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https://www.courtlistener.com/api/rest/v3/opinions/8494390/ | MEMORANDUM DECISION GRANTING THE TRUSTEE’S MOTION FOR PARTIAL SUMMARY JUDGMENT CONCERNING DEBTOR’S BUSINESS RECORDS AND WITHHELD DOCUMENTS
R. KIMBALL MOSIER, Bankruptcy Judge.
Kenneth A. Rushton, is the Chapter 71 trustee (Trustee) in the involuntary Chapter 7 bankruptcy proceeding of C.W. Mining Company (Debtor), and is the plaintiff in this adversary proceeding. Defendant Woodbury & Kesler, P.C. (Woodbury), is a Utah professional corporation doing business in the state of Utah. Defendant Russell S. Walker (Walker), is an individual residing in the state of Utah and is a shareholder of Woodbury. On or around September 1, 2009, the Trustee commenced this adversary proceeding seeking, in part, the turnover of certain document from Woodbury and Walker (collectively the Defendants). On January 29, 2010, the Trustee filed a motion for partial summary judgment which came before the *46Court on April 5, 2010. The motion for partial summary judgment was taken under advisement. On April 20, 2010, the Honorable Judith A. Boulden recused herself. As a result of Judge Boulderis recu-sal, the C.W. Mining case and all related adversary proceedings were reassigned to this Court. A renewed hearing on the Trustee’s motion for partial summary judgment came before the Court on May 14, 2010, and was taken under advisement. This memorandum decision addresses the portion of the summary judgment relating to the turnover of documents. The Court now grants, in part, the Trustee’s motion for partial summary judgment concerning debtor’s business records and withheld documents for the reasons set forth below.
I. JURISDICTION & LEGAL STANDARD
This Court has jurisdiction under 28 U.S.C. §§ 1384 and 157(a), and venue is appropriate under 28 U.S.C. §§ 1408 and 1409. This is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (E) and (O), and the Court may enter a final order.
II. UNDISPUTED FACTS
An involuntary chapter 11 petition was filed against the Debtor on January 8, 2008. Shortly after the involuntary petition was filed, Woodbury and Walker filed an ex parte application to employ Wood-bury and specifically Walker, as special counsel for the Debtor. On March 7, 2008, Debtor filed a supplemental memorandum in support of the appointment of Wood-bury as special litigation counsel. On March 13, 2008, the Court entered an order authorizing the employment of Wood-bury as special counsel. The Order appointing Woodbury provided that in the event the Court enters an order for Relief in the involuntary Chapter 11 case, Wood-bury may reapply for appointment as Special Counsel for the debtor or debtor in possession.
A hearing was conducted to adjudicate whether an Order for Relief should be granted in the involuntary petition. Defendants, representing the involuntary Debtor, argued that the petition should be dismissed because the petition creditors did not hold qualifying claims. On September 25, 2008, the Court granted the Order for Relief under § 303. The Debtor appealed the Order for Relief. The Bankruptcy Appellate Panel affirmed the bankruptcy court’s decision and the Debtor has taken its appeal to the 10th Circuit Court of Appeals where it is presently pending.
The case was converted to a case under chapter 7 on November 13, 2008 and Kenneth Rushton was appointed as the chapter 7 Trustee (Trustee).
On April 8, 2009, after being asked by the Trustee to turn over documents relating to the case, Defendants declined to turnover some of the requested documents, and instead provided the Trustee with a privilege log. The privilege log identified three groups of document: (1) “Attorney’s notes from files, meeting, depositions, hearings;” (2) “Research memo-randa, outlines for hearings[,] evidence and legal argument[s], and cases regarding various issues” and (3) “Spread sheets [sic] regarding assets and liabilities.”2 All of the documents identified on the privilege log, which are collectively referred to as the ‘Withheld Documents,” were created between January 18, 2008, and November 11, 2008. Defendants decline to turnover the Withheld Documents claiming that they are protected as attorney work product.
*47On September 1, 2009, the Trustee commenced this adversary proceeding. The first cause of action of the Trustee’s complaint seeks turnover of the Withheld Documents under §§ 521(a)(4) and 542(e). Defendants oppose the motion for summary judgment arguing that the Withheld Documents are entitled to attorney work product privilege because the Debtor’s appeal with respect to the Order for Relief is still pending, the Debtor and the Trustee remain adverse to one another in name and interest, and the Debtor and the Trustee do not share a common interest in pursuing pending litigation.
III. DISCUSSION
Summary judgment is appropriate if there is no genuine issue as to any material fact and the movant is entitled to judgment as a matter of law. In making this determination, the court must examine the record and all reasonable inferences that might be drawn from it in the light most favorable to the non-moving party. The mere existence of some alleged factual dispute between the parties will not defeat an otherwise properly supported motion for summary judgment. A conclusory allegation is insufficient to establish an issue of fact under Rule 56.3
The burden of showing that no genuine issue of material fact exists must be borne by the moving party. “Where ... the moving party does not bear the ultimate burden of persuasion at trial, [the moving party] may satisfy this burden by identifying ‘a lack of evidence for the nonmovant on an essential element of the nonmovant’s claim.” ’4
Defendants argue that the “attorney notes” and the “research memoranda” are not recorded information relevant to the estate’s property and financial affairs under §§ 521(a)(4) and 542(e). The Trustee argues that the attorney notes and research memorandum were prepared in representing the debtor and therefore must relate to the estate’s property or financial affairs. “[T]he scope of § 541 is broad and should be generously construed ....”5 As a matter of law, documents prepared while representing a debtor-corporation are property of the estate, as are documents, records, or papers relating to property of the estate.6 As a result, the Withheld Documents are property of the bankruptcy estate and must be turned over to the Trustee unless Defendants can show that the Withheld Documents are protected by privilege.
The party asserting a work product privilege as a bar to discovery must prove the doctrine is applicable. “A mere allegation that the work product doctrine applies is insufficient.”7 “Unsubstantiated *48allegations carry no probative weight in summary judgment proceedings.”8 Defendant’s bare assertion of attorney work product privilege, with nothing more is insufficient. Defendants provide nothing to support their assertion of privilege other than to provide a description of each of the three types of documents and argue that the Debtor and the Trustee are adverse to each other. Defendants offer no information or explanation concerning the nature or information contained in the “files, meetings, depositions and hearings” from which the attorney notes are taken. Defendants offer no information or background information to describe the nature and content of the “research memoranda, outlines for hearingsf,] evidence and legal arguments], and cases regarding various issues,” nor do Defendants offer any explanation of why “[sjpread sheets [sic] regarding assets and liabilities” should be withheld from the trustee charged with the duty to administer this estate as attorney work product. Defendants have failed to produce redacted copies of the Withheld Documents from which the Court could evaluate the merits of Defendant’s claim of attorney work product privilege.
“[F]or a genuine issue of material fact to exist, the nonmovant must present facts upon which a reasonable [trier of fact] could find in favor of the nonmovant.”9 The mere existence of a scintilla of evidence in support of the nonmovant’s position is insufficient to create a genuine issue of material facts. As a result, the Court must grant Trustee motion for summary judgment with respect to turnover of the Withheld Documents.
Even assuming that the Withheld Documents are subject to the work product privilege, the facts alleged by the Trustee, support a judgment ordering the turnover of the Withheld Documents as a matter of law. Federal Rule of Civil Procedure 2610 permits disclosure of documents and tangible things constituting attorney work product upon a showing of substantial need and inability to obtain the equivalent without undue hardship.11 The Trustee argues that he has a substantial need for turnover of the Withheld Documents because they are necessary to the Trustee in order to prove the claims asserted by the Trustee in his Tenth Claim for Relief in Adversary Proceeding 09-2248 and because the Withheld Documents are necessary to support the Trustee’s allegations of bad faith concerning the Debtor’s management and shareholders. Where production of facts is essential to the preparation of one’s case, discovery of an attorney’s work product may properly be had where the information is otherwise no longer available or can be reached only with difficulty.12 The Court recognizes that the burden rests on the one who would invade that privacy to establish adequate reasons to justify production of documents protected by attorney work product privilege. Here, the Trustee has carried his burden to show that turnover of the Withheld Documents is *49necessary to assist the Trustee with administration of the estate and with pending litigation.
Having determined that Defendants have failed to carry their burden with respect to supporting their assertion of attorney work product privilege and having determined that the Trustee has made a showing that the Withheld Documents contain information that cannot otherwise be obtained without undue hardship and that the information goes to the heart of issues which the Trustee is currently litigating, the Trustee has properly supported his motion for summary judgment.
“Once the moving party has properly supported its motion for summary judgment, the burden shifts to the nonmoving party to go beyond the pleadings and set forth specific facts from which a reasonable [trier of fact] could find in favor of the nonmoving party.”13 Defendants have offered no specific facts to support their assertion of the attorney work product privilege and have offered no specific facts to counter the Trustee’s motion for summary judgment concerning turnover of the Withheld Documents, accordingly this Court will grant Trustee’s motion for partial summary judgment and will order turnover of the Withheld Documents.
. All subsequent statutory references are located in Title 11 unless otherwise indicated.
. Privilege Log, Compl. Ex. L, Dkt. # 1.
. Barber ex rel. Barber v. Colo. Dep't of Revenue, 562 F.3d 1222, 1228 (10th Cir.2009) (citing Bruner v. Baker, 506 F.3d 1021, 1025 (10th Cir.2007)).
. Adamson v. Multi Cmty. Diversified Servs., Inc., 514 F.3d 1136, 1145 (10th Cir.2008) (quoting Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 671 (10th Cir.1998)).
. Parks v. FIA Card Servs., N.A. (In re Marshall), 550 F.3d 1251, 1255 (10th Cir.2008) (citation omitted) (alteration in original).
. To the extent that Trustee seeks the Withheld Documents to support his allegations of bad faith on the part of former management or shareholders, the Withheld Documents are property of the estate. Delgado Oil Co., Inc. v. Torres, 785 F.2d 857, 860 (10th Cir.1986) (“[Property of the estate] includes any right of action the debtor corporation may have to recover damages for misconduct, mismanagement or neglect of duty by a corporate officer or director. The trustee in bankruptcy succeeds to that right. Its nature is derivative.”)
. Resolution Trust Corp. v. Dabney, 73 F.3d 262, 266 (10th Cir.1995).
. Bones v. Honeywell Int’l Inc., 366 F.3d 869 (10th Cir.2004) (citation, omitted).
. Johnson v. Lindon City Corp., 405 F.3d 1065, 1068 (10th Cir.2005).
. This rule is applicable to this proceeding by Federal Rule of Bankruptcy Procedure 7026.
. Upjohn Co. v. United States, 449 U.S. 383, 400, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981).
. See Hickman v. Taylor, 329 U.S. 495, 67 S.Ct. 385, 91 L.Ed. 451 (1947).
. Bennett v. Quark, Inc., 258 F.3d 1220, 1224 (10th Cir.2001). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494391/ | OPINION
1
BRENDAN LINEHAN SHANNON, Bankruptcy Judge.
Before the Court are three motions to abstain, retransfer, and remand. The motions have been filed by various producers of oil and gas (the “Producers”) who sold oil and gas to the Debtors shortly before they filed for bankruptcy protection in this Court. By the motions, the Producers ask this Court to retransfer and remand to state court three actions that have been removed and thereafter transferred to this District by federal judges in Oklahoma and Kansas and then referred to this Court, or alternatively, to abstain from hearing these actions in favor of the courts in which they were initially filed. Because the Court finds that it has “related-to” subject matter jurisdiction over the Producers’ claims against the Tender Parties2 and the Claim Parties, the Court will not retransfer and remand the actions that implicate these claims. The Court also finds that abstention does not apply to those actions, such that the claims against the Tender Parties and the Claim Parties will therefore be heard in this Court. However, the Court finds that it lacks “related-to” jurisdiction over the claims against the No-Claim Parties. Because the actions at bar against the Non-Tender Parties implicates the Producers’ claims against both the No-Claim Parties and the *264Claim Parties, the Court will retain this action but dismiss the claims against the No-Claim Parties therein.3 Dismissal will be without prejudice to the plaintiffs’ right to prosecute such claims in the court in which this action was initially filed. The Court also finds that abstention is neither appropriate nor warranted with respect to these actions, such that they will therefore be heard in this Court.
I. INTRODUCTION
The motions presently before the Court relate to two separate groups of defendants, all of whom purchased oil and gas from the Debtors. The first two motions (collectively, the “Tender Parties Motions”) [Adv. No. 10-51825, Docket No. 4; and Adv. No. 10-51797, Docket No. 3] relate to the “Tender Parties,” so called because they tendered funds into the Debtors’ estates during the pendency of the Debtors’ consolidated bankruptcy cases on account of the amounts they owed the Debtors for the oil and gas that they purchased from the Debtors.4 The Tender Parties played an active role in the Debtors’ consolidated bankruptcy eases, and the Court has already considered and ruled upon its subject matter jurisdiction over the adversaries filed in the Court by the Tender Parties (the “Tender Adversaries”) against certain Producers,5 seeking a declaratory judgment that their prior tender has relieved them of any obligation to the Producers on account of the oil and gas they purchased from the Debtors. See ConocoPhillips Co. v. Semgroup, L.P. (In re SemCrude, L.P.), 428 B.R. 82, 100 (Bankr.D.Del.2010) (finding that the Court possesses “related-to” subject matter jurisdiction over the Tender Adversaries), appeal dismissed, Civ. Nos. 10-447, 10-448, 10-449, 10-450, 10-451, 10-452, 10-452, 10-453, 10-454, 10-455, 10-456, 10-457, 10-458, 10-459, 10-460, 10-460, 10-461, 10-462, 10-463, 10-464, 10-465, 10-466, 10-467, 10-468, 10-469 (SLR), 2010 WL 4537921, at *5-6 (D.Del. Oct.26, 2010). On July 30, 2010, the Court permitted the Tender Parties who had moved to amend their complaints in the Tender Adversaries to substitute the Producers not previously named as defendants for the “John Does 1 *265to 1,000” placeholder.6 It is these and other Producers who are the plaintiffs in the three actions at bar. Through the Tender Parties Motions, the Producers ask the Court to find that it does not possess subject matter jurisdiction over the two actions by the Producers against the Tender Parties filed in and removed from Oklahoma and Kansas state courts, and subsequently transferred to this District and referred to this Court, or alternatively, to abstain from hearing these actions in favor of the courts in which they were originally filed.
The third motion (the “Non-Tender Parties Motion”) [Adv. No. 10-51828, Docket No. 4] relates to numerous other downstream purchasers who purchased oil and gas from the Debtors, but did not tender funds into the Debtors’ estates during the pendency of their consolidated bankruptcy cases, did not file lawsuits in this Court to determine their rights vis-a-vis the Producers, and did not otherwise take an active role in the Debtors’ consolidated bankruptcy cases (the “Non-Tender Parties,”7 and collectively with the Tender Parties, the “Downstream Purchasers”). Through the Non-Tender Parties Motion, the Producers ask the Court to find that it does not possess subject matter jurisdiction over the action by the Producers against the Non-Tender Parties filed in and removed from Oklahoma state court, and subsequently transferred to this District and referred to this Court, or alternatively, to abstain from hearing this action in favor of the court in which it was originally filed.
II. BACKGROUND
A. Factual Background8
The litigation originates from a series of transactions that are not in material dispute. The Producers own or operate oil and gas wells. In the summer of 2008, before the Debtors filed for chapter 11 protection on July 22, 2008 (the “Petition Date”), the Producers delivered millions of dollars worth of oil and gas to the Debtors. The Debtors then sold or transferred some of that oil and gas to the Downstream Purchasers. The Debtors did not pay the Producers for any of the oil and gas delivered in the seven weeks leading up to the Petition Date.
The Producers have asserted that, under various state laws, they have the legal right to seek payment directly from the Downstream Purchasers because they have not been paid for the oil and gas that they had delivered to the Debtors. In essence, the Producers contend that the transfer of “their” oil and gas from the *266Debtors to the Downstream Purchasers occurred subject to the Producers’ state law lien claims and/or trust rights. The Downstream Purchasers, on the other hand, contend that they purchased the oil and gas from the Debtors free and clear of any liens, claims, and encumbrances.
B. Procedural Background
Though the Producers insist that the actions at bar are distinct from and unaffected by related disputes between the parties in these actions and those between similarly situated parties in various other proceedings before the Court during the pendency of the Debtors’ consolidated bankruptcy cases, a review of such disputes is necessary to understand the context in which the instant actions have arisen.9
During the Debtors’ consolidated bankruptcy cases, certain Producers from eight states sought declaratory judgments concerning their asserted lien claims and/or trust rights vis-a-vis the Debtors and the Debtors’ secured lenders. In an attempt to prevent a multiplicity of actions, to preserve the resources of the Debtors, and in the interest of judicial economy, the Debtors filed a motion for authorization to establish omnibus procedures for, inter alia, the resolution of the Producers’ rights and the priorities of their claims pursuant to 11 U.S.C. §§ 105(a) and 362 and pursuant to Federal Rule of Bankruptcy Procedure 9019(a) [Case No. 08-11525, Docket No. 600]. Following the filing of that motion, the representatives of certain Producers met with representatives of the Debtors to discuss such potential procedures. After extensive negotiations, the Debtors and the Producers reached agreement on a set of procedures that could be used to resolve the disputes between the Producers, the Debtors, and the Debtors’ secured lenders, and presented these procedures to the Court for approval on September 17, 2008. The Court entered two orders (the “Producer Claims Procedures Orders”) adopting these proposed procedures [Case No. 08-11525, Docket Nos. 1425 and 1557]. In addition, by an order dated October 15, 2008, the Court directed the U.S. Trustee to appoint and constitute a committee to represent the interests of the Producers (the “Producers’ Committee”) [Case No. 08-11525, Docket No. 1774]. The Producers’ Committee had the same counsel as the Producers who filed the actions at bar, though these Producers are not listed by name in the filings by the Producers’ Committee during the pendency of the Debtors’ consolidated bankruptcy cases.
The Producer Claims Procedures Orders approved by the Court called for the Producers to initiate one adversary proceeding against the Debtors for each state in which the Producers sold oil or gas to the Debtors, for a total of eight states. The purpose of these adversary proceedings was for the Producers to obtain a declaratory judgment from the Court establishing (i) what rights, if any, are afforded by each respective state’s laws to a producer of oil or natural gas who sells oil or natural gas to a first purchaser such as the Debtors here, and (ii) the priority of these rights relative to the security interests in the Debtors’ existing and after-acquired inventory asserted by the Debtors’ secured lenders.
Any and all Producers were free to participate in this litigation (the “Producers Litigation”), and the Producer Claims Procedures Orders expressly provided that the results of the litigation would be binding upon all Producers irrespective of *267whether they actually participated in the litigation. In a series of three opinions, this Court held that the secured lenders’ duly perfected security interest in the Debtors’ property arising under Article 9 is superior to the lien claims and trust rights purportedly granted under the state laws of Texas, Kansas, and Oklahoma. See Arrow Oil & Gas, Inc. v. SemCrude, L.P. (In re SemCrude, L.P.), 407 B.R. 112, 139 (Bankr.D.Del.2009); Mull Drilling Co., Inc., v. SemCrude, L.P. (In re SemCrude, L.P.), 407 B.R. 82, 110 (Bankr.D.Del.2009); In re SemCrude, L.P., 407 B.R. at 156-57.
In addition, during the pendency of the Debtors’ consolidated bankruptcy cases, each of the Tender Parties sought to offset their respective obligations to the Debtors and to remit to the Debtors’ estates the net amounts owed to the Debtors for the purchased oil and gas. Because the Tender Parties were concerned about the potential of double liability in the event that the Producers were successful in asserting their lien claims and/or trust rights, they initiated the aforementioned Tender Adversaries. Each of the Tender Parties filed an adversary proceeding seeking a declaratory judgment from the Court that the tender of its net settlement amount to the Debtors constituted full performance such that it had no further obligation to the Debtors or any other party, including the Producers, on account of the pre-petition oil and gas it received from the Debtors. The Tender Parties named several producers by name and included as defendants “John Does 1 to 1,000” to “include any individual or entity whose identity is not currently known who may assert some right or claim” against the Tender Parties related to their transactions with the Debtors. See, e.g., Complaint ¶ 12, Adv. No. 09-51003, Docket No. 1.
One such Producer, Samson Resources Company (“Samson”), moved to dismiss the Tender Adversaries for lack of subject matter jurisdiction. On April 9, 2010, the Court issued an opinion (the “April 9 Opinion”) finding that it has subject matter jurisdiction over the Tender Adversaries because they are “related to” the Debtors’ consolidated bankruptcy cases pursuant to 28 U.S.C. § 1334(b). See In re SemCrude, 428 B.R. at 103. The Court also rejected the collective requests by Samson and other Producers for the Court to abstain from hearing the Tender Adversaries in favor of allowing the Producers to continue to prosecute their state law claims against various Downstream Purchasers in Oklahoma, Texas, Kansas, and New Mexico state courts. Id.
Shortly thereafter, the Producers filed the instant actions in Oklahoma and Kansas state courts against the Tender Parties and the Non-Tender Parties, seeking to assert their purported lien claims and/or trust rights against these Downstream Purchasers. These actions were removed to federal court, and thereafter, the two federal judges10 assigned to these actions have transferred venue to this District in contemplation of referral to this Court.11 These are the three actions at bar.
On July 30, 2010, the Court allowed the Tender Parties to amend their respective complaints in the Tender Adversaries12 to *268include the various Producers who filed the instant actions but had not been previously included as defendants in the Tender Adversaries. See, e.g., Order of July 30, 2010, Adv. No. 09-50038, Docket No. 331.
III. DISCUSSION
A. The Court’s Subject Matter Jurisdiction over the Claims Against the Tender Parties
Contrary to the Producers’ contentions that they have been “shanghaied” into this Court against their will and against the fundamental notions of fair play,” Motion ¶ 2, many of the Producers and their counsel have actually been active participants in the Debtors’ bankruptcy proceedings held in the Court for the past two years. Indeed, many of the same Producers, with the same counsel, have sought similar relief through counterclaims in the Tender Adversaries in March 2009. In those counterclaims, these Producers asserted that the Court has core jurisdiction over the claims.
In addition, the Tender Parties anticipated these actions filed against them by the various Producers when they listed as defendants numerous similarly situated Producers using the placeholder “John Does 1 to 1,000” to account for other Producers who had yet to assert the same claims against the Tender Parties. For this reason, and because of the liberal standard governing amendments to pleadings under Federal Rule of Civil Procedure 15, the Court allowed the Tender Parties to amend their complaints to add the various Producers who had not yet been listed by name in the complaints in the Tender Adversaries. See, e.g., Order of July 30, 2010, Adv. No. 09-50038, Docket No. 331. Consequently, and as a result of the Producers’ own counterclaims in the Tender Adversaries, the April 9 Opinion, which found that the Court has subject matter jurisdiction over the Tender Adversaries, is binding on the newly added Producers if the Tender Parties’ recent amendments adding these Producers “relate back” under Rule 15(c) to the filing of the complaints in the Tender Adversaries.
Rule 15(c) provides that “[a]n amendment to a pleading relates back to the date of the original pleading” if three relevant conditions are met. First, Rule 15(c)(1)(B) must be satisfied, which provides that “the amendment asserts a claim or defense that arose of the conduct, transaction or occurrence set out — or attempted to be set out — in the original pleading.” Second, the parties brought in by the amendment must have “received such notice of the action that [they] will not be prejudiced in defending on the merits.” Third, those parties “knew or should have known that the [claims] would have been brought against [them], but for a mistake concerning the proper party’s identity.” Fed. R. Civ. P 15(c).
Each of the requirements of Rule 15(c) is satisfied here. First, the Producers’ claims in these actions clearly arise from the same conduct and transactions set out in the original pleading: the Tender Parties’ purchase of oil and gas from the Debtors, which the Debtors had previously purchased from Producers. Second, the record supports the finding that the various Producers brought in as additional defendants in the Tender Adversaries pursuant to the amendments13 had received *269notice of the Tender Adversaries within the period provided by Federal Rule of Civil Procedure 4(m). The required notice may be “actual, constructive, implied or imputed.” Davis v. Corr. Med. Sys., 480 F.Supp.2d 754, 761 (D.Del.2007). Based upon the proceedings in the Debtors’ consolidated bankruptcy cases, the Court finds that the Producers had implied or imputed notice of the Tender Adversaries. Some of the Producers participated in the Tender Adversaries. Without a doubt, the Tender Adversaries were a major event in the Debtors’ consolidated bankruptcy cases. Each of the Producers paid enough attention to the Debtors’ consolidated bankruptcy cases that they filed proofs of claim. Their counsel, representing similarly situated Producers, were key participants in the hotly contested Producers Litigation and in the Tender Adversaries. In fact, counsel for the Producers’ Committee admitted at a hearing that he represented the parties listed as “John Does” in the Tender Adversaries, suggesting that he was in communication with the Producers who later emerged to file the actions at bar. See Feb. 26, 2009 Hr’g Tr. at 20:1-4 [Adv. No. 08-51444, Docket No. 88] (Mr. Ray: “I know John Doe. John Doe is one of my constituents.”). “[W]hen an originally named party and the parties added are represented by the same attorney, the attorney is likely to have communicated to the latter party that he may very well be joined in the action.” Davis, 480 F.Supp.2d at 761. The Court is therefore persuaded that all relevant Producers have been sufficiently aware of the Tender Adversaries.
Third, the Producers “knew or should have known that the [claims in the Tender Adversaries] would have been brought against [them],” but for the omission of certain named Producers because of the Tender Parties’ lack of knowledge as to their particular identity. The Third Circuit has held that “a ‘mistake’ is no less a ‘mistake’ when it flows from lack of knowledge as opposed to inaccurate description.” Arthur v. Maersk, Inc., 434 F.3d 196, 208 (3d Cir.2006). Moreover, the United States Supreme Court recently clarified that it is not the Tender Parties’ knowledge as plaintiffs that is relevant, but the Producers’ knowledge as potential defendants. Krupski v. Costa Crociere S.p.A., — U.S. —, 130 S.Ct. 2485, 2488, 177 L.Ed.2d 48 (2010) (finding that the defendant’s state of mind, not the plaintiffs state of mind, is relevant when considering Rule 15(c)). The inquiry is thus whether the Producers who were recently added to the complaints in the Tender Adversaries knew or should have known that they would have been named but for the Tender Parties’ lack of knowledge as to their particular identity.
The Court is thus persuaded that all relevant Producers knew or should have known that they were likely to be defendants in the Tender Adversaries, and that they were the parties intended to be captured as “John Does.” Each of these Producers knew or should have known that it was an “individual or entity whose identity is not currently known who may assert some right or claim to the [tender amounts] ... and/or the subject matter of the Crude Contract or the transactions thereunder.” Complaint ¶ 12, Adv. No. 09-51003, Docket No. 1. Had the Tender Parties known the identities of each of the additional Producers who would assert claims against them, they would have undoubtedly added these Producers to the complaints filed in the Tender Adversaries. The Court is persuaded, however, that the Tender Parties could not have known the identities of all Producers until these Producers in fact asserted their claims against the Tender Parties. Accordingly, the amendment of the complaints in the Ten*270der Adversaries to add certain Producers who had not been previously named as defendants relates back to the time when these complaints had been initially filed. The April 9 Opinion is therefore binding on these and other Producers.
Accordingly, given that the Court has subject matter jurisdiction over the Tender Adversaries, which now include the claims against the newly added Producers, who are among the plaintiffs in the two actions at bar involving the Tender Parties, the Court also has subject matter jurisdiction over these actions. The Tender Adversaries and the instant actions are but two sides of the same coin, requiring the resolution of the same issues between the same parties. The disposition of the Tender Adversaries, which were filed first, would dispose of the instant actions and consequently render them superfluous under principles of res judicata. But, in any event, the Court has subject matter jurisdiction over the actions at bar that involve the Tender Parties for the same reasons that it has jurisdiction over the Tender Adversaries articulated in the April 9 Opinion.
B. The Court’s Subject Matter Jurisdiction over the Claims Against the Non-Tender Parties
Unlike the Tender Parties, the Non-Tender Parties who are defendants in one of the actions at bar did not file lawsuits in the Court seeking a declaratory judgment of their rights vis-a-vis the Producers during the pendency of the Debtors’ consolidated bankruptcy cases. Some of the Non-Tender Parties filed proofs of claim, while others did not.14 Nevertheless, at bottom, the transferred actions involving the Tender Parties and the Non-Tender Parties (1) arise from the same set of operative facts; (2) arise from the same transactions; (3) arise from the same occurrences; (4) allege the same claims and causes of action; (5) will impose the same discovery demands upon the Debtors; (6) will require the Court to interpret its prior orders; and (7) relate to the same jurisdictional inquiry already addressed by this Court in the April 9 Opinion. The primary difference — indeed the only meaningful difference — between the action specifically against the Non-Tender Parties and those against the Tender Parties is that the Non-Tender Parties are not already parties to the pre-confirmation Tender Adversaries or Producers Litigation.
1. Core Jurisdiction
Section 157 of the Bankruptcy Code divides bankruptcy matters into two categories: core and non-core. A bankruptcy judge has the power to “hear, decide and enter final orders and judgments” in a core proceeding. Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999) (internal citations omitted); see 28 U.S.C. § 157(b)(1). A bankruptcy judge also has the power to hear non-core proceedings: “A bankruptcy judge may hear a proceeding that is not a core proceeding but that is otherwise related to a case under title 11.” 28 U.S.C. § 157(c)(1). A bankruptcy court’s power over non-core proceedings is limited to submitting proposed findings of fact and conclusions of law to the district court. Id.
The Third Circuit has held that a matter is core if it “invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.” In re Marcus Hook Dev. Park, Inc., 943 *271F.2d 261, 267 (3d Cir.1991). In the April 9 Opinion, the Court found that, with respect to the dispute between the Tender Parties and the Producers raised in the Tender Adversaries, “any relationship to the estate this dispute bears is too attenuated to be called core.” In re SemCrude, 428 B.R. at 95. The Court reached this finding in part because the claims asserted by the Tender Parties against the Producers are not among those that could only arise in the context of a bankruptcy case, and because the cases were primarily between non-debtors. Id. The claims raised in the Tender Adversaries are, if anything, more closely related to the Debtors’ consolidated bankruptcy cases than are the claims asserted by the Producers against the Non-Tender Parties in the instant action. Accordingly, for the same reasons stated in the April 9 Opinion, the Court finds that the transferred action at bar specifically involving the Non-Tender Parties is likewise too remote from the Debtors’ consolidated bankruptcy cases to be called core.
2. “First-Filed” Rule
The Non-Tender Parties urge this Court to apply the “first-filed” rule, designate the Tender Adversaries as the “first-filed” cases, and use the dates of their filings as the relevant dates for the jurisdictional analysis concerning the transferred action at bar involving the Non-Tender Parties.
The “first-filed” rule provides that “in all cases of federal concurrent jurisdiction, the court which first has possession of the subject matter must decide it.” E.E.O.C. v. Univ. of Pa., 850 F.2d 969, 971 (3d Cir.1988). The goal of this rule is to “avoid differing outcomes on the same issue by two sister courts, thereby minimizing duplicative litigation in different fora, and saving judicial resources.” Freedom Mortgage Corp. v. Irwin Fin. Corp., 2009 WL 763899, at *4, 2009 U.S. Dist. LEXIS 24208, at *12 (D.Del. Mar. 23, 2009). However, the “first-filed” rule presupposes the Court’s proper subject jurisdiction over an action and does not itself provide an independent basis for finding jurisdiction where it otherwise does not exist. Thus, the “first-filed” rule, on its own with nothing more, does not provide the Court with a basis for finding subject matter jurisdiction over the transferred action involving the Non-Tender Parties.
3. “Close Nexus”
Nonetheless, the Court finds that it has subject matter jurisdiction over the transferred action by the Producers against the Non-Tender Parties based upon its grant of “related-to” jurisdiction pursuant to 28 U.S.C. § 1334(b). “Related-to” jurisdiction has been the subject of considerable case law in the Third Circuit as well as other circuits. The seminal case in this Circuit on the subject of “related-to” jurisdiction is Pacor, Inc. v. Higgins (In re Pacor, Inc.), 743 F.2d 984 (3d Cir.1984) (overruled on other grounds). Under In re Pacor, “related-to” jurisdiction exists if “the outcome of [a] proceeding could conceivably have any effect on the estate being administered in bankruptcy.” Id. at 994.
However, In re Pacor is insufficient to assess “related-to” jurisdiction over the transferred action relating to the Non-Tender Parties because this action was filed after the Court had confirmed the Debtors’ plan of reorganization. Consequently, the “close nexus” standard is applied “for the purposes of determining whether a federal court has jurisdiction over a non-core ‘related-to’ proceeding in the post-confirmation context.” Geruschat v. Ernst Young LLP (In re Seven Fields Dev. Corp.), 505 F.3d 237, 260 (3d Cir.2007) (citing Binder v. Price Waterhouse *272Co. (In re Resorts Int’l, Inc.), 372 F.3d 154, 164-67 (3d Cir.2004)). A “close nexus” between a debtor’s bankruptcy case and a related action can be established if the action would “affect an integral aspect of the bankruptcy process.” In re Resorts at 167. “Matters that affect the interpretation, implementation, consummation, execution, or administration of the confirmed plan will typically have the requisite close nexus.” Id.
Several factors establish a “close nexus” between the claims by the Producers against the Non-Tender Parties and the Debtors’ consolidated bankruptcy cases. First, the record reflects that substantially all of the Non-Tender Parties have filed proofs of claim in the Debtors’ consolidated bankruptcy cases, asserting either contractual warranty and indemnification provisions or 11 U.S.C. § 503(b)(9) claims. Various Non-Tender Parties have also set off the value of the oil and gas they delivered to the Debtors after the Petition Date against the value of oil and gas they had received from the Debtors in the pre-petition period, and the agreements that effectuated such setoffs were largely incorporated into the Debtors’ plan. To the extent that these setoffs are not honored or are otherwise unwound, the Non-Tender Parties will presumably pursue additional claims against the Debtors. The resolution of the Producers’ claims against these Non-Tender Parties, and the subsequent claims against the Debtors that the Non-Tender Parties will invariably pursue in the event that they are found liable to the Producers, will likely invoke the basic bargains that were struck by the relevant parties in the plan.
Therefore, at minimum, the Court’s confirmation order will be central to the adjudication of the Producers’ claims against these Non-Tender Parties. The Supreme Court recently reaffirmed the jurisdiction of a bankruptcy court to construe its own orders. See Travelers Indem. Co. v. Bailey, - U.S. -, 129 S.Ct. 2195, 2202, 174 L.Ed.2d 99 (2009) (upholding bankruptcy court’s jurisdiction to construe its own orders more than twenty years post-confirmation). Among the other orders that will likely be construed are various releases, cash collateral and DIP financing orders, and this Court’s own prior opinions relating to the issues raised at bar. Each of these documents was shaped and informed by the respective parties’ rights and interests, as determined by the Court, in the context of exceedingly complex and interrelated bankruptcy proceedings. Finally, in the event that a court decides in favor of the substantive relief sought by the Producers, that court will likely have to interpret the distributions allowed under the Debtors’ plan, which contains various (and disputed) caps, recovery rates, class treatment, and the effect of releases, to determine the amount, if any, that the Producers may still be entitled to collect from the Non-Tender Parties.
Second, pursuant to the Court’s confirmation order, the Debtors are required to “cooperate in any discovery” in “any other litigation by oil and gas producers against [the Downstream Purchasers] relating to oil and gas [the Downstream Purchasers] purchased from the Debtors.” Such compliance with respect to the action at bar, along with other related disputes between the Producers and the Downstream Purchasers, could prove to be a substantial burden on the Debtors, especially considering the effort and hours that already have been expended on this litigation. Consequently, this burden could affect the administration of the Debtors’ consolidated bankruptcy cases.
The Court notes that the record currently reflects that Oasis is the only one of the Non-Tender Parties who has not filed a *273proof of claim in the Debtors’ consolidated bankruptcy cases. To the extent that the Court determines that Oasis and/or other similarly situated Non-Tender Parties have not filed claims against the Debtors, such Non-Tender Parties will be treated as “No-Claim Parties.” Without a proof of claim or other similar basis for establishing post-confirmation “related-to” jurisdiction based upon the showing of a “close nexus” between the Producers’ claims against the No-Claim Parties, the Court finds that it lacks subject matter jurisdiction over these specific claims. The Court will retain the instant action against the Non-Tender Parties but will dismiss the Producers’ claims against the No-Claim Parties therein.15 The remainder of the Non-Tender Parties who are determined to hold valid claims against the Debtors will be treated as “Claim Parties.” For the reasons discussed above, the Court finds that the adjudication of the Producers’ claims against the Claim Parties and its impact on the Debtors has the requisite “close nexus” to the Debtors’ consolidated bankruptcy cases.
4. No Additional Lawsuits are Required
Although the Producers insist that the limitation to “related-to” jurisdiction set forth in W.R. Grace & Co. v. Chakarian (In re W.R. Grace & Co.), 591 F.3d 164, 172 (3d Cir.2009), applies to the action involving the Non-Tender Parties, the Court disagrees. In In re W.R. Grace, the Third Circuit held that “there is no related-to jurisdiction over a third-party claim if there would need to be another lawsuit before the third-party claim could have any impact on the bankruptcy proceedings.” Id. In that case, the court found that a debtor would not be bound by any judgment against a third party resulting from litigation between non-debtors absent an intervening or subsequent action against the debtor brought by the losing non-debtor. Id. Specifically, for a debtor to incur any liability on account of such third-party litigation, the third party adjudicated liable in such litigation would first have to file a separate action against the debtor for indemnity or contribution in the Court, and thereafter prevail on its action against the debtor. Id. at 172-73.
Here, as previously discussed, the record reflects that the Claim Parties have all filed proofs of claim in the Debtors’ consolidated bankruptcy cases, either based upon alleged contractual warranty and indemnification provisions, 11 U.S.C. § 503(b)(9) claims, or setoff claims. Therefore, the Non-Tender Parties have preexisting claims against the Debtors, which are likely to be affected in the event that the Producers prevail on their claims against this set of Non-Tender Parties. As such, the Claim Parties will not need to bring additional lawsuits against the Debtors in order to seek indemnity, contribution, reimbursement, or similar remedies, all of which would likely affect the administration of the Debtors’ plan. Thus, In re W.R. Grace does not restrict the Court’s jurisdiction over the Producers’ claims against the Claim Parties.
C. The Court Will Not Abstain from Hearing the Claims Against the Tender Parties and the Non-Tender Parties
Having determined that the Court has subject matter jurisdiction over the transferred claims against both the Tender Parties and the Claim Parties, the Court now considers whether it must or should abstain from hearing these actions in favor of *274allowing them to go forward in Oklahoma and Kansas state courts.
1. Mandatory Abstention
The Producers argue that this Court is required to abstain from hearing the transferred actions against the Tender Parties and the Non-Tender Parties under 28 U.S.C. § 1334(c)(2). Under § 1334(c)(2), there are six requirements for mandatory abstention: (i) the motion to abstain is timely; (ii) the action is based upon a state law claim or cause of action; (iii) an action has been commenced in state court; (iv) the action can be timely adjudicated in state court; (v) there is no independent basis for federal jurisdiction which would have permitted the action to be commenced in federal court absent bankruptcy; and (vi) the matter is non-core and is only related to a case under title 11. See In re LaRoche Indus., Inc., 312 B.R. 249, 252-253 (Bankr.D.Del.2004). A party moving for mandatory abstention “must meet all the requirements of mandatory abstention for relief to be granted.” In re Mobile Tool Int'l, 320 B.R. 552, 556 (Bankr.D.Del.2005).
The Court finds that mandatory abstention is not appropriate with respect to the transferred actions because the Producers have not carried their burden to show that these actions can be timely adjudicated in state court.16 Although the Producers assert that the state courts in which the transferred actions were filed are capable of adjudicating these cases, “[a] naked assertion that the matter can be timely adjudicated in the state court, without more is insufficient to satisfy this requirement.” In re Allied Mech. & Plumbing Corp., 62 B.R. 873, 878 (Bankr.S.D.N.Y.1986) (citing In re Burgess, 51 B.R. 300, 302 (Bankr.S.D.Ohio 1985)). The Producers have not presented any evidence sufficient to demonstrate that the transferred actions could be timely adjudicated in state court. Georgou v. Fritzshall (In re Georgou), 157 B.R. 847, 851 (N.D.Ill.1993) (finding that the moving party must present evidence to show that a state court action can be timely adjudicated). Therefore, without evidence to the contrary, the Court has significant concerns as to whether these actions can be timely adjudicated in Oklahoma and Kansas state courts. These lawsuits are in their infancy, and have been thus far characterized by motion practice devoted exclusively to procedure and venue. Borrowing a phrase from the United States District Court for the Southern District of New York in the same context, these cases are still “at the starting line” in the state courts. Renaissance Cosmetics, Inc. v. Dev. Specialists Inc., 277 B.R. 5, 14 (S.D.N.Y.2002).
In another case, the Southern District of New York also found that abstention was inapplicable with respect to various lawsuits between non-debtor entities, specifically investors who sued the stockbrokers and the founder of the debtor corporation. Beightol v. UBS Painewebber (In re Global Crossing, Ltd. Securities Litigation), 311 B.R. 345, 348-49 (S.D.N.Y.2003). In that case, the plaintiffs alleged fraud against the defendants in two separate actions both filed in Mississippi state court, seeking damages for the losses they sustained when the value of the debtor corporation’s securities plummeted. Id. at 346-47. The court found that it had “related-to” subject matter jurisdiction over these *275two actions because the outcome of the actions could lead to contribution claims against the debtor and therefore “certainly have a ‘conceivable effect’ on the bankrupt estate.” Id. at 347. In support of their arguments for abstention, the plaintiffs submitted (1) a Mississippi Supreme Court rule that provided for the disposition of civil cases in Mississippi’s Chancery Court within eighteen months of the filing date, and (2) a certification from the administrator of the Chancery Court stating that a trial date would be set within approximately six months of remand. Id. at 348. However, the court was not persuaded by this evidence and expressed no doubt that the “resolution of the complex issues asserted by plaintiffs in their fraud claims will be anything but speedy, and indeed that the pendency of multiple proceedings in multiple jurisdictions will contribute to slowing down the resolution of [these] claims in any court.” Id. at 348. The court further explained that the purpose of abstention would be ill-served in this context:
In short, § 1334(c)(2) is intended to require federal courts to defer to the state courts to handle lawsuits which, although “related to” a bankruptcy, can be promptly resolved in state court without interfering with the proceedings pending in the federal courts. That intention simply has no application to litigation of this sort, in which a case properly removed to federal court is intertwined both with complex bankruptcy proceedings and equally complex securities class actions pending in federal court. Far from promoting “timely adjudication]” of plaintiffs’ claims, to remand here would simply complicate and slow down the resolution of those claims, as well as of the matters already pending before this Court.
Id. at 349.
Here, the resolution of the Producers’ claims against the Tender Parties and the Claim Parties, like the resolution of the contemplated non-debtor litigation in In re Global Crossing, is likely to involve complex legal and factual issues. See In re SemCrude, 407 B.R. at 143 (Bankr.D.Del.2009) (noting that the existence and priority of certain asserted lien claims and/or trust rights under Oklahoma state law is an issue of first impression). However, it is worth noting that In re Global Crossing involved only two actions, which that court characterized in the aggregate as “multiple proceedings,” whereas abstention here implicates three transferred actions involving multiple plaintiffs and defendants.
Furthermore, the actions against the Tender Parties and the Claim Parties will eventually need to be heard on the merits, and pretrial motion practice and discovery presumably will ensue. To be sure, the Court intends no disrespect to its sister courts, but it is simply not plausible to suggest that these three actions will be administered promptly and efficiently in separate proceedings and in different jurisdictions. New York City Employees’ Retirement System v. Ebbers (In re WorldCom, Inc. Sec. Litig.), 293 B.R. 308, 331 (S.D.N.Y.2003) (“If each of the actions removed from state court were remanded, it would lead to duplicative motion practice and repetitious discovery, as well as requiring common issues to be resolved separately by courts across the country.”). Moreover, the Court’s familiarity with the parties and the issues, forged over the past several years, is likely to aid in the prompt and efficient adjudication of the disputes between the Producers and the Downstream Purchasers generally.17 There is *276no immediately apparent mechanism for the reliable consolidation and coordination of these claims outside this Court, and as noted above, it appears likely that the Debtors will be required to participate in the adjudication of these disputes, at a minimum to respond to discovery demands from all litigants. Accordingly, the Court finds that the Producers have not established that mandatory abstention is either appropriate or warranted with respect to the actions at bar against the Tender Parties and the Claim Parties.
2. Permissive Abstention
The Producers also urge the Court to exercise its discretionary authority to abstain from hearing the actions against the Tender Parties and Non-Tender Parties pursuant to 28 U.S.C. § 1334(c)(1).18 Courts have identified the following twelve factors as relevant to determining the propriety of permissive abstention: (1) the effect on the efficient administration of the estate; (2) the extent to which state law issues predominate over bankruptcy issues; (3) the difficulty or unsettled nature of applicable state law; (4) the presence of a related proceeding-commenced in state court or other non-bankruptcy court; (5) the jurisdictional basis, if any, other than § 1334; (6) the degree of relatedness or remoteness of the proceeding to the main bankruptcy case; (7) the substance rather than the form of an asserted “core” proceeding; (8) the feasibility of severing state law claims from core bankruptcy matters to allow judgments to be entered in state court to be enforced by the bankruptcy court; (9) the burden on the court’s docket; (10) the likelihood that the commencement of the proceeding in bankruptcy court involves forum shopping by one of the parties; (11) the existence of a right to a jury trial; and (12) the presence of non-debtor parties. In re Mobile Tool, 320 B.R. at 556-57.
A number of these factors weigh in favor of abstention. For example, the Court will be called upon to interpret state laws and regulations governing the oil and gas industry, including questions that appear largely unsettled. Moreover, the transferred claims against the Tender Parties and the Claim Parties involve non-debtor entities, and this Court’s subject matter jurisdiction is, as discussed above, predicated solely upon 28 U.S.C. § 1334(b).
On the other hand, the resolution of these issues will require the construction of the Court’s prior orders and rulings. Additionally, and again with all due respect to our sister courts, it appears that the Court is well-positioned to provide for the efficient administration of the three actions at bar asserting claims against the Tender Parties and the Claim Parties. The Court has had the unique opportunity to become familiar with the factual background and the parties over the past several years, and it is prepared to provide a single forum to concurrently consider all such (and other related) claims. Ultimately, the disposition of each of the claims at bar, against both the Tender Parties and the Claim Parties, will be grounded in the same factual and legal bases such that considerations of fairness and efficiency *277favor the consolidated adjudication of these claims. The Court therefore may be the only forum that is able to consolidate these claims and is available to at once uniformly and efficiently adjudicate all claims that may have an impact on the Debtors asserted by the Producers against the Downstream Purchasers. In re Global Crossing, 311 B.R. at 350 (finding that the desirability of maintaining two actions related to the debtor’s bankruptcy in one forum clearly militates against abstention); In re WorldCom, 293 B.R. at 333-34 (“[I]f this Court were to abstain pursuant to Section 1334(c)(1) and remand the litigation originally filed in state court, motion practice and discovery would proceed separately in many jurisdictions. The litigation that would ensue in the various fora would' be entirely duplicative and wasteful.”).
Given these countervailing considerations, if the Court were considering permissive abstention on a blank slate, whether to retain the transferred actions asserting claims against the Tender Parties or whether to send them back for adjudication in Oklahoma and Kansas would perhaps be a close question. However, the Court does not write on a blank slate in this regard. In addition to the Court’s own prior ruling in the Tender Adversaries,19 two federal judges have transferred venue of these actions. The law of the case doctrine counsels that the transfer decisions of other courts should be respected insofar as jurisdiction plausibly lies in this Court. See Christianson v. Colt Industries Operating Corp., 486 U.S. 800, 816, 108 S.Ct. 2166, 100 L.Ed.2d 811 (1988). Moreover, to the extent that the Court’s prior experience enables it to provide prompt and coordinated administration for the actions against the Tender Parties and the Claim Parties, the interests of all parties will be best served if the Court retains the transferred actions. For these reasons, and for the reasons given by the Court in the April 9 Opinion, the Court does not find that permissive abstention as to the transferred actions is either appropriate or warranted. Accordingly, the Court will not permissively abstain from hearing the instant actions asserting claims against the Tender Parties and Claim Parties.
IV. BRIEFING AND DISCOVERY ISSUES
Having determined that the Court possesses subject matter jurisdiction over the claims asserted by the Producers against the Tender Parties and the Claim Parties in the transferred actions at bar, the Court directs the parties to these claims to meet and confer to develop and submit to the Court an agreed-upon and consolidated briefing and discovery schedule to ensure the prompt and orderly administration of these claims. This scheduling order should cover, inter alia, the timelines for discovery, dispositive motion practice, and other pretrial proceedings, and suggested trial dates. Pursuant to 11 U.S.C. § 105(d), the Court has scheduled a status conference for February 24, 2011 to consider entry of such a scheduling order.
V. CONCLUSION
For the foregoing reasons, the Court finds that it has subject matter jurisdiction over the claims asserted by the Producers against the Tender Parties and the Claim Parties in the transferred actions at bar. The Court finds that abstention with respect to these actions is inappropriate and unwarranted, and thus the Court will not abstain from hearing the claims against the Tender Parties and the Claim Parties. *278However, the Court finds that it lacks subject matter jurisdiction over the individual claims asserted by the Producers against the No-Claim Parties that are included in the transferred action against the Non-Tender Parties.
The Tender Parties Motions and the Non-Tender Parties Motion will be denied to the extent that they request the Court to abstain, retransfer, and remand the transferred actions. The Court will therefore retain these actions, but will dismiss from the transferred action against the Non-Tender Parties any individual claims asserted against the No-Claim Parties, viz., Oasis Transportation and Marketing Company, therein.20
In the interest of efficient and prompt administration of this litigation, the Court will conduct a status conference on February 24, 2011 for the purpose of considering entry of a consolidated scheduling order.
An appropriate Order follows.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Federal Rule of Bankruptcy Procedure 7052. To the extent that this Court’s jurisdiction is determined to be within the parameters of 28 U.S.C. § 157(c)(1), this Opinion and the accompanying Order shall be deemed to be the Court’s proposed findings of fact and conclusions of law.
. Capitalized terms used in this section are defined infra.
. The Court will dismiss the claims asserted by the Producers against the No-Claim Parties that are included in adversary proceeding 10-51828. The Court will thereafter retain this action for the purpose of adjudicating the Producers’ claims against the Claim Parties included therein.
. The Tender Parties are B.P. Oil Supply Company ("B.P.”), ConocoPhillips Company ("Conoco”), J. Aron & Company ("J. Aron”), and Plains Marketing, L.P. ("Plains”).
. The Producers include Samson; New Dominion, L.L.C.; Arrow Oil & Gas, Inc.; Chesapeake Energy Marketing, Inc.; Special Energy Corporation; DC Energy, Inc.; Thunder Oil and Gas, L.L.C.; Veenker Resources, Inc.; Lance Ruffel Oil & Gas Corporation; JMA Energy Company, L.L.C.; LCS Production Company; Murfin Drilling Company, Inc.; Vess Oil Corporation; LD Drilling, Inc.; Davis Petroleum, Inc.; RAMA Operating Company, Inc.; Mull Drilling Company, Inc.; D E Exploration, Inc.; Braden-Deem, Inc.; Dunne Equities, Inc.; Lario Oil & Gas Company; McCoy Petroleum Corporation; W.D. Short Oil Company, L.L.C.; Short & Short, L.L.C.; Tempest Energy Resources, L.P.; Calvin Noah; CMX, Inc.; L & J Oil Properties, Inc.; McGinness Oil Company of Kansas, Inc.; Daystar Petroleum, Inc.; F.G. Holl Company, L.L.C.; GRA EX, L.L.C.; V.J.I. Natural Resources, Inc.; J & D Investment Company; Landmark Resources, Inc.; Mid-Continent Energy Corporation; Molitor Oil, Inc.; Osborn Heirs Company; Pickrell Drilling Company, Inc.; Platte Valley Oil Company, Inc.; Midwest Energy, Inc.; Red Oak Energy, Inc.; Ritchie Exploration, Inc.; Thoroughbred Associates, L.L.C.; Viking Resources, Inc.; Vincent Oil; Wellstar Corporation; White Exploration, Inc.; and White Pine Petroleum Corporation.
. Adv. No. 09-51003, Docket No. 246; Adv. No. 09-50105, Docket No. 296; and Adv. No. 09-50038, Docket No. 331. The Court notes that Conoco did not move to amend its complaint. However, given that it is similarly situated to the other Tender Parties, the Court's treatment of Conoco for the purpose of deciding the Motions is identical to that of the other Tender Parties.
. The Non-Tender Parties include Sunoco Logistics Partners, L.P. (“Sunoco"); Valero Marketing and Supply Company ("Valero”); National Cooperative Refinery Association ("National Cooperative”); Husky Marketing and Supply Company (“Husky"); Chevron Texaco L.P. ("Chevron”); Teppco Crude G.P., L.L.C. ("Teppco”); Cimarron Gathering, L.P. (“Cimarron”); Interstate Petroleum Corporation ("Interstate”); Occidental Energy Marketing, Inc. (“Occidental”); Oasis Transportation and Marketing Company ("Oasis”); Plains Marketing G.P., Inc. ("Plains”); Shell Oil Company ("Shell”); and Coffeyville Resource Refining and Marketing (“Coffey-ville”).
. For general background about the Debtors and their consolidated bankruptcy cases, see Samson Res. Co. v. SemCrude, L.P. (In re SemCrude, L.P.), 407 B.R. 140, 143-48 (Bankr.D.Del.2009).
. In addition, this Opinion should be read in conjunction with the Court’s related decision of the same date, resolving nearly identical issues among similarly situated parties.
. Judge Joe Heaton of the Western District of Oklahoma and Judge John W. Lungstrum of the District of Kansas.
. See Order, July 23, 2010, Adv. No. 10-51828, Docket No. 1; Order, July 23, 2010, Adv. No. 10-51825, Docket No. 1; Order Granting Mot. to Transfer, Adv. No. 10-51797, Docket No. 1.
. As noted above, Conoco did not move to amend its complaint. However, given that it is similarly situated to the other Tender Parties, the Court's treatment of Conoco for the *268purpose of deciding the Motions is identical to that of the other Tender Parties.
. Replacing a “John Doe” caption with a party’s real name amounts to 'changing a party’ within the meaning of Rule 15(c). Varlack v. SWC Caribbean, Inc., 550 F.2d 171, 174 (3d Cir.1977).
. The Court will separately addresses those Non-Tender Parties who did not file any proofs of claim infra.
. The Court notes that such dismissal is without prejudice to the plaintiffs’ right to litigate these claims in the forum in which such claims were instituted.
. In the context of the Tender Adversaries, the Court held that mandatory abstention did not apply, chiefly because an appropriate action had not been commenced in state court. See In re SemCrude, 428 B.R. at 101. This rationale does not apply here because the transferred actions were initially filed in state court.
. The Court will direct the parties involved in the claims by Samson against the Tender *276Parties and the Claim Parties to meet and confer to develop a consolidated scheduling order to ensure the orderly administration of these claims. See Part IV infra.
. 28 U.S.C. § 1334(c)(1) provides, in relevant part: "[N]othing in this section prevents a district court in the interest of justice, or in the interest of comity with State courts or respect for State law, from abstaining from hearing a particular proceeding arising under title 11 or arising in or related to a case under title 11."
. See In re SemCrude, 428 B.R. at 101.
. The Court will dismiss the Producers' claims against the No-Claim Parties in adversary proceeding 10-51828. Dismissal is without prejudice to the plaintiffs’ right to pursue such claims in the court in which the action was initiated. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494392/ | ORDER
ROSS W. KRUMM, Bankruptcy Judge.
The matter before the Court for decision involves the complaint by Branch Banking & Trust Company (hereafter “BB & T”) and the Debtors’ answer to the complaint. Although there are numerous issues contained in the complaint and answer, this Order seeks to decide the narrow question of whether a certain parcel of real property consisting of approximately 318.35 acres in Nelson County, Virginia, assigned a Tax Map Parcel # 24-A-25 (hereafter the “Property”) is property of the estate under *48311 U.S.C. § 541(a)(1). Both parties have submitted their briefs and memoranda of law in support of their positions and the matter is now ripe for decision. Accordingly, the Court makes the following facts and conclusions of law.
Facts
On June 6, 2001, the Debtors executed a Trust Agreement which established the Claude M. DelFosse Living Trust (hereafter the “Trust Agreement”). The Debtors are the co-trustees of the Claude M. Del-Fosse Living Trust (hereafter the “Trust”). Pursuant to Article Two, Section 3, Claude DelFosse is the primary beneficiary of the Trust. Pursuant to Article Two, Section 3, Genevieve DelFosse and the dependent children of Debtor Claude DelFosse are the first residuary beneficiaries of the Trust.
The Debtors, acting as trustees for the Trust, acquired fee simple legal title to the Property pursuant to a deed dated April 11, 2002, and recorded in the land records of the Circuit Court of Nelson County, Virginia on April 15, 2002 as Instrument # 020001812 from Blue Ridge Lumber, a Virginia general partnership (hereafter the “Trust Deed-In”).
Discussion
Jurisdiction
This is a core proceeding over which this Court has jurisdiction pursuant to 28 U.S.C. § 157(b). This action is further properly brought before the Court as an adversary proceeding pursuant to Rule 7001(2) of the Federal Rules of Bankruptcy Procedure as a complaint to determine the validity of a lien and/or other interests in property.
Virginia Law Governs This Dispute
Tidewater Fin. Co. v. Moffett (In re Moffett), 356 F.3d 518, 521 (4th Cir.2004) (citing Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct 914, 59 N.Ed.2d 136 (1979) (superseded by statute on other grounds)) holds that “while federal law defines in broad fashion what property interests are included within the bankruptcy estate, state law determines the nature and existence of a debtor’s rights.” Accordingly, the Court will apply Virginia law to the question of whether the Trust is a Virginia land trust or a revocable living trust.
Construction of Trust Agreements
In order to determine whether the Trust is a Virginia land trust, as BB & T asserts, or a revocable living trust, as the Debtors assert, the Court must first look to the language of the Trust. Harbour v. SunTrust Bank, 278 Va. 514, 519-20, 685 S.E.2d 838, 841 (2009) holds
In considering the language of a trust agreement, the intent of the grantor controls. Huaman v. Aquino, 272 Va. 170, 174, 630 S.E.2d 293, 296 (2006); Clark v. Strother, 238 Va. 533, 539-40, 385 S.E.2d 578, 581 (1989). We initially ascertain the grantor’s intent by reviewing the language that the grantor used in the trust instrument. Huaman, 272 Va. at 174, 630 S.E.2d at 296; McKinsey v. Cullingsworth, 175 Va. 411, 414-15, 9 S.E.2d 315, 316 (1940). If that language is clear and unambiguous, we will not resort to rules of construction, and we will not consider the grantor’s apparent reasoning or motivation in choosing the particular language employed. See Schmidt v. Wachovia Bank, 271 Va. 20, 24, 624 S.E.2d 34, 37 (2006); Frazer v. Millington, 252 Va. 195, 199, 475 S.E.2d 811, 814 (1996); Boyd v. Fanelli, 199 Va. 357, 361, 99 S.E.2d 619, 622 (1957); McKinsey, 175 Va. at 414-15, 9 S.E.2d at 316. Instead, in such instances, we will apply the plain meaning of the words that the grantor used. Landmark Communications, Inc. v. Sovran Bank, 239 Va. 158, 163-64, 387 S.E.2d *484484, 487 (1990); McKinsey, 175 Va. at 414-15, 9 S.E.2d at 316.
In light of Harbour’s guidance the Court will now apply the language of the Trust Agreement to the assertions of the parties.
The Trust Deed-In Does Not Amend the Trust
BB & T asserts that the Trust Deed-In “expressly amended the terms of the Trust Agreement.” Complaint, Pg. 4, In re DelFosse, No. 10-06063-LYN (Bankr.W.D.Va. Aug. 26, 2010). In support of this assertion BB & T argues that because the Trust Deed-In provided that (1) legal title to the Property vested in the trustees of the Trust; (2) the beneficiary of the Trust retained full power of management and control over the Property; and (3) the interests held by the beneficiaries of the Trust are in the nature of personalty, the Trust Deed-In amended the Trust from a revocable living trust to a Virginia land trust.
Article Two, Section 1(d) of the Trust Agreement provides that with regard to amending or revoking the Trust
[The settlor] shall have the absolute right to amend or revoke my trust, in whole or in part, at any time. Any amendment or revocation must be delivered to my Trustee in writing. This right to amend or revoke my trust is personal to me, and may not exercised by any legal representative or agent acting on my behalf.
Plaintiffs Exhibit B, In re DelFosse, No. 10-06063-LYN (Bankr. W.D. Va. Aug. 26, 2010). The Court finds this provision to be clear and unambiguous and thus, will apply the plain meaning of its words. In order to amend or revoke the Trust, Claude DelFosse, acting in his capacity as settlor, would have to deliver a writing to the Trustee that expressed his desire to revoke or amend the Trust. In this case, the Trust Deed-In cannot constitute an amendment or revocation of the Trust because the Trust Deed-In was executed by DelFosse, Trustee, not Claude DelFosse in his capacity as settlor. Thus, the Trust Deed-In cannot be an amendment or revocation under the provisions of the Trust Agreement because Mr. DelFosse, as set-tlor, did not execute the Trust Deed-In.
This distinction in capacity is important because the provision governing amendment and revocation clearly indicates a desire on the part of the settlor to be in control of his Trust and not to relinquish this control, even to “any legal representative or agent acting on my behalf.” Therefore, the Court finds that the Trust Deed-In does not constitute a amendment or revocation of the Trust because it was not executed by the settlor of the Trust and thus, fails to comport with the requirements for amending or revoking the Trust as found in the clear and unambiguous language of the Trust agreement. See Austin v. City of Alexandria, 265 Va. 89, 574 S.E.2d 289 (2003) (Rescinding a transfer of trust property made by the trustee/sole beneficiary of a trust because the transfer did not comply with provisions of the trust that governed transfers of property.)
Structure of the Trust Does Not Create a Virginia Land Trust
BB & T also asserts that the way in which the Property is held creates a Virginia land trust. Specifically, BB & T reasserts that because (1) legal title to the Property vested in the trustees of the Trust; (2) the beneficiary of the Trust retained full power of management and control over the Property; and (3) the interests held by the beneficiaries of the Trust are in the nature of personalty, the Trust is a Virginia land trust. However, in Austin, James M. Duncan executed an unrecorded declaration of trust which established the James M. Duncan, III, Living Trust. Under the trust agreement *485Mr. Duncan was both the trustee and the income beneficiary. Additionally, Mr. Duncan, as grantor, executed a “DEED IN TRUST” in which he conveyed certain parcels of property to himself as trustee of the living trust. Although the court decided the case on the issue of whether a transfer of the certain parcels of property subject to the DEED IN TRUST was avoidable, the court did not take issue with the structure of the living trust even though it contained a structure nearly identical to that found in the case at bar.
In both Austin and this case, the holder of the title of the real property at issue is the trust and the trustee is also the income beneficiary of the trust. The Court can find no reason why the Trust in this case is different from the trust in Austin such that it would result in the Court finding that the Trust in this case is something other than a living trust when the court in Austin, confronted with the same factual circumstance, did not do so.1
Property is Properly Included in the Debtors’ Estate
Since the Trust constitutes a revocable living trust, the Court finds that the revocable living trust constitutes property of the estate under 11 U.S.C. § 541. In re Arnold, 369 B.R. 266 (Bankr.W.D.Va.2007). Accordingly, the Court finds that because the Trust is property of the estate the Property held by the Trust is also property of the estate under § 541. Accordingly, it is
ORDERED
That a certain parcel of real property consisting of approximately 318.35 acres in Nelson County, Virginia, assigned a Tax Map Parcel # 24-A-25 constitutes property of the Debtors’ estate pursuant to 11 U.S.C. § 541(a)(1).
Copies of this Order are directed to be sent to counsel for the Debtors, C. Connor Crook, Esquire, and counsel for Branch Banking & Trust Company, Stephen E. Scarce, Esquire.
. BB & T asserts that Peyton v. First Citizens Corp. (In re Veatch), 232 B.R. 346 (Bankr.E.D.Va.1999) provides precedent for finding that where "the trustee receives both legal and equitable interest of the property transferred ... and ... the beneficiary receives no interest in the real property” a land trust is created. However, this is not an accurate reading of the case. In Peyton the court found that a Virginia land trust does not constitute property of the estate. However, in making its finding the court had apparently previously determined that the trust at issue was a Virginia land trust. The methodology the court used in making this determination was not recorded in the opinion and thus, this Court will not speculate as to the basis for the Peyton court's finding. Thus, Peyton is inapplicable to this case because the issue before the Court is whether the Trust is a revocable living trust or a Virginia land trust. Since the Court has found that the Trust is a revocable living trust, Peyton is found to be inapposite. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494393/ | OPINION
1
BRENDAN LINEHAN SHANNON, Bankruptcy Judge.
Before the Court is a motion filed by Plains Marketing, L.P. (“Plains”) for leave to file an amended complaint (the “Motion”) [Adv. Docket No. 175], pursuant to which Plains seeks, inter alia, to amend its Complaint for Declaratory Relief to Determine the Validity and Priority of Asserted Liens and Permit Final Payments to Debtors for Prepetition Crude Purchases (the “Original Complaint”) [Adv. Docket No. 1], by which it initiated this adversary proceeding, to add the following two claims for relief against SemCrude, L.P. and Eaglwing, L.P. (collectively, the “Debtors”): (1) a claim for recoupment of its damages for the Debtors’ alleged breach of warranty of title as provided in certain purchase agreements between Plains and the Debtors; and (2) a claim for indemnification, as provided in certain netting agreements between Plains and the Debtors, for its attorneys’ fees and litigation costs incurred in actions that have been asserted against Plains on account of its transactions with the Debtors. For the foregoing reasons, the Court will grant the Motion.
I. BACKGROUND
On July 22, 2008 and October 22, 2008, the Debtors voluntarily filed their respective petitions for relief under chapter 11 of title 11 of the United States Code (the “Bankruptcy Code”) in this Court. Prior to filing for bankruptcy, the Debtors had engaged in the business of purchasing crude oil and natural gas from certain producers of oil and gas (collectively, the “Producers”), and subsequently reselling such oil and gas to certain downstream purchasers (the “Downstream Purchasers”). As one of the Downstream Purchasers, Plains had purchased crude oil from the Debtors prior to the commence*475ment of the Debtors’ bankruptcy case pursuant to various purchase agreements (the “Purchase Agreements”) and netting agreements (the “Netting Agreements”).
In advance of the date by which a party had to file its claims against the Debtors (the “Bar Date”) set by Order of the Court (the “Bar Date Order”) [Docket No. 2746] for March 3, 2009, Plains filed a total of seven proofs of claim against the Debtors, in which it asserted its right to reclamation, 11 U.S.C. § 503(b)(9) payments, and contract remedies under the Purchase Agreements and the Netting Agreements.
Pursuant to the Purchase Agreements and the Netting Agreements, Plains remitted to the Debtors a substantial portion of the monies that it owed to the Debtors for the crude oil it received. In the Order for Payment of Funds to Debtors (the “Turnover Order”) [Adv. Docket No. 52] entered on October 5, 2009, the Court found that the Debtors and Plains had agreed that, to the extent that netting was authorized and legally permitted, Plains owed the Debtors an additional $2,484,019.74 (the “Final Settlement Amount”). By the Turnover Order, the Court ordered Plains to tender the Final Settlement Amount into an account over which the Court would retain jurisdiction pending further order of the Court. Shortly thereafter, on October 28, 2009, the Court entered an order (the “Confirmation Order”) [Docket No. 6347] confirming the Debtors’ Fourth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the Bankruptcy Code (the “Plan”) [Docket No. 5808].
On May 29, 2009, prior to the entry of the Turnover Order, Plains filed the Original Complaint to initiate the instant adversary proceeding. By the Original Complaint, Plains asserted that upon tender of the Final Settlement Amount, it would no longer be liable to the Debtors or any third parties on account of the crude oil it purchased from the Debtors.
On May 25, 2010, Plains filed the Motion seeking to amend the Original Complaint to (1) request declaratory relief against other previously unnamed Producers who had filed actions against Plains in various state courts, and (2) assert additional claims against the Debtors. On July 30, 2010, the Court entered an Order [Adv. Docket No. 246] permitting Plains to amend the Original Complaint to name the additional defendants. The Court reserved judgment on Plains’s request to assert the additional claims against the Debtors. It is to this issue that the Court now turns.
II. JURISDICTION
The Court has jurisdiction over this matter pursuant to 28 U.S.C. §§ 1334 and 157(a) and (b)(1). Venue is proper in this Court pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this adversary proceeding constitutes a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), (E), and (O).
III. DISCUSSION
By the Motion, Plains seeks leave to file its amended complaint (the “Amended Complaint”) [Adv. Docket No. 175, Ex. 1] to include additional claims against the Debtors. These additional claims are articulated in the sixth and seventh claims for relief in the Amended Complaint. By the sixth claim for relief, Plains asserts its right of recoupment against the Debtors arising from the Debtors’ alleged breach of warranty of good title to the crude oil which the Debtors sold to Plains under the Purchase Agreements. By the seventh claim for relief, Plains asserts its right of indemnity against the Debtors for attorneys’ fees, litigation costs, and other damages pursuant to the Netting Agreements. *476Alternatively, in the event that the Court does not grant Plains leave to file the Amended Complaint, Plains seeks leave to amend its proofs of claim to incorporate its claims for indemnity and breach of warranty in its timely filed proofs of claim.
Federal Rule of Civil Procedure 15(a), made applicable to adversary proceedings through Federal Rule of Bankruptcy Procedure 7015, provides that “[t]he court should freely give leave when justice so requires.” Fed.R.Civ.P. 15(a). Accordingly, the Court has substantial discretion to grant or deny a motion for leave to amend. The United States Supreme Court and the Court of Appeals for the Third Circuit have each held that leave to amend should be freely given absent a showing by the non-moving party of one of the following grounds for denial: (1) undue delay; (2) bad faith or dilatory motive; (3) repeated failure to cure deficiencies by amendments previously allowed; (4) undue prejudice to the opposing party by virtue of allowance of the amendment; or (5) futility of the amendment. Foman v. Davis, 371 U.S. 178, 182, 83 S.Ct. 227, 9 L.Ed.2d 222 (1962) (“The policy of the [Fjederal [R]ules is to permit liberal amendment to facilitate determination of claims on the merits and to prevent litigation from becoming a technical exercise in the fine points of pleading.”); Cureton v. Nat’l Collegiate Athletic Ass’n, 252 F.3d 267, 273 (3d Cir.2001); In re Burlington Coat Factory Sec. Litig., 114 F.3d 1410, 1434 (3d Cir.1997) (“Among the grounds that could justify a denial of leave to amend are undue delay, bad faith, dilatory motive, prejudice, and futility.”); see also Tracinda Corp. v. DaimlerChrysler AG (In re DaimlerChrysler Sec. Litig.), 200 F.Supp.2d 439, 443 (D.Del.2002); In re Global Link Telecom Corp., 327 B.R. 711, 718 (Bankr.D.Del.2005); Valley Media, Inc. v. Borders, Inc. (In re Valley Media, Inc.), 288 B.R. 189, 193 (Bankr.D.Del.2003).
In their objection (the “Objection”) [Adv. Docket No. 196], the Debtors argue that the Motion should be denied on the grounds of futility, undue prejudice, and undue delay. The Court finds that none of these grounds provides a sufficient basis for denying the Motion.
A. Futility
It is well established in the Third Circuit that the Court may refuse to grant leave to amend a complaint where the amendment would be futile. See, e.g., In re Alpharma Inc. Sec. Litig., 372 F.3d 137, 153 (3d Cir.2004) (citations omitted). An amendment is futile if “the complaint, as amended, would fail to state a claim upon which relief could be granted.” In re Burlington, 114 F.3d at 1434 (citing Glassman v. Computervision Corp., 90 F.3d 617 (1st Cir.1996)). Consequently, the Third Circuit and the Bankruptcy Court in this District have each held that “a trial court may properly deny leave to amend where the amendment would not withstand a motion to dismiss.” Massarsky v. Gen. Motors Corp., 706 F.2d 111, 125 (3d Cir.1983); PCT v. Authentic Specialty Foods, Inc. (In re Fleming Companies., Inc.), 347 B.R. 163, 167-68 (Bankr.D.Del.2006) (citing Rouge Steel Co. v. OmniSource Corp. (In re Rouge Indus., Inc.), No. 03-13272, Adv. No. A 05-52242, 2006 WL 148946, at *2 (Bankr.D.Del. Jan.19, 2006)); see also, Vision Metals, Inc. v. SMS Demag, Inc. (In re Vision Metals, Inc.), 311 B.R. 692, 701 (Bankr.D.Del.2004) (“‘Futility’ of amendment is shown when the claim or defense is not accompanied by a showing of plausibility sufficient to present a triable issue.”) (internal quotation marks omitted) (quoting Quality Botanical Ingredients, Inc. v. Triarco Indus., Inc. (In re Quality *477Botanical Ingredients, Inc.), 249 B.R. 619, 629 (Bankr.D.N.J.2000)).
1. Bar Date Violation
The Debtors argue that the Amended Complaint is futile because the additional claims asserted by Plains are actually “new” claims that were not previously asserted in the proofs of claim timely filed by Plains. The Debtors argue, therefore, that the inclusion of such claims in the Amended Complaint would “bluntly violate[ ] the Bar Date Order and would not withstand a motion to dismiss.” Objection ¶ 20. The Debtors further contend that the timely filed proofs of claim are deficient for the purpose of enabling Plains to allege the additional claims asserted in the Amended Complaint. The Court disagrees on both points.
Absent excusable neglect, Federal Rule of Bankruptcy Procedure 3003(c)(3) imposes upon creditors the burden of asserting their claims against a debtor’s estate, and “a creditor whose claim is not scheduled, scheduled improperly or scheduled as disputed, contingent or unliquidat-ed must file a proof of claim with the bankruptcy court within the time fixed by that court.” ITT Commercial Finance Corp. v. Dilkes (In re Analytical Systems, Inc.), 933 F.2d 939, 941-42 (11th Cir.1991). Citing a decision from the Second Circuit Court of Appeals, the Eleventh Circuit provided the following explanation for the strict enforcement of a bar date:
The practical, commercial rationale underlying the need for a bar date are [sic] manifest. The creditors and bankruptcy court must be able to rely on a fixed financial position of the debtor in order to intelligently evaluate the proposed plan of reorganization for plan approval or amendment purpose. After initiating a carefully orchestrated plan of reorganization, the untimely interjection of an unanticipated claim, particularly a relatively large one, can destroy the fragile balance struck by all the interested parties in the plan. Given the time sensitivity of such financial undertakings, the consequent delay in reevaluation necessitated by the late allowance of the claim may often spell disaster to recovery, even where ultimate approval is forthcoming. These considerations and realities militate in favor of restraint and caution in allowing untimely claims.
Id. at 942 n. 5 (citing Hoos & Co. v. Dynamics Corp. of Am., 570 F.2d 433, 439 (2d Cir.1978)).
However, “[t]he decision to allow amendments to a proof of claim is within the discretion of the Bankruptcy Court.” In re Ben Franklin Hotel Associates, 186 F.3d 301, 309 (3d Cir.1999). The Third Circuit has held that “amendments to proofs of claim should be freely allowed where the purpose is to cure defects in a claim as originally filed, to describe a claim with greater particularity, or to plead new theories of recovery on facts set forth in the original claim.” Id. (citation omitted) (internal quotation marks omitted). Once the deadline to file claims has passed, “an amendment to a claim filed post bar-date must be scrutinized to assure that it is not an attempt to file a new claim.” Hatzel & Buehler, Inc. v. Station Plaza Assocs., L.P., 150 B.R. 560, 562 (Bankr.D.Del.1993). Thus, a creditor may not use the claims amendment process to circumvent the claims bar date.
To comply with the provisions of the Bankruptcy Code and the Bar Date Order, Plains needed to file a proof of claim that set forth a “claim.” 5 Colliek on BANKRUPTCY ¶ 502.02[l][c] (Allen N. Resnick & Henry J. Sommer eds., 16th ed.). A “claim” is defined under the Bankruptcy Code as, inter alia, a “right to payment, whether or not such right is reduced to *478judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured.” The Third Circuit Court of Appeals has held that “the claimant must allege facts sufficient to support the claim” and that “a claim that alleges facts sufficient to support a legal liability to the claimant satisfies the claimant’s initial obligation to go forward.” In re Allegheny Intern., Inc., 954 F.2d 167, 173 (3d Cir.1992).
The District Court for the District of Delaware has held that various proofs of claim filed by certain plaintiffs who attached their respective contracts with a debtor were sufficient for the purpose of allowing such plaintiffs to pursue all of their contract rights against the debtor. Agassi v. Planet Hollywood Intern., Inc., 269 B.R. 543, 549-50 (D.Del.2001). The court found that because the plaintiffs had attached copies of their contracts to their proofs of claim, the failure of the plaintiffs to specifically assert their claims for indemnity against the debtor did not bar them from subsequently asserting claims under the indemnification provisions in their contracts. Id. at 550. The court held that because the referenced indemnification provisions are included in the attached contracts, the proofs of claim “are appropriately construed to include claims for indemnification of attorney’s fees and other rejection damages resulting from [the debtor’s] breach of the [] Contracts as provided in [such] Contracts.” Id. The court further explained that the stated allegations in the filed proofs of claim “expressly contemplated damages for breach of contract, which in the Court’s view, embraces a claim for damages under the indemnity clauses in the respective [ ] Contracts.” Id. at 549. Consequently, the court held that “these Proofs of Claim are sufficient on their face to embrace the attorney’s fees and other rejection damages claims at issue.” Id.
Here, the Court finds that the additional claims are not in fact “new” claims by Plains against the Debtors because such claims have already been asserted by Plains. The record reflects that four of the seven proofs of claim [Claim Nos. 4457, 4461, 4474, and 4571] filed by Plains include express references to the various contracts between Plains and the Debtors. Along with each of these proofs of claim, Plains attached a “Reservation of Rights,” stating that “[t]his proof of claim is being filed as a contingent claim for the purpose of reserving any and all rights that Plains [ ] may have under the Bankruptcy Code, federal or state law and the various orders that the Bankruptcy Court has entered in this case.” Plains attached to such proofs of claim a list of specific Purchase Agreements and Netting Agreements between Plains and the Debtors. The Court finds that the combination of these attachments to Plains’s proofs of claim is sufficient to establish that Plains asserted, inter alia, its contract rights under state law, whatever they may be, against the Debtors. A contrary conclusion would require the Court to ignore the purpose and significance of Plains’s explicit incorporation of the contracts in its proofs of claim.
Moreover, like the court in Planet Hollywood, this Court finds that the additional claims asserted by Plains in the Amended Complaint have already been embraced by the filed proofs of claim. First, Plains’s right to warranty of good title is explicit in the Purchase Agreements: “The Seller warrants good title to all crude oil delivered hereunder and warrants that such crude oil shall be free from all royalties, liens, encumbrances and all applicable foreign, federal, state and local taxes.” Likewise, Plains’s right to indemnity is explicit in the Netting Agreements, which provide *479that “[sjhould suit be instituted to enforce payment hereunder, the party prevailing in a final non-applicable judgment will be entitled to indemnification from the other party for its reasonable attorney’s fees and related court costs.” The Purchase Agreements and the Netting Agreements were both referenced by Plains in its timely filed proofs of claim. Therefore, by reference, Plains has asserted its contingent claims for indemnity and damages for breach of warranty.
Second, Plains relies upon its right to payment from the Debtors based upon the intricate settlement calculation agreed upon in the Purchase Agreements, and it relies upon its right to net out and set off mutual obligations based upon the provisions in the Netting Agreements. The Court therefore finds that Plains’s claims pursuant to the provision warranting good title and the indemnification provision, in the Purchase Agreements and Netting Agreements, respectively, are embraced by Plains’s proofs of claim, even in the absence of explicit articulation in such proofs of claim. The Court is especially persuaded to broadly construe Plains’s proofs of claim because Plains asserted in such proofs of claim its contingent claims against the Debtors for “any and all rights” it may have under, inter alia, state contract law. Therefore, the Court finds that by referencing the applicable contracts between Plains and the Debtors that are relevant to certain of its proofs of claim, Plains sufficiently asserted its contract rights against the Debtors, irrespective of whether such rights have matured or are conditional and exercisable only upon breach.
Alternatively, even in the absence of a sufficiently explicit assertion of its contract rights in its timely filed proofs of claim, the Court finds that Plains has satisfied the requirement for pleading its claims for indemnity and breach of warranty through informal proofs of claim. The Court of Appeals for the Third Circuit has long recognized the validity of informal proofs of claims. See Hefta v. Official Comm. of Unsecured Creditors (In re American Classic Voyages Co.), 405 F.3d 127, 132 (3d Cir.2005). The Third Circuit has held that “[i]n order to constitute an informal proof of claim, the alleged demand must be sufficient to put the debtor and/or the court on notice as to ‘the existence, nature and amount of the claim (if ascertainable).’” Id. (citations omitted). The District Court for the District of Delaware has articulated the following five-prong test for ascertaining the validity of informal proofs of claims:
Specifically, an informal proof of claim must (1) be in writing; (2) contain a demand by the creditor on the estate; (3) express an intent to hold the debtor liable for the debt; (4) be filed with the bankruptcy court; and (5) be justified in light of the facts and equities of the case.
Planet Hollywood, 269 B.R. at 550 (citations omitted).
Here, the Court finds that through the operation of at least three pleadings filed with this Court, Plains has satisfied the requirements for recognition of an informal proof of claim for both of the additional claims asserted in the Amended Complaint. First, Plains asserted in the Original Complaint its rights to reasonable attorneys’ fees and to recoupment pursuant to its contracts with the Debtors, coupled with allegations concerning the Debtors’ warranty and indemnification obligations. Original Complaint ¶¶ 78-79, 40-41.
Second, Plains moved to intervene in various adversary proceedings initiated against the Debtors by certain Producers and Downstream Purchasers (“Motion to *480Intervene”) [Docket No. 3422], on the grounds that it is a party in interest seeking to protect its “right to indemnification for its continuing legal fees and other costs pursuant to [the Purchase Agreements and the Netting Agreements].” Motion to Intervene ¶ 9.
Third, in its Objection to Confirmation of the Debtors’ Fourth Amended Joint Plan of Affiliated Debtors (“Objection to Plan”) [Docket No. 6172], Plains explicitly asserted that “[u]nder the [Purchase Agreements and Netting Agreements], the Debtors warranted title to the crude oil sold to Plains [ ] and also agreed to reimburse, indemnify, defend and hold Plains [ ] harmless from and against any and all losses, liabilities, claims, damages or expenses suffered or incurred by Plains [] should that warranty be breached.” Objection to Plan at 2. Pursuant to such agreements, Plains claimed that “[it] is therefore entitled to recover reasonable litigation expenses, including attorney’s fees and has a right to be indemnified by the Debtors for actions that arise out of the transactions between the Debtors and Plains.” Id. at 3. Plains further alleged that as a result of various actions initiated by certain Producers, “[it] has indemnity claims against the Debtors which should be provided for under the proposed Plan.” Id.
Through the aforementioned pleadings filed by Plains with this Court, Plains has made sufficiently explicit demands on the Debtors for indemnity and breach of warranty. The Court is further satisfied that such pleadings, individually and collectively, evidence an intent by Plains to hold the Debtors liable under various contract provisions. The Court finds that Plains’s consistent assertions of its contract rights throughout the pendency of the Debtors’ consolidated bankruptcy cases justifies the Court’s finding that Plains has previously asserted the additional claims that it now seeks to assert in the Amended Complaint.
Accordingly, under the circumstances of this case, the Court finds that the additional claims asserted by Plains in the Amended Complaint are not “new” claims because such claims are incorporated in the extant proofs of claims timely filed by Plains, and have also been constructively pleaded through informal proofs of claim. Therefore, the additional claims may be asserted by Plains despite the passage of the Bar Date. As such, the inclusion of the additional claims would not be futile on the ground that such claims would be susceptible to dismissal for violation of the Bar Date.
2. Plains’s Rights to Recoupment and/or Setoff
The Debtors also argue that the inclusion of the additional claims in the Amended Complaint would be futile because Plains has no valid claim to seek setoff or recoupment from the Debtors on account of its contract rights. However, the Debtors fail to distinguish between Plains’s right to assert and pursue valid claims, albeit contingent and unliquidated, based on various contract remedies available upon breach, and Plains’s right to immediate payment on account of such claims.
As the Court noted above, Plains may properly assert claims for indemnity and breach of warranty against the Debtors (to the extent that it has not done so already) pursuant to its rights under the Purchase Agreements and the Netting Agreements. The Debtors contend that Plains is not entitled to seek setoff and/or recoupment against the Debtors on account of such claims because, as a matter of law, it has validly waived precisely these rights. In four of its proofs of claim, Plains stated that “[it] has already conditionally applied its right to recoupment, *481netting and/or setoff ... for its sale of petroleum products to [the Debtors] ... provided that those rights are upheld.” However, Plains’s conditional waiver would not prevent it from asserting further claims for recoupment and setoff in the event that its recoupment, netting, and/or setoff rights are not respected. Thus, Plains has not absolutely waived its right to assert claims for setoff and /or recoupment.
The Debtors also contend that Plains’s attempt to seek indemnification for its attorneys’ fees, incurred as a result of the Producers’ litigation, would fail as a matter of law because such a right is not supported by the provisions in the Purchase Agreements and the Netting Agreements. Whether Plains is entitled to damages, as well as a determination of the value of such damages, requires an analysis of Plains’s asserted contract rights and their application to the facts at bar. This issue, however, is not presently before the Court. At this stage, the Court finds that Plains may at least assert claims against the Debtors on account of its contract rights.
Accordingly, Plains is entitled to liquidate its claims against the Debtors for breach of warranty and indemnity. As such, the inclusion of these additional claims in the Amended Complaint would not be futile.
B. Undue Prejudice
The Debtors also object to the Motion on the ground that the inclusion of the additional claims would unduly prejudice the Debtors. The Third Circuit has consistently upheld the notion that “prejudice to the non-moving party is the touchstone for the denial of the amendment.” Dole v. Arco Chem. Co., 921 F.2d 484, 488 (3d Cir.1990) (internal quotation marks omitted) (quoting Bechtel v. Robinson, 886 F.2d 644, 652 (3d Cir.1989)). To establish prejudice, “the non-moving party must do more than merely claim prejudice; ‘it must show that it was unfairly disadvantaged or deprived of the opportunity to present facts or evidence which it would have offered had the ... amendments been timely.’ ” Bechtel, 886 F.2d at 652 (quoting Heyl & Patterson Int’l, Inc. v. F.D. Rich Housing, 663 F.2d 419, 426 (3d Cir.1981)).
The Court finds that the Debtors have not established prejudice sufficient to defeat the Motion. The Debtors’ claim of prejudice is based upon the assertion that Plains has previously articulated its remaining claims against the Debtors as “contingent,” which the Debtors allege is inconsistent with Plains’s current attempt to advance a theory that may allow it to recapture all or part of the Final Settlement Amount that was tendered in connection with complex negotiations in furtherance of Plan confirmation. However, the Debtors have had ample notice of Plains’s intention to assert indemnity and breach of warranty claims against them. The list of relevant contracts attached to Plains’s proofs of claim, along with certain aforementioned pleadings, were sufficient to put the Debtors on notice of Plain’s intention to hold the Debtors liable for, inter alia, indemnity and breach of warranty. Moreover, Plains has already asserted its claims for indemnity and recoupment in the third claim in the Original Complaint. Therefore, based upon the record, the Court is satisfied that Plains’s request to assert the additional claims is consistent with the position that it has taken with respect to its contract rights throughout the pendency of the Debtors’ consolidated bankruptcy cases.
Finally, Plains emphasizes that the Debtors’ own pleadings suggest that they have been aware of Plains’s intention to pursue its rights under the Purchase Agreements and the Netting Agreements. *482For instance, in the Debtors’ opposition to a motion for partial dismissal of the instant adversary proceeding (the “Debtors’ Opposition”) [Adv. Docket No. 29], dated August 28, 2009, the Debtors acknowledged that the “contracts [between the Debtors and Plains] give rise to certain warranty and indemnification rights in favor of Plains.” Debtors’ Opposition ¶ 3.
Thus, the Debtors have been on notice, since the initiation of this adversary proceeding, of the additional claims that Plains now seeks to assert in the Amended Complaint. The Court therefore finds that the Debtors will not suffer undue prejudice if Plains is permitted to file the Amended Complaint.
C. Undue Delay
Finally, the Debtors argue that Plains should be denied leave to file the Amended Complaint on the ground of undue delay. In the Third Circuit, “[t]he passage of time, without more, does not require that a motion to amend a complaint be denied; however, at some point, the delay will become ‘undue,’ placing an unwarranted burden on the court, or will become ‘prejudicial,’ placing an unfair burden on the opposing party.” Adams v. Gould Inc., 739 F.2d 858, 868 (3d Cir.1984); see also Vision Metals, Inc. v. SMS Demag, Inc. (In re Vision Metals, Inc.), 311 B.R. 692, 701 (Bankr.D.Del.2004) (“Delay, by itself, is not a sufficient reason for a court to deny a motion to amend a complaint.”) (internal quotation marks omitted) (quoting Provident Life & Accident Ins. Co. v. Gen. Syndicators of Am., Inc. (In re Laramie Associates, Ltd.), No. 95-19102DAS, Adv. No. 96-1080DAS, 1997 WL 67848 (Bankr.E.D.Pa. Feb.12, 1997)).
Plains initiated the instant adversary proceeding in May 2009. It first moved to amend the Original Complaint in April 2010, but subsequently withdrew its request. This Motion was filed in May 2010, a year after Plains filed the Original Complaint. However, Plains still filed the Motion well within the time frames in which the courts in this District have previously granted leave to amend. Burlington Motor Carriers Inc. v. APL Ltd. (In re Burlington Motor Carriers Inc.), No. CIV A. 99-157 MMS, 1999 WL 1427683, at *9 (D.Del. Dec.30, 1999) (holding that a delay of ten months after the complaint was filed did not constitute undue delay); Coca-Cola Bottling Co. of Elizabethtown, Inc. v. Coca-Cola Co., 668 F.Supp. 906, 922 (D.Del.1987) (holding that a delay of six and one-half years after the complaint was filed did not constitute undue delay); PCT, 347 B.R. at 167 (holding that a delay of eight months after the filing of the complaint did not constitute undue delay). Therefore, the Court finds that the Debtors have failed to demonstrate undue delay, and it further finds that Plains’s delay alone is an insufficient ground for denying its request for leave to file the Amended Complaint.
IV. CONCLUSION
The Court concludes that the Motion will be granted insofar as it relates to the request by Plains to assert the additional claims described above because such claims are not “new” claims and are therefore not affected by the Bar Date.
An appropriate Order follows.
ORDER
Upon consideration of the motion for leave to file an amended complaint (the “Motion”) [Docket No. 175] filed by Plains Marketing, L.P.; and the objection thereto [Docket No. 196] filed by SemCrude, L.P. and Eaglwing, L.P.; and the Court having conducted argument on the matter; and for the reasons set forth in the accompanying Opinion, it is hereby
*483ORDERED, that the Motion is GRANTED to the extent that it requests leave to file the Amended Complaint.
. This Opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494394/ | ORDER GRANTING MOTION TO ENFORCE SETTLEMENT
AUDREY R. EVANS, Bankruptcy Judge.
On October 19, 2010, the Court heard the Plaintiffs Motion to Enforce Settlement (“Motion to Enforce”). The Debtor appeared pro se, and Charles (“Charlie”) Coleman appeared on behalf of the Plaintiff, Hyundai Motor Finance Company (“Hyundai”). Robert L. Skip Henry appeared on behalf of James (“Jim”) Smith, Jr., who was also present. This Court has jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2).
PROCEDURAL BACKGROUND
Hyundai filed its Complaint on April 28, 2009, and Defendant answered on May 22, 2009. The matter was ultimately scheduled for trial in January 2010, but prior to the trial date, the parties’ attorneys informed the Court that the matter had settled and canceled the trial. Hyundai *514filed its Motion to Enforce on June 14, 2010, and the motion was scheduled for hearing for August 3, 2010. On July 28, 2010, the Debtor’s attorney of record, Mr. Smith filed a motion seeking to withdraw as Debtor’s counsel citing “material and apparently irreconcilable differences” between Debtor and counsel. Mr. Smith sought a continuance of the August 3, 2010 hearing to allow Debtor time to find new counsel. Mr. Smith’s motion was granted on July 30, 2010; he was relieved as counsel, and the hearing on Hyundai’s Motion to Enforce was then scheduled for September 14, 2010. On September 13, 2010, Hyundai moved to continue the hearing until the next month due to a scheduling conflict on the part of Hyundai’s counsel. Hyundai’s counsel also noted that the Debtor did not yet have an attorney of record, and Hyundai’s counsel could not reach the Debtor. Hyundai’s motion was granted, and the hearing was rescheduled for October 19, 2010. The Court also heard and denied the Debtor’s Motion for Continuance on October 19, 2010, and entered an Order to that effect on October 20, 2010 (docket # 42).
FACTS
Debtor filed bankruptcy under Chapter 7 on October 28, 2008. On April 28, 2009,1 Hyundai filed its Complaint requesting a determination that the debt owed it by Debtor is excepted from the Debtor’s discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6), to the extent of $545,000 and $73,934.21. The factual basis for Hyundai’s Complaint does not warrant a detailed description in this Order because the issue presented is solely whether the Debtor and Hyundai have entered into a binding settlement agreement. However, for purposes of background, a brief summary is provided here.
The Complaint
The debt owed by Debtor to Hyundai arose out of an inventory loan and security agreement and an addendum (the “Contract”) between Hyundai and McKay Motors I, LLC (“McKay Motors”), a business entity in which Debtor was the sole member and chief executive officer. In the Contract, Hyundai agreed to finance McKay Motors in its purchase of inventory for its automobile dealership in exchange for McKay Motor’s promise to make certain interest payments to Hyundai and to repay the amount advanced by Hyundai on each item of vehicle inventory purchased under the terms of the Contract. Debtor personally guaranteed the obligations of McKay Motors to Hyundai. Hyundai was also granted a security interest in certain property described in the Contract. Under the Contract, McKay Motors was required to pay Hyundai the sale proceeds of financed vehicles by a certain time, and if payment was not made by that time, the vehicles were deemed to be “sold out of trust” or “SOT.” Hyundai alleges that Debtor as CEO of McKay Motors sold financed vehicles out of trust, and used sale proceeds to pay other liabilities besides the debt owed to Hyundai. Hyundai also alleges Debtor was untruthful in certain representations made in a loan application executed by Debtor in connection with the refinancing of McKay Motors’ real estate loan. Hyundai further alleges that as McKay Motors’ retail customers traded in vehicles, McKay and McKay Motors were supposed to pay off those vehicles but did not. As a result, when Hyundai later received a total of $73,934.21, Hyundai (with McKay and McKay Motors’ *515consent) did not apply that to McKay Motors or McKay’s outstanding debt but applied it to the lien payoff balances on the traded-in vehicles. Hyundai alleges this is a further extension of credit to McKay and McKay Motors.
Hyundai sued McKay and McKay Motors for default under the Contract and guaranty in the United States District Court for the Eastern District of Arkansas (the “District Court”) on December 20, 2006. On June 5, 2008, the District Court entered a judgment against Debtor in favor of Hyundai in the amount of $276,000 (the “Judgment”). On October 8, 2008, the District Court entered an additional judgment against Debtor in favor of Hyundai for attorneys fees in the amount of $260,390.29 (the “Supplemental Judgment”).
In its Complaint filed in this Court on April 29, 2009, Hyundai seeks a determination that the debt owed it by Debtor is excepted from the Debtor’s discharge under 11 U.S.C. § 523(a)(2)(A), (a)(4) and (a)(6), to the extent of $545,000 (based on the Judgment and Supplemental Judgment) and $73,934.21 (the amount paid by Hyundai to pay off existing loans on retail customers’ trade-in vehicles). Mr. Smith filed an Answer on behalf of McKay on May 22, 2009.
Settlement Negotiations
This adversary proceeding was initially set for trial for September 10, 2009, and on motion of the Debtor, it was continued until December 2, 2009. After a November 19, 2009 pretrial conference was held in the Court’s chambers for the purpose of determining how much time would be needed to present testimony at the Trial, an order was entered on November 20, 2009, moving the trial to January 20-21, 2010.
It is undisputed that the parties engaged in settlement negotiations prior to the January 2010 trial date. Mr. Smith testified that the Debtor gave him authority to engage in these settlement negotiations. Mr. Smith testified that the parties reached a settlement which was memorialized in a series of emails in which the essential terms of the settlement were set forth. He further testified that he was authorized by the Debtor to represent to Mr. Coleman that the matter was settled on the terms set forth in the emails. Those emails were introduced as part of Plaintiffs Exhibit 2 which was comprised of the Plaintiffs Motion to Compel and the exhibits attached to it. Specifically, on January 15, 2010, at 12:11 a.m., Charlie Coleman wrote an email to Jim Smith and Eric Weavers, one of the Debtor’s other attorneys who represented him during the Federal District Court lawsuit as well as during the settlement negotiations,2 stating the following:
Gentleman:
Below is the outline of the settlement terms I laid out to Jim on Wednesday, while I was driving back from NW Arkansas. Let me know where we stand, *516so I can stop reading and marking the transcript.
-A Non-dischargeable $150,000 consent judgment entered against McKay.
-In the event McKay pays the Settlement Amount, then Mr. McKay will have no further personal liability on the judgment.
—The Settlement Amount will be $60,000, paid in 3 annual installments of $20,000 each, beginning on September, 2012.
-[Hyundai] or its assignee will hold ownership and beneficiary status of the $1MM Life Insurance Policy previously offered by McKay.
* [Hyundai] will not be required to make premium payments on the policy, but in the event a decision is made by [Hyundai] to not make premium payments, notice will be provided to McKay. [Hyundai] will incur no liability to any person or party, including McKay in the event it fails to provide notice to McKay that the premiums will not be paid.
* In the event of Mr. McKay’s death and the policy remains in effect, [Hyundai] shall be a primary beneficiary under the policy to the extent of the full amount of the judgment, including the award of attorney fees, plus the amount of any insurance premiums actually paid by [Hyundai] on the policy. Any policy proceeds in excess of the amount paid to [Hyundai] will be paid pursuant to McKay’s secondary beneficiary designation.
Thanks and let me know.
Jim Smith responded at 3:44 p.m. January 15, 2010, with copies to Eric Weavers and another email address, as follows:
Charlie
This is to confirm that we have agreed to settle this matter pursuant to the terms and conditions we discussed. The only matter we talked about that is not addressed in some detail is the reversion of the policy interests to John upon either non payment of premiums by Hyundai or upon payment of the settlement amount. I understand that we will address this I[sic] the written agreement presented to the court for approval after the required notice to creditors. Thanks.
Mr. Coleman responded at 3:56 p.m. the same day, as follows:
Jim:
you are correct that upon non-payment of the premiums by [Hyundai] the policy will revert to Mr. McKay. However, as long as [Hyundai] pays the premiums, [Hyundai] will have the right to retain its beneficiary status under the policy to the extent of the sum of the full amount of the portion of the Settlement Amount actually paid, if any. The balance of the insurance proceeds would be paid to Mr. McKay’s designated beneficiary, notwithstanding the fact that [Hyundai] had been paying the premiums for him.
Mr. Smith responded to Mr. Coleman at 4:09 p.m. the same day stating, “You’re correct.”
Mr. Smith testified that he and Mr. Coleman then contacted the Court and canceled the January trial date. On January 20, 2010, docket entry # 20 was added stating: “Hearing Scheduled for 1/20/10 Not Held. PER PARTIES MATTER SETTLED ...”.3 He also testified the attorneys began drafting and exchanging *517drafts of a settlement agreement and a motion to approve the settlement to be filed in the case. A copy of a draft settlement agreement and a Joint Motion for Approval of Compromise were also attached to Plaintiff’s Exhibit 2 as Exhibit 3 to Plaintiffs Motion to Compel.
On March 22, 2010, Jack Pruniski, another of Debtor’s lawyers assisting him with the settlement, emailed a copy of a revised settlement agreement to Jim Smith with a copy to Debtor, with the following note:
Jim, attached is the settlement agreement with some proposed changes. The insurance policy is currently on a monthly bank draft. Hyundai will need to make arrangements to have an account drafted or pay quarterly. Also, do you know if “Jr.” is part of the title of John’s trust? Please let me know if you have any questions or comments regarding the proposed changes to the agreement.
The March 22, 2010 email was forwarded by Mr. Smith to Mr. Coleman on March 24, 2010, with a note asking Mr. Coleman to read and call Mr. Smith. A copy of the draft Settlement Agreement with Mr. Pru-niski’s revisions noted in the margin was submitted into evidence along with these emails as part of Plaintiffs Exhibit 2, specifically as Exhibit 3 to Plaintiffs Motion to Compel.
On April 14, 2010, Mr. Coleman emailed Mr. Smith another draft of the Settlement Agreement. The email stated, “The agreement looks okay. I marked up some additional spacing and one insertion in Para. 3. Nothing substantive. If you tell me it is okay with your client, and get me a clean execution copy, we can proceed to get the agreement signed.” This email and revised settlement agreement were also included in Plaintiffs Exhibit 2 as Exhibit 5 to Plaintiffs Motion to Compel. In his own testimony, the Debtor pointed out that Mr. Coleman had not submitted a reply to this email from Mr. Smith affirming the settlement.
The Debtor testified that he never authorized Mr. Smith to settle this matter on his behalf.4 He said that since settlement negotiations began, there had been confusion about the life insurance he was being asked to sign over. The Debtor maintains that he could not have agreed to the settlement with Hyundai because he did not know which policy it wanted until the week before the Hearing in this matter; and that he was never sure he even had the right to assign one of those insurance policies since they are owned by the John P. McKay, Jr. Irrevocable Trust. Debtor also explained that he was concerned that if Hyundai failed to pay premiums on his life insurance policy, it would lapse, and he would not be able to get or afford more life insurance at his age (he testified he was 68 in January 2010).
Debtor testified that during January 2010, and specifically after January 15, 2010, he was made aware that two of his life insurance policies were identical (although he did not clarify how they were identical). He also said that one of these policies had been assigned to OneBanc in 2005 for some obligations that he owed. Debtor also explained that in January 2010, a direct draft deposit was not made *518into his bank account from which the premiums on this particular policy were drawn, the premium payment was not made, and the policy went into default. He explained that he learned this in February 2010, and he and Mr. Smith met with David Duke, attorney for OneBanc, and tried to work out the default on this policy before they made a decision on settlement with Hyundai. The Debtor testified that until he recently received two letters post-marked October 9, 2010, and October 11, 2010, clarifying how premium payments were to be made on the two policies and which one was assigned to OneBanc, he did not know details about these policies such as how payments were made and which one was assigned to One-Banc. These letters, admitted into evidence as Defendant’s Exhibits 1 and 2, showed that both policy numbers 0009166490 and 0009175510 were held by The State Life Insurance Company, a ONeAmeRioa® Company (“State Life”); that the Debtor was the insured party; that the owner of the policies is the John P. McKay, Jr. Irrevocable Trust (the “Trust”), and that the required premium payments were $521.18. The letters appear to be in response to the Debtor’s request that the premiums be deducted from a new bank. The Court cannot ascertain which policy had been assigned to OneBanc based on these letters, but the Debtor testified that the assignment to OneBanc had been forfeited as part of his settlement with One-Banc prior to his bankruptcy. (There was no additional information provided about this settlement with OneBanc). Debtor testified he also had a John Hancock life insurance policy which had a quarterly premium draft and that he had discussed that policy with Mr. Smith. After discussions between Mr. Coleman and Mr. Smith regarding settlement, the Debtor learned that Mr. Coleman intended one of the State Life policies to be assigned as part of the settlement with Hyundai. Debtor stated that he cooperated fully by putting Mr. Coleman in touch with the insurance agent to get information on the policies. Although earlier in his testimony, Debtor stated these discussions occurred as part of the settlement negotiations for this case, Debtor also stated that Mr. Coleman obtained all of the information about his insurance policies during the Federal trial, and that Mr. Coleman probably understood better than he did that the Debtor could not assign the policies held by the Trust.
Despite Debtor’s testimony that he did not know which insurance policy was to be included as part of the settlement, each draft of the settlement agreement introduced into evidence included the following description in paragraph 7: “the insurance policy identifying John P. McKay, Jr. as the named insured, issued by The State Life Insurance Company, policy number 0009166490, dated March 5, 1999, in the face amount of $1,000,000.” The Debtor introduced an opinion letter dated October 18, 2010, prepared by Mr. Trav Baxter of the Mitchell Williams law firm regarding this trust as Defendant’s Exhibit 3. This letter states that the Debtor is not the trustee of the Trust or a beneficiary of the Trust and therefore has “no power to transfer, assign or pledge the assets of the Trust.” The letter goes on to state, “Furthermore, since you are not a beneficiary of the Trust (i.e. you are not entitled to receive any income or principal distributions from the Trust) and you have retained no power over the assets of the Trust, none of your creditors or assignees may reach the assets of the Trust.” Debt- or maintains that Mr. Coleman and Mr. Smith knew about this restriction, and that the Debtor could not have agreed to a settlement that included insurance that was held by the Trust. (Debtor states *519that he did not know about the restriction, that the attorneys knew about the restriction, and that this somehow prevented him from agreeing to the assignment of the life insurance policy even though he allegedly did not know which policy was to be assigned as part of the settlement.)
DISCUSSION
In determining whether an enforceable settlement agreement has been reached, the Bankruptcy Court applies Arkansas law. American Prairie Construction Co. v. Hoich, 594 F.3d 1015, 1023 (8th Cir.2010) (“We apply [State] law to determine whether a settlement agreement was formed”) (citing State Auto Prop. & Cas. Ins. Co. v. Boardwalk Apts., L.C., 572 F.3d 511, 514 (8th Cir.2009)). Accordingly, the Court first analyzes whether an enforceable settlement contract was created under Arkansas law, and then turns to the question of whether bankruptcy court approval pursuant to Federal Rule of Bankruptcy Procedure 9019(a) is required before such a settlement may be enforced.5
Was a Settlement Reached Under Arkansas Law?
The legal standard for determining whether a matter has been settled under Arkansas law was summarized by the Arkansas Supreme Court as follows:
Courts will enforce contracts of settlement if they are not in contravention of law. McCoy Farms, Inc. v. J & M McKee, 263 Ark. 20, 563 S.W.2d 409 (1978), reh’g denied, April 17, 1978. The essential elements of a contract include (1) competent parties, (2) subject matter, (3) legal consideration, (4) mutual agreement, and (5) mutual obligations. Ward v. Williams, 354 Ark. 168, 118 S.W.3d 513 (2003). We keep in mind two legal principles when deciding whether a valid contract was entered into: (1) a court cannot make a contract for the parties but can only construe and enforce the contract that they have made; and if there is no meeting of the minds, there is no contract; and (2) it is well settled that in order to make a contract there must be a meeting of the minds as to all terms, using objective indicators. Alltel Corp. v. Sumner, 360 Ark. 573, 203 S.W.3d 77 (2005). Both parties must manifest assent to the particular terms of the contract. Id. Moreover, the terms of a contract cannot be so vague as to be unenforceable. City of Dardanelle v. City of Russellville, 372 Ark. 486, 277 S.W.3d 562 (2008). The terms of a contract are reasonably certain if they provide a basis for determining the existence of a breach and for giving an appropriate remedy. Id.
DaimlerChrysler Corp. v. Smelser, 375 Ark. 216, 218-219, 289 S.W.3d 466, 470 (2008) (Imber, J.). “[L]ike any other contract, the terms of a settlement agreement must be definitely agreed upon and reasonably certain.... A mutual agreement, as evidenced by objective indicators, is essential.” Roberts v. Green Bay Packaging, Inc., 101 Ark.App. 160, 163, 272 S.W.3d 125, 128 (Ark.App.2008) (citing Key v. Coryell, 86 Ark.App. 334, 341, 185 S.W.3d 98, 103 (2004); Ward v. Williams, 354 Ark. 168, 180, 118 S.W.3d 513, 520 (2003)) (Marshall, J.). See also Carder Buick-Olds Co., Inc. v. Wilson, 1994 WL 693223, *1 (“The law favors amicable settlement of controversies, and settlement agreements, being contractual in nature, are binding if they possess the essential elements of any other contract; the ques*520tion of whether a settlement has been reached is one of fact.”) (citing Williams v. Davis, 9 Ark.App. 323, 659 S.W.2d 514 (1983)).
In this case, the only disputed contract element is whether there was mutual agreement, ie., a meeting of the minds. Specifically, the Debtor claims there could be no meeting of the minds because he did not authorize his attorney to settle the case on his behalf upon the terms discussed between Mr. Smith and Mr. Coleman. In Arkansas, “[t]he law is well settled that an attorney employed to conduct litigation involving property has no implied or apparent authority, solely by reason of his or her employment, to bind the client in regard to the subject matter of the litigation, except with respect to matters of procedure.” Dewitt v. Johnson, 349 Ark. 294, 298, 77 S.W.3d 530, 532 (2002) (citing McCombs v. McCombs, 227 Ark. 1, 295 S.W.2d 774 (1956); Cullin-McCurdy Constr. Co. v. Vulcan Iron Works, 93 Ark. 342, 124 S.W. 1023 (1910)). Mr. Smith does not rely on apparent or implied authority but testified that he was specifically authorized to enter into settlement negotiations with Hyundai and to settle the case based on the terms the parties ultimately agreed upon. The Court believes Mr. Smith and does not find the Debtor’s testimony credible. The Debtor’s testimony was contradictory on several points, and moreover, the course of action between Mr. Smith, Mr. Coleman, and Debtor’s other attorneys prove that the Debtor authorized the settlement, and that all parties believed the case was settled and worked towards implementing that settlement, as described herein.
The essential terms of the settlement are evidenced by the emails and draft settlement agreements submitted by Hyundai as well as the testimony of Mr. Smith. Specifically, the terms of the agreement were laid out in Mr. Coleman’s email to Mr. Smith dated January 15, 2010. The Debtor agreed to a $150,000 consent judgment in favor of Hyundai with a settlement amount of $60,000 to be paid in three annual installments of $20,000 each beginning September 2012. Debtor also agreed to transfer ownership and beneficiary status of a $1 million life insurance policy to Hyundai; specific details about the premium payments on this policy were laid out in the emails between Mr. Coleman and Mr. Smith. Significantly, Mr. Smith responded to Mr. Coleman’s initial email the same day, stating: “This is to confirm that we have agreed to settle this matter pursuant to the terms and conditions we discussed.” The only issue left unresolved according to Mr. Smith’s response was the potential reversion of the life insurance policy in the event Hyundai failed to make premium payments or upon the Debtor’s full payment of the settlement amount. Mr. Coleman and Mr. Smith then agreed about how the policy would revert to Debt- or in subsequent emails the same day, with Mr. Smith responding to Mr. Coleman’s description of the reversion terms with: “You’re correct.”
Of utmost significance is the attorney’s actions following these emails. They called the Court together and canceled the trial date. They began exchanging drafts of settlement agreements, and they drafted a motion for court approval of the settlement. When contacted by Court staff for an order settling the case, Mr. Smith responded to Court staff that they were working on the assignments needed to implement the settlement.
It is also significant that Debtor had two other attorneys reviewing these emails and draft settlement agreements, and making comments on them. Debtor testified he received a substantial bill ($2,500-$3,000) from one of his attorneys for such work. *521Further, Debtor initially testified that these attorneys were not authorized to help with the settlement of the bankruptcy adversary proceeding but then testified that he consulted with them because he began to have reservations about his representation by Mr. Smith. Despite any such reservations, however, it was Mr. Smith who went with Debtor to meet with OneBanc’s attorney in February 2010 (after the settlement had already been reached) to clear up the premium draft problems with one of his insurance policies. It is clear that Debtor not only authorized Mr. Smith to enter into settlement negotiations on his behalf, but he authorized two other attorneys to do so as well. In fact, Mr. Pruniski even made minor nonsubstantive revisions to the settlement agreement. If the Debtor did not in fact agree to this settlement, he would have communicated this to at least one of his three attorneys who would have then stopped the settlement process. Instead, the evidence shows that the parties uniformly worked towards implementation of the settlement as evidenced in the email exchanges and the three settlement agreement drafts submitted into evidence, but that Debtor ultimately had second thoughts and regretted his decision to settle this case on the agreed upon terms.
The evidence shows that after Debtor agreed to the settlement but failed to follow through with its execution, he began to create an impossibility defense to shore up his very weak “no authority” defense. Debtor claims he could not have agreed to one term included in the settlement — the assignment of the $1 million life insurance policy to Hyundai. Specifically, Debtor claims there was confusion about which life insurance policy was to be assigned to Hyundai, and that he only learned which policy Hyundai wanted a few weeks before the hearing in this matter. The Debtor also contends he could not have promised to assign the life insurance policy because he did not have the power to do so since it was owned by an irrevocable trust, of which he is not the trustee or a beneficiary. The evidence does not support either contention. First, the parties all knew which policy they were speaking of because it was named and identified by the policy number in each of the settlement agreement drafts. Paragraph 7 of each settlement agreement draft identifies the policy as “the insurance policy identifying John P. McKay, Jr. as the named insured, issued by The State Life Insurance Company, policy number 0009166490, dated March 5, 1999, in the face amount of $1,000,000.”
Second, all the parties were aware of the fact that the life insurance policy was owned by the John P. McKay Insurance Trust as that fact is recorded in Paragraph 7(B) of the draft settlement agreements. Mr. Pruniski even questioned whether the trust’s name included “Jr.” in his email to Mr. Smith (and copied to Debtor). Debtor maintains that his attorneys knew this but he did not, and therefore, could not agree to the settlement. The Court simply finds this statement completely incredulous. All the evidence indicates that the Debtor knew the life insurance was owned by a trust but promised to “take all necessary actions” to have it assigned anyway. He cannot now claim as a defense to the entire agreement that it was impossible for him to carry this out. As stated by Williston, “[0]ne who binds himself to a contract which cannot be performed without the consent or cooperation of a third person is not relieved of liability because of his inability to secure the required consent or co-operation.” C.T. Foster, Annotation, Modem Status of the Rules Regarding Impossibility of Performance as Defense, 84 A.L.R.2d 12 § 22 *522(1962) (citing 6 Williston, Contracts (Rev ed) § 1932). See also Barcroft Woods, Inc. v. Francis, 201 Va. 405, 111 S.E.2d 512 (1959) (“ ‘The rule appears to be that if one undertakes unconditionally to perform an act which is not inherently impossible, but merely requires the acquiescence or consent of a third party, or the performance of a preceding act by the latter, the nonperformance is not ordinarily excused by the fact that it subsequently proves impossible for the promisor to comply with the contract, because of the refusal of the third party to give his consent or perform the act; in other words, the contract will not, merely from the fact that acquiescence in or performance of an act by a third party must precede compliance therewith, be construed as conditional upon such acquiescence or performance.’ ”) (citations omitted); 17A Am.Jur.2d Contracts § 668 (2010) (“[0]ne who engages for the act of a stranger must arrange to have the act performed, and the refusal of the stranger, without the interference of the other party to the contract, is not an excuse.”).
Finally, Debtor made much of the fact that there was no reply from Mr. Smith to Mr. Coleman’s email of March 24, 2010, forwarding a copy , of the revised settlement agreement from Mr. Pruniski. The Court finds the lack of a reply to this particular email is irrelevant because the essential settlement terms had already been agreed to — the draft sent by Mr. Pruniski made stylistic changes (primarily indenting and spacing) rather than substantive changes.
In sum, the Court finds that Debtor agreed to settle this nondischargeability action on the terms set forth in the emails and draft settlement agreements submitted into evidence and described herein. The material terms were agreed upon on January 15, 2010, and the attorneys canceled the trial date set in this matter and proceeded to implement the settlement. When it was time to sign the agreement, the Debtor changed his mind and refused to follow through with the settlement, instead maintaining that it was impossible for him to carry out the settlement. As to this “impossibility” defense, the Court finds that impossibility was not the reason Debtor refused to go forward with the settlement, and that introducing three letters received shortly before the hearing on Hyundai’s Motion to Compel into evidence is insufficient for this Court to find that no agreement was reached. Consequently, the Court finds that the parties reached an enforceable settlement contract under Arkansas law before the Debtor changed his mind and refused to follow through with the settlement.
Bankruptcy Court Approval Under Rule 9019(a)
Although the Court has determined that the parties entered into a binding settlement contract under Arkansas law, the Court must also discuss and distinguish recent Eighth Circuit case law holding that even if the parties have reached an agreement, it is not an enforceable settlement agreement absent bankruptcy court approval under Federal Rule of Bankruptcy Procedure 9019(a).6 See American Prairie Construction Co. v. Hoich, 594 F.3d 1015, 1023 (8th Cir.2010).
Rule 9019(a) provides, in part, “lo]n motion by the trustee and after *523notice and a hearing, the court may approve a compromise or settlement.” (Emphasis added).7 By its own terms, Rule 9019(a) applies to settlements reached by trustees and Chapter 11 Debtors-in-possession (see Rule 9001 (11) which defines “trustee” as including “a debtor in possession in a chapter 11 case”). In Hoich, the Eighth Circuit Court of Appeals made the broad statement that “a settlement or compromise in bankruptcy is not enforceable absent bankruptcy court approval.” 594 F.3d at 1024. However, unlike this case which involves a dispute between a creditor and the Debtor regarding whether a debt is excepted from the Debtor’s discharge, the Eighth Circuit’s holding was made in the context of a Chapter 11 case in which the parties had not yet sought approval by the bankruptcy court under Rule 9019(a). See American Prairie Construction Co. v. Hoich, 594 F.3d at 1024. Specifically, the Eighth Circuit stated, “[i]t is a recognized principle of bankruptcy law that a bankruptcy court is required to approve any compromise or settlement proposed in the course of a Chapter 11 reorganization before such compromise or settlement can be deemed effective.” 594 F.3d at 1024 (emphasis added).
Despite the Eighth Circuit’s statements regarding the necessity of obtaining bankruptcy court approval under Rule 9019(a), the Court believes to apply that ruling to cases which do not involve a trustee or debtor-in-possession or do not affect a debtor’s bankruptcy estate would be to take the ruling and the Rule itself out of context. Again, by its own terms, Rule 9019(a) applies to trustees (including debtors-in-possession) and therefore does not require parties other than a trustee or debtor-in-possession to obtain court approval of settlements that do not affect the debtor’s estate, such as agreements regarding whether a particular debt is excepted from discharge.8 Such controversies do not affect other creditors or the estate and therefore do not need the sort of notice and approval that the settlement of other controversies affecting the estate require. See e.g., In re Hass, 273 B.R. 45, 50 (Bankr.S.D.N.Y.2002) (“Settlement of a controversy under Section 523(a) generally affects only the particular creditor and the debtor post-petition (in a Chapter 7 case), and approval of such a compromise generally will not affect the rights of parties interested in the debtor’s estate.”); In re Hall, 2010 WL 1730684, *8 (Bankr.D.Kan.2010) (“However, it is clear that Rule 9019 does not apply to compromises not involving the estate. As stated by one commentator ‘where the proceeding in which a compromise is sought does not involve the interest of the estate at large, notice need not be given.’ ”) (quoting 8 Norton Bankruptcy Law & Practice ¶ 167:1 (Thompson/West 2009)).9
*524Although Rule 9019(a), by its own terms, does not apply to the instant ease, the Court feels compelled to address the Eighth Circuit’s ruling in Hoich because the case could broadly be interpreted as preventing the enforcement of a binding contract to settle a case under State law simply because the parties had not obtained court approval of their settlement. Despite the parties’ intentions in this case to obtain court approval of their settlement, the Court finds that Rule 9019(a) does not apply to a dischargeability action between a creditor and the debtor, and therefore, no court approval is required, and any legal settlement reached by the parties is enforceable.
CONCLUSION
The Debtor authorized his attorney to enter into a binding settlement agreement with the essential terms of that agreement being laid out in a series of emails between the parties’ attorneys and in several draft settlement agreements. The Debtor subsequently changed his mind and refused to execute the written settlement agreement and follow through with his obligations under that agreement. Further, bankruptcy court approval under Rule 9019(a) is not necessary for the Court to enforce the settlement agreement. The Debtor is therefore in breach of the settlement contract and is hereby required to execute the settlement agreement and follow through with his obligations under that agreement. For these reasons, it is hereby
ORDERED that the Plaintiffs Motion to Enforce Settlement is GRANTED.
IT IS SO ORDERED.
. Hyundai's complaint was timely filed since it timely moved for extensions of time in which to file a complaint objecting to discharge or seeking to determine dischargeability. See Federal Rule of Bankruptcy Procedure 4007.
. Mr. Smith testified that Mr. Weavers also represented the Debtor during the settlement negotiations. The Debtor initially testified that Mr. Weavers was not authorized to represent him during the bankruptcy or the adver-saiy proceeding but later testified that he did ask Mr. Weavers as well as Mr. Jack Pruniski to assist him with the settlement negotiations because he began to not rely on Mr. Smith. The Debtor also testified that he discussed with these attorneys whether or not he could enter into the settlement agreement based on the questions he had about his life insurance policy. Based on this testimony in addition to the inclusion of these attorneys on all the emails discussing the settlement, the Court finds that Debtor authorized Mr. Weavers and Mr. Pruniski to assist him with the settlement of this adversary proceeding.
. The Court takes judicial notice of the docket and all documents filed in the current case. See Fed.R.Evid. 201; In re Henderson, 197 B.R. 147, 156 (Bankr.N.D.Ala.1996) ("The court may take judicial notice of its own orders and of records in a case before the court, and of documents filed in another court.”) (citations omitted); see also In re Penny, 243 B.R. 720, 723 n. 2 (Bankr.W.D.Ark.2000).
. The Debtor objected to Mr. Smith's testimony on the basis of attorney-client privilege. The Court overruled the Debtor’s objection finding that the Debtor necessarily waived the attorney-client privilege by putting in issue Mr. Smith's authority to settle the case on his behalf and the Debtor’s agreement to that settlement. See Toney v. Raines, 224 Ark. 692, 698, 275 S.W.2d 771, 775 (Ark.1955) ("[A]n owner of the privilege cannot, after testifying concerning such confidential communications himself without objection, invoke the privilege to prevent other parties to the communications from testifying to them.”).
. All references to rules in this order refer to the Federal Rules of Bankruptcy Procedure unless otherwise indicated.
. Apart from Rule 9019(a), certain Bankruptcy Code provisions require court approval of certain actions as being in the best interests of an estate. See e.g., 11 U.S.C. §§ 363(b) (transfers of estate property outside the ordinary course of business), 365(a) (assumption or rejection of an executory contract), 544(a) (abandonment of estate property), 1129(b) (approval of chapter 11 reorganization plans).
. In re Hall, 2010 WL 1730684, *8 (Bankr.D.Kan.2010) (“This subsection of Rule 9019 had its source in Section 27 of the Bankruptcy Act which provided that the 'receiver or trustee may, with approval of the court, compromise any controversy arising in the administration of the estate upon such terms as he may deem for the best interest of the estate.' ”) (citations omitted).
. The post-Bankruptcy Code cases cited by the Eighth Circuit in Hoich involved settlements reached by a trustee (Travelers Ins. Co. v. Am. AgCredit Corp. (In re Blehm Land & Cattle Co.), 859 F.2d 137, 141 (10th Cir.1988)); Billingham v. Wynn & Wynn, P.C. (In re Rothwell), 159 B.R. 374, 379 (Bankr.D.Mass.1993); settlements reached in a Chapter 11 case (In re Masters, Inc., 149 B.R. 289, 292 (E.D.N.Y.1992)), or involved some impact on the estate (Bramham v. Nev. First Thrift (In re Bramham), 38 B.R. 459, 465 (Bankr.D.Nev.1984)).
.The Court notes that although the language of Rule 9019(a) is permissive rather than mandatory and other courts have held that it is merely a safe-harbor provision for trustees *524and not an actual requirement, the Court understands the Eighth Circuit’s ruling in Hoich to require bankruptcy court approval under 9019(a) for a trustee or debtor-in-possession to enter into an enforceable settlement. See American Prairie Construction Co. v. Hoich, 594 F.3d at 1024. Compare In re Dalen, 259 B.R. 586, 595 -596 (Bankr.W.D.Mich.2001) ("... Rule 9019(a) is at best ambiguous as to whether court approval of a settlement is even required. It certainly is possible to educe from Rule 9019(a) the requirement that all settlements involving the bankruptcy estate be court approved. However, Rule 9019(a) itself contains no such mandate. Rule 9019(a) states simply that the court 'may' approve a compromise or settlement 'if' a motion is filed by the trustee. Nothing within Rule 9019(a) actually prohibits a trustee from settling a claim for or against the estate outside the purview of the bankruptcy court.") (emphasis in original); In re Hall, 2010 WL 1730684, *8 (Bankr.D.Kan.2010) (citations omitted) ("The scope of the rule is not settled. It has been held the rule is simply procedural and, unlike the provisions of the Act from which it is derived, is not a substantive provision requiring court approval of compromises if such a requirement does not exist in the Code itself. Some courts finds such approval permissive, not mandatory, while others find that a trustee may not enter into a binding compromise without court approval.”). See also In re Novak, 383 B.R. 660 (Bankr.W.D.Mich.2008); In re Telesphere Communications, Inc., 179 B.R. 544 (Bankr.N.D.Ill.1994). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494395/ | MEMORANDUM DECISION GRANTING PARTIAL SUMMARY JUDGMENT IN FAVOR OF MORTGAGES LTD.
RANDOLPH J. HAINES, Bankruptcy Judge.
The issue here is whether various mechanics’ lien claimants, who claim priority dating from the commencement of construction in November 2006, have priority over a construction deed of trust that was recorded in May of 2007. Among other defenses, the construction lender asserts the doctrine of equitable subrogation gives it priority back to that of a prior deed of trust because a portion of the construction lender’s loan was used to pay off the prior debt.
BACKGROUND FACTS
The construction project at issue is the remodeling or refurbishment of an existing building commonly known as the Hotel Monroe. Its owner, Central and Monroe, LLC, first obtained a loan from First Commonwealth Mortgage Trust in the amount of $3.2 million, secured by a deed of trust recorded in May, 2002. In July, 2005, that loan was refinanced by an $8.5 million dollar loan provided by Mortgages Ltd., secured by a deed of trust recorded that same month. Almost $3 million of the proceeds of that loan were used to satisfy the First Commonwealth debt and obtain a release of the First Commonwealth deed of trust.
In December, 2006, the owner obtained a new loan from Choice Bank in the amount of $9.3 million. It was secured by a deed of trust recorded that same month. Approximately $7.3 million of the proceeds of the Choice loan were used to satisfy the debt to Mortgages Ltd. and obtain a release of its 2005 deed of trust.
By the time the Choice Bank deed of trust was recorded in December, 2006, *594however, work was already underway on the remodeling. KGM was the general contractor who had a contract with the owner in October, 2006, to perform demolition work. KGM asserts, and it is apparently undisputed, that KGM first supplied labor and materials to its construction project on November 15, 2006, more than a month prior to the recordation of the Choice Bank deed of trust.1
The Choice Bank debt was refinanced by another loan from Mortgages Ltd. in the amount of $75.6 million, in May, 2007. The deed of trust securing that debt was recorded on May 16, 2007. From the proceeds of this second Mortgages Ltd. loan, more than $8.9 million was used to satisfy the Choice Bank debt and obtain a release of its 2006 deed of trust.
More than six months later, the owner signed another contract with another general contractor, Summit Builders. It commenced work on January 1, 2008, and recorded its notice and claim of mechanics’ and materialmen’s lien in July, 2008.
Summit claims that although it had a separate contract with the owner, some of the work it contracted to do was on the same “project” that KGM had worked on, the demolition of the interior of the building to prepare for the substantial remodeling.
THE ISSUES
Mortgages Ltd. has moved for summary judgment against Summit Builders and all of its subcontractors on essentially three theories:
Mortgages Ltd. asserts that at a status conference on July 6, 2010, Summit’s counsel announced in court that it would be dismissing its lien claim. It was not until a subsequent status conference on October 25 that Summit’s counsel announced that Summit had changed its mind and would not be dismissing its lien claim. Mortgages Ltd. argues that the intended dismissal that was announced on the record should be enforced as a settlement agreement.
Mortgage’s second basis for summary judgment is that Summit’s lien is invalid because Summit failed to provide Mortgages Ltd. with a preliminary twenty-day lien notice as required by statute.2
Finally, Mortgages asserts that because portions of the proceeds of its loan were used to pay off prior secured debts, Mortgages Ltd. is entitled to the priority of those prior deeds of trust under the doctrine equitable subrogation.
ANALYSIS
The court is not inclined to grant summary judgment on the theory that Summit’s stated intent to dismiss its lien claim constituted a settlement agreement. It does not appear that it was so much of an agreement as merely a unilateral decision and announcement by Summit. Although a unilateral statement of position can be enforced either as a judicial estop-pel or as quasi-judicial estoppel, those doctrines generally apply only if there has been some benefit obtained as a result of this statement, or some detrimental reliance by the court or other parties. Here no such showings have been made.
*595
PRELIMINARY 20-DAY NOTICE ISSUE
But Mortgages Ltd. might be entitled to summary judgment due to the failure of Summit to provide the preliminary 20-day notice required by A.R.S. § 3S-992.01(B). There can be no dispute that Mortgages Ltd. qualified as a “construction lender” or a “reputed construction lender” as referred to in this statute. Summit had constructive notice at the time that it commenced work in January of 2008 that Mortgages Ltd. was such a construction lender because its deed of trust had been of record for more than seven months.
Summit’s defense is that it substantially complied with the statute by providing a preliminary 20-day notice to the owner, and that Mortgages Ltd. was not prejudiced by the failure of notice because it had actual knowledge that the construction was going on. But while case law has upheld liens when there has been substantial compliance with the 20-day preliminary notice requirement even though the notice failed to include all of the statutorily required elements,3 neither the statute nor case law suggests that failure to serve a party any notice can constitute substantial compliance because other parties were served. It is undoubtedly true that the primary purpose of the 20-day notice requirement is to protect owners, primarily by advising them of what might otherwise be regarded as secret lien rights.4 It is also true that statutory purpose has been substantially fulfilled here, both by the service of the notice on the owner and by the alleged actual knowledge of Mortgages Ltd. But another key factor in ascertaining substantial compliance is “the nature and extent of the deviation from the statutory plan.”5 This court cannot predict that an Arizona Court would find substantial compliance despite a complete failure to provide any kind of preliminary 20-day notice to one of the parties that is statutorily entitled to it.
Summit has a better argument that Mortgages is statutorily estopped from asserting the preliminary 20-day notice defense because the owner failed to correct the failure of the notice to identify Mortgages Ltd. as its construction lender. Arizona law provides that the owner has ten days after receipt of a preliminary 20-day notice to identify its construction lender and to correct any misinformation contained in the notice.6 The statute further provides that if the owner fails to furnish or correct that misinformation, then the owner is estopped “from raising as a defense any inaccuracy of the information in a preliminary twenty-day notice.”7
Of course Mortgages Ltd. was not the owner at the time that the preliminary twenty-day notice was given to the owner. But Mortgages Ltd. is now the owner because it bought the property by a credit bid at its own trustee’s sale.
The statute defines the “owner” to be “the person, or the person’s successor in *596interest, who causes a building, structure or improvement to be constructed, altered or repaired.”8 Mortgages has no response to the argument that it qualifies as the original owner’s successor in interest. It certainly seems an odd result that a construction lender who was protected by the preliminary 20-day notice statute could lose that protection by foreclosing and becoming the owner. But it would not seem such an odd result in the case of a consensual sale. An owner who has lost defenses to lien claims by failing to timely correct misinformation in a preliminary 20-day notice should not be permitted to obtain the value of those defenses by selling the property to a new owner who would not be estopped from asserting the defenses. Because the statute clearly requires estoppel of the subsequent owner in that circumstance, the result must apply equally to anyone who becomes a successor in interest by whatever means.
Because Mortgages Ltd. is a successor in interest to an owner who failed to correct the misinformation contained in the preliminary 20-day notice that was served on the owner, Mortgages cannot assert the failure to serve the notice on the construction lender as a defense.
EQUITABLE SUBROGATION
Probably the most accurate and authoritative statement of the doctrine of equitable subrogation as now recognized in Arizona is found in the 1965 Court of Appeals decision in Peterman-Donnelly:
[A] third person, having agreed to advance money to discharge an encumbrance on property of another, where he is not a volunteer, and where payment is made under an agreement that he will be substituted in place of the holder of the encumbrance, is entitled to subrogation, whether such agreement is express or whether such agreement is implied.9
There is no dispute here that Mortgages Ltd. agreed to advance money to discharge the owner’s obligation to Choice Bank. Nor is there any dispute that in doing so, Mortgages was not acting as a volunteer. Most of the argument has focused on the nature of the express or implied agreement that Mortgages would be substituted in place of Choice Bank as to lien priority.
Arizona case law seems to hold conclusively that the subsequent lender’s intent to obtain first lien priority is sufficient to satisfy the agreement requirement. In Lamb,10 the Court of Appeals found sufficient evidence of the agreement to subrogate from the escrow closing instructions that required a title insurance policy showing the lender to have a valid first lien against the property. Those same facts exist here. It is significant that in Lamb, the trial court had denied equitable subrogation, but the Court of Appeals reversed based upon that escrow closing instruction. Summit’s only argument on this point is that “the fact that ML required that a title insurance policy insure it for first lien position does not evidence the meeting of the minds required for an express or implied agreement.” But that is essentially the holding of Lamb, that such an escrow requirement does satisfy the agreement element.
In the argument and in the memoranda the mechanics’ lien claimants assert various arguments why it would not be equitable to recognize equitable subrogation here. Most of these arguments hinge on *597Mortgages’ sophistication as a lender, its alleged notice or knowledge of the likelihood of mechanics’ hen claims because construction was already underway when it recorded its deed of trust, and that it could have obtained an actual assignment of the Choice deed of trust if it wanted to ensure maintenance of its priority. These arguments, however, are all essentially rejected by Lamb. The Court of Appeals’ decision rejected the trial court’s reliance upon the lender’s constructive notice of the potential for the filing of mechanics’ hens, holding that that “finding is irrelevant, given our determination that constructive notice is not an element of equitable subrogation under Arizona law.”11
The Lamb opinion similarly rejected the trial court’s reliance on the argument that the bank had a “superior position” over the “truly innocent intervening hen holders.” The decision did so by noting that the mechanics’ hen holders were in no worse position then they had been when they undertook to perform work on property that was already subject to the prior deed of trust.12
There is apparently no argument here, as there has been in connection with some other Mortgages Ltd. loans, that Mortgages should be denied an equitable remedy because it was the cause of the financial disaster for everyone, due to its failure to fully fund the loan it committed to make. But even if there were such an argument, it would similarly seem to be rejected by Lamb’s indication that the requisite inequity must be based on some fact or circumstance that would make it inequitable to leave the lien claimants in a position junior to the prior deed of trust.
Finally, the original contractor, KGM, argues that it commenced work in November of 2006, prior to the December, 2006, recording of the Choice Bank deed of trust. KGM therefore argues that equitable subrogation of Mortgages to the Choice Bank deed of trust cannot render it superior to KGM’s lien. Other lien holders also assert that same KGM priority by arguing that although it was done under a different contract,13 the work was “all going to the same general purpose” so the two contracts should be treated as one.14 Mortgages’ response is that once it is sub-rogated to the Choice deed of trust, it also thereby obtains the rights Choice Bank would have had to be subrogated to the first Mortgages’ deed of trust in the amount of $8.5 million that was recorded in July of 2005. There is no factual dispute that the Choice deed of trust and the escrow instructions for its recordation similarly required that the first Mortgages’ deed of trust be paid off from the proceeds, and that Choice’s deed of trust be recorded in first lien position.
No party has been able to cite a case applying equitable subrogation in this daisy-chain fashion. But such a two-step subrogation seems to be entirely consistent with the general principles and purposes of the doctrine. The effect of equitable subrogation is simply to substitute one lien holder to the lien-priority position *598of a prior lien holder.15 Provided that Mortgages Ltd. can satisfy all of the elements, there is nothing inherent in the doctrine that would preclude Mortgages from asserting it on behalf of Choice Bank, to give the Choice Bank deed of trust the lien-priority position of the prior Mortgages’ deed of trust. If equitable subrogation applies there, then the lien-priority position of the first Mortgages deed of trust would be the lien-priority position to which Mortgages is entitled when it is equitably subrogated to the lien-priority position of the Choice Bank deed of trust.
CONCLUSION
For the foregoing reasons, Mortgages Ltd. is entitled to partial summary judgment establishing a lien priority date of July 1, 2005, to the extent of the $7.3 million portion of the Choice Bank loan that was used to discharge the first Mortgages’ deed of trust. Mortgages is also entitled to partial summary judgment establishing a hen priority date of May 16, 2007, to the extent of the $8.9 million loan proceeds that were used to discharge the Choice Bank deed of trust. Mortgages is entitled to these summary judgments as against KGM, Summit Builders and all of their subcontractors.
. As a general rule, Arizona law provides that all mechanics’ and materialmen’s liens have the same priority as of "the time labor was commenced.” A.R.S. § 33-992(A).
. A.R.S. § 33-992.01(B) provides, in pertinent part, that any person asserting a mechanics’ lien shall "as a necessary prerequisite to the validity of any claim of lien, serve the owner or the reputed owner, the original contractor or reputed contractor, the construction lender, if any, or reputed construction lender, if any, and the person with whom the claimant has contracted ... with a written preliminary twenty-day lien notice....”
. E.g., Peterman-Donnelly Engineers & Contractors Corp. v. First National Bank of Arizona, 2 Ariz.App. 321, 323, 408 P.2d 841, 843 (1965)(substantial compliance found and lien upheld when notice to the owner failed to include a copy of the written construction contract).
. Columbia Group Inc. v. Jackson, 151 Ariz. 76, 725 P.2d 1110 (1986) (the legislative purpose behind § 33-992.01 was “to promote a fairer” and more equitable system by allowing owners to have knowledge of those hitherto secret lien rights).
. Matcha v. Wachs, 132 Ariz. 378, 381 646 P.2d 263, 266 (1982).
. A.R.S. § 33-992.01(1).
. A.R.S. § 33 — 992.01 (J).
. A.R.S. § 33-992.01(A)(3).
. Peterman-Donnelly Engineers and Contractors Corp. v. First National Bank of Arizona, 2 Ariz.App. 321, 325, 408 P.2d 841, 845 (1965).
. Lamb Excavation Inc. v. Chase Manhattan Mortgage Corporation, 208 Ariz. 478, 95 P.3d 542 (App.Div. 2 2004).
. 208 Ariz. at 484, 95 P.3d at 548.
. “We fail to comprehend the nature of the perceived prejudice or inequity, as it appears the lien holders would remain in the same position they occupied before subrogation if that doctrine were applied.” 208 Ariz. at 483, 95 P.3d at 547.
. KGM's contract was dated October 12, 2006. Summit Builders’ contract was dated December 12, 2007.
. SK Drywall Inc. v. Developers Financial Group, Inc., 169 Ariz. 345, 349, 819 P.2d 931, 935 (1991).
. 208 Ariz. at 480, 95 P.3d at 544. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494397/ | MEMORANDUM OPINION1
MARY F. WALRATH, Bankruptcy Judge.
Before the Court is the Order from the United States District Court for the District of Delaware directing that this Court determine whether the above adversary constitutes a core proceeding under the Bankruptcy Code. For the reasons set forth below, the Court finds the proceeding is not a core proceeding.
1. BACKGROUND
PRS Insurance Group, Inc. (“PRS”), along with certain of its subsidiaries commenced cases under chapter 11 of the Bankruptcy Code on January 19, 2001. Sean C. Logan serves as Trustee in the cases. Subsequent to the initial filing, the Trustee also commenced chapter 11 cases on behalf of certain off-shore affiliates of PRS, including Enterprise Group Insurance Company Ltd. (“EGIC”). On March 2, 2007, the Court entered an order confirming the Joint Debtors’ Plan of Liquidation, which became effective August 24, 2007.
On March 16, 2010, the Trustee, on behalf of EGIC, filed suit in the District Court for the Northern District of Ohio against Westchester Fire Insurance Company and ACE INA Holdings, Inc. (the “Defendants”) for breach of two reinsurance agreements and bad faith refusal to pay claims. The action was transferred to the District Court for the District of Delaware on October 28, 2010. The Trustee *404filed a Motion to refer the action to this Court on December 12, 2010. The District Court granted the Trustee’s request but limited the referral to the determination of whether the action constitutes a core proceeding under the Bankruptcy Code.
II. DISCUSSION
The Trustee asserts, without any support, that the action is a core proceeding under 28 U.S.C. § 157(b)(2)(E) because it is an “[order] to turn over property of the estate.” The Defendants respond that the action, which seeks a declaration of the respective rights and obligations of the Defendants and EGIC under the Treaties, concerns issues that are non-core in relation to the Debtors’ bankruptcy cases.
Bankruptcy court jurisdiction is divided into “core” and “non-core”. Cases under title 11, proceedings arising under title 11, and proceedings arising in a case under title 11 are core proceedings. In re Combustion Eng’g Inc., 391 F.3d 190, 225-26 (3d Cir.2004). Cases “under” title 11 refers merely to the bankruptcy petition itself. See, e.g., In re Marcus Hook Dev. Park, Inc., 943 F.2d 261, 264 (3d Cir.1991). Proceedings “arising under” title 11 refers to the steps within the bankruptcy ease and to any sub-action within the case that may raise a disputed legal issue. See, e.g., Michigan Empl. Sec. Comm. v. Wolverine Radio Co., Inc. (In re Wolverine Radio Co.), 930 F.2d 1132, 1141 n. 14 (6th Cir.1991). Proceedings “arising in” a case under title 11 refers to proceedings that are not based on any right expressly created by title 11, but nevertheless would have no existence outside the bankruptcy case. See, e.g., Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir.1996).
Proceedings that are merely “related to” a case under title 11, on the other hand, are non-core. See, e.g., Binder v. Price Waterhouse & Co., LLP (In re Resorts Int’l, Inc.), 372 F.3d 154, 162 (3d Cir.2004). The test for “related to” jurisdiction is whether “the outcome of that proceeding could conceivably have any effect on the estate being administered in bankruptcy.” In re Exide Techs., 544 F.3d 196, 205-06 (3d Cir.2008) (citing Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984)).
The Defendants argue, and the Court agrees, that the proceeding at bar is not within the Court’s jurisdiction “under” title 11 or “arising under” title 11, as the action is separate from the bankruptcy petitions and does not involve any steps in the bankruptcy cases.
The Defendants also argue that the cause of action does not fall within the Court’s “arising in” jurisdiction, citing numerous courts that have held that an action by a debtor or trustee against the debtor’s insurer is a non-core proceeding. See, e.g., In re United States Brass Corp., 110 F.3d 1261, 1268 (7th Cir.1997) (reasoning that “the claimed right to insurance coverage is a creation of state contract law and one that could be vindicated in an ordinary breach of contract suit if [the insured] were not a bankrupt”); Allied Prod. Corp. v. Hartford Accident & Indem. Co., 2003 WL 503805, *2, 2003 U.S. Dist. LEXIS 2596, *5 (N.D.Ill. Feb. 24, 2003) (withdrawing the reference in an adversary proceeding regarding the determination of insurance coverage, stating that “[t]he court fails to see how the insurance dispute at the heart of the adversary proceeding arises under or is in any way related to the Bankruptcy Code”); In re Ramex International, Inc., 91 B.R. 313, 315 (E.D.Pa.1988) (finding that trustee’s action for declaratory judgment under insurance policy issued pre-petition is non-core); G-I Holdings, Inc. v. Hartford Ac*405cident & Indem. Co. (In re G-I Holdings, Inc.), 278 B.R. 376, 380 (Bankr.D.N.J.2002) (concluding that action by debtor against insurers to determine insurance coverage is non-core).
The Court agrees that the Trustee’s action does not fall within the Court’s “arising in” jurisdiction. The action is for breach of two reinsurance agreements and bad faith refusal to pay claims. This does not involve a dispute that could arise only in the context of a bankruptcy case. On the contrary, such suits arise under state law.
In addition, the fact that the action may impact the size of the liquidating trust does not affect the Court’s determination of the core or non-core issue. In fact, the Court may not even have “related to” jurisdiction over the Trustee’s action, because after confirmation of a chapter 11 plan the scope of the bankruptcy court’s “related to” jurisdiction diminishes. Resorts, 372 F.3d at 164-65. Post-confirmation, the bankruptcy court may only exercise jurisdiction where a claim has “a close nexus to the bankruptcy plan or proceeding” and the matter at issue “affects the interpretation, implementation, consummation, execution, or administration of a confirmed plan or incorporated litigation trust agreement.” Id. at 168-69. The mere potential to increase the assets of a post-confirmation trust is insufficient to establish the required “close nexus.” Id. at 169-70.
III. CONCLUSION
For the reasons set forth above, the Court concludes that the Trustee’s action is not a core proceeding under the Bankruptcy Code.
An appropriate Order is attached.
ORDER
AND NOW, this 30th day MARCH, 2011, at the direction of the United States District Court for the District of Delaware, and for reasons set forth in the accompanying Memorandum Opinion, it is hereby
FOUND that the above adversary proceeding is not a core proceeding under the Bankruptcy Code.
. This Opinion constitutes the findings of fact and conclusions of law of the Court pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494398/ | Opinion
STEPHEN RASLAVICH, Chief Judge.
Introduction
Before the Court is the motion (“Motion”) of Plaintiff, B.V.F. Construction Co. (“Plaintiff’), for leave to amend its Second Amended Complaint to join Amalgamated Bank, as Trustee of Longview Ultra I Construction Loan investment Fund, and Amalgamated Bank (collectively referred to as “Amalgamated Bank”) as additional defendants in this adversary proceeding.1 Plaintiff was a carpenter subcontractor on three separate construction projects (the “Projects”) for which Amalgamated Bank allegedly provided construction loans pursuant to written agreements that were substantially the same. Plaintiff contends it is a third party beneficiary of the agreements and that Amalgamated Bank has a contractual duty to ensure that Plaintiff was paid in full for its work on each Project. Amalgamated Bank opposes the Motion, contending that it should be denied as futile because Plaintiffs claim that it was a third party beneficiary of the written agreements is without merit. Following a hearing on the Motion, the Court took the matter under advisement. Upon consideration, the Motion shall be denied.
Background
The Projects are located in Philadelphia, Pennsylvania, at the following addresses: (1) 400 Walnut Street; (2) 1920-34 Chestnut Street; and (3) 23 S. 23rd Street. Motion ¶ 2. Plaintiff allegedly performed its work on each of the Projects and Amalgamated Bank allegedly released construction loan proceeds to the borrower of the construction loans to pay Plaintiff for its work. See Motion ¶¶ 32; see also Third Amended Complaint ¶¶ 36-^40 (attached as Exhibit A to the Motion). However, Plaintiff was not paid for all of its work. Motion ¶ 33; see also Third Amended Complaint ¶ 40.
Through discovery, Plaintiff obtained the Construction Loan Agreement (the “Agreement”) between Amalgamated Bank, as Trustee of Longview Ultra I Construction Loan investment Fund (“Amalagated Bank Trustee”), and Carriage House Condominiums, L.P. (“Carriage House”), for the construction project located at 23 S. 23rd Street. See Agreement (attached as Exhibit F to the Motion). Plaintiff relies paragraphs 3.6 and 6.2 of the Agreement for its contention that it is a third party beneficiary thereof. Motion ¶¶ 23-25.
Paragraph 3.6 of the Agreement provides in part:
3.6 Use of Proceeds
(a) Borrower (i) shall use all Loan Proceeds advanced pursuant to the terms of *420this Agreement strictly in accordance with the terms of this Agreement for the construction of the Improvements and related expenditures consistent with the Project Budget; and (ii) shall not, following an Event of Default, make any distribution of Loan Proceeds or any other revenues, receipts or other proceeds generated by the Mortgaged Property to any partner of the Borrower or any party affiliated with Borrower or its partners, and shall not make any distributions of such funds which would result in the occurrence of an Event of Default ...
Agreement ¶ 3.6(a). Paragraph 6.2 of the same Agreement states, in pertinent part:
6.2 Right to Disbursements
... The Advances under this Agreement shall be disbursed, at Lender’s option, (i) by Lender’s check drawn upon Lender’s disbursement account and delivered to Borrower, (ii) by depositing the amount of the disbursement to Borrower’s account in a bank approved by Lender, or (iii) by any other method the Lender shall from time to time elect; provided however that following the occurrence of an Event of Default, Lender may make disbursement (if at all) by direct or joint check payment to any or all persons entitled to payment for work performed on or materials delivered to or services performed in connection with the construction of the Improvements or the Loan.... Under no circumstances shall any portion of any Advance be used for any purpose other than the payment of those costs and fees approved by Lender on the Project Budget legitimately relating to the purchase price for the Land, the cost of constructing the Improvements and the payment of the Indebtedness as set forth on the Project Budget and each line item thereon ...
Agreement ¶ 6.2 (bolding added). Based on the above-quoted language from paragraphs 3.6 and 6.2 of the Agreement, Plaintiff contends that a “clear inference arises that the parties to the Agreement intended Plaintiff, as a carpenter subcontractor on the project, to benefit therefrom as a third party beneficiary.” Motion ¶ 25. Plaintiff believes that the construction loan agreements for the projects located at 400 Walnut Street and 1920-34 Chestnut Street are similar to the Agreement. Motion ¶ 29. Therefore, it contends that it is a third party beneficiary under those agreements as well.
Based on Plaintiffs contention that it is third party beneficiary under the agreements, Plaintiff alleges in its proposed Third Amended Complaint that Amalgamated Bank was contractually obligated “to ensure that the loan proceeds available to pay Plaintiff on each project, in fact, were paid to Plaintiff’ and that the bank breached this duty, rendering it liable to Plaintiff in the amount of $2,007,534.20 plus “consequential damages arising from lost business opportunities.” See Third Amended Complaint ¶¶ 168-171 (attached as Exhibit A to the Motion).
Discussion
I. Standard of Review
Courts are obligated to “freely” grant a party’s motion for leave to amend its complaint to “when justice so requires.” See Alvin v. Suzuki, 227 F.3d 107, 121 (3d Cir.2000) (citing Fed.R.Civ.P. 15). However, leave to amend may be denied if the “amendment would be futile.” Alvin, 227 F.3d at 121 (citing Smith v. NCAA, 139 F.3d 180, 190 (3d Cir.1998), rev’d on other grounds, 525 U.S. 459, 119 S.Ct. 924, 142 L.Ed.2d 929 (1999)). An amendment is futile if “the complaint, as amended, would fail to state a claim upon which relief could *421be granted.” In re NAHC, Inc. Securities Litigation, 306 F.3d 1314, 1332 (3d Cir.2002).
II. Whether Plaintiff is a Third Party Beneficiary of the Agreement
Amalgamated Bank contends that Plaintiff should be denied leave to amend its complaint to join Amalgamated Bank as an additional defendant because Plaintiff is not a third party beneficiary of the Agreement. Under Pennsylvania law, there are two tests for determining third party beneficiary status.2 Two Rivers Terminal, L.P. v. Chevron USA, Inc., 96 F.Supp.2d 432, 450 (M.D.Pa.2000).
A. First Test for Determining Third Party Beneficiary Status
Under the first test, both parties to the contract must have indicated “in the contract itself that the purported third party beneficiary is a third party beneficiary.” Id. The Pennsylvania Supreme Court set forth this test in Scarpitti v. Weborg, 530 Pa. 366, 609 A.2d 147 (1992), stating: “[I]n order for a third party beneficiary to have standing to recover on a contract, both contracting parties must have expressed an intention that the third party be a beneficiary, and that intention must have affirmatively appeared in the contract itself.” Id. at 370, 609 A.2d at 149 (quoting Spires v. Hanover Fire Insurance Co., 364 Pa. 52, 57, 70 A.2d 828, 830-31 (1950)).
The first test is not met. There is no language in the Agreement which affirmatively expresses an intention by Carriage House and Amalgamated Bank to make Plaintiff or any other contractor or subcontractor a third party beneficiary thereto.
B. Second Test for Determining Third Party Beneficiary Status
The second test, which applies when a contract does not expressly state that the third party is intended to be a beneficiary, contains two parts. Burks v. Federal Insurance Company, 883 A.2d 1086, 1088 (Pa.Super.2005). First, the “recognition of the beneficiary’s right must be ‘appropriate to effectuate the intentions of the parties[.]’ ” Guy v. Liederbach, 501 Pa. 47, 60, 459 A.2d 744, 751 (1983). Second, “the performance must ‘satisfy an obligation of the promisee to pay money to the beneficiary’ or ‘the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.’ ” Id. This test is based on the Restatement (Second) of Contracts § 302 (1979) which states:
§ 302. Intended and Incidental Beneficiaries
(1) Unless otherwise agreed between promisor and promisee,3 a beneficiary of a promise is an intended beneficiary if *422recognition of a right to performance in the beneficiary is appropriate to effectuate the intention of the parties and either
(a) the performance of the promise will satisfy an obligation of the prom-isee to pay money to the beneficiary; or
(b) the circumstances indicate that the promisee intends to give the beneficiary the benefit of the promised performance.
(2) An incidental beneficiary is a beneficiary who is not an intended beneficiary.
Guy, 501 Pa. at 60, 459 A.2d at 751 (quoting Restatement (Second) of Contracts § 302 (1979)).
The paragraphs to which Plaintiff cites from the Agreement to support its claim that it is a third party beneficiary of the Agreement provide that Amalgamated Bank has the option, upon an Event of Default,4 to make payments directly or by joint check to “any or all persons entitled *423to payment for work performed on or materials delivered to or services performed in connection with the construction of the Improvements or the Loan.” Agreement ¶ 6.2. The language in paragraph 6.2 does not obligate the bank to make any payments. Indeed, the parties’ use of permissive rather than mandatory language in paragraph 6.2 undercuts the Plaintiffs argument that Amalgamated Bank or the borrower intended for Plaintiff to be a third party beneficiary of the Agreement. The parties’ language in paragraph 6.2 expresses their intent that while Amalgamated Bank is entitled, if it so chooses, to disperse payments after an Event of Default has occurred, it has no obligation whatsoever to any contractors or subcontractor to do so and did not intend for them to benefit from any promised performance. Thus, recognition of a right to performance in Plaintiff would be directly contrary to the parties’ intention as set in the terms of paragraph 6.2 of the Agreement. See Burks v. Federal Insurance Company, 883 A.2d at 1090-91 (affirming trial court’s decision that person injured when she fell in bank was not a third party beneficiary of the insurance policy between the bank and its insurance company because the bank’s intent “at the time of contracting ... was to procure medial payment coverage that would permit [it] to compensate an individual for bodily injury sustained on its premises if it chose to, and independent of its actual legal obligation to compensate the individual.”); BDGP, Inc. v. Independent Mortgage Co., 2004 WL 960013, at *4 (Pa.Comm.Pl. March 31, 2004) (rejecting plaintiffs argument that it was a third party beneficiary under a construction loan agreement because the bank knew that the plaintiff, who wasn’t a signatory to the agreement, would receive benefits under it).
The aforementioned view of the Agreement, namely that the Plaintiff is an incidental beneficiary thereof and not a third party beneficiary, is supported by paragraph 5.2 of the Agreement. Under paragraph 5.2, Carriage House assigned its rights, titles and interests in any and all of its contracts with its contractors or subcontractors to Amalgamated Bank; however, as the Agreement explicitly states, Amalgamated Bank did not undertake any obligations under such contracts.5 The Agreement specifically recognizes that Carriage House’s obligations under its contracts with contractors or subcontractors are solely its obligations and not the obligations of Amalgamated Bank. Paragraph 5.2 of the Agreement provides, in pertinent part:
As additional security for the payment of the Indebtedness, Borrower hereby transfers and assigns to Lender all of Borrower’s rights, titles and interests, but not it obligations, in, under and to the Contracts upon the following terms and conditions:
*424(b) Neither this assignment nor any action by Lender shall constitute an assumption by Lender of any obligations under the Contracts; and Borrower shall continue to be liable for all obligations of Borrower thereunder, Borrower hereby agreeing to perform all if obligations under the Contracts. Borrower agrees to indemnify and hold Lender harmless against and from any loss, cost, liability or expense (including, but not limited to, reasonable attorneys’ fees) incurred by the Lender and resulting from any failure of the Borrower to so perform and Borrower agrees to obtain from the applicable Contractor or any other contractor or subcontractor, a consent to the assignment of such Contract contained in this Paragraph 5.2 of the Contracts in a form acceptable to Lender in its sole and absolute discretion.
Agreement ¶ 5.2 (emphasis added). As this provision shows, Amalgamated Bank obtained the right, title and interests of Carriage House in its contracts with contractors and subcontractors, but it did not take on any obligation(s) to the contractors or subcontractors. By specifically including in the Agreement the language in this provision that states that Amalgamated Bank owes no obligations to any contractors or subcontractors under any of their contracts with the borrowers, the parties clearly expressed their intent that the Agreement was not intended to impose any obligations on Amalgamated Bank visa-vis any of the contractors and subcontractors that Carriage House might use on the Project. Therefore, Plaintiff is an incidental beneficiary rather than a third party beneficiary of the Agreement. As an incidental beneficiary, Plaintiff has no rights against Amalgamated Bank under the Agreement. See Meyers Plumbing and Heating Supply Company v. West End Federal Savings and Loan Association, 345 Pa.Super. 559, 565, 498 A.2d 966, 969 (1985) (citing Restatement (Second) of Contracts § 315 (1979)). Consequently, it would be futile to allow Plaintiff to amend its Second Amended Complaint to join Amalgamated Bank as an additional defendant.
Summary
Plaintiffs Motion for leave to amend its Second Amended Complaint shall be denied. The amendment would be futile because Plaintiff is not a third party beneficiary under the Agreement.
ORDER
AND NOW, upon consideration of the Motion of Plaintiff, B.V.F. Construction Co., Inc., for Leave to Amend Second Amended Complaint to Join Amalgamated Bank, as Trustee of Longview Ultra J. Construction Loan Investment Fund and Amalgamated Bank as Additional Defendants, and after a hearing with notice, is hereby ORDERED that the Motion is DENIED.
. In the response in opposition to the Motion, counsel indicates that Amalgamated Bank as Trustee for Long View Ultra Construction Loan Investment Fund is the only party which plaintiff should be seeking to join as an additional defendant and that Amalgamated Bank was incorrectly named. See Defendant, Amalgamated Bank as Trustee for Long View Ultra Construction Loan Investment Fund Incorrectly Named as Amalgamated Bank’s Response in Opposition to B.V.F. Construction Co., Inc.'s Motion for Leave to Amend its Second Amended Complaint at 1-2. For purposes of resolving the Motion, the Court shall simply refer to Amalgamated Bank as Trustee for Long View Ultra Construction Loan Investment Fund and/or Amalgamated Bank as "Amalgamated Bank.”
. Pursuant to paragraph 9.8 of the Agreement, the Agreement is governed by the law of the Commonwealth of Pennsylvania. See Agreement ¶ 9.8 ("This Agreement has been executed under, and shall be construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania[.]”).
. The "[u]nless otherwise agreed between promisor and promisee” language of § 302 of the Restatement (Second) of Contracts recognizes the right of contracting parties to exclude third parties from invoking the benefits of their contract by specifically stating that the contract "is not intended to create third party beneficiaries at all.” Tredennick v. Bone, 647 F.Supp.2d 495, 498-99 (W.D.Pa.2007). If the parties to a contract include a provision in the contract specifically stating that the contract is not for the benefit of and not intended to be enforceable by any third party, they have "otherwise agreed” that there are no third party beneficiaries to the contract. See Villanova, Ltd. v. Convergys, 2001 WL 868662, at *2 (E.D.Pa. April 24, 2001) (ruling that plaintiff could not successfully claim to be a third party beneficiary of a contract since the parties to the contract “ex*422plicitly provided that there were to be no third party beneficiaries.”).
Based on paragraph 6.6 of the Agreement, Amalgamated Bank contends that Carriage House and it "otherwise agreed” that there would be no third party beneficiaries to the Agreement. In support of this contention, Amalgamated Bank cites Twin County Construction Company, Inc. v. Signet Bank/Maryland, 1995 WL 733392, at *3 (E.D.Pa. Dec. 12, 1995), wherein the parties specifically included a provision in their loan agreement precluding anyone who was not a party to the agreement from having any benefit thereunder as a third party beneficiary. The provision at issue stated:
No Third Party Beneficiary Rights. No person not a party to this AGREEMENT shall have any benefit hereunder nor have third party beneficiary rights as a result of this AGREEMENT or any other LOAN DOCUMENTS, nor shall any party be entitled to rely on any actions or inactions of the LENDER or the LENDER’S agents, all of which are done for the sole benefit and protection of the LENDER.
Id. In contrast to the provision in the loan agreement in Twin County Construction Company, Inc., paragraph 6.6 of the Agreement in the instant matter provides:
6.6 Third Party Beneficiaries. All conditions precedent to Lender’s obligation to make Advances hereunder are imposed solely and exclusively for Lender’s benefit. No person or entity other than Lender shall have any standing to require satisfaction of such conditions, or be entitled to assume that Lender will refuse to make Advances absent strict compliance therewith, and any or all of such conditions may be freely waived (in whole or in part) by Lender at any time or times.
Agreement V 6.6. This provision is clearly more narrow than the provision at issue in Twin County Construction Company, Inc. While Amalgamated Bank would have the Court interpret paragraph 6.6 as stating that there are no third party beneficiaries of the Agreement, that is not what paragraph 6.6 of the Agreement provides. Rather, it states that the Lender and only the Lender is entitled to impose or waive the conditions precedent to its obligation to make Advances under the Agreement. Consequently, the Court rejects Amalgamated Bank’s contention that the language ”[u]nless otherwise agreed between the promisor and promisee” in § 301(1) of the Restatement (Second) of Contracts is applicable here.
. Pursuant to Article 7 of the Agreement, an "Event of Default” occurred if Carriage House failed, refused or neglected to discharge "any Obligations as and when called for....[J” Agreement ¶ 7.5. "Obligations,” as defined by the Agreement are:
Any and all of the covenants, warranties, representations and other obligations (other than to repay the indebtedness) made or undertaken by Borrower ... to Lender or others as set forth in the Security Documents, Leases, Commitment and all other documents now or hereafter executed by Borrower....[.]
Agreement ¶ 1.1 (z). Under the Agreement, Carriage House had an obligation to use the Loan Proceeds "strictly in accordance with the terms” of the Agreement "for the construction of the Improvements and related expenditures consistent with the Project Budget.” Agreement ¶ 3.6(a). Plaintiff has alleged that it did not. Therefore, an Event of Default occurred.
*423Upon the occurrence of an Event of Default, Amalgamated Bank’s obligations, if any, under the Agreement, "including specifically any obligation to advance funds” immediately ceased. Agreement ¶ 8.2 As Therefore, any obligation by Amalgamated Bank to advance funds under the Agreement terminated when Carriage House defaulted thereunder.
. Under the Agreement, the term “Contracts” means:
Any and all contracts and agreements, written or oral, between Borrower and any Contractor, all such contracts being subject to prior approval of Lender, between any of the foregoing and any subcontractor between any of the foregoing and any person or entity relating in any way to the construction of the Improvements, including the performing of labor or the furnishing of standard or specially fabricated materials in connection therewith.
Agreement ¶ 1.1(f). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494399/ | *353
MEMORANDUM OPINION ON MOTION AND CROSS-MOTION FOR SUMMARY JUDGMENT
DENNIS R. DOW, Bankruptcy Judge.
This adversary comes before the Court on the motion for summary judgment filed by the Trustee in Bankruptcy, Gary D. Barnes (“Plaintiff’ or “Trustee”) against defendant Karbank Holdings, LLC (“Kar-bank”) and Karbank’s cross-motion for summary judgment. The Trustee asserts entitlement to judgment as a matter of law based on the theory that Karbank received preferential transfers from JS & RB, Inc. (“Debtor”) pursuant to 11 U.S.C. § 547(b) which may be avoided. Karbank asserts affirmative defenses under 11 U.S.C. § 547(c)(1) and (c)(2) and argues that it is entitled to attorney’s fees under the common fund doctrine. This is a core proceeding under 28 U.S.C. § 157(b)(2)(B)(E) and (F) over which the Court has jurisdiction pursuant to 28 U.S.C. §§ 1384(b), 157(a) and (b)(1). The following constitutes my Findings of Fact and Conclusions of Law in accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
For the reasons set forth below, the Court finds that the Trustee established that each of the three transfers described in the Complaint to Avoid and Recover Preferential Transfers, Recovery of Transferred Funds, Disallowance of Claims and for Delivery and Turnover of Property of the Estate (“Complaint”) are avoidable as preferences under § 547(b). The Court, however, denies the Trustee’s request for turnover of the February 25, 2008 transfer, as it finds that Karbank is entitled to retain this payment as a contemporaneous exchange for new value under § 547(c)(1). As to the two transfers made in March 2008, the Court finds that because there exist genuine issues of material fact related to the affirmative defenses asserted by Karbank under § 547(c)(1) and § 547(c)(2), these issues will be set for trial. The Court further finds that Karbank is not entitled to summary judgment on the question of whether its attorney’s fees should be paid under the common fund doctrine, as there remain genuine issues of material fact which will be determined at trial.
I. FACTUAL AND PROCEDURAL BACKGROUND
The facts relevant to the Court’s determination as to whether preferential transfers were made are materially uncontested. Karbank owns certain real property located at 1650-1690 North Topping, Kansas City, Missouri (the “Property”). Debt- or leased the Property from Karbank pursuant to the terms of a Commercial and Industrial Lease Agreement dated December 20, 2001, as modified by the Lease Modification Agreement dated February 16, 2007 (collectively, the “Lease”).1 The basic rental amount due pursuant to the Lease was $38,487.16 per month, due the first day of each month.
Debtor paid to Karbank the amount of $38,487.16 (“February Rent”) by a check dated February 15, 2008. The check was given to Karbank on February 25, 2008 and it was posted and cleared by Debtor’s bank on February 26, 2008.2 Karbank sent Debtor a Notice of Default dated March 14, 2008, threatening to sue Debtor, terminate the Lease, and demanding that Debtor pay March rent and late fees as were due pursuant to the terms of the Lease.3 Counsel for Karbank sent Debtor a second letter on March 20, 2008 demand*354ing March rent and late fees.4 On March 24, 2008, Karbank filed a Petition for Writ of Attachment and for Breach and Repudiation of Lease against Debtor in the Circuit Court of Jackson County, Missouri (“State Court Action”).5 A Writ of Attachment was issued March 24, 2008 in the State Court Action and served on Debtor on the same date.6 Debtor and Karbank entered into a Stipulation and Agreement dated March 25, 2008 (“Stipulation”), which was filed in the State Court Action.7 The pertinent terms of the Stipulation are outlined below.
Karbank received a payment from Debt- or in the amount of $7,697.44, which was dated March 20 and cleared by Debtor’s bank account on March 26, 2008. This payment represented late fees for February and March rent combined (“Late Fees Payment”).8 Debtor paid to Karbank the amount of $38,487.16 (“March Rent”) by a check dated March 26, 2008. The March Rent was posted and cleared by Debtor’s bank on March 27, 2008.9 On March 25 and 26, 2008, Debtor conducted a liquidation sale of Debtor’s personal property (the “Liquidation Sale”). Pursuant to the Stipulation, the net proceeds of the Liquidation Sale in the amount of $252,430.02 were paid into the registry of the Jackson County Court in connection with the State Court Action.
On May 14, 2008 (“Petition Date”), Universal Import, LLC, Paulus, LLC and Champion Brands, LLC filed an involuntary petition under Chapter 7 of the Bankruptcy Code against Debtor. On March 5, 2010, the Trustee made written demand on Karbank for the turnover of the full amount of the February Rent, the Late Fees Payment, and the March Rent. On June 23, 2010, the Trustee filed the Complaint and thereafter the Trustee filed the current motion seeking summary judgment on the claims filed under 11 U.S.C. § 547(b) and recovery of the funds under 11 U.S.C. § 550. Karbank filed an amended answer wherein it asserted affirmative defenses pursuant to 11 U.S.C. § 547(c)(1) and (c)(2). Karbank also filed a cross-motion for summary judgment asking for summary judgment against the Debtor’s estate for $22,919.19 in attorney’s fees and costs pursuant to the common fund doctrine and alleging entitlement to summary judgment on Counts I — III of the Complaint based on its asserted affirmative defenses.
II. LEGAL ANALYSIS
A. Standard for Summary Judgment
Federal Rule of Bankruptcy Procedure 7056(c), applying Federal Rule of Civil Procedure 56(c), provides that 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 of material fact and that the moving party is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c); Fed. R. Bankr.P. 7056; Celotex v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The party moving for summary judgment has the initial burden of proving that there is no genuine issue as to any material fact. Adickes v. S.H. Kress & Co., 398 U.S. 144, 161, 90 S.Ct. 1598, 26 L.Ed.2d 142 (1970). Once the moving party has met this initial burden of proof, the *355non-moving party must set forth specific facts sufficient to raise a genuine issue for trial, and may not rest on its pleadings or mere assertions of disputed facts to defeat the motion. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586-87, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). “A ‘genuine issue’ in the context of a motion for summary judgment is not simply a ‘metaphysical doubt as to the material facts’.” Id. Rather, “a genuine issue exists when the evidence is such that a reasonable fact finder could find for the nonmovant.” Buscaglia v. United States, 25 F.3d 530, 534 (7th Cir.1994). When reviewing the record for summary judgment, the court is required to draw all reasonable inferences in favor of the non-movant; however, the court is “not required to draw every conceivable inference from the record-only those inferences that are reasonable.” Bank Leumi Le-Israel, B.M. v. Lee, 928 F.2d 232, 236 (7th Cir.1991).
B. 11 U.S.C. § 547(b)
“Title 11 U.S.C. § 547(b) requires that in order for a transfer to be subject to avoidance as a preference, (1) there must be 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 asserted its claim in a Chapter 7 liquidation.” Wells Fargo Home Mortgage, Inc. v. Lindquist, 592 F.3d 838 (8th Cir.2010) quoting Buckley v. Jeld-Wen, Inc. (In re Interior Wood Prods. Co.), 986 F.2d 228, 230 (8th Cir.1993). The trustee must establish each of these elements by a preponderance of the evidence. Stingley v. AlliedSignal, Inc. (In re Libby Int’l, Inc.), 247 B.R. 463, 466 (8th Cir. BAP 2000).
The Trustee has established that the February Rent, the Late Fees Payment and the March Rent each satisfy the elements of a preference under § 547(b). Karbank does not dispute in any material manner that the three checks transferred to Karbank from Debtor within the 90 days prior to the Petition Date constitute preferential transfers under § 547(b). Karbank argues, however, that the three transfers should not be avoided by the Trustee either because they were a contemporaneous exchange for new value between the parties under § 547(c)(1) or because they were made in the ordinary course of business under § 547(c)(2).
C. Contemporaneous Exchange for New Value under 11 U.S.C. § 547(c)(1)
Section 547(c)(1) provides that the trustee may not avoid an otherwise preferential transfer:
(1) to the extent such transfer was—
(A) intended by the debtor and creditor to or for whose benefit such transfer was made to be a contemporaneous exchange for new value given to the debtor; and
(B) in fact a substantially contemporaneous exchange.
11 U.S.C. § 547(c)(1); see also Jones Truck Lines, Inc. v. Central States, Southeast and Southwest Areas Pension Fund (In re Jones Truck Lines, Inc.), 130 F.3d 323, 326-27 (8th Cir.1997).
Whether the payment of rent due pursuant to an unexpired real property lease constitutes “new value” appears to be a question of first impression in this jurisdiction. However, other courts that have addressed this issue have held that “new value” is created by the debtor’s right to continue a leasehold estate in exchange for the rental payment. In re General Time *356Corp., GTC, 328 B.R. 243, 246 (Bankr.N.D.Ga.2005); see also e.g., Brown v. Morton (In re Workboats Northwest, Inc.), 201 B.R. 563 (Bankr.W.D.Wash.1996); In re Coco, 67 B.R. 365 (Bankr.S.D.N.Y.1986); Armstrong v. General Growth Development Corp. (In re Clothes, Inc.), 35 B.R. 489, 491 (Bankr.N.D.1983); Carmack v. Zell (In re Mindy’s Inc.), 17 B.R. 177, 178-9 (Bankr.S.D.Ohio 1982). The facts in General Time are similar to those here, at least with regard to the February Rent. General Time involved a landlord/tenant situation in which the tenant failed to make the June rent payment, which was due pursuant to the lease on the first of the month, until the 29th day of the month. General Time, 328 B.R. at 245. After the bankruptcy petition was filed, the plaintiff filed an adversary to recover the June rent as a preference and the landlord argued that although a prima facie case under § 547(b) had been established, it was entitled to summary judgment based on the affirmative defense of a contemporaneous exchange of new value under § 547(c)(1). Id. The General Time Court first considered the Bankruptcy Code’s definition of “new value” which is:
money or money’s worth in goods, services, or new credit, or release by a transferee of property previously transferred to such transferee in a transaction that is neither void nor voidable by the debtor or the trustee under any applicable law, including proceeds of such property, but does not include an obligation substituted for an existing obligation.
11 U.S.C. § 547(a)(2). The landlord argued that the transfer on June 29th constituted “new value” because the payment of the June rent, albeit 28 days late, was made in exchange for the landlord forbearing its right to pursue possession of the premises under the default provisions of the lease. Id. at 247. The General Time Court noted that the Eleventh Circuit has determined that forbearance, or the act of refraining from enforcing a right, obligation, or debt by a creditor, cannot be treated as “new value” under § 547. Id. citing Am. Bank of Martin County v. Leasing Serv. Corp (In re Air Conditioning, Inc.), 845 F.2d 293, 298 (11th Cir.1988); see also In re RDM Sports Group, Inc. 250 B.R. 805 (Bankr.N.D.Ga.2000). The General Times Court found that the “new value” that was created was the tenant’s right to continue a leasehold estate on the premises in exchange for the payment of the rent. General Time, 328 B.R. at 248. The rationale is that an unexpired lease on real property is treated as an executory contract under 11 U.S.C. § 365, and therefore as each month comes up under the lease the lessee becomes obligated anew for that individual month’s rent. See Clothes, Inc., 35 B.R. at 491. In return, the lessor becomes obligated to provide the lessee with the leasehold for that month. Id. Therefore, the payment of current rent is premised upon current consideration and is therefore an exchange of “new value” between the parties. Id., see also In re Mindy’s Inc., 17 B.R. at 178-9. The Court is persuaded by this line of cases which hold that in landlord/tenant matters “new value” may be created as a result of the tenant’s payment of required rent.
The Trustee argues that because the Debtor was not utilizing the full amount of the space it had available pursuant to the Lease, and because there is a question of fact regarding whether Debtor was conducting business in February, the Court should find that no “new value” was created because the estate did not receive a pecuniary benefit by Karbank allowing Debtor to remain on the premises. The Court disagrees with this analysis. The factual record supports Karbank’s asser*357tion that the Debtor was conducting business until February 29, 2008 and after that date it began preparation for liquidation.10 With regard to the spacial argument, the fact that the Debtor chose not to occupy the entire premises that it was entitled to under the Lease does not alter § 547(c)(1) analysis.
Regarding the February Rent in this case, there is no dispute between the parties that the amount transferred to Kar-bank was for rent due pursuant to an unexpired Lease. The funds transferred on February 25, 2008 were in exchange for Debtor’s right to continue its occupancy of the Property throughout February. There is also no dispute that Debtor continued to occupy the Property throughout the month of February and, therefore the Court finds that the “new value” that was created by Debtor’s transfer of the February Rent was Debtor’s right to continue its leasehold on the Property in exchange for the transfer of the February Rent.
The next question under § 547(c)(1) is whether Debtor and Kar-bank intended the exchange of “new value” to be contemporaneous. “When addressing whether parties intend for an exchange to be contemporaneous, courts consider whether the evidence shows a manifestation of desire between the parties that the exchange be a contemporaneous grant of money or money’s worth in goods, services, credit, or property to the debtor.” Everlock Fastening Systems, Inc. v. Health Alliance Plan (In re Everlock Fastening Systems, Inc.), 171 B.R. 251, 255 (Bankr.E.D.Mich.1994). As in General Time, absent any evidence to the contrary, the evidence that the February Rent was equal to the amount owed for monthly rent establishes that the parties intended the nature of the transaction to be a contemporaneous exchange of rental payment for continuation of possession of the leasehold estate by Debtor.
Finally, to establish the affirmative defense under § 547(c)(1) the Court must determine whether the exchange of “new value” was in fact “substantially contemporaneous.” There is no bright line rule in landlord/tenant cases for how many days into a month the rent is paid constitutes “substantially contemporaneous,” however, the courts have developed some general guidelines for making this determination. Courts generally agree that rent payments made a few days after the first of the month are contemporaneous exchanges for the purpose of satisfying the “new value” exception under § 547(c)(1) since the statute only requires that the payments be “substantially” contemporaneous and not contemporaneous. See Clothes, Inc. 35 B.R. at 491 (holding that a rent payment made 15 days late was “substantially contemporaneous”). Some courts have extended the definition of “substantially contemporaneous” to include any late rental payment so long as it is made in the same month the rent is due. See Everlock Fastening, 171 B.R. at 251; Coco, 67 at 365; Mindy’s Inc., 17 B.R. at 177. The rationale that these Courts adopted was that under § 365, rental obligations mature on a monthly basis during the course of the lease. Mindy’s Inc., 17 B.R. at 177. “Therefore, a ‘substantially contemporaneous’ exchange exists because payments on the current monthly rent are payments for the continuation of the leasehold estate by the lessee for that month regardless of when they are paid during the month.” Id. In General Time, the rent payment was paid on the 29th day of the month in which it was due and the Court held that it *358was “substantially contemporaneous.” General Time, 328 B.R. at 250.
In this case, the February Rent was paid on the 25th day of the month in which it was due. The record supports the fact that the parties intended that the transfer be contemporaneous and the Court is persuaded that in landlord/tenant matters involving real property, where an unexpired lease is at issue, the “new value” that is created by the payment of rent is the tenant’s right to continue the leasehold estate in exchange for the rent. For all of these reasons, the Court finds that, although the February Rent is avoidable under § 547(b), it is excepted under § 547(c)(1) and Karbank shall have summary judgment as to this transfer.
With regard to the Late Fees Payment and the March Rent, the Court finds that the Trustee has established that said transfers were preferential under § 547(b). However, the Court also finds that there remain genuine issues of material facts as to whether one or both of these transfers fall within the scope of § 547(c)(1). The Trustee argues that the Debtor made the Late Fees Payment and the March Rent pursuant to the Stipulation that resolved the Petition that Karbank filed in the State Court Action. Karbank disputes this assertion. The Affidavit submitted by the Trustee as Exhibit No. 4 states that the Debtor paid the Late Fees Payment and the March Rent “as a result and pursuant to” the Stipulation, however, the Stipulation does not even refer to these transfers. This dispute creates a genuine issue of material fact for trial. Karbank argues that the Debtor paid the Late Fees Payment and the March Rent within the month that they were due, pursuant to an unexpired Lease and they should be considered “new value” under the General Times analysis. The Trustee argues that the Debtor did not pay the March Rent in order to remain in possession of the leasehold, because the Debtor had already been locked out pursuant to the default terms of the Lease prior to the transfers being made. According to the Trustee, the only reason the Debtor was allowed back in the premises was because it made the two transfers so that it could re-enter the property for six days and conduct the Liquidation Sale. Additionally, the Court notes that at least the February portion of the Late Fees Payment, or $3,848.72, was not paid within the month that it was due which weakens Karbank’s § 547(c)(1) argument.
The Court finds that there remain genuine issues of material fact regarding the circumstances under which the Debtor made the Late Fees Payment and the March Rent which make these two transfers inappropriate for disposition on summary judgment.
D. Transfers Made in the Ordinary Course of Business 11 U.S.C. § 547(c)(2)
Karbank asserts a second affirmative defense to the preferential transfers under 11 U.S.C. § 547(c)(2) which provides: “The trustee may not avoid under this section a transfer ... (2) to the extent that such transfer was in payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee and such transfer was — (A) made in the ordinary course of business or financial affairs of the debtor and the transferee; or (B) made according to ordinary business terms.... ” Karbank has the burden of proof of establishing that the transfers were made in the ordinary course of business under § 547(c)(2). In re Accessair, Inc., 314 B.R. 386 (8th Cir. BAP 2004).
Although there appears to be no real dispute on the issue, the Trustee is *359correct that Karbank failed to establish that the three transfers were made as payments of a debt incurred in the ordinary course of business of the Debtor and Karbank. In order to prevail on summary judgment, Karbank needed also to provide factual evidence that the transfers were paid in the ordinary course of business as between Debtor and Karbank or in the ordinary course of the commercial real estate industry. It did neither. To make the determination as to whether the transfers were in the ordinary course between the Debtor and Karbank, the Court must engage in a “peculiarly factual analysis.” Lovett v. St. Johnsbury Trucking, 931 F.2d 494, 497 (8th Cir.1991). This requires the Court to look at the “consistency of the transaction in question as compared to other, prior transactions between the parties.” Concast Canada, Inc. v. Laclede Steel Co. (In re Laclede Steel Co.), 271 B.R. 127, 131 (8th Cir. BAP 2002). In conducting this analysis, the Court should consider:
(1) the length of time the parties were engaged in the transactions at issue; (2) whether the amount or form of the tender differed from past practices; (3) whether the creditor of the debtor engaged in any unusual collection or payment activity; and (4) whether the creditor took advantage of the debtor’s deteriorating financial condition.
Concast, 271 B.R. at 132 n. 3. In the Eighth Circuit, the timing of payments is the most important factor to consider. Lovett, 931 F.2d at 498.
The evidence before the Court regarding the transactions between the Debtor and Karbank includes an admission by Karbank that the February Rent was the first late payment that it had received and a conclusory statement that it is not uncommon in any industry that executes leases for rent to be paid untimely. There is no factual evidence to establish that as between Debtor and Karbank, or within the commercial real estate industry, that paying rent up to 25 days late is considered within the ordinary course of business. Karbank cites In re Garrett Tool & Engineering, Inc., 273 B.R. 123 (Bankr.E.D.Mich.2002) for the proposition that paying rent due under any kind of lease is a payment made in the ordinary course of business. Karbank further states that under Garrett, no analysis of when or under what circumstances payment of rent was made is needed, so long as it was made pursuant to a lease. Karbank’s interpretation of the Garrett opinion is simply wrong. While paying rent, current or past due, may be one of the factors that the Garrett Court considered, it is not the only factor. Even if the Garrett opinion did stand for such an aberrant proposition, this Court would not be persuaded to follow it.
In this case, the evidence in the record supports a finding that the Late Fees Payment and the March Rent were paid outside the ordinary course of business. The March Rent was made 26 days late, it was made after two demands letters had been mailed to the Debtor, after a Petition for Writ of Attachment and for Breach and Repudiation of Lease had been filed and after the parties had stipulated to an agreement regarding the Debtor’s re-entry onto the premises for a Liquidation Sale. See In re Spirit Holding Co., Inc., 153 F.3d 902, 905 (8th Cir.1998) (noting that unusual collection practices are grounds to determine that payment was not in the ordinary course). Additionally, there remains a genuine issue of fact regarding whether Debtor was even conducting business in the month of March such that the two transfers in that month could even be considered to have been made in the ordinary course of business or any business at all other than winding up. The allegation that all Debtor did in March was prepare *360for and conduct a Liquidation Sale tends to support a conclusion that the transfers were not made in the ordinary course.
Because the Court finds that § 547(c)(1) renders the February Rent non-avoidable, it is not necessary to determine whether it is also excepted under the ordinary course defense.
E. The Common Fund Doctrine
In its cross-motion for summary judgment, Karbank asserts a right to recover attorney’s fees under the “common fund doctrine.” Missouri courts adhere to the “American rule” which states that, ordinarily, litigants must bear the expense of their own attorney’s fees. Nix v. Nix, 862 S.W.2d 948, 952 (Mo.Ct.App.1993). The common fund doctrine is an exception to the “American rule” and permits litigants to be “reimbursed when ordered by a court of equity [in order] to balance benefits.” Feinberg v. Adolph K Feinberg Hotel Trust, 922 S.W.2d 21, 26 (Mo.Ct.App.1996). This exception incorporates two related doctrines. First, it incorporates the common fund doctrine which was implicitly adopted when the Missouri Supreme Court permitted a trial court to require non-litigants to contribute their proportionate part of counsel fees when a litigant successfully created, increased, or preserved a fund in which the non-litigants were entitled to share. Feinberg, 922 S.W.2d at 26; see also Jesser v. Mayfair Hotel, Inc., 360 S.W.2d 652 (Mo. Banc 1962) citing Leggett v. Missouri State Life Ins. Co., 342 S.W.2d 833, 936 (Mo. Banc 1960). The court stated, “the equitable way to apportion the expenses of counsel fees is to allow them against the fund.” Jesser, 360 S.W.2d at 652. Second, it incorporates the “Murray doctrine” which has been utilized by the courts when successful litigation has bene-fitted the estate as a whole rather than just to certain interested individuals. See In re Estate of Chrisman, 723 S.W.2d 484, 487 (Mo.App.1986). It is the common fund doctrine that Karbank seeks to apply in this case.
As recited previously in this Opinion, after the Debtor failed to pay Karbank the March rent when it came due, on March 24, 2008, Karbank filed the State Court Action and obtained a Writ of Attachment against Debtor’s personal property.11 Karbank and Debtor negotiated the Stipulation and Debtor proceeded with the Liquidation Sale. The net proceeds from the Liquidation Sale in the amount of $252,430.02 (“Net Liquidation Proceeds”) were paid into the registry of the Jackson County Court in connection with the State Court Action and in accordance with the Stipulation. Thereafter, the Net Liquidation Proceeds were transferred to the Trustee pursuant to an Agreed Order due to the filing of the involuntary bankruptcy and the stay of all proceedings in the state court. It is from this “common fund” that Karbank seeks to obtain its attorney’s fees in the amount of $22,919.19.
Karbank argues that the “common fund” was created as a result of: (1) its agreement to release its attachment lien against Debtor’s personal property, (2) its agreement to forbear its right to reclaim possession of the Property, (3) its agreement to allow Debtor to proceed with the Liquidation Sale, and (4) its agreement to pay the Net Liquidation Proceeds into the registry of the Jackson County Court. Kar-bank claims that this fund resulted solely through its efforts and was created with the intent of benefitting other creditors along with itself. Accordingly, Karbank seeks to utilize the common fund doctrine in aid of recovery of its attorney fees.
*361The Trustee argues that Karbank’s actions, in filing the Writ and negotiating the Stipulation, were not for the benefit of any other creditor but itself. The Trustee asserts that the release of the attachment lien and the subsequent transfer of the monies into the bankruptcy estate were the product of negotiations with Debtor’s counsel, not Karbank’s efforts to create, increase or preserve the proceeds for the benefit of all of Debtor’s creditors. Has it not been for Debtor’s counsel and the filing of the involuntary bankruptcy petition, because Karbank’s damages are greater than the amount of the Net Proceeds, all of the sale proceeds would have gone to Karbank. Lastly, the Trustee argues that Karbank failed to establish that there is a certified class of claimants or creditors or that if there were, that they have mathematically ascertainable claims to the fund.
The Court finds that Karbank did not create the fund from which it now seeks to extract its attorney’s fees. The Debtor created the fund by conducting the Liquidation Sale. Karbank admits this in its own argument for cross-summary judgment when it says that it had a hand in shortening the time frame of the State Court Action so that the Debtor could “proceed with an auction it had already advertised and wanted to conduct....”12 Karbank may, however, have an argument that it preserved a common fund for the benefit of the unsecured creditors. In common fund cases, parties are entitled to recover attorneys’s fees for only those activities conducted to benefit the fund, and services which do not benefit the fund are not recoverable. Knopke v. Knopke, 837 S.W.2d 907, 922 (Mo.Ct.App.1992) citing Leggett, 342 S.W.2d at 936. In order to determine which of Karbank’s actions preserved or benefitted the fund, Karbank needed to provide the Court with billing statements, detailed enough to establish the extent and reasonableness of its preservation of the fund, which it failed to do. The time entries that Karbank provided the Court are not sufficiently detailed to permit a determination regarding which tasks were done in an effort to preserve the common fund as opposed to the tasks that were done solely to benefit Karbank’s other legal interests.13 Due to the manner in which the tasks are blocked together with no time entries allocated to each task, only a sum total for all hours spent on the various tasks completed, there is no way for the Court to make a finding regarding whether the time spent on each individual task related to preserving the common fund and was reasonable. Because there remain genuine issues of fact regarding the amount and reasonableness of attorney’s fees generated by Karbank to preserve or benefit the common fund for the unsecured creditors, this matter will also be set for trial.
III. CONCLUSION AND ORDER
For the reasons stated above, the Trustee’s motion for summary judgment is *362hereby granted in part and denied in part. The Court hereby grants the Trustee partial summary judgment as to Count I, II and III of the Complaint and declares each of the transfers avoidable pursuant to 11 U.S.C. § 547(b). The Court denies the Trustee summary judgment as to Count IV of the Complaint as none of the transfers are recoverable on summary judgment. The Court grants Karbank summary judgment on Count I as to the February Rent under 11 U.S.C. § 547(c)(1). The Court denies summary judgment to Karbank on Count II as to the Late Fees Payment and on Count III as to the March Rent as there remain genuine issues of material fact which must be resolved at trial. The Court also denies summary judgment to Karbank on the common fund matter. This Memorandum Opinion constitutes the Court’s findings of fact and conclusions of law. A separate order will be entered pursuant to Fed. R. Bankr.P. 9021.
. Trustee’s Exhibit No. 5.
. Trustee's Exhibit No. 4, ¶ 11.
.Trustee’s Exhibit No. 4, ¶ 16.
. Trustee's Exhibit No. 7.
. Trustee's Exhibit No. 8.
. Trustee's Exhibit No. 9.
. Trustee's Exhibit No. 12.
. Trustee’s Exhibit No. 4, ¶ 21.
. Trustee’s Exhibit No. 4, ¶ 22.
. Trustee’s Exhibit No. 4, ¶'s 12-14.
. Trustee’s Exhibit No. 9.
. Karbank's Reply Brief in Support of its Cross-Motion for Summary Judgment, p. 9.
. Karbank filed proof of claim no. 126 in paper form. Attached to the claim are Exhibits A and B, which are Karbank’s attorney's fees statements. When the claim was entered into ECF, the exhibits were not included. Because they are not referenced in summary form or included in the ECF filing, the Court initially questioned whether they are a part of the record for purposes of this summary judgment motion. The Court has determined that the Court’s paper file includes a file stamped copy of the claim and Exhibits A and B and the Trustee's Exhibit No. 16 to the summary judgment motion refers to proof of claim no. 126, which in its paper form includes Exhibits A and B, therefore, the exhibits are deemed part of the record. Despite the confusion, there appears to be no dispute that Exhibits A and B constitute the basis of Karbank’s claim for attorney’s fees, therefore, the Court has reviewed them. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494400/ | ORDER GRANTING DEFENDANT’S MOTION FOR SUMMARY JUDGMENT
ROBERT E. NUGENT, Chief Judge.
Plaintiffs assert a cause of action for equitable subordination against defendant Seacoast Capital Partners II, L.P. (“Seacoast”) seeking to subordinate defendant’s priority from a secured creditor of debtor QuVis, Inc. (“QuVis”) to an unsecured creditor.1 Plaintiffs allege that Seacoast engaged in inequitable or unfair conduct *493by perfecting its security interest after the initial financing statement (UCC-1) filed by QuVis in 2002 lapsed, and without disclosing the lapse to other noteholder creditors, thereby jumping ahead in priority over most of the noteholder creditors.
Seacoast moves for summary judgment on the equitable subordination complaint.2 Plaintiffs filed their memorandum in opposition3 and Seacoast filed its reply,4 and the Court took the motion under advisement.5 The Court has reviewed the mem-oranda, affidavits, discovery and exhibits attached in support of the parties’ memo-randa and is prepared to rule. The Court has also reviewed its previous Order on Debtor’s Motion to Determine Secured Status of Noteholders (“Noteholder Order”) entered June 1, 2010 in the main case wherein the Court interpreted the primary loan and security Agreement under which some 70 parties became Note-holders.6 The readers of the current Order are referred to the Noteholder Order for many of the facts pertaining to the financing of QuVis and the current parties’ position in the financing arrangements.7 The Court will refer to the Noteholder Order from time to time in this Order.
I. SUMMARY JUDGMENT STANDARDS
Federal Rule of Civil Procedure 56(c) directs the entry of summary judgment in favor of a party who “shows that there is no genuine dispute as to any material fact and that the movant is entitled to a judgment as a matter of law.”8 This Court’s function in reviewing a motion for summary judgment is to first determine whether genuine disputes as to material facts exist for trial. In making this determination, the Court may not weigh the evidence nor resolve fact issues.9 The Court must construe the record in a light most favorable to the party opposing the summary judgment.10
Once the Court determines which facts are not in dispute, it must then determine whether those uncontroverted facts establish a sufficient legal basis upon which to grant movant judgment as a matter of *494law.11 If different ultimate inferences may properly be drawn from the facts, summary judgment is not appropriate.12 On a motion for summary judgment, the movant does not need to prove a negative on an issue or element of a claim that the non-moving party must prove at trial. The movant only needs to point to an absence of evidence on an essential element of the nonmovant’s claim.13
II. UNCONTROVERTED FACTS
The Court finds the following facts submitted by Seacoast in its opening memorandum and the additional facts submitted by plaintiffs in their opposing memorandum are uncontroverted and material to the equitable subordination claim.
Seacoast is a Small Business Investment Company (“SBIC”) licensed by the United States Small Business Administration under the Small Business Investment Act of 1958.14 Eben S. Moulton (“Moulton”) is the managing director of Seacoast.
In early 2005, Seacoast considered lending to or investing in QuVis and conducted due diligence in connection with a proposed purchase of promissory notes to be issued by QuVis. The terms of the notes to be purchased had been previously set out in the First Amended and Restated Convertible Loan and Security Agreement dated and effective June 30, 2003 (“2003 Agreement”), between each “Lender” (referred to here as Noteholder) and QuVis.15 Neither Seacoast nor Moulton was involved in the negotiation of the 2003 Agreement. As provided for in the 2003 Agreement, QuVis filed a UCC-1 financing statement (the 2002 UCC-1) on March 14, 2002 on behalf of all of the Noteholders who had loaned money to QuVis.16 As additional loans were made by new Note-holders, QuVis would file amendments to the 2002 UCC-1, adding the new Note-holders as secured parties to the 2002 UCC-1. Plaintiffs Friesen, Greenbush, *495Cusick and JFM Limited Partnership I were all Noteholders under the 2003 Agreement whose security interests were secured by the 2002 UCC-1. Seacoast did not became a Noteholder until 2005.
On June 1, 2005, Seacoast loaned QuVis $3,160,066.40 and QuVis issued a promissory note in that amount to Seacoast.17 Seacoast’s note bore a maturity date of June 30, 2006. QuVis’ board of directors passed a corporate resolution approving the note and transaction with Seacoast.18 As part of the 2005 loan, QuVis and Seacoast entered into a Joinder Agreement19 by which Seacoast became a “Lender” as set forth in the 2003 Agreement. Under the 2003 Agreement and the Joinder Agreement, Seacoast’s loan commitment was predicated on QuVis granting Seacoast the same valid and perfected security interest in certain QuVis assets that the previous Noteholders had received. In June of 2005, Seacoast believed that the terms of the 2003 Agreement delegated to each Noteholder the contractual duty to share pro rata any collateral recoveries it might obtain with the other Noteholders.
Seacoast also believed that the security interest it received would be of co-equal priority with that of the other Noteholders. Otherwise, Seacoast would not have made the June 2005 loan to QuVis. It would not have accepted a lien that was subordinate to other Noteholders who had already filed their liens of record.20 Proof that this was both parties’ intention is found among the documents in the closing binder related to the June 2005 note. Among the documents is a “UCC Financing Statement Amendment” adding Seacoast as a secured party to the 2002 UCC-1. QuVis was supposed to file the amendment as it was required to do under the 2003 Agreement and as it had done on numerous previous occasions, even as late as May 27, 2005, for other Noteholders. For reasons unknown, QuVis never filed the financing statement amendment listing Seacoast as a secured party.21
On November 2, 2005, Seacoast loaned QuVis an additional $719,933.60 and received a note on the same date.22 Seacoast did not file a UCC-1 financing statement or UCC-2 amendment contemporaneously with this loan.
Part of the deal Seacoast made with QuVis was that Seacoast would be permitted to name a director to the QuVis board. The Joinder Agreement between QuVis *496and Seacoast provides, in relevant part, at ¶ 4.25:
... The Company [QuVis] will (a) permit New Lender [Seacoast] to designate one (1) person to attend all meetings of the [QuVis] board of directors ... (c) permit such designee to attend such meetings as an observer, (d) permit [Seacoast], so long as [Seacoast] holds a Note or owns any stock, warrants or other equity interest in [QuVis], to designate one (1) Person to serve as a member of [QuVis’] board of directors
On May 3, 2006, Moulton was elected to serve as an outside director to the board of QuVis. Moulton has served as an outside director on the boards of many of the small business companies to which Seacoast provided venture capital. Moulton’s service on such boards is consistent with his understanding of the purposes of the Small Business Investment Act of 1958, under which licensed SBICs are expected to provide management support to the small business ventures in which they invest.
On March 14, 2007, the 2002 UCC-1 that had been filed by QuVis on March 14, 2002, lapsed by operation of law.23 On the same day, Seacoast loaned QuVis an additional $350,000 and received a note of the same date.24 Neither Seacoast nor QuVis filed a UCC-1 financing statement or UCC-2 amendment contemporaneously with this loan. Moulton believed that the March 2007 note was secured by a perfected lien, although Moulton took no steps at that time to verify the status of the lien. If Moulton had known of the lapse of the 2002 UCC-1 in March 2007, he would have required that the necessary perfecting records be filed before Seacoast made the March 2007 loan.
Moulton understood (and the 2003 Agreement provided) that upon maturity of the loans each Noteholder had the option of either exchanging its note for Qu-Vis stock under a formula set forth in the 2003 Agreement or receiving payment of its note in cash. In the months of March, April and May,- 2007, Moulton participated as a board member of QuVis in exploring and locating a new funding source to retire the obligations of Noteholders who chose not to exchange their notes for QuVis stock. Moulton believed that the investment banking firm Pacific Crest Securities was a potential and viable source of funding. When it became clear that a Pacific Crest transaction could not be closed on or before the June 30, 2007 maturity date of the Noteholders’ notes, the QuVis board decided to request an extension of the maturity dates from the Noteholders. On May 31, 2007 QuVis board member Owen Leonard circulated a draft letter for consideration by the QuVis board, proposing to request that Noteholders grant an extension of the maturity date ninety days to September 30, 2007. After Leonard’s draft was edited and finalized by QuVis directors (including Moulton), QuVis transmitted the letter on June 7, 2007 to all Noteholders requesting that the maturity date of the notes be extended to September 30, 2007.25
*497When Seacoast received the maturity extension letter, it requested its counsel, the same firm that represents it here, to review the same. Counsel obtained a UCC search report on or about June 8, 2007. Not surprisingly, the lapsed 2002 UCC-1 was not listed in the June report.26 On June 14, 2007 Seacoast filed its own UCC-1 financing statement to perfect its security interest in QuVis assets.27 Two other Noteholders, Greg Kite and The Christine Baugher Trust, had filed new UCC-1 financing statements on June 7, 2007, prior to Seacoast.28 No other Note-holders filed UCC-ls in 2007.29 Owen Leonard and Vernon Nelson, two other QuVis directors in 2007 who were also Noteholders, did not file new UCC-ls until January 16, 2009 and January 13, 2009 respectively.30 The plaintiff Noteholders filed their UCC-1 financing statements in 2008.31 This Court has previously concluded in the Noteholder Order that individual Noteholders were authorized to file financing statements under the 2003 Agreement and under the Uniform Commercial Code.32 On June 22, 2007 Seacoast consented to the requested maturity extension of the notes to September 30, 2007.
Moulton resigned from the QuVis board of directors on September 26, 2008. He did not receive a director’s fee or other compensation from QuVis for his service as a director. He never served as an officer or employee of QuVis. None of the minutes of the QuVis board meetings in 2007 reference the lapse of the 2002 UCC-1.
On March 20, 2009, plaintiffs Friesen, Greenbush, and Cusick commenced this involuntary chapter 11 case as petitioning creditors. QuVis consented to an order for relief being entered on May 18, 2009. In its Disclosure Statement and Plan dated November 6, 2009, QuVis proposed to classify all of the Noteholders under the 2003 Agreement in the same class and be treated identically, as secured creditors of coequal priority with pro-rata interests in the debtor’s assets. Significantly, Seacoast supported QuVis position that all of the Noteholders’ liens were perfected by the filing of a UCC-1 by any one Note-holder, a position that served the interests of the plaintiff Noteholders. At the disclosure statement hearing, the Court concluded that the proposed classification of the Noteholders as creditors might not reflect the actual legal relationship between and among them.33 After the debtor filed its motion to determine the Noteholders’ respective secured status, this Court conducted an evidentiary hearing on March 17, 2010 and issued its Noteholder Order on June 1, 2010.
In the Noteholder Order, the Court rejected the debtor’s and Seacoast’s position, concluding that no language in the 2003 Agreement authorized or appointed the Noteholders to file financing statements or perfect security interests for one another, and that the Noteholders who filed UCC-ls after the lapse of the 2002 financing statement were perfected individually and were accordingly entitled to payment in *498the order in which they filed their financing statements, not pro-rata.34 After this ruling, plaintiffs commenced this adversary proceeding against Seacoast on July 20, 2010, contending that Seacoast’s secured claim should be equitably subordinated to an unsecured claim. The plaintiffs assert that by virtue of Moulton’s seat on the QuVis board, Seacoast allowed the 2002 UCC-1 to lapse, that Seacoast knew or should have known of the lapse of the 2002 UCC-1, and that Seacoast was duty-bound to advise its fellow Noteholders of the lapse. The plaintiffs assert that Seacoast acted inequitably when it individually filed a new UCC-1 on June 14, 2007 and this conduct was to the detriment of the other Noteholders. Finally, the plaintiffs urge that Seacoast gained this opportunistic priority by reason of its insider and fiduciary status.35
The only material fact disputed by the parties is whether Seacoast knew that the 2002 UCC-1 had lapsed when it filed its new UCC-1 on June 14, 2007. For its part, Seacoast contends that it did not discover until June of 2007 that it had never been added as a secured party to the original 2002 UCC-1 as it originally contemplated when it made the first loan in 2005. Its response was to file a new UCC-1 on June 14, 2007. Plaintiffs contend that Seacoast knew or must have known of the lapse by virtue of Moulton’s presence on the QuVis board, arguing that had Seacoast not known of the lapse, it would have filed an UCC-2 amendment to the original 2002 UCC-1 that added Seacoast as a secured party, rather than a new UCC-1. In addition, plaintiffs submit that the fact that the original 2002 UCC-1 was not included in Seacoast’s June 2007 UCC search report requires the Court to infer that Seacoast knew that the financing statement had lapsed. For purposes of determining this motion for summary judgment, the Court construes the facts in a light most favorable to the non-moving plaintiffs and infers that Seacoast knew that the original 2002 UCC-1 had lapsed when it filed the new UCC-1 on June 14, 2007. As explained below, however, this fact does not preclude entry of summary judgment in favor of Seacoast.
III. ANALYSIS AND CONCLUSIONS OF LAW A. The Doctrine of Equitable Subordination
11 U.S.C. § 510(c) provides, in pertinent part:
Notwithstanding subsections (a) and (b) of this section, after notice and a hearing, the court may—
(1) under principles of equitable subordination, subordinate for purposes of distribution all or part of an allowed claim to all or part of another allowed claim ... 36
Tenth Circuit equitable subordination case law requires that three elements be established by the plaintiffs: (1) that the claimant [Seacoast] has engaged in some type of inequitable conduct; (2) that the misconduct has resulted in injury to the creditors or conferred an unfair advantage on Seacoast; and (3) that subordination of Seacoast’s claim would not be inconsistent with the provisions of the *499Bankruptcy Code.37 Our Circuit has identified inequitable conduct as “the critical inquiry.”38 Focusing on this element determines the plaintiffs’ equitable subordination claim.39
In In re Hedged-Investments Assoc., Inc.,40 the Tenth Circuit identified three categories of misconduct: (1) fraud, illegality, and breach of fiduciary duties; (2) undercapitalization; or (3) claimant’s [Seacoast’s] use of the debtor as a mere instrumentality or alter ego.41 The plaintiffs assert only the first category of misconduct and do not specifically allege that Seacoast engaged in any illegality or fraud. Instead, the plaintiffs charge that Seacoast’s conduct was “inequitable” and that Seacoast was an insider or occupied a fiduciary position. Seacoast’s position vis a vis the debtor and the other creditors is the principal inquiry under the principles of the Hedged-Investments case because an insider’s or fiduciary’s conduct need only be “unfair” and “culpable” to support an equitable subordination claim:
... this Circuit has joined other Courts of Appeals in applying different levels of scrutiny to “insiders” and “non-insiders” of the debtor corporation. See In re Castletons, 990 F.2d at 559. Where the claimant is an insider or a fiduciary, the party seeking subordination need only show some unfair conduct, and a degree of culpability, on the part of the insider, [citations omitted]. If the claimant is not an insider or a fiduciary, however, the party seeking subordination must “demonstrate even more egregious conduct such as gross misconduct tantamount to fraud, misrepresentation, overreaching or spoliation.” In re Castletons, 990 F.2d at 559.42
Thus, we first address whether Seacoast was an insider of QuVis or stood in a fiduciary relationship to the plaintiffs before examining the nature of Seacoast’s conduct. If Seacoast was an insider or fiduciary, the plaintiffs need only show that Seacoast engaged in “unfair conduct” and has some “degree of culpability” to establish the misconduct prong of their equitable subordination claim. But if Seacoast is neither an insider nor a fiduciary, the plaintiffs are subject to the heightened scrutiny standard and must show more egregious misconduct on the part of Seacoast to justify equitably subordinating Seacoast’s secured claim.
B. Is Seacoast an Insider of QuVis?
1. Moulton was a Statutory Insider under the Bankruptcy Code
The Bankruptcy Code includes as “insiders,” directors of corporate debtors43 Seacoast’s managing director, Eben Moulton, served as a director of QuVis and was a statutory insider during the period the 2002 UCC-1 lapsed on March 14, 2007 and Seacoast filed its UCC-1 on June 14, 2007.
