addition, the April payment took longer than the average 47 days that payment ordinarily took, and was outside of the 60 days within which 82% of payments had previously been made. Like the March 5, 2001 payment, the batch size of seven for the April 9, 2001 payment is higher than the pre-preference batch sizes.
The factors in this case indicate that all three payments were not in the ordinary course of business. Some courts have said that only one inconsistent factor is enough to take a transfer out of the ordinary course of business. In re Laclede Steel Co., 271 B.R. 127, 131-32 (8th Cir. BAP *6862002). Here, more than one factor has been found to be extraordinary. The conclusion that the payments were not in the ordinary course of business in this case is compelled by the factors when they are viewed together. The payments were for a higher amount, took longer, and were for a larger batch size than the payments made during the preference period. Viewed in context and compared with the ordinary course of business that developed between the parties in its entirety, the factors indicate that the preference period payments substantially deviated from the ordinary course of business.
Finally, Tooh Dineh has argued that it had an evolving business relationship with Moltech, and therefore the preference period payments were made in the ordinary course of business as it was evolving between the parties. Obviously, the parties’ relationship may evolve, but such evolution causes analytical problems in determining what the ordinary course of business actually was. There must be an established course of business to which the court can compare the transactions during the preference period. While the parties are certainly free to adjust the terms of their business relationship over time, they cannot “evolve” their course of business into a series of voidable preferences. In this case, evaluation of the course of dealings between the parties does not reveal that the characteristics of the payments just preceding the preference period changed enough to be considered “evolving.”
CONCLUSION
For the reasons articulated above, I find that there are no genuine issues of-material fact in this case. Tooh Dineh has not met its burden of proving that the payments it received from debtor Moltech during the preference period were made within in the ordinary course of business. The payments made during the preference period substantially deviated from the ordinary course of business which had developed between the parties before the preference period in terms of amount, timing, and batch size.
Finding that the challenged payments were not made in the ordinary course of business under the subjective prong of § 547(c)(2)(B) is dispositive in this case. Therefore, it is unnecessary to determine whether the challenged transfers were ordinary according to industry standards under the objective prong of § 547(c)(2)(C). See In re A.W. & Associates, Inc., 136 F.3d at 1442. As a matter of law, the $82,474.00 preferential transfer at issue is not subject to the ordinary course of business defense found in 11 U.S.C. § 547(c)(2). Therefore, the transfer may be avoided. Accordingly, it is hereby
ORDERED and ADJUDGED that the Plaintiffs Motion for Summary Judgment is GRANTED.
APPENDIX
TOOH DINEH INDUSTRIES, INCORPORATED
ACCOUNTS RECEIVABLE AGING FOR MOLTECH POWER SYSTEMS, INC.
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*690[[Image here]] | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8493739/ | ORDER RE: MOTIONS FOR SUMMARY JUDGMENT
PAUL J. KILBURG, Chief Judge.
This matter came before the undersigned on June 30, 2005 on Motions for Summary Judgment filed by Plaintiff and by Defendants First Security State Bank (“FSSB”) and John Deery Motors, Inc. (“Deery Motors”) (collectively “Defendants”). Plaintiff/Trustee Sheryl Schnittjer was represented by attorneys Wes Huisinga and Marty Sutcliffe. Defendants FSSB and Deery Motors were represented by attorney Richard Hansen. After hearing arguments of counsel, the Court took the matter under advisement. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(F).
STATEMENT OF THE CASE
Debtors bought a vehicle from Deery Motors. After receiving an assignment of the security agreement from Deery Motors, FSSB noted its lien on the title of the vehicle. Trustee seeks to avoid the lien as a preference and requests summary judgment. FSSB and Deery Motors request summary judgment in their favor.
STATEMENT OF FACTS AND ARGUMENTS
Debtors filed their bankruptcy petition on' March 21, 2005. Less than 90 days before the petition date, on January 24, 2005, FSSB’s lien was noted on the title to Debtors’ vehicle, a 2002 Dodge Intrepid. Trustee seeks to avoid the lien as a preferential transfer under § 547(b).