2. Imputing Moulton’s Insiderness to Seacoast
The plaintiffs assert that because Moulton was Seacoast’s “representative” on the QuVis board and an insider, Sea*500coast must also be an insider.44 The Court disagrees. The Joinder Agreement gives Seacoast a right to “designate” a director to the QuVis board, but nothing in the Joinder Agreement gives Seacoast any special powers with respect to QuVis and nowhere does it provide that by making such a designation, Seacoast itself is deemed to be a director.45 Nor does the Joinder Agreement give Seacoast or its designated director any greater power or authority than any other director on the QuVis board. In fact, many of Seacoast’s rights under the Joinder Agreement were already available to the prior Noteholders under the 2003 Agreement.46 For example, all Noteholders were granted (1) the right of access to QuVis’ properties, facilities, employees, officers and collateral; (2) the right to inspect, audit and copy QuVis’ books and -records; and (3) the right to inspect, evaluate and verify collateral for their loans.47 In short, the Joinder Agreement made Seacoast a “Lender” with rights and powers equal to those of the other Noteholders under the 2003 Agreement.48
The plaintiffs argue that because Moul-ton was Seacoast’s managing director while acting as a director of QuVis, Seacoast was a “de facto” director of QuVis and therefore, an insider. The Tenth Circuit has rejected the plaintiffs’ “de facto” director argument in similar circumstances.49 In In re U.S. Medical, Inc., the creditor had the right to appoint a member of debtor’s board under its stock purchase agreement with debtor.50 The Tenth Circuit held that where a creditor’s designated board member did not exercise control or undue influence over the debtor and the creditor’s transactions with debtor were conducted at arm’s length, the creditor could not be regarded as a de facto director or an insider. The U.S. Medical court suggested that only where the director took steps to enrich the creditor might that creditor be deemed a “de facto” director.51
The uncontroverted facts simply do not suggest that Moulton exercised any degree of control or influence over the debtor or that he forced it to allow the 2002 UCC-1 to lapse. Indeed, there is no evidence in the summary judgment record that the QuVis board addressed continuing the 2002 UCC-1 or allowing it to lapse in 2007. The Court cannot infer that Seacoast or Moulton influenced or encouraged QuVis to allow the lapse. Nor were Seacoast’s transactions with QuVis at other than arms-length. Seacoast first became a *501creditor of QuVis in 2005, contemporaneously with the execution of the Joinder Agreement. Seacoast received two of the three notes in 2005, for all but $350,000 of the principal indebtedness QuVis owed it. The notes and Joinder Agreement contemplated that Seacoast, as a new lender, would become a Noteholder under the 2003 Agreement and be afforded the same rights and duties as the existing lenders and Noteholders. The Joinder Agreement was executed and the notes were issued prior to Moulton becoming a member of the QuVis board in 2006. Nothing in the record on summary judgment suggests that these transactions were anything other than at arm’s length.
Seacoast was not a statutory insider under 11 U.S.C. § 101(31)(B)(iii) as a “person in control of the debtor.”52 The uncontro-verted facts do not even suggest, far less demonstrate, that Seacoast was “in control” of QuVis.53 At most, Seacoast had a voice and a single vote in the governance of QuVis affairs by virtue of Moulton’s seat on the board of directors and was one of QuVis’ many lenders. This falls far short of establishing that Seacoast was in control of QuVis. The Court now turns to whether Seacoast is a non-statutory insider.
3. Seacoast as a Non-statutory Insider under Common Law
The definition of “insider” in § 101(31) is inclusive and not exclusive. Persons who do not precisely fit into the categories enumerated in that section may still be “non-statutory” insiders. In the U.S. Medical, Inc. case, the Tenth Circuit recently addressed non-statutory-insider status.54 In that case, under the parties’ distributorship agreement and stock purchase agreement, a director of the creditor corporation also sat on debtor’s board. The creditor was given the right to designate that director. The creditor also held 10.6 percent of debtor’s stock. The trustee argued that these circumstances rendered the creditor a non-statutory insider for the purposes of determining whether the 90-day or one-year look-back applied in his preference case.55 The Tenth Circuit held that the creditor could not be regarded as a non-statutory insider based solely on the closeness of the debtor’s and creditor’s relationship without more:56
... a closeness-alone test would create a “de facto director,” per se rule. Such a rule would force corporations to find directors from companies with which they do no business and would imper-missibly create a new category of insider not determined within the context of “particular cases, based on the specific facts.” [citation omitted]. This approach does not comport with the intent of Congress nor the case law ... 57
Again, to be an insider, the creditor’s transactions with the debtor must be at less than arm’s length.58 Courts also con*502sider whether the creditor had access to inside information and used the information to enrich itself.59 Under the facts in U.S. Medical, the Tenth Circuit held that the creditor was not a non-statutory insider.
Applying this analysis to the un-controverted facts in this case, and bearing in mind the summary judgment standards governing this analysis, the Court concludes that QuVis and Seacoast were even more distanced from one another than the parties in U.S. Medical. The creditor in U.S. Medical had an exclusive distributorship agreement with debtor, was the sole manufacturer of debtor’s product, had the right to designate a director on debtor’s board, and held a 10 per cent stock ownership interest in the debtor. By contrast, Seacoast owned no equity in the debtor. Seacoast was one of QuVis’s many secured creditors, subject to the terms of the same 2003 Agreement as were all of the other Noteholders. The 2003 Agreement gave all of the Noteholders access to the books and records of the debtor. The Notehold-ers had the right to file a financing statement to perfect their security interests should the debtor fail to make the requisite UCC filings.60 There is no evidence that Seacoast obtained any uniquely available insider information by virtue of Moul-ton’s seat on the board. The lapse of the 2002 UCC-1 was not mentioned in the 2007 board minutes. The 2002 UCC-1 was a matter of public record filed in the Secretary of State’s office. Any of the Noteholders could have ascertained its lapse by performing a simple UCC records search as several of them clearly did.61
Were Seacoast’s transactions with the debtor done at arms length? The Court has already concluded that the lending transactions were. The remaining challenged transaction is Seacoast’s filing of the new UCC-1 on June 14, 2007 to perfect its security interest. Seacoast’s right to file a financing statement is well-founded in the 2003 Agreement and the 2005 Joinder Agreement. Both these agreements were executed well prior to Moulton ever joining the QuVis board of directors. The terms of the 2003 Agreement delegated to QuVis the responsibility to make the requisite filings to perfect or continue the security interest and authorized each Noteholder to perfect its security interest if the debtor failed to do so. The only other “transaction” between QuVis and Seacoast pertains to the letter request for a 90 day extension of the maturity on all the Noteholders’ notes. That request was drafted and sent to all Noteholders (with Moulton’s, Seacoast’s and Quvis’ approval) in late May or early June, after the March 14, 2007 lapse of the 2002 UCC-1. Seacoast consented to the extension request. There are no uncontroverted facts from which this Court may reasonably infer that QuVis and Seacoast colluded in some fashion to either permit or to conceal the lapse of the 2002 UCC-1.
As noted in the findings of uncontrovert-ed fact, there is a dispute about the lapse of the 2002 UCC-1. The record is uncon-troverted that the lapse occurred on March 14, 2007. What is less clear is what Seacoast knew about the lapse and when it knew it. Debtor’s corporate counsel Kathleen Urbom testified that well after the lapse, in June or July, director Owen *503Leonard consulted her about whether Qu-Vis or the Board had incurred some liability by QuVis’ having suffered the lapse to occur. Despite being repeatedly asked leading questions that posited a scenario where Moulton discussed or considered prior to March 14, 2007 allowing the statement to lapse, Urbom testified that she never discussed the lapse with Moulton at all. Urbom had concluded that the debtor had no duty to continue the filing, but consulted with her outside counsel at Ku-tak Rock about potential director liability to creditors should the corporation become insolvent. According to Seacoast’s interrogatory answers, Moulton thought that Patton Boggs, then as now Seacoast’s counsel, had provided for Seacoast at a minimum to be protected as to its second and third notes sometime in June of 2007. These answers also suggest that Moulton did not learn of the lapse until after the involuntary petition was filed in this case, in October of 2009. Seacoast’s Answer filed in this case says that “upon learning QuVIS failed to accomplish the filing of an effective Financing Statement listing Seacoast as a secured party back at the inception of the loan transaction in May 2005, Seacoast promptly exercised its contractual rights under the Note Agreement and its rights under Kansas law to file a financing statement, and Seacoast admits such filing was made on June 14, 2007.” While this suggests that Seacoast knew of the lapse no later than June 14, 2007, it does not suggest that Seacoast or Moulton orchestrated the lapse with QuVis. Seacoast was entitled to file a financing statement under the 2003 Agreement and it did so. Nothing in the record suggests that it did so with intentions beyond perfecting its security interest.62 Nor does the record suggest that Seacoast or Moulton misled plaintiffs or other Noteholders with respect to the lapse. Indeed, under the terms of the 2003 Agreement, Seacoast had no responsibility to plaintiffs or other note creditors as a result of exercising its right to file its financing statement.63 To the extent this constitutes a “transaction,” because the transaction was clearly contemplated in the parties’ agreement, the Court concludes that it is at arm’s length.
The Court concludes that, on this record, Seacoast was not a non-statutory insider of the debtor.
C. Seacoast’s Fiduciary Status
If Seacoast stood in a fiduciary relationship with the other Noteholders, the plaintiffs would only need to show that it engaged in “unfair conduct” to support their claim. The same “unfairness” standard that applies to insiders will apply if Seacoast is a fiduciary. As between Seacoast and QuVis, the parties occupied nothing more than a debtor-creditor relationship.64 Moulton owed no fiduciary duty to the plaintiffs; as a director, his fiduciary duties were to the shareholders *504of QuVis, not QuVis’ creditors.65 As noted above, Seacoast was not a “de facto director” by virtue of Moulton’s seat on the QuVis board. Seacoast owed no fiduciary duty to plaintiffs or QuVis’ creditors.66
Nor did Seacoast owe any duties, contractual or otherwise, to the other Note-holders. The 2003 Agreement expressly absolves a Noteholder who exercises its rights to perfect its security interest from any liability to other Noteholders. Section 6.05 provides: “No Lender shall have any liability whatsoever to the Borrower, any other Lender or any third party for any action taken or rights exercised pursuant to this section.”
The Court concludes as a matter of law that Seacoast owed no fiduciary duty to the plaintiffs or other Noteholders. Even if Seacoast knew that the 2002 UCC-1 had lapsed in March 2007 or when it filed its UCC-1 in June 2007, it owed no duty to disclose the lapse to plaintiffs or QuVis’ creditors.
D. Did Seacoast Engage in Egregious or Gross Misconduct Tantamount to Fraud, Illegalitg, or Overreaching?
As Seacoast was neither an insider nor a fiduciary, the plaintiffs must demonstrate that Seacoast engaged in inequitable conduct to establish an equitable subordination claim. That heightened level of misconduct requires a showing of egregious, gross misconduct characterized by fraud, misrepresentation, or overreaching.67 That is a difficult standard to meet and the plaintiffs have not met it here.68
The plaintiffs’ alleged “egregious, gross misconduct” on the part of Seacoast is that it failed to disclose the lapse of the 2002 UCC-1 and it filed a new UCC-1 on its own behalf to individually perfect its security interest in QuVis assets. As noted, Seacoast owed no duty to disclose the lapse of the 2002 UCC-1 to plaintiffs or any other creditors of QuVis. There are no facts from which this Court could infer that Seacoast influenced or colluded with QuVis to permit the 2002 filing to lapse. Nor is there any evidence that Seacoast engaged in any fraud, misrepresentation, or overreaching with regard to the status of the 2002 UCC-1 or its lapse.
With respect to Seacoast’s filing of a new UCC-1 on June 14, 2007, it protected its rights, as did nearly fifty other Note-holders who, acting independently of Seacoast, filed their own UCC-1.69 It did so after Noteholders J. Greg Kite and The Baugher Revocable Living Trust took the same action. Seacoast has no liability to plaintiffs or other Noteholders by virtue of exercising its rights as a secured creditor, as it was authorized to do under the 2003 Agreement and by the UCC.70 Some evi*505dence of misconduct or inequitable conduct is a necessary predicate to equitable subordination.71 That evidence simply is not in this record. As did the creditor in this Court’s prior Sunbelt case,72 Seacoast took actions it was entitled to take as a secured creditor. That is not inequitable.73 Seacoast had no duty to “warn” its fellow Noteholders of its action. Its filing was a matter of public record. Seacoast was not even the first Noteholder to recognize and capitalize upon this situation. The eviden-tiary record here is devoid of any inference or suggestion of a scheme or device by Seacoast directed at placing itself at an advantage vis-a-vis the other secured Noteholders. Indeed, Seacoast attempted to defend the Noteholders as a collective body when it strenuously argued before this Court for pro-rata treatment on the motion to determine secured status of Noteholders74 and in support of the debt- or’s single classification of the Noteholder group in its Plan. Seacoast argued strenuously that the 2003 Agreement provided for all the holders to be pro-rata participants in the QuVis assets, a position this Court did not sustain. Seacoast supported QuVis’s first attempt at a plan in this case, a plan that championed that arrangement.
The uncontroverted facts do not show any inequitable conduct, let alone any “egregious, gross misconduct” on the part of Seacoast. Nothing in this record points to misconduct tantamount to fraud or overreaching on Seacoast’s part. Nor was Seacoast’s conduct “unfair.” Giving plaintiffs the benefit of all reasonable inferences, there simply is no triable issue presented here. Because the plaintiffs have supplied no record that would support a finding of inequitable conduct on the part of Seacoast, they cannot establish an essential element of their equitable subordination claim. Defendant Seacoast is therefore entitled to judgment as a matter of law and its motion for summary judgment is therefore GRANTED. A Judgment on Decision will issue this date.
JUDGMENT ON DECISION
Plaintiffs assert a cause of action for equitable subordination against defendant Seacoast Capital Partners II, L.P. seeking to subordinate defendant’s priority from a secured creditor of debtor QuVis, Inc. to an unsecured creditor. Finding that there are no genuine disputes of material fact and giving plaintiffs all reasonable inferences to be drawn from the uncontrovert-ed facts, the Court concludes that the un-controverted facts entitle defendant to judgment as a matter of law, and grants defendant’s motion for summary judgment.
*506Based upon the summary judgment record, the Court concludes that defendant was neither an insider of the debtor nor a fiduciary to the plaintiffs. Plaintiffs have come forward with no evidentiary record that would support a conclusion that defendant engaged in gross misconduct tantamount to fraud or overreaching. Defendant owed no duty to prevent the lapse of a 2002 financing statement filed by debtor to perfect various lenders’ and noteholders’ security interests in debtor’s assets and owed no duty to disclose the lapse upon its occurrence. Defendant was authorized by its loan agreement and the Uniform Commercial Code to file its own UCC-1 financing statement to perfect its security interest in debtor’s assets upon the lapse of the 2002 financing statement. Because plaintiffs have failed to produce evidence of defendant’s inequitable conduct — an essential element of their equitable subordination claim, defendant is entitled to judgment as a matter of law.
Judgment is hereby entered in favor of defendant on the plaintiffs’ adversary complaint for equitable subordination.
SO ORDERED.
. 11U.S.C. § 510(c).
. Dkt. 54, 55, and 56.
. Dkt. 63
. Dkt. 64
. Plaintiffs Friesen, Greenbush and Cusick appear by their attorneys William B. Soren-sen, Jr. and Ryan Peck. Plaintiff JFM Limited Partnership I appears by its attorneys Patrick Riordan and Luke Sinclair. The Committee appears by its attorney J. Michael Morris. Defendant Seacoast appears by its attorneys J. Maxwell Tucker and Thomas Lasater.
. No. 09-10706, Dkt. 332 ("Noteholder Order”).
. All of the parties in the current controversy save the Unsecured Creditors Committee, are "Noteholders” under the First Amended and Restated Convertible Loan and Security Agreement dated June 30, 2003 whereby the Noteholders loaned at various times, various sums of money to QuVis in exchange for a security interest in QuVis assets.
. Fed.R.Civ.P. 56(a). Before December 1, 2010, Rule 56 provided that summary judgment should be rendered if there is “no genuine issue as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56 is made applicable to adversary proceedings by Fed. R. Bankr.P. 7056.
. First Sec. Bank of New Mexico, N.A. v. Pan American Bank, 215 F.3d 1147, 1154 (10th Cir.2000) (citing Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Concrete Works of Colo., Inc. v. City and County of Denver, 36 F.3d 1513, 1518 (10th Cir.1994)) (Court may not resolve disputed questions of fact at the summary judgment stage).
. McKibben v. Chubb, 840 F.2d 1525, 1528 (10th Cir.1988) (citation omitted).
. E.E. O.C. v. Lady Baltimore Foods, Inc., 643 F.Supp. 406, 407 (D.Kan.1986) (Even if there are no genuine issue of material fact, the movant still has the burden to show it is entitled to judgment as a matter of law.); Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670 (10th Cir.1998) (If there are no genuine issues of material fact, the district court must determine whether the substantive law entitles the movant to judgment).
. Security Nat. Bank v. Belleville Livestock Commission Co., 619 F.2d 840, 847 (10th Cir.1979).
. In re Sunbelt Grain WKS, LLC, 427 B.R. 896, 908 (D.Kan.2010) (granting summary judgment to defendant on equitable subordination claim, citing Trainor v. Apollo Metal Specialties, Inc., 318 F.3d 976 (10th Cir.2002)). See also Adler v. Wal-Mart Stores, Inc., 144 F.3d 664, 670-71 (10th Cir.1998) (On motion for summary judgment, if a party that would bear the burden of persuasion at trial fails to come forward with sufficient evidence on an essential element of its claim, all issues concerning all other elements of the claim become immaterial. A summary judgment movant may show entitlement to judgment as a matter of law simply by pointing out to the court a lack of evidence for the nonmovant on an essential element of the nonmovant's claim.).
. See 15 U.S.C. § 661 et seq., Small Business Investment Act of 1958. The Act permits licensed SBICs to assist in providing capital and managerial support to small entrepreneurial business. The Act and SBICs are administered by the Small Business Administration ("SBA”). The federal regulations governing SBICs are found at 13 C.F.R. Part 107.20 et seq.
. Seacoast Ex. 7.
. The 2003 Agreement delegated to QuVis to file and maintain current any necessary records to perfect the Lenders’ security interests. Id. at § 6.01(b). The 2003 Agreement also designated Noteholders as QuVis’ attorneys in fact, permitting Noteholders to exercise these rights QuVis could exercise under the 2003 Agreement. Id. at § 6.05.
. Seacoast Ex. 3.
. The five-member Board at that time was comprised of William Gary Baker, Kenbe Goertzen, Owen Leonard, Becky Lester, and Vernon Nelson.
. Seacoast Ex. 2.
. In addition to the Joinder Agreement, Seacoast entered into a Subordination Agreement with Owen Leonard and Vernon Nelson on June 1, 2005 whereby Leonard and Nelson subordinated their notes owed by QuVis to Seacoast's notes. Leonard and Nelson were majority interest Noteholders and Qu-Vis board members at the time of the Subordination Agreement. The Subordination Agreement was entered into “to induce New Lender [Seacoast] to enter into the Loan Agreement.” Plaintiffs’ Ex. C, Dkt. 63, pp. 44-49.
. This Court has previously concluded that Seacoast was never perfected in the 2002 financing statement. Noteholder Order, p. 22, n. 67.
. Seacoast Ex. 5. The Court observes that the supporting exhibit attached by Seacoast is a "replacement note,” dated June 15, 2007 and bearing a maturity date of June 30, 2007. As the replacement note states, the funds had already been disbursed to QuVis and the "replacement note” amends and restates the indebtedness evidenced by the original November 2, 2005 note.
. See Kan. Stat. Ann. § 84-9-515 (2009 Supp.); Noteholder Order, p. 4.
. Seacoast Ex. 6. The Court observes that the supporting exhibit attached by Seacoast is a "replacement note,” dated June 15, 2007 and bearing a maturity date of June 30, 2007. As the replacement note states, the funds had already been disbursed to QuVis and the "replacement note” amends and restates the indebtedness evidenced by the March 14, 2007 note.
. See e.g., Seacoast Ex. 51. The extension request letter made no mention that the 2002 UCC-1 had lapsed.
. Seacoast Ex. 52.
. Seacoast Ex. 4.
. Seacoast Ex. 53.
. Id.
. Id.
. Id.
. See Noteholder Order, pp. 10-16; Kan. Stat. Ann. § 84-9-509 (2009 Supp.) and 2003 Agreement, Seacoast Ex. 7, § 6.01(b) and § 6.05.
. Only creditors whose interests are "substantially similar” may be classified together. See § 1122(a).
. Noteholder Order.
. Dkt. 60 and Dkt. 376 (Case No. 09-10706).
. See Sender v. The Bronze Group (In re Hedged-Investments Assoc., Inc.) 380 F.3d 1292, 1297 (10th Cir.2004) (Under the doctrine of equitable subordination, courts seek to remedy some inequity or unfairness perpetrated against the bankrupt debtor’s other creditors by postponing the subordinated creditor's right to repayment until others’ claims have been satisfied.)
. Sloan v. Zions First Nat’l Bank (In re Castletons), 990 F.2d 551, 559 (10th Cir.1993).
. Id.
. Because of this Court’s determination on the inequitable conduct prong, it does not reach the remaining two elements.
. Sender v. The Bronze Group (In re Hedged-Investments Assoc., Inc.) 380 F.3d 1292 (10th Cir.2004)
. Id. at 1301.
. 380 F.3d at 1301-02 (emphasis added).
. 11 U.S.C. § 101(3l)(B)(i).
. Recall that Moulton was a director of both Seacoast and of QuVis.
. As noted in Hedged-Investments, supra at 1303: "In any event, there is nothing inherently inequitable about negotiating a creditor relationship with a debtor as a condition of providing funds to the debtor.”
. See Seacoast Ex. 2, Joinder Agreement, Sections 4.12 and 4.16 (access to audit and financial reports); 4.22 (right to inspect properties and books and records); 4.25 (right to board meeting minutes and records).
. See Seacoast Ex. 7, 2003 Agreement, Section 2.04
. See Seacoast Ex. 2, Recitals and Section 6.1.
. See In re U.S. Medical, Inc., 531 F.3d 1272, 1281-82 (10th Cir.2008) (for determining insider status in the preference context, chapter 7 trustee argued that creditor was a de facto director of debtor because creditor’s CEO was on debtor's board).
. Id.
. Id. at 1282, citing In re Papercraft Corp., 187 B.R. 486, 494 (Bankr.W.D.Pa.1995), rev’d 211 B.R. 813 (W.D.Pa.1997), aff'd Citicorp Venture Capital, Ltd. v. Comm. Of Creditors Holding Unsecured Claims, 160 F.3d 982 (3rd Cir.1998).
. A "person” includes an individual, partnership and corporation under the Bankruptcy Code. 11 U.S.C. § 101(41).
. See 13 C.F.R. § 107.865. Under this regulation governing SBICs, Seacoast may exercise control over QuVis by majority representation on the board of directors. That clearly was not the case, even if Seacoast is deemed to be a director of QuVis by virtue of designating Moulton as a director on the QuVis board.
. The non-statutory insider status in the context of U.S. Medical, supra, was pertinent to determine whether the extended look back period applied to preference payments made to a creditor and sought to be avoided by the chapter 7 trustee.
. See § 547(b)(4)(a) and (B).
. In re U.S. Medical, Inc., 531 F.3d at 1278.
. Id. at 1282.
. Id. at 1280 ("We hold here that a creditor may only be a non-statutory insider of a debt- or when the creditor’s transaction of business with the debtor is not at arm’s length.”)
. Id. at 1280-81.
. See Noteholder Order, p. 11.
. It is just as likely that noteholders Greg Kite and Baugher Trust, who filed new UCC-Is prior to Seacoast, discovered the lapse when the letter request for a maturity extension was sent to the Noteholders, prompting them to check the status of their lien.
. The plaintiffs' argument that Seacoast’s filing of a new UCC-1 financing statement instead of a UCC-2 amendment demonstrates its ill-intent ignores the fact that, on June 14, 2007, there was no longer a financing statement to amend.
. Seacoast Ex. 7, Section 6.05 provides: "No Lender shall have any liability whatsoever to the Borrower, any other Lender or any third party for any action taken or rights exercised pursuant to this section.”
.See Seacoast Ex. 7, Section 12.14: "... it being understood and agreed that no provision contained herein [the Note Agreement] shall be deemed to create any relationship between the parties hereto other than the relationship of borrower and lender.” See also Daniels v. Army Nat. Bank, 249 Kan. 654, 822 P.2d 39 (1991) (lender-borrower relationship creates debtor-creditor relationship, not fiduciary relationship)
. See Becker v. Knoll, 291 Kan. 204, 239 P.3d 830 (2010) (Director of a corporation owes high fiduciary duty to the stockholders of the corporation.); Speer v. Dighton Grain, Inc., 229 Kan. 272, 624 P.2d 952 (1981) (Directors of corporation owe duties to corporation and its shareholders).
. Carter-Waters Oklahoma, Inc. v. Bank One Trust Company, N.A. (In re Eufaula Industrial Authority), 266 B.R. 483, 489 (10th Cir. BAP 2001) (A non-insider creditor generally owes no fiduciary or contractual duty to the other creditors of a debtor and must be found to have engaged in some conduct giving rise to a legally recognized duly to other creditors before its claim will be equitably subordinated.)
. See Section III.A, infra at pp. 12-14.
. See In re Eufaula Industrial Authority, supra at 489 (noting that successful equitable subordination claims are “few and far between” in cases involving non-insiders or non-fiduciaries).
. See Seacoast Ex. 53.
. See Seacoast Ex. 7, §§ 6.01(b) and 6.05; Kan. Stat. Ann. § 84-9-509 (2009 Supp.); See *505also, Noteholder Order, Dkt. 332 at pp. 9-12, 14-16.
. The doctrine of equitable subordination looks to the behavior of the parties involved. In re Hedged-Investments Associates, Inc., supra.
. See Speth v. Whitham Farms Feedyard, L.P. (In re Sunbelt Grain WKS, LLC), 406 B.R. 918 (Bankr.D.Kan.2009), aff'd 427 B.R. 896 (D.Kan.2010) (Secured lender of debtor swept $1.6 million in funds from debtor’s accounts as it was permitted to do under its loan documents with debtor and applied it to pay down debtor's line of credit. Even though the sweep was detrimental to other creditors and came on the heels of a grain prepayment to debtor, it did not constitute inequitable conduct sufficient to support equitable subordination.)
. On appeal of Sunbelt Grain, supra, the District Court described the lender's conduct as, at most, "a sharp business practice,” but held that this was not a sufficient basis to equitably subordinate a claim. 427 B.R. at 909.
. Dkt. 200, 235 (No. 09-10706) and Note-holder Order at pp. 7-8, n. 25, Dkt. 332 (No. 09-10706). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494401/ | MEMORANDUM OPINION
KEVIN R. HUENNEKENS, Bankruptcy Judge.
The debtors, Circuit City Stores, Inc., et al, (the “Debtors,” or “Circuit City”) filed these bankruptcy cases under Chapter 11 of the Bankruptcy Code on November 10, 2008 (the “Petition Date”).1 The Debtors’ bankruptcy cases were consolidated for joint administration pursuant to Rule 1015(b) of the Federal Rules of Bankruptcy Procedure. No trustee or examiner has been appointed as of the date of this Memorandum Opinion, and Circuit City continues to manage and operate its business as a debtor in possession in accordance with 11 U.S.C. §§ 1107 and 1108. An Official Committee of Unsecured Creditors was appointed by the United States Trustee on November 12, 2008, pursuant to 11 U.S.C. § 1102(a).
Circuit City is a specialty retailer of consumer electronics. Circuit City operates electronics stores nationwide that sell, among other things, televisions, home theater systems, computers, camcorders, furniture, software, imaging and telecommunications products, and other audio and video electronics. As of the Petition Date, Circuit City employed approximately 39,-600 employees and was operating approximately 712 retail stores and 9 outlet stores throughout the United States and Puerto Rico.
In connection with the operation of its stores, the Debtors are parties to numerous unexpired leases of nonresidential real property (the “Leases”). Pursuant to the terms of most of the Debtors’ Leases, the rental obligations for the month of November 2008 became due and payable on November 1, 2008. Circuit City refers to Leases of this type as “advance payment leases” because the Debtors must pay rent in advance on the first day of the month for each monthly period in which they occupy the premises (the “Advance Leases”). The Debtors are also parties to a number of Leases whereunder the rental obligation for the month of November 2008 became due and payable at the end of the month (the “Arrears Leases”). As of the Petition Date, November 10, 2008, the Debtors had not paid any rent for the .month of November under either type of Lease.
Most, if not all, of the lessors under the Debtors’ Leases (the “Lessors”) filed formal or informal motions or objections (the “Motions”),2 seeking to compel immediate *505payment of the postpetition rent due from the Debtors for the period from November 10, 2008, through November 30, 2008 pursuant to § 365(d)(3) of the Bankruptcy Code. The parties refer to this portion of the rent due for occupancy between the Petition Date and the end of the month in which the petition was filed as “stub rent” (the “Stub Rent”).3 In the alternative, the Motions seek the Court to defer payment of the Stub Rent only until the date that is sixty days following the Petition Date. The Debtors filed omnibus objections to the Motions on December 3, 2008, and December 18, 2008 (the “Objections”) [Docket Nos. 641 and 1100, respectively].
The Court reviewed the Motions and the Objections, and heard the testimony of one of the Debtor’s financial advisors, Stephen Coulombe of FTI Consulting Inc., at the hearing on the Motions on December 22, 2008 (the “Hearing”).
At the conclusion of the Hearing the Court ruled:
1. Section 365(d)(3) applies to requests for payment of rent due under the Debtors’ Leases.
2. The “accrual method” applies to determine when the obligation to pay rent under a Lease arises for purposes of differentiating prepetition obligations from postpetition obligations.
3. The “accrual method” does not operate to change the time for performance pursuant to the Lease terms.
4. The Stub Rent due for postpetition occupancy under the Debtors’ Leases are administrative claims under §§ 503(b) and 507(a)(2) of the Bankruptcy Code.
5. “Timely” under § 365(d)(3) shall be determined by the terms of the Lease.
6. Administrative claims for Stub Rent are not entitled to superpriority through immediate payment, but shall instead be paid upon the effective date of the plan with other administrative claims, absent further order of the Court.
The Court’s ruling was without prejudice to any Lessor’s right to ask for relief for cause, and the Court reserved the Debtors’ right to object to claims for payment of attorneys’ fees associated with the Leases. The Court’s ruling did not operate to extend the time for performance of any obligation governed by § 365(d)(3). The Court entered its order denying the Motions on January 26, 2009 (the “Stub Rent Order”).
This Memorandum Opinion supplements the bases for the Court’s ruling as announced from the bench at the conclusion of the Hearing denying the Motions and *506supplements the Court’s findings of fact and conclusions of law pursuant to Rule 7052 of the Federal Rules of Bankruptcy Procedure set forth in its Stub Rent Order. The Court has jurisdiction over the Motions pursuant to 28 U.S.C. §§ 157 and 1384, and these matters are core proceedings pursuant to 28 U.S.C. § 157(b)(2)(A), (B), and (0). Venue of these cases and the Motions in this district is proper under 28 U.S.C. §§ 1408 and 1409.
In relevant part, § 365(d)(3) of the Bankruptcy Code provides:
The trustee shall timely perform all the obligations of the debtor [except certain obligations not applicable in this case] arising from and after the order for relief under any unexpired lease of nonresidential real property, until such lease is assumed or rejected, notwithstanding section 503(b)(1) of this title. The court may extend, for cause, the time for performance of any such obligation that arises within 60 days after the date of the order for relief, but the time for performance shall not be extended beyond such 60-day period.
11 U.S.C. § 365(d)(3) (emphasis added). A debtor in possession has the rights, powers and duties of a bankruptcy trustee. 11 U.S.C. § 1107(a). As the Debtors in this case continue to manage and operate their business as debtors in possession in accordance with 11 U.S.C. §§ 1107 and 1108, they must timely perform the obligations that arise from and after the order for relief under their Leases pursuant to § 365(d)(3), until any such Lease is assumed or rejected. Absent from § 365(d)(3) is any definition of the term “timely.”
Before § 365(d)(3) was enacted in its current form in 1984, a lessor’s only avenue to collect rent and other postpetition charges from a debtor in possession was by meeting the test for administrative expense status set forth in 11 U.S.C. § 503(b)(1)(A). Santa Ana Best Plaza, Ltd. v. Best Prods. Co. (In re Best Prods. Co.), 206 B.R. 404, 405, 405 n.1 (Bankr. E.D.Va.1997). Even after “maneuvering] through a rather cumbersome application process,” lessors were only entitled to recover “the ‘reasonable value’ of the debt- or’s ‘actual use’ of the premises and remained subject to the bankruptcy court’s discretion to delay payment until after a plan had been confirmed.” Id. at 405 (citations and footnotes omitted) (noting the language of § 503(b)(1)(A) that operated to reduce the lessors’ claim to less than full contract value by only allowing as an administrative expense the reasonable value of the debtor’s actual use of the premises after the petition was filed).
To mitigate some of the “unjustified costs on landlords throughout the country, Congress enacted 11 U.S.C. § 365(d)(3) as part of the Bankruptcy Amendments and Federal Judgeship Act of 1984.” Id. at 406. While this “subsection improved a landlord’s ability to recover post-petition rents and charges,” there is a remaining question about “whether a debtor-in-possession leasing nonresidential real property must pay in full all bills received from the landlord during the post-petition, pre-rejection period, regardless of whether some of those charges accrued pre-petition.” Id. That question begs another— when do charges accrue? And another — if the charges accrue postpetition, when must those charges be paid in order to satisfy the requirement that they be paid timely? “[Deciphering § 365(d)(3) has been akin to navigating a freshly sown battlefield — like hidden mines, each clause has triggered considerable debate as to its intent and meaning.” Id. (C. J. Tice) (quoting Joshua Fruehter, To Bind or Not to Bind — Bankruptcy Code § 365(d)(3): *507Statutory Minefield, 68 Am. Bankr.L.J. 437, 438 (1994)).
“The Bankruptcy Code does not define when debtor’s obligations ‘arise’ in order to determine when the obligation must be treated as a post-petition claim entitled to administrative expense priority.” In re Trak Auto Corp., 277 B.R. 655, 662 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004). Resolution of that issue depends on whether this Court applies the “billing method” or the “accrual method,” which are short form terms to describe two separate lines of cases that have developed to determine when an obligation “arises” under the Bankruptcy Code. See In re Trak Auto Corp., 277 B.R. 655, 662 (Bankr.E.D.Va. 2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004) (noting that a minority of courts have adopted the “billing method” while the majority of courts have adopted the “accrual method”).
Under the billing method, the obligation to pay arises at the time that payment is due under the terms of the lease contract. When the petition date falls in the middle of a month, the obligation to pay rent will be treated entirely as a prepetition obligation if the Lease is an Advance Lease, and the obligation to pay rent will be treated entirely as a postpetition obligation if the Lease is an Arrears Lease. Alternatively, under the accrual method, the obligation to pay rent is deemed to accrue on a daily basis following the Petition Date. The Petition Date separates the prepetition obligations (general unsecured claims for the portion of the month prior to the petition date) from postpetition obligations (administrative expense claims for the portion of the month after the petition date). See In re Trak Auto Corp., 277 B.R. 655, 662 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004). If the Court were to apply the billing method in this case, then the obligation to pay November rent would be deemed to have arisen when the lease required the rent to be paid. This would be November 1 if the lease were an Advance Lease. The obligation to pay November rent (including Stub Rent) would be a prepetition claim because the Petition Date was November 10, 2008. On the other hand, if the Lease were an Arrears Lease, then the obligation to pay November rent (including Stub Rent) would be a postpetition claim entitling the Lessor to administrative expense priority under 11 U.S.C. § 507.
For the Leases with respect to which a Lessor has filed a Motion, the Debtors have agreed on the record that the accrual method will apply in these cases with respect to both Advance Leases and Arrears Leases and that such Lessors have timely raised their rights under § 365(d)(3) of the Bankruptcy Code and thus have not waived any rights that § 365(d)(3) affords to them.4 Even without the parties’ agreement that the accrual method applies to this situation, the controlling law in this jurisdiction compels that result, and the Court will apply this methodology even for Leases with respect to which a Lessor did not file a Motion. In In re Trak Auto Corp., 277 B.R. 655, 663 n.2 (Bankr.E.D.Va.2002), rev’d on oth*508er grounds, 367 F.3d 237 (4th Cir.2004), Judge Adams noted that the United States Court of Appeals for the Fourth Circuit has not directly addressed the issue of whether the accrual method or the billing method applies in these circumstances, although that court apparently applied the billing method in an unpublished opinion. See Rose’s Stores, Inc. v. Saul Subsidiary I, L.P. (In re Rose’s Stores, Inc.), 155 F.3d 560, No. 97-2654, 1998 WL 393984 (4th Cir. July 10, 1998) (affirming the district court’s determination that the rent payments at issue came due postpetition pursuant to the leases and thus were obligations arising postpetition despite the fact that the rent payments were for prepetition occupancy of the premises).
Unpublished opinions are not binding on this Court pursuant to Rule 32.1 of the Local Rules of the United States Court of Appeals for the Fourth Circuit, and thus the Court concludes that the accrual method applies in this jurisdiction. In re Trak Auto Corp., 277 B.R. 655, 663 (Bankr. E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004) (stating that Chief Judge Tice’s opinion in Santa Ana Best Plaza, Ltd. v. Best Prods. Co. (In re Best Prods. Co.), 206 B.R. 404 (Bankr.E.D.Va. 1997), establishes the methodology to apply the accrual method). The “intent behind the enactment of § 365(d)(3) was to prevent landlords from becoming involuntary creditors of the debtor’s estate,” and “[ajdopting a method where debtor’s liability would turn solely on when bills are issued has the potential to create a windfall for a landlord who decides to manipulate when it bills the debtor.” Id. at 662, 663. Avoiding both of these inequitable results, the accrual method means that “[ajnything accruing after the entry [of] the order for relief is a post-petition charge that may be elevated to administrative priority under § 507(a).” Id. at 664.
Moreover, the lessor need not show that the “debtor’s continued possession of its space is a benefit to the estate” in order to receive administrative expense priority under § 507(a)(2). See id. at 665 (noting that the plain language of § 365(d)(3) states that it applies “notwithstanding section 503(b)(1)”); see also In re Va. Packaging Supply Co., 122 B.R. 491, 494 (Bankr. E.D.Va.1990) (“The court interprets the [phrase ‘notwithstanding section 503(b)(1)’] as requiring timely payment of rent provided under the lease without regard to the ‘actual, necessary costs’ requirement or the necessity for notice and hearing under § 503(b)(1).”).
In a case interpreting § 365(d)(10),5 the United States Court of Appeals for the Fourth Circuit noted that “[w]hile it is clear that § 365(d)(10) and § 365(d)(3) impose on a [debtor in possession] the duty to perform all lease obligations in a timely manner, these sections do not specify a lessor’s remedy should the [debtor in possession] fail to perform.” CIT Commc’ns Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229, 235 (4th Cir.2005). The Fourth Circuit *509concluded that “a lessor is entitled to recover all payments due under the lease (including rent, taxes, interest, late fees, and attorney’s fees) as an administrative expense,” but the lessor “must still assert its administrative expense claim under § 503(b); it simply does not assert the claim under the specific provision of § 503(b)(1)(A). This conclusion ... avoids creating ambiguities and conflicts with respect to other provisions in the Code.” Id. at 236 (emphasis in original). Specifically, the court explained that “when a lessor seeks an administrative expense for ‘all of the obligations’ due under a lease, the ‘notwithstanding § 503(b)(l)’ proviso ... relieves the lessor from proceeding under § 503(b)(1)(A), which would limit the recovery to an amount representing only the actual and necessary use by the estate.” Id. at 237 (emphasis in original). Thus, the accrual method assures payment of all obligations due under a lease for postpetition occupancy on a timely basis as an administrative expense and removes the incentive to manipulate billing cycles.
Under the accrual method the Lessors’ claims for Stub Rent are entitled to administrative expense priority. The issue before the Court is when do these claims for Stub Rent have to be paid in order to comply with § 365(d)(3). See In re Trak Auto Corp., 277 B.R. 655, 668 (Bankr. E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004) (“This issue has caused great debate among the courts.... ”).
Section 365(d)(3) of the Bankruptcy Code requires the Debtors to timely perform all their obligations under their Leases. Timely could mean immediately, as argued by certain Lessors in this case. Timely could mean whatever period for timely performance is provided by the lease terms, as the Debtors’ argue. Timely could mean that payment of these administrative claims should be made with all other administrative claims — upon the effective date of the plan. See 11 U.S.C. § 1129(a)(9). Timely is not a defined term in the Bankruptcy Code. This Court has addressed this problem previously. See In re Trak Auto Corp., 277 B.R. 655, 668 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004); In re Va. Packaging Supply Co., 122 B.R. 491, 494-95 (Bankr.E.D.Va.1990); Santa Ana Best Plaza, Ltd. v. Best Prods. Co. (In re Best Prods. Co.), 206 B.R. 404 (Bankr.E.D.Va.1997); see also CIT Commc’ns Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229 (4th Cir.2005) (“While an administrative expense under § 503(b) must be paid in cash on the effective date of the plan in a chapter 11 proceeding, ... bankruptcy courts have wide latitude in deciding whether to order payment prior to these deadlines.”).
The Debtors argue that in adopting the accrual method for the payment of Stub Rent, the Court should limit the application of the methodology to elevating the Stub Rent portion of a Lessor’s claim to administrative expense status. Adoption of the accrual method, they argue, should not dictate the time for payment of that administrative claim or alter the time of performance of an obligation under the Leases. This argument rests on the assumption that the accrual method merely creates the legal fiction that the Petition Date determines the date from which the administrative expense claim for the payment of rent arises. The adoption of a legal fiction fixing the status of the claim as an administrative one should not otherwise alter or create an independent contractual obligation for immediate payment.
The Debtors point out that the Lessors could have taken action prepetition under applicable non-bankruptcy law to enforce *510the nonpayment of their November rent. The unpaid Stub Rent for Advance Leases is approximately $20 to $25 million. The budget under the Debtors’ debtor in possession financing facility, as approved by this Court by order entered December 23, 2008 (the “DIP Facility”) [Docket No. 1262], did not contemplate payment of the Stub Rent for Advance Leases. The Debtors presented evidence that they were accordingly not authorized to make immediate payment of the Stub Rent for Advance Leases and that such payment would result in financial hardship for the Debtors and endanger their continued operations and successful restructuring.
Certain of the Lessors advanced the argument that application of the accrual method requires a finding that payment of Stub Rent under Advance Leases is an obligation subject to immediate performance under § 365(d)(3), or in no event later than the date that is sixty days after the Petition Date. Under this theory, the Lessors argued that application of the accrual method is not simply a legal fiction. Rather, it creates a new date upon which the obligation to pay rent arises under the Lease. That new date is the Petition Date. This argument rests on the assumption that the accrual method, in addition to setting the date that an administrative claim arises as of the Petition Date, also changes the lease term relating to the time for performance in order to start the clock running on the Petition Date for timely performance. Certain other Lessors advanced a slightly different argument for immediate payment — In re Trak Auto applies only when a Lessor sleeps on his rights and does not ask for immediate payment, and in this case all the Lessors quickly moved for immediate payment, rendering In re Trak Auto inapplicable. See In re Trak Auto Corp., 277 B.R. 655, 669 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004) (noting that “a landlord is not permitted to sit on its rights and rely on an alleged super-priority status for its administrative rent claim”). Additionally, the Lessors argue that ordering the immediate payment of Stub Rent is consistent with the notion that rent for the month of November is not only due on November 1. Rather, it is an obligation to pay rent that continues on November 2, November 3, and so on until the obligation is performed, even if performed after the period provided for timely performance under the lease terms. The only reason not to order immediate payment of the Stub Rent claims, the Lessors argue, is the risk of administrative insolvency. See In re Va. Packaging Supply Co., 122 B.R. 491, 495 (Bankr.E.D.Va. 1990) (“Some courts have ordered payment subject to recapture if there are not sufficient funds to pay all administrative claims.”). The Lessors argue that not ordering immediate payment punishes the Lessors for the Debtors’ failure to provide for payment of Stub Rent under the DIP Facility.
The Court concludes that the Lessors hold a claim for Stub Rent that is entitled to administrative expense priority under § 507(a)(2) of the Bankruptcy Code. The obligation to “timely” perform that is referenced in § 365(d)(3) refers to the time for performance under the lease terms. The accrual method changes the status of the obligation of the Debtor to pay Stub Rent into an administrative claim, but it does not change the temporal element of the lease term regarding payment — -the time for performance of the payment obligation.
Under the accrual method, rent claims for periods of prepetition occupancy are general unsecured claims, while the payment of Stub Rent claims for periods of postpetition occupancy are administrative claims. The Debtors’ Obligation to pay *511Stub Rent claims must be performed “timely” pursuant to § 365(d)(3). If the time for performance under the Lease has not expired (e.g. if the Lease is an Arrears Lease and the Petition Date is before the due date under the Lease), then the time for timely performance of the obligation to pay Stub Rent under the Lease is the date provided for in the Lease. If the time for performance under the lease has already passed (e.g. if the Lease is an Advance Lease and the Petition Date is after the due date under the Lease) then the time for timely performance of the obligation to pay Stub Rent is the same as for all other administrative expense claims upon confirmation of the plan pursuant to 11 U.S.C. § 1129(a)(9)(A). Section 365(d)(3) does not provide a separate remedy to effect payment. If a debtor fails to perform its obligations under § 365(d)(3), all a Lessor has is an administrative expense claim under § 365(d)(3), not a claim entitled to superpriority. In re Va. Packaging Supply Co., 122 B.R. 491, 495 (Bankr.E.D.Va. 1990) (“This court holds that administrative expenses arising from § 365(d)(3) obligations retain the same priority as assigned to all administrative expenses by § 507(a)”). This conclusion in no way extends the time for performance of any obligation that arises within sixty days after the Petition Date; it merely means that the Court’s remedy for non-compliance with the duty under § 365(d)(3) to timely pay obligations arising from and after the order for relief is to order the Debtors to timely perform, and if they fail to do so, to grant relief from stay or court-ordered lease rejection.
Notwithstanding the assertion by certain Lessors with Advance Leases that § 365(d)(3) prohibits this Court from extending the time for payment of the Stub Rent under Advance Leases past the date that is sixty days after the Petition Date, the Court determined that under the facts and circumstances presented here, including the resulting dire financial circumstances described in testimony by one of the Debtors’ financial advisors, the Court has discretion under the Bankruptcy Code and the decision in In re Trak Auto Corp., 277 B.R. 655, 668 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004), to decline to order immediate payment of the Stub Rent. If the Court were to order otherwise, it would be elevating the Lessors’ administrative claim to superpriority status. Such status is neither required nor permitted under the Bankruptcy Code. See In re Va. Packaging Supply Co., 122 B.R. 491, 494-95 (Bankr.E.D.Va.1990). Therefore, this Court will adhere to the determinations made in In re Trak Auto Corp., and In re Virginia Packaging Supply Co., Inc., that the Debtors should not be ordered to pay the Stub Rent immediately. Stub Rent is not entitled to superpriority but only to administrative priority pursuant to § 507(a) of the Bankruptcy Code. This result is in the best interests of the Debtors and their estates, creditors, equity security holders, and all other interested parties, and it will not impair the rights of any of the Debtors’ Lessors.
Accordingly, the Motions filed with respect to Stub Rent for Advance Leases seeking either immediate payment or payment within sixty days of the Petition Date are denied. The Stub Rent claims under Advance Leases are hereby accorded administrative priority expense treatment under §§ 503(b) and 507(a)(2) of the Bankruptcy Code, and such Stub Rent claims shall be payable upon the effective date of any plan of reorganization in these cases, or at such other time as the Court may order upon further motion. The Stub Rent claims under Arrears Leases are hereby accorded administrative priority expense treatment under §§ 503(b) and *512507(a)(2) of the Bankruptcy Code, and such Stub Rent claims shall be timely paid pursuant to the terms of the lease.
. The Debtors are Circuit City Stores, Inc., Circuit City Stores West Coast, Inc., Inter-TAN, Inc., Ventoux International, Inc., Circuit City Purchasing Co., LLC, CC Aviation, LLC, CC Distribution Co. of Virginia, Inc., Circuit City Properties, LLC, Kinzer Technology, LLC, Abbott Advertising Agency, Inc., Patap-sco Designs, Inc., Sky Venture Corp., Prahs, Inc.(n/a), XSStuff, LLC, Mayland MN, LLC, Courchevel, LLC, Orbyx Electronics, LLC, and Circuit City Stores PR, LLC.
. As used herein, the term "Motions” does not include pleadings filed by Lessors with respect to leases governed by this Court’s *505previous Order Granting Motion of Debtors for Entry of Order Pursuant to Bankruptcy Code Sections 105, 363 and 365 (I) Assuming Agency Agreement Among Debtors, Hilco Merchant Resources, LLC and Gordon Brothers Retail Partners, LLC and (II) Authorizing the Debtors to Continue Agency Agreement Sales Pursuant to Store Closing Agreement Sales Pursuant to Store Closing Agreement, entered on November 10, 2008 [Docket No. 82],
. Section 365(d)(3) applies to all leases going forward, i.e., the Debtors’ obligations to pay December rent must be timely performed pursuant to the terms of the lease in order to fulfill the requirements of § 365(d)(3). The issues presented by the Motions relate solely to Stub Rent for November 10-30. As used herein, Stub Rent includes all amounts owing under the Leases, including, but not limited to, common area maintenance charges, real property taxes, and such other charges as may be asserted under the Leases for the period from November 10 to November 30, 2009. To the extent the Motions sought relief other than payment of Stub Rent, such relief is not addressed by this Memorandum Opinion and the Stub Rent Order.
. These matters were initially scheduled to be heard on December 5, 2008, which was the first omnibus hearing day in the Debtors' case. At that hearing, the Debtors and the Lessors agreed to adjourn these matters to the next omnibus hearing on December 22, 2008. Debtors’ counsel stipulated that for purposes of analysis under In re Trak Auto Corp., the delay would not prejudice the Lessors’ rights. See In re Trak Auto Corp., 277 B.R. 655, 669 (Bankr.E.D.Va.2002), rev’d on other grounds, 367 F.3d 237 (4th Cir.2004) (stating that a “landlord is not permitted to sit on its rights and rely on an alleged super-priority status for its administrative rent claim”).
. The United States Court of Appeals for the Fourth Circuit provided this guidance. "Section 365(d)(10) is modeled on a very similar provision of the Code, § 365(d)(3), which requires that a trustee timely perform all obligations under a lease of nonresidential real property after an order for relief is entered. Notably, "[b]oth sections impose a duty of timely performance on debtor[s] ... and both expressly specify that this duty exists 'notwithstanding section 503(b)(1)’ of the Code.” As a result, in construing § 365(d)(10), courts often look to decisions construing § 365(d)(3).” CIT Commc’ns Fin. Corp. v. Midway Airlines Corp. (In re Midway Airlines Corp.), 406 F.3d 229, 234 (4th Cir.2005) (internal citations omitted) (quoting In re E. Agri-Sys., Inc., 258 B.R. 352, 354 (Bankr. E.D.N.C.2000)). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494403/ | KORNREICH, Bankruptcy Judge.
Marie T. Picchi (“Picchi”) is the debtor in this chapter 13 case from the District of Rhode Island. Pawtucket Credit Union (“Pawtucket”) is the holder of a claim secured by a second mortgage against Pic-chi’s two-family home. Picchi’s plan, which modifies Pawtucket’s rights as a mortgagee, was confirmed by the bankruptcy court over Pawtucket’s objection. On appeal Pawtucket argues that the bankruptcy court erred in concluding that § 1322(b)(2) permits a debtor to modify the rights of a mortgagee in a two-family home.1 For the reasons expressed below, we AFFIRM.
BACKGROUND
Picchi filed a chapter 13 petition in March 2010. Her schedules show her to be the owner of a two-family home (the “property”) valued at $125,000.00. She resides in one unit and rents out the second unit. Picchi’s schedules also show the property to be subject to a first mortgage in favor of Navigant Credit Union in the amount of $134,928.00, a second mortgage in favor of Pawtucket in the amount of $87,032.00, and a third mortgage in favor of Beneficial Mortgage Co. of Rhode Island (“Beneficial”) in the amount of $16,382.00.
Picchi’s plan reduced the value of Paw-tucket’s secured claim to zero because, at $125,000.00, the value of the property would have been consumed totally by the senior secured claim.2 Pawtucket objected to its treatment under the plan, arguing that Picchi had undervalued the property and that the anti-modification clause in § 1322(b)(2) prohibited Picchi from modifying its rights.3 Pawtucket argued that *872the rule permitting modification of a mortgagee’s rights in a multi-unit dwelling, see Lomas Mortgage, Inc. v. Louis, 82 F.3d 1 (1st Cir.1996), has been abrogated by the definitions of “debtor’s principal residence” and “incidental property” introduced into the Code by BAPCPA. Specifically, Paw-tucket urged the bankruptcy court to conclude that its claim was secured solely by Picchi’s “principal residence” and that the second unit in the two-family home was simply “incidental property.” The bankruptcy judge rejected this notion and overruled Pawtucket’s objection based upon his own decision in In re French, 174 B.R. 1 (Bankr.D.Mass.1994).4 An order confirming the plan was entered. This appeal followed.
On December 22, 2010, after the briefs were filed, the Bankruptcy Technical Corrections Act of 2010 (“BTCA”) became law without any express statement of temporal scope. See Pub.L. 111-327, 124 Stat. 3557 (Dec. 22, 2010). Although the legislative history provides that BTCA was “not intended to enact any substantive change to the Bankruptcy Code,” see 156 Cong. Rec. H7158 (daily ed. Sept. 28, 2010) (statement of Rep. Smith), there is no clear statement in the record on whether it was intended to have prospective or retroactive applicability. Among other things, BTCA amends § 101(13A) of the Code which defines debtor’s principal residence.5 The legislative record indicates that “[this] amendment clarifies that the definition pertains to a structure used by the debtor as a principal residence.” See 156 Cong. Rec. H7158 (daily ed. Sept. 28, 2010). Despite the centrality of the meaning of “debtor’s principal residence” to the outcome of this case, neither party has asked us (a) to determine whether the revised definition contained in BTCA should apply in this case; or (b) to remand this case for such a determination in the bankruptcy court. Therefore, our review of the bankruptcy court’s decision will be based upon the law as it was at the time of that decision.
JURISDICTION
We have jurisdiction to hear appeals from final judgments, orders and decrees and, subject to our discretion, from certain interlocutory orders. 28 U.S.C. § 158(a); Fleet Data Processing Corp. v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). A decision is considered final if it “ends the litigation on the merits and leaves nothing for the court to do but *873execute the judgment.” Id. at 646 (citations omitted). The bankruptcy court’s decision to modify Pawtucket’s claim under § 1322(b)(2) is a final order. See E. Sav. Bank, FSB v. LaFata (In re LaFata), 483 F.3d 13, 18 (1st Cir.2007); Carvalho v. Fed. Nat’l Mortgage Ass’n (In re Carvalho), 335 F.3d 45, 49 (1st Cir.2003) (holding that an order confirming a plan is customarily res judicata to all issues that were or could have been decided during the confirmation process).
STANDARD OF REVIEW
The facts in this case are not in dispute. We will apply de novo review to the legal issues presented in this appeal. See Lessard v. Wilton-Lyndeborough Coop. School Dist., 592 F.3d 267, 269 (1st Cir.2010); Antognoni v. Basso (In re Basso), 397 B.R. 556, 562 (1st Cir. BAP 2008).
DISCUSSION
The bankruptcy court did not err in permitting the modification of Pawtucket’s secured claim and confirming Picchi’s plan. These actions were in accord with the principle of claim bifurcation, codified in § 506(a)6 and did not violate the anti-modification clause contained within § 1322(b)(2). Moreover, with respect to Pawtucket’s specific concerns, the definitions of “debtor’s principal residence” and “incidental property” introduced by BAPCPA did not alter the scope of the anti-modification clause.
The bifurcation process separates an under-secured claim into two parts: a secured claim pegged at the value of the collateral and an unsecured claim for the difference between the value of the debt and the value of the collateral. In chapter 13, as in other chapter proceedings, bifurcation may be forced upon a secured party by a plan proponent. However, this process, known as “strip down” or “cram down,” is barred by § 1322(b)(2) where the claim is “secured only by a lien on the debtor’s principle residence.” Nobelman v. American Sav. Bank, 508 U.S. 324, 332, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993). But, in deciding Nobelman, the Supreme Court did not address when a claim is secured only by a security interest in real property that is the debtor’s principle residence.
The anti-modification clause within § 1322(b)(2) is ambiguous.7 It could be understood (1) to bar bifurcation of a claim secured by a security interest in real property that includes the debtor’s principal residence, or (2) to bar bifurcation of a claim secured by a security interest in real property that is exclusively the debtor’s principal residence. The first understanding, preferred by the mortgage industry, would bar bifurcation of a claim secured by a mortgage on a multi-unit dwelling. The second, preferred by debtors, would allow it.
*874The U.S. Court of Appeals for the First Circuit discussed this ambiguity in 1996, two years after Nobelman, in a case with facts resembling those presented here. See Lomas, 82 F.3d at 3-4. Finding the contemporaneous legislative history to be inconclusive on the meaning of § 1322(b)(2), id. at 4-6, the First Circuit looked to the legislative history behind an identical anti-modification clause Congress added to chapter 11 as part of the Bankruptcy Reform Act of 1994. Id. at 6. The First Circuit observed: (1) that this new clause, codified at § 1123(b)(5), was intended by Congress to conform the treatment of residential mortgages in chapter 11 to that of chapter 13; and (2) that Congress understood, post-Nobelman, that § 1123(b)(5) would mimic its older chapter 13 sibling by permitting the strip down of a claim secured by a multi-unit dwelling.8 Id. at 6-7. The First Circuit then held “that the antimodification provision of § 1322(b)(2) does not bar modification of a secured claim on a multi-unit property in which one of the units is the debtor’s principal residence and the security interest extends to the other income-producing units.” Id. at 7.9
Pawtucket argues that the holding in Lomas has been abrogated by the definitions of “debtor’s personal residence” and “incidental property” introduced by BAPCPA. Pawtucket’s argument has two prongs: first, that the language of each definition is clear and unambiguous; and, second, that when these definitions are combined and inserted within § 1322(b)(2) they remove the ambiguity underlying the holding in Lomas. We are not convinced.
Pawtucket takes the plain meaning of the term “residential structure,” appearing in the definition of “debtor’s principal residence,” to include both a single family home and a multi-unit dwelling. See 11 U.S.C. § 101(13A).10 If “residential structure” appeared as a stand alone term, Pawtucket would be correct. But in the context of § 101(13A), “residential structure” appears in subparagraph (A), which is qualified by subparagraph (B). Subpar-agraph (B) includes within the meaning of “debtor’s principal residence,” such living units as “an individual condominium or cooperative unit, a mobile or manufactured *875home, or trailer.” The combination of sub-paragraphs (A) and (B) suggests that the term “residential structure” may refer to the space encompassing the debtor’s actual living unit.
Similarly, Pawtucket understands the plain meaning of the phrase “including property commonly conveyed with a principal residence in the area where the real property is located,” taken from the definition of “incidental property,” see 11 U.S.C. § 101(27B),11 to include a rental unit within a multi-unit dwelling in Picchi’s locale. This reading of “incidental property” is plausible; but we are more impressed with the bankruptcy court’s reckoning that “incidental property” means objects like a “boiler, the attached garage, [or] the window treatments that are typically listed in a standard mortgage.”
Thus we are not inclined to agree that the definitions of “debtor’s principal residence” and “incidental property” are clear and unambiguous. More importantly, we reject the suggestion that these definitions, when combined and inserted into § 1322(b)(2), cure the ambiguity in the anti-modification clause.
The anti-modification clause, including the definitions suggested by Pawtucket, would look like this:
[T]he plan may modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is a residential structure, including property commonly conveyed with a principal residence in the area where the real property is located, all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil and gas rights or profits, water rights, escrow funds or insurance proceeds, and all replacements or additions, without regard to whether that structure is attached to real property including an individual condominium or cooperative unit, a mobile or manufactured home, or trailer....
This enhanced clause does not remove the question of whether the statute bars bifurcation of a claim secured by a security interest in a multi-unit dwelling that includes the debtor’s principal residence.
CONCLUSION
The meaning and scope of § 1322(b)(2) have not been altered by the definitions of “debtor’s principal residence” and “incidental property” introduced by BAPCPA.12 For the reasons given long ago in Lomas, § 1322(b)(2) does not bar bifurcation of a claim secured by a multi-unit dwelling. Consequently, we AFFIRM.
.Unless expressly stated otherwise, all references to “Code” or to specific statutory sections shall be to the Bankruptcy Reform Act of 1978, as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA”), Pub.L. No. 109-8, 119 Stat. 23, 11 U.S.C. §§ 101, et seq.
. Beneficial’s claim was given the same treatment under Picchi’s plan.
. Pawtucket asserted the actual value to be $157,000.00 At the confirmation hearing, the parties settled on a value of $141,000.00 This *872value left Pawtucket with a small secured claim.
. In In re French, the bankruptcy court stated: In order to properly analyze the effect of "additional collateral” on the anti-modification provisions of § 1322(b)(2), this Court believes that the test should be whether or not the "additional collateral” set forth in the subject mortgage is nothing more than an enhancement which is or can, by agreement of the parties, be made a component part of the real property or is of little or no independent value. The existence of collateral which is nothing more than such an enhancement should not result in a forfeiture by the lender of the anti-modification provisions of § 1322(b)(2).
174 B.R. at 7.
. Section 101(13A) now provides:
The term 'debtor’s principal residence’ — (A) means a residential structure if used as the principal residence by the debtor, including incidental property, without regard to whether that structure is attached to real property; and (B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer if used as the principal residence by the debtor.
11 U.S.C. § 101(13A) (as amended by the Bankruptcy Technical Corrections Act of 2010, Pub.L. 111-327, 124 Stat. 3557 (Dec. 22, 2010) (emphasis supplied to show the amendments)).
. Section 506(a) provides, in relevant part:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor's interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor's interest ... is less than the amount of such allowed claim.
11 U.S.C. § 506(a)(1).
. Section 1322 provides in relevant part:
(b) Subject to subsections (a) and (c) of this section, the plan may — ... (2) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims ...
11 U.S.C. § 1322(b)(2) (emphasis supplied.). Subsections (a) and (c) are not implicated in this case.
.This determination was based upon the portion of the legislative record referring to In re Ramirez, 62 B.R. 668 (Bankr.S.D.Cal.1986), "as an example of a case in which the antimo-dification provision of Chapter 11 would not apply.” Lomas, 82 F.3d at 6-7 (citing the Judiciary Committee Report, H.R. Report No. 835 at 46, n. 13). In Ramirez, the bankruptcy court held that § 1322(b)(2) permits modification of a claim secured by a mortgage on real property that includes the debtor’s principal residence and generates rental income. 62 B.R. at 670. Additionally, the First Circuit offered the following policy reason for its decision:
... extending the antimodification provision to multi-family houses would ... create a difficult line-drawing problem. It is unlikely that Congress intended the antimo-dification provision to reach a 100-unit apartment complex simply because the debtor lives in one of the units. Limiting the antimodification provision to single-family dwellings creates a more easily administered test.
Lomas, 82 F.3d at 6.
. Other courts have reached the same conclusion based upon the plain meaning of § 1322(b)(2). See, e.g., Scarborough v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406, 411 (3d Cir.2006).
. The pre-BTCA version of § 101(13A) states:
The term 'debtor's principal residence’ — •
(A) means a residential structure, including incidental property, without regard to whether that structure is attached to real property; and
(B) includes an individual condominium or cooperative unit, a mobile or manufactured home, or trailer.
. Section 101(27B) provides:
The term ‘incidental property' means, with respect to a debtor’s principal residence-—
(A) property commonly conveyed with a principle residence in the area where the real property is located;
(B) all easements, rights, appurtenances, fixtures, rents, royalties, mineral rights, oil or gas rights or profits, water rights, escrow funds, or insurance proceeds; and
(C)all replacements or additions.
11 U.S.C. § 101(27B).
. Due to the failure of the parties to raise the question, we offer no comment on whether the same result would pertain under the revised definition of "debtor’s principal residence” contained in BTCA. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494404/ | OPINION1
ROBERT N. OPEL, II, Bankruptcy Judge.
The Chapter 12 Debtors/Movants filed a Motion under F.R.B.P. 3012 to value their secured creditors’ real estate collateral. This Opinion determines the value of the Debtors’ three pieces of real estate. This will allow determination of the secured status of the respective claims against the real properties.
I. Jurisdiction
This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and § 157(b)(2). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
II. Facts
Thomas H. McElwee, Jr. and Becky S. McElwee, his wife, family farmers, (“Debtors”) filed a Voluntary Chapter 12 Petition on March 30, 2010.
On the petition date, the Debtors owned three pieces of real property. The properties are generally known as: 2807 Wayne Road, Chambersburg, Pennsylvania (‘Wayne Road Property”); 250 Jumper Road, Newburg, Pennsylvania (“Jumper Road Property”); and, 653 Big Spring Road, Newville, Pennsylvania (“Big Spring Road Property”).
The Debtors filed their Original Chapter 12 Plan (“Original Plan”) on June 25, 2010, at Docket No. 33. Several objections were filed to the Original Plan and on December 7, 2010, an Amended Chapter 12 Plan (“Amended Plan”) was filed at Docket No. 82. Objections to confirmation of the Amended Plan were filed by Scarff Brothers, Inc. (“Scarff Brothers”), Mountain View Veterinary Services (“Mountain View”), and AgChoice Farm Credit ACA (“AgChoice”).
As noted above, prior to filing the Amended Plan, on October 13, 2010, the Debtors filed a Motion under Rule 3012 to determine the value of the collateral securing at least a portion of the Respondents’ claims against the Debtors’ real property (“3012 Motion”). The 3012 Motion names eight Respondents. The 3012 Motion was filed to Docket No. 57.
Expert testimony was heard from three real estate appraisers concerning the value of the Wayne Road Property. Two appraisers testified concerning the value of the Jumper Road Property, and the Big Spring Road Property. The evidentiary hearing on the 3012 Motion commenced on January 13, 2011. Appearances were *671made by the Debtors, Scarff Brothers and AgChoice. At the hearing, the parties stipulated to three matters concerning the 3012 Motion: (1) it was agreed that a document marked as Exhibit A accurately set forth the lien priorities against the Debtors’ real properties; (2) that there was no substantive change in the condition of the improvements on the Debtors’ real properties between the dates on which the parties’ respective appraisers conducted their valuations; and, (3) that each of the properties had been used only for farming and/or residential purposes.
The 3012 Motion is now ripe for decision.
III. Discussion
A. Method of Valuation
A seminal case on bankruptcy valuations is the United States Supreme Court’s decision in Associates Commercial Corp. v. Rash, 520 U.S. 953, 117 S.Ct. 1879, 138 L.Ed.2d 148 (1997). Rash concerned a creditor’s objection to the confirmation of the debtor’s Chapter 13 plan. The plan provided for retention of the collateral, a tractor truck, and a “cram down” of the truck’s value to $28,500.00. The creditor’s objection maintained, in part, that its claim was secured in the amount of $41,171.00. 11 U.S.C. § 506(a)(1)2 provides, in part:
(a)(1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, ... and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to setoff is less than the amount of such allowed claim. Such value shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property ...
The Supreme Court in Rash noted that the United States Courts of Appeal had previously taken different approaches for valuing secured claims in a cram down context. Such approaches included foreclosure value standards and replacement value standards. The Supreme Court noted that under § 506(a), the proposed disposition or use of the collateral is of “paramount importance” to the valuation question. Rash, supra, at 962, 117 S.Ct. 1879. In Rash, the Supreme Court concluded that, where the debtor retains the collateral, the replacement value standard is the appropriate measure of value. It held that in a Chapter 13 context the replacement value: “... is the cost the debtor would incur to obtain a like asset for the same ‘proposed ... use’ ”. Rash, supra, at 965, 117 S.Ct. 1879. The Supreme Court also noted that the Bankruptcy Court, as the trier of fact, could identify the best way of ascertaining replacement value on the basis of the evidence presented. Rash, supra, FN 6. I recognize that Rash was decided in a Chapter 13 context while the case at bar is Chapter 12 family farmer proceeding.
I note that other Chapter 12 cases, decided both before and after Rash, have utilized many of the same factors in determining the value of a creditor’s collateral. In re Brace, 163 B.R. 274 (Bankr.W.D.Pa.1994) considered a Chapter 12 debtor’s motion for determination of secured status. The Farmers Home Administration filed a proof of claim asserting a secured claim in the amount of $707,195.73. The Bankruptcy Court found the following with respect *672to the correct approach to value “we are persuaded that the Debtors’ current and prospective use is the correct basis for the appraisal in determining the amount of the lender’s secured claim”. In re Brace, supra, at 277 (internal citations omitted). I find this language to be markedly similar to some of the language used by the Supreme Court in Rash.
Another earlier Chapter 12 case which adopted a Rash approach to value is In re Watkins, 240 B.R. 735 (Bankr.C.D.Ill.1999). The court found that the proper method for valuing property which a Chapter 12 debtor will retain must consider the debtor’s current and prospective use of the real estate. It found that the debtor’s intended use — as a full time family farm — was the correct basis for an appraisal to determine the amount of a secured creditor’s claim. The court cited Rash in applying the replacement value method in valuing the property. The court found “replacement value is equivalent to fair market value, or the value a willing purchaser in the debtor’s business would pay for a like property”. Watkins, supra, at 741. Ultimately, the court in Watkins denied the creditor’s motion to reconsider the valuation of its collateral.
A later Chapter 12 case which considered a § 506(a) motion to value collateral is In re Bishop, 339 B.R. 595 (Bankr.D.S.C.2005). The debtor owned approximately 33 acres improved with two poultry houses, two metal sheds, eight grain bins and a framed hog barn. The debtor’s mobile home was also located on the property. The real estate was secured by a mortgage in favor of the United States Department of Agriculture. The debtor argued that valuation of the collateral should be based upon his proposed disposition or use of the property while the secured creditor contended that the highest and best use of the property — conversion into a broiler farm — should be considered. The court in Bishop concluded proper valuation must consider the actual use proposed by the debtor. Bishop, supra, at 600.
I believe that the intended use approach to valuation — giving due consideration to the Debtors’ intended use — finds additional support in the case law in this District. The United States District Court considered a bankruptcy appeal in In re Donato, 253 B.R. 151 (M.D.Pa.2000). The United States Internal Revenue Service had appealed the Bankruptcy Court’s § 506 determination of its secured status. In the trial before the Bankruptcy Court, the debtor’s expert valued the debtor’s 14-acre parcel at $186,000.00 based upon the Chapter 13 debtor’s proposed use of the property. The appellant, the Internal Revenue Service, argued that its expert’s valuation of $926,000.00 should have been applied. The Internal Revenue Service’s appraiser’s valuation was based upon the property’s “highest and best use”; in this case, the appellant argued, a residential subdivision. The District Court affirmed the Bankruptcy Court, which had valued the entire 14-acre parcel rather than the attendant value of 28 subdivided lots.
Therefore, in the case at bar, I will take a two-step approach with respect to the valuation of each of the Debtors’ three properties. First, I will attempt to discern the Debtors’ proposed disposition of each property under the Amended Plan. Second, I will consider the evidence to determine the applicable value of the Debtors’ properties. In evaluating the Debtors’ properties, and assessing the appraisal testimony, I draw significant guidance from two Bankruptcy Court decisions, In re Abruzzo, 249 B.R. 78 (Bankr.E.D.Pa.2000); and, In re Serda, 395 B.R. 450 (Bankr.E.D.Cal.2008).
*673I note that nothing in this Opinion should be read to imply whether or not the Debtors’ Amended Plan can be confirmed.
B. Valuation of Wayne Road Property
Three real estate appraisers testified concerning the value of the Wayne Road Property. The Debtors’ appraiser, Thomas R. Donahue, testified first.
Mr. Donahue is a Pennsylvania state certified general appraiser. He also held a real estate broker’s license from approximately 1964 to 1998.
Mr. Donahue testified that he essentially used the comparable sales approach in evaluating the Wayne Road Property. He testified that he developed a cost approach but did not give it much consideration or weight and that he did not develop an income approach. His appraisal report includes three comparable sales with the sales dates ranging from September, 2008, to April, 2010.
Mr. Donahue’s report provides a general description of the Wayne Road Property. The subject property is a 7.49 acre tract, improved with a two-story brick dwelling and six other buildings, including a two-car concrete block garage, an A-frame barn, and structures which were originally built for poultry housing use.
Mr. Donahue testified that, in his opinion, the fair market value of the Wayne Road Property was $350,000.00 as of June 28, 2010.
I would note that I was somewhat disappointed by Mr. Donahue’s appraisal report. The format of the report does not allow for an easy comparison between the subject Wayne Road Property and the comparable sales which are reported. It hás been my experience that it is somewhat customary for appraisal reports to contain a grid which allows for a side-by-side comparison of certain attributes of the subject property with each of the comparable sales. Mr. Donahue’s report lacks such a grid. I was also surprised that Mr. Donahue’s appraisal report does not contain photographs of the improvements on the three comparable sale properties. Also, a total of three sales is a rather narrow basis for a fair market value opinion concerning the Wayne Road Property.
AgChoice called Mr. David Coletta to testify concerning the valuation of the Wayne Road Property. Mr. Coletta is a state certified residential appraiser. Mr. Coletta testified that he, along with John D. Ausherman in his office, prepared a report of their valuation of the Wayne Road Property.
Significantly, Mr. Coletta’s appraisal report indicates on page 3: “The purpose of this appraisal is to estimate the market value of the subject property’s liquidation value, as of December 21, 2010.” At the hearing, the Debtors lodged a “general objection” to Mr. Coletta’s testimony on the basis that he was testifying as to liquidation value as opposed to fair market value.
It bears repeating that the proposed disposition or use of the collateral is pivotal in determining the correct approach to valuation. Here, the Wayne Road Property had been used in the Debtors’ farming operations. In this case, the Debtors’ Amended Plan provides for alternate treatment of the Wayne Road Property. That is, Part III.A. of the Amended Plan provides, in part:
... A. Debtors shall transfer, in kind, the Wayne Road real estate to AgCh-oice, free and clear of all liens, if, but only if, the Court determines the value of this real estate at or above *674Three Hundred Thousand ($300,000.00) Dollars, for this purpose ...
Debtors’ Am. Plan 11. (Emphasis added).
Alternatively, Part III.B. of the Amended Plan provides, in part:
... B. In the event the Court determines the transfer value of Wayne Road is less than Three Hundred Thousand ($300,000.00) Dollars, ... then Debtors will continue their efforts to sell this real estate.
Debtors’ Am. Plan 11-12. (Emphasis added).
Due to the alternate dispositions of the Wayne Road Property provided for in the Amended Plan, I overruled the Debtors’ “general objection” to Mr. Coletta’s opinion concerning the liquidation value of the Wayne Road Property. This is because different dispositions of the collateral require different valuation methods. Generally, when the collateral is surrendered to a secured creditor, like AgChoice, a liquidation value, also referred to as a foreclosure value — rather than fair market value, is utilized. For example, the Bankruptcy Court for the Western District of Missouri considered a secured creditor’s objections to a Chapter 13 debtor’s proposed confirmation modification of her Chapter 13 plan. The Court noted “[t]he appropriate measure of valuation for collateral to be surrendered would be liquidation value at the time of surrender”. In re Hutchison, 449 B.R. 403, 407 (Bankr.W.D.Mo.2011). Also see, In re Barclay, 276 B.R. 276, 280 (Bankr.N.D.Ala.2001); In re Price, 366 B.R. 389, 396 (Bankr.M.D.Pa.2007).
I again stress that I am expressing no opinion as to whether or not the Amended Plan can be confirmed. However, in light of the Debtors’ alternative proposed dispositions of the Wayne Road Property, I find it is appropriate that I make findings as to both the liquidation and the fair market values of the Wayne Road Property.
Mr. Coletta’s own testimony highlights some distinctions between the two approaches to value. He testified:
The two key points that are different with liquidation value than market value are reasonable exposure and undue duress. The property, with it being a liquidation value, isn’t going to be exposed to the market as long as these other sales have been — you’re looking at a quick sale, trying to get rid of something that’s under distress or duress.
Trial Tr. vol. 1, 61, January 13, 2011.
Mr. Coletta testified that he considered utilizing the cost and income approaches to valuation of the Wayne Road Property, but ultimately rejected such approaches. Like Mr. Donahue, Mr. Coletta utilized the comparable sales method. His appraisal report includes three comparable sales with the sales dates ranging from November, 2009, through November, 2010. Page 37 of Mr. Coletta’s appraisal report indicates that three additional sales, which sold between March, 2009, and September, 2009, were also considered as part of the comparable sales approach.
Mr. Coletta’s reports, like Mr. Donahue’s, does not contain photographs of the improvements on the comparable sale properties. Page 35 of Mr. Coletta’s report does contain a grid for side-by-side comparison of certain aspects of the Wayne Road Property with the three com-parables. The grid, for example, shows the distance of the comparables from the Wayne Road Property. The text of Mr. Donahue’s appraisal report shows the approximate distance from Wayne Road for comparable sales one and two but not for comparable number three.
Consistent with a liquidation approach to value, the three comparable sales initial*675ly considered in Mr. Coletta’s report show relatively few days on the market. The days on the market reported are: for comparable sale number (l)-twenty-five days; comparable sale number (2)-four days; and, comparable sale number (3)-six days. Unfortunately, I am unable to discern from Mr. Donahue’s report the days on the market for the comparable sales which he considered. Generally, Mr. Coletta’s comparable sales were somewhat more recent in time than Mr. Donahue’s but I appreciate that adjustments were made by each expert witness at arriving at their final valuation opinions. Mr. Coletta ultimately opined that the liquidation value of the Wayne Road Property, as of December 21, 2010, was $220,000.00.
Don Paul Shearer, called by Scarff Brothers, testified concerning his opinion of the value of the Wayne Road Property.
Mr. Shearer testified that he was not given access to the interior of the property but that he did a “peek-a-boo through the window inspection of the interior”. Trial Tr. vol. 1, 34, January 13, 2011. He also indicated that he took exterior measurements, spoke with the listing realtor, and consulted the tax assessment records for Franklin County. Like Mr. Donahue, Mr. Shearer solely used the sales comparison approach to value concerning the Wayne Road Property.
Mr. Shearer testified that he had great difficulty locating any sales from 2007 to 2010 that he felt were really comparable to the subject property. His appraisal report, which gives an opinion of value as of September 14, 2010, contained four comparable sales. Page 25 of the appraisal report contains a qualitative grid with the comparable sales and the subject property as well as a quantitative grid of the sales comparisons. Essentially, Mr. Shearer calculated the value or price per acre among the comparable sales and the subject property.
Three of the four comparable sales Mr. Shearer considered occurred in 2006; the most recent comparable sale he considered, comparable sale number (2), indicates a sale date of August, 2008. I note that, generally, Mr. Shearer’s comparable sales lack the recency of the comparable sales considered by Messrs. Donahue and Coletta.
Mr. Shearer’s appraisal report does contain photographs of the major improvements on the four comparable sales addressed in the report. Photos of the exterior of the Wayne Road Property are also provided in the report. As noted above, the Wayne Road Property contains 7.49 acres. The comparable sales considered by Mr. Shearer ranged in size from 2 acres to 16 acres. Further, the “price/ acre improved” recorded on page 25 of his report ranges from a low of $19,375.00 to a high of $147,500.00 per acre. Mr. Shearer testified that he made upward adjustments in the subject property because of its location and its “superior utility”. Trial Tr. vol. 1, 43, January 13, 2011. I note that in his testimony, Mr. Shearer outlined what he believed to be allowable zoning uses for the Wayne Road Property. His testimony appeared to concentrate on his perception of the “highest and best use” for the Wayne Road Property rather than the Debtors’ intended use. He testified “... probably the biggest difference in our opinion was just I thought the highest and best use was more heavily towards that type of a semi commercial use.” Trial Tr. vol. 1, 37, January 13, 2011.
Mr. Shearer ultimately opined that the fair market value of the Wayne Road Property, as of September 14, 2010, was $400,000.00. I will ascribe less weight to Mr. Shearer’s opinion of value than I do to *676the opinions of Messrs. Donahue and Co-letta. I do so principally because of Mr. Shearer’s “highest and best use” approach to value and the relative weakness of the comparable sales he considered in arriving at his opinion of value.
Based upon the record presented, I find that the liquidation value of the Wayne Road Property, if surrendered to a secured creditor, is $239,680.00. I further find that the fair market value of the Wayne Road Property, if retained by the Debtors, is $299,600.00.
C. Valuation of Jumper Road Property
I next consider the valuation of the Jumper Road Property. The property contains 28.43 acres; it is improved with the Debtors’ two-story residence as well as a bank barn, several livestock buildings, and sheds which are used in the Debtors’ farming operations. Since the Debtors’ Amended Plan contemplates retention of the Jumper Road Property, with a continuation of the same uses, I find it is appropriate to determine the fair market value of the subject property. It has been held that the fair market value is: “... the price which a willing seller under no compulsion to sell and a willing buyer under no compulsion to buy would agree upon after the property has been exposed to the market for a reasonable time”. In re Serda, 395 B.R. 450, 453-454 (Bankr.E.D.Cal.2008).
Two real estate appraisers testified concerning the value of the Jumper Road Property.
Mr. Thomas R. Donahue was again called as the Debtor’s appraiser. Mr. Donahue testified that he relied most heavily on the comparable sales approach to valuation of the Jumper Road Property. The appraisal report includes three comparable sales, with the dates of sale ranging from August, 2008, to April, 2010. Comparable sales ranged in size from 18.71 acres to 52.99 acres. Again, the subject Jumper Road Property contains 28.43 acres.
Mr. Donahue’s appraisal report for the Jumper Road Property does not contain a grid allowing for easy comparison between the subject Jumper Road Property and the comparable sales which he considered. Also, while the report contains some photographs of the improvements on the Jumper Road Property, it does not contain any photographs of the improvements on the comparable sales which were considered. Mr. Donahue did testify that he made adjustments between the subject property and the comparable sales and that his work papers were available for inspection when he testified.
Mr. Donahue’s written report states a fair market value of the Jumper Road Property, as of July 14, 2010, in the amount of $395,000.00. However, a portion of his testimony appears to indicate a slightly different opinion of value. On direct testimony, he testified “... — I multiplied the 28.43 acres by an indicated per acre value of $13,500, resulting in a rounded value of $384,000.00 for the property”. Trial Tr. vol. 1, 128, January 13, 2011. I note that 28.43 multiplied by $13,500.00 equals $383,805.00. It is also noted that page 25 of Mr. Donahue’s appraisal report for the Jumper Road Property indicates a value by sales comparison approach of $384,000.00.
Mr. Don Paul Shearer was called by Scarff Brothers concerning his opinion of the fair market value of the Jumper Road Property.
Mr. Shearer, like Mr. Donahue, indicated that he preferred the comparable sales approach to valuation of the subject property. Mr. Shearer’s appraisal report included eight comparable sales with the *677sales dates ranging from March, 2006, to June, 2010. The comparable sales ranged in size from 17.86 to 60.57 acres — again, compared to the subject Jumper Road Property which contains 28.43 acres.
Mr. Shearer’s appraisal report includes photographs of the improvements on the comparable sales. I appreciate the inclusion of those photographs which allow for an easier side-by-side comparison between the improvements on the subject property and the improvements on the comparable sale properties.
Page 29 of Mr. Shearer’s appraisal report for the Jumper Road Property contains a “Grid of Improved Sales Data”. It presents in columns the following: each comparable sale, including, the location; the sales price; the sale date; the site size; and, the price per acre received. The grid also includes the range of sales prices for the comparable sales and the range of sales dates, land areas, and prices per acre (as improved) received.
Mr. Shearer testified that, in his opinion, the Jumper Road Property had a fair market value, as of September 14, 2010, in the amount of $500,000.00. This is consistent with the opinion of value stated in his appraisal report dated September 16, 2010.
The quality and condition of the improvements on the Jumper Road Property, particularly the Debtors’ residence, leave me to conclude that the fair market value of the site is toward the higher range of the comparables which were considered by Messrs. Donahue and Shearer.
I conclude that the fair market value of the Jumper Road Property is $475,000.00.
D. Valuation of Big Spring Road Property
The Debtors’ appraiser, Thomas R. Donahue, and Scarff Brothers’ appraiser, Don Paul Shearer, testified concerning the fair market value of the Big Spring Road Property.
The subject property contains 104.24 acres and is improved with an older two-story farmhouse, a bank barn, a silo, and other out buildings and sheds. The Big Spring Road Property is used in the Debtors’ farming operations, and it will generally be retained by the Debtors under the provisions of the Amended Plan. It should be noted that there is an approved seven lot subdivision on the property. The Amended Plan, in Section VI.D., page 17, provides that the Debtors may sell one or more of these lots. Therefore, I find it is appropriate to determine the fair market value of the Big Spring Road Property.
Mr. Donahue testified that, in his opinion, the old farmhouse of the Big Spring Road Property could not presently be occupied. He testified “[tjhere’s a lot of settlement on the left side of the building, it’s probably — it’s probably settled about four to six inches, it’s tilted, and the — you could walk across the floor. If you spilled water on the floor, I’m sure it’d run to that side, and the condition is — overall condition is poor. And probably — possibly should be removed, torn down.” Trial Tr. vol. 1, 99, January 13, 2011.
Mr. Donahue’s appraisal report for the Big Spring Road Property contains three comparable sales. The sales dates range from February, 2007, through September, 2009, and the acreages of the sales range from 105.66 acres to 114.93 acres. Again, the subject Big Spring Road Property contains 104.24 acres. Mr. Donahue’s testimony concerning his appraisal of the Big Spring Road Property was rather truncated. It appears that he again relied most heavily on the comparable sales approach to value. Once again, his appraisal report does not contain any photographs of the improvements on the comparable sale properties. Mr. Donahue did testify that *678the buildings on the comparable sale properties were generally superior to the buildings on the Big Spring Road Property.
On cross-examination, Mr. Donahue was asked about the above referenced seven lot subdivision on the Big Spring Road Property. He testified, “I think the best lots have been sold off.” Further, he added, “[t]here’s no demand for the building lots at this particular time.” Trial Tr. vol. 1, 105 January 13, 2011. Based upon this, Mr. Donahue opined that no present valuation adjustment was required because of the approved subdivision.
Mr. Donahue’s appraisal report for the Big Spring Road Property does not contain a grid allowing for a side-by-side comparison of the comparable sales he considered. Mr. Donahue’s appraisal report expresses an “as is” market value as of July 14, 2010, in the amount of $670,000.00. A portion of his testimony reads “[a]nd the final estimate of value of $6,400 per acre, multiplying that times the 104.24 acres ... results in a value— rounded value of $667,000, that’s the indicated value by the comparable sales approach.” Trial Tr. vol. 1, 101 January 13, 2011. It is noted that 104.24 times $6,400.00 equals $667,136.00.
Mr. Shearer also testified concerning his opinion of the current market value of the Big Spring Road Property. Mr. Shearer’s appraisal report reflects consideration of six comparable sales. The sales dates range from June, 2006, to November, 2009, and the land areas range from 79.79 acres to 143 acres; again, the subject Big Spring Road Property contains 104.24 acres. Mr. Shearer’s appraisal report contains photographs of the improvements on the comparable sales property. Also, page 30 of his appraisal report is headed “Grid of Improved Sales Data”. Similar to his other reports, this provides the same summary data for the comparable sales considered by Mr. Shearer.
Mr. Shearer testified he considered the seven lot subdivision in arriving at his opinion of value. He testified that he agreed with Mr. Donahue’s position and that he did not think that a developer would develop the lots right now. Nevertheless, Mr. Shearer did make an upward value adjustment recognizing some value from the money spent for surveying and for pursuing the subdivision approval process. He testified, “in my opinion, that’s worth something.” Trial Tr. Vol. 1, 111 January 13, 2011.
Mr. Shearer’s appraisal report for the Big Spring Road Property states his opinion that the market value of the property, as of September 14, 2010, was $780,000.00.
I find that the fair market value of the Big Spring Road Property is $725,000.00.
IV. Conclusion
Section 506(a) of the Bankruptcy Code provides that an allowed claim is a secured claim to the extent of the value of the collateral secured by the lien, and an unsecured claim to the extent the value of the collateral is less than the allowed amount of the claim. In re McDonald, 205 F.3d 606, 609 (3d Cir.2000); cert. denied, 531 U.S. 822, 121 S.Ct. 66, 148 L.Ed.2d 31 (U.S.2000); In re Baker, 300 B.R. 639, 643 (Bankr.W.D.Pa.2003); In re Cook, 432 B.R. 519, 522 (Bankr.D.N.J.2010).
The values that I have determined for the Wayne Road Property, the Jumper Road Property, and the Big Spring Road Property may be utilized to determine the extent to which the allowed claims are secured by the properties. As noted in Section II above, by stipulation, the parties labeled as Exhibit “A” a document purporting to set forth the lien priorities against the Debtors’ three real properties.
*679The allowability and amount of certain claims may still have to be determined pursuant to the provisions of § 502. For example, the Debtors’ have outstanding objections to Proofs of Claim 7, 8, and 9, filed by AgChoice; as well as an objection to Proof of Claim 11 filed by Scarff Brothers.
An Order will be entered consistent with the foregoing Opinion.
. Drafted with the assistance of Ryan B. White, Esquire, Law Clerk.
. Unless otherwise noted, all future statutory references are to the Bankruptcy Code, 11 U.S.C. § 101, et seq., as amended by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Pub. L. No. 109-8, 119 Stat. 37 ("BAPCPA”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494407/ | *341
MEMORANDUM OF DECISION
LORRAINE MURPHY WEIL, Chief Judge.
The matter before the court is the above-referenced plaintiffs’1 Amended Complaint (ECF No. 16, the “Amended Complaint”)2 against the'Debtors alleging that a certain state-court judgment (the “State Court Judgment”) in the approximate amount of $196,520.00 is nondis-chargeable pursuant to 11 U.S.C. §§ 528(a)(2)(A) and 523(a)(4).3 This court has jurisdiction over this proceeding as a core proceeding under 28 U.S.C. §§ 157 and 1334 and that certain Order dated September 21, 1984 of this District (Daly, C.J.).4
This memorandum constitutes the findings of fact and conclusion of law required by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
I. BACKGROUND
A. Chapter 13 Case
The Debtors commenced this Chapter 13 case by a petition filed on July 17, 2009. Contemporaneously with the filing of the petition, the Debtors filed their schedules and statement of financial affairs. (See Case ECF No. 1.) On their schedules, the Debtors listed the following assets: joint title to a single family home at 30 North Mark Drive, Oxford, CT (the “House”) with a stated value of $451,000.00; joint title to a time share at “Las Olas Beach Club” with a stated value of $9,000.00; and personal property (some joint, some not) with a stated aggregate value of $130,211.00. (See id.)
On their schedules, among other secured claims the Debtors listed: a first mortgage on the House in favor of Countrywide Home Loans (“Countrywide”) in the amount of $305,512.00 (the “Countrywide First Mortgage”); a second mortgage (the “Countrywide Second Mortgage”, collectively with the Countrywide First Mortgage, the “Countrywide Mortgages”) on the House in favor of Countrywide in the amount of $97,042.00; a “3rd [mjortgage” (the “Valley Bank Subordinated Mortgage”) on the House in favor of Valley Bank in the amount of $38,000.00; and a judicial lien (listed as undisputed, the *342“Judgment Lien”) securing the State Court Judgment in the amount of $196,000.00 (listed as unsecured to the extent of $185,554.00). (See Case ECF No. 1.) The Debtors also listed joint unsecured priority claims (none disputed) in the amount of $50,000.00. (See id.) The Debtors further listed general unsecured claims (some joint and some not and none disputed) in the aggregate amount of $83,895.00. (See id.) The Debtors claimed various exemptions in property, including an exemption under 11 U.S.C. §§ 522(b) and 522(d)(1) with respect to the House. (See id.) On their Schedule I (Current Income of Individual Debtors), (a) Michael listed his occupation as an “Electrical Engineer” who had been employed by Conveyco for six years as of the petition date,5 (b) Karen stated that she had been employed by “The Hartford” in some unspecified position for eight years as of the petition date,6 and (c) the Debtors aver (as of the petition date) aggregate net monthly take home pay in the amount of $8,668.00. (See Case ECF No. 1.) On their Schedule J (Current Expenses of Individual Debtors), the Debtors aver average aggregate monthly expenses in the amount of $6,873.00. (See id.) At least from the time of the Debtors’ marriage, Karen’s autistic son (19 years old as of the petition date) from a prior marriage lived with the Debtors. (See id; see also ECF No. 57 at 39:11-19 (Karen’s testimony).)
On September 2, 2009, the Debtors amended their Schedule F to include additional “Joint Business Debt” in the aggregate amount of $39,841.29. (See Case ECF No. 29.) On October 27, 2009, after notice and a hearing (and without objection) an order entered avoiding the Judgment Lien pursuant to 11 U.S.C. § 522(f). (See Case ECF Nos. 28, 36.) Nevertheless, on or about November 13, 2009, the Chapter 13 trustee (the “Trustee”) filed a proof of secured claim in the name of the Plaintiffs in the amount of $196,000.00 with respect to the Judgment Lien. (See Claims Register (Claim No. 24-1).) The Plaintiffs did not file their own proof of claim. (See Claims Register.) The Trustee also filed a proof of secured claim in the amount of $3,000.00 in the name of Valley Bank for “mortgage arrearage” (presumably with respect to the Valley Bank Subordinated Mortgage). (See Claims Register (Claim No. 23-1).)
On September 4, 2009, the Debtors filed a “1st Amended Chapter 13 Plan.” (See Case ECF No. 31, the “Plan.”) Among other things, the Plan proposes to make monthly payments to the Trustee in the amount of $1,193.00 for 60 months. (See id.) The Plan proposes distributions to priority and secured creditors. (See id.) The Plan proposes to treat the State Court Judgment debt as a general unsecured claim. (See id.; see also Case ECF No. 36.) Unless the “estate is found to be solvent,” the Plan proposes that no distributions be made to the class of the holders of general unsecured claims. (See Case ECF No. 31 at 2.) Confirmation proceedings in respect of the Plan have been continued on several occasions and, as of *343the date hereof, remain pending.7
B. Adversary Proceeding
This adversary proceeding was commenced by the filing of the Original Complaint on October 18( 2009. The Amended Complaint was filed on December 4, 2009. Very broadly put, the Amended Complaint alleges that the State Court Judgment debt is nondischargeable under 11 U.S.C. § 523 because the judgment arose out of a scheme by the Debtors to use Mother’s money to build a new home (i.e., the House) for themselves and/or otherwise to misappropriate Mother’s money under the pretext of building an apartment (the “Apartment”) in the House for Mother. The Debtors’ “Answer and Affirmative Defenses” was filed on December 31, 2009. (See ECF No. 29.) The “Answer and Affirmative Defenses” alleged two affirmative defenses: that the Plaintiffs’ claims “are barred by the doctrine of collateral estoppel, as the issues have been actually litigated and finally determined by the Connecticut Superior Court,” (ECF No. 29 at 5); and that Plaintiffs’ claims “fail to state a claim upon which relief can be granted,” (id.). The Plaintiffs filed a “Reply to Affirmative Defenses” denying the referenced affirmative defenses. (See ECF No. 31.)
The Amended Complaint came on for trial (the “Trial”) on February 9, 2010. By stipulation of the parties, transcripts of the S.C. Trial (as hereafter defined) and exhibits admitted into evidence at the S.C. Trial were admitted into evidence at the Trial. (See ECF No. 57 at 6-7.)8 The parties also agreed that certain documents would be admitted post-trial: a further decision (ECF No. 46 (attached “Order” dated March 16, 2009, the “Interest Order”))9 by the Superior Court awarding prejudgment interest on the State Court Judgment in the amount of $16,520.00; a subsequent decision (ECF No. 61 (attachment), the “Stay Decision”) of the Superior Court granting the Plaintiffs partial relief from the state-law automatic stay pending appeal; and a transcript of Mother’s deposition testimony taken on September 25, 2008 in connection with the Superior Court action (the “State Court Action”) (see ECF No. 71).
Both sides introduced additional exhibits into evidence at the Trial by stipulation. (See ECF No. 57 at 6.)10 The Debtors testified for themselves at the Trial, and Mother testified for the Plaintiffs. At the *344conclusion of the Trial, the court took the matter under advisement subject to supplementation of the record (as aforesaid) and post-trial briefing. Post-trial briefing 11 and supplementation is complete and the matter is ripe for written disposition.12
II. FACTS
Mother was born on March 3, 1936. (See ECF No. 16 at 1; ECF No. 29 at 1.) Mother had a stroke in May of 2004. (See ECF No. 57 at 63:4 (Mother’s testimony).) The stroke left Mother with some physical impairments to her left side and some memory issues. (See 11/19/08 S.C. Tr. at 122:10-15 (Mother’s testimony).) After a brief stay in the hospital and in a rehabilitation facility (see id. at 112:11-17 (Mother’s testimony)), in July of 2004 Mother took up residence at Sunrise Assisted Living (“Sunrise”) in West Babylon, New York (see ECF No. 57 at 63:5 (Mother’s testimony); see id. at 112:18 (Mother’s testimony)). Mother’s son John Kier (“Brother”) selected Sunrise and installed Mother there. (See ECF No. 57 at 87:23 (Karen’s testimony).) Mother testified at the Trial that she “loved” it at Sunrise. (See ECF No. 57 at 68:18-19 (Mother’s testimony).) However, Mother testified at the S.C. Trial that she had become tired of communal living. (See 11/19/08 S.C. Tr. at 125:7-10 (Mother’s testimony).) Karen also testified at the S.C. Trial that Mother was unhappy at Sunrise because she was so much younger than the rest of the residents. (See 11/21/08 S.C. Tr. at 8:18-25 (Karen’s testimony).)
For five months prior to having the stroke, Mother lived with Brother in Long Island, New York at his house. (See 11/19/08 S.C. Tr. at 107:8-10, 108:21-22 (Mother’s testimony).) Prior to that, Mother lived by herself in a house in West Babylon; she sold her house in late 2003. (See id. at 82:14-27 (Mother’s testimony).) While Mother was living with Brother, she, Brother and his wife discussed a plan to build an apartment for Mother in the lower (split) level of his house. (See id. at 109:2-110:1 (Mother’s testimony).) Until she had the stroke, Mother still was working full time as a recreational therapist at a nursing home. (See id. at 107:16-108:20 (Mother’s testimony).)
Mother received approximately $300,000.00 in net proceeds from the sale of her former home. (See ECF No. 57 at 82:22-25 (Mother’s testimony).) Those sale proceeds went into a savings account (the “Astoria Bank Savings Account”) with Astoria Federal Savings Bank (“Astoria Bank”). (See Plaintiff Exh. HH.) For many years, Mother maintained a joint checking account with Karen at Astoria Bank (the “Astoria Bank Checking Account”) and Bank of America. (See ECF No. 16 at 2; ECF No. 29 at 2.) The Astoria Bank Savings Account also was held jointly by Mother and Karen. (See Plaintiff Exh. HH; ECF No. 57 at 45:9-12 (Karen’s testimony).) For some period after her stroke, Mother continued to write checks on her accounts and keep track of her finances. (ECF No. 57 at 71:1-6 (Mother’s testimony).) However, in Octo*345ber of 2004, Karen “took over” that function for Mother “because ... [Karen] realized that [Mother] wasn’t handling it well and ... [Karen] took it over to help ... [Mother].” (11/19/08 S.C. Tr. at 160:25-161:1 (Mother’s testimony).)
During the latter half of 2004, Karen began to be concerned about Mother’s finances. Karen suggested to Mother that “you’re not making anything on your money, and Mike has a place up here in Connecticut and he’s doing well with his, what if we take some of your money [from the Astoria Savings Account] and put it in that bank,” (ECF No. 57 at 69:21-70:1 (Mother’s testimony)). Mother agreed to the foregoing. (See Debtor Exh. 1 at tab 24 ¶ 4 (Mother’s Affidavit).) As a result, $100,000.00 was transferred from the Astoria Bank Savings Account to a joint money market account (between Mother and Karen) (the “Charter Money Market Account”) at Charter One Bank (subsequently known as Citizens Bank of Connecticut, “Citizens Bank”) on or about October 12, 2004. (See Plaintiff Exhs. HH, II.)13 Karen also opened a joint checking account with Mother (the “Citizens Account”) at Citizens Bank.14 (See Plaintiff Exh. HH.)
Karen also began to worry that Mother (who was only 68 years old at the time) would outlive her savings:
Before ... we considered a move up here, one of the things we did go over is the cost of assisted living. She was paying between 36 and 3700 dollars a month for rent only, and that didn’t include ... her [medical] expenses.... So at that point we figured based upon the money that she had in the bank, ... if she stayed there continuously, she’d probably make it to 75 years old, and then she’d be completely out of cash.
(ECF No. 57 at 87:4-14 (Karen’s testimony).) 15 Mother understood the situation. (See id. at 87:15-17 (Karen’s testimony).)16 “Early [in] 2005, Karen asked ... [Mother] to think about what would happen if ... [Mother] had another stroke and could not communicate so ... [Mother] executed a [durable general] power of attorney [the Tower of Attorney’] to Karen ... and [Sister] ... on the 16th day of March 2005.” (Debtor Exh. 1 at tab 24 ¶ 7.)17
In 1985 (before he started dating Karen in 1999), Michael purchased the building lot (the “Lot”) on which ultimately the House was built. (See ECF No. 57 at 12:17 (Michael’s testimony).) “The purpose of the [L]ot always was to build a house on it.” (Id. at 13:3^4 (Michael’s testimony).) In 2004, Michael owned a house in Wolcott, Connecticut. (See id. at: 13:13-14 (Michael’s testimony).) At around the time Michael put that house up for sale (ie., March of 2004), he began looking for builders for the House. (See id. at 13:12-16 (Michael’s testimony).) Michael selected Brookstone Development (“Brookstone”) to build the House on the Lot. (See ECF No. 57 at 13:16-25 (Mi*346chael’s testimony).) He selected Brook-stone “Model Number 816.... [Brook-stone] has kind of a base price of around 300 to 350,000 dollars for that home [without a finished basement],” {id. at 14:19-22 (Michael’s testimony)). With his other funds, after the sale of his Wolcott home Michael had about $150,000.00 to put into the House if he wanted to do so. {See 11/19/08 S.C. Tr. at 10:17-19 (Michael’s testimony).) Michael and Brookstone took some preliminary steps towards bringing the House to fruition on the Lot such as digging some test wells on the Lot, and figuring out where the House was going to be situated on the Lot. {See ECF No. 57 at 15:1-5 (Michael’s testimony).) Michael and Brookstone “went through the entire process, and then ... [Brookstone] began drafting a contract [without the Apartment],” {id. at 15:6-7 (Michael’s testimony)). However, the process came to a temporary halt when the idea of the Apartment first was suggested. {See id. 15:8-23 (Michael’s testimony).)
Karen and Michael were married on April 23, 2005. {See ECF No. 57 at 37:25-3 8:1 (Michael’s testimony).) It is unclear when Karen and Michael became engaged to be married, but they were engaged to each other at least from the relevant events of 2004. {See, e.g., id. at 19:2-16 (Michael’s testimony).) Karen had no legal interest in either the Lot or the House until Michael quitclaimed such an interest (with right of survivorship) to her on May 3, 2005 (shortly after they were married). {See Plaint. Exh. V.)
It is disputed as to who first suggested the idea of the Apartment: Karen or Mother. Karen testified as follows: “My mother had known that we were engaged and we were looking to build a house, so she had come to me and asked me if I would consider the deal that she had originally had with ... [Brother].” (ECF No. 57 at 40:11-18 (Karen’s testimony).) Karen further testified that she obtained Michael’s approval after she discussed the matter with Mother. {See ECF No. 57 at 41:2-5 (Karen’s testimony); see also id. at 15:19-16:23, 18:3-20 (Michael’s testimony).) Mother testified to the contrary:
[I]t was on one visit when they were in the process of building the house, and [Karen and/or Michael said] ... it’s costing too much money for you to live here, which ... is in assisted living.... [And Karen and/or Michael said] would you consider ... finishing an apartment down in our house downstairs, lower level, while it’s in the process of being built, it’s better to do it now than to have the house built and then think about doing it.
(11/19/08 S.C. Tr. at 87:13-23 (Mother’s testimony).) On balance, the court finds it more probable than not that Karen’s recollection on this point is more accurate than Mother’s.18
Both parties agree that Mother agreed to the idea of the Apartment, the concept being that Mother “would pay for what ... [she] needed in the ... [A]partment, and ... [Mother] would live there the rest of ... [her] life.... That would be whatever they needed to fix up the ... [A]partment in the lower level,” (ECF No. 57 at 66:4-10 (Mother’s testimony)). “The discussions were that ... [Mother] would pay the offset costs for the [A]partment, and ... [the Debtors] would act as the general contractor.” (11/20/08 S.C. Tr. at 76:11-13 (Michael’s testimony).) Moreover, Mother would fund her own living expenses while living in the Apartment. {See 11/19/08 S.C. Tr. at 96:11-12 (Mother’s testimony).) *347The understanding of the parties in respect of the Apartment never was reduced to writing.
The parties disagree as to whether the Debtors gave Mother any idea what finishing the Apartment would cost. Mother says that they did not. (See, e.g., ECF No. 57 at 64:21-23) (Mother’s testimony). Michael testified: “I discussed it pretty thoroughly with the builder.... We had a figure that we were willing to put on a contract, and I brought that figure down [to Sunrise], and we discussed it with ... [Mother].... The total house would have been $480,000 [including $150,000.00 for Apartment construction costs].... ” (Id. at 20:25-21:8 (Michael’s testimony).)19 The court finds Michael’s testimony to be more persuasive than Mother’s on this point. Moreover, Mother previously had estimated the cost of the smaller proposed apartment with Brother to be approximately $100,000.00. (See 11/19/08 S.C. Tr. at 110:15-111:1 (Mother’s testimony).) Accordingly, the court finds that Mother reasonably should have expected that finishing the Apartment would cost her in the neighborhood of $150,000.00.20
The parties also disagree as to whether the Debtors were to pay Mother back for the Apartment construction costs which she had funded. In an affidavit filed in the State Court Action, Mother averred that “Karen told me ... ‘we are going to take some of your money [for the Apartment] and we will put it back,’ ” (Debtor Exh. 1 at tab 24 ¶ 5). That alleged statement by Karen also appears in paragraph 3 of the Amended Complaint. (See ECF No. 16 ¶ 3.) However, that allegation was denied by the Debtors in the Answer. (See ECF No. 29 ¶ 3.) Mother testified at the S.C. Trial about her tentative arrangement with Brother for an apartment in his house which arrangement allegedly contained a “pay-back” concept:
[Brother] and his wife, their idea was that they would borrow from me X amount of dollars to put this apartment on, and then they will pay me rent until ... this bill is paid off_And should ... I have died ..., they would automatically pay off whatever is left, and that would go to my estate, and of course, would go back to the three ... [siblings].... [21] So, in essence, it wasn’t going to cost me anything.... [T]he apartment would be theirs to begin with, it would never be mine.
(11/19/08 S.C. Tr. at 110:5-14, 111:18-19 (Mother’s testimony).) At the Trial, Karen denied that there was a pay-back feature to the agreement with Mother in respect of the Apartment. (See ECF No. 57 at 41:25^42:5 (Karen’s testimony).) The court finds Karen’s testimony to be more persuasive on that point than Mother’s testimony, and finds that there was no pay-back feature to the arrangement among Mother, Karen and Michael in respect of the Apartment.
Karen “called ... [Mother] right before the contract [for the House with the Apartment] was signed because ... [Karen] wanted to just make sure that we were all on the same page and that ... [Mother] *348still wanted this. And she said yes, she was interested, and ... [Michael] went forward and signed the contract,” (ECF No. 57 at 42:9-14 (Karen’s testimony)). Michael signed the contract (the “Brook-stone Contract”) with Brookstone for the House with the Apartment22 on or about November 20, 2004. (See Debtor Exh. 1 at tab 1.)
The Brookstone Contract provided for the following purchase price and payment schedule:
A. Deposit Upon Owner Signing
Contract: $ 48,000.00
B. Funds Disbursement Schedule:
1. Completion of Foundation
(15%) $ 72,000.00
2. All framing complete (20%) $ 96,000.00
3. Rough mechanicals & insula-
tion (25%) $120,000.00
4. Drywall Exterior & trim
(25%) $120,000.00
5. Final (15%) due upon issu-
ance of C/O and substantial completion $ 24,000.00
TOTAL CONTRACT PRICE: $480,000.00
(Id. at 2.) The parties discussed and Mother knew that Karen was going to withdraw money from the joint accounts to pay for the expense of finishing the Apartment. (See 11/19/08 S.C. Tr. at 89:23-26 (Mother’s testimony); see also ECF No. 57 at 52:18-25 (Karen’s testimony).) Mother testified that such withdrawals were “a given,” (ECF No. 57 at 73:18-23 (Mother’s testimony)). Mother knew that her contribution to the Apartment construction costs would be the first monies committed to constructing the House:
[Mother and I] discussed in advance that she was going to pay for her apartment as the construction in the beginning of it because ... [Michael and I] were on the hook for $150,000 for this apartment. So at that time she knew that I’d be writing these checks, and we ... discussed it at that point....
(ECF No. 57 at 52:18-25 (Karen’s testimony).) The court finds Karen’s testimony on the foregoing points more persuasive than Mother’s contrary testimony on those points.
As of the early fall of 2004, Mother had assets worth approximately $379,000.00. (See 11/20/08 S.C. Tr. at 9:15-26 (Sister’s testimony).) Karen made the initial $48,000.00 deposit due under the Brook-stone Contract by transferring funds from the Astoria Bank Savings Account to the Astoria Bank Checking Account; a check dated November 23, 2004 in the amount of $48,000.00 then was drawn by Karen in favor of Brookstone on the Astoria Bank Checking Account. (See Debtor Exh. 1 at tab 24 ¶ 6; Plaint. Exh. B.) On April 12, 2005, $81,000.00 was transferred from the Astoria Bank Savings Account to the Astoria Bank Checking Account. (See Debtor Exh. 1 at tab 24 ¶ 8.) Two checks dated April 12, 2005 were drawn by Karen in favor of Brookstone from the Astoria Bank Checking Account in the following amounts: $6,660.00 and $72,000.00. (See id.; see also Plaint. Exh. C.)23 A further check was written by Karen off the Citizens Account to Brookstone: a check in the amount of $26,056.00 dated March 4, 2006. (See Plaint. Exh. E.) Thus, the aggregate face amount of checks (“Brook-stone Checks”) written by Karen to Brook-stone off the Astoria Bank Checking Ac*349count and the Citizens Account was $152,716.00. (See Plaint. Exhs. B, C and E.) Another cheek written by Karen off the Citizens Account was a check (“The Kitchen Company Check”) dated December 12, 2005 payable to “The Kitchen Company” in the amount of $20,892.00. (See Plaint. Exh. D.) The Kitchen Company Check was with respect to the Debtors’ kitchen in the House, not Mother’s kitchen in the Apartment. (See 11/19/08 S.C. Tr. at 26:17-21 (Michael’s testimony).) As to the remaining checks (the “Other Checks”) written by Karen off the Citizens Account from March 18, 2006 through February 23, 2007, checks in the aggregate amount of $34,717.00 were written by Karen to payees other than Brookstone or The Kitchen Company. (See Plaint. Exh. HH.) The Other Checks are discussed more fully in part IV.B.3, infra.
On or about July 2, 2004, Michael took out a $100,000.00 mortgage (ie., the Valley Bank Subordinated Mortgage) on the Lot with Valley Bank. (See Plaint. Exh. Q (Schedule B — Section II to “Stewart Title Guaranty Company Commitment”).) That mortgage was unrelated to the construction of the House. Rather, that loan “[was part of a business venture that ... [Michael] was entering into with a partner. In order to secure a $100,000 business loan, both ... [the] partner and ... [Michael] had to provide $100,000 of collateral to that loan.]” (11/19/08 S.C. Tr. at 5:18— 21 (Michael’s testimony).)
On or about May 3, 2005, Michael and Karen took out a $300,000.00 construction mortgage (the ‘Valley Bank Construction Mortgage”) loan with Valley Bank. (See id. at 21:8-11 (Michael’s testimony).) The Valley Bank Construction Mortgage had an adjustable interest rate, not a fixed rate. (See ECF No. 57 at 24:4-7 (Michael’s testimony).) Michael and Karen intended to replace the Valley Bank Construction Mortgage with a fixed-rate mortgage at some point in the future. (See id. at 24:10-13 (Michael’s testimony).)24 Credit under the Valley Bank Construction Mortgage was extended in its full amount of $300,000.00. (See id. at 24:16-22 (Michael’s testimony).)
Michael testified at the Trial that total construction costs for the House aggregated approximately $630,000.00. (See ECF No. 57 at 28:9-15 (Michael’s testimony)); see also Debtor Exh. 1 at tab 27 ($630,-560.25 total).25 Michael did some of the work himself and bought relevant supplies at “Home Depot and Lowe’s,” (ECF No. 57 at 28:11-13 (Michael’s testimony)). Michael testified at the Trial that Mother contributed “about $173,000” to the project for the Apartment. (See id. at 28:19-22 (Michael’s testimony).) The balance of the $630,000.00 construction costs beyond the proceeds of the Valley Bank Construction Mortgage and Mother’s $173,000.00 contribution came from Michael’s funds. (See ECF No. 57 at 29:12-17 (Michael’s testimony).) That consumed all or a significant portion of Michael’s $150,000.00. (See 11/19/08 S.C. Tr. at 40:23-25 (Michael’s testimony).) The court credits Michael’s testimony on all of the foregoing.
Karen and Michael gave Mother pictures of the outside of the House while it *350was under construction. {See 11/19/08 S.C. Tr. at 126:26-127:3 (Mother’s testimony).) However, Mother never actually saw the House until she moved into the Apartment. {See id. at 88:21-89:1 (Mother’s testimony).) Mother testified as to the reason for that: “But I couldn’t go up there to see it, because it was winter, and it was snow, and when it wasn’t snow it was all mush on the ground because it hadn’t been completed yet, and there was no way for me to get into the house in this condition.” {Id. at 88:21-25 (Mother’s testimony).)
The Apartment was to be a full apartment with a full bath, a kitchen and a living area. {See 11/19/08 S.C. Tr. at 124:12-18 (Mother’s testimony).) The finished Apartment contained 945 square feet, also had a gas-fired fireplace, a bedroom and “everything to accommodate an individual’s living and [was] very nicely done,” (11/20/08 S.C. Tr. at 28:14-15, 30:22-26 (testimony of Andrew Carbutti (the Debtors’ appraiser witness)); see also 11/19/08 S.C. Tr. at 128:9-14 (Mother’s testimony)). Michael and Karen devoted a great deal of thought and care to making the Apartment suitable for Mother. The plans for the original House were changed substantially to specially accommodate the construction of the Apartment, including: using lever operated lock units on the door knobs so they were easier for Mother to operate; picking out special nonslip linoleum flooring for the kitchen; using a low pile Berber carpet for the remainder of the Apartment because Mother used a walker; outfitting the walls with 2 by 8 framing boards, horizontally, at 36 and 52 inches to accommodate grab bars; using foam insulation on the walls with the grab bar equipment; installing a French double door which opened to the back of the house in case Mother needed to get out quickly or be taken out of the house quickly; designing an angled wall through the walkway so that if Mother later became bedridden, a hospital bed on wheels could rotate to move her from her bedroom to the main portion of the Apartment; designing the bathroom wide enough to accommodate a wheelchair; installing a low step shower with a seat so it was easier for Mother to get in and out; designing an additional drain in the bathroom which would allow for relocation of the shower in case Mother needed additional help while using the bathroom at a later stage in her life; installing pullout drawers on all of the cabinets rather than shelves; designing the kitchen so that a wheelchair could go right up to the sink; and generally making the Apartment handicapped equipped and accessible. {See 11/20/08 S.C. Tr. at 77:18-79:12 (Michael’s testimony).)
The Apartment added to the cost of the original House in other ways. For example, in light of the addition of the Apartment, the Planning and Zoning Commission required Michael to build a septic system that was suitable for a five-bedroom home (instead of the smaller three-bedroom size system for the original House as planned). That larger system also required a system redesign by ASW Consulting and additional percolation tests. Michael was financially responsible for all of those additional costs. {See 11/20/08 S.C. Tr. at 81:21-82:27 (Michael’s testimony).) Moreover, certain changes had to be made to the original House plumbing to accommodate the Apartment. {See id. at 109:16-110:7 (Michael’s testimony); see also id. at 103:12-104:25, 106:8-11 (Michael’s testimony as to certain other changes).) In all, the Apartment added approximately $188,000.00 to the cost of the House. {See Plaint. Exh. N ($188,-040.00 total added cost).)
Approximately an additional $32,000.00 went for furnishing the Apartment:
*351[The money was] for furnishing the apartment because ... when ... [Mother] had sold her house she sold everything. And when she lived ... [at Sunrise] all she had was a twin bed [which she gave away], a rocker chair [which she gave away] and a dresser.... So ... [Karen and Michael] completely furnished. [They] ... bought furniture, appliances, the countertops, the bathroom needs ... fixtures put into there, carpeting, her bed [collectively, the “Furnishing Costs”].
(ECF No. 57 at 46:11-23 (Karen’s testimony).) The Furnishing Costs were put on Karen’s debit and credit cards and Karen later reimbursed herself out of the Citizens Account for the Furnishing Costs. (See id. at 47:4-14 (Karen’s testimony).) Karen’s ability to account for that $32,000.00 was made “very difficult” because she had not expected Mother to leave with the box of receipts as she did (see below). (See ECF No. 57 at 49:19-50:21 (Karen’s testimony).)
Some retrofitting (the “Chair Lifts”) was required for the stairs after Mother moved in. Michael did most of that himself:
I installed two chair lifts in the stairwell. Initially, ... Mother ... said that she was okay walking stairs.... I had a set of stairs put in with a landing, instead of one long staircase, we put it in with a landing. When we got her moved in, we found that she was not capable of walking the stairs, and we actually wound up having to put in two chair lifts ... to accommodate the configuration of the stairs.... I purchased them ... [and] had them delivered.... I purchased the aluminum extrusions that they ride on. They then have to be custom fit.... I had to have them custom machined ... and ... I put them on the stairs, wired them in, and basically installed them. (11/20/08 S.C. Tr. at 79:19-80:10 (Michael’s testimony).)
While Mother lived with the Debtors, the Debtors paid for certain of Mother’s living expenses (including prescriptions). (See, e.g., Debtor Exh. 1 at tab 17, 17a (receipts).) Mother was aware that the Debtors were utilizing their personal funds for that purpose and Mother said to be “sure ... [to pay yourselves] back.” (11/20/08 S.C. Tr. at 144:26-145:1 (Michael’s testimony).)
It is undisputed that Karen and Michael never offered Mother an interest of record in the House or encouraged Mother to talk to a lawyer, and that Mother never asked for either. Mother moved into the Apartment in October of 2006. (See Debtor Exh. 1 at tab 24 ¶ 15.) At the Trial, Mother complained that the Apartment was in the “cellar” (she may not have understood that the Apartment was at a below-grade level). (See, e.g., ECF No. 57 at 64:15-18 (Mother’s testimony).) However, at the Trial Mother conceded that the Apartment was “beautiful,” (id. at 79:25-80:2 (Mother’s testimony); see also 11/19/08 S.C. Tr. at 97:1-5 (Mother’s testimony)). In fact, when Mother first moved into the Apartment, she was “thrilled” with it and called all her friends to tell them how much she liked it. (See id. at 134:15-21 (Mother’s testimony).)
Mother concedes that she “wasn’t ... treated badly” by the Debtors when she lived with them. (See 11/19/08 S.C. Tr. at 137:23 (Mother’s testimony).) However, Mother expected substantially more interaction with the DePinna family than she believed she got, and was unhappy when she did not get it. (See Debtor Exh. 1 at tab 24 ¶ 15.) For example, Mother knew that Michael and Karen were employed full time (although Karen had Fridays as a work-at-home day). (See 11/19/08 S.C. Tr. at 125:11-19 (Mother’s testimony).)
*352“[Mother and Karen] used to like to hang out, go to lunch or something like that, and ... [Mother] assumed that ... on Fridays ... [she and Karen] would do that or go to the store or something like that.” (Id. at 148:15-18 (Mother’s testimony).) That did not happen (see id. at 148:19-24 (Mother’s testimony)), and “that hurt [Mother],” (id. at 148:24 (Mother’s testimony)).26 On the other hand, Karen did not appreciate fully what she was taking on when she had Mother come live with Michael and her. For example, Karen had trouble dealing with Mother’s medical appointments. (See id. at 100:23-26 (Mother’s testimony).) Mother came to feel that Karen believed that she “had made a mistake” in having Mother come live with the Debtors. (See id. at 101:13-14 (Mother’s testimony).)
Mother became increasingly uncomfortable living in the House and made the decision to return to Sunrise. (See 11/19/08 S.C. Tr. at 101:8-10, 102:20-24 (Mother’s testimony).) Mother began to ask for an accounting of her money. (See id. at 152:17-22 (Mother’s testimony).) In response, Karen brought Mother a carton of receipts and other records in respect of Mother’s finances. (See id. at 153:3-8 (Mother’s testimony).) Mother did not look through the carton but unexpectedly took it with her when she left Connecticut, after which she “packed [it] away somewhere.” (Id. at 153:9-19 (Mother’s testimony).) The Debtors did not have access to the carton and/or its contents when they tried to do a subsequent accounting. (See ECF No. 57 at 49:25-50:21 (Karen’s testimony).) Mother inquired of Michael as to financial “exit strategies,” and was dismayed to discover that there were none. (See e.g., 11/19/08 S.C. Tr. at 40:14-20 (Michael’s testimony);27 11/20/08 S.C. Tr. at 121:21-25 (Michael’s testimony).)28 Nevertheless, in or about March of 2007 Mother moved back to Sunrise. (See 11/19/08 S.C. Tr. at 96:2-4 (Mother’s testimony).) It appears that the parties have not spoken to each other since Mother moved out of the Apartment. (See 11/21/08 S.C. Tr. at 55:8-19 (Karen’s testimony) (The day Mother left was “the last time any of us ever spoke.”).) The Debtors did not put the Apartment to any meaningful use after Mother left, nor did they try to rent it. (See 11/20/08 S.C. Tr. at 123:9-23 (Michael’s testimony); 11/21/08 S.C. Tr. at 55:20-56:6 (Karen’s testimony).)
In July of 2007, the Debtors applied to Countrywide to refinance the Valley Bank Construction Mortgage. (See ECF No. 57 at 24:19-22 (Michael’s testimony).) The Countrywide First Mortgage had a fixed rate of interest of 6.375% per annum and was in the original amount of $310,500.00. (See Plaint. Exh. P (Note).) Of that $310,500.00, $295,000.00 was to pay off the Valley Bank Construction Mortgage, and approximately $15,000.00 was for “points.” (See ECF No. 57 at 24:22-25:1 (Michael’s testimony).) At substantially the same time, the Debtors also applied for the Countrywide Second Mortgage in the orig*353inal amount of $99,000.00 (see Plaint. Exh. Q (Subordination Agreement); Plaint. Exh. O) for the following reasons:
[Michael] had been attempting to open a business while ... [Michael] was building the [H]ouse. It fell into a number of problems and delays. [Michael] ... had some business debt in the form of credit card debt, about $45,000 worth. [The Debtors] ... also had some back taxes that were owed because, while [they] ... were building ... [the House], the Town was sending the tax bills to [Michael’s] ... home in Wolcott, which [he] ... didn’t live there anymore. So [the Debtors] ... didn’t get any of these bills. [The Debtors] ... amassed about $12,000 in back tax debt as well. So [Michael] ... wanted to get those cleared up as well.
[Michael] ... spoke to Countrywide .... They recommended that, to take out a home equity loan. The [HJouse had appraised for $560,000 [sic]. So [the Debtors] ... weren’t encumbering the entire thing. And [Countrywide] ... recommended [Michael] ... take out an additional hundred thousand dollars in a home-equity loan.
(ECF No. 57 at 25:2-20 (Michael’s testimony).) Various of the debts referred to above were paid off at closing. (See Plaint. Exh. Q (proposed HUD 1 Settlement Statement Attachment); Plaint. Exh. P (Settlement Statement).) However, the Valley Bank Subordinated Mortgage was not paid off at the closing but, rather, was subordinated to the two Countrywide Mortgages pursuant to a Subordination Agreement dated August 27, 2007. (See Plaint. Exh. Q.)
On or about September 17, 2007, the Plaintiffs commenced the State Court Action against the Debtors. (Cf ECF No. 16 ¶ 8.)29 The Plaintiffs sought a prejudgment remedy of attachment (the “PJR Application”) against the House. (See Debtor Exh. 1 at tab 24.) The Debtors applied for the Countrywide Mortgages before the original complaint in the State Court Action and the PJR Application had been served upon them. (See ECF No. 57 at 26:15-20 (Michael’s testimony).) There were “a number of delays” in closing the Countrywide mortgage loan transactions and those transactions did not close until early October, 2007 (i.e., after the PJR Application was served but before such relief was granted). (See id. at 26:23-27:5 (Michael’s testimony).)
The S.C. Trial was a bench trial held over three days. (See Debtor Exh. 2.) At the S.C. Trial, Mother, the Debtors, Sister and Mr. Andrew Carbutti testified (among other witnesses). (See id.) Mr. Carbutti testified for the Debtors. (See 11/20/08 S.C. Tr. at 23 et seq.) Mr. Carbutti at that time was a certified general real estate appraiser. (See id. at 23:15 (Mr. Car-butti’s testimony).) He had appraised the House for Countrywide in July of 2007. (See id. at 24:9-14 (Mr. Carbutti’s testimony).) 30 He appraised the House at $546,000.00 at that time. (See id. at 31:9-11 (Mr. Carbutti’s testimony).) Because of then-current market conditions, Mr. Carbutti appraised the House at $516,000.00 for the Debtors as of the time of the S.C. Trial. (See id. at 27:14-15 (Mr. Carbutti’s testimony).) Mr. Carbutti valued the Apartment as a “finished base*354ment” to the House. (See id. at 28:9-30:10 (Mr. Carbutti’s testimony).) He did not value the Apartment as a potential rental unit because he believed that such use would be contrary to applicable Oxford zoning regulations. (See id. at 37:22-38:3 (Mr. Carbutti’s testimony).) As a finished basement, Mr. Carbutti opined that the Apartment added only $4,725.00 in value to the House. (See id. at 30:12-18 (Mr. Carbutti’s testimony).) The court credits Mr. Carbutti’s opinions.31
Sister also testified for the Plaintiffs at the S.C. Trial. Among other testimony she testified that, as of the time of the S.C. Trial, Mother had virtually no money left other than a $663.42/month pension and Social Security benefits in the amount of $957.10/month. (See 11/20/08 S.C. Tr. at 11:2-8, 21-23 (Sister’s testimony).)32 At the time of the S.C. Trial, Mother still was living at Sunrise (although in lesser accommodations). (See 11/19/08 S.C. Tr. at 139:20-23 (Mother’s testimony).)
On or about February 13, 2009, the Superior Court issued a decision (Debtor Exh. 4, the “Original Decision”) ordering entry of judgment for the Plaintiffs in the amount of $180,000.00. (See id.)33 On or about March 16, 2009, the Superior Court issued the Interest Order which awarded prejudgment interest in the amount of $16,520.00 on the judgment pursuant to Section 52-192a of the Connecticut General Statutes. (See ECF No. 46 (attachment).) Some time prior to June 9, 2009, the Debtors took an appeal (the “Appeal”) from the State Court Judgment. (Cf. ECF No. 61 (attachment).) On or about June 9, 2009, the Superior Court issued the Stay Decision which granted to the Plaintiffs partial relief from the state-law stay pending appeal pursuant to Practice Book § 61-11 to the extent that the Debtors were required to pay Mother $1,500.00 per month. (See ECF NO. 61 (attachment).) As noted above, the Debtors commenced this case on July 17, 2009. As of the Trial, Mother appears to be living at Emeritis Assisted Living Facility in Tor-rington, Connecticut. (See ECF No. 16 ¶1.)
III. RESOLUTION OF CLAIM/ISSUE PRECLUSION DEFENSES
A. Claim Preclusion Re: Fraud (11 U.S.C. § 523(a)(2))
Construing the Debtors’ arguments broadly, the Debtors appear to be arguing (among other things) that, because the Plaintiffs could have brought a fraud claim in the State Court Action and did not, the State Court Judgment precludes them from bringing a Section 523(a)(2) claim *355now. That argument speaks not to the doctrine of issue preclusion/collateral es-toppel but, rather, to the doctrine of claim preclusion/res judicata.
In ERA Franchise Sys., LLC v. Kroeber (In re Kroeber), No. 09-3093, 2010 WL 4064026 (Bankr.D.Conn. Oct.15, 2010), this court concluded that a creditor is not required to plead every theory of relief possible in the non-bankruptcy forum in order to anticipate a future bankruptcy and a Section 523 action which may never come. See id,., at *10. In Kroeber, this court followed Brown v. Felsen, 442 U.S. 127, 99 S.Ct. 2205, 60 L.Ed.2d 767 (1979), and “refused to apply res judicata [claim preclusion] in determining the dischargeability of debts previously reduced to judgment,” Kroeber, 2010 WL 4064026, at *10, even if the theoretical basis for the subject Section 523(a) claim {e.g., fraud) could have been pleaded in the non-bankruptcy court but was not. Id. (citation omitted). This court concluded in Kroeber that “claim preclusion does not bar the litigation here. Rather, the ‘battle’ should be fought under the rubric of collateral estoppel/issue preclusion.” Id. (footnote omitted). The court reaches the same conclusion here.
B. Issue Preclusion/Collateral Estop-pel
1. In General
Collateral estoppel, or issue preclusion, prevents a party from relitigating an issue that has been determined by a final judgment in a prior suit. Aetna Casualty & Surety Co. v. Jones, 220 Conn. 285, 303-04, 596 A.2d 414 (1991). The basic premise of collateral estoppel is that “once an issue has been resolved in a prior proceeding, there is no further factfinding function to be performed.” Parklane Hosiery Co., Inc. v. Shore, 439 U.S. 322, 336 n. 23, 99 S.Ct. 645, 58 L.Ed.2d 552 (1979). The party seeking the benefit of the doctrine bears the burden of establishing its applicability. Dowling v. United States, 493 U.S. 342, 350, 110 S.Ct. 668, 107 L.Ed.2d 708 (1990).
Collateral estoppel or issue preclusion principles apply to nondischarge-ability proceedings in bankruptcy. Grogan v. Garner, 498 U.S. 279, 284 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). Under the Full Faith and Credit Act, 28 U.S.C. § 1738, determinations regarding the pre-clusive effect of state court judgments are made using the law of the state in which the judgment was rendered. See, e.g., Marrese v. Am. Acad, of Orthopaedic Surgeons, 470 U.S. 373, 380, 105 S.Ct. 1327, 84 L.Ed.2d 274 (1985); Spencer v. Bogdanovich (In re Bogdanovich), 292 F.3d 104, 110 (2d Cir.2002).
Since the State Court Judgment was rendered by the Connecticut Superior Court, Connecticut state law regarding collateral estoppel and issue preclusion applies in this case. “Issue preclusion arises when an issue is actually litigated and determined by a valid and final judgment, and that determination is essential to the judgment.” LaBow v. Rubin, 95 Conn. App. 454, 461, 897 A.2d 136, cert. denied, 280 Conn. 933, 909 A.2d 960 (2006) (internal quotation marks omitted).34 As the *356Connecticut Supreme Court explained in Jackson v. R.G. Whipple, Inc., 225 Conn. 705, 627 A.2d 374 (1993):
An issue is necessarily determined if, “in the absence of a determination of the issue, the judgment could not have been validly rendered.” If an issue has been determined, but the judgment is not dependent upon the determination of the issue, the parties may relitigate the issue in a subsequent action. Findings on nonessential issues usually have the characteristics of dicta.
Id. at 714-15, 627 A.2d 374 (citations and internal quotation marks omitted).
2. Application of Law to Fact
The Amended State Court Complaint sounded in three counts: Unjust Enrichment (as to both Debtors); Equitable Accounting (as to both Debtors, the “Accounting Count”);35 and Breach of Fiduciary Duty (as to Karen only). {See Debtor Exh. 3.)
a. 11 U.S.C. § 523(a)(4) Claim (Breach of Fiduciary Duty Count of Amended State Court Complaint)
Section 523(a) of the Bankruptcy Code provides in relevant part:
A discharge under section 727 ... or 1328(b) of this title does not discharge an individual debtor from any debt—
(4) for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny....
ll U.S.C.A. § 523(a)(4) (West 2011). In adjudicating the Amended State Court Complaint, the Superior Court grounded its award solely on the theory of unjust enrichment:
“Unjust enrichment applies wherever justice requires compensation to be given for property or services rendered under a contract, and no remedy is available by an action on the contract. ... A right of recovery under the doctrine of unjust enrichment is essentially equitable, its basis being that in a given situation it is contrary to equity and good conscience for one to retain a benefit which has come to him at the expense of another.” (Citation omitted.) Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., 231 Conn. 276, 282, 649 A.2d 518 (1994). “The [three basic requirements of the doctrine of unjust enrichment] are that (1) the defendant was benefitted, (2) the defendant unjustly failed to pay the plaintiff for the benefits, and (3) the failure of payment was to the plaintiffs detriment. ... All the facts of each case must be examined to determine whether the circumstances render it just or unjust, equitable or inequitable, conscionable or unconscionable, to apply the doctrine.” (Citation omitted.) Gagne v. Vaccaro, 255 Conn. 390, 409, 766 A.2d 416 (2001), on appeal after remand, 80 Conn.App. 436, 835 A.2d 491 (2003), cert. denied, 268 Conn. 920, 846 A.2d 881 (2004).
Applying the three prong analysis of the doctrine of unjust enrichment to the present case, the court finds that the *357more credible evidence indicates that the defendants were unjustly enriched. First, the defendants benefitted from the plaintiffs funding of the construction of the in-law apartment because they now have an apartment that certainly constitutes a capital improvement to their residence, even if not rentable. Second, the defendants have unjustly failed to pay the plaintiff for the benefits they have received from her financial contributions toward the construction of this in-law apartment. This failure to reimburse the plaintiff is notwithstanding the fact that this in-law apartment may not have been built in the first place without some tacit consent or understanding between the parties. Said funding from her bank accounts has made the plaintiff financially disadvantaged and unable to meet her daily living expenses.
(Debtor Exh. 4 at 5-6 (alterations in original).) The Superior Court made no mention of the other two counts. {See Debtor Exh. 4.)
Sometimes, if a court in its decision fails to allude to certain counts of the complaint, such treatment by the court is an indication that the court found it unnecessary to address such counts because they were in some sense duplicative of the count(s) upon the court’s decision was based. However, the court is persuaded that such was not the case here. That is because, in its decision, the Superior Court used the following measure of damages: “Since the defendants were unjustly enriched, the defendants must make restitution. The measure of damages is the benefit to the defendant, not the loss to the plaintiff. Hartford Whalers Hockey Club v. Uniroyal Goodrich Tire Co., supra, 231 Conn, at 285.” (Debtor Exh. 4 at 6 (emphasis added).) That measure of damages is different from the “actual damages” measure of damages for breach of fiduciary duty. Cf. Wilcox v. Schmidt, WWMCCV0440011263, 2010 WL 2817490, at *10 (Conn.Super. June 3, 2010) (“The measure of damages for breach of fiduciary duties is the amount required to restore the value of what was lost by the breach, and to prevent the fiduciary from benefit-ting personally from the breach_Sim-ply, ‘[t]he plaintiff may recover his or her actual damages on a claim for breach of fiduciary duty.’” (citations and internal quotation marks omitted)).36 Moreover, in the State Court Action (as in this adversary proceeding) the Plaintiffs based their claim of fiduciary duty entirely on the existence of the Power of Attorney. {See Debtor Exh. 3 at 5.) However, in the Original Decision, the Superior Court noted that “[s]aid power of attorney was never utilized by ... [Karen],” (Debtor Exh. 4. at 3). Further, in the State Court Action the Plaintiffs sought an award of attorney’s fees and other exemplary damages. {See Debtor Exh. 3 at 6.) In the Original Decision, the Superior Court awarded neither. {See Debtor Exh. 4 at 6.) Finally, in the Stay Decision the Superior Court stated:
*358The Court’s decision was based on a theory of unjust enrichment in which the defendants benefitted from the plaintiffs investment in their private residence in Oxford and that the plaintiff had suffered a financial detriment....
The Court recognizes that in some part the plaintiff finds herself in this financial dilemma because of her own discretionary capital improvement to her daughter’s home and then deciding to leave the said home for personal reasons....
(ECF No. 61 (attachment at 1, 3).)
Based upon the foregoing, the court is persuaded that the Superior Court actually decided the breach of fiduciary duty count of the Amended State Court Complaint against the Plaintiffs and, because the measure of damages was affected, such decision was necessary to the State Court Judgment. Accordingly, the Debtors’ defense of issue preclusion/collateral estoppel must prevail with respect to the Plaintiffs’ Section 523(a)(4) claim of nondischarge-ability.
However, even if the court is mistaken and a Section 523(a)(4) claim is not barred by issue preclusion, the result is the same. That is because, in this adversary proceeding, the Plaintiffs base their claim of fiduciary status solely on the existence of the Power of Attorney. As discussed in part II, supra, the Power of Attorney was executed and delivered in contemplation of an event which never occurred (ie., Mother’s being unable to communicate). The court has not been directed to any evidence that the Power of Attorney ever was used by Karen either in breach of her fiduciary duty or otherwise. Based upon the foregoing and as a separate and independent basis for its decision for Karen on the Section 523(a)(4) claim, the court is not persuaded that there was a “fraud or defalcation [by Karen] while acting in a fiduciary capacity” within the purview of Section 523(a)(4).
b. 11 U.S.C. § 523(a)(2)(A)
Section 523(a) of the Bankruptcy Code further provides in relevant part:
A discharge under section 727 ... 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.A. § 523(a)(2) (West 2011).
As noted above, the Amended State Court Complaint did not have a fraud count. The Debtors argue that such a count was impliedly submitted to the Superior Court. However, the court is not persuaded that the Superior Court perceived that a fraud count had been submitted to it. (Cf. Debtor Exh. 4.)37 Accordingly, the Debtor’s issue preclusion/collateral estoppel defense must fail as to the Plaintiffs’ Section 523(a)(2)(A) claim of nondischargeability.
*359IV. NONDISCHARGEABILITY UNDER 11 U.S.C. § 523(a)(2)(A)
A. Applicable Law
As noted above, Bankruptcy Code § 523(a)(2)(A) allows the court to make a determination of nondischargeability for “any debt — for money, property, services, or an extension, renewal, or refinancing of credit, to the extent obtained by — false pretenses, a false representation, or actual fraud....” 11 U.S.C.A. § 523(a)(2)(A). “Section 523(a)(2)(A) lists three separate grounds for dischargeability: actual fraud, false pretenses, and a false representation.” Deady v. Hanson (In re Hanson), 432 B.R. 758, 771 (Bankr.N.D.Ill.2010). Exceptions to discharge must be strictly construed in favor of the debtor in order to effectuate the fresh start policy of bankruptcy. Rosenblit v. Kron (In re Kron), 240 B.R. 164, 165 (Bankr.D.Conn.1999) (Krechevsky, J.). Furthermore, the “debtor’s conduct must involve moral turpitude or intentional wrong; mere negligence, poor business judgment or fraud implied in law (which may exist without imputation of bad faith or immorality) is insufficient.” Id. at 165-66 (citation and internal quotation marks omitted). The party seeking to establish an exception to the discharge of a debt bears the burden of proof by a preponderance of the evidence. Grogan, 498 U.S. 279, 111 S.Ct. 654; Ramos v. Rivera (In re Rivera), 217 B.R. 379, 384 (Bankr.D.Conn.1998) (Dabrowski, J.).
The Supreme Court has held that § 523(a)(2)(A)’s reference to “actual fraud” was intended to “incorporate the general common law of torts, the dominant consensus of common-law jurisdictions, rather than the law of any particular State.” Field v. Mans, 516 U.S. 59, 71, n. 9, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995). The Second Circuit has construed the meaning of actual fraud to include “a false representation, scienter, reliance, and harm.” Evans v. Ottimo, 469 F.3d 278, 283 (2d Cir.2006) (citing Restatement (Second) of Torts § 525). Thus, courts in this circuit have found that “actual fraud” by definition consists of “any deceit, artifice, trick or design involving direct and active operation of the mind, used to circumvent and cheat another — something said, done or omitted with the design or perpetrating what is known to be a cheat or deception.” See e.g., In re Lyon, 348 B.R. 9, 22 (Bankr.D.Conn.2006).
McCarron v. Andrews (In re Andrews), 385 B.R. 496, 508 (Bankr.D.Conn.2008) (Shiff, J.).
[B]eeause common law fraud does not always take the form of a misrepresentation, a creditor need not allege misrepresentation and reliance thereon to state a cause of action for actual fraud under § 523(a)(2)(A). Rather, the creditor must establish the following: (1) a fraud occurred; (2) the debtor intended to defraud the creditor; and (3) the fraud created the debt that is the subject of the discharge dispute. The fraud exception under § 523(a)(2)(A) does not reach constructive frauds, only actual ones. The existence of fraud may be inferred if the totality of the circumstances presents a picture of deceptive conduct by the debtor that indicates he intended to deceive or cheat the creditor.
Hanson, 432 B.R. at 772 (citations omitted).
False pretenses in the context of § 523(a)(2)(A) include implied misrepresentations or conduct intended to create or foster a false impression. Mem’l Hosp. v. Sarama (In re Sarama), 192 B.R. 922, 927 (Bankr.N.D.Ill.1996). [F]alse pretenses [is defined] as follows:
[A] series of events, activities or communications which, when considered *360collectively, create a false and misleading set of circumstances, or false and misleading understanding of a transaction, in which a creditor is wrongfully induced by the debtor to transfer property or extend credit to the debtor....
A false pretense is usually, but not always, the product of multiple events, acts or representations undertaken by a debtor which purposely create a contrived and misleading understanding of a transaction that, in turn, wrongfully induces the creditor to extend credit to the debtor. A “false pretense” is established or fostered willfully, knowingly and by design; it is not the result of inadvertence.
Hanson, 432 B.R. at 771 (first and second alteration added).
To establish nondischargeability on the basis of “false representation” it must be proved that: (1) the debtor made representations; (2) knowing them to be false; (3) with the intent and purpose of deceiving the creditor; (4) upon which representations the creditor actually and justifiably relied; and (5) which proximately caused the alleged loss or damage sustained by the creditor. American Express Centurion Bank v. Truong (In re Truong), 271 B.R. 738, 744 (Bankr.D.Conn.2002).
B. Application of Law to Fact
The Plaintiffs argue nondischargeability under Section 523(a)(2)(A) asserting various arguments, alone and in the aggregate. The court specifically will address the Plaintiffs’ more substantial arguments immediately below.
1. The Apartment Was a Pretext To Get the House Built
For the reasons discussed below, the court is not persuaded that the Apartment was anything but part of a good-faith plan by the Debtors to provide for Mother’s long-term care.
To support their argument that the Apartment was merely a pretext to get the House built, the Plaintiffs point to the fact that actual construction of the House did not start until after Mother had agreed to the concept of the Apartment. The court is not persuaded that the Debtors had given Mother the impression that actual construction of the House had previously begun. Moreover, the court is persuaded by Michael’s testimony that some preliminary steps had been made towards construction of the House (without the Apartment) prior to the fateful meeting between Mother and the Debtors. In any event, it is Mother who first suggested the concept of the Apartment, not the Debtors. The court is not persuaded that there was any connection between the opening of the Charter Money Market Account and the initiation of the plan to build the Apartment. Further, the finished Apartment evidences that the Debtors put a great deal of thought and care into making the Apartment suitable for Mother. That is not consistent with the Plaintiffs’ “pretext” argument. Moreover, the court credits Michael’s testimony that a substantial amount of his personal funds went into the House project.
The Plaintiffs also make a great deal of the fact that the Brookstone Astoria Bank Checks were the first monies into the project. The court credits Karen’s explanation for that and accepts it as a reasonable arrangement under the circumstances. Moreover, as noted above, Karen explained the funding arrangement to Mother before they went forward with the project. {See ECF No. 57 at 52:18-25 (Karen’s testimony).) Even assuming (but not finding) that the other Brook-stone Checks and The Kitchen Company Check were issued prior to any other *361funds (¿a, mortgage proceeds and/or Michael’s funds) going into the project, the result is no different. The aggregate face amount of those five checks (ie., the Brookstone Cheeks and The Kitchen Company Check) was approximately $173,000.00 and, as noted in part II, supra, the court has found that construction costs for the Apartment were approximately $188,000.00. If the House (including the Apartment) had not been completed, the timing of Mother’s payments might have been an issue. However, it is uncontested that the House (including the Apartment) was completed. Accordingly, the timing of Mother’s payments is a moot point.
2. Failure To Protect Mother’s Interests
The Plaintiffs complain that the Debtors did not consult a lawyer on Mother’s behalf, that there was no written agreement among Mother and the Debtors in respect of the Apartment, that Mother had no interest of record with respect to the House, and the like. Prudence should have dictated that the Debtors consult an appropriate legal specialist prior to embarking on the Apartment project, both for Mother’s protection and their own. In many respects, this was a poorly thought out plan: Mother and Karen had not perceived what the realities of Mother’s leaving Sunrise and living in the Apartment would be; and there was no “exit strategy” for Mother if things did not work out.38 However, the foregoing represents poor judgment on the Debtors’ part, not “moral turpitude.”
3. Failure to Account
As noted above, the court has found that the Apartment construction costs were approximately $188,000.00. The aggregate amount of the Brookstone Checks and The Kitchen Company Check was approximately $173,000.00. The court finds that Mother sufficiently authorized Karen’s drawing of those five checks. Comparing the cost of the Apartment (approximately $188,000.00) to the amount of those checks (approximately $173,000.00) is (under these circumstances) a sufficient accounting for those items.
The Other Checks were drawn as follows:
Check# Date Payee Amount
503 3/18/2006 Karen DePinna 4,000.00
4/1/2006 Karen DePinna 541 4,000.00
6/12/2006 Michael Conway 39 543 250.00
544 6/15/2006 Michael Conway 2,500.00
547 8/7/2006 Michael DePinna 1,800.00
548 8/19/2006 Michael DePinna 1,250.00
549 9/11/2006 Citizens Bank 40 5,006.00
550 10/4/2006 Karen DePinna 1,500.00
551 10/22/2006 Michael DePinna 3,000.00
552 1/8/2007 Chase 41 2,500.00
555 2/24/2007 Michael DePinna 8,911.00
$34,717.00
*362(See Plaint. Exh. M.)
The court credits Michael’s testimony that he paid for the Chair Lifts. The court also credits Karen’s testimony that she paid Furnishing Costs for the Apartment in the approximate amount of $32,000.00. The court further credits Karen’s testimony that the Debtors paid certain of Mother’s living expenses. The court credits the Debtors’ testimony that the Other Checks were written as reimbursement for the Furnishing Costs, the Chair Lifts and/or Mother’s living expenses and also finds • that Mother had sufficiently authorized Karen’s drawing of those checks. Finally, the court credits Karen’s testimony that she did not use any of Mother’s money solely for Karen’s own benefit. (See ECF No. 57 at 49:15-18 (Karen’s testimony).) The aggregate amount of the Other Checks is $34,717.00. That is more than completely covered by the total of unfunded Apartment construction costs (ie., $15,000.00)42 and the Furnishing Costs (ie., $32,000.00).43 Under these circumstances, the foregoing is as good an accounting for the Other Cheeks as can be given. Mother did not ask for an accounting of her money until she was ready to leave. Mother then frustrated the process by leaving the House with the Debtors’ records and putting them “somewhere” beyond both the Debtors’ reach and Mother’s own recollection. The numbers here are not exact, but Mother made a substantial contribution to that problem herself. On this record, the court is not persuaded that the Debtors’ use of Mother’s funds as described above and the Debtors’ failure precisely to account for them constitutes the requisite “moral turpitude” under Section 523(a)(2)(A).
4. The Countrywide Mortgages
The Plaintiffs point to the fact that the Debtors closed on the Countrywide Mortgages after they were aware of the State Court Action and without making an offer of payment to the Plaintiffs. The short answer to that is that there was no legal impediment to that closing at the time of such closing and the law did not then require the Debtors to assume that Mother would prevail in the State Court Action. Moreover, the court is not persuaded that the Debtors intended to defraud Mother by means of such closing. If the Debtors had used the Countrywide Mortgages to access value which Mother had contributed to the House, the result might be different. However, that is not the case here. That is because the Apartment costs were reflected in the base upon which Countrywide wrote the Countrywide Mortgages (ie., the 2007 Carbutti appraisal of the House) only to the extent of $4,725.00. The closing of the Countrywide Mortgages left more than that in remaining House equity (ie., at least $30,000.00).44 Accordingly, the court is not persuaded that the Debtors used the Countrywide Mortgages to appropriate Mother’s investment in the Apartment for *363themselves.45
For all of the foregoing reasons, the court is not persuaded that the closing of the Countrywide Mortgages constituted the requisite “moral turpitude” by the Debtors.46
V. CONCLUSION
The circumstances set forth above (considered either separately or in the aggregate) constitute a family tragedy; the court is not persuaded that such circumstances constitute “moral turpitude” on the Debtors’ part as required by Section 523(a)(2)(A). Accordingly, the Plaintiffs cannot prevail on their Section 523(a)(2)(A) claim of nondischargeability. Furthermore, for the reasons discussed above, the court has determined that the Plaintiffs cannot prevail on their Section 523(a)(4) claim of nondischargeability. A judgment determining that the State Court Judgment is a dischargeable debt in this title 11 case shall enter.
It is SO ORDERED.
. Mary Dykas ("Sister”) is the daughter of Mary Schepperley (and sister of Karen DePin-na) and has brought this action as her mother's attorney-in-fact. As used hereinafter, the term the "Plaintiffs” is used to refer to the two named plaintiffs collectively. Mary Schepperley hereafter is referred to as "Mother.” Debtor Karen DePinna hereafter is referred to as "Karen.” Debtor Michael DePin-na hereafter is referred to as "Michael.” Karen and Michael sure hereafter referred to collectively as the "Debtors.”
. References herein to the docket of this adversary proceeding appear in the following form: "ECF No._.." References herein to the docket of the above-referenced Chapter 13 case appear in the following form: "Case ECF No_”
. The original complaint (ECF No. 1, the “Original Complaint”) cited generally to 11 U.S.C. § 523(c) without any reference to subsection(s) of Section 523(a). The Amended Complaint relies exclusively on Section 523(a)(2) in its prayer for relief. (See ECF No. 16 at 9.) However, the Pretrial Order submitted, served and entered in this proceeding alludes to Section 523(a)(4) but not to Section 523(a)(2). (See ECF No. 12.) The parties have treated this proceeding as arising under Section 523(a)(2) and Section 523(a)(4), and the court will do the same.
. That order referred to the “Bankruptcy Judges for this District” inter alia “all proceedings arising under Title 11, U.S.C., or arising in ... a case under Title 11, U.S.C....”
. Michael holds a "master contractor’s license,” (ECF No. 57 at 20:13-16 (Michael's testimony)). It is not known to the court whether the foregoing is a type of electrical contractor's license or refers to something else. Michael also has an Associate's Degree in electrical engineering and has significant construction experience. (See 11/20/08 S.C. Tr. (as hereafter defined) at 93:5-7 (Michael's testimony).)
. As of the S.C. Trial, Karen had worked for eight years doing paralegal work. (See 11/19/08 S.C. Tr. (as hereafter defined) at 43:14-18 (Karen’s testimony).)
. If at all, discharge is granted in a chapter 13 case only after confirmation of a chapter 13 plan, either upon full consummation of such chapter 13 plan or on a so-called "hardship” basis. See 11 U.S.C. § 1328.
. Those transcripts and exhibits comprise two full binders. The court deems the contents of those binders in their entirety to constitute full exhibits in this adversary proceeding. At the Trial, the court admonished the parties as follows:
Just ... as a warning to counsel, with respect to the transcripts, although I usually do read the transcripts in toto, I do reserve the right not to. So if ... you want me to look at something in the transcripts, please cite to it specifically. [T]hen I ... will be obligated to look at the transcript. I can look at other parts of the transcripts and use them if I want.
(ECF No. 57 at 8 (remarks by the court).) The court has taken the same approach with respect to the S.C. Trial exhibits.
. In all other respects, ECF No. 74 is treated as having superceded ECF No. 46.
. A transcript of the Trial appears in the record as ECF No. 57. Citations to the transcripts from the State Court Action trial (the "S.C. Trial”) appear in the following form: "_ S.C. Tr. at _:_” Except with respect to the Interest Order, the Stay Decision and ECF No. 71, references to the Trial exhibits appear as follows: for the Plaintiffs' exhibits — "Plaint. Exh. _and for the Debtors' exhibits — ’“Debtor Exh._..”
. On February 1, 2011, with the Debtors’ consent the Plaintiffs filed amended briefs (see ECF Nos. 74, 75) solely to correct a technical problem with the prior versions. (Cf. ECF No. 72.)
. On June 15, 2010, the Debtors filed that certain Defendants’ First Motion for Leave To Amend and File First Amended Answer and an Attorneys Fees Affidavit of Anthony R. Minchella. (See ECF Nos. 60, 62.) The motion sought “leave to amend their complaint [sic] to add a counterclaim for attorney’s fees pursuant to 11 U.S.C. § 523(d),” (ECF No. 60 ¶ 5). The motion was denied by order dated July 22, 2010 “without prejudice,” (ECF No. 69).
. The $100,000 figure was chosen because that was the deposit insurance limit. (See 11/21/08 S.C. Tr. at 18:12-16 (Karen’s testimony).) The court is not persuaded that there was any connection between the opening of the Charter Money Market Account and the decision to build the Apartment.
. It is assumed herein that deposits into the Citizens Account came from the Charter Money Market Account.
. Sister also testified that being at Sunrise caused Mother to cash flow negatively by about $2,500.00 per month. (See 11/20/08 S.C. Tr. at 11:21-12:14 (Sister's testimony).)
. Moreover, Karen was not satisfied with the quality of Mother’s care at Sunrise. (See ECF No. 57 at 55:16-56:22 (Karen’s testimony).)
. In fact, the Power of Attorney named only Karen as attorney-in-fact. (See Plaint. Exh. A.)
. In general, the court found the Debtors to be credible witnesses. The court found Mother to be less credible, but only because of her memory issues.
. There were approximately $150,000.00 in House and Apartment construction costs that were in addition to the $480,000.00 (and outside the Brookstone Contract (as hereafter defined)) which were covered by Michael from his own funds. (See infra.)
. It is unclear whether that estimate was intended to cover furnishings.
. However, in April of 2005 Mother executed a Last Will and Testament which devised and bequeathed substantially all of her property to Karen (to the exclusion of Sister and Brother). (See Plaint. Exh. FF.)
. Unless specifically stated to the contrary, references hereafter to the House shall be deemed to be references to the House with the Apartment.
. The $72,000.00 check was in payment of the scheduled second payment under the Brookstone Contract. The $6,600.00 payment appears to have been with respect to a "Change Order" with respect to the Brook-stone Contract dated April 10, 2005 for “[e]x-tra fill dirt” and "[m]oving fill ... [and] grading fill.” (See Debtor Exh. 1 at tab 2.) The $48,000.00 check, the $72,000.00 check and the $6,660.00 check hereafter are referred to as the "Brookstone Astoria Bank Checks.”
. The Valley Bank Subordinated Mortgage was subordinated to the Valley Bank Construction Mortgage pursuant to a subordination agreement dated May 2, 2005. (See Plaint. Exh. Q (Schedule B-Section II to "Stewart Title Guaranty Company Commitment").)
. It is not remarkable that the cost of the House was more than its 2007 appraised value. That is because (as explained by the appraisal testimony at the S.C. Trial (see infra) ) almost none of the Apartment costs were included in that appraised value.
. Mother went by bus to “senior care" three days a week. (See id. at 136:2-24 (Mother's testimony).) Mother also had a home health aide visit for four hours twice a week. (See id. at 134:26-135:23 (Mother’s testimony).) Karen arranged for both of the foregoing but Mother paid for them. (See, e.g., id. at 135:2-5 (Mother’s testimony).)
. “I told ... [Mother] that there was no way to recover the monies that [had] ... already been paid for the [Apartment] construction.” (Id. at 40:19-20 (Michael's testimony).)
."I told ... [Mother] that I thought her choice to move back to Sunrise, considering the fact that she couldn’t afford to live there very long and she would quickly run out of money, was basically — she was committing financial suicide by making such a move.” ' (Id.)
. The original complaint in the State Court Action was amended on or about November 21, 2007. (See Debtor Exh. 3, the “Amended State Court Complaint.") The Amended State Court Complaint is discussed more fully at part III.B.2, infra.
. It is a fair assumption that Countrywide made the Countrywide Mortgage loans based on that appraisal as a "borrowing base.”
. There was no appraisal testimony for the Plaintiffs at the S.C. Trial (see Debtor Exh. 2) or at the Trial (see ECF No. 57). Even if the court incorrectly credits Mr. Carbutti’s opinion that the Apartment construction costs did not add to the value of the House to any substantial degree, the result reached herein-below would be the same. That is because the issue here is not whether the Apartment construction costs added to the value of the House but, rather, whether the Debtors wrongfully obtained or appropriated that value (which, as explained below, they did not). Also, as explained below, unjust enrichment, standing alone, does not result in a nondis-chargeable debt.
. Approximately $208,000.00 of Mother's funds is at issue here. It is not suggested that the remaining $170,000.00 (approximate) of exhausted funds was attributable in any way to the alleged misconduct of the Debtors. Given the record here, it is a fair assumption that the $170,000.00 (approximate) in funds was expended by an authorized payor for Mother's rent and other living expenses.
. The Original Decision is discussed more fully at part III.B.2.a, infra.
. As noted above, prepetition the Debtors took the Appeal from the State Court Judgment. The parties have not apprised the court as to whether the Appeal still is pending. However, as noted above, the Debtors scheduled the State Court Judgment debt as undisputed in the case. The parties have not addressed the "final judgment” {i.e., the Appeal) issue in their respective briefs and, accordingly, the court will deem the "finality” point to be conceded by the Plaintiffs. In any event, as becomes apparent in part III.B.2, infra, the court’s decision with respect to Section 523(a)(4) rests on alternative grounds, and the court finds and/or concludes that the Section 523(a)(2) fraud issue is not precluded *356by the State Court Judgment. Accordingly, the “finality” issue has no effect on the result here.
. To support an action of accounting, one of several conditions must exist. There must be a fiduciary relationship, or the existence of a mutual and/or complicated accounts, or a need of discovery, or some other special ground of equitable jurisdiction such as fraud.
Mankert v. Elmatco Products, Inc., 84 Conn. App. 456, 460, 854 A.2d 766 (2004) (internal quotation marks omitted). "Actions for [a]c-counting” are subject to Sections 52-401 et seq. of the Connecticut General Statutes.
. Similarly, the thrust of an action for an accounting is not restitution but, rather, to "adjust the accounts [and] find the balance due ...Conn. Gen.Stat. Ann. § 52-402(d) (West 2011). In any event, the Accounting Count adds nothing to the dischargeability analysis. That is because, as noted above, an action for accounting can be based upon dis-chargeable grounds {i.e., "complicated accounts”) or nondischargeable grounds (in this case the relevant grounds would be breach of fiduciary duty and/or fraud). See Mankert v. Elmatco Products, Inc., supra. As discussed above, the Superior Court found against the Plaintiffs on the breach of fiduciary duty issue; as discussed both above and below, the State Court Judgment does not preclude any fraud claim/issue that the Plaintiffs might assert.
. It should be noted that a finding of unjust enrichment is not the same thing as a finding of fraud. That is because fraud has an element of intent and unjust enrichment does not. See, e.g., Hoffman v. Anstead (In re Anstead), 436 B.R. 497, 502 (Bankr.N.D.Ohio 2010) ("[A] claim for 'unjust enrichment’ is not at all defined by reference to a person's intentions, but is rather defined in terms of the effect a person’s actions had on another.”). Cf. Connecticut Nat’l Bank v. Chapman, 153 Conn. 393, 216 A.2d 814 (1966) (proof of tortious or fraudulent act unnecessary); Franks v. Lockwood, 146 Conn. 273, 150 A.2d 215 (1959) (same).
. The court attaches little significance to Karen’s paralegal experience.
. It is uncontested that Michael Conway was Karen’s divorce attorney. Karen testified that check # # 543 and 545 were written in lieu of reimbursement due her from Mother. (See 11/21/08 S.C. Tr. at 38:22-39:23 (Karen's testimony).) The court credits that testimony.
. It is uncontested that the above check was written to Citizens Bank in connection with Michael's purchase of a 2006 Ford F-150 truck. (See Plaint. Exh. M; cf. also Case ECF No. 1 (Schedule B-Personal Property).) Michael testified that such check was written in lieu of reimbursement for the Chair Lifts. (See 11/20/08 S.C. Tr. at 144:1-14 (Michael’s testimony).) The court credits that testimony.
.Neither side has addressed the Chase check.
. $188,000.00-$173,000.00 = $15,000.00.
. Mother funded Apartment construction costs and Furnishing Costs in the approximate aggregate amount of $205,000.00 which is $55,000.00 more than the original $150,000.00 estimate (which may have not included the Furnishing Costs) (see part II, supra). The court is not persuaded that the foregoing is (at worst) anything other than the result of the Debtors’ innocent underestimation of costs.
.That number assumes that the $100,000.00 principal balance of the Valley Bank Subordinated Mortgage had not been paid down at all as of the time of the Countrywide closing. That assumption is questionable. (Cf. Case ECF No. 1 ($38,000.00 loan balance stated on the petition date).)
. What is significant for this purpose is not the correctness of Mr. Carbutti's opinion of value but, rather, that Countrywide made the loans based upon that opinion rather than based upon an opinion that the Apartment added significant value to the House. Moreover, if the Apartment was ''worth” more, the House would have been worth more, and remaining equity would have increased in a like amount.
. The court has considered the Plaintiffs’ remaining arguments and finds and/or concludes that such arguments either are inappo-site or otherwise unpersuasive. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494409/ | Memorandum
MAGDELINE D. COLEMAN, Bankruptcy Judge.
Introduction
Before this Court for consideration is a Motion to Dismiss First Amended Complaint (the “Motion”) filed by Greg En-gelsbe (“Defendant” or “Engelsbe”). En-gelsbe, along with Anthony J. DeMarco, III (the “Debtor”), is one of several co-defendants named in an amended complaint (the “Amended Complaint”) filed by Douglas and Sandra Barnhart (the “Plaintiffs”). In the Amended Complaint, the Plaintiffs object to the Debtor’s discharge and seek recovery against various other defendants, including Engelsbe, for alleged violations of certain federal and state law committed in furtherance of an alleged foreclosure rescue scam conceived and guided by the Debtor.
Engelsbe seeks dismissal of the Amended Complaint for lack of subject-matter jurisdiction pursuant to Fed.R.Civ.P. 12(b)(1). He contends that the Plaintiffs’ claim against him constitutes a noncore proceeding that is not related to the Debt- or’s bankruptcy case. In the alternative, Engelsbe seeks to dismiss pursuant to Fed.R.Civ.P. 12(b)(6) the Plaintiffs’ claims against him for failure to plead facts necessary to sustain a claim pursuant to the Pennsylvania Unfair Trade Practices and Consumer Protection Law, 73 P.S. § 201-1 et seq. (the “CPL”). However, because of events that have occurred in the Debtor’s main bankruptcy case as well as a related adversary proceeding, this Court finds that consideration of the arguments raised by the Motion to be unnecessary. For the reasons discussed below and not those raised by the Motion, this Court finds that it lacks jurisdiction over the Plaintiffs’ claims.
Factual and Procedural Background
The Instant Adversary Proceeding
The Plaintiffs contend that Engelsbe, along with the other defendants, engaged in a foreclosure rescue scam that targeted the Plaintiffs. Facing a mortgage foreclosure, the Plaintiffs needed to secure financing to pay off their existing indebtedness. In an attempt to refinance their existing mortgage loan, they completed an on-line application with E-Mortgage Management LLC (“E-Mortgage”). For whatever reason, E-Mortgage was unable to refinance the Plaintiffs’ mortgage loan. However, rather than simply turn away the Plaintiffs, E-Mortgage’s loan officer suggested that the Plaintiffs contact En-gelsbe who happened to be E-Mortgage’s manager.
Thereafter, Engelsbe recommended the Plaintiffs contact the Debtor. Engelsbe identified the Debtor as a former E-Mortgage employee who had started his own business, DeMarco REI. Engelsbe is alleged to have identified the Debtor as of*345fering specialized services directed to persons who, like the Plaintiffs, are facing foreclosure and have a need to repair their credit. The Amended Complaint specifically states that the Plaintiffs relied on Engelsbe’s advice and contacted the Debt- or based on Engelsbe’s recommendation.
The Plaintiffs then met with the Debtor to allow him to explain his services. As alleged by the Amended Complaint, the Debtor identified an investor who would purchase the Plaintiffs’ home and then lease the property to the Plaintiffs. Pursuant to a transaction that closed on or about April 12, 2007, the Plaintiffs conveyed the property to Maurice Heckscher (the “Investor”) who paid $330,000 for the property (the “Sale Proceeds”). From the Sale Proceeds, the Plaintiffs were to receive $40,000.00. However, at closing, the Plaintiffs only received a check for $13,000.00. Also from the Sale Proceeds, the Debtor was to be paid a fee in the amount of $25,229.75 (the “Fee”). The Plaintiffs believe that the actual amount of the Fee that the Debtor paid himself was $90,500.00. The Plaintiffs alleged that, from the Fee, the Debtor then paid to Engelsbe a kickback in consideration of Engelsbe’s referral of the Plaintiffs to the Debtor made in furtherance of the alleged scheme. The Plaintiffs alleged that the Debtor has made similar payments to En-gelsbe in connection with other similar transactions.
Following the alleged events, the Debtor filed a voluntary Chapter 7 petition. On July 6, 2010, the Plaintiffs commenced this adversary proceeding and filed a three count complaint (the “Complaint”) against the Debtor and several other defendants including Engelsbe, Bank of America, N.A., Brightman Agency, and John Doe 1 (collectively the “Original Defendants”). In the Complaint, the Plaintiffs objected to the Debtor’s discharge pursuant to 11 U.S.C. 523 and 727 (Count I) and asserted claims against the Original Defendants for equitable relief/unjust enrichment (Count II), and breach of the CPL (Count III).
Thereafter, Engelsbe filed a motion to dismiss the Complaint (the “First Motion”) on the grounds that the Plaintiffs had failed to allege the necessary elements to state a claim under the CPL. Engelsbe alleged that Plaintiffs (1) lacked standing because they had not purchased any goods or services from him, and (2) failed to assert factual allegations demonstrating justifiable reliance. Plaintiffs filed a response to the First Motion opposing dismissal and requesting, as alternative relief that they be allowed to file an amended complaint. Following a hearing on the First Motion, the Court entered an Order denying the First Motion and granting the Plaintiffs leave to file an amended complaint.
On September 21, 2010, Plaintiffs filed the Amended Complaint. The Amended Complaint named several additional defendants including DeMarco REI, Inc., Laura Strepp, Maurice Heckscher, Glad Vlad (“Additional Defendants” and together with Original Defendants “Defendants”). Plaintiffs amended the complaint to include, among other things, additional facts relating to Engelsbe. The Amended Complaint did not add additional claims and Counts I, II and III set forth in the Complaint remained.
On October 6, 2010, Engelsbe filed the Motion together with a Memorandum of Law in Support of the Motion (“Memorandum”) seeking dismissal of the Amended Complaint for lack of subject-matter jurisdiction, or, in the alternative, for failure to plead facts necessary to sustain a claim pursuant to the CPL. Plaintiffs filed a response and memorandum opposing the Motion. This Court held a hearing on the Motion on November 10, 2010. Following *346the hearing, this Court requested that the parties file supplemental briefs addressing the Third Circuit’s decision in Katz v. Aena Casualty & Surety Co., 972 F.2d 53 (3d Cir.1992). Specifically, the parties were to address whether a plaintiff asserting a claim under the CPL must allege facts sufficient to establish privity between the parties in order to survive a motion to dismiss. Plaintiffs and Engelsbe each filed a supplemental brief as ordered (“Supplemental Brief’).
The Denial of Discharge Proceeding
In a separate but related adversary proceeding captioned DeAngelis v. DeMarco, 11-18 (the “DeAngelis Adversary”), pending before this Court in connection with the Debtor’s bankruptcy case, this Court entered an Order dated March 16, 2011, denying the Debtor a discharge pursuant to 11 U.S.C. § 727 (the “Discharge Denial Order”). The DeAngelis Adversary was initiated by U.S. Trustee Roberta A. DeAngelis (the “United States Trustee”), by Complaint dated January 13, 2011 (the “DeAngelis Complaint”), objecting to the granting of a general discharge to the Debtor. The United States Trustee alleged that the Debtor was not eligible for a chapter 7 discharge because he had engaged in a series of fraudulent transfers, including but not limited to the disposition of several luxury automobiles and jewelry that were not disclosed by the Debtor on his chapter 7 Schedules or Statement of Financial Affairs.
On January 14, 2011, the United States Trustee caused a copy of the complaint and summons to be served on the Debtor personally as well as upon his bankruptcy counsel, Allen B. Dubroff. Despite service being proper, the Debtor failed to file any answer to the DeAngelis Complaint. As a result, the United States Trustee filed on February 18, 2011, a motion pursuant to Fed. R. Bankr.P. 7055 for default judgment (the “Default Judgment Motion”). This Court held a hearing on the Default Judgment Motion on March 16, 2011, where the Debtor and his counsel failed to appear. Having failed to answer the properly-served DeAngelis Complaint or otherwise request an extension of time to submit such an answer, this Court entered the Discharge Denial Order pursuant to which the Debtor was denied a chapter 7 discharge.
In the Debtor’s main bankruptcy case, the Chapter 7 Trustee held and concluded on February 24, 2011, the Debtors § 341 Meeting of Creditors. Shortly thereafter, the Chapter 7 Trustee entered a report of no distribution stating that there is no property available for distribution from the estate over and above that exempted by law and requesting that he be discharged from any further duties as trustee.
Legal Discussion
Consistent with this Court’s continuing obligation to evaluate whether the matters before it are within its jurisdiction, this Court will consider sua sponte whether the events in the DeAngelis Adversary and the Debtor’s main case are relevant to the issue of whether this Court retains jurisdiction over the matters raised by the Amended Complaint. See, e.g., Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 131 n. 1, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995) (“every federal court, whether trial or appellate, is obliged to notice want of subject-matter jurisdiction on its own motion”) (Ginsburg, J., concurring); Addiction Specialists, Inc. v. Twp. of Hampton, 411 F.3d 399, 405 (3d Cir.2005) (sua sponte considering the issue of standing); Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1198 (3d Cir.1991) (“We have inherent power and a continuing obligation to determine our own jurisdiction.”); Lunderstadt v. Colafella, 885 F.2d 66, 69 (3d Cir.1989). Significantly, the entry of the *347Discharge Denial Order renders moot Count I of the Plaintiffs’ Amended Complaint. As a result, this Court must determine whether it retains jurisdiction over the Plaintiffs’ claims set forth in Counts II and III (the “Non-Debtor Claims”).1
This Court’s Jurisdiction
Federal courts are courts of limited jurisdiction that may only hear a case if the Constitution or a federal statute provides the court with jurisdiction. Kokkonen v. Guardian Life Ins. Co. of America, 511 U.S. 375, 377, 114 S.Ct. 1673, 128 L.Ed.2d 391 (1994). A bankruptcy court has jurisdiction to adjudicate to types of claims: (1) core and (2) related to. 28 U.S.C. 157; In re Radogna, 331 Fed.Appx. 962, 965 (3d Cir.2009). A proceeding is core if “it invokes a substantive right provided by title 11 or if it is a proceeding that, by its nature, could arise only in the context of a bankruptcy case.” Torkelsen v. Maggio (In re Guild and Gallery Plus, Inc.), 72 F.3d 1171, 1178 (3d Cir.1996); Allen v. J.K. Harris & Co., LLC, 331 B.R. 634, 640-41 (E.D.Pa.2005) (quoting Torkel-sen). The Plaintiffs’ nondischargeability claims are squarely within this Court’s core jurisdiction. 28 U.S.C. § 157(b)(2)(I); In re Thebes, Bky. No. 10-03302, 2011 WL 1239847, at *1, n. 2 (Bankr.M.D.Pa. Mar.30, 2011) (recognizing § 523(a) proceedings are within a bankruptcy court’s core jurisdiction). On the other hand, this Court possible jurisdiction over the Plaintiffs claims against the nondebtor entities is dependent upon the scope of its related-to jurisdiction.
A related-to proceeding is one where “the outcome of that proceeding could conceivably have any effect on the estate being administrated in bankruptcy.” Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984); In re Federal-Mogul Global, Inc., 300 F.3d 368 (3d Cir.2002) (addressing related-to jurisdiction over actions involving nondebtor parties where the defendant, if found liable, may seek indemnification or contribution from the debtor). As here, the Third Circuit in Pacor addressed a bankruptcy court’s related-to jurisdiction over tort claims brought by non-debtors against other non-debtors. Pacor stands for the proposition that a Bankruptcy Court’s related-to jurisdiction does extend to actions that “could conceivably have any effect on the estate being administered in bankruptcy.” Pacor, Inc. v. Higgins, 743 F.2d 984, 994 (3d Cir.1984).
It is generally recognized that upon entry of a report of no distribution, a bankruptcy court is divested of its related-to jurisdiction. See, e.g., In re Ostroff, 433 B.R. 442 (Bankr.D.Col.2010) (holding that proceeding could have no effect on funds available for distribution on unsecured claims and therefore court lacked related-to jurisdiction over adversary proceeding); In re Herd, Adv. No. 06-1128, 2007 WL 2481369 (Bankr.E.D.Tenn. Aug. 28, 2007) (“Whether or not the defendant has engaged in the activities complained of by the plaintiffs, retention of jurisdiction of this proceeding by the bankruptcy court and a decision either in favor of the defendant or in favor of the plaintiffs will result in neither a benefit nor a detriment to the estate”); In re Eltech, Inc., 313 B.R. 659 (Bankr.W.D.Pa.2004) (“the elimination of a claim in a no-asset Chapter 7 case, as set forth above, will have a $0.00 effect on the recovery of other creditors”); In re Wilson (First Indiana Bank v. Wilson), 271 B.R. 511, 514 (Bankr.E.D.Mich.2001) (“be*348cause this is a no asset case, any claim by First Indiana against the estate or by the non-debtor defendants for contribution would not have any effect on the administration of the bankruptcy estate.”); In re Fry, 1997 WL 666152, at *5 (Bankr.N.D.Ill. Oct.28, 1997). In such cases, bankruptcy courts lack jurisdiction over claims against nondebtors because any recovery by plaintiffs will not affect the amount of property available for distribution or the allocation of property among creditors.
Despite this general rule, the effect of a report of no distribution over this Court’s related-to jurisdiction in a § 523 adversary proceedings is less than clear. Because a chapter 7 debtor is still eligible for a general discharge despite the entry of a report of no distribution, the issue of whether a debtor is entitled to discharge of specific debts remains live. See, e.g., Vasilyeva v. Educational Resources Institute, Inc., Civ. No. 09-709, 2009 WL 3415283 (D.N.J. Oct. 22, 2009) (addressing dis-chargeability of student loans in case where trustee filed report of no distribution). However, to the extent that a plaintiff has joined its § 523 action with claims against third-party, nondebtor entities, it is doubtful that a bankruptcy court would, in a no-asset, Chapter 7 case, retain jurisdiction over the claims against nondebtor entities.2 See, e.g., In re Adamson, 334 B.R. 1, 9-10 (Bankr.D.Mass.2005) (finding that court lacked jurisdiction over claims brought against nondebtor defendants to a § 523(a) nondischargeability proceeding where debtor’s estate had been fully administered); In re Wilson (First Indiana Bank v. Wilson), 271 B.R. 511, 514 (Bankr.E.D.Mich.2001) (“There is no support for the proposition that joint conduct, standing alone, is sufficient to confer jurisdiction”). Fortunately for this Court, this issue is obviated. The Debtor has been denied a chapter 7 discharge pursuant to the Anti-Discharge Order thereby rendering moot the Plaintiffs’ §§ 523 and 727 claims. See, e.g., State of N.J., Dept. of Environmental Protection and Energy v. Heldor Industries, Inc., 989 F.2d 702, 706-7 (3d Cir.1993) (discussing prohibition against judicial review of moot issues); In re DiLoreto, 277 B.R. 607, 612 (Bankr.E.D.Pa.2000) (recognizing that a general denial of discharge pursuant to § 727 would moot pending § 523(a) claims).
Summary
Because the United States Trustee has entered a report of no distribution and this Court has entered an Order denying the Debtor a global discharge, the adversary proceedings presents no possible effect on the Debtor’s estate. As a result, this Court now lacks related-to jurisdiction over the Amended Complaint and will fore-go any consideration of whether the Amended Complaint states sufficient facts upon which a claim made be made pursuant to the CPL.
The Motion is granted and the Amended Complaint is hereby dismissed.
*349Order
For the reasons set forth in the accompanying Memorandum,
It is hereby ORDERED that:
1. The Motion is GRANTED.
2. The Amended Complaint is DISMISSED for lack of jurisdiction.
. The same is true for at least three other adversary proceedings pending in connection with the Debtor’s bankruptcy: (1) Hohney v. DeMarco, et al., 11-275; (2) Shellhorn, et al. v. Wellington Home Mortgage, et al., 10-446; and (3) Zaki v. DeMarco, et al., 10-313.
. This doubt is underscored by the U.S. Supreme Court's recent decision in Stern v. Marshall, 564 U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011). Although the precise implications of the Supreme Court’s decision in Stem on the related-to jurisdiction of bankruptcy courts remain to be determined, the Supreme Court's holding that bankruptcy courts may not decide "a common law cause of action, when the action neither derives from nor depends on any agency regulatory regime,” Stern v. Marshall, 564 U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), suggests that, consistent with this Court’s decision herein, this Court would lack jurisdiction to hear the Plaintiffs’ claims against the non-debtor entities. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494411/ | *898OPINION
HOLLOWELL, Bankruptcy Judge.
BAC Home Loans Servicing a/k/a Countrywide Home Loans Servicing, LP (BAC) appeals the bankruptcy court’s order (1) approving the debtors’ motion to value and “cram-down” real property subject to BAC’s deed of trust, and (2) confirming their chapter 11 plan of reorganization that modified BAC’s claim.
The bankruptcy court determined that the debtors could modify BAC’s claim secured by the debtors’ real property because it found that at the time of plan confirmation, the debtors were not using the property as their residence, exempting it from the anti-modification provision of § 1123(b)(5).2
For the reasons outlined below, we conclude that the appropriate time for determining whether property is a debtor’s principal residence is the petition date. Therefore, we REVERSE.
I. FACTS
Salaheldin Abdelgadir and his wife, Afaf Wahbi, (the Debtors) filed for chapter 13 relief on July 27, 2009. On their bankruptcy petition and schedules, the Debtors listed their address as Las Palomas Drive in Las Vegas (the Property). The Debtors scheduled the Property as the only real property they owned. They scheduled an $0 exemption in the Property.3
BAC holds a claim secured by a deed of trust on the Property in the amount of $739,748.4 According to the Debtors’ schedules, the Property is also subject to a second mortgage in favor of Countrywide Home Lending (Countrywide) in the amount of $175,979. An appraisal of the Property, conducted on August 4, 2009, valued it at $425,000.
The Debtors’ purchased the Property for $704,050 in May 2006. The Debtors and BAC5 executed a promissory note, which was secured by a first deed of trust on the Property. In connection with the note and deed of trust, the Debtors filled out a form titled “Occupancy Agreement,” which certified that the Debtors would:
occupy the [Property] as my primary year-round residence, within (15) days of recording of the Deed of Trust/Mortgage executed in connection with my loan. This will confirm our understanding and agreement that I intend to occupy the [Property] as my primary year-round residence....
When the Debtors purchased the Property, they were living in Wisconsin. Shortly after the sale on the Property closed, the Debtors’ son moved into the Property and lived there while attending *899college.6 In January 2008, the Debtors moved from Wisconsin to Las Vegas and moved into the Property.
After filing bankruptcy, the Debtors filed a motion to modify Countrywide’s claim. The motion asserted that the Debtors “currently reside on a residential property at [Las Palomas Drive].” They contended there was no equity in the Property and proposed to “strip-off’ Countrywide’s second deed of trust as wholly unsecured. Before the bankruptcy court ruled on the motion, the Debtors sought conversion of their case to chapter 11 in order to “better manage the revaluation and reorganization of their residential real estate.” The bankruptcy court granted the motion to convert on January 15, 2010.
On January 25, 2010, the Debtors filed a change of address from the Property to a residence on Aruba Beach Avenue in Las Vegas. The Debtors subsequently filed a second motion to value collateral and modify the rights of secured creditors, BAC and Countrywide (the Motion to Modify). This time, the Debtors contended the Property was investment property, not subject to the anti-modification provision of § 1123(b)(5). Because the Property was appraised at $425,000, the Debtors argued that BAC’s first deed of trust was undersecured. They proposed to bifurcate BAC’s claim to a $425,000 secured claim and $314,748 unsecured claim. The Debtors also proposed to avoid Countrywide’s second mortgage and reclassify that claim as a general unsecured claim in the amount of $186,085.
BAC filed an opposition. First, BAC alleged that the value of the Property was $440,000, according to an appraisal done on March 4, 2010. Additionally, BAC argued the Property was, at all times, the Debtors’ “principal residence” and protected from modification. BAC questioned the residency of the Debtors, noting that the Debtors did not amend their schedules to demonstrate there were leases for either their occupancy of the Aruba Beach property or the rental of the Property. The Debtors filed a reply on April 1, 2010, and submitted the lease agreements for Aruba Beach and the Property.
On March 9, 2010, the Debtors filed a plan of reorganization. They filed an amended plan (Plan) on May 19, 2010. The Plan similarly proposed to cram-down BAC’s claim to the Property value of $425,000. BAC objected, again contending that even if the Debtors were allowed to modify its claim, which it argued they were not, the value of the Property was $440,000.
Prior to a hearing on the Motion to Modify and the Plan, the Debtors and BAC filed additional briefing regarding the issue of whether the Debtors could modify BAC’s claim under § 1123(b)(5). The Debtors took the position that whether the Property was a principal residence for purposes of § 1123(b)(5) was a determination to be made at the time of plan confirmation. BAC, on the other hand, asserted that the character of property must be determined at the time the creditor takes a security interest in the collateral. Alternatively, BAC argued that the bankruptcy court should look to the character of property as of the petition date, since that is the date that exemptions are fixed. Either way, BAC asserted that the Debtors could not circumvent § 1123(b)(5) and modify its claim secured by the Property.
An evidentiary hearing on the Motion to Modify, combined with a hearing on the Debtors’ Plan and disclosure statement, *900was held on July 1, 2010 (the Hearing). At the Hearing, the parties stipulated to value the Property at $440,000. Thus, the only issue for resolution was whether, for purposes of § 1128(b)(5), the Property was the Debtors’ principal residence and at what date that determination should be made.
The bankruptcy court acknowledged that, in connection with Plan confirmation, the requirement of good faith must be satisfied. “Good faith is always an issue ..., if, for example, somebody, you know, had a piece of property, and they moved out, and then it was obvious they’re going to move back the next month, that raises an issue of good faith.” Hr’g Tr. (July 1, 2010) at 17. To that end, the Debtors provided testimony about their purchase of the Property and their residency there.
The bankruptcy court held a follow-up hearing on October 28, 2010, to set forth its findings of fact and conclusions of law orally on the record. The bankruptcy court found that the Debtors met all plan confirmation requirements and decided to confirm their Plan. It allowed the modification of BAC’s claim because it concluded that the time to determine whether the Debtors’ Property was their principal residence was at the date of confirmation. The bankruptcy court found that the Debtors were not living at the Property at the time of the Hearing, and because the Property had been rented, that it was investment property. Finally, the bankruptcy court found that there was no bad faith or manipulation on the part of the Debtors in moving from the Property.
On December 21, 2010, the bankruptcy court entered its order granting the Motion to Modify. On December 22, 2010, the bankruptcy court entered its order confirming the Debtors’ Plan. BAC timely appealed both orders, asserting the bankruptcy court erred in determining that BAC’s claim was not secured by the Debtors’ principal residence and was subject to modification.
II. JURISDICTION
The bankruptcy court had jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157(b). We have jurisdiction under 28 U.S.C. § 158.
III. ISSUE
What is the determinative date for whether a claim is secured by a debtor’s principal residence subject to the Bankruptcy Code’s anti-modification provision?
IV. STANDARDS OF REVIEW
We review the bankruptcy court’s statutory construction of § 1123(b)(5) de novo. Lee v. Home Sav. of Am. (In re Lee), 215 B.R. 22, 24 (9th Cir. BAP 1997), citing, In re Consol. Pioneer Mortg., 178 B.R. 222, 225 (9th Cir. BAP 1995).
V. DISCUSSION
Resolving the question of when a claim is determined to be secured by a debtor’s principal residence for purposes of § 1123(b)(5) begins “ ‘where all such inquiries must begin: with the language of the statute itself.’ ” Ransom v. FIA Card Servs., N.A. (In re Ransom), — U.S. —, 131 S.Ct. 716, 723-24, 178 L.Ed.2d 603 (2011) quoting United States v. Ron Pair Enters., Inc., 489 U.S. 235, 241, 109 S.Ct. 1026, 103 L.Ed.2d 290 (1989). Section 1123, entitled “Contents of Plan,” provides that a chapter 11 plan of reorganization may:
modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or *901leave unaffected the rights of holders of any class of claims[.]
11 U.S.C. § 1123(b)(5).7 By its plain language, § 1123(b)(5) allows debtors to modify the rights of creditors holding certain claims—secured claims and unsecured claims, but sets out a rule against modifying claims that are secured by a debtor’s principal residence.8
A “claim” is a defined term under the Bankruptcy Code. 11 U.S.C. § 101(5). Additionally, whether a claim is “secured” or “unsecured” is a term of art defined by § 506. 11 U.S.C. § 506(a)(1). When language is used in one section of a statute and the same language is used in another section, we “can infer that Congress intended the same meaning.” Consol. Freightways Corp. of Del. v. Aetna, Inc. (In re Consol. Freightways Corp. of Del.), 564 F.3d 1161, 1165 (9th Cir.2009) (internal citations omitted); N. Sports, Inc. v. Knupfer (In re Wind N’ Wave), 509 F.3d 938, 944 (9th Cir.2007) (“identical words used in different parts of the same act are intended to have the same meaning.”).
A claim is a “right to payment, whether ... secured, or unsecured.” 11 U.S.C. § 101(5). Claims are deemed allowed when a creditor files a proof of claim and the amount of a claim is determined as of the date of filing a bankruptcy petition. 11 U.S.C. § 502(a), (b); Heath v. Am. Express Travel Related Servs. Co. (In re Heath), 331 B.R. 424, 426 (9th Cir. BAP 2005); Crain v. PSB Lending Corp. (In re Crain), 243 B.R. 75, 83 (Bankr.C.D.Cal.1999). As of the petition date, the estate is created and creditors’9 rights are fixed as much as possible.
Throughout a bankruptcy proceeding, however, the status of a claim may change depending on the value of its interest. Thus:
An allowed claim of a creditor secured by a lien on property in which the estate has an interest ... is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property ... and is an unsecured claim to the extent that the value of such creditor’s interest ... is less than the amount of such allowed claim.
11 U.S.C. § 506(a).
Under these principles, a “claim secured by a debtor’s principal residence” may be a secured claim or an unsecured claim. Nobelman v. Am. Sav. Bank, 508 U.S. 324, 331, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993); Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1223, 1226-27 (9th Cir.2002). The Supreme Court found that valuation of collateral under § 506(a) determines the status of the creditor’s claim. Nobelman v. Am. Sav. Bank, 508 U.S. at 328-29, 113 S.Ct. 2106. If the claim is determined to be partially se*902cured, the creditor is still a “holder of a secured claim” whose rights are protected from modification. Id. at 330-31, 113 S.Ct. 2106. However, if a valuation of the collateral leaves the creditor wholly unsecured, the claim may be modified. In re Zimmer, 313 F.3d at 1226-27.
Therefore, in order for § 1123(b)(5) to protect a creditor from modification of its claim, the bankruptcy court must first determine whether the creditor holds a claim secured by a debtor’s principal residence. The second determination is whether the value of the creditor’s claim makes it secured or wholly unsecured. See 11 U.S.C. § 506(a); In re Zimmer, 313 F.3d at 1226; In re Cohen, 267 B.R. at 42.
Here, the bankruptcy court determined that BAC did not hold a claim secured by the Debtors’ principal residence because at the time of the Hearing, the Debtors were no longer living at the Property. The bankruptcy court set plan confirmation as the date for determining whether § 1123(b)(5)’s anti-modification rule applied to BAC’s claim because “this whole process involves valuing. And we know from the [Bankruptcy] [C]ode that you value in connection with what you’re doing, and we know that you value a plan, creditor’s rights, as of the effective date which then refers to confirmation.” Hr’g Tr. (October 28, 2010) at 4:18-23.
The bankruptcy court’s reasoning is compelling. Indeed, § 506(a) provides that:
[the value of a claim] shall be determined in light of the purpose of the valuation and of the proposed disposition or use of such property, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
11 U.S.C. § 506(a). Although the amount of a creditor’s claim is fixed at the petition date, there is nothing to indicate that the value of the claim must also be determined at the petition date. Since modification of claims occurs only through debtors’ plans, it is at confirmation that the bankruptcy court considers whether proposed modifications comply with requirements for confirmation. Thus, it may be entirely appropriate to value a claim at the time of plan confirmation. See e.g., In re Crain, 243 B.R. at 83-84 (valuation at confirmation); but see Dean v. LaPlaya Invs., Inc. (In re Dean), 319 B.R. 474, 478-79 (Bankr.E.D.Va.2004) (valuation at petition date because debtor’s use of principal residence is to provide shelter; therefore, court does not need to wait until confirmation to determine debtor’s “use” of his principal residence).
However, even though, the bankruptcy court’s rationale for valuing BAC’s claim at confirmation was reasonable, the interpretation of § 1123(b)(5) as setting the determination of whether a claim is protected from modification at the date of confirmation is flawed. That approach improperly shifts the time for fixing a creditor’s claim from the petition date to some future valuation date. It conflates the analysis of whether a creditor holds a claim with a determination of the value of that claim. The value of BAC’ claim, whether it is secured or unsecured, is a distinct issue from whether BAC’s claim is secured by the Debtors’ principal residence.
The bankruptcy court concluded that confirmation was the determinative date based on the phrase in the statute that reads “real property that is the debtor’s principal residence,” which uses the present tense and signaled to the bankruptcy court that the subject of the sentence, “residence” must presently exist. The Third Circuit, however, read such language differently, finding that:
*903[b]y using the word ‘is’ in the phrase ‘real property that is the debtor’s principal residence,’ Congress equated the terms ‘real property’ and ‘principal residence.’ Put differently, this use of ‘is’ means that the real property that secures the mortgage must be only the debtor’s principal residence in order for the anti-modification provision to apply.
Scarborough v. Chase Manhattan Mortg. Corp. (In re Scarborough), 461 F.3d 406, 411 (3d Cir.2006) (concluding that a claim secured by real property that is, in part, not the debtor’s principal residence under the terms of the mortgage, may be modified.)
A narrow focus on sub-phrases, which modify antecedents within the clause, is misplaced. Based on the grammatical structure of the statute, the words “secured only by a security interest in real property that is the debtor’s principal residence” modifies “claim ” and describes the type of claim that is excepted from modification. In re Cohen, 267 B.R. at 43; In re Wetherbee, 164 B.R. 212, 215 (Bankr.D.N.H.1994); see also, Nobelman v. Am. Sav. Bank, 508 U.S. at 331, 113 S.Ct. 2106 (it is reasonable “to read ‘a claim secured only by a [homestead lien]’ as referring to the lienholder’s entire claim”).
We similarly reject the narrow interpretation, made by some bankruptcy courts, that the sub-phrase “real property that is the debtor’s principal residence” is intended to modify the term “security interest.” Based on that construction, those courts conclude the phrase, “security interest in real property that is the debtor’s principal residence” is ambiguous (i.e., it could refer to a home at the present time or when the security interest was created) and rely on legislative history to resolve the ambiguity. See e.g., In re Smart, 214 B.R. 63 (Bankr.D.Conn.1997). Justice Stevens observed, in his concurrence in Nobelman, that the purpose of the anti-modification clause was to provide favorable treatment of home mortgages in order to encourage capital into the home lending market. 508 U.S. at 332,113 S.Ct. 2106. Therefore, in order to align with that purpose, those bankruptcy courts concluded that the appropriate reference date for determining if a property is a principal residence of the debtor is the date that the security interest was created. In re Smart, 214 B.R. at 68; In re Benafel, 2010 WL 5373127 (Bankr.D.Or.2010).
Reliance on legislative history is unnecessary when the statute’s language is unambiguous. Milavetz, Gallop & Milavetz, P.A. v. United States, — U.S. —, 130 S.Ct. 1324, 1332 n. 3, 176 L.Ed.2d 79 (2010). The plain language of § 1123(b)(5) excepts a particular type of claim from modification. As discussed above, a creditor’s right to payment, whether it later is deemed secured or unsecured depending on the value of the collateral, is fixed at the petition date. 11 U.S.C. §§ 101(5), 502; In re Dean, 319 B.R. at 478. Therefore, our statutory analysis leads us to conclude that the determinative date for whether a claim is secured by a debtor’s principal residence is, like all claims, fixed at the petition date.
VI. CONCLUSION
Because the bankruptcy court did not determine the character of BAC’s claim as of the petition date, we REVERSE the orders granting the Motion to Modify and confirming the Debtors’ Plan.
. Unless otherwise indicated, all chapter and section references are to the Bankruptcy Code, 11 U.S.C. §§ 101-1532. All “Rule” references are to the Federal Rules of Bankruptcy Procedure, Rules 1001-9037.
. Although the Debtors owned the Property in fee simple, the exemption was taken under Nevada Revised Statute (NRS) 21.090(l)(m), which exempts: "the dwelling of the judgment debtor occupied as a home for himself or herself and family, where the amount of equity held ... does not exceed $550,000 in value and the dwelling is situated upon lands not owned by the judgment debtor.” It does not appear that the Debtors ever filed a declaration of homestead under NRS 115.020(1) for the Property, entitling them to an exemption under NRS 21.090(1)(Z).
. BAC filed a proof of claim on August 21, 2009, in the amount of $739,748.80.
. The original lender was Countrywide Home Loan, Inc. For reasons that are not clear in the record, BAC does not appear to have succeeded to Countrywide's second deed of trust.
. It is unclear if the Debtors’ son paid rent.
. The language of § 1123(b)(5) is identical to that of § 1322(b)(2) and was added to the Bankruptcy Code in 1994 to harmonize the treatment of home mortgage loans in chapter 11 and chapter 13. See Granite Bank v. Cohen (In re Cohen), 267 B.R. 39, 42 (Bankr.D.N.H.2001); Lomas Mortg., Inc. v. Louis, 82 F.3d 1, 6 (1st Cir.1996) (citing legislative history). Therefore, case law that examines § 1322(b)(2) is persuasive in our analysis of § 1123(b)(5).
. BAC argues that "the term 'principal residence' is ambiguous” leaving the courts to determine the meaning of the term and intent of the statute. Appellant’s Opening Br. at 7-10. The Bankruptcy Code defines the “debt- or’s principal residence” as a residential structure, including condominiums, co-ops, mobile homes or trailers. 11 U.S.C. § 101(13A).
. Creditors are fixed at the petition date. A "creditor” is defined as an "entity that has a claim against the debtor that arose at the time of or before the order for relief.” 11 U.S.C. § 101(10)(A). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494801/ | MEMORANDUM OF DECISION ON PLAINTIFF’S MOTION AND DEFENDANT’S CROSS MOTION FOR SUMMARY JUDGMENT
MELVIN S. HOFFMAN, Bankruptcy Judge.
Plaintiff, Stewart Title Guaranty Company, has moved for summary judgment *488on counts I and II of its three-count complaint in which it seeks a judgment that the debt owed to it by the debtor, defendant Paul D. McCarthy, should be excepted from discharge in Mr. McCarthy’s bankruptcy pursuant to Bankruptcy Code § 523(a)(2) and § 523(a)(4) (11 U.S.C. § 523(a)(2) and (4)). Mr. McCarthy opposes Stewart’s motion and requests that summary judgment be entered against Stewart on count III of its complaint brought under Bankruptcy Code § 523(a)(6).
Facts
The facts are taken from those allegations in the complaint which Mr. McCarthy, who is an attorney representing himself in this proceeding, has not denied and the attachments referenced in the admitted allegations. Because the complaint is neither verified nor buttressed by any affidavits in support of Stewart’s summary judgment motion, the unadmitted allegations in the complaint cannot be considered at this stage of the proceeding. Arguments presented in Stewart’s brief or at oral argument may be given no evidentiary significance. Bonardi v. Bonardi (In re Bonardi), 2006 WL 1366942, at *1 (Bankr. D.Mass. May 16, 2006).
On or about January 26, 2001 Stewart and Mr. McCarthy’s law firm, McCarthy & Malloy (the “Firm”), entered into an agreement entitled “Stewart Title Guaranty Company (Retainer Agreement)” (the “Agency Agreement”) in which the Firm was designated as a limited agent of Stewart for the purpose of issuing title insurance policies to purchasers and lenders in connection with real estate transactions.1
The Agency Agreement provided that: ATTORNEY agrees to keep in force, at ATTORNEY’S expense, a Lawyer’s Professional Liability Insurance Policy for not less than Five Hundred Thousand Dollars ($500,000) and to furnish STEWART with a copy of said policy. ATTORNEY agrees that he will exert his best efforts to obtain an endorsement to his Lawyer’s Professional Liability Insurance Policy whereby STEWART will be named as a beneficiary.
Each year, when renewing his registration to practice law with the Massachusetts Board of Bar Overseers (the “BBO”), Mr. McCarthy signed a certification that he was covered by professional liability insurance. In his memorandum in opposition to Stewart’s summary judgment motion, Mr. McCarthy represents that his registration with the BBO was renewed annually on March 1st.2
In April 2007, Mr. McCarthy and the Firm acting as counsel to Castle Point Mortgage, Inc. closed a $500,000 loan to Andrew G. Nikas. The loan was to have been secured by a mortgage on real estate located in Ipswich, Massachusetts. Prior to the loan closing, Mr. McCarthy and the firm reviewed a February 28, 2007 title report prepared by a non-attorney employee of the Firm. At the closing Mr. Nikas, *489in his individual capacity, executed a mortgage in favor of Mortgage Electronic Registration System (“MERS”), Castle Point’s nominee. Mr. McCarthy and the Firm issued a lender’s title insurance policy insuring MERS as nominee of Castle Point. The title insurance policy provided, among other things, that Stewart would indemnify MERS and its assigns against all loss or damage resulting from the “invalidity or unenforceability of the Insured Mortgage upon the Title.”
On July 15, 2009, Mr. McCarthy and his wife, Taeheryn A. McCarthy, commenced the main case by filing a voluntary petition under chapter 11 of the Bankruptcy Code. The case was converted to chapter 7 on July 15, 2010.
Stewart commenced an action in state court against Mr. McCarthy and the Firm on November 3, 2009.3 In its amended complaint filed in the state court action, Stewart describes its action as “arising out of the negligence by [Mr. McCarthy] and the Firm in connection with the examination and certification of title in the context of a real estate transaction [the Castle Point loan closing], and for breach of the Agency Agreement between Stewart and [Mr. McCarthy] and the Firm.”
The basis for Stewart’s claim is an alleged claim by a third party that Mr. Nikas had no interest in the Ipswich property when he gave MERS a mortgage on it at the Castle Point closing. The assertion of the claim attacking the validity of the Ipswich mortgage caused Stewart not only to file the state court suit against Mr. McCarthy but also to make a claim against one or more of Mr. McCarthy’s malpractice insurance carriers as outlined more fully below. It was the insurer’s denial of Stewart’s malpractice claim, coupled with its discovery that Mr. McCarthy’s malpractice insurance with American Guarantee & Liability Company (“American Guarantee”) had been canceled effective February 28, 2008, that gives rise to this adversary proceeding. Stewart asserts that Mr. McCarthy’s annual certification to the BBO that he had malpractice insurance when in fact his policy with American Guarantee had been canceled is grounds for excepting from discharge any debt to Stewart that may ultimately arise by virtue of its malpractice claim as a result of the Ipswich title defect.
On November 5, 2009, Stewart reported a malpractice claim against Mr. McCarthy arising from the title defect which had been asserted in connection with the Ipswich mortgage to Zurich Financial Services, an entity that appears to be an affiliate or parent of American Guarantee. American Guarantee responded to Stewart’s claim by denying coverage since the claim was reported to American Guarantee after the end of the policy period. The American Guarantee malpractice insurance policy, which was a claims made and reported policy,4 was to have covered the period from September 2007 to September 2008. The policy was canceled, however, *490effective as of February 28, 2008.5 In any case the claim, having been reported to American Guarantee on November 5, 2009, was not covered.
Navigators Insurance Company (“Navigators”) wrote the Firm’s professional liability insurance policy for the period November 17, 2009 to November 17, 2010. The Navigators’ policy is also a claims made and reported policy. On April 30, 2010, Stewart reported a claim in connection with the title defect against Navigators and it too rejected the claim because although the claim was reported to Navigators during the policy period, the claim was first made no later than November 6, 2007 when Stewart served Mr. McCarthy and the Firm with the state court complaint Stewart had filed against them. Because the service on November 6, 2007 was before the Navigators policy period began, Navigators declined coverage.6
The Navigators policy also had a retroactive feature covering only claims arising on or after November 17, 2008. Navigators denied coverage under the retroactive feature as well because the date of Mr. McCarthy’s alleged malpractice was in 2007.7
Mr. McCarthy filed an affidavit to which he attached copies of a series of declarations pages for insurance policies running from 2002 to 2010. According to one of the declarations, American Guarantee’s coverage was supposed to run from September 2007 to September 2008. As the parties agree, however, the American Guarantee policy was canceled as of February 28, 2008. Greenwich Insurance Company (“Greenwich”) then wrote a claims made and reported policy covering the period from November 17, 2008 to November 17, 2009, the year before the Navigators policy. Item 8 of the Greenwich declaration lists several endorsements to the policy, including the retroactive effective date. None of those endorsements, however, is part of the record in this proceeding nor has it been established whether Stewart, Mr. McCarthy or the Firm reported the alleged malpractice arising from the Ipswich title defect to Greenwich.
Mr. McCarthy and Stewart agree that there was a gap in the Firm’s malpractice insurance coverage but disagree on the length of the gap. Mr. McCarthy maintains the gap was from February 28, 2008 until November 17, 2008. Stewart alleges it was from February 28, 2008 to November 17, 2009.8 The length of the gap in cover*491age is immaterial to a determination of the motion and cross motion for summary judgment. What matters is that there was a gap.
Summary Judgment Standard
Summary judgment is appropriate if “the pleadings, the discovery and disclosure materials on file, and any affidavits show that there is no genuine issue of a material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(c), made applicable by Fed. R. Bankr.P. 7056. A “genuine” issue is one supported by such evidence that “a reasonable jury, drawing favorable inferences,” could resolve it in favor of the nonmoving party. Triangle Trading Co. v. Robroy Indus., Inc., 200 F.3d 1, 2 (1st Cir.1999) (quoting Smith v. F.W. Morse & Co., 76 F.3d 413, 427 (1st Cir.1996)). “Material” means that a disputed fact has “the potential to change the outcome of the suit” under the governing law if the dispute is resolved in favor of the nonmovant. McCarthy v. N.W. Airlines, Inc., 56 F.3d 313, 314-15 (1st Cir.1995).
The moving party 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.” Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Wynne v. Tufts Univ. Sch. of Med., 976 F.2d 791, 794 (1st Cir.1992) (court must pierce the “boilerplate” of the pleadings, and “assay the parties’ proof’ to determine whether a trial is needed).
“[A] party seeking summary judgment always bears the initial responsibility of informing the ... court of the basis for its motion, and ... [must] 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). “Only if the record, viewed in that manner [that is, most favorable to the non-moving party] and without regard to credibility determinations, reveals no genuine issue as to any material fact may the court enter summary judgment.” Cadle Co. v. Hayes, 116 F.3d 957, 959 (1st Cir.1997).
Discussion
Stewart’s Summary Judgment Motion
Count I: Section 523(a)(2)
Stewart alleges that any debt for which it may be obligated under its title insurance policy as a result of the title defect arising from the Ipswich mortgage is one for which Mr. McCarthy will ultimately be liable to Stewart and that such debt of Mr. McCarthy should be found to be nondischargeable under Bankruptcy Code § 523(a)(2).9 Although its complaint in this proceeding does not use the term indemnification, the concept of indemnification is the foundation for Stewart’s debt. Stewart’s state court complaint against Mr. McCarthy has two counts — indemnification and breach of contract. Section 523(a)(2)(A) of the Bankruptcy Code makes nondischargeable “anjr debt ... for money, property, services, or an extension, *492renewal, or refinancing of credit, to the extent obtained by false pretenses, a false representation, or actual fraud, other than a statement respecting the debtor’s or an insider’s financial condition.” (Emphasis added).
In Century 21 Balfour Real Estate v. Menna (In re Menna), 16 F.3d 7 (1st Cir.1994),10 the debtor defendant had retained the plaintiff, Century 21 Balfour Real Estate, to sell his business, which it did. The buyer of the business subsequently sued the debtor and Balfour for fraud and negligent misrepresentation whereupon Balfour cross-claimed against the debtor for indemnification. Both the debtor and Balfour were found jointly and severally liable to the buyer, and the debt- or was found liable to Balfour on the indemnification claim. Apparently after the buyer collected from Balfour, the debtor filed a chapter 7 bankruptcy rather than pay Balfour, leading Balfour to commence a nondischargeability action against the debtor under § 523(a)(2) and (6). The bankruptcy court concluded that the indemnification debt was not the type of debt which § 523(a) seeks to redress. The U.S. district court affirmed.
On further appeal the U.S. Court of Appeals for the First Circuit, noting that “[e]xceptions to discharge are narrowly construed in furtherance of the Bankruptcy Code’s ‘fresh start’ policy and [that] the claimant must show that its claim comes squarely within an exception enumerated in Bankruptcy Code § 523(a),” id. at 9, reviewed the bankruptcy court’s interpretation of the term “debt for” as used in § 523(a). The First Circuit agreed with the bankruptcy court that the debtor’s debt to Balfour was not included in the types of debt exempted from discharge under § 523(a)(2):
First, we underscore that section 523(a) does not employ the terms adopted in Balfour’s paraphrase — “debt based upon” — nor does the statutory language remotely suggest that nondischargeability attaches to any claim other than one which arises as a direct result of the debtor’s misrepresentation or malice. Moreover, Balfour cites no case in which it has been argued, let alone decided, that the nonfraud-based indemnification claim of an entity whose negligence has combined with the fraud of its joint tort-feasor to cause injury to a third party is nondischargeable in the bankruptcy of the fraudulent tortfeasor. Given the strict construction afforded all dis-chargeability exceptions under section 523(a), we have been provided with neither authority nor reason to extend the statutory language as urged by Balfour.
Id. at 10.
In PaineWebber Inc. v. Magisano (In re Magisano), 228 B.R. 187 (Bankr. S.D.Ohio 1998), the brokerage firm which had employed the debtor was sued by banks which had loaned money to one of PaineWebber’s customers based on the debtor’s misrepresentations as to the amount of funds in the customer’s Paine-Webber account. PaineWebber, which settled its litigation with the banks, obtained a judgment against the debtor for indemnification or contribution. The debtor then filed bankruptcy and Paine-Webber brought a nondischargeability action based on § 523(a)(2) and (4). The court noted that:
11 U.S.C. § 523(a)(2)(A) is normally asserted by a creditor claiming that a debt *493is excepted from discharge due to the fact that the debtor defrauded that specific creditor, and that specific creditor loaned money or extended credit to the debtor as a result of the debtor’s fraud or false representation. Under those circumstances, the debtor wrongfully obtains money from the defrauded creditor, and § 523(a)(2) is asserted to preclude the debtor from benefitting from the money wrongfully obtained. This case is different. Here, Magisano did not obtain any funds from the Banks. The proceeds from the fraud flowed to [PaineWebber’s customer], not Magisa-no.
Id. at 192-93 (italics in original).
Section 523(a)(2) does not extend as widely as Stewart would like. As the Supreme Court has instructed, “[o]nce it is established that specific money or property has been obtained by fraud, ... ‘any debt’ arising therefrom is excepted from discharge.” Cohen v. de la Cruz, 523 U.S. 213, 218, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998). Stewart has failed to articulate what money or property Mr. McCarthy received as a result of his alleged fraud. This is because there was none.11 The only money or property paid in this case is the money Stewart paid or will pay to Castle Point, its insured under the lender’s title insurance policy. This payment has nothing to do with Mr. McCarthy’s alleged fraud. Rather it is based on Mr. McCarthy’s negligence in issuing the title insurance policy or his obligation to indemnify Stewart.
Even assuming, however, that the debt in question here is one for money, property, services or an extension, renewal or refinancing of credit that somehow benefited Mr. McCarthy, in order to prove that debt is nondischargeable under § 523(a)(2)(A), the creditor must show that: (1) the debtor made a knowingly false representation or one made in reckless disregard of the truth; (2) the debtor intended to deceive the creditor; (3) the debtor intended to induce the creditor to rely upon the false statement; (4) the creditor actually relied upon the misrepresentation; (5) the creditor’s reliance was justifiable; and (6) the reliance upon the false statement caused damage. LaChance Financial Services, Inc. v. Gemme (In re Gemme), 459 B.R. 493, 498 (Bankr. D.Mass.2011) (citing Douglas v. Kosinski (In re Kosinski), 424 B.R. 599, 612 (1st Cir. BAP 2010)).
Stewart’s motion for summary judgment lacks any factual support that when Mr. McCarthy certified to the BBO as to his being covered by professional liability insurance he made a knowingly false statement or that the statement was in reckless disregard of the truth. The facts currently before me indicate only that Mr. McCarthy made such representations at the time of his annual license renewal around March 1st of each year. The inference to be drawn, therefore, is that he made the certification relevant to this dispute on or around March 1, 2008, a day after the effective cancellation date of the American Guarantee malpractice policy. The only documents in the record that are relevant to the question of whether Mr. McCarthy even knew the Firm’s malpractice insurance policy had been terminated are those attached to Mr. McCarthy’s affidavit. They do not indicate that Mr. McCarthy *494had knowledge of the cancellation before American Guarantee’s May 2, 2008 letter to him. Thus there is no basis for finding that Mr. McCarthy’s March 2008 certification to the BBO was made with the requisite fraudulent intent.
Similarly, Stewart’s unsubstantiated and disputed allegations in its complaint about relying on Mr. McCarthy’s certification to the BBO and actions it would have taken had it known of the lapse in insurance coverage do not support summary judgment in its favor on count I of the complaint even if Stewart had shown Mr. McCarthy acted with the requisite fraudulent intent. Bonardi, 2006 WL 1366942, at *1.
To the extent that Stewart’s claim under § 523(a)(2) is grounded in its allegations in the complaint that Mr. McCarthy failed to maintain his malpractice insurance policy without any gaps in coverage as required by the Agency Agreement, such a claim is a mere garden variety breach of contract claim. Stewart has proffered nothing that could form the basis for nondischargeability of such a claim under a section that demands proof of false pretense, a false representation or actual fraud. Gulati v. McClendon (In re McClendon), 415 B.R. 170, 182 (Bankr. D.Md.2009).
For the foregoing reasons, summary judgment in favor of Stewart on count I of the complaint shall be denied. Because the alleged debt which Stewart seeks to be held nondischargeable is not a debt “obtained by” fraud, pursuant to Fed.R.Civ.P. 56(f)(1), made applicable by Fed. R. Bankr.P. 7056, summary judgment in favor of Mr. McCarthy will enter on count I of the complaint.
Count II: Section 523(a)(1)
Section 523(a)(4) excepts from discharge debts arising as a result of “fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny.” Stewart alleges first that Mr. McCarthy’s certification to the BBO that he was covered by malpractice insurance when in fact his coverage had lapsed constituted fraud. Second, Stewart maintains that Mr. McCarthy, as its closing agent and attorney, was acting as its fiduciary in closing the Castle Point loan. Combining the two elements, Stewart concludes that any loss it may sustain as a result of the title insurance claim is nondischargeable. Stewart’s reasoning is flawed.
First, § 523(a)(4) states that the fraud or defalcation must occur “while” the debtor is acting in his fiduciary capacity. Stewart has not explained and I am at a loss to imagine how Mr. McCarthy was acting in a fiduciary capacity for Stewart when he committed the allegedly fraudulent certification to the BBO. Second, Stewart has not presented any evidence that when Mr. McCarthy was acting as Stewart’s fiduciary in connection with the Castle Point loan, his conduct was “so egregious that [it came] close to the level that would be required to prove fraud, embezzlement, or larceny.” Quevillon v. Baylis (In re Baylis), 313 F.3d 9, 20 (1st Cir.2002). In fact, Stewart’s own state court complaint against Mr. McCarthy is grounded upon negligence, not fraud. Section 523(a)(4) does not turn a liability for negligence or breach of contract, even when committed by a fiduciary, into a non-dischargeable debt, at least not under the standards applicable in this circuit. While attorneys are fiduciaries whose bad acts sometimes fall within the ambit of § 523(a)(4), see, e.g., Andy Warhol Foundation v. Hayes (In re Hayes), 183 F.3d 162, 168 (2nd Cir.1999) (defalcation found to apply to wrongful overcharges for legal services by counsel to an estate); Ducey v. Doherty (In re Ducey), 160 B.R. 465, 473 *495(Bankr.D.N.H.1993) (the fiduciary capacity exception applied to a debt for a retainer owed by a lawyer for work he failed to perform), there is nothing on the record before me which leads to the conclusion that Mr. McCarthy’s actions with respect to the Castle Point loan justify summary judgment under § 523(a)(4).
As noted in the previous discussion of § 523(a)(2), if Stewart’s cause of action is one for breach of the Agency Agreement’s requirement that malpractice insurance be continuously in place, its § 523(a)(4) count fails under the Quevillon standard.
For the foregoing reasons, summary judgment in favor of Stewart on count II of the complaint will be denied. However, because there is no conceivable connection between Mr. McCarthy’s status as a fiduciary for Stewart and the misconduct complained of, in accordance with Fed.R.Civ.P. 56(f)(1), made applicable by Fed. R. Bankr.P. 7056, summary judgment will enter for Mr. McCarthy on count II of the complaint.
Mr. McCarthy’s Cross Motion for Summary Judgment
Count III: Section 528(a)(6)
Section 523(a)(6) excepts from discharge debts “for the willful and malicious injury by the debtor to another entity or the property of another entity.” To come within the purview of this section, the debtor must have intended the consequences of the act, not just the act itself. “[DJebts arising from recklessly or negligently inflicted injuries do not fall within the compass of § 523(a)(6).” Kawaauhau v. Geiger; 523 U.S. 57, 64, 118 S.Ct. 974, 978, 140 L.Ed.2d 90 (1998).12
There is nothing in the record to suggest that Mr. McCarthy intended to harm Stewart by negligently closing a loan and then allowing his malpractice insurance coverage to lapse. Similarly, there is nothing in the record to even indicate that Mr. McCarthy intentionally canceled or intentionally allowed the cancellation of the Firm’s malpractice insurance policy, let alone any allegation that these actions were undertaken with the intent to harm Stewart. There is no evidence that Mr. McCarthy even knew that his malpractice insurance policy had been canceled when he made his certification to the BBO in 2008, much less that he intended to harm Stewart by that certification.
Stewart did not respond to Mr. McCarthy’s cross motion for summary judgment and in its complaint alleges only that “[b]y intentionally and wrongfully failing to keep in force Mr. McCarthy’s professional liability insurance, which is required under the Agency Agreement, Mr. McCarthy committed willful and malicious injury to Stewart.” 13 “[NJeither conclusory allegations [nor] improbable inferences are sufficient to defeat summary judgment.” Carroll v. Xerox Corp., 294 F.3d 231, 236-37 (1st Cir.2002) (internal citations and quotation marks omitted).
Therefore, summary judgment will enter for Mr. McCarthy on count III of the complaint.
*496Conclusion
For the reasons set forth above, Stewart’s motion for summary judgment as to counts I and II of the complaint will be denied. Instead, summary judgment will enter for Mr. McCarthy on counts I and II. Mr. McCarthy’s motion for summary judgment on count III will be granted.
A separate order shall issue.
At Worcester, Massachusetts this 14th day of June, 2012.
. The complaint alleges that Mr. McCarthy and the Firm entered into the Agency Agreement, an allegation that Mr. McCarthy has admitted. Technically, Mr. McCarthy is not named in the Agency Agreement. The Firm, however, is defined to include "attorney(s) practicing and licensed in the State of Massachusetts.” There is no dispute that Mr. McCarthy, a partner in the Firm, falls within the definition and acted as an "Attorney” and a limited agent under the Agency Agreement.
. Pursuant to Fed R. Civ. P. 56(e), made applicable to this proceeding by Fed. R. Bankr.P. 7056, I may consider this fact undisputed for the purposes of this motion. As Stewart has not provided a date for Mr. McCarthy’s registration renewal, I will use March 1st for the purpose of determining Stewart’s summary judgment motion.
. The state court action against Mr. McCarthy was commenced post-petition but Mr. McCarthy does not dispute that Stewart lacked notice of the bankruptcy when the state court action was filed.
. Under a claims made and reported insurance policy, the date of the event giving rise to the claim does not control the availability of coverage. Instead, under this type of policy, the claim must both be made to the insured and reported to the insurer within the policy period. Occurrence policies, another common form of insurance, cover claims arising during the policy period without regard to when they are asserted against the insured and reported to the insurer. Edwards v. Lexington Ins. Co., 507 F.3d 35, 38 n. 2 (1st Cir.2007).
. Mr. McCarthy also attaches to his affidavit several documents relating to the cancellation of the September 2007-September 2008 American Guarantee Policy. Based upon the documents supplied by Mr. McCarthy, there is nothing to indicate that he or the Firm was informed of the cancellation of the American Guarantee policy before his or the Firm's receipt of a letter dated May 1, 2008. Stewart has not provided any testimony or documentation to suggest that Mr. McCarthy learned of the cancellation on an earlier date.
. Navigators also raised Mr. McCarthy’s knowledge of the claim before the beginning of the policy period as an additional ground for denying coverage.
. Claims arising before the retroactive effective date are not covered under a claims made and reported policy regardless of when the insured was first notified of the claim and reported it to the insurer. Edwards, 507 F.3d at 42 (internal citation and quotation marks omitted) ("[I]t is commonplace for issuers of claims-made policies to limit retroactive coverage by specifying a cut-off date, such as the date of the first claims-made policy issued by the insurer to this insured, so that claims based on occurrences before that date are excluded from coverage. For protection against old occurrences the insured must look to his occurrence policies.”).
. Stewart avers that the gap runs from the termination of the American Guarantee policy *491until the inception of the Navigators policy. It does not, however, take into account the malpractice insurance policy issued by Greenwich covering the period from November 17, 2008 to November 17, 2009.
. Bankruptcy Code § 101(12) defines a "debt” as "liability on a claim.” A "claim” includes the "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal equitable, secured or unsecured....” 11 U.S.C. § 101(5).
. Balfour is no longer good law for its holding that reasonable reliance was required under § 523(a)(2). In Field v. Mans, 516 U.S. 59, 74-75, 116 S.Ct. 437, 133 L.Ed.2d 351 (1995), the U.S. Supreme Court ruled that a lesser standard of justifiable reliance is required.
. In Smith v. Cunningham (In re Cunningham), 163 B.R. 657, 660 (Bankr.D.Mass. 1994), Judge Hillman held that a debtor need not have obtained the money or property for himself as long as he benefited in some way from the money or property obtained by the debtor's deception. Again Stewart has failed to identify what property Mr. McCarthy obtained by his alleged fraud that benefited him.
. In Kawaauhau the creditor, a former patient injured as a result of the physician debt- or’s malpractice, argued that as a matter of policy her debt should be nondischargeable because the debtor did not carry malpractice insurance. The Supreme Court rejected this argument. Id. at 64, 118 S.Ct. at 978.
. The evidence establishes that the Greenwich policy was in place from November 17, 2008 to November 17, 2009. Stewart has not only failed to demonstrate that there was no coverage under the Greenwich policy, it has not addressed the Greenwich policy at all in its pleadings. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494804/ | MEMORANDUM OPINION AND ORDER SUSTAINING PLAINTIFFS’ OBJECTION TO DEFENDANT’S REQUEST FOR PRODUCTION OF DOCUMENTS
MARTIN GLENN, Bankruptcy Judge
Velo Holdings Inc. and its affiliated debtors (“Vertrue” or “Velo”) and Pay-*512mentech, LLC (“Paymentech”) continue to dispute the application of common interest doctrine as applied to certain documents and communications otherwise protected by attorney-client privilege and attorney work product. The documents and communications at issue were created or exchanged between Vertrue and Barclays Bank PLC, as administrative agent (the “Agent”) for Vertrue’s first lien lenders (the “First Lien Lenders”), and their respective counsel. Paymentech seeks production of documents and testimony about the communications, most of which relate to the development of legal strategy to prevent Paymentech’s termination of credit card processing agreements. The Court previously addressed some of the issues in this discovery dispute in an Order entered on May 22, 2012, overruling Vertrue’s objections in part, and ordering further proceedings before addressing the remaining objections. (“May 22 Order”; ECF Doc. #28.) For the reasons explained below, the Court SUSTAINS Vertrue’s remaining objections based on the common interest doctrine.
BACKGROUND
Vertrue commenced this adversary proceeding against Paymentech seeking to enjoin termination of credit card processing agreements between Vertrue and Pay-mentech. On April 25, 2012, the Court granted Vertrue a temporary restraining order preventing Paymentech from terminating the processing agreements, and setting the matter down for a preliminary injunction hearing. (ECF Doc. # 12.) During discovery in advance of the preliminary injunction hearing, Vertrue and the Agent have raised issues relating to attorney-client privilege, work product protection, and a possible common legal interest between the Agent and Vertrue that would protect otherwise privileged documents from waiver because they were shared between Vertrue and the Agent. In response to a discovery request from Paymentech, Vertrue objected to certain discovery, asserting attorney-client privilege, work product protection, and the common interest doctrine.
In the May 22 Order, the Court overruled Vertrue’s objections to Paymentech’s discovery requests seeking discovery of all documents and communications between Vertrue and its attorneys, on the one hand, and the Agent and First Lien Lenders and their attorneys, on the other hand, that took place before April 2, 2012, relating to (i) financial results, liquidity issues, restructuring proposals, a pre-negotiated bankruptcy case, (ii) Vertrue’s November 14, 2011 meeting with Paymentech and Visa and (iii) any threats to terminate the processing agreements.1 The Court or*513dered that responsive documents relating to these subjects be produced on or before May 26, 2012 at 5:00 p.m.
According to the declaration of Lorraine DiSanto, dated May 17, 2012 (the “DiSanto Decl.,” ECF Doc. #24), “[ajfter Chase Paymenteeh’s January 20, 2012 letter to Vertrue advising that Chase Paymentech planned to try to terminate the processing agreements on April 20, 2012, Vertrue and the Agent, with their respective attorneys and financial advisors, worked together to develop a litigation strategy to prevent Chase Paymentech from impermissibly terminating the processing agreements.” DiSanto Decl. ¶ 7. With respect to documents or discussions between counsel for Vertrue and the Agent after January 20, 2012 about developing a legal strategy to prevent termination of the processing agreements, the May 22 Order concluded that such communications may be protected from discovery by attorney work product and common interest protection, but it was not possible for the Court to resolve the issues on the record before the Court. Therefore, the Court required Vertrue to provide a privilege log identifying each document Vertrue claims is privileged.2 The Court also permitted the parties to take limited deposition discovery addressing any disputed factual issues concerning Vertrue’s assertion of privilege, and to submit supplemental letter briefs and evidence addressing the privilege issues.
The parties submitted the additional letter briefs and evidence. While the May 22 Order provided that the parties could submit any disputed documents for in camera review, counsel advised the Court in a telephone hearing on June 5, 2012 that in camera review of documents is unnecessary.3 Paymentech has agreed that prior to disclosure to the Agent, the documents were protected from disclosure by attorney-client privilege or attorney work product; Paymentech contends, however, that disclosure of these communications to the Agent had the effect of waiving the applicable privilege. Vertrue contends and Paymentech disputes that the so-called *514common interest doctrine applies and continues to protect the documents (and any related communications) from discovery.
DISCUSSION
Paymentech argues that the common interest doctrine does not apply for three reasons. First, Paymentech claims that the interest shared between Vertrue and the Agent was purely commercial and that such a shared interest cannot create a common legal interest. Second, Paymen-tech argues that neither Vertrue nor the Agent had an expectation of confidentiality at the time of the communications at the center of this dispute. Third, Paymentech argues that the common interest doctrine is inapplicable because none of the communications were made in anticipation of litigation. Based on the facts established in the declarations and deposition excerpts submitted to the Court, each of Paymen-tech’s arguments fails.
The common interest doctrine is “an exception to the general rule that voluntary disclosure of confidential, privileged material to a third-party waives any applicable privilege.” HSH Nordbank AG N.Y. Branch v. Swerdlow, 259 F.R.D. 64, 71 (S.D.N.Y.2009) (Lynch, J.) (“Nordbank”). As the court held in Nordbank, “[djemon-strating the applicability of the common interest doctrine requires a two-part showing: (1) the party who asserts the rule must share a common legal interest with the party with whom the information was shared and (2) the statements for which protection is sought must have been designed to further that interest.” Id. (internal quotation marks omitted). “The doctrine is limited to situations where multiple parties are represented by separate counsel that share a common interest about a legal matter.” In re Quigley Co., Inc., No. 04-15739(SMB), 2009 Bankr.LEXIS 1352, at *8 (Bankr.S.D.N.Y. April 24, 2009) (“Quigley ”). “As in all claims of privilege arising out of the attorney-client relationship, the proponent must establish that the communication was given in confidence, and under circumstances that made it objectively reasonable for the client to believe that the communication was confidential.” Id. at *9 (citing United States v. Schwimmer, 892 F.2d 237, 244 (2d Cir. 1989)).
The rationale for the doctrine is that it “permits persons who have common interests to coordinate their positions without destroying the privileged status of their communications with their lawyers.” Restatement (Third) of the Law Governing Lawyers § 76 cmt. b. “The communication must relate to the common interest, which may be either legal, factual, or strategic in character. The interests of the separately represented clients need not be entirely congruent.” Id. cmt. e. Clients with common interests may also have conflicting interests without losing the benefit of the common interest doctrine where the communications they seek to protect relate to their common interests. See Eisenberg v. Gagnon, 766 F.2d 770, 787-88 (3d Cir. 1985).
The common interest doctrine applies to both attorney-client communications and work product materials. Am. Eagle Outfitters, Inc. v. Payless Shoe-Source, Inc., No. CV 07-1675(ERK)(WP), 2009 WL 3786210, at *3 (E.D.N.Y. Nov. 12, 2009). In this case, one or both of attorney-client privilege and work product protection may be involved at different points in time, but each document or communication must be separately evaluated to determine whether disclosure is shielded by attorney-client privilege or work product protection. See Niagara Mohawk Power Corp. v. Megan-Racine Assocs., Inc. (In re Megan-Racine Assocs., Inc.), 189 B.R. 562, 573 (Bankr.N.D.N.Y.1995) (“The par*515ties asserting the privilege must also demonstrate that each communication was made in the course of the joint-defense effort and was designed to further that effort”).
In this case Paymenteeh acknowledged in the June 5, 2012 telephone hearing that the documents at issue were, in the first instance, protected from discovery by attorney-client privilege or attorney work product. It is the subsequent sharing with the Agent of documents and communications of otherwise protected information that is the focus of the parties’ dispute.
A. The Common Interest Between Vertrue and the Agent is Not Purely Commercial
Paymenteeh insists that Vertrue and the Agent must share identical legal interests, but that is not the case. Parties asserting a common interest need only share a common interest about a legal matter. Schwimmer, 892 F.2d at 243. See also Nordbank, 259 F.R.D. at 70-73. Indeed, the interests of the parties asserting a common interest need not be universally congruent. See Grand Jury Subpoena Duces Tecum Dated Nov. 16, 1974, 406 F.Supp. 381, 392 (S.D.N.Y.1975) (“a joint defense may be made by somewhat unsteady bedfellows”); Megan-Racine, 189 B.R. at 572 (concluding that doctrine can protect communications between two parties even where a lawsuit between the two parties is foreseeable).
A “key consideration” is that the nature of the interest “be legal, not solely commercial,” as Paymenteeh argues is the case here. Nordbank, 259 F.R.D. at 73 (citing Strougo v. BEA Assocs., 199 F.R.D. 515, 520 (S.D.N.Y.2001) (emphasis added)). As to this point, Paymenteeh cites cases that are inapposite. In Bank of America, N.A. v. Terra Nova Insurance Co. Ltd., 211 F.Supp.2d 493, 497 (S.D.N.Y.2002), Magistrate Judge Gorenstein rejected an argument that the common interest doctrine applied when the asserted common interest was “the structuring and effectuation of the letter of credit agreement and the supporting reinsurance policies.” (internal quotation marks omitted.) The court noted that despite the fact that the parties engaged in a “collaborative effort ... the mere fact that the parties were working together to achieve a commercial goal cannot by itself result in an identity of interest between the parties.” Id. (internal quotation marks omitted).4
Similarly, in Bank Brussels Lambert v. Credit Lyonnais (Suisse) S.A., 160 F.R.D. 437, 447 (S.D.N.Y.1995), the court addressed the issue “whether the doctrine can be stretched to apply to communications between entities that have parallel interests but are not actively pursuing a common legal strategy.” The court also wrote that the common interest doctrine does not “encompass a joint business strategy which happens to include as one of its elements a concern about litigation.” Id.
The facts presented by the relationship between Vertrue and the Agent are distinguishable from those of Bank of America and Bank Brussels. First, the interest claimed as common does not encompass the entire commercial relationship or “joint business strategy” between Vertrue and the Agent; rather, Vertrue, *516the Agent, and their respective counsel, shared a common legal interest in “developing a strategy to prevent the termination of the company’s ... merchant processing agreements with ... Paymentech.” (ECF Doc. # 33 at 2.) In November of 2011, Vertrue and the Agent began discussions regarding how to implement an effective restructuring of Vertrue, a shared interest that was commercial in nature. The May 22 Order overruled Vertrue’s assertion of common interest doctrine with respect to these commercial discussions. But the evidence clearly shows that after receipt of the January 20, 2012 letter, in which Paymentech informed Vertrue of its intent to terminate the processing agreements,5 Vertrue and the Agent promptly began to formulate a legal strategy aimed at preserving these agreements. While grounded in the parties’ commercial relationship, after January 20, 2012, Vertrue and the Agent shared a common legal interest in crafting a strategy to prevent the termination of the processing agreements.
B. There Was an Expectation of Confidentiality Between Vertrue and the Agent
Paymentech also argues that “[n]either Vertrue nor the Agent had an objectively reasonable expectation of confidentiality with respect to any exchange of information concerning any litigation strategy relating to Paymentech.” (ECF Doc. # 34 at 2.) Paymentech insists that the parties relied only upon the Restructuring Confidentiality Agreement, entered on November 28, 2011, which could not create a reasonable expectation of confidentiality because the Restructuring Confidentiality Agreement did not specifically provide for confidentiality of information shared relating. to developing a legal strategy to prevent termination of the Processing Agreements.6
Paymentech relies too heavily on the Restructuring Confidentiality Agreement as the only possible source of a common legal interest between the Agent and Vertrue. Courts in this circuit have routinely held that a writing is unnecessary to establish a common legal interest. See, e.g. Nordbank, 259 F.R.D. at 72 (citing Denney v. Jenkens & Gilchrist, 362 F.Supp.2d 407, 415 (S.D.N.Y.2004); Lugosch v. Congel, 219 F.R.D. 220, 237 (N.D.N.Y.2003); Doctor’s Assocs., Inc. v. QIP Holder LLC, No. 3:06 Civ. 1710, 2009 WL 1683628, at *6 (D.Conn. Feb. 26, 2009)). Indeed, the evidence establishes that at the start of the meetings between *517the Agent and Vertrue, announcements were made about the confidential nature of the meetings. (McLean Tr. 21:3-12, EOF Doc. # 34, Ex. A.) A written agreement is neither necessary to establish a common legal interest, nor to establish an expectation of confidentiality. The Court finds that the Agent and Vertrue both had an expectation of confidentiality at the time the disputed communications were made.
C. The Communications Were Made in Anticipation of Litigation
“[I]t is not necessary for litigation to be in progress for the common interest doctrine to apply.” Bank Brussels, 160 F.R.D. at 447 (citing Schwimmer, 892 F.2d at 244). However, “New York law appears to restrict the doctrine to communications with respect to legal advice ‘in pending or reasonably anticipated litigation.’” Allied Irish Banks, P.L.C. v. Bank of Am., N.A., 252 F.R.D. 163, 171 (S.D.N.Y.2008) (quoting Aetna Cas. & Sur. Co. v. Certain Underwriters at Lloyd’s London, 176 Misc.2d 605, 676 N.Y.S.2d 727, 732 (N.Y.Sup.Ct.1998)). The requirement that the legal advice must be with respect to pending or reasonably anticipated litigation is not present under federal common law. Nordbank, 259 F.R.D. at 71 n. 9.
While the parties have not made any express statements regarding choice of law, the distinction is irrelevant here because the communications between the parties were made in anticipation of litigation. The fact that the Agent is not currently a party to the litigation before this Court does not preclude the common interest doctrine from application.7 See id. (holding that the facts demonstrated that tite plaintiff and “the non-party lenders had, in fact, reasonably anticipated litigation at the time the communications were made”). Under either New York or federal law, communications between Vertrue and the Agent may still be protected under the common interest doctrine despite the Agent’s non-party status.
D. The Parties Had a Common Legal Interest After April 2, 2012
On April 2, 2012, the First Lien Lenders and Vertrue entered into a Protocol outlining the terms of a proposed restructuring. In the May 22 Order, the Court held that prior to April 2, 2012, it was not objectively reasonable for Vertrue to believe that its communications with the Agent were confidential, except as related to legal strategy to prevent termination of the processing agreements. (May 22 Order at 5.) But after the parties entered into the Protocol — providing that the First Lien Lenders would credit bid for some of Vertrue’s assets, and that the Court would oversee an auction process for the remainder of Vertrue’s business in which the First Lien Lenders would also serve as stalking-horse bidder — Vertrue and the Agent held a common legal interest with regard to restructuring proposals. Further, after April 2, 2012 it was objectively reasonable for both Vertrue and the Agent to believe that the communications between the parties would be confidential. See Quigley, 2009 Bankr. LEXIS 1352, at *9. Accordingly, the Court concludes that after April 2, 2012, Vertrue and the Agent had a common legal interest protecting from discovery otherwise privileged documents and communications relating to “financial results, liquidity issues, restructur*518ing proposals, pre-negotiated bankruptcy, and any threats to terminate the processing agreement.”8
CONCLUSION
As was the case in Quigley, “the commonality or lack of commonality” of the interest between Vertrue and the Agent “depends on which interest you consider.” Quigley, 2009 Bankr. LEXIS 1352, at *13. In November 2011, the common interest of Vertrue and the Agent was primarily, if not purely, commercial. However, after Vertrue received the January 20, 2012 letter, the parties had a common legal interest in preventing termination of the processing agreements. The documents and communications shared between the parties made in furtherance of this interest were made in reasonable anticipation of litigation with Paymentech, and the evidence establishes that the parties reasonably expected that the communications would remain confidential.
After the Protocol was entered on April 2, 2012, the parties’ common legal interests expanded beyond simply preventing termination of the processing agreements. From that time forward, the parties had a common legal interest in effectuating a successful restructuring of Vertrue’s business. To the extent documents or communications were otherwise privileged, the common interest doctrine prevented privilege from being lost because documents or communications were shared between Ver-true and the Agent, and their respective counsel.
Accordingly, the Court SUSTAINS the balance of Vertrue’s objections to the disputed discovery based on common interest privilege.
IT IS SO ORDERED.
. The May 22 Order provided, in relevant part:
According to the Debtors, "[o]n November 17, 2011, Vertrue held a confidential meeting with the secured lenders ... to discuss financial results and liquidity issues and to present the financial restructuring proposal that included a pre-negotiated bankruptcy case.” Velo further explains that, at the November 17 meeting, it reported to the lenders the results of its November 14, 2011 meeting with Visa and Paymentech. Velo’s description of the November 17 meeting makes clear that these discussions between a borrower and its lenders were business discussions not protected by attorney-client privilege or work product protection. Velo and the lenders continued to negotiate the terms of a proposed restructuring and on April 2, 2012, the First Lien Lenders and the Debtors entered into a Protocol outlining the terms of a proposed restructuring. Before entering into the Protocol, the interests of Velo and the First Lien Lenders were not aligned insofar as an agreement on restructuring was concerned. Velo cannot shield from discovery documents and communications that might otherwise have been subject to a claim of privilege that were shared between Velo and the First *513Lien Lenders, or their respective counsel, before the Protocol was reached. Velo has failed to carry its burden of establishing the existence of a common interest privilege with respect to documents and communications regarding any restructuring proposals until April 2, 2012, when the Protocol was entered. Until that date, it was not "objectively reasonable for [Velo] to believe that the communication was confidential." In re Quigley Co., Inc., No. 04-15739(SMB), 2009 Bankr.LEXIS 1352, at *9 (Bankr. S.D.N.Y. April 24, 2009). Factual presentations or discussions before April 2, 2012 about Paymentech’s threats to terminate the processing agreements with Vertrue stand on no stronger footing.
May 22 Order at 4-5.
. Vertrue had not submitted a privilege log when the common interest doctrine issue was initially presented to the Court. Fed.R.Civ.P. 45(d)(2)(A) requires a person withholding documents under a claim of privilege to “describe the nature of the withheld documents, communications, or tangible things in a manner that, without revealing information itself privileged or protected, will enable the parties to assess the claim.” Without knowing the dates of the communications, authors, addressees, who received copies, and the subject matter, and an in camera review of documents, if necessary, it is impossible to know whether the documents or communications were subject to attorney-client privilege or work product protection in the first instance, and, if so, whether the result is altered by any subsequent communications between Vertrue and its counsel, and the lenders or their counsel. After Vertrue provided a privilege log, Paymentech elected not to challenge the existence of privilege in the first instance.
. The parties agree that the current dispute relates to 291 documents listed in Vertrue’s privilege log asserting common interest privilege, and to possible deposition examination relating to the subject of these communications.
. In Sokol v. Wyeth, Inc., No. 07-Civ.-8442 (SHS)(KNF), 2008 WL 3166662, at *8 (S.D.N.Y. Aug. 4, 2008), the court found no common interest between two parties where an attorney hired by the plaintiff, who had also been retained by a third party, mentioned the third party "occasionally, [and] for the purpose of updating [the plaintiff] on its status, not to develop a common legal strategy.” The facts of Sokol are plainly distinguishable from the facts of this case.
. Whether the January 20, 2012 letter terminated the Processing Agreements or evidenced Paymentech’s intent to terminate the Processing Agreements is still an issue in dispute in this case. The Court’s statements regarding this letter are not to be construed as conclusions regarding the alleged legal effect of the January 20, 2012 letter from Pay-mentech to Vertrue.
. The May 22 Order concluded that the Restructuring Confidentiality Agreement did not shield information shared between Vertrue and the Agent on the basis of common interest doctrine:
One thing that should be clear is the fact that Velo and the First Lien Lenders entered into the Restructuring Confidentiality Agreement on November 28, 2011 does not mean that all information shared between them is protected from discovery by attorney-client privilege or work product protection. The effect of the Restructuring Confidentiality Agreement is that the First Lien Lenders could not further disclose confidential information provided by Velo. But that agreement cannot create privilege where none exists, or limit discovery by Paymentech in the context of this adversary proceeding, unless specific documents or communications are protected by attorney-client privilege or work product.
May 22 Order at 4.
. Initially, Paymentech disputed the Agent's right to be heard in this litigation absent formal intervention. The issue was resolved with an agreement permitting the Agent’s participation to a limited extent without formal intervention. The Agent’s counsel has appeared and been heard at each hearing in the case.
. The documents and communications must, of course, relate to the rendering or receipt of legal advice to the client (or those sharing the common legal interest), intended to be confidential and, in fact, otherwise remaining confidential. Communications of information— even confidential information — exclusively for a business purpose are not protected. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488124/ | IN THE SUPREME COURT OF THE STATE OF NEVADA
VERANO LAND GROUP, LP, A No. 85408
NEVADA LIMITED PARTNERSHIP,
Petitioner,
vs.
THE EIGHTH JUDICIAL DISTRICT FILED
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF NOV 1 8 2022
CLARK; AND THE HONORABLE
NANCY L. ALLF, DISTRICT JUDGE,
Respondents,
and
2000 HOLDINGS, LTD., AN OHIO
LIMITED LIABILITY COMPANY A/K/A
2000 HOLDINGS, LLC, AN OHIO
LIMITED LIABILITY COMPANY,
Real Party in Interest.
ORDER DISMISSING PETITION
The parties to this action, as well as South San Antonio
Management, LLC (SSAM) and Fidelity National Title Group, National
Commercial Services, Las Vegas Division (NCS) have filed a stipulation to
dismiss this entire proceeding, including (1) Verano Land Group's writ
petition, (2) SSAM's joinder to the petition, (3) real party in interest's
motion to dismiss the petition, strike SSAM's joinder, and extend time to
file an answer, and (4) NCS's joinder to the petition. The stipulation is
approved to the following extent. Verano Land Group's petition for writ of
mandamus or prohibition is dismissed. This court will take no action on the
joinders or real party in interest's motion.
It is so ORDERED.
SUPREME COURT
, C.J.
OF
NEVADA
()) I947A 44PP
2,2- tsc0-73
cc: Hon. Nancy L. Allf, District Judge
Kemp Jones, LLP
Lewis Roca Rothgerber Christie LLP/Las Vegas
Richie & Gueringer, P.C.
Fidelity National Law Group
Eighth District Court Clerk
SUPREME COURT
OF
NEVADA
(01 1947A • 2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488122/ | Case: 21-30636 Document: 00516551237 Page: 1 Date Filed: 11/18/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
November 18, 2022
No. 21-30636 Lyle W. Cayce
Clerk
Stacy Seville, as Personal Representative of Peter
Wojcikowski,
Plaintiff—Appellant,
versus
Maersk Line, Limited,
Defendant—Appellee.
Appeal from the United States District Court
for the Eastern District of Louisiana
USDC No. 2:20-CV-2727
Before Jones, Southwick, and Oldham, Circuit Judges.
Andrew S. Oldham, Circuit Judge:
Plaintiff filed suit in a district court that concededly had no personal
jurisdiction over the defendant and no colorable basis for venue. The district
court dismissed the suit and refused to transfer venue. We affirm.
I.
Peter Wojcikowski was a seaman employed by defendant-appellee
Maersk Line, Ltd. (MLL). On October 28, 2017, while working aboard an
MLL vessel berthed in Bahrain, he was involved in an accident and suffered
Case: 21-30636 Document: 00516551237 Page: 2 Date Filed: 11/18/2022
No. 21-30636
a back injury. He returned to the United States for treatment and, a few weeks
later, died from a self-inflicted gunshot wound.
On October 6, 2020, acting as Mr. Wojcikowski’s personal
representative, plaintiff-appellant Stacy Seville filed this Jones Act
negligence claim in the Eastern District of Louisiana. She argued Mr.
Wojcikowski’s back injury was the proximate cause of his death.
MLL moved to dismiss for lack of personal jurisdiction, arguing venue
was improper because MLL is not subject to personal jurisdiction in the
Eastern District of Louisiana. Seville opposed the motion without contesting
any of MLL’s jurisdictional arguments. Instead she requested transfer to the
Eastern District of Virginia under 28 U.S.C. § 1406(a). The district court
granted MLL’s Rule 12(b)(2) motion to dismiss for lack of personal
jurisdiction, denied Seville’s request to transfer under § 1406(a), and entered
final judgment in favor of MLL. Seville timely appealed.
II.
Everyone here agrees the Eastern District of Louisiana was not a
proper venue for this lawsuit. Appellant says the district court nonetheless
abused its discretion by denying the motion to transfer venue and dismissing
the case. We disagree.
We (A) explain the venue and venue-transfer rules. Then we
(B) explain why Seville failed to carry her burden to show transfer was
warranted. Finally, we (C) hold the district court did not abuse its discretion
in declining to transfer this case.
A.
In suits brought under the Jones Act, venue is “proper in any district
in which the defendant is subject to personal jurisdiction.” 1 Admiralty
and Maritime Law § 6:20 (6th ed., Dec. 2021 update) (citing 28 U.S.C.
2
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No. 21-30636
§ 1391(c)); see also 28 U.S.C. § 1391(b)(1) (“A civil action may be brought
in . . . a judicial district in which any defendant resides[.]”); id. § 1391(c)(2)
(“[A]n entity with the capacity to sue and be sued in its common name under
applicable law, whether or not incorporated, shall be deemed to reside, if a
defendant, in any judicial district in which such defendant is subject to the
court’s personal jurisdiction with respect to the civil action in question[.]”).
Where venue is improper, the district court should generally dismiss
the case. But the court retains discretion to transfer it to a proper venue if
such a transfer would serve “the interest of justice.” 28 U.S.C. § 1406(a)
(“The district court of a district in which is filed a case laying venue in the
wrong division or district shall dismiss, or if it be in the interest of justice,
transfer such case to any district or division in which it could have been
brought.” (emphasis added)). Among the relevant considerations for
determining whether transfer is in the interest of justice, courts examine the
plaintiff’s reasons for filing suit in the improper district in the first place and
ask whether the “plaintiff’s belief that venue was proper was in good faith
and reasonable.” 14D Charles Alan Wright et al., Federal
Practice and Procedure § 3827 (4th ed. 2021) [hereinafter Wright
& Miller]. 1 And where a “plaintiff’s attorney reasonably could have
foreseen that the forum in which the suit was filed was improper,” courts
1
The full paragraph reads: “In most cases of improper venue, the courts conclude
that it is in the interest of justice to transfer to a proper forum rather than to dismiss the
litigation. The reasons for doing so are especially compelling if the statute of limitations has
run since the commencement of the action, so that dismissal might prevent the institution
of a new suit by the plaintiff and a resolution on the merits, or if the defendant has misled
the plaintiff on the facts relevant to venue. District courts also are likely to order transfer
rather than dismissal if it would be more efficient or economical to do so or if the plaintiff’s
belief that venue was proper was in good faith and reasonable. These are far from the only
reasons for a court to prefer transfer to dismissal. Indeed, it is enough simply that the
district judge, in the sound exercise of discretion, concludes that transfer is in the interest
of justice, as many courts have concluded.” 14D Wright & Miller § 3827.
3
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No. 21-30636
“often dismiss rather than transfer under Section 1406(a)” on the idea “that
similar conduct should be discouraged.” Ibid. That’s because it is “obviously
not ‘in the interest of justice’ to allow [§ 1406(a)] to be used to aid a non-
diligent plaintiff who knowingly files a case in the wrong district.” Dubin v.
United States, 380 F.2d 813, 816 n.5 (5th Cir. 1967).
That’s true even where a statute of limitations might bar re-filing. Our
court has long recognized that a district court retains discretion in such cases
to deny a non-diligent plaintiff’s request for transfer. See, e.g., ibid. (“[The]
statute of limitations” would be “frustrated by” § 1406 if that statute could
be “used to aid a non-diligent plaintiff[.]”). Numerous other courts agree. 2
The rule is clear and well-established: A district court may deny a request for
transfer under § 1406 and dismiss the case where transfer would reward the
2
See, e.g., Stanifer v. Brannan, 564 F.3d 455, 460 (6th Cir. 2009) (explaining
court’s discretion to deny transfer where there was no “assertion of . . . personal
jurisdiction that provided some arguable basis for thinking that the action was properly
brought in the district in which it was originally filed,” even if re-filing is time-barred);
Nichols v. G.D. Searle & Co., 991 F.2d 1195, 1202 (4th Cir. 1993) (“[A] district court does
not abuse its discretion when it denies, as not in the interest of justice, a plaintiff’s [transfer
request under § 1406] because the plaintiff’s attorney could reasonably have foreseen that
the forum in which he/she filed was improper.”); Spar, Inc. v. Info. Res., Inc., 956 F.2d 392,
394 (2d Cir. 1992) (denying transfer where plaintiff sought “to avoid a statute of limitations
defect through a transfer of venue” because it “would reward plaintiffs for their lack of
diligence”); Cirafici v. City of Ithaca, 968 F.2d 1220 (unpublished table decision), 1992 WL
149862, at *2 (9th Cir. 1992) (holding transfer not in the interest of justice where plaintiff
“was not diligent in prosecuting his action,” even though plaintiff’s “action may be time-
barred”); Deleski v. Raymark Indus., Inc., 819 F.2d 377, 381 (3d Cir. 1987) (“It is not in the
‘interest of justice’ to transfer this case . . . upon appellant’s tardy discovery that her
complaint is time-barred.”); Coté v. Wadel, 796 F.2d 981, 985 (7th Cir. 1986) (denying
transfer request where limitations period had run and “[e]lementary prudence would have
indicated to [plaintiff’s] lawyer that he must file a protective suit” in the forum “where the
plaintiff can get personal jurisdiction over the defendant before, not after, the statute of
limitations runs”).
4
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No. 21-30636
plaintiff’s lack of diligence—even if the dismissal means the plaintiff will be
time-barred from filing again in a proper venue.
B.
Appellant failed to carry her burden to show transfer was warranted
here. That’s because (1) MLL is not subject to personal jurisdiction in the
Eastern District of Louisiana and (2) that fact was entirely foreseeable to any
attorney exercising any amount of diligence.
1.
The Eastern District of Louisiana cannot assert general personal
jurisdiction over MLL. Nor can it assert specific personal jurisdiction over
MLL. So MLL is not subject to personal jurisdiction in the district where
appellant filed suit.
First, general personal jurisdiction. A court may assert general
personal jurisdiction over foreign corporations “when their affiliations with
the State are so continuous and systematic as to render them essentially at
home in the forum State.” BNSF Ry. Co. v. Tyrrell, 137 S. Ct. 1549, 1558
(2017) (quotation omitted). There are two “paradigm” forums in which a
corporate defendant is “at home.” Ibid. (quotation omitted). They are (1) the
corporation’s place of incorporation and (2) its principal place of business.
See ibid. Beyond those two “paradigm” forums, there may also be
“exceptional case[s]” where the exercise of general jurisdiction is
appropriate because a corporate defendant’s operations are “so substantial
and of such a nature as to render the corporation at home” in the forum State.
Ibid. (quotation omitted). But it is “incredibly difficult to establish general
jurisdiction in a forum other than the place of incorporation or principal place
of business.” Frank v. P N K (Lake Charles) LLC, 947 F.3d 331, 337 (5th Cir.
2020) (quotation omitted).
5
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No. 21-30636
MLL is incorporated in Delaware. Its principal place of business is in
Virginia. And appellant offers no reason whatsoever to think this might be
“the exceptional case” where MLL’s activities in Louisiana are so
substantial as to render it at home there. So MLL is not subject to general
personal jurisdiction in the Eastern District of Louisiana.
Second, specific personal jurisdiction. Specific jurisdiction “focuses
on the relationship among the defendant, the forum, and the litigation.”
Walden v. Fiore, 571 U.S. 277, 284 (2014) (quotation omitted). It “arises
when a defendant’s minimum contacts with a forum state are related to the
pending lawsuit.” E. Concrete Materials, Inc. v. ACE Am. Ins. Co., 948 F.3d
289, 296 (5th Cir. 2020). Our court applies a three-prong analysis: We
consider “(1) whether the defendant has minimum contacts with the forum
[S]tate, i.e., whether it purposely directed its activities toward the forum
[S]tate or purposefully availed itself of the privileges of conducting activities
there.” Monkton Ins. Servs., Ltd. v. Ritter, 768 F.3d 429, 433 (5th Cir. 2014)
(quoting Seiferth v. Helicopteros Atuneros, Inc., 472 F.3d 266, 271 (5th Cir.
2006)). Then we analyze “(2) whether the plaintiff’s cause of action arises
out of or results from the defendant’s forum-related contacts.” Ibid. Finally,
we ask “(3) whether the exercise of personal jurisdiction is fair and
reasonable.” Ibid. It’s the plaintiff’s burden to establish the first two prongs.
See E. Concrete Materials, 948 F.3d at 296.
Appellant can’t meet that burden. Her complaint alleged that MLL
does business in Louisiana and is amenable to process there. But there is
simply no basis to conclude appellant’s cause of action arises out of those
forum-related contacts. All agree the cause of action arises out of events that
took place far from Louisiana in the waters of Bahrain, and appellant has
made no effort to connect the accident in Bahrain to MLL’s business in
Louisiana. Absent any attempt to explain the relationship between the
6
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No. 21-30636
defendant, the forum, and this litigation, there is no way for appellant to
establish specific jurisdiction.
2.
A district court might excuse this sort of mistake where plaintiff’s
attorney could not reasonably have anticipated the venue problem. That’s
especially true if it becomes clear the defendant is at fault—where, for
example, “the defendant has misled the plaintiff on the facts relevant to
venue.” 14D Wright & Miller § 3827. But where “the plaintiff’s
attorney reasonably could have foreseen that the forum in which the suit was
filed was improper,” ibid., transfer is normally unwarranted. And here, it was
entirely foreseeable that the Eastern District of Louisiana lacked personal
jurisdiction over MLL.
It is evident from the face of the complaint that MLL is not subject to
general jurisdiction in the Eastern District of Louisiana. The complaint
alleged that MLL is a Delaware corporation with its principal place of
business in Virginia. And the complaint is devoid of any allegations that come
close to suggesting MLL’s activities in Louisiana are so substantial as to
render it at home there. So “elementary prudence” should have revealed to
Seville’s attorney that the Eastern District of Louisiana lacked general
personal jurisdiction over MLL. Coté v. Wadel, 796 F.2d 981, 985 (7th Cir.
1986).
So too with specific jurisdiction. As already explained, nothing in
appellant’s filings suggests a connection between defendant’s forum-related
contacts and this litigation. Moreover, appellant openly admitted there was
no basis for thinking such a connection existed: When asked at oral argument
to identify the connection between this lawsuit and the chosen forum,
appellant’s attorney told us “there isn’t a connection, other than that we
[appellant’s attorneys] actually practice here [in the Eastern District of
7
Case: 21-30636 Document: 00516551237 Page: 8 Date Filed: 11/18/2022
No. 21-30636
Louisiana].” Oral Arg. at 9:20–9:35. It should go without saying that an
attorney cannot choose a venue based on personal convenience.
Nor can an attorney file in the wrong venue and hope his opponent
doesn’t object. At oral argument, appellant’s counsel purported to justify
filing in the wrong venue on the ground that personal jurisdiction is waivable.
See Oral Arg. at 11:40–12:30 (Q: “So it’s okay for your law firm to file any
suit at all in the district where you practice and place the burden on the
defendant to transfer to the proper venue at any time, is that what you think
§ 1406 says?” A: “. . . I’m saying yes to your question because there’s always
a chance that they waive the jurisdiction themselves.”). It’s true that
personal jurisdiction is waivable. It’s also irrelevant. That’s because the
Federal Rules of Civil Procedure require a good-faith and colorable basis for
every representation made to a federal court—no matter whether the other
side objects. Specifically:
Representations to the Court. By presenting to the
court a pleading, written motion, or other paper—whether by
signing, filing, submitting, or later advocating it—an attorney
or unrepresented party certifies that to the best of the person’s
knowledge, information, and belief, formed after an inquiry
reasonable under the circumstances:
...
(2) the claims, defenses, and other legal contentions are
warranted by existing law or by a nonfrivolous argument for
extending, modifying, or reversing existing law or for
establishing new law[.]
Fed. R. Civ. P. 11(b)(2).
Appellant’s attorney filed the complaint in the Eastern District of
Louisiana and represented that “MLL is subject to and within the
jurisdiction and venue of [that] Court.” Yet at oral argument, counsel stated
8
Case: 21-30636 Document: 00516551237 Page: 9 Date Filed: 11/18/2022
No. 21-30636
that he (1) believed he needed no colorable basis for filing in that district,
(2) in fact had no colorable basis for the representation he made as to
jurisdiction and venue, (3) had known from the start that his only real chance
of establishing personal jurisdiction and venue was if the defendant failed to
object, and (4) figured he could always obtain a transfer under § 1406 if it
turned out defendant objected. Those statements are equal parts disturbing
and surprising. Today we hold that such admissions not only foreclose
transfer under § 1406, on defendant’s objection, but also give rise to Rule 11
violations.
C.
Section 1406 “confer[s] broad discretion in ruling on a motion to
transfer.” Stanifer v. Brannan, 564 F.3d 455, 456–57 (6th Cir. 2009). And a
district court’s decision to deny a motion to transfer venue “will not be
reversed on appeal absent an abuse of discretion.” Peteet v. Dow Chem. Co.,
868 F.2d 1428, 1436 (5th Cir. 1989).
It was clearly not an abuse of discretion for the district court to deny
appellant’s motion to transfer venue in this case. Appellant’s attorney, by his
own admission, knew there was no colorable basis for laying venue in the
Eastern District of Louisiana. We have long made clear that it is “obviously
not in the interest of justice to allow [§ 1406] to be used to aid a non-diligent
plaintiff who knowingly files a case in the wrong district.” Dubin, 380 F.2d at
816 n.5 (quotation omitted).
* * *
For these reasons, we AFFIRM the district court’s order dismissing
the case for lack of personal jurisdiction and denying appellant’s request to
transfer under 28 U.S.C. § 1406.
9 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488131/ | 11TH COURT OF APPEALS
EASTLAND, TEXAS
JUDGMENT
In the interest of J.X.V. and F.D.V, * From the 446th District Court
children, of Ector County,
Trial Court No. E-16-03-0287-FM.
No. 11-22-00154-CV * November 17, 2022
* Per Curiam Memorandum Opinion
(Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.)
This court has inspected the record in this cause and concludes that the appeal
should be dismissed for want of prosecution. Therefore, in accordance with this
court’s opinion, the appeal is dismissed. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488129/ | Supreme Court of Texas
══════════
No. 20-0681
══════════
Columbia Valley Healthcare System, L.P. d/b/a Valley Regional
Medical Center,
Petitioner,
v.
A.M.A., A Minor, by and through his mother, Ana Ramirez, as
next friend and Ana Ramirez, Individually,
Respondents
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Thirteenth District of Texas
═══════════════════════════════════════
Argued February 23, 2022
JUSTICE YOUNG delivered the opinion of the Court.
Before respondent A.M.A. was born, nurses had observed his
heartrate dropping to dangerous and even nondetectable levels for
extended periods before they summoned the obstetrician. A.M.A. was
deprived of oxygen for these periods because, as became apparent upon
his delivery, the umbilical cord had become tightly wrapped around his
neck. A.M.A. survived but was soon diagnosed with cerebral palsy.
Following trial, a jury awarded a substantial amount for A.M.A.’s future
healthcare expenses. At petitioner’s request, the district court applied
the periodic-payments statute in the Texas Civil Practice and Remedies
Code to the award of future medical expenses. We recently addressed
that statute in Regent Care of San Antonio, L.P. v. Detrick, 610 S.W.3d
830 (Tex. 2020). But because we decided that case after the district court
rendered judgment, neither the court nor the parties had the benefit of
its guidance. We conclude that the district court erred in how it
structured the periodic payments and remand to that court for further
proceedings that will allow it, in light of Regent Care and today’s
decision, to render a judgment that complies with the periodic-payments
statute.
I
Ana Ramirez, A.M.A.’s mother, went to Valley Regional Medical
Center for premature labor—she was 33-weeks pregnant—after her
water broke on a Friday evening.1 Her obstetrician, Dr. Martinez,
instructed the nurses to monitor the baby’s heartbeat, then went home
for the night, leaving the mother and her unborn baby in the nurses’
hands over the weekend. A.M.A.’s heartbeat in utero dropped for about
two minutes shortly after midnight on Sunday. Twenty minutes later,
his heartbeat dropped for seven minutes. Finally, after another twenty
minutes, the baby’s heartbeat dropped to the point where the nurses
could not detect it. Even then, the nurses did not call Dr. Martinez—
they waited for another twenty minutes.
1 The petitioner is Columbia Valley Healthcare System, L.P. d/b/a
Valley Regional Medical Center. We refer to it as “Valley Regional.”
2
After the nurses called the doctor, it took him about nineteen
minutes to arrive at Valley Regional. His ability to act was impeded
because no ultrasound had been done, even though he had ordered a
“stat” ultrasound when the nurses called him. The ultrasound
technician arrived only after Dr. Martinez did. Once the ultrasound was
started, the doctor saw that there was minimal heart activity, ordered
an emergency c-section, and proceeded immediately to the operating
room. After further logistical delays, including obtaining Ramirez’s
signature on additional forms, A.M.A. was finally delivered. The
umbilical cord had become tightly wrapped around his neck. Because of
the lack of oxygen to his brain, A.M.A. was later diagnosed with cerebral
palsy.
Ramirez sued Valley Regional on behalf of A.M.A., alleging that
the nurses’ delay caused A.M.A.’s cerebral palsy. At the close of
evidence, Valley Regional’s proposed jury charge asked the court to
question the jury about A.M.A.’s life expectancy and about the annual
amount of any future healthcare expenses. The trial court denied Valley
Regional’s proposed charge and Valley Regional objected to the denial.
The jury found for A.M.A. and awarded $10,330,000, divided as follows:
$62,000 for past healthcare expenses, $9,060,000 for future healthcare
expenses until A.M.A. turns 18, and $1,208,000 for future healthcare
expenses after he turns 18.
Before trial, Valley Regional had moved the trial court to
structure any jury award of future medical expenses as periodic
payments under the periodic-payments statute, which is codified as
Texas Civil Practice and Remedies Code Chapter 74, Subchapter K.
3
When properly invoked, the periodic-payments statute requires the trial
judge to order that the award for future healthcare expenses be paid “in
whole or in part in periodic payments rather than by a lump sum
payment.” Tex. Civ. Prac. & Rem. Code § 74.503(a).
About a month after the jury trial concluded, the trial judge held
a hearing to determine how to form the court’s judgment, including how
to structure periodic payments and how to ensure that any required
periodic payments would be made. Valley Regional’s principal position
was that, under the statute and the Constitution, separate questions
about life expectancy or annual medical expenses should have been
submitted to the jury. Despite the lack of separate questions, however,
evidence presented at the trial had addressed these topics. A.M.A.’s
expert, Dr. Willingham, testified that A.M.A.’s life expectancy was
thirty-two years. Valley Regional’s experts testified that A.M.A.’s life
expectancy was likely up to age seven or eight, but that he was “highly
unlikely” to live past age ten. Each party presented annual healthcare
costs that tracked their different life-expectancy evidence. Valley
Regional presented evidence of annual healthcare costs of $604,000 per
year and for its expert’s opinion that A.M.A. had five years of life
remaining. A.M.A.’s expert submitted life-care plans that included
annual medical costs to age eighteen, and from that age to “end of life”
at age thirty-two.
A.M.A. noted some of this evidence at the hearing and in
subsequent briefing about the structure of the periodic payments. The
district court found A.M.A.’s first proposed judgment insufficiently clear
and directed A.M.A. to revise it. The district court repeatedly offered
4
Valley Regional the chance to provide its own proposed judgment,
including how it would structure the periodic payments, but Valley
Regional agreed only to offer objections to A.M.A.’s proposed judgment,
which it did. About three weeks later, the trial court held a hearing on
A.M.A.’s second proposed judgment, which included modifications and
clarifications to the proposed structure for periodic payments.
A.M.A. then submitted its third proposed judgment and Valley
Regional submitted its objections. The trial court signed A.M.A.’s
proposal as its final judgment, which ordered the award structured as
follows: (1) five periodic payments of $604,000 from a funded bank
account, to begin on A.M.A.’s “fourth birthday, which will be on October
27, 2018, and the payments shall continue on his birthday each year
through his 8th birthday on October 27, 2022,” and (2) a lump-sum
payment of the remaining $7,310,000 to a special-needs trust, which
allows funds to be used to maintain good health, safety, and well-being,
in addition to medical expenses. In the event of A.M.A.’s death, the
special-needs trust mandates that any remaining principal and income
in the trust revert to his heirs, which would be his father and mother.
The district court also awarded prejudgment and postjudgment interest.
After the trial court signed the judgment, Valley Regional
requested findings of fact and conclusions of law concerning the periodic
payments. The district court denied that request. Valley Regional also
challenged the judgment through a series of other motions, each of
which the trial court denied.
Valley Regional perfected a timely notice of appeal and brought
its case to the Thirteenth Court of Appeals. In multiple issues, it raised
5
three main challenges to the district court’s judgment. First, it
challenged the legal and factual sufficiency of the evidence for medical
liability, again predicated on causation. Second, it claimed that it had
been denied its right to a jury trial, on the ground that life expectancy
and annual medical expenses should have been submitted to the jury,
as Valley Regional repeatedly asked. Finally, it contended that the
periodic-payments statute is ambiguous and that the trial court had
improperly applied that statute in several respects.
The court of appeals overruled each of Valley Regional’s issues
and affirmed the judgment of the district court.2 We granted Valley
Regional’s subsequent petition for review.
II
We granted this case to further address the complications that
inhere in a trial court’s duty under the periodic-payments statute. We
addressed the statute most recently in Regent Care. Notably, the trial
in this case predated that decision, and we believe that proceedings in
the district court would have been different had our opinion been
available, which informs our decision to remand the case to that court.
Regent Care does not resolve every issue presented here, however, so we
begin by laying out the statute and how we addressed it in Regent Care,
and then turn to the issues presented here.
A
The heart of the periodic-payments statute is Texas Civil Practice
and Remedies Code § 74.503, which provides that “[a]t the request of a
2 640 S.W.3d 867 (Tex. App.—Corpus Christi–Edinburg 2020).
6
defendant physician or health care provider or claimant, the court shall
order that medical, health care, or custodial services awarded in a health
care liability claim be paid in whole or in part in periodic payments
rather than by a lump-sum payment.” Id. § 74.503(a) (emphasis added).
“At the request of a defendant physician or health care provider or
claimant,” moreover, “the court may order that future damages other
than medical, health care, or custodial services . . . be paid in whole or
in part in periodic payments rather than by a lump sum payment.” Id.
§ 74.503(b) (emphasis added). The statute further provides that:
(c) The court shall make a specific finding of the dollar
amount of periodic payments that will compensate the
claimant for future damages.
(d) The court shall specify in its judgment ordering the
payment of future damages by periodic payments the:
(1) recipient of the payments;
(2) dollar amount of the payments;
(3) interval between payments; and
(4) number of payments or the period of time over
which payments must be made.
Id. § 74.503(c)–(d).
The periodic payments are to be made “to the recipient of future
damages at defined intervals.” Id. § 74.501(3). Such “[p]eriodic
payments, other than future loss of earnings, terminate on the death of
the recipient.” Id. § 74.506(b). Finally, “[f]or purposes of computing the
award of attorney’s fees,” the court must reduce the periodic payments
7
to present value “based on the claimant’s projected life expectancy,” id.
§ 74.507.
We first interpreted and applied the periodic-payments statute in
Regent Care. We held that the “court may order that an award of future
medical expenses be paid periodically either in whole or in part,” but
emphasized that the total amount awarded must be the amount that the
evidence shows will compensate the claimant for future damages. 610
S.W.3d at 837. Further, when the trial court orders periodic payments,
it “shall specify the amount, number, timing, and recipient of those
[periodic] payments in its judgment.” Id.
To support such a judgment, the party requesting the periodic-
payments order must identify “for the trial court evidence regarding
each of the findings required by section 74.503 . . . .” Id. Because these
findings are not indispensable to the claim itself—that is, the underlying
medical-liability claim—the trial court may need to receive additional
evidence if the record does not already contain sufficient evidence to
justify a decision under the statute. Id. Any such evidence that the trial
court receives, of course, may not contradict what the jury found. Id. at
837–38. After all, the statute “gives the trial court no discretion to craft
its own award of damages inconsistent with the jury’s verdict.” Id. at
838. In structuring the award, the trial court must also identify
evidence to support the amount it divided between any lump-sum and
periodic payments. Id. at 837.
8
B
We now turn to the issues that Valley Regional brings to this
Court.3 Valley Regional repeatedly asked the district court to submit
life expectancy and annual medical expenses as specific questions to the
jury. The district court repeatedly declined to do so. Valley Regional
properly preserved its objections to each denial, and now contends that
these denials violated both the Texas Constitution and the periodic-
payments statute.
We reject Valley Regional’s constitutional challenge. Like any
litigant, Valley Regional certainly had a right under the Texas
Constitution to a jury determination of every fact essential to the
resolution of the claims brought against it. See, e.g., Oncor Elec. Delivery
Co. LLC v. Chaparral Energy, LLC, 546 S.W.3d 133, 144 (Tex. 2018).
But A.M.A.’s claim remains one for medical malpractice, and Valley
Regional received a jury trial on that underlying claim: whether its
negligence proximately caused A.M.A.’s injuries.
Additionally, as we detailed above, the jury heard evidence on the
requested questions from experts. Both parties’ experts testified
3 Before presenting its periodic-payments challenges, Valley Regional’s
briefing also challenged the legal sufficiency of the evidence to sustain the
jury’s liability findings. A.M.A.’s burden was to put on evidence sufficient to
show that Valley Regional’s negligence proximately caused A.M.A.’s injuries.
We have reviewed the record and find no reversible error in the lower courts’
refusal to sustain Valley Regional’s challenge to the verdict. See, e.g., Gunn v.
McCoy, 554 S.W.3d 645, 658 (Tex. 2018) (evidence in a medical-malpractice
case is legally sufficient when it “rises to a level that would enable reasonable
and fair-minded people to differ in their conclusions”) (citation omitted).
“[F]urther discussion of the[se] issues would not add to the jurisprudence of
the State. In reaching this conclusion, we express no opinion on the court of
appeals’ reasoning.” Regent Care, 610 S.W.3d at 839.
9
concerning life expectancy and annual healthcare expenses. That
evidence necessarily formed part of the jury’s assessment of damages.
The judge, in turn, was required to base her orders concerning the award
structure on the evidence presented at trial.4 The Constitution does not
require a jury to go further and allocate how or when its award will be
paid, which are the points that form the basis of Valley Regional’s
objection. Finally, the periodic-payments statute does not implement a
constitutional guarantee. It instead represents a legislative choice to
provide healthcare providers an option, subject to the statute’s
provisions, to pay damages awards periodically rather than in a lump
sum. Absent the statute, the entire damages award would be due upon
judgment.
A jury may still be required, of course, if a statute so requires,
even if the Constitution does not. But as we indicated in Regent Care, it
is not incumbent upon the court to submit granular questions relating
to the proper structuring of periodic payments to the jury. See 610
S.W.3d at 837 (recognizing the court’s discretion to make decisions
regarding the award’s structure). The statute does not require the jury
to make findings of life expectancy or an annualized assessment of
medical expenses. See Tex. Civ. Prac. & Rem. Code § 74.503. Rather,
as we repeatedly noted, the statute expressly directs “the court,” under
specified conditions, to structure the award as periodic payments (or, if
4 As we explain below, the trial court’s judgment constituted an abuse
of discretion—but the error was not traceable to an improper failure to submit
questions to the jury.
10
appropriate, partly as periodic payments and partly as a lump sum paid
immediately). Id.; Regent Care, 610 S.W.3d at 837.5
Subsections 74.503(c) and (d) require the court to make specific
findings on the dollar amounts for “future damages.” Regent Care
interpreted these provisions as obligating the party that requests the
periodic payments to “identify for the trial court evidence regarding each
of the findings required by section 74.503.” 610 S.W.3d at 837 (emphasis
added). The trial court’s duty to structure the jury award into periodic
payments or a lump sum based on life expectancy and annual medical
expenses means that the statute, like the Constitution, does not require
the jury to make those specific determinations. At the same time, a trial
court retains the discretion, based on the circumstances of the case, to
present questions to a jury that may assist the court in its discharge of
its duty under the statute. As we discuss below, the court must have
evidence to structure any periodic-payments award; presenting
questions to the jury may eliminate doubts in some cases or protect a
resulting judgment from reversal in others. We hold only that a court’s
refusal to submit such questions, here or in other cases, is not in and of
itself error.6
5 Neither does Texas Rule of Civil Procedure 278 require that these
questions be submitted to the jury. We have interpreted this rule to require
submitting “controlling questions” to the jury. Triplex Commc’ns v. Riley, 900
S.W.2d 716, 718 (Tex. 1999). For the same reasons that the statute does not
require the jury to make these findings, neither does the rule.
6 We express no opinion about whether circumstances could ever make
it reversible error for a trial court to refuse a party’s request that it instruct
the jury to answer specific questions on these or related topics.
11
C
Although there is no general need for (or entitlement to) the
court’s submission of granular questions to the jury in the way that
Valley Regional contends, that does not mean that a trial court is
unconstrained in structuring a periodic-payment award. To the
contrary, the entire structure of the statute makes it essential that the
trial court rely on and point to probative evidence regarding its
disposition. See Regent Care, 610 S.W.3d at 837. In this case, such
evidence must support the court’s decision to have only five years of
periodic payments, to place the rest of the amount (some 70% of the
total) in a lump sum, and to place that lump sum in a special-needs trust
that is structured as this one was. See id. (“In other words, any division
between lump-sum payments and periodic payments of damages that
will be ‘incurred after the date of judgment’ must be founded in the
record.”).7
Particularly given the absence of any specific jury findings here,
we see nothing in the trial court’s or the court of appeals’ decisions—or
7 Valley Regional has not challenged the use of special-needs trusts as
tools to facilitate periodic payments of future damages awarded under Chapter
74. Accordingly, while we have no reason to doubt the general propriety and
importance of such trusts, this case provides no opportunity for us, or for the
lower courts on remand, to further opine. On remand in this case, therefore, a
special-needs trust remains an available tool for the district court’s
use. Whether it uses such a trust or anything else, the judgment on remand
must accord with the evidence and the verdict and comply with the statute’s
commands. Valley Regional may not challenge a proposed judgment on remand
simply for using a special-needs trust that otherwise satisfies the statutory
requirements, but it remains free to challenge any specific features of the
judgment—including the terms of a special-needs trust—that would violate or
evade the statute or our decision.
12
A.M.A.’s briefs—that shows how the evidence justifies the way the trial
court ordered the periodic payments to be structured. We identify three
key and interrelated problems.
First, the trial court’s periodic-payments order contradicts the
jury’s verdict. The jury awarded an amount for the first eighteen years
of life and then went beyond that to award a smaller (but still
substantial) award for A.M.A.’s expenses after he turned eighteen. The
court, however, limited periodic payments to only five years (up through
A.M.A.’s eighth birthday). To calculate those five years of payments, the
court relied on the testimony of Valley Regional’s expert, who presented
evidence that A.M.A. would require $604,000 in annual medical
expenses. The rest of the award—everything except for those five years
of periodic payments—would be paid immediately to an irrevocable
special-needs trust. By only requiring Valley Regional to pay periodic
payments up to A.M.A.’s eighth birthday, the trial court contradicted the
jury findings, which awarded a far larger amount to last until his
eighteenth birthday (then proceeded to assume at least some expenses
beyond that time). The verdict contemplates the need to go beyond age
eight. The statute affords considerable discretion to the trial court in
structuring periodic-payments awards, but the court has no discretion
to “contradict the jury’s findings on any issues submitted to it.” Regent
Care, 610 S.W.3d at 837–38.
Second, the lump-sum requirement, with the remainder of the
award going to the special-needs trust, violates the statute’s
requirement that “[p]eriodic payments, other than future loss of
earnings, terminate on the death of the recipient.” Tex. Civ. Prac. &
13
Rem. Code § 74.506(b). For the five annual payments, the judgment
correctly recites that, “[i]n the event that [A.M.A.] dies during the five
year period in which the periodic payments are to be paid, [Valley
Regional’s] payment obligation terminates and [Valley Regional] is
entitled to withdraw the remaining funds in escrow.” But the rest of the
award, despite being for future medical expenses, is structured to evade
that requirement. Under the terms of the judgment, the balance of the
special-needs trust will not be restored to Valley Regional if it is not used
for A.M.A.’s medical expenses; instead, it goes to A.M.A.’s parents.
Beyond being an abuse of discretion to structure periodic payments in a
way that contravenes the jury’s verdict, it is an abuse of discretion to
impose a lump-sum payment without evidence supporting the need for
an immediate payment of a lump-sum payment.
Finally, even aside from the possible violation of § 74.506, the
trial court erred by pointing to no evidence that could justify the division
between periodic payments and a lump sum. It is true, and Regent Care
acknowledged, that the statute authorizes a trial court to order only part
of the award to be paid in periodic payments. But only a particular kind
of evidence unlocks that discretion, which is not unfettered. If, “for
example, the record shows a lump-sum payment is warranted to meet
expenses expected soon after trial,” 610 S.W.3d at 837, or if there is
evidence that specific amounts can be expected to occur but in irregular
patterns, then a court may—with caution—be justified in withdrawing
a set amount from periodic payments. The district court relied on no
such evidence of current expenses (including attorney’s fees due) or
immediate medical needs here. As the award stands, the trial court
14
pointed to no evidence in the record to justify why any amount should
be extracted from the periodic-payment amounts and made payable as
a lump sum. For this reason, too, therefore, the lump-sum award—
diverted into a trust that will revert to plaintiffs, and not Valley
Regional, if not used for the specified purposes—ignores the statute’s
text and structure.
D
The trial court’s order amounts to an abuse of discretion. But our
only decision addressing the periodic-payments statute was released
after the trial court made its decision. Neither the parties nor the court
had the benefit of our analysis in Regent Care, which makes the district
court’s order and the parties’ presentation of their arguments more
understandable.
We therefore remand the case to the district court, which should
have another chance to structure the award—and a first chance to do so
based on Regent Care and today’s decision. Both parties are entitled to
explain, and support with existing evidence, why a particular structure
is sensible. The parties should have the opportunity to address whether
the presentation of additional evidence that does not contravene the
jury’s verdict would be necessary or helpful to the trial court in
discharging its task of rendering a lawful judgment that complies with
the periodic-payments statute.8
8 Valley Regional also challenged the award of attorney’s fees. Tort
plaintiffs typically must pay their own attorney’s fees from the award. When
the periodic-payments statute applies, defendants may delay (and in the case
of an untimely death of the plaintiff, avoid) paying some portion of the
judgment. As we stated above, a defendant would have to pay the entire
judgment up front if the statute did not clearly require otherwise. We would
15
III
The judgment below is reversed in part and the case is remanded
to the district court for further proceedings that will allow it to render a
judgment that complies with the periodic-payments statute, including
the statutory provision governing calculations necessary for the
payment of attorney’s fees. In all other respects, the judgment below is
affirmed.
Evan A. Young
Justice
OPINION DELIVERED: April 22, 2022
expect similar textual clarity if the legislature sought to displace or modify
how, when, or in what amount a client could or must pay his attorney’s fees.
Nothing in the statute points to such a change, and the only part of the statute
to mention fees confirms the expectation that they will be paid at the outset.
See Tex. Civ. Prac. & Rem. Code § 74.507. Respondents’ obligation to pay their
attorney’s fees, therefore, is one kind of evidence that the court should consider
on remand when determining how much of the total award should be paid as
a lump sum.
16 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488123/ | Case: 21-50960 Document: 00516551568 Page: 1 Date Filed: 11/18/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
November 18, 2022
No. 21-50960
Lyle W. Cayce
Clerk
In the Matter of: Jon Christian Amberson
Jon Christian Amberson; Jon Christian Amberson PC;
Amberson Natural Resources, LLC,
Appellants,
versus
James Argyle McAllen; El Rucio Land and Cattle
Company, LLC; San Juanito Land Partnership, Ltd.;
McAllen Trust Partnership,
Appellees.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:20-CV-1193
Before Jones, Southwick, and Oldham, Circuit Judges.
Leslie H. Southwick, Circuit Judge:
A bankruptcy court confirmed an arbitrator’s award. The district
court affirmed. The compelling of arbitration and the commencement of
proceedings to confirm the resulting arbitrator’s award had been in state
Case: 21-50960 Document: 00516551568 Page: 2 Date Filed: 11/18/2022
No. 21-50960
court. Prior to a ruling on confirmation, two of the state-court parties filed
for bankruptcy, and the case was removed to bankruptcy court. The only
issue before us is whether a counterclaim raised in state court should have
been arbitrated. The bankruptcy and federal district courts refused to
consider that argument, holding that the state court’s order compelling
arbitration, which had found all claims were subject to arbitration, became
conclusive under state law when the objecting party did not seek mandamus
review of that order before the arbitration began.
We disagree. State law allows vacatur to be sought because arbitrators
exceeded their powers by resolving a claim not covered by the arbitration
agreement. Losing on that argument before arbitration does not bar renewing
it after. A different vacatur provision relied upon by the lower courts is
confusing, but whatever it means, it does not bar reconsideration of
arguments about the scope of the arbitration agreement. Thus, the question
of arbitrability of the contested claim remains open. The record is sufficiently
clear, though, that we address arbitrability here. We hold that the disputed
claim was subject to arbitration.
The lengthy analysis that follows is not fully endorsed by the other
members of the panel. There are different views as to what parts are
necessary or even relevant. In a word, perhaps there are too many words.
Nonetheless, Judge Jones’ separate opinion concurs in the holding regarding
which vacatur provision applies. The entire panel agrees the arbitration
award was properly confirmed and we should AFFIRM.
FACTUAL AND PROCEDURAL BACKGROUND
The debtor and appellant, Jon Christian Amberson, was and may still
be a practicing lawyer. His former father-in-law is the appellee, James Argyle
McAllen, a south Texas rancher. McAllen and related entities own “the
27,000-plus acre McAllen Ranch . . . once owned by [McAllen’s] great-
2
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No. 21-50960
grandfather, for whom the City of McAllen, on the Rio Grande [] near the
southern tip of Texas, is named.” Forest Oil Corp. v. El Rucio Land & Cattle
Co., 518 S.W.3d 422, 426 (Tex. 2017). The ranch is part of the 97,000 acres
the King of Spain granted in 1799 to Jose Manuel Gomez, whom a McAllen
ancestor later married. Margaret McAllen & Mary Margaret McAllen,
McAllen Ranch, in 4 New Handbook of Texas 363–64 (1996).
Forest Oil Corporation had producing oil and gas wells on over 1,500
acres of the McAllen Ranch for over 30 years; it also operated a processing
plant on 5.75 acres of the ranch. Forest Oil, 518 S.W.3d at 426. In 2004,
McAllen discovered that Forest Oil had secretly been burying toxic and
radioactive waste on his land. That same year, McAllen and three entities he
controlled brought suit in state court against Forest Oil. The suit was
successful though protracted, ending in 2017 with an affirmance by the
Supreme Court of Texas of awards of over $20 million to McAllen and other
entities against Forest Oil. Id. at 427, 432.
Beginning in 2004, McAllen employed Amberson’s law firm, Jon
Christian Amberson, P.C., to represent him in the lawsuit against the
corporation. Over time, McAllen and the Amberson firm executed three
attorney engagement agreements. Each had language similar to this: “[a]ny
fee dispute arising under this agreement and/or the services rendered for”
McAllen by the law firm would be arbitrated.
McAllen, individually, and Amberson’s law firm are parties in this
litigation, but there are others whom we now identify. McAllen is joined as a
creditor and appellee with El Rucio Land and Cattle Company, LLC; San
Juanito Partnership, LTD; and McAllen Trust Partnership, all of whom were
parties to the litigation against Forest Oil. Joining the Amberson law firm as
appellants are Amberson, individually, and Amberson Natural Resources,
3
Case: 21-50960 Document: 00516551568 Page: 4 Date Filed: 11/18/2022
No. 21-50960
LLC (“ANR”). We will describe ANR later. Unless there is a need to
distinguish, we will refer to the parties simply as McAllen and Amberson.
The district court found that during the years-long Forest Oil
litigation, Amberson and his firm billed McAllen for a significant number of
services that were not performed, some ostensibly related to the Forest Oil
litigation, some not. Amberson also borrowed large sums of money from
McAllen for litigation expenses that he never repaid.
A controversy about another matter — referred to as the “Cannon
Grove” transaction — is at the center of this appeal. McAllen sought to defer
capital gains taxes through a “Reverse 1031 Exchange,” as allowed by federal
statute. 26 U.S.C. § 1031. McAllen did not use Amberson to structure the
transaction. McAllen needed a non-blood relative to serve as an intermediary
and hold an interest in certain property. Amberson agreed to serve as the
intermediary, creating ANR specifically for this transaction. The property
itself was held by an entity called Cannon Grove Investments, LLC.
McAllen provided ANR with $4,500,000 on March 18, 2009. That
money was intended to enable ANR to purchase a 90% stake in Cannon Grove
Investments, with the other 10% to be purchased by a McAllen entity. Later,
McAllen asked for his money back. Amberson refused, insisting the money
had been a gift. McAllen responded the money had been a loan, with the
collateral being ANR’s 90% Cannon Grove interest.
In January 2015, the Amberson law firm filed suit in Hidalgo County
District Court to compel McAllen to arbitrate a dispute over a contingency
fee related to the Forest Oil litigation. After a nonsuit and a failed mediation,
the Amberson firm refiled its petition in August 2017. McAllen answered
and counterclaimed for breach of fiduciary duty, fraud, and theft, joining
Amberson individually and ANR as third-party defendants. McAllen also
expanded the suit from dealing only with the law firm’s claim for fees relating
4
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No. 21-50960
to the Forest Oil litigation by counterclaiming for damages relating to the
Cannon Grove transaction.
In October 2017, Amberson filed for summary judgment on the
Cannon Grove claims, raising various affirmative defenses. Simultaneously,
Amberson moved to compel arbitration on all claims except for those
regarding Cannon Grove. After a hearing, the Hidalgo County District Court
in April 2018 ordered all the claims to arbitration without explanatory
analysis. Amberson moved to have the court reconsider or clarify its order.
After another hearing, the court in October 2018 denied reconsideration,
again without explanation, and reaffirmed that all claims were to be
arbitrated. An arbitrator was appointed that same month.
Eight claims among the parties were then arbitrated. In a lengthy
decision issued on April 30, 2020, the arbitrator awarded McAllen almost
$7,300,000 and also $2,000,000 in attorneys’ fees. Further, Amberson was
required to convey all his Cannon Grove interests to McAllen. Amberson
was awarded nothing. Later, the arbitrator awarded McAllen an additional
$1,750,000. The arbitrator stated that the Ambersons “preserved their
running objection to the arbitrability of the ‘Cannon Grove’ transaction.”
The arbitrator interpreted the court’s referral order as barring consideration
of arbitrability, which he stated was an atypical bar. He made no decision on
whether the claims were properly subject to arbitration.
On May 14, 2020, McAllen moved in Hidalgo County District Court
to confirm the award. On July 20, 2020, the day before a hearing on the
motion, ANR filed a Chapter 11 petition in the Bankruptcy Court for the
Western District of Texas. Three days later, Amberson himself filed under
Chapter 11 in the same court. Also on July 20, ANR removed the suit for
confirmation to the Bankruptcy Court for the Southern District of Texas.
That adversary proceeding was soon transferred to the Western District.
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In bankruptcy court, McAllen sought confirmation of the entire award
and Amberson sought vacatur of the part of the award relating to Cannon
Grove. The bankruptcy court concluded that the only procedure for
challenging an order compelling arbitration was by seeking immediate review
through a writ of mandamus, making it too late to present that argument in a
motion to vacate part of the award. Amberson appealed to the district court,
which affirmed. Amberson then timely appealed here.
DISCUSSION
Amberson makes no complaint here about any part of the arbitrator’s
award except for the portion based on the Cannon Grove claim. He argues
that claim was beyond the scope of the arbitration agreement between the
parties. McAllen responds that the challenge to the compelling of all claims
to arbitration comes too late and also argues that Amberson invoked the
wrong statutory section when seeking to overturn part of the award.
Analyzing these arguments will require examining several different sources
for meaning. We start, though, with two points the parties did not raise.
I. Should state courts have been allowed to resolve these issues, and was the
Texas Arbitration Act, not the Federal Arbitration Act, the correct enactment?
Neither party on appeal questions the jurisdiction of the bankruptcy
court over the arbitration award. Even so, we must assure ourselves of our
own subject-matter jurisdiction and that of the federal courts whose rulings
we are reviewing. Keyes v. Gunn, 890 F.3d 232, 235 n.4 (5th Cir. 2018).
Shifting this state court dispute into bankruptcy court does not
immediately appear the most natural path for confirming an arbitrator’s
award. Whatever other options could have been pursued, though, “litigants
may validly consent to adjudication by bankruptcy courts.” Wellness Int’l
Network v. Sharif, 575 U.S. 665, 674 (2015). In this case, there was actual or
implied consent by all parties in the bankruptcy court. Therefore, the
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bankruptcy court and the district court had jurisdiction over questions of
confirming the arbitration award. So do we.
Another preliminary issue is whether the state or the federal act on
arbitration applies, i.e., the Federal Arbitration Act (“FAA”), 9 U.S.C. §§ 1–
16, or the Texas General Arbitration Act (usually abbreviated “TAA”),
Tex. Civ. Prac. & Rem. Code §§ 171.001–171.098. Under the
Supremacy Clause, if the FAA applies, it preempts any inconsistent
provision of the TAA. See Allied–Bruce Terminix Cos. v. Dobson, 513 U.S. 265,
272 (1995). Each party accepts that the TAA applies because the arbitration
clauses specify that the arbitration is “governed by Texas law.”
The answer, though, is complicated by the fact that “Texas law”
includes the FAA due to Texas courts’ incorporating the FAA into their
substantive law. See Freudensprung v. Offshore Tech. Servs., Inc., 379 F.3d 327,
338 & n.7 (5th Cir. 2004). Texas courts do not read choice-of-law provisions
as exclusive of the FAA unless a provision “specifically exclude[s] the
application of federal law.” In re L & L Kempwood Assocs., L.P., 9 S.W.3d 125,
127 (Tex. 1999). The Supreme Court of Texas once distinguished
contractual language requiring “that arbitration occur ‘pursuant to the’”
TAA from language requiring that arbitration occur “‘pursuant to the
arbitration laws in your state.’” In re Olshan Found. Repair Co., 328 S.W.3d
883, 890 (Tex. 2010). The former was held to be an exclusion of the FAA,
but the latter was not. Id.
Generally, a court may accept the parties’ agreement on the applicable
law. See Fruge v. Amerisure Mut. Ins. Co., 663 F.3d 743, 747 (5th Cir. 2011).
Further, federal preemption is an affirmative defense that must be raised at a
sufficiently early time to avoid unfair surprise. Motion Med. Techs., LLC v.
Thermotek, Inc., 875 F.3d 765, 771 (5th Cir. 2017). Preemption may be
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forfeited by not asserting it. See American Airlines, Inc. v. Dep’t of Transp.,
202 F.3d 788, 811–12 (5th Cir. 2000). We apply the TAA.
II. Did Amberson use the wrong section of the Texas Arbitration Act when
seeking to vacate the Cannon Grove award, and is there a procedural bar?
Amberson initiated suit in state court in order that his claims against
McAllen under the representation contracts could be arbitrated. Beginning
there and continuing at every later stage, he has argued that McAllen’s
counterclaim regarding the Cannon Grove tax matter was not subject to the
arbitration agreements. First, he relies on the fact that the agreements were
between McAllen and Amberson’s law firm, while the parties to the Cannon
Grove transaction were McAllen and Amberson’s company, ANR. Second,
even if an alter-ego relation is shown among the Amberson parties, Amberson
insists the Cannon Grove tax transaction is beyond the scope of arbitration
agreements that solely related to fee disputes between client and law firm.
The parties agree that two separate subsections of the TAA that
provide for vacating an arbitrator’s award are the only possible ones for the
argument that the arbitrator should not have considered the Cannon Grove
claim. This is the statutory language:
(a) On application of a party, the court shall vacate an award if:
...
(3) the arbitrators:
(A) exceeded their powers;
. . .; or
(4) there was no agreement to arbitrate, the issue was
not adversely determined in a proceeding [to compel or stay
arbitration], and the party did not participate in the arbitration
hearing without raising the objection.
Tex. Civ. Prac. & Rem. Code § 171.088.
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There is no dispute that the arbitration agreements were validly
executed and properly applied to the claims other than the one involving
Cannon Grove. The relief sought here is to vacate part of an award because
one of the claims resolved by the arbitrator was beyond the scope of the
agreements. The question is whether vacatur may be sought under the
(a)(3)(A) provision for exceeding arbitrators’ powers or must instead be
brought under the (a)(4) one for an absence of an agreement to arbitrate. If
it is the latter, then is that claim barred because mandamus review of the
order compelling arbitration on that claim must be sought immediately?
Answering these questions requires that we interpret a Texas statute.
We apply any interpretation made by the state’s highest court. Weiser-Brown
Operating Co. v. St. Paul Surplus Lines Ins. Co., 801 F.3d 512, 518 (5th Cir.
2015). When that court has not declared meaning, our obligation as a federal
court is to interpret a state statute in a manner consistent with the method
that would be employed by that state’s highest court. Id.
One additional rule and one additional consideration apply to
interpreting the TAA. The rule comes from the TAA itself, which is based
on a uniform act prepared by the National Conference of Commissioners on
Uniform State Laws. The enactment insists that its terms “shall be
construed to effect its purpose and make uniform the construction of other
states’ law applicable to an arbitration.” Tex. Civ. Prac. & Rem.
Code § 171.003. The Supreme Court of Texas has applied that provision
when interpreting the TAA. See East Tex. Salt Water Disposal Co. v. Werline,
307 S.W.3d 267, 272 (Tex. 2010). There, the court reviewed decisions from
close to 20 states but found a lack of uniformity. Id. at 272–74.
In addition, the Supreme Court of Texas often considers
interpretations of FAA provisions when interpreting mirror provisions in the
TAA. Even if the court does not adopt them, their relevance is evident. See,
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e.g., Nafta Traders, Inc. v. Quinn, 339 S.W.3d 84, 97 (Tex. 2011) (considering
for purposes of the TAA, then rejecting Hall St. Assoc., LLC v. Mattel, Inc.
552 U.S. 576, 579, 588–89 (2008), which had held that parties could not
contract for broader judicial review than provided in FAA).
We search for answers from each of these sources of meaning.
A. Texas state appellate court interpretations
As a federal court interpreting a state statute, our work is controlled
by authoritative pronouncements of that state’s highest court. The Supreme
Court of Texas has analyzed the meaning of “the arbitrators exceeded their
powers” under Section 171.088(a)(3)(A). When the parties have executed
an arbitration agreement, the rule is that “[a]n arbitrator derives his power
from the parties’ agreement to submit to arbitration.” City of Pasadena v.
Smith, 292 S.W.3d 14, 20 & n. 41 (Tex. 2009) (citing Gulf Oil Corp. v. Guidry,
327 S.W.2d 406, 408 (Tex. 1959)). The TAA itself states that when a court
appoints the arbitrator, as occurred here, that person “has the powers of an
arbitrator named in the agreement to arbitrate.” Tex. Civ. Prac. &
Rem. Code § 171.041(c).
Reasonably, then, “exceeded their powers” would include resolving
a claim that the parties’ agreement did not grant arbitrators any authority to
decide. At least one Texas intermediate court opinion cited in the briefs
makes that point. See Centex/Vestal v. Friendship W. Baptist Church, 314
S.W.3d 677 (Tex. App.—Dallas 2010). There, though neither party at the
time the state district court was considering a motion to compel arbitration
argued that any claim was beyond the scope of their agreement, id. at 681,
one of the parties later moved to vacate because an award was made on claims
of non-parties. Id. at 682–83. The court of appeals held that arbitrators have
the power to decide claims within the scope of the agreement and also those
the parties agreed to arbitrate at the time of the motion to compel. Id. at 686.
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There was no suggestion that a court can expand the terms of the agreement,
but the parties may agree to expand it themselves.
Other opinions apply Section 171.088(a)(3)(A) to the argument that a
claim is not within the terms of an existing arbitration agreement. See, e.g.,
Center Rose Partners, Ltd. v. Bailey, 587 S.W.3d 514, 527–28 (Tex. App.—
Houston [14th Dist.] 2019) (applying Section 171.088(a)(3)(A) to whether
certain claims were within scope of agreement); Ruff v. Ruff, No. 05-18-
00326-CV, 2020 WL 4592794, at *8 (Tex. App.—Dallas Aug. 11, 2020)
(same). Vacatur sought under (a)(3)(A) may raise other issues, such as
whether the agreement authorized the remedies that were imposed. See
Constr. Fin. Servs., Inc. v. Douzart, No. 09-16-00035-CV, 2018 WL 1096103,
at *4 (Tex. App.— Beaumont Feb. 28, 2018).
The only barrier raised by a party to this common-sense reading of
“exceeded their powers” is that a more specific provision applies and
requires certain predicates. See § 171.088(a)(4). We now examine whether
that provision has been interpreted to have exclusive application to
arbitrators deciding a claim beyond the scope of the parties’ agreement.
The Supreme Court of Texas has not needed to interpret the vacatur
ground that there was no agreement to arbitrate. 1 Logically, whether there
was an agreement at all and the scope of an agreement could be separate
statutory issues. We examine Texas court of appeals decisions for guidance.
They are not binding in our analysis, but they are worthy of deference unless
we are “convinced by other persuasive data that the highest court of the state
1
Five of the court’s decisions have quoted this vacatur ground; none applied it.
See Ex parte E.H., 602 S.W.3d 486, 492 (Tex. 2020); Hoskins v. Hoskins, 497 S.W. 3d 490,
494 (Tex. 2016); Nafta Traders, 339 S.W. 3d at 91 n.22; East Texas Salt Water, 307 S.W. 3d
at 268 n.3.; CVN Grp., Inc. v. Delgado, 95 S.W.3d 234, 237 n.15 (Tex. 2002).
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would decide otherwise.” Temple v. McCall, 720 F.3d 301, 307 (5th Cir.
2013) (quotation marks and citation omitted) (this standard was first stated
in West v. American Tel. & Tel. Co., 311 U.S. 223, 237 (1940)). The district
court and the parties have cited some Texas intermediate court decisions.
We review them now.
The bankruptcy court gave significant weight to Thomas v. Cook, 350
S.W.3d 382 (Tex. App.—Houston [14th Dist.] 2011). The bankruptcy court
relied on this language: “Thomas also contends that the arbitrator exceeded
his authority by addressing all of the causes of action she asserted against
Cook. We reject this contention because the trial court properly sent all of
the causes of action Thomas asserted against Cook, contract and tort alike,
to arbitration.” Id. at 393. With respect, Thomas was not saying that because
the trial court sent all claims, it was proper for arbitrators to consider them.
It simply held that due to the broad construction of arbitration clauses, the
trial court did not err in compelling arbitration of all claims. Id. We find no
useful guidance in Thomas.
In addition, the bankruptcy court rejected Amberson’s reliance on
two Texas court of appeals’ decisions analyzing the FAA because neither
decision held that an “arbitrator exceeded his authority by deciding claims
that the trial court specifically referred to it.” See Ancor Holdings, LLC v.
Peterson, Goldman, & Villani, Inc., 294 S.W.3d 818, 829 (Tex. App.—Dallas
2009); Barsness v. Scott, 126 S.W.3d 232, 241 (Tex. App.—San Antonio
2003). More importantly, though, neither opinion held the opposite, i.e., that
mere referral eliminates issues of the scope of the agreement. Further, both
courts held that arbitrators’ authority is derived from the arbitration
agreement; they exceed their powers when they do not limit their decision to
what the agreement allows. Ancor, 294 S.W. 3d at 829; Barsness, 126 S.W. 3d
at 241 (both citing Guidry, 327 S.W. 3d at 409).
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In addition, the bankruptcy court determined that Amberson had to
seek immediate appellate review of the order compelling arbitration of all
claims. We will analyze that holding later.
One other opinion the bankruptcy court discussed made some useful
holdings. In the case, a party claimed he never signed the arbitration
agreement and thus was not subject to it; the court held this was an argument
that no arbitration agreement existed, and Section 171.088(a)(4) applied.
Kreit v. Brewer & Pritchard, P.C., 530 S.W. 3d 231, 242–43 (Tex. App.—
Houston [14th Dist.] 2017) (citing Penhollow Custom Homes, LLC v. Hawkins,
No. 05-07-01101-CV, 2008 WL 3020812, at *2 (Tex. App.—Dallas Aug. 6,
2008, pet. denied) (mem. op.). There was no right to seek vacatur on that
ground because the objection had not been made to the arbitrator. Id.
Certainly, the court was correct that absent an objection to the arbitrator,
whatever (a)(4) otherwise permits is expressly forfeited. There was no order
compelling arbitration, so Kreit did not consider its relevance to (a)(4).
In summary, neither lower court in this case nor the parties cite any
decisions by Texas appellate courts that support their holdings that Section
171.088(a)(4) applies to the argument that a specific claim was outside the
scope of an arbitration agreement. 2 We also discovered none. There is no
authority from the Supreme Court of Texas. A few intermediate appellate
courts have held that when a claim is not within the scope of the arbitration
agreement, vacatur is to be sought under Section 171.088(a)(3)(A). That
view is sound textually, but what to make of Section 171.088(a)(4) remains
2
One of the Texas cases cited by the parties had a concurrence that interpreted
that language much as did the lower courts in the case before us. See Southwinds Express
Const., LLC v. D.H. Griffin of Tex., Inc., 513 S.W.3d 66, 81–82 (Tex. App.—Houston [14th
Dist.] 2016) (Frost, C.J., concurring). The parties, though, do not refer to the concurrence,
nor, for all the reasons stated in this opinion, do we find it persuasive.
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elusive. Also of importance, the fact the TAA is based on a uniform act adds
to the sources relevant for guidance when there is no controlling precedent.
Our analysis must continue.
B. Application of Texas rules of interpretation
Because the Texas courts have not definitively resolved our
interpretive issue, we apply the rules of statutory interpretation employed by
the Supreme Court of Texas to determine if a clear meaning can be found.
When interpreting state statutes, that court will “rely on the plain meaning
of a statute’s words as expressing legislative intent unless a different meaning
is supplied, is apparent from the context, or the plain meaning of the words
leads to absurd or nonsensical results.” Cadena Comercial USA Corp. v. Texas
Alcoholic Beverage Comm’n, 518 S.W.3d 318, 325 (Tex. 2017). In this task, it
will “consider the context and framework of the entire statute and meld its
words into a cohesive reflection of legislative intent.” Id. at 326.
To gain context, we examine the statutory reasons for vacating an
arbitration award besides those two. The first provision is for vacating when
the award is procured improperly, such as by fraud. See Tex. Civ. &
Prac. Rem. Code § 171.088(a)(1). The second is when the arbitrators
were corrupt, biased, or engaged in misconduct. Id. § 171.088(a)(2). The
third, which includes arbitrators’ exceeding their powers, also allows vacatur
when the arbitrators made significantly unfair procedural rulings, such as
refusing to postpone the hearing when the necessity was shown, refusing to
accept material evidence, or prejudicing a party in the manner in which the
arbitrators conducted the hearing. Id. § 171.088(a)(3)(B)–(D). Each of the
other reasons for vacating allows a court to reject an arbitration award when
there is a serious question that the arbitrators’ decision resulted from
improper influences or unfair procedures.
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The two grounds for vacating at issue here involve less malign conduct
than do these others. A plain meaning of “exceeded their powers” would
apply to a variety of breaches. Some might be procedural, such as requiring
production of documents despite a valid claim of privilege or refusing to hear
certain evidence, or it might be ordering a category of relief that was not
permitted by the arbitration agreement. Amberson argues arbitrators also
exceed their powers when they arbitrate a claim that is beyond the scope of
the parties’ agreement. That argument starts with the advantage of being a
common-sense interpretation, but McAllen insists that context blocks that
meaning. The context is (a)(4), which he argues is a specific provision for
seeking vacatur when there was no agreement to arbitrate a particular claim.
Further, that specific provision comes with procedural hurdles, and McAllen
argues it makes no sense for those hurdles to become irrelevant simply by
making the same claim under (a)(3)(A).
We start by examining the text for a plain meaning: “there was no
agreement to arbitrate, the issue was not adversely determined in a
proceeding [to compel or stay arbitration], and the party did not participate
in the arbitration hearing without raising the objection.” § 171.088(a)(4).
The need for an objection in the arbitration was satisfied here, so we ignore
it. We see a clear requirement: pre-arbitration, a court must not have made
a particular determination about the existence of an agreement to arbitrate.
Just what needs not to have been determined is unclear, though.
In deciding if there is a plain meaning, we consider rules of grammar
and “common meaning,” unless absurdity results. City of Rockwall v.
Hughes, 246 S.W. 3d 621, 625–26 (Tex. 2008) (citing Tex. Gov’t Code
§ 311.011(b)). One difficulty here is the triple negative — “no arbitration
agreement,” “not,” and “adversely determined.” The first negative —
“[t]here was no agreement to arbitrate” — is the vacatur ground. It is not
itself an “issue,” i.e., a topic for debate, but it is what must be shown by the
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party seeking vacatur.
One way to make the text clearer and less clumsy is to disconnect
syntactically “there was no agreement to arbitrate” from “the issue.”
Indeed, we already observed that “there was no agreement” is not even an
“issue.” The vacatur “issue” here is whether an arbitration agreement
existed. “Adversely determining,” i.e., rejecting that an agreement existed,
would be a finding of no agreement. Not rejecting means no court decided
there was no arbitration agreement, which includes a finding an agreement
did exist. Another reading is that “the issue” should be understood to mean
“the argument.” Rejecting the argument there was no agreement would
mean finding there was an agreement. Not rejecting reverses course again.
Regardless of all that, the “issue” concerns whether there was an
agreement to arbitrate. Even if the bankruptcy and district courts were right
that this provision blocks post-arbitration reconsideration of an issue,
Amberson did not argue that there was no agreement, only that it did not
cover one claim. He has had to add to the text of the vacatur provision that
there was no agreement to arbitrate a specific claim.
What to make of these difficulties will be analyzed later. It is enough
now to conclude there is no plain textual meaning.
C. Rules applicable to this uniform act
Having found neither controlling Texas judicial explication nor plain
meaning under the state’s rules of interpretation, we consider whether there
is a construction that would be “uniform [with] the construction of other
states’ law applicable to an arbitration.” Tex. Civ. Prac. & Rem.
Code § 171.003; see also Tex. Gov. Code § 311.028 (“A uniform act in-
cluded in a code shall be construed to effect its general purpose to make uni-
form the law of those states that enact it.”)
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Before examining other states’ judicial decisions, we review a decision
by the Supreme Court of Texas that interpreted a provision of a different
uniform act. Nathan v. Whittington, 408 S.W.3d 870, 873 (Tex. 2013). The
provisions of that act were to “be applied and construed to effectuate its
general purpose to make uniform the law with respect to the subject of this
chapter among states enacting it.” Id. (quoting Tex. Bus. & Com. Code
§ 24.012, a section of the Texas Uniform Fraudulent Transfer Act).
The court examined the caselaw from other states interpreting their
similar statutory provisions and found no uniformity. It then reviewed
comments made by the National Conference of Commissioners on Uniform
State Laws that drafted the uniform act. Id. at 873-74. The comments in the
Prefatory Note to the uniform act stated that the relevant provision was a
statute of limitations. Id. at 874. After considering that Note, the court
concluded the statutory text far better fit the category of a statute of repose,
and that is how the court classified it. Id.
We will follow a similar path. After some background on the adoption
of the TAA, we examine how other UAA states have interpreted the relevant
text. We also review the comments of the National Conference of
Commissioners but then supplement our analysis by examining a few law-
journal articles by the chairman of the drafting committee for the uniform act.
1. Background of Texas Arbitration Act
The TAA was enacted in 1965. See Acts 1965, 59th Tex. Leg., p. 1593,
ch. 689, § 1 (entitling it the “Texas General Arbitration Act”). It was a
revision of the 1956 Uniform Arbitration Act. See Paul Carrington, The 1965
General Arbitration Statute of Texas, 20 Sw. L.J. 21, 60 (1966). Texas is one
of 23 states to adopt the 1956 UAA. 1956 Unif. Arb. Act, 7 U.L.A. 99
(2009) (chart of jurisdictions).
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The 1965 enactment did not revise the text of the two UAA provisions
that concern us. These are the relevant vacatur grounds in the UAA:
(3) The arbitrators exceeded their powers;
...
(5) There was no arbitration agreement and the issue was not
adversely determined in proceedings under Section 2 and the
party did not participate in the arbitration hearing without
raising the objection;
but the fact that the relief was such that it could not or would
not be granted by a court of law or equity is not ground for
vacating or refusing to confirm the award.
1956 Unif. Arb. Act, § 12(a), 7 U.L.A. at 514–15 (2009).
The TAA as enacted in 1965 used identical language:
(3) The arbitrators exceeded their powers;
...
(5) There was no arbitration agreement and the issue was not
adversely determined in proceedings under Article 225 and the
party did not participate in the arbitration hearing without
raising the objection; but the fact that the relief was such that it
could not or would not be granted by a court of law or equity is
not ground for vacating or refusing to confirm the award.
Acts 1965, 59th Leg.; ch. 689, § 1, Art. 237.
The TAA was initially codified as Texas Revised Civil Statutes
articles 224–238. It was recodified in 1997 as Texas Civil Practice and
Remedies Code, Sections 171.001–171.098. Act of May 8, 1997, 75th Leg.,
R.S., ch. 65, § 1.01; ch. 165, § 5.01, eff. Sept. 1, 1997. The recodification
combined Subparts (3) and (4), forming Section 171.088 (a)(3) (A)–(D). That
caused Subpart (5) to be codified as Section 171.088 (a)(4). The concluding
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clarification in Subpart (5) was omitted in 1997. 3 Importantly, the 1965 TAA
vacatur provisions of concern to us are still in effect.
2. Decisions from other states
We consider the Texas law to be clear, at least in general terms, on
what it means for arbitrators to exceed their powers. “An arbitrator derives
his power from the parties’ agreement to submit to arbitration.” Nafta
Traders, 339 S.W.3d at 90. That principle predates the 1965 TAA. The
state’s high court stated in 1959 that “the authority of arbitrators is derived
from the arbitration agreement and is limited to a decision of the matters
submitted therein either expressly or by necessary implication.” Gulf Oil,
327 S.W.2d at 408. The briefing and the lower courts cite little Texas caselaw
that either applied or refused to apply the exceeding-powers vacatur ground
to an argument that one or more, but not all, claims were outside the terms
of the agreement. To the extent that means the applicability is largely an
open question, we have no difficulty stating that the plain statutory text
makes the exceeding-powers vacatur ground applicable.
As we earlier explained, the only argument that this straightforward
interpretation is wrong is that a different vacatur ground is said to be
specifically and solely applicable. Consequently, we sought opinions from
other states for whether they apply the “exceeded their powers” vacatur
ground when, as here, the argument is that some but not all of the arbitrated
claims were beyond the scope of the agreement. We did not find many
addressing the issue. We will discuss one.
3
The 1997 recodification also changed “[t]here was no arbitration agreement” to
“there was no agreement to arbitrate.” See Act of May 8, 1997, 75th Leg., R.S., ch. 165, §
5.01, § 171.088 (a)(4). Caselaw interprets the new phrase still to mean “no arbitration
agreement exists.” See, e.g., Kreit, 530 S.W.3d at 241.
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The Virginia Supreme Court held that an arbitrator exceeded his
powers in deciding a claim not covered by the arbitration agreement in a
construction contract. Trustees of Asbury United Methodist Church v. Taylor
& Parrish, Inc., 452 S.E.2d 847, 850 (Va. 1995). The agreement bound the
parties to arbitrate all disputes “relating to contract documents.” Id. at 852–
53. A claim based on a quantum meruit theory did not relate to any contract
document, and the arbitrator exceeded his powers by deciding it. See id. The
court also held that the trial court order referring “all matters” to the
arbitrator “was void . . . because the trial court could not confer jurisdiction
on the arbitrator to adjudicate disputes that were not based on the parties’
contract.” Id. at 852. That all sounds correct to us: arbitrators exceed their
powers if they decide a claim the agreement does not include.
We now examine other states’ use of the vacatur ground that was held
to be exclusive in this case: is a trial court’s ordering an arbitration an adverse
determination of the issue that there is no arbitration agreement, thus barring
examining the scope of the agreement on a motion to vacate? See Tex. Civ.
Prac. & Rem. Code § 171.088(a)(4).
Our search among all states’ judicial opinions was for this phrase from
the UAA: “no arbitration agreement and the issue was not adversely
determined.” There were about 250 opinions. We examined 125 of them as
a reasonable sampling. Though many courts may not have quoted that entire
phrase when interpreting it, we are not looking for all cases, just a
representative group. Of the 125 opinions, there were 81 that quoted at least
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this part of the provision but did not interpret or apply it. 4 We will group the
remaining ones into different categories.
We discovered only three opinions that applied a provision
comparable to Section 171.088(a)(4) in a manner that even approaches what
the bankruptcy and district courts did in this case. The analysis in one of
them was later overruled, and another at least allowed post-arbitration
appellate review of the trial court’s initial order. The third opinion’s support
for that approach was an alternative basis for the result. All of them were
addressing the argument that there was no enforceable agreement at all.
In the first opinion, the court held that because a party had “moved to
stay arbitration on the ground that there was no agreement to arbitrate,” then
had its argument “decided adversely” by the denial of a stay, it could not
seek to vacate the award on the basis there was no agreement. Safeway Ins.
Co. v. Am. Arb. Ass’n, 617 N.E.2d 312, 319 (Ill. App. Ct. 1993). Later, that
state’s supreme court rejected this reasoning in a different case. See Salsitz
v. Kreiss, 761 N.E.2d 724, 730–31 (Ill. 2001). It held that a party who fails to
take an interlocutory appeal of an order compelling or denying a stay of
arbitration “does not lose the opportunity to contest the arbitrability of the
dispute in a subsequent appeal from a final judgment of the court confirming
the arbitration award.” Id. at 729–30.
The second opinion held that “adversely determined” meant that a
trial court, post-arbitration, could not reconsider its earlier ruling that an
enforceable arbitration agreement existed; even so, the statute “preserves
the issue of arbitrability for the appellate courts after confirmation of the
4
See, e.g., Cinatl v. Prososki, 949 N.W.2d 505, 516 (Neb. 2020); Marathon Oil Co.
v. ARCO Ala., Inc., 972 P.2d 595, 600 n.1 (Ala. 1999); Evans Elec. Constr. Co. v. University
of Kan. Med. Ctr., 634 P.2d 1079, 1086 (Kan. 1981).
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award.” Kauders v. Uber Techs., Inc., 159 N.E.3d 1033, 1046 (Mass. 2010).
“[A] party wishing to challenge an order compelling arbitration must wait
until the arbitration is completed and the award is confirmed before
challenging the order compelling arbitration on appeal.” Id. at 566–67.
Section 171.088(a)(4) is equally susceptible to that interpretation, though
Kauders may more circumvent than interpret the difficult text.
In the third, the court held that arguing for the first time in a motion
to vacate that there was no arbitration agreement was untimely. Louisiana
Safety Sys., Inc. v. Tengasco, Inc., No. E2000-03021-COA-R3-CV, 2001 WL
1105395, at *5 (Tenn. Ct. App. Sept. 21, 2001). The court then stated that
vacatur on this ground also required that a court had not held before the
arbitration that an “agreement did exist.” Id. Of course, a holding that an
agreement exists is not a determination of an agreement’s scope.
In contrast to those, nine opinions involved (as does the case before
us) a motion to compel and a later vacatur motion based on there being no
agreement or arbitrators exceeding their powers; in each, the court
considered the merits of vacatur, usually without analyzing the “adversely
determined” provision. 5 A tenth opinion was not in our random sample, but
as we earlier discussed, it was identified because it overruled one of the few
holdings that vacatur on these grounds was barred. See Salsitz, 761 N.E.2d
at 724. An eleventh opinion, which was an appeal from a denial of a motion
5
Anderson v. Banks, 37 A.3d 915 (Me. 2012); Boskovich Farms, Inc. v. Taco Bell
Corp., No. 2010-CA-000754-MR, 2011 WL 2935373 (Ky. Ct. App. July 22, 2011); Adam
Assocs. Int’l, Inc. v. William A. Berry & Son, Inc., No. 05-0997-BL52, 2007 WL 1296879
(Mass. Dist. Ct. May 2, 2007); Miller v. City of Anchorage, No. 2204–CA–000702–MR,
2006 WL 29190 (Ky. Ct. App. Jan. 6, 2006); Alexander v. Everhart, 7 P.3d 1282 (Kan. Ct.
App. 2000); Laszlo N. Tauber, M.D. & Assocs. v. Trammell Crow Real Est. Servs., Inc., 738
A.2d 1214 (D.C. 1999); Graber v. Comstock Bank, 905 P.2d 1112 (Nev. 1995); Park Imperial,
Inc. v. E. L. Farmer Const. Co., 454 P.2d 181 (Ariz. Ct. App. 1969).
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to compel, has related analysis. See Layne-Minnesota Co. v. Regents of Univ.
of Minn., 123 N.W.2d 371, 376–77 (Minn. 1963). When a court, on a motion
to compel, finds the agreement unclear, “the issue of arbitrability [should] be
initially determined by the arbitrators subject to a party’s right reserved in
[the vacatur provisions for exceeding powers and for no agreement] to
challenge such determination subsequent to any award.” Id. at 377.
In 17 cases in which there was no pre-arbitration court order, a party
was permitted to seek vacatur of an award on the basis that there was no
agreement if that objection had either been presented to the arbitrators or the
party had not participated in the arbitration. 6 These examples are the most
clear-cut applications of provisions similar to Section 171.088(a)(4).
The remaining opinions discussed the provision to some extent but
not in a manner relevant to this appeal. 7
6
Azcon Constr. Co., Inc. v. Golden Hills Resort, Inc., 498 N.W.2d 630 (S.D. 1993);
MBNA Am. Bank, N.A. v. Barben, 111 P.3d 663 (Kan. Ct. App. 2005) (unpublished table
decision); Grad. v. Wetherholt Galleries, 660 A.2d 903 (D.C. 1995); GPS USA, Inc. v.
Performance Powdercoating, 26 N.E.3d 574 (Ill. App. Ct. 2015); Parekh Constr., Inc. v. Pitt
Constr. Corp., 577 N.E.2d 632 (Mass. App. Ct. 1991); Migneault v. United Servs. Auto. Ass’n,
519 P.2d 1162 (Ariz. Ct. App. 1974); Garlock v. 3DS Props. LLC, 930 N.W.2d 503 (Neb.
2019); Smith v. Pinnamaneni, 254 P.3d (Ariz. Ct. App. 2011); Bolton v. Bernabei & Katz,
PLLC, 954 A.2d 953 (D.C. 2008); Westbrook Sch. Comm. v. Westbrook Tchrs. Ass’n, 404
A.2d 204 (Me. 1979); Roosa v. Tillotson, 695 A.2d 1196 (Me. 1997); Carroll v. MBNA Am.
Bank, 220 P.3d 1080 (Idaho 2009); City of Lawrence v. Falzarano, 402 N.E.2d 1017 (Mass.
1980); Thompson v. Lee, 589 A.2d 406 (D.C. 1991); Pelletier & Flangan, Inc. v. Maine Ct.
Facilities Auth., 673 A.2d 213 (Me. 1996); University of Ala. v. Modern Constr., Inc., 522 P.2d
1132 (Ala. 1974); Sterling Glob. Sols., LLC v. Parillo, 2017 IL App (1st) 170397-U, ¶ 1.
7
E.g., Seagate Tech., LLC v. Western Digit. Corp., 854 N.W.2d 750, 758–59 (Minn.
2014) (the requirement that an objection must be made in the arbitration that applies to
“no agreement to arbitrate” does not apply to the other vacatur provisions); MVR Dev.,
LLC v. Sanchez, No. 2 CA-CV 2008-0022, 2008 WL 2932916, at *2 (Ariz. Ct. App. July
30, 2008) (party failed, as an evidentiary matter, to show it had objected to the arbitration);
SIGNAL Corp. v. Keane Fed. Sys., Inc., S.E.2d 253, 257 (Va. 2003) (party failed to argue
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In conclusion, our examination of a large sampling of opinions from
other states that adopted the UAA vacatur provisions reveals no opinion that
barred a post-arbitration argument that a claim was beyond the scope of the
parties’ agreement if an objection was made at least in the arbitration itself.
Also, despite all the opinions that quote part of the “not adversely
determined” vacatur provision, few saw a need to interpret it. We also
discussed an opinion allowing a party to argue arbitrators exceeded their
powers in arbitrating a claim that was beyond the scope of the agreement.
Other states’ views are one component of the analysis. Next, as did
the Supreme Court of Texas in Nathan, we seek explanations from the
National Conference of Commissioners on Uniform State Laws.
3. National Conference of Commissioners notes
Uniform acts prepared by the National Conference of Commissioners
at times have official comments to each section that guide interpretation:
“Although the official comments to the [Uniform Commercial] Code were
not enacted by the Legislature, they serve as a valuable aid in construing the
statutory language.” Romo v. Austin Nat’l Bank, 615 S.W.2d 168, 170 n.2
(Tex. 1981). The UAA does not have section-by-section comments, but
there is a “Prefatory Note.” 1956 Unif. Arb. Act, 7 U.L.A. 100 (2009).
The important language for us is the Note’s last sentence: “The section on
Appeals is intended to remove doubts as to what orders are appealable and to
limit appeals prior to judgment to those instances where the element of finality is
present.” Id. (emphasis added). Insisting, as did the lower courts in this case,
that immediate mandamus review of an order compelling arbitration is the
sole route to contest that order is contrary to the intended limits.
that arbitrators resolved an issue outside the scope of the agreement, instead only arguing
that they applied the wrong legal standard).
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In addition, the first draft of the UAA had explanatory notes to assist
the Commissioners as they considered the proposal at their annual meeting
in 1954. The revised draft for the 1955 meeting also had notes but only about
the revisions. The weight the Supreme Court of Texas would give the notes
is unclear. As discussed earlier, that court will consider official comments
but reject them if they are not a convincing explanation of the law’s text. See
Nathan, 408 S.W.3d at 874. The comments in the two UAA drafts are similar
in form to official comments in completed uniform acts. Still, because the
Commissioners did not formally adopt them with the UAA, we will not rely
on them. We will, though, briefly review the comments. Learning what this
confusing vacatur provision was supposed to mean is a worthy place to begin.
In the 1954 first draft, the challenging vacatur provision stated this:
(7) There was no arbitration agreement and the issue was not
adversely determined in proceedings under section 2 or waived
by participating in the arbitration proceedings. 8
The “Note” accompanying this vacatur provision said it was
“needed” when no court order had preceded the arbitration:
Clause (7) is needed where no proceedings to compel
arbitration were taken, the opposing party has not participated
in the arbitration hearing, and first interposes his objection on
motion to vacate or in resisting a motion to confirm. 9
8
Unif. Arb. Act § 11(b), at 11 (Nat’l Conf. of Comm’rs on Unif.
State Laws, First Tentative Draft 1954), from the University of Minnesota Law Library
and the Archives Research Center, University of Illinois. We gratefully identify multiple
sources for the 1954 and 1955 drafts. The first found for 1954 was not clearly for that year’s
meeting; seeking a better 1954 draft at times located only another copy of the 1955 one.
9
Id. § 11, Note, at 13. The Section 11(b)(3) grounds for “exceeded their powers”
has no explanation in the Notes, perhaps because of a sense that it needed no explanation.
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The provision was later amended to allow participation in the
arbitration if the party objected there to the existence of an agreement. 10 It
became Section 12(a)(5) in the UAA and is Section 171.088(a)(4) in the TAA.
Why was it “needed,” as the Note states? Certainly, a reason could have
been to make clear that an objector who did not try to stay the arbitration
could still move for vacatur because there was no agreement. We are being
urged, though, to imply a far different effect of the provision – a failed
objection prior to the arbitration forecloses renewing the objection after.
However, if we interpret the provision that way — a claim that there
is no agreement to arbitrate can be asserted only once, either before or after
arbitration — it creates tension with the drafters’ decision to limit the right
to appeal. The drafters remarked that the New York act, used as a model for
some provisions, allowed appeals from any order. First Tentative Draft,
supra note 9, § 16 Note, at 16 (citing N.Y. Civ. Prac. Act § 1467 (1920)).
The drafters rejected that, saying “the review of orders should be left to an
appeal from the final judgment except for those which are final in character
or will result in no judgment being entered.” Id. at 16–17. Thus, an appeal
was allowed from orders denying but not from compelling arbitration. Id. §
16, at 16. Section 19(a) of the 1956 Uniform Act retained that distinction.
10
“Having raised the objection that no arbitration agreement covering the issue
has been made, a party should be permitted to participate in the arbitration hearing without
loss of the objection.” Unif. Arb. Act § 12(b)(7), Note, at 6 (Nat’l Conf. of
Comm’rs on Unif. State Laws, Second Tentative Draft 1955), provided by the
National Conference of Commissioners; University of Minnesota Law Library; Archives
Research Center, University of Illinois; and University of Iowa College of Law.
In 1956, the UAA was amended one last time solely to delete two vacatur sections;
there was no change to the text that concerns us. See Handbook of the National
Conference of Commissioners on Uniform State Laws and
Proceedings of the Annual Conference 133–34, 152, 292 (1956).
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Considering this background, it seems reasonable to conclude that an appeal
from an order compelling arbitration was to be allowed ultimately.
When a revised UAA was being prepared in the late 1990’s, the draft-
ers regarded “‘not adversely determined’ . . . [as] superfluous . . . [because
when] a court ‘adversely determined’ in either type of proceeding [i.e., to
compel or stay arbitration] that the arbitration agreement was invalid, then
no valid arbitration hearing should be held.” 11 Thus, the phrase simply iden-
tified the vacatur ground as one that could have blocked the arbitration, then
noted that no court had yet accepted the argument. Consistent with this un-
derstanding, the revised UAA approved in 2000 has an almost identical va-
catur provision but with the “adverse determined” phrase removed: “there
was no agreement to arbitrate, unless the person participated in the arbitra-
tion proceedings without raising the objection” in a timely manner. 2000
Unif. Arb. Act, § 23(a)(5), 7 U.L.A. 77 (2009). According to the 1997
Comment, that also is all the 1956 language meant.
Drafters of this 1956 provision were focused on vacatur when no court
had compelled arbitration. Its intended relevance otherwise is not at all clear.
11
Revision of Unif. Arb. Act, Reporter’s Comment 76 (Nat’l Conf.
of Comm’rs on Unif. State Laws, Draft Oct. 31, 1997), archived at
https://www.uniformlaws.org/home. That Comment does not appear in the 2000 UAA
itself — once the problematic phrase was deleted, no explanation of its perceived
irrelevance was needed. There is a Comment with the new provision: “the right to
challenge an award on this ground is conditioned upon the party who contests the validity
of an arbitration agreement raising this objection no later than the beginning of the
arbitration hearing.” 2000 Unif. Arb. Act § 23, Comment A.2, 7 U.L.A. 78 (2009).
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4. UAA drafting committee chairman’s journal articles
A useful interpretive source are law journal articles written by the
chairman of the committee that drafted the UAA. The articles are especially
learned commentary. An example of using learned commentary was a
Supreme Court of Texas opinion that needed a definition for “agreement”
in the TAA. See Rachal v. Reitz, 403 S.W.3d 840, 845 (Tex. 2013).
The chairman of the UAA drafting committee was Professor Maynard
E. Pirsig of the University of Minnesota School of Law; he was dean when
the UAA drafting began but returned to teaching before it concluded.
Maynard E. Pirsig, The New Uniform Arbitration Act, 11 Bus. Law. 44 n*
(1956). He wrote extensively on the UAA, starting even before its
completion in 1956. 12 The Texas Supreme Court likely would consider the
committee chairman’s explanations but not find them to be definitive.
One of his many useful articles on the UAA is from 1957. Pirsig, Some
Comments on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev.
685 (1957). He grouped the problems that can arise about an agreement’s
scope into three categories. The first was when it was plain that the dispute
does not fall within the agreement; in that case, arbitration should be denied.
Id. at 693. For the second, he gave the example of an arbitration agreement
in an employment contract that applies to disputes about wages, but the
contested issue concerns employee bonuses. Id. at 694. Instead of having a
court initially decide whether bonuses are wages, the sole decision for the
12
Maynard E. Pirsig, Toward a Uniform Arbitration Act, 9 Arb. J. 115 (1954);
Pirsig, The New Uniform Arbitration Act, 11 Bus. Law. 44 (1956); Pirsig, Some Comments
on Arbitration Legislation and the Uniform Act, 10 Vand. L. Rev. 685 (1957); Pirsig, The
Minnesota Uniform Arbitration Act and the Lincoln Mills Case, 42 Minn. L. Rev. 333
(1958); Pirsig, Arbitrability under the Uniform Act, 19 Bus. Law. 763 (1964); Pirsig,
Arbitrability and the Uniform Act, 19 Arb. J. 154 (1964) (same as the Bus. Law. article).
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court would be: “Is there an agreement to arbitrate?” Id. If there is, then the
arbitrator would get the issue of the scope of the agreement, subject to a later
objection to the award “that the arbitrator went beyond his powers.” Id. at
696. The third category concerns a different ambiguity in the agreement, and
there too the question should be given to the arbitrator so long as there is an
arbitration agreement. Id. at 694–95.
In his final article, published in 1964, Pirsig explained that if “the
arbitrability of a given dispute was reasonably in doubt, it should initially be
passed upon by the arbitrator. His decision, however, should be subject to
judicial review at the instance of an objecting party” in a motion to vacate. 13
Pirsig, Arbitrability under the Uniform Act, 19 BUS. LAW. 763, 764 (1964).
“Nothing is said in these provisions [for resolving a motion to compel] about
the need for showing that the pending dispute falls within the agreement to
arbitrate. Only an ‘agreement to arbitrate’ need be proved.” Id. In fact,
when a motion to compel or stay arbitration is filed, “the only question open
for judicial consideration should be, are there reasonable grounds shown for
the position that the dispute is within the arbitration clause. If there are, then
the question is for the arbitrator at this stage, subject to judicial review if the
question is again raised on a motion to confirm or vacate the award.” Id. at 764–
65 (emphasis added).
13
A 1958 article has a possibly divergent statement. Pirsig wrote that the objection
“there was no agreement to arbitrate the subject matter in dispute . . . could have been the
basis of a motion to compel or stay the arbitration. If such a motion was made and
adjudicated, the point cannot be raised again on a motion to vacate the award.” Pirsig,
Minnesota Uniform Arbitration Act, supra note 12 at 353–54 (emphasis added). In the same
article, though, he wrote that the UAA “should limit the court's function on a motion to
compel arbitration to determining ‘the existence of the agreement to arbitrate.’” Id. at 346.
At most, then, Pirsig meant the existence of an agreement could not be disputed a second
time. The scope of the agreement, however, as the 1964 Business Lawyer article we just
quoted in the text makes clear, could be judicially reviewed after the arbitration.
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In summary, Pirsig wrote that the court on a motion to compel decides
on the existence of an arbitration agreement and whether the claims could
reasonably fall within its scope. Difficult interpretive tasks about the
agreement go to the arbitrator. Once a final award is made, the court can then
decide whether the claims were actually within the arbitration clause. The
no-arbitration-agreement vacatur ground is generally discussed in situations
in which there were no pre-arbitration court proceedings.
We inject a Texas caveat to all this. The Supreme Court of Texas
requires that “a party seeking to compel arbitration must establish that a valid
arbitration agreement exists and that the claims at issue fall within the scope of
that agreement.” G.T. Leach Builders, LLC v. Sapphire V.P., 458 S.W.3d 502,
524 (Tex. 2015) (citing Tex. Civ. Prac. & Rem. Code § 171.021(a))
(emphasis added). The important point for us, though, is not how much
needs to be done by a Texas court when compelling or staying arbitration.
Instead, we are analyzing what cannot be undone by a Texas court after
arbitration. Any limits on the grounds for vacatur come from the statute.
5. The FAA — vacatur grounds and appellate review
A concurring opinion by a Texas Supreme Court justice considered it
important that the meaning the court adopted for a TAA provision was
consistent with the interpretation given to similar language in the FAA. East
Tex. Salt Water, 307 S.W.3d at 276 (Willett, J. concurring). One party’s
argument on how to interpret the TAA had been an invitation to “inject the
disruption of needless inconsistency with the FAA. The Court is wise to
decline.” Id. at 277. See also Nafta Traders, 339 S.W.3d at 97 (considering
the FAA when interpreting a TAA provision). Thus, opinions concerning
comparable questions under the FAA may provide useful answers.
Resolving disputes under the FAA about enforcement of arbitration
agreements involves two steps. See Kubala v. Supreme Prod. Servs., Inc., 830
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F.3d 199, 202 (5th Cir. 2016). The court is first to decide if there is a valid,
enforceable arbitration agreement. Id. That decision is for the court because
the issue of contract validity is one of law. Id.; see also 9 U.S.C. § 2
(arbitration agreements are enforceable “save upon such grounds as exist at
law or in equity for the revocation of any contract,” with an irrelevant
exception). The second step is to decide whether the claims being proposed
for arbitration are within the terms of the agreement. See Kubala, 830 F.3d
at 202. Though usually that question also is to be answered by the court, the
agreement itself may validly assign the second issue to the arbitrators. See id.
This FAA’s distinction between existence and scope of arbitration
agreements supports that whatever else the TAA (a)(4) vacatur provision
means, it is referring simply to the existence of an agreement, while (a)(3)(A)
on exceeding powers applies to all issues of its scope.
The FAA also provides that awards should be vacated “where the
arbitrators exceeded their powers.” 9 U.S.C. § 10(a)(4). This court has held
that “Section 10(a)(4) has been interpreted narrowly and allows vacatur of
an award ‘[o]nly if the arbitrator acts outside the scope of his contractually
delegated authority — issuing an award that simply reflects his own notions
of economic justice rather than drawing its essence from the contract.’”
Kemper Corp. Servs. v. Comput. Scis., 946 F.3d 817, 822 (5th Cir. 2020)
(quoting Oxford Health Plans LLC v. Sutter, 569 U.S. 564, 569 (2013))
(emphasis added).
The arbitration agreement, therefore, is what defines the arbitrator’s
powers under the FAA. The analysis of whether those powers have been
exceeded must focus on the agreement. Texas caselaw supports that we
should interpret the concept of arbitrators’ exceeding their powers under the
TAA consistently, if possible, with the interpretation of the FAA.
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As to appellate review of allegedly errant orders to compel arbitration,
the bankruptcy and district courts held that review had to be sought
immediately or not at all. Quite differently, the Supreme Court of Texas has
held that orders compelling arbitration under the FAA do not have to be
contested immediately by mandamus. Perry Homes v. Cull, 258 S.W.3d 580,
586 (Tex. 2008). The court held that such orders could be reviewed after
arbitration; to hold otherwise would inundate the courts with “routine
mandamus review of such orders,” thus “bogging down [arbitration] in
preliminary appeals.” Id. The court relied in part on a section of the FAA
that expressly barred interlocutory appeals from orders compelling
arbitration. Id. (citing 9 U.S.C. § 16(b)(2) (barring such appeals except under
28 U.S.C. § 1292(b)). The court then gave a “see also” reference to TAA
Section 171.098, which provides for interlocutory appeal only of orders
denying, not granting, motions to compel arbitration. Id. at 586 n.11. Though
waiting until after the arbitration to seek appellate review may waste the
parties’ resources, “parties may also waste resources appealing every referral
when a quick arbitration might settle the matter.” Id. at 587.
The next year, the court vacated a court of appeals’ grant of a writ of
mandamus that had stopped an FAA arbitration. In re Gulf Expl., LLC, 289
S.W.3d 836, 842–43 (Tex. 2009). “If a trial court compels arbitration when
the parties have not agreed to it, that error can unquestionably be reviewed
by final appeal.” Id. at 842. It explained Perry Homes this way: “Both federal
and Texas statutes provide for vacating an arbitration award by final appeal if
the arbitrators exceeded their powers. If appeal is an adequate remedy for an
order compelling arbitration, mandamus must be denied.” Id. Significantly,
the court said that “both the federal and state arbitration acts pointedly
exclude immediate review of orders compelling arbitration,” and therefore
mandamus review should be avoided. Id.
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A quite recent opinion by the Supreme Court of Texas concerning an
order compelling arbitration was in the context of a state statute for enforcing
agreements to arbitrate divorce and child custody disputes. In re Ayad, ---
S.W.3d ----2022 WL 4393012 (Tex. Sept. 23, 2022) (applying TEX. FAM.
CODE §§ 6.601(a), 153.0071(a)). One spouse argued the agreement was
unenforceable, but a trial court compelled arbitration. Id. at *2–3. Citing In
re Gulf as one of its authorities, the court stated it had “long held that an
adequate remedy for a trial court’s error in compelling the parties to arbitrate
is available through an eventual appeal from a final judgment enforcing an
arbitration award.” Id. at *4. It is at least suggestive that the state’s highest
court would make so categorical a statement about the usual rule and rely on
an FAA decision when explaining Texas procedures. Mandamus was
granted in the case, though, because the trial court “did not follow a statutory
command — unique to the divorce context — that it try issues of validity and
enforceability prior to ordering arbitration.” Id.
When the court made these broad statements in Ayad and Gulf
Exploration about post-arbitration review of orders compelling arbitration,
there was no carve-out for orders under the TAA. It is a telling omission. It
means that, even though there is no FAA provision comparable to the “no
arbitration agreement” and “not adversely determined” TAA provision, the
Texas high court has stated that postponed review of the order compelling
arbitration is available under both acts. It is unwarranted to place on the
rarely interpreted and confusingly phrased (a)(4) vacatur provision the entire
weight of an outcome-altering departure from the procedure the Texas high
court has applied to the FAA and suggested applies to the TAA.
Of considerable importance to whether we should declare such a
departure, “Texas courts applying the FAA follow Texas rather than federal
procedure.” In re Palacios, 221 S.W.3d 564, 565 (Tex. 2006) (citing Jack B.
Anglin Co., Inc. v. Tipps, 842 S.W.2d 266, 272 (Tex. 1992)). Further, “it is
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important for federal and state law to be as consistent as possible in this
area.” Id. (quotation marks and citation omitted). Therefore, when the Texas
high court explains procedures to be followed in state court for the FAA, it is
generally explaining the procedure for the TAA, too. These opinions on the
FAA explain that the highest court in Texas, for reasons of judicial economy
equally applicable to the TAA, disfavors review by a writ of mandamus of
orders compelling arbitration. Appellate review can await entry of an award.
One court’s contrary view was cited by the bankruptcy court. A Texas
court of appeals held that a party “should have” sought a writ of mandamus
after the trial court compelled arbitration under the TAA; raising that claim
after arbitration was untimely. Gumble v. Grand Homes 2000, L.P., 334
S.W.3d 1, 4 (Tex. App.—Dallas, 2007). In support, the court cited three
opinions holding that a writ of mandamus is the only procedure for immediate
review of a motion to compel arbitration. Id. (citing Freis v. Canales, 877
S.W.2d 283, 284 (Tex. 1994); Mohamed v. Auto Nation USA Corp., 89 S.W.3d
830, 834, 838–39 (Tex. App.—Houston [1st Dist.] 2002, no pet.); In re Godt,
28 S.W.3d 732, 738–40 (Tex. App.—Corpus Christi-Edinburg, 2000, orig.
proceeding)). None of those three, though, addressed whether the order
compelling arbitration could also be challenged on a motion to vacate. As far
as we can tell, Gumble stands alone in holding that mandamus must be sought.
We also reiterate the appellate review allowed by the TAA. Appeal is
permitted from orders that grant a stay or refuse to compel arbitration but
not from their opposites. See Perry Homes, 258 S.W. 3d at 586 n.11 (citing §
171.098). Different treatment of the different orders is logical. Staying the
arbitration or refusing to order its commencement are final because they
prevent arbitration, while refusing to stay or compelling an arbitration are
interlocutory since other proceedings follow and an appeal can follow those.
Resolving claims without seriatim involvements by a court was a goal for this
uniform act. See 1956 Unif. Arb. Act, 7 U.L.A. 100, Pref. Note (2009).
34
Case: 21-50960 Document: 00516551568 Page: 35 Date Filed: 11/18/2022
No. 21-50960
Allowing a party to wait until arbitration has concluded to seek review of an
order compelling arbitration is consistent with that goal.
Prohibiting the appeal of an interlocutory order and also making it
unreviewable after final judgment would be an unusually restrictive
combination. We conclude that the TAA does not create that dual obstacle
at least when the issue is whether a particular claim was subject to arbitration.
A writ of mandamus is not required; a later motion to vacate is a remedy.
D. Proper vacatur provisions for the Amberson claims
With the foregoing analysis of the TAA in hand, we examine
Amberson’s two vacatur arguments, one on the absence of an alter ego
relation, the other on whether the Cannon Grove claim was arbitrable.
The arbitrator made fact findings regarding alter ego. Additionally,
even though he determined that he had no authority to resolve whether the
Cannon Grove claims were arbitrable, the arbitrator made fact findings
relevant to that argument. Fact findings by an arbitrator are nearly
unassailable. For example, the grounds for vacatur in the TAA do not include
any related to the strength of the evidence to support the award other than if
the arbitrator refused to allow introduction of “material evidence.” §
171.088(a)(3)(C). The Texas Supreme Court has referred to “judicial review
of an arbitration award [as] extraordinarily narrow.” East Tex. Salt Water,
307 S.W.3d at 271. We conclude that the arbitrator’s fact-findings relevant
to whether the Cannon Grove claim was subject to the arbitration agreement,
a claim he did not resolve, are still entitled to substantial deference.
1. Alter ego
When analyzing whether a non-signatory can be forced to arbitrate,
the Texas Supreme Court applied Fifth Circuit precedents. In re Kellogg
Brown & Root, Inc., 166 S.W.3d 732, 739 (Tex. 2005). Concluding that it was
35
Case: 21-50960 Document: 00516551568 Page: 36 Date Filed: 11/18/2022
No. 21-50960
important “for federal and state law to be as consistent as possible in this
area, because federal and state courts have concurrent jurisdiction to enforce
the FAA,” it used “persuasive and well-reasoned federal precedent” to
determine state law on the question. Id. Though the specific determinations
were as to the FAA, we conclude the Texas court would continue its pursuit
of consistency and apply the same reasoning to the TAA.
The concept of alter ego is one of the theories “arising out of common
principles of contract and agency law” that would bind a non-signatory to an
arbitration agreement. Id. That is the only theory argued in this case.
Determining an alter ego relation is highly fact-based. Bridas S.A.P.I.C. v.
Gov’t of Turkmenistan, 345 F.3d 347, 359 (5th Cir. 2003). In making the
decision as to corporations, we explained that an alter ego relation would be
shown “if (1) the owner exercised complete control over the corporation with
respect to the transaction at issue and (2) such control was used to commit a
fraud or wrong that injured the party seeking to pierce the veil.” Id.
Comparable analysis applies here both as to the law firm and as to ANR
concerning whether they are Amberson’s alter ego.
The arbitrator gave these reasons for holding that Amberson’s law
firm was Amberson’s alter ego:
(1) Amberson is the sole owner and decision maker of the Firm
and thus has a financial interest in the Firm and controls its
operations; (2) Amberson used the firm and both its operating
and IOLTA account to pay and subsidize personal expenses . .
. such that there is a unity of interests between the Firm and
Amberson; (3) Amberson caused the Firm to be used for the
purpose of perpetrating and did perpetrate an actual fraud on
the McAllen Parties primarily for his direct personal benefit;
and (4) given that Amberson has indicated that the Firm likely
cannot pay . . . the amounts awarded herein, it equitably would
be a manifest injustice if on this record the McAllen Parties
36
Case: 21-50960 Document: 00516551568 Page: 37 Date Filed: 11/18/2022
No. 21-50960
were left with an uncollectible Award or resulting judgment
against the Firm.
The arbitrator then made these findings about ANR as an alter ego:
[ANR] was formed for the sole purpose of receiving a
$4,500,000.00 loan from McAllen in order to purchase the 90%
interest in Cannon Grove . . . . Amberson is the sole owner of
ANR. Amberson provided $500.00 to open up a bank account
for ANR. That is the only capital Amberson has provided to
ANR. This inadequate capitalization for ANR, coupled with
Amberson's total control of ANR, establishes a unity of interest
between Amberson and ANR. Whether or not Amberson
initially created ANR for the purpose of perpetrating a fraud,
ANR ultimately was used for such purpose in connection with
Amberson's argument that the $4,500,000.00 amount
McAllen paid Amberson’s wholly-owned entity ANR was for
a gift and was not a loan, which would be for the direct personal
benefit of Amberson. Finally, it would be manifestly unjust not
to hold Amberson personally liable for ANR's actions.
The arbitrator held that both the law firm and ANR were Amberson’s
alter egos, making Amberson personally liable for any award granted the
McAllen Parties against the firm or ANR. The bankruptcy and district courts
both agreed.
The issue, then, is whether an arbitration agreement existed, i.e., was
one enforceable, as to Amberson, individually. Does this mean we no longer
can avoid resolving whether a barrier to review arises from the proviso in
Section 171.088(a)(4) that the issue of the existence of an agreement “was
not adversely determined in a proceeding” to compel or stay arbitration? It
does not. The arbitrator’s decision on the issue of alter ego must stand,
making our authority to review of no consequence. We explain.
The Texas high court has held that under the FAA, whether a non-
signatory is bound by an arbitration agreement is an issue for the court, absent
37
Case: 21-50960 Document: 00516551568 Page: 38 Date Filed: 11/18/2022
No. 21-50960
the agreement’s clearly giving the task to the arbitrator. In re Weekley Homes,
L.P., 180 S.W.3d 127, 130 (Tex. 2005). The agreement here was silent.
Texas applies its own procedural rules to the FAA. Id. Thus, we consider
Weekley Homes equally applicable to the TAA. A trial court’s findings on
whether an arbitration agreement exists among specific parties are entitled to
deference. Aerotek, Inc. v. Boyd, 624 S.W.3d 199, 204 (Tex. 2021). The
bankruptcy court here incorporated the arbitrator’s ruling and thus his fact-
findings into its own judgment, and we have quoted the findings above. The
district court affirmed. Amberson offers little in opposition.
We will not disturb the express findings and the conclusions drawn
from them that began with the arbitrator and were sustained by the two
federal courts that have already reviewed those findings, that the Amberson
law firm and ANR are Amberson’s alter ego. Therefore, Amberson himself
is obligated to arbitrate any claim that the agreement validly covers.
Therefore, even if Section 171.088(a)(4) bars reconsidering whether
an enforceable agreement exists if an order compelling arbitration rejected
the argument, the result here would not change. We continue to abstain from
deciding on the meaning of that vacatur provision.
2. Scope of the agreement.
A separate question is whether the arbitration agreements governing
the Amberson law firm’s work for McAllen apply to the Cannon Grove
claims. If they do, then Amberson was validly required to arbitrate them.
We earlier examined the plain language of the vacatur provision for
arbitrators’ exceeding their powers. See § 171.088(a)(3)(A). We also
examined Texas caselaw, caselaw from other states adopting the uniform act,
journal articles, and interpretations of the FAA, to help understand the
alternative (a)(4) provision. Based on all that, we hold that the vacatur
38
Case: 21-50960 Document: 00516551568 Page: 39 Date Filed: 11/18/2022
No. 21-50960
provision for arbitrators’ exceeding their powers is the one that applies to the
argument that the scope of the agreement did not reach a particular claim.
The only determination so far as to whether the agreement applied to
the Cannon Grove claim was by the Hidalgo County District Court when it
compelled arbitration. That court provided no analysis. The arbitrator later
stated he “made no decision” on arbitrability because the court had already
ordered arbitration of all claims. The bankruptcy and district courts each
held that the issue was foreclosed because review of an order compelling
arbitration could only be sought through mandamus. We have explained our
disagreement about the necessity of pursuing mandamus. We have the
authority, though, to affirm on any basis supported by the record. Walker v.
Beaumont Indep. Sch. Dist., 938 F.3d 724, 734 (5th Cir. 2019). The parties on
appeal have briefed the merits of the arbitrability issue. As a matter of judicial
economy, we will examine the record for whether the application of the
arbitration agreement to the Cannon Grove claim is clear.
Under Texas law, a claim is within the scope of an arbitration
agreement “if the facts alleged ‘touch matters’ that are covered by, have a
‘significant relationship’ to, are ‘inextricably enmeshed’ with, or are
‘factually intertwined’ with the contract that contains the arbitration
agreement.” In re Bath Junkie Franchise, Inc., 246 S.W.3d 356, 366 (Tex.
App. — Beaumont 2008) (quoting Pennzoil Co. v. Arnold Oil Co., 30 S.W.3d
494, 498 (Tex. App. — San Antonio 2000, orig. proceeding). For a claim
“to come within the scope of the arbitration provision, a party's allegations
need only be factually intertwined with arbitrable claims or otherwise touch
upon the subject matter of the agreement containing the arbitration
provision.” Id. Perhaps put even more insistently, Texas courts are to find
that a claim falls within the scope of the arbitration agreement “unless it can
be said with positive assurance that an arbitration clause is not susceptible of an
interpretation which would cover the dispute at issue.” Prudential Sec. Inc.
39
Case: 21-50960 Document: 00516551568 Page: 40 Date Filed: 11/18/2022
No. 21-50960
v. Marshall, 909 S.W.2d 896, 899 (Tex. 1995) (quoting Neal v. Hardee's Food
Sys., Inc., 918 F.2d 34, 37 (5th Cir.1990) (emphasis in original).
In brief, in the Cannon Grove transaction, Amberson borrowed
$4,500,000 from McAllen in 2009 to purchase a 90% interest in that
property, but in 2014 he claimed the money had been a gift. The question is
whether that dispute is intertwined with the rest of the arbitration.
There is no dispute that Amberson misappropriated funds from
McAllen during the course of the years-long Forest Oil litigation. Claims for
recovery of those funds clearly were arbitrable. One of the events discussed
by the arbitrator occurred in 2012 when McAllen satisfied a $2,000,000 loan
made by First Community Bank to Amberson’s law firm. Amberson falsely
informed McAllen that the loan had been for Forest Oil litigation expenses.
It is undisputed that McAllen borrowed the $2,000,000 from Bank of
America, using Cannon Grove as collateral. The arbitrator found Amberson
had obtained other financial assistance from McAllen, including a pledge of
over $2,000,000 in 2011 as collateral in order for Amberson to get a different
bank loan, again by misrepresenting the money was needed for the litigation.
This brief factual summary reveals that Amberson received
substantial funds from McAllen by falsely claiming they were for the Forest
Oil litigation. McAllen’s payments ostensibly for the litigation were used for
other purposes. Cannon Grove itself was key to one of the improper
payments. We see no basis for treating each of Amberson’s fraudulent
interactions with McAllen as isolated events. Amberson improperly obtained
or retained money from McAllen, using different stratagems at different
times, falsely identifying their purpose and their necessity. Also relevant is
that the arbitrator held that Amberson individually, his law firm, and ANR
formed a civil conspiracy to misappropriate McAllen’s funds. Refusing to
40
Case: 21-50960 Document: 00516551568 Page: 41 Date Filed: 11/18/2022
No. 21-50960
return the Cannon Grove money was one act of misappropriation that
benefitted those conspirators.
We conclude that the facts of the Cannon Grove claim “‘touch
matters’ that are covered by, have a ‘significant relationship’ to, are
‘inextricably enmeshed’ with, or are ‘factually intertwined’ with the contract
that contains the arbitration agreement,” which makes them arbitrable. In re
Bath Junkie Franchise, 246 S.W.3d at 366. Put differently, it cannot be said
“with positive assurance” that this “arbitration clause is not susceptible of
an interpretation which would cover the dispute at issue.” Prudential
Securities, 909 S.W.2d at 899. The arbitration agreement for the Forest Oil
litigation was properly applied to the Cannon Grove claim too.
III. Conclusions
Interpreting the TAA to prohibit renewing the argument, post-
arbitration, that a claim was outside the scope of an arbitration agreement
finds almost no support in Texas caselaw, in clear text in the TAA, in caselaw
from other UAA jurisdictions, in the UAA’s Prefatory Note, in the drafting
committee chairman’s scholarly writings, in the explicit listing in the TAA of
what could be appealed prior to arbitration and implicitly what should wait
until after, in procedures in Texas for the FAA, and in the general right to
challenge interlocutory orders after final judgment. We hold that the TAA
allows a party to renew arguments in a motion to vacate that were rejected
prior to arbitration about the scope of the arbitration agreement.
We also hold that arbitrators exceed their powers under the TAA
when they decide a claim that is outside the scope of the parties’ agreement.
Consequently, Amberson was entitled under Section 171.088(a)(3)(A) to
have the argument considered that the arbitrator had exceeded his powers in
resolving the Cannon Grove claim. We do not reverse because we were able
to conduct that analysis based on the record before us. There was no error in
41
Case: 21-50960 Document: 00516551568 Page: 42 Date Filed: 11/18/2022
No. 21-50960
arbitrating the Cannon Grove dispute. Moreover, Amberson individually
was subject to the arbitration because ANR and the Amberson law firm are
each Amberson’s alter ego.
As to Section 171.088(a)(4), regardless of the meaning of “the issue
was not adversely determined in a proceeding” to compel or stay the
arbitration, what matters is we have found no opinion for a court from Texas
or elsewhere, no learned commentary, or anything else that concludes it bars
determining the scope of the arbitration agreement after an award is made.
Indeed, of all its possible meanings, that may be the least likely. This oddly
worded subsection is rarely discussed in judicial opinions. In the 2000 UAA,
the problematic proviso was deleted.
AFFIRMED.
42
Case: 21-50960 Document: 00516551568 Page: 43 Date Filed: 11/18/2022
No. 21-50960
Edith H. Jones, Circuit Judge, concurring:
Judge Southwick’s scholarly opinion illuminates the peculiarities of
the Texas Arbitration Act in a way that will be useful to the bench and bar. I
concur with much of what he has written. In particular, I agree that pre-
arbitration mandamus in state court was not the sole vehicle by which
Amberson could challenge the existence and scope of the parties’ arbitration
agreements. I agree that Section 171.088(a)(3)(A) furnishes the proper basis
for analysis of Amberson’s arguments in this case, and that under the facts
found by the arbitrator, Amberson did not have a valid challenge to the
agreement’s existence pursuant to Section 171.088(a)(4). And I agree that
Amberson was the alter ego of his law firm and ANR and that the Cannon
Grove transactions were inextricably intertwined with the Forest Oil fee
arbitration agreement. Thus, the judgment of the district and bankruptcy
courts is correctly affirmed.
43
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No. 21-50960
Andrew S. Oldham, Circuit Judge, concurring in the judgment:
I would decide this case under Texas Civil Practice and Remedies
Code § 171.088(a)(4). It provides for vacatur of an arbitration award if “there
was no agreement to arbitrate, the issue was not adversely determined in a
proceeding under Subchapter B, and the party did not participate in the
arbitration hearing without raising the objection.” Ibid. This text is most
naturally read to authorize vacatur where “there was no agreement to
arbitrate [the claim at issue].” Here there was such an agreement, and that
“issue” was “adversely determined” against Amberson by a Texas state
court. That’s the end of this case in my estimation.
I don’t understand the relevance of § 171.008(a)(3)(A)’s reference to
arbitrators who “exceed their powers.” I would not, as the majority does,
construe (a)(3)(A) to extend to disputes over the “scope” of an arbitration
agreement while limiting (a)(4) to disputes over the “existence” of such an
agreement. In my view, both “scope” and “existence” questions fit
comfortably within (a)(4).
It’s also important, in my view, that Texas’s courts have applied
§ 171.088(a)(4) even where the party fighting an arbitration award raises
“scope” questions. See Southwinds Express Construction, LLC v. D.H. Griffin
of Texas, Inc., 513 S.W.3d 66, 84 (Tex. App.—Houston [14th Dist.] 2016, no
pet.) (Frost, C.J., concurring) (explaining that applying § 171.088(a)(3)(A) to
circumstances like those in issue here would render portions of §
171.088(a)(4) “meaningless”); Kreit v. Brewer & Pritchard, P.C., 530 S.W.3d
231, 241–43 (Tex. App.—Houston [14th Dist.] 2017, pet. denied) (applying
§ 171.088(a)(4) over (a)(3) where a party raised the “scope” question of
whether persons were covered by an agreement).
44 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488126/ | IN THE SUPREME COURT OF THE STATE OF NEVADA
ROGER BARNES; AND MAUREEN No. 82348
BARNES,
Appellants,
vs.
SCOTCH PINE HOMEOWNERS FILE
ASSOCIATION, INC., A NEVADA NON-
PROFIT CORPORATION; KEVIN
NOV 1 8 2022
SENATOR, INDIVIDUALLY AND AS
DIRECTOR OF SCOTCH PINE
HOMEOWNERS ASSOCIATION, INC.;
AND PATRICK M. MILLETT, AS A
DIRECTOR OF SCOTCH PINE
HOMEOWNERS ASSOCIATION, INC.,
Respondents.
ORDER OF REVERSAL AND REMAND
This is an appeal from a district court order granting a special
motion to dismiss under Nevada's anti-strategic lawsuit against public
participation (anti-SLAPP) statutes. Second Judicial District Court,
Washoe County; Scott N. Freeman, Judge.'
Appellants Roger and Maureen Barnes owned property in the
Scotch Pines neighborhood and appeal the dismissal of their latest
complaint2 arising from long-standing disputes with their homeowners'
association and neighbors serving on the association's board (collectively
1 Pursuant to NRAP 34(f)(1), we have determined that oral argument
is not warranted in this appeal.
2The Barneses previously attempted to bring similar cases against
SPHOA. The first was dismissed for failing to mediate. The second was
dismissed for failing to include the individual directors listed as named
parties in the attempted mediation.
SUPREME COURT
OF
NEVADA
(01 1947A allgp
klK1-1-!•. s -ry
22-
• ••0"...
SPHOA). Respondent Kevin Senator was the Barneses' next-door neighbor
and president of the Board. After the Barneses filed their first lawsuit, they
allege SPHOA, including Senator, began harassing them at HOA meetings.
After long-standing disputes with the Barneses,3 Senator submitted a
complaint to the Association about the Barneses. SPHOA then issued what
they reference as a "courtesy letter" to the Barneses informing them Senator
had complained that the Barneses were stalking him at his property,
leaving debris and painting portions of Senator's property, and leaving
"[m]annequins placed in windows that scare the neighbors." The Barneses
submitted a written response denying Senator's allegations. SPHOA emails
from around the same period revealed that the Board was discussing ways
they could indirectly recoup expenses accrued from the previous cases
brought by the Barneses through fines or future litigation.
The Barneses sued SPHOA,4 and SPHOA moved to dismiss
under Nevada's anti-SLAPP statutes. The district court granted SPHOA's
motion, concluding that SHPOA established that the Barneses' claims were
based on "good faith communication[s] in furtherance of the right to petition
or the right to free speech in direct connection with an issue of public
concern." NRS 41.660(3)(a). The Barneses appealed. After reviewing the
30ne board member suggested via email that the issues between
Senator and the Barneses began after Senator threatened Roger Barnes
and several other owners and escalated after Senator began dumping dirt
on the Barneses property. However, Senator alleged that during this period
the Barneses were actually harassing him. Both the Barneses and Senators
allegedly sought protective orders against one another.
4The Barneses asserted numerous claims, including breach of
contract, breach of the covenant of good faith and fair dealing, breach of
fiduciary duty, defamation, false light, civil conspiracy, and unlawful
retaliation under NRS 116.31183.
SUPREME COURT
OF
NEVADA
2
10) 1c).17A
district court's order granting the anti-SLAPP motion to dismiss de novo,
see Coker v. Sassone, 135 Nev. 8, 11, 432 P.3d 746, 749 (2019), we reverse
and remand.
Under the first prong of an anti-SLAPP analysis, the party
moving for dismissal must show, "by a preponderance of the evidence, that
the moving party's claim is based upon a good faith communication in
furtherance of the right to petition or the right to free speech in direct
connection with an issue of public concern." NRS 41.660(3)(a). This
requires the moving party to show that the comments at issue fall into one
of four categories of protected communications enumerated in NRS 41.637.
Stark v. Lackey, 136 Nev. 38, 40, 458 P.3d 342, 345 (2020). At issue here
are only two categories, NRS 41.637(3) and (4), which protect a:
(3) Written or oral statement made in direct
connection with an issue under consideration by a
legislative, executive or judicial body, or any other
official proceeding authorized by law; or
(4) Communication made in direct
connection with an issue of public interest in a
place open to the public or in a public forum.
Once the moving party has established that the comments fall into a
protected category, they must additionally show that the communication
was made in good faith, or that it "is truthful or is made without knowledge
of its falsehood." NRS 41.637; see also NRS 41.660(3)(a); Shapiro v. Welt,
133 Nev. 35, 39, 389 P.3d 262, 268 (2017). In determining whether a
communication was "made in good faith, the court must consider the 'gist
or sting' of the communicationü as a whole, rather than parsing individual
words." Rosen v. Tarkanian, 135 Nev. 436, 437, 453 P.3d 1220, 1222 (2019)
(internal quotation marks omitted).
3
We conclude that SPHOA's courtesy letter to the Barneses was
not made in direct connection with an issue under consideration in an
official proceeding authorized by law. See NRS 41.637(3); see also Talega
Maint. Corp. v. Standard Pac. Corp., 170 Cal. Rptr. 3d 453, 461 (Ct. App.
2014) (holding that an HOA meeting was not an official proceeding for the
purposes of anti-SLAPP protection). Further, SPHOA's internal emails and
conversations discussing future ways to recoup fees from prior litigation are
not protected under NRS 41.637(3) because they were not made in
connection with pending court litigation.
Additionally, we conclude that SPFIOA's courtesy letter as well
as internal emails and conversations regarding ways to recoup fees from
prior litigation were not made in direct connection with an issue of public
interest in a public forum. See NRS 41.637(4); Shapiro, 133 Nev. at 39, 389
P.3d at 268 (adopting guiding principles on what constitutes "an issue of
public interest"); see also Damon v. Ocean Hills Journalism Club, 102 Cal.
Rptr. 2d 205, 209, 212 (Ct. App. 2000) (holding that a "public forum" is a
place that is open to the public or where information is freely exchanged,
regardless of whether it is uninhibited or controlled). While we have held
that certain communications regarding HOAs to be matters of public
interest in a pubhc forum, the SPHOA's communications here do not impact
a substantial number of people, as there are only twenty homes in the
neighborhood, and further were shared privately between the I3arneses and
SPHOA Board rnernbers.5 Cf Kosor v. Olympia Companies, LLC, 136 Nev.
705, 707-08, 478 P.3d 390, 393 (2020) (finding that statements regarding
5There do not appear to be additional communications addressed by
the parties that form the basis of the Barneses' claims.
SUPREME COURT
OF
NEVADA
4
1,1:U 1947A elgo>
alleged misfeasance in the management of an HOA of more than 8,000
homes to be of public interest).
Furthermore, even if SPHOA showed that the communications
at issue fell into one of these categories, SPHOA did not show that the gist
of their communications were truthful or made without knowledge of their
falsehood. Generally, "an affidavit stating that the defendant believed the
communications to be truthful or made them without knowledge of their
falsehood is sufficient to meet the defendant's burden absent contradictory
evidence in the record." Stark, 136 Nev. at 43, 458 P.3d at 347. However,
when no affidavit is attached, courts look to the evidence the movant
provides to show that statements were made in good faith. See Coker, 135
Nev. at 13, 432 P.3d at 750. In their motion practice in the district court
SPHOA never asserted the statements were made in good faith, nor did they
include an affidavit affirming the truth of the statements made or provide
other evidence to demonstrate the good faith of the statements. See Coker,
135 Nev. at 12-13, 432 P.3d at 750 (holding that a defendant who made no
reference whatsoever in his declaration as to whether his statements were
truthful or made without knowledge of their falsehood did not meet his
burden under prong one of the anti-SLAPP analysis); cf. Delucchi v. Songer,
1.33 Nev. 290. 300, 396 P.3d 826, 833 (2017) (holding that a defendant
demonstrated that his com munication was true or rnade without knowledge
of its falsehood when, in a declaration, he stated that the information
contained in his communication "was truthful to the best of his knowledge,
and he made no statements he knew to be false") (alterations omitted); see
also Taylor v. Colon, 136 Nev. 434, 440-41, 482 P.3d 1212, 1218 (2020)
(holding that a declarant's assertion that he rnade a communication he
believed to be true and accurate constituted a showing of good faith). The
SUPREME COURT
OF
NEVADA
5
401 1947A
Barneses, on other hand, included a declaration frorn Roger Barnes which
stated he could, if called as a witness, testify to the facts in the opposition
to the special motion to dismiss. The Barneses also included several
attachments, including emails between SPHOA Board members that
suggested some degree of falsity to SPHOA's statements and cast doubt on
their good faith motivations for making them.
Because SPHOA did not show that their communications were
made in direct connection with an official proceeding or an issue of public
interest in a public forum, nor that their communications were made
truthfully or without knowledge of their falsehood, we hold that SPHOA did
not meet their burden under the first prong of the anti-SLAPP analysis.
Accordingly, we
ORDER the judgment of the district court REVERSED AND
REMAND this matter to the district court for proceedings consistent with
this order.
J.
Caclish
J.
Sr. J.
SUPREME COURT
OF
NEVADA
6
P147A , '"ZP
cc: Hon. Scott N. Freeman, District Judge
Madelyn Shipman, Settlement Judge
Doyle Law Office, PLLC
Perry & Westbrook, P.C.
Washoe District Court Clerk
SUPREME COURT
OF
N EVADA
(01 1,),I7A | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488128/ | Supreme Court of Texas
══════════
No. 22-0079
══════════
Courtney D. Alsobrook,
Petitioner,
v.
MTGLQ Investors, LP,
Respondent
═══════════════════════════════════════
On Petition for Review from the
Court of Appeals for the Fifth District of Texas
═══════════════════════════════════════
PER CURIAM
This case became moot after the trial court entered a final
judgment and before the plaintiff filed her notice of appeal. The court of
appeals dismissed, but it failed to vacate the trial court’s judgment. We
modify the court of appeals’ judgment to vacate the trial court’s
judgment and dismiss the case.
Courtney Alsobrook bought a home in 2004 but stopped making
the required mortgage payments in 2010. The mortgagee, MTGLQ
Investors, LP, set a foreclosure sale for November 6, 2018. Four days
before the sale, Alsobrook filed this suit seeking temporary and
permanent injunctive and declaratory relief. The trial court issued a
temporary restraining order one day before the scheduled foreclosure
sale, but Alsobrook did not seek a further injunction after the temporary
order eventually expired. Instead, MTGLQ moved for summary
judgment, arguing that an earlier judgment in favor of a prior mortgagee
permitted foreclosure and barred Alsobrook’s suit. The trial court
granted MTGLQ’s motion and denied Alsobrook’s subsequent new-trial
motion.
Before Alsobrook filed her notice of appeal, MTGLQ posted the
property for foreclosure sale and then purchased it by making the
highest bid at that sale. When Alsobrook later filed her appeal, MTGLQ
argued that Alsobrook’s loss of ownership of the property rendered the
appeal moot. ___ S.W.3d ___, 2021 WL 4958860, at *1 (Tex. App.—
Dallas Oct. 26, 2021). Concluding that a live controversy no longer
existed between the parties, the court of appeals agreed and “dismiss[ed]
the appeal without reaching the merits.” Id. at *3.
Alsobrook sought review in this Court. Although she concedes the
foreclosure sale rendered the case moot, she contends the court of
appeals should have vacated the trial court’s judgment and dismissed
the entire case for lack of subject matter jurisdiction. By dismissing the
appeal without vacating the underlying judgment, she argues, the court
of appeals effectively affirmed the trial court’s judgment. We agree.
We have long held that “when a case becomes moot on appeal, all
previous orders are [to be] set aside by the appellate court and the
case . . . dismissed.” Tex. Foundries, Inc. v. Int’l Moulders & Foundry
Workers’ Union, 248 S.W.2d 460, 461 (Tex. 1952). We recently reiterated
this long-standing rule. See Heckman v. Williamson County, 369 S.W.3d
2
137, 162 (Tex. 2021) (“If a case is or becomes moot, the court must vacate
any order or judgment previously issued and dismiss the case for want
of jurisdiction.”). Earlier this year, we again noted our “usual practice”
is “to vacate the court of appeals’ judgment when a case become[s] moot
on appeal to this Court.” Tex. Dep’t of Fam. & Protective Servs. v. N.J.,
644 S.W.3d 189, 192 (Tex. 2022) (quoting Morath v. Lewis, 601 S.W.3d
785, 789 (Tex. 2020)). This is necessary because simply dismissing the
appeal “would have the effect of affirming the judgment of the lower
court without considering any assignments of error thereto.” Tex.
Foundries, 248 S.W.2d at 461.
Here, MTGLQ’s purchase of the property preceded Alsobrook’s
appeal. As the court of appeals correctly concluded, no live controversy
existed between the parties after the foreclosure, rendering Alsobrook’s
claims moot. 2021 WL 4958860, at *3 (“Alsobrook’s case has . . . become
moot and must be dismissed.”). The court of appeals thus correctly
concluded that dismissal was required. But, as explained, mootness on
appeal requires vacatur of the underlying judgment as well as dismissal
of the case. See Tex. Foundries, 248 S.W.2d at 461. The court of appeals
should have vacated the trial court’s judgment and dismissed the case.
See TEX. R. APP. P. 43.2(e); Morath, 601 S.W.3d at 792 (vacating the
lower court’s judgment and dismissing “the case”).
Alsobrook also requests that we vacate the court of appeals’
opinion. We typically do not vacate court of appeals’ opinions even when
the case has become moot, see N.J., 644 S.W.3d at 192 (citing Morath,
601 S.W.3d at 790), except in rare circumstances when “the public
interest would be served by a vacatur.” Morath, 601 S.W.3d at 791
3
(quoting U.S. Bancorp Mortg. Co. v. Bonner Mall P’ship, 513 U.S. 18, 26
(1994)). Alsobrook has not identified a public interest the court of
appeals’ opinion affects, nor have we. Moreover, although this case
became moot before Alsobrook filed the appeal, the court of appeals’
opinion only addressed the mootness question, and Alsobrook
acknowledges the opinion correctly determined that issue. Cf. id. at 792
(recognizing the threat of gamesmanship by “strategically timed
non-suits” by “the party who prevailed below” in “hopes of preserving a
favorable appellate precedent”). We therefore decline to vacate the court
of appeals’ opinion. See N.J., 644 S.W.3d at 193 (declining to vacate the
court of appeals’ opinion because the Court “d[id] not perceive that a
parent’s decision to voluntarily terminate his or her parental rights
would be motivated by a desire to manipulate precedent or any
gamesmanship whatsoever”).
For these reasons, without hearing oral argument pursuant to
Texas Rule of Appellate Procedure 59.1, we grant Alsobrook’s petition
for review, modify the court of appeals’ judgment to vacate the trial
court’s final judgment and dismiss the case, and affirm the judgment as
modified.
OPINION DELIVERED: November 18, 2022
4 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488136/ | Opinion filed November 17, 2022
In The
Eleventh Court of Appeals
__________
No. 11-21-00010-CR
__________
MICHAEL ANDREW GUERRA, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 259th District Court
Jones County, Texas
Trial Court Cause No. 010874
MEMORANDUM OPINION
In 2015, a jury convicted Appellant, Michael Andrew Guerra, of indecency
with a child by contact. See TEX. PENAL CODE ANN. § 21.11(a)(1) (West 2019). The
trial court assessed his punishment at confinement for a term of five years in the
Institutional Division of the Texas Department of Criminal Justice. However, the
trial court suspended Appellant’s sentence and placed him on community
supervision for seven years. The trial court subsequently revoked Appellant’s
community supervision and sentenced him to confinement for a term of five years
in the Institutional Division of the Texas Department of Criminal Justice.
Appellant challenges the trial court’s revocation of his community supervision
in two issues. He contends that the trial court abused its discretion at the hearing on
the motion to revoke by (1) failing to order a formal competency examination and
(2) failing to conduct an informal competency inquiry. See TEX. CODE CRIM. PROC.
ANN. arts. 46B.004(c)–(d), .005 (West 2018).
We previously abated this appeal and remanded this cause to the trial court to
conduct, if feasible, a retrospective competency trial. A copy of our September 8,
2022 abatement order is attached as an appendix to this opinion. We expressly
incorporate the abatement order as a part of the opinion in this appeal.
In our abatement order, we determined that during the hearing on the motion
to revoke, “some evidence” came to the attention of the trial court suggesting that
Appellant might be incompetent. See Turner v. State, 422 S.W.3d 676, 692 (Tex.
Crim. App. 2013). We concluded that the trial court abused its discretion in failing
to stay the proceedings to conduct a formal competency trial. Accordingly, we
instructed the trial court to determine if a retrospective competency trial was
feasible. By doing so, we essentially sustained Appellant’s second issue. Further,
we sustained Appellant’s first issue by determining that the trial court should have
conducted a formal competency trial.
In response to our abatement order, the trial court determined that a
retrospective competency trial is not feasible. On the reinstatement of this appeal,
we now reverse Appellant’s conviction and remand this cause for a new trial.
2
Background Facts
On March 30, 2017, the State filed its initial motion to revoke Appellant’s
community supervision. In September 2017, Appellant’s trial counsel filed a motion
suggesting incompetency wherein he requested an examination of Appellant. In trial
counsel’s September 2017 motion suggesting incompetency, he described Appellant
as “fixated on the idea that his detention is unlawful,” exhibiting “rapid, and
frequently non-stop speech,” and exhibiting the belief that he is the “victim of
ongoing injustice” and “is being persecuted by the system.” The State did not oppose
the motion and the trial court issued an order for Appellant’s examination.
In February 2018, after a hearing, the trial court entered an order of
commitment based upon its determination “that there is sufficient evidence to
believe that this Defendant does not possess a rational understanding of the charges
against him and that this Defendant is not able to provide meaningful assistance to
Counsel in the preparation of this matter for trial.” Based upon its determination of
incompetency, the trial court committed Appellant to North Texas State Hospital,
Vernon Campus, in February 2018.
At some point later, Appellant was hospitalized at Big Spring State Hospital.
On August 8, 2018, the trial court extended Appellant’s commitment by twelve
months because evidence indicated that Appellant was not yet competent to stand
trial. The examining physicians diagnosed Appellant with schizoaffective disorder
and polysubstance abuse, which they determined required consistent medication in
order for Appellant to maintain competency. Our record does not indicate when
Appellant was released from Big Spring State Hospital—however, the twelve-month
extension expired on August 7, 2019.
3
Appellant’s revocation hearing occurred on September 3, 2019. At the
beginning of the hearing, Appellant’s counsel informed the trial court that he needed
to bring a matter to the court’s attention “before making an announcement of ready.”
Trial counsel stated that Appellant did not understand the reason for the hearing and
that Appellant believed that there were no pending charges against him with respect
to indecency with a child. Trial counsel further advised the court that Appellant
“persists in agreeing with his present competence.”
The trial court briefly questioned trial counsel about Appellant’s competency.
Trial counsel advised the trial court that he was not able to discuss the pending
motion to revoke with Appellant because Appellant believed that his conviction for
indecency with a child “went away.” Trial counsel informed the trial court that, in
August, Appellant was found competent and tried on an assault charge, but counsel
distinguished the two cases—explaining to the trial court that Appellant understood
the other charges but was unable to understand the revocation hearing because he
believed the indecency charge was dropped. The trial court did not question
Appellant, but instead declared that it was “willing to stand on the finding of
competency unless there is another motion submitted concerning competency.”
During the hearing, Appellant made frequent interjections indicating he did
not understand the proceeding. Appellant testified at the revocation hearing. He
frequently accused the trial court and attorneys of “typing up new papers” and
accusing him of a crime that happened while he was incarcerated. His testimony
was rambling and often unintelligible. With respect to his conviction for indecency
with a child, Appellant testified that there were papers that “proved” he was
innocent. He also testified: “Y’all are abusing my rights, my constitutional rights
and everything and the Declaration of Independence, constitutional rights, statute of
4
limitations and civil rights.” Appellant testified that, after his release from Big
Spring and return to Jones County, he refused to take all medication prescribed at
the state hospital in Big Spring. At the conclusion of the hearing, the trial court
stated on the record that Appellant spoke “extremely rapidly, nonresponsively.”
We concluded in our previous abatement order that there was at least “some
evidence” that Appellant was incompetent and that the trial court abused its
discretion when it failed to initiate a formal competency trial and stay the
proceedings as required by Article 46B.004(c)–(d).
Analysis
Upon reinstatement, this appeal presents a single question for our
determination: What is the appropriate disposition of the appeal when (1) the trial
court should have conducted a formal competency trial and (2) the trial court has
determined that a retrospective competency determination is not feasible?
In our abatement order, we determined that during the hearing on the motion
to revoke, some evidence came to the trial court’s attention suggesting that Appellant
might be incompetent, thereby triggering the requirement for the trial court to
conduct an informal competency inquiry. See CRIM. PROC. art. 46B.004(c). We
further determined that there was more than a scintilla of evidence that Appellant
had a debilitating mental illness that might have prevented him from (1) consulting
his counsel with a reasonable degree of rational understanding or (2) having a
rational and factual understanding of the proceedings against him. See CRIM. PROC.
art. 46B.003; see also Turner, 422 S.W.3d at 689 (quoting CRIM. PROC. art. 46B.024,
§§ 1(c), 4). Therefore, we held, and now reaffirm, that the trial court abused its
discretion by failing to initiate a formal competency trial and stay the proceedings
as required by Article 46B.004(c)–(d).
5
Because the trial court abused its discretion, we abated this appeal and
remanded this cause to the trial court with instructions to conduct, if feasible, a
retrospective competency determination. See Boyett v. State, 545 S.W.3d 556, 566
(Tex. Crim. App. 2018); Turner, 422 S.W.3d at 696; Bautista v. State, 605 S.W.3d
520, 530 (Tex. App.—Houston [14th Dist.] 2020, no pet.). We also instructed the
trial court to first determine whether such a competency trial is possible “given the
passage of time, availability of evidence, and any other pertinent considerations.”
Turner, 422 S.W.3d at 696; see George E. Dix & John M. Schmolesky, 43 Texas
Practice: Criminal Practice and Procedure § 31.81 (3d ed. 2020) (discussing
retrospective competency hearings and the feasibility of such hearings).
Pursuant to our abatement and remand, the trial court entered its findings. The
trial court found that a retrospective competency determination is not feasible.1
Specifically, the trial court found that:
Again, a retrospective determination of a person’s legal competency to
stand trial more than two years after the fact is not feasible because no
new evidence would exist that was not considered at the time the
determination of competency was made and no evaluation could be
conducted or expert testimony submitted that could determine whether
or not the defendant was competent at that time.
In light of that determination, the appropriate disposition of this appeal is a reversal
of the trial court’s order revoking Appellant’s community supervision and a remand
for new trial. See Guerra, 2022 WL 599241, at *2; Greene v. State, 264 S.W.3d
271, 273 (Tex. App.—San Antonio 2008, pet. ref’d); see also Anderson v. State,
1
Appellant presented the same issues concerning his competency to stand trial for his charge of
assault on a public servant, a trial that occurred less than a month prior to the revocation hearing in this
case. We addressed them in Guerra v. State, No. 11-19-00359-CR, 2022 WL 599241 (Tex. App.—Eastland
Feb. 29, 2022, no pet.) (mem. op., not designated for publication). We reversed Appellant’s conviction for
assault and remanded the cause for a new trial for the same reasons that we are reversing and remanding
this cause.
6
No. 04-00-00751-CR, 2002 WL 432674, at *4 (Tex. App.—San Antonio Mar. 20,
2002, no pet.) (not designated for publication). Accordingly, we sustain both of
Appellant’s issues.
This Court’s Ruling
We reverse the trial court’s order revoking Appellant’s community
supervision and remand this cause to the trial court for a new trial.
JOHN M. BAILEY
CHIEF JUSTICE
November 17, 2022
Do not publish. See TEX. R. APP. P. 47.2(b).
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
7
APPENDIX
8
Order filed September 8, 2022
In The
Eleventh Court of Appeals
__________
No. 11-21-00010-CR
__________
MICHAEL ANDREW GUERRA, Appellant
V.
THE STATE OF TEXAS, Appellee
On Appeal from the 259th District Court
Jones County, Texas
Trial Court Cause No. 010874
ORDER
In 2015, a jury convicted Appellant, Michael Andrew Guerra, of indecency
with a child by contact. See TEX. PENAL CODE ANN. § 21.11(a)(1) (West 2019). The
trial court assessed his punishment at confinement for a term of five years in the
Institutional Division of the Texas Department of Criminal Justice. However, the
9
trial court suspended Appellant’s sentence and placed him on community
supervision for seven years.
On March 30, 2017, the State filed its initial motion to revoke Appellant’s
community supervision. In September 2017, Appellant’s trial counsel filed a motion
suggesting incompetency wherein he requested an examination of Appellant. In
February 2018, after a hearing, the trial court entered an order of commitment based
upon its determination “that there is sufficient evidence to believe that this
Defendant does not possess a rational understanding of the charges against him and
that this Defendant is not able to provide meaningful assistance to Counsel in the
preparation of this matter for trial.” On September 3, 2019, the trial court heard the
motion to revoke Appellant’s community supervision. At the conclusion of the
hearing, the trial court found that Appellant violated a condition of his community
supervision by committing an offense against the laws of the State of Texas—assault
on a public servant. The trial court then revoked Appellant’s community supervision
and sentenced Appellant to confinement for a term of five years in the Institutional
Division of the Texas Department of Criminal Justice.
Appellant raises two issues for our review, contending that the trial court
abused its discretion at the hearing on the motion to revoke by (1) failing to order a
formal competency examination and (2) failing to conduct an informal competency
inquiry. Because the record indicates that some evidence did come to the trial court’s
attention suggesting Appellant was not competent at his revocation hearing, we abate
this appeal and remand to the trial court to determine whether a retrospective
competency determination is feasible. If it is feasible, then the trial court shall
conduct one.
10
Background Facts
Appellant was convicted of indecency with a child and placed on community
supervision for seven years. While Appellant was on community supervision for
indecency with a child, he was convicted of assault on a public servant. Appellant’s
second conviction is a separate cause, trial court cause no. 011608, which we
addressed in our opinion in Guerra v. State, No. 11-19-00359-CR, 2022 WL 599241
(Tex. App.—Eastland Feb. 29, 2022 no pet.) (mem. op., not designated for
publication). Appellant’s commission of and subsequent conviction for assault on a
public servant served as a ground for the State’s motion to revoke Appellant’s
community supervision.
As it relates to this case, the State introduced Appellant’s second conviction
at the hearing on the motion to revoke as evidence that he violated a condition of his
community supervision. Included in the appellate record for this case is the
reporter’s record from the trial for assault on a public servant. The parties make
frequent references to that reporter’s record as well as the briefs filed in the other
appeal. However, our review of the questions presented in this appeal is limited to
the revocation hearing and the clerk’s record for this cause number. Accordingly,
we do not address arguments made by the parties related to trial court cause
no. 011608.
In trial counsel’s September 2017 motion suggesting incompetency, he
described Appellant as “fixated on the idea that his detention is unlawful,” exhibiting
“rapid, and frequently non-stop speech,” and exhibiting the belief that he is the
“victim of ongoing injustice” and “is being persecuted by the system.” The State
did not oppose the motion and the trial court issued an order for Appellant’s
examination. Based upon its determination of incompetency, the trial court
11
committed Appellant to North Texas State Hospital, Vernon Campus, in February
2018.
At some point later, Appellant was hospitalized at Big Spring State Hospital.
On August 8, 2018, the trial court extended Appellant’s commitment by twelve
months because evidence indicated that Appellant was not yet competent to stand
trial. The examining physicians diagnosed Appellant with schizoaffective disorder
and polysubstance abuse, which they determined required consistent medication in
order for Appellant to maintain competency. Our record does not indicate when
Appellant was released from Big Spring State Hospital—however, the twelve-month
extension expired on August 7, 2019.
Appellant’s revocation hearing occurred on September 3, 2019. At the
beginning of the hearing, Appellant’s counsel informed the trial court that he needed
to bring a matter to the court’s attention “before making an announcement of ready.”
Trial counsel stated that Appellant did not understand the reason for the hearing and
that Appellant believed that there were no pending charges against him with respect
to indecency with a child. Trial counsel further advised the court that Appellant
“persists in agreeing with his present competence.”
The trial court briefly questioned trial counsel about Appellant’s competency.
Trial counsel advised the trial court that he was not able to discuss the pending
motion to revoke with Appellant because Appellant believed that his conviction for
indecency with a child “went away.” Trial counsel informed the trial court that, in
August, Appellant was found competent and tried in his assault case, but counsel
distinguished the two cases—explaining to the trial court that Appellant understood
the other charges but was unable to understand the revocation hearing because he
believed the indecency charge was dropped. The trial court did not question
12
Appellant, but instead declared that it was “willing to stand on the finding of
competency unless there is another motion submitted concerning competency.”
During the hearing, Appellant made frequent interjections indicating he did
not understand the proceeding. Appellant testified at the revocation hearing. He
frequently accused the trial court and attorneys of “typing up new papers” and
accusing him of a crime that he believed happened while he was incarcerated. His
testimony was rambling and often unintelligible. With respect to his conviction for
indecency with a child, Appellant testified that there were papers that “proved” he
was innocent. He also testified: “Y’all are abusing my rights, my constitutional
rights and everything and the Declaration of Independence, constitutional rights,
statute of limitations and civil rights.” Appellant testified that, after his release from
Big Spring and return to Jones County, he refused to take all medication prescribed
at the state hospital in Big Spring. At the conclusion of the hearing, the trial court
stated on the record that Appellant spoke “extremely rapidly, nonresponsively.”
Analysis
Appellant raises two issues on appeal, contending that (1) the trial court erred
when it failed to conduct an informal competency inquiry and (2) if the trial court
did conduct an informal inquiry, the trial court erred when it failed to order a formal
competency trial. Because the two issues are procedurally linked, we address them
in the order set out in Article 46B. See TEX. CODE CRIM. PROC. ANN. art. 46B.004
(West 2018). Article 46B imposes a duty on the trial court to act when competency
is implicated in a criminal proceeding. Id. art. 46B.004(b). Thus, if the trial court
heard evidence that suggested Appellant was incompetent, it had a duty to perform
an informal inquiry into Appellant’s competency. Id. art. 46B.004(b),(c).
13
We note at the outset that Appellant presented the same issues concerning his
competency to stand trial in our Cause No. 11-19-00359-CR that he presents in this
appeal. The trial in Cause No. 11-19-00359-CR occurred on August 13, 2019. The
revocation hearing in this appeal occurred on September 3, 2019.
In Cause No. 11-19-00359-CR, we determined that “some evidence” had
come to the attention of the trial court suggesting that Appellant may not have been
competent when he stood trial. Guerra, 2022 WL 599241, at *2. We initially abated
the appeal and remanded to the trial court to determine whether a retrospective
competency determination was feasible. Id. When the trial court determined that a
retrospective competency determination was not feasible, we reversed Appellant’s
conviction based upon his competency claim and we remanded the case for a new
trial. Id. at *2–3.
It is a violation of due process for an incompetent person to be tried, convicted,
or sentenced for a criminal offense. See Pate v. Robinson, 383 U.S. 375, 378 (1966);
Boyett v. State, 545 S.W.3d 556, 563 (Tex. Crim. App. 2018). Due process also
requires that a defendant be competent for revocation proceedings. Reeves v. State,
46 S.W.3d 397, 399 (Tex. App.—Texarkana 2001, pet. dism’d). “Further, a
defendant must be competent at the time of [ ] sentencing.” Id. (citing CRIM. PROC.
art. 42.07(2).
A person is incompetent to stand trial if the person does not have:
“(1) sufficient present ability to consult with the person’s lawyer with a reasonable
degree of rational understanding; or (2) a rational as well as factual understanding
of the proceedings against the person.” CRIM. PROC. art. 46B.003. It is the
constitutional duty of each state to provide reasonable procedures to address the
issue of competency. Medina v. California, 505 U.S. 437, 449–51 (1992). The
14
Texas Legislature codified this due process requirement in Article 46B, which places
a duty on the trial court to act on its own motion if “evidence suggesting the
defendant may be incompetent to stand trial comes to the attention of the court.”
CRIM. PROC. art. 46B.004.
We review a trial court’s decision regarding competency inquiries for an
abuse of discretion. See Montoya v. State, 291 S.W.3d 420, 426 (Tex. Crim. App.
2009). Reviewing courts determine whether the decision was arbitrary or
unreasonable and do not substitute their judgment for that of the trial courts. Id.
The procedure for determining competency involves two distinct stages, the
informal inquiry and the formal competency trial, each with a different evidentiary
standard. Boyett v. State, 545 S.W.3d 556, 565 (Tex. Crim. App. 2018). Here,
Appellant contends first that the trial court erred in failing to initiate the first step in
the competency procedure. The evidentiary threshold to trigger an informal inquiry
is low. Clark v. State, 592 S.W.3d 919, 925 (Tex. App.—Texarkana 2019, pet.
ref’d). To initiate the mandatory informal inquiry, the trial court needs only a
suggestion of incompetency or evidence that demonstrates “only a mere possibility
of incompetency.” Boyett, 545 S.W.3d at 565.
Article 46B.004 provides that the basis for an informal inquiry may come
from any credible source, including observations indicating that the defendant is
incompetent within the meaning of the statute. See CRIM. PROC. art. 46B.024 (listing
factors that indicate incompetence). As applicable to Appellant’s revocation
hearing, the Article 46B factors include Appellant’s ability to rationally understand
the charges against him, his capacity to engage with his counsel in a reasonable
manner, the presence of mental illness, and Appellant’s testimony that he was not
taking his prescribed medication. Id. art. 46B.024(1)(A), (2)(A), (4), (5)(A).
15
At the start of the hearing, Appellant’s trial counsel informed the trial court
that Appellant did not understand the reason for the hearing and that Appellant
believed that there were no pending charges against him. Trial counsel also
informed the trial court that Appellant believed himself competent and would object
if someone were to contest competency. The trial court then asked Appellant’s trial
counsel if he was “able to communicate with [Appellant] concerning . . . these
proceedings.” Appellant’s trial counsel replied that Appellant “believes the case
went away . . . and I am not able to discuss [the revocation proceeding] with him.”
Appellant’s trial counsel also informed the trial court that Appellant was tried
for assault on a public servant a month prior to the revocation hearing. In this regard,
a different trial judge presided over the revocation proceeding. Trial counsel
indicated that he was able to communicate with Appellant about the assault charge
because Appellant recognized and understood that charge, but that Appellant did not
understand the revocation proceeding case because Appellant believed that his
conviction for indecency with a child had been resolved. While the trial court
questioned Appellant’s counsel, Appellant interjected multiple times asking for
proof of the underlying charge and alleging that “they keep typing up new papers.”
The trial court did not question Appellant about his understanding of the procedure
or charge.
The trial court was also aware that Appellant had a history of mental illness
because Appellant was committed to state hospitals in 2018 to determine his
competency. Appellant’s commitment occurred after the State filed its original
motion to revoke community supervision. One of the examining physicians, Dr.
Shiraj Vahora, diagnosed Appellant with schizoaffective disorder and polysubstance
abuse. Dr. Vahora’s report stated that Appellant was:
16
suffering severe and abnormal mental, emotional or physical distress;
is experiencing substantial mental or physical deterioration of the
patient’s ability to function independently, which is exhibited by the
proposed patient’s inability, except for reasons of indigence, to provide
for the proposed patient’s basic needs . . . and is not able to make a
rational and informed decision as to whether or not to submit to
treatment as evidenced by: PATIENT STILL VERY DELUSIONAL
AND DOES NOT BELIEVE HE NEEDS PSYCH MEDS AND IS
CURRENTLY ON COURT ORDERED MEDS, NEEDS
CONTINUING PSYCH INPATIENT TREATMENT FOR
STABILITY AND TO ENSURE MED COMPLIANCE OR ELSE
WILL DECOMPENSATE.
When questioned about his previous commitment at the revocation hearing,
Appellant testified that he was wrongly committed for psychiatric treatment and that,
once released, he refused to take his prescribed medication.
In addition to Appellant’s counsel’s comments and his documented history of
mental illness, Appellant’s own testimony indicated that he did not understand the
purpose and procedure of the revocation hearing. He testified that he had been
incarcerated since his trial for assault on a public servant and that he did not
understand how the charge for indecency with a child could be brought if he was
“incarcerated, handcuffed and ankle cuffed.” Appellant testified that no one would
show him the files or evidence against him.
Finally, at the conclusion of the revocation hearing, the trial court noted, for
purposes of the record, that Appellant “was speaking extremely rapidly,
nonresponsively. I couldn’t hear . . . all of it. . . . There is going to be a problem on
the record, you know, of having an accurate transcription of what he said . . . I
couldn’t’ understand it . . . .”
Appellant contends that all of these factors provide credible evidence to clear
the “suggestion” or “mere possibility” of incompetency threshold, thereby
17
obligating the trial court to conduct an informal competency inquiry. See CRIM.
PROC. art. 46B.004(b); Boyett, 545 S.W.3d at 565. The State responds that even if
there was a “suggestion” of incompetence, the trial court’s questions to Appellant’s
counsel at the start of the hearing constituted an informal inquiry. The State also
contends that the trial court had “just a month earlier, conducted an informal inquiry
into Appellant’s competency at the start of his assault trial.”2
Assuming, without deciding, that the trial court’s line of questioning to
Appellant’s trial counsel at the outset of the revocation hearing was a sufficient
informal inquiry, the purpose of an informal inquiry is to determine “whether there
is some evidence from any source that would support a finding that the defendant
may be incompetent to stand trial.” CRIM. PROC. art. 46B. 004(c). If the trial court
does find some evidence of the defendant’s incompetency at the informal inquiry,
“the court . . . shall stay all proceedings in the case” and conduct a formal
competency trial. Id. art. 46B. 004(d).
Appellant contends that the inquiry revealed sufficient evidence, in this case
“some evidence” as required by Article 46B.004(c), to require the trial court to
initiate a formal competency trial. The Court of Criminal Appeals has explained
that the “some evidence” standard in Article 46B.004(c) only requires “‘more than
none or a scintilla’ of evidence that ‘rationally may lead to a conclusion of
incompetency.’” Boyett, 545 S.W.3d at 564 (quoting Turner v. State, 422 S.W.3d
676, 692 (Tex. Crim. App. 2013)). During the informal inquiry, the trial court “must
consider only evidence of incompetency, and it must not weigh evidence of
competency against the evidence of incompetency.” Id.; see also Bautista v. State,
605 S.W.3d 520, 527–28 (Tex. App.—Houston [14th Dist.] 2020, no pet.)
2
As we previously noted, a different judge presided over Appellant’s assault trial.
18
(explaining that “the informal inquiry is not the appropriate venue for determining
the merits of a claim of incompetency”).
It is insufficient to stay the proceedings and order a competency trial simply
because the informal inquiry reveals more than a scintilla of evidence that the
defendant is mentally ill, that he “refuses to cooperate with his trial counsel,” or
both. Turner, 422 S.W.3d at 691. Instead, there must be more than a scintilla of
evidence that suggests that “the defendant’s refusal to rationally engage with counsel
is caused by his mental illness.” Boyett, 545 S.W.3d at 564. “When a defendant’s
mental illness operates in such a way as to prevent him from rationally understanding
the proceedings against him or engaging rationally with counsel in the pursuit of his
own best interests, he cannot be made to stand trial consistent with due process.”
Turner, 422 S.W.3d at 691.
Thus, there must be more than a scintilla of evidence to suggest that
Appellant’s mental illness prevented him from (1) consulting his counsel with a
reasonable degree of rational understanding or (2) having a rational and factual
understanding of the proceedings against him. See CRIM. PROC. art. 46B.003. As
set out above, at the beginning of the hearing there was at least “some evidence” that
Appellant (1) had a debilitating mental illness, (2) had been prescribed medication
for his illness, (3) had regained competency through his medication, and (4) was
unable to rationally and factually understand the proceedings against him. Then,
after Appellant’s testimony, there was some evidence that Appellant had stopped
taking the medication that his prior evaluating physician deemed necessary for
maintaining competency. The trial court had at least some evidence that expressly
indicated that Appellant needed to continue his medication “or else [he] will
decompensate.”
19
All of these things amount to at least “some evidence” that Appellant was
incompetent. Therefore, we hold that the trial court abused its discretion when it
failed to initiate a formal competency trial and stay the proceedings as required by
Article 46B.004(c)–(d). 3 As such, we abate this appeal and remand this cause to the
trial court with instructions to conduct a retrospective competency trial, if feasible.
See Boyett, 545 S.W.3d at 566; Turner, 422 S.W.3d at 696; Bautista, 605 S.W.3d at
530. On remand, the trial court shall first determine whether such a competency trial
is possible “given the passage of time, availability of evidence, and any other
pertinent considerations.” Turner, 422 S.W.3d at 696; see George E. Dix & John
M. Schmolesky, 43 Texas Practice: Criminal Practice and Procedure § 31.81
(3d ed. 2020) (discussing retrospective competency hearings and the feasibility of
such hearings). Should the trial court find that a competency trial is feasible, it shall
conduct the trial as required by Chapter 46B, Subchapter C, of the Code of Criminal
Procedure. If the trial court finds that a retrospective competency trial is not feasible,
the record of the proceedings on remand shall be returned to this court and the appeal
will be reinstated at that time.
We order the trial court to prepare appropriate written findings within twenty
days after it has determined whether a retrospective hearing is feasible, and the
results of the proceeding should the trial court find it feasible. We further order the
district clerk to forward a supplemental clerk’s record containing the trial court’s
written findings within twenty days after the trial court files its written findings or
order. Additionally, the court reporter for the 259th district court is directed to create
The State contends that Appellant waived this right by failing to object. However, when a law
3
imposes a duty on the trial court to act, it creates a right that is waivable only, and the inaction of a party
does not waive the issue on appeal. See, e.g., Mendez v. State, 138 S.W.3d 334, 341 (Tex. Crim. App.
2004); Marin v. State, 851 S.W.2d 275, 279–80 (Tex. Crim. App. 1993).
20
a supplemental reporter’s record containing a transcript of all further proceedings
associated with the retrospective competency trial and to file the supplemental
reporter’s record in this court within thirty days after the trial court files its written
findings or order.
Finally, we note that the State has raised a cross-issue on appeal asking us to
reform the judgement to correct a clerical error involving Appellant’s sentencing
date. Because we abate and remand, we additionally order the trial court to correct
the error so that the record accurately reflects the sentencing date.
It is so ordered.
PER CURIAM
September 8, 2022
Do not publish. See TEX. R. APP. P. 47.2(b).
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
21 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488125/ | IN THE SUPREME COURT OF THE STATE OF NEVADA
GINGER P., No. 85002
Petitioner,
vs.
THE EIGHTH JUDICIAL DISTRICT FILE
COURT OF THE STATE OF NEVADA,
IN AND FOR THE COUNTY OF CLARK; NOV 1 8 2022
AND THE HONORABLE CYNTHIA N.
GIULIANI, DISTRICT JUDGE,
Respondents,
and
CLARK COUNTY DEPARTMENT OF
FAMILY SERVICES; AND C. A., MINOR
CHILD,
Real Parties in Interest.
ORDER DENYING PETITION FOR
A WRIT OF MANDAMUS OR PROHIBITION
This is an original petition for a writ of mandamus or
prohibition challenging a district court order denying a request for
placement of a minor child. Having considered the petition, the answers,
the reply, and the supporting documentation, we are not persuaded that our
extraordinary and discretionary intervention is warranted. Pan v. Eighth
Judicial Dist. Court, 120 Nev. 222, 228, 88 P.3d 840, 844 (2004) (observing
that the party seeking writ relief bears the burden of showing such relief is
warranted); Smith v. Eighth Judicial Dist. Court, 107 Nev. 674, 677, 679,
818 P.2d 849, 851, 853 (1991) (recognizing that writ relief is an
extraordinary remedy and that this court has sole discretion in determining
whether to entertain a writ petition).
Nothing in the supporting documents indicates that the district
court's factual findings regarding the child's best interest, which is the main
consideration, •were clearly erroneous or arbitrary or capricious. Philip R.
SUPREME COURT
OF
NEVADA
(0) 1947A
22,-- 3(forl
v. Eighth Judicial Dist. Court, 134 Nev. 223, 228-29, 416 P.3d 242, 247-48
(2018) (explaining that in considering a placement decision in light of NRS
128.110's familial preference, the main consideration is the child's best
interest); see also Ellis v. Carucci, 123 Nev. 145, 152, 161 P.3d 239, 244
(2007) (providing that this court leaves witness credibility determinations
to the district court). Additionally, the district court's consideration of
petitioner's motion to intervene and be recognized as a person of special
interest on the same date as the placement hearing does not warrant our
extraordinary relief given that petitioner would not have been permitted to
conduct discovery or serve subpoenas. NRS 432B.457 (permitting a person
of special interest to be notified of plans regarding the child and to testify
at placement hearings); see, e.g., NRCP 26 (permitting parties to conduct
discovery). Accordingly, we
ORDER the petition DENIED.1
, C.J.
arraguirre
Mei-ticc4-0 J. , Sr.J.
Stiglich
cc: Hon. Cynthia N. Giuliani, District Judge, Family Court Division
Rosenblum Allen Law Firm
Burger Meyer, LLP
Clark County District Attorney/Civil Division
Eighth District Court Clerk
1The Honorable Mark Gibbons, Senior Justice, participated in the
decision in this matter under a general order of assignment.
SUPREME COURT
OF
NEVADA
2
(0) 1V47A | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488130/ | Opinion filed November 17, 2022
In The
Eleventh Court of Appeals
__________
No. 11-22-00154-CV
__________
IN THE INTEREST OF J.X.V. AND F.D.V., CHILDREN
On Appeal from the 446th District Court
Ector County, Texas
Trial Court Cause No. E-16-03-0287-FM
MEMORANDUM OPINION
This is an appeal from an order relating to child support. The children’s father
filed a pro se notice of appeal after the trial court entered an order (1) decreasing the
amount of the father’s current child support and medical support obligations to $0.00
per month because of the father’s incarceration but (2) confirming an arrearage of
both child support and medical support. The father filed his notice of appeal on
June 2, 2022. Appellant’s brief was originally due to be filed in this court on or
before August 24, 2022. On September 6, the clerk of this court notified Appellant
that his brief was past due. On September 28, the clerk of this court again notified
Appellant that his brief was past due, and we granted an extension on the court’s own
motion. In the September 28 letter, we informed Appellant that the failure to file his
brief in this court on or before October 24, 2022, could “result in dismissal of the
appeal.” See TEX. R. APP. P. 38.8(a)(1), 42.3(b), (c). On October 21, 2022, we sent
a reminder regarding the upcoming due date for Appellant’s brief.
As of this date, Appellant has not filed a brief or a motion for extension. Based
upon Appellant’s failure to prosecute this appeal in a timely manner, we conclude
that this appeal should be dismissed. See TEX. R. APP. P. 38.8(a)(1), 42.3(b), (c).
Accordingly, we dismiss this appeal for want of prosecution.
PER CURIAM
November 17, 2022
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488134/ | Opinion filed November 17, 2022
In The
Eleventh Court of Appeals
___________
No. 11-22-00108-CV
___________
ROBERT PERRY HUNSAKER AND JEANIE NELL
HUNSAKER, Appellants
V.
SHERRY RICHARDSON, Appellee
On Appeal from the 29th District Court
Palo Pinto County, Texas
Trial Court Cause No. C48479
MEMORANDUM OPINION
Appellants, Robert Perry Hunsaker and Jeanie Nell Hunsaker, have filed in
this court an unopposed motion to dismiss this appeal. See TEX. R.
APP. P. 42.1(a)(1). In the motion, Appellants state that the controversy between the
parties has ended because the dog—the possession of which was at the center of the
parties’ dispute—has died. Because the dog’s death moots this appeal, Appellants
ask that we vacate the trial court’s judgment and dismiss this appeal. According to
Appellants, Appellee does not oppose Appellants’ motion.
Accordingly, we grant Appellants’ unopposed motion, vacate the trial court’s
judgment insofar as it awarded possession of the dog at issue, and dismiss this
appeal.
PER CURIAM
November 17, 2022
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488135/ | 11TH COURT OF APPEALS
EASTLAND, TEXAS
JUDGMENT
Robert Perry Hunsaker and * From the 29th District Court
Jeanie Nell Hunsaker of Palo Pinto County,
Trial Court No. C48479.
Vs. No. 11-22-00108-CV * November 17, 2022
Sherry Richardson, * Per Curiam Memorandum Opinion
(Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.)
This court has considered Appellants’ unopposed motion to dismiss this appeal
and concludes that the motion should be granted. Therefore, in accordance with
this court’s opinion, the trial court’s judgment—insofar as it awarded possession of
the dog at issue—is vacated, and the appeal is dismissed. The costs incurred by
reason of this appeal are taxed against Robert Perry Hunsaker and Jeanie Nell
Hunsaker. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488137/ | 11TH COURT OF APPEALS
EASTLAND, TEXAS
JUDGMENT
Michael Andrew Guerra, * From the 259th District Court
of Jones County,
Trial Court No. 010874.
Vs. No. 11-21-00010-CR * November 17, 2022
The State of Texas, * Memorandum Opinion by Bailey, C.J.
(Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.)
This court has inspected the record in this cause and concludes that there is
error in the judgment below. Therefore, in accordance with this court’s opinion,
we reverse the judgment of the trial court, and we remand this cause to the trial
court for further proceedings consistent with this opinion. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488138/ | Order filed November 17, 2022
In The
Eleventh Court of Appeals
___________
No. 11-22-00268-CV
___________
LUBBOCK NORET PREMIERE CINEMA, LP AND LUBBOCK
PREMIERE NORET CINEMA, LLC, Appellants
V.
NORET ENTERPRISES, LLC, Appellee
On Appeal from the 118th District Court
Howard County, Texas
Trial Court Cause No. 55035
ORDER
Appellants, Lubbock Noret Premiere Cinema, LP and Lubbock Premiere
Noret Cinema, LLC, filed an accelerated appeal from the trial court’s October 3,
2022 order granting a temporary injunction. On October 27, 2022, Appellants filed
in this court an emergency motion to stay entitled “Appellants’ Emergency Motion
to Stay Order Granting Temporary Injunction, and Trial Court Order Granting
Motion to Enforce Injunction by No Later Than November 3, 2022.” In the motion,
Appellants requested that we stay the temporary injunction, and its enforcement,
pending resolution of the interlocutory appeal.
Because this court needed sufficient time to review the merits of Appellants’
emergency motion, we issued a limited, temporary stay on October 28, 2022. We
have now reviewed Appellants’ emergency motion, Appellee’s response, and
Appellants’ reply to Appellee’s response, and we have determined that Appellants’
emergency motion to stay should be denied.
Accordingly, Appellants’ emergency motion to stay is denied and this court’s
October 28, 2022 order granting a temporary stay is dissolved, effective
immediately.
PER CURIAM
November 17, 2022
Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488140/ | 11TH COURT OF APPEALS
EASTLAND, TEXAS
JUDGMENT
Jamie Lynell McQueen, * From the 142nd District Court
of Midland County,
Trial Court No. CR54737.
Vs. No. 11-21-00098-CR * November 17, 2022
The State of Texas, * Memorandum Opinion by Williams, J.
(Panel consists of: Bailey, C.J.,
Trotter, J., and Williams, J.
This court has inspected the record in this cause and concludes that there is no
error in the judgment below. Therefore, in accordance with this court’s opinion,
the judgment of the trial court is in all things affirmed. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488159/ | THE THIRTEENTH COURT OF APPEALS
13-21-00209-CV
PROGRESSIVE COUNTY MUTUAL INSURANCE COMPANY
v.
ANSELMO M. CALTZONSING
On Appeal from the
377th District Court of Victoria County, Texas
Trial Court Cause No. 19-08-84864-D
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes that the judgment of the trial court should be affirmed. The Court
orders the judgment of the trial court AFFIRMED. Costs of the appeal are adjudged
against appellant.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488145/ | NOS. 12-22-00262-CR
12-22-00263-CR
12-22-00264-CR
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
TRACY RAY GIBSON, § APPEALS FROM THE 145TH
APPELLANT
V. § JUDICIAL DISTRICT COURT
THE STATE OF TEXAS,
APPELLEE § NACOGDOCHES COUNTY, TEXAS
MEMORANDUM OPINION
PER CURIAM
These appeals are being dismissed for want of jurisdiction. In 2016, the court of criminal
appeals granted habeas relief to Tracy Ray Gibson because he pleaded guilty without a full
understanding of the applicable facts and law. See Ex parte Gibson, WR-68,962-01, 2016 WL
8715906 (Tex. Crim. App. Jan. 13, 2016) (per curiam) (not designated for publication). The
court remanded to the trial court so that Appellant could answer to the charges as alleged in the
indictment. See id. Sentence was subsequently imposed in trial court cause numbers
F149622007, F149632007, and F149642007 on April 5, 2016. Appellant did not timely appeal.
See Gibson v. State, No. 12-16-00267-CR, 12-16-00268-CR, 12-16-00269-CR, 2016 WL
5930157 (Tex. App.—Tyler Oct. 12, 2016, pet. ref’d) (per curiam) (mem. op., not designated for
publication).
On September 21, 2022, Appellant filed a pro se notice of appeal regarding the three trial
court cause numbers. 1 On October 12, this Court notified Appellant that the information
1
This is not Appellant’s first attempt at perfecting an untimely appeal from the three 2016 judgments. See
Gibson v. State, Nos. 12-21-00105-CR, 12-21-00106-CR, 12-21-00107-CR, 2021 WL 3265551 (Tex. App.—Tyler
received failed to show the jurisdiction of the Court, i.e., there is no notice of appeal filed within
the time allowed by the rules of appellate procedure and no timely motion for an extension of
time to file same. We informed Appellant that the appeal would be dismissed unless the
information was amended on or before October 24 to show this Court’s jurisdiction. On
November 3, Appellant filed a response, which fails to demonstrate the jurisdiction of this Court.
Under the rules of appellate procedure, a notice of appeal must be filed within thirty days
after the sentence is imposed or suspended in open court, or after the day the trial court enters an
appealable order, or within ninety days after the sentence is imposed or suspended in open court
if the defendant timely files a motion for new trial. See TEX. R. APP. P. 26.2(a). Rule
26.3 provides that a motion to extend the time for filing a notice of appeal must be filed within
fifteen days after the deadline for filing the notice of appeal. TEX. R. APP. P. 26.3. Here,
Appellant filed his notice of appeal on September 21, 2022, long after the time for filing a notice
of appeal under Rule 26.2(a) or for seeking a motion to extend under Rule 26.3 with respect to
the 2016 judgments. Nor does Appellant direct this Court to any appealable order over which we
may exercise jurisdiction.
“[I]n Texas, appeals by either the State or the defendant in a criminal case are permitted
only when they are specifically authorized by statute.” State ex rel. Lykos v. Fine, 330 S.W.3d
904, 915 (Tex. Crim. App. 2011). This Court is not authorized to extend the time for perfecting
an appeal except as provided by the Texas Rules of Appellate Procedure. See TEX. R. APP. P.
26.2, 26.3; see also Slaton v. State, 981 S.W.2d 208, 210 (Tex. Crim. App. 1998); Olivo v. State,
918 S.W.2d 519, 522 (Tex. Crim. App. 1996). Accordingly, we dismiss Appellant’s appeals for
want of jurisdiction. See TEX. R. APP. P. 43.2(f).
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(DO NOT PUBLISH)
July 30, 2021, no pet.) (per curiam) (mem. op., not designated for publication); see also Gibson v. State, Nos. 12-17-
00146-CR, 12-17-00147-CR, 12-17-00148-CR, 2017 WL 2822516 (Tex. App.—Tyler June 30, 2017, no pet.) (per
curiam) (mem. op., not designated for publication). Appellant’s repeated filing of such frivolous proceedings wastes
scarce judicial and fiscal resources. See Ex parte Jones, 97 S.W.3d 586, 588 (Tex. Crim. App. 2003); see also In re
Lucas, No. 09–14–00106–CR, 2014 WL 1285396 (Tex. App.–Beaumont Mar. 26, 2014, orig. proceeding) (mem.
op., not designated for publication). Further filings of this nature could be considered an abuse of the judicial
process for which Appellant could be sanctioned. See In re Schmotzer, No. 10–15–00433–CR, 2015 WL 9462178,
at *1 (Tex. App.–Waco Dec. 23, 2015, orig. proceeding) (mem. op., not designated for publication); see also In re
Altschul, 146 S.W.3d 754, 755 (Tex. App.–Beaumont 2004, orig. proceeding) (ordering relator to pay filing fee and
costs incurred by the State and directing appellate court clerk to forward cost bill to the Texas Department of
Criminal Justice with directions to withdraw the amount of costs from relator’s inmate trust account).
2
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00262-CR
TRACY RAY GIBSON,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 145th District Court
of Nacogdoches County, Texas (Tr.Ct.No. F149622007)
THIS CAUSE came on to be heard on the appellate record, and the same
being considered, it is the opinion of this Court that the appeal should be dismissed for want of
jurisdiction.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed for want of jurisdiction; and that this decision
be certified to the court below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J.
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00263-CR
TRACY RAY GIBSON,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 145th District Court
of Nacogdoches County, Texas (Tr.Ct.No. F149632007)
THIS CAUSE came on to be heard on the appellate record, and the same
being considered, it is the opinion of this Court that the appeal should be dismissed for want of
jurisdiction.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed for want of jurisdiction; and that this decision
be certified to the court below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J.
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00264-CR
TRACY RAY GIBSON,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 145th District Court
of Nacogdoches County, Texas (Tr.Ct.No. F149642007)
THIS CAUSE came on to be heard on the appellate record, and the same
being considered, it is the opinion of this Court that the appeal should be dismissed for want of
jurisdiction.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed for want of jurisdiction; and that this decision
be certified to the court below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488143/ | NO. 12-22-00281-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
IN THE GUARDIANSHIP OF § APPEAL FROM THE
RAYMOND GARRETT STRBAN, § COUNTY COURT AT LAW NO. 2
AN INCAPACITATED ADULT § ANGELINA COUNTY, TEXAS
MEMORANDUM OPINION
PER CURIAM
This appeal is being dismissed for failure to comply with the Texas Rules of Appellate
Procedure. See TEX. R. APP. P. 42.3.
Shawna Benge filed a notice of appeal on October 20, 2022. Pursuant to Rule 32.1, her
docketing statement was due to have been filed at the time appeal was perfected. See TEX. R.
APP. P. 32.1. That same day, this Court requested that Appellant file a docketing statement
within ten days if she had not already done so. Appellant did not file a docketing statement as
requested.
On November 2, the Clerk of this Court issued a notice advising Appellant that her
docketing statement was past due. The notice provided that unless the docketing statement was
filed on or before November 14, the appeal would be presented for dismissal in accordance with
Texas Rule of Appellate Procedure 42.3. Appellant did not file the required docketing statement
or otherwise respond to this Court’s notice.