FSSB and Deery Motors assert the earmarking doctrine in defense of Trustee’s preference action. They assert FSSB’s lien merely replaced a previous lien on the title, resulting in no loss to Debtors’ bankruptcy estate. They also raise the “new value” defense under § 547(c)(1).
The parties agree the following facts are undisputed.
12/4/04 Debtors purchase the car from Deery Motors and sign installment contract/security agreement naming Deery Motors as “Creditor-Seller.”
12/23/04 Lien of First Midwest Bank is noted on title.
1/13/05 First Midwest Bank signs release of its lien and returns the title to Deery Motors.
1/21/05 Debtor Patsy Rounds signs Application for Notation of Security Interest of FSSB.
1/24/05 Lien of FSSB is noted on title. 3/21/05 Debtors file Chapter 7 petition.
Deery Motors first assigned Debtors’ contract to First Midwest Bank and had a lien noted in its name. According to the affidavit of Ryan Davis, a former employee, Deery Motors had a standing relationship with First Midwest Bank to accept assignments of Retail Installment contracts. However, First Midwest Bank rejected the assignment of Debtors’ contract, signed a release of its lien and returned the title to Deery Motors. Deery Motors then assigned the contract to FSSB. FSSB’s lien was noted on the title the same day First Midwest Bank’s was released.
Trustee argues that First Midwest Bank did not have a perfected lien on the car. She asserts Deery Motors’ assignment of *135the contract to First Midwest Bank was invalid because the bank did not accept it. Defendants argue that the assignment was valid according to the custom and practice of the parties and resulted in an equitable assignment.
CONCLUSIONS OF LAW
It is axiomatic that summary judgment may only be granted when there are no facts in controversy. The Eighth Circuit recognizes “that summary judgment is a drastic remedy and must be exercised with extreme care.” Wabun-Inini v. Sessions, 900 F.2d 1234, 1238 (8th Cir.1990). In considering a motion for summary judgment, the Court must determine whether the record, viewed in a light most favorable to the nonmoving party, shows that there is no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law. In re Cochrane, 124 F.3d 978, 981-82 (8th Cir.1997). The moving party has the burden of showing that there is no genuine issue of material fact. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986).
PREFERENTIAL TRANSFERS
Section 547 of the Bankruptcy Code permits Trustee to recover preferential transfers made to creditors shortly prior to filing the bankruptcy petition. In order for a transfer to be subject to avoidance as a preference there must be (1) a transfer of an interest of the debtor in property; (2) on account of an antecedent debt; (3) to or for the benefit of a creditor; (4) made while the debtor was insolvent; (5) within 90 days prior to the commencement of the bankruptcy case; (6) that left the creditor better off than it would have been if the transfer had not been made and the creditor had asserted its claim in a Chapter 7 liquidation. In re Interior Wood Prods. Co., 986 F.2d 228, 230 (8th Cir.1993); 11 U.S.C. § 547(b).
NEW VALUE
A transaction is not a preferential transfer, even if made on the eve of bankruptcy, if the creditor provides new value in exchange for the debtor’s contemporaneous transfer of, for example, a security interest. In re Dorholt, Inc., 224 F.3d 871, 873 (8th Cir.2000). To qualify for this exception, a creditor must prove that an otherwise preferential transfer was (A) intended by the debtor and the creditor to be a contemporaneous exchange for new value given to the debtor; and (B) in fact a substantially contemporaneous exchange. In re Jones Truck Lines, Inc., 130 F.3d 323, 327 (8th Cir.1997); 11 U.S.C. § 547(c)(1). “Contemporaneous new value exchanges are not preferential because they encourage creditors to deal with troubled debtors and because other creditors are not adversely affected if the debtor’s estate receives new value.” Id. at 326.
As Trustee points out, the definition of “new value” specifically excludes “an obligation substituted for an existing obligation.” 11 U.S.C. § 547(a)(2). “Substituted obligation” cases are those in which a creditor postpones collecting debts by substituting a new obligation of the debtor for the old one. In re Bellanca Aircraft Corp., 850 F.2d 1275, 1281 (8th Cir.1988) (considering a creditor’s payment of the debtor’s debts to third parties). The substitution of obligation, within the meaning of § 547(a)(2), contemplates two obligations both of which involve precisely (a) the same obligee, and (b) the same essential terms. In re Foxmeyer Corp., 286 B.R. 546, 565 (Bankr.D.Del.2002).