Accordingly, because Appellant failed, after notice, to comply with Rule 32.1, the appeal
is dismissed. 1 See TEX. R. APP. P. 42.3(c) (after giving ten days’ notice, appellate court may
dismiss appeal because appellant failed to comply with a requirement of the appellate rules, a
1
We also note that Appellant’s notice of appeal fails to contain the information specifically required by
Texas Rule of Appellate Procedure 9.5 and Section 51.017(a) of the Texas Civil Practice and Remedies Code.
See TEX. R. APP. P. 9.5 (service); see also TEX. CIV. PRAC. & REM. CODE ANN. (West Supp. 2019) (notice of appeal
must be served on each court reporter responsible for preparing reporter’s record).
court order, or a notice from the clerk requiring a response or other action within a specified
time).
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00281-CV
IN THE GUARDIANSHIP OF RAYMOND GARRETT STRBAN,
AN INCAPACITATED ADULT
Appeal from the County Court at Law No. 2
of Angelina County, Texas (Tr.Ct.No. 017-17-G)
THIS CAUSE came on to be heard on the appellate record, and the same
being considered, it is the opinion of this Court that the appeal should be dismissed.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed; and that this decision be certified to the court
below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488142/ | NO. 12-22-00193-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
IN THE GUARDIANSHIP OF VASSIL § APPEAL FROM THE
V. TCHOKOEV, AN INCAPACITATED § COUNTY COURT AT LAW
PERSON § CHEROKEE COUNTY, TEXAS
MEMORANDUM OPINION
William K. Wilder appeals the trial court’s order imposing monetary sanctions against
him. He also appeals the denial of his motion for sanctions. He presents six issues on appeal.
We affirm.
BACKGROUND
This is an appeal from an order granting sanctions in a guardianship proceeding. Much
of the underlying facts are unknown and not contained in the appellate record. 1 However, the
record does indicate that during the guardianship proceeding, Wilder represented the ward, Dr.
Vassil V. Tchokoev. It appears Vassil’s sons, Vastan and Nicholas (the Applicants), applied for
the guardianship. In accordance with the Texas Estates Code, the Applicants requested an
independent medical examination (IME) of Vassil’s competency. The record indicates that there
were some issues finding a doctor covered by Vassil’s insurance. Once the examination was
conducted, it appeared that Vassil’s wife, Olga, participated in the examination. In addition, the
examination notes referenced a more “physical” examination instead of a mental or
psychological examination. Therefore, the Applicants requested an additional IME. At the
hearing, the Applicants provided the trial court with the name of a doctor in Dallas that had
1
Wilder makes a number of factual allegations in his brief; however, the majority of those “facts” are not
contained in the appellate record.
agreed to perform the examination. The Applicants also agreed to provide or arrange
transportation for Vassil to and from the appointment. The trial court granted the motion on
February 22, 2022 and gave the parties thirty days to conduct the IME.
The examination was scheduled for March 3. That morning, Wilder advised Olga not to
permit Vassil to go to the exam. He claimed the exam must be done by a psychiatrist or
psychologist while the current doctor was a neurologist. Therefore, he refused to allow Vassil to
attend. Vassil later died on March 20, under allegedly suspicious circumstances.
The Applicants filed a motion for sanctions against Wilder, alleging that his conduct on
March 3, and throughout the guardianship, was unscrupulous. Following a hearing, the trial
court granted the motion; however, it allowed the Applicants to amend the motion to include the
amount of attorney’s fees owed.
Wilder filed his own motion for sanctions alleging that the Applicants made false
accusations against him and failed to post the bond required under the Texas Estates Code. The
trial court denied the motion.
After the trial court closed the guardianship, the sanctions orders became final. This
appeal followed.
SANCTIONS
In his first three issues, Wilder asserts the trial court abused its discretion in imposing
sanctions against him. In issues one and two, Wilder contends that the trial court required that
Vassil be examined by a psychiatrist and not a neurologist; therefore, Wilder’s advice to not
undergo the examination did not warrant sanctions. In his third issue, Wilder argues that he
could not be sanctioned until after the date set forth in the trial court’s order. 2 In his fourth and
fifth issues, Wilder states that his motion for sanctions should have been granted. Specifically,
he urges that the bond required by the Texas Estates Code was never posted and the Applicants
should be accordingly sanctioned.
Standard of Review
We review a trial court’s imposition of sanctions for an abuse of discretion. Cire v.
Cummings, 134 S.W.3d 835, 383-39 (Tex. 2004). A court abuses its discretion when it acts
arbitrarily or without reference to any guiding rules or principles. Downer v. Aquamarine
2
Wilder does not dispute the amount of the sanctions ordered.
2
Operators, Inc., 701 S.W.2d 238, 241 (Tex. 1985). Although we view conflicting evidence
favorably to the court’s decision, we are not bound by a trial court’s fact findings or conclusions
of law and must, instead, review the entire record independently to determine whether the trial
court abused its discretion. Brewer v. Lennox Hearth Products, LLC, 601 S.W.3d 704, 717
(Tex. 2020). A decision lacking factual support is arbitrary and unreasonable and must be set
aside. Id.
Applicants’ Motion for Sanctions
At the hearing on the motion for sanctions, Vastan testified that a nurse approached him
about Vassil’s HIPAA form. The release included two people: Olga and “Dr. Wilder.” The
nurse said that Wilder represented himself as a medical doctor. Vastan told her to remove both
individuals and add him, his brother, and his wife, Megan. On cross-examination, Wilder pointed
out that his wife has a Ph.D. and goes by “doctor.”
Vastan further testified that on another occasion, he contacted the Tyler Police
Department because he “was concerned about foul play due to the serious bump and laceration
[on] top of [his] father’s head that was not there on Tuesday morning that [he] can remember.”
The officers gave him a case number, took photographs, and collected some other evidence.
They also gave Vastan a number to call when Vassil passed away. During their investigation,
Tyler Police learned that several medical records had been deleted. Vastan stated:
They informed my brother and I that the records appeared to have been deleted, that they were told
by the Hospice staff that they no longer had any records or the HIPAA forms on Olga or Bill
[Wilder].
Vastan testified that he received a new case number and that the officers believed a different
crime may have been committed. 3
During a second hearing on the motion, it was discussed that Wilder filed a response to
the motion for sanctions in which he clarified that he never represented Olga. However,
Vastan’s attorney urged that he was unaware that Olga was acting pro se during the pendency of
3
Vastan prepared an affidavit for the first hearing to support the motion for sanctions. He did not testify
from the affidavit. Rather, he used it “for recollection.” As noted above, this Court was not provided a complete
clerk’s record because Wilder only requested certain documents be contained in it. As a result, in reviewing the
reporter’s record, this Court asked the clerk’s record be supplemented to contain the affidavit referenced in Vastan’s
testimony. Wilder filed an objection to the affidavit. It does not appear that he objected to the affidavit in the trial
court. And it appears the trial court may have considered the affidavit in granting the motion for sanctions. As a
result, we overrule Wilder’s objection.
3
the guardianship. According to Vastan, Wilder was advising Olga as if he was her attorney
regarding the examination scheduled for March 3. According to Vastan’s attorney:
. . . the question is we never communicated to Dr. Tchokoev, Vassil; he was in bed. That was the
testimony. Wilder only communicated to Olga, who I thought was his client. I could have
communicated with her, anybody else could have. She refused access to him, and that was the
moment that we felt that the order had been disobeyed completely in taking him to the
independent medical evaluation had been realized, but it was Mr. Wilder who directed him not to
get out of bed through somebody he did not represent. It gets confusing.
...
So when we show up on the morning of March 3rd after all of this argument, after all of this
presentation to take the man to go see a doctor and this man fights it, he directs to go see it, to not
see it vociferously to this tangential one-off person I didn’t know he didn’t represent where I
could’ve talked to her directly myself. He directly interfered in the intent of your order,
psychologist or psychologist (sic) aside.
Now, I’d be willing to argue the psychologist/psychologist (sic) question I thought we already
had. We were in chambers when we did this and you signed an order. I think that somebody that’s
been practicing law 51 years, who has a duty to a client who is obviously incapacitated in some
capacity, you would think would have a responsibility to see that a medical doctor looked at him,
no matter what, and if they had a problem with the results that came back the day later -- the
second day later, whenever they came back, he could’ve came [sic] here before you and said, “I
object. Let’s seal them. Protective order. Quash them. In camera.” 51 years of experience, but he
had a responsibility to know what mental health and physical condition his client was in, and my
clients paid for that opportunity as neutrally and by golly as gracefully as they could.
...
I’m mad, but I didn’t come here to embarrass or impugn Mr. Wilder. I respect his 51 years of
practice, but enough is enough. He used every ounce -- every bit of his skills to evade, dodge,
weave, obfuscate. Got a phrase for it; it’s called officious intermeddling. It’s production of work
just for generation of costs, and we’re kindly asking that the Court award these costs expressly
related to misconduct after March 3rd and paid to Vastan and Nicholas Tchokoev.
Wilder argued that Applicants were complying with the court order because the doctor was not a
psychiatrist or psychologist. He also argued that he had until March 24th to comply with the
order. However, because Vassil died prior to that date, he argued he did not violate the order.
Generally, a trial court has “inherent power to sanction bad faith conduct during the
course of litigation that interferes with the administration of justice or the preservation of the
court’s dignity and integrity.” Phillips & Akers, P.C. v. Cornwell, 927 S.W.2d 276, 280 (Tex.
App. Houston [1st Dist.] 1996, no writ) (citing Onwuteaka v. Gill, 908 S.W.2d 276, 280 (Tex.
App.—Houston [1st Dist.] 1995, no writ); Metzger v. Sebek, 892 S.W.2d 20, 51 (Tex. App.—
Houston [1st Dist.] 1994, writ denied)). Such powers, however, are limited. “The trial court’s
4
inherent power to sanction exists only to the extent necessary to deter, alleviate, and counteract
bad faith abuse of the judicial process, such as significant interference with core judicial
functions . . . of Texas courts.” Id. at 280 (citing Onwuteaka, 908 S.W.2d at 280).
Parties must generally obey even an invalid order until it is overturned on appeal.
Bachynsky v. State, 747 S.W.2d 847, 849 (Tex. App.—Dallas 1988), aff’d in part and rev’d in
part on other grounds, 770 S.W.2d 563 (Tex. 1989). A party’s failure to comply with a court
order could result in the party being held in contempt or in other sanctions being imposed. See
Koslow’s v. Mackie, 796 S.W.2d 700, 704 (Tex. 1990) (discussing various sanctions for failure
to comply with court orders); Ex parte Johns, 807 S.W.2d 768, 770 (Tex. App.—Dallas 1991,
no writ) (contempt); see also TEX. R. APP. P. 60 (dismissal of appeal for failure to comply with
order of appellate court).
Based on the record before us, the trial court could have reasonably concluded that
Wilder instructed his client, Vassil, via Olga, to not comply with the trial court’s order
compelling an IME. Even if the trial court intended for Vassil to be examined by a psychologist
as Wilder argues, the record indicates that the trial court granted the motion for an IME after the
parties agreed to a specific doctor. The fact that the doctor is a neurologist does not negate the
trial court’s order or the parties’ agreement. In addition, there is no evidence in the record that
Wilder intended to comply with the trial court’s order within the time frame allotted. Because
the record contains evidence from which the trial court could reasonably conclude that Wilder
failed to comply with a court order, we conclude that the trial court did not abuse its discretion in
granting the Applicants’ motion for sanctions. See Koslow’s, 796 S.W.2d at 704; see also
Downer, 701 S.W.2d at 241. We overrule Wilder’s first, second, and third issues.
Wilder’s Motion for Sanctions
Wilder also filed a motion for sanctions alleging the Applicants failed to post bond for
the temporary restraining order as required.
On March 18, 2022, the trial court held an emergency hearing on the Applicants’ request
for temporary guardianship and heard their request for a temporary restraining order, which it
granted. That order enjoined Olga from accessing, withdrawing, transferring, removing,
transmitting, or otherwise engaging in financial transactions on behalf of Vassil. The trial court
further ordered that “within five (5) business days, the Movants must execute and file with the
clerk a bond in the amount of $50,000.00 to the adverse party in accordance with Rule 684 of the
5
Texas Rules of Civil Procedure.” Wilder contends the bond was never provided, and therefore,
the trial court erred in not granting sanctions against the Applicants. However, he acknowledged
that there is money in the registry of the court. Thus, he contends Applicants failed to follow the
form of the bond.
The entirety of Wilder’s argument for both issues four and five are found in his
“summary of the argument” section of his brief:
Appellees failed to post a bond for their temporary restraining order as clearly required by law,
and sanctions should be ordered against them and/or their attorneys.
...
The conduct of Appellees and/or their attorneys which amounted to extreme annoyance,
harassment and unprofessional conduct of Appellant and his Client justified an order of sanctions
against Appellees and/or their attorneys to include an award of attorneys fees and costs of court to
Appellant.
Wilder cites no authority for his arguments and no factual basis or explanation. Instead,
he merged all six of his issues together, focusing on facts supporting the first three issues. Rule
38.1 of the Texas Rules of Appellate Procedure mandates that an appellant’s brief must 1) state
concisely all issues or points presented for review and 2) contain a clear and concise argument
for the contentions made, with appropriate citations to authorities and to the record. TEX. R. APP.
P. 38.1(e), (h). The failure to brief, or to adequately brief, an issue by an appellant effects a
waiver of that issue on appeal. General Servs. Comm’n v. Little-Tex Insulation Co., Inc., 39
S.W.3d 591, 598 n.1 (Tex. 2001). We have liberally construed Wilder’s brief in order to give
effect to his arguments. See TEX. R. APP. P. 38.9. But it is not our duty to review the record,
research the law, and fashion a legal argument for an appellant when he has failed to do so.
Zhang v. Capital Plastic & Bags, Inc., 587 S.W.3d 82, 90 (Tex. App.—Houston [14th Dist.]
2019, pet. denied). Wilder’s brief does not contain a clear and concise argument and contains no
citations to authority or the record. In addition, he did not argue his fifth issue before the trial
court. TEX. R. APP. P. 33.1. Accordingly, we hold he has waived any alleged error with respect
to issues four and five.
In his sixth issue, Wilder urges the Applicants be charged the costs of this appeal,
including attorney’s fees. We decided that the trial court did not err. Because Wilder’s sixth
6
issue is premised upon the trial court’s alleged error in its judgment, Wilder’s sixth issue is moot.
Accordingly, we overrule Wilder’s sixth issue.
DISPOSITION
Having overruled Wilder’s first, second, and third issues, concluded that issues four and
five are waived, and overruled his sixth issue, we affirm the trial court’s judgment.
BRIAN HOYLE
Justice
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
7
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00193-CV
IN THE GUARDIANSHIP OF VASSIL V. TCHOKOEV,
AN INCAPACITATED PERSON
Appeal from the County Court at Law
of Cherokee County, Texas (Tr.Ct.No. G00030)
THIS CAUSE came to be heard on the appellate record and briefs filed
herein, and the same being considered, it is the opinion of this court that there was no error in the
judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be in all things affirmed and that all costs of this appeal are hereby adjudged
against the Appellant, WILLIAM K. WILDER, and that this decision be certified to the court
below for observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
8
9 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488150/ | NO. 12-22-00284-CV
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
APPROXIMATELY FOUR § APPEAL FROM THE 114TH
THOUSAND ONE HUNDRED SIXTY-
FOUR DOLLARS ($4,164.00) IN U.S.
CURRENCY,
APPELLANT § JUDICIAL DISTRICT COURT
V.
THE STATE OF TEXAS, § SMITH COUNTY, TEXAS
APPELLEE
MEMORANDUM OPINION
PER CURIAM
This appeal is being dismissed for failure to comply with the Texas Rules of Appellate
Procedure. See TEX. R. APP. P. 42.3(c).
A party who is not excused by statute or the appellate rules from paying costs must pay--
at the time an item is presented for filing--whatever fees are required by statute or Texas
Supreme Court order. TEX. R. APP. P. 5. An appellate court may enforce Rule 5 by any order
that is just. Id. After giving ten days’ notice, an appellate court may dismiss an appeal because
the appellant failed to comply with a requirement of the appellate rules, a court order, or a notice
from the clerk requiring a response or other action within a specified time. TEX. R. APP. P.
42.3(c).
On October 25, 2022, the Clerk of this Court notified Appellant, Juan Carlos Luna-
Tavares, that the filing fee in this appeal is due. Appellant was informed that failure to remit the
filing fee on or before November 4, would result in the Court’s taking appropriate action,
including dismissal of the case without further notice. See TEX. R. APP. P. 42.3(c). The date for
remitting the filing fee passed, and Appellant has not responded to this Court’s notice, paid the
filing fee, or otherwise shown that he is excused from paying the fee. 1
Because Appellant failed, after notice, to comply with Rule 5, the appeal is dismissed. 2
See TEX. R. APP. P. 42.3(c).
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
1
The case information sheet from the Smith County District Clerk’s Office reflects that Appellant has not
been declared indigent.
2
We also note that Appellant’s notice of appeal fails to comply with appellate Rule 9.5 and Section
51.017(a) of the Texas Civil Practice and Remedies Code. See TEX. R. APP. P. 9.5 (service); see also TEX. CIV.
PRAC. & REM. CODE ANN. § 51.017(a) (West Supp. 2019) (notice of appeal must be served on each court reporter
responsible for preparing reporter’s record).
2
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00284-CV
APPROXIMATELY FOUR THOUSAND ONE HUNDRED
SIXTY-FOUR DOLLARS ($4,164.00) IN U.S. CURRENCY,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 114th District Court
of Smith County, Texas (Tr.Ct.No. 21-1329-B)
THIS CAUSE came to be heard on the appellate record; and the same being
considered, it is the opinion of this Court that this appeal should be dismissed.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed; and that this decision be certified to the court
below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488149/ | NOS. 12-22-00094-CR
12-22-00095-CR
12-22-00096-CR
12-22-00097-CR
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
JESSIE GLYNN ADAMS, § APPEAL FROM THE 114TH
APPELLANT
V. § JUDICIAL DISTRICT COURT
THE STATE OF TEXAS,
APPELLEE § SMITH COUNTY, TEXAS
MEMORANDUM OPINION
Jessie Glynn Adams appeals his convictions for four counts of aggravated assault with a
deadly weapon against a public servant. In two issues, he contends the judgments contain
improper court costs. We modify and affirm as modified.
BACKGROUND
Appellant was charged by four separate indictments with aggravated assault of a public
servant. The charges were all tried in a single action. Appellant pleaded “guilty” to all four
counts. The cases then proceeded to a jury trial on punishment. Appellant pleaded “true” to the
enhancement allegations in the indictments. The jury sentenced Appellant to life in prison in all
four cases, to run concurrently. This appeal followed.
IMPROPER COURT COSTS
In his first issue, Appellant contends the trial court improperly assessed duplicative court
costs because the cases were tried in a single criminal action. The State concedes the duplicative
court costs were improperly assessed. Accordingly, Appellant requests three of the bills of costs
1
be deleted. In his second issue, he urges he was improperly assessed the Consolidated Fee on
Conviction of a Felony. The State also concedes this error.
Duplicative Court Costs
Article 102.073 of the Texas Code of Criminal Procedure states “[i]n a single criminal
action in which a defendant is convicted of two or more offenses ... the court may assess each
court cost or fee only once against the defendant.” TEX. CODE CRIM. PROC. ANN. art. 102.073(a)
(West 2018); see Williams v. State, 495 S.W.3d 583, 590 (Tex. App.–Houston [1st Dist.] 2016)
pet. dism’d., No. PD-0947-16, 2017 WL 1493488 (Tex. Crim. App. Apr. 26, 2017). The article
further states that “each court cost or fee the amount of which is determined according to the
category of offense must be assessed using the highest category of offense that is possible based
on the defendant’s convictions.” TEX. CODE CRIM. PROC. ANN. art. 102.073(b).
It is undisputed that Appellant was convicted of four offenses in a single criminal action.
Each judgment of conviction lists identical court costs totaling $251.50. We agree with the
parties that the trial court erred in assessing costs against Appellant on all four convictions. See
Robinson v. State, 514 S.W.3d 816, 828 (Tex. App.—Houston [1st Dist.] 2017, pet. ref’d).
When a defendant has multiples convictions that are the same category of offense and the costs
are all the same, court costs should be based on the lowest cause number. See Williams, 495
S.W.3d at 590. Therefore, we will modify the judgments and corresponding withdrawal orders
and bills of costs in trial court cause numbers 114-1121-19, 114-1122-19, and 114-1123-19 to
delete the assessment of costs. See id. We sustain Appellant’s first issue.
Consolidated Fee on Conviction of Felony
The Local Consolidated Fee on Conviction of Felony applies only to defendants who are
convicted of offenses committed on or after January 1, 2020. See Hayes v. State, No. 12-20-
00222-CR, 2021 WL 1418400, at *2 (Tex. App.—Tyler Apr. 14, 2021, no pet.) (mem. op., not
designated for publication) (citing TEX. LOC. GOV’T CODE ANN. § 134.101 (West 2021)). Section
134.101 assesses an additional $105 fee for a person who is convicted of a felony. See TEX. LOC.
GOV’T CODE ANN. § 134.101(a). That fee is to be allocated to the following specific accounts
and funds: the clerk of the court account, the county records management and preservation fund,
the county jury fund, the courthouse security fund, the county and district court technology fund,
and the county specialty court account. See id. § 134.101(b).
2
In the instant case, the commission date for the offense is June 3, 2019. The judgment of
conviction reflects that the trial court assessed $251.50 in court costs. The judgment includes a
document identified as “Attachment A Order to Withdraw Funds,” which states that Appellant
has incurred “[c]ourt costs, fees and/or fines and/or restitution” in the amount of $251.50. The
certified bill of costs itemizes the court costs imposed, which total $251.50 with a $251.50
balance remaining. The certified bill of costs includes the following costs assessed pursuant to
Section 134.101: $40.00 Clerk of the Court; $4.00 County and District Court Technology Fund;
$1.00 County Jury Fund; $25.00 County Records Management and Preservation; $25.00 County
Specialty Court Account; and $10.00 Courthouse Security Fund. See id. The sum of these costs
is $105.00. Because the offense in this case was committed before January 1, 2020, Appellant is
not obligated to pay the “Local Consolidated Fee on Conviction of Felony.” See Hayes, 2021
WL 1418400, at *2. Accordingly, we will modify the trial court’s judgment and Order to
Withdraw in trial court cause number 114-1120-19 to reflect the removal of these fees. See TEX.
R. APP. P. 43.2(b); Reyes v. State, 324 S.W.3d 865, 868 (Tex. App.–Amarillo 2010, no pet.).
Appellant’s second issue is sustained.
DISPOSITION
Having sustained Appellant’s first issue, we modify the judgments, withdrawal orders,
and bills of costs in trial court cause numbers 114-1121-19, 114-1122-19, and 114-1123-19 to
delete the assessment of costs. Having sustained Appellant’s second issue, we modify the
judgment in trial court cause number 114-1120-19 to reflect that the amount of court costs is
$146.50. We affirm the judgments as modified.
BRIAN HOYLE
Justice
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(DO NOT PUBLISH)
3
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00094-CR
JESSIE GLYNN ADAMS,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 114th District Court
of Smith County, Texas (Tr.Ct.No. 114-1120-19)
THIS CAUSE came to be heard on the appellate record and the briefs filed
herein, and the same being considered, it is the opinion of this court that the judgment of the
court below should be modified and as modified, affirmed.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be modified to reflect that the amount of court costs is $146.50; in all other
respects the judgment of the trial court is affirmed; and that this decision be certified to the court
below for observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
4
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00095-CR
JESSIE GLYNN ADAMS,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 114th District Court
of Smith County, Texas (Tr.Ct.No. 114-1121-19)
THIS CAUSE came to be heard on the appellate record and the briefs filed
herein, and the same being considered, it is the opinion of this court that the judgment of the
court below should be modified and as modified, affirmed.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be modified to delete the assessment of costs; in all other respects the
judgment of the trial court is affirmed; and that this decision be certified to the court below for
observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
5
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00096-CR
JESSIE GLYNN ADAMS,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 114th District Court
of Smith County, Texas (Tr.Ct.No. 114-1122-19)
THIS CAUSE came to be heard on the appellate record and the briefs filed
herein, and the same being considered, it is the opinion of this court that the judgment of the
court below should be modified and as modified, affirmed.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be modified to delete the assessment of costs; in all other respects the
judgment of the trial court is affirmed; and that this decision be certified to the court below for
observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
6
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00097-CR
JESSIE GLYNN ADAMS,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 114th District Court
of Smith County, Texas (Tr.Ct.No. 114-1123-19)
THIS CAUSE came to be heard on the appellate record and the briefs filed
herein, and the same being considered, it is the opinion of this court that the judgment of the
court below should be modified and as modified, affirmed.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment
of the court below be modified to delete the assessment of costs; in all other respects the
judgment of the trial court is affirmed; and that this decision be certified to the court below for
observance.
Brian Hoyle, Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
7 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488144/ | NO. 12-22-00048-CR
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
TRAVIS MICHAEL TORGERSON, § APPEAL FROM THE 392ND
APPELLANT
V. § JUDICIAL DISTRICT COURT
THE STATE OF TEXAS,
APPELLEE § HENDERSON COUNTY, TEXAS
MEMORANDUM OPINION
Travis Michael Torgerson appeals his conviction for impersonating a public servant. In
one issue, Appellant argues that the evidence is insufficient to support the trial court’s judgment.
We affirm.
BACKGROUND
Appellant was charged by separate indictments with three counts of impersonating a
public servant 1 and pleaded “not guilty.” The matter proceeded to a jury trial. The jury found
Appellant “guilty” as charged and, following a trial on punishment, assessed his punishment at
imprisonment for six years. The trial court sentenced Appellant accordingly, and this appeal
followed.
EVIDENTIARY SUFFICIENCY
In his sole issue, Appellant argues that the evidence is legally insufficient to support the
trial court’s judgment.
1
Only one count of impersonating a public servant is the subject of this appeal.
Standard of Review
The Jackson v. Virginia 2 legal sufficiency standard is the only standard that a reviewing
court should apply in determining whether the evidence is sufficient to support each element of a
criminal offense that the state is required to prove beyond a reasonable doubt. See Brooks v.
State, 323 S.W.3d 893, 895 (Tex. Crim. App. 2010). Legal sufficiency is the constitutional
minimum required by the Due Process Clause of the Fourteenth Amendment to sustain a
criminal conviction. See Jackson, 443 U.S. at 315–16, 99 S. Ct. at 2786–87; see also Escobedo
v. State, 6 S.W.3d 1, 6 (Tex. App.–San Antonio 1999, pet. ref’d). The standard for reviewing a
legal sufficiency challenge is whether any rational trier of fact could have found the essential
elements of the offense beyond a reasonable doubt. See Jackson, 443 U.S. at 320, 99 S. Ct. at
2789; see also Johnson v. State, 871 S.W.2d 183, 186 (Tex. Crim. App. 1993). The evidence is
examined in the light most favorable to the verdict. See Jackson, 443 U.S. at 320, 99 S. Ct. at
2789; Johnson, 871 S.W.2d at 186. A jury is free to believe all or any part of a witness’s
testimony or disbelieve all or any part of that testimony. See Lee v. State, 176 S.W.3d 452, 458
(Tex. App.–Houston [1st Dist.] 2004), aff’d, 206 S.W.3d 620 (Tex. Crim. App. 2006). A
successful legal sufficiency challenge will result in rendition of an acquittal by the reviewing
court. See Tibbs v. Florida, 457 U.S. 31, 41–42, 102 S. Ct. 2211, 2217–18, 72 L. Ed. 2d 652
(1982).
Circumstantial evidence is as probative as direct evidence in establishing guilt, and
circumstantial evidence alone can be sufficient to establish guilt. Rodriguez v. State, 521
S.W.3d 822, 827 (Tex. App.–Houston [1st Dist.] 2017, no pet.) (citing Sorrells v. State, 343
S.W.3d 152, 155 (Tex. Crim. App. 2011)). Each fact need not point directly and independently
to the guilt of the appellant, as long as the cumulative force of all the incriminating
circumstances is sufficient to support the conviction. See Hooper v. State, 214 S.W.3d 9, 13
(Tex. Crim. App. 2007). Juries are permitted to draw multiple reasonable inferences as long as
each inference is supported by the evidence presented at trial. Id. at 15. Juries are not permitted
to come to conclusions based on mere speculation or factually unsupported inferences or
presumptions. Id. An inference is a conclusion reached by considering other facts and deducing
a logical consequence from them, while speculation is mere theorizing or guessing about the
possible meaning of facts and evidence presented. Id. at 16.
2
443 U.S. 307, 315–16, 99 S. Ct. 2781, 2786–87, 61 L. Ed. 2d 560 (1979).
2
The sufficiency of the evidence is measured against the offense as defined by a
hypothetically correct jury charge. See Malik v. State, 953 S.W.2d 234, 240 (Tex. Crim. App.
1997). Such a charge would include one that “accurately sets out the law, is authorized by the
indictment, does not unnecessarily increase the State’s burden of proof or unnecessarily restrict
the State’s theories of liability, and adequately describes the particular offense for which the
defendant is tried.” Id.
Discussion
To satisfy its burden of proof that Appellant committed the offense of impersonating a
public servant as charged in the indictment, the State was required to prove beyond a reasonable
doubt that Appellant impersonated a public servant with intent to induce B. Hillhouse either to
submit to Appellant’s pretended official authority or to rely on his pretended official acts. See
TEX. PENAL CODE ANN. § 37.11(a)(1) (West Supp. 2022).
The record reflects that Appellant was arrested on separate charges for impersonating a
public servant to several members of the public at large. 3 Thereafter, on August 9, 2021, while
he was in jail, Appellant sent two written requests to Henderson County Sherriff Botie Hillhouse.
In his first request, Appellant stated, “U ARRESTED A GOVERNORED STATE/FEDERAL
EMPLOYEE 125-4 LEE/RAMBO AN CHARGED AS INPERONATING AN OFFICER WITH
A UNIDENTIFIED METAL STAR/BADGE.” Hillhouse responded, “This is not a request.”
Approximately one hour later, Appellant sent a second request, in which he stated, “I REQUEST
TO B RELEASED AS IM A GOVERNORD STATE/FEDERAL BODY 125-4
LEE/RAMBO[.]”
Impersonation
Appellant first argues that these requests do not support the element that he impersonated
a public servant. More specifically, Appellant contends that he did not hold himself out to be
anything other than what he thought he was, a confidential informant. A public servant is “an
officer, employee, or agent of government.” TEX. PENAL CODE ANN. § 1.07(a)(41)(A) (West
2021); Rice v. State, 195 S.W.3d 876, 881 (Tex. App.–Dallas 2006, pet. ref’d). “Government”
means “the state[,]” which is defined as “a body politic organized for civil rule and government,”
3
The evidence showed that Appellant portrayed himself to be a police officer to certain people in
Henderson County, Texas. One person reported that Appellant had a badge and a gun and identified himself as a
police officer. Another described Appellant as displaying a badge the way a police officer would. Appellant was
arrested, and officers discovered in Appellant’s vehicle numerous hats with the words “Police” or “FBI” on them,
handcuffs, and a realistic-looking, replica pistol.
3
a “political organization that has supreme civil authority and political power and serves as the
basis of government,” or “any of the bodies politic or political units that together make up a
federal union, as in the United States of America.” TEX. PENAL CODE ANN. § 1.07(a)(24)(A);
Rice, 195 S.W.3d at 881. Thus, a person commits an offense if he impersonates an officer,
employee, or agent of a political body, organization, or unit organized for civil rule and
government. Rice, 195 S.W.3d at 881.
Here, the record reflects that Appellant previously sought to become a confidential
informant. However, the evidence further indicates that while Appellant may have reached the
point in the process of choosing an alias and being assigned a number, he had not completed the
process of becoming a confidential informant. Moreover, in his first request, Appellant
specifically stated that he was a state or federal employee. He reiterated the gist of this statement
in his second request. Thus, even if Appellant was, in fact, a confidential informant, he
nonetheless represented that he was a state or federal employee who had a badge when he was
arrested. Hillhouse explained in his testimony that Appellant neither is a peace officer nor a state
or federal agent. He further explained that confidential informants are private citizens, not police
officers.
Intent to Induce to Submit to Authority
Appellant next argues that there is insufficient evidence that, by his requests, he intended
to induce Hillhouse to submit to his pretended official authority or to rely on his pretended
official acts. 4 To meet this element, the actor need not succeed in inducing anyone to submit to
his assumed authority; all that is required is the impersonation and the intent. See Dietz v. State,
62 S.W.3d 335, 340 (Tex. App.–Austin 2001, pet. ref’d). As set forth above, in his first request,
Appellant identified himself as a state/federal employee. In his second request, he reiterated this
state/federal descriptor and requested that Hillhouse release him from jail on the basis of that
status. Hillhouse testified that when Appellant sent those requests, he was portraying himself to
be a federal agent and implying that he needed to be released from custody on that basis.
Moreover, the evidence indicates that prior to his arrest, Appellant held himself out to certain
members of the community as a person acting in a law enforcement capacity. Hillhouse testified
4
In support of his argument, Appellant cites to Cornwell v. State, 471 S.W.3d 458, 462–65 (Tex. Crim.
App. 2015). In Cornwell, the court considered the concept of “pretended official acts” upon which the appellant
induced another to rely. See id. However, the court did not discuss the alternative element of an appellant’s intent
to induce another to submit to his pretended official authority. See TEX. PENAL CODE ANN. §. 37.11(a)(1) (West
Supp. 2021).
4
that he was aware of the charges which resulted in Appellant’s confinement in jail. As a result,
the jury reasonably could find that Appellant knew Hillhouse was aware that he portrayed
himself as a law enforcement officer and might have doubts as to whether Appellant was, in fact,
a law enforcement officer. As a result, it further could find that Appellant conveyed the message
to Hillhouse that he was a federal/state employee, who had a badge when he was arrested, and
did so in order to perpetuate his contrived persona with Hillhouse so that Hillhouse would
believe Appellant’s statement, submit to his authority, and help to secure his release from jail.
Therefore, Appellant’s general statement of status in his requests, when considered in light of
Hillhouse’s knowledge of the charges against Appellant, could be construed as a request to be
released from jail made with the intent to convey his authority as a person acting in a law
enforcement capacity.
We have considered the aforementioned evidence and the record as a whole in the light
most favorable to the jury’s verdict. Having done so, we conclude that the jury reasonably could
determine beyond a reasonable doubt that Appellant, through these requests and based on his
knowledge of Hillhouse’s observations of his actions, impersonated a state/federal employee in
some purported law enforcement role with the intent to induce Hillhouse to submit to this
pretended authority by releasing him from jail. See TEX. PENAL CODE ANN. § 37.11(a)(1); Rice,
195 S.W.3d at 881; Dietz, 62 S.W.3d at 340. Accordingly, we hold that the evidence is legally
sufficient to support the trial court’s judgment. Appellant’s sole issue is overruled.
DISPOSITION
Having overruled Appellant’s sole issue, we affirm the trial court’s judgment.
JAMES T. WORTHEN
Chief Justice
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(DO NOT PUBLISH)
5
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00048-CR
TRAVIS MICHAEL TORGERSON,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 392nd District Court
of Henderson County, Texas (Tr.Ct.No. CR21-1091-173)
THIS CAUSE came to be heard on the appellate record and briefs filed
herein, and the same being considered, it is the opinion of this court that there was no error in the
judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be in all things affirmed, and that this decision be certified to the court below
for observance.
James T. Worthen, Chief Justice.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494467/ | MEMORANDUM OPINION OVERRULING DEBTOR’S OBJECTION TO DEBTOR’S FORMER SPOUSE’S MATRIMONIAL ATTORNEY’S FEE CLAIM AS A DOMESTIC SUPPORT OBLIGATION
ALAN'S. TRUST, Bankruptcy Judge.
The matter before the Court involves the priority status and nondischargeability in a chapter 13 case of a non-debtor former spouse’s matrimonial attorney’s fees incurred in a prepetition divorce action. Pending before the Court is an objection (“Objection”) filed by Debtor, Marek Rogowski (“Debtor”), to the proof of claim (the “Claim” [Claim # 5]) filed by his former spouse’s matrimonial attorneys, Schonfeld & Goldring, LLP (“Schonfeld”). [dkt item 21] The Claim is for the amount of $32,950.00, representing matrimonial attorney’s fees incurred by Debtor’s former spouse, Christine Ella Rogowski (“CER”), which Debtor was ordered to pay in a pre-petition judgment of divorce (the “Divorce Judgment”), [dkt item 21, Exhibit B] Schonfeld asserts priority status for the Claim as a domestic support obligation (“DSO”) under Section 507(a)(1)(A) or *437(a)(1)(B) of the Bankruptcy Code1. Debt- or does not object to the amount of the Claim, but objects to the asserted priority status.
Debtor argues that the Claim is not entitled to priority status on the grounds that “the legal fees are not owed to or recoverable by the Debtor’s former spouse or child; such fees were directly awarded to counsel for his former spouse, and are thus owed to counsel,” and that “the legal fees awarded were not in the nature of alimony, maintenance or child support but were part of the state court’s equitable distribution of the marital assets.” [dkt item 21, ¶¶ 6-7] In response, Schonfeld states CER’s matrimonial attorney’s fees constitutes a priority debt “because it qualifies as a domestic support obligation under the circumstances pursuant to 11 U.S.C. §§ 101(14[A]) and 507(a)(1).” [dkt item 25] Schonfeld states the question presented by the Claim and the Objection as follows:
The issue before the court is whether a claim for the pre-petition attorney’s fees of a non-filing former spouse that arose out of the Debtor’s matrimonial action may qualify as a nondischargeable domestic support obligation entitled to priority treatment pursuant to 11 U.S.C. §§ 101(14[A]) and 507(a) in a Chapter 13 Bankruptcy case.
[dkt item 25, ¶ 4]
For the reasons stated herein, this Court concludes that Schonfeld’s Claim for matrimonial attorney’s fees constitutes a DSO under § 101(14A), and is therefore entitled to administrative priority status under § 507(a)(1) in this chapter 13 case, and is a nondischargeable debt under §§ 523(a)(5) and 1328(a)(2).
Jurisdiction
This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C. §§ 1334(b) and 157(b)(2)(A), (B), (I) and (0), and the Standing Order of Reference in effect in the Eastern District of New York dated August 28,1986. This decision constitutes the Court’s findings of facts and conclusions of law to the extent Rule 7052 of the Federal Rules of Bankruptcy Procedure so requires. Fed. R. BankrP. 7052.
Background
The facts of the marriage of Debtor and CER and the resulting dissolution action are established by the Decision After Trial [dkt item 25, Exhibit B] of Justice Arthur M. Daimond of the Supreme Court of Nassau County, New York, who presided over the divorce. By way of summary, Debtor and CER were married on January 9, 1993. CER filed for divorce in Nassau County Supreme Court in 2008. Grounds for the divorce were resolved by agreement, leaving for trial the economic issues of child support, maintenance, equitable distribution, and allocation of various debts.
A trial was held in June 2009. At the time of the trial, CER was forty-two years of age and Debtor was thirty-eight years old; they have three children, all boys, who in June 2009 ranged in age from five to twelve years old. At the time of the marriage, CER worked in the field of fashion design, but, by agreement, left her career to become a homemaker and full-time parent; by June 2009, CER had been completely out of the workforce for over twelve years. As of June 2009, Debtor was a certified public accountant, employed by Wachovia Securities with the title of Product Equities Manager. Prior *438to the banking and financial crisis of the fall of 2008, Debtor was earning approximately $350,000 per year, at least half of which was typically paid via a year-end bonus.
Prior to their divorce, the Rogowski family lived a very comfortable, debt-free, suburban lifestyle. Debtor earned a significant income; the family took vacations; the children participated in countless extracurricular activities; they remodeled their home several times; they purchased a vacation/retirement property in Florida. However, this apparent tranquility was disrupted in the fall of 2007, when CER discovered an unauthorized charge to one of her credit cards; that discovery ultimately lead to the admission by Debtor that he had incurred substantial debts and had essentially spent all of the couple’s marital estate covering those debts. The family’s ability to recover economically from these debts was severely impacted in the fall of 2008, as a result of the financial and banking crisis, when Debtor’s annual income of $350,000 was reduced by approximately one-half.
Justice Diamond issued the Divorce Judgment dated February 23, 2010, which was entered on March 3, 2010. The Divorce Judgment, inter alia, directs Debtor to pay CER’s credit card debt that Debtor incurred in her name, to make payments on the second mortgage on the family residence, to provide for their children’s medical expenses, to pay child support and maintenance to CER, and to pay CER’s matrimonial attorney’s fees.
On April 8, 2010, Debtor filed a petition for relief under Chapter 13 of the Bankruptcy Code (“Petition”), [dkt item 1] On his Schedule F, Debtor lists a liability to Schonfeld in the amount of $32,950 as a general unsecured claim, with the description: “Claim incurred: 2/23/10; Ex-spouse’s attorneys fees as per judgment of divorce.” Also on April 8, 2010, Debtor filed a Chapter 13 plan, [dkt item 5] The plan proposes a pro-rata distribution to unsecured creditors of not less than ten percent, based on a monthly plan payment of $1,247 to be paid to the Chapter 13 Trustee over a period of sixty months. On June 9, 2010, Schonfeld filed the Claim, asserting priority status. Due in part to the issues arising under the Claim, and due in part to a pending adversary proceeding 2 filed by CER against Debtor (the “Adversary”) seeking a determination of nondischargeability of certain other debts arising under the Judgment, this Court ordered CER and Debtor to mediation of the issues in this main bankruptcy case as well as in the Adversary, [dkt item 36] These matters were not resolved through mediation. The hearing to consider confirmation of Debtor’s plan is now set for March 8, 2012.
Legal Analysis
Administrative priority status and non-dischargeable status of domestic support obligations in chapter 7 and chapter IS cases
To determine whether the Claim is non-dischargeable and entitled to priority status, the Court must analyze §§ 101, 507(a), 523, 727, and 1328, and the changes to those sections made or impacted by the substantial amendments to the Bankruptcy Code enacted by Congress under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPC-PA”). BAPCPA introduced significant *439statutory changes regarding the status of debts and obligations arising from the marital relationship, and applied to cases commenced after October 17, 2005. These amendments included adding a definition of a DSO in § 101(14A)3, granting a first priority administrative status to DSOs under § 507(a)(1)4, and modifying § 523(a) to “significantly limit” a debtor’s ability to discharge debts related to a matrimonial action. In re Schenkein, 2010 WL 3219464, at *4 (Bankr.S.D.N.Y. Aug. 9, 2010).5 Section 523(a)(5)6 creates an exception from discharge for any debt “for a domestic support obligation,” and § 523(a)(15)7 creates an exception from *440discharge for any debt to a spouse, former spouse, or child of the debtor that is “incurred in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record” and which is in the nature of a DSO but does not fall within the definition of a DSO.8 Finally, § 1328(a)(2) provides that a chapter 13 discharge does not discharge (among other things) any debt under § 523(a)(5), which is a debt for a “domestic support obligation” as defined under § 101(14A). There is a tension between § 523(a) and § 1328(a) as to whether debts that fall under § 523(a)(15) can be discharged in a chapter 13 case. However, that determination is not impactive for this case.9
Post-BAPCPA case law interpreting DSO status for matrimonial attorney’s fees
There is no post-BAPCPA Second Circuit case law applying § 101(14A) to determine the priority status of matrimonial attorney’s fees incurred by the non-filing former spouse and/or determining the non-dischargeability thereof in a chapter 13 case, but there are several decisions in chapter 7 cases. In In re Tarone, 434 B.R. 41 (Bankr.E.D.N.Y.2010), a post-BAPCPA ease, Chief Judge Craig of this Court held that a chapter 7 debtor’s obligations for maintenance and attorney’s fees awarded in favor of his non-debtor ex-wife in a marital dissolution proceeding were nondischargeable under §§ 523(a)(5) and 523(a)(15). Judge Craig noted in Tar-one that prior to BAPCPA, the language of § 523(a)(15) permitted the discharge in a chapter 7 or chapter 13 case of obligations that were not characterized as support obligations owed to a former spouse under certain delineated circumstances; to discharge such debts, a court was required to determine that the debtor did not have the ability to repay the obligation, and that the discharge of the debt would yield a benefit to the debtor that outweighs the detriment of the discharge to the former spouse or child of the debtor. 434 B.R. at 48. Under BAPCPA, Congress removed this type of balancing and analysis, and *441sought to establish clear guide posts for what debts are dischargeable and what debts are not dischargeable that arise in the domestic relations area. Id.
Tarone relied on In re Golio, 393 B.R. 56, 61 (Bankr.E.D.N.Y.2008), a post-BAPCPA chapter 7 case, in which Judge Eisenberg of this Court rejected a debtor’s argument that a prepetition divorce judgment that included an award of attorney’s fees should not be excepted from discharge simply because the payments were made payable directly to the non-debtor spouse’s matrimonial attorneys, rather than to the ex-spouse for later payment to the attorneys. Judge Eisenberg noted that N.Y. Domestic Relations Law § 237(c) requires that the attorney’s fees had to be payable directly to the attorney and could not be ordered paid to the non-attorney client, and stated that using this New York statutory requirement as a basis to avoid non-dischargeability “elevates form over substance .... Indeed, if only a former spouse’s counsel is entitled to attorney’s fees under N.Y. Domestic Relations Law § 237(c), then arguably attorney’s fees awarded in New York divorce cases may be rendered dischargeable under a narrow interpretation of 11 U.S.C. § 523(a)(5) and (15) as those provisions do not list obligations owing to a spouse’s counsel as being excepted from discharge.” Id. at 63. The Golio decision concluded that an award of attorney’s fees to the divorcing party is in the nature of a support obligation, and, as such, should be excepted from discharge to be “consistent with the legislative purpose of 11 U.S.C. §§ 523(a)(5) and (a)(15).” Id
The Southern District of New York bankruptcy court reached a similar conclusion in Schenkein, also a post-BAPCPA chapter 7 case, in which the court noted that “Under the former version of § 523(a)(15), the Court would be required to assess whether the award constitutes maintenance, alimony, or support, which are automatically nondischargeable, as opposed to some other form of debt for which the merits of a discharge would have to be weighed through a multi-factor balancing test.” 2010 WL 3219464, at *4.10
While it does not appear that a court in the Second Circuit has addressed the priority status and nondischargeability of matrimonial attorney’s fees incurred by the non-filing former spouse post-BAPC-PA in a chapter 13 case, that issue was addressed by the bankruptcy court for the Western District of Arkansas in In re Andrews, 434 B.R. 541 (Bankr.W.D.Ark.2010). In Andrews, the attorney who represented the debtor’s former wife in a pre-petition divorce objected to confirmation of the debtor’s chapter 13 plan under §§ 1322(a)(2) and 1325(a)(1), because the proposed plan failed to pay the attorney’s claim for fees in full, and because the plan failed to schedule the attorney’s claim as an administrative priority claim under § 507(a)(1)(A)-(B). The Andrews court first rejected debtor’s argument that the claim was dischargeable because the payee was his ex-wife’s attorney and not his “spouse [or] former spouse,” finding that *442under pre-BAPCPA Eighth Circuit law, the name of the payee was not determinative of nondischargeable status. Id. at 547. Next, the Andrews court undertook a two-part test to determine DSO status: (1) where the obligation is payable directly to a third party, typically a professional who provided services to benefit the wife or child, whether the former spouse is also obligated for payment of the obligation; and (2) whether the obligation is in the nature of alimony, maintenance, or support. Applying factors from pre-BAPCPA case law,11 the Andrews court concluded that the attorney’s claim for pre-petition divorce-related attorney’s fees for representing the non-debtor spouse satisfied the statutory definition in § 101(14A) and, therefore, was entitled to priority treatment in the debtor’s chapter 13 plan. Id. at 550.12 In reaching this conclusion, the Andrews court noted that “Whether the debt is a nondischargeable support obligation is a question of federal bankruptcy law, not state law.” 434 B.R. at 547-48.13
Under federal bankruptcy law, as embodied in § 101(14A), a nondischargeable DSO claim must be:
1. “owed to or recoverable by (i) a spouse, former spouse, or child of the debtor ... ”;
2. “in the nature of alimony, maintenance, or support”;
3. “established ... by reason of applicable provisions of (i) a separation agreement, divorce decree, or prop*443erty settlement agreement; (ii) an order of a court of record; or (in) a determination made in accordance with applicable nonbankruptcy law”; and
4. “not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily. ...”
11 U.S.C. § 101(14A). In the present case, the Debtor has not challenged the third and fourth elements; therefore, the critical questions for this Court are: (1) whether Schonfeld’s Claim constitutes a DSO when the payee is not the Debtor’s “spouse, former spouse, or child of the debtor”; and (2) whether the legal fees are “in the nature of alimony, maintenance or support.”
Pre-BAPCPA law determined that the nature of the payee did not impact nondis-chargeable status
Prior to BAPCPA, the Second, Eight and Ninth Circuits had addressed the narrow question of how the nondischargeable status of a debt arising from a domestic relations case is impacted by the identity of the payee. The Second Circuit declared itself “the first to consider this issue” under the 1978 Bankruptcy Code, and “looked to the legislative history of § 523(a)(5) to determine that the nature of the debt was more important than the identity of the payee.” In re Spong, 661 F.2d 6, 9-10 (2d Cir.1981). Under § 523(a)(5), as in effect in 1978,14 a discharge in bankruptcy did not discharge an individual debtor from debts “for alimony to, maintenance for, or support of’ a former spouse in connection with a divorce decree. Id. at 7. The Spong debtor had agreed in the divorce proceeding to pay $4,000 of his former spouse’s $10,000 matrimonial attorney’s fees, which the debtor was to pay directly to his former spouse’s matrimonial attorney. Id. at 7-8. However, the debtor sought to discharge the debt in his subsequent bankruptcy case.15 Id. at 7-8. The bankruptcy court held the debt to be dischargeable. Id. at 8. The district court affirmed. Id. at 8. The Second Circuit reversed. Id. at 11.
Pre-BAPCPA § 523(a)(5) provided that a discharge in bankruptcy did not discharge a debtor from debts “for alimony to, maintenance for, or support of’ a former spouse in connection with a divorce decree. The issue in Spong was “whether a debt for legal services rendered to a debtor’s former spouse in connection with a divorce proceeding falls within the above exception.” Spong, 661 F.2d at 7. After reviewing case law decided under the Bankruptcy Act of 1898 and legislative history to the 1978 Bankruptcy Code, the Second Circuit concluded that to the extent the bankruptcy court “was participating in the formulation of a bankruptcy definition of alimony and support, it correctly concluded that defendant’s undertaking to pay his wife’s legal bill fell within that definition.” Id. at 9. The Second Cir*444cuit noted that “An award of attorney’s fees may be essential to a spouse’s ability to sue or defend a matrimonial action and thus a necessary under the law.” Id. at 9. Therefore, the court held that “it would be exalting form over substance to fail to treat appellee’s agreement to pay his wife’s counsel fee” as nondischargeable. Id. at 11; see also In re Klein, 197 B.R. 760 (Bankr.E.D.N.Y.1996) (“It is well settled in this Circuit that obligations in the nature of alimony, maintenance and support may include attorney’s fees incurred by a former spouse in connection with a divorce proceeding, custody dispute, or obtaining and enforcement of alimony and support awards.”). Thus, the Second Circuit rejected the name of the payee as determinative, focusing instead on the substance of the award.
The Ninth Circuit followed Spong in In re Chang, 163 F.3d 1138 (9th Cir.1998), as did the Eighth Circuit in Holliday v. Kline (In re Kline), 65 F.3d 749 (8th Cir.1995). Current statutory formulation of the named payee
As noted above, the current definition of a DSO under § 101(14A) includes a debt “in the nature of alimony, maintenance, or support,” which is “owed to or recoverable by” a “spouse, former spouse, or child of the debtor.” The same language regarding the payee — “spouse, former spouse, or child of the debtor” — appeared in the pre-BAPCPA version of § 523(a)(5). It is a fundamental principal of statutory construction that the same words used in different sections of the same statute are to be given the same meaning and effect. United Sav. Assoc. v. Timbers of Inwood Forest Assocs., 484 U.S. 365, 371, 108 S.Ct. 626, 98 L.Ed.2d 740 (1988); Sorenson v. Sec. of Treasury, 475 U.S. 851, 860, 106 S.Ct. 1600, 89 L.Ed.2d 855 (1986); but see Dewsnup v. Timm, 502 U.S. 410, 415-17, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992). While Congress did substantially restructure portions of the Bankruptcy Code in the 2005 BAPCPA amendments related to domestic relations debts, it did not narrow the wording from prior § 523(a)(5) “for alimony to, maintenance for, or support” in establishing a definition of “domestic support obligation” in § 101(14A); in fact, Congress expanded the concept from “for alimony, maintenance, or support” to “in the nature of alimony, maintenance, or support.” Further, Congress did not express an intention to overrule the construction given to the pre-BAPCPA version of § 523(a)(5) by three circuit courts of appeals that minimized the importance of the named payee.16
This Court concludes that the Second Circuit would apply the current § 523(a)(5) in the same manner as it did in Spong, would attach no preclusiveness to the named payee in the divorce decree, and would require that the substance of the award should prevail, not its form. Thus, in following pre-BAPCPA Spong and post-BAPCPA Tarone, Golio, and Schenkein, this Court concludes that it should overrule Debtor’s objection to the Schonfeld Claim based upon the claim being payable to Schonfeld rather than directly to the Debtor’s former spouse.
*445This leaves for determination, then, whether the award of fees to Schonfeld is “in the nature of alimony, maintenance or support” and, therefore, a DSO as defined under § 101(14A) which is entitled to administrative priority status under 507(a)(1)(A) and nondischargeable under §§ 523(a)(5) and § 1328(a)(2).
A claim for matrimonial attorney’s fees properly awarded under New York state law is a domestic support obligation
What constitutes alimony, maintenance or support is determined under federal bankruptcy law, not state law, although bankruptcy courts may refer to well-established state laws in making that determination. Forsdick v. Turgeon, 812 F.2d 801, 802-03 (2nd Cir.1987); Spong 661 F.2d at 9 (quoting H.R.Rep. No. 95-595, 95th Cong., 1st Sess., 364 (1977), reprinted in 1978 U.S.C.C.A.N. 5963, 6320 (1977 WL 9628)); see also Grogan v. Garner, 498 U.S. 279, 284, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991). New York state law has long recognized that, in a divorce proceeding, “legal services rendered to a wife may, under various circumstances, be classified as necessaries for which a husband is liable.” Dravecka v. Richard, 267 N.Y. 180, 182, 196 N.E. 17, 18 (1935); see O’Shea v. O’Shea, 93 N.Y.2d 187, 191, 711 N.E.2d 193, 195, 689 N.Y.S.2d 8, 10 (1999) (citing cases dating back to 1872). New York State Domestic Relations Law § 237 authorizes a court in a divorce proceeding to order one spouse to pay the other spouse’s attorney’s fees “as, in the court’s discretion, justice requires, having regard to the circumstances of the case and of the respective parties. There shall be [a] re-buttable presumption that counsel fees shall be awarded to the less monied spouse.” N.Y. Dom. Rel. Law § 237(a) (McKinney 2011).17
*446In determining whether to award matrimonial attorney’s fees under Domestic Relations Law § 287, New York courts are instructed to “review the financial circumstances of both parties together with all the other circumstances of the case, which may include the relative merit of the parties’ positions. The court may also consider whether either party has engaged in conduct or taken positions resulting in a delay of the proceedings or unnecessary litigation.” Prichep v. Prichep, 52 A.D.3d 61, 64, 858 N.Y.S.2d 667, 669-70 (N.Y.App. Div.2d Dep’t 2008) (internal citations and quotation marks omitted). While the recipient spouse’s financial need is not the sole criteria, it appears that matrimonial attorney’s fees cannot be awarded to a former spouse absent a showing of financial need on the part of the recipient spouse. As the Appellate Division, Second Department stated, “In a matrimonial action, an award of an attorney’s fee should be based, inter alia, on the relative financial circumstances of the parties.... ” Ciociano v. Ciociano, 54 A.D.3d 797, 797, 863 N.Y.S.2d 766 (N.Y.App. Div.2d Dep’t 2008); see Johnson v. Chapin, 12 N.Y.3d 461, 467, 909 N.E.2d 66, 70, 881 N.Y.S.2d 373 (2009). Correspondingly, “[w]here both parties are similarly situated financially and the plaintiff has failed to establish any financial inability to pay her own counsel fees, an award of counsel fees from one spouse to another is both erroneous and inappropriate.” Rough v. Kandell, 135 A.D.2d 700, 701-02, 522 N.Y.S.2d 599, 601 (N.Y.App. Div.2d Dep’t 1987).
Applying this rule, New York appellate courts have overturned awards of matrimonial attorney’s fee where there was no finding of financial need on the part of the recipient spouse. Chapin, 12 N.Y.3d 461, 467, 909 N.E.2d 66, 70, 881 N.Y.S.2d 373 (2009); DeCabrera v. Cabrera-Rosete, 70 N.Y.2d 879, 881, 518 N.E.2d 1168, 524 N.Y.S.2d 176 (1987); Lang v. Lang, 72 A.D.3d 1255, 1257, 897 N.Y.S.2d 778, 780-81 (N.Y.App. Div.3d Dep’t 2010); Prichep v. Prichep, 52 A.D.3d 61, 64, 858 N.Y.S.2d 667, 669-70 (N.Y.App. Div.2d Dep’t 2008); Sharwell v. Sharwell, 155 A.D.2d 434, 547 N.Y.S.2d 95 (N.Y.App. Div.2d Dep’t 1989); Ackerman v. Ackerman, 96 A.D.2d 543, 465 N.Y.S.2d 49, 50 (App. Div.2d Dep’t 1983). Similarly, New York state courts have reversed the denial of attorney’s fees where the spouse seeking matrimonial attorney’s fees had demonstrated financial need. O’Shea v. O’Shea, 93 N.Y.2d 187, 193, 711 N.E.2d 193, 197, 689 N.Y.S.2d 8, 12 (1999); Matter of Silverstein v. Silverstein, 60 A.D.3d 1073, 1074, 878 N.Y.S.2d 69, 70 (N.Y.App. Div.2d Dep’t 2009) (involving child support).
Therefore, it appears that a New York court must, at a minimum, find that the former spouse requires financial support before the court can properly award that spouse matrimonial attorney’s fees. Because a finding of financial need is required, this Court concludes that a proper award of matrimonial attorney’s fees under New York state law is “in the nature of alimony, maintenance, or support,” thus satisfying the second element of a DSO claim under § 101(14A).
Here, it appears that the Nassau County Supreme Court held a hearing on matrimonial attorney’s fees in October 2009. [dkt item 21, Exhibit B, at 2] While the record of that hearing is not in evidence before this Court, there is clear evidence in this Court’s record of CER’s financial need that supports the state court’s award of matrimonial attorney’s fees to CER, including the following facts:
• CER “ha[d] no prospects for anything but part time unskilled jobs”;
• CER had not worked in her chosen field for over 13 years at the time of divorce;
*447• Debtor “was the sole wage earner for the [last] 12 years of the marriage”; and
• There was “no equitable distribution for either party to leave the marriage with.”
[dkt item 25, at 5]. This Court cites these facts not as dispositive in and of themselves to establish a support finding, but as a basis upon which this Court draws an inference that a proper basis existed under New York law upon which the Nassau County Supreme Court awarded CER matrimonial attorney’s fees based upon her demonstrated financial need. Additionally, the Court notes that, because there was no martial estate to equitably distribute, the award of matrimonial attorney’s fees could not have been a property settlement as asserted by the Debtor.
Thus, this Court concludes that the Debtor’s obligation to pay Schonfeld’s Claim for CER’s matrimonial attorney’s fees pursuant to the Judgment of Divorce satisfies the definition of a DSO in § 101(14A). As such, Schonfeld’s Claim is entitled to administrative priority status under § 507(a)(1), and is a nondischargeable debt under §§ 528(a)(5) and 1828(a)(2).
Conclusion
Based upon the foregoing, the Debtor’s Objection to Schonfeld’s Claim is hereby overruled.
An Order consistent herewith shall issue.
. Throughout this Memorandum Opinion, all statutory references to the Bankruptcy Code are under Title 11 of the United States Code, §§ 101-1532, unless otherwise indicated.
. Christine Rogowski, vs. Marek Rogowski, Adv. Proc. No. 10-8305-ast. In the Adversary, CER alleges, inter alia, that Debtor was directed to pay the second mortgage on the former marital residence, as well as certain credit card debt owed by CER. After the mediation was unsuccessful, the Court scheduled a trial in the Adversary for January 18, 2012.
. Section 101(14A) provides:
The term "domestic support obligation” means a debt that accrues before, on, or after the date of the order for relief in a case under this title, including interest that accrues on that debt as provided under applicable nonbankruptcy law notwithstanding any other provision of this title, that is—
(A) owed to or recoverable by—
(i) a spouse, former spouse, or child of the debtor or such child’s parent, legal guardian, or responsible relative; or
(ii) a governmental unit;
(B) in the nature of alimony, maintenance, or support (including assistance provided by a governmental unit) of such spouse, former spouse, or child of the debtor or such child’s parent, without regard to whether such debt is expressly so designated;
(C) established or subject to establishment before, on, or after the date of the order for relief in a case under this title, by reason of applicable provisions of—
(i) a separation agreement, divorce decree, or property settlement agreement;
(ii) an order of a court of record; or
(iii) a determination made in accordance with applicable nonbankruptcy law by a governmental unit; and
(D) not assigned to a nongovernmental entity, unless that obligation is assigned voluntarily by the spouse, former spouse, child of the debtor, or such child's parent, legal guardian, or responsible relative for the purpose of collecting the debt.
11 U.S.C. § 101(14A).
. Section 507(a)(1) provides:
The following expenses and claims have priority in the following order:
(1) First:
(A) Allowed unsecured claims for domestic support obligations that, as of the date of the filing of the petition in a case under this title, are owed to or recoverable by a spouse, former spouse, or child of the debt- or, or such child’s parent, legal guardian, or responsible relative, without regard to whether the claim is filed by such person or is filed by a governmental unit on behalf of such person, on the condition that funds received under this paragraph by a governmental unit under this title after the date of the filing of the petition shall be applied and distributed in accordance with applicable nonbankruptcy law.
11 U.S.C. § 507(a)(1). Section 507(a)(2) provides a second priority administrative claim for a DSO that has been assigned “by a spouse, former spouse, child of the debtor, or such child’s parent, legal guardian, or responsible relative to a governmental unit (unless such obligation is assigned voluntarily by the spouse, former spouse, child, parent, legal guardian, or responsible relative of the child for the purpose of collecting the debt) or are owed directly to or recoverable by a governmental unit.” 11 U.S.C. § 507(a)(2).
. For example, "BAPCPA removed the balancing test from Section 523(a)(15) and made the distinction between domestic support obligations and other obligations arising from a divorce immaterial in a dischargeability analysis.” In re Ginzl, 430 B.R. 702, 707 (Bankr. M.D.Fla.2010).
. Section 523(a) provides:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title [11 U.S.C. § 727, 1141, 1228(a), 1228(b), or 1328(b) ] does not discharge an individual debtor from any debt—
(5) for a domestic support obligation.
11 U.S.C. § 523(a)(5).
. Section 523(a)(15) provides:
A discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title [11 U.S.C. § 727, 1141, 1228(a), 1228(b), or *4401328(b) ] does not discharge an individual debtor from any debt — •
(15) to a spouse, former spouse, or child of the debtor and not of the kind described in paragraph (5) that is incurred by the debtor in the course of a divorce or separation or in connection with a separation agreement, divorce decree or other order of a court of record, or a determination made in accordance with State or territorial law by a governmental unit.
11 U.S.C. § 523(a)(15).
. No adversary proceeding need be filed to obtain a determination of nondischargeability as to debts that fall within the definitions of §§ 523(a)(5) and 523(a)(15). See § 523(c).
. In a chapter 13 case, a debtor who obtains a discharge under § 1328(a) may be able to discharge debts that fall outside the scope of § 523(a)(5) but fall within the scope of § 523(a)(15). There is a facial conflict between § 523(a) and § 1328(a)(2). Section § 523(a) states that "A discharge under § 727, 1141, 1228(a), or 1328(b) of this title does not discharge an individual debtor from any debt” enumerated under subsections 523(a)(1) through (a)(19), which includes subsections 523(a)(5) and (a)(15); however, § 1328(a)(2) provides that DSO’s that are not dischargeable under § 523(a)(5) are not dis-chargeable in a chapter 13 case; § 1328(a)(2) does not expressly provide that debts which fall within the scope of § 523(a)(15) are not discharged by a chapter 13 discharge. Thus, by negative implication, claims that arise under § 523(a)(15) can be argued to be dis-chargeable in a chapter 13 case; however, this Court need not and does not reach this issue. The same does not hold true in chapter 7 cases. Because § 523(a) impacts all chapter 7 discharges granted under § 727, "it is irrelevant whether those awards constitute true support obligations, because even if not encompassed within § 523(a)(5), they are nondischargeable pursuant to § 523(a)(15)." In re Tarone, 434 B.R. 41, 49 (Bankr.E.D.N.Y. 2010).
. In so holding, the court relied on the uniform application of § 523(a) to chapter 7 cases, stating "BAPCPA makes this evaluation process largely irrelevant since currently any debt arising from a divorce proceeding which would not fall under § 523(a)(5) is nevertheless excepted from discharge under § 523(a)(15).” Schenkein, 2010 WL 3219464, at *4; see also In re Chase, 392 B.R. 72 (Bankr.S.D.N.Y.2008) (finding that § 523(a)(15) did not apply to debts that were already determined to be nondischargeable under § 523(a)(5)). Thus, Golio, Schenkein, and Tarone made no distinction between dis-chargeability under § 523(a)(5) or under § 523(a)(15) for the matrimonial attorney’s fees because any such distinction is irrelevant in a chapter 7 case.
. The Andrews court stated:
Factors considered by the bankruptcy courts in determining whether particular debts are intended to serve as support include the parties’ relative financial conditions at the time of divorce, the parties' respective employment histories and prospects for financial support, the fact that one party or another receives the marital property, the periodic nature of the payments, and whether it would be difficult for the former spouse and children to subsist without the payments.
434 B.R. at 549. It appears that these factors were set forth in a pre-BAPCPA decision by the Eighth Circuit Bankruptcy Appellate Panel. Id. (citing In re Tatge, 212 B.R. 604, 608 (8th Cir. BAP 1997)). However, as Chief Judge Craig noted in Tarone, BAPCPA specifically removed factors such as the debtor's ability to pay from the DSO analysis. 434 B.R. at 48.
. As further evidence of the state court's intent in awarding the attorney's fees, the Andrews court noted that a post-petition order of the state court that had issued the divorce decree "specifically characterized the attorney fee award as a support obligation.” Id. at 544. That state court order provided:
the Decree of January 24, 2008, is clarified to provide that the attorney's fees awarded in this Court’s Decree were awarded to be paid on behalf of the Wife as a consequence of the attorney's efforts in establishing an award to the Wife for her support and maintenance as well as the support and maintenance of the minor children. That due to the parties’ disparate income status as found and indicated by this Court’s findings, it would not be possible for the Wife to satisfy the reasonable attorney’s fees incurred during the litigation of this matter and that it would be necessary for the Husband to pay the same on the Wife’s behalf. That the Court intended for said award to be in the nature of support for the Wife due to her inability to pay the same.
Andrews, 434 B.R. at 544.
.Many federal courts have held that the labels attached by state courts to the awards in a divorce case, such as alimony, maintenance, support or equitable distribution, while instructive, are not determinative as to priority or nondischargeable status. In re Brody, 3 F.3d 35, 39 (2d Cir.1993); Forsdick v. Turgeon, 812 F.2d 801, 802-03 (2d Cir. 1987); see also In re Evert, 342 F.3d 358, 368 (5th Cir.2003); In re Werthen, 329 F.3d 269, 273 (1st Cir.2003); In re Reines, 142 F.3d 970, 972 (7th Cir.1998); Sylvester v. Sylvester, 865 F.2d 1164, 1165-1166 (10th Cir.1989); Tilley v. Jessee, 789 F.2d 1074, 1077-1078 (4th Cir. 1986); Shaver v. Shaver, 736 F.2d 1314, 1316 (9th Cir.1984); In re Williams, 703 F.2d 1055, 1057-58 (8th Cir.1983).
. Section 523(a)(5) at that time read:
A discharge under section 727, 1141, or 1328(b) of this title does not discharge an individual debtor from any debt ... (5) to a spouse, former spouse, or child of the debt- or, for alimony to, maintenance for, or support of both spouse or child, in connection with a separation agreement, divorce decree, or property settlement agreement, but not to the extent that
(A) such debt is assigned to another entity, voluntarily, by operation of law, or otherwise; or
(B) such debt includes a liability designated as alimony, maintenance, or support, unless such liability is actually in the nature of alimony, maintenance, or support.
11 U.S.C. § 523(a)(5) (amended 2005).
. Neither the bankruptcy nor appellate court opinions specify which chapter the case was filed under.
. To the contrary, the BAPCPA amendments "accord[] domestic and child support claimants a broad spectrum of special protections. The legislation creates a uniform and expanded definition of domestic support obligations” and provides DSOs with "the highest payment priority.... It also broadens the categories of nondischargeable family support obligations with the result that these debts will not be extinguished at the end of the bankruptcy process.” H.R. Rep. No 109-31(1), 109th Cong., 1st Sess. (2005), reprinted in 2005 U.S.C.C.A.N. 88, 102-03 (2005 WL 832198).
. Domestic Relations Law § 237(a) provides in full:
In any action or proceeding brought (1) to annul a marriage or to declare the nullity of a void marriage, or (2) for a separation, or (3) for a divorce, or (4) to declare the validity or nullity of a judgment, of divorce rendered against a spouse who was the defendant in any action outside the State of New York and did not appear therein where such spouse asserts the nullity of such foreign judgment, (5) to obtain maintenance or distribution of property following a foreign judgment of divorce, or (6) to enjoin the prosecution in any other jurisdiction of an action for a divorce, the court may direct either spouse or, where an action for annulment is maintained after the death of a spouse, may direct the person or persons maintaining the action, to pay counsel fees and fees and expenses of experts directly to the attorney of the other spouse to enable the other party to carry on or defend the action or proceeding as, in the court's discretion, justice requires, having regard to the circumstances of the case and of the respective parties. There shall be rebutta-ble presumption that counsel fees shall be awarded to the less monied spouse. In exercising the court’s discretion, the court shall seek to assure that each party shall be adequately represented and that where fees and expenses are to be awarded, they shall be awarded on a timely basis, pendente lite, so as to enable adequate representation from the commencement of the proceeding. Applications for the award of fees and expenses may be made at any time or times prior to final judgment. Both parties to the action or proceeding and their respective attorneys, shall file an affidavit with the court detailing the financial agreement between the party and the attorney. Such affidavit shall include the amount of any retainer, the amounts paid and still owing thereunder, the hourly amount charged by the attorney, the amounts paid, or to be paid, any experts, and any additional costs, disbursements or expenses. Any applications for fees and expenses may be maintained by the attorney for either spouse in his own name in the same proceeding. Payment of any retainer fees to the attorney for the petitioning party shall not preclude any awards of fees and expenses to an applicant which would otherwise be allowed under this section.
N.Y. Dom. Rel. Law § 237(a) (McKinney 2011). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488148/ | NO. 12-22-00272-CR
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
JOHN BOSWELL, § APPEAL FROM THE 188TH
APPELLANT
V. § JUDICIAL DISTRICT COURT
THE STATE OF TEXAS,
APPELLEE § GREGG COUNTY, TEXAS
MEMORANDUM OPINION
PER CURIAM
Pursuant to a plea bargain agreement, John Boswell pleaded “guilty” to aggravated
assault with a deadly weapon, and the trial court sentenced him to four years in prison.
Appellant appealed.
The clerk’s record has been filed and the trial court’s certification states that this is a plea
bargain case and the defendant has no right of appeal. The certification is signed by Appellant
and his counsel. See TEX. R. APP. P. 25.2(d). Appellant also signed a waiver of appeal.
When the defendant is the appellant, the record must include the trial court’s certification
of the defendant’s right of appeal. Id. This Court must dismiss an appeal “if a certification that
shows the defendant has the right of appeal has not been made part of the record.” Id. Based on
our review of the record, the trial court’s certification appears to accurately state that this is a
plea bargain case and Appellant has no right to appeal. See Dears v. State, 154 S.W.3d 610
(Tex. Crim. App. 2005) (holding that court of appeals should review clerk’s record to determine
whether trial court’s certification is accurate). Because the trial court did not grant Appellant the
right to appeal his conviction, we dismiss the appeal.
Opinion delivered November 17 , 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(DO NOT PUBLISH)
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00272-CR
JOHN BOSWELL,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 188th District Court
of Gregg County, Texas (Tr.Ct.No. 53020-A)
THIS CAUSE came to be heard on the appellate record; and the same being
considered, it is the opinion of this Court that this appeal should be dismissed.
It is therefore ORDERED, ADJUDGED and DECREED by this Court that
this appeal be, and the same is, hereby dismissed; and that this decision be certified to the court
below for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488146/ | NO. 12-22-00098-CR
IN THE COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT
TYLER, TEXAS
SEKIA DEIDRE DAVIS, § APPEAL FROM THE 7TH
APPELLANT
V. § JUDICIAL DISTRICT COURT
THE STATE OF TEXAS,
APPELLEE § SMITH COUNTY, TEXAS
MEMORANDUM OPINION
PER CURIAM
Sekia Deidre Davis appeals her conviction for burglary of a habitation with the intent to
commit a felony. Appellant’s counsel filed a brief in compliance with Anders v. California, 386
U.S. 738, 87 S. Ct. 1396, 18 L. Ed. 2d 493 (1967), and Gainous v. State, 436 S.W.2d 137 (Tex.
Crim. App. 1969). We affirm.
BACKGROUND
Appellant was charged by indictment with burglary of a habitation by intentionally and
knowingly entering a habitation without the effective consent of the owner and attempting to
commit or committing the felony offense of aggravated assault with a deadly weapon, a first
degree felony. 1 Appellant pleaded “guilty” to the charged offense. Appellant and her counsel
signed various documents in connection with her guilty plea, including an agreed punishment
recommendation and a stipulation of evidence in which Appellant stipulated, and judicially
confessed, that each and every allegation contained in the indictment was true and correct and
constituted the evidence in the case. At the hearing, Appellant pleaded “guilty” to the charged
1
TEX. PENAL CODE ANN. § 30.02(a)(3), (d) (West 2019).
offense. 2 The trial court accepted Appellant’s plea, found the evidence sufficient to substantiate
Appellant’s guilty plea, deferred further proceedings without entering an adjudication of guilt,
and ordered that Appellant be placed on deferred adjudication community supervision for four
years.
Later, the State filed a motion to adjudicate, alleging that Appellant violated the terms of
her community supervision by (1) possessing controlled substances, cocaine and Ecstasy; (2)
using or consuming a controlled substance, cocaine and Ecstasy; (3) failing to work at a suitable
job or business for the months of September, October, November, and December 2021; (4)
failing to satisfactorily perform community service restitution at the rate of nine hours per month
for the months of June and July 2020, and January, February, March, April, May, August,
October, and November 2021; (5) failing to pay $60.00 per month supervision fee to the Smith
County Community Supervision and Corrections Department in Smith County for the months of
May, June, July, August, and December 2021; and (6) failing to attend and successfully complete
the Lifeskills Program on or before September 23, 2020, in Smith County and/or Houston
County, Texas.
At the hearing on the State’s motion to adjudicate, Appellant pleaded “true” to all the
allegations in the State’s motion. 3 After the hearing, the trial court found all the allegations in
the State’s motion to be “true,” granted the State’s motion, revoked Appellant’s community
supervision, adjudged Appellant guilty of burglary of a habitation with intent to commit another
felony, namely, aggravated assault with a deadly weapon, 4 and assessed her punishment at ten
years of imprisonment. 5 This appeal followed.
2
At the plea hearing, the trial court stated that Appellant’s offense to which she pleaded “guilty” was a
second degree felony offense even though the agreed punishment recommendation noted that the offense was a first
degree felony offense.
3
At the revocation hearing, the trial court, the State, and Appellant’s attorney agreed that the offense to
which Appellant pleaded “guilty” was a first degree felony offense. The trial court admonished Appellant regarding
the range of punishment for a first degree felony offense.
4
After finding Appellant “guilty,” the trial court did not make an affirmative deadly weapon finding
because the indictment did not include a deadly weapon paragraph.
5
An individual adjudged guilty of a first degree felony shall be punished by imprisonment for life or for
any term of not more than ninety-nine years or less than five years, and a fine not to exceed $10,000.00. TEX. PENAL
CODE ANN. § 12.32 (West 2019).
2
ANALYSIS PURSUANT TO ANDERS V. CALIFORNIA
Appellant’s counsel filed a brief in compliance with Anders and Gainous, stating that she
diligently reviewed the appellate record and is of the opinion that the record reflects no
reversible error and that there is no error upon which an appeal can be predicated. From our
review of counsel’s brief, it is apparent that counsel is well acquainted with the facts in this case.
In compliance with Anders, Gainous, and High v. State, 573 S.W.2d 807, 812 (Tex. Crim. App.
1978), counsel’s brief presents a chronological summation of the procedural history of the case,
and further states that counsel is unable to raise any arguable issues for appeal. 6 We have
reviewed the record for reversible error and have found none. See Bledsoe v. State, 178 S.W.3d
824, 826-27 (Tex. Crim. App. 2005).
CONCLUSION
As required by Stafford v. State, 813 S.W.2d 503, 511 (Tex. Crim. App. 1991),
Appellant’s counsel moved for leave to withdraw. See also In re Schulman, 252 S.W.3d 403,
407 (Tex. Crim. App. 2008) (orig. proceeding). We carried the motion for consideration with the
merits. Having done so and finding no reversible error, Appellant’s counsel’s motion for leave
to withdraw is hereby granted, and the trial court’s judgment is affirmed. See TEX. R. APP. P.
43.2.
Appellant’s counsel has a duty to, within five days of the date of this opinion, send a
copy of the opinion and judgment to Appellant and advise her of her right to file a petition for
discretionary review. See TEX. R. APP. P. 48.4; In re Schulman, 22 S.W.3d at 411 n.35. Should
Appellant wish to seek further review of this case by the Texas Court of Criminal Appeals, she
must either retain an attorney to file a petition for discretionary review or she must file a pro se
petition for discretionary review. See In re Schulman, 22 S.W.3d at 408 n. 22. Any petition for
discretionary review must be filed within thirty days from the date of either this opinion, or if a
motion for rehearing is filed, the date that the last timely motion for rehearing is overruled by
this Court. See TEX. R. APP. P. 68.2(a). Any petition for discretionary review must be filed with
6
In compliance with Kelly v. State, Appellant’s counsel provided Appellant with a copy of the brief,
notified Appellant of her motion to withdraw as counsel, informed Appellant of her right to file a pro se response,
and took concrete measures to facilitate Appellant’s review of the appellate record. See Kelly v. State, 436 S.W.3d
313, 319 (Tex. Crim. App. 2014). Appellant was given time to file her own brief. The time for filing such brief has
expired and no pro se brief has been filed.
3
the Texas Court of Criminal Appeals. See TEX. R. APP. P. 68.3. Any petition for discretionary
review should comply with the requirements of Rule 68.4 of the Texas Rules of Appellate
Procedure. See TEX. R. APP. P. 68.4; In re Schulman, 22 S.W.3d at 408 n. 22.
Opinion delivered November 17, 2022.
Panel consisted of Worthen, C.J., Hoyle, J., and Neeley, J.
(DO NOT PUBLISH)
4
COURT OF APPEALS
TWELFTH COURT OF APPEALS DISTRICT OF TEXAS
JUDGMENT
NOVEMBER 17, 2022
NO. 12-22-00098-CR
SEKIA DEIDRE DAVIS,
Appellant
V.
THE STATE OF TEXAS,
Appellee
Appeal from the 7th District Court
of Smith County, Texas (Tr.Ct.No. 007-1759-19)
THIS CAUSE came to be heard on the appellate record and brief filed herein,
and the same being considered, it is the opinion of this court that there was no error in the
judgment.
It is therefore ORDERED, ADJUDGED and DECREED that the judgment of
the court below be in all things affirmed, and that this decision be certified to the court below
for observance.
By per curiam opinion.
Panel consisted of Worthen, C.J., Hoyle, J. and Neeley, J. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488155/ | THE THIRTEENTH COURT OF APPEALS
13-20-00539-CV
In the Matter of the Marriage of Zina Burkett and Jason A. Burkett and in the Interest of
S.R.B., a minor child
On Appeal from the
430th District Court of Hidalgo County, Texas
Trial Court Cause No. F-132-11-J
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes that the judgment of the trial court should be affirmed as modified.
The Court orders the judgment of the trial court AFFIRMED AS MODIFIED. Costs of the
appeal are adjudged against appellant.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488157/ | THE THIRTEENTH COURT OF APPEALS
13-20-00499-CV
Silva, Ottig & Silva, LLC.
v.
Donna Economic Development Corporation 4A, Development Corporation of Donna 4B,
and Donna International Bridge Corporation
On Appeal from the
464th District Court of Hidalgo County, Texas
Trial Court Cause No. C-2513-19-L(A)
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes that the judgment of the trial court should be affirmed. The Court
orders the judgment of the trial court AFFIRMED. Costs of the appeal are adjudged
against appellant.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488156/ | NUMBER 13-20-00499-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
SILVA, OTTING & SILVA, LLC, Appellant,
v.
DONNA ECONOMIC DEVELOPMENT
CORPORATION 4A, DEVELOPMENT
CORPORATION OF DONNA 4B, AND
DONNA INTERNATIONAL BRIDGE
CORPORATION, Appellees.
On appeal from the 464th District Court
of Hidalgo County, Texas.
MEMORANDUM OPINION
Before Justices Longoria, Hinojosa, and Silva
Memorandum Opinion by Justice Hinojosa
Appellant Silva, Otting & Silva, LLC (SOS) sued the City of Donna (the City) 1 and
appellees Donna Economic Development Corporation 4A (DEDC), Development
Corporation of Donna 4B (DCD), and Donna International Bridge Corporation (DIBC) for
breach of contract. The trial court granted appellees’ no-evidence summary judgment
motion as well as DIBC’s traditional motion for summary judgment. It then severed SOS’s
claims against appellees and entered a final judgment in the severed cause. In three
issues, which we reorder, SOS argues that the trial court erred in: (1) severing its cause
of action against appellees; (2) denying its motion for continuance; and (3) granting
appellees’ motion for summary judgment. We affirm.
I. BACKGROUND
A. SOS’s Petition
SOS sued appellees and the City for breach of contract. SOS alleged that it
entered into several business consulting agreements with the City and appellees “for the
approval[,] financing, construct[ing,] installation[,] and rehabilitation of water and sewer
facilities” as well as “the financing and development of the Donna-Rio Bravo International
Bridge Project” (Bridge Project). With respect to the Bridge Project, SOS claimed it
entered into an agreement on May 29, 2002, which was extended multiple times up to
February 17, 2016. SOS alleged it obtained a grant for the City in the amount of
$9,000,000, for which it invoiced the City $750,000. SOS further alleged that it
implemented a financial plan for the City to obtain the refinancing of bonds in the amount
of $27,900,000, for which it invoiced the City $1,600,000.
1 The City is not a party to this appeal.
2
With respect to the improvements to water and sewer facilities, SOS claimed it
originally entered into an agreement on August 12, 2002. SOS stated that it obtained
$20,000,000 in grants, for which it invoiced the City $1,005,969.76.
SOS alleged that it entered into an amended payment agreement on March 29,
2017, that provided payment schedules for the balances owed to SOS under the prior
agreements. According to SOS, the City made payments under this agreement until June
2018, at which time the City terminated the agreement.
In an attached letter dated August 13, 2018, from City Manager Carlos Yerena to
SOS, the City stated it was terminating the “International Bridge Consultant Engagement,”
and that it would make no more payments to SOS “as the [C]ity cannot recognize the
purported agreements[.]”
B. Dismissal Motions & Motions for Summary Judgment
Appellees answered suit. 2 They later filed a no-evidence motion for summary
judgment, challenging each element of SOS’s breach of contract action. DIBC separately
moved for traditional summary judgment on its statute of limitations defense. DIBC
attached a January 28, 2008 Business Consultant Agreement Amendment between DIBC
and SOS, which was purportedly the only contract to which DIBC was a signatory. DIBC
argued that the latest SOS’s action accrued was on October 31, 2009, when its
agreement with SOS expired by its own terms. Accordingly, DIBC argued that SOS was
required to bring suit no later than October 30, 2013, when the limitations period expired.
2 The City also answered suit and brought a counterclaim for declaratory relief. It then filed a motion
to dismiss for lack of jurisdiction arguing that the agreements were void based on the Texas Constitution’s
prohibition against unfunded debts. See TEX. CONST. art. XI, §§ 5, 7.
3
See TEX. CIV. PRAC. & REM. CODE ANN. § 16.051; Trelltex, Inc. v. Intecx, L.L.C., 494
S.W.3d 781, 786 (Tex. App.—Houston [14th Dist.] 2016, no pet.) (“The statute of
limitations for breach-of-contract actions is four years from the date of accrual.”).
SOS filed a combined response to the motions, which included a motion for
continuance. SOS attached the following exhibits: (1) an undated and unexecuted
contract labeled “draft” between SOS, the City, and appellees; (2) the affidavit of SOS’s
principal owner Ernesto Silva; (3) the August 13, 2018 termination notice to SOS from the
City; and (4) the affidavit of SOS’s counsel in support of the motion for continuance.
SOS alleged that it reached an agreement with the City and appellees on March
29, 2017, as evidenced by the draft agreement, that obligated appellees to “pay sums
due and owing [SOS] based on a payment plan.” SOS maintained that it completed the
services entitling it to payment and that appellees breached the contract by notifying SOS
“they were no longer going to pay the sums due under the contract.” In response to DIBC’s
traditional summary judgment motion, SOS argued that it timely filed suit because DIBC
breached the March 29, 2017 contract on August 13, 2018. SOS alternatively requested
that the trial court continue the submission date, arguing that it needed “additional time to
obtain minutes of meetings and audits of” the City and appellees. SOS maintained that
the evidence was material to showing the existence of a contract with appellees.
Subsequently, on the parties’ agreed motion, the trial court extended the
submission deadline from March 30, 2020, to April 6, 2020, because appellees did not
receive service of SOS’s summary judgment response.
4
Appellees filed a reply to SOS’s response, arguing SOS failed to establish the
essential elements of its breach of contract claim. Appellees noted that the unsigned draft
agreement contained no signature block for appellees, was not executed, and was not
supported by consideration. Appellees further argued that Silva’s affidavit, which
discussed his dealings with the City, contained no allegation “of any action by any
[appellees] that would support the existence of a valid, enforceable agreement with
[SOS].” Appellees also maintained that the agreement violated the statute of frauds
because it could not be performed within one year. See TEX. BUS. & COMM. CODE ANN.
§ 26.01(b)(6). Finally, appellees argued that SOS presented no evidence that appellees,
as opposed to the City, breached the contract. DIBC, in particular, argued that SOS failed
to present any evidence creating a fact issue as to the application of its limitations
defense.
Appellees opposed SOS’s motion for continuance. They noted that SOS knew of
appellees’ defenses to suit no later than October 2019, when they served their response
to SOS’s request for disclosures. Yet, SOS did not serve further discovery until March 4,
2020, after appellees filed their motion for summary judgment, which appellees believed
evidenced a lack of diligence in obtaining discovery.
The trial court signed an order granting appellees’ motions for summary judgment. 3
It did not explicitly rule on SOS’s motion for continuance. The trial court noted that SOS’s
claims against the City remained on the docket for a May 26, 2020 trial setting. Over
SOS’s objection, the trial court later granted appellees’ motion to sever SOS’s claims
3 The trial court denied the City’s motion to dismiss for lack of jurisdiction in the same order.
5
against them and entered a final take-nothing judgment in the severed cause of action.
This appeal followed.
II. SEVERANCE
By its first issue, SOS argues that the trial court erred in granting appellees’ motion
to sever. Specifically, SOS maintains that it is bringing an “indivisible cause of action
involving . . . the same facts, and the same legal issues, none of which could be
independently urged as separate claims[.]”
A. Standard of Review & Applicable Law
Texas Rule of Civil Procedure 41 provides that “[a]ny claim against a party may be
severed and proceeded with separately.” TEX. R. CIV. P. 41.
A claim is properly severable
if (1) the controversy involves more than one cause of action, (2) the
severed claim is one that would be the proper subject of a lawsuit if
independently asserted, and (3) the severed claim is not so interwoven with
the remaining action that they involve the same facts and issues.
Dorsey v. Raval, 480 S.W.3d 10, 15 (Tex. App.—Corpus Christi–Edinburg 2015, no pet.)
(quoting F.F.P. Operating Partners, L.P. v. Duenez, 237 S.W.3d 680, 693 (Tex. 2007)).
“[A]voiding prejudice, doing justice, and increasing convenience are the controlling
reasons to allow a severance.” Duenez, 237 S.W.3d at 693. We review a trial court’s order
severing a claim under an abuse of discretion standard. Id.
B. Analysis
SOS’s claims against appellees no doubt involve some of the same facts and
issues as its claims against the City. However, at the time the trial court granted
severance, SOS’s claims against appellees had been dismissed by summary judgment,
6
while SOS’s claims against the City remained pending. “The [Texas] Supreme Court has
recognized that severance after summary judgment in an effort to expedite appellate
review is not an abuse of discretion.” Garcia v. Willman, 4 S.W.3d 307, 311–12 (Tex.
App.—Corpus Christi–Edinburg 1999, no pet.) (citing Cherokee Water Co. v.
Forderhause, 641 S.W.2d 522, 525–26 (Tex. 1982)); see also In re Zaraienh, No. 13-16-
00465-CV, 2018 WL 4000400, at *6 (Tex. App.—Corpus Christi–Edinburg June 6, 2018,
orig. proceeding) (per curiam) (mem. op.) (explaining that a trial court does not abuse its
discretion in severing a claim “for purposes of enabling the parties to expedite appellate
review of a partial summary judgment”). We conclude that severance was not an abuse
of discretion because the claims against appellees, unlike the claims against the City, had
already been disposed of by summary judgment. See Garcia, 4 S.W.3d at 312 (noting
that, “[b]y granting the severance, the judgment became final and appealable, thereby
allowing Garcia the benefit of this appeal”); see also Cherokee Water Co., 641 S.W.2d at
526. We overrule SOS’s first issue.
III. CONTINUANCE
By its second issue, SOS argues that the trial court erred “in implicitly denying
[SOS’s] motion for continuance.” SOS maintains that it established the need for “more
time in order to conduct additional discovery to adequately respond to some of the
allegations raised by [a]ppellees’ summary judgment motion.”
To preserve a complaint for appellate review, the record must show that the
complaint was made to the trial court by a timely motion with sufficient specificity, the trial
court expressly or implicitly ruled on the motion or refused to rule on the motion, and the
7
complaining party objected to the refusal. TEX. R. APP. P. 33.1(a). SOS asserts that the
trial court implicitly denied its motion for continuance when it granted appellees’ motion
for summary judgment. See Williams v. Bank One, Tex., N.A., 15 S.W.3d 110, 114–15
(Tex. App.—Waco 1999, no pet.) (holding that trial court implicitly overruled motion for
continuance by granting summary judgment where an inference could be made given the
continuance had been unlikely abandoned, filed only two days before the hearing). We
disagree.
Merely filing a motion is not sufficient to preserve an error; the movant must bring
the motion to the trial court’s attention, thereby giving the court an opportunity to rule on
the motion. In re Purported Lien or Claim Against Collin Cty. Clerk Taylor, 219 S.W.3d
620, 623 (Tex. App.—Dallas 2007, pet. denied); In re Davidson, 153 S.W.3d 490, 491
(Tex. App.—Amarillo 2004, orig. proceeding); Metzger v. Sebek, 892 S.W.2d 20, 49 (Tex.
App.—Houston [1st Dist.] 1994, writ denied); see also Alikhan v. Alikhan, No. 03-19-
00515-CV, 2021 WL 3085844, at *4 (Tex. App.—Austin July 22, 2021, pet. denied) (mem.
op.) (explaining that “an essential element of an implicit ruling is awareness by the trial
judge of the request or motion that is supposedly being ruled on”) (quotations and
alterations omitted). Here, we cannot conclude that the trial court implicitly denied the
motion for continuance because there is no indication in the record that SOS brought the
motion to the trial court’s attention. See Gonerway v. Corrs. Corp. of Am., 442 S.W.3d
443, 446 (Tex. App.—Dallas 2013, no pet.) (holding appellant failed to preserve complaint
concerning trial court’s denial of her motion for continuance where “record does not show
the trial court ruled on the motion,” “record does not show [appellant] called her motion to
8
the attention of the trial court,” and “even if the trial court refused to rule on [appellant’s]
motion, which is not reflected in the record, there is nothing in the record to show
[appellant] objected to such a refusal”); see also Wulchin Land, L.L.C. v. Ellis, No. 13-18-
00156-CV, 2020 WL 1303230, at *11 (Tex. App.—Corpus Christi–Edinburg Mar. 19,
2020, pet. denied) (mem. op.) (holding that the trial court did not implicitly overrule the
motion for continuance where appellant did not bring the motion to the trial court’s
attention). Likewise, the record does not show that the trial court refused to rule on the
motion or that SOS objected to that refusal. As a result, we conclude that this issue has
not been preserved for appellate review. See TEX. R. APP. P. 33.1(a). We overrule SOS’s
second issue.
IV. SUMMARY JUDGMENT
By its third issue, SOS argues that the trial court erred in granting summary
judgment on either no-evidence or traditional grounds.
A. Standard of Review & Applicable Law
“We review a trial court’s summary judgment de novo.” KMS Retail Rowlett, LP v.
City of Rowlett, 593 S.W.3d 175, 181 (Tex. 2019). We consider the evidence in the light
most favorable to the nonmovant, indulging every reasonable inference in favor of the
nonmovant and resolving any doubts against the movant. Id. To prevail on a traditional
motion for summary judgment, the movant must show that there is no genuine issue of
material fact as to at least one essential element of the nonmovant’s cause of action and
that it is entitled to judgment as a matter of law. TEX. R. CIV. P. 166a(c). If a movant meets
this burden, then the burden shifts to the non-movant to present evidence raising a
9
genuine issue of material fact. Kaplan v. City of Sugar Land, 525 S.W.3d 297, 302 (Tex.
App.—Houston [14th Dist.] 2017, no pet.); Jones v. Ray Ins. Agency, 59 S.W.3d 739, 744
(Tex. App.—Corpus Christi–Edinburg 2001, no pet.).
After an adequate time for discovery, a party may file a “no-evidence” motion for
summary judgment asserting there is no evidence of one or more essential elements of
a claim or defense on which the adverse party would have the burden of proof at trial.
TEX. R. CIV. P. 166a(i). “A no-evidence motion for summary judgment immediately shifts
the burden to the nonmovant.” Energen Res. Corp. v. Wallace, 642 S.W.3d 502, 514
(Tex. 2022). To defeat a no-evidence motion for summary judgment, the nonmovant must
raise a genuine issue of material fact as to each challenged element of a claim or defense.
Ford Motor Co. v. Ridgway, 135 S.W.3d 598, 600 (Tex. 2004). The nonmovant can meet
its burden in response to either a no-evidence or traditional summary judgment motion if
its evidence is more than a scintilla, i.e., it “rises to a level that would enable reasonable
and fair-minded people to differ in their conclusions.” Id. at 601 (quoting Merrell Dow
Pharm., Inc. v. Havner, 953 S.W.2d 706, 711 (Tex. 1997)).
“If a party moves for summary judgment on both traditional and no-evidence
grounds, as the parties did here, we first consider the no-evidence motion.” Lightning Oil
Co. v. Anadarko E&P Onshore, LLC, 520 S.W.3d 39, 45 (Tex. 2017) (citing Ford Motor
Co., 135 S.W.3d at 600). Because the trial court did not specify the basis for the ruling,
we must affirm the judgment if any theory advanced in the motion is meritorious. W. Invs.,
Inc. v. Urena, 162 S.W.3d 547, 550 (Tex. 2005). But we may not affirm the judgment on
grounds not raised in the motion or response. Henkel v. Norman, 441 S.W.3d 249, 251
10
n.1 (Tex. 2014) (per curiam) (quoting Stiles v. Res. Tr. Corp., 867 S.W.2d 24, 26 (Tex.
1993) (“[W]e hold that a summary judgment cannot be affirmed on grounds not expressly
set out in the motion or response.”)).
The elements of a breach of contract claim are: (1) a valid contract, (2) the party
suing to enforce the contract performed or tendered performance, (3) the other party
breached the contract, and (4) the suing party was damaged as a result of the breach.
USAA Tex. Lloyds Co. v. Menchaca, 545 S.W.3d 479, 501 n.21 (Tex. 2018); Thornton v.
Dobbs, 355 S.W.3d 312, 316 (Tex. App.—Dallas 2011, no pet.).
B. Analysis
SOS first argues that it met its burden to produce more than a scintilla of evidence
on each of its breach-of-contract elements in response to appellees’ no-evidence
challenge. On appeal, SOS relies on documents attached to its pleadings as well as the
items attached to its response to appellees’ motion for summary judgment.
We observe that SOS did not rely on or reference the documents attached to its
petition in its summary-judgment response. Rather, it solely relied on an agreement
purportedly entered into on March 29, 2017, Silva’s affidavit testimony, and the City’s
notice of termination. “A party must expressly and specifically identify the supporting
evidence on file that it seeks the trial court to consider in a summary judgment motion or
a response to a summary judgment motion.” Speck v. First Evangelical Lutheran Church
of Hous., 235 S.W.3d 811, 816 (Tex. App.—Houston [1st Dist.] 2007, no pet.). A party
“may not obtain a reversal of a no-evidence summary-judgment motion based on
evidence attached to items filed in the trial court other than a summary-judgment
11
response, unless [it] identified the evidence purportedly raising a genuine fact issue in a
summary-judgment response.” Stettner v. Lewis & Maese Auction, LLC, 611 S.W.3d 102,
109 (Tex. App.—Houston [14th Dist.] 2020, no pet.). In addition, “[p]leadings are not
competent summary judgment evidence, even if sworn or verified.” Heirs of Del Real v.
Eason, 374 S.W.3d 483, 487–88 (Tex. App.—Eastland 2012, no pet.) (citing Laidlaw
Waste Sys. (Dall.), Inc. v. City of Wilmer, 904 S.W.2d 656, 660 (Tex. 1995)). Likewise,
unverified documents attached to pleadings are not proper summary judgment evidence.
See TEX. R. CIV. P. 166a(f); Eason, 374 S.W.3d at 488. We thus limit our review to the
documents referenced in the response.
We first examine whether SOS presented evidence of a valid contract with
appellees. To establish a valid, enforceable contract, the following elements must be
shown: (1) an offer; (2) an acceptance in strict compliance with the terms of the offer;
(3) a meeting of the minds on the essential term—or mutual assent; (4) consent to the
terms; and (5) execution and delivery of the contract. E-Learning LLC v. AT&T Corp., 517
S.W.3d 849, 858 (Tex. App.—San Antonio 2017, no pet.).
In its response, SOS relied on an unexecuted draft agreement, titled “Amended
Payment Agreement for Services Rendered,” as evidence of a valid contract. The
agreement is purportedly between SOS and the City, as well as the appellees. In his
affidavit, Silva states that the Donna City Commission approved the agreement on March
29, 2017. The agreement does not bear a signature block for any appellee. It
contemplates the signatures of the City’s manager, attorney, and secretary, as well as
Silva.
12
Mutual assent, in the case of a written contract, is generally evidenced by the
signatures of the parties and delivery with the intent to bind. Baylor Univ. v. Sonnichsen,
221 S.W.3d 632, 635 (Tex. 2007) (per curiam). “But while signature and delivery are often
evidence of the mutual assent required for a contract, they are not essential.” Phillips v.
Carlton Energy Grp., LLC, 475 S.W.3d 265, 277 (Tex. 2015). “Texas law recognizes that
a contract need not be signed to be ‘executed’ unless the parties explicitly require
signatures as a condition of mutual assent.” Id. (quoting Mid-Continent Cas. Co. v. Glob.
Enercom Mgmt., Inc., 323 S.W.3d 151, 157 (Tex. 2010) (per curiam)). “If a written draft
of an agreement is prepared, submitted to both parties, and each of them expresses his
unconditional assent thereto, there is a written contract.” Id.
Evidence that the City commission approved the contract may be relevant to
whether the City mutually assented to the agreement, an issue that is not before us. See
City of Houston v. Clear Channel Outdoor, Inc., 233 S.W.3d 441, 446 (Tex. App.—
Houston [14th Dist.] 2007, no pet.) (concluding that contract document and City Council’s
passage of accompanying motion constituted “the last step needed to complete the
written contract between the parties”); but see S. Disposal, Inc. v. City of Blossom, 165
S.W.3d 887, 893 (Tex. App.—Texarkana 2005, no pet.) (“The proof of the governing
body’s acts may be supplied only by the authenticated minutes of the meeting at which
the action occurred, unless the minutes have been lost or destroyed.”). However, such
evidence has no bearing as to whether appellees 4 took any separate action mutually
4 “[E]conomic development corporations [are] nonprofit corporate entities with ‘the powers,
privileges, and functions of a nonprofit corporation[.]” Rosenberg Dev. Corp. v. Imperial Performing Arts,
Inc., 571 S.W.3d 738, 745 (Tex. 2019) (quoting TEX. LOC. GOV’T CODE ANN. §§ 501.053–.054.). “‘All of the
powers of [the] corporation are vested in’ the corporation’s board of directors.” Id. (quoting TEX. LOC. GOV’T
13
assenting to the terms of the agreement. SOS provides no evidence of any action by
appellees which would demonstrate that they mutually assented to the terms of the
agreement. See Wright v. Hernandez, 469 S.W.3d 744, 760 (Tex. App.—El Paso 2015,
no pet.) (“[A] parties’ [sic] intent to be bound by a contract may be evidenced by its
conduct at the time a contract is drafted and by its subsequent conduct reflecting that it
was acting in accordance with the terms of the contract.”). Indeed, the supposed
termination of the agreement was accomplished by a letter from the City’s manager
issued on City letterhead. Therefore, we conclude that SOS has failed to present
evidence of a valid contract with appellees, an essential element of its claim. See
Menchaca, 545 S.W.3d at 501 n.21. As such, the trial court properly granted appellees’
no-evidence motion for summary judgment. See City of Rowlett, 593 S.W.3d at 181.
Given this conclusion, we need not address whether DIBC was entitled to traditional
summary judgment on its limitations defense. See TEX. R. APP. P. 47.1. We overrule
SOS’s third issue.
V. CONCLUSION
We affirm the trial court’s judgment.
LETICIA HINOJOSA
Justice
Delivered and filed on the
17th day of November, 2022.
CODE ANN. § 501.062(a)).
14 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488158/ | NUMBER 13-21-00209-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
PROGRESSIVE COUNTY
MUTUAL INSURANCE COMPANY, Appellant,
v.
ANSELMO M. CALTZONSING, Appellee.
On appeal from the 377th District Court
of Victoria County, Texas.
OPINION
Before Chief Justice Contreras and Justices Benavides and Longoria
Opinion by Justice Benavides
This is an interlocutory appeal that stems from the trial court’s denial of appellant
Progressive County Mutual Insurance Company’s (Progressive) motion for summary
judgment against appellee Anselmo M. Caltzonsing. We granted Progressive’s petition
for permissive appeal to address a matter of first impression: whether Caltzonsing is
precluded from recovering under Progressive’s uninsured/underinsured motorist (UIM)
coverage because the owner of the tortfeasor’s vehicle was issued a certificate of self-
insurance. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(f); TEX. R. APP. P. 28.3. We
answer “no” and affirm the trial court’s judgment.
I. BACKGROUND
The underlying facts of this case are not in dispute. On March 9, 2018, Caltzonsing
was driving a vehicle owned by his employer, Gerado Lozada, and insured through
Progressive. Janet Gaitan, the tortfeasor, “failed to control her speed and struck the trailer
towed by [Caltzonsing],” causing him “serious personal injury.” The car Gaitan drove was
leased through EAN Holdings, LLC, d/b/a Enterprise Rent-A-Car (Enterprise).
Caltzonsing recovered through Gaitan’s personal auto liability policy. However, the
amount recovered was insufficient to cover the entirety of the damages Caltzonsing
suffered.
On August 20, 2019, Caltzonsing filed suit against: (1) Progressive, his employer’s
insurer; (2) Gaitan; and (3) Allstate, Caltzonsing’s own insurer.1 In his original petition,
Caltzonsing sought, inter alia, a declaratory judgment that Gaitan was liable for the
accident and that he had the right to receive UIM benefits under the Progressive policy.
On September 20, 2019, Progressive filed an answer asserting in part that Caltzonsing
had not established that he was legally entitled to recover through the policy’s UIM
coverage.
On December 10, 2020, Progressive filed a combined motion for summary
1 Neither Gaitan nor Allstate is a party to this permissive appeal.
2
judgment, on both traditional and no-evidence grounds. Progressive asserted that
Caltzonsing could not prove he was “‘legally entitled to recover’ from the underinsured
motorist involved in the accident” because the “underinsured motorist, [Gaitan], was
operating a vehicle owned by [Enterprise], a self-insured entity.”
Attached as an exhibit to Progressive’s motion for summary judgment was the
insurance policy setting forth the coverage afforded to Caltzonsing through his employer.
The policy contained a “[UIM] coverage Endorsement” stating:
Subject to the Limits of Liability, if you pay the premium for this coverage,
we will pay for the damages, other than punitive or exemplary damages,
which an insured is legally entitled to recover from the owner or operator of
an uninsured auto because of bodily injury:
1. sustained by an insured;
2. caused by an insured; and
3. arising out of the ownership, maintenance, or use of an uninsured
auto.
The endorsement defined “[u]ninsured auto,” in part, to include an “underinsured auto,”
which was in turn defined as:
[O]ne to which a liability bond or policy applies at the time of the accident,
but its limit of liability either:
(i) is not enough to pay the full amount the insured is legally entitled to
recover as damages; or
(ii) has been reduced by payment of claims to an amount which is not
enough to pay the full amount the insured is legally entitled to recover
as damages.
It also excluded certain categories of vehicles from being considered uninsured. Relevant
to this appeal, the endorsement excluded from the definition of an uninsured vehicle any
3
vehicle that was “owned or operated by a self-insurer under any applicable vehicle law,
except a self-insurer that is or becomes insolvent.” Progressive also attached as an
exhibit a certificate of self-insurance issued to Enterprise by the Texas Department of
Public Safety (TDPS).
The trial court ultimately denied Progressive’s motion for summary judgment but
granted it permission to appeal. See TEX. CIV. PRAC. & REM. CODE ANN. § 51.014(d). We
accepted the appeal. See TEX. R. APP. P. 28.3.
II. STANDARD OF REVIEW
We review a trial court’s decision to grant or deny a motion for summary judgment
de novo. See Tex. Mun. Power Agency v. Pub. Util. Comm’n of Tex., 253 S.W.3d 184,
192 (Tex. 2007); see also Mahoney v. Slaughter, No. 01-14-00471-CV, 2015 WL
2159476, at *2 (Tex. App.—Houston [1st Dist.] May 7, 2015, no pet.) (mem. op.). To be
entitled to summary judgment, a movant must show that there is no genuine issue of
material fact and that they are entitled to judgment as a matter of law. Nixon v. Mr. Prop.
Mgmt. Co., Inc., 690 S.W.2d 546, 548 (Tex. 1985). We indulge all reasonable inferences
and resolve any doubts in favor of the non-movant. Id. at 549.
III. ANALYSIS
A. Interpretation of Policy
When we accept a permissive appeal, we must “do what the Legislature has
authorized and ‘address the merits of the legal issues certified.’” Elephant Ins., LLC v.
Kenyon, 644 S.W.3d 137, 147 (Tex. 2022) (quoting Sabre Travel Int’l, Ltd. v. Deutsche
Lufthansa AG, 567 S.W.3d 725, 733 (Tex. 2019)). This includes “addressing all fairly
4
included subsidiary issues and ancillary issues pertinent to resolving the controlling legal
issue.” Id.
Here, the controlling question of law that was certified to us was “whether the ‘Self-
Insured Exception’ provisions of [Caltzonsing]’s Auto Policy preclude
uninsured/underinsured (“UM/UIM”) policy benefits when the tortfeasor’s vehicle is owned
or operated by a self-insurer like Enterprise.” This question necessarily depends on an
interpretation of the self-insurer exclusion in Caltzonsing’s policy, which is where we shall
begin our analysis.
1. Standard of Review
“[W]e interpret insurance policies in Texas according to the rules of contract
interpretation.” Kelly-Coppedge, Inc. v. Highlands Ins., 980 S.W.2d 462, 464 (Tex. 1998).
“[W]e must give an insurance policy’s undefined words their common, ordinary meaning
unless the policy itself demonstrates that the parties intended a ‘different’ or more
‘technical’ meaning.” Andarko Petrol. Corp. v. Hous. Cas. Co., 573 S.W.3d 187, 193 (Tex.
2019). “[W]e determine the meaning of an undefined term as used in an insurance policy
by applying its ‘ordinary and generally accepted meaning,’ as construed ‘in context and
in light of the rules of grammar and common usage.’” Pharr-San Alamo Indep. Sch. Dist.
v. Tex. Pol. Subdivisions Property/Casualty Joint Self Ins. Fund, 642 S.W.3d 466, 473–
74 (Tex. 2022). “An interpretation that gives each word meaning is preferable to one that
renders one surplusage.” U.S. Metals, Inc. v. Liberty Mut. Grp., Inc., 490 S.W.3d 20, 23–
24 (Tex. 2015). “To determine a term’s common, ordinary meaning, we typically look first
to dictionary definitions and then consider the term’s usage in other authorities.” Andarko
5
Petrol., 573 S.W.3d at 192. “But just as there are words that are so clear in meaning that
they may never be altered by technical definitions or custom and usage, there may be
words that simply do not have a nontechnical meaning.” RPC, Inc. v. CTMI, LLC, 606
S.W.3d 469, 487 (Tex. App.—Fort Worth 2020, pet. denied).
An intent to exclude coverage in an insurance policy must be expressed in “clear
and unambiguous language.” Nat’l Union Fire Ins. Co. of Pittsburgh, Pa. v. Hudson
Energy, 811 S.W.2d 552, 555 (Tex. 1991). Both the presence of an ambiguity and the
interpretation of an unambiguous contract are questions of law that we review de novo.
URI, Inc. v. Kleberg County, 543 S.W.3d 755, 763 (Tex. 2018). “To determine whether a
contract is ambiguous, we look at the agreement as a whole in light of the circumstances
present when the parties entered into the contract.” Edascio, L.L.C. v. NextiraOne L.L.C.,
264 S.W.3d 786, 796 (Tex. App.—Houston [1st Dist.] 2008, pet. denied). “If a written
contract is so worded that it can be given a definite or certain legal meaning when so
considered and as applied to the matter in dispute, then it is not ambiguous.” Id. at 765.
“If, however, the language of a policy or contract is subject to two or more reasonable
interpretations, it is ambiguous.” Kelley-Coppedge, Inc., 980 S.W.2d at 464 (quoting Nat’l
Union Fire Ins. Co. of Pittsburgh, Pa. v. CBI Indus., Inc., 907 S.W.2d 517, 520 (Tex.
1995)). That the parties propose two different interpretations of the provision at issue does
not make it ambiguous; “ambiguity exists only if both parties’ interpretations are
reasonable.” Piranha Partners v. Neuhoff, 596 S.W.3d 740, 743–44 (Tex. 2020).
“Contract ambiguity comes in two flavors: patent or latent.” Kleberg County, 543
S.W.3d at 765. “A patent ambiguity is evident on the face of the contract.” Mescalero
6
Energy, Inc. v. Underwriters Indem. Gen. Agency, 56 S.W.3d 313, 319 (Tex. App.—
Houston [1st Dist.] 2001, pet. denied). “A latent ambiguity arises when a contract which
is unambiguous on its face is applied to the subject matter with which it deals and an
ambiguity appears by reason of some collateral matter.” CBI Indus., Inc., 907 S.W.2d at
520. “[T]he language of the polic[y] must be interpreted with reference to both the facts of
the claim and the facts within the contemplation of the parties at the signing of the polic[y].”
Id. “If we determine that only one party’s interpretation of the insurance policy is
reasonable, then the policy is unambiguous and the reasonable interpretation should be
adopted.” Nassar v. Liberty Mut. Fire Ins., 508 S.W.3d 254, 258 (Tex. 2017).
If, however, more than one interpretation is reasonable, the language in the policy
is ambiguous and it must be construed in favor of the insured. Reyes v. Tex. All Risk Gen.
Agency, 855 S.W.2d 191, 192 (Tex. App.—Corpus Christi–Edinburg 1993, no writ) (citing
Hudson Energy, 811 S.W.2d at 555). “The court must adopt the construction of an
exclusionary clause urged by the insured as long as that construction is not unreasonable,
even if the construction urged by the insurer appears to be more reasonable or a more
accurate reflection of the parties’ intent.” Hudson Energy, 811 S.W.2d at 555.
2. Applicable Law
a. Texas Law
In 1951, the Legislature enacted the Texas Motor Vehicle Safety-Responsibility
Act, the name of which “is generally descriptive of its purpose.” Gillaspie v. Dep’t of Pub.
Safety, 259 S.W.2d 177, 179 (Tex. 1953). Pursuant to this Act, every motorist on Texas
roads must demonstrate proof of “financial responsibility.” TEX. TRANSP. CODE ANN.
7
§ 601.051. To further this requirement, insurers must provide certain minimum amounts
of coverage in the policies they issue. See id. § 601.072; TEX. INS. CODE ANN.
§ 1952.0515.
For instance, an insurer may not issue a policy without UIM coverage unless the
consumer rejects such coverage in writing. TEX. INS. CODE ANN. § 1952.101. The purpose
of the UIM statute is to protect conscientious motorists from financial loss caused by the
negligence of financially irresponsible motorists. Stracener v. United Servs. Auto. Ass’n,
777 S.W.2d 378, 382 (Tex. 1989). UIM coverage “must provide for payment to the insured
of all amounts that the insured is legally entitled to recover as damages from owners or
operators of underinsured motor vehicles because of bodily injury or property damage,
not to exceed the limit specified in the insurance policy.” TEX. INS. CODE ANN. § 1952.106.
The phrase “legally entitled to recover” simply means “that the insured must be able to
show fault on the part of the uninsured motorist and the extent of the resulting damages.”
Franco v. Allstate Ins., 505 S.W.2d 789, 792 (Tex. 1974). In a dispute as to whether a
vehicle is uninsured, the insurer bears the burden of proof. TEX. INS. CODE ANN.
§ 1952.109.
b. Federal Law
On August 10, 2005, the United States Congress enacted the Graves Amendment
which eliminated vicarious liability for rental car companies as follows:
An owner of a motor vehicle that rents or leases the vehicle to a person (or
an affiliate of the owner) shall not be liable under the law of any State or
political subdivision thereof, by reason of being the owner of the vehicle (or
an affiliate of the owner), 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—
8
(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).
49 U.S.C. § 30106(a).
Federal preemption derives from the Supremacy Clause of the United States
Constitution. See U.S. CONST. art. VI, cl. 2; Murphy v. Nat’l Collegiate Athletic Ass’n, 138
S.Ct. 1461, 1480 (2018) (plurality op.). “If a state law conflicts with federal law, it is
preempted and has no effect.” Great Dane Trailers, Inc v. Estate of Wells, 52 S.W.3d 737,
743 (Tex. 2001). There are three recognized forms of federal preemption: (1) conflict,
(2) express, and (3) field. Murphy, 138 S.Ct. at 1479. “But all of them work in the same
way: Congress enacts a law that imposes restrictions or confers rights on private actors;
a state law confers rights or imposes restrictions that conflict with the federal law; and
therefore the federal law takes precedence and the state law is preempted.” Id. The
Graves Amendment purports to preempt state law and eliminate vicarious liability for
rental car companies whose lessees commit torts. 49 U.S.C. § 30106(a); see Cates v.
Hertz Corp., No. 08-10686, 2009 WL 2447792, at *6 (5th Cir. Aug. 11, 2009) (per curiam)
(“The Graves Amendment preempted state law in the area of vicarious liability for owners
engaged in the business of renting or leasing motor vehicles, absent a showing of
negligence or criminal wrongdoing on the part of the owner.”).
3. Analysis
The portion of the insurance policy at issue is the exclusion that covers self-
insurers. This exclusion states that uninsured vehicles do not include vehicles “owned or
9
operated by a self-insurer under any applicable vehicle law, except a self-insurer that is
or becomes insolvent.” Self-insurer is not defined in the policy, nor is the phrase “any
applicable vehicle law.” But prepositional phrases are typically understood to modify the
closest antecedent, unless such a construction is unreasonable. Certain Underwriters at
Lloyd’s of London v. Cardtronics, Inc., 438 S.W.3d 770, 782 (Tex. App.—Houston [1st
Dist.] 2014, no pet.). Thus, the phrase “under any applicable vehicle law” modifies the
term “self-insurer,” not the phrase “owned or operated.” See id.
“The general rule is that the laws which are in existence at the time of the making
of the contract are impliedly incorporated into the contract.” Savin Corp. v. Copy Distrib.
Co., 716 S.W.2d 690, 692 (Tex. App.—Corpus Christi–Edinburg 1986, no writ). To
understand the meaning of the contract, we must therefore look to “any applicable vehicle
law.”
Progressive urges that § 601.124(a) of the transportation code is an “applicable
vehicle law” because it defines the term “self-insurer.” See TEX. TRANSP. CODE ANN.
§ 601.124(a). This provision explains that one “may qualify as” a self-insurer if they are
“[a] person in whose name more than 25 motor vehicles are registered,” and they “obtain[]
a certificate of self-insurance issued by [TDPS] as provided by this section.” Id. But this
tells us what the minimum qualifications of a self-insurer are, not necessarily what the
meaning of the term is. The permissive use of the word “may” in the statute also indicates
that even having a certificate of self-insurance and twenty-five vehicles registered in their
name might not be sufficient for a person to become a self-insurer. See id.; TEX. GOV’T
CODE ANN. § 311.016 (“‘May’ creates discretionary authority or grants permission or a
10
power.”). Indeed, the Texas Supreme Court has held that “to qualify as a self-insurer a
person must meet two requirements: (1) have more than twenty-five motor vehicles
registered in his name, and (2) be financially responsible.” Tex. Dep’t of Pub. Safety v.
Banks Transp. Co., 427 S.W.2d 593, 594 (Tex. 1968).
The transportation code defines financial responsibility as “the ability to respond in
damages for liability for an accident that . . . occurs after the effective date of the
document evidencing the establishment of the financial responsibility; and . . . arises out
of the ownership, maintenance, or use of a motor vehicle.” TEX. TRANSP. CODE ANN.
§ 601.002(3) (emphasis added). Thus, whether an entity is considered financially
responsible in Texas will necessarily depend on its potential for being held liable for an
accident. See id.; Banks Transp. Co., 427 S.W.2d at 594.
Neither party points to any other “applicable vehicle law” in Texas, and we are
unable to find any. Progressive argues that the certificate of self-insurance issued by the
Department of Public Safety which states that Enterprise “has been approved as a self-
insurer under the Texas Motor Vehicle Safety Responsibility Act” is sufficient to prove its
status as a self-insurer. But the parties did not contract around what the Department of
Public Safety considers to be a self-insurer, and therefore, this extrinsic evidence does
not help us determine the meaning of the term in the policy. See CBI Indus., Inc., 907
S.W.2d at 521.
In our interpretation of the term “self-insurer,” we cannot divorce it “from its setting
and construe it without considering its context.” Andarko Petrol., 573 S.W.3d at 193. Here,
the policy specifies that a self-insurer is not excluded from the policy’s UIM coverage if
11
that entity “is or becomes insolvent.”
The term “insolvent” is not defined by the policy, so we must consider its “common,
ordinary meaning.” See id. “The meaning of ‘insolvency’ is not definitely fixed and it is not
always used in the same sense, but its definition depends rather on the business or fact
situation to which the term applies.” Parkway/Lamar Partners, L.P. v. Tom Thumb Stores,
Inc., 877 S.W.2d 848, 849 (Tex. App.—Fort Worth 1994, writ denied). Black’s Law
Dictionary defines the term as “having liabilities that exceed the value of assets; having
stopped paying debts in the ordinary course of business or being unable to pay them as
they fall due.” Insolvent, BLACK’S LAW DICTIONARY (11th ed. 2019). Webster’s Dictionary
defines the term as “unable to pay debts as they fall due in the usual course of business,”
“having liabilities in excess of a reasonable market value of assets held,” or “insufficient
to pay all debts.” MERRIAM-WEBSTER DICTIONARY https://www.merriam-
webster.com/dictionary/insolvent (last visited Sept. 23, 2022).
The commonality amongst these definitions is that they hinge on the inability of an
entity to pay the judgments that may be obtained against it. See Insolvent, BLACK’S LAW
DICTIONARY (11th ed. 2019); MERRIAM-WEBSTER DICTIONARY https://www.merriam-
webster.com/dictionary/insolvent (last visited Sept. 23, 2022). By extending UIM
coverage to cars owned or operated by insolvent self-insurers, the clause necessarily
contemplates that a self-insurer must be able to pay any judgment the insured may obtain
against it. Otherwise, the self-insurer will be considered uninsured or underinsured, and
the self-insurer exclusion will not apply. Which, we note, conforms to the purpose of UIM
coverage—to protect an insured from a financially irresponsible tortfeasor. See Stracener,
12
777 S.W.2d at 382.
Having analyzed its surroundings, we now turn to the meaning of “self-insurer.”
“The term ‘self-insurance’ is somewhat ambiguous.” 1A COUCH ON INSURANCE § 10:1; see
Hertz Corp. v. Robineau, 6 S.W.3d 332, 336 (Tex. App.—Austin 1999, no pet.) (“The term
‘self-insurance’ is a misnomer . . . .”). This is because “a self-insurer does not provide
insurance at all.” Robineau, 6 S.W.3d at 336. TDPS can issue a certificate of self-
insurance to an entity if it “is satisfied that the person has and will continue to have the
ability to pay judgments obtained against the person.” TEX. TRANSP. CODE ANN.
§ 601.124(b)(2). But a certificate of self-insurance is not itself insurance. Rather, the
certificate merely shows that the entity holding it is so financially reliable that it can satisfy
any judgment against it, and it need not shoulder the expense of purchasing liability
insurance for each vehicle in its fleet. See id.; Robineau, 6 S.W.3d at 336.
In insurance parlance, “the essence of self-insurance, a term of colloquial currency
rather than of precise legal meaning, is the retention of the risk of loss by the one upon
whom it is directly imposed by law or contract.” 1A COUCH ON INSURANCE § 10:1. In other
words, where an insurer shifts the risk of loss from the insured to itself, a self-insurer
retains the risk. Id.
Thus, we conclude that a reasonable meaning of the term “self-insurer,” as used
within the policy at issue, requires a lack of actual insurance, financial responsibility, and
some form of risk retention. Even if Progressive’s interpretation is also reasonable, when
an insurance policy term is susceptible to two or more reasonable interpretations, we
must construe it in favor of the insured. See Progressive Cnty. Mut. Ins. v. Sink, 107
13
S.W.3d 547, 551 (Tex. 2003).
Because the phrase “any applicable vehicle law” is so broad, the policy may be
referring to statutory law, common law, state law, or federal law. Thus, the Graves
Amendment may also be an “applicable vehicle law,” as the vehicle in question was
owned by a rental car company. See 49 U.S.C. § 30106. And here, at the intersection
between the meaning of the word “self-insurer” and the Graves Amendment, is where we
find the dilemma in this case. Enterprise may have a certificate of self-insurance, but the
risk has shifted away from it by law. See id. The parties do not contend that Enterprise
was in any way negligent or committed a crime. 2 Therefore, pursuant to the Graves
Amendment, Enterprise cannot be held liable for Gaitan’s tort. See id. Because of this,
we conclude that Enterprise is not a “self-insurer” under the terms of the policy.
Other jurisdictions have reached similar conclusions. “When construing an
insurance policy, we are mindful of other courts’ interpretations of policy language that is
identical or very similar to the policy language at issue.” RSUI Indem. Co., 466 S.W.3d
113, 118 (Tex. 2015). Uniformity amongst jurisdictions is important, especially where
insurance provisions are identical throughout the country. Id.
In Bethke v. Auto-Owners Insurance Co., the policy at issue excluded from the
definition of “underinsured automobile” an automobile “owned or operated by a self-
insurer under any automobile law.” 825 N.W.2d 482, 485–86 (Wis. 2013). Wisconsin has
a statute virtually indistinguishable from our § 601.124, but also concluded that the term
“self-insurer” “is not defined in Wisconsin’s statutes.” Id. at 488; compare TEX. TRANSP.
2 Progressive acknowledges in its brief that Gaitan was the tortfeasor in this case. However, we do
not express an opinion as to the ultimate issue of liability.
14
CODE ANN. § 601.124, with WIS. STAT. § 344.16.
The rental car company in Bethke, Avis, had obtained a certificate of self-insurance
from the Wisconsin Department of Transportation. 825 N.W.2d 482 at 486. “The
certificate state[d] that Avis ‘ha[d] qualified as a self-insurer under the Wisconsin ‘Motor
Vehicle Safety Responsibility Act’ chapter 344 Wisconsin Statutes.’” Id. The insurance
company argued “that because Avis self-insured the rental vehicle, there was no
coverage under the policy.” Id. The Wisconsin Supreme Court analyzed the policy
language to determine the “common and ordinary meaning” of “self-insurer” according to
“what [a] reasonable person in the position of the insured would have understood the
words to mean.” Id. at 488. The court concluded that “the policy term ‘self-insurer’ is
ambiguous because it is unclear whether a reasonable insured would understand a car
rental company . . . is a ‘self-insurer’ under the policy,” and interpreted the policy in favor
of the insured. Id. at 493.
In Murray, the Eighth Circuit, applying Missouri law, examined a policy that
excluded from the definition of an underinsured vehicle a vehicle “[o]wned or operated by
a self-insurer as considered by any financial responsibility law, motor carrier law, or
similar law.” Murray v. Am. Fam. Mut. Ins., 429 F.3d 757, 761 (8th Cir. 2005). The
appellants argued the policy was ambiguous because the tortfeasor’s vehicle “fits both
the description of a vehicle that is underinsured and the description of a vehicle that is not
underinsured.” Id. at 764. The court ultimately held that “interpreting the contract to nullify
coverage in this situation would be an unreasonable interpretation.” Id. at 765.
In Martin v. Powers, the Tennessee Supreme Court analyzed the following policy
15
exclusion: “Uninsured motor vehicle does not mean a vehicle . . . owned or operated by
a self-insurer under any applicable motor vehicle law, except a self-insurer which is or
becomes insolvent.” 505 S.W.3d 512, 518 (Tenn. 2016) (cleaned up). In that case, an
individual drove a “[r]ental [c]ar into the [p]laintiff’s knee.” Id. at 515. The plaintiff brought
a claim against his insurance provider to recover for his damages. Id. The insurer moved
for summary judgment, arguing that the rental car company that owned the tortfeasor’s
car was self-insured, and based on the policy language above, the plaintiff was barred
from recovering as a matter of law. Id. at 516. As support for its motion for summary
judgment, the insurance company provided a copy of the rental car company’s certificate
of self-insurance which “certifie[d] the company named herein ha[d] established self-
insurance with the Tennessee Department of Safety for all owned or leased vehicles.” Id.;
see TENN. CODE ANN. § 55-12-111 (detailing the process by which an entity in Tennessee
“may qualify as a self-insurer by obtaining a certificate of self-insurance”).
The Tennessee Supreme Court concluded that “a reasonable person insured
under an insurance policy containing the language at issue in this case would conclude
that the term ‘self-insurer’ is a person or entity able to cover the risk of a liability through
their own assets.” See id. at 519. The court “emphasize[d] . . . that the very concept of
insurance, regardless of whether the insurance exists by way of owner assets or by way
of an insurance policy, is inextricably tied to the risks of liability that are insured against.”
Id. at 520. After determining that the policy language was ambiguous, the Tennessee
Supreme Court concluded that “the [r]ental [c]ar was not owned ‘by a self-insurer under
any applicable motor vehicle law’ and, therefore, meets the definition of an uninsured
16
motor vehicle under the [p]olicy.” Id. at 525.
Although it is not dispositive to our analysis of the issue, our conclusion that
Enterprise is not a self-insurer as contemplated by the parties’ agreement is consistent
with the holdings of other jurisdictions.
B. Violation of Public Policy3
Further, even if we concluded that the unambiguous meaning of the term “self-
insurer” in the policy was, as Progressive suggests, an entity that was approved as a self-
insurer by the TDPS, the provision would be void as it violates public policy.
1. Standard of Review
“As a rule, parties have the right to contract as they see fit as long as their
agreement does not violate the law or public policy.” In re Prudential Ins. Co. of Am., 148
S.W.3d 124, 129 (Tex. 2004) (orig. proceeding). “The Legislature determines public policy
3 In its reply brief, Progressive argued that this Court was barred from considering Caltzonsing’s
public policy argument, as it believed he failed to raise it below. A non-movant must expressly present to
the trial court the reasons why the motion should not be granted. City of Houston v. Clear Creek Basin
Auth., 589 S.W.2d 671, 678 (Tex. 1979). “We determine whether grounds are expressly presented by
looking at the written response itself.” Garrod Invs., Inc. v. Schlegel, 139 S.W.3d 759, 765 (Tex. App.—
Corpus Christi–Edinburg 2004, no pet.). Caltzonsing argued in his summary judgment response that
Progressive’s interpretation of the policy was “based on absurd misreading of the UIM contract and violated
Texas law,” that Progressive’s “bizarre interpretation makes no sense, because the purpose of UIM
insurance is to protect responsible drivers from damages incurred as a result of drivers without sufficient
insurance or self-insurance,” and that “[t]o the extent that [Progressive’s] definitions are inconsistent with
the statutory definitions, the statutory definitions control.”
Although Caltzonsing never used the magic words “public policy,” we conclude the issue was
sufficiently raised in his response to Progressive’s motion for summary judgment. See Salas v. Fluor Daniel
Servs. Corp., 616 S.W.3d 137, 148 (Tex. App.—Houston [14th Dist.] 2020, pet. denied) (construing
summary judgment response liberally); Richmond v. L.D. Brinkman & Co. (Tex.) Inc., 36 S.W.3d 903, 905
n.2 (Tex. App.—Dallas 2020, pet. denied) (same); cf. Perry v. Cohen, 272 S.W.3d 585, 588 (Tex. 2008)
(noting that “disposing of appeals for harmless procedural defects is disfavored” and that “appellate courts
should reach the merits of an appeal whenever possible”); McConnell v. Southside Indep. Sch. Dist., 858
S.W.2d 337, 343 (Tex. 1993) (“Any confusion regarding what issues are expressly presented by the non-
movant can . . . be resolved by exception.”).
Additionally, during argument before this Court, Progressive conceded that we could consider
Caltzonsing’s public policy argument. We therefore will address the merits of this issue.
17
through the statutes it passes.” Fairfield Ins. v. Stephens Martin Paving, LP, 246 S.W.3d
653, 665 (Tex. 2008).
“Whether a contract violates public policy is a question of law, which we review de
novo.” Van Voris v. Team Chop Shop, LLC, 402 S.W.3d 915, 922 (Tex. App.—Dallas
2013, no pet.) (citing Barber v. Colo. I.S.D., 901 S.W.2d 447, 450 (Tex. 1995)). To
determine whether a contract is unenforceable on public policy grounds, we must weigh
“the interest in enforcing agreements versus the public policy interest against such
enforcement.” Fairfield, 246 S.W.3d at 663. “On one side of the scale is Texas’ general
policy favoring freedom of contract.” Id. In weighing this interest, we “should consider the
reasonable expectations of the parties and the value of certainty in enforcement of
contracts generally.” Id.
“On the other side of the scale is the extent to which the agreement frustrates
important public policy.” Fairfield, 246 S.W.3d at 663–64. We consider whether the
contract is “injurious to the public good, not whether its application in a particular case
results in actual injury.” Jankowiak v. Allstate Prop. & Cas. Ins., 201 S.W.3d 200, 210
(Tex. App.—Houston [14th Dist.] 2006, no pet.).
2. Analysis
Texas has a “strong public policy in favor of preserving the freedom of contract.”
Fairfield, 246 S.W.3d at 664 (citing TEX. CONST. art. I, § 16 (“No bill of attainder, ex post
facto law, retroactive law, or any law impairing the obligation of contracts, shall be
made.”)). But the freedom to contract is not limitless. Id. “Where a valid contract
prescribes particular remedies or imposes particular obligations, equity generally must
18
yield unless the contract violates positive law or offends public policy.” Fortis Benefits v.
Cantu, 234 S.W.3d 642, 648–49 (Tex. 2007).
The “strong underlying public policy” behind the UIM statute is to protect
conscientious motorists from financial loss caused by negligent financially irresponsible
motorists. Stracener, 777 S.W.2d at 382. “U[I]M coverage, therefore, is designed to place
the injured claimant in a position as though a financially irresponsible motorist had been
insured.” Jankowiak, 201 S.W.3d at 210. We construe the statute liberally to give effect
to this public policy. Old Am. Cnty. Mut. Fire Ins. v. Sanchez, 149 S.W.3d 111, 115 (Tex.
2004); Stracener, 777 S.W.2d at 382; McDonald v. S. Cnty. Mut. Ins., 176 S.W.3d 464,
476 (Tex. App.—Houston [1st Dist.] 2004, no pet.).
The Texas Board of Insurance may “define ‘uninsured motor vehicle,’ to exclude
certain motor vehicles whose operators are in fact uninsured.” TEX. INS. CODE ANN.
§ 1952.102(b). However,
[t]he Board must act consistently with and in furtherance of the purposes of
the Act when it prescribes forms containing exclusions from the definition of
‘uninsured automobile.’ The validity of the exclusion here at issue, then,
depends on what the purposes of the Act are and whether the Board, in
promulgating the exclusion, acted consistently with and in furtherance of
those purposes.
Francis v. Int’l Serv. Ins., 546 S.W.2d 57, 60 (Tex. 1976). “Any provision approved by the
Board of Insurance that conflicts with the uninsured motorist statute will be held
ineffective.” Kemp v. Fidelity Cas. Co. of N.Y., 512 S.W.2d 688, 690 (Tex. 1974).
Progressive relies on two cases to urge that its exclusion does not violate Texas
public policy. See McQuinnie v. Am. Home Assur. Co., No. 10-10042, 2010 WL 3937387,
at *4 (5th Cir. Oct. 7, 2010) (per curiam); Nat. Gen. Ins. v. Parnham, 357 S.E.2d 139 (Ga.
19
Ct. App. 1987). In National General Insurance Co. v. Parnham, a Georgia court of appeals
applied Texas law to the facts of the case. 357 S.E.2d at 140. A Texas resident, Parnham,
“was injured when his right knee was pinned between the Safari taxi and another taxi at
the Atlanta International Airport.” Id. The Safari taxi was self-insured, and Parnham’s
insurance policy included UIM coverage. Id. However, there existed a self-insurer
exclusion in Parnham’s policy that was similar to the one at issue in this case. Id. The
Georgia court of appeals held that the self-insurer exclusion did not contravene Texas
public policy because a “self-insurer does not become financially irresponsible just
because it chooses the state-permitted option not to insure above the minimum.” Id. at
141. However, we note that in Parnham, the insured had the ability to recover from the
self-insured entity. See id. at 140. Because of the Graves Amendment, the same is not
true here. See 49 U.S.C. § 30106.
In McQuinnie, the insured sustained damages caused by the driver of a rental car.
2010 WL 3937387, at *1. The parties did not dispute that the tortfeasor’s vehicle was
owned by a self-insured entity. Id. at *2. The Fifth Circuit concluded the policy language
did not violate Texas public policy, holding that Texas law prioritizes “the insured nature
of the motor vehicle rather than the tortfeasor.” Id. at *4. We disagree with the Fifth
Circuit’s Erie guess, and as an unpublished federal decision, we are not obligated to follow
it. See Westchester Fire Ins. v. Admiral Ins., 152 S.W.3d 172, 183 (Tex. App.—Fort Worth
2004, pet. denied).
Litigation concerning UIM coverage is guided by tort law. Brainard v. Trinity
Universal Ins., 216 S.W.3d 809, 818 (Tex. 2006). Consistent with this principle is the
20
requirement that recovery under UIM coverage depends on the liability of another party.
See id. The Texas Supreme Court has stated numerous times that an insured’s ability to
recover through his UIM coverage depends on the liability and insurance of the tortfeasor,
not the insurance status of the vehicle. See In re USAA Gen. Indem. Co., 624 S.W.3d
782, 788 (Tex. 2021) (orig. proceeding) (“If the liable motorist’s insurance coverage is
insufficient to compensate the insured for those damages, the contractual duty to pay
UIM benefits arises.”); Allstate Ins. v. Irwin, 627 S.W.3d 263, 265 (Tex. 2021) (“[UIM]
coverage is insurance designed to fill the gap between the insured’s damages from an
accident and the other driver’s ability to pay.”); In re USAA Gen. Indem. Co., 629 S.W.3d
878, 884 (Tex. 2021) (orig. proceeding) (“‘Legally entitled to recover,’ a term of art in the
UIM context, ‘means the UIM insurer is under no contractual duty to pay benefits until the
insured obtains a judgment establishing the liability and underinsured status of the other
motorist.’”); In re State Farm Mut. Auto. Ins., 629 S.W.3d 866, 875 (Tex. 2021) (orig.
proceeding) (“Thus, in order to establish State Farm’s liability to them under their UIM
policies—as they must to recover on their Insurance Code claims—[the insured parties]
must first obtain determinations of the third-party drivers’ liability and the amount of
damages.”); Brainard, 216 S.W.3d at 818 (“Consequently, the insurer’s contractual
obligation to pay benefits does not arise until liability and damages are determined.”);
Sink, 107 S.W.3d at 554 (“We also note that the purpose of [UIM] coverage is to cover
just these kinds of situations in which a third party is legally entitled to recover from the
person responsible for the accident but is unable to do so.” (footnote omitted)); Stracener,
777 S.W.2d at 382 (“The Legislature had as its initial objective the protection of
21
conscientious motorists from ‘financial loss caused by negligent financially irresponsible
motorists.’”).
Our sister courts have held similarly, focusing on the purpose of the UIM statute,
which is to protect insured motorists who opted for UIM coverage from financially
irresponsible tortfeasors. See Loncar v. Progressive Cnty. Mut. Ins., 553 S.W.3d 586, 590
(Tex. App.—Dallas 2018, no pet.) (“[UIM] coverage exists here if the facts supported the
[insured’s] legal ability to overcome official immunity in a claim against [the tortfeasor].
That is, . . . [UIM] coverage exists if the insured has a legally enforceable right to recover
judgment from the uninsured motor vehicle’s owner or operator.” (emphasis added));
Farmers Tex. Cnty. Mut. Ins. v. Okelberry, 424 S.W.3d 786, 790 (Tex. App.—Houston
[14th Dist.] 2017, pet. denied) (“A negligent party is underinsured whenever the available
proceeds of his liability insurance are insufficient to compensate for the injured party’s
actual damages.”); Farmers Tex. Cnty. Mut. Ins. v. Griffin, 868 S.W.2d 861, 868 (Tex.
App.—Dallas 1993, no writ) (holding that the purpose of UIM coverage is to protect an
insured from “negligent, financially irresponsible drivers in other automobiles”).
The cases that have upheld exclusions in Texas have also been guided by the
principle that UIM coverage is ultimately designed to protect a responsible driver from
financially irresponsible tortfeasors. For instance, in Francis v. International Service
Insurance Co., the supreme court held that a sovereign immunity exclusion did not
frustrate the purpose of the UIM statute because the governmental actor was not
considered “financially irresponsible.” 546 S.W.2d 57, 61 (Tex. 1976) (plurality op.) (“If
the plaintiff could not recover for her injuries from the City of Grand Prairie, it would not
22
be because the City was ‘financially irresponsible’ in not insuring the fire truck. The reason
would be because the . . . doctrine of sovereign immunity protected the city in the
performance of the governmental function of providing fire protection.”).
Similarly, a family member exclusion for UIM coverage has been held to not violate
the purposes of the UIM statute. See Griffin, 868 S.W.2d at 868. This is because, typically,
the family member would also be considered an insured through the applicable policy,
and thus, not financially irresponsible. See Charida v. Allstate Indem. Co., 259 S.W.3d
870, 876 (Tex. App.—Houston [1st Dist.] 2008, no pet.) (discussing family member
exclusion to UIM coverage and holding that “[i]n a suit between insureds on the same
policy, the need to protect UIM coverage from becoming liability insurance remains”); see
also Anderson v. Tex. Farm Bureau Mut. Ins., No. 11-13-00004-CV, 2014 WL 3698313,
at *3 (Tex. App.—Eastland July 24, 2014, no pet.) (mem. op.) (“The main purpose of
UM/UIM motorist coverage is to protect the insured, his family members, and guests from
the ‘negligence of others,’ meaning strangers to the policyholder, and not to protect
against the negligence of the insured’s own family members. A second rationale is that
UM/UIM motorist coverage is not meant to protect others from the insured; therefore,
allowing an occupant to recover under both the liability and the UM/UIM portion of the
same policy on the family car would effectively convert the UM/UIM coverage into a
second layer of liability coverage.”) (internal citations omitted).
We turn to the exclusion at issue. Progressive argues that the self-insurer
exclusion applies regardless of Enterprise’s liability, and further contends that this does
not violate public policy. To determine whether the policy violates the exclusion, we must
23
ask ourselves—Did the Board, “in promulgating the exclusion, act[] consistently with and
in furtherance of” the Texas Motor Vehicle Safety-Responsibility Act? See Francis, 546
S.W.2d at 60. Simply put, no.
Applying the exclusion the way Progressive prays we do would be injurious to the
public good. See Jankowiak, 201 S.W.3d at 210. Under federal law, it is not possible to
recover damages from a rental car company for the torts of its lessees unless the
company is also directly liable. See 49 U.S.C. § 30106(a). Under Progressive’s
interpretation of the policy, a conscientious Texan who obtains UIM coverage would be
thwarted from recovering if the at-fault driver in an accident was an uninsured or
underinsured motorist in a rental car. To deny UIM coverage, not because of a tortfeasor’s
immunity, but because of an innocent third party’s immunity, is antithetical to the purpose
of the UIM statute. See Stracener, 777 S.W.2d at 382.
The self-insurer exclusion is also easily differentiated from the sovereign immunity
and the family member exclusions. The doctrines of sovereign and official immunity
protect both the driver and owner of the car. See Cameron County v. Castillo, 7 S.W.3d
706, 709 (Tex. App.—Corpus Christi–Edinburg 1999, no pet.). Thus, the tortfeasor is
immune, not the vehicle. Further, the government is not required to comply with Texas’s
statutory scheme concerning financial responsibility. See TEX. TRANSP. CODE ANN.
§ 601.007. The Legislature has not afforded the same protections to rental car
companies. Additionally, the family member exclusion involves two insureds on the same
policy—thus, neither is uninsured. See Charida, 259 S.W.3d at 876.
This case is most similar to Fontanez v. Texas Farm Bureau Insurance Cos., 840
24
S.W.2d 647 (Tex. App.—Tyler 1992, no writ). In Fontanez, an uninsured thief stole an
insured person’s vehicle and killed the insured person with it. Id. at 649. A representative
of the decedent’s estate brought a suit to recover benefits after the insurance company
denied benefits. See id. The decedent’s policy included UIM coverage, but the insurance
company argued that the insured person’s car, by definition, was not an uninsured
vehicle. Id. The Tyler court reasoned that “[i]t is unlikely that [the decedent] realized her
[UIM] coverage would not apply when an uninsured thief operating her car without
permission struck and killed her.” Id. Thus, the Tyler court held that “to deny the Appellant
recovery under [the insured’s] policy would frustrate the purpose behind and defeat the
intent of the Uninsured Motorist Act as well as conflict with the Supreme Court’s reasoning
in Stracener.” Id. at 650.
Similarly, it is unreasonable here to assume that Caltzonsing’s employer believed
that by purchasing UIM coverage, it would not be covered any time the lessee of a rental
car was at-fault. See id. at 649. To the contrary, this is one of the exact scenarios a lay
person would likely presume to be covered when paying for UIM coverage—an accident
with a rental car where the driver declined supplemental coverage. Were we to enforce
the contract provision as interpreted by Progressive, it would be virtually impossible for
an innocent party to recover the full extent of their damages if the operator of a rental car
was uninsured or underinsured.
We decline to hold that, as a matter of law, vehicles owned by self-insured entities
will never be excluded from UIM coverage. Rather, such a determination is properly made
on a case-by-case basis. See id. at 650; Briones v. State Farm Mut. Auto Ins., 790 S.W.2d
25
70, 74 (Tex. App.—San Antonio 1990, writ denied).
We simply hold that the self-insurer exclusion in this case does not foreclose
Caltzonsing’s ability to recover because the exclusion as interpreted by Progressive
frustrates the purpose of Texas’ UIM statute in light of the Graves Amendment. See
Stracener, 777 S.W.2d at 382; cf. Young v. Progressive Se. Ins., 753 So.2d 80, 87 (Fla.
2000) (“[A] self-insured motorist exclusion is contrary to the statutory scheme set forth in
the uninsured motorist statute, and . . . the provision in the Progressive uninsured motorist
policy refusing to treat a self-insured motorist as either an underinsured or uninsured
motorist is void.”); Tannone v. Amica Mut. Ins., 189 A.3d 99, 110 (Conn. 2018) (“Taking
into account the Graves Amendment, the uninsured and underinsured motorist statutes,
related state regulations, and underlying public policy, we therefore conclude that rental
car companies may not be deemed self-insurers as to the negligence of their lessees.”).
IV. CONCLUSION
Because Progressive did not establish it was entitled to judgment as a matter of
law, the trial court did not err in denying its motion for summary judgment. See Sw. Elec.
Power Co. v. Grant, 73 S.W.3d 211, 215 (Tex. 2002). We affirm the trial court’s judgment.
GINA M. BENAVIDES
Justice
Delivered and filed on the
17th day of November, 2022.
26 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488249/ | IN THE SUPERIOR COURT OF THE STATE OF DELAWARE
ARAMARK US OFFSHORE )
SERVICES, LLC , )
)
Plaintiff/Counterclaim-Defendant, )
) C.A. No.: N22C-07-010 FJJ
v. )
)
AMITY LODGES LTD., )
)
Defendant/Counterclaim-Plaintiff. )
Submitted: November 7, 2022
Decided: November 21, 2022
Order Upon Consideration of Plaintiff/Counterclaim-Defendant’s
Motion to Dismiss
DENIED.
Richard L. Renck, Esquire and Tracey Timlin, Esquire, Duane Morris, LLP,
Wilmington, Delaware. Attorneys for Plaintiff/Counterclaim-Defendant.
Bartholomew J. Dalton, Esquire, Laura J. Simon, Esquire, and Michael C. Dalton,
Esquire, Dalton & Associates, Wilmington, DE. Attorneys for
Defendant/Counterclaim-Plaintiff.
Jones, J.
BACKGROUND
A dispute arising under a five-year agreement (the “contract” or the
“agreement”) between Aramark US Offshore Services, LLC (“Aramark”) and Amity
Lodges, LTD (“Amity”) has spawned this breach of contract action. Aramark, a
hotel and catering service provider, contracted with Amity, the owner and operator
of a New Mexico resort lodge, to provide the lodge with food and custodial
management services. Both parties allege the other breached the agreement.
Aramark initiated this action, seeking damages for the alleged breach. In
response, Amity filed a counterclaim (the “Counterclaim”) against Aramark.
Aramark now moves to dismiss the Counterclaim. For the reasons stated herein, the
motion must be DENIED.
STANDARD OF REVIEW
A motion to dismiss under Rule 12(b)(6)1 presents the question of “whether a
plaintiff may recover under any reasonably conceivable set of circumstances
susceptible of proof under the complaint.”2 When considering a motion to dismiss,
the Court must read the complaint generously, accept all well-pled allegations as
true, and construe all facts in a light most favorable to the non-moving party.3 A
1
Del. Super. Ct. Civ. R. 12(b)(6) (allowing for dismissal of a complaint for “failure to state a claim upon which
relief may be granted.”).
2
Browne v. Robb, 583 A.2d 949, 950 (Del. 1990) (“The complaint sufficiently states a cause of action when a
plaintiff can recover under any reasonably conceivable set of circumstances susceptible of proof under the
complaint.”).
3
In re Tri-Star Pictures, Inc. Litig., 634 A.2d 319, 326 (Del. 1993) (noting the reviewing court must accept the
allegations of the complaint as true).
2
complaint is well-pled if it puts the opposing party on notice of the claim being
brought against it.4 Dismissal is warranted only when “under no reasonable
interpretation of the facts alleged could the complaint state a claim for which relief
might be granted.”5
Generally, the complaint defines the “universe of facts” the Court is required
to consider in ruling on a Rule 12(b)(6) motion to dismiss.6 In the present matter,
the Court will review the “universe of facts” as articulated in the Counterclaim.7 The
Court may consider documents attached to, or incorporated by reference into, the
Counterclaim without converting the motion into one for summary judgment.8
ANALYSIS
Aramark argues the Counterclaim should be dismissed because it contains
only conclusory allegations to suggest Aramark breached the provisions of the
agreement. The Court disagrees.
Per the contract, Aramark agreed to provide Amity with food services and
staffing for the lodge. The contract required Aramark to perform in an “efficient,
expeditious, workmanlike, skillful, professional, and careful manner in accordance
with the agreement and good industry practice.”
4
See Precision Air v. Standard Chlorine of Del., 654 A.2d 403, 406 (Del. 1995).
5
Hendenberg v. Raber, 2004 WL 2191164, at *1 (Del. Super. Aug, 24, 2004).
6
See Hughes, 897 A2d at 168.
7
The Court will review the Counterclaim in the same way it would review a complaint under 12(b)(6). See
Trustwave Holdings, Inc. v. Beazley Ins. Co., Inc., 2019 WL 4785866 at *3 (Del. Super. Sep. 30, 2019).
8
See In re General Motors (Hughes) Shareholder Litig., 897 A2d 162, 168 (Del. 2006); see also Wal-Mart Stores,
Inc. v AIG Life Ins. Co., 860 A2d 312, 320 (Del. 2004).
3
The documents attached to the Counterclaim, however, reveal Amity’s
dissatisfaction with Aramark’s performance. Chief among Amity’s complaints were
issues related to staffing and quality of food service. For example, in a May 4, 2022
letter to Aramark, Amity complained of: (1) staffing issues; (2) licensing and
operation problems; (3) food and sanitation objections; (4) consumer complaints;
and (5) reporting failures.9 This letter, along with its attachments, persuades the
Court to find there are sufficient facts in the record that go beyond “conclusory
allegations.”
Accordingly, the Court is satisfied Amity has well-pled a breach of contract
claim sufficient to survive dismissal. In light of this finding, the Court will not
address the contract interpretation question raised in briefing. The Court has no
doubt that discovery will produce a more developed factual record on this issue. If
necessary, the Court will address it then.
CONCLUSION
For the reasons stated above, Aramark’s Motion to Dismiss is DENIED.
IT IS SO ORDERED.
/s/ Francis J. Jones, Jr.
Francis J. Jones, Jr., Judge
cc: File&ServeXpress
9
As noted in the Counterclaim, this letter did not constitute the first time Amity complained of the quality of food,
maintenance, and staffing services to Aramark.
4 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488255/ | [Cite as State v. Volz, 2022-Ohio-4134.]
IN THE COURT OF APPEALS
TWELFTH APPELLATE DISTRICT OF OHIO
CLERMONT COUNTY
STATE OF OHIO, :
Appellee, : CASE NO. CA2022-06-028
: OPINION
- vs - 11/21/2022
:
DERRICK M. VOLZ, :
Appellant. :
CRIMINAL APPEAL FROM CLERMONT COUNTY COURT OF COMMON PLEAS
Case No. 2021 CR 00473
Mark J. Tekulve, Clermont County Prosecuting Attorney, and Nicholas Horton, Assistant
Prosecuting Attorney, for appellee.
W. Stephen Haynes, Clermont County Public Defender, and Robert F. Benintendi, Assistant
Public Defender, for appellant.
PIPER, J.
{¶1} Defendant, Derrick Volz, appeals his felony sentences. Specifically, he
appeals the trial court's orders that he serve the sentences consecutively. Because the trial
court failed to make all the statutorily mandated findings at the sentencing hearing, we
conclude that the sentence is contrary to law. Therefore, we vacate the portion of the trial
court's judgment imposing consecutive sentences.
Clermont CA2022-06-028
I. Facts and Procedural History
{¶2} Volz was convicted in four separate cases, three in Clermont County and one
in Warren County. In the first Clermont County case (2019-CR-0480), he was convicted of
a misdemeanor offense and sentenced to two years of community control. In the second
Clermont County case (2019-CR-1166), Volz pleaded guilty to three felony drug offenses
and was given intervention in lieu of conviction (ILC). He later violated ILC and was
sentenced to four years of community control and ordered into a lockdown residential
facility. In the third Clermont County case (2021-CR-0473), Volz was convicted of another
felony drug offense and sentenced to four years of community control. Lastly, in the Warren
County case (2021-CR-038454), he was convicted of escape and sentenced to 12 months
in prison.
{¶3} By committing the offense in the Warren County case, Volz violated the terms
of his community control sanctions in the three Clermont County cases, so community
control was revoked and sentence was imposed. For the misdemeanor in the first case,
the trial court sentenced him to a 180-day concurrent jail term. And for each of the four
drug offenses in the second and third cases, the court sentenced Volz to a 9-month prison
term. The court ordered him to serve the prison terms consecutive to each other and
consecutive to the prison term imposed in the Warren County case.
{¶4} Volz appealed.
II. Analysis
{¶5} The sole assignment of error alleges:
{¶6} THE TRIAL COURT ERRED IN ORDERING APPELLANT'S TERMS OF
IMPRISONMENT TO RUN CONSECUTIVELY.
{¶7} Volz contends that his sentence is contrary to law because at the sentencing
hearing the trial court failed to make all the findings that R.C. 2929.14(C)(4) requires before
-2-
Clermont CA2022-06-028
consecutive sentences may be imposed.
{¶8} A felony sentence is reviewed under the standard in R.C. 2953.08(G)(2).
State v. Marcum, 146 Ohio St.3d 516, 2016-Ohio-1002, ¶ 1. R.C. 2953.08(G)(2) states that
an appellate court may modify or vacate a sentence if the court finds by clear and convincing
evidence that "the record does not support the trial court's findings under relevant statutes
or that the sentence is otherwise contrary to law." Id.
{¶9} When imposing consecutive sentences, a sentencing court is required "to
make the findings mandated by R.C. 2929.14(C)(4) at the sentencing hearing and
incorporate its findings into its sentencing entry." State v. Bonnell, 140 Ohio St.3d 209,
2014-Ohio-3177, syllabus. R.C. 2929.14(C)(4) states:
If multiple prison terms are imposed on an offender for
convictions of multiple offenses, the court may require the
offender to serve the prison terms consecutively if the court finds
that the consecutive service is necessary to protect the public
from future crime or to punish the offender and that consecutive
sentences are not disproportionate to the seriousness of the
offender's conduct and to the danger the offender poses to the
public, and if the court also finds any of the following:
(a) The offender committed one or more of the multiple offenses
while the offender was awaiting trial or sentencing, was under a
sanction imposed pursuant to section 2929.16, 2929.17, or
2929.18 of the Revised Code, or was under post-release control
for a prior offense.
(b) At least two of the multiple offenses were committed as part
of one or more courses of conduct, and the harm caused by two
or more of the multiple offenses so committed was so great or
unusual that no single prison term for any of the offenses
committed as part of any of the courses of conduct adequately
reflects the seriousness of the offender's conduct.
(c) The offender's history of criminal conduct demonstrates that
consecutive sentences are necessary to protect the public from
future crime by the offender.
(Emphasis added.) "When imposing consecutive sentences, a trial court must state the
required findings as part of the sentencing hearing, and by doing so it affords notice to the
-3-
Clermont CA2022-06-028
offender and to defense counsel." Id. at ¶ 29, citing Crim.R. 32(A)(4). "[A] word-for-word
recitation of the language of the statute is not required," though, "and as long as the
reviewing court can discern that the trial court engaged in the correct analysis and can
determine that the record contains evidence to support the findings, consecutive sentences
should be upheld." Id.
{¶10} The trial court here included all the necessary findings to support the
imposition of consecutive sentences in the sentencing entry. But Volz contends that at the
sentencing hearing the court failed to make the required proportionality finding, that
consecutive service is not disproportionate to the seriousness of his conduct or to the
danger he poses to the public.
{¶11} At the sentencing hearing, the trial court started the following regarding its
decision to impose consecutive sentences:
The imposition of consecutive terms [is] necessary to protect the
public and punish you. Your history of criminal conduct in the
rates [sic] that consecutive sentences are necessary to protect
the public and - from future crime by you. These are separate
offenses committed different days, different times. It would be
inappropriate to run them together. Crime, again, is not cheaper
by the dozen. There are separate harms involved, and they
should be imposed separately. And certainly, you committed the
Warren County Court case while on probation to the Court,
which is another factor that consecutive sentences are
necessary.
While the court plainly made two of the required consecutive sentencing findings, it appears
that the court forgot about the proportionality finding.
{¶12} The state argues that the proportionality finding can be discerned from the
trial court's above-quoted statements. The court had obviously done its homework and
knew about Volz's criminal record. We can discern from the court's statements that,
because of his criminal history, the court found a need to protect the public and to punish
Volz. We can further discern that the court found that because he committed the offenses
-4-
Clermont CA2022-06-028
separately, on different days and at different times, the court thought that separate
sentences were appropriate. But the court never addressed the proportionality of
consecutive sentences to the seriousness of Volz's conduct and the danger he posed to
the public.
{¶13} While we appreciate the state's argument, ultimately, we conclude that the
trial court did not make the proportionality finding mandated by R.C. 2929.14(C)(4) before
sentencing. See Bonnell, 140 Ohio St.3d 209, 2014-Ohio-3177, at ¶ 33-34; State v.
Holmes, 1st Dist. Hamilton Nos. C-210194, C-210195, C-210196, 2021-Ohio-3807, ¶ 6.
While we imagine that the trial court likely did consider the proportionality analysis of R.C.
2929.14(C)(4), the statute does not permit us to infer its consideration in this case. The
record does not demonstrate that the court engaged in the proportionality analysis before
sentencing Volz. Although in the sentencing entry the trial court made all the required
findings, because the court did not make the proportionality finding at the sentencing
hearing, the imposition of consecutive sentences is contrary to law. See State v. Jones,
12th Dist. Brown No. CA2014-09-017, 2015-Ohio-2314, ¶ 25 (consecutive sentences
contrary to law because trial court made proportionality finding at sentencing but failed to
make the other statutorily required findings).
III. Conclusion
{¶14} Volz's sole assignment of error is sustained. The consecutive sentences are
vacated, and that aspect of the trial court's judgment is reversed. This case is remanded
for resentencing on the matter of consecutive sentences.
M. POWELL, P.J., and HENDRICKSON, J., concur.
-5- | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488253/ | [Cite as Postan v. Postan, 2022-Ohio-4141.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF MEDINA )
EDWARD A. POSTAN C.A. No. 20CA0047-M
Appellan
v. APPEAL FROM JUDGMENT
ENTERED IN THE
AMY E. POSTAN COURT OF COMMON PLEAS
COUNTY OF MEDINA, OHIO
Appellee CASE No. 19-DR-0089
DECISION AND JOURNAL ENTRY
Dated: November 21, 2022
TEODOSIO, Presiding Judge.
{¶1} Plaintiff-Appellant, Edward Postan (“Husband”), appeals from the judgment of the
Medina County Court of Common Pleas, Domestic Relations Division, dismissing his complaint
for divorce against Defendant-Appellee, Amy Postan (“Wife”). This Court reverses.
I.
{¶2} Husband and Wife married in 1999 and had one child during their marriage. In
2019, Husband filed a complaint for divorce from Wife, and Wife filed a counterclaim for the
same. Temporary orders were issued, and discovery ensued. Following additional proceedings
regarding the trial court’s temporary orders, a divorce trial was set for February 25, 2020.
{¶3} The trial court did not issue any orders following the scheduled trial date, and the
record does not contain a transcript of any proceedings that occurred on that date. On June 16,
2020, however, Husband filed a motion to reduce the parties’ in-court settlement to judgment. In
his motion, Husband alleged that the parties had spent the scheduled trial date negotiating and
2
reaching a final settlement. He further alleged that the court had directed Wife’s counsel to submit
a typed and signed copy of their settlement agreement to the court no later than June 18, 2020.
Husband indicated in his written motion that he had signed the settlement agreement prepared by
Wife’s counsel, but Wife was refusing to sign the agreement. Husband asked the court to adopt
the prepared agreement as its judgment. Husband attached to his motion copies of (1) a
handwritten in-court settlement agreement signed by Husband and Wife, (2) an unsigned,
typewritten separation and property settlement agreement, and (3) a proposed agreed judgment
entry of divorce.
{¶4} Two days after Husband filed his motion, Wife filed a responsive motion. Wife
moved the trial court to deny Husband’s motion, to strike the attachments to his motion, and to
schedule the matter for a final hearing. Wife indicated that the parties had not reached a full
settlement and that the proposed settlement agreement Husband had attached to his motion
contained terms to which she did not agree. Because Wife alleged that the parties were not in
agreement as to all the terms of their divorce, she asked the trial court to set the matter for a final
hearing at which the parties would have the opportunity to present evidence.
{¶5} On July 24, 2020, the trial court entered a judgment entry of dismissal “based on
the parties’ failure to submit a signed agreed judgment entry for review * * * and failure to appear
to present testimony in support of that agreement.” The trial court noted that the parties had
engaged in settlement negotiations on the day of the scheduled trial. The court wrote:
On that date, counsel was cautioned that a failure to submit [an] entry and appear
for subsequently scheduled uncontested hearing would result in a dismissal of any
and all pending claims. Counsel and parties agreed that this matter would be
dismissed if a final agreed judgment entry was not submitted to the Court.
3
Because neither party had submitted a signed, agreed judgment entry as of the date of the trial
court’s entry, it dismissed Husband’s complaint and Wife’s counterclaim for divorce. The court
also denied as moot all pending motions.
{¶6} Husband now appeals from the trial court’s judgment entry of dismissal and raises
two assignments of error for review.
II.
ASSIGNMENT OF ERROR I
THE TRIAL COURT COMMITTED ERROR AS A MATTER OF LAW AND
ABUSED ITS DISCRETION BY DISMISSING EDWARD A. POSTAN’S
COMPLAINT FOR DIVORCE 1) BEFORE ESTABLISHING GROUNDS FOR
THE INVOLUNTARY DISMISSAL – FAILURE TO PROSECUTE, COMPLY
WITH OHIO CIVIL RULES OF PROCEDURE, AND/OR COMPLY WITH
ORDERS, UNDER OHIO CIVIL RULE OF PROCEDURE 41(B)(1), AND 2)
BEFORE PROVIDING THE REQUIRED NOTICE TO PLAINTIFF’S
COUNSEL, UNDER OHIO CIVIL RULE OF PROCEDURE 41(B)(1).
{¶7} In his first assignment of error, Husband argues that the trial court erred when it
dismissed his complaint for divorce. Specifically, he argues that the trial court failed to establish
the grounds for an involuntary dismissal and failed to provide him notice of its intent to dismiss
his complaint. For the following reasons, this Court sustains Husband’s assignment of error.
{¶8} “Civ.R. 41 governs the dismissal of actions * * *.” Patterson v. New Partners Ltd.,
9th Dist. Summit No. 29448, 2020-Ohio-1017, ¶ 21. The rule provides, in relevant part, that
[w]here the plaintiff fails to prosecute, or comply with [the Ohio Rules of Civil
Procedure] or any court order, the court upon motion of a defendant or on its own
motion may, after notice to the plaintiff’s counsel, dismiss an action or claim.
Civ.R. 41(B)(1). “[T]he language of the rule itself suggests that, before an action may be dismissed
by the court for failure to comply with an order of the court, plaintiff’s counsel must be notified of
the court’s intent to dismiss after plaintiff fails to comply with an order of the court.” (Emphasis
sic.) Esser v. Murphy, 9th Dist. Summit No. 25945, 2012-Ohio-1168, ¶ 10. Accordingly, counsel
4
must be “informed that dismissal is a possibility” and given “a reasonable opportunity to defend
against dismissal.” Quonset Hut, Inc. v. Ford Motor Co., 80 Ohio St.3d 46 (1997), syllabus. “The
purpose of notice is to give the party who is in jeopardy of having his or her action or claim
dismissed one last chance to comply with the order or to explain the default.” Sazima v. Chalko,
86 Ohio St.3d 151, 155 (1999).
{¶9} “This Court reviews a trial court’s dismissal under Civ.R. 41(B)(1) for an abuse of
discretion.” Cleavenger v. B.O., 9th Dist. Summit No. 29875, 2022-Ohio-454, ¶ 28. An abuse of
discretion means that the trial court was unreasonable, arbitrary, or unconscionable in its ruling.
Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983). This Court has found that “[f]ailure to
provide [] notice [under Civ.R. 41(B)(1)] is reversible error.” EMC Mtge. Corp. v. Atkinson, 9th
Dist. Summit No. 27283, 2015-Ohio-1800, ¶ 16. Likewise, “[i]n the context of a Civ.R. 41(B)(1)
dismissal, we have stated that an abuse of discretion will be found where the trial court has not
considered other less drastic alternatives.” Esser at ¶ 13.
{¶10} The trial court scheduled this matter for trial on February 25, 2020. It is apparent
from the record that the scheduled trial did not occur because the parties attempted to negotiate a
settlement. Following the scheduled trial date, however, the trial court did not issue any further
orders until its judgment entry of dismissal. The trial court wrote in its judgment entry that the
case was dismissed “based on the parties’ failure to submit a signed agreed judgment entry for
review * * * and failure to appear to present testimony in support of that agreement.” It further
wrote that “counsel was cautioned that a failure to submit [an] entry and appear for subsequently
scheduled uncontested hearing would result in dismissal of any and all pending claims.” Thus, it
appears that the trial court dismissed the case because the parties failed to comply with a court
5
order; to wit: that the parties submit a signed agreed judgment entry and appear for an uncontested
hearing to present testimony in support of that entry.
{¶11} Although Civ.R. 41(B)(1) permits a trial court to dismiss an action if a plaintiff fails
to comply with any court order, the record is devoid of any order of the court with which Husband
failed to comply. The trial court never scheduled any further proceedings or hearing dates
following the trial. Moreover, prior to the judgment entry of dismissal, the record does not contain
any caution from the trial court regarding its intent to dismiss the action if the parties failed to take
certain actions. The plain language of Civ.R. 41(B)(1) specifically contemplates plaintiff’s
counsel being “notified of the court’s intent to dismiss after plaintiff fails to comply with an order
of the court.” (Emphasis sic.) Esser, 2012-Ohio-1168, at ¶ 10. Assuming without deciding that
it would have been proper for the trial court to dismiss the case with advance notice to Husband,1
the record does not support the conclusion that Husband was afforded “a reasonable opportunity
to defend against dismissal” following an order of the trial court. Quonset Hut, Inc., 80 Ohio St.3d
46, at syllabus. Thus, we must conclude that the trial court abused its discretion when it dismissed
the action. See EMC Mtge. Corp., 2015-Ohio-1800, at ¶ 16.
{¶12} In reaching the foregoing conclusion, this Court rejects Wife’s argument that this
appeal is moot. Wife claims that the appeal is moot because, following the trial court’s dismissal
of Husband’s complaint, Wife filed her own complaint for divorce. Yet, a matter becomes moot
1
Notably, Husband did file a copy of a settlement agreement that he signed. He notified the court
that Wife’s counsel had prepared the agreement, but Wife was refusing to sign it. Meanwhile,
Wife notified the court that the parties were still negotiating, the agreement was incomplete, and
she did not agree to all of the terms contained therein. It appears that the parties were actively
litigating the suit at the time of dismissal; they simply could not reach an agreement. Compare
Dick v. Am. Motors Sales Corp., 14 Ohio App.3d 322, 324-325 (1st Dist.1984). Because the
absence of any notice to Husband regarding the possibility of dismissal is dispositive, this Court
need not consider whether, with proper notice, it would have been appropriate for the trial court to
dismiss the action based on Husband’s inability to secure Wife’s agreement to the settlement.
6
when there is no actual controversy to decide or “when, pending an appeal from the judgment of
a lower court, and without any fault of the defendant, an event occurs which renders it impossible
for [an appellate court], if it should decide the case in favor of the plaintiff, to grant him any
effectual relief whatever * * *.” (Emphasis added.) Miner v. Witt, 82 Ohio St. 237, 239 (1910).
Wife has not established that no live controversy exists between the parties. Further, this Court
will not conclude that Husband’s appeal is moot based on Wife’s decision to file her own complaint
in a separate proceeding. See id. Because the record reflects that the trial court abused its
discretion when it dismissed Husband’s case, this Court sustains Husband’s first assignment of
error.
ASSIGNMENT OF ERROR II
THE TRIAL COURT COMMITTED ERROR AS A MATTER OF LAW AND
ABUSED ITS DISCRETION BY 1) FAILING TO HOLD A HEARING ON THE
PARTIES’ PENDING MOTIONS: A) EDWARD A. POSTAN’S MOTION TO
REDUCE IN-COURT SETTLEMENT TO JUDGMENT, AND B) AMY E.
POSTAN’S MOTIONS, INCLUDING HER MOTION TO SCHEDULE A FINAL
HEARING, AND 2) SUMMARILY DISMISSING EDWARD A. POSTAN’S
COMPLAINT FOR DIVORCE AND AMY E. POSTAN’S COUNTERCLAIM.
{¶13} In his second assignment of error, Husband argues that the trial court erred when it
summarily dismissed his complaint and Wife’s counterclaim without holding a hearing on the
parties’ pending motions. This Court has already determined that this matter must be reversed and
remanded due to the trial court’s erroneous dismissal of the complaint. Pursuant to that
determination, the case will be reinstated on the trial court’s docket, and the parties will be placed
in the same position that they were before the court dismissed the complaint. Szymczak v. Tanner,
9th Dist. Medina No. 12CA0092-M, 2013-Ohio-4277, ¶ 12. Given that resolution, we must
conclude that portions of Husband’s argument are moot while others are premature. Thus, we
7
decline to address his second assignment of error. See App.R. 12(A)(1)(c); Matus v. Jacts Group,
LLC, 9th Dist. Medina No. 17CA0056-M, 2018-Ohio-1439, ¶ 14.
III.
{¶14} Husband’s first assignment of error is sustained. Pursuant to that determination,
this Court declines to address the merits of his second assignment of error. The judgment of the
Medina County Court of Common Pleas, Domestic Relations Division, is reversed, and the cause
is remanded for further proceedings consistent with the foregoing opinion.
Judgment reversed,
and cause remanded.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Medina, State of Ohio, to carry this judgment into execution. A certified copy of
this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period
for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the
docket, pursuant to App.R. 30.
8
Costs taxed to Appellee.
THOMAS A. TEODOSIO
FOR THE COURT
CARR, J.
CALLAHAN, J.
CONCUR.
APPEARANCES:
JOSEPH BANCSI, Attorney at Law, for Appellant.
RENEE F. EUBANKS, Attorney at Law, for Appellee. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488251/ | [Cite as State v. Schell, 2022-Ohio-4142.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF LORAIN )
STATE OF OHIO C.A. No. 21CA011816
Appellee
v. APPEAL FROM JUDGMENT
ENTERED IN THE
DAVID SCHELL COURT OF COMMON PLEAS
COUNTY OF LORAIN, OHIO
Appellant CASE No. 03 CR 064207
DECISION AND JOURNAL ENTRY
Dated: November 21, 2022
TEODOSIO, Presiding Judge.
{¶1} Appellant, David Schell, appeals from the judgment of the Lorain County Court of
Common Pleas. This Court affirms.
I.
{¶2} Mr. Schell pled guilty in September 2005 to attempted gross sexual imposition, a
felony of the fifth degree. The trial court sentenced him to six months in prison and noted in its
sentencing entry that Mr. Schell was being classified as a habitual sex offender. In a separate entry
filed on the same day, the court detailed Mr. Schell’s duties to register as a habitual sex offender.
Mr. Schell did not appeal the court’s judgment. Mr. Schell was resentenced in February 2006 and
was advised of the terms and conditions of his post-release control. Mr. Schell did not appeal the
court’s judgment.
{¶3} Many years later, in October 2021, Mr. Schell filed a motion to reopen his case for
a new sentence, in which he sought to be resentenced and classified as a sexually oriented offender
2
under Megan’s Law, because the underlying case was his only conviction for a sexually oriented
offense. See Former R.C. 2950.01(B) (defining a “habitual sex offender” as a person who has
been convicted of or pled guilty to a sexually oriented offense and who previously has been
convicted of or pled guilty to one or more sexually oriented offenses). The trial court denied the
motion on the basis of res judicata.
{¶4} Mr. Schell now appeals from the trial court’s judgment and raises two assignments
of error for this Court’s review. Because they must both be overruled on the basis of res judicata,
we have consolidated them to facilitate our review.
II.
ASSIGNMENT OF ERROR ONE
APPELLANT WAS IMPROPERLY SENTENCED IN MULTIPLE PARTS
WHERE A SINGLE ENTRY IS REQUIRED.
ASSIGNMENT OF ERROR TWO
APPELLANT WAS IMPROPERLY CLASSIFIED AS A HABITUAL SEXUAL
OFFENDER UNDER MEGAN’S LAW, EFFECTIVE FROM JANUARY 1, 1997,
TO DECEMBER 31, 2007, IN THAT AT THE TIME OF HIS SENTENCING HE
DID NOT HAVE ANY PRIOR CONVICTIONS FOR ANY SEX OFFENSE.
{¶5} In his first assignment of error, Mr. Schell argues that the trial court’s sentencing
and resentencing entries are void because his sex offender classification occurred in separate entry,
in violation of the “one document rule” set forth in State v. Baker, 119 Ohio St.3d 197, 2008-Ohio-
3330, ¶ 17 (“Only one document can constitute a final appealable order.”), modified in part on
other grounds, State v. Lester, 130 Ohio St.3d 303, 2011-Ohio-5204, paragraph one of the syllabus.
In his second assignment of error, Mr. Schell argues that the trial court erred by incorrectly
classifying him under Megan’s Law as a habitual sex offender when he should have been classified
as a sexually oriented offender. As a result, he contends that he has now been unjustly prosecuted
3
in both Ohio and Florida for additional felonies related to his duties to register, when the alleged
offenses occurred after his duties to register as a sexually oriented offender would have expired.
{¶6} Mr. Schell first argues that his classification as a habitual sex offender was
contained in a separate document from both his sentencing and resentencing entries, in violation
of the “one document rule.” The premise of Mr. Schell’s argument that those entries are therefore
“void” is incorrect, however, as a sentence is only void “‘when a sentencing court lacks jurisdiction
over the subject-matter of the case or personal jurisdiction over the accused.’” State ex rel. Davis
v. Turner, 164 Ohio St.3d 395, 2021-Ohio-1771, ¶ 10, quoting State v. Harper, 160 Ohio St.3d
480, 2020-Ohio-2913, ¶ 42. Mr. Schell has not argued that the trial court did not have either
personal jurisdiction over him or subject-matter jurisdiction over the case. When a sentencing
court has jurisdiction to act, sentencing errors render the sentence voidable, not void. Harper at ¶
42. “If a judgment entry is voidable, then it must be challenged on direct appeal, or else principles
of res judicata will apply * * *.” State ex rel. Romine v. McIntosh, 162 Ohio St.3d 501, 2020-
Ohio-6826, ¶ 12. See also State v. Bates, 167 Ohio St.3d 197, 2022-Ohio-475, ¶ 22 (stating that
res judicata does not occur in a vacuum, and the party aggrieved by a court’s error must challenge
it on direct appeal). “[R]es judicata bars the consideration of issues that could have been raised on
direct appeal.” State v. Daniel, 9th Dist. Summit No. 26670, 2013-Ohio-3510, ¶ 11. See also State
v. Perry, 10 Ohio St.2d 175 (1967), paragraph nine of the syllabus. In doing so, it “promotes the
principles of finality and judicial economy by preventing endless relitigation of an issue on which
a defendant has already received a full and fair opportunity to be heard.” State v. Saxon, 109 Ohio
St.3d 176, 2006-Ohio-1245, ¶ 18.
{¶7} Mr. Schell’s argument that the trial court violated the “one document rule” in Baker
“amounts to nothing more than * * * an arguable sentencing error[,]” State ex rel. Davis at ¶ 11,
4
which would render his sentencing and resentencing entries voidable, Harper at ¶ 42, and would
require him to raise that argument on direct appeal. State ex rel. Romine at ¶ 12. Because he
neglected to do so, his argument is now barred by res judicata. See id.
{¶8} Regarding his second argument that the trial court incorrectly classified him under
Megan’s Law as a habitual sex offender instead of a sexually oriented offender, the record is clear
that Mr. Schell never appealed his sentencing, resentencing, or sex offender classification entries.
Because he never appealed the entries that classified him as a habitual sex offender, his claim that
that finding was made in error is now barred by the doctrine of res judicata. See State v. Smitley,
9th Dist. Lorain No. 15CA010849, 2017-Ohio-872, ¶ 5; State v. Stevenson, 9th Dist. Summit No.
21953, 2005-Ohio-156, ¶ 7.
{¶9} This Court is not unsympathetic to Mr. Schell’s situation, as it appears upon first
glance that his argument that he should have been classified as a sexually oriented offender may
indeed have merit. Nevertheless, we simply cannot overlook the fact that Mr. Schell waited over
a decade and a half before alleging for the first time that the trial court erred in sentencing him.
As the United States Supreme Court has held: The res judicata consequences of a final, unappealed
judgment on the merits are not altered by the fact that the judgment may have been wrong.
Federated Dept. Stores, Inc. v. Moitie, 452 U.S. 394, 398 (1981).
{¶10} Accordingly, Mr. Schell’s first and second assignments of error are both overruled.
5
III.
{¶11} Mr. Schell’s first and second assignments of error are both overruled. The
judgment of the Lorain County Court of Common Pleas is affirmed.
Judgment affirmed.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Court of Common
Pleas, County of Lorain, State of Ohio, to carry this judgment into execution. A certified copy of
this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period
for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the
docket, pursuant to App.R. 30.
Costs taxed to Appellant.
THOMAS A. TEODOSIO
FOR THE COURT
CALLAHAN, J.
CONCURS.
6
CARR, J.
CONCURRING.
{¶12} I concur. I write separately to point out that the trial court did not violate the one
document rule. The one document rule, as stated in State v. Baker, provides that “[o]nly one
document can constitute a final appealable order.” State v. Baker, 119 Ohio St.3d 197, 2008-Ohio-
3330, ¶ 17. Schell argues that his classification under Megan’s Law was contained in a separate
document from his sentencing and resentencing entries and that the same violated the one
document rule. However, “[p]roceedings under Megan’s Law were civil in nature, not criminal.”
State ex rel. Hunter v. Binette, 154 Ohio St.3d 508, 2018-Ohio-2681, ¶ 16. “Because th[e]
determination [under Megan’s Law] was not criminal, Crim.R. 32(C) does not list it as a necessary
component of a sentencing order to make the order final and appealable. To the contrary, courts
often addressed the criminal sentence and the classification determination in separate entries and
treated them as separately appealable orders.” Id. Accordingly, I agree that res judicata applies
as Schell could have raised these issues on appeal but did not appeal. Nonetheless, he may have
recourse via a delayed appeal if he meets the necessary requirements.
APPEARANCES:
MICHAEL J. CALLOW, Attorney at Law, for Appellant.
J.D. TOMLINSON, Prosecuting Attorney, and C. RICHLEY RALEY, JR., Assistant Prosecuting
Attorney, for Appellee. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488250/ | [Cite as State v. Seals, 2022-Ohio-4143.]
STATE OF OHIO ) IN THE COURT OF APPEALS
)ss: NINTH JUDICIAL DISTRICT
COUNTY OF LORAIN )
STATE OF OHIO C.A. No. 21CA011748
Appellee
v. APPEAL FROM JUDGMENT
ENTERED IN THE
SHELBY SEALS OBERLIN MUNICIPAL COURT
COUNTY OF LORAIN, OHIO
Appellant CASE No. 20TRC00858
DECISION AND JOURNAL ENTRY
Dated: November 21, 2022
CARR, Presiding Judge.
{¶1} Defendant-Appellant Shelby Seals appeals the judgment of the Oberlin Municipal
Court. This Court affirms.
I.
{¶2} Following a traffic stop around 2:30 a.m. on February 29, 2020, Seals was charged,
in two separate cases that were heard together, with violating R.C. 4511.19(A)(1)(a), R.C.
2925.141, Codified Ordinances of the City of Amherst 331.08, and Codified Ordinances of the
City of Amherst 331.14. Seals filed a motion to suppress, which was denied following a hearing.
However, the trial court did conclude that the portable breath test results were not admissible.
{¶3} The matter proceeded to a bench trial. The trial court found Seals guilty of violating
R.C. 4511.19(A)(1)(a) and Codified Ordinances of the City of Amherst 331.14 and not guilty of
violating R.C. 2925.141 and Codified Ordinances of the City of Amherst 331.08. Seals was
thereafter sentenced.
2
{¶4} She has appealed, raising a single assignment of error for this Court’s review.
II.
ASSIGNMENT OF ERROR
A CONVICTION FOR OPERATING A VEHICLE UNDER THE INFLUENCE
IN VIOLATION OF []R.C. 4511.19(A)(1)(A) WAS AGAINST THE MANIFEST
WEIGHT OF THE EVIDENCE.
{¶5} In her sole assignment of error, Seals argues that her conviction for violating R.C.
4511.19(A)(1)(a) is against the manifest weight of the evidence. In so doing, Seals appears to
challenge the traffic stop as well.
{¶6} As to any issues related to the traffic stop, this Court has concluded that “[a]ny
challenge to the constitutionality of the stop and arrest * * * [are] required to be raised in a pre-
trial motion to suppress.” State v. Jackson, 9th Dist. Summit No. 30145, 2022-Ohio-2254, ¶ 19.
While Seals did file a motion to suppress, she has not directly challenged the trial court’s ruling in
this appeal as she has not set forth any assignments of error directed at that ruling.
In determining whether a criminal conviction is against the manifest weight of the
evidence, an appellate court must review the entire record, weigh the evidence and
all reasonable inferences, consider the credibility of witnesses and determine
whether, in resolving conflicts in the evidence, the trier of fact clearly lost its way
and created such a manifest miscarriage of justice that the conviction must be
reversed and a new trial ordered.
State v. Otten, 33 Ohio App.3d 339, 340 (9th Dist.1986).
{¶7} “When a court of appeals reverses a judgment of a trial court on the basis that the
verdict is against the weight of the evidence, the appellate court sits as a ‘thirteenth juror’ and
disagrees with the fact[-]finder’s resolution of the conflicting testimony.” State v. Thompkins, 78
Ohio St.3d 380, 387 (1997), quoting Tibbs v. Florida, 457 U.S. 31, 42 (1982). An appellate court
should exercise the power to reverse a judgment as against the manifest weight of the evidence
only in exceptional cases. Otten at 340. “[W]e are mindful that the [trier of fact] is free to believe
3
all, part, or none of the testimony of each witness.” (Internal quotations and citations omitted.)
State v. Gannon, 9th Dist. Medina No. 19CA0053-M, 2020-Ohio-3075, ¶ 20. “This Court will not
overturn a conviction on a manifest weight challenge only because the [trier of fact] found the
testimony of certain witnesses to be credible.” Id.
{¶8} R.C. 4511.19(A)(1)(a) provides that “[n]o person shall operate any vehicle,
streetcar, or trackless trolley within this state, if, at the time of the operation * * * [t]he person is
under the influence of alcohol, a drug of abuse, or a combination of them.” “[I]n drunk driving
prosecution, the state does not have to prove actual impaired driving; rather, it need only show an
impaired driving ability.” State v. Wilson, 9th Dist. Lorain No. 12CA010263, 2014-Ohio-3182, ¶
15, quoting State v. Zentner, 9th Dist. Wayne No. 02CA0040, 2003-Ohio-2352, ¶ 19. “To prove
impaired driving ability, the state can rely on physiological factors (e.g., odor of alcohol, glossy
or bloodshot eyes, slurred speech, confused appearance) to demonstrate that a person’s physical
and mental ability to drive was impaired.” Wilson at ¶ 15, quoting State v. Peters, 9th Dist. Wayne
No. 08CA0009, 2008-Ohio-6940, ¶ 5, quoting State v. Holland, 11th Dist. Portage No. 98-0066,
1999 WL 1313665, *5 (Dec. 17, 1999).
{¶9} Here, the only witness to testify at trial was Sergeant Jacob Perez of the Amherst
Police Department. His dash camera recording was also admitted into evidence. At the time of
trial, Sergeant Perez had been employed as a police officer for 22 years. He estimated that he had
been involved in around 600 arrests related to operating a vehicle under the influence. Sergeant
Perez indicated that signs of alcohol impairment include the odor of an intoxicating beverage,
glassy eyes, slurred speech, being unsteady on one’s feet, and issues with motor skills.
{¶10} Around 2:30 a.m. on February 29, 2020, Sergeant Perez encountered Seals’ vehicle
pulling out from a parking spot near Cedar Pub. The back windshield of Seals’ vehicle was
4
covered with snow. The streets also had varying amounts of snow on them, and it was snowing at
the time. Sergeant Perez proceeded to follow the vehicle in his marked cruiser. He observed that
the driver failed to use a turn signal before turning right. While not discussed during the testimony,
the video also reveals that, later in the footage, the vehicle stopped well beyond the marked line
and sign indicating where to stop for a traffic light. Shortly thereafter, Sergeant Perez turned on
his overhead lights and Seals’ vehicle promptly stopped.
{¶11} When Sergeant Perez approached the vehicle, he noted a strong odor of alcohol
emanating from the vehicle and that Seals’ eyes were glassy. In addition to the driver, Seals, the
vehicle also contained a passenger whom Sergeant Perez described as being highly intoxicated.
When Sergeant Perez explained the basis for the stop, Seals disputed that she failed to use her turn
signal; however, the video supports the officer’s testimony. Seals then admitted to having one
drink when she got off of work.
{¶12} Sergeant Perez asked Seals to step out of the vehicle and Seals wanted to know the
reason why. When Seals exited the vehicle, she again indicated that she had only had one drink.
Once Seals was out of the vehicle, Sergeant Perez noticed the odor of an “intoxicant beverage”
emanating from her person.
{¶13} Sergeant Perez next had Seals perform three non-standardized field sobriety tests.
One of the tests was touching her finger to her nose. With respect to that test, Sergeant Perez
stated that Seals on two occasions touched her upper lip instead of her nose, that her body was
swaying slightly during part of the test, and that, at one point, she started to use the wrong finger.
From the video, it is difficult to confirm or reject some of the officer’s observations.
{¶14} Next, Sergeant Perez asked Seals to recite the alphabet from the letter E to V. Seals
failed on both attempts to complete the proper sequence of letters. Sergeant Perez then had her
5
perform a walk-and-turn test. Sergeant Perez testified that none of the steps were heel-to-toe, she
took one too many steps the one direction, and also slightly stumbled when turning. Again, the
video fails to capture most of the detail the officer described. After the completion of the tests,
Seals again affirmed that she had only had one drink.
{¶15} Following the portable breath test, Seals admitted that she had more than one drink,
stating that she at most had three drinks. She also admitted to meeting the passenger at a bar.
Seals was arrested and placed in the back of the cruiser. While Seals was in the back of the cruiser,
she repeatedly berated and insulted the officer using offensive and profane language. When she
arrived at the station, she refused to take a breath test.
{¶16} After independently reviewing the record, we cannot say that Seals has
demonstrated her conviction for violating R.C. 4511.19(A)(1)(a) is against the manifest weight of
the evidence. Here, there was evidence presented that Seals had an odor of alcohol emanating
from her person, had glassy eyes, had consumed possibly three drinks, and was seen leaving the
area of a bar around 2:30 a.m. In addition, the officer’s observations of Seals during the non-
standard field sobriety testing were presented and notably included that Seals had difficulty
reciting the alphabet. Further, Seals provided inconsistent statements to the officer as to how much
alcohol she consumed; at first informing the officer that she only had one drink, only to later admit
that at most she had had three drinks. Finally, the dash camera footage included Seals’ behavior
once she was arrested and placed in the police cruiser. Seals repeatedly berated and insulted the
officer using profane and offensive language. See State v. Coleman, 12th Dist. Butler No.
CA2017-02-023, 2017-Ohio-8036, ¶ 33 (noting belligerent behavior can be consistent with being
under the influence of alcohol); see also Cleveland v. Jordan, 8th Dist. Cuyahoga No. 103451,
2016-Ohio-4957, ¶ 16. This Court has stated that, “[i]n determining whether a defendant was
6
under the influence of alcohol, [a] [trier of fact] may properly consider evidence of [the
defendant’s] appearance and behavior, including [the defendant’s] ability to perceive, make
judgments, coordinate movements, and safely operate a vehicle.” State v. Davis, 9th Dist. Summit
No. 29273, 2020-Ohio-473, ¶ 33. Given the record before us, and the argument of Seals, we cannot
say that she has demonstrated that her conviction is against the weight of the evidence.
{¶17} Seals’ assignment of error is overruled.
III.
{¶18} Seals’ assignment of error is overruled. The judgment of the Oberlin Municipal
Court is affirmed.
Judgment affirmed.
There were reasonable grounds for this appeal.
We order that a special mandate issue out of this Court, directing the Oberlin Municipal
Court, County of Lorain, State of Ohio, to carry this judgment into execution. A certified copy of
this journal entry shall constitute the mandate, pursuant to App.R. 27.
Immediately upon the filing hereof, this document shall constitute the journal entry of
judgment, and it shall be file stamped by the Clerk of the Court of Appeals at which time the period
for review shall begin to run. App.R. 22(C). The Clerk of the Court of Appeals is instructed to
mail a notice of entry of this judgment to the parties and to make a notation of the mailing in the
docket, pursuant to App.R. 30.
Costs taxed to Appellant.
7
DONNA J. CARR
FOR THE COURT
CALLAHAN, J.
SUTTON, J.
CONCUR.
APPEARANCES:
JASON S. HARLESS, Attorney at Law, for Appellant.
PATRICK WARD, Prosecuting Attorney, for Appellee. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488161/ | THE THIRTEENTH COURT OF APPEALS
13-22-00187-CV
Eid Shenouda
v.
Norna Safwat Tawfik Farag
On Appeal from the
24th District Court of Victoria County, Texas
Trial Court Cause No. 21-04-87113-A
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes the appeal should be dismissed. The Court orders the appeal
DISMISSED in accordance with its opinion. Costs of the appeal are adjudged against
appellant.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488165/ | THE THIRTEENTH COURT OF APPEALS
13-21-00345-CV
Cirilo Garza and Jeanette Garza
v.
Harlingen Consolidated Independent School District
On Appeal from the
445th District Court of Cameron County, Texas
Trial Court Cause No. 2020-DCL-00118
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes the judgment of the trial court should be reversed and remanded in
part for further proceedings and affirmed in part. The Court orders the judgment of the
trial court REVERSED and REMANDED IN PART for further proceedings and
AFFIRMED IN PART. Costs of the appeal are adjudged against appellants.
We further order this decision certified below for observance.
November 17, 2022. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488176/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-61,522-02
EX PARTE DARREN LYNN WALKER, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 07-06-07236-CRR IN THE 143RD DISTRICT COURT
FROM REEVES COUNTY
Per curiam.
OPINION
Applicant was convicted of assault of a public servant and sentenced to fifteen years’
imprisonment. Applicant filed this application for a writ of habeas corpus in the county of
conviction, and the district clerk forwarded it to this Court. See TEX . CODE CRIM . PROC. art. 11.07.
Applicant contends that he was denied proper jail time credit for time spent in county jail
while a parole revocation warrant was issued, but not executed. Ex parte White, 400 S.W.3d 92
(Tex. Crim. App. 2013). Applicant was not eligible for bail on a new offense due to the “hold”
resulting from the issuance of the parole revocation warrant. He was therefore arrested under
meaning of TEX . GOV ’T CODE §§ 508.253 and entitled to the time credit he seeks.
Relief is granted. Ex parte White, 400 S.W.3d 92 (Tex. Crim. App. 2013). Within thirty
2
days from the date of this Court’s mandate, the Classification and Records Department of the Texas
Department of Criminal Justice-Correctional Institutions Division will give Applicant time credit
from April 4, 2019 to present instead of his current time credit of August 20, 2019 to present.
Copies of this opinion shall be sent to the Texas Department of Criminal Justice–Correctional
Institutions Division and the Board of Pardons and Paroles.
Delivered: November 16, 2022
Do not publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488166/ | NUMBER 13-21-00172-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
CHRISTUS SPOHN HEALTH
SYSTEM CORPORATION, Appellant,
v.
MARY ANN HIGH AND
CYNTHIA RECTOR, Appellees.
On appeal from the County Court at Law No. 1
of Nueces County, Texas.
OPINION
Before Justices Hinojosa, Tijerina, and Silva
Opinion by Justice Silva
In this interlocutory appeal, we review the trial court’s denial of appellant Christus
Spohn Health System Corporation’s (Christus Spohn) motion to dismiss appellees Mary
Ann High and Cynthia Rector’s negligence and medical malpractice suit. At issue is
whether High and Rector’s causes of action constitute health care liability claims subject
to the expert-report requirement under the Texas Medical Liability Act (TMLA). 1 See TEX.
CIV. PRAC. & REM. CODE § 74.351.
For reasons explored below, we conclude in the affirmative; namely, High and
Rector’s complaints that Christus Spohn failed to properly identify each infant or parent
of each infant or maintain proper patient identification practices—resulting in High and
Rector being “switched at birth” and discharged to the wrong families—is a claimed
departure of accepted standards of professional or administrative services directly related
to health care. See id. at § 74.001(a)(13). We reverse and remand so that the trial court
may assess the adequacy of High and Rector’s submitted expert reports.
I. BACKGROUND
On July 29, 2020, High and Rector sued Christus Spohn for negligence and
alternatively, medical malpractice, complaining that the hospital’s improper practices
resulted in High and Rector being misidentified while in the hospital and discharged to the
incorrect families on April 30, 1969. 2 High and Rector pleaded that the doctrine of res
ipsa loquitur applied in the alternative.
1 The parties agree that the trial court’s denial of Christus Spohn’s motion to dismiss was
predicated on its conclusion that High and Rector’s claims were not health care liability claims, and the trial
court did not rule on the adequacy of the expert reports or High and Rector’s contingency request for an
extension of time to cure any deficiencies. See TEX. CIV. PRAC. & REM. CODE § 74.351(c); Baty v. Futrell,
543 S.W.3d 689, 692 n.2 (Tex. 2018).
2 High became motivated to learn the circumstances of her birth after her DNA testing results from
an online DNA testing service indicated she had ancestry unshared by other members of her immediate
family. High obtained public birth records from the Kleberg County Hospital, where High was delivered, and
confirmed that one other female, Rector, had also been born on the same day. High contacted Rector, but
she declined to participate in genetic testing. However, Rector’s sister agreed to undergo genetic testing,
and the results revealed that High and Rector’s sister were biologically related.
2
Following Christus Spohn’s answer, High and Rector served Christus Spohn with
expert reports. 3 On January 19, 2021, Christus Spohn filed objections to the expert
reports and a motion to dismiss for failure to file an expert report pursuant to the TMLA.
See id. Christus Spohn argued that the expert reports were so deficient that they
amounted to no report being served at all. See id. § 74.351(I), (r). In response, High and
Rector asserted that they had submitted the expert reports out of an abundance of caution
and maintained that their claims do not involve medical care, treatment, or a claimed
departure from the accepted standards of health care, safety, or professional or
administrative services directly related to health care so as to require TMLA compliance.
See id. at §§ 74.001(a)(13) (defining a “health care liability claim”), 74.351 (requiring an
expert report to accompany a health care liability claim). At a hearing on Christus Spohn’s
motion to dismiss, High and Rector reiterated their position that the TMLA does not apply,
and the trial court subsequently denied Christus Spohn’s motion to dismiss on this narrow
basis. This appeal followed.
II. DISCUSSION
By a single issue, Christus Spohn challenges the trial court’s denial of its TMLA
motion to dismiss. The question of whether a hospital’s misidentification of infant patients
constitutes a health care liability claim is an issue of first impression for Texas courts.
3 The expert reports are not contained in the record on appeal, but the parties do not dispute that
the reports were served on January 6, 2021. See TEX. CIV. PRAC. & REM. CODE ANN. § 74.351(b) (requiring
dismissal with prejudice and attorney’s fees award if claimant fails to serve an expert report within 120 days
after a defendant files an original answer).
3
A. Standard of Review and Applicable Law
“The [TMLA]’s comprehensive statutory framework strikes ‘a careful balance
between eradicating frivolous claims and preserving meritorious ones’” in its imposition
of a threshold expert report requirement, which necessitates that “suits asserting health
care liability claims must be supported by an expert report ‘before litigation gets
underway.’” Baylor Scott & White, Hillcrest Med. Ctr. v. Weems, 575 S.W.3d 357, 362–
63 (Tex. 2019) (quoting Leland v. Brandal, 257 S.W.3d 204, 208 (Tex. 2008) and
Spectrum Healthcare Res., Inc. v. McDaniel, 306 S.W.3d 249, 253 (Tex. 2010)). A
claimant’s failure to serve an adequate expert report in a suit asserting a health care
liability claim will result in the dismissal of the claimant’s suit with prejudice. Id. at 363;
see TEX. CIV. PRAC. & REM. CODE § 74.351(l), (r)(6).
The TMLA defines a “health care liability claim” as:
a cause of action against a health care provider or physician for treatment,
lack of treatment, or other claimed departure from accepted standards of
medical care, or health care, or safety or professional or administrative
services directly related to health care, which proximately results in injury to
or death of a claimant, whether the claimant’s claim or cause of action
sounds in tort or contract.
TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(13). Imbued in this definition are three
elements:
(1) a physician or health care provider must be a defendant; (2) the claim or
claims at issue must concern treatment, lack of treatment, or a departure
from accepted standards of medical care, or health care, or safety or
professional or administrative services directly related to health care; and
(3) the defendant’s act or omission complained of must proximately cause
the injury to the claimant.
4
Bioderm Skin Care, LLC v. Sok, 426 S.W.3d 753, 758 (Tex. 2014) (quoting Tex. W. Oaks
Hosp., LP v. Williams, 371 S.W.3d 171, 179–80 (Tex. 2012)). “No one element, occurring
independent of the other two, will recast a claim into a health care liability claim.” Id.
Under the TMLA, “health care” is defined as “any act or treatment performed or
furnished, or that should have been performed or furnished, by any health care provider
for, to, or on behalf of a patient during the patient’s medical care, treatment, or
confinement.” Id. § 74.001(a)(10); see also id. § 74.001(a)(19) (defining “medical care”).
Though the statute does not define “patient,” we apply its common meaning. See id.
§ 74.001; Ross v. St. Luke’s Episcopal Hosp., 462 S.W.3d 496, 501 (Tex. 2015). The
primary dictionary definition of “patient” is “an individual awaiting or under medical care
and treatment.” Patient (noun), MERRIAM-WEBSTER DICTIONARY, https://www.merriam-
webster.com/dictionary/patient (last visited November 15, 2022); see generally HCA, Inc.
v. Miller ex rel. Miller, 36 S.W.3d 187, 195 n.21 (Tex. App.—Houston [14th Dist.] 2000),
aff’d, 118 S.W.3d 758 (Tex. 2003) (“Provided it is subsequently born alive, even an unborn
fetus is a ‘patient’ to whom a doctor treating the mother owes a duty of care.” (citing Brown
v. Shwarts, 968 S.W.2d 331, 334 (Tex. 1998))). “Safety” is likewise not defined by the
TMLA. However, the Texas Supreme Court has stated that “safety” shoulders its common
meaning: “the condition of being ‘untouched by danger; not exposed to danger; secure
from danger, harm or loss.’” Ross, 462 S.W.3d at 501 (quoting Diversicare Gen. Partner,
Inc. v. Rubio, 185 S.W.3d 842, 855 (Tex. 2005)). “Professional or administrative services”
means “those duties or services that a physician or health care provider is required to
provide as a condition of maintaining the physician’s or health care provider’s license,
5
accreditation status, or certification to participate in state or federal health care programs.”
TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(24).
Notably, as to a claim based on professional or administrative services, the TMLA
does not require that “the alleged injury must have occurred during or contemporaneously
with health care [received], nor that the alleged injury was caused by health care.”
CHRISTUS Health Gulf Coast v. Carswell, 505 S.W.3d 528, 535 (Tex. 2016); see TEX.
CIV. PRAC. & REM. CODE ANN. § 74.001(a)(13); CHCA Bayshore, L.P. v. Ramos, 388
S.W.3d 741, 746 (Tex. App.—Houston [1st Dist.] 2012, no pet.) (“[I]t is not necessary that
the professional or administrative services occur during the patient’s medical care,
treatment, or confinement.”); see also Ross, 462 S.W.3d at 504 (providing that there need
only be “a substantive nexus between the safety standards allegedly violated and the
provision of health care”). Rather, the TMLA applies where a claim concerns injury
“proximately caused by a ‘departure from accepted standards of . . . professional or
administrative services directly related to health care.’” Carswell, 505 S.W.3d at 535
(quoting TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(13)). The TMLA’s “broad
language . . . evidences [a] legislative intent for the statute to have expansive application”
and “essentially creates a presumption that a claim is a[] [health care liability claim] if it is
against a physician or health care provider and is based on facts implicating the
defendant’s conduct during the course of a patient’s care, treatment, or confinement.”
Loaisiga v. Cerda, 379 S.W.3d 248, 256 (Tex. 2012). A claimant may rebut the
presumption by showing that “the only possible relationship between the conduct
underlying a claim and the rendition of medical services or health[]care [is] the
6
health[]care setting[,] . . . the defendant’s status as a doctor or health care provider, or
both.” Id.
Whether a claim is a health care liability claim is a question of law we review de
novo. Lake Jackson Med. Spa, Ltd. v. Gaytan, 640 S.W.3d 830, 836 (Tex. 2022). In our
analysis, we must consider the “entire court record” and “the facts underlying the claim,
not the form of, or artfully-phrased language in, the plaintiff’s pleadings describing the
facts or legal theories asserted.” Id. at 838–39 (quoting Loaisiga, 379 S.W.3d at 255).
B. Analysis
High and Rector do not dispute that Christus Spohn has established the first
element—that Christus Spohn is a “health care provider” under the TMLA; therefore, the
first element is met. See TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(12)(A) (“‘Health
care provider’ means any person, partnership, professional association, corporation,
facility, or institution duly licensed, certified, registered, or chartered by the State of Texas
to provide health care[.]”); see also Soliz v. McAllen Hosps., L.P., No. 13-20-00535-CV,
2022 WL 52595, at *3 (Tex. App.—Corpus Christi–Edinburg Jan. 6, 2022, pet. denied)
(mem. op.) (“It is undisputed that the Hospital is a health care provider under the TMLA,
and, therefore, the first [health care liability claim] element is met.”).
As we proceed with our inquiry into the second element, we find the Texas
Supreme Court’s statutory analysis in Carswell to be most instructive. See 505 S.W.3d at
536. In Carswell, the court considered whether a claim based on post-mortem conduct
concerned “professional or administrative services directly related to health care.” Id. at
535. Observing that the plaintiff’s factual allegations implicated provisions under the
Texas Code of Criminal Procedure, Texas Health and Safety Code, and Texas
7
Administrative Code pertaining to hospital requirements for licensure, the court concluded
that the suit implicitly involved a “claimed departure from accepted standards
of . . . professional or administrative services.” Id. at 534–35 (citing TEX. CODE CRIM.
PROC. ANN. arts. 49.25, 49.32(a), 49.35; TEX. HEALTH & SAFETY CODE ANN.
§ 241.053(a)(3); 25 TEX. ADMIN. CODE §§ 133.1(c), 133.121(1)(F)); see also McAllen
Hosps., L.P. v. Ontiveros, No. 13-11-00512-CV, 2012 WL 3761981, at *3 (Tex. App.—
Corpus Christi–Edinburg Aug. 30, 2012, pet. denied) (mem. op.). We frame our analysis
similarly and jointly consider: (1) what is the gravamen of High and Rector’s claims; and
(2) what, if any, relationship exists between High and Rector’s claims and the professional
or administrative services Christus Spohn was obligated to provide as a condition of
maintaining its license, accreditation status, or certification. See TEX. CIV. PRAC. & REM.
CODE ANN. § 74.001(a)(13); Carswell, 505 S.W.3d at 536; Bioderm Skin, 426 S.W.3d at
758.
Christus Spohn argues that High and Rector’s claims are premised on allegations
of the hospital’s noncompliance with practices set forth in Chapter 133 of the Texas
Administrative Code, which “provides procedures for obtaining a hospital license;
minimum standards for hospital functions and services; [and] patient rights
standards . . . .” See 25 TEX. ADMIN. CODE § 133.1(b); see id. § 133.1(a) (“The purpose of
[Chapter 133] is to implement the Health and Safety Code, Chapter 241, which requires
general and special hospitals to be licensed by the Department of State Health
Services.”); see also TEX. HEALTH & SAFETY CODE ANN. § 241.002 (purpose). Christus
Spohn directs this Court to the following Chapter 133 provisions:
8
The hospital shall have a medical record service that has administrative
responsibility for medical records. A medical record shall be maintained for
every individual who presents to the hospital for evaluation or treatment.
....
The medical record shall contain information to justify admission and
continued hospitalization, support the diagnosis, reflect significant changes
in the patient’s condition, and describe the patient’s progress and response
to medications and services. Medical records shall be accurately written,
promptly completed, properly filed and retained, and accessible.
25 TEX. ADMIN. CODE § 133.41(j). The Texas Department of State Health Services “may
deny, suspend, or revoke a license [of a hospital] or impose an administrative penalty if
the licensee or applicant . . . fails to comply” with “any provision” set forth in Chapter 133.
Id. at § 133.121(1). Christus Spohn further asserts that Chapter 133’s medical record
provisions encompass the professional or administrative duties central to High and
Rector’s claims—namely, that hospitals must “[p]roperly identify[] infants within medical
records and hav[e] appropriate ‘processes and procedures in place’ to prevent infant
misidentification . . . as a condition for maintaining its license.”
In response, High and Rector maintain on appeal, as they did before the trial court,
that they have presented “no allegation that proper medical records were not kept on the
mothers . . . or the infants.” High and Rector stress that this case “does not involve
incorrect medical records” because “[t]he only documents alleged to be incorrect here
were the birth certificates,” which are “not a part of health care.” Thus, High and Rector
contend that Chapter 133 requirements regarding medical records should have no
bearing on our analysis. Having reviewed the facts underlying High and Rector’s claims,
we disagree. See Lake Jackson, 640 S.W.3d at 838–39.
9
The crux of High and Rector’s claims concern Christus Spohn’s alleged failure to
have reasonable processes and procedures in place to correctly identify and maintain the
identity of each infant patient so as to minimize risk of patient misidentification or incorrect
discharge. See id. Although not controlling, we note the language contained in High and
Rector’s original petition:
5.2 At the time and place in question, Defendant had a duty to correctly
and securely identify each infant in the hospital and to ensure that
discharge of each infant be with his or her parent or family.
5.3 Defendant was guilty of the following separate acts of negligence,
each of which, singularly or in combination, were a proximate cause
of the injuries and damages alleged herein.
a) Failing to have reasonable processes and procedures in place
to properly identify each infant, or failing to follow same;
b) Failing to have reasonable processes and procedures in place
to properly identify the parent for each infant, or failing to
follow same;
c) Failing to have reasonable processes and procedures in place
to maintain the identity of each infant while in the hospital, or
failing to follow same;
d) Failing to have reasonable processes and procedures in place
to minimize or eliminate the risk that an infant would be
misidentified, or failing to follow same;
e) Failing to have reasonable processes and security
procedures in place to minimize or eliminate the risk that an
infant may be discharged from the hospital with the wrong
parent or family, or failing to follow same.
High and Rector’s pleadings altogether eschew mention of “medical records.” However,
their claims necessarily concern the hospital’s failure to have reasonable processes and
procedures in place to create and maintain accurate medical records (i.e., accurate
patient-identifying information) for each infant patient. See Weems, 575 S.W.3d at 363
10
(noting “a party cannot avoid Chapter 74’s requirements and limitations through artful
pleading”). Though we observe that patient-identifying procedures may present in
alternative forms, we are unable to disassociate High and Rector’s attenuated contention
that the hospital had a duty to correctly identify and maintain an accurate identification of
each infant with the hospital’s recognized duty to create and maintain accurate medical
records. See 25 TEX. ADMIN. CODE § 133.41(j)(4); see generally TEX. HEALTH & SAFETY
CODE ANN. § 241.0263 (a), (d) (setting forth security procedures to “reduce the likelihood
of infant patient abduction” or to “aid in the identification of missing infants,” which include
“footprinting, photographing, or writing descriptions of infant patients at birth”); Strategies
to Improve Patient Identification: Accurate Patient Identification Essential to Avoid
Adverse Health, Financial Risks, 26 HEALTHCARE REGISTRATION 3 (2017) (reviewing
standards and practices to reduce the risk of misidentifying patients during hospital care);
Tara R. Crane, Mistaken Baby Switches, 21 J. LEGAL MED. 109, 110–11 (2000) (exploring
the possible breaches of professional duties which may arise and liability theories to
which hospitals may be exposed when infant patients under their care are “switched”).
Moreover, at minimum, the claims High and Rector present here are “premised on
facts that could support” health care liability claims, and they must be treated as such.
See Lake Jackson, 640 S.W.3d at 838 (“[C]laims ‘premised on facts that could support
claims’ that qualify as health care liability claims are health care liability claims, regardless
of the pleading’s specific allegations.” (quoting Loaisiga, 379 S.W.3d at 255)). It is well-
established that the “creation and maintenance of accurate health records is . . . a
professional or administrative service directly related to health care,” and a patient’s
medical records “must contain accurate data and information pertaining to the patient.”
11
See Weems, 575 S.W.3d at 365 (quoting 22 TEX. ADMIN. CODE § 165.1(a), (a)(10)). It
follows that an infant’s medical records containing incorrect patient-identifying information
(or, as relevant here, incorrect prenatal care history or post-delivery information) would
be a deviation from accepted professional or administrative standards. Therefore,
provided that the final element of the statute is satisfied, High and Rector’s claims may
constitute health care liability claims. 4
To the third and final element of whether Christus Spohn’s alleged act or omission
proximately caused the injury to the claimants, we answer affirmatively. See Bioderm
Skin, 426 S.W.3d at 758. A substantive nexus exists between Christus Spohn’s alleged
act or omission—its failure to correctly identify each infant and maintain accurate
identification for each infant, an inseparable part of the hospital’s professional or
administrative duty to create and maintain accurate medical records—and High and
Rector’s claimed injury—their misidentification as infants and the resulting erroneous
discharge. See Weems, 575 S.W.3d at 364 (“Weems’s claims, if true, satisfy the final
element of a health care liability claim, because the central thesis of his claim is that the
purported falsification proximately caused the injuries, he—the claimant—alleges he has
suffered.”). Thus, we conclude that High and Rector have asserted health care liability
claims subject to the TMLA’s expert report requirement. See id.; see also TEX. CIV. PRAC.
& REM. CODE § 74.351.
4 Christus Spohn also contends that High and Rector’s claims involve allegations of “departure[s]
from accepted standards” of health care and safety. See TEX. CIV. PRAC. & REM. CODE ANN. § 74.001(a)(13);
Ross v. St. Luke’s Episcopal Hosp., 462 S.W.3d 496, 505 (Tex. 2015) (setting forth a list of non-exclusive
considerations to help courts determine whether there is a substantive nexus between the safety standards
allegedly violated and the providing of health care). Given our resolution of this element under the
“professional or administrative service” provision, we do not reach these subissues. See TEX. R. APP. P.
47.1.
12
III. CONCLUSION
The parties agree that the trial court did not rule on the adequacy of the submitted
expert reports in its denial of Christus Spohn’s motion and remand would be appropriate
following a finding by this Court that High and Rector’s claims are health care liability
claims. We reverse and remand for further proceedings consistent with this opinion.
CLARISSA SILVA
Justice
Delivered and filed on the
17th day of November, 2022.
13 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488177/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-55,452-16
IN RE JAMES SMILEY, Relator
ON APPLICATION FOR A WRIT OF MANDAMUS
CAUSE NO. D-1-DC-20904005-C-D IN THE 427TH DISTRICT COURT
FROM TRAVIS COUNTY
Per curiam.
ORDER
Relator has filed a motion for leave to file an application for a writ of mandamus under this
Court’s original jurisdiction. He contends that he filed an application for a writ of habeas corpus in
Travis County in July 2022 and his application has not been properly forwarded to this Court.
Respondent, the District Clerk of Travis County, shall forward Relator’s habeas application
to this Court, respond that Relator has not filed a habeas application in Travis County, or forward
a copy of an order designating issues together with correspondence documenting the date the State
received Relator’s habeas application. See TEX . CODE CRIM . PROC. art. 11.07, § 3(c) and (d); TEX .
R. APP . P. 73.4(b)(5). This motion for leave to file will be held. Respondent shall comply with this
order within thirty days from the date of this order.
2
Filed: November 16, 2022
Do not publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488163/ | THE THIRTEENTH COURT OF APPEALS
13-21-00341-CV
CITY OF CEDAR PARK
v.
JUAN DELAPENA, INDIVIDUALLY AND AS NEXT FRIEND OF C.D.L.P., A MINOR;
AND KORINA DELAPENA, INDIVIDUALLY AND ON BEHALF OF
THE ESTATE OF C.D., A DECEASED MINOR
On Appeal from the
201st District Court of Travis County, Texas
Trial Court Cause No. D-1-GN-19-007803
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes the judgment of the trial court should be reversed and rendered. The
Court orders the judgment of the trial court REVERSED and RENDERS judgment in
accordance with its opinion. Costs of the appeal are adjudged against appellees.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488179/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-94,273-01
EX PARTE ANTHONY LEXINGTON KOPYCINSKI, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 85949-CR-A IN THE 149TH DISTRICT COURT
FROM BRAZORIA COUNTY
Per curiam.
OPINION
Applicant was convicted of murder and sentenced to life years’ imprisonment. The
Thirteenth Court of Appeals affirmed his conviction. Kopycinski v. State, No. 13-20-00548-CR
(Tex. App.—Corpus Christi-Edinburgh, May 26, 2022) (not designated for publication). Applicant
filed this application for a writ of habeas corpus in the county of conviction, and the district clerk
forwarded it to this Court. See TEX . CODE CRIM . PROC. art. 11.07.
Applicant essentially contends that he did not receive appellate counsel’s notice of the court
of appeals’s judgment and advisement of the right to file a pro se petition for discretionary review
until after the deadline for filing such a petition had passed. The State and the trial court both
recommend that Applicant be allowed to file an out-of-time pro se petition for discretionary review.
2
According to the record, appellate counsel timely sent a letter to Applicant advising him of the court
of appeals’s ruling and his right to file a pro se petition for discretionary review; however, the letter
was returned to appellate counsel as undeliverable because Applicant had been removed from the
address of his last known prison unit. By the time Applicant received appellate counsel’s second
letter, the deadline for filing, as well as the deadline for requesting an extension to file, a petition for
discretionary review had both passed.
Relief is granted. Applicant may file an out-of-time petition for discretionary review of the
judgment of the Thirteenth Court of Appeals in cause number 13-20-00548-CR. Should Applicant
decide to file a petition for discretionary review, he must file it with this Court within thirty days
from the date of this Court’s mandate.
Copies of this opinion shall be sent to the Texas Department of Criminal Justice–Correctional
Institutions Division and the Board of Pardons and Paroles.
Delivered: November 16, 2022
Do not publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488178/ | In the Court of Criminal
Appeals of Texas
══════════
No. WR-90,982-01
══════════
EX PARTE GENOVEVO SALINAS SALINAS,
Applicant
═══════════════════════════════════════
On Application for a Writ of Habeas Corpus
Cause No. 656545-A from the 230th District Court
Harris County
═══════════════════════════════════════
YEARY, J., delivered the opinion of the Court, in which KELLER,
P.J., and RICHARDSON, SLAUGHTER, and MCCLURE, JJ., joined. HERVEY,
J., concurred in the result. WALKER, J., dissented. NEWELL and KEEL,
JJ., did not participate.
In this post-conviction application for writ of habeas corpus
proceeding, Applicant challenges the constitutional effectiveness of his
trial counsel at his second murder trial. TEX. CODE CRIM. PROC. art.
SALINAS – 2
11.07. The underlying offense involved the double homicide of Juan and
Hector Garza, committed in December of 1992. 1 Aware that the police
suspected him of the crime, Applicant absconded and was not arrested
until 2007. Applicant’s first trial, in 2008, resulted in a hung jury. But a
different jury found him guilty at his second trial in 2009, and it
assessed his punishment at confinement in the penitentiary for twenty
years and a $5,000 fine.
Applicant’s trial attorneys were the same for both trials. He
argues here that they performed deficiently at his second trial, primarily
by allowing the admission of evidence that he stood mute—saying
nothing at all—when investigating officers posed one particular
question during an interview at the station house in January of 1993.
The investigating detectives asked Applicant whether forensic toolmark
examination would reveal that the shotgun recovered from his parents’
home, where he lived at the time of the offense, was the weapon used to
kill the Garzas. Applicant, who had waived his right to silence and
readily responded to their questions up to that point, would not answer.
At Applicant’s second trial, in 2009, trial counsel objected to the
admission of this evidence based upon Applicant’s Fifth Amendment
privilege not to be compelled to be a witness against himself, arguing
that his pretrial silence could not constitutionally be used against him
regardless of whether he was in custody at the time of the interview.
U.S. CONST. amend. V. Applicant pursued this argument on direct
1 Applicant was only charged with the murder of Juan Garza—not the
capital murder of both. The indictment alleged that Applicant intentionally
and knowingly caused Juan Garza’s death by shooting him with a deadly
weapon. TEX. PENAL CODE § 19.02(a)(1).
SALINAS – 3
appeal, Salinas v. State, 368 S.W.3d 550 (Tex. App.—Houston [14th
Dist.] 2011), on petition for discretionary review, Salinas v. State, 369
S.W.3d 176 (Tex. Crim. App. 2012), and ultimately on petition for
certiorari to the United States Supreme Court, Salinas v. Texas, 570
U.S. 178 (2013) (plurality opinion). His contention was rejected at every
stage, on various grounds.
Applicant now argues that trial counsel at the second trial
performed in a constitutionally deficient manner by failing to object to
the use of his pre-trial silence on two other grounds. First, he argues that
trial counsel should have objected that admission of the evidence of his
silence violated the Fourteenth Amendment’s Due Process Clause as
“fundamentally unfair” because it came after he was cautioned by police,
pursuant to the dictates of Miranda v. Arizona, 384 U.S. 436 (1966), that
his silence could not be used against him. See Doyle v. Ohio, 426 U.S.
610, 619 (1976) (“We hold that the use for impeachment purposes of
petitioner’s silence, at the time of arrest and after receiving Miranda
warnings, violated the Due Process Clause of the Fourteenth
Amendment.”). 2 And second, he argues that trial counsel could and
should have kept the evidence of his refusal to answer out because it
was elicited as part of an oral statement made while Applicant was in
police custody, and such statements are inadmissible as a matter of
state law unless they are electronically recorded. See TEX. CODE CRIM.
2 Justice Alito pointed to this holding from Doyle in a footnote to the
Supreme Court’s plurality opinion on certiorari in Applicant’s case. Salinas,
570 U.S. at 188 n.3 (“Petitioner is correct that due process prohibits prosecutors
from pointing to the fact that a defendant was silent after he heard Miranda
warnings[.]”).
SALINAS – 4
PROC. art. 38.22 § 3(a)(1) (“No oral . . . statement of an accused made as
a result of custodial interrogation shall be admissible against the
accused in a criminal proceeding unless . . . an electronic recording . . .
is made of the statement[.]”).
Applicant contends that the prosecutor’s emphasis upon his
failure to respond to the question of whether forensic testing would
reveal that his shotgun was the murder weapon made all the difference
between a hung jury at his first trial and a conviction at his second.
Thus, he argues, he has adequately established prejudice for purposes
of his Sixth Amendment claim of ineffective assistance of counsel. See
Strickland v. Washington, 466 U.S. 668, 694 (1984) (in order to establish
the prejudice prong of a Sixth Amendment claim of ineffective assistance
of counsel, “[t]he defendant must show that there is a reasonable
probability that, but for counsel’s unprofessional errors, the result of the
proceeding would have been different.”).
The convicting court has recommended that we grant Applicant a
new trial based upon the failure to challenge his pretrial silence on the
basis of either or both of these legal theories: (1) Doyle and (2) Article
38.22. It also found that trial counsel performed deficiently in a handful
of other comparatively trivial ways which, together with their failure to
prevent the admission of Applicant’s pretrial silence, coalesced to
undermine confidence in the outcome of his second trial. See id. (“A
reasonable probability is a probability sufficient to undermine
confidence in the outcome.”). We ultimately reject the convicting court’s
recommendation to grant relief. We filed and set the case in order to
explain why.
SALINAS – 5
I. BACKGROUND
A. The Offense Report 3
Juan and Hector Garza were gunned down in the pre-dawn hours
of December 18, 1992, in Hector’s small apartment in Houston, both
felled by close-range shotgun blasts. Police arrived shortly thereafter.
Two shotgun shell casings were recovered by the front door to the
apartment, and four more were recovered in the front room of the
apartment. The police had no immediate suspects, but they eventually
learned that Applicant had been at the apartment the night before until
about 10 o’clock with a friend, Mike Provazek, and that Applicant owned
a shotgun.
On January 11, 1993, Houston Police Department Homicide
Sergeants Wayne Wendel and W. O. Allen made first contact with
Appellant at his home, where he lived with his parents. Applicant was
cooperative, but he could not remember very many details. He admitted
he had gone to the Garza’s apartment with Provazek, and that he
smoked crack cocaine and drank beer while he was there. He could not
remember who else came by or what time Provazek took him home.
Later, police received a tip from crime stoppers that Applicant
was the person who committed the murders. As a result, on the evening
of January 28, 1993, Sergeant Wendel, this time along with Sergeant
Carlos Elliott, again contacted Applicant at his home and asked for
consent to search for the shotgun. Both Applicant and his father signed
consent forms, and Applicant’s father produced a shotgun from his own
3 A copy of the Houston Police Department offense report was admitted
as an exhibit at the writ hearing in 2019. The facts as set out in this subsection
of our opinion were gleaned from that offense report.
SALINAS – 6
bedroom and relinquished it to the officers.
Sergeant Wendel “retained” the shotgun at that time for
comparison to the casings left at the murder scene, and the officers
asked Applicant to accompany them to the police station to be
fingerprinted and photographed “for elimination purposes.” Applicant
agreed to go and was transported to the homicide office. He was first
Mirandized by Wendel at 6:43 p.m., and he acknowledged that he
understood his rights. At that point, he simply “denied any involvement
in the case.” The officers took a short break and provided Applicant a
cup of coffee; Applicant “was also smoking cigarettes.” Then, Sergeant
Allen (who had joined the other officers by this time) read Applicant his
rights for a second time, this time “from the top of a ‘Statement of Person
in Custody’ form,” after which Applicant initialed each listed right. He
also initialed a declaration on the form to say that he “intelligently and
voluntarily waive[d]” those rights in order to “make the following
voluntary statement.” “This was at” 6:56 p.m. What followed was not
memorialized on the statement form, or by electronic recording, or in
any other manner, other than by the officers’ descriptions in the offense
report itself, which Applicant did not endorse.
Applicant admitted to the officers that he knew Juan and Hector,
and that he had been at their apartment the night before the killing with
his friend, Mike Provazek. He acknowledged having mutual friends with
the Garza brothers, including Damien Cuellar (about whom more will
be said later). Applicant admitted they had been “smoking some ‘rocks’”
of crack cocaine and drinking beer, and that he left with Provazek, who
took him straight home. He denied having had “any type of
SALINAS – 7
disagreement” with the Garzas.
Sergeant Allen then asked Applicant whether he “had any other
gun’s [sic] than the shotgun[,]” which Applicant denied. Next, as
recounted in the offense report: “Sgt. Allen asked [Applicant] if the
shotgun would match the shells recovered from the scene and
[Applicant] would not answer the question.” But Applicant went on to
answer questions about what he had done the following morning,
claiming that he had been hung over, had called in sick to work, and had
returned to bed until early afternoon. He claimed he did not learn about
the killings until the weekend after it happened, when Mike Provazek
and Damien Cuellar informed him. And with that, according to the
offense report, Applicant “had nothing further to say” about the case,
and the interview concluded at 7:45 p.m.
A forensic examination, conducted the next day (January 29th),
revealed that the six shotgun shells found at the murder scene had
indeed been fired from the shotgun recovered from Applicant’s home.
Applicant, who had been detained temporarily in the city jail for a
number of outstanding capias pro fines, was informed of the outcome of
the forensic testing, and again “had nothing to say.” He was apparently
nevertheless released on January 30th. By the time police obtained an
arrest warrant on the murder charge, on February 1st, Applicant had
disappeared, and he was not arrested until November of 2007. He was
found to have been using an alias.
B. The First Trial 4
4 The convicting court took judicial notice of the record of Applicant’s
first and second trials, both of which we have reviewed. We find no indication
that trial counsel challenged the admissibility of the evidence of Applicant’s
SALINAS – 8
Sergeant Wendel was the first witness to testify at Applicant’s
initial trial in late June of 2008. He confirmed that he spoke to Applicant
on January 11th, 1993, and that Applicant told him that he had been at
Hector Garza’s apartment on December 17th, with Provazek, smoking
“crack” cocaine and drinking beer. Wendel made no mention of
Applicant’s oral statement at the station house on January 28th.
Later, Sergeant Elliott also testified. Like Wendel, Elliott relayed
no information about Applicant’s January 28th statement—at least not
during his direct examination. 5 On cross-examination, Elliott said that
he and Wendel had gone to Applicant’s home that day both to retrieve
the shotgun and “to interview [Applicant] in depth[.]” Applicant’s
counsel then asked Elliott if Applicant had “confessed” to the offense:
Q. So, you take him into custody on January 28th. Did he
ever confess to the kidnapping?
A. No.
Q. You certainly asked him some tough questions, though,
didn’t you?
A. Yes.
refusal to answer the question regarding what forensic examination of the
shotgun would reveal by way of pretrial motion or evidentiary hearing
conducted before either the first or second trial.
5 Asked during his direct examination whether the officers had
arrested Applicant after they obtained the shotgun from him, Elliott seems to
have alluded to Applicant’s statement when he answered: “We brought him
downtown to talk to him. After talking to him and the inconsistencies and we
checked him --”. Trial counsel’s objection that the answer was non-responsive
was sustained and the jury was instructed to disregard Elliott’s answer. He
went on to testify that they arrested Applicant for failure to pay traffic tickets.
SALINAS – 9
Before the State’s re-direct, the prosecutor approached the bench and
argued that this colloquy had opened the door to questioning Elliott
about Applicant’s oral statement. Applicant declared that he would
object to any testimony about the oral statement.
When the prosecutor later broached that topic with Elliott,
Applicant indeed objected and asked the prosecutor to “nail down the
time frame” so that it could be determined “whether that’s after he has
been placed in custody or before.” The trial court suggested that
Applicant’s counsel voir dire Elliott on that question. On voir dire, Elliott
testified that “[w]e talked to [Applicant] at his house and at the station,
but a lot of it was at the house there with his dad about the gun and all.”
Once they got Applicant to the police station, Elliott maintained, “we
were just going to interview him.” But he also asserted that Applicant
would not have been free to leave. Applicant’s counsel then objected that
“any custodial statement is still going to be governed by the Code[.]” In
reply, the prosecutor again insisted that Applicant’s cross-examination
of Elliott had opened the door to evidence of Applicant’s oral statement.
Without explicitly ruling on Applicant’s objection, the trial court
instructed the prosecutor that the State had “to establish whether or not
[Applicant] was” in custody.
Taking Elliott back on re-direct, the prosecutor elicited Elliott’s
opinion that, at least when they had first reached the police station,
Applicant was not in custody. Asked by the prosecutor whether
Applicant had been free to leave, Elliott answered:
We had been back to the station and we were realizing that
we were beginning to move in that direction, he had went
from being a witness to being a suspect. So, we stopped the
SALINAS – 10
interview and Mirandized him, gave him his warnings on
the form. * * * It started off as a conversation between
three men and moved over into an interview of a suspect.
Applicant then renewed his objection, apparently invoking Article 38.22,
Section 3, when he said, “ I object at this point unless we can get whether
or not that [interview] is in writing or on videotape or audiotape.” When
the prosecutor promised “to do that[,]” the trial court overruled
Applicant’s objection “at this point.”
What Elliott said next is, frankly, somewhat murky. The
prosecutor asked him what Applicant had told the officers at the house,
before being transported to the police station. Elliott indicated that
Applicant had told them everything that the offense report indicates he
told them after he was Mirandized at the station: namely, that he had
been to the Garzas’ apartment with Provazek the night before, smoking
crack and drinking; that he stayed home hung over the next morning;
and that he later learned about the killing from Provazek and Cuellar.
Still apparently describing the conversation at the house, Elliott said
they asked for Applicant and his father to produce the shotgun. Almost
immediately after that, the following colloquy occurred (leaving the
definite impression that Applicant’s refusal to answer the question
happened at the house, not during the statement at the police station):
Q. . . . When they brought the shotgun to you, did you ask
any questions about the shotgun to the defendant?
A. Yes.
Q. What did you ask him?
A. I asked him if the shotgun -- I recognized it was a .12-
SALINAS – 11
gauge. If the gun was going to match the shotgun used at
the murder scene.
Q. And why did you ask that question?
A. Hopefully, if there was a logical answer he would tell
me.
Q. Was he able to answer that question?
A. No, he would not. Did not. Just kind of ignored it. You
asked a question and it just sat there.
Applicant did not renew his objection at this point. 6 But neither did
Applicant’s trial counsel use the offense report to impeach Elliott’s
testimony, or to try to refresh his memory, with respect to where the
statement occurred.
The prosecutor’s closing argument at the guilt stage of trial
reinforced this impression when he argued:
And when [Applicant and his father] brought out his
father’s shotgun, the police asked -- police like to dig in
stuff like this.
Hey, we’re going to take this back to the lab. We’re going to
check to see if this was the shotgun. Is it going to come back
to a match?
What was the defendant’s response?
Just looked at them and said nothing.
6 Not only did Elliott claim⸻contrary to the offense report⸻that
Applicant’s silence occurred at the house, not the police station, he also claimed
to have been the one to pose the question, even though the offense report
plainly declared that Sergeant Allen had done so. For undisclosed reasons,
Allen did not testify at either trial.
SALINAS – 12
Applicant made no objection to this argument. Applicant’s first trial
ended in a mistrial when the jury was unable to reach a unanimous
verdict after a full day of deliberations.
C. The Second Trial
Applicant’s second trial for the murder of Juan Garza began less
than a year after the first, in March of 2009. Sergeant Wendel did not
testify again at the second trial, but Sergeant Elliott did. Different
prosecutors represented the State at the second trial, and a different
judge presided, while Applicant’s lawyers were the same. Evidence of
Applicant’s refusal to answer the investigators’ pointed question about
the likely result of forensic testing of the shotgun developed quite
differently at the second trial.
On the morning of the first day of testimony, the new prosecutor
announced that he wanted to mention Applicant’s refusal to answer in
his opening statement to the jury, which he considered a “very important
piece of evidence[.]” He argued that, from his review of both the offense
report and the transcript of the first trial, he believed that the refusal to
answer occurred as the officers were speaking with Applicant at his
house. He concluded that Applicant “was not in custody at the time he
made those statements and therefore it’s admissible.” Applicant’s
counsel replied that he had had “an agreement” with the first-trial
prosecutor as to Applicant’s custody status, and that the only reason the
evidence of Applicant’s station-house statement had come in at the first
trial was that defense counsel had opened the door to it. 7 The new judge
7 Applicant’s trial counsel did not elaborate about the exact nature of
his “agreement” with the prosecutor at the first trial, and the record of the first
SALINAS – 13
announced that she agreed with the State that it boiled down to a
question of whether Applicant was in custody at the time, and since she
had not yet heard any testimony relevant to that question, she declined
to rule on its admissibility. The prosecutor refrained on that basis from
mentioning it during his opening statement.
Elliott testified at the second trial, however, contrary to the
impression left by his testimony at the first trial, that the statement did
not occur at the Applicant’s house after all. Consulting the offense
report, Elliott instead maintained that Applicant “did not say anything
additional” to the officers once the shotgun had been produced, but that
he did agree to accompany them to the police station. Elliott maintained
that Applicant was not “under arrest” or “in custody” when taken
“downtown,” and that he was “free to leave at that time[.]” Without even
mentioning whether Applicant had been Mirandized at the station,
Elliott then began to testify about what Applicant told the officers there.
Before introducing the subject of Applicant’s refusal to answer the
one question at issue here, the prosecutor approached the bench
pursuant to a motion in limine that he said had been granted pretrial.8
Applicant’s counsel objected that to introduce Applicant’s refusal would
violate his Fifth Amendment privilege to remain silent “whether he was
in custody or not.” The trial court did not explicitly rule on this objection
trial reveals no such explicit agreement. Understandably, the new trial court
judged asked: “How can the two of you read the same transcript and accuse the
other of being wrong [about] that[?]”
8We have found no such motion in limine, nor any other allusion to it,
anywhere in the appellate record.
SALINAS – 14
during the bench conference⸻at least not on the record. 9
Still without any allusion to the Miranda warnings, the
prosecutor commenced to lead Elliott through a narrative of the
questions Applicant did answer at the station (as reflected in the offense
report). Then she asked him:
Q. Did you ask him, Sergeant Elliott, if the shotgun in
question here would match the shells recovered at the
scene of the murder?
A. Yes. 10
Applicant’s counsel renewed his previous objection, which the trial court
expressly overruled. The following colloquy ensued:
Q. And what was his answer?
A. He did not answer.
* * *
Q. Sergeant Elliott, what specifically did the defendant do
after he remained silent when you asked him that
question?
A. Looked down at the floor, shuffled his feet, bit his
bottom lip, clinched his hands in his lap, began to tighten
up.
9Shortly after this bench conference, the trial court convened another
bench conference which seems not to have been transcribed.
10 We note, once again, that the offense report reflects that it was Allen,
not Elliott, who actually asked Applicant the question. See note 6, ante. Elliott
conceded on cross-examination at the second trial that, at least as a general
proposition, the offense report was “likely to be more accurate” than his trial-
time memory.
SALINAS – 15
Q. Did you continue to ask him questions after this?
A. Yes.
Q. And did you talk to him -- did he answer any more
questions?
A. Yes.
Q. He continued to answer questions?
A. Yes.
* * *
Q. So, in this 58 minutes that you talked to [Applicant] on
January the 28th of 1993, how many questions did he not
answer?
A. One.
Applicant’s trial counsel made no objection to this testimony other than
that it violated Applicant’s Fifth Amendment privilege to remain silent
regardless of whether he was in custody at the time. Counsel made no
attempt to elicit testimony from Elliott that Applicant had been
Mirandized by the time he refused to answer, and neither did they
attempt to invoke the protections of the Due Process Clause under Doyle.
Nor did they argue that Applicant was in custody by that time, and
object accordingly (as they appear to have done at the first trial) that his
statement⸻including his refusal to answer the “one” question⸻was
inadmissible because it was not electronically recorded, as required by
Article 38.22, Section 3(a)(1).
The State then made more of a point of emphasizing Applicant’s
silence during its closing argument at the second trial than it had at the
SALINAS – 16
first. The prosecutor argued:
But then [the police] say [to Applicant, at the
station]: All right. Let me ask you this. That shotgun that
we just took, we checked the ballistics. Is it going to match
up to the ballistics that we found at the murder scene? He’s
shocked. Probably the first time --
[Defense Counsel]: Objection, Your Honor. That’s
outside the record. 11
THE COURT: Sustained.
[Prosecutor]: The police officer testified he wouldn’t
answer that question. He didn’t want to answer that.
Probably the first time he realizes you can do that. What?
You can compare those? * * * He didn’t say: No, it’s not
going to match up. It’s my shotgun. It’s been in my house.
What are you talking about? He wouldn’t answer that
question.
But it’s not like he just won’t talk to [the police]. He
is talking freely even before and after that question, but he
does not answer that question and he had an hour span
when he talked to [them].
Twice more during his final argument, the prosecutor alluded to
Applicant’s refusal to respond to this “one” question, albeit in passing
while summarizing all of the evidence showing Applicant’s guilt. This
time the jury convicted Applicant after about five hours of deliberation.
The jury also assessed his punishment at twenty years’ confinement in
the penitentiary and a $5,000 fine.
11 Here, Applicant’s counsel seems to have objected to the description of
Applicant as “shocked”⸻for which there was indeed no direct evidentiary
support⸻rather than the reference to Applicant’s refusal to answer the
question.
SALINAS – 17
D. The Appeal
Applicant appealed the issue that he did preserve at the second
trial, namely, whether use of his refusal to answer the “one” question
against him violated his Fifth Amendment right to silence regardless of
whether he was in custody or had been Mirandized. The court of appeals
rejected this claim. It first noted that “the United States Supreme Court
has yet to decide what protections, if any, the Fifth Amendment affords
to pre-arrest silence when the defendant does not testify and his silence
is introduced by the State not for impeachment but in its case-in-chief.”
Salinas, 368 S.W.3d at 557. It also noted a split in authority over this
question among both state courts and federal circuits. Id. at 557–58 &
n.2. The court of appeals opted for those cases that have refused to
recognize a Fifth Amendment application to non-custodial silence, on
the ground that “only government compulsion triggers its protections
against self-incrimination.” Id. at 558. It held that “the Fifth
Amendment has no applicability to pre-arrest, pre-Miranda silence used
as substantive evidence in cases in which the defendant does not testify.”
Id.
On discretionary review, this Court affirmed the court of appeals’
judgment and endorsed its reasoning. See Salinas, 369 S.W.3d at 179
(“In pre-arrest, pre-Miranda circumstances, a suspect’s interaction with
police officers is not compelled. Thus, the Fifth Amendment right
against compulsory self-incrimination is ‘simply irrelevant to a citizen’s
decision to remain silent when he is under no official compulsion to
speak.’”) (quoting Jenkins v. Anderson, 447 U.S. 231, 241 (1980)
(Stevens, J., concurring))).
SALINAS – 18
Given the national split in authority, the United States Supreme
Court granted certiorari. Salinas v. Texas, 568 U.S. 1119 (2013). Having
granted review to decide “whether the prosecution may use a
defendant’s assertion of the privilege against self-incrimination during
a noncustodial police interview as part of its case in chief[,]” however, a
plurality of the Supreme Court ultimately found it “unnecessary to
reach that question.” Salinas v. Texas, 570 U.S. 178, 183. Instead, the
Supreme Court plurality held that a defendant under these noncustodial
circumstances is at least “required to invoke” his Fifth Amendment
privilege before he may rely upon it to insulate his silence from
substantive use at trial. Id. at 191. And a suspect who is not in custody,
has not been Mirandized, 12 “and who stands mute has not done enough
to put police on notice that he is relying on his Fifth Amendment
privilege.” Id. at 188. At this juncture in its opinion, the Supreme Court
plurality dropped a footnote to observe that “Petitioner is correct that
due process prohibits prosecutors from pointing to the fact that a
defendant was silent after he heard Miranda warnings,” citing Doyle,
426 U.S. at 617–18, “but that rule does not apply where a suspect has
not received the warnings’ implicit promise that any silence will not be
used against him[.]” Salinas v. Texas, 570 U.S. at 188, n.3. Of course,
because the offense report indicates that Applicant was in fact
Mirandized before refusing to answer the officers’ question about what
12 Because Elliott had not testified at Applicant’s second trial
(consistent with the offense report) whether Applicant had been Mirandized,
the case arrived at the Supreme Court in the posture that his statement had
occurred before he received his Miranda warnings. See Salinas, 570 U.S. at 181
(plurality opinion) (“Without being placed in custody or receiving Miranda
warnings . . .”). See notes 11 & 12, post.
SALINAS – 19
forensic evaluation of the shotgun would reveal, he now argues that his
trial counsel were ineffective for failing to invoke the due process
protection of Doyle.
E. The Writ Application and Hearing
George Parnham and Dee McWilliams represented Applicant at
both his first and second trials. The convicting court ordered each of
them to submit an affidavit in response to Applicant’s ineffective
assistance of counsel claims. In their affidavits, both Parnham and
McWilliams invoked the “confusion” generated by Elliott’s vague and
variable accounts from one trial to the next as to exactly when Applicant
was in custody and at what point he was Mirandized. Both asserted that
their approach to handling the issue of Applicant’s refusal to answer had
been a product of long-considered strategy. But neither could remember
precisely what that strategy might have been⸻apart from taking what
McWilliams called an “adamant position” that Applicant’s right to
silence was protected by the Fifth Amendment regardless of whether he
was in custody.
Each also testified at an evidentiary hearing conducted over the
course of two days, in April (McWilliams) and September (Parnham) of
2019. During his testimony, McWilliams acknowledged that he had had
access to the offense report during Applicant’s second trial. With respect
to Applicant’s claim that he should have raised Doyle error, he seems to
have misremembered Elliott’s testimony from the second trial, because
he evinced a belief that Elliott had claimed that Applicant’s statement
and accompanying refusal to answer the one relevant question all
SALINAS – 20
occurred before Applicant was Mirandized. 13 He acknowledged that the
offense report showed otherwise, and he could not remember whether or
why he did not also try to develop a Doyle claim, other than to explain
that he “just didn’t want to get . . . pigeonholed into the issue about
whether he was in custody or whether it happened before or after the
Miranda warnings.” He believed that by insisting that the Fifth
Amendment covered pre-custodial invocations of the right to silence, he
could obviate these factual issues.
McWilliams said he was aware of Doyle at the time of Applicant’s
second trial, but he made the following pertinent observation about it:
Q. Specifically[,] Doyle v Ohio, what’s your understanding
of the Supreme Court’s ruling in that case?
A. Well, I don’t believe that after you’ve been mirandized
if you choose to invoke your right to remain silent, then
that would be protected.
I don’t -- I think that when we talk about that, we’re
thinking of that in terms of someone gets mirandized and
they say I’m not talking to you. I’m invoking my Fifth
Amendment privilege or what -- however they handle it
and don’t say anything.
I think it’s a -- was more of an open-ended question
about what happens in the context of a person who actually
waives their rights and executes and signs off on a consent
form and gives a statement voluntarily. And then at
certain points during the interview invokes their right to
silence and whether they would have a right to -- whether
they waived that or not.
13 In fact, in his testimony at the second trial, Elliott simply did not
relate one way or the other whether Applicant had been Mirandized at that
point, focusing his remarks instead on whether Applicant was in custody. See
note 12, ante; note 14, post.
SALINAS – 21
From this, it seems to us that it was not at all clear to McWilliams that
Doyle would even apply to the facts of Applicant’s case even if he had
been Mirandized prior to refusing to answer the pertinent question⸻if
it was in the course of a statement following a waiver of those rights. In
any event, given the ambiguity of the evidence with respect to when
Applicant had been placed in custody and Mirandized, McWilliams
acknowledged on cross-examination by the State that he had pursued “a
broad strategy . . . to try and encompass any of those potential events[,]”
so that “whether it is pre-custody, pre-Miranda or post-Miranda, it’s
inadmissible.”
With respect to Applicant’s complaint that he should also have
challenged the admission of Applicant’s entire statement under Article
38.22(3)(a)(1) (providing that oral and sign language statements must
be recorded in some fashion), McWilliams admitted that if Applicant
was in custody at the time police questioned him, “then [Article] 38.22
would apply to it.” His memory of the second trial was that Elliott had
testified that “most of the statement had all occurred prior to being
[M]irandized.” 14 Asked “what was the strategy for not objecting to
that[,]” he answered:
We talked about this a million times. And why we didn’t
want -- why we didn’t pursue a motion to suppress on that,
I do not recall. But we were -- in my mind there would have
been some reason for it because this was such a focus on
what we were doing. * * * I just don’t recall what it was
right now.
14As noted above, however, Elliott actually testified about Applicant’s
statement at the second trial without ever mentioning whether he had been
Mirandized. See notes 12 & 13, ante.
SALINAS – 22
He added that allowing at least parts of Applicant’s statement to come
into evidence had contributed to a strategy of showing (along with
evidence showing that he had readily turned over the shotgun) that
Applicant had cooperated with the police investigation: “I felt like it was
a sign of his being cooperative and honest with the police.” He could not
remember whether he had tried to keep the statement out at the first
trial. 15 When the State asked him again on cross-examination why he
had not objected under Article 38.22 at the second trial, he repeated that
he could not recall because “[i]t’s just been too long and it was two
trials.” 16
Parnham’s memory was equally unavailing. Like McWilliams, he
testified that they had received a copy of the offense report. He had “no
independent recollection” why they had not filed a motion to suppress
Applicant’s oral statement, though he felt sure they had had “a purpose
of which I do not recollect at this time.” He did not know why
15Of course, the record of the first trial reveals that he did try to keep
the statement out at the first trial, invoking Article 38.22, but then he was
ruled to have opened to door to its admission anyway, however inadvertently.
Despite the passage of time since Applicant’s second trial, there is no
16
laches issue in this case. The Supreme Court’s opinion following Applicant’s
second trial came out in June of 2013, and Applicant filed his writ application
in May of 2014, with an amended application in June of 2017. See Ex parte
Perez, 398 S.W.3d 206, 216 & n.12 (Tex. Crim. App. 2013) (“[W]e recognize that
delays of more than five years may generally be considered unreasonable in
the absence of any justification for the delay. * * * [W]e do not foresee that
the doctrine of laches will ordinarily apply to any application filed within five
years after the exhaustion of direct appeals.”). Even so, the imperfect memory
of Applicant’s trial counsel is not hard to understand after the passage of ten
years. That being said, we do not ultimately predicate our denial of relief on
Applicant’s various claims of ineffective counsel to any extent on his trial
counsels’ failing memories.
SALINAS – 23
McWilliams had not raised a Doyle objection.
F. The Convicting Court’s Recommendations
The parties prepared competing proposed findings of fact and
conclusions of law, and they argued their respective positions to the
convicting court on January 8, 2020. After hearing the arguments, the
convicting court orally announced on the record that it found Applicant
to have been in custody when the oral statement (including his refusal
to answer the question about the forensic examination of the shotgun)
was made, since Applicant signed a waiver form, a copy of which was
admitted at the writ hearing, captioned “STATEMENT OF PERSON IN
CUSTODY.” On that basis, the convicting court orally announced that
it was finding trial counsel ineffective for failing to object based upon
Article 38.22. Without further elaboration, the convicting court then
expressly adopted Applicant’s entire proposed findings and conclusions,
including a conclusion that trial counsel should have objected based on
Doyle, as well as four other ineffective assistance of counsel claims.
In its written findings and conclusions, drafted by Applicant’s
habeas counsel, the convicting court found that Applicant’s silence had
occurred after he was in custody and after he was Mirandized, and it
concluded that there was “no reasonable defense strategy” that would
justify “counsels’ failure to object to the admission of [Applicant’s]
custodial interrogation which included his silence.” Many of the
convicting court’s findings of fact derive from the offense report. With
respect to the chronology of events surrounding the statement, the
convicting court found:
The police report is clear: the police only asked [Applicant]
about the shotgun comparison results after he was
SALINAS – 24
transported to the police station, placed in an interview
room, read his Miranda warnings twice, and presented
with and asked to sign a “statement of person in custody”
form.
Thus, the convicting court adopted Applicant’s position that his oral
statement occurred while he was in custody and post-Miranda.
Regarding Applicant’s first trial, the convicting court found that
McWilliams had reached an agreement with the first prosecutor that
Applicant’s statement was custodial, and that it had only been admitted
when McWilliams opened the door; and that, otherwise, McWilliams had
sought to exclude the statement in its entirety under Article 38.22. The
convicting court found that, at the second trial, a different prosecutor
attempted to change the evidentiary picture by suggesting that most of
the oral statement (including Applicant’s silence) had occurred at his
home, not the police station. However, consistent with the police report,
Elliott instead testified at the second trial that the questioning had
occurred at the station⸻although he maintained that Applicant was not
yet in custody at that time. 17
The convicting court found that Applicant’s trial counsel failed to
17 Citing to the wrong page of the writ hearing, the convicting court also
found that, “[a]t the second trial, there was no question that Sgt. Elliott’s
testimony was that the silence occurred post-Miranda.” But this is inaccurate.
It is arguable that McWilliams acknowledged during his testimony at the writ
hearing that Elliott claimed during the second trial that Applicant did not give
the oral statement until after he was Mirandized. But, as we have already
noted, see notes 12, 13 & 14, ante, the record of the second trial refutes this.
Elliott simply never said whether Applicant had been Mirandized or not, much
less when he was Mirandized. Our rejection of this finding of fact has no
bearing on our ultimate resolution of these claims.
SALINAS – 25
ask for a hearing outside the jury’s presence on the issue of custody, or
to object to the statement on either Doyle–due process or Article 38.22
grounds; nor did they “use[] the offense report, the Statement of Person
in Custody form, or prior testimony to prove that [Applicant] had been
read his Miranda warnings and was in custody prior to remaining
silent.” Finally, the convicting court found that “the prosecution’s more
detailed and effective use of [Applicant’s] silence was the main
difference between the first trial, which ended in a mistrial, and the
second trial, which resulted in a finding of guilt.” 18 It concluded that,
“had the defense objected on [d]ue [p]rocess or [A]rticle 38.22 grounds,
[Applicant’s] silence would not have been admissible at his [second]
trial.” And “in light of the police report, it was unreasonable not to argue
that the silence was inadmissible pursuant to the Due Process Clause
and [A]rticle 38.22.” In short, the convicting court concluded, “no
reasonable trial strategy” was offered to excuse the failure to raise
objections to (1) the admission of Applicant’s silence, under Doyle, or (2)
to admission of the entire oral statement, under Article 38.22.
Although this Court is the “ultimate” factfinder in post-conviction
habeas corpus proceedings under Article 11.07, “in most circumstances,
we will defer to and accept a trial judge’s findings of fact and conclusions
18The writ hearing judge (different from the trial court judge at both
the first and second trials) characterized the prosecutor’s allusion to
Applicant’s silence during the State’s summation at the first trial as having
been made “briefly” and “in passing.” We would not have characterized the
prosecutor’s use of that silence at the first trial as “brief” and “in passing” as
the convicting court recommends. But given our ultimate disposition of
Applicant’s claims, our disagreement with the writ hearing judge on this fact
question is ultimately immaterial.
SALINAS – 26
of law when they are supported by the record.” Ex parte Reed, 271
S.W.3d 698, 727 (Tex. Crim. App. 2008). When recommended findings
and conclusions are not supported by the record, however, “we may
exercise our authority to make contrary or alternative findings and
conclusions.” Id. In this case, even accepting the convicting court’s
recommended findings of fact as (for the most part) supported by the
record, 19 we conclude that the law does not ultimately support granting
relief based upon those facts, and we will therefore deny relief.
II. THE STANDARD OF REVIEW: STRICKLAND
The burden is on Applicant to establish ineffective assistance of
his trial counsel by a preponderance of the evidence. Ex parte Martinez,
330 S.W.3d 891, 901 (Tex. Crim. App. 2011). Such a claim has two
components: (1) deficient performance, and (2) prejudice. Strickland,
466 U.S. at 687. Counsel performs deficiently if he has “made errors so
serious” that it cannot be said he functioned as the “counsel” guaranteed
by the Sixth Amendment. Id. It is presumed that counsel rendered
adequate assistance and made all significant decisions in the exercise of
reasonable professional judgment. Id. at 690. There are countless ways
to provide effective assistance in any given case, and counsels’
performance must be evaluated “as of the time of [their] conduct[,]” not
through “the distorting effects of hindsight.” Id. at 689–90.
Finally, and most critically to this case, we do not ordinarily
declare counsel to have performed deficiently for failing to invoke
unsettled legal principles. See, e.g., Ex parte Bahena, 195 S.W.3d 704,
707 (Tex. Crim. App. 2006) (counsel was not ineffective for failing to act
19 But see notes 17 & 18, ante.
SALINAS – 27
on the basis of “law that was unsettled at the time and is unsettled to
this day”); Ex parte Chandler, 182 S.W.3d 350, 358 (Tex. Crim. App.
2005) (trial counsel will not be liable for an error in judgment on an
unsettled proposition of law); Ex parte Welch, 981 S.W.2d 183, 184 (Tex.
Crim. App. 1998) (“[W]e will not find counsel ineffective where the
claimed error is based upon unsettled law.”). To base an ineffective
assistance of counsel claim on law that is unsettled as of the time of the
attorney’s performance would indulge in the kind of retrospective
evaluation that Strickland forbids. Vaughn v. State, 931 S.W.2d 564, 567
(Tex. Crim. App. 1996)(citing Strickland, 466 U.S. at 690).
If counsels’ performance was indeed deficient, even under this
fairly forgiving standard, their deficient performance is prejudicial only
if those errors were so serious as to deprive the defendant of a fair trial,
that is, a trial whose result is reliable. Strickland, 466 U.S. at 687.
Applicant must show that, but for counsels’ deficient performance, there
is a reasonable probability that the result of his trial would have been
different, a reasonable probability being one sufficient to undermine
confidence in the outcome. Id. at 694.
Both showings (deficient performance and prejudice) are
required, and the failure to make a showing as to either component will
obviate a reviewing court’s need to address the other. Id. at 697. Indeed,
“[i]f it is easier to dispose of an ineffectiveness claim on the ground of
lack of sufficient prejudice, . . . that course should be followed.” Id.
In this case, we conclude that, for the following reasons, trial
counsel did not perform deficiently in failing to challenge the
admissibility of Applicant’s silence under either Doyle or Article 38.22.
SALINAS – 28
(See Parts III & IV, post.) Applying those legal principles to the facts of
Applicant’s case as developed in these post-conviction proceedings, it is
not at all clear that Applicant could have prevailed⸻any more than he
was ultimately able to prevail on the Fifth Amendment right-to-silence
claim that he actually made and pursued all the way to the United
States Supreme Court. Having determined that counsel did not perform
deficiently in those respects, we also conclude that none of the remaining
allegations of deficient performance, even when cumulated, shake our
confidence in the outcome; that is, they do not raise a reasonable
probability that, had counsel not committed those (presumably) serious
errors, the result would have been different. (See Part V, post.)
III. DOYLE ERROR
In Doyle, the Supreme Court held that a state may not induce a
defendant to stand mute in the face of police questioning by cautioning
him of his right to silence and then use his invocation of that right
against him to impeach his trial testimony. Doyle, 426 U.S. at 618; see
also Fletcher v. Weir, 455 U.S. 603, 606 (1982) (“[W]e have consistently
explained Doyle as a case where the government had induced silence by
implicitly assuring the defendant that his silence would not be used
against him.”); c.f., Jenkins v. Anderson, 447 U.S. 231, 240 (1980)
(holding that silence before arrest and absent Miranda warnings could
be used for impeachment purposes, notwithstanding Doyle). “In such
circumstances,” the Supreme Court explained, “it would be
fundamentally unfair and a deprivation of due process to allow the
arrested person’s silence to be used to impeach an explanation
subsequently offered at trial.” Doyle, 426 U.S. at 618. Nor, the Court
SALINAS – 29
subsequently held, may a state put such evidence to substantive use by
admitting a defendant’s Miranda-induced silence against him as
evidence to refute his claim of insanity. See Wainwright v. Greenfield,
474 U.S. 284, 295 (1986) (“What is impermissible is the evidentiary use
[including to prove sanity] of an individual’s exercise of his
constitutional rights after the State’s assurance that the invocation of
those rights will not be penalized.”).
The difference between the facts of Doyle and the facts of this
case, as trial-counsel McWilliams surmised, is that Doyle actually did
invoke his right to silence after he was Mirandized, by essentially
remaining wholly silent after the warnings were administered. 20
Applicant, by contrast, affirmatively acknowledged and waived his right
to silence and commenced to answer questions before being confronted
with the “shotgun comparison” inquiry. Thus, the facts of this case raise
an issue of whether a suspect in Applicant’s shoes, choosing silence only
selectively after having seemingly waived that constitutional right, may
still invoke the due process protections of Doyle. The so-called “selective
silence” cases have engendered disagreement among the various
jurisdictions that have addressed the issue. See Friend v. State, 473
S.W.3d 470, 480 (Tex. App.⸻Houston [1st Dist.] 2015, pet. ref’d)
(cataloging some of those conflicting cases while avoiding the issue
because Friend had actually spoken, and it was his words in actually
20 Doyle simply asked his interrogators, “What’s this all about?” He did
not otherwise respond to their questions. Doyle, 426 U.S. at 614 n.5. See
Anderson v. Charles, 447 U.S. 404, 407 (1980) (describing Doyle as involving
“two defendants who made no post[-]arrest statements about their
involvement in the crime”). Doyle certainly did not expressly waive his right to
silence, as Applicant here did.
SALINAS – 30
invoking his right to silence that were used against him). Neither the
United States Supreme Court nor this Court has yet tackled the issue.
In Anderson v. Charles, 447 U.S. 404 (1980), the defendant was
Mirandized and then chose to speak to the police. His statement was
then used to impeach his trial testimony. The Supreme Court explained:
Doyle does not apply to cross-examination that merely
inquires into prior inconsistent statements. Such
questioning makes no unfair use of silence because a
defendant who voluntarily speaks after receiving Miranda
warnings has not been induced to remain silent. As to the
subject matter of his statements, the defendant has not
remained silent at all.
Id. at 408.
But suppose a Mirandized defendant at first chooses to speak to
the police, in apparent derogation of his right to silence, but then refuses
to answer certain select questions, whether or not on the express ground
that his answers might incriminate him? Has such a defendant been
unfairly induced by Miranda warnings he has effectively waived into
remaining silent on the promise that his silence will not be used against
him? This question had not been definitively decided as of the time of
Applicant’s second trial⸻nor indeed to this day.
The cases and commentators go both ways. Many if not most state
courts to have addressed the question have held that a defendant who
has waived his Miranda rights may not selectively decline to answer
particular questions and still resort to the protection of Doyle⸻at least
absent an express or apparent re-invocation of his right to silence. E.g.,
Valle v. State, 474 So.2d 796, 801 (Fla. 1985) (a defendant who “freely
and voluntarily conversed with police” after receiving Miranda
SALINAS – 31
warnings could not invoke Doyle); Thomas v. State, 726 So.2d 357, 358
(Fla. Dist. Ct. App. 1999) (following Valle); State v. Talton, 197 Conn.
280, 295, 497 A.2d 35, 44 (1985) (refusing to apply Doyle when the
defendant started out talking but “selectively” refused to answer one
question, because “[o]nce an arrestee has waived his right to remain
silent, the Doyle rationale is not operative because the arrestee has not
remained silent”); State v. Torres, 85 Conn. App. 303, 316, 858 A.2d 776,
785 (2004) (following Talton); State v. Smart, 756 S.W.2d 578, 580–81
(Mo. Ct. App. 1988) (a defendant who waived her Miranda rights but
then refused to answer some questions may not rely on Doyle, and the
option to re-invoke the right to silence “is not available to avoid a single
offensive question, but to cease all questioning, and the suspect is under
an obligation to communicate his decision in an intelligible fashion”);
People v. McReavy, 436 Mich. 197, 222, 462 N.W.2d 1, 12 (1990) (a
defendant who waived his Miranda rights may not thereafter selectively
refuse to answer questions and still invoke Doyle’s rationale); People v.
Bowman, 202 Cal.App.4th 353, 365, 136 Cal.Rptr.3d 119, 127 (2011)
(“We are persuaded in this case that the Doyle rule did not prohibit the
prosecution’s use of Bowman’s selective silence as adoptive
admissions.”).
But a few states have held⸻albeit uncritically⸻that a waiver of
Miranda rights followed by “selective silence” will not prevent a
defendant from successfully invoking Doyle’s due process protections.
See Coleman v. State, 434 Md. 320, 338, 75 A.3d 916, 926 (2013) (holding
trial counsel ineffective for failing to raise Doyle error where, after
receiving Miranda warnings, the defendant answered some questions
SALINAS – 32
but not others⸻but holding so without reference to the “selective
silence” line of cases); Bartley v. Commonwealth, 445 S.W.3d 1, 9–10
(Ky. 2014) (concluding that evidence of the defendant’s silence was
inadmissible under Doyle when she expressly invoked her right to
silence when Mirandized but then answered some questions posed by
police interrogators on another matter while persistently refusing to
answer questions on the topic about which she had expressed her desire
to remain silent).
The federal circuits have also gone both ways. Compare United
States v. Goldman, 563 F.2d 501, 503 (1st Cir. 1977) (a defendant who
waives his Miranda rights and tells investigators an exculpatory story
cannot refuse to answer certain questions and expect his silence to be
insulated: he “cannot have it both ways”); United States v. Pitre, 960
F.2d 1112, 1125–26 (2nd Cir. 1992) (referencing Doyle, but holding that
a defendant who waived Miranda rights and made statements could not
thereafter refuse to answer some questions without re-invoking his right
to silence); United States v. Burns, 276 F.3d 439, 441–42 (8th Cir. 2002)
(after waiver of Miranda rights, the defendant could not simply refuse
to answer certain questions and then rely on Doyle’s protection, absent
a clear re-invocation of his right to silence); McBride v. Superintendent,
SCI Houtzdale, 687 F.3d 92, 104–05 (3rd Cir. 2012) (noting the split in
the federal circuits regarding application of Doyle to “selective silence,”
and holding that there is no “clearly established Federal law” on the
issue for purposes of the Antiterrorism and Effective Death Penalty Act
(AEDPA)), with United States v. Williams, 665 F.2d 107, 109–10 (6th
Cir. 1981) (applying Doyle to find “plain error” in a “selective silence”
SALINAS – 33
scenario, but without any discussion of the fact that the defendant had
expressed a “willingness to talk” after receiving Miranda warnings and
then “answered some questions”); United States v. Canterbury, 985 F.2d
483, 486 (10th Cir. 1993) (“This court has recognized that when a
defendant [who has received Miranda warnings] answers some
questions and refuses to answer others, or in other words is ‘partially
silent,’ this partial silence does not preclude him from claiming a
violation of his due process rights under Doyle.”); United States v. Scott,
47 F.3d 904, 907 (7th Cir. 1995) (“[A] suspect may speak to the agents,
reassert his right to remain silent or refuse to answer certain questions,
and still be confident that Doyle will prevent the prosecution from using
his silence against him.”).
Perhaps the most comprehensive discussion of “selective silence”
in a case that applied Doyle to grant relief is the Ninth Circuit opinion
in Hurd v. Terhune, 619 F.3d 1080 (2010)⸻another AEDPA opinion that
issued more than a year after Applicant’s second trial. After he was
Mirandized, Hurd expressed a willingness to speak with investigators,
but during the interview he repeatedly refused to “reenact” the offense
or submit to a polygraph. The Ninth Circuit disagreed that an apparent
waiver of Miranda rights meant that a defendant could not thereafter
rely upon Miranda’s implicit promise that silence could not be used
against him without his first at least re-invoking that right. Id. at 1088.
“That silence may not require police to end their interrogation,” the
court observed, “but it also does not allow prosecutors to use silence as
affirmative evidence of guilt at trial.” Id. The court concluded that the
state court judgment to the contrary was not simply incorrect, but an
SALINAS – 34
unreasonable application of the applicable federal law. Id. This
conclusion was not subjected to certiorari review, however, in the United
States Supreme Court. As one commentator has since observed:
Ultimately, the Hurd case demonstrates the extensive split
between the circuit courts on the rights of a suspect
regarding his choice to answer questions or not during
Post-Miranda custodial interrogation. * * * With such a
wide divergence among the circuit courts, the Supreme
Court now has the responsibility to reconcile this unsettled
doctrine.
Evelyn A. French, Note, When Silence Ought to be Golden: Why the
Supreme Court Should Uphold the Selective Silence Doctrine in the Wake
of Salinas v. Texas, 48 GA. L. REV. 623, 645 (Winter 2014).
Had Applicant’s trial counsel invoked Doyle on the facts of this
case, they would have been no more assured of success in keeping out
the evidence of Applicant’s refusal to answer the “shotgun comparison”
question than they could have been of obtaining relief on the Fifth
Amendment-based objection that they actually did make at trial. 21 Even
if Hurd represents a trend in Applicant’s favor, the law remains
ultimately unsettled. Under these circumstances, we cannot declare
that counsel’s failure in 2009 to invoke Doyle was so professionally
derelict as to fall outside “the wide range of reasonable professional
assistance[.]” Strickland, 466 U.S. at 689. We cannot conclude that
21 McWilliams’s testimony at the writ hearing, as quoted above, ante at
20, suggests that, notwithstanding his difficulty remembering how he had
formulated his strategy for dealing with Applicant’s silence, he may have had
some notion prior to Applicant’s second trial that the law was unsettled with
respect to “selective silence” scenarios such as Applicant’s.
SALINAS – 35
Applicant’s trial counsel performed deficiently in this respect. We turn
next to Applicant’s Article 38.22-based claim.
IV. ARTICLE 38.22 ERROR
At least judging by his oral statement at the writ hearing, the
convicting court judge seemed most convinced that Applicant’s trial
counsel performed deficiently in failing to re-assert an Article 38.22,
Section 3, objection to Applicant’s entire oral statement⸻including his
refusal to answer the “one” question⸻at the second trial. And this does
in fact seem to be a closer question. Counsel could have sought a pretrial
hearing at which to develop a record outside the presence of the jury in
order to more precisely ascertain whether Wendel and Elliott (and
perhaps Allen) would in fact adhere to the chronology of events
memorialized in their offense report. 22 There was a substantial
argument to be made that Applicant’s statement was, in its entirety,
objectionable under the statute as an unrecorded custodial statement.
Nevertheless, it is far from clear that this argument would have
prevailed had Applicant’s trial counsel asserted it⸻at least not as it
pertained to Applicant’s silence. This Court has yet to speak to the
22 In his affidavit in response to Applicant’s writ application,
McWilliams indicated that, due to the passage of time and “despite
considerable reflection on the matter,” he “simply cannot remember why we
chose not to file a motion to suppress on this issue, nor did [he] request a
Jackson v. Denno hearing outside the presence of the jury.” Jackson v. Denno,
373 U.S. 368 (1964), of course, held that due process requires a factfinder that
is independent of the jury which determines guilt or innocence to ascertain
whether police interrogators extracted an involuntary confession from the
accused. We see no reason Applicant should not likewise have been entitled to
a different factfinder to determine, outside the presence of the jury hearing
evidence as to his guilt or innocence, whether his statement to the police was
admissible as a matter of state law, had he requested that.
SALINAS – 36
question of whether the refusal to answer a question during a police
interrogation that is not electronically recorded actually counts as part
of the “oral statement” that Article 38.22, Section 3, contemplates. At
least one court of appeals⸻the Amarillo Court of Appeals⸻has held
that it does not, and its opinion was published a decade before
Applicant’s second trial. See Beck v. State, 976 S.W.2d 265, 267 (Tex.
App.⸻Amarillo 1998, pet. ref’d) (“[T]he officer’s description of what
appellant did not say was not a statement as contemplated under article
38.22, section 3 of the Texas Code of Criminal Procedure. So, trial
counsel was not obligated to object to those comments on the basis of
article 38.22, section 3.”). Nothing in the record shows that Applicant’s
trial counsel was unaware of this intermediate-court authority. Counsel
also testified at the writ hearing that he thought it actually benefited
Applicant to admit at least part of the statement.
It was Applicant’s burden to establish by a preponderance of the
evidence that his counsel were ineffective. But these facts suggest at
least the possibility that counsels’ failure to object to the statement on
the ground of Article 38.22, Section 3, represented a sound trial strategy.
Applicant has not ruled out this possibility.
On the other hand, the Texarkana Court of Appeals seems to have
held, prior to Applicant’s second trial, that the refusal to answer certain
questions during unrecorded police questioning does count as part of an
oral statement covered by Article 38.22, Section 3. Pina v. State, 38
S.W.3d 730, 735 (Tex. App.⸻Texarkana 2001, pet. ref’d). That court of
appeals believed this to be the case because it treated the refusal to
answer certain questions as “nonverbal conduct intended as an
SALINAS – 37
assertion,” thus fitting the definition of “statement” in Black’s Law
Dictionary. Id. (citing BLACK’S LAW DICTIONARY 1416 (7th ed. 1999)).
But, of course, if the Texarkana court is correct that such silence
counts as an “assertion of fact,” then Applicant’s refusal to answer the
“shotgun comparison” question may well have also become admissible
under Article 38.22, Section 3(c). Section 3(c) provides that Section 3(a)’s
exclusion from evidence of a non-recorded oral statement “shall not
apply to any statement which contains assertions of facts or
circumstances that are found to be true and conduce to establish the
guilt of the accused, such as the finding of . . . the instrument with which
he states the offense was committed.” TEX. CODE CRIM. PROC. article
38.22(3)(c). Applicant’s trial counsel may have believed the trial court
would regard Applicant’s silence as an assertion that the shotgun
comparison would reap a result unfavorable to him, which forensic
testing the next day actually confirmed. In that case, he might
reasonably have expected for the State to argue, and the trial court to
conclude, that Applicant’s silence was admissible under Article 38.22,
Section 3(c), and that on that basis the trial court would overrule any
objection under Article 38.22, Section (3)(a).
This Court refused discretionary review in both Beck and Pina,
thus leaving the question whether silence should be regarded as part of
an “oral statement” for purposes of Article 38.22, Section 3(a), in an
unsettled state. That was the state of the law at the time of Applicant’s
second trial in 2009, and it remains the state of the law to this day.
Under these circumstances, we cannot fault Applicant’s trial counsel for
opting to make an all-encompassing objection based on Applicant’s
SALINAS – 38
constitutional right to silence. That this strategy did not ultimately
prevail does not render trial counsels’ performance constitutionally
deficient. See Martin v. State, 623 S.W.2d 391, 395 (Tex. Crim. App.
1981) (“Ineffectiveness is not shown when the tactic is unsuccessful.”).
V. MISCELLANEOUS CLAIMS OF INEFFECTIVENESS
Applicant raised four other claims of ineffectiveness of counsel.
The convicting court concluded that trial counsel performed deficiently
with respect to each of these claims as well, and concluded that each
instance of deficient performance, by itself, was sufficient to undermine
confidence in the outcome of Applicant’s second trial. It also concluded
that, “even if no single error gave rise to ineffective assistance, the
cumulative effect of defense counsel’s deficiency gave rise to prejudice.”
Having concluded that trial counsel did not perform deficiently with
respect to Applicant’s first two claims, we do not, of course, include those
claims within any “cumulative” prejudice we might find. And even
assuming that trial counsel performed deficiently in every other respect
that the convicting court recommends we find, we do not believe even
the cumulative effect of those four claims rises to the level of Strickland’s
outcome-determinative prejudice standard. Thus, we reject Applicant’s
other claims under Strickland’s prejudice prong.
A. The Claims
Ground Three: At the conclusion of Applicant’s police
interrogation, Sergeant Elliott was asked why he had taken Applicant
into custody. Elliott responded, without any objection by the defense,
that “I had the opinion that he was deceptive and lying to me and I
wanted to hold him.” Applicant now claims that trial counsel should
SALINAS – 39
have objected that Elliott’s testimony constituted objectionable expert
opinion evidence as to his credibility. The convicting court recommends
that we sustain this claim on the basis of cases involving the
inadmissibility of expert testimony with respect to the truthfulness of a
witness, 23 without explaining the applicability of those cases to a police
officer’s explanation of why his investigation took a particular turn.
Ground Four: Applicant argues that trial counsel was deficient
in failing to present readily available alibi testimony showing that
Applicant was at home with his girlfriend at the time the Garza brothers
were shot. This testimony, he contends, was available from both his
girlfriend and Applicant’s sister. Trial counsel McWilliams testified at
the writ hearing that trial counsel had not deemed this evidence credible
(and they even worried somewhat about the risk of suborning perjury).
Ground Five: Applicant argues his trial counsel should have
objected to testimony that Applicant was using crack cocaine “in that
time period” surrounding the murders. He contends that this was bad-
act evidence that was inadmissible. The State had not included this
extraneous misconduct in its notice to the defense under Rule 404(b) of
the Rules of Evidence. TEX. R. EVID. 404(b). Nor did trial counsel seek a
limiting instruction to corral the jury’s consideration of this evidence
once it was admitted. Trial counsel explained in their affidavits, and at
23 Applicant did not take the stand to testify at either his first or second
trial, so his truthfulness as a witness was never an issue. Trial counsel
McWilliams testified at the writ hearing that he had made a tactical decision
to point out in cross-examination that Elliott had never previously said
anything about Applicant’s deceptiveness, either in the offense report or the
first trial.
SALINAS – 40
the writ hearing, that evidence of Applicant’s use of crack cocaine during
that period was not incompatible with their defensive strategy, 24 and
that the failure to request a limiting instruction had been a tactical
decision.
Ground Six: Applicant also contends that trial counsel should
have impeached several important State’s witnesses. First, he argues,
they should have impeached Martha Trevino’s (more about her later)
testimony, which did not wholly conform with the statement she had
given to the police. 25 Second, he argues, they should have impeached
Damien Cuellar’s testimony that Applicant was using crack cocaine
around the time of the murders and could become paranoid when using
crack. Evidently, Cuellar had never made such assertions before, either
in his statements to the police or in his first-trial testimony. Applicant
suggests that impeachment of Cuellar could have provided a potential
explanation for an otherwise apparently motiveless crime. Third, he
argues that trial counsel failed to impeach Officer Elliott with testimony
from Applicant’s first trial that Applicant had in fact not been free to
24 McWilliams testified at the writ hearing that “”[i]t fit with our
narrative that there were drugs and drug usage and potentially drug sales out
of the Garza house.” Admitting that he had tried to keep the evidence out at
the first trial, McWilliams explained that there had been “an evolution of the
defensive strategy” and that “we did make some adjustments to that.”
25Trevino all but admitted to the contradiction at trial, admitting that
she “guessed” she had made the contradictory statement to the police.
McWilliams maintained at the writ hearing that “it was obvious what my point
was about and so I just elected to move on from it.” He thought that “the jury
already understood that that’s what -- that’s what she had said previously
based on my questions.” He did not want the jury thinking he was “making a
mountain out of a molehill about this thing and they got the point.”
SALINAS – 41
leave once he arrived at the police station. 26
B. The Bigger Evidentiary Picture
We do not believe there is a reasonable probability that, even
collectively, these alleged deficiencies⸻even if indeed they were
deficiencies⸻could have affected the outcome of the trial. Factoring
Applicant’s failure to answer the “shotgun comparison” question into the
equation, the inculpatory evidence in this case, though circumstantial,
was nearly overwhelming. The failure of trial counsel to keep out
Elliott’s opinion testimony respecting Applicant’s credibility, to present
apparently questionable alibi testimony, to object to or corral the
admissibility of extraneous misconduct testimony, or to impeach certain
witnesses with relatively minor discrepancies would not likely have
impacted the jury’s verdict of guilty, given the evidence marshaled
against Applicant.
Martha Trevino was another resident of Hector Garza’s small
apartment complex, and after hearing the shotgun blasts, she observed
the apparent shooter from her apartment window as he ran from the
premises and got into the passenger side of a black or dark-colored Trans
Am or Camaro. She did not see the shooter’s face, so it is not a surprise
that she could not later identify Applicant in a line-up. But a few days
after the shooting, Applicant confessed to Cuellar, who was a mutual
26 Applicant also claims that trial counsel should have impeached
Elliott’s testimony that he was a participant in Applicant’s interrogation. He
maintains that the offense report indicated that Elliott was not present, if only
by failing to note his presence. See notes 6 & 10, ante. But Elliott has
consistently testified that he was present, even if the offense report does not
explicitly place him there, and trial counsel testified at the writ hearing that
Applicant never told him that Elliott had not been in the interrogation room.
The offense report does not positively refute Elliott’s claim.
SALINAS – 42
friend of both Applicant and the Garza brothers, that Applicant had
been the one to kill them. Cuellar claimed that Applicant had told him
that “either they’re going to get me or I have to get them[.]” Cuellar did
not admit to the police right away that Applicant had confessed to him,
waiting until the third time he spoke to them, and certain aspects of
what he claims Applicant told him about how the shooting occurred do
not comport with the crime scene and other witness testimony. Nor did
his description of the shotgun he knew Applicant owned jibe with the
shotgun that police recovered from Applicant’s home, which later proved
to be the murder weapon. Moreover, Cuellar was apparently an
idiosyncratic witness, telling police that he finally decided to tell them
about Applicant’s confession only after the Garza brothers appeared to
him in a dream. 27
Nevertheless, according to firearms examiner Kim Downs of the
Houston Police Department Crime Lab, when the police did retrieve the
shotgun from Applicant’s home, forensic testing showed that each of the
six shells recovered from the murder scene “were fired” from that
shotgun “to a reasonable certainty”⸻indeed, she confirmed that the
spent shells were a “unique match to that gun.” Meanwhile, Applicant
refused to answer the “one” question during his oral statement that
would have indicated what he believed that forensic testing would later
reveal. And, when the police alerted Applicant the next day to the fact
that the forensic testing demonstrated the shotgun was in fact the
27 During his summation at the guilt stage of the second trial, even
while arguing Cuellar’s reliability as a witness, the prosecutor acknowledged
that “he’s a goofy guy. Kind of weird, but he was forthright.”
SALINAS – 43
murder weapon, he absconded and was not arrested for fifteen years, all
while living under an alias, thereby manifesting perhaps an even
greater consciousness of guilt than his failure to answer the “one”
shotgun comparison question during interrogation.
The defensive strategy was to impugn the police investigation and
to suggest that Hector Garza had fallen into disfavor with a local crack
dealer who drove a dark-colored Trans Am, which suggested an
alternative suspect who might have had a motive to kill the Garzas. But
this defensive theory could not explain how the murder weapon came to
be found in Applicant’s home. The defense made a concerted effort to call
the reliability of the State’s forensic evidence into question, by cross-
examination of the testifying firearms examiner, and by calling a
defense expert who called the methodology of the State’s expert into
question in some respects. But that effort seems to have been largely
ineffectual, even on a cold record. 28 Applicant’s trial counsel made only
glancing reference to it at the very end of their final guilt-phase
argument.
C. Prejudice?
None of the ways in which Applicant alleges that his counsel
performed deficiently in his last four claims would have made a serious
28 In fact, Kim Downs, the firearms examiner who testified at both of
Applicant’s trials, was not the same firearms examiner who had conducted the
original examination in 1993. However, she had independently re-tested the
evidence prior to Applicant’s first trial and confirmed the original firearms
examiner’s conclusion that the shotgun recovered from the home at which
Applicant was living with his parents and sister was “a match” to the shotgun
that fired the spent shell casings recovered at the murder scene. Moreover, at
Applicant’s second trial, the State also produced the original firearms
examiner, now retired, who also confirmed his original findings.
SALINAS – 44
dent in the State’s evidence.
First--Elliott’s Testimony: It would already have been
apparent to the jury that the police had detained Applicant after his
interrogation because the officers did not believe his denials. Preventing
Elliott from expressly saying so at trial could not have affected the jury’s
deliberations in any substantive way.
Second--Alibi Testimony: To present alibi testimony from
obviously interested witnesses could not have significantly undermined
the State’s compelling evidence that the forensically determined murder
weapon was in fact recovered from Applicant.
Third--Extraneous Misconduct: The evidence already showed
that Applicant had been indulging in crack cocaine at the Garzas’
apartment the night before the murders. That Applicant was more
generally indulging in that habit “in that time period” can only have
incrementally impacted the jury’s deliberations, and it was not even
wholly incompatible with Applicant’s defensive posture that the Garzas
were actually victims of the broader drug culture rather than of
Applicant’s crack-induced paranoia.
Fourth--Failure to Impeach: Applicant would have had trial
counsel impeach Martha Trevino because she refused during her second-
trial testimony to fully acknowledge a statement that she had made to
police suggesting that the Garzas might be dealing drugs from Hector’s
apartment. This could only have very slightly bolstered Applicant’s
defensive suggestion that the Garzas were the victims of a dispute over
drugs or drug money. Likewise, pointing out that Cuellar had not
previously made assertions about Applicant’s drug use and attendant
SALINAS – 45
paranoia would not have constituted particularly compelling
impeachment evidence; at least not in the same way that a prior
inconsistent statement would have. And finally, failure to impeach
Elliott’s testimony with respect to Applicant’s custodial status could not
have affected any material issue with respect to Applicant’s guilt or
innocence; it was relevant only to the admissibility of his oral statement,
an issue that was not up to the jury to decide. Even collectively, there is
no reasonable probability that these purported deficiencies of counsel
were outcome-determinative.
VI. CONCLUSION
We conclude that Applicant’s first two claims do not demonstrate
deficient performance under Strickland, and that his remaining four
claims do not satisfy Strickland’s prejudice prong because there is no
reasonable probability that they would have altered the outcome of
Applicant’s trial. Accordingly, we deny relief.
DELIVERED: November 16, 2022
PUBLISH | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488167/ | THE THIRTEENTH COURT OF APPEALS
13-21-00172-CV
Christus Spohn Health System Corporation
v.
Mary Ann High and Cynthia Rector
On Appeal from the
County Court at Law No. 1 of Nueces County, Texas
Trial Court Cause No. 2020CCV-61062-1
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes the judgment of the trial court should be reversed and the cause
remanded to the trial court. The Court orders the judgment of the trial court REVERSED
and REMANDED for further proceedings consistent with its opinion. Costs of the appeal
are adjudged against appellees.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488169/ | THE THIRTEENTH COURT OF APPEALS
13-22-00076-CR
CHRISTINA LYNN NAVARRO
v.
THE STATE OF TEXAS
On Appeal from the
36th District Court of San Patricio County, Texas
Trial Court Cause No. S-20-3126CR
JUDGMENT
THE THIRTEENTH COURT OF APPEALS, having considered this cause on
appeal, concludes that the judgment of the trial court should be affirmed. The Court
orders the judgment of the trial court AFFIRMED.
We further order this decision certified below for observance.
November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488170/ | NUMBER 13-22-00480-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN THE INTEREST OF J.P.S., A CHILD
On appeal from County Court at Law No. 5
of Nueces County, Texas
ORDER
Before Chief Justice Contreras and Justices Benavides and Tijerina
Order Per Curiam
On October 7, 2022, appellant Cayla Payne filed a notice of appeal from a final order
terminating her parental rights. The intermediate appellate courts are directed to ensure
“as far as reasonably possible” that parental termination appeals are brought to final
disposition within 180 days of the date the notice of appeal is filed. See TEX. R. JUD. ADMIN.
6.2(a). Accordingly, these cases are governed by the rules of appellate procedure for
accelerated appeals, which include expedited deadlines and procedures. See TEX. R. APP.
P. 28.4; TEX. R. JUD. ADMIN. 6.2(a). Under these expedited deadlines, the reporter’s record
in this case should have been filed on October 17, 2022. See TEX. R. APP. P. 26.1(b),
35.1(b).
On October 24, 2022, the Clerk of this Court informed the court reporter, Victoria
Ortiz, that the reporter’s record was late and requested that she file the record by November
3, 2022. On October 28, 2022, Ortiz requested an extension until November 7, 2022. The
Court granted an extension and ordered Ortiz to file the reporter’s record by November 14,
2022.
However, on November 14, Ortiz requested another extension, explaining for the
first time that two volumes of the reporter’s record “were taken by another reporter” and
that Ortiz had been unable to contact this other unidentified reporter. Ortiz has since
informed the Court that the other reporter is JoAnna Farias. As we understand it, Farias
was not aware of the need to prepare her portion of the record until this week.
The reporter’s record in this case is already a month overdue from when it should
have been filed. To ensure the Court meets its 180-day mandate, we order Ortiz and Farias
to file a complete reporter’s record by 10:00 a.m. on Monday, November 28, 2022. If Ortiz
and Farias fail to comply with this deadline, the Court will issue a show cause order for
them to appear and explain why they should not be held in contempt.
Finally, the parties are ordered to follow the briefing deadlines for accelerated
appeals. See id. R. 38.6. A request for extension by either party will be disfavored absent
2
extraordinary circumstances.
PER CURIAM
Delivered and filed the
16th day of November, 2022.
3 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488172/ | NUMBER 13-22-00554-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN RE TREVINO CONSTRUCTION, LLC AND MARIO TREVINO,
INDIVIDUALLY
On Petition for Writ of Mandamus.
MEMORANDUM OPINION
Before Justices Longoria, Hinojosa, and Silva
Memorandum Opinion by Justice Longoria1
On November 15, 2022, relators Trevino Construction, LLC and Mario Trevino,
individually, filed a petition for writ of mandamus through which they assert that the trial
court abused its discretion by issuing an order on May 7, 2021, denying relators’ motion
1 See TEX. R. APP. P. 52.8(d) (“When denying relief, the court may hand down an opinion but is not
required to do so. When granting relief, the court must hand down an opinion as in any other case.”); id. R.
47.4 (distinguishing opinions and memorandum opinions).
to compel discovery “despite the existence of valid Rule 11 agreements.” See TEX. R. CIV.
P. 11.
Mandamus is an extraordinary and discretionary remedy. See In re Allstate Indem.
Co., 622 S.W.3d 870, 883 (Tex. 2021) (orig. proceeding); In re Garza, 544 S.W.3d 836,
840 (Tex. 2018) (orig. proceeding) (per curiam); In re Prudential Ins. Co. of Am., 148
S.W.3d 124, 138 (Tex. 2004) (orig. proceeding). Mandamus generally “aids the diligent
and not those who slumber on their rights.” In re Self, 652 S.W.3d 829, 830 (Tex. 2022)
(orig. proceeding) (per curiam) (quoting Callahan v. Giles, 155 S.W.2d 793, 795 (Tex.
1941)). The relator must show that (1) the trial court abused its discretion, and (2) the
relator lacks an adequate remedy on appeal. In re USAA Gen. Indem. Co., 624 S.W.3d
782, 787 (Tex. 2021) (orig. proceeding); In re Prudential Ins. Co. of Am., 148 S.W.3d at
135–36; Walker v. Packer, 827 S.W.2d 833, 839–40 (Tex. 1992) (orig. proceeding). “The
relator bears the burden of proving these two requirements.” In re H.E.B. Grocery Co.,
492 S.W.3d 300, 302 (Tex. 2016) (orig. proceeding) (per curiam); Walker, 827 S.W.2d at
840.
The Court, having examined and fully considered the petition for writ of mandamus
and the applicable law, is of the opinion that the relators have failed to meet their burden
to obtain relief. Accordingly, we deny the petition for writ of mandamus. See TEX. R. APP.
P. 52.8.
NORA L. LONGORIA
Justice
Delivered and filed on the
16th day of November, 2022.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488175/ | NUMBERS 13-22-00549-CR & 13-22-00550-CR
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN RE CHILTON MOORE
On Petition for Writ of Habeas Corpus
and Petition for Writ of Mandamus.
MEMORANDUM OPINION
Before Chief Justice Contreras and Justices Benavides and Tijerina
Memorandum Opinion by Justice Benavides1
On November 8, 2022, Chilton Moore, proceeding pro se, 2 filed a combined
pleading designated as a petition for writ of habeas corpus, docketed in our cause number
1 See TEX. R. APP. P. 52.8(d) (“When denying relief, the court may hand down an opinion but is not
required to do so. When granting relief, the court must hand down an opinion as in any other case.”); id. R.
47.4 (distinguishing opinions and memorandum opinions).
2 Relator states that he is appearing “by and through” counsel, although the pleading is filed pro
se, and that he is filing the petition “aided by” Christopher J. Downum. The petition is signed by both relator
and Downum. We caution against the unauthorized practice of law. See, e.g., TEX. GOV'T CODE ANN. §
81.101–.102 (defining the unauthorized practice of law); TEX. PEN. CODE ANN. § 38.123 (explaining that the
unauthorized practice of law is a Class A misdemeanor); Crain v. The Unauthorized Practice of Law Comm.
of the Sup. Ct. of Tex., 11 S.W.3d 328, 332–34 (Tex. App.—Houston [1st Dist.] 1999, pet. denied) (stating
that a person who is not a licensed attorney may not represent other persons in legal matters).
13-22-00549-CR, and a petition for writ of mandamus, docketed in our cause number 13-
22-00550-CR. Relator contends that he has been arrested for first-degree murder and
that he has been provided with ineffective assistance of counsel, his right to a speedy trial
has been violated, he has “been denied access to even view discovery,” and his due
process rights have been violated. In the interests of judicial efficiency, we address these
claims in one memorandum opinion. We dismiss the petition for habeas corpus in cause
number 13-22-00549-CR and we deny the petition for writ of mandamus in cause number
13-22-00550-CR.
I. PETITION FOR WRIT OF HABEAS CORPUS
The Texas Constitution grants the intermediate courts of appeals original
jurisdiction only where specifically prescribed by law. See TEX. CONST. art. V, § 6(a); Dall.
Morning News v. Fifth Ct. of Apps., 842 S.W.2d 655, 658 (Tex. 1992) (orig. proceeding).
The original jurisdiction of a court of appeals to issue a writ of habeas corpus is limited to
those cases in which a person’s liberty is restrained because the person has violated an
order, judgment, or decree that has been rendered in a civil case. See TEX. GOV’T CODE
ANN. § 22.221(d). The intermediate courts of appeals do not have original habeas corpus
jurisdiction in criminal matters. See Ex parte Braswell, 630 S.W.3d 600, 601–02 (Tex.
App.—Waco 2021, orig. proceeding); In re Quinata, 538 S.W.3d 120, 120 (Tex. App.—El
Paso 2017, orig. proceeding); In re Ayers, 515 S.W.3d 356, 356 (Tex. App.—Houston
[14th Dist.] 2016, orig. proceeding) (per curiam). Original jurisdiction to grant a writ of
habeas corpus in a criminal case is vested in the Texas Court of Criminal Appeals, the
district courts, the county courts, or a judge in those courts. See TEX. CODE CRIM. PROC.
2
ANN. art. 11; Ex parte Braswell, 630 S.W.3d at 601; Ex parte Hawkins, 885 S.W.2d 586,
588 (Tex. App.—El Paso 1994, orig. proceeding) (per curiam).
We lack jurisdiction over relator’s claims for habeas corpus relief. Accordingly, we
dismiss the petition for writ of habeas corpus in cause number 13-22-00549-CR for want
of jurisdiction.
II. PETITION FOR WRIT OF MANDAMUS
In a criminal case, to be entitled to mandamus relief, the relator must establish
both that the act sought to be compelled is a ministerial act not involving a discretionary
or judicial decision and that there is no adequate remedy at law to redress the alleged
harm. See In re Meza, 611 S.W.3d 383, 388 (Tex. Crim. App. 2020) (orig. proceeding);
In re Harris, 491 S.W.3d 332, 334 (Tex. Crim. App. 2016) (orig. proceeding) (per curiam);
In re McCann, 422 S.W.3d 701, 704 (Tex. Crim. App. 2013) (orig. proceeding). If the
relator fails to meet both requirements, then the petition for writ of mandamus should be
denied. State ex rel. Young v. Sixth Jud. Dist. Ct. of Apps. at Texarkana, 236 S.W.3d 207,
210 (Tex. Crim. App. 2007) (orig. proceeding).
It is the relator’s burden to properly request and show entitlement to mandamus
relief. See State ex rel. Young, 236 S.W.3d at 210; In re Pena, 619 S.W.3d 837, 839 (Tex.
App.—Houston [14th Dist.] 2021, orig. proceeding); see also Barnes v. State, 832 S.W.2d
424, 426 (Tex. App.—Houston [1st Dist.] 1992, orig. proceeding) (per curiam) (“Even a
pro se applicant for a writ of mandamus must show himself entitled to the extraordinary
relief he seeks.”). In addition to other requirements, the relator must include a statement
of facts and a clear and concise argument for the contentions made, with appropriate
3
citations to authorities and to the appendix or record. See generally TEX. R. APP. P. 52.3
(governing the form and contents for a petition). Further, the relator must file an appendix
and record sufficient to support the claim for mandamus relief. See id. R. 52.3(k)
(specifying the required contents for the appendix); R. 52.7(a) (specifying the required
contents for the record).
Relator has not met his burden to obtain mandamus relief under the foregoing
standard. Accordingly, we deny the petition for writ of mandamus in cause number 13-
22-00550-CR.
III. CONCLUSION
The Court, having examined and fully considered the petition for writ of habeas
corpus and petition for writ of mandamus, is of the opinion that we lack jurisdiction over
relator’s claims for habeas relief, and relator has not met his burden to obtain mandamus
relief. Accordingly, we dismiss the petition for writ of habeas corpus in cause number 13-
22-00549-CR for lack of jurisdiction, and we deny the petition for writ of mandamus in
cause number 13-22-00550-CR.
GINA M. BENAVIDES
Justice
Do not publish.
TEX. R. APP. P. 47.2 (b).
Delivered and filed on the
14th day of November, 2022.
4 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488197/ | Opinion issued November 17, 2022
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-22-00259-CR
———————————
EX PARTE ANDREW PETE, Appellant
On Appeal from the 179th District Court
Harris County, Texas
Trial Court Case No. 1761902
MEMORANDUM OPINION
Appellant, Andrew Pete, challenges the trial court’s order denying his pretrial
applications for writ of habeas corpus.1 In his sole issue, appellant contends that the
trial court erred in denying him pretrial habeas relief.
We dismiss the appeal for lack of jurisdiction.
1
See TEX. R. APP. P. 31.
Background
In trial court cause number 1751814, a Harris County Grand Jury issued a true
bill of indictment, alleging that appellant, on or about May 1, 2014, “unlawfully,
intentionally[,] and knowingly cause[d] the penetration of the sexual organ of” the
complainant, “a person younger than fourteen years of age, by placing [his]
finger . . . in the sexual organ of the [c]omplainant.”2 Further, in trial court cause
number 1751815, a Harris County Grand Jury issued a true bill of indictment,
alleging that appellant, on or about April 1, 2015, “unlawfully, intentionally[,] and
knowingly, cause[d] the penetration of the sexual organ of” the complainant, “a
person younger than fourteen years of age, by placing [his] finger . . . in the sexual
organ of the [c]omplainant.”3
On March 8, 2022, appellant filed an application for writ of habeas corpus in
each trial court cause number, asserting that he was being “illegally restrained and
confined [a]t [the] Harris County Jail” because the “reprosecution of the State[’s]
cases(s) against him . . . violate[d] the Double Jeopardy Clause and [the] Equal
Protection Clause found in the Fifth and Fourteenth Amendments of the United
States Constitution.”4
2
See TEX. PENAL CODE ANN. § 22.021(a)(1)(B), (2)(B), (e).
3
See id.
4
See U.S. CONST. amends. V, XIV.
2
On March 11, 2022, the trial court held a hearing on appellant’s applications
for writ of habeas corpus and denied his applications. On March 29, 2022, appellant
filed his notice of appeal.
On September 15, 2022, while appellant’s appeal from the trial court’s denial
of his pretrial applications for writ of habeas corpus was pending, a jury found
appellant guilty of two separate felony offenses of aggravated sexual assault of a
child in trial court cause numbers 1751814 and 1751815 and assessed his
punishment at confinement for life for each offense, to run concurrently.
Mootness
In his sole issue on appeal, appellant argues that the trial court erred in denying
him pretrial habeas relief because his “retrial” violated the Double Jeopardy Clause
of the United States Constitution. See U.S. CONST. amend. V.
“Courts always have jurisdiction to determine their own jurisdiction.” Harrell
v. State, 286 S.W.3d 315, 317 (Tex. 2009) (internal quotations omitted). “Habeas
corpus is by definition an extraordinary writ in which the restraint of one’s liberty is
challenged as illegal.” Saucedo v. State, 795 S.W.2d 8, 9 (Tex. App.—Houston
[14th Dist.] 1990, no pet.); see also McGuire v. State, 493 S.W.3d 177, 207–08 (Tex.
App.—Houston [1st Dist.] 2016, pet. ref’d). When “the premise of a habeas corpus
application is destroyed by subsequent developments, the legal issues raised
thereunder are rendered moot.” State v. Golding, 398 S.W.3d 745, 747 (Tex. App.—
3
Houston [1st Dist.] 2011, pet. ref’d); see also McGuire, 493 S.W.3d at 207–08.
Because habeas corpus is an extraordinary remedy, “[a]n appellate court should not
entertain an application for writ of habeas corpus where there is an adequate remedy
at law.” Bennet v. State, 818 S.W.2d 199, 200 (Tex. App.—Houston [14th Dist.]
1990, no pet.).
Here, after filing his notice of appeal challenging the trial court’s denial of his
pretrial applications for writ of habeas corpus, appellant was tried and convicted by
a jury of two separate felony offenses of aggravated sexual assault of a child in trial
court cause numbers 1751814 and 1751815.5 See Ex parte Joyner, 367 S.W.3d 737,
738 (Tex. App.—Houston [14th Dist.] 2012, no pet.) (“An appellate court may take
judicial notice of its own records in a related proceeding involving the same or nearly
the same parties.”).
An appeal challenging the denial of a pretrial application for writ of habeas
corpus is rendered moot when the appellant is convicted of the underlying offense
before the appellate court rules on his appeal. Martinez v. State, 826 S.W.2d 620,
5
In his brief, appellant states that his trial related to the two separate felony offenses
of aggravated sexual assault of a child occurred in September 2022 and he was
convicted in trial court cause numbers 1751814 and 1751815. Appellant has filed
notices of appeal from the trial court’s judgments of conviction in trial court cause
numbers 1751814 and 1751815. Appellant’s direct appeals are pending in this
Court in appellate cause numbers 01-22-00674-CR and 01-22-00675-CR. See Ex
parte Joyner, 367 S.W.3d 737, 738 (Tex. App.—Houston [14th Dist.] 2012, no pet.)
(“An appellate court may take judicial notice of its own records in a related
proceeding involving the same or nearly the same parties.”).
4
620 (Tex. Crim. App. 1992); In re Floyd, No. 02-22-00094-CV, 2022 WL 885158,
at *2 (Tex. App.—Fort Worth Mar. 25, 2022, no pet.) (mem. op., not designated for
publication) (when trial court proceeds to trial, it renders moot defendant’s pretrial
habeas double-jeopardy complaint and interferes with appellate court’s jurisdiction);
Darnell v. State, No. 02-10-00208-CR, 2010 WL 5019589, at *1 (Tex. App.—Fort
Worth Dec. 9, 2010, no pet.) (mem. op., not designated for publication); Ward v.
State, No. B14-93-00065-CR, 1994 WL 2009, at *1 (Tex. App.—Houston [14th
Dist.] Jan. 6, 1994, no pet.) (not designated for publication); see also Ex parte
Benjume, No. 01-22-00123-CR, 2022 WL 4349851, at *1 (Tex. App.—Houston [1st
Dist.] Sept. 20, 2022, no pet.) (mem. op., not designated for publication) (“When a[]
[defendant] has a means to address [his] complaints by way of an appeal from [his]
conviction, [his] appeal from the denial of pre-trial habeas relief may be
dismissed.”).
We hold that appellant’s request for this Court to review the trial court’s denial
of his pretrial applications for writ of habeas corpus has been rendered moot because
the trial that appellant had sought to avoid through a pretrial writ of habeas corpus
has already occurred. See Hubbard v. State, 841 S.W.2d 33, 33–34 (Tex. App.—
Houston [14th Dist.] 1992, no pet.) (dismissing appeal from trial court’s denial of
pretrial application for writ of habeas corpus because defendant had been convicted
of offense and could raise double-jeopardy complaint on direct appeal following his
5
conviction); Saucedo, 795 S.W.2d at 9 (defendant’s appeal from trial court’s order
denying pretrial application for writ of habeas corpus rendered moot by defendant’s
conviction because defendant no longer confined based on process underlying his
original detention and was then confined pursuant to judgment of conviction and
sentence); see also Ex parte Benjume, 2022 WL 4349851, at *1 (“Because
[defendant] is no longer subject to the challenged pretrial restraints and is now
confined pursuant to the judgment of conviction and sentence, the trial court’s ruling
on [his] pretrial application for writ of habeas has been rendered moot.”); In re
Floyd, 2022 WL 885158, at *2 (when trial court proceeds to trial, it renders moot
defendant’s pretrial habeas double-jeopardy complaint and interferes with appellate
court’s jurisdiction); Ex parte Barnes, Nos. 05-02-0416-CR to 05-02-0419-CR,
2002 WL 1293008, at *3 (Tex. App.—Dallas June 13, 2002, pet. ref’d) (not
designated for publication) (“[W]e cannot discharge [defendant] from the ‘threat of
prosecution’ or preclude the State from relitigating any facts or issues [defendant]
believes were determined in [another] case because he has already been prosecuted
and no trial is pending [any longer].”); De Lam v. State, No. 01-98-00774-CR, 1998
WL 789180, at *1 (Tex. App.—Houston [1st Dist.] Nov. 6, 1998, no pet.) (not
designated for publication) (dismissing defendant’s appeal from trial court’s denial
of his pretrial application for writ of habeas corpus raising double-jeopardy
complaint because defendant was convicted and his appeal was thus rendered moot);
6
Chappell v. State, No. 01-96-00762-CR, 1998 WL 385167, at *1 (Tex. App.—
Houston [1st Dist.] July 9, 1998, no pet.) (not designated for publication) (“Because
[defendant] ha[d] already been tried for [offense], his pre-trial application for writ
of habeas corpus on double jeopardy grounds [was] moot.”).
This Court cannot address moot issues because we lack jurisdiction to render
advisory opinions. See In re N.H.N., 580 S.W.3d 440, 443–44 (Tex. App.—Houston
[14th Dist.] 2019, no pet.); Ex parte Huerta, 582 S.W.3d 407, 410–11 (Tex. App.—
Amarillo 2018, pet. ref’d) (“A court of appeals has no jurisdiction to decide moot
controversies and issue advisory opinions.”); McGuire, 493 S.W.3d at 208 (“We
cannot give any opinion on the merits underlying a moot habeas petition because
such an opinion would be advisory only.” (internal quotations omitted)).
Appellant’s appropriate remedy for his complaints, to the extent that they are not
moot, lies by way of his direct appeals in appellate cause numbers 01-22-00674-CR
and 01-22-00675-CR, which are currently pending in this Court. See Hubbard, 841
S.W.2d at 33–34; see also Ex parte Hopkins, 610 S.W.2d 479, 480 (Tex. Crim. App.
1980) (“[H]abeas corpus will not lie as a substitute for an appeal.”); Ex parte
Benjume, 2022 WL 4349851, at *1 (“When a[] [defendant] has a means to address
[his] complaints by way of an appeal from [his] conviction, [his] appeal from the
denial of pre-trial habeas relief may be dismissed.”); Ex parte Ainsworth, Nos.
07-15-00091-CR, 07-15-00106-CR, 07-15-00107-CR, 07-15-00205-CR,
7
07-15-00206-CR, 07-15-00207-CR, 2016 WL 638477, at *3 (Tex. App.—Amarillo
Feb. 3, 2016, no pet.) (mem. op., not designated for publication) (after explaining
defendant’s appeal from trial court’s denial of pretrial application for writ of habeas
corpus had been rendered moot by trial court’s judgments of conviction, noting
defendant “was free to raise any remaining issues . . . in his direct appeals of the
judgments”); Saucedo, 795 S.W.2d at 9 (“Since habeas corpus is an extraordinary
remedy, ordinarily an application for writ of habeas corpus should not be entertained
where there is an adequate remedy at law. . . . [Defendant] has an adequate remedy
at law in that his contentions may be raised on direct appeal of his convictions.”).
Conclusion
We dismiss the appeal for lack of jurisdiction. We dismiss any pending
motions as moot.
Julie Countiss
Justice
Panel consists of Justices Goodman, Countiss, and Farris.
Do not publish. TEX. R. APP. P. 47.2(b).
8 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488199/ | In the
Court of Appeals
Second Appellate District of Texas
at Fort Worth
___________________________
No. 02-22-00269-CV
___________________________
IN THE INTEREST OF T.B., H.B., J.B., AND G.B., CHILDREN
On Appeal from the 325th District Court
Tarrant County, Texas
Trial Court No. 325-680549-20
Before Bassel, J.; Sudderth, C.J.; and Kerr, J.
Per Curiam Memorandum Opinion
MEMORANDUM OPINION
This is an ultra-accelerated appeal 1 in which Appellant C.B. (Father) appeals the
termination of his parental rights to his four sons—Tom,2 Harry, James, and
George—following a bench trial. Father’s court-appointed appellate counsel filed an
amended Anders brief averring that after diligently reviewing the record, he believes
that the appeal is frivolous. See Anders v. California, 386 U.S. 738, 744–45, 87 S. Ct.
1396, 1400 (1967); see also In re K.M., 98 S.W.3d 774, 776–77 (Tex. App.—Fort Worth
2003, no pet.) (reasoning that Anders procedures apply in noncriminal appeals when
appointment of counsel is mandated by statute). The brief meets the requirements of
Anders by presenting a professional evaluation of the record and by demonstrating
why there are no arguable grounds to be advanced on appeal. Although given the
opportunity, Father did not file a response. The Department of Family and
Protective Services filed a letter stating that because Father had not pointed to any
arguable grounds for relief, the Department would not reply to the Anders brief filed
by Father’s counsel.
As the reviewing appellate court, we must independently examine the record to
decide whether an attorney is correct in determining that the appeal is frivolous. See
1
See Tex. R. Jud. Admin. 6.2(a) (requiring appellate court to dispose of appeal
from a judgment terminating parental rights, so far as reasonably possible, within 180
days after notice of appeal is filed).
2
See Tex. R. App. P. 9.8(b)(2) (requiring court to use aliases to refer to minors in
an appeal from a judgment terminating parental rights). All four children are referred
to using aliases.
2
Stafford v. State, 813 S.W.2d 503, 511 (Tex. Crim. App. 1991); In re K.R.C., 346 S.W.3d
618, 619 (Tex. App.—El Paso 2009, no pet.). Having carefully reviewed the record
and the Anders brief, we agree that Father’s appeal is frivolous. We find nothing in
the record that might arguably support Father’s appeal. See Bledsoe v. State, 178 S.W.3d
824, 827 (Tex. Crim. App. 2005). Accordingly, we affirm the judgment terminating
Father’s parental rights to Tom, Harry, James, and George.
Father’s counsel remains appointed in this case through proceedings in the
Texas Supreme Court unless otherwise relieved from his duties for good cause in
accordance with Family Code Section 107.016(2)(C). See In re P.M., 520 S.W.3d 24,
27–28 (Tex. 2016) (order); see also Tex. Fam. Code Ann. § 107.016(2)(C).
Per Curiam
Delivered: November 17, 2022
3 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488256/ | [Cite as State v. Schmidt, 2022-Ohio-4138.]
IN THE COURT OF APPEALS
TWELFTH APPELLATE DISTRICT OF OHIO
WARREN COUNTY
STATE OF OHIO, :
Appellee, : CASE NO. CA2021-12-115
: OPINION
- vs - 11/21/2022
:
ERIC S. SCHMIDT, :
Appellant. :
CRIMINAL APPEAL FROM WARREN COUNTY COURT OF COMMON PLEAS
Case No. 20CR37357
David P. Fornshell, Warren County Prosecuting Attorney, and Kirsten A. Brandt, Assistant
Prosecuting Attorney, for appellee.
Pinales Stachler Young & Burrell Co., LPA, and Eric G. Eckes and Molly T. Tolbert, for
appellant.
PIPER, J.
{¶1} Appellant, Eric Schmidt, appeals his conviction in the Warren County Court of
Common Pleas for gross sexual imposition. Schmidt contends that there was insufficient
evidence to sustain his conviction and his conviction was against the manifest weight of the
evidence. He further argues the trial court erred and abused its discretion by admitting
other-acts testimony concerning an instance of prior sexual misconduct. For the reasons
Warren CA2021-12-115
detailed below, we affirm.
{¶2} For privacy reasons we use fictional first names. We begin with the incidents
that prompted charges to be filed:
I. 2019 Incidents Resulting in Charges Involving Amber
{¶3} Amber, who was 12 years old at the time of the incidents, testified that
Schmidt engaged in three separate instances of sexual misconduct. The alleged incidents
occurred in the vicinity of a basement window, the basement bathroom, and upstairs in her
brother's bedroom.
{¶4} On September 7, 2019, Amber's father hosted a watch party for a college
football game at his home in Mason. Amber's father is a head coach for a youth football
team. He invited several of his youth football players, their families, and some assistant
coaches. The testimony from trial revealed that the adults mostly congregated outside and
on the back patio while the children were running around playing throughout the house.
Schmidt, one of the assistant coaches, arrived late. Several attendees observed that
Schmidt had been drinking heavily, appeared intoxicated, and was making people
uncomfortable. He was seen dancing in a somewhat lewd fashion.1
A. Two Basement Incidences
{¶5} During the party, Schmidt was in the basement with Amber and two other
children, including a 14-year-old boy ("Kevin"). Those in the basement could hear arguing
outside. Amber was curious and attempted to peer out of a small basement window that
was slightly too high for her to see. It is undisputed that Schmidt picked Amber up, although
there was conflicting evidence as to whether she asked him to do so. Kevin testified that
Amber asked Schmidt to pick her up to see outside the window while Amber testified that
1. In one photograph taken that evening, Schmidt can be seen shirtless with his legs apart standing on a
couch with his groin in close proximity to an adult female's face.
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Warren CA2021-12-115
she was able to see by standing on a stool and that she did not ask Schmidt to pick her up.
{¶6} After Schmidt picked Amber up, Kevin testified that he saw Schmidt's thumb
slip inside Amber's shorts. Amber, however, testified that Schmidt's thumb did more than
slip inside her shorts. Amber testified that Schmidt's hand went up her shorts to her crotch
and went under her underwear. Schmidt then grabbed her by the chest and lowered her to
the floor.
{¶7} Soon thereafter Kevin was called upstairs, and Amber testified she was left
alone with Schmidt. Amber testified that Schmidt removed his erect penis from his pants,
began touching himself and eventually backed her into the basement bathroom. Amber
testified that she was in shock and unsure of what to do. Amber testified the situation
eventually ended when she refused to look by looking away. Schmidt then put his penis
back in his shorts and left the bathroom.
B. Brother's Upstairs Bedroom
{¶8} The final act involving Amber allegedly occurred later in her brother's upstairs
bedroom. There, Amber was sitting on the top bunk of her brother's bunk bed. Schmidt
entered the room and began "messing" with Amber. One of the boys in the room observed
Schmidt touching Amber's "butt" and thought it was "weird," so he and Amber's brother went
downstairs to alert their fathers. Amber testified that Schmidt's hand had once again gone
under her shorts and underwear. She testified that Schmidt touched her clitoris, the same
place where he touched her in the basement, and he inserted two fingers into her vagina.
Later, Amber's father and another adult came upstairs and suggested that Schmidt go
downstairs with the adults. Eventually, Schmidt's wife came to the house to take him home.
{¶9} Amber testified that she did not tell anyone what Schmidt had done because
he was good friends with everyone at the party and she feared she would not be believed.
She also said that she felt ashamed by what happened. However, a few days later, Amber
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Warren CA2021-12-115
wrote a letter to her mother describing the incidents. Amber's mother did not call the police.
However, the police did become involved a few months later when Amber was taken by her
mother to Children's Hospital for an incident of self-harm and suicidal thoughts. While alone
with a nurse, Amber was asked if she had been touched inappropriately by anyone in a way
she didn't like, at which time Amber disclosed the incidents to the nurse, who was a
mandatory reporter.
II. 2015 Incidents Resulting in Charges Involving Beth
{¶10} On April 17, 2015, Beth, who was also 12 years old at the time, was spending
the night with Schmidt's daughter ("Daughter"). After spending time in Daughter's room,
Beth and Daughter decided to go to the basement to watch a movie. Daughter invited
Schmidt to come downstairs with them. Schmidt's basement contains a theatre-style movie
room with a projector and several theatre-style chairs.
{¶11} Beth testified that she and Daughter sat in the theatre-style seats. Schmidt
sat next to Beth on a bean bag chair. The precise sequence of events is unclear, however,
there were contemporaneous text messages sent from Beth's phone to others asserting
that Schmidt was behaving inappropriately. Beth testified that Daughter fell asleep while
watching the movie. Schmidt remained seated on the bean bag chair next to Beth, exposing
himself, and began touching her hand, rubbing up on her arm and shoulder, and across her
breast. Beth testified that she tried to wake Daughter by attempting to show her something
on her phone, but that Daughter quickly fell back asleep. Beth testified that Schmidt
resumed touching her. He allegedly touched her leg, outer thigh, stomach, and tried to
place his hand down her waistband. While Schmidt was touching her, Beth testified that
Schmidt had his penis exposed and was touching it. Beth eventually told Schmidt to stop,
which he did. Schmidt then told her not to tell Daughter.
{¶12} Finally, Beth testified that Schmidt went upstairs but later returned in
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Warren CA2021-12-115
approximately 30 minutes. Beth testified that Schmidt stood behind her and masturbated.
Apparently somewhat stunned, Beth testified she tried to ignore Schmidt with his penis
exposed. Later in the week, Beth told Daughter what had happened in a text message.
Beth's mother subsequently saw that message and confronted Beth about it. The incident
was reported to law enforcement, but apparently no charges were brought as the family
indicated that they did not want to pursue the matter. In 2020, Beth learned about the
allegations involving Amber and requested the state also pursue charges regarding what
had happened to her. 2
III. 2015 Evid. R. 404(B) Unindicted Incident Involving Claire
{¶13} The other incident, which was prior to the indicted offenses, involves conduct
allegedly occurring during the winter break period in early 2015 involving Schmidt's 19-year-
old niece, Claire. Schmidt was not charged with any offenses regarding this incident. Claire
testified that she spent her winter break staying at Schmidt's home as she participated in
an internship. One evening, Schmidt and Claire were alone. Claire testified that she was
watching a television program with Schmidt in the theatre room.3 While doing so, she
observed Schmidt touching his exposed penis while he sat near her. Upon seeing this,
Claire stood up which prompted Schmidt to stand up. Schmidt then stood there with his
genitals exposed while staring at her. Claire then ran upstairs and locked herself in her
room. Claire did not immediately tell anyone what had occurred. Claire testified that she
was unsure of how to handle the situation and did not say anything at the time because she
2. It is common knowledge that sexual offense victims often feel they are alone in what occurred to them—
that the event was an isolated occurrence. Often with little or no corroboration, it becomes an insurmountable
task to gain the confidence and fortitude necessary to expose the perpetrator. Fear of not being believed, of
being embarrassed, and enduring shame, are but a few emotions that suppress the need to make the
occurrence publicly known. Yet upon learning others have experienced a similar event from the same
perpetrator, the need to come forward is reinforced.
3. This is the same basement theatre room where only a few months later a similar incident involving Beth
would occur.
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Warren CA2021-12-115
was scared and would be ending her stay the next day.
IV. Indictments (As to Amber and Beth)
{¶14} On October 19, 2020, Schmidt was indicted on three counts related to conduct
involving Amber and two counts involving Beth. As to Amber, Schmidt was charged with
rape of a child under 13 years of age, gross sexual imposition, and public indecency. As to
Beth, Schmidt was charged with gross sexual imposition and public indecency. Schmidt
pled not guilty, and the matter proceeded to a jury trial.
V. Trial
{¶15} On the first day of trial, the state introduced the testimony of Beth who testified
about the incidents on April 17, 2015, when she was in the basement with Schmidt as
Daughter was asleep.
{¶16} On the second day of trial, the state presented the testimony of a Mason
Police Detective involved in the 2015 investigation. The Detective testified that the case
was closed in June 2015 because the victim and her family did not want to proceed. Also,
on the second day of trial, the state introduced the testimony of Claire, who testified about
the earlier 2015 winter break incident where Schmidt was touching his exposed penis in the
theatre room while alone with her. All the female witnesses making the allegations in this
case testified they did not know one another.
{¶17} During the third day of trial, the state introduced testimony from witnesses
who attended the September 7, 2019, watch party. The state called Kevin, who testified
that he saw Schmidt lift Amber up and, in so doing, saw "his thumb slipped up the inside of
her pant leg * * * [i]nside like the inner thigh of the shorts." Kevin was also upstairs when
he saw Schmidt "messing" with Amber and thought it was weird, so he needed to tell an
adult about what was going on. Kevin claimed to have been with Amber the entire night,
yet Kevin did not observe the basement bathroom incident which Amber described.
-6-
Warren CA2021-12-115
{¶18} Amber's testimony is largely addressed above. Amber testified that Schmidt
touched her crotch under her underwear in the basement and shortly thereafter exposed
himself and was touching his penis while backing her into the basement bathroom. Later,
upstairs in the bedroom, Schmidt commenced touching her vagina, inserting two fingers
and touching her clitoris. She testified that she did not know what the word "clitoris" was at
the time but confirmed that Schmidt touched it in the bedroom and in the basement.
{¶19} On the final day of testimony, Schmidt introduced the testimony of Daughter.
Daughter testified that Beth had a history of lying. She corroborated that she watched a
movie in the basement with Schmidt and Beth but denied falling asleep. She testified that
Beth made up the allegation because Daughter had told Beth that she (Daughter) wanted
to take a break from their friendship.
VI. Verdict
{¶20} Following closing argument, the jury began deliberations. After considerable
deliberations, the jury was unable to reach a consensus on all counts and its deliberations
were concluded. The jury found Schmidt guilty of the single count of gross sexual imposition
involving Amber (this count involved the incident where Schmidt picked Amber up to see
out the window and his hand went between her legs underneath her underwear). The jury
found Schmidt not guilty of rape (this count involved Amber upstairs in her brother's
bedroom) and not guilty of public indecency involving Amber (this count alleged that
Schmidt had his penis exposed and was touching it in the basement bathroom). The jury
could not reach a verdict as to both allegations involving Beth (these counts involved
charges of gross sexual imposition and public indecency).
VII. Subsequent Guilty Plea and Sentencing
{¶21} On December 8, 2021, the state agreed to dismiss the felony charge of gross
sexual imposition involving Beth and Schmidt then entered a no contest plea to the public
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Warren CA2021-12-115
indecency charge. Upon finding Schmidt guilty of the public indecency charge, the trial
court sentenced Schmidt to a 42-month prison term for his conviction for gross sexual
imposition involving Amber and 30 days in jail for his conviction of public indecency involving
Beth. Both terms were ordered to be served concurrently. Schmidt timely appeals, raising
three assignments of error for review.
VIII. Appeal
{¶22} Assignment of Error No. 1:
{¶23} THE TRIAL COURT ERRED WHEN ADMITTING IMPROPER 404(B)
CHARACTER EVIDENCE.
{¶24} Schmidt argues in his first assignment of error that the trial court erred in
admitting "other-acts" evidence in violation of Evid.R. 404(B). Schmidt's argument focuses
in a very limited way on the admissibility of Claire's testimony with respect to only one of
the incidents involving Amber—that is, with regard to when she was picked up by Schmidt
and he touched her between the legs under her underwear. Schmidt neglects to discuss
the admissibility of Claire's testimony as relevant to the charges of gross sexual imposition
and public indecency involving Beth and the basement bathroom public indecency incident
involving Amber. We, however, must examine the trial court's determination as to the
admissibility of Claire's testimony at the time the decision was made at trial, that is, when
the trial court had all five charges pending before it, including the four charges upon which
jury deliberations resulted in no convictions.4
A. Evid.R. 404(B) Standard of Review
{¶25} "The admissibility of other-acts evidence pursuant to Evid.R. 404(B) is a
question of law" that is reviewed de novo. State v. Hartman, 161 Ohio St. 3d 214, 2020-
4. The dissent's footnotes 7 & 8 fail to understand the basis of our analysis.
-8-
Warren CA2021-12-115
Ohio-4440, ¶ 22. However, some aspects of the analysis require employment of the trial
court's discretion, such as addressing whether the evidence is prejudicial. Id. at ¶ 30. Thus,
we apply a mixed standard of review when addressing the admission of other-acts
evidence. Id. While a de novo review requires this court to review the matter anew, an
abuse of discretion standard requires us to determine whether the trial court's decision was
unreasonable, arbitrary, or unconscionable. State v. Baker, 12th Dist. Butler No. CA2020-
08-086, 2021-Ohio-272, ¶ 27.
B. State v. Hartman
{¶26} In Hartman, the defendant was accused of raping an adult female
acquaintance in her hotel room after they had spent the evening out with a group of friends.
Id. at ¶ 1. The defendant maintained that the sexual encounter was consensual. To rebut
that claim, the state presented evidence establishing that the defendant had sexually
abused his stepdaughter when she was a child. Id. at ¶ 12. The defendant was found guilty
of rape. Id. at ¶ 16. On appeal, the Eighth District Court of Appeals reversed the
defendant's convictions on grounds that the evidence purporting to show that he sexually
abused his stepdaughter was inadmissible other-acts evidence under Evid.R. 404(B). Id.
at ¶ 17.
{¶27} The supreme court in Hartman accepted the appeal on the following
proposition of law:
In sexual assault cases, other acts evidence offered to prove
the intent of the offender or the offender's plan is admissible
pursuant to Evid.R. 404(B), even when the identity of the
offender is not at issue.
Id. at ¶ 18. The supreme court agreed with the proposition of law that identity was not
required to be an issue for other-acts evidence to have a permissible purpose. Id. However,
after analyzing permitted purposes as applied to the facts of the case the supreme court
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Warren CA2021-12-115
determined that the other-acts evidence was not admitted for a purpose other than to prove
Hartman acted in accordance with his character for committing such acts. Therefore, the
court in Hartman concluded the other-acts evidence was improperly admitted. Id.
{¶28} In conducting an in-depth examination of "other permissible purposes" the
Hartman court acknowledged that other-acts evidence "almost always carries some risk
that the jury will draw the forbidden propensity inference." Id. at ¶ 33. Therefore, the other-
acts evidence must be evaluated in terms of its relevancy to the particular purpose for which
it is offered other than the person's character. Id. at ¶ 26. The purpose may not be solely
to show the defendant's bad character to commit forbidden acts. Id. The other-acts
evidence must be such that the jury can reasonably conclude that the other act occurred,
and that the defendant was the actor. Id. However, "the trial court must determine whether
the proffered evidence—though admissible under Evid.R. 404(B)—is nevertheless
substantially more prejudicial than probative." Id. at ¶ 29.
C. Permissible Purpose - Intent
{¶29} Evid.R. 404(B)(1) provides that "evidence of any other crime, wrong, or act is
not admissible to prove a person's character in order to show that on a particular occasion
the person acted in accordance with a trait of character." However, Evid. R. 404(B)(2)
provides "that the other crime, wrong, or act may be admissible for another purpose," and
gives examples of permitted uses. Evid.R. 404 provides a nonexhaustive list of permissible
purposes for which other-acts evidence may be introduced. Hartman, 2020-Ohio-4440 at
¶ 26; State v. York, 3d Dist. Union No. 14-21-14, 2022-Ohio-1626, ¶ 40.
{¶30} The permissible purpose must go to a "material" issue that needs to be
determined. Id. at ¶ 27, quoting Huddleston v. United States, 485 U.S. 681, 686, 108 S.Ct.
1496 (1988). Generally, intent is an element of most crimes, but it is typically not a material
issue for other-acts purposes. Hartman at ¶ 55. In most cases "the act speaks for itself."
- 10 -
Warren CA2021-12-115
Id. However, when the state must prove a specific intent in addition to proving the accused
knowingly committed the criminal act, specific intent crimes create a permissible purpose
for using 404(B) evidence. "When a defendant is charged with a specific intent crime,
however, the specific intent becomes a material issue in the case." Id. at ¶ 55. The dissent
fails to address that Hartman expressly determines that intent is a purpose for admissibility
when the crime to be proved is a specific intent crime. Several of the offenses Schmidt was
charged with were specific intent crimes. Specific intent requires proof of a particular intent
included as a statutory element of the criminal offense to be proved beyond a reasonable
doubt in addition to the mental culpability element of knowingly.
{¶31} To be probative of intent, rather than the defendant's propensity to commit
sexual crimes, the other-acts evidence "must be sufficiently similar to the crime charged."
State v. Smith, 162 Ohio St.3d 353, 2020-Ohio-4441, ¶ 45. The other-acts evidence must
be offered for a proper Evid.R. 404(B) purpose relevant to a particular purpose, and specific
intent is a recognized particular purpose. Hartman at ¶ 26, 55.
Or to put it another way, the other-acts evidence "must be so
related to the crime charged in time or circumstances that
evidence of the other acts is significantly useful in showing the
defendant's intent in connection with the crime charged."
Wharton's Criminal Evidence at Section 4:31.
Hartman at ¶ 58. The recognized use of other-acts evidence for specific intent offenses is
well rooted in Ohio jurisprudence. State v. Davis, 90 Ohio St. 100, 105-106 (1914) (soliciting
a bribe contained a specific purpose to influence Davis' vote approving a public contract).
{¶32} A gross sexual imposition charge proscribes touching certain areas of the
body. Beyond proving the touching, the definition of "sexual contact" requires the state
prove, beyond a reasonable doubt, "the defendant's purpose or specific intention" in
touching the proscribed areas. State v. Chute, 3d Dist. Union No. 14-22-02, 2022-Ohio-
2722, ¶ 13, citing State v. Mundy, 99 Ohio App.3d 275, 288 (2d Dist.1994). The touching
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must specifically be proved to have occurred "for the purpose of sexually arousing or
gratifying either person." R.C.2907.01(B).
{¶33} A public indecency charge, while possessing the mens rea of "knowingly,"
also requires proof of a specific intention: the exposing of private parts "with the purpose of
personal sexual arousal or gratification." R.C. 2907.09(B)(4). A person acts purposefully
"when it is a specific intention to cause a certain result * * *." R.C.2901.22(A).
D. Intent Evidence Admitted
{¶34} The trial court permitted Claire's testimony as going to intent but provided the
jury with a cautionary instruction on the limited use of her testimony. The trial court
addressed this issue again in its final jury instructions. The final jury instructions deviated
slightly from the initial cautionary instruction; however, intent was consistently stated as a
permissible purpose.5 The state's pretrial reasons also consistently gave intent as one of
the permissible purposes it was offering Claire's testimony. When Claire's testimony was
admitted, the state was offering Claire's incident to show that Schmidt exposed his penis in
front of unsuspecting young females with a specific intent. Specific intent is found in R.C.
2907.09 as committing the offense with the specified "purpose of personal sexual arousal
or gratification." Specific intent is also found in R.C.2907.05(B) in committing the offense
with the specified "purpose of sexually arousing or gratifying either person." With a specific
purpose being an additional element of the offense, gross sexual imposition is a specific
5. In giving the cautionary instruction, the trial court stated that the evidence could be considered to prove
motive, opportunity, or intent. However, in crafting its final jury instruction, the trial court stated that the other-
acts evidence could only be considered for the limited purpose of proving opportunity, intent, and/or absence
of mistake or accident. In arguing the other-acts evidence was improper, Schmidt suggests he did not have
consistent notice of the reason and purpose the other-acts evidence was being offered. However, intent and
opportunity were consistently stated reasons. Furthermore, the record does not reveal Schmidt's counsel
was unable to prepare an effective cross examination. Therefore, we find no reason to expound upon
Schmidt's suggestion.
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intent offense. Mundy, 99 Ohio App.3d at 292.
{¶35} Schmidt maintains that the allegation he exposed and was touching his penis
in front of Claire was only offered for proof of his character with a propensity to commit
sexual crimes. Schmidt argues that Claire is not the same type of victim as Amber and
Beth because Claire was seven years older. Schmidt attempts to draw the insignificant age
difference as a significant dissimilarity. Mostly, however, Schmidt argues that the conduct
involving Claire is not similar to the singular incident when he picked up Amber and his hand
went underneath her underwear into her private area. Schmidt concludes the evidence was
only used to prove he possessed the character trait of a "sexual deviant" and acted in
conformity with that trait.
{¶36} To the contrary, if Claire's testimony was propensity evidence to prove
Schmidt was a sexual deviant, the jury would have found Schmidt guilty of the similar
incidences involving Amber and Beth. Yet the jury did not find Schmidt guilty of the three
offenses with factual circumstances extremely similar to Claire's incident. Clearly the jury
followed the trial court's instructions of law as to the limited use of other-acts evidence and
did not use the evidence as proof of character trait. Obviously, the jury did not use Claire's
testimony as proof of character with the propensity to act as a sexual deviant when Schmidt
was not found guilty of four out of five of the sexual offenses charged.
{¶37} It seems disingenuous to suggest the jury considered the other-acts evidence
as propensity evidence to commit the rape he was found not guilty of committing, or the
bathroom incident involving Amber he was found not guilty of committing. Similarly, the
same can be said about the public indecency and gross sexual imposition charges involving
Beth where the jury rendered no verdict after considerable deliberation. Schmidt's
argument focuses exclusively on only one encounter. He attempts to ignore the fact that
pending before the trial court were multiple charges, with multiple victims, at the time the
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trial court had to determine the admissibility of the other acts evidence.
{¶38} In choosing to focus upon only one encounter with one victim, Schmidt
downplays the similarities in the testimonies of Amber, Beth, and Claire. Such a limited
argument invites this court to put on blinders with regard to the similar charges the trial court
had before it when determining Claire's testimony was admissible. That is, the state was
attempting to secure convictions involving Beth's claims that Schmidt pulled out his penis
and began touching it in the very same basement just months after Schmidt did similarly to
Claire (clearly with the specific statutory intent of some sort of gratification). Additionally,
the state was also attempting to prove, while near the basement bathroom, with the same
specific intent, Schmidt exposed and was touching his penis in front of Amber as he had
done approximately four years earlier with Beth.6
{¶39} By focusing on the single count involving Amber at the basement window,
Schmidt, as does our dissenting colleague, fails to adequately examine the other, more
similar, offenses. That is, after considering the detailed facts in this case, Schmidt's
exposure of his genitalia and touching it in front of Claire was proof that Schmidt had the
specific intent or purpose of "personal sexual arousal or gratification." Accordingly, we hold
the evidence consisted of a permissible Evid.R. 404(B) purpose, and its admission was not
improper.
E. Other Permissible Purposes – Opportunity, Motive
{¶40} With the state required to prove specific intent crimes, intent alone is a
permissible purpose for admitting Claire's testimony. Yet the trial court also indicated that
6. Schmidt did not argue in his pretrial motion, or at trial, that too much time had passed between Claire's
incident and the incidents involving Beth or the incidents involving Amber. Nor did he argue to the trial court
that Claire's testimony was prejudicial specifically to the one charge involving Amber of which he was
convicted. Schmidt did not argue Amber's different allegations should be tried individually; his motion for
severance was only to have all of Beth's allocations tried separately from all of Amber's allegations—and
denial of that motion was not argued on appeal.
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opportunity was a permissible reason to consider the other-acts evidence. "Opportunity" is
a situation that allows for a possible outcome. "Opportunity" is "a set of circumstances
providing a chance or possibility." Webster's Encyclopedia Edition Dictionary (1987).
Beth's similar sexual encounter in the very same basement theatre room as Claire's sexual
encounter only months beforehand, is permissible proof of Schmidt's use of the same
opportunity to expose himself to an unsuspecting female. Finding nearly identical settings
so the same opportunity will exist is a behavioral footprint. Such is offered not for propensity
but rather for the common thread as to how and why the setting resulted in a similar
occurrence.
{¶41} Schmidt used opportunity to disarm females who saw him with the elevated
status of a father and member of the community. The opportunity to isolate and befriend
young females allowed him to place each in a sudden, shocking predicament by exposing
himself. The logical connection is found in the shared facts and circumstances creating the
setting for the opportunity.
{¶42} Additionally, we note this court has previously held that an appellate court
shall affirm a trial court's judgment that is legally correct but for other grounds, that is, one
that achieves the right result for the wrong reason, when such an error is not prejudicial.
State v. Fannin, 12th Dist. Warren No. CA2020-03-022, 2021-Ohio-2462, ¶ 27, citing State
v. Payton, 124 Ohio App.3d 552, 557 (12th Dist.1997) and State v. Lewis, 9th Dist. Summit
No. 29696, 2021-Ohio-1575, ¶ 16 (other-acts evidence was admissible for alternative
reason). In Fannin, the same panel as here, acknowledged that although the purpose
offered at trial was improperly relied upon, on appeal we could find that a different purpose
would have been a permissible purpose. In so finding, we determined prejudice to the
defendant did not exist. Fannin at ¶ 28.
{¶43} Bearing the above in mind, we also note another non-propensity reason for
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admitting Clair's encounter is "motive." "Motive evidence establishes that the accused had
a specific reason to commit a crime." Id. The other-acts evidence and the evidence of the
charged offense must relate a logical connection which "may reasonably disclose a motive
or purpose for the commission of such offense." State v. Blankenburg, 12th Dist. Butler No.
CA2010-03-063, 2012-Ohio-1289, ¶ 83
{¶44} Hartman indicates it can be a thin line as to when other acts evidence is
admissible and when it is not. Hartman, 2020-Ohio-4440 at ¶ 57. That thin line can be
observed when attempting to discern permissible motive evidence from impermissible
propensity evidence. Motive is what induces an act, the moving power that seeks a result.
Blankenburg at ¶ 82. The conduct involved in other-acts evidence helps to explain why the
offense charged took place. Id. at ¶ 85.
{¶45} Said differently, motive is that sense of need or desire that prompts a person
to act. Webster's Encyclopedia Edition Dictionary (1987). On the other hand, impermissible
evidence of "trait of character" relates to the quality of a person's behavior as revealed by
distinguishing features or characteristics. See Hartman at ¶ 36-39. Traits of character are
found in words that describe a person's values or personality. The more similarity of detail
in the behavior, the more a trier of fact derives an understanding or explanation as to why
actor is compelled to act.
{¶46} Hartman explains sexual acts that are distinct in facts and circumstances may
not have a common motive that induces the act or reveals a common moving power for
commission of the acts and that the details govern. Here, Schmidt's identity is not disputed
in either the extrinsic other act involving Claire or the charged offenses. Schmidt's defense
never contested his presence in the situations alleged. His defense was only that the girls
were lying because the exposure of his genitals never occurred. The commonality in
circumstances and the similarity in the acts alleged with an identical motive for repeatedly
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exposing himself gives another purpose to the other-acts testimony.
{¶47} Motive would have been a permissible reason to admit Claire's other-act
testimony, not for the propensity of a trait of character, but to explain why Schmidt was
moved to expose his genitals. The motive in Claire's incident, to seek sexual arousal or
gratification, was offered as the same motive in an incident involving Amber and Beth.
Thus, Evid.R. 404(B) expressly permits extrinsic evidence as to motive in certain
circumstances which is not automatically excluded simply because motive is not an element
of the crime. In this particular set of circumstances, the specific intent and motive appear
to be one and the same.
{¶48} Hartman gives guidance upon which our de novo review relies when
examining the specific facts and circumstances. We reject Schmidt's argument that Claire's
other-acts testimony was not admitted for a permissible purpose.
F. Possibility of Propensity Mitigated
{¶49} The fact that Schmidt was not convicted on most of the charges does not
mean there was no permissible purpose for admission of the Evid.R. 404 (B) evidence
during trial. It means, however, the jury listened astutely to the trial court's instructions of
law to consider the charges separately and only to consider the other-acts testimony for a
limited purpose. After the cautionary instructions given during the trial, the court's final
instructions emphasized that the other-acts testimony
cannot be considered for any other purpose than the purposes
that I've just described to you. It was not received, and you may
not consider it to prove the character of the defendant in order
to show that he acted in conformity with that character * * *. It
does not follow from the defendant's past acts that he committed
the particular crimes charged in this case. * * * The state cannot
satisfy its burden merely by implying that the defendant
committed these crimes because his other acts suggest a
propensity to commit crimes.
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The trial court stressed, "each count of the indictment constitutes separate and distinct
matters" and instructed the jury they "must consider each count and the evidence applicable
to each count separately."
{¶50} Clearly the jury did not consider the allegations of Schmidt's other bad acts or
wrongs as propensity evidence. If so, they would have convicted Schmidt of more than just
one offense. Schmidt's situation is similar to those where the jury hears testimony of the
defendant's other bad acts, yet the defendant is acquitted of some charges but not all the
charges. State v. Stober, 3d Dist. Putnam No. 12-13-09, 2014-Ohio-1568, ¶ 101 (where
the defendant was acquitted of some of the accusations it showed the evidence was simple
and direct and the jury was able to segregate the proof as going to separate offenses –
there was no showing of prejudice where the jury was able to discern the separate crimes
and was not biased by testimony from the other incidents); State v. Martin, 11th Dist. Lake
No. 2003-L-143, 2005-Ohio-688, ¶ 66 (where the evidence was separate and distinct "we
may conclude that the jury followed the court's instruction to consider each count
separately.").
{¶51} Here the evidence was simple and direct. The jury was able to separate the
proof as going to the individual offenses. We presume the jury followed the trial court's
instructions of law. State v. Ireland, 155 Ohio St.3d 287, 2018-Ohio-4494, ¶ 45 ("The jury
is presumed to have followed the court's instructions."). The jury's verdicts confirm the
instructions of law were taken seriously and thoughtfully applied. The risk the jury might
consider the other-acts testimony as propensity evidence was sufficiently mitigated by the
trial court's thorough instructions and admonitions to the jury.
G. Weighing the Probative Value and Danger of Unfair Prejudice
{¶52} Schmidt also argues that the probative value of the prior act involving Claire
was substantially outweighed by the danger of unfair prejudice. There is no denying that
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Claire's testimony was not favorable to Schmidt. State v. Skatzes, 104 Ohio St.3d 195,
2004-Ohio-6391, ¶ 107. Yet not all evidence is unfairly prejudicial. State v. White, 12th
Dist. Warren No. CA2018-09-107, 2019-Ohio-4312, ¶ 31. "Under Evid.R.403(A), only
evidence that is unfairly prejudicial is excludable." State v. Smith, 12th Dist. Butler No.
CA2008-03-064, 2009-Ohio-5517, ¶ 60. "Unfairly prejudicial evidence is not merely
unfavorable evidence; rather, it is evidence, which might result in an improper bias for a jury
decision." State v. Mills, 12th Dist. Clermont No. CA2015-12-101, 2016-Ohio-6985, ¶ 18.
{¶53} "Weighing the probative value of the evidence against its prejudicial effect is
a highly fact-specific and context-driven analysis." Hartman, 2020-Ohio-4440 at ¶ 30. Here,
the trial court found the probative value of Claire's testimony was not substantially
outweighed by the danger of unfair prejudice to Schmidt. The trial court provided cautionary
instructions to the jury and discussed the limited use of other-acts testimony. It also
instructed the jury that other-acts evidence cannot be considered for any other purpose or
to prove the character of the defendant to show that he acted in conformity with that
character. State v. Vunda, 12th Dist. Butler Nos. CA2012-07-130 and CA2013-07-113,
2014-Ohio-3449, ¶ 73 (there is a presumption that jurors follow the instructions given by the
trial court).
{¶54} The trial court did not abuse its discretion in determining Claire's testimony
was admissible for establishing intent and that the probative value of the evidence was not
substantially outweighed by the danger of unfair prejudice. Schmidt was not unfairly
prejudiced by evidence offered for a permissible purpose. After reviewing the testimony
there is nothing to suggest the jury's decisions which found Schmidt not guilty of two counts,
decided not to reach a verdict on two counts, and found Schmidt guilty on only one count,
were the result of an improper bias. We decline the dissent's invitation to climb into the
minds of the jurors and speculate that Schmidt was prejudiced despite a record that
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indicates differently. The trial court was not unreasonable, arbitrary, or unconscionable
when it determined that the probative value of the other-acts evidence was substantially
outweighed by the danger of unfair prejudice. Therefore, the trial court did not abuse its
discretion in the admission of Evid.R. 404(B) evidence.
{¶55} As Schmidt's first assignment of error lacks merit, it is overruled.
{¶56} Assignment of Error No. 2:
{¶57} THE EVIDENCE PRESENTED AT TRIAL WAS INSUFFICIENT TO PROVE
SCHMIDT'S GUILT BEYOND A REASONABLE DOUBT.
{¶58} Assignment of Error No. 3:
{¶59} SCHMIDT'S CONVICTION WAS AGAINST THE MANIFEST WEIGHT OF
THE EVIDENCE.
{¶60} In his second and third assignments of error, Schmidt argues that his
conviction was based on insufficient evidence and the jury's verdict was against the
manifest weight of the evidence.
{¶61} The concepts of sufficiency of the evidence and weight of the evidence are
legally distinct. State v. Palmer, 12th Dist. Clermont No. CA2021-07-035, 2022-Ohio-2181,
¶ 32. Nonetheless, as this court has observed, a finding that a conviction is supported by
the manifest weight of the evidence is also dispositive of the issue of sufficiency. State v.
Jones, 12th Dist. Butler No. CA2012-03-049, 2013-Ohio-150, ¶ 19. "Because sufficiency is
required to take a case to the jury, a finding that a conviction is supported by the weight of
the evidence must necessarily include a finding of sufficiency." State v. Hart, 12th Dist.
Brown No. CA2011-03-008, 2012-Ohio-1896, ¶ 43.
{¶62} A manifest weight challenge scrutinizes the proclivity of the greater amount of
credible evidence, offered at a trial, to support one side of the issue over another. State v.
Barnett, 12th Dist. Butler No. CA2011-09-177, 2012-Ohio-2372, ¶ 14. In assessing whether
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a conviction is against the manifest weight of the evidence, a reviewing court examines the
entire record, weighs the evidence and all reasonable inferences, considers the credibility
of the witnesses, and determines whether, in resolving conflicts in the evidence, the trier of
fact clearly lost its way and created such a manifest miscarriage of justice that the conviction
must be reversed, and a new trial ordered. State v. Morgan, 12th Dist. Butler Nos. CA2013-
08-146 and CA2013-08-147, 2014-Ohio-2472, ¶ 34.
{¶63} Gross sexual imposition is defined in R.C. 2907.05, which states:
(A) No person shall have sexual contact with another, not the
spouse of the offender; cause another, not the spouse of the
offender, to have sexual contact with the offender; or cause two
or more other persons to have sexual contact when any of the
following applies:
***
(4) The other person, or one of the other persons, is less than
thirteen years of age, whether or not the offender knows the age
of that person.
{¶64} The Revised Code defines "sexual contact" as "any touching of an erogenous
zone of another, including without limitation the thigh, genitals, buttock, pubic region, or, if
the person is a female, a breast, for the purpose of sexually arousing or gratifying either
person." R.C. 2907.01(B).
{¶65} In the matter sub judice, the state presented evidence that Schmidt touched
12-year-old Amber's vagina under her underwear for purposes of sexual gratification.
Amber testified that Schmidt lifted her up in the basement and, in the process, Schmidt's
hand went up her shorts, under her underwear, touching her vaginal area. Schmidt then
grabbed her by the chest and lowered her to the floor. Amber confirmed that Schmidt
specifically touched her clitoris. While he argues that his thumb only slipped up her leg, the
jury, as trier of fact, was in the best position to weigh the credibility of individual witnesses
and reach a conclusion based on the totality of the evidence. State v. Kersbergen, 12th
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Dist. Butler No. CA2014-10-218, 2015-Ohio-3103, ¶ 29; State v. B.J.T., 12th Dist. Warren
No. CA2016-12-106, 2017-Ohio-8797, ¶ 33-34.
{¶66} Schmidt's argument that he did not touch Amber's private area with purpose
of sexual gratification was rejected by the jury. State v. Williams, 12th Dist. Warren No.
CA2012-08-080, 2013-Ohio-3410, ¶ 33. We similarly find the argument unpersuasive as
evidence exists supporting the manifest weight of the evidence. The jury's verdicts reveal a
serious consideration of numerous charges, and a thorough examination of the evidence
as applied to each charge individually. After reviewing the record, we find that the jury did
not clearly lose its way or create such a manifest miscarriage of justice such that a new trial
must be ordered. As such, Schmidt's conviction is supported by sufficient evidence and is
not against the manifest weight of the evidence. Schmidt's second and third assignments
of error are overruled.
{¶67} Judgment affirmed.
BYRNE, J., concurs in part and concurs in the judgment in part.
M. POWELL, P.J., dissents.
BYRNE, J., concurring separately.
{¶68} With respect to the majority opinion's decision to overrule Assignment of Error
No. 1, I concur in the judgment. At the time Claire's testimony was admitted, all the charges
against Schmidt were pending before the court. Two of those charges, public indecency
and gross sexual imposition, are specific-intent crimes. R.C. 2907.09(B)(4), public
indecency, requires that the state prove that the defendant committed the crime with the
specific "purpose of personal sexual arousal or gratification." R.C. 2907.05(A)(4), gross
sexual imposition, requires that the state prove that the defendant engaged in "sexual
contact" with a person less than thirteen years of age, where "sexual contact" is defined by
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R.C. 2907.01(B) as being performed for the specific "purpose of sexually arousing or
gratifying either person." I conclude that Claire's testimony was admissible in these
circumstances based on State v. Hartman, 161 Ohio St.3d 214, 2020-Ohio-4440. In
Hartman, the Ohio Supreme Court explained that other-acts evidence is not normally
admissible for proving intent "when 'the requisite intent is presumed or inferred from proof
of the criminal act itself.'" Id. at ¶ 55, quoting 1 Wharton’s Criminal Evidence, Section 4:31
(15th Ed.2019). Yet the supreme court qualified this statement further by concluding that
"When a defendant is charged with a specific-intent crime, however, the specific intent
becomes a material issue in the case" and prior-acts evidence is admissible to prove
specific intent. Id. Such is the case here. I therefore agree with the majority opinion's
analysis regarding intent and its overruling of Assignment of Error No. 1.
{¶69} Having determined that Claire's testimony was admissible under Evid.R.
404(B) to prove intent, I conclude there is no need to determine whether Claire's testimony
was also admissible under Evid.R. 404(B) to prove opportunity or motive. I therefore do not
join the majority's analysis regarding motive and opportunity.
{¶70} With respect to Assignment of Error No. 2 and Assignment of Error No. 3, I
fully concur with and join the majority opinion.
{¶71} For these reasons, I respectfully concur in part and concur in the judgment in
part.
M. POWELL, P.J., dissenting.
I. INTRODUCTION.
{¶72} The trial court erred to the prejudice of Schmidt by admitting Claire's testimony
concerning an uncharged instance of public indecency by Schmidt. This testimony did not
serve legitimate Evid.R. 404(B) purposes, related to undisputed and immaterial issues, and
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gave rise to improper propensity inferences. This evidence does not satisfy the three-step
analysis set out in State v. Williams, 134 Ohio St.3d 521, 2012-Ohio-5695, and should have
been excluded.
II. 404(B) EVIDENCE-PRELIMINARY CONSIDERATIONS.
{¶73} The general rule regarding admissibility of other-acts evidence is set forth in
Evid.R. 404(B)(1), which provides that "[e]vidence of any other crime, wrong or act is not
admissible to prove a person's character in order to show that on a particular occasion the
person acted in accordance with the character." "A hallmark of the American criminal justice
system is the principle that proof that the accused committed a crime other than the one for
which he is on trial is not admissible when its sole purpose is to show the accused's
propensity or inclination to commit crime." State v. Curry, 43 Ohio St.2d 66, 68 (1975).
However, such "evidence may be admissible for another purpose, such as proving motive,
opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of
accident." Evid.R. 404(B)(2). In Williams, the Ohio Supreme Court established a three-
prong test for the determination of the admissibility of other-acts evidence:
The first step is to consider whether the other acts evidence is
relevant to making any fact that is of consequence to the
determination of the action more or less probable than it would
be without the evidence. Evid.R. 401. The next step is to
consider whether evidence of the other crimes, wrongs, or acts
is presented to prove the character of the accused in order to
show activity in conformity therewith or whether the other acts
evidence is presented for a legitimate purpose, such as those
stated in Evid.R. 404(B). The third step is to consider whether
the probative value of the other acts evidence is substantially
outweighed by the danger of unfair prejudice. See Evid.R 403.
Williams at ¶ 20.
{¶74} The Williams relevancy prong concerns "not whether the other-acts evidence
is relevant to the ultimate determination of guilt * * * [but] whether the evidence is relevant
to the particular purpose for which it is offered." (Emphasis sic.) State v. Hartman, 161
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Ohio St.3d 214, 2020-Ohio-4440, ¶ 26. Furthermore, the other-acts evidence must not only
be relevant to an Evid.R. 404(B) purpose but also "must go to a 'material' issue that is
actually in dispute between the parties." Id. at ¶ 27. Thus, the relevancy of other-acts
evidence hinges upon three factors. The evidence must serve to prove an Evid.R. 404(B)
purpose and relate to an issue that is both (a) material and (b) disputed.
{¶75} The Williams probative value versus the prejudicial effect prong is closely
related to the relevancy determination and involves a consideration of whether the purpose
for which the evidence is offered is a disputed issue in the case. "The probative value of
the evidence, as well as whether any prejudice is unfair, will generally depend on the degree
to which the fact is actually contested." Id. at ¶ 31. "If the fact that the proponent seeks to
prove by way of other acts is not genuinely disputed or material to the case, then it has little
probative value and the risk of prejudice is high. As the importance of the factual dispute
for which the evidence is offered to the resolution of the case increases, the probative value
of the evidence also increases and the risk of unfair prejudice decreases." (Emphasis sic.)
Id.
III. DISCUSSION.
A. THE CHARGES AGAINST SCHMIDT.
{¶76} Schmidt was indicted for rape, gross sexual imposition, and public indecency
involving Amber. All three offenses were alleged to have occurred on September 7, 2019,
during an Ohio State football game watch party at Amber's home. The rape offense related
to Schmidt allegedly digitally penetrating Amber's vagina when he was with her in her
brother's bedroom.7 The gross sexual imposition offense related to Schmidt allegedly
7. Neither the state nor the majority rely upon the rape offense involving Amber as providing a basis for the
admissibility of Claire's testimony as Evid.R. 404(B) evidence. Thus, this dissent will not analyze the issue
with reference to the rape offense against Amber.
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touching Amber's genitals as he lifted her to look out of the basement window at some
commotion occurring outside. The public indecency charge related to Schmidt allegedly
exposing himself and masturbating in front of Amber when he was alone with her and had
backed her into a basement bathroom. The jury acquitted Schmidt of the rape and public
indecency charges and found him guilty of the gross sexual imposition offense.
{¶77} Schmidt was also indicted for gross sexual imposition and public indecency
involving Beth.8 These incidents were alleged to have occurred on April 17, 2015, when
Beth was a guest at Schmidt's home visiting with Schmidt's daughter. The gross sexual
imposition and public indecency charges relate to Schmidt allegedly touching Beth's breast
in his theatre room and exposing himself and masturbating in front of Beth while his
daughter was asleep beside Beth. The jury was unable to reach a verdict on either charge.
Schmidt was eventually found guilty of the public indecency charge pursuant to his no
contest plea and the gross sexual imposition offense was dismissed.
{¶78} Claire testified that Schmidt exposed himself to her when she was alone with
him in his theatre room in early 2015. This incident with Claire is similar to the public
indecency charges involving Amber and Beth but dissimilar from the gross sexual
imposition charge involving Amber. The majority remarks that Schmidt's argument focuses
on the admissibility of Claire's testimony as proper Evid.R. 404(B) evidence relating to the
gross sexual imposition charge involving Amber and ignores whether Claire's testimony
was proper Evid.R. 404(B) evidence vis-à-vis the public indecency charges involving Amber
and Beth. Schmidt likely focuses upon the gross sexual imposition charge because it was
the only offense upon which the jury returned a guilty verdict and was the state's focus
8. Neither the state nor the majority rely upon the gross sexual imposition offense involving Beth as providing
a basis for the admissibility of Claire's testimony as Evid.R. 404(B) evidence. Thus, this dissent will not analyze
the issue with reference to the gross sexual imposition offense involving Beth.
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below. The state argued during the jury instruction conference that Claire's testimony was
admissible to counter any claim that Schmidt's touching of Amber's genitals was the product
of accident or mistake, and in closing argument told the jury that Claire's testimony could
be considered in deciding that Schmidt's touching of Amber was not "just an accident or
something." Furthermore, the state conceded during oral argument that Claire's testimony
would probably have been inadmissible had Schmidt faced trial only on the public indecency
charges.
{¶79} Nonetheless, when the trial court was faced with determining the admissibility
of Claire's testimony, Schmidt was on trial for two counts of gross sexual imposition, two
counts of public indecency, and a single count of rape. Thus, the trial court had to resolve
the admissibility question with reference to all charges, including the public indecency
charges. The majority opinion primarily analyzes the issue of the admissibility of Claire's
testimony within the context of the public indecency charges.
B. THE EVID.R. 404(B) PURPOSES OF CLAIRE'S TESTIMONY.
{¶80} The trial court's final instruction to the jury was that it could consider Claire's
testimony as proof of Schmidt's opportunity and intent and as proof of the absence of
accident or mistake. The majority upholds the admission of Claire's testimony as proof of
intent, opportunity, and motive.
1. INTENT.
{¶81} Because of the similarity of the public indecency charges involving Amber and
Beth to the incident described in Claire's testimony, the majority holds that Claire's
testimony was admissible to prove that Schmidt exposed himself and masturbated in front
of Amber and Beth with the specific intent to achieve "personal sexual arousal or
gratification."
{¶82} As observed by the majority, the offenses of public indecency and gross
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sexual imposition are specific intent crimes because each requires proof that the offender
acted for the purpose of achieving sexual arousal or gratification. Thus, this specific intent
was a material issue in the case. Hartman, 2020-Ohio-4440 at ¶ 55. Nonetheless, just
because an issue is a material issue, "it does not follow" that the other-acts evidence is
admissible. Id. at ¶ 60. "[T]o be admissible, the other-acts evidence must be relevant to
the specific intent and relevant in a permissible way." Id. at ¶ 55.
{¶83} Schmidt does not claim, and the record does not suggest, that mistake or
accident was an issue in the adjudication of the public indecency charges. For instance,
Schmidt never advanced a claim that exposing himself and masturbating in front of Amber
and Beth was anything more than it appeared. Schmidt did not suggest that he was
scratching himself, urinating, or doing something similar that the victims misinterpreted.
Schmidt never claimed that he thought he was masturbating privately and was suddenly
discovered by the girls. Schmidt's defense was that Amber and Beth were lying and that
he did not do what they accused him of doing.
{¶84} Had Schmidt claimed that he was engaged in some innocent act that Amber
and Beth walked-in on or misconstrued as public indecency, Claire's testimony might have
been admissible to rebut that suggestion because "'the oftener a like act has been done,
the less probable it is that it could have been done innocently.'" Hartman at ¶ 56, quoting
State v. Evers, 139 Wis.2d 424, 437 (1987). However, because neither accident nor
mistake were issues in the case, much less disputed issues, Claire's testimony was
unnecessary to address accident/mistake issues. The majority does not contend otherwise.
{¶85} As opposed to rebutting any suggestion of accident or mistake, the majority
holds that Claire's testimony was admissible to prove an element of the offenses, i.e.,
Schmidt's specific intent to achieve sexual arousal or gratification. Claire's testimony
provided no probative evidence of Schmidt's sexual purpose in exposing himself to Amber
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and Beth because his intent was apparent from his acts and undisputed. "[I]ntent evidence
is not admissible when 'the requisite intent is presumed or inferred from proof of the criminal
act itself,' or when intent is not in issue at all, such as when the defense theory is that the
act never occurred." Hartman, 2020-Ohio-4440 at ¶ 55, quoting 1 Wharton's Criminal
Evidence, Section 4:31 (15th Ed.2019). Achieving sexual gratification is implicitly obvious
in the act of masturbating. Masturbation is "the manipulation of genital organs for sexual
gratification by means other than sexual intercourse." Columbus v. Heck, 10th Dist.
Franklin No. 98AP-1384, 1999 Ohio App. LEXIS 5257, *14 (Nov. 9, 1999). "Neither that
definition nor the common, ordinary meaning of the term masturbation requires any
expressed or observed sexual gratification that indicates the individual is finding pleasure.
Rather, sexual gratification is the motivation for engaging in that behavior. That motive
reasonably can be inferred whenever a person engages in that conduct, as Defendant did
here." State v. Johnson, 2d Dist. Montgomery No. 21335, 2006-Ohio-4935, ¶ 20. We have
observed that proof of a purpose to achieve sexual arousal or gratification is to be "inferred
from the type, nature, and circumstances [of the offense]." State v. Gesell, 12th Dist. Butler
No. CA2005-08-367, 2006-Ohio-3621, ¶ 25. Amber and Beth each testified that Schmidt
isolated them, exposed his penis, and rubbed it. If the jury believed that these acts
occurred, the only inference which may be drawn from the descriptions of the conduct is
that they were done with a sexual motivation. Claire's testimony did not make Schmidt's
sexual intent in the incidents with Amber and Beth more apparent. Moreover, any marginal
probative value that Claire's testimony may have as proof of the obvious sexual motivation
in Schmidt's conduct with Amber and Beth, was substantially outweighed by the danger that
the jury would draw unfair propensity inferences from the evidence.
{¶86} Claire's testimony does not advance the state's claim that Schmidt exposed
himself to Amber and Beth to achieve sexual arousal or gratification. Schmidt's intent was
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manifest in his conduct with Amber and Beth. Claire's testimony neither clarifies Schmidt's
purpose in exposing himself to Amber and Beth nor make it more likely that he did so to
achieve sexual arousal or gratification. Claire's testimony concerned only an additional
instance of the same conduct Schmidt was alleged to have engaged in with Amber and
Beth. Schmidt's conduct with each of the three girls gives rise to the same inference
regarding his purpose in masturbating in front of them. The only tendency of Claire's
testimony was to show that Schmidt was disposed to expose himself to young females to
achieve sexual arousal or gratification—in other words, propensity evidence.
2. OPPORTUNITY.
{¶87} Opportunity evidence relates to evidence of "other acts" of the accused which
tend to show that he had the means to commit the crime. "Evidence used to establish
opportunity is evidence that shows 'access to or presence at the scene of the crime' or the
possession of 'distinctive or unusual skills or abilities employed in the commission of the
crime charged.'" United States v. Jobson, 102 F.3d 214, 221 (6th Cir.1996), quoting 1
McCormick, Evidence Section 190, at B7 (4th Ed.1992). Opportunity evidence has been
ruled admissible in cases where there is a disputed issue regarding whether an accused
has access to the instrumentality used in the crime or to the place, person, or circumstances
involved in the crime. See State v. Bucklew, 5th Dist. Stark No. 2004CA00262, 2005-Ohio-
1942 (testimony that an accused was seen operating a vehicle under suspension was
admissible to prove the accused had access to the vehicle and operated it under
suspension on the prior day); State v. Davis, 9th Dist. Lorain No. 88CA004390, 1990 WL
49985 (Apr. 14, 1990) (testimony of uncharged crimes and other acts by an accused
admissible to prove the accused's presence in Ohio at the time murders were committed to
establish the accused's opportunity to commit the murders); State v. Eustice, 1st Dist.
Hamilton No. C-870670, 1988 WL 75775 (Oct. 5, 1988) (evidence of prior unruly parties at
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a home admissible to establish the accused was in charge of the home in a prosecution for
keeping a disorderly house); State v. Smith, 7th Dist. Mahoning No. 99 CA 256, 2001 Ohio
App. LEXIS 2976 (June 26, 2001) (testimony concerning the accused's ownership of guns
admissible in murder prosecution to show the accused had the means and opportunity to
commit the murders); and State v. Sabbah, 6th Dist. Erie No. E-94-031, 1995 WL 490940
(Aug. 18, 1995) (evidence that the accused had physically abused his female partner when
she did not do as told admissible to prove the accused had the opportunity to manipulate
his partner into aiding him in the commission of the murder).
{¶88} Admission of Claire's testimony as opportunity evidence was prejudicial error
because: Claire's testimony does not qualify as opportunity evidence; Schmidt's opportunity
to commit the public indecency charges against Amber and Beth was undisputed; and
Claire's testimony permitted the jury to draw impermissible inferences concerning Schmidt's
propensity to expose himself to young females.
{¶89} First and foremost, Claire's testimony is not relevant to an Evid.R. 404(B)
purpose because it is not Evid.R. 404(B) opportunity evidence. The Claire, Beth, and
Amber incidents were separate occurrences. Unlike the cases cited above describing
circumstances under which other-acts evidence is admissible to prove opportunity,
evidence of the incident with Claire is not proof that Schmidt had the opportunity to expose
himself to Amber or Beth.
{¶90} Furthermore, Schmidt's opportunity to commit the crimes was not a disputed
issue during the trial. There was no question that Beth was a guest at Schmidt's home on
April 17, 2015, and that Schmidt and Beth were together in Schmidt's theatre room. There
was no question that Schmidt was at Amber's home on September 7, 2019, and with her in
the basement of her home. The majority notes as much in observing that "Schmidt's
defense never contested his presence in the situations alleged." The evidence was
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uncontroverted that Schmidt had the means and opportunity to commit the offenses
involving Amber and Beth. Pursuant to Hartman, this alone is enough to render Claire's
testimony inadmissible because it is not relevant to Schmidt's opportunity to commit the
offense and its probative value is substantially outweighed by the danger of unfair prejudice.
{¶91} The majority opinion holds that Claire's testimony was admissible as
opportunity evidence based upon the similarity of the circumstances under which Schmidt
exposed himself to Claire and Beth.9 The majority asserts that Claire's testimony proves
that Schmidt uses "the same opportunity to expose himself to unsuspecting females" and
that the "nearly identical set of circumstances" involved in the Claire and Beth incidents is
a "behavioral footprint."
{¶92} Although the majority characterizes Claire's testimony as opportunity
evidence, it is in fact, modus operandi evidence. The gist of the majority's analysis is that
the manner in which Schmidt commits these offenses is by taking advantage of
circumstances where he finds himself isolated with young females to expose himself and
masturbate in front of them. "’Modus operandi' literally means method of working."
Hartman, 2020-Ohio-4440 at ¶ 37. "It is evidence of signature, fingerprint-like
characteristics unique enough 'to show that the crimes were committed by the same
person.'" Id., quoting Weissenberger, Federal Evidence, Section 404.17 (7th Ed.2019).
"Evidence of modus operandi is relevant to prove identity: 'Evidence that the defendant had
committed uncharged crimes with the same peculiar modus tends to identify the defendant
as the perpetrator of the charged crime.'" Id. quoting 1 Imwinkelried et. al., Courtroom
Criminal Evidence, at Section 907. However, identity is not a disputed issue in this case
9. In discussing whether Claire's testimony is proper opportunity evidence, the majority focuses on the public
indecency offense involving Beth. The public indecency offense involving Amber was more distinct from the
incident with Claire but is broadly similar. The discussion here applies equally to whether Claire's testimony
was admissible as opportunity evidence relating to the public indecency offense involving Amber.
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thus rendering Schmidt's "behavioral footprint" irrelevant.
{¶93} The effect of Claire's testimony was to show that because Schmidt had
committed the offense with Claire it was likely that he committed the offense involving Beth.
In other words, Claire's testimony was propensity evidence.
3. MOTIVE.
{¶94} The trial court did not instruct the jury that it could consider Claire's testimony
as evidence of Schmidt's motive. Nor did the state advance on appeal that motive was an
Evid.R. 404(B) purpose rendering Claire's testimony admissible. Nonetheless, the majority
cites motive in holding that Claire's testimony was properly admitted.
{¶95} "Motive evidence establishes that the accused had a specific reason to
commit a crime." Hartman, 2020-Ohio-4440 at ¶ 48. As examples of admissible motive
evidence, the supreme court noted that evidence that an accused had committed murder
to cover up an earlier crime would support admission of evidence of the earlier crime as
supplying the motive to commit murder; and evidence that an accused's motive in
committing a theft offense was to sell the stolen items to buy drugs is admissible to prove
the motive in the commission of the theft offense. Id. That is, evidence of "other acts" is
admissible where those "other acts" supply the motive for the commission of the crime for
which the accused is on trial.
{¶96} First and foremost, Claire's testimony is not Evid.R. 404(B) motive evidence.
Hartman explained that the proper use of Evid.R. 404(B) motive evidence is to show that
commission of another crime supplied the motive for commission of the crime for which the
accused is on trial. There is nothing in the record of this case suggesting that Schmidt's
exposing himself to Claire provided him with a motive to expose himself to either Amber or
Beth.
{¶97} Moreover, Schmidt's motive was not a disputed issue in the case and his
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motive was implicit in his conduct. In Hartman, the supreme court rejected as motive
evidence testimony that Hartman had sexually molested his stepdaughter, to prove his
motive to rape an adult woman some years later. The supreme court stated that the
evidence "does not provide evidence of any motive to commit rape beyond that which can
be inferred from the commission of any rape." Hartman, 2020-Ohio-4440 at ¶ 49. The
supreme court went on to summarize by stating, "the point is that in most [sex offense]
cases * * *, there is no motive beyond that implicit in the commission of the offense itself."
Id. at ¶ 50.
{¶98} As indicated, the sexual motive in the commission of sex offenses is obvious
and inferable from the commission of the crimes themselves. Besides the obvious sexual
motive involved in the offenses, Schmidt did not dispute that he acted with a sexual motive.
Schmidt never suggested that he did not commit the offenses because he was not sexually
attracted to young females, was too reserved to expose himself to another, was doing
something else that was misinterpreted as masturbation, or was surprised during a private
moment.
{¶99} Neither was Schmidt's motive in exposing himself to Amber and Beth a
material issue in the case. Unlike specific intent, motive is not a material issue in a criminal
case. Motive is not an element of any of the offenses with which Schmidt was charged and
the state had no legal burden to prove Schmidt's motive.
{¶100} The majority does not contend that the incident with Claire supplied Schmidt
with a motive to commit the offenses against Amber and Beth. On the contrary, the
majority's contention is that Claire's testimony is admissible to prove Schmidt's motive in
committing the offenses against Amber and Beth because the incident involving Claire was
committed with the same motive. As the majority puts it, "the motive in Claire's incident, to
seek sexual arousal or gratification, was offered as the same motive in an incident involving
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Amber and Beth." The majority draws the obvious and correct inference from each of the
three instances of public indecency that Schmidt does so for purposes of sexual arousal or
gratification. In this sense, the incident with Claire proves nothing more concerning
Schmidt's motive in exposing himself to Amber and Beth than the motive apparent in those
acts. Reduced to its essence, the majority holds that Claire's testimony was admissible to
prove that Schmidt's disposition to expose himself to young females is driven by a singular
sexual motive—in other words, propensity evidence.
{¶101} The incident with Claire did not supply Schmidt with a motive to expose
himself to Amber and Beth. Schmidt's motive was neither a disputed nor a material issue
at trial. Claire's testimony was simply one more instance of similar conduct, committed with
the same motive as the public indecency charges involving Amber and Beth, thereby
permitting the jury to improperly infer that Schmidt has a propensity of exposing himself to
young females.
C. THE GROSS SEXUAL IMPOSITION OFFENSE INVOLVING AMBER.
{¶102} Schmidt was found guilty of gross sexual imposition involving Amber. The
allegations were that Schmidt fondled Amber's genitals as he picked her up to see out of
the basement window. The majority mentions the gross sexual imposition offense a couple
of times in passing but analyzes whether Claire's testimony was admissible primarily within
the context of the public indecency charges involving Amber and Beth. It is unclear to me
whether the majority is holding that Claire's testimony is admissible under Evid.R. 404(B)
as it relates to the gross sexual imposition offense involving Amber.
{¶103} Clearly, the majority's reliance upon opportunity as a basis for admission of
Claire's testimony was restricted to the public indecency charge involving Beth as the
offenses occurred under similar circumstances. Suffice it to say, the discussion of
opportunity and motive as a basis for admission of Claire's testimony as it related to the
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public indecency charge involving Beth applies equally to opportunity and motive as a basis
for admission of Claire's testimony as it relates to the gross sexual imposition offense
involving Amber. There is no aspect of Claire's testimony that relates to whether Schmidt
had the opportunity to commit gross sexual imposition against Amber or that proves
Schmidt's motive to commit that offense.
{¶104} The marked dissimilarity of the incident with Claire from the gross sexual
imposition with Amber disqualifies Claire's testimony as proper Evid.R. 404(B) intent
evidence in the gross sexual imposition case. Amber and Claire are not in the same class
of victims; Amber was a pre-adolescent and Claire was a young adult at the time of the
respective incidents. The incident with Claire occurred in Schmidt's home and that with
Amber in her home. Furthermore, there is no similarity in the acts done with Amber (i.e.,
sexual contact) and those with Claire (exposing himself) other than being sexual in nature.
The supreme court has noted that other-acts evidence is admissible as proof of intent,
accident, and absence of mistake where the other acts were committed in such similar
circumstances as to give rise to the "permissible inference" that "the oftener a like act has
been done, the less probable it is that it could have been done innocently." Hartman, 2020-
Ohio-4440 at ¶ 56. However, exposing himself to another adult and fondling the genital
region of a 12-year-old child are not "like acts" such as to give rise to this "permissible
inference."
{¶105} Hartman presents a clear example of this principle in practice. Unlike here,
where Schmidt makes no claim of accident or mistake, Hartman claimed he did not intend
to commit rape because he mistakenly believed the sex was consensual. Despite
Hartman's claim of mistake, the supreme court held that the other-acts evidence was
improperly admitted. The supreme court observed that the victims were dissimilar (i.e., a
child relative vs. an adult acquaintance) and the acts involved were dissimilar other than
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both being sexual in nature. Id. at ¶ 62. The supreme court found there was no temporal,
modal, or situational relationship between the two incidents and emphasized that
[e]vidence that Hartman, while in his own residence, had
molested his 12-year-old stepdaughter by touching her chest
and vagina and placing her hand on his penis does not support
an inference that Hartman entered E.W.'s hotel room with the
intent to rape her while she was intoxicated. E.W. and B.T. are
not in the same class of victims: one is an adult acquaintance,
the other was a child relative. The acts Hartman allegedly
forced E.W. to perform bear no similarities to the acts involving
B.T. other than being sexual in nature. Without more, the fact
that all the acts occurred at night in the victims' sleeping quarters
does not provide the degree of similarity necessary to infer
intent. The child-molestation evidence presented in this case
simply was not probative of Hartman's intent with respect to the
hotel-rape allegations.
Id.
{¶106} In this case, not only did Claire's testimony concern a dissimilar incident, but
there was no claim of accident or mistake to rebut as there was in Hartman. Therefore,
Claire's testimony was not admissible under Evid.R. 404(B) as related to the gross sexual
imposition charge involving Amber.
D. THE JURY'S VERDICTS.
{¶107} The majority suggests, without explicitly stating as much, that any error in the
admission of Claire's testimony was harmless error because the jury's verdicts reflect it was
not unduly influenced by Claire's testimony. Specifically, the majority asserts that Claire's
testimony was most salient to the public indecency charges involving Amber and Beth and
that Schmidt was acquitted of one of those charges and the jury was unable to reach a
verdict on the other.
{¶108} However, we do not know what factors the jury relied upon or struggled with
in convicting Schmidt of gross sexual imposition, acquitting him of one count of public
indecency and rape, and failing to reach a verdict on other counts of gross sexual imposition
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and public indecency. A jury's verdict is not monolithic in the sense that it represents a
consensus on anything other than the result. As we have observed, "Courts have always
resisted inquiring into a jury's thought processes. This deference to the jury 'brings to the
criminal process, in addition to the collective judgment of the community, an element of
needed finality.'" State v. Brown, 12th Dist. Butler No. CA2006-10-247, 2007-Ohio-7070, ¶
41, quoting United States v. Powell, 469 U.S. 57, 67, 105 S.Ct. 471 (1984). "[I]t is not for
an appellate court to speculate as to why the jury decided as it did[.]" State v. Standifer,
12th Dist. Warren No. CA2011-07-071, 2012-Ohio-3132, ¶ 44. Thus, we should not and
cannot speculate or draw conclusions regarding the jury's verdict as a whole because we
cannot know what factors each of the 12 jurors relied upon in collectively agreeing or failing
to agree on a verdict.
{¶109} What we do know is that the jury convicted Schmidt of gross sexual imposition
involving Amber and that the state specifically asked the jury to do so based upon Claire's
testimony. In closing argument, the state told the jury,
It's because you've heard this argument apparently that
[Amber]'s telling the truth that his hands slipped up and his
thumb went up her pants. That's enough for GSI by the way, up
her pants, up her thighs, right? So that was just an accident or
something. That's why you hear from [Claire] and [Beth] and
why their evidence relates to his behavior. Because what you
see from those other two is that wasn't what was going on in
that mind.
{¶110} Thus, we should not speculate as to why the jury reached the conclusions it
did in evaluating whether the admission of Claire's testimony unfairly prejudiced Schmidt.
IV. CONCLUSION.
{¶111} Claire's testimony serves as neither motive nor opportunity evidence because
the incident with Claire did not provide Schmidt with a motive to expose himself to Amber
or Beth or establish that he had the opportunity to do so. There was no dispute that Schmidt
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had the opportunity to expose himself to Amber and Beth on September 7, 2019, and April
17, 2015, respectively. As accident and mistake were not issues in the case, Schmidt's
intent and motive to achieve sexual arousal and gratification by exposing himself to Amber
and Beth were implicit and obvious in his conduct and were not disputed issues in the case.
Likewise, Claire's testimony serves as neither motive nor opportunity evidence regarding
the gross sexual imposition offense involving Amber because no aspect of Claire's
testimony relates to whether Schmidt had the opportunity to commit gross sexual imposition
against Amber or proves Schmidt's motive to commit that offense.
{¶112} Nor was Claire's testimony proper Evid.R. 404(B) intent evidence regarding
the gross sexual imposition offense involving Amber. As discussed, Schmidt made no claim
that the gross sexual imposition offense arose from accident or mistake. Much like the
scenario in Hartman, the probative value of Claire's testimony was substantially outweighed
by the danger of unfair prejudice because it concerned an incident involving a different class
of victim, a different act, and a different setting than the gross sexual imposition offense
involving Amber. The only tendency of Claire's testimony was to introduce an additional
act of Schmidt's sexually deviant behavior to permit the jury to infer that Schmidt had a
propensity to commit sexual offenses against young females. Admission of Claire's
testimony therefore was prejudicial error.
{¶113} The trial court abused its discretion in admitting Claire's testimony as intent
evidence and erred as a matter of law by admitting Claire's testimony as opportunity
evidence. Thus, I would reverse Schmidt's conviction of gross sexual imposition and
remand the matter to the trial court for further proceedings.
{¶114} With regard and respect for my colleagues in the majority, I dissent.
- 39 - | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488257/ | [Cite as State v. Hooks, 2022-Ohio-4132.]
IN THE COURT OF APPEALS
TWELFTH APPELLATE DISTRICT OF OHIO
BUTLER COUNTY
STATE OF OHIO, : CASE NO. CA2021-12-148
Appellee, : OPINION
11/21/2022
:
- vs -
:
RYAN HARRISON HOOKS, :
Appellant. :
CRIMINAL APPEAL FROM BUTLER COUNTY COURT OF COMMON PLEAS
Case No. CR2019-03-0438
Michael T. Gmoser, Butler County Prosecuting Attorney, and Michael Greer, Assistant
Prosecuting Attorney, for appellee.
Repper-Pagan Law, Ltd., and Christopher Pagan, for appellant.
M. POWELL, P.J.
{¶ 1} Appellant, Ryan Harrison Hooks, appeals his convictions and sentence in the
Butler County Court of Common Pleas. For the reasons set forth below, we affirm the trial
court's rulings.
{¶ 2} The Warren County Drug Taskforce ("WCDT") began investigating Hooks as
a possible drug dealer in July 2018. On August 21, 2018, the WCDT arranged for a
confidential informant ("CI") to perform a controlled purchase of an ounce of fentanyl from
Hooks at Hooks' apartment in West Chester, Ohio. The CI was given money and was fitted
Butler CA2021-12-148
with a wireless transmitter. After purchasing the drugs, the CI confirmed that Hooks was
the seller. The drugs were seized, weighed, and tested, and found to be a combination of
heroin and fentanyl weighing 25.74 grams.
{¶ 3} A series of further controlled purchases was then arranged. On September
5, 2018, the CI purchased a mixture of heroin, fentanyl, and tramadol weighing 27.94 grams.
At that time Hooks informed the CI that he also sold cocaine. On September 27, 2018, the
CI purchased a mixture of heroin, fentanyl, diazepam, and tramadol weighing 27.95 grams.
At that time Hooks also told the CI that Hooks usually received one brick of fentanyl at a
time. On October 11, 2018, the CI purchased cocaine weighing 27.64 grams. On
November 8, 2018, the CI purchased cocaine weighing 27.92 grams. Although they did not
see Hooks during these transactions, the officers in the WCDT became familiar with Hooks'
voice.
{¶ 4} On November 15, 2018, the WCDT executed a search warrant for Hooks'
apartment. As officers approached the residence, Hooks attempted to flee. As he fled,
Hooks removed a baggie from his pocket and dumped the contents (later found to be
cocaine) on the ground. Hooks was arrested and placed in the back of a police cruiser.
Officers then searched Hooks' apartment and garage, finding both a large bag of white
powder and a bag containing a Ruger firearm and suspected narcotics. In total, officers
recovered the firearm and four bags of drugs, one containing 21.32 grams of cocaine; one
containing 105.47 grams of heroin, fentanyl, cocaine, and diazepam mixture; and two bags
of cocaine with a combined weight of 85.56 grams.
{¶ 5} Hooks was indicted on four counts of trafficking in heroin, four counts of
possession of heroin, three counts of trafficking in cocaine, three counts of possession of
cocaine, and one count of having weapons under disability. Because of the quantity of
drugs, four of the counts alleged that Hooks qualified as a Major Drug Offender ("MDO").
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Because of the proximity of Hooks' apartment to Lakota West High School, two of the counts
carried a school enhancement specification. At trial, the jury heard testimony from eight
officers in the WCDT, including Detective Dan Schweitzer, of the Warren County Sherriff's
Office, and Detective Greg Spanel, of the Lebanon Police Department. There was also
testimony from three toxicologists employed at the Miami Valley Regional Crime Lab.
Following a five day trial, a jury found Hooks guilty of all counts. The trial court merged the
possession counts into the corresponding trafficking counts, and sentenced Hooks to serve
a mandatory term of 24 years in prison.
{¶ 6} Hooks now appeals his conviction and sentence, raising three assignments
of error.
{¶ 7} Assignment of Error No. 1:
{¶ 8} THE TRIAL COURT IMPOSED AN UNLAWFUL SENTENCE.
{¶ 9} In his first assignment of error, Hooks makes two different arguments. First,
he contends that the trial court erred by imposing an MDO sentence without an R.C.
2941.1410(A) MDO specification. Next, he argues that the state failed to present sufficient
evidence to prove the school premises enhancement. Because Hooks' second argument
under this assignment of error is also brought under his second assignment of error, we will
address the MDO sentence here and the school-premises sufficiency argument in our
discussion of his second assignment of error.
MDO Finding
{¶ 10} Hooks first argues that the trial court erred by imposing an MDO sentence
without an MDO specification attached to Counts 11 and 13 of the indictment. Hooks claims
that R.C. 2941.1410 requires language which explicitly states that the grand jury must find
an MDO specification applies, and that the failure to conform the indictment to R.C.
2941.1410 deprives the trial court of jurisdiction to find that he is an MDO and deprives him
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of notice that he is charged as an MDO.
{¶ 11} Section 10, Article I of the Ohio Constitution provides that "no person shall be
held to answer for a capital, or otherwise infamous, crime, unless on presentment or
indictment of a grand jury." Crim.R. 7(B) explains the structure and sufficiency requirements
of an indictment: "The statement [of the offense(s)] may be made in ordinary and concise
language without technical averments or allegations not essential to be proved." "The
statement may be in the words of the applicable section of the statute, provided the words
of that statute charge an offense, or in words sufficient to give the defendant notice of all
the elements of the offense with which the defendant is charged." Id. "The purpose of a
grand jury indictment has always been to give notice to the accused." State v. Horner, 126
Ohio St.3d 466, 2010-Ohio-3830, ¶ 10. Specifically, "[t]he purposes of an indictment are to
give an accused adequate notice of the charge, and enable an accused to protect himself
or herself from any future prosecutions for the same incident." State v. Buehner, 110 Ohio
St.3d 403, 2006-Ohio-4707, ¶ 7.
{¶ 12} Major Drug Offender means "an offender who is convicted of or pleads guilty
to the possession of, sale of, or offer to sell any drug, compound, mixture, preparation, or
substance" which may consist of or contain certain quantities of controlled substances,
including "at least one hundred grams of cocaine," "one hundred grams of heroin," or "one
hundred grams of a fentanyl-related compound." R.C. 2929.01(W); see also R.C.
2925.01(DD). Generally, "the determination by a court that an offender is a major drug
offender is precluded unless the indictment, count in the indictment, or information charging
the offender specifies that the offender is a major drug offender." R.C. 2941.1410(A). Such
a specification "shall be stated at the end of the body of the indictment, count, or
information" in the form outlined in the statute. Id. However, R.C. 2941.1410(A) provides
an exception to the specification requirement where an offender is charged pursuant to R.C.
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2925.03, 2925.11, or 2925.05(E)(1).1
{¶ 13} Hooks was found guilty of trafficking in cocaine in violation of R.C.
2925.03(A)(2) (Count 11); possession of cocaine in violation of R.C. 2925.11(A) (Count 12);
trafficking in heroin in violation of R.C. 2925.03(A)(2) (Count 13); and possession of heroin
in violation of R.C. 2925.11(A) (Count 14). None of these counts contained an R.C.
2925.1410(A) MDO specification. Following Hooks' conviction, the trial court merged
Counts 11 and 12, and Counts 13 and 14. While the language of the remaining counts—
11 and 13—did not include an R.C. 2925.1410(A) MDO specification, the language of each
count mirrors the language of the offenses excepted from the MDO specification
requirement of R.C. 2941.1410(A).
{¶ 14} Specifically, the language of Count 11 mirrors that of R.C. 2925.03(C)(4)(g),
which provides that "[i]f the drug involved in the violation is cocaine or a compound, mixture,
preparation, or substance containing cocaine," whoever violates R.C. 2925.03(A) "is guilty
of trafficking in cocaine." The penalty is determined based upon whether the amount of
cocaine "equals or exceeds one hundred grams of cocaine." Id. Possession of the cocaine
is thereby "a felony of the first degree, the offender is a major drug offender, and the court
shall impose as a mandatory prison term a maximum first degree felony mandatory prison
term." Id. Count 11 of the indictment provided that "Hooks did knowingly prepare for
shipment, ship, transport, deliver, prepare for distribution, or distribute cocaine," and that
"the amount of the drug involved equals or exceeds one hundred grams of cocaine." It
further states that the offense charged is a first degree felony for "trafficking in cocaine" and
that "the offender is a major drug offender."
{¶ 15} Similarly, the language of Count 13 mirrors that of R.C. 2925.03(C)(6)(g),
1. In setting forth the MDO specification requirements, R.C. 2941.1410(A) begins by providing, "Except as
provided in sections 2925.03 and 2925.11 and division (E)(1) of section 2925.05 of the revised Code * * *."
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which provides that "[i] If the drug involved in the violation is heroin or a compound, mixture,
preparation, or substance containing heroin," whoever violates R.C. 2925.03(A) "is guilty of
trafficking in heroin." The penalty is determined based upon whether the amount of heroin
"equals or exceeds one thousand unit doses or equals or exceeds one hundred grams." Id.
Possession of the heroin is thereby "a felony of the first degree, the offender is a major drug
offender, and the court shall impose as a mandatory prison term a maximum first degree
felony mandatory prison term." Id. Count 13 of the indictment provided that "Hooks did
knowingly prepare for shipment, ship, transport, deliver, prepare for distribution, or distribute
heroin," and that "the amount of the drug involved equals or exceeds one thousand unit
doses or equals or exceeds one hundred grams." It further states that the offense charged
is a first degree felony for "trafficking in heroin" and that "the offender is a major drug
offender."
{¶ 16} We find that because R.C. 2941.1410(A) provides an exception to the MDO
specification requirement where an offender is charged pursuant to R.C. 2925.03, Counts
11 and 13 did not require an R.C. 2925.1410(A) MDO specification. The language of each
count mirrors the language of R.C. 2925.03(C)(4)(g) and (6)(g), thus providing more than
sufficient notice to Hooks as to the offenses with which he was charged, and satisfies the
requirements of Crim.R. 7(B). Hooks was duly convicted by a jury of trafficking in cocaine
and heroin in amounts exceeding 100 grams. The jury made special findings as to these
facts; these findings were not made by the trial judge.2 There is no merit to Hooks' first
argument. As such, his first assignment of error is overruled as to the MDO specification
2. We find no merit to Hooks' argument that R.C. 2941.1410(C) violates his right to trial by jury as recognized
by the U.S. Supreme Court in Apprendi v. New Jersey, 530 U.S. 466, 120 S.Ct. 2348, (2000) and Alleyne v.
United States, 570 U.S. 99, 133 S.Ct. 2151 (2013). As described above, Hooks was not convicted of an MDO
specification under R.C. 2941.1410, nor found by the court to be an MDO, but rather found by the jury to be
an MDO pursuant to his convictions under R.C. 2925.03(C)(4)(g) and (6)(g), both of which are excepted from
R.C. 2925.1410(A).
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argument.
{¶ 17} Assignment of Error No. 2:
{¶ 18} THE STATE FAILED TO PRESENT SUFFICIENT EVIDENCE.
{¶ 19} Hooks next argues, under both his first and second assignments of error, that
the state failed to present sufficient evidence to prove the school enhancement. As such,
Hooks argues he could only be convicted of second-degree felony trafficking in Counts 1,
3, and 5, rather than the first-degree felony trafficking counts of which he was found guilty.
Hooks makes no argument regarding the admissibility of the Google Maps images
introduced to show that the transactions occurred "in the vicinity of a school premises."
Instead, he argues that the map and accompanying testimony is insufficient to prove the
school enhancement.
School Enhancements
{¶ 20} Whether the evidence presented at trial is legally sufficient to sustain a verdict
is a question of law. State v. Tolle, 12th Dist. Preble No. CA2020-10-015, 2021-Ohio-3401,
¶ 9. When reviewing the sufficiency of the evidence underlying a criminal conviction, an
appellate court examines the evidence to determine whether such evidence, if believed,
would convince the average mind of the defendant's guilt beyond a reasonable doubt. State
v. Roberts, 12th Dist. Warren No. CA2020-12-089, 2021-Ohio-3073, ¶ 12. The relevant
inquiry is, after viewing the evidence in the light most favorable to the prosecution, whether
any rational trier of fact could have found the essential elements of the crime proven beyond
a reasonable doubt. State v. Terry, 12th Dist. Warren No. CA2021-04-029, 2021-Ohio-
4043, ¶ 9.
{¶ 21} R.C. 2925.03(C)(6)(e) provides that "if the amount of the drug involved equals
or exceeds one hundred unit doses but is less than five hundred unit doses or equals or
exceeds ten grams but is less than fifty grams," then trafficking in heroin is a second degree
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felony, for which the court "shall impose as a mandatory prison term a second degree felony
mandatory prison term." However, "[i]f the amount of the drug involved is within that range
and if the offense was committed in the vicinity of a school [or] in the vicinity of a juvenile,"
then trafficking in heroin is a first degree felony, for which the court "shall impose as a
mandatory prison term a first degree felony mandatory prison term." Id. Because the school
enhancement specification increases the felony level for the offense, it must be separately
established beyond a reasonable doubt. State v. Howard, 12th Dist. Warren No. CA2012-
04-034, 2013-Ohio-1489, ¶ 55. As such, it is '"an essential element of the state's case-in-
chief."' State v. Watson, 12th Dist. Butler CA2016-07-138, 2017-Ohio-1402, ¶ 23, quoting
Howard at ¶ 55.
{¶ 22} An offense is "committed in the vicinity of a school" if the offender commits
the offense "within one thousand feet of the boundaries of any school premises, regardless
of whether the offender knows the offense is being committed * * * within one thousand feet
of the boundaries of any school premises." R.C. 2925.01(P). "School premises" is defined
as "[t]he parcel of real property on which any school is situated, whether or not any
instruction, extracurricular activities, or training provided by the school is being conducted
on the premises at the time a criminal offense is committed." R.C. 2925.01(R)(1).
{¶ 23} Hooks was found guilty of three counts of trafficking in heroin in violation of
R.C. 2925.03(A)(1) (Counts 1, 3, and 5). Each count alleges that the offense "was
committed in the vicinity of a school" in accordance with R.C. 2925.03(C)(6)(e). As such,
these charges were elevated from second degree felonies to first degree felonies. Detective
Schweitzer testified that all five transactions between Hooks and the CI occurred at the
same address, that address being Hooks' apartment. Detective Schweitzer further testified
about the proximity of the apartment to Lakota West High School. Two images from Google
Maps were introduced during his testimony. These images depicted the area of West
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Chester including Hooks' apartment where the heroin sales took place and Lakota West
High School. Detective Schweitzer testified that these images fairly and accurately depicted
the subject area of West Chester Township. Detective Schweitzer explained his process
of using the program to measure the distance between the apartment and the school
premises, which was less than 1,000 feet. Hooks did not object to the admissibility of
Detective Schweitzer's testimony or the Google Maps images.
{¶ 24} Hooks now argues that the state failed to prove his vicinity to a school
premises, specifically contending that an officer must have firsthand information about
distance to prove a school enhancement, and that the use of Google Maps is insufficient to
prove the school enhancement.
{¶ 25} We are concerned here with only whether Schweitzer's testimony and the
Google Maps images were sufficient evidence that Hooks' drug sales occurred within 1,000
feet of the boundaries of a school premises. That is, whether such evidence, if believed,
would convince the average mind of Hooks' guilt beyond a reasonable doubt. We find that
such evidence is sufficient for the jury to find that Hooks trafficked in drugs in the vicinity of
a school.3 The Google Maps images, depicting the proximity of Hooks' apartment to Lakota
West High School, in conjunction with Detective Schweitzer's testimony that the images
were fair and accurate depictions of the area and the process he followed in calculating the
distance, if believed, prove that Hooks sold drugs within 1,000 feet of Lakota West High
School premises. The Google Maps images and Detective Schweitzer's testimony
adequately identified the premises upon which Lakota West High School is situated and
outlines property boundaries. Obviously, instruction, extracurriculars and educational
3. This holding should not be construed as an endorsement of the method employed by the state to prove
that Hooks trafficked drugs in the vicinity of a school or the admissibility of the Google Maps images and
Detective Schweitzer's testimony regarding the vicinity of a school element of the offenses. As stated,
Detective Schweitzer's testimony and the Google Maps images were admitted into evidence without objection.
We find only that this admitted evidence was sufficient.
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training occur at a high school. The other issues raised by Hooks regarding Detective
Schweitzer's testimony and the Google Maps images go to admissibility and weight, issues
with which we are not concerned in determining sufficiency.
{¶ 26} For these reasons, we overrule Hooks' first and second assignments of error
as regards sufficiency of the evidence offered in support of the school enhancement.
Toxicology
{¶ 27} Hooks next argues that the state's three toxicologists failed to state that their
opinions on controlled substances and weight were made within a reasonable degree of
scientific certainty, and that consequently, there was insufficient evidence to prove that
Hooks trafficked heroin and cocaine.
{¶ 28} Evid.R. 702 provides that a witness may testify as an expert if (1) the witness'
testimony either relates to matters beyond the knowledge or experience possessed by lay
persons or dispels a misconception common among lay persons; (2) the witness is qualified
as an expert by specialized knowledge, skill, experience, training, or education regarding
the subject matter of the testimony; and (3) the witness' testimony is based on reliable
scientific, technical, or other specialized information. State v. Cooperstein, 12th Dist.
Warren No. CA2018-09-117, 2019-Ohio-4724, ¶ 50. "The qualifications which may satisfy
these requirements are 'multitudinous.'" State v. McCrone, 12th Dist. Warren No. CA2018-
01-007, 2019-Ohio-337, ¶ 32, quoting State v. Mack, 73 Ohio St.3d 502, 511 (1995).
{¶ 29} Three forensic scientists testified as to the content and weight of the drugs
seized in the controlled purchases. Each of the three experts testified as to their
qualifications, and the methodology of the tests they performed to determine the content
and weight of the drugs seized following the controlled purchases from Hooks.
{¶ 30} The first expert, Todd Yoak, testified that he was a forensic chemist with Miami
Valley Regional Crime Lab ("MVRCL") with 16 years of experience in that capacity. He also
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testified that he had a Master of Science ("M.S.") degree in forensic science, that he had
previously served as an expert witness approximately 80 times, and that his analysis of the
drugs in this case occurred in his capacity as a forensic chemist at MVRCL.
{¶ 31} Yoak was asked by the state, "And your conclusion that it does or does not
contain that particular drug, it [sic] that done to a reasonable degree of scientific certainty?"
Yoak answered that he was confused, and the state acknowledged it was "a poorly worded
question" then rephrased the question, "[A]re you then able to say, to the best of your ability
as a forensic chemist, that the substance you've analyzed is what you say it is?" (Emphasis
added.) Yoak answered affirmatively, and the state repeatedly used the same phrasing,
"the standard of being a forensic chemist" to ask Yoak about his other conclusions
measuring the various batches of drugs.
{¶ 32} Later, when cross-examined by Hooks' trial counsel, Yoak stated "I am
testifying * * * based on my training, education, and experience, I am confident that these
items contain the drugs I identified on the report." He testified in response to another
question on cross examination that he does "the same testing on everything in the same
analytical scheme," agreeing with Hooks' trial counsel that such testing is "what's generally
done in the scientific community."
{¶ 33} The next expert witness was Hillary Loucks, who was also forensic chemist at
the MVRCL with 4.5 years of experience in that capacity. Loucks testified that she had a
Bachelor of Science ("B.S.") in forensic science with an emphasis on chemistry, that she
had previously testified as an expert on seven occasions, and that her conclusions
regarding the content and weight of the drugs in the report submitted as an exhibit
represented conclusions "as a forensic chemist."
{¶ 34} Finally, Jennifer Watson testified that she served as the Chemistry Technical
Leader at the MVRCL, where she was responsible for ensuring the quality of the testing
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performed at the lab. She had fifteen years of experience at the time of the trial, and in her
role, she also performed the duties of a forensic chemist. Watson testified that she had a
B.S. in forensic science and prior experience testifying as expert.
{¶ 35} All three expert witnesses laid out their credentials and experience, and all
three testified that they reached their conclusions regarding the drugs based upon those
qualifications. Nonetheless, "[t]he state's failure to more effectively present [the] witness'
testimony to the trier of fact is vexing to this court." State v. Gagaris, 12th Dist. Butler No.
CA2007-06-142, 2008-Ohio-5418, ¶ 29. However, having reviewed the evidence in the
record in the light most favorable to the state, we find that any rational trier of fact could
have found the identity of the substances proven beyond a reasonable doubt. Id.
{¶ 36} While it is true that the witnesses did not verbatim affirm that their findings
regarding the content and weight of the drugs "were made within a reasonable degree of
scientific certainty," their testimony regarding their credentials and the scientific testing they
performed, rendered their testimony compliant with the strictures of Evid.R. 702. Witnesses
need not make a talismanic incantation concerning their scientific certainly where their
testimony has otherwise established that they are speaking pursuant to their "specialized
knowledge, skill, experience, training, or education." Evid.R. 702(B).
{¶ 37} Hooks' second assignment of error is without merit and is therefore overruled.
{¶ 38} Assignment of Error No. 3:
{¶ 39} THERE WERE CUMULATIVE ERRORS AT TRIAL THAT DEPRIVED
HOOKS OF HIS RIGHTS TO EFFECTIVE ASSISTANCE AND DUE PROCESS UNDER
THE FEDERAL AND OHIO CONSTITUTIONS.
{¶ 40} Hooks next argues that cumulative errors by his trial counsel and the trial court
implicated his right to a fair trial, entitling him to a reversal of his convictions. Specifically,
he asserts error in (1) the trial court preventing Hooks' counsel from eliciting evidence about
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the circumstances of Hooks' confession; (2) admission of the toxicologists' opinions about
the controlled substances without Evid.R. 702(C) testimony about reliability; (3) the trial
court's failure to provide a jury instruction on the definition of a school premises and
counsel's failure to request such an instruction; (4) admission into evidence of four judgment
entries reflecting Hooks' four prior stipulated felony convictions; (5) the trial court's finding
Hooks to be an MDO rather than submitting the issue to the jury; (6) admission of Detective
Spanel's testimony that Hooks agreed to cooperate with officers for case consideration but
did not follow through; and (7) admission of Detective Schweitzer's testimony that Hooks
had sold fentanyl and that it was a dangerous substance that caused deaths.
{¶ 41} At the outset, "[w]e note with disapproval appellant's shotgun approach of
raising several, unrelated issues under the guise of cumulative errors in one assignment of
error, instead of properly raising specific issues in separate assignments of error." State v.
Wilson, 12th Dist. Warren No. CA2018-03-022, 2019-Ohio-338, ¶ 24; see also 12th
Dist.Loc.App.R. 11(B)(3).
{¶ 42} Under the doctrine of cumulative errors, a judgment may be reversed if the
cumulative effect of errors deprives a defendant of a fair trial even though each of the
instances of trial-court error does not individually constitute cause for reversal. State v.
Myers, 12th Dist. Warren No. CA2019-07-074, 2021-Ohio-631, ¶ 152. Harmless or
nonprejudicial errors cannot become prejudicial by sheer number of alleged errors alone.
State v. Turner, 12th Dist. Brown No. CA2019-05-005, 2020-Ohio-1548, ¶ 58. In addition,
"[i]t is not enough simply to intone the phrase 'cumulative error.'" State v. Bethel, 110 Ohio
St.3d 416, 2006-Ohio-4853, ¶ 197. We will address each error Hooks alleges.
{¶ 43} As suggested above, Hooks’ claim of reversible cumulative error is based in
part upon ineffective assistance of counsel in failing to object to certain testimony and
evidence. To establish ineffective assistance of counsel, appellant must show (1) deficient
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performance by counsel, that is, performance falling below an objective standard of
reasonable representation, and (2) prejudice, that is, a reasonable probability that but for
counsel's errors, the result of the proceedings would have been different. State v. King,
12th Dist. Clermont No. CA2022-01-001, 2022-Ohio-3388, ¶ 37. The failure to satisfy either
the deficiency prong or the prejudice prong of the test is fatal to a claim of ineffective
assistance of counsel. State v. Schenck, 12th Dist. Preble No. CA2021-02-003, 2022-Ohio-
430, ¶ 29.
{¶ 44} We first note that Hooks' fifth purported error is duplicative of his argument
already addressed in this opinion. As previously established, because R.C. 2941.1410(A)
provides an exception to the MDO specification requirement where an offender is charged
pursuant to R.C. 2925.03, Counts 11 and 13 did not require an R.C. 2925.1410(A) MDO
specification. The jury made the necessary findings for the MDO label to attach, not the
trial court. This argument is without merit.
1. Miranda Evidence
{¶ 45} Hooks first challenges the trial court's decision to sustain the state's objection
to trial counsel's inquiry regarding Hooks' custodial statements to officers. In cross
examining Detective Spanel, Hooks' trial counsel asked whether Detective Spanel had
delivered Miranda warnings to Hooks. Counsel then inquired if the detective had told
appellant that he had the right to an attorney. The state objected to both questions on the
basis of relevance, arguing that not only had Detective Schweitzer previously testified that
he delivered Miranda warnings, but the trial court had already previously ruled on the
admissibility of Hooks' statements in disposing of a prior motion to suppress evidence. As
such, the trial court sustained the state's objection.
{¶ 46} The admissibility of evidence is within the sound discretion of the trial court
and the trial court is entitled to our deference in making decisions upon the admissibility of
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evidence. State v. Proffitt, 12th Dist. Butler Nos. CA2016-07-134 and CA2016-07-135,
2017-Ohio-1236, ¶ 41. As such, a trial court's decision admitting evidence will not be
reversed absent an abuse of discretion. State v. May, 12th Dist. Warren No. CA2019-01-
004, 2019-Ohio-4513, ¶ 8. An abuse of discretion is more than an error of law, it implies
that the decision was unreasonable, arbitrary, or unconscionable. State v. August, 12th
Dist. Warren No. CA2018-12-136, 2019-Ohio-4126, ¶ 21.
{¶ 47} Hooks does not identify any substantial prejudice suffered as a result of the
trial court's decision to sustain the state's objection. That is, he does not identify what he
would have accomplished if the trial court had not sustained the objection. Hooks had
already filed a motion to suppress, which had been denied following a pretrial hearing.
Appellant may have sought to undermine the weight of his statement, but appellant had
already been advised of Miranda by the time he made his statements.
2. Toxicologists' Opinions
{¶ 48} Hooks next challenges both the admissibility of the toxicologists' statements
"without testimony under Rule 702(C) about reliability" and his trial counsel's failure to object
to the statements. This is slightly different from his sufficiency challenge addressed above
and we address these arguments accordingly.
{¶ 49} A trial court's role in determining whether an expert's testimony is admissible
under Evid.R. 702(C) focuses on whether the opinion is based upon scientifically valid
principles, not on whether the expert's conclusions are correct or whether the testimony
satisfies the proponent's burden of proof at trial. State v. Hawkins, 12th Dist. Warren No.
CA2020-07-039, 2021-Ohio-3072, ¶ 35. The decision to admit or exclude expert testimony
lies within the sound discretion of the trial court. State v. Ritchie, 12th Dist. Warren No.
CA2017-11-155, 2018-Ohio-4256, ¶ 94.
{¶ 50} As established above, the testimony of the expert witnesses regarding their
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credentials and the scientific testing they performed rendered their testimony compliant with
Evid.R. 702. As such, we find that the trial court did not abuse its discretion in admitting the
testimony, and trial counsel's failure to object does not constitute error. This argument is
meritless.
3. Jury Definition of School Premises
{¶ 51} Hooks next argues that because there was no jury instruction on the definition
of a school premises, he "lost the opportunity to argue for reduced offenses." A "school
premises" definition is not included as a standard jury instruction by OJI. See Ohio Jury
Instructions, CR Section 525.03 (Rev. Nov. 18, 2017). Moreover, there is no indication that
such an instruction would be helpful to Hooks. As noted above, "[s]chool premises" is
defined as "[t]he parcel of real property on which any school is situated, whether or not any
instruction, extracurricular activities, or training provided by the school is being conducted
on the premises at the time a criminal offense is committed." R.C. 2925.01(R)(1). The
Google Maps image admitted into evidence depicted the school's location with a distance
line drawn from the edge of the property to Hooks' apartment.
{¶ 52} Hooks argues that the school-premises definition "required the State to prove
the school boundaries, the real-estate parcel that housed the school building, or a real-
estate parcel owned by the district used for instruction, extracurriculars, or training." This
argument adds requirements to the statute, which only requires the state to prove that an
offender committed the offense "within one thousand feet of the boundaries of any school
premises." R.C. 2925.01(P).
{¶ 53} Instructing the jury that "school premises" refers to that parcel of real property
on which a school is situated would not have opened additional arguments to Hooks. Hooks
was not precluded from arguing to the jury that the Google Maps images and Detective
Schweitzer's testimony did not prove beyond a reasonable doubt that Hooks committed the
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trafficking offenses in the vicinity of a school because the state presented no property
boundary evidence. This assumes that the jury would have placed some practical
significance to the use of the term "parcel" as opposed to the term "premises" and that the
state would have been unable to rely upon the Google Maps images as depicting the
"parcel" of real property upon which Lakota West High School is situated. No real estate
parcel evidence is required to prove a school-premises specification. As we previously
noted, "there are other ways to determine the distance between two points." State v.
Franklin, 164 Ohio App.3d 758, 2005-Ohio-6854, ¶ 10 (12th Dist.). The trial court did not
err in failing to instruct the jury on the definition of a school premises.
4. Felony Stipulations
{¶ 54} Hooks next argues that the trial court erred by permitting four judgment entries
reflecting his prior felony drug convictions to go to the jury as evidence. Hooks stipulated
to the convictions, and the state submitted certified copies of the judgment entries reflecting
Hooks' prior convictions into evidence. The trial court instructed the jury that its
consideration of Hooks' prior convictions was limited to the prior conviction element of the
having weapons under disability offense.
{¶ 55} The Ohio Supreme Court previously held that a trial court abuses its discretion
when "it refuses a defendant's offer to stipulate to the fact of the prior conviction or
indictment and instead admits into evidence the full record of the prior judgment or
indictment when the sole purpose of the evidence is to prove the element of the defendant's
prior conviction or indictment." State v. Creech, 150 Ohio St.3d 540, 2016-Ohio-8440, ¶
40. The state asserts that admission of the judgment entries was not erroneous because
Hooks' stipulation was only to their admissibility, not to the fact of his prior convictions.
Thus, the state argues that the judgment entries were necessary to prove the prior
conviction element of the having weapons under disability offense. However, the record
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belies the state's assertion. It is apparent that Hooks stipulated to the fact of his prior
convictions, rendering admission of the judgment entries a Creech violation.4
{¶ 56} Hooks contends that he was denied effective assistance of counsel because
trial counsel permitted the judgment entries to go to the jury.5 However, even if we were to
find counsel's performance deficient in this regard, based on the overwhelming evidence
presented against him, Hooks cannot show any resulting prejudice.6 State v. Rodriguez,
12th Dist. Butler No. CA2008-07-162, 2009-Ohio-4460, ¶ 72; see also State v. Grate, 164
Ohio St.3d 9, 2020-Ohio-5584, ¶ 137. To the extent that Hooks is claiming error separate
from his ineffective assistance argument, his trial counsel's errors are harmless for the same
reasons. State v. Haynes, 12th Dist. Butler No. CA2010-10-273, 2011-Ohio-5743, ¶ 11.
{¶ 57} We find no error here.
5. Detective Spanel's Testimony
{¶ 58} Hooks next argues that Detective Spanel's testimony that Hooks agreed to
cooperate with officers in exchange for consideration and subsequently failed to do so was
improper and prejudicial. Testimony established that Hooks provided police with
information leading to a search warrant yielding 1000 grams of a controlled substance, but
that he did not provide further assistance. The testimony concerning Hooks' promise of
cooperation with police was first elicited during Hooks' cross-examination of Detective
Spanel. On re-direct, Detective Spanel testified that Hooks had directed officers to a house
4. The assistant prosecutor stated the parties' stipulation in the presence of the jury. As to all four judgment
entries, the prosecutor stated that Hooks was the person named in each of the judgment entries and was
convicted of possession of or trafficking in cocaine, as applicable.
5. Hooks maintains that the trial court did not instruct the jury concerning the limited purpose for which it may
consider his prior convictions. However, the record indicates that in its final instructions to the jury, the trial
court instructed the jury to limit consideration of prior convictions only for the purpose of satisfying the prior
convictions element of Hooks' weapons under disability charge.
6. As the factual recitation indicates, the offenses for which Hooks was indicted arose from five controlled
drug purchases and the execution of a search warrant at Hooks' residence.
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and gave them the name of a drug dealer on November 15, 2018, but did nothing after that.
This testimony was proper to rebut any impression that Hooks had rendered assistance to
law enforcement who then reneged on the promise of consideration for Hooks' assistance.
As such we find no error with the admission of the testimony nor with trial counsel's failure
to object.
6. Detective Schweitzer's Testimony
{¶ 59} Hooks next argues that Detective Schweitzer's testimony regarding Hooks'
sale of fentanyl, and the danger of fentanyl, was inappropriate and unfairly prejudicial
because Hooks was not charged with possession or trafficking of fentanyl. However, the
substances purchased from Hooks on at least three occasions contained fentanyl. As such,
we find that the testimony was highly relevant and that its probative value was not
substantially outweighed by the danger of unfair prejudice. Evid.R. 403(A). Trial counsel's
failure to object likewise did not constitute error.
{¶ 60} Because we have found that no errors occurred during Hooks' trial, we find
that Hooks was not deprived of a fair trial, and the cumulative error doctrine is inapplicable.
Hooks' sixth assignment of error is overruled.
{¶ 61} Judgment affirmed.
S. POWELL and PIPER, JJ., concur.
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https://www.courtlistener.com/api/rest/v3/opinions/8494471/ | MEMORANDUM OPINION
STEPHEN C. ST. JOHN, Bankruptcy Judge.
This matter comes before the Court upon the Motion for Contempt against Col-linswood Lake Apartments, LLC, George Eberwine, and Kittrell Eberwine and the Motion for Sanctions (collectively, the “Sanctions Motion”) filed by Robert Edward Seaton, Jr., and Sarah Nichole Sea-ton on June 27, 2011. An evidentiary hearing was held on the Sanctions Motion on August 3, 2011. At the conclusion of the evidence and arguments, the Court took this matter under advisement. The Court has jurisdiction over this proceeding *586pursuant to 28 U.S.C. §§ 157(b) and 1334(b). Venue is proper pursuant to 28 U.S.C. §§ 1408 and 1409(a). This Memorandum Opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Civil Procedure 52, as incorporated into the Federal Rules of Bankruptcy Procedure by Rule 7052.
I. The Seatons’ Bankruptcy Petition and the Sanctions Motion
Robert Edward Seaton, Jr., and Sarah Nichole Seaton (collectively, the “Seatons”) filed a joint voluntary petition under Chapter 7 of the United States Bankruptcy Code in this Court on March 14, 2011 (“Petition”). At the time of the filing of their Petition, the Seatons resided at 1607 City Park Avenue, Apartment 9 (the “Apartment”), in Portsmouth, Virginia, which is located in the Collinswood Lake Apartments complex owned by Collins-wood Lake Apartments, LLC (“Collins-wood”). In their Schedule B, which lists personal property, in addition to their bank accounts, 2010 tax refunds, and a vehicle, the Seatons listed only the following personal property: “t.v. 50, sofa 50, loveseat 50, kitchen table 25, bed 50, dresser 25, crib 25, computer 50.” The property, designated as being jointly owned by the Seatons, is listed as having a cumulative value of $325.00. No other personal property was scheduled.1 The Seatons’ Schedule F of creditors holding unsecured nonpriority claims did not schedule either Collinswood, George Eberwine, or Kittrell Eberwine. The Seatons’ Schedule G of executory contracts and unexpired leases did list Collinswood as a party to a residential lease with the Seatons. The Chapter 7 Trustee filed a Report of No Distribution on April 21, 2011. On June 2, 2011, the Seatons filed an amendment to Schedule F, adding Collinswood as an unsecured creditor in the amount of $8,700.00.
The Seatons filed the Sanctions Motion on June 27, 2011. In the Sanctions Motion, the Seatons allege that George Eber-wine, as general partner of Collinswood, filed an unlawful detainer proceeding against the Seatons on March 10, 2011, in the General District Court for the City of Portsmouth, Virginia (“State Court”) regarding the Apartment. Four days later, the Seatons filed their Petition. The Sanctions Motion further alleges that on March 28, 2011, George Eberwine and Mr. Seaton appeared in the State Court, at which time Mr. Seaton advised the State Court judge that he had filed the Petition in this Court. The State Court judge continued the proceeding to April 4, 2011. The Seatons allege further that on March 31, 2011, they signed a lease for a new apartment but were advised they could not move in until the utilities were turned on by them. On April 2 or 3, 2011, the Seatons allege they began moving their possessions from the Apartment at Collinswood. On April 4, 2011, Mr. Seaton and George Eberwine reappeared before the State Court. The State Court judge continued the hearing to April 11, 2011, to allow the Seatons to conclude the moving process. Upon arriving at the Apartment on April 6, 2011, the Seatons allege they could not access the Apartment because the locks had been changed. The Seatons additionally allege that Mrs. Seaton walked to a nearby dumpster and discovered their personal *587property that had been placed therein, some of which was retrieved by Mr. Sea-ton. The Seatons also allege they were unable to account for some of their personal property that had remained in the Apartment. Finally, the Seatons allege Kittrell Eberwine ordered a maintenance worker employed at Collinswood to remove the Seatons’ property from the Apartment and dispose of it. These actions, the Seatons contend, constitute a violation of the automatic stay under § 362 of the Bankruptcy Code, and they pray for a finding of contempt; sanctions; a monetary award for property damage; $20,000.00 for pain and suffering; an award of punitive damages of $30,000.00; and attorney’s fees and costs.
In their joint Response to the Sanctions Motion, Collinswood, George Eberwine, and Kittrell Eberwine (collectively, the “Respondents”) deny any liability to the Seatons and further deny that any of their actions violated the automatic stay. Instead, they argue that their actions were based upon George Eberwine’s understanding of Mr. Seaton’s representations to the State Court judge that he and Mrs. Seaton had vacated the Apartment. George Eberwine relayed his understanding to Kittrell Eberwine, who, after walking through the Apartment to assess its condition, instructed an employee of Col-linswood to remove the items remaining therein. The Respondents assert that they believed the items left in the Apartment were abandoned by the Seatons based upon Mr. Seaton’s representations to the State Court judge that the Apartment had been vacated, and thus, they did not believe the pending bankruptcy proceedings prohibited them from disposing of the items. The Respondents maintain that, even if the Court finds that they violated the automatic stay, the violation should not be deemed to be willful or intentional as they acted in good faith based upon Mr. Seaton’s representations. Finally, the Respondents argue that, even if the Court finds the violation of the automatic stay to be willful or intentional, the Seatons should not be awarded damages nor should sanctions be assessed against the Respondents.
II. Findings of Fact
Much of the history of the Seatons’ tenancy at Collinswood is uncontroverted. The Seatons previously lived at another apartment complex owned by George Eberwine without incident. Transcript of August 3, 2011, hearing, at 4 (hereinafter, “Tr.”). The Seatons then moved to the Apartment at Collinswood, id., but fell behind in their rent payments in the fall of 2010 due to unemployment and health problems suffered by Mr. Seaton. Id. at 10, 93. Various meetings between George Eberwine and the Seatons took place, but the Seatons were unable to pay their rent and eventually owed Collinswood five to six months rent. Id. at 11. On March 10, 2011, George Eberwine initiated an unlawful detainer proceeding against the Sea-tons in the State Court seeking possession of the Apartment and payment of the rent (“Unlawful Detainer”). See Seaton Exhibit D, Summons for Unlawful Detainer, issued March 10, 2011. The Seatons filed their Petition on March 14, 2011.
Mr. Seaton and George Eberwine appeared in State Court on the original return date for the Unlawful Detainer of March 28, 2011 (“Original Return Date”). Tr. at 10, 87. There is little disagreement as to what occurred on the Original Return Date. Mr. Seaton advised the State Court of the pendency of his Petition. Id. at 11, 88. The State Court judge thereafter advised Mr. Seaton and George Eberwine he was uncertain as to what relief could be granted because of the pendency of the Petition and, on his own motion, continued the Unlawful Detainer until April 4, 2011, one week hence (“Continued Hearing”). *588Id. at 11, 13, 88. George Eberwine was unaware of the Petition until the Original Return Date. Id. at 98; see also id. at 88. In the meantime, on March 31, 2011, the Seatons signed a lease on another residence but were unable to move in immediately. Id. at 13,14.