EARMARKING
According to the earmarking doctrine, there is no avoidable transfer of *136the debtor’s property interest when a new lender and a debtor agree to use loaned funds to pay a specified antecedent debt, the agreement’s terms are actually performed, and the transaction viewed as a whole does not diminish the debtor’s estate. No avoidable transfer is made because the loaned funds never become part of the debtor’s property. Instead, a new creditor merely steps into the shoes of an old creditor. Application of the earmarking doctrine is not limited to situations in which the new creditor is secondarily hable for the earlier debt, but extends to situations where “any third party ... pays down a debt of the debtor ... because [the] payments ... would have no effect on the estate of the debtor.” “[RJegardless of the lender’s prior relationship with the debtor, or lack thereof, replacing one creditor with another of equal priority does not diminish the estate and thus no voidable [transfer] results.” Thus, the doctrine applies when a security interest is given for funds used to pay secured debts, but not when a security interest is given for funds used to pay an unsecured debt.
In re Heitkamp, 137 F.3d 1087, 1088-89 (8th Cir.1998) (citations omitted).
On first glance, the earmarking doctrine applies to this case. FSSB received a security interest from Debtors for funds used to pay off an existing debt secured by Debtors’ car, i.e. the debt to Deery Motors, assigned to First Midwest Bank who had its name on the title to the car as lienholder. This substitution of creditors does not diminish the estate, and Trustee is unable to prove the first element of a § 547(b) preference claim.
VALIDITY OF ASSIGNMENT
Trustee, however, disputes the validity of First Midwest Bank’s lien. She argues Deery Motors’ assignment to the bank was invalid because the bank never accepted the assignment. Defendants assert that First Midwest Bank’s lien was properly perfected. They also argue the transaction between Deery Motors and First Midwest Bank constitutes an equitable assignment.
To accomplish a valid assignment in Iowa, “there must be a perfected transaction between the parties, intended to vest in the assignee a present right in the thing assigned.” The evidence must show the intent of the parties to effect an assignment. No particular form of assignment is necessary.
In re Wagner, 144 B.R. 430, 437 (Bankr. N.D.Iowa 1991), aff'd 173 B.R. 916 (N.D.Iowa 1994) (citations omitted). For the transaction, or contract, to be valid, the parties must express mutual assent to the terms of the contract. Schaer v. Webster County, 644 N.W.2d 327, 338 (Iowa 2002). Mutual assent is based on objective evidence, not on the hidden intent of the parties. Id. An offer and an assent manifested by act or conduct constitute a contract. Tralon Corp. v. Cedarapids, Inc., 966 F.Supp. 812, 822 (N.D.Iowa 1997). An offer is a manifestation of willingness to enter into a bargain and an acceptance is a manifestation of the assent to the offer, as evaluated under an objective standard. Id.
Likewise, an equitable assignment is defined as “(a)ny words or transaction which show an intention on one side to assign and an intention on the other to receive, if there is valuable consideration”. In re Wagner, 173 B.R. 916, 919 (N.D.Iowa 1994); Fischer v. Klink, 234 Iowa 884, 14 N.W.2d 695, 698 (Iowa 1944).
CONCLUSIONS
Based on the foregoing, the Court concludes that summary judgment is not ap*137propriate. A genuine issue of material fact exists regarding the validity of Deery Motors’ assignment to First Midwest Bank. The affidavits presented by Defendants assert the bank state that Deery Motors had a standing relationship with First Midwest Bank to accept such assignments. Trustee, however, argues that the assignment was not accepted by First Midwest Bank, but was affirmatively rejected. If the bank initially accepted the assignment, the Court believes this case fits within the earmarking doctrine and/or the “new value” defense. If not, these defenses probably do not apply.
WHEREFORE, both Trustee’s and Defendants’ Motions for Summary Judgment are DENIED.
FURTHER, the scheduling clerk shall set a status conference in this proceeding to set a date for a trial on the validity of the assignment between Deery Motors and First Midwest Bank. | 01-04-2023 | 11-22-2022 |
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