It is at the Continued Hearing where the divergence of testimony as to what occurred begins. Mr. Seaton testified the State Court judge stated that he believed he had no jurisdiction because of the Petition and informed George Eberwine he could take no action against the Seatons. Id. at 15. Mr. Seaton further testified he advised the State Court judge he was trying to move out of the Apartment. Id. at 16. Mr. Seaton additionally testified the State Court judge continued the Unlawful Detainer to April 11, 2011, and advised that if the keys to the Apartment had been turned over to Collinswood, neither Mr. Seaton nor George Eberwine needed to appear on April 11, 2011. Id. Based upon this, Mr. Seaton believed he could remain in the Apartment until April 11 or when he returned the keys to Collinswood. Id. at 17.
George Eberwine’s recollection of the Continued Hearing is dissimilar to that of Mr. Seaton. George Eberwine testified that at the Continued Hearing, Mr. Seaton immediately advised the State Court judge that “There’s nothing to do, I’ve already moved out,” id. at 89; see also id. at 99, 100, 107, prompting the State Court judge to advise, “That takes care of that,” and “There’s nothing to do.” Id. at 89; see also id. at 90, 99-100. George Eberwine recalled no other discourse with the State Court judge nor any recognition that the Unlawful Detainer was continued to April 11, 2011. Id. at 99-100, 102. A review of the Unlawful Detainer as annotated by the State Court judge reveals nothing to confirm either version of what occurred at the Continued Hearing, except that the Unlawful Detainer apparently was continued to April 11, 2011. See Seaton Exh. D. Neither George Eberwine nor Mr. Seaton returned to State Court on April 11, 2011, Tr. at 17, and a review of the annotated Unlawful Detainer indicates it was dismissed on April 11, 2011.2 See Seaton Exh. D.
It is this Court’s view that, where two witnesses have disparate recollections, such as those of Mr. Seaton and George Eberwine regarding the Continued Hearing, often the circumstance of what was said is a combination of the testimony. It is very likely that once Mr. Seaton shared his intent to quit the Apartment, neither the State Court judge nor George Eber-wine focused on whether the statement sounded in the past or present tense. It is also most likely the State Court judge would have immediately recognized that Mr. Seaton’s statement about his voluntary exodus from the Apartment mooted the Unlawful Detainer and relieved the State Court from further pondering the implications of the pendency of the Petition on the Unlawful Detainer. Continuing the Unlawful Detainer for one week, then, would logically follow to provide the State Court with a certain mechanism to ensure the Seatons followed through with Mr. Sea-ton’s stated intention to quit the Apartment and to determine if the Unlawful Detainer had indeed been mooted. This *589Court believes it is highly unlikely the State Court judge imposed any other restrictions on the parties in the interim, and it seems far more probable that the source of Mr. Seaton’s conclusion he could remain in the Apartment until April 11, 2011, or until the surrender of the keys was not statements by the State Court judge but, rather, was an assumption Mr. Seaton made when the Unlawful Detainer was continued to April 11.
Meanwhile, the Seatons moved property from the Apartment on April 4, 2011. Tr. at 19-20. On the morning of April 5, 2011, George Eberwine advised his son, Kittrell Eberwine, the manager of Collinswood, what had occurred at the Continued Hearing and that the Seatons had “moved out.” Id. at 91, 105, 127. On the afternoon of April 5, Kittrell Eberwine entered the Apartment and inspected it, upon which he saw what he described as “general debris.” Id. at 112-13. Kittrell Eberwine inspected the refrigerator and found only “a bowl of ... baked beans that was kind of dried up, two Red Bull energy drinks and ... a carton of milk that had maybe a quarter inch left in it.” Id. His inspection of the pantry and all of the kitchen cabinets revealed only a few cans or items. Id. at 113, 117. Kittrell Eberwine’s inspection of the Apartment beyond the kitchen revealed beer cans, cigarette butts, “one pair of work boots that were pretty worn” (which pair was separated with one boot in the hallway and one in the den), and piles of clothes in one or two rooms, all of which were loose and unboxed. Id. at 113-14. Kittrell Eberwine found no furniture in the Apartment during the inspection, which, to him, confirmed his father’s statement that the Seatons had moved out, and “[h]e was gone.” Id. at 114. Kittrell Eberwine described what remained in the Apartment succinctly: “There wasn’t anything in there. It was what I consider junk. It was nothing substantial.” Id. at 114-15. He then instructed an employee of Collins-wood to clean out the Apartment, which the employee proceeded to accomplish that day, discarding the items remaining in the Apartment in a nearby dumpster. Id. at 115. Another employee of Collinswood changed the locks on the Apartment the same afternoon (April 5, 2011). Id.
Both the Seatons testified as to the great anguish and distress they felt when discovering their property in the dumpster on April 6, 2011. Mr. Seaton recalled his wife’s immediate and distressed crying upon seeing their belongings in the dumpster. Id. at 23-24, 56-58. He went on to describe the length of time these emotions persisted: “Every time that she talked to somebody for the first couple of days it was like that.... She’s still emotional, even before this date. Even before we came in here she was crying about it.” Id. at 37. Mr. Seaton also testified as to the effect the events have had on himself and on the Seatons’ relationship:
[A] lot of it causes a lot of arguments between me and my wife because she gets so bent out of shape behind all of her things because like, for instance, going through it taking the pictures, remembering everything, it just puts her into a crying spell and then I get frustrated because I get upset, because it was done to her that I get angry, and it causes arguments between me and my wife. My baby’s pictures and stuff like that really tore me apart because my baby is a diabetic. He is 20 months old and he’s got to be insulin dependent for the rest of his life, and those pictures meant more to me than anything else in this world. To see them lying in that dumpster tore me apart.
Id. at 56. Mrs. Seaton read into evidence a letter she wrote to her counsel (which was admitted without objection), in which she describes her and her husband’s “hurt and humiliation” in addition to the embar*590rassment resulting from her husband entering the dumpster to retrieve their belongings, her feeling of “violation] as though no one had [the] heart to see that these things meant something to” them. She went on to state that she does not “think we could ever get past that feeling.” Id. at 57-58; Seaton Exhibit F, Letter from Mrs. Seaton to her counsel. Mrs. Seaton became very emotional at one point during her testimony when she recalled two sentimental, antique prints that the Seatons allege were not found among the items in the dumpster. Id. at 70.
It is the extent of what was allegedly disposed of from the Apartment where the overall testimony of the Seatons and the Eberwines is perhaps at greatest variance. Mr. Seaton testified he recovered a number of items of personal property from the dumpster adjacent to the Apartment. These items consisted of 13 or 14 pairs of women’s shoes, a shoe rack, a ceramic Santa Claus cookie jar, blankets, a decorative glass globe, sheets, Mrs. Seaton’s baby clothes, pictures of the Seatons’ son, and baby cowboy boots that once belonged to Mrs. Seaton’s father. Tr. at 25, 27, BB-SS. Mrs. Seaton identified an extensive list of grocery items (hereinafter, “Grocery Items”) she compiled, based on what she normally maintains m her pantry, that she contends were in the Apartment at the time of the property removal by Collins-wood. See id. at 63, 81; Seaton Exh. I, List of Grocery Items. The list also contains Mrs. Seaton’s estimate of the replacement value for the Grocery Items, which she retrieved from the Internet. Tr. at 63. Mrs. Seaton further testified as to the items she believes were remaining at the Apartment, discarded by Collins-wood, and not recovered from the dumpster. These items were identified in Sea-ton Exhibit J and consisted of two antique framed prints where the subject was a baby, a hard hat, two pairs of men’s work boots, a quilt, and a plastic box of items described by Mr. Seaton as “pleasure items” that Mrs. Seaton had purchased as part of a kit for resale of the items. The latter items were allegedly contained in a pink box or case. See Tr. at 42, 68-76. On cross-examination, Kittrell Eberwine specifically denied seeing the pink box, the antique prints, the hard hat, the shoe rack, baby photographs, baby cowboy boots, and the ceramic Santa Claus cookie jar. Id. at 116-18, 126. He did not recall seeing bedding items or women’s shoes, unless they were piled on the floor or under the piles of clothing. Id. at 116-17,126.
III. Conclusions of Law
A. Was There a Violation of the Automatic Stay?
At the outset, it is important to note what events the Seatons do not assert as violations of the automatic stay. The Sea-tons do not contend that any of the events specifically relating to the institution or continuation of the Unlawful Detainer constitute a stay violation. Rather, it is only the removal and disposal of certain items of their personal property from the Apartment at Collinswood that they believe are sanctionable by this Court. Accordingly, the Court’s attention will be directed solely upon that aspect of the Seatons’ exodus from the Apartment.
Section 362 of the Bankruptcy Code provides, in relevant part:
(a) Except as provided in subsection (b) of this section, a petition filed under section 301, 302, or 303 of this title ... operates as a stay, applicable to all entities, of—
(1) the commencement or continuation, including the issuance or employment of process, of a judicial, administrative, or other action or proceeding against the debtor that was or could have been commenced before the commencement of the case under this ti-*591tie, or to recover a claim against the debtor that arose before the commencement of the case under this title;
(2) the enforcement, against the debt- or or against property of the estate, of a judgment obtained before the commencement of the case under this title;
(3) any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate;
(4) any act to create, perfect, or enforce any lien against property of the estate;
(5) any act to create, perfect, or enforce against property of the debtor any lien to the extent that such lien secures a claim that arose before the commencement of the case under this title....
11 U.S.C. § 362(a)(1)-(5) (2011).
Judge Carruthers has well-described the import and purpose of the automatic stay pursuant to 11 U.S.C. § 362:
Upon a debtor’s filing of a bankruptcy petition, the automatic stay provided by 11 U.S.C. § 362(a) operates to stay, among other things, all actions “to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under the title.” 11 U.S.C. § 362(a)(6). The automatic stay also prohibits “any act to obtain possession of property of the estate or of property from the estate or to exercise control over property of the estate.” 11 U.S.C. § 362(a)(3). The automatic stay is a bedrock principle upon which the Code is built; the importance of § 362 cannot be over-emphasized. Grady v. A.H. Robins Co., 839 F.2d 198, 200 (4th Cir.1988). “The purpose of the automatic stay, in addition to protecting the relative position of creditors, is to shield the debtor from financial pressure during the pendency of the bankruptcy proceeding.” Winters By and Through McMahon v. George Mason Bank, 94 F.3d 130, 133 (4th Cir.1996) (citation omitted). The automatic stay provides the debtor a breathing spell from creditors, affording the debtor time to reorganize. Grady v. A.H. Robins Co., 839 F.2d at 200 (quoting House Report No. 95-595, 95th Cong. 1st Sess. 340-1 (1977)). Thus, the purpose of the automatic stay is two-fold: to preserve the relative positions and rights of creditors as established by the Bankruptcy Code and to protect the debtor, individually, from collection activities.
In re Garner, Case No. 09-81998, 2010 WL 890406, at *2 (Bankr.M.D.N.C. Mar. 9, 2010) (unreported decision). Violations of the automatic stay are subject to an award of sanctions pursuant to § 362(k):
Section 362(k)(l) provides, with one exception, “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” In order to recover under this section, a debtor must prove five elements: “ (1) that a bankruptcy petition was filed, (2) that the debtors are ‘individuals’ under the automatic stay provisions, (3) that creditors received notice of the petition, (4) that the creditors’ actions were in willful violation of the stay, and (5) that the debtor suffered damages.’ ” Lomax v. Bank of Am., N.A., 435 B.R. 362, 376 (N.D.W.Va.2010) (quoting Grisard-Van Roey v. Auto Credit Ctr., Inc. (In re Grisard-Van Roey), 373 B.R. 441, 444 (Bankr.D.S.C.2007)).
Burch v. Bank of Am., N.A. (In re Burch), Adv. No. 11-80030-DD, 2011 WL 3207083, *592at *2 (Bankr.D.S.C. July 26, 2011) (slip opinion).
This Court has previously opined upon the issue of willfulness in the context of an automatic stay violation within this circuit:
The Fourth Circuit Court of Appeals has considered the necessary evidentiary showing to establish a willful violation of the automatic stay, holding that “to constitute a willful act, the creditor need not act with specific intent but must only commit an intentional act with knowledge of the automatic stay.” Citizens Bank v. Strumpf (In re Strumpf), 37 F.3d 155, 159 (4th Cir.1994), rev’d on other grounds, 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) (citing Budget Service Co. v. Better Homes, 804 F.2d 289, 292-93 (4th Cir.1986)); Cuffee v. Atl. Bus. & Community Dev. Corp. (In re Atl. Bus. & Community Corp.), 901 F.2d 325, 329 (3rd Cir.1990). In Better Homes, the court stated that the conduct of a creditor in violating the stay is willful when “[t]here is ample evidence in the record to support the conclusion that [the creditor] knew of the pending petition and intentionally attempted to [continue collection procedures] in spite of it.” Better Homes, 804 F.2d at 292-93. Accordingly, in order for conduct to be willful, it must be intentional or deliberate. See Hamrick v. United States (In re Hamrick), 175 B.R. 890, 892 (W.D.N.C.1994) (citing In re Shealy, 90 B.R. 176, 179 (Bankr. W.D.N.C.1988)). Courts, accordingly, have contrasted “willful” conduct by creditors with violations which were “inadvertent” and where no injury occurs. See id. at 893.
Cherry v. Arendall (In re Cherry), 247 B.R. 176, 187-88 (Bankr.E.D.Va.2000); see also Rountree v. Nunnery (In re Rountree), 448 B.R. 389, 418 (Bankr.E.D.Va. 2011).
Here, the Respondents defend principally on the notion that they did not intend to violate the automatic stay by taking control and disposing of any of the Seatons’ personal property remaining at the Apartment. Rather, the removal and disposal of any remaining personalty was provoked by their belief that the Seatons had moved, and the remaining items of personal property had been abandoned. This lack of specific intent, they argue, negates any willfulness in any automatic stay violation that occurred here.
The absence of specific intent to violate the automatic stay as to the Seatons’ personalty, while relevant to some considerations here, nonetheless under the case law fails to negate the willfulness of the actions of removal and disposal of the remaining personalty. Here it is undisputed that George Eberwine became aware of the Petition at the time of the Original Return Date of the Unlawful Detainer. Thus, under the prevailing precedent, he is deemed to have knowledge of the automatic stay. Scott v. Wells Fargo Home Mortg., Inc., 326 F.Supp.2d 709, 718 (E.D.Va.2003) (“Willful conduct refers to deliberateness of conduct and knowledge of bankruptcy filing, not to specific intent to violate court order.”) (citing Aponte v. Aungst (In re Aponte), 82 B.R. 738, 742 (Bankr.E.D.Pa.1988)); see also W. Va. State Tax Dep’t v. Mullins (In re Mullins), Civil Action No. 2:00-0571, 2009 WL 3160361, at *2 (S.D.W.Va. Sept. 30, 2009) (unreported decision) (“ ‘[A] deliberate or intentional act done with knowledge of the bankruptcy, which violates the automatic stay, constituted a willful violation.’ ”) (quoting In re Mullins, No. 98-20033, slip op. at 15-16 (Bankr.S.D.W.Va. May 9, 2000)); KCH Servs. v. The Nordam Grp., 345 B.R. 542, 548 n. 5 (W.D.N.C.2006) (finding that a party who has knowledge of a pending bankruptcy proceeding is charged with knowledge of the automatic *593stay) (citing ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1008 (9th Cir. 2006)); McLaughlin v. Fireman’s Trust Mortg. Corp. (In re McLaughlin), 96 B.R. 554, 559-60, 562-68 (Bankr.E.D.Pa.1989) (collecting cases holding that knowledge of the bankruptcy filing is the legal equivalent of knowledge of the automatic stay). The acts of removal and disposal of the Seatons’ personalty at the Apartment were intentional “act[s] to obtain possession of property of the estate ... or to exercise control over property of the estate” in contravention of 11 U.S.C. § 362(a)(3), done with knowledge of the pending Petition. That the Respondents undertook such acts without any intent to violate the automatic stay does not negate a violation in light of the clear admonition by the Fourth Circuit Court of Appeals that “to constitute a willful act, the creditor need not act with specific intent but must only commit an intentional act with knowledge of the automatic stay.” Citizens Bank v. Strumpf (In re Strumpf), 37 F.3d 155, 159 (4th Cir.1994), rev’d on other grounds, 516 U.S. 16, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) (citing Budget Serv. Co. v. Better Homes, 804 F.2d 289, 292-93 (4th Cir. 1986)).3
The strict standard applied in the determination of willfulness in the context of an automatic stay violation involving disposal of a tenant’s property is well illustrated in B. Cohen & Sons Caterers, Inc. v. New Plan Realty Trust (In re B. Cohen & Sons Caterers, Inc.), 97 B.R. 808 (Bankr.E.D.Pa. 1989). In that case, the removal and disposal of a tenant’s personal property at the leased premise was found to constitute a stay violation notwithstanding the fact the landlord had earlier obtained relief from *594the automatic stay to take possession of the premises:
The Landlord’s only real legal defenses appears to be contentions that, because (1) it obtained relief from the automatic stay in both the Debtor’s bankruptcy case and the bankruptcy case of [the Debtor’s principal] individually; and (2) it [had] obtained a pre-petition court judgment and levy in the state-court landlord-tenant action brought against [the Debtor’s principal], it cannot be found to have violated the automatic stay. However, in both of the bankruptcy cases in which relief from the stay was obtained by it, the Landlord was granted relief from the stay merely “to regain possession of the premises.” Relief from the stay, for this limited purpose only, clearly did not give the Landlord relief from the stay or authority to detain or take any other action in reference to the personal property of the Debtor’s estate on its Premises, even pursuant to lawful state-court processes. Therefore, although it had obtained some limited relief from the automatic stay, any actions by the Landlord which adversely affected the Debtor’s right to retain possession of its personalty on the Premises was violative of the residuum of the automatic stay. This being so, the exercise of full dominion over this property by detaining it, destroying it, and liquidating it, constituted a gross violation of the automatic stay by the Landlord.
Id. at 813-14. The fact the Seatons’ personal property was abandoned by the Chapter 7 Trustee in the course of their bankruptcy case (specifically, on April 21, 2011, upon the filing of his Report of No Distribution) subsequent to its removal from the Apartment on April 5, 2011, also fails to negate a stay violation. Kaiser v. Leader Fed. Bank for Sav. (In re Kaiser), 158 B.R. 808, 812 (Bankr.D.Neb.1993) (“[The creditor] violated § 362(a)(3) by taking possession of property of the estate. In connection with my conclusions that § 362(a)(3) was violated, I conclude that debtor’s personal property and real property were property of the bankruptcy estate under § 541 on November 10, 1990, which was the date the property was removed from debtor’s home. The trustee did not file a Notice of Intent to Abandon Property (Fil. # 9) until December 5,1990. The property of the estate was not abandoned until after [the creditor] had violated the stay.”); see also Little Pat, Inc. v. Conter (In re Soil), 181 B.R. 433, 444 (Bankr.D.Ariz.1995) (“A debtor’s vacating the premises is not an abandonment so as to remove the property from the bankruptcy estate.”). Accordingly, having concluded that the Respondents, jointly and severally, committed a willful violation of the automatic stay by removing and disposing of certain personal property of the Sea-tons, it remains to consider the damages claimed by the Seatons.
B. Damages
Subject to one exception (which is inapplicable here), § 362(k)(1) provides that “an individual injured by any willful violation of a stay provided by this section shall recover actual damages, including costs and attorneys’ fees, and, in appropriate circumstances, may recover punitive damages.” 11 U.S.C. § 362(k)(1) (2011). The Bankruptcy Code supplies no definition of “actual” damages nor does the legislative history of this section enlighten as to Congressional intent beyond the specific statutory language. The Seatons seek an array of damages here, including at least $1,732.52 for the personal items removed from the Apartment, $20,000.00 in pain and suffering, $30,000.00 in punitive damages, and $10,378.04 in attorney’s fees and costs. Despite the lack of further statutory definition of the measure of damages to be applied, courts have found a number of *595precepts to be appropriate in considering an award of damages for an automatic stay violation.
1. The Measure of Damages
An award of damages for a willful violation of the automatic stay must be founded on concrete, non-speculative evidence:
For purposes of Section 362(k), actual damages should be awarded only if there is concrete evidence supporting the award of a definite amount. Heghmann v. Indorf (In re Heghmann), 316 B.R. 395, 405 (1st Cir. BAP 2004). “A damages award cannot be based on mere speculation, guess or conjecture.” Id. An award of punitive damages, on the other hand, usually requires more than a mere willful violation of the automatic stay. Id. Relevant factors courts consider when determining whether punitive damages should be awarded include: (1) the nature of the creditor’s conduct; (2) the creditor’s ability to pay damages; (3) the motive of the creditor; and (4) any provocation by the debtor. Id. An award of punitive damages is often limited to those cases where there is egregious, intentional misconduct. Id.
Rawles v. Wych (In re Rawles), Adv. No. 08-00555, 2009 WL 2924005, at *2 (Bankr. D.Md. June 18, 2009) (unreported decision). Accord Hanna Coal Co. v. I.R.S., 218 B.R. 825, 832 (W.D.Va.1997) (“ ‘A damage award (under § 362(h) [the predecessor to § 362(k)]) must not be based on ‘mere speculation, guess, or conjecture.’ ’ ” (citing In re Gault, 136 B.R. 736, 739 (Bankr.E.D.Tenn.1991) (quoting John E. Green Plumbing & Heating Co. v. Turner Constr. Co., 742 F.2d 965, 968 (6th Cir. 1984))); Fed. Home Loan Mortg. Corp. v. McCormack, Civil No. 96-81-SD, 1996 WL 753938, at *5 (D.N.H. Sept. 3,1996)) (unreported decision) (“Although ‘[a] party seeking damages must prove them using methodologies that need not be intellectually sophisticated ... a damage award cannot be based on mere speculation, guess or conjecture.’ ”). The debtor has the burden to establish by a preponderance of the evidence that he suffered actual damages as a result of the stay violation. Duby v. U.S. (In re Duby), 451 B.R. 664, 670 (1st Cir. BAP 2011) (citing Vazquez Laboy v. Doral Mortg. Corp. (In re Vazquez Laboy), 416 B.R. 325, 332 (1st Cir. BAP 2009); Heghmann v. Indorf (In re Heghmann), 316 B.R. 395, 403-04 (1st Cir. BAP 2004)).
A special dilemma exists when the damage claimed by reason of a stay violation is the loss of used household goods. The dilemma of valuing personal property in the context of an automatic stay violation has been well-explained by Judge Scholl:
[A] difficult issue is presented in determining the value of the Debtor’s property destroyed by the Landlord and hence constituting the appropriate measure of compensatory damages to the Debtor here. We have three points of reference: (1) [t]he Debtor’s own Schedules, which would limit its recovery to $16,500; (2) [one of the principals of the Debtor]’s testimony, which would support a recovery of $400,000; and (3) [the Landlord’s] testimony in which he stated that he would have expected to have realized a recovery of between $50,000 and $100,000 for the property in issue “as is,” and that its replacement cost ranged from between $500,000 and $700,000.
Acceptance of [the Debtor’s principal]’s testimony is problematical for several reasons. Although she is clearly competent to testify as to the value of her own corporation’s property, her proof of the value consists of lists, itemized by entry but not by the value of each entry, which are based on her memory of acquisition costs of that *596property over the past 30 years. Moreover, she is obviously a biased witness. In our view, it is the market value of the goods as of July, 1988, which must control the evaluative process. This is the measure of damages for property converted. Replacement or acquisition costs are relevant, but they are certainly not the ultimate barometer of the actual damages suffered by the Debtor from the loss of its property. The difficulty of effecting a replacement is merely a factor in ascertaining consequential damages and in measuring the appropriate punitive damages. However, no evidence of any consequential damages was proven. Therefore, we believe that the sole measure of the Debtor’s actual damages must be the market value of the Debtor’s goods at the time of their conversion by the Landlord.
In re B. Cohen & Sons Caterers, Inc., 97 B.R. at 816-17 (internal citations omitted). Judge Scholl also recognized the additional burden where the value of the personalty claimed at the time of the automatic stay violation is at variance with the value claimed in a debtor’s schedules:
The weight of [the Debtor’s principal]^ apparently accurate testimony regarding acquisition costs is lessened by their comparison to the figures on the Schedules. We cannot emphasize strongly enough that it is important that debtors complete their Schedules accurately. They are, of course, prepared on a self-declaratory “honor system.” They must therefore be considered highly significant, at least when invoked against a debtor to attempt to hold it to its own “honor-system” declarations. The weakest part of [the Debtor’s principal]^ testimony was her futile efforts to explain why the Schedules were filled out incorrectly. We see no reason why [the other principal of the Debtor] would be totally ignorant about the value of the Debtor’s property nor why, if he were uncertain, he would not have consulted with [the other principal] about the figures. It is, moreover, inexcusable that no amendment has been made, even .to date, and we are therefore including, in our Order, a directive that this be done. It ill befits a debtor to admit that its own Schedules are not only inaccurate, but remain unamended to correct the inaccuracies after they are pointed out to it.
Id. at 817 (internal citations omitted). In the instant matter, the Seatons did not specifically list in their bankruptcy schedules any of the property they claim was removed from the Apartment. Indeed, in their bankruptcy schedules, the Seatons list no clothing, even as an aggregate, and no household items except for a television, a sofa, a loveseat, a kitchen table, a bed, a dresser, a crib, and a computer.
The difficulty of valuing personal property lost as the result of a stay violation has been reflected in the variety of approaches employed by the courts. A number of courts have found the appropriate measure of damages for the loss of goods due to an automatic stay violation is the fair market value. Robinson v. Ford Motor Credit Co., No. 1:08cv1081, 2009 WL 455270, at *4 (E.D.Va. Feb. 20, 2009) (unreported decision) (“The court also did not err when it used the auction price at which [the debtor]’s car was sold to approximate its fair market value, as that was the only clear evidence of its value in the record.”); In re Jester, 344 B.R. 331, 339 (Bankr. E.D.Pa.2006) (“The damage claimed by Debtor is loss of her Vehicle measured by its fair market value.”); Kaufman v. Note (In re Kaufman), 315 B.R. 858, 866 (Bankr.N.D.Cal.2004) (“The basic measure of damages is the amount of the economic loss [the debtor] suffered as the proximate result of Defendants’ violation, taking into account the fair market value of the property that they disposed of in violation of *597the stay, and any other factors relevant to making [the debtor] economically whole.”) (internal citations omitted); Lankford v. Advanced Equities, Inc. (In re Lankford), 305 B.R. 297, 302 (Bankr.N.D.Iowa 2004) (“Debtors’ valuation of their missing and/or damaged property at close to $4,000 is based on retail prices for the various items.... Market value is a more appropriate measure of actual damages in this matter, rather than retail value.”); McCarthy v. Imported Cars of Md., Inc. (In re Johnson), 230 B.R. 466, 471 (Bankr. D.D.C.1999) (finding that the appropriate measure of damages was the amount the trustee could have secured for sale of vehicle had it not been seized in violation of the stay); In re Rivers, 160 B.R. 391, 393 (Bankr.M.D.Fla.1993) (“The correct measure of damages for loss of household goods is fair market value.”); In re B. Cohen & Sons Caterers, 97 B.R. at 817 (“[I]t is the market value of the goods as of July, 1988 [the month and year in which the property was disposed of by the offending creditor], which must control the evaluative process.”); see also Davis v. Washington (In re Davis), 62 B.R. 345, 347 (Bankr.S.D.Ohio 1986) (“[The debtor] admitted that the same property she has valued at $5,000 at the hearing, she had valued at $650 at the time of her signing her bankruptcy schedules on July 12, 1985 declaring that the schedules were ‘true and correct to the best of her knowledge, information and belief.’ ”).
At least one court has found a special rule for measuring damages for a loss of goods due to a stay violation, concluding the measure is not fair market value but, instead, the value of the goods to the debt- or:
In restoring the value of the property taken by the violation of the automatic stay, the court must employ the standard rule that the value to be restored is the value of the property to the debtor. “According to the great weight of authority, the measure of damages for the conversion of household goods, furniture, books, manuscripts, or wearing apparel, kept and adapted for personal use, is not the second hand market value of property, but the actual and fair value to the owner, excluding any fanciful or sentimental value to the owner, excluding.” 89 C.J.S. Trover and Conversion sec. 196, p. 658. (Emphasis added.) Thus, while the fair market value is the usual and ordinary measure of damages, the law of damages recognizes that the court may consider any special or heirloom value which the property may have; that the injured party should be made whole, not only by recovery of “the intrinsic or market value” of the personal property, but also its “special and extrinsic value.” Kalinowski v. M.A. Newhouse & Son, 53 S.W.2d 1094, 1096 (Mo.App.1932). In assessing this special value, the trier of fact is granted particular latitude to assay all the facts and circumstances of the case. As noted above, in making the determination of special value, the trier of fact is not bound by opinion evidence, “but rather [is] obliged to ascertain the amount of the damages in the light of all the facts and circumstances of the case.” Id. at 1097. “The question of such valuation [is] peculiarly one for the jury [or other trier of fact] in the light of all the facts and circumstances of the case.” State ex rel. Terry v. Ace Storage and Moving Co., 135 S.W.2d 363, 368 (Mo.App.1940).
Walters v. Hatcher (In re Walters), 41 B.R. 511, 516-17 (Bankr.W.D.Mo.1984); see also Kaiser v. Leader Fed. Bank for Savs. (In re Kaiser), 158 B.R. 808, 812-13 (Bankr.D.Neb.1993) (“I conclude that the debtor should be compensated for those items which are of sentimental value to her, even though they have only nominal cash value.”). The Walters court relied upon Missouri state law in concluding “special” or “extrinsic” value was an ap*598propriate measure for assessing damages in the context of a stay violation. This Court is skeptical that state law is instructive in interpreting the correct measure of “actual” damages for a loss of goods occasioned by a stay violation. However, to the extent state law is relevant, it appears Virginia would look to the market value as the measure of damages for goods converted. E. Coal & Exp. Corp. v. Norfolk & W. Ry. Co., 133 Va. 525, 113 S.E. 857, 859 (1922) (“ ‘Ordinarily the market value at the time and place of conversion is the rule.’ ”) (quoting Roth Coal Co. v. Louisville & Nashville R. Co., 142 Tenn. 52, 215 S.W. 404 (1919)); see also Kondaurov v. Kerdasha, 271 Va. 646, 629 S.E.2d 181, 187 n. 5 (2006) (“In C & O Ry. Co. v. May, 120 Va. 790, 797, 92 S.E. 801, 803 (1917), we approved an instruction telling the jury that the owners of personal property destroyed by a defendant’s negligence (family portraits, in that case) were not entitled to recover ‘any sentimental value attached to it by the owners or any peculiar value which they may have attached to the property by reason of association or the like.’ ”). Accordingly, it appears the proper measure for assessment of damages for the loss of goods due to a violation of the automatic stay is their fair market value at the time of the loss.
Given the unusual amalgam of personalty claimed to have been removed from the Apartment, some of which Mr. Seaton retrieved from the dumpster and some alleged to be missing, and the differing evidence submitted as to the value of each item, it regrettably appears that only an item by item analysis will suffice here. Attached to this opinion as Appendix A is a compilation of the items claimed in damages by the Seatons that lists the claimed value of each item as set forth in two separate exhibits proffered by the Seatons. In this text, the Court will address these items in two groups, the first being the items claimed to have been at the Apartment and that remain missing or could not be salvaged, and the second being the items that were retrieved and removed from the dumpster by Mr. Seaton.
2. Items Claimed to be Missing
a. The Groceries
With respect to the Grocery Items, the Seatons contend $341.83 in groceries were removed from the Apartment and disposed. The Court believes that the testimony of Kittrell Eberwine as to the extent of the Grocery Items present in the Apartment is more credible than the evidence adduced by the Seatons. Mrs. Sea-ton admitted her compilation of the Grocery Items was based upon her memory of what she normally would have on hand in her pantry. Tr. at 81. Kittrell Eber-wine’s testimony as to the meager amount of items he observed in the refrigerator, pantry, and kitchen cabinets is based on his direct observations during his inspection of the Apartment on April 5, 2011. Further, given that the Seatons were well into the process of moving their personal property from the Apartment at the time of disposal, it seems unlikely the lengthy list of Grocery Items claimed by Mrs. Sea-ton would have still remained in the Apartment. More credible is Kittrell Eberwine’s observation of a few, seemingly abandoned items of food in the refrigerator, pantry, and cabinets. The Seatons’ evidence as to the allegedly discarded Grocery Items is not credible in light of Kittrell Eberwine’s testimony and is excessively speculative to form the basis of a damage award. Accordingly, the Court awards no damages for the alleged loss of the Grocery Items.
b. The Other Items of Personalty
With respect to certain of the other items of personalty that allegedly remained at the Apartment at the time of disposal by Collinswood, the evidence as to the presence of certain of these items at *599the Apartment at such time is speculative. Mrs. Seaton testified that a pink box or case containing items for resale was at the Apartment and discarded by Collinswood. Kittrell Eberwine was asked specifically if he saw such a box or case of items and unequivocally stated he had not seen such an item at the Apartment at the time of his inspection on April 5, 2011. Given Mrs. Seaton’s description of the size of the box, its striking pink color, and the nature of its contents, it appears highly unlikely this box would have been unnoticed by Kittrell Eberwine when inspecting the Apartment. Also problematic is the fact the Seatons did not schedule this box of items in their Schedule B of personal property despite its claimed replacement cost of $250.00 and the fact it had been purchased by Mrs. Seaton for resale. Based upon Kittrell Eberwine’s testimony, which the Court finds to be more credible, the Court determines the box of items should not constitute a basis for an award of damages.
The other items claimed to be missing consist of two antique prints, a hard hat, two pairs of men’s work boots, and a quilt. Of these items, Kittrell Eberwine only identified a worn pair of work boots as present at the Apartment at the time of his inspection. The evidence adduced by the Seatons as to the value of the remaining items (hereinafter, the “Missing Items”) in each instance is founded upon the Seatons’ research as to the replacement cost for this property, with the exception of the two antique prints, which Mrs. Seaton testified she found similar, used items on eBay that had a “Buy It Now” price of $84.99 each. Seaton Exhibit J, Estimates of Repair/Replacement for Missing Items. None of the Missing Items were listed in the Seatons’ personal property bankruptcy schedules. Accordingly, because of the speculative nature of even the presence of the Missing Items at the Apartment at the time of the property removal by Collinswood (with the exception of the worn pair of boots acknowledged by Kittrell Eberwine), the failure of the Seatons to adduce any evidence of the fair market value of the Missing Items (except for the antique prints),4 and the failure of the Seatons to list any of the Missing Items in their bankruptcy schedules, the Court is unable to award any damages regarding the Missing Items.
3. Items Retrieved from the Dumpster
The Seatons also claim Mr. Seaton retrieved a number of items of their personal property from the dumpster (hereinafter, “Retrieved Items”).5 The Seatons’ *600valuations of these items consist of largely Internet-based research of the price of similar, but new, goods. Seaton Exhibit I, Estimates of Repair/Replacement for Retrieved Items. These items, while perhaps sustaining some damage from their disposition into the dumpster, nonetheless were retrieved due to Mr. Seaton’s efforts. The prices introduced into evidence reflect the replacement cost for these items, not their fair market value. As a result, the Court finds that the Seatons have failed to adduce sufficient evidence to quantify the damage, if any, sustained to these items as a result of their placement into the dumpster. Accordingly, the Court is unable to award any damages for the Retrieved Items.
4. Emotional Distress Damages
The Seatons also seek an award of damages for what they characterize as “pain and suffering,” which seem to approximate what many courts characterize as emotional distress damages in the context of an automatic stay violation. Judge Mitchell of this Court has explained the division of authority among courts in awarding damages for emotional distress:
If the present proceeding is viewed purely as a civil contempt proceeding, it seems clear that there is no authority to award damages for emotional distress. Burd v. Walters, 868 F.2d 665, 670 (4th Cir.1989) (vacating award of $1,000 in damages to a debtor for emotional distress and stating “no authority is offered to support the proposition that emotional distress is an appropriate item of damages for civil contempt, and we know of none”). If viewed instead as an action for damages under § 362(k), the courts of appeal that have considered the issue, while agreeing that emotional distress is an available component of ‘actual damages’ under § 362(k), are divided on the standard for its award. See Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d 265 (1st Cir.1999) (rejecting creditor’s argument that mental anguish must be proven by “physical injury or corroborating medical testimony” and upholding emotional distress damages of $25,000 for violation of the automatic stay based on the debtor’s testimony that described specific changes in his life, including change in eating habits, decrease in social activities, and problems with sleeping); Aiello v. Providian Financial Corp., 239 F.3d 876, 880 (7th Cir.2001) (“[W]e do not think that emotional injury is compensable under section 362(h) [now 362(k)] when there is no financial loss to hitch it to by means of the clean-up doctrine.”); In re Dawson, 390 F.3d 1139, 1149-50 (9th Cir.2004) (holding that financial loss is not a prerequisite for award of emotional distress damages and stating that although “fleeting or trivial anxiety or distress” is not sufficient, such damages can be awarded based on (1) testimony from non-experts who testify as to “manifestations of mental anguish and clearly establish that significant emotional harm occurred”; (2) corroborating medical evidence; or even (3) significant emotional distress that is “readily apparent even without corroborating evidence,” such as where the creditor “engaged in egregious conduct.”); In re Repine, 536 F.3d 512 (5th Cir.2008) (stating that appellate courts should exercise “caution in affirming emotional damage awards because emotional damages are easier to manufacture than other types of damages” and vacating award when debtor did no more than set forth “generalized assertions” of his emotional distress in his testimony).
In re The Original Barefoot Floors of Am., Inc., 412 B.R. 769, 776-77 (Bankr.E.D.Va. 2008). The Fifth Circuit Court of Appeals has considered with some specificity the extent of the evidence necessary to sup*601port the award of emotional distress damages for an automatic stay violation:
The First Circuit has held that emotional damages qualify as “actual damages” under section 362(k). See Fleet Mortg. Group, Inc. v. Kaneb, 196 F.3d 265, 269 (1st Cir.1999). The Court went on to hold that emotional damage awards under section 362(k) must be supported by “specific information” rather than “generalized assertions” and ultimately upheld the Bankruptcy Court’s award because the plaintiff testified about specific changes in his life caused by his emotional distress, including sleeping problems, eating problems, and social anxiety. See id. at 270. The Seventh Circuit implicitly endorsed Fleet Mortg.’s specificity requirement but went further, holding that emotional injury is not compensable under section 362(k) unless the emotional injury can be linked to some other financial injury. See Aiello v. Providian Fin. Corp., 239 F.3d 876, 880 (7th Cir.2001). In so doing, the Court observed that “the law has always been wary of claims of emotional distress” and that the Bankruptcy Courts are ill-suited to assess such claims. See id. at 879-80. We share the Seventh Circuit’s caution in affirming emotional damage awards because emotional damages are easier to manufacture than other types of damages. See id.
We agree that, at minimum, Repine was required to set forth “specific information” concerning the damages caused by his emotional distress rather than relying only on “generalized assertions.” See Fleet Mortg., 196 F.3d at 269. However, we need not adopt a precise standard for whether, or under what circumstances, a court may award emotional damages under section 362(k) because we find that Repine has not made this minimal showing. With respect to his alleged emotional damages, Repine testified that he felt “very upset” at what his sons would think of him for being in jail. He also testified that it was “very traumatic” for him to miss his father’s funeral, that he still had dreams about it, that it came to mind when he interacted with people in the community who knew he missed the funeral, and that he may never get over it. We do not doubt Repine’s testimony, but these generalized assertions are insufficient to support an emotional damages award under section 362(k). See Fleet Mortg., 196 F.3d at 269. And the fact that Repine’s emotional injury was accompanied by financial loss cannot cure this deficiency. See Aiello, 239 F.3d at 880. Accordingly, we vacate the Bankruptcy Court’s emotional damages award.
Young v. Repine (In re Repine), 536 F.3d 512, 521-22 (5th Cir.2008).
A number of courts within the Fourth Circuit have awarded damages for emotional distress incurred by reason of a stay violation. See Green Tree Servicing, LLC v. Taylor (In re Taylor), 369 B.R. 282, 288-89 (S.D.W.Va.2007) (affirming bankruptcy court’s award of emotional distress damages to compensate debtor for fear, emotional trauma, and stress that triggered debtor’s preexisting medical condition as a result of two separate stay violations by same creditor); Weatherford v. Timmark (In re Weatherford), 413 B.R. 273, 289 (Bankr.D.S.C.2009) (finding that, although the debtor did not present evidence of a medical injury, “she did present credible and convincing testimony indicating that she suffered from anxiety and depression as a result of’ the stay violation (which included continued collection efforts and retention of property of the estate) that “requir[ed] medication and counseling,” and awarding $1,000.00 for emotional distress damages); Lofton v. Carolina Fin., LLC (In re Lofton), 385 B.R. 133, 141 (Bankr.E.D.N.C.2008) (awarding $1,500.00 *602in emotional distress damages for “tension, anger, worry and disruption” suffered by debtor due to creditor’s willful violation of automatic stay by commencing small claims court action against the debtor despite receiving notice of the bankruptcy filing, even though suit was dismissed immediately upon receipt of debtor’s adversary complaint); Covington v. I.R.S. (In re Covington), 256 B.R. 463, 467 (Bankr. D.S.C.2000) (awarding $1,000.00 in emotional distress damages for emotional injury and trauma caused to debtors and their children by stay violation); In re Carrigan, 109 B.R. 167, 171-72 (Bankr. W.D.N.C.1989) (awarding emotional distress damages where creditor appeared at debtors’ home at 9:00 p.m. on a Sunday night demanding payment in a harassing and abusive fashion, leading debtors to experience anxiety, fear, stress, and humiliation). Certain of the courts within this circuit that have considered an award of damages for emotional distress in the context of an automatic stay violation have required that a debtor experience significant harm and a causal connection between the harm and the violation of the automatic stay. In re Taylor, 369 B.R. at 288 (“While claims for fleeting or trivial emotional distress are not compensable, an individual who suffers significant harm and demonstrates a causal connection between the harm and the violation of the automatic stay is entitled to be compensated.”) (citing Dawson v. Washington Mut. Bank, F.A. (In re Dawson), 390 F.3d 1139, 1146— 48 (9th Cir.2004); Aiello v. Providian Fin. Corp., 239 F.3d 876, 880 (7th Cir.2001); Fleet Mortg. Grp., Inc. v. Kaneb, 196 F.3d 265, 269-70 (1st Cir.1999)); see also In re Robinson, No. 06-10618-SSM, 2008 WL 4526183, at *4 (Bankr.E.D.Va. Sept. 29, 2008) (unreported decision) (citing In re Taylor, 369 B.R. at 288).
Segregating the emotional distress experienced by a debtor from the automatic stay violation from other stress sources may be problematic. In re Robinson, 2008 WL 4526183, at *4 (“[E]ven though emotional distress damages may be recoverable for violations of the automatic stay, the court declines to do so here, because there is simply no way of parsing out that portion of the distress occasioned by the inclusion of prepetition charges on the invoices from those resulting simply from being invoiced.”). Judge Jones has well-described the considerations of a court weighing the award of emotional distress damages for an automatic stay violation:
To be entitled to emotional distress damages under § 362(k)(1), an individual must: “(1) suffer significant harm, (2) clearly establish the significant harm, and (3) demonstrate a causal connection between that significant harm and the violation of the automatic stay (as distinct, for instance, from the anxiety and pressures inherent in the bankruptcy process).” “Fleeting or trivial anxiety or distress does not suffice to support an award; instead, an individual must suffer significant emotional harm.” An individual must establish that he or she was injured by the violation to be eligible to claim actual damages.
A person may establish that he or she suffered significant emotional harm in several ways. First, the person could offer corroborating medical evidence. Second, non-experts, such as family members, friends, or coworkers may testify to manifestations of mental anguish. Third, if the violator engaged in egregious conduct, the significant emotional distress may be readily apparent without corroborative evidence. To illustrate, a creditor engaged in egregious conduct when he entered the debtor’s home at night, doused the lights, and pretended to hold a gun to the debtor’s head. Fourth, even if the conduct is not egregious, the circumstances may make it obvious that a reasonable person *603would suffer significant emotional harm. To illustrate, a debtor suffered emotional harm when she was forced to cancel her son’s birthday party because her checking account had been frozen.
Page Venture, LLC v. Ventura-Linenko (In re Ventura-Linenko), No. 3:10-cv-138-RCJ-RAM, 2011 WL 1304464, at *9 (D.Nev. Apr. 1, 2011) (slip copy) (internal citations omitted).
With the Fourth Circuit Court of Appeals having not yet considered this issue, it remains to speculate what its judgment would be in this regard. This Court believes a middle course would be chosen: not barring emotional distress damages without the demonstration of a causally-related financial loss, as the Seventh Circuit Court of Appeals has ruled, see Aiello v. Providian Financial Corp., 239 F.3d 876, 880-81 (7th Cir.2001), but laying out very strict requirements of proof for an award of emotional distress damages, much as Judge Jones demanded in In re Ventura-Linenko, mandating that a debtor “(1) suffer significant harm, (2) clearly establish the significant harm, and (3) demonstrate a causal connection between that significant harm and the violation of the automatic stay” in order to recover. In re Ventura-Linenko, 2011 WL 1304464, at *9. This course would recognize the reality that some stay violations by the nature of their circumstances do inflict genuine emotional distress that should be compensable but also remind that the principal purpose of § 362(k) is to deter stay violations and to provide redress for economic injury. Suffice it to say, caution should be high among the guiding principles of a court in awarding compensation for emotional distress in this context.
Application of the foregoing principles in the instant matter presents the Court with a dilemma. On one hand, it is axiomatic that a debtor would experience emotional distress upon finding some of her personal belongings unexpectedly disposed of in a trash dumpster so as to constitute an occasion where “even if the conduct is not egregious, the circumstances may make it obvious that a reasonable person would suffer significant emotional harm.” Id. However, both the extent of emotional distress claimed to have been experienced by the Seatons and its never-ending duration are problematic to this Court. The unrequited anguish Mrs. Seaton claims simply appears to be very disproportionate to the acts of removal and disposal that occurred here. This leads the Court to ponder whether the extent of the Seatons’ distress was not proximately caused by the removal and disposal of some items of their personalty but, rather, represents the cumulative stress caused by Mr. Seaton’s injury, his unemployment, their son’s diagnosis of illness, their bankruptcy filing, and the embarrassment of their ouster from the Apartment, none of which is causally related to any stay violation here. Accordingly, the Court finds that it is appropriate to limit the award of damages for emotional distress to what flows proximately from the acts of removal and disposal and to award emotional distress damages in the amount of $250.00. Thus, the Court finds that the Motion to Strike made by counsel for the Respondents during the hearing for insufficient evidence as to this issue should be denied.
5. Punitive Damages
The Seatons pray for an award of $30,000.00 in punitive damages. This Court has recently reviewed the circumstances under which courts have awarded punitive damages for a stay violation:
In considering whether punitive damages are appropriate under the statutory authorization for an automatic stay violation under 11 U.S.C. § 362[k], courts *604have generally required a violation which occurs by way of egregious or vindictive conduct. See In re Carrigan, 109 B.R. 167, 172 (Bankr.W.D.N.C.1989) (citing In re Midkiff, 85 B.R. 467 (Bankr.S.D.Ohio 1988)). Accordingly, whether expressed as “egregious conduct,” “malevolent intent,” or “clear disregard of the bankruptcy laws,” each of these decisions appear to employ a finding of creditor conduct beyond willfulness or deliberation and more closely resembling a specific intent to violate the discharge injunction in order to assess punitive damages.
Rountree v. Nunnery (In re Rountree), 448 B.R. 389, 419 (Bankr.E.D.Ya.2011) (quoting Cherry v. Arendall (In re Cherry), 247 B.R. 176, 186-87 (Bankr.E.D.Va. 2000)).6 These circumstances are not in evidence here. There is no basis to conclude Collinswood’s removal of the personal property from the Apartment was motivated other than upon Kittrell Eberwine’s mistaken conclusion, based upon information received from George Eberwine to the same effect, that the Seatons had completed their move from the Apartment. Nothing in the record suggests any vindictive, egregious, or malicious conduct on the part of the Respondents toward the Seatons or their property. The removal and disposal of some of the Seatons’ property was not undertaken in any attempt to collect rent but, rather, to place the Apartment in a condition so it could be re-let, all occurring after Kittrell Eberwine believed the Apartment to have been vacated and any property remaining there abandoned by the Seatons. Accordingly, any award of punitive damages would be highly inappropriate. Thus, the Court finds that the Motion to Strike made by counsel for the Respondents during the hearing for insufficient evidence as to this issue should be granted.
6. Attorney’s Fees and Costs
The Seatons allege they should be awarded $10,378.04 in attorney’s fees pursuant to 11 U.S.C. § 362(k). Seaton Exhibit E, Invoice of Attorney’s Fees and Costs. “For Debtors to recover attorneys’ fees, however, such fees must be reasonable and necessary.” In re Miller, 447 B.R. 425, 434 (Bankr.E.D.Pa.2011). Chief Judge Craig has explained the concerns in awarding attorney’s fees in the context of an automatic stay violation:
While attorneys’ fees and costs are recoverable under § 362(k), the fees and costs must be reasonable and necessary. In re Robinson, 228 B.R. 75, 85 (Bankr. E.D.N.Y.1998). “The policy of section 362[k], to discourage willful violations of the automatic stay, is tempered by a reasonableness standard born of courts’ reluctance to foster a ‘cottage industry’ built around satellite fee litigation.” Id. (citing Putnam v. Rymes Heating Oils, Inc. (In re Putnam), 167 B.R. 737, 741 (Bankr.D.N.H.1994)). It is well established that “[r]easonable and necessary fees do not include unnecessary litigation costs.” Id.; see also Yarinsky v. *605Saratoga Springs Plastic Surgery, PC (In re Saratoga Springs Plastic Surgery, PC), No. 1:03CV896, 2005 WL 357207, at *54 (N.D.N.Y. Feb. 11, 2005), aff'd, 172 Fed.Appx. 339 (2d Cir.2006) (“[A]n ‘excessively litigious approach’ to violations of the automatic stay that do not cause damages in an[d] of themselves must be guarded against.”).
In re Prusan, No. 09-49716-CEC, 2010 WL 813778, at *3 (Bankr.E.D.N.Y. Mar. 2, 2010) (unreported decision). The proportionality of the attorney’s fees sought to the damages incurred by a debtor is a significant factor in determining reasonableness. Rosengren v. GMAC Mortg. Corp., No. CIV 00-971, 2001 WL 1149478, at *5 (D.Minn. Aug. 7, 2001) (unreported decision) (“[Biased on the failure of plaintiffs counsel to timely advise opposing counsel of his client’s actual damages and in light of the de minimus nature of those damages, the court will limit the award of attorney fees in this case to $150, which reflects the court’s estimation of the limited legal work required to dispose of this matter short of litigation.”); Mosher v. Evergreen Mgmt., Inc. (In re Mosher), 432 B.R. 472, 477 (Bankr.D.N.H.2010) (“Considering that there are no other actual damages in this case and the violation concerned approximately $620, the Court finds that [debtor’s counsell’s projected amount of 23.8 hours spent on this ease is unreasonable.”); In re Price, 179 B.R. 70, 73 (Bankr.S.D.Ohio 1995) (limiting fee award to $75.00 where legal fees and judicial time far exceeded the $13.00 in actual damages); Putnam v. Rymes Heating Oils, Inc. (In re Putnam), 167 B.R. 737, 741 (Bankr.D.N.H.1994) (“[T]he amount of the costs and attorneys’ fees [$6,168.00 in attorneys’ fees and $718.70 in costs] has no relationship to the amount of actual damages suffered by the Plaintiffs ($248.16) or the value of the gas in the tank removed (less than $329.00).”); but see Am.’s Servicing Co. v. Schwartz-Tallard, 438 B.R. 313, 321 (D.Nev.2010) (“Appellee must prove how much she expended or was charged in attorney’s fees as a measure of her actual damages, but the statute does not require that she prove her damages were ‘reasonable.’ ”).
“In appropriate circumstances, a court may determine that a motion made pursuant to § 362(k) was wasteful and limit the attorney’s compensation award to the amount that he would have earned had he handled the matter efficiently.” In re Robinson, 228 B.R. 75, 86 (Bankr.E.D.N.Y. 1998). Those circumstances include where “ ‘the injury caused and damages incurred, other than attorneys’ fees, only amount to the cost of appearing in court to litigate the contempt motion; the burden of requiring the debtor’s attorney to notify the creditor of the violations is insignificant; and no bad faith on the part of the defendant exists.’ ” Id. (citing Price v. Pediatric Academic Assoc., Inc.), 175 B.R. 219, 222 (S.D.Ohio 1994).
The Court finds that the attorney’s fees sought by the Seatons are grossly disproportionate to the actual damages sustained by reason of the stay violation here. The attorney’s fees and costs prayed for by the Seatons total $10,378.04, whereas the actual damages for the loss of property claimed by the Seatons are, at most, $2,013.00. See Appendix A. In other words, the property damages sought equal 19.74% of the total attorney’s fees requested ($10,200.00), and, of course, no amount has actually been awarded here for the loss of personalty because of the issues of proof expounded on previously. This matter well-illustrates the concerns voiced by other courts of fostering a “ ‘cottage industry’ built around satellite fee litigation.” It is significant as well that the Seatons’ counsel managed to incur over $10,000.00 in attorney’s fees without conducting any discovery and incurred $8,700.00 in attorney’s fees before the hearing on the Sane-*606tions Motion was held. Furthermore, the billing rate applied by the Seatons’ counsel $800.00 per hour for time expended outside of court and $400.00 per hour for time expended in court is very high for this geographic region and significantly in excess of the hourly billing rates typically approved by this Court in consumer bankruptcy matters. Additionally, counsel for the Seatons advised the Court he employs no attorneys at a lower billing rate nor any paralegals in his firm; therefore, he asserts he should be compensated for all time expended by him on this matter regardless of whether the task could have been delegated to a lower hourly rate billing attorney or paraprofessional, as would have been the case in most law offices. Simply put, for these many reasons, the monies sought by the Seatons in attorney’s fees and costs are highly unreasonable. Inasmuch as the ratio of the attorney’s fees sought to the emotional distress damages awarded ($250.00) is 2.45%, the Court finds that it is appropriate to award attorney’s fees in the amount of 2.45% of the fees prayed for, or $249.90. The Court further finds that it is appropriate to award the Seatons all of the costs incurred in this matter in the amount of $178.04. As such, the Court finds that the Motion to Strike made by counsel for the Respondents during the hearing for insufficient evidence as to the reasonableness of the attorney’s fees should be denied.
IV. Summary
For the reasons set forth herein, the Court finds the Motion for Contempt and the Motion for Sanctions should be granted in part and denied in part. The Court finds that Collinswood Lake Apartments, LLC, George Eberwine, and Kittrell Eber-wine jointly and severally caused a willful violation of 11 U.S.C. § 362(k) against the Seatons. The Court finds that the Seatons request for damages for the Missing Items or the Retrieved Items should be denied en toto. The Court further finds that the Seatons should be awarded $250.00 for emotional distress damages, attorney’s fees in the amount of $249.90, and costs in the amount of $178.04.
A separate Order will be entered granting in part and denying in part the Motion for Contempt and the Motion for Sanctions.
The Clerk is ordered to forward a copy of this Memorandum Opinion to Taylor D. Boone, counsel for the Seatons; to David A. Greer, counsel for Collinswood Lake Apartments, LLC, George Eberwine, and Kittrell Eberwine; and to Deberá F. Con-Ion, Assistant United States Trustee.
APPENDIX A
Alleged Property Damage
Plaintiffs’ Plaintiffs’
Items in Dumpster Exhibit G Exhibit I
Pictures
Food from Pantry $ 150.00
Farm Fresh grocery store (online)
4 Queen-Sized Sheets $ 80.00
Home Stripe Sheet Set-Tan (Queen): $43.99 x 2
Shoe Holder $ 40.00
15 Organizer
14 Pairs of Shoes $ 250.00
*607Plaintiffs’ Plaintiffs’
Men’s William Comfort Dress Shoes (walmart.com)
Women’s Lara Comfort Start Shoes (walmart.com)
Women’s Tutu Flip Flops (GUESS.com)
Women’s Sandals (babyphat.com)
Women’s White Rhinestone Hood Sandals (ShopJustice.com)
Women’s Unionbay Sparkle Flip Flops (BeallsFlorida.com)
Lucy Girls Shoe (JCPenney.com)
Women’s Faux-Leather Thong Sandals (oldnavy.gap.com)
(oldnavy.gap.com)
Subtotal
Mrs. Seaton’s Baby Clothes
Feltman Brothers Boy’s Day Gown w/ Train (thevelveteenrab-bit.com) $ 39.99
Sweater Set (ABCrochetedCreations via etsy.com) $ 35.00
Circo Comforter-Patchwork w/ Ruffles (amazon.com) $ 59.99
Subtotal $134.98
Mrs. Seaton’s Father’s Baby Cowboy Boots $-
Vintage Toddlers Cowboy Boots (rubylane.com) $ 70.00
Afghan Blanket and Crocheted Table Topper
White w/ Dark Red Stripes Throw (from cozycrafters via etsy.com) $ 60.00
GrandMa Delight CenterPiece (from BittnersCreations via etsy.com) $ 55.00
Subtotal $115.00
408.00 Miscellaneous Documents -Zfír
Ceramic Santa Claus Cookie Jar 20.00
Santa Claus Cookie Jar (blujay.com) 24.95
Hurricane Globe 20.00
Total re: Items in Dumpster $1,218.00 $976.98
Alleged Property Damage
Exhibit G Exhibit J Missing Items
$ 250.00 Antique Picture # 1
84.99 Antique Sleepy Dreamy Baby Print in Ornate Gold Frame (ebay.com) -ae-
Antique Picture # 2 I
Vintage Annie Benson Muller Framed Print by Turner Mfg (from OpheliaVintageHome via etsy.com)
Party Gals Tote and Contents $ 250.00
Latch Box Set of Six-Pink (target.com) 05 05 05 CO
Kit: 15 Ultra Chic Toys; 24 Lotions & Potions; 9 Fun Accessories; 14 Sensual Accessories; Party Gal Catalogs; Order Forms; Recruiting Presentation; Product Bags (party-gals.biz) O O O LO
Subtotal $ 289.99
Hard Hat w/ Light $ 45.00
MSA Comfo-Cap Mining Hard Hat w/ Staz-On Suspension $45.95 (eoopersafety.com)
*6082 Pail’s of Work Boots $ 150.00
Timberland Pro Men’s ... Alloy Safety Toe Boot (sears.com) to ^ *D CO
Desert Tan-Panama Sole Military Speedlace Jungle Boots (Leather) 8" (galaxyarmynavy.com)
Subtotal
Quilt $ 100.00
Queen Quilt Set Shabby Patchwork Vintage (bonanza.com)
Total re: Missing Items $ 795.00 $ 755.54
Total $2,013.00 1,732.52
. On March 23, 2011, the Seatons filed an Amended Schedule B, which amended the description of the tax refund to divide the ownership of the refund between the Seatons and reduced the amounts of the refunds. Further, the description of the refund itself was changed to reference 2011, although such reference appears incorrect as the Sea-tons would not yet have incurred taxes or been eligible for a refund for the 2011 tax year. The Seatons filed a second amendment to Schedule B on May 25, 2011, which added a $750.00 "rent deposit with landlord” as an asset.
. The General District Courts of the Commonwealth of Virginia do not routinely record or transcribe their proceedings, and neither Mr. Seaton nor George Eberwine caused a recording or transcription of the Continued Hearing to be made. Accordingly, except for the State Court judge who was neither identi-fled nor called as a witness at the instant hearing, there is no source other than the parties as to what was said at the Continued Hearing. See Va.Code Ann. § 16.1-69.5 (2011) (defining "Courts not of record” to include General District Courts).
. While not directly germane to the Court’s consideration of whether a violation of the automatic stay occurred here, it appears that Collinswood did not comply with Virginia's statutory provisions governing removal and disposal of a residential tenant’s personal property following the termination of a lease. Section 55-248.38:1 of the Code of Virginia provides:
If any items of personal property are left in the premises, or in any storage area provided by the landlord, after the rental agreement has terminated and delivery of possession has occurred, the landlord may consider such property to be abandoned. The landlord may dispose of the property so abandoned as the landlord sees fit or appropriate, provided he has: (i) given a termination notice to the tenant in accordance with this chapter, which includes a statement that any items of personal property left in the premises would be disposed of within the twenty-four hour period after termination, (ii) given written notice to the tenant in accordance with § 55-248.33, which includes a statement that any items of personal property left in the premises would be disposed of within the twenty-four hour period after expiration of the seven-day notice period, or (iii) given a separate written notice to the tenant,' which includes a statement that any items of personal property left in the premises would be disposed of within twenty-four hours after expiration of a ten-day period from the date such notice was given to the tenant. Any written notice to the tenant shall be given in accordance with § 55-248.6. The tenant shall have the right to remove his personal property from the premises at reasonable times during the twenty-four hour period after termination or at such other reasonable times until the landlord has disposed of the remaining personal properly of the tenant.
During the twenty-four hour period and until the landlord disposes of the remaining personal property of the tenant, the landlord shall not have any liability for the risk of loss for such personal property. If the landlord fails to allow reasonable access to the tenant to remove his personal property as provided in this section, the tenant shall have a right to injunctive or other relief as provided by law. If the landlord received any funds from any sale of abandoned property as provided in this section, the landlord shall pay such funds to the account of the tenant and execution of such writ has been completed pursuant to § 8.01-470.
Va.Code Ann. § 55-248.38:1 (2011).
. The Court is neither unmindful of nor unsympathetic to the dilemma of a debtor attempting to prove the fair market value of used household items where no recognized system of valuation exists such as the existing guides to value motor vehicles, the NADA Used Car Guide and Kelley Blue Book. Despite this difficulty, in the instant matter the Seatons failed to adduce sufficient evidence that may have assisted the Court in determining the fair market value of these items of personal property, such as the date of acquisition, the condition, or the original cost of the items. Particularly absent from the record here is the methodology the Seatons would have utilized to value the items on their bankruptcy schedules, which was unavailable because the Seatons failed to schedule any of the items, as an aggregate or otherwise. Since the scheduling of assets requires a determination of fair market value by the debtors at the time of the filing of a bankruptcy petition, often the scheduled value of assets is an important starting point in determining fair market value. However, the Seatons’ failure to schedule any personal property except for furniture and a computer deprives the Court of this reference point.
. Mr. Seaton testified he retrieved from the dumpster at the Apartment 13 or 14 pairs of women’s shoes, a shoe rack, a ceramic Santa Claus cookie jar, blankets, a decorative glass globe, sheets, Mrs. Seaton’s baby clothes, pictures of the Seatons’ son, and baby cowboy boots that once belonged to Mrs. Seaton’s father. Id. at 25, 27, 33-35.
. Judge Copenhaver has noted the different articulations used to define the entitlement to an award of punitive damages for a stay violation in light of the lack of a uniform standard of such requirements:
One group uses "maliciousness or bad faith” as a guide.... Another group of cases uses "arrogant defiance of federal law” as the touchstone....
Other courts have used egregious, vindictive or intentional misconduct as the standard ... Still other courts have used a multi-factor approach and considered the following four factors: (1) the nature of the defendant’s conduct; (2) the defendant's ability to pay; (3) the motive of the defendant; and (4) any provocation by the debt- or.
Green Tree Servicing, LLC v. Taylor (In re Taylor), 369 B.R. 282, 289 (S.D.W.Va.2007) (internal citations omitted). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494473/ | MEMORANDUM OPINION AND ORDER DENYING MOTION TO COMPEL DEBTOR TO ASSUME OR REJECT EXECUTORY CONTRACT [DE # 15]
STACEY G.C. JERNIGAN, Bankruptcy Judge.
Before this court is the Motion to Compel Debtor to Assume or Reject Executory Contract (the “Motion to Compel”) [DE # 15] filed by 1G Capital, LLC (“1G Capital”) on May 27, 2011. Specifically, the Motion to Compel seeks an order from this court compelling the Chapter 13 Debtor, Josefina Rodriguez Garza (the “Debtor”), to assume or reject a contract for deed dated December 15, 2004, pursuant to which the Debtor agreed to purchase certain residential real property located at 3342 Ivandell Avenue, Dallas, Texas from 1G Capital. The court has core jurisdiction in this matter pursuant to 28 U.S.C. §§ 1334 and 157(b)(2)(A),(B) and (O). For the reasons stated below, the court is denying the Motion to Compel. This memorandum opinion constitutes the court’s findings of fact and conclusions of law pursuant to Federal Rules of Bankruptcy Procedure 7052 and 9014. Where appropriate, a finding of fact should be construed as a conclusion of law and vice versa.
I.FINDINGS OF FACT
1. The Debtor maintains a homestead at 3342 Ivandell Avenue, Dallas, Texas 75211 (the “Homestead Property”). The Debtor acquired her interest in the Homestead Property after executing a contract for deed (the “Contract”) with 4G Holdings, Ltd. (“4G Holdings”) on December 15, 2004.1 4G Holdings subsequently executed an assignment of its interest in the Contract to 1G Capital.
2. Under the terms of the Contract, the Debtor was required to make monthly installment payments starting on January 15, 2005 in the amount of $733.49 and on the fifteenth day of each subsequent month until December 15, 2035. In consideration for this monthly payment, the Debtor would have full use and enjoyment of the Homestead Property and, upon completion of all payments due under the Contract, 1G Capital would convey legal title of the Homestead Property to the Debtor.
3. After making monthly payments under the Contract for several years, the Debtor eventually defaulted under the Contract by failing to make the monthly payment due on December 15, 2009. Thereafter, the Debtor failed to make the monthly payment due under the Contract for January through December of 2010 and January through May of 2011.
*6404. On May 2, 2011, the Debtor filed a voluntary petition under chapter 13 of the Bankruptcy Code.
5. On May 25, 2011, 1G Capital filed the Motion to Compel. The Motion to Compel sought an order from the bankruptcy court to not only compel the Debtor to either assume or reject the Contract, but also, should the Debtor ultimately seek to assume the Contract, 1G Capital requested that the court compel the Debtor to “promptly cure” the default under the Contract and bring the account current. See 11 U.S.C. § 365(a) & (b)(1)(A). As of the filing of the Motion to Compel, 1G alleged that the Debtor had a delinquent arrearage under the Contract of $7,114.76.
6. On July 28, 2011, the Debtor filed its Brief in Opposition to the Motion to Compel (the “Response”) [DE #26]. In its Response, the Debtor argued that, because of certain amendments that were made in recent years to the Texas Property Code by the Texas Legislature with regard to contracts for deed, the Contract at issue was really more in the nature of a secured financing agreement on the Debtor’s principal residence (ie., a mortgage),2 rather than an executory contract, and the Debt- or should be permitted to cure the default over time under the terms of its chapter 13 plan, similar to what is allowed for a traditional mortgage pursuant to Section 1322(b)(5) of the Bankruptcy Code.
7. On August 8, 2011, 1G Capital filed its Brief in Support of the Motion to Compel, urging the court to treat the Contract as an executory contract under Section 365 of the Bankruptcy Code, thereby requiring the Debtor to “promptly cure” its default under the Contract. See 11 U.S.C. § 365(b)(1)(A). 1G Capital further argued that “prompt” cure of the default would not be satisfied if the Debtor chose to cure it over the life of her chapter 13 plan.
II. CONCLUSIONS OF LAW
A. Contracts for Deed Under Texas Law and the Bankruptcy Code
The issue before this court is whether the Contract should be treated as an exec-utory contract, with regard to which defaults must be “promptly cured,” pursuant to Section 365(b)(1)(A) of the Bankruptcy Code, or whether the court should treat the Contract more like a traditional residential home mortgage, and permit the Debtor to cure any default over the life of her chapter 13 plan pursuant to Sections 1322(b)(3) and (b)(5) of the Bankruptcy Code.
“Congress has generally left the determination of property rights in the assets of a bankrupt’s estate to state law.” Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Thus, the court should look to Texas law to determine the true nature of the Contract. Under Texas law, a traditional contract for deed exists where the vendee of the property pays the purchase price directly to the vendor in installments over an extended period of time. Once the full purchase price is paid to the vendor, the vendee is then given legal title to the property. This concept is usually explained in terms of the difference between an “equitable right” and an “equitable title.” In re Waldron, 65 B.R. 169, 173 (Bankr.N.D.Tex.1986). If one possesses an equitable right, it means that the vendee will be construed to have no actual interest in the real property until certain conditions are met, and so long as these obligations remain unperformed, the interest that the vendee has in the real *641property is simply his right to perform under the contract. Id. However, if the vendee ultimately completes his performance under the contract, then the vendee receives “equitable title” to the property and has a right to demand from the vendor that the property be conveyed to him as a matter of law. Id.
In Texas, it has historically seemed well settled that contracts for deed are considered executory contracts, not security devices. Id. Courts in Texas have long held that, until the purchase price is paid in full to the vendee under a contract for deed, the vendee only has an “equitable right” to complete the contract for deed, and not equitable title to the property. See Johnson v. Wood, 138 Tex. 106, 157 S.W.2d 146, 148 (1941). The reasoning in Johnson has been adopted and followed in numerous Texas courts. See, e.g., Jensen v. Bryson, 614 S.W.2d 930, 933 (Tex.App.-Amarillo 1981, no writ); Atkins v. Carson, 467 S.W.2d 495, 500 (Tex.App.-San Antonio 1971, writ ref'd n.r.e.); Gaona v. Gonzales, 997 S.W.2d 784, 787 (Tex.App.-Austin 1999, no pet.). But see Leeson v. City of Houston, 243 S.W. 485, 490 (Tex.1922). Moreover, numerous bankruptcy courts have likewise held that contracts for deed executed in Texas are executory contracts for purposes of section 365 of the Bankruptcy Code. See In re Gonzalez, No. 04-49435-dml-13, at *6-7 (Bankr.N.D.Tex. Jan. 3, 2006); Waldron, 65 B.R. at 173-75; Rancho Chamberino, Inc. v. B.F.W. Enters., Inc. (In re Rancho Chamberino, Inc.), 89 B.R. 597, 600 (W.D.Tex.1987); In re Finley, 138 B.R. 181, 182 (Bankr.E.D.Tex. 1992); In re Von Keisler, 166 B.R. 620, 621 (Bankr.N.D.Tex.1994).
B. The Amendments to the Texas Property Code
Despite this abundance of historical authority, this court finds that, as a result of significant changes that the Texas Legislature made to chapter 5 of the Texas Property Code beginning in 1995, a contract for deed, under certain, specific circumstances, should now more properly be characterized as a secured financing arrangement rather than as an executory contract. See Tex. Prop.Code Ann. §§ 5.061, 5.063, 5.066-.072, 5.074-.076, 5.078-.080 (West 2001), §§ 5.064, 5.065 (West 2003), §§ 5.062, 5.0621, 5.073, 5.077, 5.081-5.085 (West 2005).3
As a bit of background, in 1995, the Texas Legislature amended chapter 5 of the Texas Property Code to address serious abuses in the Texas-Mexico border region known as “the colonias,” a rural and poor area of Texas, where many residents were financing the purchase of their homestead properties through contracts for deed. See De La Cruz v. Brown, 109 S.W.3d 73, 76 (Tex.App.-El Paso 2003), rev’d on other grounds, 156 S.W.3d 560 (Tex.2004). The Texas Legislature perceived that amendments to the law were needed in order to provide specific legal protection to these purchasers. Although the 1995 amendments to the Texas Property Code dealing with contracts for deed only applied to properties located in the colonias,4 the Texas Legislature continued to see abuses with respect to contracts for *642deed in other parts of Texas, and in 2001, further amended chapter 5 of the Texas Property Code to extend these protections to the remainder of the state’s contracts for deed. Flores v. Millennium Interests, Ltd., 185 S.W.3d 427, 429 (Tex.2005).5
Looking more specifically at the amendments (as set forth in the Tex. Prop.Code. §§ 5.061-5.085), the court makes note of the myriad of protections that were put into place for purchases under a contract for deed including: (a) a notice provision and protection of equity interest in the event of default (Sections 5.063 & 5.066); (b) a right to cure provision (Section 5.065); and (c) a right to convert the contract into a traditional financing transaction (Section 5.081).6 Section 5.066 is perhaps the most significant provision for purposes of determining whether the Contract should be construed as an executory contract or as a secured financing arrangement. Specifically, Section 5.066 provides:
Sec. 5.066. Equity Protection; Sale of Property
(a) If a purchaser defaults after the purchaser has paid 40 percent or more of the amount due or the equivalent of 48 monthly payments under the executory contract, the seller is granted the power to sell, through a trustee designated by the seller, the purchaser’s interest in the property as provided by this section. The seller may not enforce the remedy of rescission or of forfeiture and acceleration.
(b) The seller shall notify a purchaser of a default under the contract and allow the purchaser at least 60 days after the date notice is given to cure the default. The notice must be provided as prescribed by Section 5.063 except that the notice must substitute the following statement:
YOU ARE NOT COMPLYING WITH THE TERMS OF THE CONTRACT TO BUY YOUR PROPERTY. UNLESS YOU TAKE THE ACTION SPECIFIED IN THIS NOTICE BY (date) A TRUSTEE DESIGNATED BY *643THE SELLER HAS THE RIGHT TO SELL YOUR PROPERTY AT A PUBLIC AUCTION.
NOTICE
(c) The trustee or a substitute trustee designated by the seller must post, file, and serve a notice of sale and the county clerk shall record and maintain the notice of sale as prescribed by Section 51.002. A notice of sale is not valid unless it is given after the period to cure has expired.
(d) The trustee or a substitute trustee designated by the seller must conduct the sale as prescribed by Section 51.002. The seller must:
(1) convey to a purchaser at a sale conducted under this section fee simple title to the real property; and
(2) warrant that the property is free from any encumbrance.
(e) The remaining balance of the amount due under the executory contract is the debt for purposes of a sale under this section. If the proceeds of the sale exceed the debt amount, the seller shall disburse the excess funds to the purchaser under the executory contract. If the proceeds of the sale are insufficient to extinguish the debt amount, the seller’s right to recover the resulting deficiency is subject to Sections 51.003, 51.004, and 51.005 unless a provision of the executory contract releases the purchaser under the contract from liability.
(f) The affidavit of a person knowledgeable of the facts that states that the notice was given and the sale was conducted as provided by this section is prima facie evidence of those facts. A purchaser for value who relies on an affidavit under this subsection acquires title to the property free and clear of the executory contract.
(g)If a purchaser defaults before the purchaser has paid 40 percent of the amount due or the equivalent of 48 monthly payments under the executory contract, the seller may enforce the remedy of rescission or of forfeiture and acceleration of the indebtedness if the seller complies with the notice requirements of Sections 5.063 and 5.064.7
Parsing through the statute, the court notes three important things about Section 5.066: (1) that once a purchaser under a contract for deed has paid 40 percent or more of the amount due or the equivalent of 48 monthly payments under the contract,8 the seller can no longer enforce the remedy of rescission or forfeiture and acceleration; (2) that if there is a default under the contract, the seller is required to conduct, in essence, a nonjudicial foreclosure sale, similar to what is conducted for a traditional mortgage creditor; and (3) that the seller is required to disburse to the purchaser any funds received at the foreclosure sale in excess of the remaining debt owed under the contract for deed, thereby preserving the funds that the purchaser has paid to the seller over the life of the contract. Effectively, the court believes that Section 5.066 gives a purchaser much more than just an equitable right to perform the contract but, rather, gives the purchaser equitable title once the purchaser reaches a certain milestone (ie., paying 40% of the purchase price or making 48 monthly payments), thereby converting the contract for deed from an executory contract to something more in the nature of a secured financing arrangement.9
*644How is this transformation significant to the Motion to Compel? Whether or not the Contract is treated as an executory-contract or as a secured financing arrangement determines how the Debtor may ultimately cure the default associated with the Contract. Thus, having found that the Contract should not be classified as an executory contract under Section 365 of the Bankruptcy Code, but rather as a secured financing arrangement, the court must now determine how the Debtor may cure its default under the Contract.
C. Curing the Default Under a Contract for Deed Where the Debtor Has Obtained Equitable Title in the Property
Frequently, a debtor chooses to file a chapter 13 bankruptcy case because chapter 13 provides for a mechanism in which a debtor may cure a default on a note secured by her principal residence over the life of her chapter 13 plan instead of immediately. The ability to cure a default is given to a chapter 13 debtor under both Sections 1322(b)(3) and 1322(b)(5) of the Bankruptcy Code, which provide that the debtor has the ability to cure a default within a reasonable time and to maintain payments during the case with respect to a claim on which the last payment is due after the due date of the final plan payment. Moreover, Section 1322(c)(1) of the Bankruptcy Code places a time constraint on the Debtor’s ability to cure a default and only allows a debtor to cure a default up until the principal residence is sold at a foreclosure sale conducted under non-bankruptcy law. It is undisputed that the Homestead Property was not sold at a foreclosure sale prior to the Debtor filing for bankruptcy, and therefore, the Debtor should be permitted to cure the default under the Contract via its chapter 13 plan.
III. CONCLUSION
The court believes that the recent amendments to the Texas Property Code pertaining to contracts for deed are highly significant and greatly impact how a contract for deed should be treated under the Bankruptcy Code, specifically when a debtor has met a certain payment milestone during the life of the contract for deed. Because the amendments essentially operate to morph the contract for deed from an executory contract into an agreement in which the debtor has an equitable and quantifiable interest (more similar to a mortgage), the court finds that such interest and any other issues related thereto may be addressed in the Debtor’s chapter 13 plan under Sections 1322(b)(3), (b)(5), and (c)(1) of the Bankruptcy Code, rather than pursuant to Section 365(b) of the Bankruptcy Code.
The court would note that there is not currently a plan pending in this case, and in fact, there is still a pending motion to dismiss set for October 13, 2011 due to the Debtor’s failure to confirm a chapter 13 plan. Although the court is denying the Motion to Compel, thereby permitting the Debtor to cure the default under the Contract in a chapter 13 plan, the court is in *645no way commenting on the feasibility of such future plan and will take up any further confirmation issues at the October 13, 2011 hearing. Accordingly,
IT IS ORDERED that the Motion to Compel is DENIED.
. The Debtor’s non-filing spouse, Jose Ed-mundo Garza, was also a signatory on the Contract.
. The court uses the colloquial term “mortgage” at places in this opinion to refer to a secured borrowing arrangement on a borrower's principal residence. Deeds of Trust (with promissory notes) are typically the instruments used in the State of Texas (rather than "mortgages”) to grant lenders security interests in borrowers’ homes.
. See Footnote 6 infra, which explains in further detail the specific sections of the Texas Property Code which would be applicable to the Contract, as there were additional amendments made to the Texas Property Code in 2001, 2003 and 2005.
. Specifically, the 1995 amendments were only applicable in counties that the Texas Department of Housing and Community Affairs had determined were within 200 miles of an international border and had a below-average per capital income and an above average unemployment rate. See Flores v. Millennium Interests, Ltd.., 185 S.W.3d 427, 429 (Tex.2005).
. Section 5.062(a) of the Texas Property Code, as effective on September 1, 2001, provides that: "This subchapter applies only to a transaction involving an executory contract for conveyance of real property used or to be used as the purchaser’s residence or as the residence of a person related to the purchaser within the second degree by consanguinity or affinity, as determined under Chapter 573, Government Code. For purposes of this sub-chapter, a lot measuring one acre or less is presumed to be residential property." See Act of June 17, 1995, 74th Leg., R.S. Ch. 994, § 3, 1995 Tex. Gen. Laws 4983-84, amended by Act of June 13, 2001, 77th Leg., R.S. Ch. 693, § 1, 2001 Tex. Gen. Laws 1319 (current version at Tex. Prop.Code. Ann. § 5.062(a) (West 2005)). Section 5.062(a) was subsequently amended on September 1, 2005. Specifically, subsection (a) was rewritten to provide for some additional exceptions to the applicability of the new contract for deed protections. However, since the Contract was entered into in 2004, the 2001 amended version of Section 5.062(a), as cited above, would apply to the Contract.
. Sections 5.061, 5.063, 5.066-.072, 5.074-.076, and 5.078-.080 were made effective September 1, 2001. Sections 5.064 and 5.065 were made effective September 1, 2003 and would apply to the Contract, as the Contract was entered into in 2004. Sections 5.081-5.084 were made effective September 1, 2005 and apply to any action taken after such date regardless of the date on which the purchaser and seller entered into the executory contract, thus, they would apply to any actions made on the Contract after September 1, 2005.
Sections 5.062, 5.073 and 5.077 were amended on September 1, 2005, but the previous versions effective on September 1, 2001 would still be applicable to the Contract. Section 5.085 was effective on September 1, 2005 and only applied to an executory contract for conveyance entered into on or after September 1, 2005, therefore, it would not apply to the Contract. Finally, Section 5.0621 was made effective September 1, 2005 and was only effective as to a contract entered into on or after January 1, 2006, so it would likewise not be applicable to the Contract.
. See Tex. Prop.Code Ann. § 5.066 (West 2001).
. Here, it is undisputed that the Debtor has made at least the equivalent of 48 monthly payments under the Contract.
. Moreover, Section 5.081 of the Texas Prop*644erty Code allows a purchaser to actually convert their interest in their principal residence under a contract for deed into a recorded, legal deed of title. See Tex. Prop.Code Ann. § 5.081 (West 2005). Thus, it appears that if a purchaser under a contract for deed follows certain guidelines (i.e., delivering the seller a promissory note that is equal in amount to the balance of the total amount owed by the purchaser to the seller under the contract for deed, and that contains the same interest rate, due dates, and late fees as the contract for deed), a purchaser has the opportunity to actually convert a contract for deed into a traditional financing arrangement. Since the Texas Property Code clearly permits a purchaser to ultimately treat a contract for deed as a traditional financing arrangement, the court likewise believes that the Debtor should also be afforded such an opportunity in bankruptcy. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488174/ | NUMBERS 13-22-00440-CR
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
JOSHUA POWELL, Appellant,
v.
THE STATE OF TEXAS, Appellee.
On appeal from the 347th District Court
of Nueces County, Texas.
ORDER OF ABATEMENT
Before Chief Justice Contreras and Justices Benavides and Tijerina
Order Per Curiam
This appeal is before the Court on its own motion. Court reporter Sharon R.
Rodriguez has filed a reporter’s record in which she notes that two exhibits are “unable
to be filed electronically.” These exhibits are State’s Exhibit 6, “CD-Radio Traffic,” and
State’s Exhibit 7, “Thumb Drive-Video Recordings (File is 128 GB).”
This sequence of events requires us to effectuate our responsibility to avoid further
delay and to preserve the parties’ rights. See TEX. R. APP. P. 35.3(b), (c). Accordingly, we
abate this appeal and remand the cause to the trial court. The trial court shall cause a
hearing to be held to determine if any part of the reporter’s record is missing, lost,
destroyed, or otherwise inaccessible. See id. R. 34.6(f). The trial court shall determine
what steps are necessary to ensure the prompt preparation and filing of these exhibits
and shall enter any orders required to avoid further delay and to preserve the parties’
rights. The trial court shall take notice of the Uniform Format Manual for Texas Reporters’
Records, section 8.3, which specifically states computer files must not be password-
protected, and section 8.10, which allows recordings to be broken into multiple files. The
trial court shall cause its findings, together with any orders it may enter, to be included in
a supplemental clerk’s record. Further, the trial court shall cause a supplemental
reporter’s record of any proceedings to be prepared. The supplemental clerk’s record and
supplemental reporter’s record shall be filed with the Clerk of this Court on or before the
expiration of thirty days from the date of this order.
PER CURIAM
Do not publish.
TEX. R. APP. P. 47.2(b).
Delivered and filed on the
15th day of November, 2022.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488180/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-35,884-03
EX PARTE JAMES EARLY JACOBS, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 241-1591-12-A IN THE 241ST DISTRICT COURT
FROM SMITH COUNTY
Per curiam.
ORDER
Applicant pleaded guilty to possession of a controlled substance and was sentenced to
twenty-five years’ imprisonment as a habitual felon. Applicant filed this application for a writ of
habeas corpus in the county of conviction, and the district clerk forwarded it to this Court. See TEX .
CODE CRIM . PROC. art. 11.07; TEX . R. APP . P. 73.4(b)(5).
The trial court entered an order designating issues. However, the application forwarded to
this Court has no findings of fact and conclusions of law resolving the disputed issues. We remand
this application to the trial court to complete its evidentiary investigation and make findings of fact
and conclusions of law. The trial court shall also make findings regarding whether laches is
applicable. Carrio v. State, 992 S.W.2d 486 (Tex. Crim. App. 1999); Ex parte Perez, 398 S.W.3d
2
206 (Tex. Crim. App. 2013).
The trial court shall make findings of fact and conclusions of law within ninety days from
the date of this order. The district clerk shall then immediately forward to this Court the trial court’s
findings and conclusions and the record developed on remand, including, among other things,
affidavits, motions, objections, proposed findings and conclusions, orders, and transcripts from
hearings and depositions. See TEX . R. APP . P. 73.4(b)(4). Any extensions of time must be requested
by the trial court and obtained from this Court.
Filed: November 16, 2022
Do not publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488184/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. PD-0341-22
PATRICK BRANDON, JR., Appellant
v.
THE STATE OF TEXAS
ON STATE’S PETITION FOR DISCRETIONARY REVIEW
FROM THE SIXTH COURT OF APPEALS
GREGG COUNTY
Per curiam.
OPINION
A jury convicted appellant in two companion cases tried together and arising out of
a single criminal episode. In the first cause, which is the subject of this appeal, the jury
convicted appellant of three counts (the “drug cases”): possession of a controlled
substance with intent to deliver, possession of a controlled substance, and unlawful
possession of a firearm by a felon. Appellant was sentenced to twenty years, five years,
and ten years, respectively, and also assessed fines of $10,000, $5,000, and $10,000
respectively. In the second cause, which was appealed separately, the jury convicted
PATRICK BRANDON, JR. – 2
appellant of aggravated robbery (the “robbery case”), and he was sentenced to 60 years
and ordered to pay a $10,000 fine. The trial court did not state that the fines imposed were
to run concurrently.
On appeal, appellant claimed that the trial court erred when it stacked the fines.
The court of appeals agreed that the fines should not be stacked, but should run
concurrently. See T EX. P ENAL C ODE § 3.03(a)(providing that sentences for offenses
arising out of same criminal episode and prosecuted in single criminal action shall run
concurrently). Further, the court deleted the fines from the judgments in the drug cases,
and noted that the fine in the robbery case would remain in the judgment. Brandon v.
State, No. 06-21-00086-CR slip op. at 4 (Tex. App.–Texarkana June 22, 2022)(not
designated for publication).
The State has filed a petition for discretionary review of this decision, contending
that the fines running concurrently in these cases under Penal Code section 3.03(a),
should be “treated as a unitary fine” so that they discharge together. We recently
addressed this issue in Anastassov v. State, No. PD-0848-20 slip op. (Tex. Crim. App.
Oct. 5, 2022). There, we observed that “where multiple fines are assessed in a same-
criminal-episode prosecution and they are ordered to be discharged concurrently, they
discharge in the same manner as concurrent terms of confinement–the defendant pays the
greatest amount of fine but receives credit for satisfying all of the multiple concurrent
fines.” Id. at 10. In light of these principles, the Court held that the court of appeals erred
PATRICK BRANDON, JR. – 3
by deleting one of the lawfully-assessed fines from the judgment. Id. at 10-12.
The Court of Appeals in the instant case did not have the benefit of our opinion in
Anastassov. Accordingly, we grant the State’s petition for discretionary review, vacate the
judgment of the Court of Appeals, and remand this case to the Court of Appeals in light
of our opinion in Anastassov.
Delivered: November 16, 2022
Do Not Publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488171/ | NUMBER 13-22-00415-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN THE INTEREST OF A.Y.A., R.D.A., AND J.A.A., CHILDREN
On appeal from the County Court at Law No. 5
of Nueces County, Texas.
ORDER TO FILE REPORTER’S RECORD
Before Justices Longoria, Hinojosa, and Silva
Order Per Curiam
On September 8, 2022, appellant filed a notice of appeal from the trial court’s
judgment terminating the parent-child relationship. On September 12, 2022, the Clerk of
the Court sent a notice to the parties, court reporter, and district clerk’s office that the
notice had been filed and that the case is governed by the rules of accelerated appeals.
See TEX. R. APP. P. 28.4. Accordingly, the reporter’s record was due by September 19,
2022, ten days after the notice of appeal was filed. See id. R. 26.1(b), 35.1(b). On
November 9, 2022, the court reporter requested a second extension of time to file the
reporter’s record to November 24, 2022. See id. R. 28.4(b)(2), 35.3(c).
Accordingly, we GRANT the court reporter’s second request for extension of time
to file the reporter’s record. This Court is tasked with “ensuring the appellate record is
timely filed” and “may enter any order necessary to ensure the timely filing of the appellate
record.” See id. R. 35.3(c). As such, court reporter, Victoria Ortiz, is ORDERED to file the
reporter’s record with this Court no later than Monday, November 28, 2022. See id.
Further delay is highly disfavored, and this Court may enter further orders to ensure the
record is timely filed.
PER CURIAM
Delivered and filed on the
16th day of November, 2022.
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488119/ | Case: 22-50318 Document: 00516551459 Page: 1 Date Filed: 11/18/2022
United States Court of Appeals
for the Fifth Circuit United States Court of Appeals
Fifth Circuit
FILED
No. 22-50318 November 18, 2022
Lyle W. Cayce
Clerk
United States of America,
Plaintiff—Appellee,
versus
Jimmy Zavala,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 5:22-CV-370
Before Stewart, Dennis, and Willett, Circuit Judges.
Per Curiam:*
Jimmy Zavala, federal inmate # 49053-180, moves for a certificate of
appealability (COA) to appeal the dismissal, as an unauthorized successive
28 U.S.C. § 2255 motion, of his February 2022 postjudgment motion, which
he labeled a Rule 59(e) motion, in which he again attacked his 2005
convictions for various drug, firearms, money laundering, and conspiracy
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 22-50318 Document: 00516551459 Page: 2 Date Filed: 11/18/2022
No. 22-50318
offenses. Zavala also seeks to appeal the district court’s election not to
conduct an evidentiary hearing as well as its denial of his motion to compel
discovery, and he moves this court for an expedited ruling on his COA
motion. Although his notice of appeal states his intent to additionally appeal
the denial of his motion for default judgment, Zavala has abandoned that
claim by failing to brief it. See Hughes v. Johnson, 191 F.3d 607, 612-13 (5th
Cir. 1999).
A COA will issue in relation to the denial of Zavala’s postjudgment
motion only if Zavala has “made a substantial showing of the denial of a
constitutional right.” 28 U.S.C. § 2253(c)(2); Slack v. McDaniel, 529 U.S.
473, 484 (2000). To make that showing, Zavala must demonstrate that
reasonable jurists could disagree with the district court’s resolution of his
constitutional claims or that the issues presented were adequate to deserve
encouragement to proceed further. See Miller-El v. Cockrell, 537 U.S. 322,
327 (2003).
Zavala fails to make the requisite showing to obtain a COA as to the
denial of the subject postjudgment motion. To the contrary, Zavala fails to
address the district court’s determination that the motion was an
unauthorized successive motion. Accordingly, the motion for a COA is
DENIED. As a result, we do not reach whether the district court erred by
denying his requests for discovery or an evidentiary hearing. See United
States v. Davis, 971 F.3d 524, 534-35 (5th Cir. 2020). Zavala’s motion for an
expedited COA ruling is also DENIED.
Since 2008, Zavala has unsuccessfully challenged the validity of his
2005 convictions through repeated, and often repetitive and successive
§ 2255 motions and attendant postjudgment and discovery motions. The
instant postjudgment motion represents at least his sixth attempt to challenge
his convictions in the past 14 years, and he has repeatedly disregarded the
2
Case: 22-50318 Document: 00516551459 Page: 3 Date Filed: 11/18/2022
No. 22-50318
district court’s admonishments that he must obtain this court’s authorization
before bringing successive challenges to his convictions. In addition, this
court has previously denied requests by Zavala for a COA to challenge the
original denial of § 2255 relief and dismissal of a prior motion as successive.
Zavala is accordingly WARNED that filing frivolous, repetitive, or
otherwise abusive pleadings in this court or any court subject to this court’s
jurisdiction could result in the imposition of sanctions, including dismissal,
monetary sanctions, and restrictions on his ability to file pleadings in this
court or any court subject to this court’s jurisdiction.
3 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488153/ | NUMBER 13-22-00509-CV
COURT OF APPEALS
THIRTEENTH DISTRICT OF TEXAS
CORPUS CHRISTI – EDINBURG
IN RE KATRINA KOHLEFFEL
On Petition for Writ of Mandamus.
MEMORANDUM OPINION
Before Justices Longoria, Hinojosa, and Silva
Memorandum Opinion by Justice Hinojosa1
By petition for writ of mandamus, relator Katrina Kohleffel contends that the trial
court 2 abused its discretion by transferring a contested probate proceeding to the district
court after relator filed a motion requesting the appointment of a statutory probate court
1 See TEX. R. APP. P. 52.8(d) (“When denying relief, the court may hand down an opinion but is not
required to do so. When granting relief, the court must hand down an opinion as in any other case.”); id. R.
47.1 (“The court of appeals must hand down a written opinion that is as brief as practicable but that
addresses every issue raised and necessary to final disposition of the appeal.”); id. R. 47.4 (explaining the
differences between opinions and memorandum opinions).
This original proceeding arises from trial court cause number PR15544 in the County Court of
2
Wharton County, Texas, and the respondent is the Honorable Phillip Spenrath. See id. R. 52.2.
judge. See TEX. EST. CODE ANN. § 32.003(b). We conditionally grant the petition for writ
of mandamus.
I. BACKGROUND
On September 2, 2022, real parties in interest Cody Kohleffel and Cordale
Kohleffel filed an application to probate will and for letters testamentary in the County
Court of Wharton County, Texas. According to the application, the decedent, Allen J.
Kohleffel, had passed away on August 22, 2022, and his will, dated September 30, 2020,
named the real parties as independent co-executors of the will.
On October 12, 2022, relator filed an “Application to Set Aside Homestead and
Exempt Property.” See id. § 353.051 (requiring the court to set aside the homestead and
exempt property for the use and benefit of the decedent’s surviving spouse and minor
children). According to the application, relator and the decedent were married in 1991
and had filed respective divorce petitions but were still married at the time of the
decedent’s death. The application stated that the will appointed the couple’s two sons as
executors and beneficiaries of the decedent’s will. The application further provided that
Wharton County does not have a statutory probate court or a county court at law to
exercise original probate jurisdiction, thus relator stated that her application was filed
contemporaneously with a motion to request the appointment of a statutory probate judge.
The application specified: “Upon the order granting her Request to Appoint, [relator]
intends that this Application be heard as a contested matter before the statutory probate
judge to set aside certain exempt property, including [relator] and Decedent’s homestead,
2
even before the Inventory, Appraisement, and List of Claims of the Estate are approved.”
Relator also attempted to file a “Motion to Request Appointment of Statutory
Probate Judge” pursuant to estates code § 32.003, as previously mentioned, along with
a proposed “Order for Appointment of Statutory Probate Judge.” On October 14, 2022, at
9:47 a.m., the Wharton County Clerk’s Office returned this motion for insufficient fees
because the filing fee of $2.00 for the order was missing. The return notice indicates that
relator submitted the motion on October 12, 2022, at 1:36 p.m. The return further states,
“Another order came in from attorney of the estate to transfer to [district] court, the [county]
judge has just signed this order.” At the same time, the Wharton County Clerk’s Office
returned the proposed order for insufficient fees. Later that same day on October 14,
2022, at 2:30 p.m., the Wharton County Clerk’s Office returned the motion to request
appointment of statutory probate judge on the stated grounds that the document had been
addressed to the “[w]rong [c]lerk/[l]ocation” and informing relator that, “[t]his case has
been [transferred] to [the] Wharton County District Clerk” and “will need to be filed there.”
The return notice from the clerk included the new case number in district court. At the
same time, the clerk returned the proposed order for the same reasons.
In the intervening period between relator’s attempted filing of her motion to appoint
a statutory probate judge and the motion’s return by the clerk, on October 13, 2022, real
parties filed a “Motion to Transfer Contested Matter to District Court” on grounds that
“[t]his is a contested probate proceeding.” On October 14, 2022, the trial court granted
the real parties’ motion and transferred the case to the District Court of Wharton County.
3
That same day, the county clerk issued the transfer certificate regarding the transfer to
district court.
This original proceeding ensued on October 21, 2022. By two issues, relator
asserts: (1) the trial court abused its discretion by transferring a contested probate
proceeding to the district court after relator filed a motion seeking appointment of a
statutory probate court judge; and (2) she lacks an adequate remedy by appeal. This
Court requested and received a response to the petition for writ of mandamus from the
real parties in interest. See TEX. R. APP. P. 52.2, 52.4, 52.8. The real parties assert that:
Relator claims to have moved for the assignment of a statutory probate
judge pursuant to [Texas Estates Code] § 32.003(c). . . . Section 32.003(c)
is a mechanism that permits the filing of a motion for the assignment of a
statutory probate court judge before a probate matter becomes contested
and provides that the motion is to be given effect if the matter later becomes
contested. Relator does not demonstrate the existence of an actual
contested probate matter and expressly disclaimed the existence of an
actual contested probate matter in her Motion.
Further, relator has filed a reply in support of her petition for writ of mandamus.
II. STANDARD OF REVIEW
Mandamus is an extraordinary and discretionary remedy. See In re Allstate Indem.
Co., 622 S.W.3d 870, 883 (Tex. 2021) (orig. proceeding); In re Garza, 544 S.W.3d 836,
840 (Tex. 2018) (orig. proceeding) (per curiam); In re Prudential Ins. Co. of Am., 148
S.W.3d 124, 138 (Tex. 2004) (orig. proceeding). The relator must show that (1) the trial
court abused its discretion, and (2) the relator lacks an adequate remedy on appeal. In re
USAA Gen. Indem. Co., 624 S.W.3d 782, 787 (Tex. 2021) (orig. proceeding); In re
Prudential Ins. Co. of Am., 148 S.W.3d at 135–36; Walker v. Packer, 827 S.W.2d 833,
4
839–40 (Tex. 1992) (orig. proceeding). “The relator bears the burden of proving these two
requirements.” In re H.E.B. Grocery Co., 492 S.W.3d 300, 302 (Tex. 2016) (orig.
proceeding) (per curiam); Walker, 827 S.W.2d at 840.
III. ANALYSIS
Relator contends that a constitutional county court cannot transfer a contested
probate matter to the district court if a party has already filed a motion seeking the
appointment of a statutory probate court judge. In contrast, the real parties allege that
relator is not entitled to the requested transfer because she did not demonstrate the
existence of an actual contested probate matter and argue that “[t]here is no evidence of
a contested matter that would allow present exercise of jurisdiction by a statutory probate
court judge.”
A. Section 32.003
The parties’ contentions concern § 32.003 of the Texas Estates Code, entitled
“Jurisdiction of Contested Probate Proceeding in County with No Statutory Probate Court
or Statutory County Court,” which provides in relevant part:
(a) In a county in which there is no statutory probate court or county
court at law exercising original probate jurisdiction, when a matter in
a probate proceeding is contested, the judge of the county court may,
on the judge’s own motion, or shall, on the motion of any party to the
proceeding, according to the motion:
(1) request the assignment of a statutory probate court judge to
hear the contested matter, as provided by Section 25.0022,
Government Code; or
5
(2) transfer the contested matter to the district court, which may
then hear the contested matter as if originally filed in the
district court.
(b) If a party to a probate proceeding files a motion for the assignment
of a statutory probate court judge to hear a contested matter in the
proceeding before the judge of the county court transfers the
contested matter to a district court under this section, the county
judge shall grant the motion for the assignment of a statutory probate
court judge and may not transfer the matter to the district court unless
the party withdraws the motion.
TEX. EST. CODE ANN. § 32.003(a), (b). It is an abuse of discretion, correctable by
mandamus, to transfer a case to district court rather than granting a motion for the
assignment of a statutory probate court judge. In re Lewis, 185 S.W.3d 615, 618 (Tex.
App.—Waco 2006, orig. proceeding); In re Vorwerk, 6 S.W.3d 781, 783 (Tex. App.—
Austin 1999, orig. proceeding); see also In re Wagner, No. 03-21-00367-CV, 2021 WL
5611497, at *1 (Tex. App.—Austin Dec. 1, 2021, orig. proceeding) (mem. op.) (stating
that the statute imposes on a trial court the mandatory duty to request the assignment of
a statutory probate judge upon the filing of a motion by a party—it does not require that
the movant set the motion for a hearing or otherwise “present” the motion); In re McCown,
No. 10-20-00128-CV, 2020 WL 4875579, at *2 (Tex. App.—Waco Aug. 10, 2020, orig.
proceeding) (mem. op.) (“The language of Section 32.003(b) is clear that the proceeding
may not be transferred to district court if a party has filed a motion seeking the
appointment of a statutory probate court judge.”).
B. Contested Matter
Section 32.003 of the estates code does not define the phrase “contested matter.”
6
TEX. EST. CODE ANN. § 32.003. However, case law instructs us that a probate matter is
considered contested when the pleadings include “sufficient facts to show some
reasonable grounds for the belief that there are two or more parties or claimants to assets
of an estate and there is a bona fide controversy between them concerning those assets,”
or stated otherwise, when “the pleadings on file demonstrate that the parties to the suit
have adopted adversary positions.” Sivley v. Sivley, 972 S.W.2d 850, 856 (Tex. App.—
Tyler 1998, no pet.); see Lesley v. Lesley, 664 S.W.2d 437, 439 (Tex. App.—Fort Worth
1984, no writ); Jackson v. Thompson, 610 S.W.2d 519, 522 (Tex. App.—Houston [1st
Dist.] 1980, no writ); Brown v. Crockett, 601 S.W.2d 188, 190 (Tex. App.—Austin 1980,
no writ); see also In re Surovik, No. 07-20-00371-CV, 2021 WL 865205, at *3 (Tex. App.—
Amarillo Mar. 8, 2021, orig. proceeding [mand. denied]) (mem. op.) (stating that the trial
judge “had no discretion not to transfer a contested probate matter on [the applicant’s]
motion if any matter was contested at the time”); In re Estate of Treviño, No. 04-13-00404-
CV, 2013 WL 5950138, at *3 (Tex. App.—San Antonio Nov. 6, 2013, orig. proceeding)
(mem. op.) (“We hold that, in keeping with the plain language of the [Estates] Code
provision, the right of transfer to the district court did not arise until the matter was, in fact,
contested by another party.”).
Although real parties allege that relator’s pleadings did not establish that the
underlying proceeding constituted a contested matter, the real parties’ own pleadings bely
their claim. The real parties’ “Motion to Transfer Contested Matter to District Court” states
explicitly that “[t]his is a contested probate proceeding.” Leaving this aside, examining the
7
relator’s “Application to Set Aside Homestead and Exempt Property,” relator stated that
she “intends that this Application be heard as a contested matter,” and further alleged:
5. The Inventory will show that Decedent and Kohleffel own a
community property interest in their homestead. In advance of the
filing of an inventory, Kohleffel presents her Verified Affidavit of
Exempt Property which is attached as Exhibit A and is incorporated
by reference (“Homestead”). Additionally, Kohleffel has property
received during their marriage as her separate property yet titled in
both their names, including the Cassady property.
6. Decedent and Kohleffel also own a community property interest in
household furnishings and personal effects; farming and ranch
vehicles and implements; tools, equipment, books and apparatus,
including motor vehicles used in our farming and ranching business;
[sixty] head of cattle; and other types of livestock, all of which include
property that is exempt under Texas law as reflected, in part, in the
equipment list attached as Exhibit A-2 which is incorporated by
reference (“Exempt Property”). The Exempt Property identified as
being in the Estate is exempt and should be set aside as not
belonging to the Estate.
7. The Homestead should be set aside for the use and benefit of
Kohleffel pursuant to § 353.051(a)(1).
8. The Exempt Property should be set aside for the use and benefit of
Kohleffel pursuant to § 353.051(a)(2). Upon information and belief[,]
all other property in which the Estate has an interest is community
property which is held by undivided ownership of Kohleffel and the
Estate each of which own 50% of the property interests—both real
and personal—as co-owners.
As stated previously, the real parties were the beneficiaries of the decedent’s estate, and
in this pleading relator seeks her share of the marital community property, both real and
personal, and seeks property that she characterizes as her separate property, “yet titled
in both their names.” We conclude that relator’s pleadings include sufficient facts to show
some reasonable grounds for the belief that both she and the real parties are claimants
8
to the assets of the decedent’s estate and that there is a bona fide controversy between
them concerning those assets. See Sivley, 972 S.W.2d at 856; Lesley, 664 S.W.2d at
439. We thus reject real parties’ contention that this matter was uncontested.
C. Filing
We turn our attention to the filing sequence. In this regard, the real parties assert
that the relator “claims to have filed” the motion to request appointment of statutory
probate judge.
With two exceptions not relevant here, “[a]n electronically filed document is
deemed filed when transmitted to the filing party’s electronic filing service provider.” TEX.
R. CIV. P. 21(f)(5); see Hall v. Lewis, 639 S.W.3d 197, 207 (Tex. App.—Houston [1st Dist.]
2021, no pet.). “The clerk may not refuse to file a document that fails to conform with this
rule. But the clerk may identify the error to be corrected and state a deadline for the party
to resubmit the document in a conforming format.” TEX. R. CIV. P. 21(f)(11); see Nevarez
Law Firm, P.C. v. Inv’r Land Servs., L.L.C., 610 S.W.3d 567, 570 (Tex. App.—El Paso
2020, no pet.). In this regard, a pleading seeking affirmative relief is considered
conditionally filed until the required filing fee is paid. Garza v. Garcia, 137 S.W.3d 36, 37
(Tex. 2004); Tate v. E.l. DuPont de Nemours & Co., 934 S.W.2d 83, 84 (Tex. 1996) (per
curiam); Jamar v. Patterson, 868 S.W.2d 318, 319 (Tex. 1993) (per curiam); In re C.A.S.,
128 S.W.3d 681, 686 (Tex. App.—Dallas 2003, orig. proceeding). Our sister court of
appeals in Waco has applied the concept of conditional filing to a case arising under the
predecessor statute to § 32.003. See In re Lewis, 185 S.W.3d at 616–19.
9
In Lewis, the plaintiff filed a probate proceeding against the executrix of an estate
in a county court. Id. at 616. The county clerk received, but did not file, the executrix’s
motion for appointment of a statutory probate court judge because the executrix did not
pay the filing fee for the motion. Id. at 617. The plaintiff filed a motion to transfer the case
to district court. Id. The probate court signed an order granting the transfer to district court.
Id. By original proceeding filed in the appellate court, the executrix claimed that the
transfer was improper and that a statutory probate court judge should be assigned to hear
the case because the executrix filed her request first. Id. at 616. The appellate court
concluded that the probate court was not free to ignore the executrix’s conditional filing
because “[t]he purpose of the conditional filing rule is to establish the date on which a
document is filed in order to promote certainty for litigants,” and “[i]f a court could ignore
the date on which a conditionally filed document is filed, the rule would be empty.” Id. at
618. The court explained that the section “appears to contemplate a probate court facing
competing motions to transfer to district court and for assignment of a statutory probate
court judge.” Id. “In such a situation, [the statute] mandates the result: the probate court
shall grant the motion for assignment of a statutory probate court judge and may not
transfer the contested matter to district court.” Id. The court explained that although the
executrix did not pay the filing fee until after the judge signed the transfer order, it was
nonetheless “conditionally” filed first and thus had priority because once the clerk received
the filing fee, the executrix’s motion was deemed to have been properly filed before the
transfer motion. Id. The court thus concluded that the trial court abused its discretion by
10
failing to correctly apply the statutory directive. Id. Thus, the executrix was entitled to
mandamus relief. Id. The court further concluded that the executrix lacked an adequate
remedy at law because the error deprived the executrix of the “statutory right to the
assignment of a statutory probate court judge.” Id.
D. Summary
According to Rule 21(f)(5), relator filed her motion when she tendered the motion
by transmitting it to her e-filing service provider. See TEX. R. CIV. P. 21(f)(5). However,
because she did not pay the fee, the motion was conditionally filed. See Garza, 137
S.W.3d at 37–38; Jamar, 868 S.W.2d at 318–19. The trial court was not free to ignore the
conditional filing. See In re Lewis, 185 S.W.3d at 616–19. Under the express language of
the statute, the probate court could not have granted the real parties’ motion to transfer
the lawsuit to district court because relator’s motion for the appointment of a statutory
probate judge had already been conditionally filed. See TEX. EST. CODE ANN. § 32.003(b);
In re Lewis, 185 S.W.3d at 616–19. We conclude that the trial court abused its discretion
by granting the real parties’ motion, and thus we sustain relator’s first issue.
In her second issue, relator contends that she lacks an adequate remedy by appeal
to address this error. When the county court improperly transferred the matter to the
district court, relator was deprived of her “statutory right to the assignment of a statutory
probate court judge,” a deprivation for which she lacks an adequate remedy by appeal.
See In re Lewis, 185 S.W.3d at 618; In re Vorwerk, 6 S.W.3d at 785; see also In re
Wagner, 2021 WL 5611497, at *3. We sustain relator’s second issue.
11
IV. CONCLUSION
The Court, having examined and fully considered the petition for writ of mandamus,
the response, the reply, and the applicable law, is of the opinion that relator has met her
burden to obtain relief. Because the trial court abused its discretion and relator has no
adequate remedy at law, we conditionally grant the petition for writ of mandamus and
order the trial court to vacate its order transferring the lawsuit to district court and to
request an assignment of a statutory probate court judge. We are confident that the trial
court will comply with our ruling, so the writ will issue only if the trial court fails to do so.
LETICIA HINOJOSA
Justice
Delivered and filed on the
18th day of November, 2022.
12 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488185/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-94,146-02
EX PARTE ADAM DEE AGUIRRE, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 114-0360-21-A IN THE 114TH DISTRICT COURT
FROM SMITH COUNTY
Per curiam.
ORDER
Applicant was convicted of sexual assault of a child and sentenced to twenty years’
imprisonment. He initially filed a non-compliant application, but filed an amended application for
a writ of habeas corpus in the county of conviction fixing his verification error, and the district clerk
forwarded it to this Court. See TEX . CODE CRIM . PROC. art. 11.07.
Applicant contends that he was denied his right to an appeal because counsel failed to timely
file a notice of appeal. Applicant has alleged facts that, if true, might entitle him to relief. Ex parte
Axel, 757 S.W.2d 369 (Tex. Crim. App. 1988); Jones v. State, 98 S.W.3d 700 (Tex. Crim. App.
2003). Accordingly, the record should be developed. The trial court is the appropriate forum for
2
findings of fact. TEX . CODE CRIM . PROC. art. 11.07, § 3(d). The trial court shall order trial counsel1
to respond to Applicant’s claim. In developing the record, the trial court may use any means set out
in Article 11.07, § 3(d). If the trial court elects to hold a hearing, it shall determine whether
Applicant is indigent. If Applicant is indigent and wants to be represented by counsel, the trial court
shall appoint counsel to represent him at the hearing. See TEX . CODE CRIM . PROC . art. 26.04. If
counsel is appointed or retained, the trial court shall immediately notify this Court of counsel’s
name.
The trial court shall make findings of fact and conclusions of law as to whether Applicant
was denied his right to an appeal because trial counsel failed to timely file a notice of appeal. The
trial court may make any other findings and conclusions that it deems appropriate in response to
Applicant’s claim.
The trial court shall make findings of fact and conclusions of law within ninety days from
the date of this order. The district clerk shall then immediately forward to this Court the trial court’s
findings and conclusions and the record developed on remand, including, among other things,
affidavits, motions, objections, proposed findings and conclusions, orders, and transcripts from
hearings and depositions. See TEX . R. APP . P. 73.4(b)(4). Any extensions of time must be requested
by the trial court and obtained from this Court.
Filed: November 16, 2022
Do not publish
1
If a defendant decides to appeal his conviction, trial counsel rather than appellate
counsel has the duty to ensure that written notice of appeal is filed with the trial court. Jones, 98
S.W.3d at 703. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488270/ | 11/21/2022
IN THE SUPREME COURT OF THE STATE OF MONTANA Case Number: DA 22-0189
No. DA 22-0189
DANNY LEE WARNER, JR.,
Petitioner and Appellant,
v.
STATE OF MONTANA,
Respondent and Appellee.
GRANT OF EXTENSION
Upon consideration of Appellee’s motion for a 30-day extension of time,
and good cause appearing therefor, Appellee is granted an extension of time to
and including December 17, 2022, within which to prepare, file, and serve the
State’s response brief.
TKP Electronically signed by:
Bowen Greenwood
Clerk of the Supreme Court
November 21 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488274/ | [Cite as Lengacher Holdings, L.L.C. v. Witmer, 2022-Ohio-4147.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
PAULDING COUNTY
LENGACHER HOLDINGS, LLC,
PLAINTIFF-APPELLEE,
CASE NO. 11-22-03
v.
DAVID WITMER,
DEFENDANT-APPELLANT,
-and- OPINION
MARLENE WITMER, ET AL.,
DEFENDANTS-APPELLEES.
Appeal from Paulding County Common Pleas Court
Trial Court No. CI 21 148
Judgment Affirmed
Date of Decision: November 21, 2022
APPEARANCES:
Ian A. Weber for Appellant
John P. Maxwell for Appellee, Lengacher Holdings, LLC
Case No. 11-22-03
MILLER, J.
{¶1} Defendant-appellant, David Witmer, appeals the March 8, 2022
judgment of the Paulding County Court of Common Pleas denying his motion for
leave to file an answer out of time. For the reasons that follow, we affirm.
I. Facts & Procedural History
{¶2} In November 2019, Marlene Witmer and Susann Witmer sold a parcel
of land in Paulding County to plaintiff-appellee, Lengacher Holdings, LLC.
Marlene is David’s wife. Marlene and Susann agreed to convey the property to
Lengacher free and clear of all liens and other encumbrances. However, the
property was conveyed to Lengacher without a release of David’s dower interest.
{¶3} On October 29, 2021, Lengacher filed a complaint against David,
Marlene, and Susann seeking to quiet title in the property. The summonses and
complaints were sent via certified mail to David and Marlene at their home address
in Grabill, Indiana. On November 3, 2021, Sarah Witmer—David’s adult daughter
and a resident of David and Marlene’s home—took receipt of the summonses and
complaints and signed both for David and for Marlene. Susann was personally
served with the summons and complaint on November 3, 2021.
{¶4} Thereafter, neither David, Marlene, nor Susann filed an answer within
28 days as required by Civ.R. 12(A)(1). On the afternoon of December 3, 2021,
Lengacher filed a motion for default judgment. Approximately two and a half hours
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Case No. 11-22-03
later, David filed a motion asking the trial court grant him 60 days to “retain counsel
to defend [his] rights and the malicious and fraudulent claims in this complaint.”
(Doc. No. 10). On December 9, 2021, the trial court granted David’s motion and
gave him until February 3, 2022, to file an answer to Lengacher’s complaint. The
trial court directed David to “include with his answer a showing of excusable neglect
for his failure to file a timely answer.” (Doc. No. 11). The trial court also indicated
that Lengacher’s motion for default judgment would remain pending and a hearing
would be set for Lengacher’s motion after the court received David’s answer.
{¶5} David subsequently retained counsel, and on January 27, 2022, David
filed through counsel a “Motion for Leave to File Answer to Plaintiff’s Complaint
Instanter.” The motion stated, in relevant part:
The Defendant, David Witmer, never signed for service of the
certified mail. It was signed by Sarah Witmer on or about November
3, 2021, * * * therefore service was not proper on David on November
3, 2021, and he did not receive or review the Complaint until
December 1, 2021.
***
Defendant’s failure to file an answer to Plaintiff’s complaint was the
result of “excusable neglect,” as set forth in Civil Rule 6(B)(2).
(Doc. No. 13).
{¶6} A “Zoom Conference” was subsequently set for the afternoon of
February 24, 2022. The assignment notice, dated February 7, 2022, stated, “ZOOM
CONFERENCE TO BE HELD ON PLAINTIFF’S MOTION FOR DEFAULT
-3-
Case No. 11-22-03
JUDGMENT QUIETING TITLE TO REAL PROPERTY.” (Capitalization and
boldface sic.) (Doc. No. 14). The notice indicated that a copy of the notice had been
sent to David. On February 9, 2022, a revised assignment notice was issued, moving
the “Zoom Conference” up to the afternoon of February 23, 2022. The revised
notice indicated that a copy of the notice had been sent to David’s counsel and that
David’s counsel would be appearing in person for the conference, although
Lengacher’s counsel would be appearing remotely.
{¶7} As expected, David’s counsel physically attended the February 23,
2022 conference. However, David was not present at the conference either in person
or remotely. At the conference, David’s counsel represented that David’s “wife did
not give him a copy of the summons until the first part of December – December
1st, and then he had contacted the court and wrote a letter asking for an extension
of time to retain counsel.” (Feb. 23, 2022 Tr. at 7). David’s counsel also stated that
David “claims [Sarah] signed for it, he never saw it, was never handed the envelope
or the service on that. He claims that he got it December 1st * * *. He claims this
was the first time that he was aware of the lawsuit or anything regarding this
transaction.” (Feb. 23, 2022 Tr. at 9).
{¶8} On March 8, 2022, the trial court denied David’s request to file an
answer out of time. In its judgment entry, the trial court suggested service was
properly effected on David when Sarah signed for his summons and complaint on
-4-
Case No. 11-22-03
November 3, 2021. With respect to the issue of excusable neglect, the trial court
stated:
The Court expected [David] to tell why there was a flaw in the service
and the reason for his failure to file a timely answer. While Defendant
David Witmer did offer a reason for his failure, i.e., he did not sign
for the certified mail and his family did not give it to him, the Court
assessed the credibility of the argument and evidence of non-service
and does not find it to be credible.
(Doc. No. 16). Having denied David’s request, the trial court granted Lengacher’s
motion for default judgment by separate entry.
II. Assignments of Error
{¶9} On April 5, 2022, David timely filed a notice of appeal. He raises the
following two assignments of error for our review:
1. The trial court abused its discretion when it denied
appellant’s motion for leave to file an answer to plaintiff’s
complaint instanter after the appellant was granted leave on
December 9, 2021, to answer plaintiff’s complaint until February
3, 2022, by showing excusable neglect for his failure to file a timely
answer.
2. Whether the trial court not setting the matter for a hearing
was an abuse of discretion.
Because the issues in David’s two assignments of error overlap, we consider them
together.
III. Discussion
{¶10} In his assignments of error, David argues that the trial court erred by
denying his motion without holding a hearing. He claims he ought to have been
-5-
Case No. 11-22-03
granted leave to file an answer out of time, and that his failure to timely file his
answer was excusable, because he “did not receive the Complaint from his daughter
who signed for it on November 3, 2021, until December 1, 2021.” David further
maintains the trial court erred because it set the matter for a “Zoom Conference * *
*, not a hearing [with] an[] indication that evidence would need to be presented,”
and that “[i]f the matter was set for a hearing[,] [he] would have been present and
he could have testified as to the exact facts of not receiving the complaint until
December 1.”
{¶11} Under Civ.R. 6(B)(2), when “an act is required or allowed to be done
at or within a specified time, the court for cause shown may at any time in its
discretion * * * upon motion made after the expiration of the specified period permit
the act to be done where the failure to act was the result of excusable neglect[.]” “A
trial court’s Civ.R. 6(B)(2) determination is addressed to the sound discretion of the
trial court and will not be disturbed on appeal absent a showing of an abuse of
discretion.” State ex rel. Lindenschmidt v. Butler Cty. Bd. of Commrs., 72 Ohio
St.3d 464, 465 (1995). An abuse of discretion implies the trial court’s decision was
unreasonable, arbitrary, or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d
217, 219 (1983).
{¶12} “In determining whether neglect is excusable or inexcusable, this
Court must take into consideration all the surrounding facts and circumstances, and
-6-
Case No. 11-22-03
must be mindful of the admonition that cases should be decided on their merits,
where possible, rather than procedural grounds.” Univ. of Akron v. Mangan, 9th
Dist. Summit No. 24167, 2008-Ohio-4844, ¶ 10. “When considering these
circumstances and the preference for settling cases on their merits, we are also
mindful that ‘the test for excusable neglect under Civ.R. 6(B)(2) is less stringent
than that applied under Civ.R. 60(B).’” Lester v. Chivington, 3d Dist. Marion No.
9-15-21, 2015-Ohio-5446, ¶ 18, quoting State ex rel. Lindenschmidt at 466.
{¶13} “Excusable neglect has been defined in the negative.” Delitoy v. I.
Stylez Hair & Nails Design, Inc., 8th Dist. Cuyahoga No. 108833, 2020-Ohio-3370,
¶ 18. Courts have found inexcusable neglect “‘when a party’s inaction can be
classified as a “complete disregard for the judicial system.”’” Lester at ¶ 20, quoting
Reimund v. Reimund, 3d Dist. Hancock No. 5-04-52, 2005-Ohio-2775, ¶ 16, quoting
GTE Automatic Elec., Inc. v. ARC Indus., Inc., 47 Ohio St.2d 146, 153 (1976).
Neglect has also been found to be inexcusable where it involves “conduct falling
‘substantially below what is reasonable under the circumstances.’” Id., quoting
GTE at 152. “Further, if the party could have prevented the circumstances from
occurring, neglect will not be considered excusable.” Id.
{¶14} In contrast, a court might properly find excusable neglect where
“counsel of record suffers from personal or family illness” or where “counsel of
record fails to appear for trial because he has not received notice of a rescheduled
-7-
Case No. 11-22-03
trial date.” Id. at ¶ 19. “A majority of the cases finding excusable neglect also have
found unusual or special circumstances that justified the neglect of the party or
attorney.” Id.
{¶15} Additionally, as relevant here, excusable neglect may exist when “the
party had neither knowledge nor notice of the pending legal action[.]” Lester, 2015-
Ohio-5446, at ¶ 19. “Courts have also found excusable neglect where a failure to
answer was due to a failure to forward, or other mishandling of, a complaint.”
Twymon v. Eagle Auto Parts, Inc., 8th Dist. Cuyahoga No. 110993, 2022-Ohio-
2360, ¶ 52. However, failure to forward a complaint to the proper party does not
“automatically constitute excusable neglect.” Treasurer of Lucas Cty. v. Mt. Airy
Invests. Ltd., 6th Dist. Lucas No. L-18-1254, 2019-Ohio-3932, ¶ 27. “Where a
failure to answer a complaint is the result of a party’s ‘[i]nsufficient or negligent
internal procedures’ or the party could have otherwise ‘controlled or guarded
against’ the circumstances that led to a party’s failure to answer, courts have often
declined to find excusable neglect.” Twymon at ¶ 53, quoting Middleton v. Luna’s
Restaurant & Deli, LLC, 5th Dist. Stark No. 2011 CA 00004, 2011-Ohio-4388, ¶
31. “Likewise, a party’s failure to answer a complaint is not excusable neglect
‘when it is a result of the party’s own “carelessness, inattention, or willful disregard
of the process of the court.”’” Id. at ¶ 54, quoting Russell v. McDonalds Inc. #3737,
-8-
Case No. 11-22-03
8th Dist. Cuyahoga No. 109112, 2020-Ohio-4300, ¶ 22, quoting Emery v. Smith, 5th
Dist. Stark Nos. 2005CA00051 and 2005CA00098, 2005-Ohio-5526, ¶ 16.
{¶16} Here, David’s request to file an answer out of time was based on his
assertion that he did not receive or have knowledge of Lengacher’s complaint until
December 1, 2021. It appears the trial court simply did not believe David’s claim,
finding that the “evidence of non-service” was not credible. But in reality, there
was no evidence for the trial court to review. To begin, David’s Civ.R. 6(B)(2)
motion was not supported by affidavit. Strictly speaking, such an affidavit might
not have been necessary for the trial court to grant David’s motion. See Evans v.
Chapman, 28 Ohio St.3d 132, 135 (1986) (observing that it would have been
“preferable” for the movant’s Civ.R. 6(B) motion to be supported by affidavit, but
concluding that the trial court did not abuse its discretion by granting the motion
notwithstanding the lack of affidavit). In the absence of a supporting affidavit, the
trial court still has the discretion to determine whether the grounds stated in the
motion constitute excusable neglect, even when those grounds are less than clear.
See id. (“The trial court had discretion under Civ.R. 6 to find that ‘clerical errors’
constituted excusable neglect.”). However, as a practical matter, the lack of a
supporting affidavit will often result in the trial court properly exercising its
discretion to deny the Civ.R. 6(B)(2) motion as being unsupported by the evidence.
See T.S. Expediting Servs., Inc. v. Mexican Indus., Inc., 6th Dist. Wood No. WD-
-9-
Case No. 11-22-03
01-060, 2002-Ohio-2268, ¶ 17-22; Scarefactory, Inc. v. D & B Imports, Ltd., 10th
Dist. Franklin No. 01AP-607, 2002 WL 5529, *3-4 (Jan. 3, 2002).
{¶17} In addition, David did not present any testimony or other evidence at
the February 23, 2022 “Zoom Conference” to support his claim of excusable
neglect. David attributes this failure to the fact that he was unaware his Civ.R.
6(B)(2) motion would be addressed during the proceeding. Even if true, this does
not excuse David’s omission. When the “Zoom Conference” was first scheduled, it
was made explicit that the conference was intended to address Lengacher’s motion
for default judgment. Lengacher’s motion for default judgment and David’s Civ.R.
6(B)(2) motion were inextricably linked—when David was granted additional time
to hire an attorney and file a proposed answer, the trial court indicated that
Lengacher’s motion for default judgment would be held open and that a hearing
would be scheduled on the motion once David filed his answer, which was supposed
to include the grounds to support a finding of excusable neglect. Thus, the grant or
denial of Lengacher’s motion for default judgment clearly depended, at least in part,
on whether David established that his failure to timely file an answer was due to
excusable neglect. Given this link, it should have been obvious to David that his
Civ.R. 6(B)(2) motion would be addressed at the February 23, 2022 proceeding.
David does not maintain that he did not have notice of the proceeding, and the record
would belie such an assertion in any case. Nor does the record show that David
-10-
Case No. 11-22-03
requested or was denied an opportunity to present testimony at the proceeding.
Therefore, we do not find David was deprived of the opportunity to present evidence
to support his claims of excusable neglect. Nor was it error for the trial court to rule
on David’s motion without affording him the chance of a second proceeding at
which to introduce his (purported) evidence of excusable neglect.
{¶18} Because of David’s failure to support his Civ.R. 6(B)(2) motion with
testimony or any other evidentiary-quality materials, the trial court had only the
allegations contained in David’s written motion and his counsel’s oral
representations to rely on when deciding whether there was excusable neglect. As
indicated above, the trial court was evidently unconvinced that David had in fact
been unaware of Lengacher’s complaint until December 1, 2021. In the absence of
actual evidentiary support for David’s claims, the trial court’s decision was not
arbitrary or unreasonable.
{¶19} Yet, even if we were to conclude that the trial court should have taken
David at his word that he did not know about Lengacher’s complaint until December
1, 2021, David still failed to make his case for excusable neglect. Specifically, it
was incumbent on David to provide an explanation why he did not learn of Sarah’s
receipt of the complaint and summons until December 1, 2021, because the reason
for his lack of knowledge was crucial to determining whether his neglect was
excusable or inexcusable. However, there is simply no indication in the record as
-11-
Case No. 11-22-03
to what Sarah did with the mail after she signed for it. Nor does the record establish
when, or whether, Sarah told David that she had received his mail. The absence of
information pertaining to these matters frustrates the determination of whether
David’s neglect was excusable or not. Since it was David’s responsibility to make
a sufficient showing that the neglect was excusable and he failed to do so, the trial
court did not abuse its discretion by denying David’s Civ.R. 6(B)(2) motion.
{¶20} David’s first and second assignments of error are overruled.
IV. Conclusion
{¶21} For the foregoing reasons, David’s assignments of error are overruled.
Having found no error prejudicial to the appellant herein in the particulars assigned
and argued, we affirm the judgment of the Paulding County Court of Common
Pleas.
Judgment Affirmed
ZIMMERMAN, P.J. and WILLAMOWSKI, J., concur.
/jlr
-12- | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488268/ | 2022 IL App (2d) 210757
No. 2-21-0757
Opinion filed November 21, 2022
______________________________________________________________________________
IN THE
APPELLATE COURT OF ILLINOIS
SECOND DISTRICT
______________________________________________________________________________
THE PEOPLE OF THE STATE ) Appeal from the Circuit Court
OF ILLINOIS, ) of Lake County.
)
Plaintiff-Appellee, )
)
v. ) No. 09-CF-1874
)
MANUEL A. FLORES, ) Honorable
) Daniel B. Shanes,
Defendant-Appellant. ) Judge, Presiding.
______________________________________________________________________________
JUSTICE JORGENSEN delivered the judgment of the court, with opinion.
Presiding Justice Brennan and Justice Hudson concurred in the judgment and opinion.
OPINION
¶1 Defendant, Manuel A. Flores, appeals from the order of the circuit court of Lake County
denying him leave to file his successive postconviction petition under the Post-Conviction Hearing
Act (Act) (725 ILCS 5/122-1 et seq. (West 2020)). He claims that his petition, which sought relief
from his plea of guilty to aggravated arson (720 ILCS 5/20-1(a), 20-1.1(a)(2) (West 2008)), set
forth a colorable claim of actual innocence. We conclude that the trial court properly denied
defendant leave to file his petition. Therefore, we affirm.
¶2 I. BACKGROUND
¶3 In June 2009, the State brought a nine-count indictment against defendant and
codefendants, Elver H. Hernandez (Elver) and Edwin J. Hernandez (Edwin). The counts alleged
2022 IL App (2d) 210757
that the three defendants threw an object containing a flammable substance at the Mundelein home
of Virginia Estrada, causing a fire that damaged the house, killed Jorge Juarez, and injured Virginia
Estrada and Virginia Juarez. Counts I through VI charged various theories of first-degree murder
(id. § 9-1(a)(1)-(3)) based on Jorge Juarez’s death. The intentional murder counts alleged
transferred intent in that the defendants acted with the intent to kill Rafael Juarez (Rafael) but
instead caused Jorge Juarez’s death. Finally, counts VII through IX charged aggravated arson (id.
§§ 20-1(a), 20-1.1(a)(1), (2)) based on the damage to the house and the injuries to Virginia Estrada
and Virginia Juarez.
¶4 On December 5, 2011, the parties informed the court that they had reached a plea
agreement in defendant’s case. Defendant would plead guilty to count VII, which alleged that “the
defendants ***, while committing an Arson, *** knowingly partially damaged a building of
Virginia Estrada, being a residence ***, and the defendant reasonably should have known that one
or more persons was present therein.” In exchange for his plea, defendant would receive a sentence
of 18 years’ imprisonment, and the State would nol-pros the remaining eight counts. After hearing
the plea terms, the trial court stated that it recalled from Elver’s and Edwin’s cases that defendant
“was not there when the arson took place” and that “[t]he plea is based upon an accountability
liability.” Defense counsel confirmed the court’s recollection. The court asked for a factual basis
for the plea, and this exchange occurred:
“MR. KLEINHUBERT [(ASSISTANT STATE’S ATTORNEY)]: Judge, for the
purposes of this plea, on May 8th of 2009, there was a meeting held at Alex Paz’[s] house
and through the investigation, it was learned that Alex Paz was a member of the Latin
Kings, that this defendant was present at his house for a meeting. Also, Edwin and [Elver]
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2022 IL App (2d) 210757
were present, Wilmer Garcia, a Mike Puga and a Ricardo Truijillo. All were members of
the Latin Kings.
During the course of that meeting, one of the subjects was—some members of the
gang, one of them, specifically, [Rafael], who, there was some trouble with them within
the gang, and there was an SOS issued, which was Smash on Site [sic], which was a
disciplinary action against, in this case, [Rafael]. That was ordered by [defendant], and it
was given to [Elver], who then later recruited his brother, Edwin, and during the early
morning hours of May 9th of 2009, they took a bottle with some accelerant in it and a wick
and lit it and threw it at [Rafael’s] house.
Inside the house was [sic] Rafael’s mother, Virginia Estrada, and the daughter,
Virginia Juarez. For the purposes of this plea, both of them were injured both from the fire
and from jumping out of the second floor window receiving injuries.
[Defendant] was not present. He gave the order for the SOS, and during the
investigation, there was no specific order to burn the house. There was just a general order
to commit this SOS.
Through the investigation, they did not determine that this defendant actually gave
a specific order to burn the house or to actually use fire in the form of the SOS, and that
occurred in Mundelein, Lake County, Illinois.
MR. WEINSTEIN [(DEFENSE ATTORNEY)]: So stipulated.
THE COURT: So, essentially, let me summarize. The defendant, in legal terms in
the accountability language, encouraged Mr. Hernandez to commit an offense. Mr.
Hernandez chose to use the fire which ultimately resulted in the harm in this case.
MR. WEINSTEIN: Yes.
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2022 IL App (2d) 210757
MR. KLEINHUBERT: Correct.
THE COURT: And that constitutes accountability under the law, certainly,
although it’s different than committing the offense, itself, and accordingly, the Court finds
it’s an appropriate disposition.”
¶5 The trial court found the factual basis sufficient and, after admonishing defendant, accepted
his plea as knowing and voluntary. Accordingly, the court imposed the agreed sentence of 18
years’ imprisonment.
¶6 Defendant did not file a postplea motion or a direct appeal. In March 2013, defendant filed
a pro se postconviction petition under the Act. In the petition. defendant sought to withdraw his
guilty plea because defense counsel was ineffective for, inter alia, failing to investigate and present
witnesses who would attest that someone other than defendant within the Latin Kings gave the
“Smash on Sight” (SOS) order to Elver. Defendant named several individuals but provided an
affidavit from only one: Hoke L. Turner III. In his affidavit, dated May 3, 2010, Turner averred
that he became acquainted with Edwin while they were in the same prison. According to Turner,
Edwin told him that defendant was an enforcer within the Latin Kings but was not the one who
issue the SOS order against Rafael at the May 8, 2009, meeting. Turner stated that, based on what
Edwin said, “the actions that ensued the night of the incident were neither of [defendant’s]
knowledge nor consent.” However, Turner did not say that Edwin identified who did, in fact, issue
the SOS order.
¶7 Defendant also attached various police reports to his petition.
¶8 The trial court dismissed the petition as frivolous and patently without merit. The court
determined that defendant failed to provide the necessary factual support for his assertion that
someone else issued the SOS order. The court discounted Turner’s affidavit because it was dated
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2022 IL App (2d) 210757
almost 19 months before defendant’s guilty plea and described Turner’s discussions with Edwin
but not defendant himself. The court also found that the police reports attached to the petition were,
in fact, consistent with the factual basis for defendant’s plea.
¶9 Defendant did not appeal the dismissal of his petition.
¶ 10 On September 29, 2021, defendant filed the petition at issue. It was titled “Post-Conviction
Petition Actual Innocence Under 725 ILCS 5/122-1(c).” Defendant attached to his petition (1) the
transcript of the December 5, 2011, plea hearing; (2) an incomplete copy of an August 27, 1998,
application for a search warrant, apparently for a residence associated with Edwin and Elver;
(3) various police reports from 2009; (4) Turner’s affidavit of May 3, 2010 (which was attached to
the initial petition); (5) an April 7, 2011, press release from the United States Department of Justice
(DOJ), announcing that federal prosecutors had obtained convictions of several high-ranking Latin
King members operating in the City of Chicago; (6) a July 26, 2016, press release from the United
States Attorney for the Northern District of Illinois (USAO), reporting that federal prosecutors had
obtained indictments against several leaders and rank-and-file members of the Latin Kings
operating in the Chicago metropolitan area; (7) a November 29, 2014, Orlando Sentinel article
about the culture of the Latin Kings in central Florida; and (8) defendant’s July 23, 2021, affidavit
claiming that Gerardo Salazar and Juan Galaviz issued the SOS order against Rafael. Defendant
averred that “[he] did not order an SOS” and was “not legally responsible for the crimes of those
who did.”
¶ 11 Defendant did not include with his petition a motion for leave to file a successive petition.
Nor did his petition itself ask for leave to file a successive petition or even acknowledge that it was
successive. Moreover, although the petition was titled “Actual Innocence,” defendant devoted
most of the petition to claims that defense counsel denied him effective assistance. Defendant
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2022 IL App (2d) 210757
argued that counsel was ineffective for (1) neglecting to challenge the facial sufficiency of the
factual basis for defendant’s guilty plea to aggravated arson and (2) failing to “challenge any of
the State’s wrong-minded theory [of criminal liability] in spite of the wealth of contradictory
evidence in police reports,” Turner’s affidavit, and the other documents attached to the petition.
Defendant did not mention “actual innocence” again until nearly the end of the petition, stating,
“This petition sets forth a claim of actual innocence, in addition to constitutional claims of error.”
Thus, apparently, defendant asserted that the matters counsel unreasonably neglected were also
the bases for his actual-innocence claims.
¶ 12 Defendant developed his ineffectiveness/actual-innocence claims as follows. First, he
claimed that the factual basis for his plea to aggravated arson was facially insufficient because it
did not satisfy the mens rea element, namely that the person “knowingly” set fire to a building or
other property (id. § 20-1(a)). Defendant noted that, in presenting the factual basis for the plea, the
prosecutor admitted that defendant was not present when the arson occurred and gave “no specific
order to burn the house” but “just a general order to commit this SOS.” Further, the trial court, too,
recognized that defendant did not give a specific order to set fire to a house or kill someone.
According to defendant, the factual basis “never bridge[d] the gap between smash on sight [and]
arson, fire or Molotov cocktail.” Thus, he contended that the trial court could not properly find
that defendant knowingly committed arson on an accountability basis. Defendant further noted that
the factual basis stated that defendant gave the SOS order to Elver alone. Accordingly, defendant
maintained that he was not liable for Elver’s decision to recruit Edwin, let alone the latter’s
“ultra vires” decision to implement the generic SOS order by setting Virginia Estrada’s home
ablaze.
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¶ 13 Second, defendant claimed that the police reports, Turner’s affidavit, and other attachments
to the petition contradicted crucial points of the plea’s factual basis. Defendant claimed that the
documents established that (1) Rafael was on the Latin Kings’ “SOS list” even before the May 8,
2009, meeting at Paz’s house; (2) some Latin Kings members chased Rafael before the May 8,
2009, meeting, showing that he was already a target; (3) no Latin King leaders were at the May 8,
2009, meeting, and so no one had the authority to issue an SOS order; (4) even if an SOS were
issued against Rafael at the meeting, it was by someone other than defendant, as he lacked authority
within the Latin Kings to issue such an order (in his affidavit, defendant claimed that Salazar and
Galaviz issued the order); and (5) an SOS order would not have been understood to command or
authorize arson of a dwelling. 1
¶ 14 In a written order, the trial court denied defendant relief. The court first corrected
defendant’s misunderstanding of the case’s procedural posture. The court noted that defendant had
commented at a status hearing that the petition was, by default, at the second stage of proceedings
because the first-stage, 90-day-review period had expired. See 725 ILCS 5/122-2.1 (West 2020).
The court clarified that, because defendant previously filed a petition (in 2013), his current petition
was successive and he needed to obtain leave to file.
¶ 15 The court then denied defendant leave to file the petition. First, the court determined that
defendant’s actual-innocence claims were not supported by “new, material, noncumulative
1
Defendant cited Elver’s statement to the police that SOS entails an “ ‘ass kicking’ ” and
Edwin’s statement that SOS means “ ‘break windows or trash someone’s house.’ ” Defendant
argued: “Breaking windows or trashing [a] house does not rise to the level of telling someone to
use fire, commit arson, or use a Molotov cocktail against an individual or their home.”
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2022 IL App (2d) 210757
evidence that clearly and convincingly demonstrates that a trial would probably result in acquittal”
(People v. Reed, 2020 IL 124940, ¶ 49). The court noted that the police reports, Turner’s affidavit,
and the April 2011 DOJ press release were not new evidence, because they predated defendant’s
December 2011 guilty plea (and defendant included Turner’s affidavit with the initial petition).
The court also found that the evidence postdating the plea—the July 2016 USAO press release and
the November 2014 Orlando Sentinel article—was “simply immaterial and inconclusive.”
¶ 16 As for the ineffectiveness claims, the trial court applied the “cause-and-prejudice test”
(People v. Ortiz, 235 Ill. 2d 319, 330 (2009)) of section 122-1(f) of the Act (725 ILCS 5/122-1(f)
(West 2020)). The court found that the claims failed both prongs of the test because defendant
(1) identified no impediment that prevented him from raising the claims in his initial petition and
(2) did not establish that, but for defense counsel’s errors, he would not have pleaded guilty.
¶ 17 Defendant filed this timely appeal.
¶ 18 II. ANALYSIS
¶ 19 At the outset, we note defendant’s mischaracterization of the proceedings below. In its
written order denying defendant relief, the trial court expressly corrected defendant’s false
assumption that his current postconviction petition was his first. Properly treating the petition as a
successive one, the trial court ultimately denied defendant leave to file the petition. Nevertheless,
in stating the nature of the case on appeal, defendant characterizes the trial court’s action as a
“dismissal” at “Stage One” rather than a denial of leave to file. He repeats this faulty description
twice more, even though, at one point, he recognizes his petition as a successive one.
¶ 20 This leads us to the State’s request that we strike defendant’s brief and dismiss this appeal
because he cites none of the standards governing successive petitions. As the State notes, we have
the authority to strike an appellant’s brief for lack of conformity with our supreme court rules,
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2022 IL App (2d) 210757
which require, inter alia, that an appellant support argument with citation to authority (Ill S. Ct.
R. 341(h)(7) (eff. Oct. 1, 2020)). People v. Williams, 2020 IL App (3d) 180024, ¶ 25. We share
the State’s frustration with defendant’s “jump[ing] into” the merits of his petition without
acknowledging the “immense procedural default hurdles” a defendant must clear to bring a
successive postconviction petition (People v. Davis, 2014 IL 115595, ¶ 14). However, “striking an
appellate brief, in whole or in part, is a harsh sanction and is appropriate only when the violations
of procedural rules hinder our review.” Hall v. Naper Gold Hospitality LLC, 2012 IL App (2d)
111151, ¶ 15. The flaws in defendant’s presentation have not impeded our review. With the aid of
the State’s comprehensive brief, we have readily discerned that defendant’s sole argument on
appeal—that his petition presents a colorable actual-innocence claim—is fatally deficient.
However, we caution defense counsel that we expect compliance with our supreme court rules and
might not deal as charitably with future infractions.
¶ 21 We move to the merits. “The Act contemplates the filing of a single petition” (People v.
Coleman, 2013 IL 113307, ¶ 81), and a defendant needs leave of court to file a successive petition
(725 ILCS 5/122-1(f) (West 2020)). Leave to file will be granted “when fundamental fairness so
requires.” (Internal quotation marks omitted.) Coleman, 2013 IL 113307, ¶ 81. However, Illinois
courts recognize only two fundamental-fairness exceptions to the bar against successive petitions.
People v. Taliani, 2021 IL 125891, ¶ 55. The first exception is where the defendant meets the
“cause-and-prejudice test” (Ortiz, 235 Ill. 2d at 330) by showing that he was objectively impeded
from raising his claim in an earlier proceeding and that the claimed error so infected his trial that
he was deprived of due process (see 725 ILCS 5/122-1(f) (West 2020)). Taliani, 2021 IL 125891,
¶ 55. The second exception is where the defendant shows that he suffered a miscarriage of justice.
He does this specifically by making a “persuasive showing” of actual innocence. Id. A defendant
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2022 IL App (2d) 210757
can claim actual innocence even after pleading guilty. Reed, 2020 IL 124940, ¶ 41. However, “a
successful actual innocence claim requires a defendant who pleads guilty to provide new, material,
noncumulative evidence that clearly and convincingly demonstrates that a trial would probably
result in acquittal.” Id. ¶ 49.
¶ 22 “Where, as here, a petitioner raises an actual innocence claim in a successive
postconviction petition, the trial court should deny leave [to file] only where, as a matter of law,
no colorable claim of actual innocence has been presented.” Taliani, 2021 IL 125891, ¶ 52. Since
this is a question of law, we review de novo the trial court’s denial of leave to file. Id.
¶ 23 Defendant’s challenge on appeal is significantly narrower than what he brought below.
First, he no longer claims that his counsel was ineffective. Second, he abandons reliance on the
evidence he submitted with his petition. In his briefs, he claims that his plea was not intelligent
and voluntary, citing Boykin v. Alabama, 395 U.S. 238, 242 (1969), as his primary authority. In
Boykin, the United States Supreme Court held that a trial court violates a defendant’s due process
rights when it accepts the defendant’s guilty plea “without an affirmative showing that it was
intelligent and voluntary.” Id. Defendant’s briefs appear to link two issues: (1) whether the plea’s
factual basis was sufficient and (2) whether the plea was intelligent and voluntary. At oral
argument, defense counsel confirmed that defendant’s claim on appeal is that the plea was not
intelligent and voluntary precisely because the factual basis did not satisfy the elements of
aggravated arson based on accountability.
¶ 24 As framed, this claim fails on more than one level. To begin with, the claim is simply not
one of actual innocence under Illinois law. An actual-innocence claim “does not depend on—and
is separate from—a challenge to the sufficiency of the evidence or an allegation of error in the
court below.” Reed, 2020 IL 124940, ¶ 29. Thus, a claim of actual innocence following a guilty
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2022 IL App (2d) 210757
plea “is not based on the defendant’s misapprehension of the quality of the State’s case nor an
error of the court in finding defendant guilty.” (Emphasis added.) Id. ¶ 40. “Rather, it is a request
for the additional due process that is triggered by new and compelling evidence demonstrating
defendant’s innocence.” (Emphasis added.) Id. “New means the evidence was discovered after the
court accepted the plea and could not have been discovered earlier through the exercise of due
diligence.” Id. ¶ 49. Defendant’s argument on appeal abandons any pretense of relying on new
evidence—or, indeed, anything outside the four corners of the factual basis. His attack on the
sufficiency of the factual basis asserts nothing but “an error of the court in finding defendant
guilty” based on the stipulated facts. Id. ¶ 40.
¶ 25 Since defendant’s claim is not one of actual innocence and he does not assert that his claim
meets the cause-and-prejudice test, 2 he has failed to overcome the bar against successive
postconviction petitions. We could affirm on that basis alone, but we also note that defendant’s
claim is not even a constitutional claim and, thus, cannot be brought in a postconviction
proceeding.
¶ 26 The Act provides a means for a defendant to claim that “in the proceedings which resulted
in his or her conviction there was a substantial denial of his or her rights under the Constitution of
the United States or of the State of Illinois or both.” 725 ILCS 5/122-1(a)(1) (West 2020); see
People v. House, 2021 IL 125124, ¶ 15 (“Postconviction relief is limited to constitutional
deprivations that occurred during the original trial.”). “Questions as to the sufficiency of the
evidence have been held not to present a constitutional question and therefore are not properly
2
Since defendant’s claim is based entirely on matters appearing on the face of the record,
he likely could not show cause for omitting the claim in earlier proceedings.
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2022 IL App (2d) 210757
considered in post-conviction proceedings.” People v. Dunn, 52 Ill. 2d 400, 402 (1972). In
particular, “[a] postconviction proceeding is not a direct appeal or a continuation of a criminal case
but is an independent, collateral attack on a judgment of conviction.” People v. Vasquez, 307 Ill.
App. 3d 670, 673-74 (1999). A collateral attack is not designed to relitigate guilt or innocence
(People v. Ligon, 239 Ill. 2d 94, 103 (2010))—which is precisely what defendant would have us
do by reevaluating the sufficiency of the factual basis.
¶ 27 As noted, defendant attempts to cast his attack on the plea’s factual basis as a claim that
the plea was not intelligent and voluntary. If defendant were raising his plea’s voluntariness, the
claim would be constitutional and thus cognizable in a postconviction proceeding. See People v.
Stroud, 208 Ill. 2d 398, 403 (2004). However, defendant’s characterization fails. He cites the
Supreme Court’s comment in Boykin, that, “because a guilty plea is an admission of all the
elements of a formal criminal charge, it cannot be truly voluntary unless the defendant possesses
an understanding of the law in relation to the facts.” (Internal quotation marks omitted.) Boykin,
395 U.S. at 243 n.5. To that end, Illinois Supreme Court Rule 402(a)(1) (eff. July 1, 2012) requires
that the trial court inform the defendant of the nature of the charge to which the defendant is
pleading guilty. People v. Ingeneri, 7 Ill. App. 3d 809, 811 (1972). In fact, all the specified Rule
402(a) admonitions are designed “to insure [sic] that [the] guilty plea is intelligently and
understandingly made, as required by Boykin.” Ill. S. Ct. R. 402, Committee Comments (rev. May
1997). But our supreme court has drawn a clear distinction between (1) Rule 402(a)’s admonitions
and (2) Illinois Supreme Court Rule 402(c) (eff. July 1, 2012) requirement for the trial court to
determine a factual basis for the plea. The supreme court has maintained that Rule 402(c) is not
derived from Boykin. See People v. Nardi, 48 Ill. 2d 111, 115 (1971) (“Boykin does not touch on
the necessity of the court to make an inquiry as to the factual basis for the defendant’s plea of
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2022 IL App (2d) 210757
guilty.”). What is more, “[Rule 402(c)’s] requirements are not constitutionally mandated.” Id. at
116. 3 Defendant had a constitutional right to be informed of the nature of the charge to which he
was pleading guilty. In essence, defendant’s claim is not that the trial court inadequately informed
him of the charge or the governing law but that the court itself drew the wrong legal conclusion
from the stipulated facts. As Nardi holds, a defendant has no constitutional claim if the trial court
accepts his plea without receiving any factual basis. See id. at 115. In that light, it follows that
defendant’s claim here—that the factual basis received was insufficient—is necessarily not
constitutional in scope.
¶ 28 Given our conclusion that defendant’s claim is not constitutional in scope, much less an
actual-innocence claim, we do not decide whether the factual basis for the plea satisfied the
elements of aggravated arson based on accountability.
¶ 29 III. CONCLUSION
¶ 30 For the foregoing reasons, we affirm the judgment of the circuit court of Lake County.
¶ 31 Affirmed.
3
Defendant criticizes People v. Wiser, 27 Ill. App. 3d 208, 209 (1975), for holding that “the
requirements of Rule 402(c) are not constitutionally mandated.” Defendant urges us not to follow
Wiser, but he fails to acknowledge that Wiser relied squarely on Nardi (see id.). Thus, we have no
authority to depart from Wiser insofar as it followed our supreme court. We caution defense
counsel to be more careful in representing precedent to this court.
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2022 IL App (2d) 210757
People v. Flores, 2022 IL App (2d) 210757
Decision Under Review: Appeal from the Circuit Court of Lake County, No. 09-CF-1874;
the Hon. Daniel B. Shanes, Judge, presiding.
Attorneys Jed Stone, of Stone & Associates, Ltd., of Waukegan, for
for appellant.
Appellant:
Attorneys Eric F. Rinehart, State’s Attorney, of Waukegan (Patrick Delfino,
for Edward R. Psenicka, and Lynn M. Harrington, of State’s Attorneys
Appellee: Appellate Prosecutor’s Office, of counsel), for the People.
- 14 - | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488273/ | [Cite as State v. Blessett, 2022-Ohio-4151.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
WYANDOT COUNTY
STATE OF OHIO,
PLAINTIFF-APPELLEE, CASE NO. 16-22-04
v.
DEVANTAE S. BLESSETT, OPINION
DEFENDANT-APPELLANT.
Appeal from Wyandot County Common Pleas Court
Trial Court No. 21-CR-0054
Judgment Affirmed
Date of Decision: November 21, 2022
APPEARANCES:
Emily P. Beckley for Appellant
Eric J. Figlewicz for Appellee
Case No. 16-22-04
SHAW, J.
{¶1} Defendant-appellant, Devantae S. Blessett (“Blessett”), brings this
appeal from the May 13, 2022, judgment of the Wyandot County Common Pleas
Court sentencing him to 36 months in prison after Blessett pled guilty to, and was
convicted of, aggravated possession of drugs. On appeal, Blessett argues that his
prison term was not supported by the record and that the trial court erred by ordering
his prison term to be served consecutive to a prison term from another county.
Background
{¶2} On June 9, 2021, Blessett was indicted for possession of heroin in
violation of R.C. 2925.11(A), a second degree felony (Count 1), and possession of
a fentanyl-related compound in violation of R.C. 2925.11(A), a fourth degree felony
(Count 2). He originally pled not guilty to the charges.
{¶3} On February 1, 2022, Blessett entered into a written negotiated plea
agreement wherein he agreed to plead guilty to Count 1, reduced and amended to
aggravated possession of drugs in violation of R.C. 2925.11(A), a felony of the third
degree. In exchange for Blessett’s guilty plea to the amended charge, the State
agreed to dismiss Count 2 of the indictment and the parties agreed to jointly
recommend a 36-month prison term. The plea agreement was presented to the trial
court and then the trial court conducted a Crim.R. 11 colloquy with Blessett,
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Case No. 16-22-04
ultimately determining that he was entering a knowing, intelligent, and voluntary
plea.
{¶4} On May 11, 2022, Blessett was sentenced to the jointly recommended
prison term of 36 months. In addition, Blessett’s prison term was ordered to be
served consecutive to a prison term Blessett had recently received in Hancock
County in an unrelated case. A judgment entry memorializing Blessett’s sentence
was filed May 13, 2022. It is from this judgment that Blessett appeals, asserting the
following assignments of error for our review.
Assignment of Error No. 1
Appellant’s sentence was not supported by sufficient evidence.
Assignment of Error No. 2
The trial court erred when sentencing appellant as the record
does not support consecutive sentences and/or the consecutive
sentence is contrary to law.
First Assignment of Error
{¶5} In his first assignment of error, Blessett argues that his 36-month
prison term was not “supported by sufficient evidence.”
Standard of Review
{¶6} Pursuant to R.C. 2953.08(G)(2), an appellate court will reverse a
sentence “only if it determines by clear and convincing evidence that the record does
not support the trial court’s findings under relevant statutes or that the sentence is
otherwise contrary to law.” State v. Marcum, 146 Ohio St.3d 516, 2016-Ohio-1002,
-3-
Case No. 16-22-04
¶ 1. Clear and convincing evidence is that “which will produce in the mind of the
trier of facts a firm belief or conviction as to the facts sought to be established.”
Cross v. Ledford, 161 Ohio St. 459 (1954), paragraph three of the syllabus.
Analysis
{¶7} Pursuant to R.C. 2953.08(D)(1), “[a] sentence imposed upon a
defendant is not subject to review * * * if the sentence is authorized by law, has
been recommended jointly by the defendant and the prosecution in the case, and is
imposed by a sentencing judge.” (Emphasis added.)
{¶8} In this case there was an agreed, jointly recommended prison term that
was imposed by the trial judge. The jointly recommended and imposed prison term
was within the appropriate statutory range pursuant to R.C. 2929.14(A)(3)(b), and,
in imposing the jointly recommended prison term, the trial court specifically stated
that it had considered the factors pertaining to seriousness of the offense and other
factors such as whether Blessett was likely to recidivate. The trial court thus
complied with all the appropriate sentencing statutes and the sentence was
authorized by law. Because the appropriate sentencing statutes were complied with
and the prison term was jointly recommended, the sentence is not subject to review
under R.C. 2953.08(D)(1). State v. Carnicom, 3d Dist. Henry No. 7-21-08, 2022-
Ohio-987, ¶ 15.
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Case No. 16-22-04
{¶9} Moreover, even if the sentence was reviewable, the trial court
considered the appropriate sentencing factors and provided reasoning supporting its
sentence, such as Blessett’s criminal history, even though the trial court was not
required to state its reasoning. State v. Shreves, 3d Dist. Auglaize No. 2-16-11,
2016-Ohio-7824, ¶ 14. Thus even if we could review the sentence, Blessett could
not demonstrate that it was clearly and convincingly contrary to law. State v. Jones,
163 Ohio St.3d 242, 2020-Ohio-6729, ¶ 39 (discussing how under R.C.
2953.08(G)(2(b) there is no basis to modify or vacate a sentence based on the
appellate court’s view that the sentence is not supported by the record under R.C.
2929.11 and R.C. 2929.12). For all of these reasons, Blessett’s first assignment of
error is overruled.
Second Assignment of Error
{¶10} In his second assignment of error, Blessett argues that the trial court
erred by ordering his prison term in this case to be served consecutive to his prison
term imposed in a case from Hancock County.
Analysis1
{¶11} At the outset, we emphasize that Blessett does not argue in his brief
that the trial court failed to make the appropriate findings pursuant to R.C.
2929.14(C)(4) in order to impose consecutive sentences. Rather, he contends that
1
The same standard of review applied in the first assignment of error is applicable here as well.
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Case No. 16-22-04
the trial court erred by ordering that his sentence run consecutive to a sentence that,
he now claims, had not actually been imposed yet, citing this Court’s decision in
State v. Kavanagh, 3d Dist. Hardin No. 6-21-07, 2021-Ohio-4368, as support.
{¶12} Blessett’s contention on appeal that he had not been sentenced in
Hancock County at the time of sentencing in this case is factually inaccurate and
directly contrary to his own prior statement. At the sentencing hearing in this case
Blessett specifically stated that he “got sentenced on the 25th of April” in the
Hancock County case to “six to nine years.” (May 11, 2022, Tr. at 6).
{¶13} Moreover, Blessett’s attorney made a statement at the sentencing
hearing indicating that the Hancock County case was complete when the attorney
requested that the trial court run the sentence in this case concurrently with the
sentence from Hancock County.2 Based on these statements, Blessett cannot
demonstrate by clear and convincing evidence that his sentence in Hancock County
had not been imposed prior to sentencing in this matter.
{¶14} We have held in the past that a trial court exceeds its authority by
sentencing a criminal defendant consecutively to a sentence that has not yet been
imposed. See Kavanagh, supra. However, this case is entirely distinguishable from
Kavanagh because the prison term in this case was ordered to be served consecutive
to a prison term that had already been imposed by Blessett’s own statement.
2
By contrast, the State requested that the sentences run consecutively.
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Case No. 16-22-04
{¶15} In sum, the trial court made the requisite statutory findings to impose
Blessett’s prison term consecutive to his already-imposed prison term from
Hancock County. Therefore, Blessett has not clearly and convincingly demonstrated
that his consecutive sentences were contrary to law, and his second assignment of
error is overruled.
Conclusion
{¶16} For the foregoing reasons, Blessett’s assignments of error are
overruled and the judgment of the Wyandot County Common Pleas Court is
affirmed.
Judgment Affirmed
ZIMMERMAN, P.J. and WILLAMOWSKI, J., concur.
/jlr
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https://www.courtlistener.com/api/rest/v3/opinions/8488269/ | 140 [107 Op. Att’y
CONSTITUTIONAL LAW
EQUAL PROTECTION – REJECTING THE CONTINUING VALIDITY
OF PRIOR OPINIONS THAT UPHELD OR APPLIED RACIALLY
DISCRIMINATORY LAWS
November 21, 2022
The Honorable Bill Ferguson, President of the Senate
Maryland General Assembly
The Honorable Adrienne A. Jones, Speaker of the House
Maryland General Assembly
Earlier this year, we commenced a review of the validity of
prior official opinions of the Attorney General that upheld or
applied racially discriminatory Maryland laws that were later found
to be unconstitutional. This inquiry was inspired by a recent
opinion of the former Virginia Attorney General, Mark R. Herring,
who analyzed whether prior opinions in that state that “relied
upon—or promoted—racially discriminatory laws” were “still in
effect.” Va. Op. Att’y Gen. No. 21-103, 2022 WL 173637 (Jan.
12, 2022), https://www.oag.state.va.us/files/Opinions/2022/21-
103-Locke-and-Bagby-Issued.pdf. Like the Virginia Attorney
General, we conclude that some of the prior opinions of the
Attorney General of Maryland are no longer good law. More
specifically, in searching for prior opinions of the Attorney General
that upheld or applied racially discriminatory laws, we found many
such opinions that either explicitly relied on or implicitly accepted
two discriminatory legal principles that we now recognize as
abhorrent to the Constitution: (1) the notion that the State may
restrict interracial marriage and (2) the doctrine of “separate but
equal” in public facilities, especially public education. To the
extent that any prior opinions explicitly or implicitly upheld either
of these clearly invalid legal principles, we expressly overrule
them.1
1
We note that, in some instances, these opinions may have applied
other principles, such as the standard rules of statutory interpretation.
These opinions also sometimes involved analysis that can be separated
from the analysis that upheld or applied the discriminatory law at issue.
To be clear, we are focused here on the parts of these prior opinions that
explicitly or implicitly upheld racially discriminatory laws that we now
understand to be unconstitutional, or explicitly or implicitly upheld the
invalid legal principles that served as the basis for those laws. We
express no view as to any other aspects of those opinions.
Gen. 140] 141
I
Background
Maryland, like many states, has a long and unfortunate history
of racially discriminatory laws. In 1664, for example, the colonial
General Assembly passed a statute providing that all Black persons
in Maryland would be enslaved for life, codifying a practice that
had already existed for decades. 1664 Md. Laws, at 533-34; see
also Ross M. Kimmel, Blacks Before the Law in Colonial
Maryland, ch. 3 (Jan. 24, 1974) (M.A. thesis, Univ. of Md.),
https://msa.maryland.gov/msa/speccol/sc5300/sc5348/html/chap
3.html (last visited Oct. 26, 2022). Although a free Black population
eventually developed in the State, free Black Marylanders during the
time before the Civil War could not vote and could be sold back into
slavery if they were unemployed. See Maryland State Archives, A
Guide to the History of Slavery in Maryland 10 (2007),
https://msa.maryland.gov/msa/intromsa/pdf/slavery_pamphlet.pdf.
The Constitution of 1864 abolished slavery in Maryland, see
Md. Decl. Rights Art. 24 (1864), but legally sanctioned racial
discrimination persisted. For example, as we discuss in more detail
below, Maryland maintained a segregated system of public
education until the Supreme Court held such systems
unconstitutional in 1954, and the State restricted certain interracial
marriages until just before such laws were also held
unconstitutional in 1967. State and local governments enacted
other “Jim Crow” laws as well, such as laws mandating the
segregation of railroad passenger cars, 1904 Md. Laws, ch. 109;
1908 Md. Laws, ch. 248, restricting voting rights under a
“grandfather clause” in certain local elections, 1908 Md. Laws, ch.
525, and segregating residential neighborhoods, Baltimore City
Ord. No. 692 (May 15, 1911).2 Only during the era of the Civil
Rights Movement did the trend of discriminatory laws begin to
reverse in a significant way, with the enactment of civil rights
legislation such as a prohibition on discrimination in places of
public accommodation. 1964 Md. Laws (1st Spec. Sess.), ch. 29.
Of course, legally sanctioned racial discrimination in
Maryland was not limited to discrimination against Black people.
For example, the colony of Maryland did not recognize the
property rights of the Indigenous peoples who inhabited what is
now Maryland at the time of English colonization, see Robert J.
2
At the State level, however, multiple attempts to add a “grandfather
clause” to the State Constitution failed. See Garrett Power, Eugenics,
Jim Crow and Baltimore’s Best, 49 Md. Bar J. 4, 8 (Nov. 2016).
142 [107 Op. Att’y
Miller, The Doctrine of Discovery in American Indian Law, 42
Idaho L. Rev. 1, 23 (2005), and these Indigenous peoples were
gradually forced out of the colony or onto reservations that were
later abolished, see Maryland Manual, “Native Americans,”
https://msa.maryland.gov/msa/mdmanual/01glance/native/html/01
native.html (last visited Oct. 27, 2022); see also Letter from
Kathryn M. Rowe, Assistant Attorney General, to Del. Peter A.
Hammen, at 4 & n.3 (Mar. 31, 2009). In addition, members of
other racial and ethnic groups were sometimes grouped into the
disfavored legal category of “colored.” See, e.g., State v. Gurry,
121 Md. 534, 552 (1913) (discussing discrimination between
people who were categorized as “white” and those categorized as
“colored”); see also Isabel Wilkerson, Caste 122-27 (2020)
(discussing shifting boundaries of the “white” category throughout
U.S. history). Certain groups were also singled out for
discrimination, such as members of the “Malay race,” who were
prohibited from marrying white or Black people in Maryland in
1935. See 1935 Md. Laws, ch. 60.
In more recent years, the State and our Office have attempted
not only to eliminate discrimination going forward but also to
confront the discrimination of the past. For example, in 2007 the
General Assembly formally expressed “profound regret for the role
that Maryland played in instituting and maintaining slavery and for
the discrimination that was slavery’s legacy.” 2007 Md. Laws,
Joint Res. 1. Indeed, our Office has supported the work of
addressing the State’s history of discrimination by, for example,
helping to staff the Maryland Lynching Truth and Reconciliation
Commission. 2019 Md. Laws, ch. 41, § 1(d)(2). But we also have
a responsibility to acknowledge our Office’s own past actions that
might have perpetuated racial discrimination in the State. To that
end, we have reviewed the official opinions of the Office of the
Attorney General, dating back to the first published volume in
1916, to search for any opinions that might have applied,
interpreted, or upheld racially discriminatory laws.3
As much as we might prefer otherwise, our research showed
that the Office of the Maryland Attorney General was sometimes
complicit in the State’s history of racial discrimination. Both
before and during the Civil Rights Movement, prior Attorneys
General were asked questions about the interpretation and the
3
Although the Attorney General undoubtedly issued written opinions
prior to 1916, the first published volume of opinions was issued that year,
which is the same year that the Department of Law (the predecessor of
our Office) was first created. We thus began our review with 1916.
Gen. 140] 143
enforceability of racially discriminatory laws. In particular, our
predecessors were asked on several occasions about Maryland’s
laws prohibiting interracial marriage and its laws imposing racial
segregation in the State’s public schools. As we shall see, in some
cases, the opinions explicitly advised that racially discriminatory
laws should continue to be enforced and, in other cases, interpreted
or applied racially discriminatory laws or legal principles without
acknowledging or grappling with the constitutional problems they
raised.
II
Analysis
Our Office’s published opinions serve as the official
pronouncements of the Attorney General on questions of law. See
Md. Const., Art. V, § 3(a)(4). Although these official opinions are
not binding on the courts, they “serve as important guides to those
charged with the administration of the law.” Mitchell v. Register
of Wills, 227 Md. 305, 310 (1962). Thus, we ordinarily “stand[] by
[our] precedent, much as a court would,” and we “will not overrule
a prior opinion simply because we might have resolved a close
question the other way.” 72 Opinions of the Attorney General 200,
202 (1987). “At the same time, we will not perpetuate a significant
mistake in legal reasoning” and are always “prepared to recognize
that a prior opinion has been eroded by changed circumstances.” Id.
With those principles in mind, we consider the continuing
validity of prior opinions of the Attorney General that involved
racially discriminatory laws. Based on our research, these opinions
fell into two general categories: those involving laws that restricted
interracial marriage and those involving school-segregation laws.
We discuss each category of opinions in turn.4
A. Laws Restricting Interracial Marriage
In 1664, Maryland enacted its first law restricting interracial
marriages. That law was specifically designed to prevent marriage
between white English women and enslaved Black men. Kimmel,
supra, ch. 3. Over the ensuing centuries, Maryland continued to
pass similar laws. See, e.g., 1884 Md. Laws, ch. 264 (prohibiting
“marriages between white persons and persons of negro descent to
4
In some cases, even when the result and the legal reasoning of an
opinion may not have been discriminatory, the opinions used outdated
or racist terminology. See, e.g., 54 Opinions of the Attorney General 207
(1969). We disavow the use of such language.
144 [107 Op. Att’y
the third generation”); 1935 Md. Laws, ch. 60 (prohibiting a white
or Black person from marrying a person of the “Malay race”). In
fact, the State had such a law on the books until just days before
the Supreme Court held, in Loving v. Virginia, 388 U.S. 1 (1967),
that such laws violated the United States Constitution. See 1967
Md. Laws, ch. 6, § 3 (repealing the law restricting interracial
marriages, effective June 1, 1967); Loving, 388 U.S. at 1 (noting
that the opinion was issued on June 12, 1967). That law provided,
in relevant part:
All marriages between a white person and a
negro, or between a white person and a person
of negro descent, to the third generation,
inclusive, or between a white person and a
member of the Malay race or between a negro
and a member of the Malay race, or between
a person of negro descent, to the third
generation, inclusive, and a member of the
Malay race, are forever prohibited, and shall
be void.
Md. Code, Art. 27, § 398 (1967). Before the Supreme Court’s
decision in Loving, the Office of the Attorney General was asked
about these laws on several occasions.
For the most part, the Office interpreted these laws without
expressly considering their constitutionality. For example, in a
1928 opinion, the Clerk of the Court of Common Pleas asked if it
was proper to issue a marriage license to a white man and a woman
whose paternal grandparents were Black. 13 Opinions of the
Attorney General 164, 164 (1928). The Attorney General at the
time responded that Maryland law prohibited a Black person from
marrying a white person and advised the clerk to refuse to issue the
license, but the opinion did not consider whether the statute was
constitutional. Id. Similarly, in 1940, the then-Attorney General
opined that State law prohibited a white woman from marrying a
Filipino man, again without considering whether the prohibition
was constitutional.5 25 Opinions of the Attorney General 127, 127-
28 (1940); see also 18 Opinions of the Attorney General 346, 347
5
In the same opinion, the Office concluded that there was no
prohibition on marriages between a Japanese person and a white person
or between a Chinese person and a white person. But that was because
there was no statutory prohibition on such marriages, not because our
predecessors thought that such a prohibition would raise any
constitutional issues. 25 Opinions of the Attorney General at 128.
Gen. 140] 145
(1933) (mentioning without further comment, in an opinion about
a different topic related to marriage and divorce, that Maryland law
prohibited marriages between a white person and a Black person or
a person with Black ancestry).
In other instances, however, the Office acknowledged the
constitutional questions raised by these discriminatory laws but
nonetheless proceeded to treat them as enforceable or advise that
they should continue to be enforced. For example, in 1961, the
clerk for the Circuit Court for Harford County asked if his office
should continue to refuse marriage licenses to interracial couples
when their marriage would be prohibited under Maryland law, and
the then-Attorney General advised that the clerk should indeed
continue to enforce the State’s law prohibiting certain interracial
marriages. 46 Opinions of the Attorney General 44, 44-48 (1961).
The Attorney General concluded that he could only advise that
existing laws enacted by the General Assembly were unconstitutional
“where there has been the clearest indication that a decision of the
courts of our State or of the United States is applicable to and
invalidates those laws.” Id. at 46. In his view, because the
Maryland and federal courts had yet to clearly declare these types
of laws to be unconstitutional, the clerk was required to continue to
enforce Maryland’s law. Id. at 46-48.6 The Attorney General then
gave the same answer a few years later, in response to a question
from a member of the House of Delegates about the statute’s
constitutionality, despite acknowledging that “[i]n view of the
recent decisions of the Supreme Court of the United States, of the
federal courts, and the courts of this State, it might very well be
found that this statute is in violation of the federal constitution.” 51
Opinions of the Attorney General 150, 153 (1966).7
6
The question of when the Office of the Attorney General should
advise that an existing State law is unconstitutional in the absence of
binding precedent directly on point is an admittedly difficult one that
raises challenging questions about the separation of powers and the role
of the Attorney General under our State’s system. Indeed, this is a
question that we have continued to grapple with over the years in other
contexts. See, e.g., 106 Opinions of the Attorney General 82, 91-92
(2021); 93 Opinions of the Attorney General 154, 160-61 (2008). The
point of our opinion here today is not to decide the exact contours of that
question but rather simply to disavow and to overrule the Office’s prior
opinions to the extent that they upheld racially discriminatory laws that
are now clearly unconstitutional.
7
The Attorney General also noted that there was no law prohibiting
couples of different races, who had been married in another jurisdiction,
from living together in Maryland. 51 Opinions of the Attorney General
146 [107 Op. Att’y
Similarly, when the Office was asked shortly thereafter
whether someone with one parent who was white and one parent
who was of the “Malay” race was prohibited from marrying a white
person, the Attorney General acknowledged that laws banning
interracial marriages had been found unconstitutional in at least
some other states and that the United States Supreme Court was
currently considering the question in Loving v. Virginia. 52
Opinions of the Attorney General 35, 35-36 (1967). But the then-
Attorney General nevertheless proceeded to consider the question
of statutory interpretation that had been asked, noting that “[u]ntil
such a Supreme Court decision clearly and unqualifiedly applicable
to the Maryland statute or a final judgment of a Maryland court of
appellate jurisdiction holds our law invalid, we must proceed
without questioning the overall constitutional propriety” of the
statute. Id. at 36.
Ultimately, the opinion concluded that a marriage between a
white person and a person with one white parent and one “Malay”
parent was permissible, but not on the ground that there was
anything constitutionally problematic about the law. Id. at 38.
Rather, the Attorney General concluded as a matter of statutory
interpretation that the statute’s prohibition applied only to persons
who were of the “Malay” race, not persons of Malay descent. Id.
Obviously, these opinions are inconsistent with the Supreme
Court’s holding in Loving v. Virginia and with our current
understanding of the Constitution. As the Supreme Court declared
in its seminal decision in Loving, “[t]o deny th[e] fundamental
freedom [to marry] on so unsupportable a basis as the racial
classifications embodied in these statutes, classifications so
directly subversive of the principle of equality at the heart of the
Fourteenth Amendment, is surely to deprive all the State’s citizens
of liberty without due process of law.” 388 U.S. at 12.
Even though some of these prior opinions were framed as
resolving questions of statutory interpretation and so did not
expressly consider the constitutionality of the underlying laws, they
nonetheless applied and interpreted the laws as if they were
constitutional. Thus, these opinions upholding or applying these
statutes are no longer good law and are overruled to the extent that
at 153. But the opinion stopped short of saying that such out-of-state
marriages would be recognized as valid in Maryland. Cf. 95 Opinions of
the Attorney General 3, 6 (2010) (concluding, prior to Maryland’s
legalization of same-sex marriage, that Maryland law would likely
recognize such marriages if “contracted validly in another jurisdiction”).
Gen. 140] 147
they upheld—either explicitly or implicitly—the discriminatory
legal principle that the State was permitted to prohibit interracial
marriages.8
B. School Segregation
Although Maryland had made sporadic attempts to establish
a free public school system since the early nineteenth century, the
State’s 1864 Constitution made the first provision for a Statewide
system of public schools. Md. Const., Art. VIII, § 4 (1864); see
also Maryland Manual, “State Department of Education: Origin,”
https://msa.maryland.gov/msa/mdmanual/13sdoe/html/sdoef.html
(last visited Oct. 27, 2022). That system was segregated from the
start. The General Assembly’s 1865 implementing legislation
required each school district to have “one or more schools
. . . which shall be free to all white youth,” 1865 Md. Laws,
ch. 160, at 282, and separately provided for “schools for colored
children” to be funded, if at all, exclusively by donations and by
taxes paid by Black Marylanders, id. at 296-97. This was the
beginning of “a formal system of segregated schooling that
continued for ninety years.” “State Department of Education:
Origin,” supra; see also 99 Opinions of the Attorney General 88, 91
(2014) (noting that Maryland retained de jure segregation in public
education at the time of the Supreme Court’s Brown decision).
The State also maintained a segregated system of higher
education, again relying on the principle of “separate but equal”
even where the separate facilities for Black students were
demonstrably unequal. See, e.g., Recommendations of the
Maryland Commission on Higher Education, at 24-25 (1947).
Indeed, prior to 1920, Maryland offered no public higher education
opportunities to Black students at all. See Coalition for Equity &
Excellence in Md. Higher Educ. v. Maryland Higher Educ.
Comm’n, 977 F. Supp. 2d 507, 513 (D. Md. 2013). Over the
following decades the State gradually developed what are now its
historically Black colleges and universities (sometimes by
acquiring formerly private institutions, as in the case of Morgan
8
To be clear, we do not necessarily mean to cast doubt on the
principles of statutory interpretation that these opinions employed
(though, in at least some cases, the Office’s statutory interpretation too
may have been tainted by discriminatory reasoning). As noted above,
supra note 1, it is not within the scope of our opinion here today to
consider whether the Office properly interpreted the laws then in effect
as written. The point is instead that the opinions are no longer good law
to the extent that they explicitly or implicitly upheld the constitutionality
of prohibiting interracial marriage.
148 [107 Op. Att’y
State University). See id. at 513-15. The Maryland courts also
ordered the integration of the University of Maryland School of
Law in 1936, because the State had no law school at all for Black
students. See University of Md. v. Murray, 169 Md. 478, 487-88
(1936). But the system as a whole remained segregated.
In 1954, of course, the U.S. Supreme Court declared the
segregation of public schools to be unconstitutional. Brown v.
Board of Educ., 347 U.S. 483 (1954). The Court held that “the
doctrine of ‘separate but equal’ has no place” in “the field of public
education” and declared that “[s]eparate educational facilities are
inherently unequal.” Id. at 495. The Attorney General subsequently
advised the State Superintendent of Schools, first informally and
then in an official opinion, that Brown was “crystal clear” and that,
under its holding, “all constitutional and legislative acts of
Maryland requiring segregation in the public schools in the State
of Maryland are unconstitutional, and hence must be treated as
nullities.” 40 Opinions of the Attorney General 175, 175-77
(1955). However, as we will discuss, the Office was more resistant
to the idea of extending Brown to require desegregation in other
areas.
Although the cases consolidated in Brown arose from
elementary and secondary schools, it was quickly recognized that
Brown required desegregation in higher education as well. Mary
Ann Connell, Race and Higher Education: The Tortuous Journey
Toward Desegregation, 36 J. Coll. & Univ. L. 945, 951-52 (2010).
After Brown, then, the Supreme Court and lower courts had little
difficulty confirming that public colleges, universities, and
graduate schools must desegregate. See, e.g., Florida ex rel.
Hawkins v. Board of Control, 350 U.S. 413, 414 (1956) (per
curiam) (involving the University of Florida College of Law);
Meredith v. Fair, 305 F.2d 343, 344, 361 (5th Cir. 1962) (involving
the University of Mississippi).
As far as we have been able to tell, the Office of the Maryland
Attorney General did not issue any opinions expressly considering
the constitutionality of school-segregation laws prior to the
Supreme Court’s decisions overturning such laws.9 Instead, the
9
The Office of the Attorney General did recognize, before Brown,
that when a Black student was admitted to a normally all-white
institution, the Black student had to be given access to the institution’s
facilities, such as dormitories, on the same terms as white students. 36
Opinions of the Attorney General 334, 334-35 (1951). But the opinion
Gen. 140] 149
Office received questions about how to interpret various laws that
supported the State’s regime of segregated schools, and our
predecessors generally interpreted or otherwise cited those laws
without raising any questions about their constitutionality.10 For
example, in 1937, the Office considered whether the University of
Maryland could remove two Black students who had been admitted
to its law school on the basis of a new statute that afforded
scholarship funds for Black students to attend out-of-state higher
education institutions when they were otherwise qualified for
admission to Maryland programs (like law school) that were not
offered at the State’s colleges for Black students. 22 Opinions of
the Attorney General 827, 827-28 (1937). Although the Office
concluded that the law did not apply retroactively to allow the
removal of those two students, id. at 828, the opinion did not
question the legality of the new legislative scheme, even though a
clear purpose of that scheme was to try to provide a legal argument
justifying the re-segregation of the University of Maryland’s law
school on the grounds that Black students had now been given
scholarships to attend a supposedly “separate but equal” law school
outside the State.11
did not question or consider the constitutionality of a separate-but-equal
regime more generally.
10
See 6 Opinions of the Attorney General 146, 146-48 (1921)
(interpreting the statutory funding requirements for a “central colored
industrial school” in Charles County without questioning the creation of
a separate school for Black students); 19 Opinions of the Attorney
General 527, 527-28 (1934) (analyzing whether a scholarship program
for Black students was limited to use at “Princess Anne Academy”—
which was a State higher education institution solely for Black
students—without questioning the legality of having a segregated
college); 21 Opinions of the Attorney General 807, 807-08 (1936)
(deciding which entity had the legal duty to fund a “training school” for
“colored girls” without considering the legality of segregation of such
schools); see also 5 Opinions of the Attorney General 136, 137-38
(1920); 5 Opinions of the Attorney General 139, 140 (1920); 6 Opinions
of the Attorney General 556, 556-57 (1921); 8 Opinions of the Attorney
General 113, 114 (1923); 10 Opinions of the Attorney General 105, 105
(1925); 12 Opinions of the Attorney General 85, 86 (1927); 19 Opinions
of the Attorney General 343, 344-45 (1934); 24 Opinions of the Attorney
General 577, 577-78 (1939); 27 Opinions of the Attorney General 79, 79
(1942).
11
The next year, the U.S. Supreme Court found that such a
scholarship scheme in a different state did not satisfy that state’s
constitutional obligations even under the pre-Brown standard of
“separate but equal.” Missouri ex rel. Gaines v. Canada, 305 U.S. 337,
348-50 (1938).
150 [107 Op. Att’y
In fact, in one instance, our predecessors even suggested
continuing approval of the doctrine of “separate but equal,” though
that was not the focus of that opinion. More specifically, when
considering the same scholarship program that was at issue in the
1937 opinion, the then-Attorney General acknowledged that “the
State [was] constitutionally required to extend to its citizens, white
and colored alike, substantially equal treatment in the facilities it
provides from the public funds” but went on to say that “[t]his
equality does not require that the privilege be provided members of
the two races in the same place.” 27 Opinions of the Attorney
General 278, 278 (1942).
Although these pre-Brown opinions generally did not
consider the constitutionality of school-segregation regimes, they
also did not question the legality of such regimes. We thus overturn
these prior opinions to the extent that, by interpreting and applying
Maryland’s racially discriminatory laws, they implicitly upheld the
principle that segregation of public schools was constitutionally
permissible.12
After the Supreme Court’s decision in Brown, the Office of
the Attorney General was asked on multiple occasions to address
the constitutionality of some of the State’s remaining school-
segregation laws. The Office’s opinions responding to those
questions, however, were not always consistent with the spirit of
the Brown decision (or with our current understanding of the
Constitution).
In a 1956 opinion, for instance, the then-Attorney General
considered whether Brown and related cases also invalidated the
Maryland statutes that created segregated “training schools.” 41
Opinions of the Attorney General 120, 120 (1956). The training
schools in question had been created as “places to separate erring
minors from the corrupting influence of improper circumstances”
and, given that the minors resided there by order of the Maryland
courts, the training schools functioned in part as schools and in part
as correctional institutions. Id. at 127. The Attorney General
concluded that the “training schools” were different enough from
the public schools that had been at issue in Brown to leave some
question about whether the Maryland laws providing for
12
Again, we express no view on whether the prior opinions correctly
interpreted the statutes in question as they existed at the time and no view
about the other aspects of the opinions that did not involve the implicit
or explicit approval of the legal principles underlying the State’s
segregation regime.
Gen. 140] 151
segregated training schools had been invalidated by Supreme
Court’s decision. Id. More specifically, in the then-Attorney
General’s view, the fact that the training schools served in part as
correctional institutions meant the Supreme Court’s rationale in
Brown, which he claimed was based only on concerns about
educational equality, did not necessarily apply. Id. at 128-29.13
Even when given an opportunity three years later to change his
mind, the then-Attorney General reiterated his view, finding again
that the segregation of the State’s training schools had not yet been
rendered clearly unconstitutional by Supreme Court precedent. 44
Opinions of the Attorney General 123, 125 (1959).
Eventually, Maryland’s highest court decided the question
and held, unsurprisingly, that the segregation of Maryland’s
training schools clearly violated the Constitution under Brown.
State Bd. of Pub. Welfare v. Myers, 224 Md. 246, 253-55 (1961).
The Court explained that the U.S. Supreme Court in Brown had
“flatly stated that in the field of public education the doctrine of
‘separate but equal’ has no place” and had “repudiated” the “basic
rationale” of the “separate but equal” doctrine from Plessy v.
Ferguson. Id. at 253. Thus, the Maryland courts found, “[t]here
can be no doubt the principle extends to public education at all
levels,” including the “educational programs offered in the training
schools.” Id. at 253-54. Following the decision in Myers, the
Attorney General issued an opinion which acknowledged that the
segregation of training schools was unconstitutional. 46 Opinions
of the Attorney General 51, 51 (1961). Although the two prior
opinions upholding segregation in training schools were effectively
overturned by that 1961 opinion, we now formally overturn them
as well.
III
Conclusion
The U.S. Supreme Court and the Maryland courts have made
clear that laws prohibiting interracial marriage and providing for
the racial segregation of public schools are illegal and contrary to
13
In drawing that comparison, the then-Attorney General relied on
the disturbing argument that desegregation of the training schools “could
have the effect of enforcing social as well as educational association
among the inmates for twenty-four hours a day.” 41 Opinions of the
Attorney General at 129 (emphasis in original). The undeniably racist
notion appeared to be that requiring white children to live with Black
children (and vice versa) could somehow lead to societal harms that
requiring them to go to school together would not.
152 [107 Op. Att’y
the values of our federal and State constitutions. Thus, the prior
opinions of the Attorney General involving such laws are no longer
good law to the extent that they explicitly or implicitly upheld
either these discriminatory laws or the discriminatory legal
principles used to justify such laws. Although, as a practical
matter, those aspects of the opinions were long ago rendered
unenforceable by changes in the law, we recognize that the
opinions continue to serve as a reminder of the history of racial
injustice perpetuated through the legal institutions of our State
government. We thus formally overrule the portions of those
opinions that upheld or relied on the erroneous view that the State
could prohibit interracial marriages and impose the segregation of
public facilities under the doctrine of “separate but equal.”
Renouncing these unfortunate opinions cannot change the past, but
we hope that it will serve to reinforce our Office’s current
commitment to equality under the law.
Brian E. Frosh
Attorney General of Maryland
Thomas S. Chapman
Assistant Attorney General
Patrick B. Hughes
Chief Counsel,
Opinions and Advice
* Whitney Grimm and Sharon Kimemia, former interns for the
Office of the Attorney General, contributed significantly to the
preparation of this opinion. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488277/ | J-E03001-21
2022 PA Super 197
AISHA MONROE : IN THE SUPERIOR COURT OF
: PENNSYLVANIA
Appellant :
:
:
v. :
:
:
CBH20, LP, D/B/A CAMELBACK SKI :
RESORT D/B/A CAMELBACK SKI :
CORPORATION : No. 1862 EDA 2019
Appeal from the Order Dated May 16, 2019
In the Court of Common Pleas of Monroe County Civil Division at No(s):
8184-CV-2016
BEFORE: PANELLA, P.J., BENDER, P.J.E., BOWES, J., OLSON, J., STABILE,
J., KUNSELMAN, J., NICHOLS, J., KING, J., and McCAFFERY, J.
OPINION PER CURIAM: FILED NOVEMBER 21, 2022
Aisha Monroe appeals from the May 16, 2019 order that granted the
motion for judgment on the pleadings and supplemental motion for summary
judgment filed by Camelback Ski Corporation (“Camelback”). As we find that
Camelback was not entitled to judgment as a matter of law pursuant to either
Pa.R.C.P. 1034 (judgment on the pleadings) or Pa.R.C.P. 1035.1-1035.3
(summary judgment), we reverse the order and remand the case for further
proceedings.
____________________________________________
We present our decision in this case as a per curiam opinion because it is the
product of the efforts of more than one member of this panel. Specifically,
Part III(A) of our opinion is attributable to Judge Kunselman. The remainder
of the opinion was authored by Judge Bowes.
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I. Facts and Procedural History
Aisha Monroe initiated this action against Camelback by a complaint that
was transferred to Monroe County from Philadelphia County upon the
stipulation of the parties. The initial complaint contained a single count of
negligence, alleging that Ms. Monroe was injured as the result of Camelback’s,
inter alia, failure “to use reasonable prudence and care to take care of the
customers’ safety complaints” and its “[a]cting in disregard of the rights of
safety of [Ms. Monroe] and others similarly situated[.]” Complaint, 7/27/16,
at ¶ 21(c), (e). Camelback filed preliminary objections to strike the above-
quoted allegations as “improper, broad and vague.” Preliminary Objections,
12/19/16, at ¶ 3. Although the complaint alleged in several places that
Camelback acted recklessly and with a conscious disregard of Ms. Monroe’s
safety, Camelback did not raise preliminary objections in the nature of a more
specific pleading regarding the factual underpinnings of the allegations of
recklessness. Nor did it object in the nature of a demurrer by contending that
the allegations of recklessness were legally insufficient.
Ms. Monroe mooted Camelback’s preliminary objections by filing an
amended complaint again raising a single count of negligence.1 Therein, she
repeated the averment, to which Camelback had stated no prior objection,
____________________________________________
1 The amended complaint named the defendant as is represented in the
caption of this appeal, namely “CBH20, LP, d/b/a Camelback Ski Resort d/b/a
Camelback Ski Corporation.”
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that Camelback “kn[ew] that there was a high risk of injur[y] during the
landing process,” and that her injury was “a direct and proximate result of
[Camelback] consciously disregarding [her] safety[.]” Amended Complaint,
1/25/17, at ¶¶ 12, 17. Ms. Monroe amended the offending paragraph to state
that Camelback’s “recklessness, carelessness and negligence” included, inter
alia:
a. Failing to properly monitor the speed of the zip-line, in
disregard of the safety of [Ms. Monroe];
b. Failing to use reasonable prudence and care by leaving
[Ms. Monroe] to land with no help, in disregard of the safety of
[Ms. Monroe];
c. [Left blank]
d. Failing to use reasonable prudence and care to respond to
[Ms. Monroe]’s safety concerns during the zip[-]lining, specifically
when [Ms. Monroe] as[ked Camelback] to slow down the zip[-
]lining machine, in disregard of the safety of Ms. Monroe; and,
e. Failing to inspect and/or properly monitor the zip[-]lining
machine engine, in disregard of the safety of [Ms. Monroe].
Id. at ¶ 21.
Camelback again did not object to the specificity or legal sufficiency of
Ms. Monroe’s allegations of reckless conduct, opting instead to file an answer,
new matter, and counterclaim, contending, inter alia, that Ms. Monroe’s claim
was barred by the Activity Release and Agreement Not to Sue (“Release”) that
it attached to its pleading. That document indicated that Ms. Monroe
acknowledged that she assumed those risks “of which the ordinary prudent
person is or should be aware” created by Camelback’s amusement activities,
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including “injury or even death.” Answer, 3/29/17, at Exhibit A. The Release
further reflected that, in consideration for the privilege of being allowed to use
Camelback’s facilities, Ms. Monroe agreed not to sue Camelback for any injury
sustained, “even if [she] contend[ed] that such injuries [were] the result of
negligence, gross negligence, or any other improper conduct for which a
release is not contrary to public policy.” Id. (capitalization omitted). In its
counterclaim, Camelback alleged that it was entitled to damages based upon
Ms. Monroe’s breach of the release agreement. Id. at ¶¶ 47-49.
After Ms. Monroe filed her reply and answer, the trial court entered a
case management order (“CMO”) establishing pre-trial deadlines. Pursuant to
the CMO, counsel were attached for trial during the two-week trial term
beginning May 7, 2018. Discovery was to be completed and Ms. Monroe was
to serve Camelback with expert reports by November 7, 2017. Camelback
was to serve its expert reports and file any dispositive motions by January 8,
2018, which was four months before the earliest trial date.
Camelback did not ask the trial court to rule on the legal sufficiency of
Ms. Monroe’s complaint by filing a motion for judgment on the pleadings on
or before the due date for dispositive motions. Rather, Camelback filed a
motion for summary judgment contending only that the Activity Release that
Ms. Monroe signed was a complete bar to her negligence claim. See Motion
for Summary Judgment, 1/8/18, at ¶ 18. The certified record reflects that on
March 12, 2018, Ms. Monroe filed both a paragraph-by-paragraph response to
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Camelback’s summary judgment motion and a memorandum of law in
opposition thereto. Ms. Monroe filed of record her evidence demonstrating
material issues of fact by attaching exhibits to her memorandum of law, not
to the response. See Memorandum of Law, 3/12/18, at Exhibits A-C.
The substance of Ms. Monroe’s opposition to Camelback’s motion was
that Camelback’s release did not immunize it from reckless conduct, as our
Supreme Court ruled in Tayar v. Camelback Ski Corp., 47 A.3d 1190, 1203
(Pa. 2012) (“[E]ven in this voluntarily recreational setting involving private
parties, there is a dominant public policy against allowing exculpatory releases
of reckless behavior, which encourages parties to adhere to minimal standards
of care and safety.”). See Response in Opposition to Motion for Summary
Judgment, 3/12/18, at ¶ 13. In her brief in opposition, Ms. Monroe discussed
the evidence, appended to the brief, which she contended supported a finding
of recklessness. Specifically, she attached her medical records and the
depositions of two Camelback employees who witnessed her injury. See
generally Memorandum of Law, 3/12/18, at Exhibits A-C. That evidence
collectively indicated the following.
There were two similar zip-lines next to each other at Camelback’s
facility, one with a weight limit of 175 pounds and the other of 250 or 265
pounds. Approximately two to four times each day, depending on the weight
of the person using the zip-line, the line would ripple rather than stay level,
lifting the rider up and down. In such instances, the heavier rider would have
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to pick his or her feet up to avoid slamming into the landing area. The weight
limit purported to address the physical limitations which would affect the
rider’s ability to pick his or her feet up at the end. On the date in question,
Ms. Monroe weighed just over 200 pounds. She utilized the zip-line with the
higher weight limit, and thus was no more than eighty percent of the
maximum capacity. Nonetheless, the zip-line lifted Ms. Monroe up and
slammed her into the landing area, causing a broken tibia and fibula requiring
substantial medical procedures and expenses, including physical therapy.
Before the trial court ruled on Camelback’s motion, it entered an order
scheduling a pretrial conference for April 12, 2018, and jury selection for
May 8, 2018. Ms. Monroe filed an uncontested motion to vacate the trial
listing, indicating that trial was premature given the pendency of Camelback’s
motion for summary judgment as well as noting counsel’s attachment for an
Allegheny County trial. The trial court vacated the trial listing and remanded
the case for non-binding arbitration.
While arbitration was pending, the trial court issued an order on
June 13, 2018, denying Camelback’s motion. The trial court explained its
ruling as follows:
Plaintiff’s Complaint alleges recklessness on behalf of the
Defendant. Pennsylvania law holds that an exculpatory clause in
a contract does not release a defendant from liability arising out
of recklessness. Tayar v. Camelback Ski Corp., 47 A.3d 1190
(Pa. 2012). Accepting the facts alleged in Plaintiff’s Complaint as
true, summary judgment is improper at this time.
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Order, 6/13/18.2
The parties proceeded to arbitration on October 17, 2018, which
resulted in an award in favor of Camelback on Ms. Monroe’s negligence claim
and in favor of Ms. Monroe on Camelback’s counterclaim for breach of the
Release. Ms. Monroe filed a timely appeal, and the trial court directed the
prothonotary to place the case on the April 2019 trial list and the parties to
file pretrial statements in accordance with Pa.R.C.P. 212.1 (providing the
plaintiff and defendant shall respectively file pretrial statements sixty and
thirty days prior to the earliest trial date). See Order, 11/19/18.
On January 14, 2019, Camelback filed a motion in limine seeking to
preclude Ms. Monroe “from pursuing her claims in negligence or even
referencing negligence at time of trial” since she released those claims. Motion
in Limine, 1/14/19, at unnumbered 6. Raising for the first time in the certified
record a contention that Ms. Monroe “failed to establish any evidence of record
____________________________________________
2 While the propriety of this ruling is not before us in this appeal, we observe
that the trial court patently applied the standard applicable to judgment on
the pleadings, rather than the one pertinent to summary judgment, in ruling
on Camelback’s motion seeking the latter. Compare Front St. Dev.
Associates, L.P. v. Conestoga Bank, 161 A.3d 302, 307 (Pa.Super. 2017)
(observing that a court adjudicating a motion for judgment on the pleadings
must accept as true all well-pleaded facts); with Cigna Corp. v. Executive
Risk Indem., Inc., 111 A.3d 204, 210 (Pa.Super. 2015) (explaining that a
party may not rest on the pleadings in opposing summary judgment but must
proffer evidence to establish issues on which he bears the burden of proof at
trial). Pertinent to our analysis infra, this order could not but cause
Ms. Monroe to believe that her complaint was legally sufficient to allege
recklessness such that taking corrective action, by seeking leave to amend
the complaint, was unnecessary.
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to pursue a claim for ‘recklessness’ or ‘reckless conduct,’” Camelback
nonetheless indicated that the “case should proceed to trial, if at all, only on
Plaintiff’s theory of ‘recklessness.’” Id. at ¶¶ 19-20. Although Camelback’s
motion, to the extent that it suggested that Ms. Monroe had insufficient
evidence to warrant a trial, was an untimely dispositive motion rather than
one seeking a mere evidentiary ruling, the trial court declined to entertain it
prior to the trial which was, at the time, still three months away. The trial
court instead ordered that the motion was taken under advisement and would
“be decided at the time of trial.” Order, 1/15/19.
By order entered January 28, 2019, the trial court scheduled a pre-trial
conference for March 20, 2019, and jury selection to take place on April 2,
2019. The parties filed their pretrial statements accordingly.
The next docket entry is an order entered memorializing as follows the
positions taken at the off-the-record pretrial conference:
[A]fter pretrial conference with counsel for the parties at which
time Plaintiff has indicated that the Defendant’s Motion in Limine
is unopposed, it is ordered that the Motion in Limine is granted.
It is further ordered that this matter is stricken from the April 2019
trial term. Counsel for Defendant is given thirty (30) days in which
to file a Motion for Summary Judgment on the issue of
recklessness.
Order, 3/28/19.
On April 16, 2019, which was more than a year after Ms. Monroe
opposed Camelback’s initial motion for summary judgment with allegations of
recklessness, ten months after the trial court ruled that the allegations in
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Ms. Monroe’s complaint sufficiently established recklessness, and two weeks
after the parties had been scheduled to select their jury, Camelback filed a
“Motion for Judgment on the Pleadings and Supplemental Motion for Summary
Judgment.” Therein, Camelback for the first time claimed that Ms. Monroe
failed to plead facts that sufficiently describe how Camelback was reckless
when she filed the operative complaint, without objection as to specificity,
nearly two years prior. See Motion for Judgment on the Pleadings and
Supplemental Motion for Summary Judgment, 4/16/19, at ¶ 20. Camelback
also argued, for the first time of record, that Ms. Monroe’s evidence of
recklessness was insufficient because the subject matter of Ms. Monroe’s claim
required expert testimony to establish the pertinent duty of care and how
Camelback grossly deviated therefrom. Id. at ¶¶ 33-38.
Ms. Monroe submitted a Response in Opposition to Camelback’s motion
and a Memorandum of Law in support of her response to which were appended
Exhibits A through G, which included the report of Steve Wolf, an expert in
the construction and operation of zip-lines. On May 16, 2019, the
prothonotary docketed those documents as a single filing which became part
of the record subsequently certified to this Court. Therein, Ms. Monroe
contended that it would be a miscarriage of justice to grant Camelback’s
motion for judgment on the pleadings because application of the pertinent
legal principles to the developed factual record did not reveal that it was
certain that no recovery was possible. See Memorandum of Law in Support of
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Response in Opposition to Motion for Judgment on the Pleadings and
Supplemental Motion for Summary Judgment, 5/16/19, at unnumbered 8-9.
Ms. Monroe further contended that the record revealed a jury question as to
whether Camelback acted recklessly, referencing Mr. Wolf’s report in addition
to the evidence proffered in opposition to Camelback’s timely dispositive
motion. See id. at 7-8, Exhibit A.
Mr. Wolf opined that the zip-line had a landing platform with a face that
“protrudes sharply and vertically from the ground around it, at a 90 degree
angle to the ground,” making the landing deck “perfectly positioned to cause
an injury.” Id., Exhibit A at 4.3 Mr. Wolf’s report stated that Camelback could
have alleviated that obstacle by “lowering the face of the landing deck to
____________________________________________
3 Mr. Wolf included the following diagram in his report:
Memorandum of Law in Support of Response in Opposition to Motion for
Judgment on the Pleadings and Supplemental Motion for Summary Judgment,
5/16/19, Exhibit A at 4.
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ground level or filling in the gap between the ground and the face of the
landing deck with an aggregate material” such as dirt or sand. Id. Mr. Wolf
further opined that the staff knew of the danger as evidenced by the fact that
they covered the protrusion with a piece of carpeting. However, Mr. Wolf
maintained that the carpeting merely concealed the danger rather than
remedying it. He concluded: “[T]he injuries sustained by Ms. Monroe are
attributable directly to [the] failure of Camelback to act to prevent injury, and
the intentional disregard for safety taken by Camelback in their decision to
conceal rather than to remove an obvious threat to the safety of their trusting
clients.” Id. at 5.
On May 16, 2019, the trial court entered an order stating that, “upon
consideration of the Motion for Judgment on the Pleadings/Motion for
Summary Judgment filed by [Camelback], it is hereby ORDERED that said
Motion is GRANTED, and all claims against Defendant are DISMISSED, with
prejudice.” Order, 5/16/19. Thereafter, Ms. Monroe filed a timely notice of
appeal, and both she and the trial court complied with Pa.R.A.P. 1925.
On October 22, 2020, a divided panel of this Court affirmed the trial
court. The Majority concluded that the trial court properly entered judgment
on the pleadings in favor of Camelback because Ms. Monroe’s complaint
contained insufficient factual averments to support a finding of recklessness.
Thus, the Majority did not need to reach the propriety of the entry of summary
judgment. However, the Majority noted that, if it had ruled that judgment on
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the pleadings had been improper, it would affirm the grant of summary
judgment for the reasons stated in the trial court’s opinion. The dissent opined
that judgment on the pleadings was not properly granted, and that the
evidence of record, which properly included Mr. Wolf’s expert report, revealed
issues of fact that precluded the entry of summary judgment.
Ms. Monroe filed an application for reargument en banc, which this Court
granted by order of January 6, 2021. The parties filed substituted briefs and
this en banc panel of the Court heard oral argument on November 30, 2021.
Thereafter, authorship of the Majority opinion was assigned and reassigned,
ultimately resulting in this per curiam disposition.
Ms. Monroe has presented the following questions for our determination:
(1) Upon judgment on the pleadings, the trial court held
appellant’s first amended complaint failed to set forth a
claim of “recklessness.” [Camelback] had not filed
preliminary objections to the first amended complaint. The
complaint pleads recklessness. Sua sponte vacating the
trial listing upon the eve of trial at the final pre-trial
conference, and directing a motion for summary judgment,
did the trial court commit an error of law in granting a
motion for judgment on the pleadings—therein the court
contending the operative complaint did not plead
recklessness (secondary to an underlying ski resort
release).
Did the trial court err in dismissing the action on the
pleadings?
(2) At the final pre-trial conference on the eve of trial, the court
of common pleas sua sponte vacated the trial listing.
Likewise, the court sua sponte directed [Camelback]’s
renewed motion for summary judgment. At the conference,
the trial court held that an expert report was required. In
response to [Camelback]’s renewed motion for summary
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judgment, [Ms. Monroe] supplied an expert report.
[Camelback] did not object to this expert report.
Did the court of common pleas commit an error of law in
disregarding Appellant’s unobjected to expert report that
the trial court itself directed?
(3) Does the record as a whole warrant the denial of summary
judgment as creating an issue of fact as to “recklessness”
(upon a ski resort release)?
(4) Did the court of common pleas commit an error of law in
sua sponte striking the trial listing on the eve of trial,
directing [Camelback]’s motion for summary judgment,
directing [Ms. Monroe]’s expert report, and then granting
the trial[-]court[-]directed summary judgment (on the
same date as the response in opposition)?
Ms. Monroe’s substituted brief at 15-16.
II. Applicable Law
Rather than address Ms. Monroe’s issues seriatim, we find it most
expedient to consider them together.4 Ms. Monroe argues that the trial court
“erred as a matter of law in dismissing the complaint for failure to plead
recklessness upon the renewed sua sponte late-directed motion for judgment
on the pleadings, on the eve of trial, following the denial of summary judgment
____________________________________________
4 Ms. Monroe’s appellate brief is not a paradigm of appellate advocacy. It is
more akin to a bullet-point list than to a fully-developed writing. However,
the brief sufficiently presents her issues and supports her claims of error with
citation to pertinent authority such that our review is unhampered. Therefore,
we conclude no sanction is warranted. Cf. In re W.H., 25 A.3d 330, 339 n.3
(Pa.Super. 2011) (“Where an appellate brief fails to provide any discussion of
a claim with citation to relevant authority or fails to develop the issue in any
other meaningful fashion capable of review, that claim is waived.” (cleaned
up)).
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as to that precise issue—regardless that the complaint did plead and the
evidence did show recklessness.” Ms. Monroe’s substituted brief at 26-27
(cleaned up). She likewise contends that leave to file the late, renewed motion
for summary judgment was improperly granted to Camelback under these
circumstances. Id. at 32. Ms. Monroe further maintains that summary
judgment was not warranted because the evidence of record, which included
Mr. Wolf’s expert report, “evidenced an issue of fact of recklessness for the
jury,” as the trial court had ruled when denying Camelback’s original motion.
Id. at 31.
We commence with a review of the pertinent legal principles. Motions
for judgment on the pleadings are in the nature of a demurrer and are
governed by Pa.R.C.P. 1034. That rule states as follows: “(a) After the
relevant pleadings are closed, but within such time as not to unreasonably
delay the trial, any party may move for judgment on the pleadings. (b) The
court shall enter such judgment or order as shall be proper on the pleadings.”
Pa.R.C.P. 1034. “Judgment on the pleadings may be entered when there are
no disputed issues of fact and the moving party is entitled to judgment as a
matter of law.” Baumbach v. Lafayette Coll., 272 A.3d 83, 88 (Pa.Super.
2022) (cleaned up).
This Court’s scope and standard of review of an appeal from
the grant of judgment on the pleadings is plenary, and we must
determine whether the action of the court below was based on a
clear error of law or whether there were facts disclosed by the
pleadings which should properly go to the jury. Our review,
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therefore, is limited to determining whether the trial court abused
its discretion or committed an error law.
City of Coatesville v. Jarvis, 902 A.2d 1249, 1251 (Pa.Super. 2006)
(cleaned up).
Rule 1035.2, which governs motions for summary judgment, provides
as follows:
After the relevant pleadings are closed, but within such time as
not to unreasonably delay trial, any party may move for summary
judgment in whole or in part as a matter of law
(1) whenever there is no genuine issue of any material fact
as to a necessary element of the cause of action or defense
which could be established by additional discovery or expert
report, or
(2) if, after the completion of discovery relevant to the
motion, including the production of expert reports, an
adverse party who will bear the burden of proof at trial has
failed to produce evidence of facts essential to the cause of
action or defense which in a jury trial would require the
issues to be submitted to a jury.
Pa.R.C.P. 1035.2. In sum, before a court is permitted to enter judgment as a
matter of law rather than allow the jury to decide the case, it must be clear
and free from doubt that there is no combination of facts to be gleaned from
the evidence that would support a finding for the non-moving party. See,
e.g., Braswell v. Wollard, 243 A.3d 973, 977 n.3 (Pa.Super. 2020)
(“Summary judgment will be granted only in those cases which are free and
clear from doubt. Where the facts can support conflicting inferences, it cannot
be said that the case is free from doubt and thus ripe for summary judgment.”
(cleaned up)).
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An appellate court “may disturb the order of the trial court [granting
summary judgment] only where it determines that the court committed an
error of law or abused its discretion.” Valles v. Albert Einstein Med. Ctr.,
805 A.2d 1232, 1236 n.7 (Pa. 2002). In doing so, we “apply the same
standard as the trial court, reviewing all the evidence of record to determine
whether there exists a genuine issue of material fact.” Criswell v. Atl.
Richfield Co., 115 A.3d 906, 908–09 (Pa.Super. 2015). “A trial court abuses
its discretion by making a manifestly unreasonable, arbitrary, or capricious
decision; by failing to apply the law; or by allowing prejudice, bias, or ill will
to influence its decision.” Calisto v. Rodgers, 271 A.3d 877, 884-85
(Pa.Super. Feb. 25, 2022) (en banc).
III. Analysis
Mindful of the above principles, we turn to the trial court’s rulings in the
instant case. The trial court’s opinion offered the following rationale for its
decision to grant Camelback’s motion filed pursuant to both Rule 1034 and
Rule 1035.2. The trial court eventually came to believe, after addressing
Camelback’s motion in limine, that Ms. Monroe did not plead sufficient
allegations of recklessness. See Trial Court Opinion, 8/16/19, at 8-9. If the
trial court had understood Camelback’s position clearly at the time it ruled on
Camelback’s initial motion for summary judgment, which did not address the
allegations of recklessness, the trial court would have granted the initial
dispositive motion rather than, out of “an abundance of caution,” allowing the
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case to proceed. Id. at 10. However, the court candidly admitted that,
coming as it did “well after the parties had already undergone arbitration,
Plaintiff appealed, and the matter had been rescheduled for a new trial date,”
Camelback’s second dispositive motion may have at that “point be[en]
considered untimely.” Id.
Therefore, the trial court alternatively explained why it believed
Ms. Monroe’s claim was properly dismissed with prejudice via summary
judgment. The court made it clear that, in examining the evidence to discern
a question of material fact, it “could not and did not consider” the expert report
of Mr. Wolf. Id. at 11. Although the trial court “did not dispute” that Pa.R.C.P.
1035.3(b) granted Ms. Monroe the right to supplement the record with an
expert report in response to Camelback’s motion for summary judgment, it
determined that she “did not do so properly.” Id. Specifically, the court
concluded that, because the report was attached to Ms. Monroe’s brief in
opposition to Camelback’s motion, and “‘briefs are not a part of the official
record,’” Mr. Wolf’s expert report did not become part of the evidence which
could defeat summary judgment. Id. (quoting Scopel v. Donegal Mut. Ins.
Co., 698 A.2d 602, 606 (Pa.Super. 1997)). Finally, the court determined that
an examination of “the entirety of the record before [it],” revealed “insufficient
evidence in the record showing Camelback acted with conscious action or
inaction that created a substantial risk of harm to [Ms. Monroe].” Id. at 14
(cleaned up).
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For the following reasons, we hold that the trial court’s adjudication of
Camelback’s dispositive motion is the product of multiple errors of law that
require reversal.
A. Camelback’s Motion for Judgment on the Pleadings was
Improperly Granted
We first conclude that the trial court committed an error of law when it
reversed its initial determination that Ms. Monroe’s complaint properly alleged
recklessness and opted to grant Camelback’s motion for judgment on the
pleadings. Rule 1019 of the Pennsylvania Rules of Civil Procedure governs our
analysis. That Rule provides in relevant part:
Rule 1019. Contents of Pleadings. General and Specific
Averments
(a) The material facts on which a cause of action or defense is
based shall be stated in a concise and summary form.
(b) Averments of fraud or mistake shall be averred with
particularity. Malice, intent, knowledge, and other conditions of
mind may be averred generally.
Pa.R.C.P. 1019. The plain language of this Rule thus indicates that, while a
party must plead the material facts that support a cause of action, a party
may generally aver knowledge, intent, and state of mind. Thus, the question
in the instant case is whether recklessness constitutes a state of mind or a
material fact upon which a cause of action is based.
To answer that question, we begin with a general discussion of tort
liability. In their learned treatise, PROSSER AND KEATON ON TORTS (5th ed.
1984), the authors observed that “The fundamental basis of tort liability may
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first be divided into three parts . . . because every case in which such liability
has been imposed has rested upon one of three, and only three, grounds for
imposing it. These are: 1) [Intentional torts]. 2) Negligence. 3) Strict
liability.” Id. at § 7 at 32. Each of these types of torts constitutes a separate
cause of action. Notably, gross negligence and recklessness have not
historically been identified as independent causes of action. Instead, they are
aggravated forms of negligence. See id. at § 34 at 208-14. The level of care
required is in proportion to the apparent risk involved; the greater the danger,
the greater the level of care required by the actor. See id.
Gross negligence and recklessness have been described as follows:
Gross negligence. As it originally appeared, this was very great
negligence, or the want of even slight or scant care. It has been
described as a failure to exercise even that care which a careless
person would use . . . [M]ost courts consider that “gross
negligence” falls short of a reckless disregard of the
consequences, and differs from ordinary negligence only in degree
and not in kind . . .
Willful, Wanton, and Reckless. A different approach, at least
in theory, looks to the actor’s real or supposed state of mind.
Lying between the intent to do harm, . . . and the mere
unreasonable risk of harm to another involved in ordinary
negligence, there is a penumbra of what has been called “quasi-
intent.” To this area, the words “willful,” “wanton,” or “reckless”
are customarily applied; and sometimes in a single sentence, all
three . . . They have been grouped together as an aggravated
form of negligence, differing in quality rather than in degree from
ordinary lack of care . . . They apply to conduct which is still, at
essence, negligent, rather than actually intended to do harm, but
which is so far from a proper state of mind that it is treated in
many respects as if it were so intended. Thus, it is held to justify
an award of punitive damages, . . . and it will avoid the defense
of ordinary negligence on the part of the plaintiff.
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The usual meaning assigned to [these words] is that the actor has
intentionally done an act of unreasonable character in disregard
of a known or obvious risk that was so great as to make it highly
probable that harm would follow, and which thus is usually
accompanied by a conscious indifference to the consequences.
Since, however, it is almost never admitted and can be proven
only by the conduct and circumstances, an objective standard
must of necessity in practice be applied. The “willful” requirement
breaks down . . . where is it clear from the facts that the
defendant, whatever his state of mind, has proceeded in disregard
of a high and excessive degree of danger, either known to him or
apparent to a reasonable person in his position.
. . . [T]here is often no clear distinction at all between [this]
conduct and “gross negligence” and the two have tended to merge
and take on the same meaning, an aggravated form of negligence,
differing in quality rather that in degree from ordinary lack of care.
It is at least clear that such aggravated negligence must be more
than any mere mistake resulting from inexperience, excitement,
or confusion, and more than mere thoughtlessness or
inadvertence or simple inattention. . . .
Id. at 211-14.
In other words, gross negligence and recklessness are states of mind;
they are forms of negligence, not independent causes of action. Thus, our
procedural rules allow the plaintiff to plead gross negligence and recklessness
generally. See Rule 1019(b).
This Court affirmed that recklessness could be averred generally in
Archibald v. Kemble, 971 A.2d 513 (Pa.Super. 2009). There, an injured
player in an adult “no check” ice hockey league sought damages from another
player who checked him in violation of the league rules. Initially, we
determined that the defendant hockey player must have engaged in reckless
conduct to be subject to liability. We then explained, “even though we hold
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the plaintiff must prove the defendant acted recklessly, the cause of action
remains sounding in negligence.” Id. at 519. “Therefore, merely determining
the degree of care is recklessness does not give rise to a separate tort that
must have been pled within the applicable statute of limitations.” Id. Thus,
we concluded that the plaintiff’s cause of action was subsumed within the
negligence count pled in the complaint.5
We then looked to whether the plaintiff had produced sufficient evidence
of recklessness to determine whether summary judgment was appropriate.
As we observed:
Archibald has produced evidence that he and Kemble played in a
league where Kemble knew he had a responsibility to Archibald
not to engage in certain conduct including checking. Thus,
Archibald has produced evidence that Kemble owed a duty of care
to Archibald.
Archibald described the action as being intentional. [A h]ockey
expert . . . explained if the incident occurred as Archibald
explained that it was a “deliberate action.” [The expert] explained
Kemble’s action could cause serious injury. Kemble explained he
had been skating for fourteen years, that he understood the term
“check” to mean knocking a person down, and that he understood
slew-footing was prohibited by league rules. Thus, Archibald has
produced evidence that Kemble breached his duty of care by
acting recklessly.
____________________________________________
5 We agree with the Dissent that Rule 1019(b) requires a plaintiff to at least
make a general averment of recklessness. See Dissenting Opinion at 16. It
is not clear from the Archibald opinion whether such a general averment
appeared in the complaint in that case. However, to the extent clarification is
necessary, it is not enough to plead only negligence and proceed with a claim
for recklessness; recklessness and gross negligence must be pled in the
Complaint. Here, Ms. Monroe did make an express general averment of
recklessness.
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Id. at 520.
Archibald recognizes the important distinction between the pleadings
stage of the case and the summary judgment stage of the case. At the
pleadings stage, the rules allow a plaintiff to make a general averment of gross
negligence or recklessness. When initially filing a complaint, a plaintiff may
not be fully aware of the defendant’s state of mind. Only through discovery
can the plaintiff ascertain what the defendant knew or should have known
about the risk involved. It would place an undue burden on the plaintiff to
plead specific facts about a defendant’s state of mind at the time a lawsuit is
initiated.
Discovery gives the plaintiff an opportunity to learn this information.
Through interrogatories, depositions, and requests for admission, a plaintiff
can learn whether a defendant had notice of a dangerous condition before the
plaintiff was injured. A plaintiff can discover information about the defendant’s
training and experience to see if the defendant knew or should have known
about the risk involved that lead to plaintiff’s injuries. The discovery phase of
the case also gives the plaintiff time to hire an expert to investigate and opine
on the standard of care and whether it was breached, not only in terms of
ordinary negligence, but whether there were gross or reckless deviations from
the standard of care.
Once discovery is complete, then a plaintiff can be required to produce
evidence of recklessness. If a plaintiff fails to produce the evidence, Rule
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1035.3 provides that summary judgment should be entered for the defendant
on the plaintiff’s claims. That is exactly what happened in Archibald, supra.
The plaintiff alleged a cause of action in negligence, allegations of recklessness
were subsumed in this claim, and then the plaintiff produced evidence of
recklessness to overcome the motion for summary judgment.
Here, we reach the same conclusion. Ms. Monroe has generally averred
recklessness and specifically averred facts of negligence to support her claim.
She alleged in her amended complaint:
[Camelback’s] recklessness, carelessness and negligence
included, but was not limited to:
a. Failing to properly monitor the speed of the zip-
line, in disregard of the safety of [Ms. Monroe];
b. Failing to use reasonable prudence and care by
leaving [Ms. Monroe] to land with no help, in disregard
of the safety of [Ms. Monroe];
c. [Left blank]
d. Failing to use reasonable prudence and care to
respond to [Ms. Monroe]’s safety concerns during the
zip[-]lining, specifically when [Ms. Monroe] as[ked
Camelback] to slow down the zip[-]lining machine, in
disregard of the safety of Ms. Monroe; and,
e. Failing to inspect and/or properly monitor the
zip[-]lining machine engine, in disregard of the safety
of [Ms. Monroe].
Amended Complaint, 1/25/17, at ¶ 21.
These specific allegations of negligence and general allegations of
recklessness are sufficient to meet the requirements of Rule 1019(a) and (b).
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Therefore, we hold that the trial court erred as a matter of law in concluding
otherwise.6 Camelback’s motion for judgment on the pleadings should have
been denied.
B. Camelback’s Motion for Summary Judgment was
Improperly Granted
____________________________________________
6 The Dissent would affirm on the basis that Ms. Monroe failed to plead specific
facts of recklessness. See Dissenting Opinion at 19-21. As our discussion
above makes plain, this is a misapplication of Rule 1019, which only requires
that the basis of a cause of action be pled with specific facts, while conditions
of the mind may be pled generally. As the Dissent notes, the question of
whether a complaint sufficiently pleads recklessness (and often an
accompanying claim for punitive damages) has produced inconsistent rulings
in the trial courts and understandable confusion among litigants. See Daniel
E. Cummins, “Pleading for Clarity: Appellate Guidance Needed to Settle the
Issue of the Proper Pleading of Recklessness in Personal Injury Matters,” 93
Pa. B.A.Q. 32 (Jan.2022).
This confusion appears to be due to some trial courts misapplying Rule 1019
in the same manner as advocated by the Dissent. See, e.g., Green v. Kline,
16 Pa. D.&C. 5th 144 (Monroe Co. 2010); Brace v. Shears, 12 Pa. D.&.C.
5th 166 (Centre Co. 2010); Debo v. Buckley, 44 Pa. D.&.C. 4th 325 (Snyder
Co. 1999). Cf. Koloras v. Dollar Tree Stores, Inc., 21 CV 2700, 2022 WL
1529191 (Lacka. Co. April 19, 2022) (“[T]he plain language of Rule 1019(a)
only requires ‘material facts’ to ‘be stated in a concise and summary form’ in
support of ‘a cause of action or defense.’ . . . [Plaintiffs’] averments of
recklessness may be averred generally under Rule 1019(b) as a condition of
mind.”). These and all other trial court decisions that have sustained
preliminary objections or granted judgment on the pleadings based upon
demands for heightened factual averments to support a claim of willful,
wanton, or reckless conduct did not accurately apply the law. Our ruling today
removes any doubt that, so long as a plaintiff’s complaint (1) specifically
alleges facts to state a prima facie claim for the tort of negligence, and (2)
also alleges that the defendant acted recklessly, the latter state-of-mind issue
may only be resolved as a matter of law after discovery has closed.
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Recognizing that its decision to grant judgment on the pleadings was
problematic, albeit for a different reason,7 the trial court alternatively opined
that it should be affirmed because Camelback was entitled to summary
judgment pursuant to Rule 1035.2. Accordingly, we consider the propriety of
____________________________________________
7 As we noted above, the trial court all but conceded in its opinion that
Camelback’s motion for judgment on the pleadings was untimely. See Trial
Court Opinion, 8/16/19, at 10. We agree with that assessment.
If not from day one when Ms. Monroe filed a complaint alleging that
Camelback consciously disregarded her safety and recklessly caused her
injuries, then no later than June 13, 2018, when the trial court entered an
order denying Camelback’s timely motion for summary judgment for the
specific reason of the recklessness allegations, Camelback was on notice that
Ms. Monroe’s case was based on the claim that her injury was sustained as a
result of conduct by Camelback which rose to the level of recklessness.
However, at no time in the following ten months did Camelback seek judgment
based upon a pleading deficiency. Instead, it filed a dispositive motion
masquerading as a motion in limine raising the issue on the eve of trial, and
the trial court reacted by striking the case from the trial list to give Camelback
an additional thirty days to seek summary judgment. See Order, 3/28/19.
Camelback instead filed a motion seeking judgment pursuant to either
Pa.R.C.P. 1034 or 1035.2, fifteen months past the CMO deadline for filing
dispositive motions.
In light of this history, Camelback’s motions, raised unnecessarily and
without justification after the time the case was set to be tried, were presented
at such a time to unreasonably delay trial. Plainly, Camelback was fully aware
of the evolution of Ms. Monroe’s claim during the course of the litigation, and
its post-discovery attempt to obtain judgment based upon the pre-discovery
allegations of fact was mere gamesmanship. Nonetheless, while Ms. Monroe
forwards on appeal an argument that Camelback’s Rule 1034 motion should
have been denied based upon its untimeliness, the certified record does not
indicate that she made a precise objection concerning the timing of the motion
in the trial court. Therefore, we do not reverse the trial court on that basis.
See, e.g., In re S. C., 421 A.2d 853, 856 (Pa.Super. 1980) (“It is well
established that a party must preserve a specific point for appellate review by
raising it first in the lower court; a different theory of relief may not be
successfully advanced for the first time on appeal.”).
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the trial court’s summary judgment ruling by “reviewing all the evidence of
record to determine whether there exists a genuine issue of material fact.” 8
Criswell, supra at 908–09. Specifically, we must examine the record to
discern whether Ms. Monroe developed facts to support her allegations that
she was injured as a result of Camelback’s reckless conduct.
The initial step in that analysis is to determine what evidence was and
was not part of the record. As detailed above, the trial court opined that the
expert report Ms. Monroe produced in opposing Camelback’s motion for
summary judgment was not part of the official record because it was appended
to her brief. See Trial Court Opinion, 8/16/19, at 11. That ruling is legally
erroneous.
First, our Supreme Court has determined that, for purposes of ruling on
a motion for summary judgment, the “record” includes any and all “(1)
pleadings, (2) depositions, answers to interrogatories, admissions and
affidavits, and (3) reports signed by an expert witness that would, if filed,
comply with Rule 4003.5(a)(1), whether or not the reports have been
____________________________________________
8 Arguably, Camelback’s second bid for summary judgment, which
unquestionably delayed trial, could be considered improperly entertained for
that reason alone. However, since such a motion at least examines the facts
as they had been developed for trial, rather than as a snapshot taken when
the complaint was filed years earlier, we find the lateness of the summary
judgment motion is less outrageous. In any event, as we have noted, the
certified record does not indicate that Ms. Monroe objected to the untimeliness
of the motion with sufficient specificity to permit us to reverse on that basis.
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produced in response to interrogatories.”9 Pa.R.C.P. 1035.1 (emphasis
added). The foregoing language suggests that expert reports need only be
submitted, not filed, in order to be considered in ruling on the motion for
summary judgment. Ms. Monroe’s expert report is signed by Steve Wolf,
contains the substance of his facts and opinions and the basis for those
opinions, and substantially conforms with Rule 4003.5(a)(1). Thus, the expert
report was included in the “record” for purposes of Rule 1035.1 and summary
judgment, regardless of whether it was filed in the official record.
____________________________________________
9 That Rule provides:
Discovery of facts known and opinions held by an expert,
otherwise discoverable under the provisions of Rule 4003.1 and
acquired or developed in anticipation of litigation or for trial, may
be obtained as follows:
(1) A party may through interrogatories require
(A) any other party to identify each person whom the
other party expects to call as an expert witness at trial
and to state the subject matter on which the expert is
expected to testify and
(B) subject to the provisions of subdivision (a)(4), the
other party to have each expert so identified state the
substance of the facts and opinions to which the
expert is expected to testify and a summary of the
grounds for each opinion. The party answering the
interrogatories may file as his or her answer a report
of the expert or have the interrogatories answered by
the expert. The answer or separate report shall be
signed by the expert.
Pa.R.C.P. 4003.5(a).
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Second, and more obvious, the certified record before us reveals that
Ms. Monroe’s Response in Opposition, Brief, and expert report marked as
Exhibit A, along with the rest of the exhibits appended to her brief, were filed
in the official certified record and docketed as one document. The trial
court’s belief that the expert report was not made part of the record because
it was attached to the brief was based on a misunderstanding of our decision
in Scopel, supra. The issue in Scopel was whether depositions attached to
the brief in opposition to summary judgment were part of the record when
the brief and depositions were not actually filed. See Scopel, supra at
604 (“These depositions . . . were never filed and made a part of the official
record.”). Therefore, the court ruled it could not consider them, and this Court
affirmed. Accord Commonwealth v. Preston, 904 A.2d 1, 6 (Pa.Super.
2006) (“[A]ny document which is not part of the officially certified record is
deemed non-existent—a deficiency which cannot be remedied merely by
including copies of the missing documents in a brief or in the reproduced
record.”).
Where, as here, the expert report was filed with the prothonotary as
part of the summary judgment response, it and the rest of the exhibits were
properly part of the record before the trial court in deciding the summary
judgment motion. See Pa.R.A.P. 1921 (providing that the official record
includes “[t]he original papers and exhibits filed in the lower court” and “paper
copies of legal papers filed with the prothonotary by means of electronic
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filing”). Therefore, the trial court erred as a matter of law in disregarding
Mr. Wolf’s report in determining whether there was a material issue of fact as
to recklessness by Camelback.10
Camelback alternatively argues, with no apparent sense of irony, that
Mr. Wolf’s expert report was properly excluded because it was not produced
in accordance with the CMO deadline, but instead in response to the
dispositive motion that it filed fifteen months after the CMO deadline. Citing
Kurian ex rel. Kurian v. Anisman, 851 A.2d 152 (Pa.Super.2004), and
Wolloch v. Aiken, 815 A.2d 594, 596 (Pa. 2002), Camelback suggests that
the trial court had the discretion to exclude the late-produced expert report.
See Camelback’s brief at 24-30.
The certified record does not reflect that Camelback objected to the late
production of the report or moved for its exclusion. More importantly, the trial
court did not cite the lateness of the report’s production as its basis for
ignoring it, but instead the erroneous belief that it was not part of the record
because it was stapled behind the wrong part of Ms. Monroe’s filing. On the
contrary, the trial court rejected the notion that the report was untimely,
____________________________________________
10 The only other case Camelback offers to support the trial court’s ruling on
this issue is an unpublished memorandum filed in 2017. See Camelback’s
brief at 22. However, with exceptions not applicable here, “[a]n unpublished
memorandum decision filed prior to May 2, 2019, shall not be relied upon
or cited by a Court or a party in any other action or proceeding[.]” 210
Pa.Code § 65.37 (emphasis added). Consequently, we must reject
Camelback’s attempt to persuade us that the expert report was not properly
before the trial court by invoking a decision that is not properly before us.
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expressly stating that it did not dispute Ms. Monroe’s right to supplement the
record with an expert report pursuant to Pa.R.C.P. 1035.3(b), even after the
close of discovery.11 See Trial Court Opinion, 8/16/19, at 11.
We agree with the trial court that Rule 1035.3(b) entitled Ms. Monroe to
supplement the record in response to Camelback’s motion. As our Supreme
Court noted in Gerrow v. John Royle & Sons, 813 A.2d 778, 781-82 (Pa.
2002) (plurality), “the intent of the motion for summary judgment is not to
eliminate meritorious claims that could be established by additional discovery
or expert reports.” Thus, “it is consistent with that intent to permit
supplementation of the record under Rule 1035.3(b) to allow the record to be
enlarged by the addition of such expert reports.” Id. Accordingly, although
the plaintiff had failed to produce expert reports within the time constraints of
the CMO, and the trial court refused to consider them “as an impermissible
attempt to circumvent the deadline,” the Court ruled that the reports were
properly filed pursuant to Rule 1035.3(b). Id. at 780.
While Gerrow was a plurality decision, this Court sitting en banc relied
upon it in concluding, without qualification, as follows: “There is no doubt that
Rule 1035.3 permits a party to supplement the record when it files a motion
in opposition to the entry of summary judgment.” Burger v. Owens Illinois,
____________________________________________
11 That rule states: “An adverse party may supplement the record or set forth
the reasons why the party cannot present evidence essential to justify
opposition to the motion and any action proposed to be taken by the party to
present such evidence.” Pa.R.C.P. 1035.3(b).
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Inc., 966 A.2d 611, 618 (Pa.Super. 2009) (en banc). Hence, at this point it
is well-settled that, pursuant to Rules 1035.1 and 1035.3, affidavits and
expert reports may be used by the non-moving party to create an issue of
material fact to defeat a motion for summary judgment, and supplementary
expert reports are timely if submitted within thirty days of the motion for
summary judgment. See Pa.R.C.P. 1035.3(b).
The Wolloch and Kurian cases cited by Camelback do not compel a
different result. Camelback correctly indicates that the holding of Wolloch
was “that expert reports submitted after the entry of summary judgment
were properly excluded and that permitting such late amendments would
undermine judicial efficiency and case management orders[.]” Camelback’s
brief at 28 (emphasis added). The plaintiff in that case did not utilize Rule
1035.5(b) to supplement the record in opposing summary judgment, but
rather “waited until after summary judgment had been entered, then
submitted the expert reports in such indolent fashion that the trial court had
no time to consider them before the lapse of [the] allowable time to appeal
from summary judgment.” Wolloch, supra at 596–97. When the plaintiff
on appeal attempted to invoke Rule 1035.3(b) as authority for her actions,
the High Court, citing Gerrow, observed: “This is a curious argument. [The
plaintiff] did not file a timely response to the motion for summary judgment
supplemented with her expert reports, though Rule 1035.3(b) permits it.”
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Id. at 596 (emphasis added). As such, Wolloch hurts, rather than helps,
Camelback’s position.
In Kurian, this Court examined the interplay between Rule 1035.3(b)’s
allowance of production of expert reports within thirty days of the filing of a
motion for summary judgment, and Rule 4003.5(b), which allows a court to
prohibit a late-identified expert witness from testifying at trial. 12 We
concluded that, reading the rules in harmony, Rule 1035.3(b) did not override
the trial court’s authority to exclude an untimely expert, for requiring that an
“expert report be admitted just as long as it was filed within thirty days of the
summary judgment motion would take away the very discretion Rule
4003.5(b) gives to the trial court and make a mockery of court orders and
court-imposed deadlines.” Id. at 161. Therefore, we held that, “when a party
makes a timely response to a summary judgment motion and attempts to
supplement the record with otherwise untimely expert reports, the court may,
on its own motion, determine whether this is allowed under Rule 4003.5(b).”
____________________________________________
12 The full text of Rule 4003.5(b) is as follows:
An expert witness whose identity is not disclosed in compliance
with subdivision (a)(1) of this rule shall not be permitted to testify
on behalf of the defaulting party at the trial of the action.
However, if the failure to disclose the identity of the witness is the
result of extenuating circumstances beyond the control of the
defaulting party, the court may grant a continuance or other
appropriate relief.
Pa.R.C.P. 4003.5(b). As quoted supra at note 9, subdivision (a)(1) governs
what expert witness information is discoverable through interrogatories.
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Id. at 159. However, we were clear that, in doing so, “the court must apply
the long-standing prejudice standard found in the caselaw construing Rule
4003.5(b).” Id. at 159-60. That prejudice standard acknowledges that the
“preclusion of testimony is a drastic sanction, and it should be done only where
the facts of the case make it necessary; the prejudice may not be assumed.”
Id. at 162 (cleaned up). In particular:
Assuming that a party has not acted in bad faith and has not
misrepresented the existence of an expert expected to be called
at trial, no sanction should be imposed unless the complaining
party shows that he has been prejudiced from properly preparing
his case for trial as a result of the dilatory disclosure.
Id. (cleaned up).
Applying this ruling to the facts of that case, we affirmed the trial court’s
preclusion of the expert in that case. Contrasting Gerrow, in which the
opposing party suffered no prejudice, we highlighted the fact that the trial
court excluded the expert in Kurian based upon the findings that “1)
appellants continually violated court ordered deadlines, and 2) the acceptance
of this expert witness report on the day the parties were supposed to go to
trial would cause appellees unfair surprise and prejudice.” Id.
Camelback argues that this case is in alignment with Kurian rather than
Gerrow. It highlights the times in the procedural history of the case in which
Ms. Monroe did not produce an expert report and observes that it was not until
“eighteen (18) months after the report was due, and two months after her
pre-trial report was submitted, that [Ms. Monroe], with trial looming, produced
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a surprise expert report after agreeing to dismiss her negligence case.” Id.
at 29.
Camelback’s argument, in addition to being legally unsound, is made
with an impressive level of indignation given how it utterly disregarded the
CMO deadlines and Rules 1034 and 1035.2 by first raising its challenge to the
sufficiency of Ms. Monroe’s allegations and evidence of recklessness in a
manner that delayed trial, fifteen months after the deadline for dispositive
motions. In particular, the trial court in this case not only failed to make the
requisite finding of prejudice, but indicated that it would have allowed
Mr. Wolf’s report had Ms. Monroe filed it properly.13 Precluding the report as
a discovery sanction without finding prejudice is cause for reversal. See
Reeves v. Middletown Ath. Ass’n., 866 A.2d 1115, 1127 (Pa.Super. 2004)
(finding abuse of discretion where trial court refused to consider expert reports
supplementing the record without first determining whether there was
prejudice).
Nor do we discern evidence in the certified record that would support a
finding of prejudice in this case. Unlike the plaintiffs in Kurian, there is no
evidence that Ms. Monroe acted in bad faith, misrepresented the existence of
an expert, or showed contempt for court deadlines. Further, if Camelback had
raised its challenge to the recklessness allegations in accordance with the
____________________________________________
13 She did. See pages 28-29, supra.
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CMO, Ms. Monroe’s response would have been produced three months before
the earliest trial date, not on the day of trial as in Kurian. The trial court
itself at the pretrial conference clearly opted to disregard the CMO deadlines
and trial schedule and allow Camelback to file a motion out of time. Not
extending the similar benefit to Ms. Monroe would have been unreasonable.
Any prejudice resulting from the surprise to Camelback was easily remedied
by giving it time to amend its pretrial statement and produce an expert if it so
desired. Plainly, at that point, neither the trial court nor Camelback was
concerned about delaying trial.
As such, Ms. Monroe properly supplemented the official record with Mr.
Wolf’s expert report. Therefore, we shall examine that record, including
Ms. Monroe’s expert report, to discover whether Ms. Monroe produced
sufficient evidence to establish the factual predicate for a finding of
recklessness. For if she did, summary judgment should have been denied.
Before we examine the evidence, we review the substantive law
applicable to Ms. Monroe’s claim that she was injured as a result of
Camelback’s reckless conduct. While Ms. Monroe was required to prove,
based upon her waiver of negligence claims against Camelback, that
Camelback acted recklessly, there is no “recklessness” tort in this
Commonwealth separate and apart from a cause of action sounding in
negligence. Rather, to recover for her injuries despite her execution of the
Activity Release, Ms. Monroe must prove the elements of the tort of
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negligence, namely “duty, breach, causation and damages,”14 and additionally
prove that Camelback’s deviation from the standard of care was more
egregious than garden-variety negligence. See, e.g., Tayar, supra at 1200;
Archibald, supra at 519; Ammlung v. City of Chester, 302 A.2d 491
(Pa.Super. 1973). For, “[r]ecklessness is distinguishable from negligence on
the basis that recklessness requires conscious action or inaction which creates
a substantial risk of harm to others, whereas negligence suggests unconscious
inadvertence.” Tayar, supra at 1200.
As our Supreme Court explained in Tayar, to satisfy this burden
Ms. Monroe must establish that Camelback did an act or intentionally failed to
do an act which it was its duty to Ms. Monroe to do, knowing or having reason
to know of facts which would lead a reasonable person to realize, not only that
Camelback’s conduct created an unreasonable risk of physical harm to her,
but also that such risk was substantially greater than that which was
necessary to make its conduct negligent. Id. at 1200-01 (citing Restatement
(2d) of Torts § 500). See also Restatement (2d) of Torts § 501(1) (“[T]he
rules which determine the actor’s liability to another for reckless disregard of
the other’s safety are the same as those which determine his liability for
negligent misconduct.”).
____________________________________________
14 Wittrien v. Burkholder, 965 A.2d 1229, 1232 (Pa.Super. 2009).
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Viewing the evidence collectively and in the light most favorable to
Ms. Monroe as the non-moving party, we conclude that she produced sufficient
evidence to enable a fact-finder to conclude that Camelback consciously
engaged in conduct that created an unreasonable risk of physical harm to her
that was substantially greater than mere negligence. Specifically,
Ms. Monroe’s proffered evidence was capable of proving the following.15
Mr. Wolf explained that the construction of a zip-line is “such that no part of
a rider is intended to collide with any hard surface until the rider reaches the
end of the zip[-]line.” Memorandum of Law in Support of Response in
Opposition to Motion for Judgment on the Pleadings and Supplemental Motion
for Summary Judgment, 5/16/19, Exhibit A at 2. However, the height of
Camelback’s line was “low enough that a rider’s legs may contact the ground
before the pulley carriage contacts the breaking device” at the end of the ride.
Id. “If the ground is free of surface imperfections, a rider’s feet will drag
smoothly along the ground, up a wooden platform, causing a reduction in
speed, and then the rider’s forward movement will be arrested by a
combination of manual braking by physical engagement of an employee, and
____________________________________________
15 We reiterate that, in an appeal from the grant of summary judgment, this
Court must “apply the same standard as the trial court, reviewing all the
evidence of record to determine whether there exists a genuine issue of
material fact.” Criswell v. Atl. Richfield Co., 115 A.3d 906, 908–09
(Pa.Super. 2015) (emphasis added). Thus, although as noted above
Ms. Monroe’s appellate brief is substandard and does not present the evidence
as fully and as efficiently as we might like, we conclude that waiver is
inappropriate.
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a mechanical impact attenuation device at the end of the line.” Id. at 2-3.
Yet no smooth landing in an area free from surface imperfections was offered
by Camelback.
Specifically, while it would have been dangerous enough to have
patrons’ feet sliding along the ground if they were unable to comply with the
directions of Camelback’s staff to lift up their legs, Camelback created an even
graver danger by using a wooden landing deck whose lead edge protruded at
a ninety-degree angle from the ground. This hard obstruction was capable of
causing injury “at the impact site on the rider’s body, and anywhere else where
that energy is delivered to the body.” Id. This danger “must have been noted
by one or more members of the Camelback staff, because the condition was
‘remedied’ by covering the protrusion with a piece of carpeting.” Id.
However, this “remedy” in actuality “concealed, rather than removed, the
risk.” Id. Mr. Wolf explained:
That there was risk in the design by virtue of needing rider
compliance with a strenuous physical task was itself an
unnecessary danger that was permitted in routine operation of the
zip[-]line, unwittingly reveal[ing] . . . a willingness to allow
participants to be subjected to unnecessary and preventable
danger.
That there were physical dangers that had come to the attention
of the staff, and that these known dangers were not remedied but
rather were intentionally masked, or in this case, literally swept
under the rug, shows a conscious disregard for safety that could
not manifest other than in an accident, given sufficient time.
Id. at 5.
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J-E03001-21
Enter Ms. Monroe, approaching the end of the ride not in a smooth,
straight trajectory, but rippling up and down, something that Camelback knew
happened multiple times each day for patrons who were toward the higher
end of the zip-line’s weight limit. Id., Exhibit C at 11-16. There was no
gradual skid up a platform, but a collision with the landing platform that was
“perfectly positioned to cause an injury.” Id., Exhibit A at 4. Two collisions
occurred to be exact: despite holding her legs up as she approached the
landing area, Ms. Monroe first struck her leg against the landing platform,
making an impact with the mats Camelback had positioned to conceal the face
of the platform, swung up, came back down, spun around, and made a second
impact with the platform when she hit the deck to land. See id., Exhibit B at
52-53, 84-85 (Ms. Monroe describing swinging up, spinning, and landing); id.
Exhibit C at 11 (Camelback employee Brett Dunphy describing two impacts at
the landing platform); Memorandum of Law, 3/12/18, at Exhibit B (Pocono
Medical Center report of history and physical examination indicating that Ms.
Monroe’s right foot struck the platform when she landed, then felt severe pain
when she tried to stand on it; discharge summary indicating that she first
struck her leg “up against the landing platform”).
Camelback could have readily alleviated the danger by having the
patrons land at ground level or by filling in the danger zone with dirt or sand.
See Memorandum of Law in Support of Response in Opposition to Motion for
Judgment on the Pleadings and Supplemental Motion for Summary Judgment,
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J-E03001-21
5/16/19, at Exhibit A. Although Camelback advertised to its patrons in the
Release it had them sign that its amusements were capable of causing injury
or death, it instead opted to conceal the known, obvious threat by masking it
with a piece of carpeting, actively preventing Ms. Monroe from appreciating
the danger to her person. Id., Exhibit A at 4-5.
Those facts do not suggest mere negligence. These allegations, viewed
in the light most favorable to Ms. Monroe, sufficiently contend that Camelback
engaged in intentional acts, knowing or having reason to know facts which
would lead a reasonable person to realize that it thereby created an
unreasonable risk of physical harm that was substantially greater than
incompetence or unskillfulness. Accord Bourgeois v. Snow Time, Inc., 242
A.3d 637, 657–58 (Pa. 2020) (holding that, summary judgment on a claim of
injury caused by recklessness was improper because, viewing expert reports
in the light most favorable to the plaintiff, the ski resort defendant had a duty
to bring snow-tubing patrons to a safe stop, failed to protect against
unreasonable risks, and “instead increased the risk of harm to its patrons
through a number of conscious acts, including using folded deceleration mats
in an inadequate run-out area under fast conditions”). Therefore, given the
evidence of record, the trial court erred in entering summary judgment in
favor of Camelback.
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J-E03001-21
IV. Conclusion
In sum, Ms. Monroe’s complaint sufficiently pled the state of mind of
recklessness to defeat Camelback’s motion for judgment on the pleadings,
and the evidence of record created genuine issues of material fact precluding
the entry of summary judgment. As such, the trial court’s decision to grant
Camelback’s motion was in error. Therefore, we reverse the trial court’s
May 16, 2019 order and remand the case for trial to take place after
Camelback has had a fair opportunity to supply its own expert report if it so
chooses.
Order reversed. Case remanded for further proceedings. Jurisdiction
relinquished.
P.J. Panella and Judges Kunselman, King and McCaffery join this Opinion
Per Curiam and Judge Nichols concurs in the result.
P.J.E. Bender files a Dissenting Opinion in which Judge Olson joins and
Judge Stabile concurs in the result.
Judge Stabile files a Dissenting Opinion in which P.J.E. Bender and Judge
Olson concur in the result.
Judgment Entered.
Joseph D. Seletyn, Esq.
Prothonotary
Date: 11/21/2022
- 41 - | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488275/ | [Cite as Herman v. Herman, 2022-Ohio-4148.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
PUTNAM COUNTY
MELISSA HERMAN,
PLAINTIFF-APPELLEE/ CASE NO. 12-22-01
CROSS-APPELLANT,
v.
PATRICK HERMAN,
OPINION
DEFENDANT-APPELLANT/
CROSS-APPELLEE.
Appeal from Putnam County Common Pleas Court
Domestic Relations Division
Trial Court No. 2019 DIV 00165
Judgment Affirmed in Part, Reversed in Part and Cause Remanded
Date of Decision: November 21, 2022
APPEARANCES:
William E. Clark for Appellant/Cross-Appellee
Kelly J. Rauch for Appellee/Cross-Appellant
Case No. 12-22-01
PER CURIAM.
{¶1} Appellant/cross-appellee, Patrick Herman, appeals the December 20,
2021 judgment of the Putnam County Court of Common Pleas, Domestic Relations
Division. Appellee/cross-appellant, Melissa Herman, appeals the same judgment.
For the reasons that follow, we affirm in part and reverse in part.
I. Facts & Procedural History
{¶2} This is the second time this case has come before this court. See
Herman v. Herman, 3d Dist. Putnam No. 12-21-01, 2021-Ohio-3876 (“Herman I”).
The basic factual and procedural background of this case was covered in detail in
Herman I:
Patrick and Melissa were married on October 29, 1994. Doc. 1. On
October 15, 2019, Melissa filed a complaint for divorce alleging that
the parties were incompatible, gross neglect of duty by Patrick, and
extreme cruelty towards Melissa. Doc. 1. Patrick filed an answer and
counterclaim on November 14, 2019. Doc. 8. Although Patrick
denied the gross neglect of duty and extreme cruelty, he admitted that
the parties were incompatible. Doc. 8. The incompatibility was the
basis for Patrick requesting that a divorce be granted as well. Doc. 8.
Patrick also requested temporary spousal support. Doc. 9.
Although the parties agreed that they should be divorced, they
disagreed as to how the property should be distributed. Multiple
hearings were held on the matter. On June 9 and 30, 2020, hearings
were held as to whether real estate gifted from Melissa’s parents,
known as the lake property, was separate or marital property. Doc.
36. Following the hearings, the trial court issued a judgment finding
that the intent of the gift was to give it to Melissa alone, so it was
separate property. Specifically, the trial court found as follows[:]
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Case No. 12-22-01
It is clear to the Court that the intent of Wife’s parents was to gift
the real estate to their children. The fact that the deeds of the
other siblings were only in the name of the sibling themselves and
not the spouse goes directly to the intent of the parents as it is to
be a gift to the children and not to the children and their spouses.
Even though wife directly decided to include her husband’s name
on the deed it does not change the donative intent of the parents.
Also, wife’s parents continued to use the property as their own for
a period of sometime [sic] after the transfer.
Doc. 37. Based upon the intent of the parents, the trial court
determined that the lake property was separate, not marital
property. Doc. 37. The personal property was subject to further
review. Doc. 37.
Prior to the final hearings on the divorce, Melissa filed an asset and
debt summary which provided estimated values of all marital assets
and debts. Doc. 44. Patrick filed his memorandum setting the values
of certain assets. Doc. 45. In his memorandum, Patrick requested that
he continue to receive spousal support. Doc. 45. A final hearing on
the divorce complaint and counterclaim was held on October 1 and
December 2, 2020. Doc. 57. On December 22, 2020, the trial court
granted the divorce to the parties, ordered a division of property, and
ordered Melissa to pay spousal support in the amount of $399.44 per
month for a period of 75 months beginning on February 1, 2021. Doc.
58. On January 19, 2021, Patrick filed a notice of appeal from the
trial court’s judgment. Doc. 65. Melissa filed a notice of cross-appeal
on January 27, 2021.
(Boldface sic.) Id. at ¶ 2-4.
{¶3} In Herman I, Patrick challenged the trial court’s determination that the
lake property was Melissa’s separate property. Patrick maintained that because
Melissa’s parents included both his name and Melissa’s name on the deed
transferring ownership of the lake property, the lake property was marital property.
Patrick argued in the alternative that even if Melissa’s parents intended for the lake
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Case No. 12-22-01
property to be a gift just to Melissa, and not a gift to both of them, Melissa, by
directing her parents to put his name on the deed to the lake property, intended to
give him a gift of an interest in the lake property. In addition to his arguments
concerning the lake property, Patrick also claimed that the trial court erred in
determining the value of certain marital assets and debts, specifically a 2006
Suburban and an outstanding loan for a Ford Focus, and that the trial court
incorrectly implemented a stipulation regarding the distribution of personal property
between himself and Melissa.
{¶4} As for Melissa, in her cross-appeal in Herman I, she argued that the trial
court erred by listing the amount of an FME/Community Choice debt as $117 rather
than the true amount of $1,170. Melissa also claimed that the trial court abused its
discretion by ordering her to pay Patrick spousal support. Finally, Melissa argued
that the trial court abused its discretion in the way that it offset Patrick’s share of
marital property against Patrick’s interest in an account Melissa owned.
Specifically, after the trial court valued and divided Melissa and Patrick’s marital
assets and debts (excluding their retirement accounts and pension plans), it appeared
that Patrick would receive significantly more marital property than Melissa. Rather
than requiring Patrick to make a separate payment to Melissa in an amount sufficient
to make up the difference, the trial court offset the marital portion of Melissa’s 401k
account, which otherwise would be divided equally between Melissa and Patrick,
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Case No. 12-22-01
by that amount. The trial court thus ordered that Melissa “shall receive the first
$62,088.96 of the marital portion” of her 401k account and that “[t]he remaining
marital portion shall be divided equally between the parties.” (Doc. Nos. 57, 58).
Melissa took issue with this method, arguing that the trial court should have first
divided her 401k into two equal shares and then deducted from Patrick’s share the
amount owing to her.
{¶5} With respect to Patrick’s arguments, we concluded that there was
“competent, credible evidence to support the trial court’s determination by clear and
convincing evidence that the lake property was intended [by Melissa’s parents] to
be the separate property of Melissa and not a gift to both parties.” Herman I, 2021-
Ohio-3876, at ¶ 7. However, regarding whether Melissa intended to give Patrick a
gift of an interest in the lake property, we determined that “the question ha[d] not
been resolved by the trial court,” and we thus remanded the matter to the trial court
“for consideration of Melissa’s intent.” Id. at ¶ 10. We also concluded that the trial
court’s valuation of the 2006 Suburban was not supported by the evidence, that the
trial court had not correctly determined the amount of the debt for the Ford Focus,
and that the trial court had not properly implemented Patrick and Melissa’s
stipulation regarding the distribution of personal property. These matters too were
remanded to the trial court for reevaluation.
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Case No. 12-22-01
{¶6} Concerning Melissa’s arguments, we determined that the trial court had
erroneously stated the amount of the FME/Community Choice debt and remanded
this issue to the trial court for correction. However, we concluded that the trial
court, in offsetting Patrick’s share of marital property against the marital portion of
Melissa’s 401k account, “did not abuse its discretion in using the method it did.”
Id. at ¶ 16. Finally, we held that because “there were errors in the division of marital
property, the issue of spousal support must be revisited by the trial court.” Id. at ¶
17. We sustained Melissa’s spousal-support argument “to the extent the trial court
must correct the errors regarding the division of marital property and will thereafter
need to recalculate the spousal support.” Id. Accordingly, we also directed the trial
court to reassess the matter of spousal support on remand.
{¶7} On remand, the trial court did not hold any additional hearings. On
December 20, 2021, the trial court issued a superseding judgment entry addressing
the remanded issues. As relevant to the instant appeal, the trial court found that
Melissa did not intend to transfer any interest in the lake property to Patrick.
Therefore, the trial court concluded, the lake property was Melissa’s separate
property. Furthermore, the trial court assigned a valuation of $4,500 to the 2006
Suburban. Moreover, in offsetting Melissa’s 401k account and Patrick’s share of
marital property, the trial court used the method that this court approved in Herman
I. However, due to corrections in the valuation and division of certain marital assets,
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Case No. 12-22-01
the offset amount was increased to $62,611.53. Finally, the trial court again ordered
Melissa to pay spousal support to Patrick in the amount of $399.44 per month for a
period of 75 months.
II. Assignments of Error
{¶8} On January 7, 2022, Patrick filed a notice of appeal. He raises the
following assignments of error for our review:
1. The trial court improperly applied or failed to apply the
family gift presumption to transfer of property from one spouse
to another.
2. The trial court erred in determining that the lake house was
wife’s separate property.
3. The trial court abused its discretion by assigning a valuation
of $4,500 to the 2006 Suburban.
{¶9} On January 18, 2022, Melissa filed a notice of cross-appeal. She raises
the following assignments of error for our review:
1. The trial court abused its discretion when it failed to divide
the property of the parties equally.
2. The trial court abused its discretion when it ordered
appellee/cross-appellant to pay spousal support to
appellant/cross-appellee.
3. The trial court abused its discretion when it failed to include
the parties’ stipulations regarding the disposition of the
photographs and videos in its final entry.
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Case No. 12-22-01
III. Discussion
A. Patrick’s First & Second Assignments of Error: Did the trial court err by
determining that the lake property is Melissa’s separate property?
{¶10} In his first and second assignments of error, Patrick argues that the
trial court erred by categorizing the lake property as Melissa’s separate property.
He maintains that the trial court should have presumed that Melissa gifted him an
interest in the lake property and that Melissa failed to overcome this presumption.
Patrick further contends that, regardless of the presumption, the evidence establishes
that Melissa gave him a gift of an interest in the lake property.
{¶11} “This court reviews the trial court’s classification of property as
marital or separate under a manifest-weight-of-the-evidence standard.” Lotz v. Lotz,
3d Dist. Auglaize No. 2-14-06, 2014-Ohio-5625, ¶ 16. “Accordingly, we will not
reverse the trial court’s judgment if it is supported by some competent, credible
evidence.” Id. “‘This highly deferential standard of review permits the affirmation
of the trial court’s judgment if there is even “some” evidence to support the court’s
finding.’” Reed v. Reed, 3d Dist. Allen No. 1-09-63, 2010-Ohio-4550, ¶ 7,
quoting Huelskamp v. Huelskamp, 185 Ohio App.3d 611, 2009-Ohio-6864, ¶ 15 (3d
Dist.).
{¶12} “In a divorce proceeding, the division of marital and separate property
involves a two-step process governed by R.C. 3105.171.” Lotz at ¶ 11. “First, the
trial court must determine whether property is marital or separate property, and,
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Case No. 12-22-01
second, the trial court must equitably allocate the marital and separate property.”
Id. “Once the characterization has been made, ‘the court should normally award
each spouse his or her separate property and then distribute the marital estate equally
unless an equal division would be inequitable.’” Tretola v. Tretola, 3d Dist. Logan
No. 8-14-12, 2014-Ohio-5484, ¶ 47, quoting Barkley v. Barkley, 119 Ohio App.3d
155, 159 (4th Dist.1997).
{¶13} “Marital property generally includes all property acquired by either
party during the marriage as well as the appreciation of separate property due to the
labor, monetary, or in-kind contributions of either party during the marriage.” Avent
v. Avent, 166 Ohio App.3d 104, 2006-Ohio-1861, ¶ 15 (6th Dist.), citing R.C.
3105.171(A)(3)(a)(i) and (iii). “However, marital property does not include
separate property.” Id., citing R.C. 3105.171(A)(3)(b). Under R.C.
3105.171(A)(6)(a)(vii), separate property includes “[a]ny gift of any real or personal
property or of an interest in real or personal property that is made after the date of
the marriage and that is proven by clear and convincing evidence to have been given
to only one spouse.”
{¶14} In Herman I, we determined that the evidence clearly and
convincingly supported the trial court’s finding that the lake property was given to
Melissa by her parents with the intention for it to be her separate property. Herman
I, 2021-Ohio-3876, at ¶ 7. Accordingly, the evidence was sufficient to overcome
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Case No. 12-22-01
the presumption that the lake property was marital property ab initio. See
Huelskamp, 185 Ohio App.3d 611, 2009-Ohio-6864, at ¶ 13 (“Property acquired
during a marriage is presumed to be marital property unless it can be shown to be
separate.”). However, we indicated that Melissa’s parents’ intentions did not
foreclose Melissa from taking some action to transform the lake property from
separate property into marital property. See Herman I at ¶ 8-10. “Separate property
can be converted to marital property if one spouse grants the other spouse an interest
in the property.” Huelskamp at ¶ 14. The conversion may be accomplished by inter
vivos gift from the donor spouse to the donee spouse. Helton v. Helton, 114 Ohio
App.3d 683, 685 (2d Dist.1996). “An inter vivos gift is an immediate, voluntary,
gratuitous and irrevocable transfer of property by a competent donor to another.”
Smith v. Shafer, 89 Ohio App.3d 181, 183 (3d Dist.1993). “‘The essential elements
of an inter vivos gift are (1) an intention on the part of the donor to transfer the title
and right of possession to the donee, (2) delivery by the donor to the donee, (3)
relinquishment of ownership, dominion, and control over the gift by the donor, and
(4) acceptance by the donee.’” Worden v. Worden, 3d Dist. Marion No. 9-16-54,
2017-Ohio-8019, ¶ 15, quoting Williams v. Ormsby, 131 Ohio St.3d 427, 2012-
Ohio-690, ¶ 20.
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Case No. 12-22-01
{¶15} In Herman I, we directed the trial court to consider on remand whether
Melissa, upon receiving the lake property as separate property from her parents,
manifested an intention to gift Patrick an interest in the lake property. With respect
to this issue, the trial court found:
As to the intent of wife to transfer said “lake property” to husband,
this Court finds no merit in husband’s argument. Wife testified and
this court finds credible, wife did not desire to transfer said “lake
property” to husband. Husband testified that it was always wife’s
intention that the property would belong to both of them. Wife
testified that she was concerned regarding the anger of Husband but
never after the transfer from her parents did wife take any overt
actions, wife made no direct statements of any intentions to transfer
the property. More specifically, this court would note that the
intention of wife was that the daughter of the parties was going to
reside there while attending college in that area. This Court would
find that wife had no intentions to transfer the “lake property” to
husband.
(Doc. Nos. 96, 97). Thus, the question in Patrick’s first and second assignments of
error is whether the evidence supports these findings and the trial court’s ultimate
conclusion.
{¶16} Before turning to that question, however, it is necessary to consider
Patrick’s claim that the trial court should have begun its analysis with a presumption
that Melissa intended to give him a gift of an interest in the lake property. That is,
Patrick faults the trial court for failing to properly apply the so-called “family-gift
presumption,” and he asks that we do so. “[U]nder the family gift presumption, if
a transaction benefits a family member, the transaction is presumed to be a gift.”
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Case No. 12-22-01
Miller v. Miller, 6th Dist. Sandusky No. S-18-19, 2018-Ohio-5285, ¶ 5 (“Miller II”),
citing Kovacs v. Kovacs, 6th Dist. Sandusky No. S-09-039, 2011-Ohio-154, ¶ 12.
“Thus, when the family gift presumption is applicable, the purported donor will
generally bear the burden of establishing that a transaction was not a gift.” Id., citing
Kovacs at ¶ 12.
{¶17} Nonetheless, “[t]he family gift presumption has not generally been
applied in the context of domestic relations proceedings.” Id. at ¶ 6. Indeed, Patrick
has identified only decisions from the Sixth and Eleventh District Courts of Appeals
clearly applying the family-gift presumption in the divorce-proceeding context. Id.;
Miller v. Miller, 6th Dist. Sandusky No. S-16-27, 2017-Ohio-7646; Osborn v.
Osborn, 11th Dist. Trumbull No. 2003-T-0111, 2004-Ohio-6476.1
{¶18} Contrasting with the family-gift presumption applied in these cases
from the Sixth and Eleventh Districts is the longstanding rule of this court—that the
spouse “claiming an inter vivos gift [from the alleged donor spouse] bears the
burden of showing by clear and convincing evidence that such a gift was made.”
Brandon v. Brandon, 3d Dist. Mercer No. 10-08-13, 2009-Ohio-3818, ¶ 26. We
have applied this rule time and time again in divorce cases and, in fact, made
reference to it in Herman I. Herman I, 2021-Ohio-3876, at ¶ 9; see, e.g., Eggeman
1
As this court noted while sitting by assignment in the Sixth District, where we followed the Sixth District’s
family-gift presumption jurisprudence, the Eleventh District has not been consistent in applying the family-
gift presumption in divorce cases. Miller II at ¶ 6, fn. 2 (observing that, after Osborn, the Eleventh District
did not apply the family-gift presumption in two factually similar cases).
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Case No. 12-22-01
v. Eggeman, 3d Dist. Auglaize No. 2-04-06, 2004-Ohio-6050, ¶ 30; Guffey v.
Guffey, 3d Dist. Allen No. 1-99-03, 1999 WL 378358, *2 (June 3, 1999). Moreover,
this rule has been applied by a majority of our sister courts of appeals. Johnson v.
Johnson, 2d Dist. Greene No. 2018-CA-36, 2019-Ohio-1024, ¶ 27; Jones v. Jones,
4th Dist. Athens No. 07CA25, 2008-Ohio-2476, ¶ 22; Nethers v. Nethers, 5th Dist.
Guernsey No. 18 CA 000005, 2018-Ohio-4085, ¶ 16; Hippely v. Hippely, 7th Dist.
Columbiana No. 01 CO 14, 2002-Ohio-3015, ¶ 14-15, 19; Suppan v. Suppan, 9th
Dist. Wayne No. 17AP0015, 2018-Ohio-2569, ¶ 28; Rank v. Rank, 10th Dist.
Franklin No. 10AP-273, 2010-Ohio-5717, ¶ 11; Casper v. Casper, 12th Dist.
Warren Nos. CA2012-12-128 and CA2012-12-129, 2013-Ohio-4329, ¶ 12.
{¶19} In arguing for application of the family-gift presumption, Patrick
provides us with no compelling reason to depart from our long-established
precedent placing the burden on the donee spouse to prove the existence of an inter
vivos gift from the donor spouse. After considering the matter, we find no reason
to do so. Accordingly, we proceed to analyze Patrick’s arguments conscious of the
fact that he had the burden of proving by clear and convincing evidence that Melissa
gave him a gift of an interest in the lake property.
{¶20} In an effort to demonstrate that Melissa did in fact intend to gift him
an interest in the lake property, Patrick attacks the trial court’s finding that Melissa
did not “take any overt actions” or make any “direct statements of any intentions to
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Case No. 12-22-01
transfer the property.” Patrick argues that the trial court failed to consider evidence
that he and Melissa intended to use the lake property as their marital residence,
which, Patrick claims, demonstrates Melissa’s intention to give him an interest in
the lake property. At the June 30, 2020 hearing concerning the status of the lake
property, Patrick testified that after Melissa’s parents gifted the lake property, he
and Melissa resolved that they would remodel and sell their house in Ottoville.
(June 30, 2020 Tr. at 117). He stated that he started some of the remodeling work.
(June 30, 2020 Tr. at 117-118). In addition, Patrick testified that he intended to quit
his job in Ohio and that he had actually interviewed for jobs in Indiana closer to the
lake property, receiving one offer for part-time work. (June 30, 2020 Tr. at 117).
He stated that he turned down the offer in part because the Ottoville house “wasn’t
ready to be sold.” (June 30, 2020 Tr. at 117). Patrick also testified that they had
moved some furnishings and other items from their home in Ottoville to the lake
property. (June 30, 2020 Tr. at 118). Finally, both Patrick and his sister testified
that at a birthday party in February 2019, Melissa announced that Patrick was going
to leave his job and that they were going to sell the home in Ottoville and move to
the lake property. (June 30, 2020 Tr. at 118, 124).
{¶21} While Melissa acknowledged making this announcement to the
partygoers, she testified that these plans never materialized, and Patrick did not
dispute Melissa’s testimony. (June 30, 2020 Tr. at 97, 99). This is significant. As
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Case No. 12-22-01
the trial court observed in its initial July 28, 2020 judgment entry finding the lake
property to be Melissa’s separate property:
Husband * * * present[ed] information regarding future expectations
as to moving to the “lake property” and selling the marital home and
looking for new employment in that area. Future expectations are just
expectations and cannot be * * * considered in any other light unless
relied upon along with action taken.
(Doc. No. 37). We agree with the trial court. While Melissa’s declaration and the
parties’ planning might support a conclusion that Melissa could have intended to
give Patrick an interest in the lake property at some unspecified future date, a valid
inter vivos gift requires “an intention on the part of the donor to transfer the title and
right of possession of the particular property to the donee then and there * * *.”
(Emphasis added.) Bolles v. Toledo Trust Co., 132 Ohio St. 21 (1936), paragraph
one of the syllabus. Thus, whatever Melissa might have intended to do in the future,
and whatever Patrick expected that she would do, Melissa’s actions do not evidence
an intention to make an immediate gift to Patrick of an interest in the lake property.
Furthermore, some of the events to which Patrick testified, specifically the
relocation of some furnishings to the lake property, can be accounted for as other
than evidence of Melissa’s donative intent. Indeed, as the trial court noted in its
December 20, 2021 judgment entry, one of Patrick and Melissa’s daughters was
going to attend college near the lake property, and Patrick and Melissa both testified
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Case No. 12-22-01
that they moved bedroom furniture from the marital home in Ottoville to the lake
property in anticipation of her move to the area. (June 30, 2020 Tr. at 99-100, 118).
{¶22} In addition, Patrick maintains that Melissa’s instruction to her parents
to include his name on the deed to the lake property is substantial evidence of
Melissa’s donative intent. However, “the holding of title to property by one spouse
individually or by both spouses in a form of co-ownership does not determine
whether the property is marital property or separate property.” R.C. 3105.171(H).
Therefore, the presence of both spouses’ names on the deed to a particular parcel of
property “may be considered on the issue of whether the property is marital or
separate, but it is not conclusive proof of the issue.” Ardrey v. Ardrey, 3d Dist.
Union No. 14-03-41, 2004-Ohio-2471, ¶ 12.
{¶23} Here, notwithstanding the presence of Patrick’s name on the deed to
the lake property, competent, credible evidence supports that Melissa did not intend
to gift Patrick an interest in the lake property by directing her parents to include his
name on the deed. At the June 30, 2020 hearing, Melissa testified that she had
indicated to Patrick that she wanted the lake property to be in her name only, but
that Patrick “was not happy with that decision.” (June 30, 2020 Tr. at 57). She
stated that she “felt that if [she] did what [she] wanted to do, which [was] to put that
property in [her] own name, that basically [her] life would be hell.” (June 30, 2020
Tr. at 57). According to Melissa, she believed that Patrick “would not have spoken
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Case No. 12-22-01
to her[,] * * * made it known to [her] that he was not happy with her, and treat[ed]
[her] like crap” if she had not instructed her parents to put Patrick’s name on the
deed to the lake property. (June 30, 2020 Tr. at 67). Melissa further testified that
when she told her parents to put Patrick’s name on the deed, she “d[id] so for the
benefit of [her] health” and so that she “did not have to deal with [Patrick] in a
negative way.” (June 30, 2020 Tr. at 90).
{¶24} Thus, Melissa’s testimony established that although she desired to
have the lake property deeded in her name only, she was wary of Patrick’s reaction
if she did so and therefore instructed her parents to include Patrick’s name on the
deed to the lake property for the purpose of preserving marital harmony and
protecting her own wellbeing. The trial court found Melissa’s testimony to be
credible and concluded based on this testimony that Melissa did not intend to
transfer any interest in the lake property to Patrick. As the trier of fact, the trial
court was in the best position to observe Melissa and weigh her credibility, and we
accordingly defer to the trial court’s findings. See Casper, 2013-Ohio-4329, at ¶
14; Rank, 2010-Ohio-5717, at ¶ 14. Consequently, we conclude that the evidence
supports the trial court’s determination that Melissa did not intend to transfer any
interest in the lake property to Patrick. See Casper at ¶ 13-14 (where wife conveyed
separate property to husband and herself by joint and survivorship deed, evidence
supported trial court’s holding that husband did not prove donative intent because
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wife might have conveyed property “to placate husband and honor his request that
wife transfer the property into both of their names”); Rank at ¶ 8, 14 (where husband
not being title owner of wife’s separate property “was a contentious issue amongst
the parties through their marriage,” wife’s testimony that she did not intend to
transfer property rights when she executed joint deed only months before separation
was sufficient credible evidence to defeat husband’s claim of gift).
{¶25} Patrick had the burden of proving by clear and convincing evidence
that Melissa intended to give him a gift of an interest in the lake property, thereby
transmuting her separate property into marital property. As competent, credible
evidence supports the trial court’s finding that Melissa did not intend to give Patrick
any interest in the lake property, Patrick failed to sustain his burden. Therefore, we
conclude that the trial court did not err by determining that the lake property is
Melissa’s separate property.
{¶26} Patrick’s first and second assignments of error are overruled.
B. Patrick’s Third Assignment of Error: Does the evidence support the trial
court’s valuation of the 2006 Suburban?
{¶27} In his third assignment of error, Patrick contends that the trial court
erred by assigning a valuation of $4,500 to the 2006 Suburban.
{¶28} In divorce cases, “a trial court must generally assign and consider the
values of marital assets in order to equitably divide those assets.” Schwarck v.
Schwarck, 3d Dist. Auglaize No. 2-11-24, 2012-Ohio-3902, ¶ 26. “The valuation
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of property in a divorce case is a question of fact.” Id. at ¶ 27. “Accordingly, a trial
court’s decision pertaining to the valuation of property will be reviewed under a
manifest weight of the evidence standard and will not be reversed so long as it is
supported by some competent and credible evidence.” Id. “If the parties to the
divorce submit evidence in support of conflicting valuations, the trial court ‘may
believe all, part, or none of any witness’s testimony.’” Mousa v. Saad, 3d Dist.
Marion No. 9-18-12, 2019-Ohio-742, ¶ 14, quoting Huelskamp, 185 Ohio App.3d
611, 2009-Ohio-6864, at ¶ 27.
{¶29} Patrick claims there is no evidence in the record supporting the trial
court’s valuation. Admittedly, limited evidence was presented to the trial court
regarding the value of the 2006 Suburban. On December 2, 2020, at the second part
of the final divorce hearing, the only testimony relating to the 2006 Suburban was
Patrick’s testimony that the vehicle “barely has a bumper left, paint’s all coming off
of it, [and] it has about 200,000 miles on it.” (Dec. 2, 2020 Tr. at 63). However,
Patrick’s “Personal History and Financial Affidavit,” which Patrick submitted as an
exhibit at the hearing, listed the estimated value of the 2006 Suburban as $4,500.
(Dec. 2, 2020 Tr. at 96); (Patrick’s Ex. 3). Melissa’s affidavit of property likewise
provided a valuation of $4,500 for the 2006 Suburban. (Doc. No. 3). Given the
meager evidence offered concerning the value of the 2006 Suburban, as well as the
parties’ apparent concurrence as to its value, we cannot say that the trial court erred
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by fixing the value of the 2006 Suburban at $4,500. We conclude that competent,
credible evidence supports the trial court’s valuation of the 2006 Suburban and that
the valuation is not against the manifest weight of the evidence.
{¶30} Patrick’s third assignment of error is overruled.
C. Melissa’s First Assignment of Error: Did the trial court’s method of
dividing Melissa’s 401k account constitute an abuse of discretion?
{¶31} In her first assignment of error, Melissa argues the trial court abused
its discretion by dividing the marital portion of her 401k account using the method
we sustained in Herman I. Melissa maintains that she and Patrick had agreed to
equally divide all the marital property, including her 401k account, and that the trial
court intended to do just that. Melissa argues that the trial court’s method of
dividing her 401k account does not achieve an equal division of that asset and
instead “results in an inequitable division” that “contradicts the stipulations of the
parties and the stated intentions of the trial court.”
{¶32} “Generally, trial courts should divide marital assets and debts equally
between the spouses.” Fogt v. Fogt, 3d Dist. Defiance No. 4-18-10, 2019-Ohio-
1403, ¶ 20, citing R.C. 3105.171(C)(1). However, where an equal division would
be inequitable, “the trial court must ‘divide the marital * * * property equitably
between the spouses * * *.’” Siferd v. Siferd, 3d Dist. Hancock No. 5-17-04, 2017-
Ohio-8624, ¶ 25, quoting R.C. 3105.171(B). The trial court “has broad discretion
to determine what property division is equitable in a divorce proceeding.” Cherry
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v. Cherry, 66 Ohio St.2d 348 (1981), paragraph two of the syllabus. An abuse of
discretion suggests the trial court’s decision is unreasonable, arbitrary, or
unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983).
{¶33} In this appeal, Melissa maintains that the trial court’s choice of method
for dividing her 401k account was an abuse of discretion. Melissa insists that, rather
than giving her the first $62,611.53 from her 401k account and then splitting the
remainder of the account equally between her and Patrick, the trial court should
have instead divided her 401k into two equal shares and then subtracted $62,611.53
from Patrick’s individual share. Thus, Melissa renews the argument that this court
explicitly rejected in Herman I. There, we observed that “[a]lthough Melissa claims
that the trial court’s method resulted in her getting less money, which it does, it is
the equitable division.” Herman I, 2021-Ohio-3876, at ¶ 16. We further asserted
that “us[ing] the method Melissa suggests would result in an inequitable division of
the property and a windfall to her.” Id.
{¶34} To illustrate the outcome of the trial court’s method as compared to
the outcome of Melissa’s proposed method, we offered the following example in
Herman I:
Example of Calculation of Offset of Home Equity2
2
In Herman I, we referred to the offset as the “home equity offset” and assigned it a value of $51,684.50.
This was a somewhat confusing choice of words. As noted in the opening paragraphs of this opinion, the
offset at issue in Herman I was determined by the trial court to be $62,088.96. Moreover, the amount of the
offset was based on the value of Patrick’s share of all the marital property, not just the value of his share of
the equity in the marital residence. Nevertheless, for the sake of clarity and consistency in explaining the
calculations, we will continue using the same terminology and dollar amounts we used in Herman I.
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Case No. 12-22-01
Value of Home = $171,500 - $68,131 (mortgage) = $103,369 (equity)
Patrick’s Equity = $51,684.50, Melissa’s Equity = $51,684.50
Melissa’s 401K with example value of $200,000 (no real value
provided).
Trial Court’s Method of Evaluation:
Melissa gets first $51,684.50 from 401K, leaving $148,315.50 to be
divided
Melissa = $74,157.75 + $51,684.50 (home equity offset) =
$125,842.25
Patrick = [$74,157.75]3 + $51,684.50 (home equity) = $125,842.25
Melissa’s Method of Evaluation:
Melissa = $100,000 + $51,684.50 (home equity offset) = $151,684.50
Patrick = $100,000 - $51,684.50 (offset) + $51,684.50 (home equity)
= $100,000
Id. Thus, at a passing glance, our example appeared to confirm that the trial court’s
method resulted in an equal division of marital assets between Melissa and Patrick,
rather than a boon to Melissa as would have resulted under her proposed method.
{¶35} But on closer examination, our example was flawed. In our example,
there was $303,369 in marital assets to be distributed between Melissa and Patrick.
This amount is the sum of the $103,369 equity in the home plus the $200,000
3
Owing to a typographical error, this figure appeared as $74,147.75 in our opinion in Herman I.
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Case No. 12-22-01
example amount of the 401k. To achieve an equal distribution of assets, each party
would be entitled to half of this sum, i.e., $151,684.50. However, in both our
illustration of the trial court’s method of evaluation and our illustration of Melissa’s
method of evaluation, only $251,684.50 was divided between Melissa and Patrick.
Unaccounted for in our example was $51,684.50—an amount equivalent to
Melissa’s home equity offset or, alternatively, one-half of the home equity. The
reason for this discrepancy is that while our example incorporated Melissa’s home
equity offset, it did not provide for the fact that Patrick, in retaining possession of
the home, was also gaining all the equity in the home. Thus, Melissa’s home equity
offset is a function of Patrick receiving the entirety of the home equity, and it exists
only where the home equity is allocated entirely to Patrick. Accordingly, wherever
Melissa is credited with her home equity offset, Patrick must also be credited for the
entire amount of the home equity.
{¶36} If we had properly accounted for the fact that Patrick was receiving
the entirety of the home equity, our example would have looked like this:
Example of Calculation of Offset of Home Equity
Value of Home = $171,500 - $68,131 (mortgage) = $103,369 (equity)
Patrick’s Equity = $51,684.50, Melissa’s Equity = $51,684.50
Because Patrick is receiving the home with all of its equity,
Patrick owes Melissa $51,684.50 (home equity offset)
Melissa’s 401K with example value of $200,000 (no real value
provided).
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Trial Court’s Method of Evaluation:
Melissa gets first $51,684.50 from 401K, leaving $148,315.50 to be
divided
Melissa = $74,157.75 + $51,684.50 (home equity offset) =
$125,842.25
Patrick = $74,157.75 + $103,369 (entire home equity) = $177,526.75
Melissa’s Method of Evaluation:
Melissa = $100,000 + $51,684.50 (home equity offset) = $151,684.50
Patrick = $100,000 - $51,684.50 (offset) + $103,369 (entire home
equity) = $151,684.50
Thus, contrary to our assertion in Herman I, it is the trial court’s method of
evaluation, not Melissa’s, that results in a windfall to Patrick. Melissa does not
benefit from that windfall, as we claimed in Herman I. Instead, it is Patrick who
receives a disproportionate share of the marital assets—$51,684.50 more than
Melissa and $25,842.25 more than he would receive if the marital assets were
divided equally. The reason for this is that by taking the offset off the top of
Melissa’s 401k account and then dividing the remainder of the account equally, half
of the amount that Patrick owed was paid using money that actually belonged to
Melissa.4
4
As an illustration, we offer this simple example: Jack and Jill open a joint bank account. Jack and Jill each
deposit $50 into the account. Jack also owes Jill $50 from a separate transaction. Jack and Jill decide to
simultaneously close their bank account and discharge the debt. If Jill gets the first $50 from the bank account
and the remaining balance is then divided equally between Jack and Jill, Jill receives $75 and Jack receives
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Case No. 12-22-01
{¶37} Had the trial court intended to effect an equitable, albeit unequal,
division of marital assets, its method might have been a permissible way to do so.
Yet, from the trial court’s judgment entries, this was not the trial court’s intent. For
example, in its December 22, 2020 judgment entry, which we reviewed in Herman
I, the trial court stated that the home equity offset was necessary “[i]n order to
equalize the equity and/or debt of the parties.” (Emphasis added.) (Doc. Nos. 57,
58). Furthermore, in discussing whether to award spousal support, the trial court
“note[d] that as it pertains to the distribution of the assets, each party is receiving an
equalized portion of assets including real estate, retirement accounts, personal
property and debts.” (Emphasis added.) (Doc. Nos. 57, 58). Finally, although the
trial court referred to an exhibit it prepared, Court’s Exhibit 3, as a “Distribution
List of assets and debts for equitable distribution,” Court’s Exhibit 3, which was
used to calculate Melissa’s home equity offset, showed an equal distribution of
assets and debts when the offset is factored in. (Emphasis added.) (Doc. Nos. 57,
58). The trial court’s December 20, 2021 superseding judgment entry contained all
these same findings and references. (Doc. Nos. 96, 97). Thus, the relevant judgment
$25. However, this results in Jill receiving $25 less than the $100 she initially expended ($50 into the bank
account and $50 to Jack). As joint owner of and equal contributor to the bank account, Jill owned half of the
$50 used to repay Jack’s debt; only half of the debt was repaid using funds belonging to Jack. Jack thus
avoids fully repaying the debt and takes $25 more than the $0 that he should receive (his $50 bank account
deposit minus the $50 he owes Jill). To ensure that Jill receives the entire value of her interest in the bank
account as well as full satisfaction of the debt, the bank account must first be divided into one $50 share for
Jill and one $50 share for Jack. Jack’s $50 share may then be used to repay his debt to Jill, resulting in Jill
receiving $100 from the bank account and Jack receiving $0.
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entries establish that the trial court envisioned an equal division of Melissa and
Patrick’s marital property.
{¶38} Yet, the trial court’s method of dividing Melissa’s 401k account does
not result in an equal distribution of marital property. Instead, it results in Patrick
receiving a disproportionately large share of marital property. Hence, insofar as the
trial court intended to equally divide Melissa and Patrick’s marital assets but
adopted a method of dividing their property that actually resulted in an unequal
distribution, the trial court abused its discretion. Gilsdorf v. Gilsdorf, 3d Dist.
Marion No. 9-13-34, 2014-Ohio-5000, ¶ 16 (concluding that the trial court abused
its discretion by “ordering an equal division of assets but dividing the assets in an
unequal manner * * * contrary to the trial court’s stated intentions”). In concluding
otherwise in Herman I, it appears we erred.
{¶39} Melissa requests that we reexamine our holding in Herman I and
conclude that the trial court abused its discretion by dividing her 401k account in a
way that does not result in an equal distribution of marital property. While Patrick
does not dispute that the trial court’s method results in him receiving an unequal
share of marital property at Melissa’s expense, he counters that Melissa “is
attempting to relitigate an issue which was already specifically decided” and that
the law of the case doctrine bars our reconsideration of the issue.
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Case No. 12-22-01
{¶40} The law of the case doctrine “provides that the decision of a reviewing
court in a case remains the law of that case on the legal questions involved for all
subsequent proceedings in the case at both the trial and reviewing levels.” Nolan v.
Nolan, 11 Ohio St.3d 1, 3 (1984). “Thus, the decision of the appellate court in a
prior appeal must ordinarily be followed in a later appeal in the same case and
court.” Pavlides v. Niles Gun Show, Inc., 112 Ohio App.3d 609, 615 (5th
Dist.1996). “The doctrine is necessary to ensure consistency of results in a case, to
avoid endless litigation by settling the issues, and to preserve the structure of
superior and inferior courts as designed by the Ohio Constitution.” Hopkins v. Dyer,
104 Ohio St.3d 461, 2004-Ohio-6769, ¶ 15.
{¶41} However, the law of the case doctrine “is considered to be a rule of
practice rather than a binding rule of substantive law and will not be applied so as
to achieve unjust results.” Nolan at 3. Accordingly, “[a]n appellate court may
choose to re-examine the law of the case it has itself previously created if that is the
only means to avoid injustice.” Pavlides at 615. Even so, “such reexaminations
must not be undertaken lightly by an appellate court, nor encouraged as a common
course of conduct for unsuccessful litigants.” Weaver v. Motorists Mut. Ins. Co., 68
Ohio App.3d 547, 549 (2d Dist.1990).
{¶42} Because of our misstep in Herman I, Melissa will receive considerably
less than she would have received had the trial court utilized her method of dividing
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Case No. 12-22-01
and offsetting her 401k account. By the same token, Patrick will receive
considerably more than he would have received under Melissa’s method.
Considering the effect of our decision in Herman I, under the facts and
circumstances present here, neither the integrity of this court nor the law is served
by our adhering to a previous decision that we now know to be in error.
{¶43} Our decision in Herman I was flawed, and in a case like this, when a
higher court’s mandate is not involved, application of the law of the case doctrine
is, in essence, discretionary. See Christianson v. Colt Indus. Operating Corp., 486
U.S. 800, 817, 108 S.Ct. 2166 (1988) (“A court has the power to revisit prior
decisions of its own or of a coordinate court in any circumstance, although as a rule
courts should be loathe to do so in the absence of extraordinary circumstances such
as where the initial decision was ‘clearly erroneous and would work a manifest
injustice.’” (quotation citation omitted)); State v. Kelly, 8th Dist. Cuyahoga No.
89393, 2007-Ohio-6838, ¶ 15 (the law of the case doctrine is discretionary in
application, subject to exceptions, including when “the earlier decision is clearly
erroneous and would work a manifest injustice”) (citations omitted).
{¶44} In the instant case, we find that the mathematical error in the method
of dividing the marital property made by the trial court and erroneously ratified by
this Court in Herman I is sufficiently within the concept of extraordinary
circumstances and manifest injustice to overcome the doctrine’s application. See
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Case No. 12-22-01
Pavlides, 112 Ohio App.3d at 615 (“An appellate court may choose to re-examine
the law of the case it has itself previously created if that is the only means to avoid
injustice.”).
{¶45} This decision is consonant with the law of the case doctrine in cases
where it will not be applied so as to achieve unjust results (emphasis added to the
language quoted from Nolan, supra). See Hawley v. Ritley, 35 Ohio St.3d 157, 160-
161 (1988) (affirming the appellate court’s ruling applying the law of the case
doctrine, but also concluding that “affirmance of the decision of the court of appeals
below by applying the doctrine does not achieve an unjust result”); L.G. Harris
Family Ltd. Partnership I v. 905 S. Main St. Englewood, L.L.C., 2d Dist.
Montgomery No. 26682, 2016-Ohio-7242, ¶ 58 (appellate court decision became
law of the case when appellant did not appeal to the Supreme Court of Ohio and
there was no injustice in following it); Meeks v. Meeks, 10th Dist. Franklin No.
06AP-1186, 2008-Ohio-2015, ¶ 22 (after recognizing its ability to reexamine a prior
holding in the same divorce case and discussing its prior opinion, appellate court
found applying the law of the case would not result in an injustice); Carr Supply,
Inc. v. Rockford Homes, Inc., 10th Dist. Franklin No. 02AP-960, 2003-Ohio-4676,
¶ 20 (applying the law of the case where appellant failed to move for reconsideration
after the appellate decision and where appellant failed to prove that an injustice
would result from its application). We further find a similar situation that actually
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Case No. 12-22-01
occurred in a decision of another state appellate court, wherein the appellate court
applied the manifest injustice exception to the law of the case doctrine so that the
trial court could make a correction of a mathematical error in a prior final judgment
in the same case on remand. Logue v. Logue, 766 So.2d 313 (Fla. 4th DCA 2000).
{¶46} In sum, as a result of our flawed decision in Herman I, the trial court,
on remand, used the same erroneous method to offset and divide Melissa’s 401k
account. Because of the manifest injustice that would occur should we knowingly
continue to let this mathematical error in the trial court’s method of evaluation go
uncorrected, we sustain Melissa’s first assignment of error so that the trial court can
make the proper correction of the property division on remand.
D. Melissa’s Second Assignment of Error: Did the trial court abuse its
discretion by ordering Melissa to pay spousal support to Patrick?
{¶47} In her second assignment of error, Melissa maintains that the trial
court abused its discretion by ordering her to pay spousal support to Patrick. Melissa
argues that “the trial court’s findings regarding the reasonableness of the spousal
support order are not supported by the record” and that “the trial court failed to
provide any details as to how it arrived at the amount of the support and the term of
the award.”
{¶48} To begin, we must address whether our disposition of Melissa’s first
assignment of error based upon our flawed decision in Herman I affects our
consideration of Melissa’s second assignment of error. As in his response to
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Melissa’s first assignment of error, Patrick again argues that “to the extent that
Melissa’s assignment of error requests the Court to reconsider whether spousal
support is appropriate, this Court should overrule Melissa’s assignment of error as
being precluded under the doctrine of the law of the case.” He suggests that, in
Herman I, we “instructed the trial court to recalculate the amount of spousal support,
based on its correction of the errors in the division of property, not to reconsider
whether spousal support is appropriate.”
{¶49} In Herman I, we did refer to the amount of the spousal support award
and the need for the trial court to “recalculate” the award on remand while omitting
a discussion of whether it was reasonable and appropriate to award Patrick spousal
support. However, our decision in Herman I should be understood as deferring
determination of the reasonableness and appropriateness of spousal support pending
a proper equitable division of marital property, which could have affected the trial
court’s assessment of whether to award spousal support to Patrick. “The law-of-
the-case doctrine ‘“comes into play only with respect to issues previously
determined.”’” Banker’s Choice, L.L.C. v. Cincinnati Zoning Bd. of Appeals, 1st
Dist. Hamilton No. C-200117, 2021-Ohio-1206, ¶ 16, quoting Giancola v. Azem,
153 Ohio St.3d 594, 2018-Ohio-1694, ¶ 16, quoting Quern v. Jordan, 440 U.S. 332,
347, 99 S.Ct. 1139 (1979), fn. 18. Therefore, the law of the case doctrine does not
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Case No. 12-22-01
bar us from examining any facet of the trial court’s decision to award spousal
support to Patrick.
{¶50} R.C. 3105.18 governs the award of spousal support in divorce cases.
“‘[S]pousal support’ means any payment or payments to be made to a spouse or
former spouse, or to a third party for the benefit of a spouse or a former spouse, that
is both for sustenance and for support of the spouse or former spouse.” R.C.
3105.18(A). “In divorce and legal separation proceedings, upon the request of either
party and after the court determines the division or disbursement of property under
[R.C. 3105.171], the court of common pleas may award reasonable spousal support
to either party.” (Emphasis added.) R.C. 3105.18(B); see R.C. 3105.171(C)(3)
(“The court shall provide for an equitable division of marital property * * * prior to
making any award of spousal support * * *.”).
{¶51} Here, by sustaining Melissa’s first assignment of error and directing
the trial court to use a different method of offsetting and dividing Melissa’s 401k
account, we have altered the division of Melissa and Patrick’s marital property. The
distribution of marital assets having been changed, the trial court must reexamine
its decision awarding spousal support to Patrick. See Herman I, 2021-Ohio-3876,
at ¶ 17; Salmon v. Salmon, 9th Dist. Summit No. 22745, 2006-Ohio-1557, ¶ 24;
Young v. Young, 146 Ohio App.3d 34, 38 (7th Dist.2001). That said, we take no
position on whether the trial court should ultimately award spousal support or on
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Case No. 12-22-01
the amount or duration of such an award. We simply find and direct that the trial
court must necessarily revisit the issue of spousal support, considering that the case
is already being remanded for a corrected and predicate determination of the
property division as per the directive of R.C. 3105.18(B).
{¶52} For these reasons, Melissa’s second assignment of error is also
sustained.
E. Melissa’s Third Assignment of Error: Did the trial court err by failing to
incorporate all of the parties’ stipulations into its final judgment entry?
{¶53} In her third assignment of error, Melissa argues that the trial court
erred by failing to incorporate all of the parties’ stipulations into its December 20,
2021 judgment entry. On October 1, 2020, at the first part of the final divorce
hearing, Melissa’s counsel discussed the parties’ stipulations, which apparently
included a stipulation regarding the disposition of sensitive videos and photographs.
Her counsel represented that the parties had agreed that “any videos that [the] parties
may have of each other, any videos or copies thereof, pictures, videos, et cetera,
copies thereof, will not be disseminated to any third party. If they have copies or
videos of each other that would place them in what would be an embarrassing or
compromising position, they agree to delete or cease those videos.” (Oct. 1, 2020
Tr. at 7). However, Melissa’s counsel later stated on the record that he did not
believe there was a stipulation concerning the sensitive videos and photographs, so
it is unclear whether there was a stipulation. (Oct. 1, 2020 Tr. at 55). Melissa
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testified that she wanted the trial court to issue an order limiting the possession or
dissemination of any such media. (Oct. 1, 2020 Tr. at 55-56).
{¶54} Regardless of whether there was a stipulation, the trial court failed to
address these items and their ultimate disposition in its December 20, 2021
judgment entry. These items were arguably marital property, and the trial court
must fully address all of the parties’ marital property when dividing the property.
See Smoyer v. Smoyer, 10th Dist. Franklin No. 18AP-365, 2019-Ohio-3461, ¶ 30-
34. Thus, to the extent the trial court failed to make some disposition of these items,
the trial court erred. On remand, the trial court must make provision for these items.
{¶55} Melissa’s third assignment of error is sustained.
IV. Conclusion
{¶56} For the foregoing reasons, Patrick’s assignments of error are
overruled. However, having found error prejudicial to Melissa with respect to her
first, second, and third assignments of error, these assignments of error are
sustained. Consequently, we reverse the judgment of the Putnam County Court of
Common Pleas, Domestic Relations Division, as to the issues of the division of the
marital property, spousal support, and the videos and photographs and remand for
further proceedings consistent with this opinion. In all other respects, we affirm.
Judgment Affirmed in Part, Reversed
in Part and Cause Remanded
MILLER, J., SHAW, J. and WILLAMOWSKI, J., concur.
-34- | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488265/ | UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
AAKASH DALAL,
Plaintiff,
v. Civil Action No. 16-1040 (TJK)
UNITED STATES DEPARTMENT OF
JUSTICE et al.,
Defendants.
MEMORANDUM OPINION AND ORDER
Aakash Dalal, serving a 35-year state sentence for his role in attacks on New Jersey syna-
gogues and a rabbi’s home, sued Defendants, the Federal Bureau of Investigation (“FBI”), the
Executive Office of United States Attorneys (“EOUSA”), and the Federal Emergency Manage-
ment Agency (“FEMA”) over requests he made to them under the Freedom of Information Act, as
well as requests he made to the FBI and EOUSA under the Privacy Act, for records related to his
investigation and prosecution. Pending before the Court are each Defendant’s motion for summary
judgment and Dalal’s corresponding cross-motions. For the reasons explained below, the Court
will (1) grant in part and deny without prejudice in part the FBI’s motion for summary judgment,
and deny in part and deny without prejudice in part Dalal’s cross-motion; (2) grant in part and
deny without prejudice in part EOUSA’s motion for summary judgment, and deny in part and deny
without prejudice in part Dalal’s cross motion; and (3) grant in part and deny without prejudice in
part FEMA’s motion for summary judgment and deny in part and deny without prejudice in part
Dalal’s cross-motion.
Procedural Background
A. FBI
Dalal requested records from the FBI first. He asked for documents under FOIA and the
Privacy Act about his “presence at the Newark, New Jersey Field Office,” including logs, docu-
ments, reports, and video surveillance of the lobby and parking lot. ECF No. 1-1 at 2. Relatedly,
he also sought logs reflecting the presence of two other individuals at the same field office on the
same date. Id. About six months later, he made a second request under FOIA, seeking documents
“reflecting corruption within the FBI”—specifically, the personnel file of FBI Special Agent Co-
rey Coleman, who worked on his case, and any records relating to Special Agent Coleman’s work
with an individual, Wendel Stewart, who Dalal believed was an FBI informant. ECF No. 6 ¶ 16
(“Am. Compl.”); see ECF No. 32 at 5–6. Two months later, Dalal made his third request under
FOIA and the Privacy Act, seeking all records relating to himself. Am. Compl. ¶¶ 20–21; ECF
No. 32 at 7–8.
After the FBI denied his requests and appeals, Dalal sued. ECF No. 1. The Court then
ordered the FBI to produce all non-exempt, responsive records and a Vaughn index. See Minute
Order of Oct. 27, 2016. The FBI released 210 pages of responsive records in full or in part and
withheld 604 records in full. ECF No. 32 at 9. Then the FBI released a second round of documents,
disclosing 154 out of 202 pages in full or in part, including some previously withheld material. Id.
Later, the FBI released one DVD containing video records. Id. The next month, the FBI reviewed
220 pages and one CD and released 48 pages in full or part. Id. at 10. Soon after that, the FBI
told Dalal that it was withholding in full all remaining responsive material. Id. The FBI then
moved for summary judgment, ECF No. 32, and Dalal cross-moved for the same, ECF No. 46.1
1
Dalal also moved to file a supplemental exhibit, ECF No. 55, to which the FBI never responded.
2
B. EOUSA
Dalal also submitted a request to EOUSA under FOIA and the Privacy Act seeking all
records maintained by EOUSA about himself. Am. Compl. ¶ 24. EOUSA responded by informing
Dalal that no responsive records could be located within the U.S. Attorney’s Office for the District
of New Jersey. Id. ¶ 26. After Dalal sued, the Court ordered EOUSA to produce to him all non-
exempt, responsive records and a Vaughn index. See Minute Order of Oct. 27, 2016. EOUSA
ultimately released in full 513 pages of records. ECF No. 27-1 ¶ 6 (“Second Luczynski Decl.”).
EOUSA then moved for summary judgment, along with FEMA. ECF No. 14. EOUSA
later withdrew from the motion because it identified additional records responsive to Dalal’s re-
quest. ECF No. 23 at 1. It ultimately provided him with an additional 68 pages of records in full
and informed him that it was withholding 38 pages in full. Second Luczynski Decl. ¶ 7. EOUSA
then filed a new motion for summary judgment, ECF No. 27, and Dalal cross-moved, ECF No. 40.
C. FEMA
Dalal submitted four FOIA requests to FEMA seeking documents about federal security
grants to various synagogues, churches, and other organizations and entities. ECF No. 1-1 at 52,
57–58, 63–64. FEMA made two productions before Dalal sued and two shortly afterward. ECF
No. 14-2 ¶¶ 7–12 (“Neuschaefer Decl.”). In total, FEMA located 1,330 responsive pages and a
spreadsheet, of which it released 780 pages in full and 550 with redactions. Neuschaefer Decl.
¶ 13. FEMA eventually moved for summary judgment, ECF No. 14,2 and Dalal cross-moved, ECF
No. 16.3
Thus, the Court will treat the motion as unopposed and grant it.
2
As noted, EOUSA first joined this motion, but later withdrew from it. ECF No. 23.
3
After Dalal replied, he filed an amended statement of material facts. ECF No. 36. FEMA moved
3
Legal Standard
“Summary judgment is appropriately granted when, viewing the evidence in the light most
favorable to the non-movants and drawing all reasonable inferences accordingly, no reasonable
jury could reach a verdict in their favor.” Lopez v. Council on Am.-Islamic Rels. Action Network,
Inc., 826 F.3d 492, 496 (D.C. Cir. 2016). “The evidence presented must show ‘that there is no
genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.’”
Id. (quoting Fed. R. Civ. P. 56(a)). “Where the nonmoving party is proceeding pro se, courts in
this jurisdiction will construe the non-moving party’s filings liberally.” Cunningham v. U.S. Dep’t
of Just., 40 F. Supp. 3d 71, 82 (D.D.C. 2014), aff’d, No. 14-5112, 2014 WL 5838164 (D.C. Cir.
Oct. 21, 2014). “However, a pro se litigant still has the burden of establishing more than ‘[t]he
mere existence of a scintilla of evidence’ in support of [her] position.” Id. (first alteration in orig-
inal) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252 (1986)).
“In the FOIA context, a district court reviewing a motion for summary judgment conducts
a de novo review of the record, and the responding federal agency bears the burden of proving that
it has complied with its obligations under the FOIA.” MacLeod v. U.S. Dep’t of Homeland Sec.,
No. 15-cv-1792 (KBJ), 2017 WL 4220398, at *6 (D.D.C. Sept. 21, 2017) (citing 5 U.S.C.
§ 552(a)(4)(B)); see also Cable News Network, Inc. v. FBI, 271 F. Supp. 3d 108, 111 (D.D.C.
2017) (“Unlike the review of other agency action that must be upheld if supported by substantial
evidence and not arbitrary or capricious, the FOIA expressly places the burden on the agency to
sustain its action.” (cleaned up)). Indeed, “consistent with D.C. Circuit precedent,” judges in this
Circuit have “proceeded to review the agencies’ facts and evidence to determine whether summary
judgment in favor of the agency defendants is warranted despite the lack of a coherent opposition
to strike it. ECF No. 37. But the submission is not “redundant, immaterial, impertinent, or scan-
dalous,” see Fed. R. Civ. P. 12(f), so the Court will deny the motion.
4
from the plaintiff.” MacLeod, 2017 WL 4220398, at *8. “[T]he Court may . . . treat the [agency]’s
factual proffers as conceded, but it must address the [agency]’s legal arguments on their merits.”
King v. U.S. Dep’t of Just., 245 F. Supp. 3d 153, 158 (D.D.C. 2017).
Analysis
Dalal claims that FOIA mandates the disclosure of all three Defendants’ withholdings. He
also argues that two Defendants—the FBI and EOUSA—must produce responsive records under
the Privacy Act. When a plaintiff requests documents under both FOIA and the Privacy Act, the
responding agency must show “that the documents fall within some exemption under each Act.”
Martin v. Off. of Special Couns., 819 F.2d 1181, 1184 (D.C. Cir. 1987). “If a FOIA exemption
covers the documents, but a Privacy Act exemption does not, the documents must be released
under the Privacy Act; if a Privacy Act exemption but not a FOIA exemption applies, the docu-
ments must be released under FOIA.” Id. Thus, the Court will consider his arguments under each
statute in turn.
A. Privacy Act
Under the Privacy Act, “[e]ach agency that maintains a system of records shall,” on the
request of “any individual to gain access to his record or to any information pertaining to him
which is contained in the system, permit him . . . to review the record and have a copy made of all
or any portion thereof in a form comprehensible to him.” 5 U.S.C. § 522a(d)(1). “When a plaintiff
challenges an agency’s withholding of documents under the Privacy Act, the court determines de
novo whether the withholding was proper, and the burden is on the agency to sustain its action.”
Barouch v. U.S. Dep’t of Just., 962 F. Supp. 2d 30, 66 (D.D.C. 2013).
The FBI and EOUSA both claim that records responsive to Dalal’s requests are exempt
under Privacy Act Exemption J(2). The Court agrees. Exemption J(2) protects from disclosure
systems of records “maintained by an agency or component thereof which performs as its principal
5
function any activity pertaining to the enforcement of criminal laws, including police efforts to
prevent, control, or reduce crime or to apprehend criminals.” 5 U.S.C. § 552a(j)(2). Agencies
may promulgate rules identifying such record systems. Id. § 552a(j). Here, the FBI records re-
sponsive to Dalal’s requests all came from the FBI’s Criminal Records System (“CRS”), ECF No.
32-1 (“Second Hardy Decl.”) ¶ 54, and the FBI has exempted records maintained in CRS, see 28
C.F.R. § 16.96. As for the EOUSA records, Dalal’s “entire request pertain[ed] to criminal inves-
tigations,” so responsive records “were necessarily compiled for law enforcement purposes.” Sec-
ond Luczynski Decl. ¶ 11. On top of that, EOUSA has exempted U.S. Attorney’s Office criminal
case files from disclosure. See 28 C.F.R. § 16.81(a)(1). The Court is therefore satisfied that the
agencies have met their burden to show that Exemption J(2) “applies to any responsive records
covered by the Privacy Act” and grants their motions for summary judgment on the same ground.
Boehm v. FBI, 948 F. Supp. 2d 9, 18 n. 2 (D.D.C. 2013).
B. FOIA
FOIA “requires federal agencies to disclose information to the public upon reasonable re-
quest unless the records at issue fall within specifically delineated exemptions.” Jud. Watch, Inc.
v. FBI, 522 F.3d 364, 366 (D.C. Cir. 2008). It creates a “strong presumption in favor of disclosure”
and “places the burden on the agency to justify the withholding of any requested documents.” U.S.
Dep’t of State v. Ray, 502 U.S. 164, 173 (1991). If information is already in the public domain,
an agency cannot invoke an otherwise valid exemption to withhold it. Students Against Genocide
v. U.S. Dep’t of State, 257 F.3d 828, 836 (D.C. Cir. 2001). When an agency withholds portions of
a record, it must still disclose “[a]ny reasonably segregable portion . . . after deletion of the portions
which are exempt.” 5 U.S.C. § 552(b).
FEMA, the FBI, and EOUSA all argue that they conducted reasonable searches responsive
to Dalal’s requests, properly invoked certain FOIA exemptions to withhold responsive records and
6
information, and complied with FOIA’s segregability requirement. The Court addresses each ar-
gument in turn.
1. Adequacy of Defendants’ Searches
To establish that it conducted an adequate search,
an agency must show that it made a good faith effort to conduct a search for the
requested records, using methods which can be reasonably expected to produce the
information requested, which it can do by submitting a reasonably detailed affida-
vit, setting forth the search terms and the type of search performed, and averring
that all files likely to contain responsive materials (if such records exist) were
searched.
Reps. Comm. for Freedom of Press v. FBI, 877 F.3d 399, 402 (D.C. Cir. 2017) (cleaned up). An
adequate affidavit is afforded a presumption of good faith and “can be rebutted only with evidence
that the agency’s search was not made in good faith.” Fischer v. U.S. Dep’t of Just., 723 F. Supp.
2d 104, 108 (D.D.C. 2010) (quotation omitted).
FBI
At this point, the Court cannot find that the FBI’s search was adequate in its entirety. Al-
most all of Dalal’s challenges to the FBI’s search fail, but there is one issue the FBI still needs to
address.
The Court begins by describing the FBI’s search. After the FBI received Dalal’s FOIA
requests seeking a wide range of records about FBI investigations related to him, it searched CRS
for responsive records. Second Hardy Decl. ¶ 54. CRS is “an extensive system of records of
applicant, investigative, intelligence, personnel, administrative, and general files compiled and
maintained by the FBI” that “spans the entire FBI organization and encompasses the records of
FBI HQ, FBI Field Offices, and FBI Legal Attaché Offices [] worldwide.” Id. ¶ 46.
When a case file is opened, it is assigned a Universal Case File Number (‘UCFN’)
consisting of three sequential components: (a) the CRS file classification number,
(b) the abbreviation of the FBI Office of Origin (‘OO’) initiating the file, and (c)
the assigned individual case file number for that particular subject matter. Within
7
each case file, pertinent documents or interest are ‘serialized,’ or assigned a docu-
ment number in the order which the document is added to the file, typically in
chronological order.
Id. ¶ 47 (cleaned up). The FBI indexes information in alphabetical order by individuals, entities,
or events. Id. ¶¶ 48–49. The FBI does not index every individual or other subject matter, but
“only [] that information considered relevant and necessary for future retrieval.” Id. ¶ 49. Other-
wise, it would not be an effective or efficient tool for searching and locating information. Id. ¶ 57
n.11.
CRS documents are also housed in the FBI’s two case-management systems, Automated
Case Support (“ACS”) and Sentinel. Second Hardy Decl. ¶¶ 50, 52. Records in ACS are indexed
in the automated, electronic Universal Index. Id. ¶ 51. Since its implementation in 2012, all FBI
records are added electronically to case files on Sentinel. Id. ¶ 52. Sentinel did not replace ACS,
however, and records added to Sentinel are also replicated and indexed in ACS. Id. Essentially,
Sentinel serves as “another portal to locate information within the vast CRS” for documents cre-
ated since 2012. Id.
To search for documents responsive to Dalal’s requests, the FBI conducted a Universal
Index search in ACS and a Sentinel index search. Second Hardy Decl. ¶¶ 53–54. The FBI used
the search terms in Dalal’s requests—specifically, several variations of his and Special Agent
Coleman’s names and listed case numbers. Id. ¶ 54. Through this search, the FBI located three
files indexed to Dalal’s name. Id. After Dalal sued, the FBI conducted a second CRS search of
ACS and of Sentinel. Id. ¶ 55. The FBI uncovered the same three files and “four cross-references
indexed to” Dalal’s name. Id. “Through review of [these files],” the FBI found two more files
containing responsive records. Id. In all, the FBI reviewed 1,236 pages, ECF No. 50-1 ¶ 8
(“Fourth Hardy Decl.”). It released 412 pages—188 in full and 224 in part. Second Hardy Decl.
8
¶ 4. Finally, the FBI states that “CRS is the only records system[] likely to maintain responsive
records, and that no other records systems are likely to maintain responsive records.” Fourth Hardy
Decl. ¶ 19; see also Second Hardy Decl. ¶ 58.
Based on these affidavits, the FBI has largely met its burden to demonstrate that it made a
good-faith effort to search for the requested records where they might reasonably be found. See
e.g., Fischer, 723 F. Supp. 2d at 109 (affording agency a presumption of good faith and finding
search adequate when affidavits described the process used, databases searched, and number of
documents located). So almost all Dalal’s challenges, described below, come up short.
To begin, Dalal argues that the FBI did not specify when it conducted its searches or its
search cut-off dates. ECF No. 46 at 4. But the FBI clarified that it set the search cut-offs as the
date it performed the searches. Fourth Hardy Decl. ¶ 18. And courts have “routinely” found “a
date-of-search cut-off . . . reasonable.” McClanahan v. U.S. Dep’t of Just., 204 F. Supp. 3d 30, 47
(D.D.C. 2016); see also 28 C.F.R. § 16.4(a) (“In determining which records are responsive to a
request, a component ordinarily will include only records in its possession as of the date that it
begins its search.”).
Dalal next argues that the FBI should have searched three other locations along with CRS:
the Electronic Surveillance Indices, Physical Surveillance Indices, and Bomb Arson Tracking Sys-
tem. ECF No. 47 at 6–7. He contends that the first two likely contain responsive records because
the FBI’s declaration “references both electronic surveillance and physical surveillance” of him.
Id. at 6. And the third likely contains responsive records, he says, because the FBI stated that its
“search for responsive records turned up information concerning ‘Plaintiff’s victims of the New
Jersey synagogue bombings.’” Id. at 8 (quoting Second Hardy Decl. ¶ 120). Further, he argues,
9
classifying the incidents as “bombings strongly ‘indicates that responsive records exist in the
BATS database.’” ECF No. 47 at 8.
But the FBI has shown that it has no duty to search these other locations. The FBI need
not search the Electronic Surveillance Indices or Physical Surveillance Indices because they are
also indexed in CRS such that a search of ACS and Sentinel would capture any responsive records.
Fourth Hardy Decl. ¶¶ 15–16. And it need not search the Bomb Arson Tracking System because
it is a Bureau of Alcohol, Tobacco, Firearms and Explosives database; it “is not part of the FBI’s
system of records.” Id. ¶ 17.4
There is, however, one problem with the FBI’s search. The FBI explains that it did not
contact Special Agent Coleman about the requested informant files because, while Special Agent
Coleman “would have written the initial suitability reports for his confidential informants, these
reports then become a matter of record and are indexed and filed within the files of the informants
and/or the investigative files of the subjects of the confidential informant’s report.” Fourth Hardy
Decl. ¶ 21. Fair enough. But the FBI seems to acknowledge that there is a way to find the re-
quested documents: by “manually search[ing] through every single informant file worked by Mr.
Coleman.” Id. The FBI claims that “[s]uch a search would be unduly burdensome.” Id. Maybe,
but it has not made a sufficient showing of undue burden. See Pinson v. U.S. Dep’t of Just., 80 F.
Supp. 3d 211, 217 (D.D.C. 2015) (rejecting sufficiency of agency’s assertion of undue burden
4
Dalal also asserts that the FBI never searched for its Newark Field Office’s surveillance video
from February 9, 2012, which he requested. ECF No. 47 at 8. But the FBI has since made clear
that it “searched for and was unable to locate any records meeting [that] description.” Fourth Hardy
Decl. ¶ 22. This is unsurprising because, it represents, “it has been several years since this video
would have been recorded” and it was likely “overwritten and is not available for retrieval.” Id.
In any event, “the adequacy of a FOIA search is generally determined not by the fruits of the
search, but by the appropriateness of the methods used to carry out the search.” Iturralde v. Comp-
troller of Currency, 315 F.3d 311, 315 (D.C. Cir. 2003).
10
when the agency had merely “state[d] that all Civil Division files would need to be searched”
without including any “estimate of the time required to conduct [the] requested search, the cost of
such a search, or the number of files that would have to be manually searched”). Perhaps the
search “would require the agency to locate, review, redact, and arrange for inspection a vast quan-
tity of material.” Am. Fed. of Gov’t Employees v. Dep’t of Commerce, 907 F.2d 203, 209 (D.C.
Cir. 1990). But for all the Court knows, Special Agent Coleman only had a handful of informants,
and the search would take no time at all. Thus, the FBI will need to explain why such a search of
the requested informant files would be unduly burdensome before the Court can agree.5
EOUSA
Turning to EOUSA, its search was adequate. After Dalal submitted a FOIA request to it
for “[a]ll records or information maintained by the [U.S. Attorney’s Office for the District of New
Jersey] regarding or referencing ‘Aakash Dalal’ or ‘Aakash A. Dalal,’” Second Luczynski
Decl.¶ 4, EOUSA forwarded Dalal’s request to its FOIA staff in the District of New Jersey for
processing, ECF No. 14-1 ¶ 7 (“Luczynski Decl.”). The FOIA staff then searched the Legal In-
formation Office Network System (“LIONS”), “which is a system used . . . to track civil, criminal,
and appellate cases and investigations that are pending or closed.” ECF No. 27-2 ¶ 4 (“Bryant
Decl.”). It is also used “to retrieve files pertaining to cases and investigations.” Luczynski Decl.
¶ 7. The FOIA staff searched LIONS using variants of Dalal’s name—“Aakash Dalal,” “Aakash
5
The FBI points out that “even if these reports could be located, they would be categorically
withheld pursuant to FOIA Exemption (b)(7)(D).” Fourth Hardy Decl. ¶ 21. Probably so. But
“the fact that a category of documents is likely to be exempt from disclosure does not allow an
agency to preemptively exclude such a category of documents from its search.” Toensing v. U.S.
Dep’t of Just., 890 F. Supp. 2d 121, 147 (D.D.C. 2012); see also Butt v. U.S. Dep’t of Just., No.
19-cv-504 (JEB), 2020 WL 4436434, at *5 (D.D.C. Aug. 3, 2020) (“[T]he adequacy of a search
and the application of FOIA exemptions are two separate issues; an agency cannot refuse to search
a certain location just because that search could uncover materials that may fall under a privi-
lege.”).
11
A. Dalal,” “Dalal,” and “Aakash”—which reflect Dalal’s requested search terms. Bryant Decl. ¶
4; see Luczynski Decl. ¶ 7. FOIA staff conducted another search using the federal courts’ Public
Access to Court Electronic Records system to “confirm the cases in the District Court for New
Jersey related to Mr. Dalal.” Bryant Decl. ¶ 5. This search identified an additional pending civil
case related to Dalal. Id. Next, FOIA staff “contacted the Assistant U.S. Attorneys ‘AUSAS’ who
were identified by the LIONS and PACER databases as handling matters related to . . . Dalal. The
case records were located in the possession of the [AUSAS].” Bryant Decl. ¶ 8. FOIA staff then
“discussed and reviewed” the identified “case records with the AUSAS.” Id. ¶ 9.
After identifying and reviewing the responsive records, EOUSA sent Dalal 513 pages of
responsive records in full. Luczynski Decl. ¶ 6. Later, it informed Dalal that it would be releasing
another 68 pages in full. Second Luczynski Decl. ¶ 7. EOUSA’s affiant represents that its search
was “reasonably calculated to uncover all records responsive to plaintiff’s request” and that she is
unaware “of any other locations . . . where records that might be responsive to plaintiff’s request
are likely to be located.” Bryant Decl. ¶ 12. Thus, EOUSA’s reasonably detailed affidavit has
shown an adequate search, and the court affords it a presumption of good faith. See Greenberg v.
U.S. Dep’t of Treasury, 10 F. Supp. 2d 3, 13 (D.D.C. 1998).
Dalal does not rebut this presumption. First, he accuses EOUSA of making “misleading
statements” about the scope of responsive records and the location of documents. ECF No. 40 at
19. He identifies two supposedly deceptive assertions: (1) a letter sent to Dalal stating that there
were no records responsive to his request and (2) a representation that the 513 pages of civil records
disclosed to him at one point were maintained in a criminal case file system. Id. at 6–7. Neither
shows bad faith. As to the “no records” response, EOUSA has explained that it was an adminis-
trative error, intended as a response to a different FOIA request from Dalal. ECF No. 48 at 3–4.
12
Soon after, EOUSA corrected its mistake by searching and sending Dalal responsive records. Id.
Likewise, as to the location of the civil records, the reference to a criminal case file system was
also an error; EOUSA later clarified that the civil records were in LIONS and confirmed that with
a court records search. Id. at 4–5.
Dalal next argues that EOUSA improperly delayed processing responsive criminal files.
ECF No. 40 at 21. But EOUSA has adequately explained this issue as well. When the civil records
were processed and released, EOUSA did not process the criminal records “due to possible ongo-
ing criminal proceedings related to the case.” Second Luczynski Decl. ¶ 7. “Given [Dalal’s] of-
fense, which was thought to be tied to domestic terrorism, EOUSA needed to be completely clear
what the Criminal File records contained. Until that time, the records were not exempt, but rather
excluded until appropriate consideration was given.” ECF No. 48-2 ¶ 7 (“Third Luczynski Decl.”).
Dalal argues that “[t]here is no provision in FOIA that allows an agency to conceal the existence
of responsive records ‘due to possible ongoing criminal proceedings.’” ECF No. 40 at 20. But
the question here is not whether EOUSA correctly excluded or withheld the documents under an
exemption—it ultimately processed and released all non-exempt, responsive criminal records just
three months after the civil records. Second Luczynski Decl. at 20–21 (“Ex. D”). This short
processing delay does not show bad faith or that the search performed was inadequate.
Finally, Dalal asserts that EOUSA “replac[ed] responsive records with newly generated
online news articles,” ECF No. 40 at 19, which the Court also finds meritless. To support this
claim, Dalal says that EOUSA’s FOIA staff in New Jersey “claims to have sent the responsive
[documents] to [EOUSA] . . . on July 14, 2016.” Id. at 8. Yet, he asserts, “[n]ine pages of records
disclosed by EOUSA, consisting of four online news articles, were clearly generated on September
29, 2016—well after EOUSA claims to have received the records from” New Jersey, as shown by
13
“[t]he timestamp on the bottom right hand corner of each of the nine pages.” Id. EOUSA explains
that the documents were sent to EOUSA in October 2016—not July as Dalal asserts—so the time
stamps are not concerning in the first place. ECF No. 48 at 7–8. Rather, in July, FOIA staff in
New Jersey sent EOUSA a “completed interagency form regarding the status of Dalal’s FOIA/PA
request,” and they advised EOUSA about an ongoing criminal investigation and of the existence
of civil court documents. ECF No. 48-1 ¶ 13. And, as EOUSA points out, documents may show
a later date stamp reflecting when they were printed for release, even if they were examined for
releasability earlier. Third Luczynski Decl. ¶ 8–9. In any event, for these reasons the timestamps
do not suggest that EOUSA replaced responsive records with news articles or otherwise suggest
bad faith.
FEMA
FEMA’s search was adequate as well. After receiving each of Dalal’s four FOIA requests,
FEMA’s Disclosure Branch directed the agency’s Grant Program Directorate (“Directorate”),
which administers the Security Initiative grant program, to search for responsive records.
Neuschaefer Decl. ¶¶ 7–11. The Directorate searched its Non-Disaster Grants database, the elec-
tronic grants management system where grant awards are maintained. Id. Each time, the Direc-
torate used the search terms and date ranges that Dalal provided in his requests. Id.; ECF No. 19-
1 ¶ 7. The Directorate searched only that database because the requested information is either
maintained in the Non-Disaster Grants database or not collected and maintained by FEMA at all.
Id. ¶ 3, 6. Further, FEMA confirmed that it “searched all locations likely to contain records re-
sponsive to Plaintiff’s FOIA requests.” Id. ¶ 3. After identifying potentially responsive records,
the Directorate provided the documents to the Disclosure Branch for an analyst to process and
ensure that the records were responsive. Neuschaefer Decl. ¶¶ 7–11; ECF No. 19-1 ¶ 4. In all,
14
FEMA identified 1,330 pages of responsive records and released 780 in full and 550 in part. ECF
No. 14-3 ¶ 9.
FEMA’s affidavits are also entitled to a presumption of good faith. And based on these
affidavits, it has met its burden to demonstrate that it made a good-faith effort to search for the
requested records where they might reasonably be found. “Thus, summary judgment on the ade-
quacy of the search is proper unless plaintiffs can contradict [FEMA’s] account of the search pro-
cedure or raise evidence of [FEMA’s] bad faith.” See Greenberg, 10 F. Supp. 2d at 13; see also,
e.g., Fischer, 723 F. Supp. 2d at 109 (affording agency a presumption of good faith and finding
search adequate when affidavits described the process used, databases searched, and number of
documents located).
Once again, Dalal fails to rebut the presumption. At the outset, he attacks the sufficiency
of the affidavits, arguing that FEMA did not identify the search terms it used or explain how the
Non-Disaster Grants database can be searched. ECF No. 16 at 20. Dalal is incorrect. FEMA did
in fact provide this information, explaining that it used the search terms and date ranges that Dalal
provided in his requests. Neuschaefer Decl. ¶¶ 7–11. FEMA also specified that “in instances
where information pertaining to a specific award was requested, [the Directorate] searched [the
Non-Disaster Grants database] using the name of the subgrantee listed on the request (e.g. []Con-
gregation Beth El), the location (e.g. New Jersey), and the time period (e.g. 2012-2013),” while
“[i]n instances where information pertaining to a grouping of awards was requested, the Direc-
torate] searched [the Non-Disaster Grants database] using the location (e.g. New Jersey) and the
time period (e.g. January 1, 2012 through March 1, 2016).” ECF No. 19-1 ¶ 7.
Next, Dalal attacks the search methodology, contending that FEMA “failed to search data-
bases and offices clearly reference[d] in the responsive records,” “failed to search its National
15
Emergency Management Information System,” “failed to produce [records] that in fact exist,”
“produced [inaccurate records] that exist in some other form,” and “should have searched for and
disclosed complete versions of the applications that it surely requested of grant applicants before
awarding them substantial sums of money.” ECF No. 16 at 20–21, 25, 27–28.
To be sure, “positive indications of overlooked materials” may suggest that a search was
inadequate. Valencia-Lucena v. U.S. Coast Guard, 180 F.3d 321, 326 (D.C. Cir. 1999). But “the
adequacy of a FOIA search is generally determined not by the fruits of the search, but by the
appropriateness of the methods used to carry out the search.” Iturralde, 315 F.3d at 315; see also
Fischer, 723 F. Supp. 2d at 109–110 (“Even plaintiff’s showing of specific responsive documents
that exist and were not produced does not rebut the presumption of good faith accorded to agency
affidavits.”). As already described, FEMA has met its burden by explaining its search methods in
reasonable detail and confirming that the Non-Disaster Grants database contains all award docu-
ments and that “[n]o other system of records maintained by FEMA would likely produce additional
records.” ECF No. 19-1 ¶¶ 3, 6. And in any event, Dalal has not identified any “positive indica-
tions of overlooked materials,” but only his unfounded assertions that other documents must exist.
The presumption of good faith “cannot be rebutted by purely speculative claims about the exist-
ence and discoverability of other documents.” SafeCard Servs., Inc. v. SEC, 926 F.2d 1197, 1200
(D.C. Cir. 1991) (quotation omitted).6
6
Dalal’s miscellaneous claims of inaccurate records and misconduct, see, e.g., ECF No. 16 at 23,
are unavailing because he offers nothing but speculation to support his accusations of bad faith.
See, e.g., Physicians for Human Rights v. U.S. Dep’t of Defense, 675 F. Supp. 2d 149, 158 (D.D.C.
2009) (“[The] presumption can only be rebutted with clear evidence of bad faith.”). For the same
reason, the Court denies Dalal’s request for discovery under Rule 56(d). See ECF No. 16 at 47–
49; see also Landmark Legal Found. v. EPA, 959 F. Supp. 2d 175, 183–84 (D.D.C. 2013) (“Dis-
covery in FOIA cases is rare and should be denied” unless “the plaintiff raises a sufficient question
as to the agency’s good faith in processing documents.” (cleaned up)).
16
* * *
For these reasons, the Court finds that EOUSA’s and FEMA’s searches were adequate.
But it cannot find all of the FBI’s search adequate, at least not yet. Thus, the FBI’s motion for
summary judgment on this issue will be denied without prejudice, and Dalal’s cross-motion will
also be denied without prejudice. The FBI may file a supplemental declaration and renewed mo-
tion for summary judgment to explain why it would be an undue burden to search for the requested
informant records in the way it describes.
2. Exemptions Claimed by Defendants
The Court next turns to Defendants’ claimed exemptions. “The agency bears the burden
to establish the applicability of a claimed exemption to any records or portions of records it seeks
to withhold.” Am. Immigr. Lawyers Ass’n v. Exec. Off. for Immigr. Rev. (“AILA”), 830 F.3d 667,
673 (D.C. Cir. 2016). “Summary judgment is warranted on the basis of agency affidavits when
the affidavits describe the justifications for nondisclosure with reasonably specific detail, demon-
strate that the information withheld logically falls within the claimed exemption, and are not con-
troverted by either contrary evidence in the record nor by evidence of agency bad faith.” Larson
v. Dep’t of State, 565 F.3d 857, 862 (D.C. Cir. 2009) (quoting Miller v. Casey, 730 F.2d 773, 776
(D.C. Cir. 1984)). That is, the agency must provide a “logical” or “plausible” justification for the
exemption. Id. (quoting Wolf v. CIA, 473 F.3d 370, 375 (D.C. Cir. 2007)). The agency cannot
rely on “conclusory and generalized allegations of exemptions.” Morley v. CIA, 508 F.3d 1108,
1114 (D.C. Cir. 2007) (quoting Founding Church of Scientology of Wash., D.C., Inc. v. NSA, 610
F.2d 824, 830 (D.C. Cir. 1979)). Defendants invoked these exemptions, which the Court will
analyze in turn: FOIA Exemptions 1, 3(A), 5, 7(A), 7(C), 7(D), and 7(E).
17
a. Exemption 1
The FBI—and only the FBI—asserts Exemption 1, claiming it exempts the disclosure of
certain information that describes intelligence activities, intelligence sources, and methods used
by the FBI to gather intelligence. See Second Hardy Decl. ¶¶ 92–94; ECF No. 60-2 at 16 n.12.
The Court finds that the FBI has met its burden to claim this exemption.
Exemption 1 provides that FOIA’s disclosure provisions “[do] not apply to matters that are
. . . (A) specifically authorized under criteria established by an Executive order to be kept secret
in the interest of national defense or foreign policy and (B) are in fact properly classified pursuant
to such Executive order.” 5 U.S.C. § 552(b)(1). Relevant here, Executive Order No. 13,526 pro-
vides that information may be classified under the order if:
(1) an original classification authority classifies the information; (2) the information
is under the control of the United States Government; (3) the information falls un-
der one or more of the categories of information listed in § 1.4 of the order; and (4)
the classification authority determines that the unauthorized disclosure of the infor-
mation reasonably could be expected to result in damage to the national security,
and the authority is able to identify or describe the damage.
Exec. Order No. 13,526 (“E.O. 13526”), 75 Fed. Reg. 707 § 1.1 (Dec. 29, 2009). And one of the
classification categories in § 1.4 is information that constitutes “intelligence activities (including
covert action), intelligence sources or methods, or cryptology.” See E.O. 13526 § 1.4(c); Second
Hardy Decl. ¶ 90.
In this Circuit, courts “accord substantial weight to an agency’s affidavit concerning the
details of the classified status of the disputed record because the Executive departments responsi-
ble for national defense and foreign policy matters have unique insights into what adverse affects
[sic] might occur as a result of a particular classified record.” Larson, 565 F.3d at 865 (quoting
Ctr. for Nat’l Sec. Stud. v. U.S. Dep’t of Just., 331 F.3d 918, 927 (D.C. Cir. 2003)).
If an agency’s statements supporting exemption contain reasonable specificity of
detail as to demonstrate that the withheld information logically falls within the
18
claimed exemption and evidence in the record does not suggest otherwise . . . the
court should not conduct a more detailed inquiry to test the agency’s judgment and
expertise or to evaluate whether the court agrees with the agency’s opinions.
Id. at 865. Courts have “consistently deferred to executive affidavits predicting harm to the na-
tional security, and have found it unwise to undertake searching judicial review.” Id. (quoting Ctr.
for Nat’l Sec. Stud., 331 F.3d at 927).
Here, the FBI’s declarations verify, with reasonable specificity, that all the prerequisites of
E.O. 13526 were met. See Second Hardy Decl. ¶¶ 89–94; Fourth Hardy Decl. ¶¶ 33–37. David
Hardy—the FBI’s Section Chief of the Record/Information Dissemination Section at the Records
Management Division, and an original classification authority—designated the information as
“Secret” and determined that it “is under the control of the United States Government.” See Sec-
ond Hardy Decl. ¶ 91; Fourth Hardy Decl. ¶ 33. That satisfies the first two elements of E.O. 13526.
Hardy also determined that the information “describes and pertains to intelligence activities,
sources, and methods utilized by the FBI in gathering intelligence information,” and therefore falls
within § 1.4(c) of E.O. 13526. Fourth Hardy Decl. ¶ 34. He also concluded that “the release of
this information could permit hostile non-U.S. persons, entities, and foreign governments to ap-
praise the scope, focus, location, target, and capabilities of the FBI’s intelligence-gathering meth-
ods and activities, and allow hostile agents to devise countermeasures to circumvent these intelli-
gence activities or methods and render them useless in providing intelligence information.” Id.
¶ 36.
As additional support for its withholding, the FBI submitted a classified declaration in
camera, which the Court has reviewed. See ECF No. 33-1. Based on these declarations, the Court
finds that Exemption 1’s requirements are satisfied because the information was specifically au-
thorized to be kept secret in the interest of national security or foreign policy under an executive
19
order, and it was properly classified. Given the substantial weight the Court must afford these
declarations and the reasonable specificity with which Hardy explained the exemption’s applica-
bility, the Court need “not conduct a more detailed inquiry to test the agency’s judgment and ex-
pertise or to evaluate whether the court agrees with the agency’s opinions.” Larson, 565 F.3d at
865.
Dalal attacks the FBI’s declarations on two grounds. First, he contends that the affidavits
are not reasonably detailed. ECF No. 46 at 16–17. But the Court finds that the public declarations,
combined with the FBI’s in camera declaration and its Vaughn index, ECF No. 60-2, have de-
scribed and explained the withholdings with reasonable detail. Second, Dalal argues that the FBI
stated that “the information at issue ‘has been the subject of declassification in accordance with
existent regulations.’” ECF No. 46 at 16 (quoting Second Hardy Decl. ¶ 98). The FBI confirmed,
though, that the information remains classified and that it had merely been “submitted for declas-
sification review.” Fourth Hardy Decl. ¶ 38.
For these reasons, the Court will grant the FBI summary judgment as to its Exemption 1
withholdings.
b. Exemption 3
Both the FBI and EOUSA invoke Exemption 3. Under that exemption, FOIA’s disclosure
requirements do not apply to matters that are “specifically exempted from disclosure by statute . . .
if that statute . . . (i) requires that the matters be withheld from the public in such a manner as to
leave no discretion on the issue, or (ii) establishes particular criteria for withholding or refers to
particular types of matters to be withheld.” 5 U.S.C. § 552(b)(3)(A). Thus, the agency “need only
show that the statute claimed is one of [the] exemption[s] as contemplated by Exemption 3 and
that the withheld material falls within the statute.” Larson, 565 F.3d at 865. “Exemption 3 differs
from other FOIA exemptions in that its applicability depends less on the detailed factual contents
20
of specific documents; the sole issue for decision is the existence of a relevant statute and the
inclusion of withheld material within the statute’s coverage.” Nat’l Sec. Couns. v. CIA, 320 F.
Supp. 3d 200, 214–15 (D.D.C. 2018) (quotation marks omitted).
FBI
The FBI raises two statutes, Federal Rule of Criminal Procedure 6(e)7 and Section
102(A)(i)(1) of the National Security Act of 1947 (“NSA”), as the basis for withholding under
Exemption 3 certain grand jury materials and materials pertaining to intelligence activities,
sources, and methods, respectively. ECF No. 32 at 24–25. The Court finds the FBI properly
invoked this exemption.
Rule 6(e) bars disclosure of matters before a grand jury. See Fed. R. Crim P. 6(e)(2)(B).
“[W]hen combined with . . . Exemption 3, [it] prohibits the disclosure of certain grand jury matters
even in the face of a valid FOIA request.” Ford v. U.S. Dep’t of Just., 208 F. Supp. 3d 237, 248
(D.D.C. 2016) (quotations omitted). “The relevant inquiry for this Court is whether disclosure of
the information requested would tend to reveal some secret aspect of the grand jury’s investigation,
such matters as the identities of witnesses or jurors, the substance of testimony, the strategy or
direction of the investigation, the deliberations or questions of jurors, and the like.” Lopez v. U.S.
Dep’t of Just., 393 F.3d 1345, 1349 (D.C. Cir. 2005) (cleaned up).
The FBI has adequately explained that the withheld grand jury materials fall within Rule
6(e)’s protections. It invoked this justification to withhold several subpoena responses in full and
to redact various electronic communications, letters, and subpoena responses. ECF No. 60-2 at
17–18. The material withheld consists of “names and/or identifying information of third parties
7
Rule 6(e) is considered a statute for purposes of Exemption 3 because it was “positively enacted
by Congress.” Fund for Const. Gov’t v. Nat’l Archives & Recs. Serv., 656 F.2d 856, 867 (D.C.
Cir. 1981) (“It is quite apparent that by any definition Fed. R. Crim. P. 6(e) is a statute.”).
21
who were either subpoenaed to provide testimony or actually provided testimony to the Federal
Grand Jury; the company names and/or employees served with Federal Grand Jury subpoenas;
information identifying specific records subpoenaed by the Federal Grand Jury; and other infor-
mation on the internal workings of the Federal Grand Jury.” Second Hardy Decl. ¶ 96; see also
Fourth Hardy Decl. ¶ 7. This is information protected by Rule 6(e). See Lopez, 393 F.3d at 1349–
50 (“All grand jury subpoenas . . . fall within FOIA’s third exemption.”); Fund for Const. Gov’t,
656 F.2d at 869–70 (“Witness names are clearly covered, as are documents subpoenaed as exhib-
its” and “[p]otential witnesses and potential documentary exhibits” when disclosure “would reveal
the direction and strategy of the investigation.”). And the FBI confirms that “only that information
which explicitly discloses matters occurring before a Federal Grand Jury has been withheld.” Sec-
ond Hardy Decl. ¶ 96.
Dalal does not object to any of those representations and instead challenges the following
specific assertion: “‘The disclosure of this material would clearly violate the secrecy of the grand
jury proceedings revealing the inner workings that led to the Grand Jury indictment of Plaintiff, as
well as other possible violations being investigated.’” ECF No. 46 at 17 (quoting Second Hardy
Decl. ¶ 96). He argues that, because no federal prosecution was ever brought against him, this
must refer to state indictments and the FBI consequently is “withholding information regarding a
state grand jury which would obviously not fall under the Federal Rules of Criminal Procedure.”
ECF No. 47 at 17–18. But even though Dalal was never federally indicted, the FBI is clear that
the subpoenas withheld were still federal grand jury subpoenas. Fourth Hardy Decl. ¶¶ 7, 39. And
even if they did not lead to federal charges against him, their release would no doubt “shed light
on the inner workings of a Federal Grand Jury” and “identify the specific records subpoenaed” as
well as “the company names and/or employees served with” the subpoenas. Id. ¶ 7. Thus, his
22
objection lacks merit, even if the FBI’s representation about the nature of Dalal’s indictment was
mistaken.
Turning to the NSA, that statute provides that the Director of National Intelligence “shall
protect from unauthorized disclosure intelligence sources and methods.” 50 U.S.C. § 3024(i)(1).
The D.C. Circuit has interpreted this language to exempt from disclosure material “that the agency
‘demonstrates . . . can reasonably be expected to lead to unauthorized disclosure’ of intelligence
methods or sources.” Nat’l Sec. Couns. v. CIA, 320 F. Supp. 3d 200, 215 (D.D.C. 2018) (quoting
Wolf, 473 F.3d at 377). Because of the “national-security interests implicated by such material,
courts give ‘even greater deference to [FBI] assertions of harm to intelligence sources and methods
under the National Security Act.’” Id. (quoting Wolf, 473 F.3d at 377).
The FBI has carried its burden to invoke Exemption 3 under this statute as well. It repre-
sents that the information withheld was originally classified at the confidential or secret level and
“the FBI’s intelligence sources and methods would be revealed if any of the withheld information
is disclosed.” Second Hardy Decl. ¶ 98. And the FBI’s classified declaration submitted in camera
provides more detail. See ECF No. 33-1. All of this is sufficient. Dalal argues that “the FBI relies
on conclusory statements” and that “[a] simple reference to ‘sources and methods’ cannot allow
the FBI to carry its burden here.” ECF No. 46 at 18. But “given the ‘greater deference afforded
the Agency under the National Security Act,’” Nat’l Sec. Couns., 320 F. Supp. 3d at 216 (quoting
Wolf, 473 F.3d at 378), the Court is convinced that the FBI has met its burden, see Am. Ass’n of
Women, Inc. v. U.S. Dep’t of Just., 167 F. Supp. 3d 136, 143 (D.D.C. 2016) (finding similar lan-
guage in declaration adequate).
Because the FBI met its burden to invoke Exemption 3, the Court will grant its motion for
summary judgment as to these withholdings.
23
EOUSA
EOUSA invokes Rule 6(e), as well as Title III of the Omnibus Crime Control and Safe
Streets Act of 1968, 18 U.S.C. §§ 2510–2520, to withhold under Exemption 3 four grand jury
subpoenas totaling seven pages. Second Luczynski Decl. ¶ 16. The Court finds its withholding
proper.
To begin, the Court agrees with EOUSA that, based on the standard outlined above, Rule
6(e) covers the subpoenas in their entirety. Second Luczynski Decl. ¶¶ 14, 16. As EOUSA ex-
plains, release of the subpoenas “would reveal the identities of witnesses and provide information
about the substance of testimony given before the grand jury, the strategy or direction of the in-
vestigation,” and “the deliberations or questions of the grand jurors.” Third Luczynski Decl. ¶ 12;
see Lopez, 393 F.3d at 1349–50 (“All grand jury subpoenas . . . fall within FOIA’s third exemp-
tion.”).
Dalal does not dispute that the subpoenas are covered by Rule 6(e) and “does not seek the
release of” these records “if they are indeed grand jury subpoenas.” ECF No. 40 at 21–22. He
does, however, ask the Court to review the documents in camera “to ensure that they are what
EOUSA claims,” given what he characterizes as “EOUSA’s unlawful and repeated efforts to con-
ceal even the existence of the four purported grand jury subpoenas.” Id. But Dalal provides no
evidence of bad faith to support his assertion that EOUSA has mischaracterized the records. The
Court accordingly has no reason to believe they are anything but what EOUSA has represented—
grand jury subpoenas that Dalal has conceded he does not seek. See Ancient Coin Collectors Guild
v. U.S. Dep’t of State, 641 F.3d 504, 509 (D.C. Cir. 2011) (citing Larson, 565 F.3d at 862). Thus,
24
the Court finds EOUSA’s invocation of Exemption 3 in connection with Rule 6(e) sufficient and
declines to review the documents in camera.8
For these reasons, the Court grants summary judgment for EOUSA on its assertion of Ex-
emption 3.
c. Exemption 5
The FBI and EOUSA also invoke Exemption 5. This exemption excepts from mandatory
disclosure requirements “inter-agency or intra-agency memorandums or letters which would not
be available by law to a party other than an agency in litigation with the agency.” 5 U.S.C.
§ 552(b)(5). “It incorporates three traditional civil-discovery privileges: (1) the deliberative-pro-
cess privilege; (2) the attorney-client privilege; and (3) the attorney work-product privilege.” Am.
Immigr. Council v. U.S. Dep’t of Homeland Sec., 21 F. Supp. 3d 60, 74 (D.D.C. 2014); see also
Rockwell Int’l Corp. v. U.S. Dep’t of Just., 235 F.3d 598, 601 (D.C. Cir. 2001) (“[T]he parameters
of Exemption 5 are determined by reference to the protections available to litigants in civil discov-
ery; if material is not available in discovery, it may be withheld from FOIA requesters.”).
“As [Dalal] appear[s] to share [the agencies’] assumption that the documents involved here
qualify as inter-agency or intra-agency memoranda under Exemption 5 (and would therefore be
8
As noted above, EOUSA also invokes the Omnibus Crime Control and Safe Streets Act as an-
other basis for protecting wiretap information that apparently is encompassed within the subpoe-
nas. As courts in this Circuit have explained, “‘intercepted communications’ obtained pursuant to
a Title III wiretap fall ‘squarely within the scope’ of Exemption 3,” as do wiretap applications.
Ewell v. U.S. Dep’t of Just., 153 F. Supp. 3d 294, 304 (D.D.C. 2016) (quoting Lam Lek Chong v.
Drug Enf’t Admin., 929 F.2d 729, 733 (D.C. Cir. 1991)). That said, Dalal argues that EOUSA has
not sufficiently described the wiretap material contained within the subpoenas—that is, it has not
explained what it means by “wiretap information” with enough specificity. Admittedly, EOUSA’s
explanation is scant. EOUSA says only that the grand jury subpoenas “involved wiretap-related
information.” Third Luczynski Decl. ¶ 12. But the Court need not decide this question because
the information is apparently contained within the grand jury subpoenas—records covered by Rule
6(e) in their entirety, which Dalal does not seek anyway. If the Court misunderstands EOUSA’s
representations on this point, it should, of course, correct the record.
25
exempt if they [meet the relevant privilege elements]),” the Court “will assume without deciding
that they are such memoranda” and proceed to considering whether they qualify for any of the
three privileges. Ancient Coin Collectors Guild, 641 F.3d at 513.
i. The Deliberative Process Privilege
The FBI invokes the deliberative process privilege to withhold portions of Dalal’s law en-
forcement records. See Fourth Hardy Decl. ¶ 47. But the Court agrees with Dalal that the FBI has
not (at least yet) provided enough information to invoke the deliberative process privilege for these
documents.
The deliberative process privilege “shields ‘documents reflecting advisory opinions, rec-
ommendations and deliberations comprising part of a process by which governmental decisions
and policies are formulated.’” Reps. Comm. for Freedom of the Press v. FBI, 3 F.4th 350, 357
(D.C. Cir. 2021) (quoting NLRB v. Sears, Roebuck & Co., 421 U.S. 132, 150 (1975)). “The priv-
ilege is rooted in the obvious realization that officials will not communicate candidly among them-
selves if each remark is a potential item of discovery and front page news. To encourage candor,
which improves agency decisionmaking, the privilege blunts the chilling effect that accompanies
the prospect of disclosure.” Jud. Watch, Inc. v. U.S. Dep’t of Just., 20 F.4th 49, 54 (D.C. Cir.
2021) (cleaned up).
For the privilege to apply, a document must be both “predecisional and deliberative.” Ma-
chado Amadis v. Dep’t of State, 971 F.3d 364, 370 (D.C. Cir. 2020). A “predecisional” document
is “generated before the adoption of an agency policy.” Coastal States Gas Corp. v. Dep’t of
Energy, 617 F.2d 854, 866 (D.C. Cir. 1980) (emphasis added). And a “deliberative” document
“reflects the give-and-take of the consultive process.” Reps. Comm., 3 F.4th at 362 (cleaned up).
To meet its burden, the agency “must explain the role [the document] played in administrative
26
decisionmaking—the ‘who, what, where, and how’ of internal governmental deliberations.” Cam-
paign Legal Ctr. v. U.S. Dep’t of Just., 34 F.4th 14, 23 (D.C. Cir. 2022) (quoting Jud. Watch, 20
F.4th at 57). That usually requires showing “the roles of the document drafter and recipients, the
nature of the withheld content, and the stage within the broader deliberative process in which the
withheld material operates.” Id. (cleaned up). The agency should also “explain the way in which
the withheld material facilitated agency deliberation.” Id. (cleaned up).9
The FBI argues that the deliberative process privilege applies to the withheld pages from
Dalal’s law enforcement records because the pages contain “preliminary opinions, evaluations,
and comments of [Newark Field Office] Special Agents pertaining to the criminal proceedings”
against Dalal. Second Hardy Decl. ¶ 108; Fourth Hardy Decl. ¶¶ 47–48. The FBI says that releas-
ing the records would reveal deliberations related to “investigative/prosecutorial strategy as it per-
tained to [Dalal], . . . the maintenance and preservation of investigative records, the consensual
monitoring of [Dalal], and litigation strategy as it pertained to testimony of federal employees.”
Fourth Hardy Decl. ¶ 48. It then argues that “[d]isclosure of the protected information . . . would
reveal internal discussions and information FBI personnel thought were pertinent to their analysis,
and their compilation and sorting of facts, all of which were used in determining to make final
9
Under a 2016 amendment to FOIA, agencies are barred from withholding exempt material if the
agency does not “‘reasonably foresee[] that disclosure would harm an interest protected by’ a
FOIA exemption.” Reps. Comm. for Freedom of the Press v. U.S. Customs & Border Prot., 567
F. Supp. 3d 97, 109 (D.D.C. 2021) (quoting 5 U.S.C. § 552(a)(8)(A)(i)(I)). But that amendment
took “effect on the day of enactment”—which was June 30, 2016—and applies only to “request[s]
for records . . . made after” that date. FOIA Improvement Act of 2016, Pub. L. No. 114-185, § 6,
130 Stat. 538, 544–45; see also Bagwell v. U.S. Dep’t of Just., No. 15-cv-531 (CRC), 2022 WL
602448, at *11 (D.D.C. Mar. 1, 2022); Jud. Watch, Inc. v. U.S. Dep’t of State, No. 15-cv-687
(JEB), 2021 WL 3363423, at *8 (D.D.C. Aug. 3, 2021). The requests here were made before June
30, 2016.
27
decisions regarding the investigative material collected and analyzed during the criminal proceed-
ings of the subject.” Id.
These representations are not enough. “Assessing whether a record is pre-decisional or
deliberative necessarily requires identifying the decision (and the associated decisional process) to
which the record pertains.” Citizens for Resp. & Ethics in Wash. (“CREW”) v. U.S. Dep’t of Just.,
45 F.4th 963, 972 (D.C. Cir. 2022). But this nebulous explanation leaves unclear what decision
or decisional process is at issue. See 100Reporters LLC v. U.S. Dep’t of Just., 248 F. Supp. 3d
115, 152 (D.D.C. 2017) (finding DOJ’s “view of the deliberative process at issue . . . overbroad”
when DOJ described the process as “helping the DOJ deliberate on whether [a party] had satisfied
its obligations under the Plea Agreement”). In fact, it sounds like there are multiple sub-decisions
involved—how to investigate Dalal, how to prosecute Dalal, and how to maintain and preserve
records—each “with a distinct deliberative process” that the FBI bears the burden of identifying.
Id. at 152. On top of that, the document “descriptions are too vague for the Court to discern the
function and significance of the documents in the agency’s decisionmaking process.” Nat’l Sec.
Couns. v. CIA, 960 F. Supp. 2d 101, 190 (D.D.C. 2013). The FBI fails to sufficiently explain
“where” or “how” any particular withholding operated in the relevant deliberative process. Jud.
Watch, 20 F.4th at 56; see also CREW, 45 F.4th at 972 (even where an “agency never reaches a
final decision,” it still must “tie the withheld records to a decision-making process” and identify
“the role played by the documents in issue in the course of that process” (cleaned up)).
The Circuit has also said that an agency invoking the deliberative process privilege should
explain “the roles of the document drafters and recipients.” Campaign Legal Ctr. v. U.S. Dep’t of
Just., 34 F.4th 14, 23 (D.C. Cir. 2022) (cleaned up). Such information can be critical: “A document
from a junior to a senior is likely to reflect his or her own subjective opinions and will clearly have
28
no binding effect on the recipient,” while “one moving from senior to junior is far more likely to
manifest decisionmaking authority and to be the denouement of the decisionmaking rather than
part of its give-and-take.” Access Reps. v. U.S. Dep’t of Just., 926 F.2d 1192, 1195 (D.C. Cir.
1991); see also Coastal States, 617 F.2d at 868. Yet the FBI leaves unclear both who drafted the
documents at issue and who received them. Both Special Agents and attorneys within DOJ’s
Office of General Counsel appear to have been involved—but the FBI does not explain their roles.
See Fourth Hardy Decl. ¶¶ 47–48.
Thus, the FBI has not met its burden of showing that the material is properly withheld
under the deliberative process privilege. The FBI’s motion for summary judgment on this
assertion of privilege will therefore be denied without prejudice, and Dalal’s cross-motion will
also be denied without prejudice. To the extent that these withholdings are not otherwise covered
by the attorney-client privilege, the attorney work-product privilege, or some other exemption al-
together, to withhold them the FBI must provide a more detailed declaration or updated Vaughn
index alongside a renewed motion for summary judgment.
ii. The Attorney-Client Privilege
The FBI also asserted the second form of privilege—the attorney-client privilege. This
privilege protects “confidential communications between an attorney and his client relating to a
legal matter for which the client has sought professional advice.” Pub. Emps. for Env’t Resp. v.
EPA, 213 F. Supp. 3d 1, 22 (D.D.C. 2016) (quoting Mead Data Cent., Inc. v. U.S. Dep’t of Air
Force, 566 F.2d 242, 252 (D.C. Cir. 1977)). The privilege seeks “to ensure that a client’s confi-
dences are protected, encouraging clients to be honest with their attorneys.” Competitive Enter.
Inst. v. EPA, 232 F. Supp. 3d 172, 184 (D.D.C. 2017). “In the FOIA context, the agency is the
‘client’ and the agency’s lawyers are the ‘attorneys’ for the purposes of attorney-client privilege.”
Jud. Watch, Inc. v. U.S. Dep’t of Treasury, 802 F. Supp. 2d 185, 200 (D.D.C. 2011). “To be
29
privileged, a communication must be ‘for the purpose of securing primarily either (i) an opinion
on law or (ii) legal services or (iii) assistance in some legal proceeding.’” Muttitt v. Dep’t of State,
926 F. Supp. 2d 284, 308–09 (emphasis omitted) (quoting In re Grand Jury, 475 F.3d 1299, 1304
(D.C. Cir. 2007)). “[I]t falls to the government to prove, through ‘detailed and specific infor-
mation,’ that the withheld information falls within the domain of the attorney-client privilege.”
Am. Immigr. Council, 21 F. Supp. 3d at 70.
The FBI asserted the attorney-client privilege to withhold in full or in part 47 pages of
communications “between FBI personnel and its Office of General Counsel (“OGC”) agency at-
torneys.” Second Hardy Decl. ¶ 102. The Court agrees that the privilege applies. According to
the FBI, the withheld communications were confidential and would reveal OGC’s analysis in for-
mulating a legal position. Second Hardy Decl. ¶ 102. The legal advice pertained specifically to
“the legal requirements and protocols required prior to FBI personnel testifying in court proceed-
ings.” Id. With these descriptions, the FBI has provided enough information to show that the
material is properly withheld under the attorney-client privilege. See Bloche v. Dep’t of Def., 414
F. Supp. 3d 6, 45 (D.D.C. 2019) (internal quotation marks omitted) (finding agency’s explanation
sufficient where it said that communications “reflect advice that was being sought as well as the
recommendations provided by the agency’s counsel” and “that the material was confidential”);
Touarsi v. U.S. Dep’t of Just., 78 F. Supp. 3d 332, 345 (D.D.C. 2015) (privilege applied when the
agency withheld “legal advice from FBI attorneys to government agents and employees concern-
ing investigation strategies and a potential prosecution” without providing more details).
Dalal argues that the FBI’s justification is “conclusory” without explaining in what respect
he finds it so. ECF No. 46 at 19. The FBI has met the basic requirements, as described above,
and “requiring the Bureau to divulge details of the communications beyond their general subject
30
matter . . . is not necessary for the Court to determine whether the information is privileged and
would invade the very privilege itself.” Touarsi, 78 F. Supp. 3d at 346. Thus, the Court will grant
it summary judgment as to the communications described above.
iii. The Attorney Work-Product Privilege
Both the FBI and EOUSA also invoke a final privilege, the attorney work-product privi-
lege. This privilege protects “documents and tangible things that are prepared in anticipation of
litigation or for trial by an attorney.” Am. Immigr. Council, 21 F. Supp. 3d at 78 (internal quotation
marks omitted) (quoting Fed. R. Civ. P. 26(b)(3)(A)). Courts have noted that “the privilege is
relatively broad, encompassing documents prepared for litigation that is foreseeable, if not neces-
sarily imminent.” Id. (internal quotation marks omitted). But “[n]ot every document created by a
government lawyer . . . qualifies for the privilege.” Nat’l Ass’n of Crim. Def. Laws. v. U.S. Dep’t
of Just. Exec. Off. for U.S. Att’ys (“NACDL”), 844 F.3d 246, 251 (D.C. Cir. 2016). This Circuit
has “long required a case-specific determination that a particular document in fact was prepared
in anticipation of litigation before applying the privilege to government records.” Id.
To determine whether a document was prepared in anticipation of litigation, this Circuit
applies a “‘because of’ test, asking whether, in light of the nature of the document and the factual
situation in the particular case, the document can fairly be said to have been prepared or obtained
because of the prospect of litigation.” Id. (quoting United States v. Deloitte LLP, 610 F.3d 129,
137 (D.C. Cir. 2010)). To satisfy this test, the “attorney who created the document must have ‘had
a subjective belief that litigation was a real possibility,’ and that subjective belief must have been
‘objectively reasonable.’” NACDL, 844 F.3d at 251 (quoting In re Sealed Case, 146 F.3d 881, 884
(D.C. Cir. 1998)). To satisfy its evidentiary burden, the agency “must (1) provide a description of
the nature and contents of the withheld document, (2) identify the document’s author or origin (by
31
job title or otherwise), (3) describe the factual circumstances that surround the document’s crea-
tion, and (4) provide some indication of the type of litigation for which the document’s use is at
least foreseeable.” Am. Immigr. Council, 21 F. Supp. 3d at 78.
FBI
The FBI asserted the work-product privilege to withhold in full or in part 46 pages of elec-
tronic communications, forms, and other “investigative documents” prepared by special agents in
the Newark Field Office “to memorialize conversations between themselves and the AUSA con-
cerning the criminal proceedings of the subject.” Second Hardy Decl. ¶ 104; ECF No. 60-2 at 22.
The Court agrees that the privilege applies to these documents. As the FBI explained, they “were
prepared as a direct result of conversations between [special agents] and attorneys with the DOJ
[Office of General Counsel] and under their advice and direction . . . with the reasonable anticipa-
tion of litigation,” i.e., criminal proceedings against Dalal. Fourth Hardy Decl. ¶ 43. The FBI
goes on to briefly describe the nature of each document, its author or origin, the circumstances of
its creation, and the type of litigation for which the document’s use was foreseeable. See Am.
Immigr. Council, 21 F. Supp. 3d at 78. Thus, the FBI has met the requirements for invoking the
attorney work-product privilege.
Dalal makes two arguments in response, but neither carries the day. He first contends that
the privilege does not apply because the FBI admits that FBI special agents—not attorneys—pre-
pared the withheld documents. ECF No. 46 at 20. But the privilege covers “material prepared by
agents for the attorney as well as those prepared by the attorney himself.” United States v. Nobles,
422 U.S. 225, 238–39 (1975). And “[w]here, as here, ‘[l]aw enforcement agents . . . [were] acting
in a supportive role to an attorney preparing a case for indictment or prosecution, the attorney
work[]product protection applies to their work product under FOIA Exemption 5.’” Leopold v.
32
U.S. Dep’t of Just., 487 F. Supp. 3d 1, 12 (D.D.C. 2020) (quoting Jud. Watch, Inc. v. U.S. Dep’t
of Just., 391 F. Supp. 3d 43, 52 (D.D.C. 2019)), aff’d, 806 F. App’x 5 (D.C. Cir. 2020)).
Dalal’s second argument—that the FBI has not described the documents in sufficient de-
tail—fares no better. See ECF No. 46 at 20. Courts do not require an elaborate description, and
the FBI has met the basic requirements. See, e.g., Roseberry-Andrews v. U.S. Dep’t of Homeland
Sec., 299 F. Supp. 3d 9, 27 (D.D.C. 2018) (“Defendant asserts that it withheld communications
and documents drafted to assist agency attorneys in litigating and managing cases (although it does
not say what kind). While it would have been useful for Defendant to have provided additional
information about precisely which cases these communications involve, the Court concludes that
these withholdings were proper.”).
For these reasons, the FBI is entitled to summary judgment on the application of Exemption
5 to the materials outlined above.
EOUSA
EOUSA has asserted the attorney work-product privilege to withhold a seven-page email,
and the Court agrees that the privilege applies. See Second Luczynski Decl. ¶¶ 19, 21. The with-
held email contains “information related to trial preparation, trial strategy, interpretations, and per-
sonal evaluations and opinions pertinent to plaintiff’s criminal case.” Id. ¶ 19. The email was
“prepared by, or at the request . . . of an attorney, and made in anticipation of, or during litigation,”
and, if released, would reveal “deliberations concerning asset forfeiture decisions as well as pos-
sible strategies as they relate to the case.” Id. Specifically, the email was sent between USAO
attorneys handling Dalal’s prosecution and “covers various aspects in preparation of the case
against” him. Id. ¶ 21. It is labelled “Privileged and Confidential Attorney Work Product” and
includes subsections titled (1) “Summary of Relevant Facts,” (2) “Prior Guidance and Anticipated
33
Next Steps,” and (3) “Essential Elements.” Id. Thus, the email “can fairly be said to have been
prepared or obtained because of the prospect of the litigation.” Am. Immigr. Council, 21 F. Supp.
3d at 78 (cleaned up).
In response, Dalal turns to the government-misconduct exception. Under this exception,
“where there is reason to believe the documents sought may shed light on government misconduct,
‘the privilege is routinely denied,’ on the grounds that shielding internal government deliberations
in this context does not serve ‘the public’s interest in honest, effective government.’” In re Sealed
Case, 121 F.3d 729, 738 (D.C. Cir. 1997) (quoting Texaco P.R., Inc. v. Dep’t of Consumer Affs.,
60 F.3d 867, 885 (1st Cir. 1995)). Dalal argues that the attorney work-product privilege is “evis-
cerated” because of the New Jersey U.S. Attorney’s Office’s “illegal and unethical scheme to elicit
incriminating statement[s] from [him] through the use of an informant in violation of” Supreme
Court precedent about his Sixth Amendment right to counsel. ECF No. 40 at 24.
Dalal and EOUSA disagree over whether the government-misconduct privilege applies in
the FOIA context. See ECF No. 40 at 25 (quoting Moody v. IRS, 654 F.2d 795, 800 (D.C. Cir.
1981)); ECF No. 48 at 10 (quoting Toensing v. U.S. Dep’t of Just.., 999 F. Supp. 2d 50, 58 (D.D.C.
2013)). But the Court need not decide that question. Even if it does apply, Dalal has not shown
sufficient reason to believe the email may shed light on government misconduct. He points to an
investigation of prosecutors’ use of jailhouse informants in unrelated cases in California. See ECF
No. 40 at 14–16. And he cites a report and recommendation—also in an unrelated case—in which
a magistrate judge, in suppressing recorded conversations allegedly elicited by the same jailhouse
informant at issue here, was critical of prosecutors’ use of the informant. See ECF No. 40 at 12–
14; ECF No. 48 at 10. And even in that case, the magistrate judge credited the government for
repeatedly instructing the alleged informant not to discuss the defendant’s pending case with the
34
defendant. See ECF No. 40 at 16. Dalal seems to think that something similar happened to him
here, but he has no real proof of that. In the end, Dalal has not come close to providing sufficient
justification to eviscerate the attorney work-product privilege.
Thus, the Court finds that the privilege applies and will therefore grant EOUSA’s motion
for summary judgment as to this email.10
d. Exemption 6
Only FEMA asserts Exemption 6 as the sole basis to withhold certain material. This ex-
emption provides that agencies may withhold “personnel and medical files and similar files the
disclosure of which would constitute a clearly unwarranted invasion of personal privacy.” 5
U.S.C. § 552(b)(6). Courts “generally follow a two-step process when considering withholdings
or redactions under Exemption 6.” AILA, 830 F.3d at 673.
First, courts “determine whether the [records] are personnel, medical, or ‘similar’ files cov-
ered by Exemption 6.” Id. (alteration in original) (quoting Multi Ag Media LLC v. Dep’t of Agric.,
515 F.3d 1224, 1228 (D.C. Cir. 2008)). When deciding whether documents constitute “similar
files” under Exemption 6, the D.C. Circuit has instructed courts to “look not to the nature of the
files that contain the information sought in a FOIA request, but to the nature of the information
requested.” N.Y. Times Co. v. Nat’l Aeronautics & Space Admin., 920 F.2d 1002, 1006 (D.C. Cir.
1990) (en banc) (internal quotation marks omitted) (quoting U.S. Dep’t of State v. Wash. Post Co.,
456 U.S. 595, 602 (1957)). “The information need not be intimate,” id., because “[a]ll information
which applies to a particular individual is covered by Exemption 6.” Wash. Post Co. v. U.S. Dep’t
10
EOUSA also asserts that the deliberative process privilege covers the same email. But the Court
need not consider that privilege’s application, as the email is properly withheld under the attorney
work-product privilege.
35
of Health & Hum. Servs., 690 F.2d 252, 260 (D.C. Cir. 1982) (internal quotation marks omitted)
(citing U.S. Dep’t of State v. Wash. Post Co., 456 U.S. 595, 600 (1982)).
Second, if the records are covered by the exemption, courts must determine whether dis-
closure “would constitute a clearly unwarranted invasion of personal privacy.” Multi Ag Media
LLC v. Dep’t of Agric., 515 F.3d 1224, 1228 (D.C. Cir. 2008) (quoting 5 U.S.C. § 552(b)(6)). To
do this, courts ask whether “disclosure would compromise a substantial, as opposed to a de mini-
mis, privacy interest.” AILA, 830 F.3d at 674 (internal quotation marks omitted) (quoting Nat’l
Ass’n of Home Builders v. Norton, 309 F.3d 26, 33 (D.C. Cir. 2002)). Then, they weigh the privacy
interest at stake “against the public interest (namely, ‘the basic purpose of the Freedom of Infor-
mation Act,’ which is ‘to open agency action to the light of public scrutiny.’”). Horowitz v. Peace
Corps, 428 F.3d 271, 278 (D.C. Cir. 2005) (internal quotation marks omitted) (citing Dep’t of Air
Force v. Rose, 425 U.S. 352, 372–73 (1976)).
FEMA withheld in part documents falling within three categories: award letters, “Non-
Profit Security Grant Program investment justifications,” and applications for federal assistance.
See Neuschaefer Decl. at 48–58 (“FEMA Index”). As for the award letters, FEMA redacted the
names and phone numbers of third-party individuals from a state agency. Id. at 50. In the invest-
ment justifications, it withheld “(1) the names of third party local law enforcement individuals, (2)
the names of individuals associated with the organization applying for the [Non-Profit Security
Grant Program] Award who are responsible for managing the security upgrades, and (3) the names
of third party individuals associated with an entity that conducted a security assessment on behalf
of the applicant.” Id. Finally, in applications for federal assistance, it redacted “the names, phone
36
number, and email of third party individuals associated with the organization seeking federal as-
sistance and who are part of the organization’s membership.” Id. The Court agrees with FEMA
that Exemption 6 justifies these withholdings.
Here, all the withheld information easily constitutes “similar files” because names, phone
numbers, and emails “can be identified as applying to” specific individuals. Ayuda, Inc. v. Fed.
Trade Comm’n, 70 F. Supp. 3d 247, 264 (D.D.C. 2014). And the balancing inquiry favors with-
holding the information described above. “[I]ndividuals have a substantial privacy interest in per-
sonal information such as their telephone numbers and addresses,” and “releasing the personal
information of third parties . . . does not ‘contribut[e] significantly to public understanding of the
operations or activities of the government.’” Roseberry-Andrews, 299 F. Supp. 3d at 30 (quoting
Dep’t of Def. v. Fed. Lab. Rels. Auth. (“FLRA”), 510 U.S. 487, 495 (1994)); see also Nat’l Ass’n
of Retired Fed. Emps. v. Horner, 879 F.2d 873, 875 (D.C. Cir. 1989) (“The privacy interest of an
individual in avoiding the unlimited disclosure of his or her name and address is significant.”). On
top of that, FEMA persuasively argues that “[i]f the private information of applicants, recipients
and managers of these grants were made public, a significant number of individuals would be
endangered.” ECF No. 19 at 9. Indeed, many applicants, recipients and managers are linked to
synagogues and other Jewish organizations, and there has been a “surge in anti-Semitic threats” in
the form of “100 bomb threats . . . against Jewish centers and schools in the United States and
Canada” in one recent year alone. Id. at 8–9; see also see Ayuda, Inc., 70 F. Supp. 3d at 267
(finding there was “a substantial privacy interest” in having names and addresses of certain indi-
viduals not disclosed when “the release of such information may result in economic and physical
danger” to those individuals).
37
Dalal attacks the withholdings by claiming that “FEMA has used the unpersuasive cover
of Exemption 6 to shroud the names of applicants, recipients, and managers of millions of dollars
in grants distributed to synagogues and other Jewish organizations.” ECF No. 16 at 29. He asserts
that there is a public interest in uncovering potential fraud like that found in a California case in
which the defendants happened to be Jewish, id. at 34, and in FEMA’s response to the 2004 hur-
ricane season in Florida, id. at 33. But Dalal has pointed to no evidence of fraud in the grants here.
And it remains unclear how releasing the names of third parties would inform public understanding
of government activities.
In the end, the Court agrees with FEMA and finds that its withholdings under Exemption
6 are proper. Thus, it grants FEMA’s motion for summary judgment on these withholdings.
e. Exemption 7
The FBI, EOUSA, and FEMA all invoke at least one of Exemption 7’s sub-parts. “Ex-
emption 7 protects from disclosure ‘records or information compiled for law enforcement pur-
poses,’ but only to the extent that disclosure of such records would cause an enumerated harm
listed in Exemption 7’s subsections.” Miller v. U.S. Dep’t of Just., 872 F. Supp. 2d 12, 24 (D.D.C.
2012) (citing 5 U.S.C. § 552(b)(7)). “To fall within Exemption 7, documents must first meet a
threshold requirement: that the records were ‘compiled for law enforcement purposes.’” Pub.
Emps. for Env’t. Resp. v. U.S. Section, Int’l Boundary & Water Comm’n, U.S.-Mexico (“PEER”),
740 F.3d 195, 202–03 (D.C. Cir. 2014) (citing 5 U.S.C. § 552(b)(7)). “Agencies classified as law
enforcement agencies . . . receive deference to their assertion that documents were compiled for a
law enforcement purpose.” 100Reporters LLC, 248 F. Supp. 3d at 159 (citing Pratt v. Webster,
673 F.2d 408, 418 (D.C. Cir. 1982)). But “not every document compiled by a law enforcement
agency is compiled for a law enforcement purpose.” Id. Instead, “the agency’s activity ‘must be
related to the enforcement of federal laws or to the maintenance of national security,’” and “the
38
nexus between the [activity] and one of the agency’s law enforcement duties must be based on
information sufficient to support at least ‘a colorable claim’ of its rationality.” Pinson v. U.S.
Dep’t of Just., 202 F. Supp. 3d 86, 101–02 (D.D.C. 2016) (alteration in original) (quoting Pratt,
673 F.2d at 420–21).
All three agencies have met this threshold to invoke Exemption 7. To begin, “an assertion
by the FBI that the records are for a law enforcement purpose is entitled to deference because the
FBI is a law enforcement agency.” Doe v. U.S. Dep’t of Just., 790 F. Supp. 17, 20 (D.D.C. 1992)
(citing Pratt, 673 F.2d at 414, 418–19). But in any event, it is plain the documents at issue were
so compiled, specifically in connection with “the FBI’s criminal investigation into [Dalal’s] crimes
involving religious discrimination, use of force and/or violence, acts of terrorism, and domestic
terrorism,” Second Hardy Decl. ¶ 64. Dalal does not dispute that the FBI easily clears this thresh-
old. Similarly, as for EOUSA, “[a]ll the information at issue was compiled . . . to facilitate the
investigation and criminal prosecution of plaintiff.” Second Luczynski Decl. ¶ 25. And again,
Dalal does not appear to object to that conclusion.
FEMA’s case is slightly more complicated, but ultimately the Court sides with the agency.
When dealing with a mixed-function agency like FEMA that has responsibilities besides law en-
forcement, courts “must scrutinize with some skepticism the particular purpose claimed for dis-
puted documents redacted under FOIA Exemption 7.” Pratt, 673 F.2d at 418. But even doing so,
the Court has little trouble concluding that the security grant documents at issue qualify. The
“ordinary understanding of law enforcement includes . . . proactive steps designed to prevent crim-
inal activity and to maintain security.” PEER, 740 F.3d at 203 (quoting Milner, 562 U.S. at 582
(Alito, J., concurring)). “Likewise, steps by law enforcement officers to prevent terrorism surely
fulfill [l]aw enforcement purposes.” Id. (quoting Milner, 562 U.S. at 583 (Alito, J., concurring)
39
(internal quotation omitted)). FEMA’s “Non-Profit Security Grant Program provides support for
target hardening and other physical enhancements to nonprofit organizations at high risk of terror-
ist attack” and fosters “coordination and collaboration in emergency preparedness activities among
public and private community representatives, as well as state and local government agencies.”
ECF No. 19 at 13. Thus, these “steps by [FEMA] to prevent terrorism surely fulfill [l]aw enforce-
ment purposes.” PEER, 740 F.3d at 203 (quoting Milner, 562 U.S. at 583 (Alito, J., concurring)
(internal quotation omitted)).
Because the Court finds that each Defendant meets the threshold requirement for Exemp-
tion 7, it turns to their withholdings under the exemption’s various subparts.
i. Exemption 7(A)
The FBI invoked Exemption 7(A) to withhold in full 26 pages of records from the investi-
gation into Dalal’s crimes, including, but not limited to, electronic communications, intelligence
write-ups, interview forms, interview forms and notes, and surveillance logs. Second Hardy Decl.
¶ 67; see ECF 60-2 at 5, 7, 16. But the Court cannot, at this point, find this invocation proper
because of developments since the parties briefed this issue.
Exemption 7(A) protects from disclosure “records or information compiled for law en-
forcement purposes” if disclosure “could reasonably be expected to interfere with enforcement
proceedings.” 5 U.S.C. § 552(b)(7)(A). The agency must “demonstrate that ‘disclosure (1) could
reasonably be expected to interfere with (2) enforcement proceedings that are (3) pending or rea-
sonably anticipated.’” CREW v. U.S. Dep’t of Just., 746 F.3d 1082, 1096 (D.C. Cir. 2014) (quoting
Mapother v. U.S. Dep’t of Just., 3 F.3d 1533, 1540 (D.C. Cir. 1993)). Critically here, “[t]he pro-
ceeding must remain pending at the time of [the Court’s] decision, not only at the time of the initial
FOIA request.” Id. at 1098.
40
It is no longer clear that the records at issue could be expected to interfere with any en-
forcement proceedings that are “pending or reasonably anticipated.” CREW, 746 F.3d at 1096. At
the time of the briefing, the FBI represented that the investigation into Dalal was ongoing:
“[A]lthough Mr. Dalal was convicted on 17 of the 20 counts in New Jersey Superior Court in
October 2016, the investigation is still pending” and “will remain pending until the criminal appeal
process is complete.” Fourth Hardy Decl. ¶ 23. But since then, Dalal’s appeal has concluded. See
New Jersey v. Dalal, 252 A.3d 204 (N.J. Super. Ct. App. Div. 2021) (upholding Dalal’s conviction
and sentence).
Thus, the Court will deny without prejudice Dalal’s and the FBI’s motions for summary
judgment as to this exemption and permit the FBI to file a supplementary declaration addressing
whether any investigation or other enforcement proceeding remains pending—or whether these
records are properly withheld (in full or in part) under some other FOIA exemption.
ii. Exemption 7(C)
The FBI and EOUSA both invoked Exemption 7(C). Exemption 7(C) “exempts from dis-
closure ‘records or information compiled for law enforcement purposes, but only to the extent that
the production of such law enforcement records or information . . . could reasonably be expected
to constitute an unwarranted invasion of personal privacy.’” CREW, 746 F.3d at 1091 (quoting 5
U.S.C. § 552(b)(7)(C)). Disclosure of the documents may still be required “if the individual seek-
ing the information demonstrates a public interest in the information that is sufficient to overcome
the privacy interest at issue.” Boyd v. Crim. Div. of U.S. Dept. of Just., 475 F.3d 381, 386–87
(D.C. Cir. 2007). “In order to trigger the balancing of public interests against private interests, a
FOIA requester must (1) ‘show that the public interest sought to be advanced is a significant one,
an interest more specific than having the information for its own sake,’ and (2) ‘show the infor-
mation is likely to advance that interest.’” Id. at 387 (quoting Nat’l Archives & Recs. Admin. v.
41
Favish, 541 U.S. 157, 172 (2004)). When the public interest is revealing government wrongdoing,
“the requester must establish more than a bare suspicion in order to obtain disclosure. Rather, the
requester must produce evidence that would warrant a belief by a reasonable person that the alleged
Government impropriety might have occurred.” Favish, 541 U.S. at 174.
FBI
The FBI invoked Exemption 7(C) to withhold in full or redact documents to protect the
names and identifying information of (1) FBI special agents and support personnel, (2) third parties
of investigative interest, (3) state and local law enforcement personnel, (4) non-FBI federal, state,
and local government employees, (5) third parties “merely mentioned,” (6) victims, and (7) third
parties who provided information to the FBI. Second Hardy Decl. ¶¶ 112–21. In one instance, the
FBI provided a Glomar response by refusing to confirm or deny whether certain documents exist
because the very fact of their existence is protected by Exemption 7(C). Second Hardy Decl. ¶ 20.
The Court finds that all this information was properly withheld under Exemption 7(C), and the
FBI’s use of a Glomar response was appropriate.11
The Court is satisfied that releasing the withheld names and identifying information iden-
tified above “could reasonably be expected to constitute an unwarranted invasion of personal pri-
vacy.” 5 U.S.C. § 552(b)(7)(C). As another court in this Circuit has pointed out, courts “have
repeatedly found that it is proper to withhold names and other identifying information about law-
enforcement officers and government officials under Exemption 7(C).” Ball v. U.S. Marshals
Serv., No. 19-cv-1230 (JEB), 2021 WL 4860590, at *6 (D.D.C. Oct. 19, 2021), appeal dismissed
11
The FBI also invoked Exemption 6 to withhold the same information. But Exemption 7 has a
“lower bar for withholding material,” and it applies here. Am. Civ. Liberties Union v. U.S. Dep’t
of Just., 655 F.3d 1, 6 (D.C. Cir. 2011) (quoting FLRA, 510 U.S. at 496 n. 6). Thus, the Court
need not reach the FBI’s Exemption 6 arguments.
42
sub nom., No. 21-5253, 2022 WL 190757 (D.C. Cir. Jan. 14, 2022) (citing cases); see also Rose-
berry-Andrews, 299 F. Supp. 3d at 30 (finding DHS properly withheld the names and personally
identifiable information of ICE employees who “handle a myriad of tasks relating to the enforce-
ment of federal immigration law”); Isiwele v. Dep’t of Health & Hum. Servs., 85 F. Supp. 3d 337,
359 (D.D.C. 2015) (finding agency properly redacted names of law enforcement personnel); Gosen
v. U.S. Citizenship & Immigr. Servs., 75 F. Supp. 3d 279, 290 (D.D.C. 2014) (“Because these
redactions do not appear to implicate any public interest at all, USCIS properly applied Exemption[
] . . . 7(C).”); Brown v. FBI, 873 F. Supp. 2d 388, 404 (D.D.C. 2012) (“In light of the employees’
privacy interests, the potential for violence, and the insubstantial public interest in the names of
clerical employees, defendant properly withholds the names and identifying information of FBI
[Special Agents] and support personnel.”).
Dalal advances two arguments that speak to the public interest at stake, but neither is per-
suasive. He first renews his argument that misconduct by Special Agent Coleman and others
weighs in favor of disclosure. See ECF No. 46 at 23–24. But as discussed above, he offers little
more than “bare suspicion” that fails to “produce evidence that would warrant a belief by a rea-
sonable person that . . . alleged Government impropriety might have occurred” and that these with-
holdings could shed light on that impropriety.12 Favish, 541 U.S. at 174. Second, Dalal argues
that the Bergen County Prosecutor’s Office has “held numerous press conferences, media inter-
views, and issued press releases and press statements,” and that “[m]any of the alleged victims
have also invited publicity.” ECF No. 46 at 24. But this Court need not reach whether these
12
Similarly, the Court rejects this argument as specifically applied to Special Agent Coleman’s
personnel file. See ECF No. 46 at 39–43.
43
individuals have reduced privacy interests, because Dalal has not articulated a public interest that
would trigger the balancing test.
As for the Glomar response, providing one is “proper if the fact of the existence or nonex-
istence of agency records falls within a FOIA exemption.” Wolf, 473 F.3d at 374. As the D.C.
Circuit put it, an agency “may refuse to confirm or deny the existence of records where to answer
the FOIA inquiry would cause harm cognizable under an FOIA exception.” Gardels v. CIA, 689
F.2d 1100, 1103 (D.C. Cir. 1982). To determine whether a Glomar response “fits a FOIA exemp-
tion, courts apply the general exemption review standards established in non-Glomar cases.” Wolf,
473 F.3d at 374. An agency issuing a Glomar response must explain in as much detail as possible
why it cannot confirm or deny the existence of certain records or categories of records, which it
may seek to do by affidavit. James Madison Project v. U.S. Dep’t of Just., 208 F. Supp. 3d 265,
283 (D.D.C. 2016). If a Glomar response is justified, “the agency need not conduct any search for
responsive documents or perform any analysis to identify segregable portions of such documents.”
People for Ethical Treatment of Animals v. Nat’l Insts. of Health, 745 F.3d 535, 540 (D.C. Cir.
2014).
Dalal requested various FBI records about Stewart, mentioned above, who he says was an
FBI informant. ECF No. 57-1 at 36–38 (“Ex. K”). The FBI responded that it “can neither confirm
nor deny the existence of any records responsive to your request, which, if they were to exist,
would be exempt from disclosure pursuant to FOIA Exemptions (b)(6) and (b)(7)(C).” Id. at 54–
59 (“Ex. P”). The FBI further explained in its summary judgment briefing that the requested rec-
ords—various informant evaluation forms and records of communications with FBI agents—per-
44
tain to law enforcement proceedings and investigations, and that acknowledging whether the rec-
ords exist would connect Stewart to them as an informant and potentially stigmatize him or endan-
ger him. See Second Hardy Decl. ¶¶ 156–59.
This explanation suffices. The D.C. Circuit has “consistently supported nondisclosure of
names or other information identifying individuals appearing in law enforcement records, includ-
ing investigators, suspects, witnesses, and informants.” Schrecker v. U.S. Dep’t of Just., 349 F.3d
657, 661 (D.C. Cir. 2003); see also Nation Mag. v. U.S. Customs Serv., 71 F.3d 885, 894 (D.C.
Cir. 1995) (“[I]ndividuals have an obvious privacy interest cognizable under Exemption 7(C) in
keeping secret the fact that they were subjects of a law enforcement investigation. . . . That privacy
interest also extends to . . . informants who provided information during the course of an investi-
gation.”). Indeed, FOIA itself provides that when “informant records maintained by a criminal
law enforcement agency under an informant’s name or personal identifier are requested by a third
party according to the informant’s name or personal identifier, the agency may treat the records as
not subject to the requirements of this section unless the informant’s status as an informant has
been officially confirmed.” 5 U.S.C. § 552(c)(2); Wilson v. U.S. Dep’t of Just., 42 F. Supp. 3d
207, 214 (D.D.C. 2014) (agencies routinely issue Glomar responses in such circumstances).13
Dalal responds that the FBI cannot assert Glomar here because it “officially confirmed”
that Stewart was an informant. ECF No. 46 at 38–39. He cites three pages of court testimony in
which he says that the FBI confirmed Stewart’s status. Id. But none of those passages show that.
Id. The first two mention only “the source” and provide no name. Id. The third does identify
13
Similarly, the Court upholds the FBI’s Glomar response about any disciplinary records relating
to Special Agent Coleman because he has an obvious privacy interest in the nondisclosure of the
very existence of any such records. And Dalal’s allegations of misconduct do not show a public
interest in those records sufficient to outweigh that privacy interest.
45
Stewart by name, but that testimony was provided by a state law enforcement officer, not the FBI,
id. at 39, and agencies may “give a Glomar response despite the prior disclosure of another, unre-
lated agency.” ACLU v. CIA, 710 F.3d 422, 429 n.7 (D.C. Cir. 2013). Thus, Dalal has failed to
meet his burden to show that the FBI confirmed that Stewart was an informant. See id. at 427 (“A
plaintiff mounting an official acknowledgment argument must bear the initial burden of pointing
to specific information in the public domain that appears to duplicate that being withheld.”)
(cleaned up).
Given all the above, the Court will grant the FBI’s motion for summary judgment as to the
information withheld and Glomar response provided under Exemption 7(C).
EOUSA
EOUSA invoked Exemption 7(C) to withhold in its entirety a 24-page search warrant ap-
plication. Second Luczynski Decl. ¶ 28.14 But the Court is not convinced that withholding the
application in full is appropriate—at least not based on the information before it. According to
EOUSA, the application includes the names “of third-party individuals, such as potential witnesses
and law enforcement personnel.” Id. ¶ 26. It also details the declarant’s qualifications, contains
“accounts of third parties who provided information,” and includes “transcripts of conversations
gathered by law enforcement personnel.” Id. ¶ 28. But the inclusion of all this information does
not justify “withhold[ing] [the] responsive document in toto.” CREW, 746 F.3d at 1094. Circuit
precedent “does not permit an agency ‘to exempt from disclosure all of the material in an investi-
gatory record solely on the grounds that the record includes some information which identifies a
14
Like the FBI, EOUSA also invokes Exemption 6. But because Exemption 7(C) provides “a
lower threshold than the one set forth in Exemption 6,” the Court need not consider arguments for
both exemptions. Boyd v. EOUSA, 87 F. Supp. 3d 58, 72 (D.D.C. 2015).
46
private citizen or provides that person’s name and address.’” Id. (quoting Nation Mag., 71 F.3d at
896).
None of this means that EOUSA must disclose the entire application. Some of the infor-
mation in it is almost certainly exempt. For example, “the names and identifying information of
third parties contained in investigative files are presumptively exempt.” CREW, 746 F.3d at 1094.
And if other information in the application “would reveal the identities of individuals who are
subjects, witnesses, or informants in law enforcement investigations, those portions of [the appli-
cation] . . . are categorically exempt from disclosure.” Nation Mag., 71 F.3d at 896. But at this
point EOUSA has not justified its blanket withholding.15
Thus, the Court will deny EOUSA’s and Dalal’s motions for summary judgment without
prejudice as to this document. EOUSA “must attempt to make a more particularized showing as
to what documents or portions thereof are exempt” and this Court will then “weigh what infor-
mation may be withheld under Exemption 7(C) and whether any information is reasonably segre-
gable and may be disclosed.” CREW, 746 F.3d at 1096.
iii. Exemption 7(D)
Only the FBI invoked Exemption 7(D), claiming it justifies its redacting of names, identi-
fying information, and intelligence information from eight pages of documents. See ECF No. 32
at 35; ECF No. 60-2 at 17–18. The Court agrees that it does.
Exemption 7(D) “exempts records or information compiled for law enforcement purposes”
if the disclosure “could reasonably be expected to disclose the identity of a confidential source.”
15
Dalal also argues that purported government misconduct supports disclosure. See ECF No. 40
at 27–30. But as with his same arguments relating to the FBI’s withholdings under Exemption
7(C), the Court is not persuaded.
47
5 U.S.C. § 552 (b)(7)(D). A source is “confidential” under Exemption 7(D) if “the source ‘pro-
vided information under an express assurance of confidentiality or in circumstances from which
such an assurance could be reasonably inferred.’” Williams v. FBI, 69 F.3d 1155, 1159 (D.C. Cir.
1995) (quoting U.S. Dep’t of Just. v. Landano, 508 U.S. 165, 170–74, (1993)). “[W]hen the FBI
contends that a source received an express assurance of confidentiality, it must . . . present suffi-
cient evidence that such an assurance was in fact given.” Roth v. U.S. Dep’t of Just., 642 F.3d
1161, 1184 (D.C. Cir. 2011); see also CREW, 746 F.3d at 1102 (the agency must “present proba-
tive evidence that the source did in fact receive an express grant of confidentiality”). Without an
express assurance of confidentiality, “courts consider a number of factors to determine whether
the source nonetheless ‘spoke with an understanding that the communication would remain confi-
dential.’” Id. at 1184 (quoting Landano, 508 U.S. at 172). “The nature of the crime investigated
and the informant’s relation to it are the most important factors in determining whether implied
confidentiality exists.” Skinner v. U.S. Dep’t of Just., 744 F. Supp. 2d 185, 212 (D.D.C. 2010).
The FBI argues that both implied and express assurances of confidentiality support its re-
dactions here. It first explains that it withheld information provided by high school employees and
others during an investigation into Dalal’s bomb threats on a high school “under implied assur-
ances of confidentiality.” Second Hardy Decl. ¶¶ 125–26. Dalal does not seek information about
that investigation, ECF No. 46 at 25, so summary judgment will be granted in favor of the FBI as
to those withholdings. See Peter S. Herrick’s Customs & Int’l Trade Newsl. v. U.S. Customs &
48
Border Prot., No. 04-cv-377 (JDB), 2006 WL 1826185, at *4 (D.D.C. June 30, 2006) (granting
summary judgment for agency on information plaintiff did not seek).16
The FBI also withheld information because of express assurances of confidentiality. It
withheld (1) “information provided by confidential source symbol numbered informants”; (2)
“confidential source symbol numbers”; and (3) “names, identifying information about, and/or in-
formation provided by sources under express assurances of confidentiality.” Fourth Hardy Decl.
¶ 52.17 In support, the FBI details the sensitive nature of the confidential source symbol numbered
informants’ work and verifies that the informants are given “express assurance that the FBI will
. . . keep their identities and the information they provided confidential.” Second Hardy Decl.
¶¶ 128–30. As the FBI states, “the mere assignment of a source symbol number to an informant
indicates an express assurance of confidentiality.” Fourth Hardy Decl. ¶ 53. And, according to
the FBI, revealing source numbers would allow someone to piece together the subject matter to
which different informants are tied, giving clues as to any informant’s identity. Second Hardy
Decl. ¶ 132. “Repeated release” would only further “narrow the possibilities of the[] informants’
true identities.” Id. As for the “names, identifying information about, and/or information provided
by” other sources, the sources, “specifically requested that their identities not be revealed due to
fear of reprisal.” Second Hardy Decl. ¶ 134.
16
Dalal seems to think that there is a second bucket of information withheld related to this inves-
tigation because of implied assurances of confidentiality—“information within records categori-
cally exempt under (b)(7)(A).” ECF No. 46 at 25. But that is not how the Court reads the FBI’s
declaration. See Second Hardy Decl. ¶ 125–26 & n.36.
17
“Confidential source symbol” numbered informants are individuals who regularly report infor-
mation to the FBI and—as the name suggests—are assigned confidential numbers to protect their
identities. See Second Hardy Decl. ¶¶ 127–29.
49
Despite Dalal’s claims to the contrary, these explanations show that disclosure “could rea-
sonably be expected to disclose the identity of a confidential source.” 5 U.S.C. § 552 (b)(7)(D).
Indeed, courts have found nearly identical explanations sufficient. See Clemente v. FBI, 741 F.
Supp. 2d 64, 87 (D.D.C. 2010) (finding an explanation that confidential source symbol numbered
informants “report information to the FBI on a regular basis pursuant to an ‘express’ grant of
confidentiality” to be an adequate explanation for Exemption 7(D)); Touarsi, 78 F. Supp. 3d at
348 (finding the “declaration . . . sufficient to establish that each source is confidential” where the
FBI explained that it “only assigns symbol designations to informants who are given express as-
surances of confidentiality, and that each of these informants has been assigned such a designa-
tion”); Campbell v. U.S. Dep’t of Just., 164 F.3d 20, 34 (D.C. Cir. 1998), as amended (Mar. 3,
1999) (“[P]robative evidence that the source did in fact receive an express grant of confidentiality
. . . [can] include[e] . . . a statement by the source.”).
Thus, the Court will grant the FBI summary judgment for its remaining Exemption 7(D)
withholdings.
iv. Exemption 7(E)
Both the FBI and FEMA invoked Exemption 7(E). This exemption protects all information
compiled for law enforcement purposes when release “would disclose techniques and procedures
for law enforcement investigations or prosecutions, or would disclose guidelines for law enforce-
ment investigations or prosecutions if such disclosure could reasonably be expected to risk cir-
cumvention of the law.” 5 U.S.C. § 552(b)(7)(E).
The “requirement that disclosure risk circumvention of the law ‘sets a relatively low bar
for the agency to justify withholding.’” PEER, 740 F.3d at 205 (quoting Blackwell v. FBI, 646
F.3d 37, 42 (D.C. Cir. 2011)). “Rather than requiring a highly specific burden of showing how
the law will be circumvented, exemption 7(E) only requires that the [agency] demonstrate logically
50
how the release of the requested information might create a risk of circumvention of the law.”
Gilman v. U.S. Dep’t of Homeland Sec., 32 F. Supp. 3d 1, 18 (D.D.C. 2014) (alteration in original)
(quoting Blackwell, 646 F.3d at 42).
FBI
The FBI invoked Exemption 7(E) to withhold in full and in part dozens of documents that
contain fifteen categories of information: (1) the “location and identity of FBI and/or Joint Units,
Squads, and/or Divisions,” (2) “[d]ates and types of investigation – [p]reliminary or full investi-
gations,” (3) “[m]ethods for collection/analysis of information,” (4) “[i]nformation about the in-
stallation, locations, monitoring and types of devices utilized in surveillance,” (5) “Suspicious Ac-
tivity Report information,” (6) “[d]atabase information and/or printouts from non-public data-
bases,” (7) “[i]nvestigative focus of specific investigations,” (8) “[i]nternal FBI email or IP ad-
dress/Intranet Web Address,” (9) “[s]ensitive file number or subfile names,” (10) “[s]trategy uti-
lizing particular evidence,” (11) “Computer Analysis Response Team (“CART”) reports and/or
data,” (12) “[o]perational directives about sensitive investigative techniques and strategies,” (13)
“[s]pecific law enforcement techniques utilized to conduct national security investigations,”
(14) “[s]tatistical information contained in effectiveness rating FD-515,” and (15) “[m]onetary
payments.” ECF No. 32 at 38–40; Second Hardy Decl. ¶¶ 138–153. The Court finds that these
withholdings were proper.
For each category, the FBI has explained how the release of the information “logically . . .
might create a risk of circumvention of the law.” Blackwell, 646 F.3d at 42. For example, it claims
that releasing “the location of the units conducting the investigation would reveal the targets” and
“the physical areas of the interest of the investigation,” and could “allow hostile analysts to deter-
mine where geographically the FBI is focusing its investigative resources.” Second Hardy Decl.
51
¶ 138. And the withholding of “[joint] units, squads and/or divisions involved is justifiable . . .
under a similar rationale.” Id. Releasing the dates and types of investigations, the FBI says, would
“allow individuals to know the types of activities that would trigger a trigger a full investigation
. . . and the particular dates that the investigation covers, which would allow individuals to adjust
their behavior accordingly.” Id. ¶ 139. Further, releasing the methods the FBI uses to collect and
analyze information would show “how and from where the FBI collects information and the meth-
odologies employed to analyze it,” which “would enable subjects of FBI investigations to circum-
vent similar currently used techniques.” Id. ¶ 140. In the end, the FBI sufficiently describes for
each category how release of the information would risk circumvention of the law. Thus, the Court
is satisfied that the FBI has met its burden. See Shapiro v. U.S. Dep’t of Just., No. 12-cv-313
(BAH), 2020 WL 3615511, at *35–41 (D.D.C. July 2, 2020) (finding sufficient the FBI’s use of
11 similar categories with explanations as to how release could circumvent the law).
Dalal raises several objections, but each fails to persuade. He makes two overarching
points: (1) that the FBI has not provided enough detail and (2) that the withheld documents do not
qualify as a “technique or procedure.” ECF No. 46 at 29–37. As explained above, the Court finds
that the FBI has provided sufficient detail. As for the second argument, the Court has already
explained that, correctly interpreted, Exemption 7 is broader than Dalal claims, encompassing
more than just the techniques or procedures themselves. FOIA allows “[i]nformation . . . relat[ing]
to law enforcement techniques, policies, and procedures [to be] withheld under this exemption.”
Showing Animals Respect & Kindness, 730 F. Supp. 2d at 199 (citing Boyd, 570 F. Supp. 2d at
158).
Dalal also makes a few other more specific arguments. He contends that the first cate-
gory—the location and identity of FBI and its Joint Units, Squads, and Divisions—is improperly
52
withheld because the “existence of the FBI’s office in Newark is a matter of public knowledge as
are the particular areas of interest to the FBI in northern New Jersey with regard to the investigation
at issue.” ECF No. 46 at 30. But for one thing, the “FBI did not withhold the existence or location
of the FBI’s Newark Field Office.” Fourth Hardy Decl. ¶ 57. It withheld the location and identity
of other squads/units/divisions. And, says the FBI persuasively, revealing the “totality” of their
“geographic locations . . . would paint a vivid picture as to where and what the FBI was/is inves-
tigating and which criminal behaviors the FBI may or may not have detected.” Id.
Next, Dalal objects to the FBI’s withholding under the “sensitive case file number” cate-
gory. He argues that releasing the information would not risk circumvention of law because “the
agency’s file number conventions are already a matter of public knowledge.” ECF No. 46 at 33.
But even if that were true, the FBI explains that the release of file numbers along with the file
numbering convention would reveal the priority given to certain investigations. Fourth Hardy
Decl. ¶ 65. Suspects could then use this information “to change their pattern of activity to avoid
detection, apprehension, or create alibis for suspected activities.” Id.
All in all, the Court finds that the FBI has properly invoked the exemption and will grant
it summary judgment as to the withholdings outlined above.
FEMA
FEMA invokes Exemption 7(E) to justify redactions on dozens of pages of “Non-Profit
Security Grant Program” investment justifications. Neuschaefer Decl. at 49. But at this point, the
Court cannot find the invocation proper.
According to FEMA, investment justifications are “document[s] . . . completed by [an]
applicant to provide an explanation for the need for funding as well as how the funding will be
spent.” Neuschaefer Decl. at 49. The redacted information includes “[i]dentified vulnerabilities
53
and consequences associated with a potential terrorist attack,” “[t]arget hardening activities in-
cluding physical security enhancement equipment security upgrades, and inspection and screening
system to protect against a potential terrorist attack,” and “[t]he milestones associated with target
hardening and security upgrades.” Id. at 10–11.
Based on this information, FEMA has shown “logically how the release of [this] infor-
mation might create a risk of circumvention of the law.” Gilman, 32 F. Supp. 3d at 18. Disclosure
of this information would allow someone “to exploit” security grant applicants’ “identified weak-
nesses” and “know which security systems have been upgraded and thus exploit those systems that
have not,” resulting “in a high risk of circumvention of the law” and the increased “threat of a
terrorist attack.” Id. at 10–11.
But the “requirement that disclosure risk circumvention of the law” is only half of the
equation. FEMA still must show that the information withheld at least “relat[es] to guidelines,
techniques, sources, and procedures for law enforcement investigations and prosecutions.” Tax
Analysts v. IRS, 294 F.3d 71, 79 (D.C. Cir. 2002); see also PEER, 740 F.3d at 205 n.4 (“Exemption
7(E) covers techniques and procedures for law enforcement investigations or prosecutions as well
as guidelines for law enforcement investigations or prosecutions. The exemption’s final, qualify-
ing clause requires that an agency demonstrate that the disclosure of the records at issue could
reasonably be expected to risk circumvention of the law.” (cleaned up)).
FEMA states without explanation that the redacted categories of information are “tech-
niques and procedures.” Neuschaefer Decl. at 10. But it is not immediately clear how information
provided by third parties for funding grants even relates to “techniques and procedures for law
enforcement investigations or prosecutions.” 5 U.S.C. § 552(b)(7)(E). Perhaps this information
54
shows how law enforcement assesses the risk of terrorist attacks. Or how law enforcement prior-
itizes different security vulnerabilities. Maybe the forms “describe how law enforcement person-
nel might investigate” a terrorist attack against one of the applicants. PEER, 740 F.3d at 205. In
any event, FEMA “does not make clear with reasonable specificity what procedures are involved
and how they would be disclosed.” Whittaker v. U.S. Dep’t of Just., No. 18-cv-01434 (APM),
2019 WL 2569915, at *3 (D.D.C. June 21, 2019) (cleaned up). And “the agency must at least
provide some explanation of what procedures are involved and how they would be disclosed.”
CREW, 746 F.3d at 1102.
For these reasons, this Court cannot find that FEMA’s withholdings under Exemption 7(E)
were proper. It will, however, give FEMA another opportunity to explain how the withheld infor-
mation relates to “techniques and procedures for law enforcement investigations or prosecutions”
or how it relates to “guidelines for law enforcement investigations or prosecutions.” 5 U.S.C. §
552(b)(7)(E). Thus, the Court will deny without prejudice FEMA’s request for summary judgment
on these 7(E) withholdings.18
3. Segregability
The last issue before the Court is segregability. FOIA requires that an agency provide
“[a]ny reasonably segregable portion of a record . . . after deletion of the portions which are ex-
empt,” 5 U.S.C. § 552(b)(9), “unless the exempt portions are ‘inextricably intertwined with exempt
portions,’” Johnson v. Exec. Off. for U.S. Atty’s, 310 F.3d 771, 776 (D.C. Cir. 2002) (quoting Mead
Data Cent., Inc., 566 F.2d at 260). Segregability is judged using a burden-shifting framework.
18
The Court will also deny without prejudice that part of Dalal’s cross-motion directed at FEMA
in which he seeks summary judgment for his policy-and-practice claim against FEMA. See ECF
No. 16 at 44–47. Upon a renewed cross-motion by Dalal, FEMA’s additional explanation as to
these 7(E) withholdings, and additional briefing by FEMA, the Court will have a fuller picture
whether summary judgment is warranted for either party on this claim.
55
First, an agency must provide a “detailed justification” for the non-segregability of the withheld
information, although not “so much detail that the exempt material would be effectively dis-
closed.” Id. Agencies typically meet their initial burden by providing a sufficiently detailed
Vaughn index and “a declaration attesting that the agency released all segregable material.” Jud.
Watch, Inc. v. U.S. Dep’t of Just., 20 F. Supp. 3d 260, 277 (D.D.C. 2014). “Agencies are entitled
to a presumption that they complied with the obligation to disclose reasonably segregable mate-
rial.” Sussman v. U.S. Marshals Serv., 494 F.3d 1106, 1117 (D.C. Cir. 2007). The plaintiff must
then produce a “quantum of evidence” rebutting this presumption, at which point “the burden lies
with the government to demonstrate that no segregable, nonexempt portions were withheld.” Id.
FBI
The FBI has met its burden in part. It attests that it “released all reasonably segregable
non-exempt information from documents responsive to Plaintiff’s” requests. Second Hardy Decl.
¶ 168. The FBI adds that after identifying 412 pages of responsive records, it found “that 188
pages could be released in full without redaction as there was no foreseeable harm in an interest
protected by a FOIA exemption” and “that 224 pages could be released in part with redactions
pursuant to” certain FOIA exemptions. Id. ¶ 167. It also asserts that the withheld information
“was either exempt itself or was so intertwined with non-exempt information that segregation of
the non-exempt information was not reasonably possible without revealing exempt information or
leaving nothing by meaningless words or sentence fragments.” Id. When this explanation is paired
with the descriptions of the withholdings and redactions in the FBI’s Vaughn index, ECF No. 60-
2, the Court is persuaded that the FBI is entitled to the presumption for documents that the Court
56
found properly withheld and redacted above. See Jud. Watch, Inc., 20 F. Supp. 3d at 277.19 As
for documents withheld or containing redactions under Exemptions 5’s deliberative process priv-
ilege and Exemption 7(A), however, the Court will reserve ruling on segregability until the FBI
files supplemental declarations properly justifying its redactions and withholdings. Thus, the
Court will grant the FBI summary judgment in part as to the segregability requirement.
EOUSA
EOUSA has likewise met the segregability requirement in part. EOUSA attests that it
“considered the segregability of the requested records” and that “no reasonably segregable non-
exempt information was withheld from plaintiff.” Second Luczynski Decl. ¶ 29. It also asserts
that the “records were reviewed page-by-page, line-by-line” and that “any nonexempt information
was inextricably intertwined with the exempt records.” Id. Then, as explained above, EOUSA
described its redactions and withholdings in sufficient detail in its declarations. Thus, EOUSA
qualifies for the presumption, and Dalal’s arguments about a lack of detail fall flat. Still, for the
search warrant application withheld in full under Exemption 7(C), the Court will reserve ruling on
the segregability until EOUSA submits supplemental declarations properly justifying any with-
holdings. So the Court will grant EOUSA summary judgment in part on segregability.
FEMA
FEMA has also met its burden in part. It attests that it “reviewed each record line to identify
information exempt from disclosure” and that “all information not exempted from disclosure . . .
was correctly segregated and non-exempt portions released.” Neuschaefer Decl. ¶¶ 21–22. FEMA
also provided a Vaughn index that, as explained above, adequately explains FEMA’s withholdings
19
Dalal’s arguments to the contrary ignore the FBI’s Vaughn index. See ECF No. 46 at 44.
57
under each exemption invoked. Based on these submissions, FEMA is entitled to a presumption
that it produced all reasonably segregable information. See Jud. Watch, Inc., 20 F. Supp. 3d at
277. In turn, Dalal has not produced a “quantum of evidence” rebutting this presumption; indeed,
he does not appear to contest segregability as to FEMA at all. That said, the Court will reserve
ruling on segregability for FEMA’s Exemption 7(E) withholdings until FEMA submits supple-
mental declarations to justify them. Thus, the Court will grant FEMA summary judgment in part
on segregability.
Conclusion and Order
For all the above reasons, it is hereby ORDERED that FEMA’s motion for summary judg-
ment, ECF No. 14, is GRANTED IN PART AND DENIED WITHOUT PREJUDICE IN
PART.
It is further ORDERED that EOUSA’s motion for summary judgment, ECF No. 27, is
GRANTED IN PART AND DENIED WITHOUT PREJUDICE IN PART.
It is further ORDERED that the FBI’s motion for summary judgment, ECF No. 32, is
GRANTED IN PART AND DENIED WITHOUT PREJUDICE IN PART.
It is further ORDERED that FEMA’s motion to strike, ECF No. 37, is DENIED.
It is further ORDERED that Dalal’s cross-motions for summary judgment, ECF Nos. 16,
40, and 46 are DENIED IN PART AND DENIED WITHOUT PREJUDICE IN PART.
It is further ORDERED Dalal’s motion for leave to file a supplemental exhibit, ECF No.
55, is GRANTED.
It is further ORDERED that each party shall file a proposed schedule to govern further
proceedings in this case by January 6, 2023.
58
SO ORDERED.
/s/ Timothy J. Kelly
TIMOTHY J. KELLY
United States District Judge
Date: November 21 , 2022
59 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488264/ | USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 1 of 12
[DO NOT PUBLISH]
In the
United States Court of Appeals
For the Eleventh Circuit
____________________
No. 21-11966
Non-Argument Calendar
____________________
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
versus
XAVIER SIMS,
Defendant-Appellant.
____________________
Appeal from the United States District Court
for the Middle District of Florida
D.C. Docket No. 5:20-cr-00055-JA-PRL-1
____________________
USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 2 of 12
2 Opinion of the Court 21-11966
Before NEWSOM, GRANT, and HULL, Circuit Judges.
PER CURIAM:
After a jury trial, Xavier Sims appeals his conviction for
possession by a convicted felon of a firearm or ammunition in or
affecting interstate commerce, in violation of 18 U.S.C. § 922(g)(1).
Sims argues that the district court abused its discretion by allowing
the government to introduce evidence of a shooting that occurred
minutes before and in close proximity to his gun possession. Sims
contends the district court violated Federal Rules of Evidence 401,
403, and 404(b). Sims further contends that his conviction under
§ 922(g) plainly violates the Commerce Clause. After review, we
affirm.
I. BACKGROUND
Because Sims claims the district court erred in certain
evidentiary rulings, we review the history of the case and the
relevant trial testimony.
On the evening of February 2, 2020, Tamara McDonald was
at home with her three children and a man she had recently begun
dating. Sims is McDonald’s ex-boyfriend and the three children’s
father. Sims arrived at McDonald’s home to pick up their eldest
child for an overnight visit at Sims’s house.
Soon after Sims drove away with their child, McDonald
received a phone call from Sims during which he asked who was at
her house. McDonald refused to answer. Soon after that call
USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 3 of 12
21-11966 Opinion of the Court 3
ended, McDonald called Sims back, and Sims told her, “Tamara,
either that dude gonna come outside or I’m going to shoot your
house up.” McDonald hung up the phone. But, worried about her
child who was with Sims, McDonald called Sims back. Sims stated
that after he dropped their eldest child off, he was coming back to
her home. Sims also repeated his earlier threat.
After that third phone call ended, McDonald put her other
two children in the car and drove to Sims’s house to get her eldest
child. When McDonald arrived at Sims’s house, Sims was not
there. McDonald honked her car’s horn, and the eldest child ran
out to her car.
Now with all three children in her car, McDonald drove to
a gas station and called 911 around 9:00 p.m. Sims pulled up next
to her at the gas station in a silver Dodge Neon, which belonged to
Sims’s new girlfriend. McDonald drove away, and Sims followed
her for a while. When Sims eventually stopped following her,
McDonald pulled over on the side of the road to wait for a
responding officer.
When Marion County Sheriff’s Deputy Devin Burgoyne
arrived, McDonald called Sims and put the phone on speaker so
that Deputy Burgoyne could hear their conversation. McDonald
asked Sims about threatening to shoot up her home. Sims did not
deny that he made such threats.
USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 4 of 12
4 Opinion of the Court 21-11966
After speaking with Deputy Burgoyne and showing him
where Sims lived, McDonald drove home. She and her three
children went to sleep.
Around 1:00 a.m., McDonald heard gunshots and bullets
hitting her home. She immediately called 911 and told the 911
operator she thought Sims was shooting at her house, although she
did not look outside to see what was going on or who shot at her
home. A be-on-the-lookout alert was issued for the Dodge Neon
that Sims was driving.
Thirteen minutes after McDonald heard gunshots and called
911, Marion County Sheriff’s Corporal Colton Sullivan spotted a
Dodge Neon headed away from McDonald’s home. Corporal
Sullivan stopped the vehicle at a gas station. Then, Corporal
Sullivan drew his gun, ordered Sims to get out of the vehicle with
his hands up, searched Sims for weapons, and waited for backup
officers to arrive. After backup arrived, the officers searched the
vehicle. They found a .40-caliber Glock handgun, two magazine
clips, and ten spent casings in the trunk. The officers arrested Sims.
Sims was charged with one count of being a felon in
possession of a firearm and ammunition, in violation of 18 U.S.C.
§§ 922(g)(1) and 924(a)(2). Sims pleaded not guilty.
Sims filed a motion in limine to exclude evidence of the
shooting at McDonald’s home under Federal Rules of Evidence
401, 403, and 404(b). Sims argued that the fact a shooting happened
at McDonald’s home did not make his possession of a firearm more
USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 5 of 12
21-11966 Opinion of the Court 5
or less probable, and there was scant evidence to link the two
events. Alternatively, Sims contended that the evidence would
cause unfair prejudice, confuse the issues, mislead the jury, waste
time, needlessly present cumulative evidence, or cause undue
delay. Lastly, Sims argued that the evidence was of a prior bad act
that could cause the jury to convict him because they were
outraged that he shot at McDonald’s home.
The government responded that, because the gun was
found in the trunk of the vehicle Sims was driving, circumstantial
evidence was needed to prove that he constructively possessed the
firearm. The government argued that the evidence of the shooting
was admissible because (1) it was a relevant part of the “chain of
events” that concluded with Sims’s arrest; (2) it was not extrinsic
evidence under Rule 404(b) and was not being offered to prove that
Sims is a bad person; (3) it would tend to prove that Sims had
motive to possess the firearm, had the opportunity and intent to do
so, planned to do so, and that it was no mistake or accident that
Sims was found in the vehicle with the gun; and (4) thus the
probative value of the evidence was extremely high and not
outweighed by any of the Rule 403 concerns.
The district court held a hearing to address Sims’s motion in
limine. After hearing argument from both parties, the district court
found that the evidence of the shooting and events leading up to it
were relevant and not outweighed by the danger of unfair
prejudice. The district court, however, advised counsel to proceed
with caution in order to avoid a Rule 403 or Rule 404(b) issue. The
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6 Opinion of the Court 21-11966
district court later issued an order denying Sims’s motion in limine
for the reasons stated in open court.
During Sims’s trial, the government called Special Agent
Justin Mace of the Bureau of Alcohol, Tobacco, and Firearms to
testify. Special Agent Mace testified that the firearm found in the
trunk of the vehicle Sims was driving was manufactured in Austria
and imported into Georgia. He further testified that the
ammunition was manufactured in Illinois.
After both parties rested and presented their closing
arguments, the district court issued a limiting instruction to the
jury. The court instructed the jury not to consider any prior acts
evidence to decide whether Sims engaged in the activity alleged in
the indictment, and rather, to consider it only for the limited
purpose of determining whether Sims had the state of mind, intent,
motive, or opportunity to commit the acts charged in the
indictment.
The jury convicted Sims. The district court sentenced him
to 115 months’ imprisonment followed by 3 years of supervised
release.
II. ADMISSIBILITY OF THE SHOOTING EVIDENCE
On appeal, Sims argues that the evidence of the shooting
should have been excluded (1) as irrelevant under Rule 401, (2) as
a prior bad act offered to show his propensity to commit the crime
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21-11966 Opinion of the Court 7
charged under Rule 404(b), or (3) as unduly prejudicial under Rule
403. 1
After careful review of the record, we explain why the
evidence was relevant under Rule 401, was not extrinsic under Rule
404(b), and has significant probative value and was not unduly
prejudicial under Rule 403.
A. Rule 401
Sims argues the evidence of the shooting is irrelevant
because McDonald did not see the shooter during the incident at
her house. We disagree.
The Federal Rules of Evidence define relevant evidence as
evidence that “has any tendency to make a fact more or less
probable,” provided that “the fact is of consequence in determining
the action.” Fed. R. Evid. 401. Generally, relevant evidence is
admissible unless otherwise specified. Fed. R. Evid. 402.
The offense set forth in § 922(g) “entails three distinct
elements: (1) that the defendant was a convicted felon; (2) that the
defendant was in knowing possession of a firearm; and (3) that the
firearm was in or affecting interstate commerce.” United States v.
Jernigan, 341 F.3d 1273, 1279 (11th Cir. 2003); 18 U.S.C. § 922(g)(1).
The Supreme Court has held that “in a prosecution under 18 U.S.C.
1 We review the admission of evidence under Rules 401, 403, and 404(b) for
abuse of discretion. United States v. Culver, 598 F.3d 740, 747 (11th Cir. 2010);
United States v. Matthews, 431 F.3d 1296, 1308 (11th Cir. 2005).
USCA11 Case: 21-11966 Date Filed: 11/21/2022 Page: 8 of 12
8 Opinion of the Court 21-11966
§ 922(g) and § 924(a)(2), the [g]overnment must prove both that the
defendant knew he possessed a firearm and that he knew he
belonged to the relevant category of persons barred from
possessing a firearm.” Rehaif v. United States, 588 U.S. __, 139 S.
Ct. 2191, 2200 (2019).
Here, the evidence of the shooting was highly relevant to
show Sims’s knowing possession of the gun in the trunk of the
vehicle that was not owned or leased by him. Corporal Sullivan
spotted Sims driving the silver Dodge Neon only 13 minutes after
McDonald heard gunshots and called 911. Therefore, Sims’s use of
a gun at the shooting “plainly bore on [his] knowledge” that there
was a gun in the trunk of the car just minutes after the shooting.
See Jernigan, 341 F.3d at 1281 (emphasis omitted). By pleading not
guilty to the charges, Sims made knowledge and possession of a
firearm an issue in the case. See, e.g., United States v. Taylor, 417
F.3d 1176, 1182 (11th Cir. 2005) (concluding that the district court
did not abuse its discretion in admitting evidence of the defendant’s
prior possession of a firearm because the defendant’s not guilty plea
in a felon-in-possession case rendered the mens rea element a
material issue that the government was required to prove).
Significantly, the police had found the gun in a vehicle that
Sims did not own. Thus, the shooting evidence was highly
probative of Sims’s knowing possession of the firearm in the trunk.
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21-11966 Opinion of the Court 9
B. Rule 404(b)
Sims argues that the evidence of the shooting is a prior bad
act offered to show his propensity to commit the crime charged.
He claims that the evidence was not relevant to whether he
knowingly possessed the firearm. He contends that the evidence
of the shooting was weak and unsupported by corroboration and
that it was not relevant to any issue aside from his character. We
disagree.
Rule 404(b) prohibits the introduction of evidence of a
crime, wrong, or other act to “prove a person’s character in order
to show that on a particular occasion the person acted in
accordance with the character.” Fed. R. Evid. 404(b)(1). It does,
however, allow such evidence for other purposes, “such as proving
motive, opportunity, intent, preparation, plan, knowledge,
identity, absence of mistake, or lack of accident.” Fed. R. Evid.
404(b)(2). Further, such evidence is admissible if it is “(1) [of] an
uncharged offense which arose out of the same transaction or
series of transactions as the charged offense, (2) necessary to
complete the story of the crime, or (3) inextricably intertwined
with the evidence regarding the charged offense.” United States v.
McLean, 138 F.3d 1398, 1403 (11th Cir. 1998) (quotation marks
omitted). “Rule 404(b) is a rule of inclusion,
and accordingly 404(b) evidence, like other relevant evidence,
should not be lightly excluded when it is central to the
prosecution’s case.” United States v. Kapordelis, 569 F.3d 1291,
1313 (11th Cir. 2009) (cleaned up).
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10 Opinion of the Court 21-11966
Here, the evidence of the shooting was intrinsic. It “was
vital to an understanding of the context of the government’s case
against [Sims] and, therefore, can be said to be ‘inextricably
intertwined’ with the government’s proof of the charged
offense[].” See McLean, 138 F.3d at 1404. In other words, the
evidence of the shooting provided necessary context to the charged
offense and was properly admitted by the district court.
C. Rule 403
Sims argues that the evidence of the shooting was unduly
prejudicial and should have been excluded on that basis. Sims
contends that the government should have restricted evidence to
matters related to possession of the firearm or offered an edited
version of the shooting. Sims alleges that the government painted
him as a horrible man by describing the shooting at trial. We
disagree.
Relevant evidence “may” be excluded “if its probative value
is substantially outweighed by a danger of one or more of the
following: unfair prejudice, confusing the issues, misleading the
jury, undue delay, wasting time, or needlessly presenting
cumulative evidence.” Fed. R. Evid. 403. However, exclusion
under Rule 403 is an extraordinary remedy that courts should
employ “only sparingly since it permits the trial court to exclude
concededly probative evidence.” United States v. Smith, 459 F.3d
1276, 1295 (11th Cir. 2006).
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21-11966 Opinion of the Court 11
The district court did not abuse its discretion in ruling the
probative value outweighed any prejudice. As explained above,
the evidence of the shooting was highly probative. Importantly,
there was no unfair prejudice here. Certainly, the evidence of the
shooting was damaging to Sims’s defense. But all relevant
evidence is inherently prejudicial. And Rule 403 does not permit a
court to exclude the government’s evidence simply because it may
hurt the defendant. See United States v. Terzado-Madruga, 897
F.2d 1099, 1119 (11th Cir. 1990) (“Simply because the evidence is
damaging or prejudicial to a defendant’s case does not
mean . . . that the evidence should be excluded.”). “It is only unfair
prejudice, substantially outweighing probative value, which
permits exclusion of relevant matter under Rule 403.” Id.
(alteration adopted). And, to the extent the evidence of the
shooting is arguably unfairly prejudicial, it still does not
substantially outweigh its probative value.
III. COMMERCE CLAUSE
For the first time on appeal, Sims argues that § 922(g) is
unconstitutional under the Commerce Clause and, as a result, his
conviction and sentence are invalid. 2 This argument is foreclosed
2 Generally, we review the constitutionality of a statute de novo, as it is a
question of law. United States v. Wright, 607 F.3d 708, 715 (11th Cir. 2010).
However, if the issue is raised for the first time on appeal, we review for plain
error only. Id. Plain error occurs only if (1) there was error, (2) it was plain,
(3) it affected the defendant’s substantial rights, and (4) it seriously affected the
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12 Opinion of the Court 21-11966
by our precedent. As Sims acknowledges, this Court has “clearly
held that § 922(g) is constitutional under the Commerce Clause.”
United States v. Longoria, 874 F.3d 1278, 1283 (11th Cir. 2017)
(citing United States v. McAllister, 77 F.3d 387, 390 (11th Cir.
1996)).
This Court has also rejected as-applied challenges to
§ 922(g), holding that the government proves a “minimal nexus” to
interstate commerce where it demonstrates that the firearms were
manufactured outside of the state in which the offense took place
and thus, necessarily traveled in interstate commerce. United
States v. Wright, 607 F.3d 708, 715–16 (11th Cir. 2010). We have
rejected Lopez challenges to § 922(g), concluding that “[n]othing in
Lopez suggest[ed] that the minimal nexus test should be changed.”
McAllister, 77 F.3d at 390 (quotation marks omitted).
In light of McAllister and Wright, Sims’s constitutionality
arguments regarding § 922(g) lack merit and thus do not establish
error, much less plain error. Here, the government presented
evidence, by way of Special Agent Mace, showing that the firearm
and ammunition that Sims possessed had traveled in interstate
commerce, and therefore, satisfied the minimal nexus
requirement.
AFFIRMED.
“fairness, integrity, or public reputation of judicial proceedings.” Id.
(quotation marks omitted). | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488266/ | Filed 11/21/22
Opinion on rehearing
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
SECOND APPELLATE DISTRICT
DIVISION SIX
JUAN NAVAS et al., 2d Civ. No. B312888
(Super. Ct. No. 17CV02222)
Plaintiffs and Respondents, (Santa Barbara County)
v. OPINION ON REHEARING
FRESH VENTURE FOODS,
LLC,
Defendant and Appellant.
In Iskanian v. CLS Transportation Los Angeles, LLC (2014)
59 Cal.4th 348, our Supreme Court held, among other things,
that employment agreements that compel the waiver of
representative claims under the Private Attorney Generals Act
(PAGA) (Lab. Code, §§ 2698, 2699) are contrary to public policy
and unenforceable as a matter of state law. This is no longer the
case. (See Viking River Cruises, Inc. v. Moriana (June 15, 2022,
No. 20-1573) _ U.S. _ [213 L.Ed.2d 179, 200].) Nevertheless,
Iskanian still survives.
Defendant Fresh Venture Foods, LLC (FVF) appeals an
order denying its motion to compel arbitration of a lawsuit filed
against it for wages and damages by plaintiffs Juan Navas,
Martha Herrera Lopez (Lopez), and Benjamin Hernandez Ramos
(Ramos). We conclude, among other things, that 1) FVF’s
arbitration agreement with Lopez and Ramos is not valid; and 2)
the arbitration agreement with Navas is procedurally and
substantively unconscionable. (Code Civ. Proc.,1 § 1281.2, subd.
(c).) We affirm.
FACTS
Navas, Lopez, Ramos, and other FVF employees filed a
class action lawsuit against FVF alleging, among other things,
that the company did not pay minimum and overtime wages.
They also alleged a cause of action under PAGA for civil penalties
“for themselves and other current and former employees” for
“labor law violations.”
In 2021, FVF moved “to compel arbitration” of the claims of
Navas, Lopez, and Ramos. FVF claimed Navas, Lopez, and
Ramos signed arbitration agreements and agreed to arbitrate
their individual claims against FVF and “[gave] up the right to
represent others in litigation or to participate in any class,
collective, or representative action in a court of law.”
Navas, Lopez, and Ramos, however, claimed they did not
recognize the purported arbitration agreement or the signatures
on them. Moreover, the agreement presented by FVF contained
unconscionable provisions.
The trial court found FVF did not prove Lopez and Ramos
entered into arbitration agreements. The arbitration agreement
signed by Navas was procedurally and substantively
unconscionable. Among other things, it contained “an
acknowledgement that [a] waiver [of PAGA rights] occurred.”
All further statutory references are to the Code of Civil
1
Procedure unless otherwise stated.
2.
The court alternatively found that even if the agreement is valid,
it had to be stayed. This is because a lawsuit Navas and others
filed against FVF involved common issues of law and fact
resulting in the possibility of conflicting adjudications between an
arbitration and court action. (§ 1281.2, subd. (c).)
DISCUSSION
An Arbitration Agreement with Lopez and Ramos
The policy favoring arbitration is a “ ‘ “speedy and
relatively inexpensive means of dispute resolution.” ’ ” (Adajar v.
RWR Homes, Inc. (2008) 160 Cal.App.4th 563, 568.) “The
petitioner bears the burden of proving” a “valid arbitration
agreement.” (Engalla v. Permanente Medical Group, Inc. (1997)
15 Cal.4th 951, 972.) “An arbitration clause is a contractual
agreement.” (Salgado v. Carrows Restaurants, Inc. (2019) 33
Cal.App.5th 356, 359.) “[A]n essential component to a contract is
the consent of the parties to the contract.” (Mitri v. Arnel
Management Co. (2007) 157 Cal.App.4th 1164, 1170.)
Here the trial court found: 1) FVF did not prove Lopez and
Ramos signed the agreements, and 2) “consent cannot be implied
from [the] circumstances.”
Ramos declared, “I do not recall seeing or signing the
document . . . . I do not recognize the signature on the document
as my own.” “When I began working at Fresh Venture, I was
asked to sign a bunch of paperwork very quickly. No one
explained it to me and I was never told I could take it home to
read.”
In her deposition Lopez said she did not recognize the
arbitration document. She never saw it before, and she did not
recognize the signature on the agreement as hers.
3.
FVF contends Ramos and Lopez were evasive, not credible,
and the trial court did not credit the declaration from its witness.
Credibility is decided exclusively by the trial court and we do not
weigh the evidence. (People v. Ochoa (1993) 6 Cal.4th 1199, 1206;
Carlson v. Home Team Pest Defense, Inc. (2015) 239 Cal.App.4th
619, 630.) On a motion to compel arbitration, the “trial court sits
as a trier of fact.” (Engalla v. Permanente Medical Group, Inc.,
supra, 15 Cal.4th at p. 972.) If there are evidentiary conflicts,
“those in favor of the prevailing party . . . must be considered
established.’ ” (Chronometrics, Inc. v. Sysgen, Inc. (1980) 110
Cal.App.3d 597, 603.) The evidence is sufficient to establish that
Ramos and Lopez did not sign the arbitration agreement.
Whether Navas’s Arbitration Agreement
Was Unconscionable
“Courts may refuse to enforce unconscionable contracts and
this doctrine applies to arbitration agreements.” (Salgado v.
Carrows Restaurants, Inc., supra, 33 Cal.App.5th at p. 362.)
“ ‘ “Unconscionability has procedural and substantive aspects.” ’ ”
(Ibid.) “ ‘ “ ‘Both procedural and substantive unconscionability
must be present before a court can refuse to enforce an
arbitration provision based on unconscionability. . . .’ ” ’ ” (Ibid.)
“Substantive unconscionability relates to the fairness of the
agreement’s terms. Procedural unconscionability involves the
‘ “circumstances of contract negotiation and formation.” ’ ” (Ibid.)
Courts use a sliding scale. “In other words, the more
substantively oppressive the contract term, the less evidence of
procedural unconscionability is required to come to the conclusion
that the term is unenforceable, and vice versa.” (Armendariz v.
Foundation Health Psychcare Services, Inc. (2000) 24 Cal.4th 83,
4.
114.) Our review is de novo. (Fitz v. NCR Corp. (2004) 118
Cal.App.4th 702, 711.)
Procedural Unconscionability
The trial court found that “Navas testified that he
understood that if he did not initial the arbitration document, he
would not have been hired.” It found “the ‘take it or leave it’
basis renders the Agreement procedurally unconscionable.”
Navas testified he did not “agree to the content of” the
agreement, but he was told “it’s a requirement.”
An agreement “imposed on employees as a condition of
employment” with “no opportunity to negotiate” is an “adhesive”
contract which may be procedurally unconscionable.
(Armendariz v. Foundation Health Psychcare Services, Inc.,
supra, 24 Cal.4th at p. 115.) “Private arbitration” may “ ‘become
an instrument of injustice imposed on a “take it or leave it”
basis.’ ” (Ibid.) As Navas notes, the facts show “there was an
absence of real negotiation or meaningful choice” for Navas. FVF
used its superior bargaining power to draft an agreement with
provisions favorable for itself and gave it to him on a “take it or
leave it basis.” (Ibid.) This supports the finding of procedural
unconscionability. (McManus v. CIBC World Markets Corp.
(2003) 109 Cal.App.4th 76, 101.)
But procedural unconscionability alone is not sufficient to
find the agreement is unenforceable. (Salgado v. Carrows
Restaurants, Inc., supra, 33 Cal.App.5th at p. 362.) There must
also be substantive unconscionability. (Ibid.) With a high degree
of procedural unconscionability, “even a relatively low degree of
substantive unconscionability may suffice to render the
agreement unenforceable.” (OTO, L.L.C. v. Kho (2019) 8 Cal.5th
111, 130.)
5.
Substantive Unconscionability
The unconscionability doctrine ensures that contracts that
contain terms that are “overly harsh,” “unduly oppressive,” or are
“ ‘ “ ‘so one-sided as to “shock the conscience” ’ ” ’ ” are not
enforced. (Baltazar v. Forever 21, Inc. (2016) 62 Cal.4th 1237,
1244.)
Absence of Discovery Rights
Navas claims the arbitration agreement is unconscionable
because it did not mention discovery rights.
But the absence of such a provision does not make it
unconscionable because the right to discovery is guaranteed by
section 1283.05, subdivision (a), which provides, in relevant part,
“ [T]he parties to the arbitration shall have the right to take
depositions and obtain discovery . . . .” An employer who agrees
to arbitrate claims impliedly “consent[s]” to a procedure that
allows for discovery. (Armendariz v. Foundation Health
Psychcare Services, Inc., supra, 24 Cal.4th at p. 106; Lane v.
Francis Capital Management LLC (2014) 224 Cal.App.4th 676,
693.)
PAGA Rights
Navas claims the arbitration agreement was unenforceable
because it “requires employees to renounce . . . their . . . right to
bring a PAGA action,” and such a waiver makes the agreement
substantively unconscionable.
Under PAGA, an “aggrieved employee” may file a civil
action against an employer for “a civil penalty” for violations of
the Labor Code “on behalf of himself or herself and other current
or former employees.” (Lab. Code, §§ 2699, subd. (a), italics
added, 2698.)
6.
The arbitration agreement provides, in relevant part,
“There will be no right or authority for any dispute to be brought,
heard, or arbitrated as a representative action under the Private
Attorney General Act (PAGA) of California . . . .” (Italics added.)
“I will be giving up the right to represent others in litigation or to
participate in any class or representative action in a court of law.”
(Italics added.) That constitutes FVF’s and the employee’s
agreement relating to PAGA. It only includes the waiver of the
right to bring a representative PAGA action. It does not involve a
waiver of the right to bring an individual PAGA action.
But later in the agreement a separate unilateral provision
provides, “Fresh Venture Foods reserves the right” to enforce “the
Waiver of Individuals to Self-Representation in Trials (Private
Attorney General Waiver).” (Italics added.)
Employers may not force employees to waive their right to
bring a PAGA action. (Juarez v. Wash Depot Holdings, Inc.
(2018) 24 Cal.App.5th 1197, 1203; Julian v. Glenair, Inc. (2017)
17 Cal.App.5th 853, 871.) PAGA lawsuits include: 1) individual
PAGA actions where the employee seeks damages for violations
committed against the individual employee, and 2)
“representative” actions where an employee seeks damages
because of the employer’s PAGA violations committed against a
group of employees.
Our Supreme Court held “[w]here, as here, an employment
agreement compels the waiver of representative claims under the
PAGA, it is contrary to public policy and unenforceable as a
matter of state law.” (Iskanian v. CLS Transportation Los
Angeles, LLC, supra, 59 Cal.4th 348, 384, italics added.)
But in Viking River Cruises, Inc. v. Moriana, supra, _ U.S.
_ [213 L.Ed.2d 179, 200], the United States Supreme Court held
7.
“the FAA preempts the rule of Iskanian insofar as it precludes
division of PAGA actions into individual and non-individual
claims through an agreement to arbitrate.” The court said,
“Viking was entitled to enforce the agreement insofar as it
mandated arbitration of Moriana’s individual PAGA claim. The
lower courts refused to do so based on the rule that PAGA actions
cannot be divided into individual and non-individual claims.
Under our holding, that rule is preempted . . . .” (Id. at p. _,
italics added [Ibid., italics added].)
Consequently, the Iskanian rule requiring mandatory
joinder of individual and representative PAGA claims is
preempted. The employer and employee, however, may agree to
arbitrate an individual PAGA claim. But in this agreement the
employee is not even given that choice.
Although a portion of Iskanian is preempted, the standards
for obtaining individual PAGA waivers under state law remain in
effect. Here FVF unilaterally declared a right to forfeit an
employee’s individual PAGA claim without first: 1) explaining to
the Spanish-speaking employee what is an individual PAGA
claim, and 2) obtaining the employee’s consent to waive the right
to file an individual PAGA claim in court.
The trial court found the agreement improperly contains
“an acknowledgement” that “the right to self-representation” in
PAGA cases had been waived, and it does so prematurely,
without an employee’s consent, and as part of an automatic
forfeiture before the employment relationship is established.
An employee with an individual PAGA claim “is free to
forgo the option of pursuing a PAGA action. But it is against
public policy for an employment agreement to deprive employees of
this option altogether, before any dispute arises.” (Iskanian v.
8.
CLS Transportation Los Angeles, LLC, supra, 59 Cal.4th at
p. 387, italics added.)
The Self-Representation Provision
The trial court also found the provision providing a “Waiver
of Individuals to Self-Representation in Trials” was ambiguous
and therefore invalid. Where an arbitration agreement is
“uncertain regarding a material term,” it “cannot be enforced.”
(Lindsay v. Lewandowski (2006) 139 Cal.App.4th 1618, 1623; see
also Mitri v. Arnel Management Co., supra, 157 Cal.App.4th at
p. 1173.) Navas claimed this provision meant employees had to
hire counsel at arbitrations and they could not afford it. FVF
claims it did not intend that result. But this explanation was not
included in the agreement, the provision was conclusory and open
ended. “[W]here, as here, the written agreement has been
prepared entirely by the employer, . . . any ambiguities must be
construed against the drafting employer.” (Sandquist v. Lebo
Automotive, Inc. (2016) 1 Cal.5th 233, 248.)
One-Sided Provisions Against Employee Rights
The arbitration agreement’s terms are primarily one-sided
in favor of FVF. The agreement provides it “will be valid for all
legal claims between [FVF] and [the employee].” But it then
specifically describes the type of “Covered Claims” that fall within
arbitration. They include disputes involving: 1) “the termination
of [the employee’s] employment from Fresh Venture Foods”; 2)
employee claims about “wage and hour laws (federal, state, and
local)”; 3) employee claims about “compensation”; 4) “breaks and
rest periods”; 5) “training”; 6) employee challenges to
“termination”; 7) employee claims of “discrimination”; 8)
employee claims of “harassment”; and 9) “claims arising under
state and federal statutes and/or common law relating to these or
9.
similar matters.” (Italics added.) The agreement also provides,
“There will be no right or authority under this Agreement for any
dispute to be brought, heard, or arbitrated as a class or collective
action.”
But these are the type of claims that only employees bring
against employers. Arbitration agreements that primarily
require arbitration of the type of claims only employees bring
against employers are substantively unconscionable as being
“one-sided and harsh.” (Zullo v. Superior Court (2011) 197
Cal.App.4th 477, 486; Stirlen v. Supercuts, Inc. (1997) 51
Cal.App.4th 1519, 1540-1541.) They are unfair to employees
where, for example, “[t]he mandatory arbitration requirement
can only realistically be seen as applying primarily . . . to claims
arising out of the termination of employment, which are virtually
certain to be filed against, not by, [the employer].” (Stirlen, at pp.
1540-1541, italics added.) In such cases the agreement is not
neutral or mutual. (Ibid.)
The agreement also provides that it shall not “excuse [the
employee] from utilizing the internal complaint procedures of
[FVF].” But because those procedures are not described,
employees do not know what they are agreeing to. (OTO, L.L.C.
v. Kho, supra, 8 Cal.5th at p. 136.) The agreement thus funnels
employee claims into both arbitration and FVF’s own complaint
system without requiring FVF to follow any defined procedure to
limit its discretion. It creates a “one-sided” shield exclusively for
FVF’s benefit. (Zullo v. Superior Court, supra, 197 Cal.App.4th
at p. 486.)
FVF claims the trial court erred by not severing these
provisions and enforcing the remainder of the agreement. But
whether to sever is within the trial court’s discretion. (Magno v.
10.
The College Network, Inc. (2016) 1 Cal.App.5th 277, 292.) Given
the number of challenged provisions, the court could reasonably
find severance was not an acceptable option.
But even so, the trial court alternatively found that even if
the agreement is valid, its enforcement would have to be stayed
because of the lawsuit Navas filed against FVF.
Staying Enforcement of the Arbitration Agreement
The trial court stayed the enforcement of Navas’s
arbitration agreement based on section 1281.2, subdivision (c).
That provision gives the court the authority to decline to order
arbitration in cases where, “[a] party to the arbitration
agreement is also a party to a pending court action or special
proceeding with a third party, arising out of the same transaction
or series of related transactions and there is a possibility of
conflicting rulings on a common issue of law or fact.” (Ibid.)
The trial court found that Navas, Lopez, and Ramos “are
the plaintiffs, along with three others” and they “each allege
wage and hour violations as well as PAGA claims” against FVF.
Their claims “arise out of the same transaction or series of related
transactions” with the claims of the other plaintiffs who are not
subject to arbitration. All six plaintiffs worked for FVF “within
the last four years of the filing of the complaint, likely at
overlapping times. “While damages may vary . . . , liability
should not, and that is where there is a potential of conflicting
rulings.”
FVF contends the trial court erred by applying section
1281.2, subdivision (c) because this provision is not authorized by
the Federal Arbitration Act (FAA). FVF notes the agreement
provides, “This arbitration Agreement is governed by the [FAA].”
11.
This means the validity of the agreement’s terms is decided
under FAA standards.
But as the trial court correctly noted, the parties did not
agree that the procedures involving arbitration would be
exclusively determined by federal law. The arbitration
agreement refers to California arbitration procedures. For
example, the parties agreed that disputes about who would be the
arbitrator would be decided under section 1281.6. This
incorporates the California arbitration law procedures into this
agreement.
FVF cites Rodriguez v. American Technologies, Inc. (2006)
136 Cal.App.4th 1110, and it notes there the court ruled that
under the FAA, unlike California law, the court must stay the
court proceeding and compel the arbitration. (Id. at p. 1122.)
But in Rodriguez, the court ruled that federal law applied
because there was no “contract provision suggesting the parties
intended to incorporate California arbitration law.” (Ibid.) Here
the parties expressly incorporated California arbitration law.
Moreover, in Cronus Investments, Inc. v. Concierge Services
(2005) 35 Cal.4th 376, 380, our Supreme Court held that the FAA
“does not preempt the application of section 1281.2, subdivision
(c).” This section “is part of California’s statutory scheme
designed to enforce the parties’ arbitration agreements, as the
FAA requires.” (Id. at p. 393.) “[I]t does not conflict with the
applicable provisions of the FAA and does not undermine or
frustrate the FAA’s substantive policy favoring arbitration.” (Id.
at p. 394.) FVF has not shown the trial court erred.
12.
DISPOSITION
The judgment (order) is affirmed. Costs on appeal are
awarded in favor of respondents.
CERTIFIED FOR PUBLICATION.
GILBERT, P. J.
We concur:
YEGAN, J.
PERREN, J.*
*Retired Associate Justice of the Court of Appeal, Second
Appellate District, assigned by the Chief Justice pursuant to
article VI, section 6 of the California Constitution.
13.
Timothy J. Staffel, Judge
Superior Court County of Santa Barbara
______________________________
Mullen & Henzell, Rafael Gonzalez and Brian T. Daly for
Defendant and Appellant Fresh Venture Foods.
Mallison & Martinez, Stan S. Mallison, Hector R. Martinez
and Heather M. Hamilton for Plaintiffs and Respondents Juan
Navas, Martha Herrera Lopez, and Benjamin Hernandez Ramos.
14. | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488276/ | [Cite as Findlay v. Martens, 2022-Ohio-4146.]
IN THE COURT OF APPEALS OF OHIO
THIRD APPELLATE DISTRICT
HANCOCK COUNTY
CITY OF FINDLAY, ET AL.,
PLAINTIFFS-APPELLEES, CASE NO. 5-22-05
v.
GEORGE V. MARTENS, OPINION
DEFENDANT-APPELLANT.
Appeal from Hancock County Common Pleas Court
Trial Court No. 2018-CV-0446
Judgment Affirmed
Date of Decision: November 21, 2022
APPEARANCES:
G Q Buck Vaile for Appellant
William V. Beach and Kayla L. Henderson for Appellees
Case No. 5-22-05
Per Curiam
{¶1} Defendant-counterclaim plaintiff-appellant, George Martens
(“Martens”), brings this appeal from the March 15, 2022, judgment of the Hancock
County Common Pleas Court granting the summary judgment motions of plaintiff-
counterclaim defendant-appellee, City of Findlay (“Findlay”), and counterclaim
defendants-appellees, Andrew Thomas, Tonya Stillberger, Lydia Mihalik, Todd
Richard, Erik Adkins, and Jodi Mathias (the “Findlay parties”). Martens also
appeals the trial court’s denial of his own motion for summary judgment.
Background
{¶2} On September 17, 2018, Findlay filed a complaint in the small claims
division of the Findlay Municipal Court alleging that Martens failed to pay city taxes
for 2013, 2014, and 2015. Martens owned properties in the area and the city believed
that Martens owed taxes on his rental income. Martens had not filed his tax returns
with Findlay for the years of 2013, 2014, and 2015, so Findlay employees
“estimated” his income and alleged in the complaint that Martens owed $3,588.75
plus interest.1
{¶3} In response to Findlay’s complaint, Martens, proceeding pro se, filed
an answer along with numerous counterclaims against Findlay and multiple other
1
Throughout the pendency of this case Martens has argued that Findlay’s “estimates” were not based on any
factual information and thus were complete fabrications rather than estimations. Based on this, Martens
maintains that Findlay, and the Findlay parties, did not make any “estimations” but rather engaged in
fraudulent speculation.
-2-
Case No. 5-22-05
Findlay parties such as city officials, city employees, and city departments.2 Martens
alleged, inter alia, that Findlay and its employees had been harassing him through
the filing of multiple “unsupported” criminal complaints against him (such as
nuisance actions), through unfairly enforcing zoning laws against him, and through
unlawfully confiscating his property. Martens filed counterclaims for, inter alia,
Abuse of Process, Trespass, “Reckless and Willful Conduct,” Malicious
Prosecution, and Fraud. Martens sought damages exceeding the monetary
jurisdictional limit of the Findlay Municipal Court, so the case was transferred to
the Hancock County Common Pleas Court.
{¶4} Findlay and the Findlay parties filed a Civ.R. 12(B)(6) motion to
dismiss Martens’ counterclaims alleging that they were “insufficient, improper, and
* * * otherwise not meritorious[.]”3 (Doc. No. 41). Martens responded to the motion
and on May 16, 2019, the trial court filed a lengthy decision and order analyzing the
motion to dismiss. Ultimately the trial court granted Findlay’s motion to dismiss
with respect to eleven of Martens’ counterclaims, some of which the trial court
indicated were not recognized as claims for relief such as Martens’ claims for
“Reckless, Willful, or Wanton Conduct,” “Reckless Disregard,” “Fraud on the
2
Martens’ answer and counterclaim were promptly amended and have since been amended again. Altogether,
Martens’ answers and counterclaims span hundreds of pages and as such are summarized herein, particularly
focusing on issues that are relevant to this appeal.
3
Because many of Findlay’s and the Findlay parties’ filings were contained in one document, we will
hereinafter refer to their filings simply as Findlay’s for the sake of simplicity.
-3-
Case No. 5-22-05
Court,” “Unclean Hands,” and “Unlawful Charging of a Criminal Act.” (Doc. No.
49). Three of Martens’ counterclaims survived dismissal: Abuse of Process, Civil
Conspiracy, and Replevin/Trespass/Conversion. In addition, Martens’ Fraud claim
was not dismissed; however, the trial court ordered Martens to plead his Fraud
allegation with greater particularity in compliance with Civ.R. 9(B).
{¶5} After the dismissal of the majority of his counterclaims, Martens filed
a voluminous second amended answer and counterclaim adding over twenty new
claims against Findlay and the Findlay parties, many of which were federal 42
U.S.C. 1983 claims.4 As relevant to this appeal, Martens also alleged that Findlay
had failed to comply with various provisions of Ohio Revised Code Chapter 718
and Findlay Ordinances 193-194 when attempting to collect taxes from him.5
{¶6} Following Findlay’s responsive pleading to Martens’ amended
counterclaim, the parties filed cross-motions for judgment on the pleadings pursuant
to Civ.R. 12(C). The trial court held an oral argument on the motions, then, on
January 27, 2020, the trial court filed a thorough decision and order denying
Martens’ motion for judgment on the pleadings. Findlay’s motion for judgment on
the pleadings was also denied as to Martens’ counterclaims for Abuse of Process,
4
The trial court granted Martens leave to file his second amended counterclaim with some restrictions. For
example, Martens was not permitted to recast allegations that had already been dismissed by the trial court.
5
Notably, Findlay Ordinance 194.02 indicates that it was not effective until January 1, 2016 and that the
changes that were codified in R.C. Chapter 718 were to apply to taxable years beginning 2016. Findlay had
filed against Martens for tax years in 2013, 2014, and 2015.
-4-
Case No. 5-22-05
Civil Conspiracy, and Trespass; however, Findlay’s motion was granted with regard
to the Fraud allegations and the new federal claims that had been made by Martin
in his second amended counterclaim. In addition, all claims against certain Findlay
employees were dismissed.
{¶7} The trial court then issued a date for the completion of discovery and
a separate date for filing summary judgment motions, if appropriate. The case
proceeded through discovery with over a dozen depositions being taken. Martens
also served numerous requests for admissions on various individuals such that the
trial court had to limit the number to fifty per individual after a request by Findlay.
{¶8} Over two years after Findlay filed its complaint, Martens retained
counsel and he requested that the trial court convert his counterclaim into a class
action. The request to convert the matter was denied by the trial court given how
late in the litigation it had been made.
{¶9} Following discovery, Findlay and Martens filed motions for summary
judgment and responses. On March 7, 2022, the trial court filed a decision on the
reciprocal summary judgment motions. Findlay’s summary judgment motion on
Martens’ surviving counterclaims was granted with the trial court finding that
multiple claims were barred by the statute of limitations, and, in any event, that
Findlay and its employees were entitled to sovereign immunity. Martens’ motion
for summary judgment against Findlay’s tax complaint was denied. A judgment
-5-
Case No. 5-22-05
entry memorializing the trial court’s rulings with respect to summary judgment was
filed on March 15, 2022.
{¶10} The trial court set the matter for a trial on Findlay’s income tax
complaint scheduled to commence on April 18, 2022. However, prior to proceeding
to trial, Findlay filed a notice of voluntary dismissal of its tax complaint against
Martens, leaving no claims pending before the trial court.
{¶11} Subsequently, Martens filed a motion to strike Findlay’s voluntary
dismissal. Separately, Martens filed an appeal to this Court, challenging the trial
court’s rulings with regard to summary judgment and dismissal of his claims.
Martens now asserts the following assignments of error for our review.
Assignment of Error No. 1
The trial court erred in failing to grant appellant’s motion for
summary judgment against counterclaim defendants * * * absent
any findings.
Assignment of Error No. 2
The trial court erred in granting appellees’ motion for summary
judgment, based on ruling that the appellees’ employees of the
Income Tax Department were protected by immunity.
Assignment of Error No. 3
The trial court erred when it dismissed appellant’s claim of fraud.
Assignment of Error No. 4
The trial court erred when it improperly dismissed the
defendant/appellant’s claim of malicious prosecution under Civil
Rule 12(B)(6) in its ruling on 16 May 2019, when the allegations
for it existed.
-6-
Case No. 5-22-05
Assignment of Error No. 5
The trial court erred when it improperly ruled against the
appellant in refusing to allow Martens’ response to the tax claim
of the city of Findlay to be converted to a class action as requested
in his motion to allow for a third amended counterclaim on 10
December 2020 and his subsequent motion for class action
certification filed on 18 January 2022.
Assignment of Error No. 6
The trial court erred in failing to rule on and find in appellant’s
favor on the application of the conditions in ORC 718.37 which
were pled by the appellant in the trial court.
Assignment of Error No. 7
The trial court erred in dismissing Martens 42 1983 claims found
in Counts IX, XI, XIII, XIV, XV, XVI, XVII, and XXVI of his
second amended complaint.
Assignment of Error No. 8
The trial court erred in dismissing Martens claims based on
appellees’ qualified immunity.
Assignment of Error No. 9
The trial court erred by not rejecting appellees’ voluntary
dismissal of their tax claim against appellant.
Assignment of Error No. 10
The trial court erred by not denying appellees immunity in
accordance with ORC 2744.09(E).
{¶12} For ease of discussion, we elect to discuss some of the assignments of
error together, and we elect to address the assignments of error out of the order in
which they were raised.
-7-
Case No. 5-22-05
Ninth Assignment of Error
{¶13} In Martens’ ninth assignment of error, he argues that the trial court
erred “by not rejecting [Findlay’s] voluntary dismissal.”
Civil Rule 41
{¶14} Civil Rule 41 governs voluntary dismissal, and it reads as follows:
(A) Voluntary Dismissal: Effect Thereof.
(1) By Plaintiff; By Stipulation. Subject to the provisions
of Civ. R. 23(E), Civ. R. 23.1, and Civ. R. 66, a plaintiff, without
order of court, may dismiss all claims asserted by that plaintiff
against a defendant by doing either of the following:
(a) filing a notice of dismissal at any time before the
commencement of trial unless a counterclaim which
cannot remain pending for independent adjudication by
the court has been served by that defendant;
(b) filing a stipulation of dismissal signed by all parties
who have appeared in the action.
Unless otherwise stated in the notice of dismissal or stipulation,
the dismissal is without prejudice, except that a notice of dismissal
operates as an adjudication upon the merits of any claim that the
plaintiff has once dismissed in any court.
Analysis
{¶15} After the summary judgment proceedings, but prior to the
commencement of trial, Findlay filed a Civ.R. 41 voluntary dismissal of its tax claim
against Martens. Importantly, a voluntary dismissal is effective when the notice is
filed, without order of the court, so long as it is done before trial. City of Kent v.
-8-
Case No. 5-22-05
CDC-Kent, LLC, 11th Dist. Portage No. 2017-P-0081, 2018-Ohio-3743, ¶ 28, fn. 3.
In other words, a “Civ.R. 41(A)(1)(a) dismissal is self-executing[.]” Shue v. Ohio
Dept. of Rehab. & Correction, 10th Dist. Franklin No. 16AP-432, 2017-Ohio-443,
¶ 9. Therefore, “[a] ‘notice’ of dismissal is not a motion upon which the trial court
must rule, nor does anything remain upon which the trial court can rule.” (Emphasis
sic.) Kent at fn. 3, citing Andrews v. Sajar Plastics, Inc., 98 Ohio App.3d 61, 65-66
(11th Dist.1994).
{¶16} Here, Findlay had an “absolute right” to voluntarily dismiss its action
under Civ.R. 41(A)(1), and it was effective upon filing, “unless a counterclaim
which cannot remain pending for independent adjudication by the court has been
served by that defendant.” Civ.R. 41(A)(1)(a). Martens argues that his
counterclaims were intricately intertwined with Findlay’s tax complaint,
particularly his claim for Abuse of Process, thus Findlay could not voluntarily
dismiss its complaint.
{¶17} Contrary to Martens’ argument, at the time Findlay dismissed its
complaint, all of Martens’ counterclaims had already been dismissed by the trial
court, thus no counterclaims remained pending to prevent Findlay’s voluntary
dismissal. Under the plain language of Civ.R. 41, Findlay maintained its absolute
right to dismiss the action prior to trial.
-9-
Case No. 5-22-05
{¶18} Notwithstanding this point, even assuming that Martens’
counterclaims were still pending at the time of Findlay’s voluntary dismissal,
Martens does not establish how the dismissal of Findlay’s action prevented his
ability to prosecute his counterclaims. He summarily mentions his “Abuse of
Process” claim as being intricately intertwined with the tax complaint, but “[a] claim
for abuse of process is not a compulsory counterclaim which must be brought in the
underlying litigation.” Yaklevich v. Kemp, 68 Ohio St.3d 294 (1994). Given that the
claim could survive on its own, and given that there is no indication that his other
claims could not be prosecuted on their own, Martens’ argument is not well-taken.
For all of these reasons his ninth assignment of error is overruled.
First Assignment of Error
{¶19} In Martens’ first assignment of error, he argues that, for numerous
reasons, the trial court erred by failing to grant his summary judgment motion
against Findlay’s tax complaint. He contends, inter alia, that Findlay did not comply
with R.C. Chapter 718’s provisions that were effective January 1, 2016, when
Findlay attempted to collect taxes from him for the years of 2013, 2014, and 2015,
he contends that Findlay did not exhaust its administrative remedies before filing
the tax complaint, he contends that Findlay lacked jurisdiction to file its tax
complaint, and he contends that the “estimated” amount that he owed was entirely
inaccurate, based on no actual information, and therefore fraudulent.
-10-
Case No. 5-22-05
{¶20} As we just determined in our resolution of the ninth assignment of
error, Findlay’s tax complaint has been dismissed and there is no action pending
against Martens. Any ruling on Martens’ arguments that the trial court erred in
failing to grant his motion for summary judgment, or failing to dismiss a claim that
is no longer pending on jurisdictional grounds, would be advisory and improper.
BFG Fed. Credit Union v. CU Lease, Inc., 9th Dist. Summit No. 22590, 2006-Ohio-
1034, ¶ 38 (“Because we cannot provide them any relief, any ruling on their cross-
assignment of error would be purely advisory and outside the role of this appellate
court.”). Stated differently, as there is no actual controversy remaining related to
Findlay’s tax claim, we could not render a judgment that could be carried into effect.
Stolzenburg v. Ohio Dept. of Job & Family Servs., 3d Dist. Auglaize No. 2-15-01,
2015-Ohio-2212, ¶ 7. Thus Martens’ arguments attempting to undermine Findlay’s
tax claim, including his jurisdictional argument6, are not well-taken. Accordingly,
6
Notwithstanding Findlay’s dismissal of its tax complaint, we note that Findlay Ordinance 194.02 codified
the legislative changes to Revised Code Chapter 718 that were intended to apply to taxable years beginning
on or after January 1, 2016. Findlay Ordinance 194.02 reads as follows:
EFFECTIVE DATE
(A) Ordinance 2015-101, effective January 1, 2016, and corresponding changes to
Ohio Revised Code 718, apply to municipal taxable years beginning on or after
January 1, 2016. All provisions of this Chapter, 194, apply to taxable years beginning
2016 and succeeding taxable years.
(B) Ordinance 2015-101 does not repeal Chapter 193 or the complementing rules and
regulations for any taxable year prior to 2016. For municipal taxable years beginning
before January 1, 2016, this Municipality shall continue to administer, audit, and
enforce the income tax of this Municipality under Ohio Revised Code 718 and Chapter
193, together with all resolutions, rules, and regulations of this Municipality as they
existed before January 1, 2016.
-11-
Case No. 5-22-05
Martens’ contention that the trial court improperly denied his motion for summary
judgment on Findlay’s now-dismissed tax claim is not justiciable and his first
assignment of error is overruled.7
Second and Eighth Assignments of Error
{¶21} In the second and eighth assignments of error, Martens argues that the
trial court erred by granting Findlay and the Findlay parties summary judgment and
dismissing Martens’ counterclaims on the grounds of sovereign immunity.
Standard of Review
{¶22} “Whether a party is entitled to immunity is a question of law properly
determined by the court prior to trial pursuant to a motion for summary judgment.”
Pelletier v. Campbell, 153 Ohio St.3d 611, 2018-Ohio-2121, ¶ 12, citing Conley v.
Shearer, 64 Ohio St.3d 284, 292 (1992).
{¶23} We review a decision to grant a summary judgment motion on the
basis of sovereign immunity de novo. Pelletier at ¶ 13. “De novo review is
independent and without deference to the trial court’s determination.” ISHA, Inc. v.
Risser, 3d Dist. Allen No. 1-12-47, 2013-Ohio-2149, ¶ 25.
(Emphasis added.) Findlay sought taxes predating the effective changes to R.C. Chapter 718, making the
applicability of the changes to R.C Chapter 718 and Findlay Ordinances to taxes from 2013, 2014, and 2015,
at best, questionable. However, regardless of the retroactivity of the changes to R.C. Chapter 718 and the
Findlay Ordinances, there is no indication that failure to comply with R.C. 718 or Findlay Ordinance 194.02
would deprive the trial court of jurisdiction over the matter.
7
As will be discussed, infra, many of the arguments that Martens makes in his first assignment of error will
be relevant as they pertain to other assignments of error. Nevertheless, to the extent they are made in an
attempt to undermine a ruling in a case that has been dismissed, they are not well-taken.
-12-
Case No. 5-22-05
{¶24} Summary judgment is proper where there is no genuine issue of
material fact, the moving party is entitled to judgment as a matter of law, and
reasonable minds can reach but one conclusion when viewing the evidence in favor
of the non-moving party, and the conclusion is adverse to the non-moving party.
Civ.R. 56(C); State ex rel. Whittaker v. Lucas County Prosecutor’s Office, 164 Ohio
St.3d 151, 2021-Ohio-1241, ¶ 8. Material facts are those facts “‘that might affect
the outcome of the suit under the governing law.’” Turner v. Turner, 67 Ohio St.3d
337, 340 (1993), quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248, 106
S.Ct. 2505 (1986). “Whether a genuine issue exists is answered by the following
inquiry: [d]oes the evidence present ‘a sufficient disagreement to require submission
to a jury’ or is it ‘so one-sided that one party must prevail as a matter of law[?]’” Id.
quoting Anderson at 251-252.
{¶25} “The party moving for summary judgment has the initial burden of
producing some evidence which demonstrates the lack of a genuine issue of material
fact.” Carnes v. Siferd, 3d Dist. Allen No. 1-10-88, 2011-Ohio-4467, ¶ 13, citing
Dresher v. Burt, 75 Ohio St.3d 280, 282 (1996). “In doing so, the moving party is
not required to produce any affirmative evidence, but must identify those portions
of the record which affirmatively support his argument.” Id., citing Dresher at 292.
“The nonmoving party must then rebut with specific facts showing the existence of
-13-
Case No. 5-22-05
a genuine triable issue; he may not rest on the mere allegations or denials of his
pleadings.” Id. citing Dresher at 292.
Sovereign Immunity Framework
{¶26} Ohio’s Political Subdivision Tort Liability Act, which governs
political subdivision liability and immunity, is codified in Chapter 2744 of the
Revised Code. McConnell v. Dudley, 158 Ohio St.3d 388, 2019-Ohio-4740, ¶ 20.
“Determining whether a political subdivision is immune from tort liability pursuant
to R.C. Chapter 2744 involves a familiar, three-tiered analysis.” Pelletier, 153 Ohio
St.3d 611, 2018-Ohio-2121, ¶ 15.
{¶27} The first tier of the sovereign-immunity analysis generally establishes
that “a political subdivision is not liable in damages in a civil action for injury, death,
or loss to person or property allegedly caused by any act or omission of the political
subdivision or an employee of the political subdivision in connection with a
governmental or proprietary function.” R.C. 2744.02(A)(1). However, the immunity
is not absolute. See R.C. 2744.02(B); McConnell at ¶ 21.
{¶28} In the second tier of the analysis, we consider the potential
applicability of any of the five exceptions to immunity listed in R.C. 2744.02(B)(1)-
(5), which would lift the immunity from the political subdivision. Id. at ¶ 22.
{¶29} Finally, if any of the exceptions to political subdivision immunity in
R.C. 2744.02(B)(1)-(5) are applicable to remove immunity from the political
-14-
Case No. 5-22-05
subdivision, then we move to the third tier of the analysis and consider whether
immunity can be restored to the political subdivision based on the defenses
enumerated in R.C. 2744.03.
Analysis
{¶30} To analyze Martens’ claims on appeal that the trial court erred by
finding that Findlay and its employees were entitled to sovereign immunity on his
counterclaims, it is important to emphasize two facts at the outset: 1) Findlay is a
political subdivision; and 2) Taxation is a power of local self-government and as
such is a governmental function. See Athens v. McClain, 163 Ohio St.3d 61, 2020-
Ohio-5146; Gesler v. Worthington Income Tax Bd. of Appeals, 138 Ohio St.3d 76,
2013-Ohio-4986, ¶ 17-18.
{¶31} Because Findlay is a political subdivision, the first tier of the
sovereign immunity framework is satisfied. The next issue to determine is whether
Martens has raised a genuine issue of material fact regarding any of the immunity
exceptions found in R.C. 2744.02(B)(1)-(5). Martens’ allegations against Findlay
that proceeded to the summary judgment stage were for Abuse of Process, Civil
Conspiracy, and Replevin/Trespass/Conversion.
{¶32} A review of R.C. 2744.02(B)(1)-(5) provides no exceptions for the
type of conduct Martens alleged in his counterclaims that survived to the summary
judgment stage. Martens alleges no injuries caused by negligent operation of a
-15-
Case No. 5-22-05
motor vehicle (R.C. 2744.02(B)(1)); Martens alleges no injuries caused by the
negligent performance of acts with respect to proprietary functions (R.C.
2744.02(B)(2)); Martens alleges no injuries related to roadways (R.C.
2744.02(B)(3)); Martens alleges no injuries related to physical defects in buildings
(R.C. 2744.02(B)(4)); and Martens alleges no injuries where civil liability is
otherwise expressly imposed (R.C. 2744.02(B)(5)). Similar to the trial court, we
find that none of the exceptions to immunity codified in R.C. 2744.02(B)(1)-(5)
were alleged here sufficient to lift the cloak of sovereign immunity. As Martens has
not established a genuine issue of material fact with respect to a sovereign immunity
exception in the second tier of the sovereign immunity framework, we need not
proceed to the third-tier of the immunity analysis to see if immunity can be restored
to Findlay because Findlay is immune from Martens’ claims.
{¶33} As to the Findlay parties individually, the trial court found that the
individuals were entitled to immunity as well because there was no evidence that
the employees acted outside the scope of their job duties, that they acted with malice,
or that they acted in a wanton or reckless manner. Martens strongly disputes the trial
court’s findings on appeal, contending that because Findlay’s employees
“fabricated” their estimations of his tax revenue, they were acting recklessly and
outside the scope of their employment.
-16-
Case No. 5-22-05
{¶34} However, we agree with the trial court that while “procedurally
deficient at times,” there was no indication that the employees acted recklessly or
engaged in conduct that fell outside their roles. These were not tax employees who
attempted to do anything other than collect taxes, which is manifestly within their
roles. See Craycraft v. Simmons, 2d Dist. Montgomery No. 24313, 2011-Ohio-3273
(“The question is not whether [defendant] could have done more. Rather, the
question is whether the acts he did perform were within the scope of his
employment.”). As the Twelfth District Court of Appeals stated in Curry v.
Blanchester, 12th Dist. Clinton No. CA2009-08-010, 2010-Ohio-3368, ¶ 30,
quoting Jackson v. McDonald, 5th Dist. Stark No. 2000CA00363, 144 Ohio App.3d
301, 306-307 (2001),
“In the context of immunity, ‘[a]n employee’s wrongful act, even
if it is unnecessary, unjustified, excessive or improper, does not
automatically take the act manifestly outside the scope of
employment.’” It is only where the acts of state employees are
motivated by actual malice or other [situations] giving rise to
punitive damages that their conduct may be outside the scope of
their state employment.” Id.
Given that the employees were attempting to perform their jobs, even if Martens
feels the employees did their jobs improperly, we cannot find that they acted in a
manner that would lift the cloak of immunity. There is no evidence of malice here.
{¶35} However, we emphasize that even if we assumed that the employees
acted recklessly or outside the scope of their employment, the trial court also found
-17-
Case No. 5-22-05
that Martens’ claims for Civil Conspiracy and Replevin/Trespass/Conversion failed
for an additional and entirely separate reason other than sovereign immunity. With
regard to the Civil Conspiracy and Replevin/Trespass/Conversion claims, the trial
court found that they were barred by the statute of limitations before even reaching
the question of sovereign immunity.8
{¶36} Martens does not even mention the finding regarding the statute of
limitations in his brief to this Court and he does not show how the trial court’s
determination on the statute of limitations issue was erroneous. Thus even if there
was somehow error with regard to sovereign immunity on these counts, these
allegations would not have survived summary judgment as summary judgment was
awarded on this entirely separate basis.
{¶37} In sum, because Martens did not establish any exceptions to immunity
in this matter, his second and eighth assignments of error are overruled.
Tenth Assignment of Error
{¶38} In his tenth assignment of error, Martens argues that even if his claims
did not meet a specific sovereign immunity exception, R.C. 2744.09(E) should have
prevented summary judgment here. Revised Code 2744.09(E) reads:
This chapter does not apply to, and shall not be construed to apply
to, the following:
8
The trial court held, “Accordingly, as to Count II [Civil Conspiracy] and to Count III [Replevin, Trespass,
and Conversion], the City of Findlay, Todd Richards, and Lydia Mihalik are entitled to summary judgment
because these claims were filed outside the applicable statutes of limitations and an underlying viable tort
claim must substantiate a claim of civil conspiracy.”
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Case No. 5-22-05
***
(E) Civil claims based upon alleged violations of the constitution
or statutes of the United States, except that the provisions
of section 2744.07 of the Revised Code shall apply to such claims
or related civil actions.
Martens contends that because he alleged that his rights to due process and equal
protection were violated, R.C. 2744.09(E) should have prevented summary
judgment on the sovereign immunity issue.
{¶39} Importantly, at the summary judgment stage, Martens had no
remaining claims specifically regarding constitutional rights pending thus R.C.
2744.09(E) is entirely inapplicable. However, to the extent he had previously made
claims that were dismissed, and to the extent that he now contends his claims
surviving to the summary judgment stage contained constitutional issues, “‘[v]ague
assertions of constitutional rights violations are not enough to circumvent the
purpose of the R.C. 2744.02 tort immunity provisions.’” Pruce v. Sleasman, 9th
Dist. Lorain No. 11CA010088, 2012-Ohio-2427, ¶ 13, quoting Poinar v. Richfield
Twp., 9th Dist. Summit Nos. 20383, 20384, 2001 WL 951710, *4 (Aug. 22, 2001).
While Martens may have produced volumes of filings and allegations, he did not
actually present any evidence of constitutional violations that would circumvent the
sovereign immunity framework. Therefore his tenth assignment of error is
overruled.
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Case No. 5-22-05
Third Assignment of Error
{¶40} In his third assignment of error, Martens argues that the trial court
erred by dismissing his claims for Fraud.
Standard of Review
{¶41} An order granting a motion to dismiss is subject to de novo review.
Perrysburg Twp. v. Rossford, 103 Ohio St.3d 79, 2004-Ohio-4362, ¶ 5. In reviewing
whether a motion to dismiss should be granted, we accept as true all factual
allegations in the complaint.
Analysis
{¶42} Martens alleged that Findlay and its employees committed Fraud in
his initial complaint. He felt that when Findlay filed its complaint for taxes, the
“estimated” income attested to was not supported by any actual evidence and was
thus fraudulent.
{¶43} The trial court determined that Martens’s initial Fraud claim was not
specifically and cogently pled. Pursuant to Civ.R. 9(B), “In all averments of fraud
or mistake, the circumstances constituting fraud or mistake shall be stated with
particularity.” Because the trial court determined that Martens did not meet the
heightened pleading standard for Fraud, he was ordered to amend his pleading
within fourteen days.
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Case No. 5-22-05
{¶44} Martens did subsequently amend his Fraud allegation, but this too was
rejected, and then ultimately dismissed, by the trial court.
Defendant’s amended claim similarly fails to plead a claim of
fraud with the particularity required by the rule. Defendant
appears to consider the “fraud” perpetrated on him to be the
assessment of the income taxes, when allegedly none are due.
However, he points to no material misrepresentation, no
knowledge of the material misrepresentation, no reliance, or
other conduct that constitutes fraud under Ohio law. He appears
to conflate “fraud” with his defense of the underlying collection
claim.
(Doc. No. 104).
{¶45} In our de novo review, we agree with the trial court. The depositions,
which Martens cites extensively, establish how the estimate, or guestimate, of
Martens rental income was made when he did not file taxes for 2013, 2014, and
2015.9 While the estimates may not have been accurate, that does not make them
fraudulent.
{¶46} Fraud is defined as (1) a representation or, where there is a duty to
disclose, concealment of a fact; (2) which is material to the transaction at hand; (3)
made falsely, with knowledge of its falsity, or with such utter disregard and
recklessness as to whether it is true or false that knowledge may be inferred; (4)
9
Findlay employees took prior estimated tax returns and increased the income Martens purportedly received
from $30-35,000 to $50,000. Findlay employees indicated that when they estimated income they always
increased the amount from prior taxable years in an attempt to get taxpayers to file their actual returns so the
true number could be determined. Because the $50,000 number was not tied to evidence other than the prior
estimated returns and the employees assuming an increase, Martens contends that the number was
“fraudulent.”
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Case No. 5-22-05
with the intent of misleading another into relying upon it; (5) justifiable reliance
upon the representation or concealment; and (6) a resulting injury proximately
caused by the reliance. Williams v. Aetna Fin. Co., 83 Ohio St.3d 464, 475
(1998). In order to establish a claim of Fraud, it is necessary for the party to prove
all of the elements.
{¶47} Here, even accepting Martens’ allegations as true, there is no evidence
that employees of the Findlay tax department acted with the intent of misleading
him or that he relied upon any misrepresentation. In fact, he contested the estimated
taxes as soon as he was aware of them. As the trial court indicated, Martens’ claims
might have made good arguments against the actual amount he owed in taxes (if
any), but his claims do not comprise legal Fraud, particularly at the heightened
pleading standard. Therefore we find no error in the trial court’s dismissal of his
Fraud claims and his third assignment of error is overruled.
Fourth Assignment of Error
{¶48} In his fourth assignment of error, Martens argues that the trial court
erred by dismissing his claim for Malicious Prosecution.10
Elements of Malicious Prosecution
{¶49} The Supreme Court of Ohio has established the following with regard
to a claim of Malicious Prosecution.
10
The same standard of review for the third assignment of error is applicable here.
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Case No. 5-22-05
In order to state a cause of action for malicious civil prosecution
in Ohio, four essential elements must be alleged by the plaintiff:
(1) malicious institution of prior proceedings against the plaintiff
by defendant, (2) lack of probable cause for the filing of the prior
lawsuit, (3) termination of the prior proceedings in plaintiff’s
favor, and (4) seizure of plaintiff’s person or property during the
course of the prior proceedings.
Robb v. Chagrin Lagoons Yacht Club, Inc., 75 Ohio St.3d 264 (1996).
Analysis
{¶50} Martens contends that the trial court erred by granting Findlay’s
Civ.R. 12(B)(6) motion to dismiss his claim for “Malicious Prosecution” despite
permitting his claim for “Abuse of Process” to proceed to the summary judgment
stage. To support his argument, Martens relies on Yaklevich v. Kemp, 68 Ohio St.3d
294 (1994), wherein the Supreme Court of Ohio indicated in a footnote that “in
some situations the same actions which support an abuse of process claim may also
support a claim for malicious prosecution.” Based on the Yaklevich case, Martens
argues that the Supreme Court of Ohio effectively encouraged claims for Malicious
Prosecution and Abuse of Process to be pled in the alternative. Martens thus
contends that it was erroneous for the trial court to grant Findlay’s motion to dismiss
one claim while permitting the other.
{¶51} In determining that Martens’ claim for Malicious Prosecution should
be dismissed, the trial court reasoned as follows:
Defendant has failed to set forth sufficient facts for a claim of civil
Malicious Prosecution. He does not plead facts that support the
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Case No. 5-22-05
elements of the claim, but rather makes conclusory statements
that include the language of the elements themselves.
Defendant also asserts that the criminal cases against him
are criminal Malicious Prosecution. However, as pointed out in
Plaintiff’s Motion to Dismiss, these criminal cases referred to in
the Counterclaim are still pending, and therefore do not meet the
elements of the test. Furthermore, the claim for criminal
Malicious Prosecution fails for the same reason as the civil claim
above; it sets forth only broad conclusory statements of the
elements of the claim but not facts that in any way support the
claim itself.
(Doc. No. 49).
{¶52} After our de novo review, we agree with the trial court. Even on
appeal Martens simply baldly states that his Malicious Prosecution claim should
have proceeded, but he fails to show how the trial court’s ruling was improper.11
Furthermore, at the time the trial court issued its ruling, his pending cases in Findlay
that formed the basis for Martens’ Malicious Prosecution claim had not been
completed, and thus could not establish the requisite element of the claim. For these
reasons, Martens’ fourth assignment of error is overruled.
Fifth Assignment of Error
{¶53} In his fifth assignment of error, Martens argues that the trial court
improperly denied his request to amend his pleading and convert his counterclaim
to a class action.
11
We note that given the rulings on summary judgment, the claim would not have survived the summary
judgment stage in any event.
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Case No. 5-22-05
Standard of Review
{¶54} We review the denial of a motion for leave to amend a pleading for an
abuse of discretion. Copen v. CRW, Inc., 9th Dist. Wayne No. 15AP0034, 2017-
Ohio-349, ¶ 16. An abuse of discretion is a decision that is unreasonable, arbitrary,
or unconscionable. Blakemore v. Blakemore, 5 Ohio St.3d 217, 219 (1983).
Analysis
{¶55} On December 10, 2020, Martens filed a motion for leave to file a
second amended counterclaim (which would be his third counterclaim). As part of
the motion, Martens sought to convert his counterclaim into a class action
proceeding. The trial court rejected Martens’ motion because discovery was nearing
its completion deadline and motions for summary judgment were due a short time
later.
{¶56} Much later, on January 18, 2022, Martens filed another attempt to
convert his counterclaim into a class action while the summary judgment motions
were actually pending. Martens wanted to include in his lawsuit other individuals
who had tax cases filed against them without the statutory procedures under R.C.
718.11 being followed. Again, these provisions in the Ohio Revised Code applied
to tax years beginning in 2016, while the suit instituted against Martens was for
taxes from the years 2013, 2014, 2015.
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Case No. 5-22-05
{¶57} Martens’ attempts to amend his complaint at such very late stages of
the litigation were rejected by the trial court and we can find no abuse of discretion.
Martens first attempt to convert the matter into a class action came over two years
after the case had been filed against him and after he had already filed and amended
his counterclaims. We find nothing arbitrary about the trial court’s decision in this
case. See Copen, supra. Therefore, Martens’ fifth assignment of error is overruled.
Sixth Assignment of Error
{¶58} In his sixth assignment of error, Martens argues that the trial court
erred by “failing to rule on and find in appellant’s favor on the application of the
conditions in R.C. 718.37.”
{¶59} Martens filed a motion seeking damages under R.C. 718.37 on March
28, 2022. However, he withdrew the motion on March 31, 2022. See (Doc. No. 361).
Because he withdrew his “Motion for Damages including Attorney Fees per ORC
718.37,” we can find no error with the trial court failing to “rule in his favor.”
Therefore, his sixth assignment of error is overruled.
Seventh Assignment of Error
{¶60} In his seventh assignment of error, Martens argues that the trial court
erred by dismissing his federal 42 USC 1983 claims in Counts 9, 11, 13, 14, 15, 16,
17, and 26 of his amended counterclaim. He contends that when the trial court
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Case No. 5-22-05
granted appellees’ motion for judgment on the pleadings on those counts the trial
court improperly disregarded numerous facts that Martens had pled in his complaint.
Analysis
{¶61} In his brief to this Court for his seventh assignment of error, Martens
largely directs us to arguments that he made to the trial court in prior filings. As
Findlay notes in its brief, the Rules of Appellate Procedure do not permit parties to
“incorporate by reference” arguments from other sources. McNeilan v. The Ohio
Univ. Med. Ctr., 10th Dist. Franklin No. 10AP-472, 2011-Ohio-678, ¶ 7.
Nevertheless, in the interest of justice we will address Martens’ argument.
{¶62} In his amended counterclaim, which contained over 120 pages,
Martens alleged numerous 42 USC 1983 claims against various parties. After
motions were made by the counterclaim defendants, the federal claims were
dismissed by the trial court. Martens now contends that the trial court erred by
dismissing his federal claims; however, the only specific argument he makes in his
brief is with regard to Count 17. He summarily contends that the remaining counts
should be reinstated without arguing the specifics of each count even though the
federal allegations were dismissed for numerous and varied reasons. For example,
Count 11 was dismissed because the trial court determined that there was no
cognizable claim for Abuse of Process under 42 U.S.C. 1983. Moore v. WesBanco
Bank, Inc., 612 Fed. Appx. 816, 823 (6th Cir.2015). Count 13 was dismissed
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Case No. 5-22-05
because it was based on a criminal statute that did not create a private cause of
action. Count 15 alleged an equal protection argument but there was no averment
that Martens was a member of any specific protected class. The trial court’s
dismissals on these counts, and the others not specifically argued by Martens in his
brief, are supported and we can find no error with the dismissals.
{¶63} With regard to Count 17, Martens does specifically make an argument
in his brief that the allegation was improperly dismissed, stating that the trial court
improperly determined that the factual allegations in the complaint were insufficient
to support the claim. Martens’ claim in Count 17 was for “Selective Enforcement.”
The trial court determined that Martens failed to claim that he was part of an
identifiable group or that the tax collection efforts were initiated for a discriminatory
purpose, failing to establish any type of selective enforcement. The trial court also
emphasized that Martens failed to make a prima facie showing that a similarly
situated person outside of his category was not prosecuted. Thus the trial court
determined that Martens failed to allege necessary facts to support his claim.
{¶64} In reviewing the only federal Count specifically argued by Martens
beyond a passing mention in his seventh assignment of error, we can find no error
with the trial court’s dismissal. As to the rest of the Counts in the amended
counterclaim, we similarly cannot find that the trial court erred in dismissing them
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Case No. 5-22-05
as there were valid reasons for dismissal. Therefore his argument is not well-taken,
and his seventh assignment of error is overruled.
Conclusion
{¶65} For the foregoing reasons Martens’ assignments of error are overruled
and the judgment of the Hancock County Common Pleas Court is affirmed.
Judgment Affirmed
ZIMMERMAN, P.J., SHAW and WILLAMOWSKI, J.J., concur.
/jlr
-29- | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494474/ | OPINION
THOMAS FULTON, Bankruptcy Judge.
Appellant appeals the bankruptcy court’s September 22, 2010 order (the “Appealed Order”), which held that the deadline set forth in 11 U.S.C. § 365(d)(4) for assuming a nonresidential real property lease is satisfied upon the debtor filing a motion to assume the lease. For the reasons that follow, we AFFIRM the Appealed Order.
I. ISSUES ON APPEAL
Is the deadline set forth in 11 U.S.C. § 365(d)(4) for assuming a nonresidential real property lease satisfied by the filing of a motion to assume the lease or must the court order approving the motion be entered prior to the deadline?
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit (the “BAP”) has jurisdiction to decide this appeal. The United States District Court for the Eastern District of Kentucky has authorized appeals to the BAP.
We must first address whether the Appealed Order is final and appealable by right under 28 U.S.C. § 158(a)(1). For purposes of appeal, an order is final if it “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 *647(1989) (citations and internal quotation marks omitted). “ ‘[T]he concept of finality applied to appeals in bankruptcy is broader and more flexible than the concept applied in ordinary civil litigation.’ ” Millers Cove Energy Co. v. Moore (In re Millers Cove Energy Co.), 128 F.3d 449, 451 (6th Cir.1997) (quoting 16 Charles Alan Wright & Arthur R. Miller, Federal Practice and Procedure § 3926.2 (2d ed.1996)). The finality requirement is considered “in a more pragmatic and less technical way in bankruptcy cases than in other situations. In bankruptcy cases, a functional and practical application [of Section 158] is to be the rule.” In re Dow Corning Corp., 86 F.3d 482, 488 (6th Cir. 1996) (citations and internal quotation marks omitted). In bankruptcy cases, an order that finally disposes of discrete disputes within a larger case may be appealed immediately. Id. This relaxed rule avoids the “waste of time and resources that might result from reviewing discrete portions of the action only after a plan of reorganization is approved.” In re Dow Corning Corp., 86 F.3d at 488 (citations and internal quotation marks omitted).
There is case law stating generally that an order addressing the assumption of a lease under 11 U.S.C. § 365(d)(4) is reviewable as a separate and discrete matter in a bankruptcy case. See Arizona Appetito’s Stores, Inc. v. Paradise Village Inv. Co. (In re Arizona Appetito’s Stores, Inc.), 893 F.2d 216, 218 (9th Cir.1990) (citing Turgeon v. Victoria Station Inc. (In re Victoria Station Inc.), 840 F.2d 682, 684 (9th Cir.1988)). Both of those cases, however, involved appellate review of denials of motions to assume as untimely. Thus, absent appellate review, the parties’ respective rights regarding their leases were fully resolved-the leases were deemed rejected.
In this case, the bankruptcy court did not address the merits of Appellee’s motion to assume the lease in question. It only concluded that Appellee timely assumed the lease for purposes of 11 U.S.C. § 365(d)(4), reserving consideration of the merits of Appellee’s proposed assumption, and Appellant’s substantive objections thereto, for an as yet undetermined hearing date. Thus, even if we decide in Ap-pellee’s favor here, Appellee would still have to persuade the bankruptcy court that it is entitled to assume the lease under the substantive requirements of 11 U.S.C. § 365, including, for example, 11 U.S.C. § 365(b). In that respect, the discrete issue of whether Appellee may assume the lease is not fully resolved, rendering the Appealed Order interlocutory.
An interlocutory order may nevertheless be appealed with leave of court. 28 U.S.C. § 158(a)(3). While Appellant has not sought leave of court by filing a motion, in certain circumstances, we may construe a timely filed notice of appeal as a motion for leave to appeal. See Fed. R. Bankr.P. 8003(c); Simon v. Amir (In re Amir), 436 B.R. 1, 8 (6th Cir. BAP 2010). The decision to grant leave to appeal is a discretionary one which should be guided and instructed, but not constrained, by the standards set forth in 28 U.S.C. § 1292(b). Id. (Panel is not constrained by standards defining Courts of Appeals’ jurisdiction over interlocutory orders, but they are instructive). The factors to be considered in determining whether to grant leave to appeal are: (1) the question must be one of “law;” (2) it must be “controlling;” (3) there must be substantial ground for “difference of opinion” about it; and (4) an immediate appeal must “materially advance the ultimate termination of the litigation.” Id. (citing Cardwell v. Chesapeake & Ohio Ry. Co., 504 F.2d 444, 445 (6th Cir.1974)).
We have considered these factors and the request of both parties in their letter *648briefs submitted after oral argument to proceed so that this matter can be concluded as expeditiously and inexpensively as possible, and grant leave to appeal in this case. Accordingly, we will consider the merits of Appellant’s argument.
III. FACTS
The parties do not dispute the facts of this case. The Debtor1 filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code ’on February 1, 2010. Prior to the expiration of the 120-day deadline to assume or reject nonresidential real property leases provided for under 11 U.S.C. § 365, the Debtor obtained a 90-day extension of time to assume or reject leases, making August 30, 2010, the deadline to assume or reject nonresidential real property leases.
On August 13, 2010, the Debtor filed a second motion for an extension of time to assume or reject nonresidential real property leases. Included in that second motion was a request to extend the deadline with respect to a lease between Debtor Pasta Isles, Inc. and CP Venture Two, LLC for the Debtor’s restaurant at the Greenbrier Market Center in Chesapeake, Virginia (“the Greenbrier Lease”).
On August 26, 2010, Appellant as agent for the lessor filed an objection to the extension of time to assume or reject the Greenbrier Lease. Since the lessor would not voluntarily agree to the extension of the Greenbrier Lease and the Bankruptcy Code does not allow a second extension without the consent of the lessor, the Debtor removed the Greenbrier Lease from the list of leases for which it requested an extension.
Simultaneously with the Debtor’s removal of the Greenbrier Lease from the document requesting the extension of time, the Debtor filed a motion to assume the Greenbrier Lease. That motion was filed on August 27, 2010, three days prior to the deadline to assume or reject leases. A hearing was set on the motion to assume the Greenbrier Lease for September 17, 2010.
On August 30, 2010, the Court entered an order, tendered by the Debtor, expressly extending Debtor Pasta Isles’ time to assume or reject the Greenbrier Lease to September 17, 2010 (the “Bridge Order”), the date of the hearing on the Debtor’s motion to assume the Greenbrier Lease.
On September 9, 2010, Appellant filed an objection to the assumption of the Greenbrier Lease, raising several substantive grounds for denial, and on September 13, 2010, Appellant filed an emergency motion under Federal Rule of Bankruptcy Procedure 9023 asserting that the Bridge Order improperly extended the deadline for the Debtor to assume or reject the Greenbrier Lease past the date mandated by proper application of 11 U.S.C. § 365(d)(4).
On September 22, 2010, the bankruptcy court entered the Appealed Order, denying Appellant’s emergency motion and upholding the Bridge Order because it found that the Debtor had met the August 30, 2010 deadline to assume the Greenbrier Lease by filing its motion to assume the lease on August 27, 2010. In so concluding, the bankruptcy court looked to the language of 11 U.S.C. § 365(d)(4) and both pre and post-BAPCPA cases to draw a distinction between motions to extend the time to assume or reject and motions to assume. In the case of the former, the court order granting the same must be entered before the deadline but in the case of the latter, *649only the motion to assume need be filed prior to the deadline.
IV. DISCUSSION
The substantive issue presented here boils down to this: What constitutes assumption of a lease by a trustee for purposes of meeting the applicable deadline under 11 U.S.C. § 365(d)(4)? Was the August 30, 2010 deadline for assuming the Greenbrier Lease satisfied by the Debtor filing its August 27, 2010 motion to assume the Greenbrier Lease? Appellant asserts that, post-BAPCPA, not only must a trustee file its motion to assume a nonresidential lease prior to the deadline, the bankruptcy court must have granted the motion by the deadline for the lease not to be deemed rejected by operation of 11 U.S.C. § 365(d)(4). Appellee asserts that, as consistently interpreted before BAPCPA, 11 U.S.C. § 365(d)(4) only requires that a trustee file its motion to assume before the deadline.
Appellee is correct that almost every pre-BAPCPA case addressing this issue holds that a trustee need only file its motion to assume the lease prior to the deadline under 11 U.S.C. § 365(d)(4) and does not have to obtain court approval of the same prior to the deadline to avoid having its executory contract deemed rejected.2 See, e.g., In re Victoria Station Inc., 840 F.2d at 684; In re Delta Paper Co., Inc., 74 B.R. 58 (Bankr.E.D.Tenn.1987); By-Rite Distrib., Inc. v. Brierley (In re By-Rite Distrib., Inc.), 55 B.R. 740 (D.Utah 1985).
Furthermore, and despite Appellant’s best efforts to distinguish them, post-BAPCPA cases addressing this issue continue to hold that a trustee “assumes” a nonresidential lease for purposes of meeting the applicable 11 U.S.C. § 365(d)(4) deadline simply by filing a motion to assume. See, e.g., In re Akron Thermal, Ltd. P’ship, 414 B.R. 193 (N.D.Ohio 2009); In re Amerlink, Ltd., No. 09-01055-8-RDD, 2009 WL 2497776 (Bankr.E.D.N.C. Aug. 12, 2009); In re R. Ring Enter., Inc., No. 08-4903 EDJ, 2009 WL 779800 (Bankr.N.D.Cal. Feb. 19, 2009). In essence, those cases hold that BAPCPA did not change the substantive language of 11 U.S.C. § 365(d)(4)(A) or 11 U.S.C. § 365(a) directing the trustee to assume or reject within the deadlines established by 11 U.S.C. § 365(d)(4)(A) and (B). BAPCPA simply set an outside limit on the amount of time by which a bankruptcy court can extend the trustee’s original deadline to assume or reject.
Moreover, a comparison of the language of both versions of 11 U.S.C. § 365(d)(4) indicates that pre-BAPCPA case law should continue to be followed. Prior to BAPCPA, 11 U.S.C. § 365(d)(4) read as, follows:
Notwithstanding paragraphs (1) and (2), in a case under any chapter of this title, if the trustee does not assume or reject an unexpired lease of nonresidential real property under which the debtor is the lessee within 60 days after the date of the order for relief, or within such additional time as the court, for cause, within such 60-day period, fixes, then such lease is deemed rejected, and the trustee shall immediately surrender such nonresidential real property to the lessor.
(emphasis added).
Post-BAPCPA, 11 U.S.C. § 365(d)(4) now reads as follows:
(A) Subject to subparagraph (B), an unexpired lease of nonresidential real *650property under which the debtor is the lessee shall be deemed rejected, and the trustee shall immediately surrender that nonresidential real property to the lessor, if the trustee does not assume or reject the unexpired lease by the earlier of—
(i) the date that is 120 days after the date of the order for relief; or
(ii) the date of entry of an order confirming a plan.
(B)(i) The court may extend the period determined under subparagraph (A), prior to the expiration of the 120-day period, for 90 days on the motion of the trustee or lessor for cause.
(ii) If the court grants an extension under clause (i), the court may grant a subsequent extension only upon prior written consent of the lessor in each instance.
(emphasis added). We note that both pre and post-BAPCPA versions of 11 U.S.C. § 365(d)(4) expressly require that a bankruptcy judge approve extensions of the time in which the trustee may assume or reject prior to the applicable deadline — the only real difference being that post-BAPC-PA 11 U.S.C. § 365(d)(4) limits the extension to one 90-day period absent consent of the lessor. Both versions of 11 U.S.C. § 365(d)(4) expressly direct the trustee to do exactly the same thing' — '“assume or reject” the unexpired lease by the applicable deadline.
Finally, consideration of the stated legislative purpose of 11 U.S.C. § 365(d) supports the Appellee’s position. As seen from the House and Senate Reports associated with the Reform Act of 1978, the Reform Act of 1994, and BAPCPA, Congress was concerned with balancing the interests of debtor lessees in having enough time to make “informed” decisions about leases against the interests of lessors in not “being left in doubt concerning their status vis-a-vis the estate.” See H.R.Rep. No. 95-595, at 348 (1977), 1978 U.S.C.C.A.N. 5963, 6304; S.Rep. No. 95-989, at 59 (1978), 1978 U.S.C.C.A.N. 5787, 5845; H.R.Rep. No. 103-834, at 31 (1994); H.R.Rep. No. 109-31, at 404 (2005). The changes brought by BAPCPA, in particular, were designed to “remove the bankruptcy judge’s discretion to grant extensions of the time for the retail debtor to decide whether to assume or reject a lease after a maximum possible period of 210 days from the time of entry of the order of relief.” H.R.Rep. No. 109-31, at 404, 2005 U.S.C.C.A.N. 88 at 153 (emphasis added).
In Congress’s own words, the deadline provisions of 11 U.S.C. § 365(d)(4) are intended to set a “bright line” regarding how much time the trustee has to decide whether to assume or reject a lease. Congress does not specify the manner in which the trustee is to announce the decision, although case law consistently holds that the mere filing of a motion to assume is sufficient. If we were to adopt the Appellant’s interpretation of 11 U.S.C. § 365(d)(4), such certainty would be destroyed. The period within which the trustee could consider assumption or rejection would vary widely, depending on the vagaries of a particular bankruptcy court’s caseload and local procedures. Theoretically at least, a trustee could file a motion to assume a lease on the day the debtor filed its bankruptcy petition and, because of events outside the trustee’s control, still fail to obtain court approval of the motion before the deadline. Conversely, allowing trustees to signify their intentions merely by filing motions to assume clearly satisfies the goal of 11 U.S.C. § 365(d)(4) to let lessors know the trustees’ intention with respect to their property within a reasonable, certain time frame.3
*651V. CONCLUSION
For the foregoing reasons, we AFFIRM the Appealed Order.
. There are three debtor entities, Treasure Isles HC, Inc., Treasure Isles, Inc., and Pasta Isles, Inc. Their cases have been consolidated for purposes of administration.
. Indeed, as noted in In re The Casual Male Corp., 120 B.R. 256, 260 n. 3 (Bankr.D.Mass. 1990), the only cases holding otherwise, including the only case directly on point cited by Appellant, In re House of Deals of Broward, Inc., 67 B.R. 23 (Bankr.E.D.N.Y.1986), had either been reversed or overruled by the date of that opinion.
. Appellant appears to be concerned that trustees will file motions to assume in bad faith as *651a means of prolonging their use of property without really intending to assume the leases. We believe that existing safeguards such as Federal Rule of Bankruptcy Procedure 9011 and 11 U.S.C. § 105(a) are a better means of achieving the balance sought by Congress than a system that puts trustees at the mercy of varying court caseloads and local practices. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494475/ | OPINION
G. HARVEY BOSWELL, Bankruptcy Judge.
In this appeal, Wells Fargo Bank appeals an order of the bankruptcy court which concluded Wells Fargo Bank lacked standing to seek relief from the automatic stay in the debtors’ chapter 7 bankruptcy case. For the reasons that follow, the Panel reverses the bankruptcy court’s decision and remands the case for a hearing on Wells Fargo Bank’s motion for relief from the stay.
ISSUE ON APPEAL
The issues raised by this appeal are whether the bankruptcy court erred: (1) in concluding that Wells Fargo had an obligation to change the lienholder of record on the Certificate of Title to be entitled to relief from stay and abandonment; and (2) in concluding that there must be “Unity of Entity” or “Entity Unity” before Wells Fargo is entitled to seek relief from stay?
*653JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States District Court for the Northern District of Ohio has authorized appeals to the Panel, and no party has timely elected to have this appeal heard by the district court. 28 U.S.C. § 158(b)(6), (c)(1). A final order of the bankruptcy court may be appealed as of right pursuant to 28 U.S.C. § 158(a)(1). For purposes of appeal, a final order “ends the litigation on the merits and leaves nothing for the court to do but execute the judgment.” Midland Asphalt Corp. v. United States, 489 U.S. 794, 798, 109 S.Ct. 1494, 1497, 103 L.Ed.2d 879 (1989) (citations omitted). An order denying a motion for relief from the automatic stay is final. In re Schaffrath, 214 B.R. 153, 154 (6th Cir. BAP 1997).
Orders denying motions for relief •from stay are reviewed for an abuse of discretion. Spierer v. Federated Dep’t Stores, Inc. (In re Federated Dep’t Stores, Inc.), 328 F.3d 829, 836 (6th Cir.2003). “An abuse of discretion occurs only when the [trial] court relies upon clearly erroneous findings of fact or when it improperly applies the law or uses an erroneous legal standard.” Kaye v. Agripool, SRL (In re Murray, Inc.), 392 B.R. 288 (6th Cir. BAP 2008); See also Mayor and City Council of Balt., Md. v. West Virginia (In re Eagle-Picher Indus., Inc.) 285 F.3d 522, 529 (6th Cir.2002) (“An abuse of discretion is defined as a ‘definite and firm conviction that the [court below] committed a clear error of judgment.’ ” (citation omitted)). “The question is not how the reviewing court would have ruled, but rather whether a reasonable person could agree with the bankruptcy court’s decision; if reasonable persons could differ as to the issue, then there is no abuse of discretion.” Barlow v. M.J. Waterman & Assocs. Inc. (In re M.J. Waterman & Assocs., Inc.), 227 F.3d 604, 608 (6th Cir.2000).
FACTS
The debtor, Megan Lynn Rice (“Debt- or”), purchased a 2003 Chevy Trailblazer (“Trailblazer”) from Classic Chevrolet, Chrysler, Dodge, Jeep (“dealership”) on July 10, 2008, for $14,556.36. Debtor financed the purchase of this vehicle with the dealership and granted the dealership a security interest therein. On that same day, the dealership transferred the note and security interest to Wells Fargo Auto Finance, Inc. (“WFAFI”). WFAFI’s lien was noted on the Trailblazer’s certificate of title.
On July 11, 2008, WFAFI transferred its security interest in the Trailblazer to Wells Fargo Bank (“WFB”) pursuant to a June 26, 2006, Receivables Transfer Agreement. This agreement provided for the assignment of all right, title and interest of WFAFI in retail installment sales contracts and installment loans secured by new and or/used vehicles and the security interests associated therewith to WFB “on a daily basis at the close of business on each business day....” Pursuant to this agreement, WFB has possession of and services the promissory notes. WFB did not record the assignment of Debtor’s note and security interest nor did it note the assignment on the Trailblazer’s certificate of title.
Debtor defaulted on the Trailblazer in September 2010 and WFB repossessed the vehicle on January 4, 2011. Debtor filed her chapter 7 petition for bankruptcy relief on January 28, 2011. On February 9, 2011, WFB filed a motion for relief from stay and an amended motion for relief from stay1 in which it alleged that the *654Debtor did not have equity in the vehicle and it was entitled to relief from the automatic stay and abandonment of the property pursuant to 11 U.S.C. §§ 361, 362, 363 and 554. As exhibits to its motion, WFB attached a copy of the original retail installment sales contract between Debtor and the dealership, a copy of the Trailblazer’s certifícate of title, a copy of the June 26, 2006, Receivables Transfer Agreement between WFAFI and WFB, and a copy of a notarized affidavit which stated that WFAFI assigned the contract at issue in this case to WFB and WFB, therefore, was entitled to bring the motion for relief from the automatic stay.
At the initial hearing on the amended motion for relief, the attorney for WFB appeared in the bankruptcy court to seek “guidance as to what will satisfy the court as to providing a clear chain of title.” (Transcript of hearing, March 17, 2011, p. 2.) The bankruptcy court stated that it did not believe WFB was the proper party to seek relief from the stay because it did not note the assignment on the Trailblazer’s certifícate of title and, therefore, did not have a valid assignment of the security interest in the vehicle. WFB’s attorney disagreed with the court and alleged that Ohio law did not require the lienholder on a certificate of title to be changed in order to validly assign a security interest in the vehicle. The bankruptcy court disagreed with counsel for WFB and stated that the case WFB had cited in support of its argument, Rhiel v. Wells Fargo Fin. Acceptance (In re Fields), 351 B.R. 887 (Bankr. S.D.Ohio 2006), was not on point because that case dealt with the issue of whether an original vehicle title was perfected in the context of an avoidance action. The bankruptcy court stated that it was not questioning whether WFAFI has a perfected title to the Trailblazer. Instead, the bankruptcy court was concerned with whether WFB has a security interest in the vehicle sufficient to give it standing to bring a motion for relief from the automatic stay. Counsel for WFB asked for the opportunity to brief the issue. The court granted WFB’s request and adjourned the matter for 30 days.
WFB filed a memorandum in support of its motion for relief on April 7, 2011, in which it set forth three arguments in support of its contention that it is the proper party to seek relief from the stay. First, WFB alleged that WFAFI validly assigned its interest in the Debtor’s note and Trailblazer to WFB by virtue of the June 26, 2006 Receivables Transfer Agreement. Second, WFB asserted that Ohio law does not require a creditor who obtains an interest in a motor vehicle by assignment to record that assignment. Lastly, WFB argued that Ohio law also does not require a creditor who obtains an interest in a motor vehicle by assignment to record its interest on the certificate of title. Consequently, WFB asserted that as a valid assignee of WFAFI it is properly in the chain of title and entitled to seek relief from the automatic stay.
The bankruptcy court took up WFB’s amended motion for relief from stay at the adjourned hearing on April 14, 2011. At the hearing, the bankruptcy court stated that WFB’s memorandum had not swayed its decision:
And the Court has read your brief and has read your cases and still finds that we appear to be talking about two different things.
The Court’s issue is that — not that [WFAFI] ... doesn’t have a perfected security interest. The Court’s problem *655is that [WFB] ... has the assignment of the note and is not listed on the certificate of title as a lienholder. The fact that there is a lienholder on the certificate of title does give the world notice that there is a lien. I have no quarrel with the cases that you have cited to that effect. But vis-a-vis [WFB] and the Debtor the question is whether you have established the right to obtain relief from stay. And unless I’m missing something, [WFB] and [WFAFI] are two separate entities.
... [I]t didn’t make any difference [in {In re Fields) ] because that was whether it could be avoided and whether it was perfected, not whether there was relief from stay. That’s what you’re missing. You’re missing about whether all of the world knows there is a lien-holder versus who has entitlement to relief from stay. There are two entities here. You’ve just acknowledged they’re two separate entities. And they have to be merged into one entity before you can actually take the action you’re talking about....
I’m not saying — let me make myself clear. I’m not challenging the validity of the assignment. I’m not challenging the perfection by [WFAFI]. I’m saying that [WFB] has not presented evidence to this Court that it has the right to relief from stay because there are two separate entities who are listed here. [WFB] has the note, [WFAFI] is still listed as the lienholder on the title.
... I’m not talking about whether the assignment is good. I’m not talking about — perfection hasn’t been an issue here at all and I told you that when you were here before, that it wasn’t an issue of perfection. It’s an issue of unity of entity.
(Transcript of hearing, April 14, 2011, pp. 2-6.) At the conclusion of the hearing, the bankruptcy court denied WFB’s amended motion for relief from stay. The court entered an order on April 18, 2011, denying the amended motion “[f]or the reasons set forth on the recordWFB filed its timely notice of appeal on April 29, 2011.
DISCUSSION
The issue at the heart of this appeal is who is a “party in interest” for purposes of 11 U.S.C. § 362(d). The bankruptcy court concluded that WFB did not have standing to pursue relief from the automatic stay because, although it had possession of the note, WFAFI was still listed as the lien-holder on the Trailblazer’s certificate of title. Consequently, the bankruptcy court concluded that there was no “unity of entity” between WFB and WFAFI and WFB was, therefore, not entitled to obtain relief from the automatic stay.
Although used often throughout the Bankruptcy Code and rules, the term “party in interest” is not statutorily defined. The Sixth Circuit has only addressed the issue once and that was in the context of Rule 4007(c). Brady v. McAllister (In re Brady), 101 F.3d 1165 (6th Cir.1996) (finding that a chapter 7 trustee is a “party in interest” who may move for an extension of time pursuant to Rule 4007(c) within which creditors may file a non-discharge-ability complaint). In reaching its decision, the Sixth Circuit did not set forth extensive guideposts by which a court may measure its decision-making process with regard to the “party in interest” definition outside of the issue before it: whether a chapter 7 Trustee had standing to file a motion for an extension of time under Rule 4007(c). Id. at 1171. (The Sixth Circuit found that the chapter 7 Trustee’s status as a “unique party with comprehensive knowledge of the case [had] the best ability to communicate with other interested *656parties” and therefore made him a proper movant for such relief. Moreover, the trustee’s duty under § 704 to investigate the financial affairs of a debtor suggested that the trustee had standing to seek an extension of time under Rule 4007(c)).
The Sixth Circuit Bankruptcy Appellate Panel has addressed the “party in interest” definition twice. Both cases involved a party’s standing to file an objection to a proof of claim under 11 U.S.C. § 502(a) and Federal Rule of Bankruptcy Procedure 3008. Normali v. O’Donnell (In re O’Donnell), 326 B.R. 901 (6th Cir. BAP 2005) (unpub. table decision); Morton v. Morton (In re Morton), 298 B.R. 301 (6th Cir. BAP 2003). In determining whether the objecting party was a “party in interest” within the meaning of § 502(a), both Panels approvingly quoted language from In re Cowan, 235 B.R. 912 (Bankr. W.D.Mo.1999):
[Party in interest] has been described as an expandable concept depending on the particular factual context in which it is applied. In various contexts, a “party in interest” has been held to be one who has an actual pecuniary interest in the case; anyone who has a practical stake in the outcome of a case; and those who will be impacted in any significant way in the case.
Morton, 298 B.R. at 307 (citing Cowan, 235 B.R. at 915) (internal quotation marks and citations omitted). Additionally, as one bankruptcy court in the Sixth Circuit has recognized, “[i]n defining [‘party in interest’], ... the legislative history preceding the enactment of the Bankruptcy Code indicates that a court should give the term a broad interpretation after giving due consideration to the particular context in which the term will be applied.” In re Citi-Toledo Partners II, 254 B.R. 155, 163 (Bankr.N.D.Ohio 2000). The Second, Third, Fourth, Seventh, and Eighth Circuits have all agreed with these general guidelines for interpreting the term “party in interest” in the bankruptcy arena. In re Global Indus. Techs., Inc., 645 F.3d 201, 210 (3rd Cir.2011); Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir.1993); In re James Wilson Assocs., 965 F.2d 160, 169 (7th Cir.1992); Kapp v. Naturelle, Inc. (In re Kapp), 611 F.2d 703, 706 (8th Cir.1979). “Whether a party qualifies as a ‘party in interest’ is determined on a case-by-case basis, taking into consideration whether that party has a ‘sufficient stake’ in the outcome of that proceeding.” Church Mut. Ins. Co. v. Am. Home Assurance Co. (In re Heating Oil Partners), 422 Fed.Appx. 15, 17 (2nd Cir.2011). When dealing with assignments, “[a]n assignee cannot prevail on the claims assigned by another holder, [and thereby be a ‘real party in interest’] without proving the existence of a valid assignment agreement.” Worldwide Asset Purchasing, L.L.C. v. Sandoval, NO.2007-CA-00159, 2008 WL 5104769, at *5 (Ohio Ct.App. July 14, 2008).
Turning to the issue of who is a “party in interest” for purposes of § 362(d), courts tend to focus the definition on parties who are entitled to enforce the obligation. Roslyn Sav. Bank v. Comcoach Corp. (In re Comcoach), 698 F.2d 571, 573 (2nd Cir.1983) (“Generally, the real ‘party in interest’ [under § 362(d) ] is the one who, under applicable substantive law, has the legal right which is sought to be enforced or is the party entitled to bring suit.”); Veal v. Am. Home Mortg. Servicing (In re Veal), 450 B.R. 897, 914 (9th Cir. BAP 2011) (looking at caselaw and Federal Rule of Civil Procedure 17(a) to find that “a party seeking stay relief need only establish that it has a colorable claim to enforce a right against property of the estate.”); Brown Bark I L.P. v. Ebersole (In re Ebersole), 440 B.R. 690, 694 (Bankr.W.D.Va.2010); In re Lewis, No. 09-33455, 2009 WL 3614763 at *3 (Bankr. *657E.D.Tenn. Oct. 26, 2009) (relying on both the In re Cowan language cited in In re Morton and Federal Rule of Civil Procedure 17(a) to restrict the “party in interest” inquiry under § 362(d) to “who, under the applicable substantive law, has the legal right which is sought to be enforced or is the party entitled to bring suit.”). The determination of whether a party is a “ ‘party in interest’ for purposes of § 362(d) must be determined on a case-by-case basis, with reference to the interest asserted and how [that] interest is affected by the automatic stay.” Veal, 450 B.R. at 913; In re Mims, 438 B.R. 52, 55-56 (Bankr.S.D.N.Y.2010) (citing Kokoszka v. Belford, 417 U.S. 642, 645, 94 S.Ct. 2431, 41 L.Ed.2d 374 (1974) for the proposition that “the Supreme Court has suggested that when an undefined term is used in bankruptcy law, ‘[i]n determining the term’s scope — and its limitations — the purposes of the Bankruptcy Act ‘must ultimately govern.’ ”); In re Woodberry, 383 B.R. 373, 378 (Bankr.D.S.C.2008). “The purpose of the automatic stay is to protect creditors in a manner consistent with the bankruptcy goal of equal treatment,” Chao v. Hosp. Staffing Servs., Inc., 270 F.3d 374, 382 (6th Cir.2001), and “to give the debtor a breathing spell from his creditors and relieve him of the financial pressures that drove him to bankruptcy.” Boatmen’s Bank of Tenn. v. Embry (In re Embry), 10 F.3d 401, 404 (6th Cir.1993) (citation omitted).
With these principles in mind, a secured creditor clearly has standing to seek relief from the automatic stay as long as it can “show that it has an interest in the relevant note, and that it has been injured by debtor’s conduct (presumably through a default on the note).” In re Wilhelm, 407 B.R. 392, 398 (Bankr.D.Idaho 2009); In re Salazar, 448 B.R. 814, 819 (Bankr.S.D.Cal.2011) (“If the moving party has a right to assert a claim, even though the claim is disputed, standing to seek stay relief may be found.”); In re Trexler, 97 B.R. 206, 207 (Bankr.E.D.Pa.1989). An assignee may also have standing to pursue relief from the stay as long as the assignment is valid and the requisite elements of a § 362(d) claim are present. In re Shapoval, 441 B.R. 392, 394 (Bankr.D.Mass. 2010); Mims, 438 B.R. at 56; Litton Loan Servicing, LB v. Rockdale Cnty., Ga., Am. Lien Fund, L.P. (In re Howard), 391 B.R. 511, 515 (Bankr.N.D.Ga.2008). As the party seeking relief, the movant “has the responsibility to convince the [e]ourt that the party seeking relief from the stay with respect to the [property has an interest in the [property.” Deutsche Bank Nat’l Trust Co. v. Urdahl (In re Urdahl), No. 07-07227-PB7, 2008 WL 8013408, at *2 (Bankr.S.D.Cal.2008); Ebersole, 440 B.R. at 694.
State law determines whether a party has an enforceable right in, or a colorable claim to, the debtor’s property. Butner v. United States, 440 U.S. 48, 54, 99 S.Ct. 914, 59 L.Ed.2d 136, (1979); Rogan v. Bank One, N.A (In re Cook), 457 F.3d 561, 566 (6th Cir.2006). When dealing with secured transactions in Ohio, there are two key factors in determining whether a party has an enforceable security interest: the creation of the security interest and the perfection of that interest. See Drown v. Perfect (In re Giaimo), 440 B.R. 761, 766-67 (6th Cir. BAP 2010). With respect to motor vehicles, creation of the security interest is governed by Article 9 of Ohio’s version of the U.C.C. while the perfection is governed by Ohio’s Certificate of Title Act. Id.
Pursuant to Ohio Revised Code § 1309.203,
(B) ... a security interest is enforceable against the debtor and third parties with respect to collateral only if:
(1) Value has been given;
*658(2) The debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party; and
(3) One of the following conditions is met:
(a) the debtor has authenticated a security agreement that provides a description of the collateral....
Ohio Rev.Code 1309.203(B). Perfection of security interest in an automobile is governed by Ohio Revised Code § 4505.13 which states:
Subject to division (A) of this section, any security agreement covering a security interest in a motor vehicle, if a notation of the agreement has been made by a clerk of a court of common pleas on the face of the certificate of title or the clerk has entered a notation of the agreement into the automated title processing system and a physical certificate of title for the motor vehicle has not been issued, is valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienholders or claimants.
Ohio Rev.Code § 4505.13(B).
In the case presently before the panel, no one disputes that the parties properly created a security interest in the Trailblazer by complying with Ohio Rev. Code § 1309.203(b). The parties executed a valid security agreement when the Debt- or purchased the Trailblazer and that agreement was later assigned to WFB. At the April 14, 2011, hearing, the bankruptcy court stated that it was not disputing the validity of the assignment. The court also stated that it was not disputing that WFA-FI had properly perfected its lien on the Trailblazer by complying with Ohio Rev. Code § 4505.13(B) and noting its lien on the certifícate of title. The only issue the appellant and the bankruptcy court disagree on is whether WFB was required to note the assignment on the Trailblazer’s certificate of title (and thereby have “unity of entity”) in order to have standing to bring the motion for relief from stay.
At the April 14, 2011, hearing, the bankruptcy court stressed that the holding in the In re Fields case was inapplicable to the case before it because
it didn’t make any difference [in {In re Fields) ] because [the issue] was whether it could be avoided and whether it was perfected, not whether there was relief from stay. That’s what you’re missing. You’re missing about whether all of the world knows there is a lien-holder versus who has entitlement to relief from stay. There are two entities here. You’ve just acknowledged they’re two separate entities. And they have to be merged into one entity before you can actually take the action you’re talking about.
Although the dispute in Fields was different from the one in the present case, the discussion and conclusions regarding the validity of the creditor’s perfected security interest are equally applicable to the case before the panel.2
*659The facts in Fields are identical to the ones in the present case. In Fields, the debtor financed the pre-petition purchase of a 2001 Chevy Silverado with Capital One Auto Finance. To secure the obligation, the debtor granted Capital One a security interest in the pickup. Capital One was noted as the lienholder on the certificate of title. Pursuant to a receivables purchase agreement (executed 2 years prior to the debtor’s purchase of the truck), Capital One sold the debtor’s note to Wells Fargo and assigned its lien rights in the pickup to Wells Fargo. The parties never noted the assignment on the certificate of title and when the debtor filed for bankruptcy relief, Capital One was still shown as the First Lienholder on the certificate.
After the petition was filed, the trustee moved to avoid the assignment to Wells Fargo under § 544. The trustee argued that because Wells Fargo had not perfected its security interest in the pickup by noting the lien assignment on the certificate of title, Wells Fargo’s security interest was unperfected at the time the petition was filed and could be avoided by the trustee. The Fields court thoroughly analyzed Ohio’s law regarding the assignments of lien rights in motor vehicles.
Under Ohio law, perfection of a security interest is generally accomplished through the filing of a financing statement. Ohio Rev.Code § 1309.310(A). However, this method of perfection is inapplicable in the case of motor vehicles. Ohio Rev.Code § 1309.311(A)(2). Perfection of a security interest in a motor vehicle is governed by § 4505.13, which provides in relevant part as follows:
[A]ny security agreement covering a security interest in a motor vehicle, if a notation of the agreement has been made by a clerk of a court of common pleas on the face of the certificate of title or the clerk has entered a notation of the agreement into the automated title processing system and a physical certificate of title for the motor vehicle has not been issued, is valid as against the creditors of the debtor, whether armed with process or not, and against subsequent purchasers, secured parties, and other lienholders or claimants.
Ohio Rev.Code § 4505.13(B). According to the statute, there are two ways to perfect a security interest in a motor vehicle: 1) by notation of the lien on the vehicle’s certificate of title, and 2) by the clerk’s entering the notation into the automated title processing system if no physical certificate of title has yet been entered. Compliance with the requirements of § 4505.13 is equivalent to the filing of a financing statement under Chapter 1309. Ohio Rev.Code § 1309.311(B).
Fields, 351 B.R. at 890. Turning to the issue of assignment, the Fields court looked to Ohio Revised Code § 1309.311(A)(2) which provides that “the filing of a financing statement is not necessary or effective to perfect a security interest in property subject to” the Certificate of Motor Vehicle Title Law (Chapter 4505). Section 1309.311 further provides that “duration and renewal of perfection of a security interest perfected by compliance with the requirements prescribed by statute, regulation, or treaty described in division (A) of this section [such as Chapter 4505] are governed by this chapter.” Ohio Rev. Code § 1309.311(C). Because “[t]he assignment of a perfected security interest involves neither duration nor renewal, ... the effect of [the] assignment is determined by Chapter 1309.” Fields, 351 B.R. at 891.
The assignment of a perfected security interest is addressed in § 1309.310(C), which provides that “[i]f *660secured party assigns a perfected security interest or agricultural lien, a fil-under this chapter is not required to continue the perfected status of the security interest against creditors of and transferees from the original debtor.” Ohio Rev.Code § 1309.810(C). This subsection applies to the assignment of a “perfected security interest” without regard to the method used to perfect that security interest.
Id. at 891-92 (citations omitted).
Of utmost importance to the court was the fact that “[t]he absence of a re-perfection requirement for assignees is consistent with the principle purpose of the lien notation, and with perfection requirements in general: to provide interested third parties notice that another creditor claims an interest in the debtor’s property.” Id. at 892-93. Because “[n]o creditor would be misled or deceived in seeing the assignor’s name on a certificate of title rather than the assignee’s,” the Fields court found that the provisions of Ohio Rev.Code § 1309.310(C) satisfied the purpose of lien notation.3 As a result, the Fields court concluded that a lien which is properly perfected on the certificate of title “remains perfected after assignment as against creditors of and transferees from the Debtor” and therefore the assignee has priority over the trustee in a § 544 action. Id. at 894. See also In re Verus Inv. Mgmt., LLC, 344 B.R. 536, 545 (Bankr.N.D.Ohio 2006) (concluding that creditor who took a security interest in a properly perfected Certificate of Deposit by way of a valid assignment did not have to be re-perfected following the assignment to continue the perfected status.).
Although the underlying action in Fields was different, its holding controls the issue this case. If an assignee is not required note its assignment of a security interest on the certificate of title in order to maintain its secured status, surely its perfected status gives that creditor standing seek relief from the automatic stay. WFB has possession of the note in this case. WFAFI properly noted its lien on the Trailblazer’s certificate of title. WFA-FI properly assigned its security interest in the debtor’s vehicle by virtue of the June 26, 2006, receivables agreement. Therefore, under the holding in Fields, WFB has a properly perfected security interest in the Trailblazer despite its failure to note the assignment or its security interest on the certificate of title. Quite simply, there is no requirement under Ohio law that would dictate a different result. WFB, as a properly perfected secured creditor, has standing to seek relief from the stay.
Further support for this conclusion comes from a bankruptcy court case from Arkansas which addressed the precise issue in this case: does an assignee have standing to seek relief from the automatic stay under 11 U.S.C. § 362(d). In re Johnson, 407 B.R. 364 (Bankr.E.D.Ark. 2009). In Johnson, the debtors financed the purchase of an RV with Key Bank. Key Bank properly perfected its lien by noting its lien on the RY’s certificate of title. Subsequently, Key Bank assigned the note and the security agreement to Leham Brothers Bank who then assigned their interest to Cadlerock Joint Venture. Cadlerock Joint Venture then assigned the note and security interest to Roswell Properties, LLC. After the Johnson debtors filed for bankruptcy relief, Roswell filed a motion for relief from stay based on the debtors’ default under the terms of the *661note. The chapter 7 Trustee objected to the motion alleging that Roswell did not have standing to seek relief from stay because it had not noted its lien on the RV’s certificate of title.
The laws regarding assignments of interests in motor vehicles in Arkansas are the same as Ohio. A lien on a motor vehicle in Arkansas is properly perfected by noting the lien on the certificate of title. Ark. Code Ann. § 27-14-806. Additionally, Arkansas Code Annotated § 4-9-310(c) provides that “[i]f a secured party assigns a perfected security interest or agricultural lien, a filing under this chapter is not required to continue the perfected status of the security interest against creditors of and transferees from the original debtor.” The Johnson court concluded that “[b]e-cause Arkansas law does not require the assignee’s name to appear on the certificate of title to maintain perfection of an existing lien in a vehicle and the evidence is that no equity exists in the vehicle,” Roswell had standing to move for and to receive relief from the automatic stay. Id. at 369.
The court in Johnson made this finding despite the fact that Arkansas law provides for the issuance of a new certificate of title when that security interest is assigned. Id. at 366. That statute, is Ark. Code Ann. § 27-14-908 which states that
(a) Any person holding a lien or encumbrance upon a vehicle, other than a lien dependent solely upon possession, may assign his or her title or interest in or to the vehicle to a person other than the owner without the consent of the owner, and without affecting the interest of the owner or the registration of the vehicle, but in such event, he or she shall give to the owner a written notice of the assignment.
(b) The Office of Motor Vehicle, upon receiving a certificate of title assigned by the holder of a lien or encumbrance shown thereon and giving the name and address of the assignee, shall issue a new certificate of title as upon an original application.
Ark.Code Ann. § 27-14-908. The court concluded that § 27-14-908 was not dis-positive of the issue for two reasons. First, because subchapter 8 is the exclusive means of perfecting a lien in a motor vehicle and § 27-14-908 is found in sub-chapter 9, which deals with transfers of title and registration, the Johnson court concluded that it has no impact on the issue of perfection of liens in motor vehicles. Id. at 369 (“The ultimate purpose of the Arkansas vehicle registration laws is identification of vehicles and revenue collection .... In contrast, the purpose of the commercial code is to ‘promote the uniform recognition of security interests which have been noted on the certificate of title,’ ie., to provide notice to potential purchasers or creditors that the property is encumbered.” (internal citations omitted)). Secondly, the Johnson court looked to the UCC commentary for Ark.Code Ann. § 27-14-908 to determine that the reissuance of a certificate of title with the assignee’s name listed as lienholder was not mandatory to maintain perfection:
The UCC adopted by the General Assembly and the commentary state that the language used in Arkansas Code Annotated § 27-14-908 should be read as permissive and the overall scheme of the UCC should be followed if at possible. The general rule under the UCC is that no further action need be taken to continue perfection when dealing with assignments. Reading the UCC and the Certificate of Title Act together, the Court cannot infer that the General Assembly meant that failure to comply with Arkansas Code Annotated § 27-14-*662908 would result in an assigned lien in a motor vehicle being unperfected.
Id.
The courts which have addressed the issue in the bankruptcy arena are in unanimous agreement with the conclusion that an assignee of a security interest in a motor vehicle is not required to note its assignment or lien on the certifícate of title in order to maintain its perfected status. So long as the original security interest was properly perfected by complying with the motor vehicle laws of the state, the assignee’s security interest remains perfected. Williams v. Capital Asset Recovery, LLC (In re McMullen), 441 B.R. 144, 147 (Bankr.D.Kan.2011) (relying on Kansas’s enacted version of U.C.C. 9 — 310(c), Kan. Stat. Ann. § 84 — 9—310(e), to conclude that “no one need file notice of an assignment of a [secured interest] in order for it to remain perfected as to the creditors and transferees of the debtor. As filing under the motor vehicle code is the equivalent of filing a financing statement for Article 9 purposes, in the absence of some language in the motor vehicle code that specifically overrides § 84-9-310(c), [the assignee] was not required to ‘re-perfect’ when it took assignment of Finance Company’s lien.”); Boston v. Chrysler Fin. Servs. Ams. LLC (In re Scott), 427 B.R. 123, 130 (Bankr.S.D.Ind.2010) (relying on same provision of the U.C.C., as adopted by the Indiana Legislature, to hold that assignee of security interest in motor vehicle was not required to note its assignment or lien on the certificate of title in order to maintain its perfected status); Gaines v. Ford Motor Credit Corp. (In re Gaines), 414 B.R. 494 (Bankr.E.D.Ark.2009); The Bank of New York v. Leake (In re Wuerzberger), 284 B.R. 814 (Bankr.W.D.Va.2002); Agric. Servs., Inc. v. Fitzgerald (In re Field), 263 B.R. 323 (Bankr.D.Idaho 2001).
The few courts which have addressed the issue outside the bankruptcy arena have agreed as well. Barcosh, Ltd. v. Dumas, No. 06-616-JJB, 2010 WL 3172984, at *1 (M.D.La. Aug. 11, 2010); Parks v. Mid-Atl. Fin. Co., Inc., 343 S.W.3d 792, 800 (Tenn.Ct.App.2011) (“An assignee of a lien in an automobile, at its election, is provided a mechanism for having its name reflected on the title in place of the assignor by Tenn.Code Ann. § 55-3-124(a). However, the failure to take that step does not result in a loss of perfection or priority.”) (footnote omitted); Sec. Pac. Fin. Servs. v. Signfilled Corp., 125 N.M. 38, 956 P.2d 837, 841 (1998).
Under the laws of Ohio, as well as the other states interpreting similar statutes, there is simply no requirement to note the assignment of a security interest in a motor vehicle on the certificate of title in order for that interest to remain properly perfected. As a result, WFB has a properly perfected security interest in the Debtor’s Trailblazer. WFB, therefore, is the party entitled to enforce the security interest.
CONCLUSION
For the foregoing reasons, the Panel reverses the order of the bankruptcy court holding that Wells Fargo Bank did not have standing to seek relief from the stay and remands the case for a hearing on Wells Fargo Bank’s motion for relief from the automatic stay pursuant to 11 U.S.C. § 362(d).
. The only difference between the two motions is that in the body of the original mo*654tion, the Debtor is referred to as "Megan Lynn Rice." In the amended motion, the Debtor is referred to as "Megan Lynn Rice aka Megan Rushmore." The certificate of title for the Trailblazer lists the owner of the vehicle as "Megan Rushmore."
. In fact, it could be argued that the threshold requirements on the issue of standing to bring an avoidance action may even be higher than those under § 362 since the "zone of interests” protected by § 362 is broader than the trustee’s rights and powers under § 544. In re Howard, 391 B.R. 511, 515 (Bankr.N.D.Ga. 2008) (" ‘[A]lthough only a trustee has standing to “avoid” a transfer, an act taken in violation of the automatic stay is void and without effect....’ [A]ny party with a cognizable interest in the subject property whose interests have been harmed by the act is within the zone of interests protected by [§ 362] and has the requisite standing to obtain a declaratory judgment under Bankruptcy Rule 7001.” (citation omitted)).
. “Any creditor who saw the Capital One lien on the certificate of title in the Fields case would be led to inquire as to the status of the lien with Capital One. In turn, Capital One would inform the creditor of the assignment and lead the creditor to Wells Fargo.” Fields, 351 B.R. at 893. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494476/ | OPINION
THOMAS L. PERKINS, Chief Judge.
This matter is before the Court on a motion for summary judgment filed by the Plaintiff, Richard E. Barber (TRUSTEE), as Trustee of the Chapter 7 estate of the Debtor, James R. Grube (DEBTOR). The motion seeks judgment against the DEBTOR’S wife, Suzanne H. Grube (SUZANNE), only on two of the four counts asserted in the complaint. The TRUSTEE previously compromised his claims against Associated Bank, N.A., for $12,000, which is to be credited against any sum determined to be due the TRUSTEE from SUZANNE on Count III or IV.
The complaint alleges that within four years of bankruptcy, the DEBTOR transferred to SUZANNE his ownership interest in two entities, KMA Builders, LLC and Queenwood, LLC. The TRUSTEE seeks to avoid each transfer for actual fraud and, alternatively, for constructive *664fraud. The motion addresses only the actual fraud claims asserted in counts II and IV, which are brought under Bankruptcy Code section 544(b)(1) that permits the TRUSTEE to assert an avoidance claim under the Illinois version of the Uniform Fraudulent Transfer Act (UFTA), 740 ILCS 160/1 et seq.
Counts II and IV of the complaint assert actual fraud claims under the UFTA which require the TRUSTEE to prove that the DEBTOR made the transfer “with actual intent to hinder, delay, or defraud any creditor.” 740 ILCS 160/5(a)(1). As an aid to determining actual intent, the statute sets out a list of eleven non-exclusive factors that may be considered, that are in the nature of badges of fraud. Badges of fraud have long been used by courts as factors for determining whether a challenged transfer was made with an intent to hinder, delay or defraud one’s creditors. See, e.g., Nelson v. Smith, 28 Ill. 495 (1862). Because transferors rarely admit to a wrongful intent, courts use recognized badges of fraud to regularize the inquiry into whether the circumstances surrounding the transfer are such that the requisite intent may be inferred. In re Beverly, 374 B.R. 221, 235 (9th Cir. BAP 2007).
Summary judgment is appropriate where the evidence shows that “there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). A genuine issue arises if the record contains evidence favoring the non-moving party sufficient to permit a finder of fact to render a verdict for that party. Johnson v. Manitowoc County, 635 F.3d 331, 334 (7th Cir.2011). Summary judgment requires a court to draw all reasonable inferences in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). The court is not to weigh the evidence or decide which testimony is more credible. Id. Even if one side’s story is more believable, the court must avoid the temptation to decide which party’s version of the facts is more likely true. Payne v. Pauley, 337 F.3d 767, 770 (7th Cir .2003).
When a party charged with a fraudulent intent denies it, resolution of the issue by summary judgment is difficult, if not impossible. P.H. Glatfelter Co. v. Voith, Inc., 784 F.2d 770, 774 (7th Cir. 1986); Federal Deposit Ins. Corp. v. Lauterbach, 626 F.2d 1327, 1334-35 n. 12 (7th Cir.1980). But where the party’s denial of the requisite state of mind is “so utterly implausible in light of conceded or irrefutable evidence that no rational person could believe it,” summary judgment may be appropriate. In re Chavin, 150 F.3d 726, 728 (7th Cir.1998).
The DEBTOR and SUZANNE deny that he transferred his KMA and Queen-wood interests with an intent to hinder, delay or defraud any creditor. Instead, they both assert that the transfers were made for estate planning purposes. In his declaration, the DEBTOR asserts that their estate planning lawyer recommended that transfers be made in order to better balance their respective estates since “much of the property was in my name only.” Attached to the declaration is a cover letter from the attorney’s office dated February 7, 2006, in which that purpose is referenced.
The TRUSTEE contends that the DEBTOR’S story about estate planning and asset balancing is too incredible to pass muster. He suggests that if the DEBTOR and SUZANNE were being guided by counsel, it was for the purpose of asset protection, not estate planning. The TRUSTEE argues that the uncontro-verted evidence demonstrates the existence of eight of the eleven statutory badges of fraud when the transfers were *665made, including that the DEBTOR’S business interests were all doing poorly and that KMA had equity of $1,000,000 and Queenwood had equity of $150,000 when transferred. SUZANNE disputes those equity amounts.
The published caselaw is replete with cases where a transferor cries “estate planning” when accused of transferring an asset with the intent to hinder, delay or defraud a creditor. Sometimes that defense is successful. In re Nichols, 447 B.R. 97 (Bankr.N.D.N.Y.2010); In re Burzee, 402 B.R. 8 (Bankr.M.D.Fla.2008); In re Meyer, 307 B.R. 87 (Bankr.N.D.Ill. 2004); In re Earle, 307 B.R. 276 (Bankr. S.D.Ala.2002). Sometimes the defense of estate planning fails. Merchant Transaction Systems, Inc. v. Necela, Inc., 2010 WL 382886 (D.Ariz.2010); U.S. v. Sherrill, 626 F.Supp.2d 1267 (M.D.Ga.2009); Casey Nat. Bank v. Roan, 282 Ill.App.3d 55, 218 Ill.Dec. 124, 668 N.E.2d 608 (Ill.App. 4 Dist.1996). But it is always a factually intense analysis.
In U.S. v. Kattar, 81 F.Supp.2d 262 (D.N.H.1999), the court was faced with a motion for summary judgment involving the issue of whether a transfer of real estate to a trust was fraudulent. Two months after being indicted for tax evasion, George Kattar formed the “Seven Children Trust” pursuant to the advice of counsel as an inheritance vehicle and he and his wife transferred certain parcels of real property to the trustees. In response to the Kattars’ position that the transfers were not made with fraudulent intent because they were intended to effectuate an estate plan, the government relied on a number of badges of fraud that it contended proved a fraudulent intent. After noting that the issue of fraudulent intent, which turns on credibility, is not ordinarily resolved on a motion for summary judgment, the court reasoned as follows:
Issues of credibility are squarely before the court in this summary judgment motion. The Kattars’ testimony concerning motivations and intent are corroborated by the testimony of Mary Abdoo and George P. Kattar about statements made contemporaneously with the creation of the Seven Children Trust. As discussed above, triable issues exist about the financial condition of Phyllis Kattar at the time of the Clovelly transfer. Furthermore, lawful justifications can be offered to explain a number of the indicia of fraud relied upon by the government. If, indeed, the Kattars sought to transfer the assets as part of their estate planning, the “insider” recipients of the transfers, the consideration given in exchange for the transfers, and the Kattars’ continued enjoyment of the assets may possibly, given all reasonable inferences, be understood to be motivated by something other than an intent to defraud creditors. However, other factual issues, such as the chronology of events, cannot be so readily interpreted as motivated by lawful interests. In short, the court concludes that on this record and in the context of summary judgment, where all reasonable inferences are drawn in favor of the non-movants and credibility issues abound, granting summary judgment as to Phyllis Kattar’s allegedly fraudulent intent would be inappropriate.
U.S. v. Kattar, 81 F.Supp.2d at 272.
A similar analysis is called for here and yields the same result. The DEBTOR’S denial of a fraudulent intent and assertion of a potentially non-actionable alternative, asset balancing, puts his credibility squarely at issue. Several badges of fraud are present, but the DEBTOR’S declaration does not stand alone—it is corroborated by his attorney’s letter. Moreover, *666all reasonable inferences must be drawn in favor of SUZANNE. Since the only way the TRUSTEE can prove the DEBTOR’S scienter is inferentially, it is impossible for the TRUSTEE to overcome the denial of scienter on this motion for summary judgment where the DEBTOR has offered a non-actionable, corroborated explanation for the transfers.1 The DEBTOR’S denial is not so utterly implausible in light of conceded or irrefutable evidence that no rational person could believe it.
The Court concludes that a genuine issue of material fact exists as to whether the DEBTOR transferred to SUZANNE his interests in KMA and Queenwood with the intent to hinder, delay or defraud a creditor. Therefore, the TRUSTEE’S motion for summary judgment on Counts II and IV will be denied. It is not necessary to address the other issues raised by the parties in their briefs.
This Opinion constitutes this Court’s findings of fact and conclusions of law in accordance with Federal Rule of Bankruptcy Procedure 7052.
. The innocent explanation of estate planning does not necessarily carry the day for a trans-feror. It is certainly not unheard of that while such an explanation might appear valid on its face, it may actually be intended as a sophisticated subterfuge. Whether asset balancing is a true and valid motivation may depend, in part, upon whether an experienced attorney specializing in estate planning would have recommended that the transfers be made, given the assets owned by each spouse prior to the transfers. Proof of this fact would require opinion testimony subject to Rule 7020(a)(2). Counsel for the parties would not be permitted to offer their own opinions. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494477/ | MEMORANDUM OPINION
JAMES G. MIXON, Bankruptcy Judge.
Timberland Bancshares, Inc. (Bank) initiated this adversary proceeding against Johney and Benita Garrison (Debtors),1 Renee Williams (Trustee), and Lacamas Laboratories, Inc. (Lacamas). The Bank seeks a declaratory judgment that it holds a valid perfected security interest in the Debtors’ Lacamas stock that is superior to any interest held by the Trustee and all *671other parties. Further, the Bank contends that the Debtors and Lacamas should be estopped from denying the validity of the Bank’s security interest and requests a mandatory injunction directing the Debtors and Lacamas to convey all right, title, interest and equity in the stock to any buyer purchasing the stock in conformity with the Arkansas Uniform Commercial Code.
Each defendant answered the complaint. Lacamas responded that the Bank’s security interest is invalid because of a Stock Restrictive Agreement (SRA) between La-camas shareholders and the corporation. Lacamas counterclaimed for a declaratory judgment that the Bank’s security interest is null and void and requested an award of its attorney fees in accordance with the SRA.
The Trustee also asserted a counterclaim. Pursuant to Section 544 of the Bankruptcy Code, the Trustee claimed that the Bank’s security interest in the Debtors’ Lacamas shares is voidable by the Trustee because the security interest was not perfected upon the petition filing and, therefore, inferior to the Trustee’s interest as a hypothetical judgment lien creditor. Further, the Trustee seeks turnover of the shares of stock at issue.
The parties tried the lawsuit before the Court on February 1, 2011, in El Dorado, Arkansas, after which the matter was taken under advisement following the submission of briefs. The Court has jurisdiction to enter a final judgment in this case, which is a core proceeding in accordance with 28 U.S.C. § 157(b)(2)(0) (2006). The following opinion constitutes the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
FACTS
Most of the relevant events in this case occurred prior to the Debtors’ Chapter 7 bankruptcy filing on October 10, 2008, and involve the Debtors’ ownership and subsequent pledge of shares of stock in Lacamas as collateral for loans from the Bank. La-camas is an Oregon corporation formed in 1984-85 with funds contributed by four original shareholders, including the Debtor and Dr. Allen S. Erickson, who currently serves as president. (Tr. at 112.) Laca-mas was formed as a Subchapter S corporation pursuant to the Internal Revenue Code and is subject to restrictions on the number of the corporation’s shareholders. (Lacamas Ex. B.)
The Stock Restrictions
In connection with their ownership interest in Lacamas, the Debtors were issued Stock Certificate Number 25, representing that John and Sue Garrison are registered holders of 104,625 shares of La-camas stock with $1.00 par value on January 1, 1999. (Pl.’s Ex. 18.) The stock certificate bears the following language on its reverse side, which the Court will refer to as “the first restriction”:
The shares represented by this certificate have not been registered under the Securities Act of 1933. The shares have been acquired without a view to distribution and may not be offered, sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Act and under any applicable state securities laws, or an opinion of counsel to the corporation that such registration is not required as to such sale or offer. The stock transfer agent has been ordered to effectuate transfers of this certificate only in accordance with the above instructions.
Pl.’s Ex. 3, Pl’s Ex. 18.
On December 20, 2001, the shareholders of Lacamas, including the Debtors, entered into the SRA with the corporation. *672(Lacamas Ex. A.)2 The SRA detailed the means by which the corporation could redeem shares of stock from the shareholders and included the following restriction, which the Court will refer to as “the second restriction”:
NO LIFETIME TRANSFER: No SHAREHOLDER shall have any right to transfer, encumber, hypothecate, sell or dispose of any stock other than as contained herein without the express written consent of all signatories hereto. Any permitted transferee shall concurrently, with the issuance of said stock, sign an agreement to be bound by the terms and conditions of this Agreement.
Lacamas Ex. A.
Erickson testified that the purpose of the SRA was to restrict the number of shareholders to maintain the corporation’s Sub-Chapter S status with the Internal Revenue Service. (Tr. at 113.)
The Loans
Nine months after they signed the SRA limiting the transfer of the stock, the Debtors entered into a commercial line of credit agreement and note with the Bank for $55,035.00 on October 7, 2002. (Pl.’s Ex. 1.) Collateral for the loan was described as “Assign of 104,625 Shares of Lacamas Laboratories, Inc. Stock # 25 in the name of John L & B Sue Garrison, as joint tentants [sic] with right of survivor-ship. ...” (Pl.’s Ex. 1.)
Ken Goudy was the Bank’s loan officer who made this and subsequent loans to the Debtors. (Tr. at 20-21.) The Debtors delivered Stock Certificate Number 25 to the Bank when they pledged their stock as collateral for the first loan on October 7, 2002. As mentioned above, the first restriction was described on the reverse side of the certificate but because the certificate was issued three years prior to the December 2001 SRA, it made no mention of the second restriction agreed upon in the SRA. (Tr. at 31.)
Goudy stated that in connection with the loans, the Bank maintained in its possession Stock Certificate Number 25, two Stock Assignments, and an Irrevocable Stock or Bond Power endorsed in blank by the Debtors.3 (Tr. at 24, Pl.’s 2, Trustee’s Ex. 3, Pl’s Ex. 18.) Gary Burbank, the Bank’s attorney, testified that the original stock certificate and stock power signed in blank were maintained together in the Bank’s records so that if the security agreement had to be foreclosed, the Bank was authorized by the documents to transfer the stock. (Tr. at 99-100.)
Following the October 7, 2002 note, the Garrisons executed a second note in favor of the Bank for $100,035.00 on December 4, 2002, with a maturity date of March 4, 2003. (Pl.’s Ex. 4.) The note recited that the collateral was an assignment of the 104,625 shares of Lacamas stock. Additionally, the Note contained language granting the Bank a security interest in the listed collateral and stating that the *673Debtors granted the security interest free and clear of any other interest or adverse claim. (Pl’s Ex. 4 at 2.)
Both the first and second notes evidence that they were paid by renewal on February 11, 2003, and February 10, 2003, respectively.4 (Pl.’s Ex. 1 & 4.) After the October 7 and December 4, 2002 notes, the Bank entered into three successive loan transactions with Garrison Speciality Chemicals, Inc. (Garrison Inc.), the Debtors’ corporation, to provide a revolving line of credit for working capital.
The Debtor signed the three notes as president and CEO of the corporation. Each of the three notes listed the Debtors’ Lacamas stock as collateral, along with various other items of property. These loans were dated February 7, 2003, with Garrison Inc. listed as the borrower of $250,000.00, a renewal note on December 5, 2003, and another renewal note on August 27, 2004, for $50,000.5 (Pl.’s Ex. 5, 7, 8.)
The August 27, 2004 loan was paid by a renewal note for $250,150.00 signed by the Debtors individually on October 17, 2005. (Pl.’s Ex. 9.) Collateral included the Debt- or’s shares of Lacamas stock. A renewal note on November 27, 2006, from the Debtors individually to the Bank included additional advance, so that the amount borrowed was $275,300.00. (Pl.’s Ex. 10.) Collateral included real estate and various items of personal property, including the Lacamas stock.
The November 27, 2006 note was paid on June 21, 2007, by a renewal note from the Debtors individually for $300,150.00. (Pl.’s Ex. 11.) The purpose of the loan was to refinance the previous loan and advance additional funds to the Debtors. The collateral for the loan included a security interest in the 104,625 shares of Laca-mas stock and other personal and real property. The Debtors filed their Chapter 7 petition on October 10, 2008, at which time the obligation represented by the June 21, 2007 note remained outstanding.
Consent to Stock Pledge
On February 7, 2003, a few days prior to the renewal of the first two notes to the Debtors and on the same date as the first note made by the Debtors’ corporation, Goudy received a facsimile transmission from the Debtor with an attached Consent to Stock Pledge. (Pl.’s Ex. 12.) The first page of the facsimile contains a one-sentence message addressed to Goudy from the Debtor and informs Goudy that “Allen Erickson sent this pledge agreement to the other stockholders for their signatories [sic].” (Pl.’s Ex. 12.) The Debtor testified that the facsimile was sent in connection with the February 7, 2003 loan to the Debtors’ corporation. (Tr. at 81.)
The Consent to Stock Pledge provides the consent of the Lacamas stockholdto the pledge of the Debtors’ Lacamas stock to secure the Debtors’ indebtedness the Bank. The document recites that the consenting shareholders agree to the creation of a security interest but not to the conveyance of any rights of ownership in accordance with “Section 9 of the compaStock Restrictive Agreement.” (Pl.’s 12.) The Consent to Stock Pledge is earliest document in evidence that inthe Bank about the existence of the second restriction in the SRA.6
*674The last paragraph states that the agreement was conditionally signed by Allen S. Erickson as president of the company but that if less than 51 percent of the voting stock agreed to the pledge, the consent is “null and void and no security interest will be transferred.” (Pl.’s Ex. 12.) The agreement bears the signatures of Allen Erickson and John and Sue Garrison and Allen Erickson as president of the corporation. The signatures of the remaining eight shareholders are missing from the document presented into evidence, which has been maintained as the Bank’s record.
Although Erickson and the Debtors signed the Consent to Stock Pledge, Erickson stated that their shares did not amount to 51% of the total shares of stock. He said that the other shareholders were resolutely opposed to signing the Consent to Stock Pledge. (Tr. at 113-14.) He informed the Debtor but not the Bank of the opposition to the Consent to Stock Pledge shortly after he consulted with the other shareholders. (Tr. at 115.)
The Bank never received a fully executed Consent to Stock Pledge or inquired about whether more signatures were needed or if additional signatures had subsequently been obtained. (Tr. at 44.) The Debtor admitted that, despite the fact that he was told by Erickson that he could not pledge the stock as collateral, he proceeded to do so and received loan proceeds as a result. (Tr. at 91.)
Sale of Stock
During early February 2003, the Debtor proposed to sell a portion of the Lacamas stock that served as collateral for his loans and apply the proceeds to his indebtedness to the Bank. (Tr. at 34, 53, 86.) Later in September or October 2003, Erickson helped the Debtors arrange a sale of a portion of their stock to two employees of Lacamas. (Tr. at 112.) The Debtors sold a “little less than 40,000 shares” with the Bank’s knowledge and received $100,000.00, which was applied to their indebtedness at the Bank. (Tr. at 52-53, 55, 60, 77, 86-87.) That $100,000.00 was the only payment ever made to the Bank by the Debtors, other than interest payments. (Tr. at 55.) Goudy did not recall if the source of the payment was Lacamas or the Debtors, but it is clear from his testimony that he knew the money was generated from the sale of some of the Debtors’ Lacamas stock. (Tr. at 34, 52-53.)
In connection with the sale, Lacamas issued Stock Certificate Number 28 for 68,962.54 shares of common stock with a par value of $1.00 to John and Sue Garrison on October 14, 2003.7 (Lacamas Ex. B.) On the reverse side of the certificate is a reference to the SRA dated December 20, 2001. Certificate 28 was delivered to the Debtors, who maintained it in their possession until they relinquished it to their attorney upon the bankruptcy filing. (Tr. at 84.)
Goudy testified that the Bank never received confirmation of a sale of the stock or a request for the Bank to surrender the original stock certificate for reissuing of a replacement certificate for the balance of the shares still owned by the Debtors and encumbered by the Bank. Nor did the Bank release its lien although the attorneys for the Bank and Lacamas discussed a partial lien release. (Tr. at 55.) Burbank testified that in his discussions with *675both Erickson and Steve Cyr, Lacamas’ attorney, neither questioned the validity of the Bank’s security interest. (Tr. at 94.)
The Bank still holds the original certifí-cate for 104,625 shares of Lacamas stock. When asked how the new stock certificate could be issued without surrendering the original held by the Bank, Erickson stated, “I really wouldn’t know that. I would have left that up to Steve Cyr [Lacamas’ attorney] to take care of.” (Tr. at 116.)
Post-Bankruptcy
Burbank stated that after the bankruptcy was filed, the Debtor initially offered to purchase the Bank’s interest in the stock for $40,980.00. (Pl.’s Ex. 15.) Subsequently, both the Debtor and Lacamas challenged the Bank’s security interest in the stock. Burbank testified that in a January 29, 2010 email to Burbank, Cyr for the first time asserted Lacamas’ position that the security interest was invalid as to Lacamas because of the SRA. (Pl.’s Ex. 14, Tr. at 97.)
DISCUSSION
Lacamas argues that the Bank’s security interest in the Debtor’s stock is invalid because of two separate restrictions prohibiting the Debtors from pledging their stock as collateral to the Bank.
First Restriction
The first of the two restrictions is set out on the reverse side of the stock certificate evidenced by Plaintiffs Exhibit 18 and has been quoted in its entirety above. (See page 3.) It gives notice that the Debtors’ shares were not registered under the federal Securities Act of 1933, were acquired without a view to distribution, and may not be transferred without registration under applicable federal and state laws or a legal opinion that registration is not required. It further directs the stock transfer agent to effect transfers of the certificate only in accordance with these instructions. (Pl.’s Ex. 18.) Lacamas contends that the stock has not been registered and the opinion of corporate counsel has not been provided as required by the restriction; therefore, the first restriction prohibits the pledge between the parties.
The Bank asserts that the restriction in the stock legend does not affect the validity of the security interest at issue because the Securities Act of 1933 and the Securities Exchange Act of 1934 create causes of action for parties in a securities sale transaction where a party is damaged by the fraud or misrepresentation of the seller or issuer. (Pl.’s Memorandum of Law, Feb. 22, 2011, at 6.) The Bank urges the conclusion that because Lacamas does not allege fraud or contend that the Bank is either a seller or issuer as defined by the Securities Act of 1933, the restriction does not apply to the transfer at issue.
The validity of a restriction on the transfer of stock is determined according to the law of the state of incorporation. B & H Warehouse, Inc. v. Atlas Van Lines, Inc., 490 F.2d 818, 821 (5th Cir.1974) (citing Palmer v. Chamberlin, 191 F.2d 532 (5th Cir.1951); Restatement (Second) of Conflicts § 303 (1971)). In the instant case, Lacamas was incorporated in the state of Oregon, which by statute permits restrictions on the transfer of shares of stock, with some conditions.
The applicable state law on stock transfer restrictions provides in relevant part:
(1) The articles of incorporation, bylaws, agreements among shareholders or agreements between shareholders and the corporation may impose restrictions on the transfer or registration of transfer of shares of the corporation. A restriction does not affect shares issued before the restriction was adopted unless the holders of the shares are parties to the restriction agreement or voted in favor of the restriction.
*676(2) A restriction on the transfer or registration of transfer of shares is valid and enforceable against the holder or a transferee of the holder if the restriction is authorized by this section and its existence is noted conspicuously on the front or back of the certificate or is contained in the information statement required by ORS 60.164(2). Unless so noted, a restriction is not enforceable against a person who has no knowledge of the restriction.
(3) A restriction on the transfer or registration of transfer of shares is authorized:
(b) To preserve exemptions under federal or state securities law; or
(c) For any other reasonable purpose.
Or. Rev. Stat. Ann. § 60.167 (West 2003).
Applying this statute, the Court first observes that the record does not reflect whether the first restriction was authorized by articles of incorporation, bylaws, shareholder agreement, or some other source not expressly enumerated in the statute. Because there is no argument otherwise, the Court assumes that Laca-mas was authorized pursuant to Oregon law to issue the certificates, and the corporation imposed the restriction, which it disclosed through the legend on the certificate, by a method that satisfies Section 60.167(1) of the Oregon statute.
In accordance with section 60.167(2), the restriction is noted conspicuously on the certificate, and this point is also not disputed. The next question is whether the restriction complies with Section 60.167(3)(b) or (c) of the Oregon statute because it preserves federal or state securities exemptions or has some other reasonable purpose.
The analysis begins with the 1933 Securities Act referred to by the restriction under consideration. See 15 U.S.C.A. §§ 77a-77aa (West 2009). Generally, Section 5 of the 1933 Act makes it illegal to sell a security without a proper registration statement, but the Act also provides for exemptions from registration in situations where registration would serve no purpose. Among the Act’s many exempted transactions are securities transactions by any person other than an issuer, underwriter or dealer8 and securities transactions by the issuer (here, the corporation) not involving any public offering. 15 U.S.C.A. § 77d(1), (2) (West 2009).
Restricted securities, such as the ones in the instant case, include those acquired directly or indirectly from an issuer in a transaction or chain of transactions not involving any public offering. Barkley Clark & Barbara Clark, The Law of Secured Transactions Under the Uniform, Commercial Code, Part I, Chapter 4, ¶ 4.13 (A.S. Pratt & Sons eds., 2010). Issuers impose restrictions on the transfer of restricted stock in order to qualify for the statutory exemptions from registration such as the two discussed above.
In exercising reasonable care, issuers affix legends to restricted stock certificates that detail the transfer restrictions in order to prevent improper, non-exempt transfers. A legend regarding restrictions on the transfer of securities also provides notice of the restrictions to those “who regularly buy and sell such securities and those who regularly accept pledges of such *677securities as collateral for loans.... ” Neidiger/Tucker/Bruner, Inc. v. SunTrust Bank, 242 Ga.App. 369, 530 S.E.2d 18, 21 (2000).
The 1933 Act’s registration requirements, general antifraud provision, and liability provisions are triggered by sales or offers to sell securities. 2 Thomas Lee Hazen, Law of Securities Regulation § 5.1 (6th ed. 2009). For purposes of the 1933 Act’s antifraud provision, the United States Supreme Court has held that a pledge of securities as collateral for a loan is an “offer or sale” of a security under the Act. Rubin v. United States, 449 U.S. 424, 431, 101 S.Ct. 698, 66 L.Ed.2d 633 (1981). Rubin dealt with the situation where the borrower committed fraud in pledging stock to the lender and then argued that he was not liable under the Act’s antifraud provision because the stock pledge in a commercial setting was not a “sale” as defined by the Act.
One commentator has convincingly explained that the effect of Rubin is that “if the pledgee is a bank or other financial institution, the pledge would be exempt from registration ... but nevertheless subject to the antifraud provisions.” Hazen, supra, § 5.1[5] (citing 17 C.F.R. § 230.144(d)(4)(D); SEC v. Guild Films Co., 279 F.2d 485 (2d Cir.1960)). See also Ahrendt v. Palmetto Fed. Sav. & Loan Ass’n., 680 F.Supp. 1125, 1129 (S.D.Ohio 1987) (stating, post-Rubin, that a pledge of a security as collateral for a commercial bank loan does not constitute a sale of securities within the meaning of federal securities laws) (citing McClure v. First Nat’l Bank, 497 F.2d 490, 495-96 (5th Cir. 1974) (stating pledge of unregistered stock is only a sale if lender later forecloses and sells the securities upon default under circumstances that transform the lender into an underwriter)); Bronstein v. Bronstein, 407 F.Supp. 925, 930 (ED.Pa.1976) (recognizing that federal securities laws were designed to protect investors, not persons engaged in consumer or commercial loans); Clark & Clark, supra, ¶ 4.13[1] (observing that pledge transaction is normally exempt from any registration requirements as a nonpublic offering under section 4(1) of the Act). But see Joslin v. Shareholder Servs. Grp., 948 F.Supp. 627, 634-35 (S.D.Tex. 1996) (holding that pledge of stock in violation of certificate restriction related to the 1933 Securities Act passed no interest to pledgee).
The burden of finding an exemption to registration is on the party who is the seller in the transaction. Clark & Clark, supra, ¶ 4.13[1]. Moreover, even if a securities transaction does not comply with registration requirements, “The Securities Act does not by its terms automatically invalidate sales of unregistered securities in violation of registration requirements. Rather, when unregistered securities are sold illegally, the Act simply grants the buyer a remedy in section 12(a)(1). 15 U.S.C.A. § 77Z(1).” ADM Corp. v. Thomson, 707 F.2d 25, 27 (1st Cir.1983). With regard to protections under the Act, one commentator has observed, “The purpose of the Act is to protect, not penalize, such buyers; hence the lender will enjoy the benefits of the Act vis-a-vis the pledgor.” Denis T. Rice, The Effects of Registration Requirements on the Disposition of Pledged Securities, 21 Stan. L. Rev., 1607, 1619 (June 1969) (citing Fox v. Glickman Corp., 253 F.Supp. 1005 (S.D.N.Y.1966)).
Because the restriction under consideration also requires compliance with registration requirements under state law, the Court has reviewed the Oregon statutes to determine if registration of the stock pledge transaction is required. Oregon securities law provides, “ ‘Sale,’ or ‘Sell’ includes every contract of sale of, contract to sell, or disposition of, a security or interest in a security for value” but does *678not include “[a] bona fide pledge or loan of securities.... ” Or. Rev. Stat. Ann. § 59.015(17)(a), (c)(A) (West 2003). The Court reads this provision to mean that the term “sale” encompasses every type of securities transaction regulated under Oregon law, and a bona fide pledge of securities is specifically excluded from that group of transactions.
Instructed by the foregoing principles and laws, the Court next turns to their application to the first restriction in the instant case. The purpose of the restriction, to preserve exemptions under federal or state law, is expressly authorized by the statute. Or. Rev. Stat. Ann. § 60.167(b). But while the restriction is a valid, enforceable one under Oregon corporate law, the restriction was not violated by the pledge in the instant case. An analysis of the restriction as set out in the legend on the stock certificate will explain why.
The opening sentence in the legend recites that the shares represented by the certificate have not been registered under the Securities Act of 1933, giving notice to any potential transferee that the shares are “restricted” as to how they may be transferred. In the second sentence, the legend recites that the shares were acquired “without a view to distribution,” meaning that when Lacamas issued the shares to the Debtor, the corporation had no intent to distribute the shares in a public offering that would trigger the Act’s registration requirements. As a closely-held corporation issuing restricted stock in a private placement, the transfer of shares to the Debtor would have been exempt from registration under section 4(2) of the 1933 Act. 15 U.S.C.A. § 77d(2).
The second sentence also forbids the shares from being “offered, sold, transferred, pledged or hypothecated in the absence of an effective registration statement for the shares under the Act and under applicable state securities law, or an opinion of counsel to the corporation that such registration is not required.... ” (Pl.’s Ex. 18.) This is the crux of the restriction, and reading it out of context leads to the conclusion that the shares cannot be transferred without registration or corporate counsel opinion that registration is not required. However, reading the restriction in the context of the 1933 Act, the Court interprets the restriction to mean the shares may not be “offered, sold, transferred, pledged or hypothecated” in a public offering without registration or corporate counsel opinion because a public offering as a means of transfer would trigger the registration requirements.
Here, there is no evidence or argument to demonstrate that the pledge at issue is a “distribution” or public offering requiring registration. Under the authorities consulted by the Court, either the pledge is totally outside the scope of the 1933 Act’s registration requirements or it falls within one of the many exemptions from registration that Congress has legislated. The most obvious of these applicable exemptions is that the Debtors, as sellers-pledgors, are not issuers, underwriters, or dealers as defined by the statute. 15 U.S.C.A. § 77d(1). Therefore, the Debtors’ pledge to the Bank would qualify as an exempted transfer. As to state law registration requirements, the Oregon statute specifically excludes from regulation a bona fide pledge of securities as collateral for a loan, as in the instant case.
The Court concludes that while the restriction may be valid and enforceable under Section 60.167, the applicable Oregon statute, by its terms it is not applicable to the transfer at issue. The statute authorizes the restriction to preserve the corporation’s federal and state exemptions and that purpose is not furthered by prohibiting the pledge, which does not threaten *679the availability of those exemptions. The pledge, being a transfer that is neither a public distribution nor a transaction by an issuer, underwriter or dealer, does not violate the restriction. The restriction remains in effect as to the Bank to the extent that any future transfer might necessitate the action of the stock transfer agent referred to in the legend. The record does not contain any evidence that the stock transfer agent was required to take action by the pledge at issue.
Lacamas argues that the first restriction prevents perfection of the Bank’s security interest pursuant to Arkansas law. The applicable statute provides, “A restriction on transfer of a security imposed by the issuer ... is ineffective against a person without knowledge of the restriction unless (1) the security is certificated and the restriction is noted conspicuously on the security certificate.... ” Ark. Code Ann. § 4-8-204 (Michie 2001).
The Court first acknowledges that there are opposing views as to whether this type of restriction can even be characterized as having been “imposed by the issuer” because its purpose is to maintain compliance with the Securities Act of 1933. See, for example, Edina State Bank v. Mr. Steak, Inc., 487 F.2d 640 (10th Cir.1973)(restric-tions arising out of Securities Act are issuer-imposed; 8-204 applicable); DeWitt v. American Stock Transfer Co., 440 F.Supp. 1084 (S.D.N.Y.1977) (distinguishing between restrictions imposed by issuer and those arising under federal Securities Act; 8-204 not applicable).
Even if the Court were to find that this is a restriction imposed by Lacamas pursuant to Section 8-204, the restriction has no application to the private transfer between the Debtor and the Bank for the same reasons enunciated with regard to the Oregon statute on transfer restrictions. That being the case, the Court concludes that the first restriction has no effect on the Bank’s security interest in the Debtors’ stock.
Second Restriction
Lacamas also argues that the SRA prohibited the Debtor’s pledge of stock as collateral for the loans from the Bank. Specifically, the SRA provides, “No shareholder shall have any right to transfer, encumber, hypothecate ... any stock other than as contained herein without the express written consent of all signatories hereto.” (Lacamas Ex. A at 8.) The parties do not dispute that the SRA’s list of prohibited transfers includes the pledge at issue. Lacamas contends that because the requisite consent was not acquired, the Bank’s security interest in the shares of stock is not valid.
The Bank responds that Lacamas and the Debtors misled the Bank by implying that the Consent to Stock Pledge removed any impediment to the transaction between the Bank and the Debtors. The Bank asserts that it remains perfected as to the collateral under theories of estoppel, apparent authority, or inconsistent positions.
In their arguments, the Bank and Lacamas rely on the previously-discussed Arkansas Code Annotated Section 4-8-204 as the applicable statute to determine the effect of the restriction. However, this provision is inapplicable because the stock restriction was not imposed by the issuer, i.e., Lacamas. Ark.Code Ann. § 4-8-204 (Michie 2001) (referring solely to transfer restrictions imposed by an issuer); U.C.C. § 8-204 cmt. 5 (stating that this U.C.C. section does not deal with stockholder agreements containing restrictions on the sale of a security); K & T, Inc. v. Koroulis, 888 P.2d 623, 626 (Utah 1994) (recognizing that U.C.C. Section 8-204 does not control the effectiveness of restrictions imposed by shareholder agreement).
*680Under the appropriate Oregon statute on share transfer restrictions, shareholders and the corporation may agree to impose restrictions on the transfer of shares of a corporation. Or. Rev. Stat. Ann. § 60-167(1) (West 2003). Even though the second restriction was adopted by the shareholders and corporation after the Debtors’ Share Certificate 25 was issued, the restriction affects the shares held by the Debtors because as holders of the shares, they were “parties to the restriction agreement.” Or. Rev. Stat. Ann. § 60.167(1); Def. Lacamas Ex. A-1.
In accordance with Section 60.167, if a restriction is not noted on the front or back of the certificate, as in the instant case, it is only enforceable against a person with knowledge of the restriction. The record contains no evidence that the Bank ever received, nor that it requested, a copy of the SRA prior to the Debtors’ bankruptcy. Nevertheless, from the evidence adduced at the hearing, the Court concludes that the Bank had knowledge of the second restriction against transfer no later than February 7, 2003, the date when the Debtor sent the Bank a facsimile containing a one-sentence message and an attached Consent to Stock Pledge. (Pl.’s Ex. 12.) According to the Bank’s evidence, this document was prepared by the corporation. (Pl.’s Ex. 14, email from Gary Burbank.)
The Consent to Stock Pledge specifically refers to “Section 9 of the company’s Stock Restrictive Agreement” but does not expressly recite what. Section 9 states with regard to its prohibition of transfers. (PL’s Ex. 12 at 1.) The document warns that if less than 51% of the voting stock agrees to the pledge, the pledge “shall be null and void and no security interest will be transferred.” (PL’s Ex. 12 at 1-2.) According to Erickson’s testimony, Erickson’s and the Debtors’ stock did not equal 51% of the voting stock. (Tr. at 113.) The Debtors and Erickson were the only stockholders who signed the Consent to Stock Pledge.
The record does not reflect how many voting shares existed when the Consent to Stock Pledge was submitted to the Bank or how many SRA signatories were required to sign the Consent to Stock Pledge to meet the 51% requirement. The Consent to Stock Pledge may be inconsistent with the SRA because it requires the consent of only 51% of the voting stock, or an unknown number of signatories, whereas Section 9 of the SRA requires the express written consent of all nine of the signatories to the SRA out of a total of eleven shareholders.
The accompanying message from the Debtor to Goudy states that “Allen Erickson sent this pledge agreement to the other stockholders for their signatories [sic].” The Bank argues that this statement was the Debtor’s assurance that the requisite consent had already been acquired. However, the Court interprets the sentence to imply that while more stockholder signatures either might be or would be forthcoming, the requisite number had not yet been received. There would be no point in acquiring more signatures unless the number of signatures acquired by February 7 was insufficient to represent 51% of the voting stock.
Although the Consent to Stock Pledge may have communicated misleading or incomplete information with regard to the requisite consent, the Bank did not rely on the document because it did not postpone the loan closing until the remaining necessary signatures were acquired pursuant to the dictates of the Consent to Stock Pledge. Inaccurate notice may suffice to impart knowledge of a restriction on transfer. See, e.g., Erlich v. Nyberg, 78 Ill.pp.3d 500, 33 Ill.Dec. 549, 396 N.E.2d 1273, 1278-79 (1979) (upholding the trial *681court’s finding of plaintiffs actual knowledge of restriction despite testimony that defendant only discussed a different restriction with plaintiff prior to transfer; applying U.C.C. § 8-204).
Thus, on February 7, 2003, at 9:47 a.m., the Bank knew from the information disclosed by the Consent to Stock Pledge that the proposed pledge of stock to the Bank was restricted by a shareholder-corporation agreement; the Bank knew that unless consent was received the agreement prohibited the pledge; and the Bank knew from the Debtor’s attached message that the required number of signatures signifying consent had not been acquired at that point in time. Despite its knowledge, the Bank and the Debtors proceeded to enter into the loan agreement.
The state of the Bank’s knowledge as to the Consent to Stock Pledge never changed throughout the coming years as the Bank continued to extend credit to the Debtors and receive a security interest in the stock as collateral. The Bank continued to know that it never received a fully executed Consent to Stock Pledge and thus remained subject to the SRA.9
Having found the Bank had knowledge of the transfer restriction and that from February 7, 2003, forward, the Bank was subject to it, the Court next turns to the statute to determine whether the restriction is authorized by Oregon law. The statute expressly authorizes a restriction that maintains “the corporation’s status when it is dependent on the number or identity of its shareholders.” Or. Rev. Stat. Ann. 60.167(3)(a). It also permits a transfer restriction that requires “the corporation, the holders of any class of its shares or another person to approve the transfer of the restricted shares if the requirement is not manifestly unreasonable. ...” Or. Rev. Stat. Ann. 60.167(4)(c).
The record shows that Lacamas was a Subchapter S corporation. (Lacamas Ex. B.) Erickson testified that the purpose of the SRA was to restrict the number of shareholders to maintain the corporation’s tax status in accordance with Internal Revenue Service regulations. (Tr. at 113.) Such a purpose conforms to section 60.167(3)(a) of the Oregon corporate code. Requiring that shareholders approve the transfer of shares is not manifestly unreasonable, considering that shareholders’ approval is a means to monitor and control the number and character of the corporation’s shareholders. Because the SRA complies with section 60.167 of the Oregon corporate code, it is valid and enforceable.
Since the restriction is valid and enforceable under Oregon law, the question then becomes what is the effect of the restriction on the perfection of the Bank’s lien. A security interest in a certificated security is perfected by possession of the instrument by the secured party. Ark. Code Ann. § 4-9-313(a) (Michie 2001); Or. Rev. Stat. Ann. § 79.0313(1) (West 2003). In this case, the Bank has possession of the instrument.
However, attachment is a necessary precondition to the perfection of a security interest. Ark.Code Ann. § 4-9-308(a) (Michie 2001); Or. Rev. Stat. Ann. § 79.0308(1) (West 2003). A security interest attaches to collateral only if “the debtor has rights in the collateral or the power to transfer rights in the collateral to a secured party.” Ark.Code Ann. § 4-9-203(b)(2) (Michie 2001); Or. Rev. Stat. Ann. § 79.0203(2)(b) (West 2003). “[A] security interest attaches only to whatever *682rights a debtor may have, broad or limited as those rights may'be.” U.C.C. § 9-203 cmt. 6. Accord In re Weiss, 376 B.R. 867, 876 (Bankr.N.D.Ill.2007) (asserting that transfer of security interest to secured party did not occur because debtor did not have rights in the collateral due to lack of prior consent of other parties to agreement that controlled the procedure for transfer of debtor’s interests) (citing U.C.C. § 9-203(b)(2), (3) & cmt. 2; 810 ILCS 5/9 — 203(b); Prior v. Farm Bureau Oil Co. (In re Prior), 176 B.R. 485, 496 (Bankr.S.D.Ill.1995); Am. Nat'l Bank & Trust Co. v. Matrix TV, Inc. (In re S.M. Acquisition Co.), 296 B.R. 452, 463-64 (Bankr.N.D.Ill.2003)).
Applying these rules regarding attachment and perfection, the Court finds that when the Debtors attempted to give the Bank a security interest in their stock, they had already voluntarily agreed to refrain from pledging the stock without unanimous consent of the other signatories to the agreement. The Debtors having conditionally relinquished their transfer rights, the security interest could not attach to those rights and without attachment, perfection could not be accomplished. Accordingly, the Bank’s lien in the stock is unperfected unless the Bank’s estoppel and apparent authority arguments have merit, issues to be subsequently discussed.
Alternatively, an argument can be made that a transferee with knowledge of a restriction is not a “bona fide purchaser” (under current law, a “protected purchaser” pursuant to Ark.Code Ann. § 4-8-303 (Michie 2001); Or. Rev. Stat. Ann. § 78.3030(1)(a)-(c) (West 2003)). The Trustee, in her post-trial brief, relies on this and other Arkansas commercial code provisions on perfection, adverse claims and protected purchasers to argue that the Bank is unperfected in the stock.
Courts have held that a transferee with knowledge of a restriction takes with notice of an adverse claim and is not accorded the protection of the statute. See, e.g., K & T, Inc., 888 P.2d at 626 (recognizing that restriction at issue was generated by shareholder agreement and its effect would be governed by U.C.C. provision 8-302 regarding bona fide purchasers); Joslin, 948 F.Supp. at 634 (concluding that transferee was not a bona fide purchaser because it had notice that transfer was prohibited by valid restriction under U.C.C. Section 8-302; transfer passed no interest to transferee).
The Court recognizes that whether the restriction is an adverse claim depends on whether a person’s property interest in a financial asset would be violated if another person held, transferred, or dealt with the financial asset. Ark.Code Ann. § 4-8-102(a)(1) (Michie 2001); Or. Rev. Stat. Ann. § 78.1020(1)(a) (West 2003). To follow this line of reasoning to its conclusion would unnecessarily lengthen the Court’s opinion since the Court has already decided that attachment did not occur unless the Bank’s theories of estoppel and apparent authority prevail. Therefore, the Court declines to consider whether the Bank was a protected purchaser or a purchaser who took with notice of an adverse claim.
Estoppel
The Bank contends that Lacamas should be estopped from relying on the restriction to invalidate the Bank’s security interest on the basis of two legal theories: inconsistent positions taken by Lacamas and the apparent authority of the Debtor.
Generally, equitable estoppel comprises the following elements: (1) the party to be estopped must know the facts; (2) he must intend that his conduct shall be acted on or must so act that the party asserting estoppel has a right to believe *683the other party so intended; (3) the party asserting estoppel must be ignorant of the facts; and (4) the party asserting estoppel must rely on the other’s conduct to his detriment. Felton v. Rebsamen Med. Ctr., Inc., 373 Ark. 472, 481, 284 S.W.3d 486, 493 (2008); King v. Powell, 85 Ark.App. 212, 224, 148 S.W.3d 792, 799 (2004) (citing Brown v. Brown, 83 Ark.App. 217, 125 S.W.3d 840 (2003)).
The party seeking estoppel has the burden to prove all four elements. Design Prof'l Ins. Co. v. Chicago Ins. Co., 454 F.3d 906, 912-13 (8th Cir.2006) (citing Shelter Mut. Ins. Co. v. Kennedy, 347 Ark. 184, 187, 60 S.W.3d 458, 460 (2001)).
The third element requiring the estopping party to be ignorant of the facts also prohibits a party from claiming estop-pel “as to facts which he ought in the exercise of reasonable prudence to know.” Carter v. Aetna Casualty & Surety Co., 473 F.2d 1071, 1078 (8th Cir.1973) (citing Kenneally v. First Nat’l Bank, 400 F.2d 838, 843 (8th Cir.1968)). Thus, the doctrine is inapplicable where the detriment results from carelessness or ignorance of the law on the part of the party asserting estoppel. Whitley v. Irwin, 250 Ark. 543, 547, 465 S.W.2d 906, 909 (1971) (citing Exchange Bank & Trust Co. v. Gibbons, 228 Ark. 454, 307 S.W.2d 877) (1957).
As to the fourth element requiring a showing of reliance by the party claiming estoppel, that reliance must be reasonable. Nash v. Landmark Storage LLC, 102 Ark.App. 182, 186 283 S.W.3d 605, 609 (2008) (citing Bharodia v. Pledger, 340 Ark. 547, 11 S.W.3d 540 (2000)). The type of conduct relied upon can be silence, but there must exist an opportunity and a duty to speak and knowledge that the other party is relying on that silence to his detriment. Willis v. Rice (In re Willis), 345 B.R. 647, 652 (8th Cir. BAP 2006); J.W. Reynolds Lumber Co. v. Smackover State Bank, 310 Ark. 342, 349, 836 S.W.2d 853, 856 (1992) (citing Lavaca Sch. Dist. No. 3 v. Charleston Sch. Dist. No. 9, 304 Ark. 104, 800 S.W.2d 703 (1990)).
The Bank argues that Lacamas should be estopped from enforcing the restriction because it took an inconsistent position that was misleading to the Bank and put the Bank at a disadvantage that was then asserted against the Bank. The doctrines of inconsistent positions and judicial estop-pel are often used interchangeably by courts and commentators. See, e.g., Breckenridge v. Breckenridge, No. CA 09-1035, 2010 WL 1233470, at *8 (Ark.App. March 31, 2010) (“[t]he doctrine of inconsistent positions, more commonly referred to in recent case law as the doctrine of judicial estoppel”). However, the Arkansas Supreme Court has explained that the doctrine of inconsistent positions is broader than judicial estoppel and may apply to positions taken outside of litigation. Dupwe v. Wallace, 355 Ark. 521, 531, 140 S.W.3d 464, 471 (2004). Thus, taking an inconsistent position may constitute a type of conduct that would support a finding of estoppel.
Under the general principles of equitable estoppel, the Court concludes the Bank did not prove facts to support its theory. In February 2003, the Bank knew that a restriction on the Debtors’ ability to pledge the stock existed, that the Consent to Stock Pledge was not adequately executed, and that more signatures either were being procured or might be procured in the future. The Bank entered into a loan agreement with the Debtor’s corporation despite the knowledge that the necessary signatures representing shareholder consent had not been obtained. The Bank also knew, during the years it repeatedly lent money to the Debtors or their corporation, that it never received an adequately executed Consent to Stock Pledge.
*684Taking these facts into account, the Court concludes that the Bank had the information it needed to determine that the Debtors’ stock was not suitable collateral because of the second restriction, even though the Debtors, when entering into the various security agreements, misrepresented the extent of their ability to pledge the stock. (See Pl.’s Ex. 4 at 2, second note to Bank, stating stock was owned by Debtor free and clear from any other interest or claim.)
Despite the Debtors’ misrepresentations and any alleged failure on Lacamas’ part to later inform the Bank that shareholders failed to consent to the pledge, it was the Bank’s carelessness or lack of reasonable prudence that resulted in its present predicament. Because of the Consent to Stock Pledge in its possession, the Bank had enough information from February 7, 2003 forward that the third prong of estop-pel requiring ignorance on the part of the estopping party is not satisfied. Furthermore, given the Bank’s knowledge, its reliance on any assurances by the Debtor was not reasonable under the fourth prong.
Estoppel by Inconsistent Position
Under similar reasoning, the Court finds that estoppel by inconsistent position is not applicable in this case. At some point on or after February 7, 2008, Lacamas learned of the Debtors’ pledge of their stock to the Bank despite the refusal of shareholder consent. The Bank argues that when the Debtors decided to sell a portion of their stock, Lacamas approached the Bank to negotiate the partial release of the Bank’s lien, an inconsistent position if Lacamas also claimed the SRA prevented the attachment of the lien in the first place.
Relevant to a determination of this issue is the testimony of Gary Burbank, an attorney for the Bank who testified that the Debtor and Erickson contacted the Bank about selling some of the Debtor’s stock in September 2003 and partially releasing the Bank’s lien. (Tr. at 93.)
Subsequently, Burbank contacted Steve Cyr, Lacamas’ attorney, “and I had more than one conversation with Mr. Cyr about how we go about making a partial release of our security interest in order to permit a stock sale.... ” (Tr. at 93.) Burbank testified on direct examination that during these discussions, there was no mention of “any sort of defect or problem with the security interest.” (Tr. at 94.)
Upon cross examination by Cyr, who was Lacamas’ counsel at the trial, Burbank was asked whether he remembered Cyr’s comment to him during the discussions in September 2003 that the security interest was questionable but that Erickson “wanted to jump through all hoops.” (Tr. at 101.) Burbank replied,
No, sir, I don’t.... Mr. Cyr, I remember you talking about the stock restriction in connection with the sale of the stock and that you would — you would need to comply with that in the way it was transferred, but I ... really don’t. And I’m 58 or 59, I guess — and could have forgotten it, but I don’t remember that.
Tr. at 101.
Despite the discussions, the Bank was not asked to surrender the stock certificate so that certificates reflecting new ownership could be issued, the Bank never received an official notice of the sale of the stock, and the Bank did not execute a partial release of lien. However, the Bank was aware that a stock sale had taken place and that the payment on the Debtors’ indebtedness to the Bank was derived from proceeds of the sale.
More than seven years have passed since Burbank’s conversations with Cyr, and Burbank candidly conceded that he “could have forgotten” the reservations *685concerning the security interest that were allegedly expressed by Cyr during their exchange. The Court places little weight on Burbank’s testimony that, upon cross examination, was tentative on this point.
Further, the fact that Burbank and Cyr discussed a partial lien release is not sufficient evidence that Lacamas intended to mislead the Bank into believing Lacamas recognized the purported lien. Certainly, the discussions presented Lacamas with the opportunity to voice its reservations about the security interest. But Lacamas was aware that the Bank had already proceeded with the loan transaction despite the lack of shareholder consent. Lacamas’ purported silence did not conceal that pivotal fact from the Bank.
As to why Lacamas inquired into the possibility of a partial release of lien if Lacamas did not recognize the lien, this question was not posed to Erickson when he testified. The Court can only speculate why the corporation felt it necessary to discuss the disputed lien with the Bank. At any rate, after the conversations between Cyr and Burbank, a notice of sale was not sent to the Bank, and the partial lien release was not effected. These circumstances suggest that Lacamas did not follow through because it had concluded neither document was necessary since the Bank held no legally cognizable interest in the stock. Even if this conclusion were wrong, it would still be consistent with Lacamas’ position at trial that the SRA prohibited the stock pledge.
Furthermore, the Court concludes that estoppel is not supported by the fact that Lacamas issued new stock certificates representing the same stock as that represented by Certificate 25 held by the Bank. Certificate 25 bears the following language on its face:
This certifies that John L. Garrison and Sue Garrison ... [are] the registered holder[s] of One Hundred Four Thousand Six Hundred Twenty-five Shares of ... common stock transferable only on the books of the Corporation by the holder hereof in person or by Attorney upon surrender of this Certificate properly endorsed.
Pl.’s Ex. 18.
The Oregon Court of Appeals has expressly held that when a stock certificate itself requires a surrender of the certificate before shares can be transferred, this requirement has legal effect consistent with Uniform Commercial Code provisions regarding acquisition of a security. Helton v. Phillips, 155 Or.App. 217, 963 P.2d 100, 104 (1998) (stating the rule is consistent with the Oregon Uniform Commercial Code; citing Or. Rev. Stat. Ann. §§ 78.1040(1)(a) & 78.8010(1)(a) (West 2003)). See, also, the identical provisions under Ark.Code Ann. §§ 4-8-104(a)(1) & 301(a)(1) (Michie 2001) (providing that a person acquires a security if the person is a purchaser to whom a security is delivered; delivery of a certificated security occurs when the purchaser acquires possession of the security certificate).
Lacamas failed to comply with its own requirement that the certificate must be surrendered prior to the transfer of the shares it represented and instead issued new stock certificates to the purchasers and the Debtors. By this conduct, Laca-mas was apparently attempting to effect a stock transfer without having to directly confront the Bank about surrendering original Stock Certificate 25 in the Bank’s possession. However, as testified to by Goudy, the Bank knew the stock was sold and that it received the proceeds to apply to the Debtors’ indebtedness. Thus, the Bank was not ignorant of the facts regarding the sale even though proper procedures for transferring the stock were not complied with. Despite its knowledge, the Bank continued to accept 104,625 shares of *686stock as collateral for all subsequent loans to the Debtors. Therefore, the Bank did not reasonably rely.
Apparent Authority
Further, the Bank argues that the Debtor Garrison was a board member and an agent of Lacamas throughout all of the transactions with the Bank and that he had apparent authority to bind Lacamas as to statements or representations he made about his ability to pledge the stock.10 The Bank contends that any act by Laca-mas that caused the Bank to rely on Garrison’s assurances with regard to his stock makes those statements binding on Laca-mas.
For an agency relationship to exist, one person, the principal, consents that another person, the agent, will act on behalf of and subject to the principal’s control, and the agent consents to so act. Sterne, Agee & Leach v. Way, 101 Ark. App. 23, 29, 270 S.W.3d 369, 375 (2007) (citing Reed v. Smith Steel, Inc., 77 Ark. App. 110, 78 S.W.3d 118 (2002)); Eads v. Borman, 227 P.3d 826, 829 (Or.App.2010) (citing Vaughn v. First Transit, Inc., 346 Or. 128, 206 P.3d 181 (2009) (quoting Hampton Tree Farms v. Jewett, 320 Or. 599, 892 P.2d 683 (1995))). Thus, two elements — the principal’s control of the agent’s acts and the consent of both parties — are necessary to the agency relationship.
Apparent authority “is relevant only if actual agency has already been established.” Eads, 227 P.3d at 831, n. 5 (quoting Kotera v. Daioh Int’l U.S.A. Corp., 179 Or.App. 253, 40 P.3d 506 (2002)). The Court need not further discuss apparent authority because the Bank did not prove the requisite actual agency relationship between the Debtor and Lacamas. First, the Bank does not show how the corporation, as principal, exerted control over the Debtor, as agent, as to the Debtors’ dealings with the Bank. Second, the record does not demonstrate mutual consent for the Debtor to act on Lacamas’ behalf. The fact that the Consent to Stock Pledge necessitated Erickson’s signature shows that the Debtor did not have authority to independently consent to the transfer on Lacamas’ behalf. For that matter, the Consent to Stock Pledge makes it clear that the corporation’s consent alone was ineffective to remove the restriction, which arose as a result of an agreement between the corporation and nine of the eleven Lacamas shareholders. The Bank does not contend that the Debtor, as agent for Lacamas, could also bind each shareholder as to consent to the restricted transfer.
The Debtors borrowed money for their private purposes and not on behalf of or to benefit Lacamas. Under the Uniform Commercial Code, “a person who transfers a certificated security to a purchaser for value warrants to the purchaser ... that ... the transfer does not violate any restriction on transfer.” Ark.Code Ann. § 4-8-108(a)(4) (Michie 2001); Or. Rev. Stat. Ann. § 78.1080(1)(d) (West 2003). Unquestionably, the Debtors violated this statute when they entered into the loan agreement with the Bank, but no evidence supports the conclusion that they did so with the consent and under the control of Lacamas. Thus, the Court will not impute to Lacamas the Debtors’ misrepresentations, in their loan documents or otherwise, on the basis of actual agency.
*687Trustee’s Counterclaim
Pursuant to Sections 544(a), 542, and 550 of the Bankruptcy Code, the Trustee seeks avoidance of the Bank’s security interest in and turnover of 68,962.54 shares of Lacamas stock, which represents the portion of the Debtor’s stock that was not sold to third parties in the September-October 2008 transaction.
Section 544(a)(1) gives a trustee the rights and powers of a hypothetical judicial lien creditor to avoid the transfer of an unperfected inferior interest in the debtor’s property. 11 U.S.C. § 544(a)(1) (2006); Eastern States Life Ins. Co. v. Strauss (In re Crawford), 274 B.R. 798, 804 (8th Cir. BAP 2002). This Code section permits a trustee to avoid prepetition liens that were not perfected in accordance with state law prior to the bankruptcy filing. In re Renaud, 302 B.R. 280, 283 (Bankr.E.D.Ark.2003) (citing Shuster v. Doane, 784 F.2d 883, 884 (8th Cir.1986)), aff'd, 308 B.R. 347 (8th Cir. BAP 2004).
Section 550(a) of the Bankruptcy Code provides in relevant part that “to the extent that a transfer is avoided under section 544 ... the trustee may recover, for the benefit of the estate, the property transferred.... ” 11 U.S.C. § 550(a) (2006). Pursuant to the turnover statute, an entity with possession, custody, or control of property that the trustee may use, sell, or lease is required to deliver such property to the trustee. 11 U.S.C. § 542(a) (2006).
As the Court has discussed above, the security interest in the stock did not attach to the Debtors’ rights in the collateral; therefore, perfection did not occur. Accordingly, the Court rules that the Trustee is entitled to avoid the transfer of a security interest in the Debtor’s stock because the Bank’s security interest was not perfected prior to the bankruptcy filing. Therefore, pursuant to Section 550(a), the Trustee may recover from the Bank the Debtor’s Lacamas stock as represented by Stock Certificate 25. The stock is also represented by Stock Certificate 28, and the Trustee is entitled to turnover of Certificate 28 in the Debtors’ possession in accordance with 11 U.S.C. § 542(a).
Attorney Fees
In its Answer and Counterclaim, Lacamas asks for its attorney fees pursuant to Section 14 of the SRA. This Section of the agreement provides that if suit is commenced to enforce any of the terms of the agreement, the prevailing party may recover its legal fees from the other parties. The SRA also provides that it will be construed under the laws of the State of Oregon. (Def. Lacamas Ex. A.)
Oregon law holds that a party is entitled to recover attorney fees only if a statute or contract confers that right. Mattiza v. Foster, 311 Or. 1, 803 P.2d 723 (1990) (citing Lewis v. Dept. of Rev., 294 Or. 139, 653 P.2d 1265 (1982); Riedel v. First Nat’l Bank, 287 Or. 285, 598 P.2d 302 (1979); Hughes v. Bembry, 256 Or. 172, 470 P.2d 151 (1970)). Attorney fee provisions in a contract apply only to the parties to the contract. See Haynes v. Adair Homes, Inc., 227 Or.App. 536, 206 P.3d 1062, 1063 (2009) (concluding that trial court erred in awarding fees to all prevailing plaintiffs when only two of the plaintiffs were parties to the contract containing the attorney fee provision; nonparties to the contract, although prevailing plaintiffs, were not entitled to the fee award), review denied, 347 Or. 42, 217 P.3d 688 (2009). Although the Haynes case dealt specifically with prevailing plaintiffs who were denied attorney fees because they were nonparties to a contract awarding attorney fees, the same reasoning would apply to a losing party in a lawsuit who was not a party to a previous contract allowing for the recovery of attorney fees.
*688In the instant case, the Debtors, not the Bank, were the parties who breached the terms of the SRA by pledging their stock to the Bank without consent of the other parties to the contract. Applying Oregon law, the Court determines that because the Bank was not a party to the SRA, which is the contract conferring the right to recover attorney fees, Lacamas may not recover its attorney fees from the Bank.
CONCLUSION
The Court finds that the Bank’s security interest in the stock at issue is invalid because of the Stock Restrictive Agreement, and the Court further finds that Lacamas is not equitably estopped from denying the security interest. Therefore, the Court rules that the Bank’s complaint for declaratory judgment is denied. The Bank’s request for a mandatory injunction directing the Debtors and Lacamas to convey all right, title, and interest in the stock to a buyer purchasing the stock in conformity with the Arkansas Uniform Commercial Code is denied. Lacamas’ counterclaim seeking a declaratory judgment that the Bank’s security interest in the stock is null and void is granted. Laca-mas’ request for its attorney fees is denied.
The Trustee’s counterclaim to avoid the Bank’s security interest is granted. The Bank and the Debtor will forthwith deliver to the Trustee Stock Certificates 25 and 28.11 The Trustee is further directed to take whatever legal or ministerial action deemed necessary to satisfy the applicable Oregon statutes and case law with regard to transfer of shares and surrender of certificates to effect transfers. The Court recognizes that the Trustee has specifically reserved for further proceedings the question of whether, in liquidating the stock, she is bound by the restrictions.
IT IS SO ORDERED.
. When "Debtor” is used in the singular, the reference is to Johney Garrison.
. The copy of the agreement admitted into evidence was not executed by two of the eleven potential signatories, Katherene and Richard Bagwell.
. Goudy testified that the Assignments and the Stock Power were received by the Bank when the initial note was executed on October 7, 2002, and that these documents, along with the original Stock Certificate Number 25, have been continuously maintained in the Bank’s possession until the time of trial. (Tr. at 24.) However, Goudy also testified he did not remember when he received the first assignment, which is the document admitted into evidence as Plaintiff’s Exhibit 2. (Tr. at 43.) No explanation was ever given as to why the two stock assignments, evidenced by Plaintiff’s Exhibit 2 and 18, referred to fewer than the 104,625 shares of stock in which the Bank took a security interest as recited in the first and all subsequent notes between the parties. (Compare Pl.’s Ex. 1, 2, & 18.)
. The Bank did not submit as evidence any renewal note or notes dated either February 10 or 11, 2003.
. Between February of 2003, when the first note by Garrison Inc. was made, and December of 2003, when it was paid by renewal, the Debtors sold some of their shares of Lacamas stock and applied the proceeds to their indebtedness with the Bank in September-October of 2003. This transaction will be discussed more fully below
.The Debtor first testified Goudy knew of the SRA at the time of the initial loan, but later agreed on cross examination and redirect *674questioning that he was unsure when Goudy became aware of the SRA, but that it was no later than February of 2003. (Tr. at 78, 89.)
. Subtracting the number of shares represented by Certificate 25 from the number of shares represented by Certificate 28 yields 35,662.46 shares of stock that the Debtors sold to other shareholders and/or employees in September or October of 2003.
. Issuer means "every person who issues or proposes to issue any security....” Underwriter means "any person who has purchased from an issuer with a view to, or offers or sells for an issuer in connection with, the distribution of any security....” Dealer means "any person who engages ... as agent, broker, or principal, in the business of offering, buying, selling, or ... trading in securities issued by another person.” 15 U.S.C.A. § 77b(4), (11), (12) (West 2009).
. See, for example, Goudy’s testimony in which he admitted that when the October 17, 2005 loan was extended to the Debtors, he knew of the SRA based on the Consent to Stock Pledge. (Tr. at 52, Pl.'s Ex. 9.)
. Goudy testified that during the negotiations for the February 7, 2003 loan, the Debt- or purported to be serving on the board of Lacamas. (Tr. at 45.) The Debtor testified he was not a member of the corporate board during the relevant period, (Tr. at 69), and the Consent to Stock Pledge reflects that he was not an officer of the corporation. The record is inconclusive on this point.
. These certificates are currently in the custody of the Court as Plaintiff's Exhibit 18 and Trustee’s Exhibit 1. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494478/ | *691
MEMORANDUM OPINION
JAMES G. MIXON, Bankruptcy Judge.
On December 1, 2010, Stephen Caine and Rita Caine (Debtors) filed a voluntary petition for relief under the provisions of Chapter 12 of the United States Bankruptcy Code, thereby becoming the debtor-in-possession. On February 1, 2011, the Debtors filed this adversary proceeding against First State Bank (Bank) to determine the nature and extent of the Bank’s lien, and for turnover.
On February 17, 2011, the Bank filed an answer to the Debtors’ complaint and filed a counterclaim for reformation of a mortgage granted to it by the Debtors pre-petition. On March 7, 2011, the Debtors filed an answer to the Bank’s counterclaim denying the allegations contained therein.
On April 19, 2011, the Debtors filed their first amended complaint. The amended complaint seeks to set aside the Bank’s mortgage lien on real property located in Ashley County, Arkansas, pursuant to the provisions of 11 U.S.C. § 544 because the legal description found in the mortgage and filed with the Circuit Clerk is defective. The amended complaint also seeks attorneys’ fees pursuant to Arkansas Code Annotated § 16-22-308.
On April 25, 2011, the Bank filed an answer to the Debtors’ first amended complaint admitting that the legal description was erroneous but denying that the Debtors could avoid their mortgage and asserting that the mortgage should be reformed because of mutual mistake.
Trial on the merits on the complaint and counterclaim was held in El Dorado, Arkansas, on June 21, 2011, and the matter was taken under advisement. Both sides have filed briefs in support of their respective positions. The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) & (K) and the Court has jurisdiction to enter a final judgment in the case. The following shall constitute the Court’s findings of fact and conclusions of law pursuant to Federal Rule of Bankruptcy Procedure 7052.
I.
FACTS
The facts are not in dispute. On April 1, 2005, the Debtors executed a promissory note in favor of the Bank in the principal sum of $82,468.53. Also, on April 1, 2005, in order to secure said indebtedness the Debtors executed and delivered to the Bank a mortgage on real estate which is located in Ashley County, Arkansas. Said real estate is described in the mortgage as follows:
PART OF THE EAST HALF OF THE NORTHWEST QUARTER OF SECTION 2, TOWNSHIP 17 SOUTH, RANGE 6 WEST, MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGIN WHERE THE NORTH LINE OF A PUBLIC ROAD INTERSECTS THE WEST LINE OF SAID EAST HALF OF SAID NORTHWEST QUARTER (WHICH POINT IS 764 FEET NORTH OF THE SOUTHWEST CORNER OF SAID EAST HALF OF SAID NORTHWEST QUARTER), THENCE RUN NORTH ALONG THE WEST LINE OF SAID EAST HALF OF SAID NORTHWEST QUARTER FOR 466 FEET; THENCE RUN SOUTH FOR 466 FEET, MORE OR LESS, TO PUBLIC ROAD; THENCE RUN SOUTH 87 DEGREES 30 MINUTES WEST ALONG SAID ROAD FOR 518 FEET, MORE OR LESS, BACK TO THE POINT OF BEGINNING.
(Bank’s Ex. 5.)
The legal description in the mortgage is defective because the description does not *692describe a tract of land. The description should have read as follows:
PART OF THE EAST HALF OF THE NORTHWEST QUARTER OF SECTION 2, TOWNSHIP 17 SOUTH, RANGE 6 WEST, MORE PARTICULARLY DESCRIBED AS FOLLOWS: BEGIN WHERE THE NORTH LINE OF A PUBLIC ROAD INTERSECTS THE WEST LINE OF SAID EAST HALF OF SAID NORTHWEST QUARTER (WHICH POINT IS 764 FEET NORTH OF THE SOUTHWEST CORNER OF SAID EAST HALF OF SAID NORTHWEST QUARTER), THENCE RUN NORTH ALONG THE WEST LINE OF SAID EAST HALF OF SAID NORTHWEST QUARTER FOR 466 FEET; THENCE RUN NORTH 87 DEGREES SO MINUTES EAST FOR 518 FEET,, THENCE RUN SOUTH FOR 466 FEET, MORE OR LESS, TO PUBLIC ROAD; THENCE RUN SOUTH 87 DEGREES 30 MINUTES WEST ALONG SAID ROAD FOR 518 FEET, MORE OR LESS, BACK TO THE POINT OF BEGINNING.
(Bank’s Ex. 3.)
The mortgage was recorded with the Circuit Clerk and Recorder of Ashley County, Arkansas, on April 11, 2005, and appears in Record Book 315 at Page 46-51. The mortgage also contains an address of the property as “601 Ashley 300 Road, Hamburg, Arkansas, 71646.” (Bank’s Ex. 5.) The correct description describes a five-acre tract upon which the Debtors’ personal residence is located. (Bank’s Ex. 3 & 4.)
II.
DISCUSSION OF 11 U.S.C. § 544
11 U.S.C. § 544 gives a trustee, or in this case a debtor-in-possession, the power to avoid certain pre-petition transfers of a debtor’s property that could have been avoided under applicable state law by certain types of creditors or bona fide purchasers. 11 U.S.C. § 1203. See also Sandy Ridge Oil Co., Inc. v. Centerre Bank Nat’l. Assoc. (In re Sandy Ridge Oil Co.), 807 F.2d 1332, 1335 (7th Cir.1986). These powers are commonly referred to as the trustee’s “strong arm powers.” 5 Collier on Bankr.¶ 544.01 at 544-3 (Alan N. Resnick & Henry J. Sommer eds. 16th ed.) “The strong arm rights and powers are conferred on the trustee by federal law. However, the extent of the trustee’s rights ... is measured by the substantive law of the jurisdiction governing the property in question.” 5 Collier on Bankr.¶ 544.02[1] at 544-5 (Alan N. Resnick & Henry J. Sommer eds. 16th ed.); see Cox v. Griffin (In re Griffin), 319 B.R. 609, 613 (8th Cir. BAP 2005) aff'd, 178 Fed.Appx. 595 (8th Cir.2006); In re Marlar, 252 B.R. 743, 752 (8th Cir. BAP 2000); Kohut v. Quicken Loans, Inc., Mortg. Electr. Registration Sys., Inc. (In re Wohlfeil), 322 B.R. 302, 304 (Bankr.E.D.Mich.2005). Section 544 acts to cut off unperfected security interests, secret liens, and undisclosed pre-petition claims against the debtor. 5 Collier on Bankr.¶ 544.02[2] at 544-6 (Alan N. Resnick & Henry J. Sommer eds. 16th ed.).
11 U.S.C. § 544 provides in relevant part:
The trustee shall have, as of the commencement of the case, and without regard to any knowledge of the trustee or of any creditor, the rights and powers of, or may avoid any transfer of property of the debtor or any obligation incurred by the debtor that is voidable by—
(1) a creditor that extends credit to the debtor at the time of commencement of the case, and that obtains, at such time and with respect to such credit, a judicial lien on all property *693on which a creditor on a simple contract could have obtained such a judicial lien, whether or not such a creditor exists;
(3)a bona fide purchaser of real property, other than fixtures, from the debtor, against whom applicable law permits such transfer to be perfected, that obtains the status of a bona fide purchaser and has perfected such transfer at the time of the commencement of the case, whether or not such a purchaser exists.
A.
11 U.S.C. § 544(a)(1)
The Debtors argue that they may avoid the Bank’s mortgage lien under 11 U.S.C. § 544(a)(1). This section grants a judicial lien on all real property on which a creditor on a simple contract could have obtained a judicial lien, whether or not the creditor exists. See 11 U.S.C. § 544(a)(1).
Under Arkansas law, a judgment becomes a lien on the debtor’s real property the date the judgment is filed if the real property is located in the same County where the judgment is filed. Ark.Code Ann. § 16-65-117(a)(1). On the day the petition was filed, the debtor-in-possession was deemed to be a creditor holding a judgment lien. See In re Don Williams Constr. Co., Inc., 143 B.R. 865, 868-869 (Bankr.E.D.Tenn.1992) (trustee may avoid unrecorded obligation to transfer property pursuant to his status as a judgment lien creditor).
Testimony in this case is that the property in question is the Debtors’ homestead. The Arkansas Constitution provides in relevant part as follows:
The homestead of any resident of this State, who is married ... shall not be subject to the lien of any judgment or decree of any court....
Constitution of the State of Arkansas, Article 9, Section 3. Accordingly, pursuant to the Arkansas Constitution a judgment lien on a simple contract does not attach to a debtor’s homestead. See In re Kellar, 204 B.R. 22 (Bankr.E.D.Ark.1996). Therefore, the Debtors, as the debtor-in-possession, may not avoid the Bank’s mortgage lien pursuant to 11 U.S.C. § 544(a)(1).
B.
11 U.S.C. § 544(a)(3)
11 U.S.C. § 544(a)(3) gives a trustee, in this case, a debtor-in-possession, the status of a bona fide purchaser who has no knowledge of the defect in a prior instrument even if the debtor-in-possession or trustee in fact has actual knowledge. In re Griffin, 319 B.R. 609, 612-613 (8th Cir. BAP 2005); Sandy Ridge Oil Co., Inc. v. Centerre Bank Nat’l. Assoc. (In re Sandy Ridge Oil Co.), 807 F.2d 1332, 1336 (7th Cir.1986); 5 Collier on Bankr. ¶ 544.02[2] at 544-6 (Alan N. Resnick & Henry J. Sommer eds. 16th ed.).
It is well settled that the language in § 544(a)(3) “without regard to any knowledge of the trustee” refers to personal knowledge of the trustee and does not negate constructive notice under state law.1 See Probasco v. Eads (In re Probasco), 839 F.2d 1352 (9th Cir.1988); McCannon v. Marston, 679 F.2d 13 (3rd Cir. 1982); Robbins v. Lenz (In re Perrin’s Marine Sales, Inc.), 63 B.R. 4 (Bankr. W.D.Mich.1985); 5 Collier on Bankr. ¶ 544.02 (the trustee is precluded from successfully using the avoiding powers when there is constructive notice by compliance with recording statutes or open possession). Therefore, constructive notice of *694the defect precludes the trustee from asserting the status of a bona fide purchaser for value. See In re Wohlfeil, 322 B.R. 302, 305 (Bankr.E.D.Mich.2005).
What is not so clear is whether the language in § 544(a)(3) “without regard to any knowledge of the trustee” negates inquiry notice. Inquiry notice is defined by state law and is not consistently defined nor is it treated consistently for purposes of 11 U.S.C. § 544 analysis. In some jurisdictions, inquiry notice is treated the same as constructive notice for purposes of 11 U.S.C. § 544; that is, the Trustee is subject to inquiry notice. See Briggs v. Kent (In re Prof'l. Inv. Properties of Am.), 955 F.2d 623, 627 (9th Cir.1992)(under Washington state law, “knowledge of facts sufficient to excite inquiry is constructive notice of all that the inquiry would have disclosed”); McCannon v. Marston, 679 F.2d 13, 16 (3rd Cir.1982)(under Pennsylvania law, clear and open possession of real property generally constitutes constructive notice and any prospective purchaser is obliged to inquire into the possessor’s interest). But see Wonder-Bowl Prop. v. Kim (In re Kim), 161 B.R. 831 (9th Cir. BAP 1993) (pursuant to California state law, a defective abstract will not provide constructive notice, nor does the existence of the defective abstract put a purchaser on inquiry notice).
Other courts have held that the language “without regard to any knowledge of the trustee” precludes the trustee from being subject to inquiry notice. As the Sixth Circuit explained in an unpublished opinion, “the ‘strong arm’ provisions of federal bankruptcy law specifically prohibit trustees from having actual knowledge of the interest. Thus, the trustee can only be charged with constructive notice.” Rogan v. America’s Wholesale Lender (In re Vance), 99 Fed.Appx. 25, *3 (6th Cir.2004) (unpublished) (In Kentucky an improperly recorded security interest failed to provide constructive notice and therefore the trustee was not on notice.) See also Gregory v. Ocwen Fed. Bank (In re Biggs), 377 F.3d 515, 521 (6th Cir.2004); Burden v. CIT Group/Consumer Finance, Inc. (In re Wilson), 318 Fed.Appx. 354, 364 (6th Cir. 2009) (unpublished); Wholesale Lender v. Gardner (In re Henson), 391 B.R. 210, *6 (6th Cir. BAP 2008) (unpublished); Consumer Finance, Inc. v. Burden (In re Trujillo), 378 B.R. 526, 536 (6th Cir. BAP 2007). In In re Coletta Bros. of North Quincy, Inc., a Massachusetts Bankruptcy Court held, the recorded notice of the judgment “which would cause a reasonable person to inquire about the outcome of the action” was ineffective to bind the Trustee. Gray v. Burke (In re Coletta Bros. of North Quincy, Inc.), 172 B.R. 159, 163 (Bankr.D.Mass.1994). The court explained:
This type of notice, known as inquiry notice, is a species of actual notice: actual notice not of the judgment itself but of fact that would lead one to the judgment. By virtue of 11 U.S.C. 544(a)(3), however, the Trustee is deemed to be a bona fide purchaser regardless of any knowledge he may have had. Therefore, as inquiry notice, the recorded notice is ineffective against the Trustee.
Gray v. Burke (In re Coletta Bros. of North Quincy, Inc.), 172 B.R. 159, 163 (Bankr.D.Mass.1994). The Tenth Circuit Bankruptcy Appellate Panel analyzes the problem as follows:
The Lane court [Lane v. Courange, 187 Kan. 645, 359 P.2d 1115 (1961) ] considers “inquiry notice” a species of “actual notice” while the Urschel court [Fed. Savs. & Loan Ins. Corp. v. Urschel, 159 Kan. 674, 157 P.2d 805 (1945) ] describes “inquiry notice” as “constructive notice.” The semantic discrepancy is not important so long as it is understood that the trustee, as a hypothetical purchaser who *695perfected his interest under state law as of the commencement of the case, had no hypothetical duty to make a diligent inquiry based on information actually known by the trustee either before or after the commencement of the case. Inquiry notice imposed on the trustee derives only from constructively noticed facts.
Morris v. Kasparek (In re Kasparek), 426 B.R. 832, 345, fn. 51 (10th Cir. BAP 2010).
Ultimately, whether the trustee is subject to inquiry notice for purposes of § 544 analysis depends on state law.
1.
Arkansas Law
In order to be a bona fide purchaser under Arkansas law, one must take property in good faith, for valuable consideration, and without notice of a prior interest. Bill’s Printing, Inc. v. Carder, 357 Ark. 242, 249, 161 S.W.3d 803, 807 (2004).
A mortgage is perfected against a subsequent transfer by recording the mortgage in the office of the circuit clerk of the county in which the mortgaged lands are located and the recording constitutes constructive notice against claims of bona fide purchasers or subsequent encumbrances. Ark.Code Ann. § 18-40-102 (Michie 2003); Williams v. JPMorgan Chase Bank, N.A. (In re Stewart), 422 B.R. 185, 188 (Bankr. E.D.Ark.2009); Hawkins v. First Nat’l. Bank (In re Bearhouse), 99 B.R. 926, 927 (Bankr .W.D.Ark.1989).
An instrument including a deed or mortgage that has been filed but contains a defective description does not constitute constructive notice if the description does not describe definite land. See McClelland v. McClelland, 219 Ark. 255, 241 S.W.2d 264 (1951) (insufficient description of land in the deed and therefore no notice provided by recorded deed); Gardner v. Johnson, 220 Ark. 168, 246 S.W.2d 568 (1952) (tax sale was invalid because the deed from the state contained a defective description); Neas v. Whitener-London Realty Co., 119 Ark. 301, 178 S.W. 390 (1915) (range omitted from legal description in the deed rendered the deed ineffective to pass title); Cooper v. Lee’s Heirs, 59 Ark. 460, 27 S.W. 970 (Ark.1894) (The description of land in the assessment or notice using abbreviations was not sufficient and therefore the tax sale was void.).
The Court notes that the Debtors and the Bank argue about whether “the defect was apparent on the face of the mortgage”; however, they argue over an issue that arises pursuant Minnesota law.2 See Ameriquest Mortgage Co. v. Stradtmann (In re Stradtmann), 391 B.R. 14, 18 (8th Cir. BAP 2008); Lindquist v. Household Indus. Fin. Co. (In re Vondall), 364 B.R. 668, 671 (8th Cir. BAP 2007). Arkansas law has no similar language and so this issue in inapplicable. The Bank cites to a recent decision by Judge Ben Barry of this Court which discusses § 544(a)(3) and inquiry notice; however, this case is also not applicable because it discusses Missouri law. See In re McDaniel, United States Bankruptcy Court, Western District of Arkansas, No. 5:09-bk-75005 (August 10, 2010).
In Arkansas “[a] subsequent purchaser will be deemed to have actual notice of a prior interest in property if he is aware of such facts and circumstances as would put a person of ordinary intelligence and prudence on such inquiry that, if diligently pursued, would lead to knowledge *696of the prior interest.” Massey v. Wynne, 302 Ark. 589, 591, 791 S.W.2d 368, 369 (1990). See also Bowen v. Perryman, 256 Ark. 174, 179, 506 S.W.2d 543, 547 (1974)(inquiry notice is tantamount to actual notice); Valley Planing Mill Co. v. Lena Lumber Co., 168 Ark. 1133, 272 S.W. 860, 864 (1925)(quoting Holloway v. Eagle, 135 Ark. 206, 205 S.W. 113, 116 (1918))(“notice of facts and circumstances, that would put a man of ordinary prudence and intelligence on inquiry, which in law, is tantamount to knowledge of the facts to which inquiry might lead.”) All of the above cited cases involve “facts and circumstances” of which the subsequent purchaser had actual notice.
The Arkansas Supreme Court explains why a bona fide purchaser is not constructively bound to inquire further than the information in the records:
Good faith requires of that man who has actual knowledge of any existing fact to pursue such inquiry as would be suggested to an ordinarily prudent man by that knowledge, and equity charges him with that knowledge which he would have thus obtained had he made the inquiry. But we find no cases which impose this duty upon him who has only constructive notice. Constructive notice relates only to the instrument as recorded, and if the instrument is insufficient to give the necessary notice, then knowledge is not to be imputed.
Neas v. Whitener-London Realty Co., 119 Ark. 301, 178 S.W. 390, 394 (1915)(empha-sis added). Purchasers in Arkansas are only charged with notice of facts exhibited by the record made under the recording statutes, and not with facts that can be found outside the record that the record might have induced a prudent man to inquire into. Neas v. Whitener-London Realty Co., 119 Ark. 301,178 S.W. 390 (1915). Therefore, in Arkansas a defective description found in the records does not impose upon a subsequent purchaser a duty to inquire outside the record to be qualified as a bona fide purchaser.3
In Arkansas, a duty to inquire outside the record only arises from facts and circumstances of which the subsequent purchaser has actual notice. Because “actual knowledge of the encumbrance will never prohibit a trustee [or debtor-in-possession] from invoking § 544(a)(3)”; this Court holds that pursuant to Arkansas law and § 544, a trustee or debtor-in-possession is only charged with notice of facts in the recording books to qualify as a bona fide purchaser. Quoting Sandy Ridge Oil Co. v. Centerre Bank Nat’l. Ass’n. (In re *697Sandy Ridge Oil Co.), 807 F.2d 1332, 1335 (7th Cir.1986).
2.
Analysis
The Bank put on proof that a simple check of the Grantor/Grantee index would have revealed the existence of the mortgage and that a title examiner who examined the title would have noticed the description did not close. The description in the mortgage goes from the point of beginning, then north, then south the same number of feet as the north call, then mostly west 518 feet. When drawn out the calls result in the shape of the letter “L.” All this description tells a subsequent purchaser is that the mortgage concerns a tract of land located in the East Half of the Northwest Quarter, Section 2, T17N (Township 17 North), R6W (Range 6 West), Ashley County, Arkansas. The Bank introduced a survey and the deed using the correct legal description which contains five acres including a house. (Bank’s Ex. 3 & 4.) Unrefuted testimony was presented that a title examination would have uncovered the mortgage by doing either a direct index search based upon the name of the grantors or searching through the computer using a name search or the legal description.
The recorded mortgage does not put a bona fide purchaser on constructive notice because it is not possible to tell exactly what land is being described because it does not close. The deed does not help matters because the land intended to be mortgaged could have been a smaller portion than the land described in the deed. It is simply impossible to tell by the record what land is being mortgaged. Linking the mortgaged property to the deed would be speculative. See In re Poteat, 176 B.R. 734 (Bankr.D.Del.1995). Extrinsic evidence would be necessary and the debtor-in-possession is only subject to evidence that would be found in the records to qualify as a bona fide purchaser. Accordingly, the debtor-in-possession can avoid the lien pursuant to 11 U.S.C. § 544(a)(3).
III.
REFORMATION
The Bank seeks to reform the mortgage to recite the correct legal description alleging that the omitted call was a mutual mistake due to a scrivener’s error. As this Court explained in Stewart:
In Arkansas, reformation of instruments is an equitable remedy that is appropriate when the instrument evidencing the agreement does not reflect the terms of the agreement due to mutual mistake of the party. Rice v. First Arkansas Valley Bank (In re May), 310 B.R. 405, 420 (Bankr.E.D.Ark.2004) (citing Statler v. Painter, 84 Ark.App. 114, 133 S.W.3d 425, 428 (2003)). However, reformation will not operate to prejudice a subsequent bona fide purchaser. In re May, 310 B.R. 405, 420 (Bankr.E.D.Ark.2004) (citations omitted). 11 U.S.C. § 544(a)(3) gives the trustee the same rights and priorities in real property that a subsequent bona fide purchaser would have over an unperfected lien. In re Bearhouse, Inc., 99 B.R. at 927.
In re Stewart, 422 B.R. 185, 190 (Bankr. W.D.Ark.2009).
The debtor-in-possession’s rights as a bona fide purchaser would by prejudiced if the mortgage were to be reformed. Therefore, the Bank is not entitled to reformation.
IV.
ATTORNEYS’ FEES
It has long been the rule in the United States that absent unusual circumstances, parties are not entitled to recover *698their attorneys fees from the opposing party, unless provided for in a contract or in a state or federal statute. United States v. Mexico Feed and Seed. Co., 980 F.2d 478, 490 (8th Cir.1992) (citing Alyeska Pipeline Serv. Co. v. Wilderness Soc’y., 421 U.S. 240, 249-50, 95 S.Ct. 1612, 1617-18, 44 L.Ed.2d 141 (1975)); In re Hunter, 203 B.R. 150, 151 (Bankr.W.D.Ark.1996). The Debtors seeks attorneys’ fees pursuant to Arkansas Code Annotated § 16-22-308. The relevant code provision provides:
In any civil action to recover on an account stated, promissory note, bill, negotiable instrument, or contract relating to the purchase or sale of goods, wares, or merchandise, or for labor or services, or breach of contract, unless otherwise provided by law or the contract which is the subject matter of the action, the prevailing party may be allowed a reasonable attorney’s fee to be assessed by the court and collected as costs.
Ark.Code Ann. § 16-22-308 (Michie 1994). A court’s award of attorneys’ fees pursuant to this statute is permissive and discretionary. Logue v. Seven-Hot Springs Corp., 926 F.2d 722, 725 (8th Cir.1991).
This section 544 cause of action allows the debtor-in-possession to set aside a lien due to the debtor-in-possession’s bona fide purchaser status. It is a cause of action peculiar to the Bankruptcy Code and differs from the types of actions which § 16-22-308 addresses. Arkansas Code Annotated § 16-22-308 is inapplicable to the case at bar. Accordingly, the Court finds that the Debtors are not entitled to attorneys’ fees.
V.
CONCLUSION
Pursuant to 11 U.S.C. § 544, the defective description does not provide the required notice; therefore, the debtor-in-possession qualifies as a bona fide purchaser and can avoid the mortgage lien. For the foregoing reasons, neither reformation nor attorneys’ fees pursuant to Arkansas Code Annotated § 16-22-308 are appropriate in this matter. A separate judgment shall be entered pursuant to Federal Rule of Bankruptcy Procedure 9021.
IT IS SO ORDERED.
. Constructive notice is generally held to be notice which a person is deemed to have by operation of law, commonly through the recording statutes.
. In Minnesota, a defect that is apparent on the face of the mortgage provides for constructive notice. Ameriquest Mortgage Co. v. Stradtmann (In re Stradtmann), 391 B.R. 14, 18 (8th Cir. BAP 2008); Lindquist v. Household Indus. Fin. Co. (In re Vondall), 364 B.R. 668, 671 (8th Cir. BAP 2007)
. The Court noted that the rule is different for a defective description when it involves invalidating a deed because "a deed is not to be held void for uncertainty, if by any reasonable construction it can be made available.” Davis v. Burford, 197 Ark. 965, 125 S.W.2d 789, 791 (1939) (omission of the township and range in deed was not fatal because the exception in the deed supplied the defect). Therefore, a description of land will be held sufficient if the land can be located by evidence aliunde from the description itself. Snyder v. Bridewell, 167 Ark. 8, 267 S.W. 561 (1924) (A description is sufficient if it furnished a key whereby a person, aided by extrinsic evidence, can ascertain what property is covered, then such a description is sufficient.); Tolle v. Curley, 159 Ark. 175, 251 S.W. 377 (1923) (“If the descriptive words themselves furnish a key for identifying the land conveyed nothing more is required.”). Extrinsic evidence is not admissible to cure a description which itself is void and offers no key in which the land can by located. Undernehr v. Sandlin, 35 Ark.App. 207, 827 S.W.2d 164, 166 (1992) (A description does not furnish a key through which land can be located by evidence aliunde, when the description simply stops and leaves the rest of the description to the imagination.); Lemon v. Tanner, 173 Ark. 414, 292 S.W. 668 (1927) (description did not provide a key to identify the land; therefore, the reservation was void). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488121/ | Case: 22-10476 Document: 00516550960 Page: 1 Date Filed: 11/18/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 22-10476
Summary Calendar FILED
November 18, 2022
Lyle W. Cayce
United States of America, Clerk
Plaintiff—Appellee,
versus
Montray Lorenzo Cato,
Defendant—Appellant.
Appeal from the United States District Court
for the Northern District of Texas
USDC No. 4:12-CR-194-1
Before Stewart, Duncan, and Wilson, Circuit Judges.
Per Curiam:*
Montray Lorenzo Cato directly appeals from a judgment revoking his
supervised release and sentencing him to 90 days of imprisonment and 30
months of supervised release. He challenges the constitutionality of 18
U.S.C. § 3583(g), which mandates revocation of supervised release and a
*
Pursuant to 5th Circuit Rule 47.5, the court has determined that this
opinion should not be published and is not precedent except under the limited
circumstances set forth in 5th Circuit Rule 47.5.4.
Case: 22-10476 Document: 00516550960 Page: 2 Date Filed: 11/18/2022
No. 22-10476
term of imprisonment for any offender who violates certain conditions of
supervised release, including prohibitions on possessing and using a
controlled substance.
Relying on United States v. Haymond, 139 S. Ct. 2369 (2019), Cato
contends that § 3583(g) is unconstitutional because it requires revocation of
a term of supervised release and imposition of a term of imprisonment
without affording the defendant the constitutionally guaranteed right to a
jury trial. He concedes that his challenge is foreclosed by United States v.
Garner, 969 F.3d 550 (5th Cir. 2020), and he raises the issue to preserve it
for further review. The Government has filed an unopposed motion for
summary affirmance and, alternatively, for an extension of time to file its
brief.
In Garner, we rejected the argument that Cato has advanced and held
that § 3583(g) is not unconstitutional under Haymond. See Garner, 969 F.3d
at 551–53. Thus, Cato’s sole argument on appeal is foreclosed. Accordingly,
the Government’s motion for summary affirmance is GRANTED, its
alternative motion for extension of time is DENIED, and the judgment of
the district court is AFFIRMED. See Groendyke Transp., Inc. v. Davis, 406
F.2d 1158, 1162 (5th Cir. 1969).
2 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488118/ | USCA4 Appeal: 21-2265 Doc: 12 Filed: 11/18/2022 Pg: 1 of 5
UNPUBLISHED
UNITED STATES COURT OF APPEALS
FOR THE FOURTH CIRCUIT
No. 21-2265
LAMAR A. WILLIAMS,
Plaintiff-Appellant,
v.
JUDICIAL COUNCIL FOR THE FOURTH CIRCUIT; DISTRICT OF
MARYLAND, DEPARTMENT OF JUSTICE, U.S. Attorney’s Office District of
Maryland; U.S. COURT OF APPEALS FOR THE FOURTH CIRCUIT; U.S.
MARSHALS SERVICE OF MARYLAND, DEPARTMENT OF JUSTICE, U.S.
District Court of Maryland; UNITED STATES OF AMERICA; PROBATION AND
PRETRIAL SERVICES OFFICE; FEDERAL PUBLIC DEFENDER FOR THE
DISTRICT OF MARYLAND; MAGISTRATE JUDGE SELECTION PANEL,
United States District Court for the District of Maryland; U.S. SUPREME COURT;
BALTIMORE COUNTY POLICE DEPARTMENT; UNITED STATES DISTRICT
COURT FOR THE DISTRICT OF MARYLAND,
Defendants-Appellees.
Appeal from the United States District Court for the District of Maryland, at Baltimore.
Deborah K. Chasanow, Senior District Judge. (1:21-cv-00537-DKC)
Submitted: April 12, 2022 Decided: November 18, 2022
Before Diarmuid F. O’SCANNLAIN, Circuit Judge of the United States Court of Appeals
for the Ninth Circuit, sitting by designation; Jane R. ROTH, Circuit Judge of the United
States Court of Appeals for the Third Circuit, sitting by designation; Julia S. GIBBONS,
USCA4 Appeal: 21-2265 Doc: 12 Filed: 11/18/2022 Pg: 2 of 5
Circuit Judge of the United States Court of Appeals for the Sixth Circuit, sitting by
designation. 1
Affirmed by unpublished per curiam opinion.
Lamar A. Williams, Appellant Pro Se.
Unpublished opinions are not binding precedent in this circuit.
1
As all members of the United States Court of Appeals for the Fourth Circuit are
recused in this case, a panel of judges from outside the Circuit was appointed by the Chief
Justice for this appeal pursuant to 28 U.S.C. §§ 291, 294 (2018).
2
USCA4 Appeal: 21-2265 Doc: 12 Filed: 11/18/2022 Pg: 3 of 5
PER CURIAM:
Lamar Williams appeals the district court’s orders dismissing his complaint and
denying his motions for reconsideration. As the facts are known to the parties, we repeat
them only as necessary to explain our decision. We affirm.
I
The district court did not err in dismissing Williams’s complaint. See Williams v.
Fourth Circuit, et al., No. DKC-21-537 (April 30, 2021 Order) (dismissing Williams’s
complaint). As an initial matter, Williams has forfeited any material challenges to the
district court’s order dismissing his complaint. Our review is limited to issues raised in the
informal brief. Jackson v. Lightsey, 775 F.3d 170, 177 (4th Cir. 2014) (“The informal brief
is an important document; under Fourth Circuit rules, our review is limited to issues
preserved in that brief.”) (citing 4th Cir. R. 34(b)); see also, e.g., Williams v. Giant Food
Inc., 370 F.3d 423, 430 n.4 (4th Cir. 2004) (requiring an informal brief to challenge with
specific arguments the bases for the district court’s disposition). Williams’s informal brief
does not adequately challenge the basis for the district court’s order dismissing his
complaint and therefore fails to preserve any material challenges to the order. And even if
Williams had preserved such challenges, his informal brief still fails to persuade—it
provides no reasons for concluding that the district court erred, and we are persuaded that
the district court properly dismissed Williams’s claims against the named entities. See,
e.g., Williams v. Fourth Circuit, et al., No. DKC-21-537 (April 30, 2021 Order), at *5-12.
3
USCA4 Appeal: 21-2265 Doc: 12 Filed: 11/18/2022 Pg: 4 of 5
II
The district court did not err in denying Williams’s motions for reconsideration. See
Williams v. Fourth Circuit, et al., No. DKC-21-537 (October 8, 2021 Order) (denying
motions for relief from the judgment and to alter and amend the judgment). Although
Williams sought reconsideration under both Rule 59(e) and Rule 60(b), his request for
reconsideration “should be treated as a motion under Rule 59(e).” MLC Auto. LLC v. Town
of S. Pines, 532 F.3d 269, 277 (4th Cir. 2008) (cleaned up). “A Rule 59(e) motion may
only be granted in three situations: (1) to accommodate an intervening change in
controlling law; (2) to account for new evidence not available at trial; or (3) to correct a
clear error of law or prevent manifest injustice.” Mayfield v. Nat’l Ass’n for Stock Car
Auto Racing, Inc., 674 F.3d 369, 378 (4th Cir. 2012) (cleaned up); id. (describing relief
under Rule 59(e) as an “extraordinary remedy that should be applied sparingly”). Williams
has failed to establish that he was entitled to such reconsideration: he has failed to identify
any intervening changes in the controlling law, to identify new evidence not available at
trial, or to establish that reconsideration is necessary to correct a clear error of law or
prevent manifest injustice. Accordingly, the district court did not abuse its discretion in
denying Williams’s motions for reconsideration.
* * *
We deny Williams’s motion for an emergency injunction and any related relief
because Williams has failed to make the requisite showing. See Fed. R. App. P. 8; Nken v.
Holder, 556 U.S. 418, 433-34 (2009). We dispense with oral argument because the facts
4
USCA4 Appeal: 21-2265 Doc: 12 Filed: 11/18/2022 Pg: 5 of 5
and legal contentions are adequately presented in the materials before this court and
argument would not aid the decisional process. 2
AFFIRMED
We caution Mr. Williams that repeatedly filing claims that are barred or frivolous
2
may result in an order limiting his ability to file in this court. See, e.g., Cromer v. Kraft
Foods N. Am., Inc., 390 F.3d 812, 817 (4th Cir. 2004).
5 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488183/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-94,278-01
EX PARTE JOHNNIE EDISON CARTER, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 15-22215-A IN THE CRIMINAL DISTRICT COURT
FROM JEFFERSON COUNTY
Per curiam. SLAUGHTER , J., filed a concurring opinion.
OPINION
Applicant originally pleaded guilty to aggravated assault and was placed on deferred
adjudication community supervision for a period of ten years. Later, he was adjudicated guilty and
sentenced to twenty years’ imprisonment. The Ninth Court of Appeals affirmed his conviction.
Carter v. State, No. 09-20-00175-CR (Tex. App.—Beaumont June 8, 2022) (not designated for
publication). Applicant filed this application for a writ of habeas corpus in the county of conviction,
and the district clerk forwarded it to this Court. See TEX . CODE CRIM . PROC. art. 11.07.
Applicant contends that appellate counsel failed to timely inform Applicant that his
conviction had been affirmed and advise him of his right to file a pro se petition for discretionary
review. Based on the record, the trial court has determined that appellate counsel’s performance was
2
deficient and that Applicant would have timely filed a petition for discretionary review but for
counsel’s deficient performance.
Relief is granted. Ex parte Wilson, 956 S.W.2d 25 (Tex. Crim. App. 1997); Ex parte Crow,
180 S.W.3d 135 (Tex. Crim. App. 2005). Applicant may file an out-of-time petition for
discretionary review of the judgment of the Ninth Court of Appeals in cause number 09-20-00175-
CR. Should Applicant decide to file a petition for discretionary review, he must file it with this
Court within thirty days from the date of this Court’s mandate.
Copies of this opinion shall be sent to the Texas Department of Criminal Justice–Correctional
Institutions Division and the Board of Pardons and Paroles.
Delivered: November 16, 2022
Do not publish | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488186/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER ON MOTION
Cause Number: 01-22-00187-CV
Trial Court Cause
Number: 2019-05241A
Style: Dharmesh Patel, MD and Avinash Patel
v. Swetanshu Chaudhari, MD
Date motion filed*: November 14, 2022
Type of motion: Motion for Extension of Time
Party filing motion: Appellants
Document to be filed: Reply Brief
Is appeal accelerated? Yes No
If motion to extend time:
Original due date: November 28, 2022
Number of previous extensions granted: 0
Date Requested: January 9, 2023
Ordered that motion is:
Granted
If document is to be filed, document due: January 9, 2023
Absent extraordinary circumstances, the Court will not grant additional motions to extend time
The Court will not grant additional motions to extend time.
Denied
Dismissed (e.g., want of jurisdiction, moot)
Other: _____________________________________
Judge's signature: /s/ April L. Farris
Acting individually Acting for the Court
Date: November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488187/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER ON MOTION FOR REHEARING
Appellate case name: In re Joseph Thomas Roberts
Appellate case number: 01-22-00786-CR & 01-22-00787-CR
Trial court case number: 20-DCR-0505 & 20-DCR-0506
Trial court: 344th District Court of Chambers County
Date motion filed: November 7, 2022
Party filing motion: Relator, Joseph Thomas Roberts
Relator, Joseph Thomas Roberts, has filed a motion for rehearing of this Court’s
November 1, 2022 opinion denying his petition for writ of mandamus. See TEX. R. APP.
P. 49.1, 52.9.
It is ordered that the motion for rehearing is denied.
Judge’s signature: /s/ April Farris
Acting for the Court
Panel consists of: Justices Goodman, Countiss, and Farris.
Date: November 17, 2022 | 01-04-2023 | 11-21-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488188/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER
Appellate case name: Wen Lian H. Patience v. Christine Hendricks Hodson
Appellate case number: 01-22-00599-CV
Trial court case number: 22-DCV-290170
Trial court: 458th District Court of Fort Bend County
Appellant Wen Lian H. Patience filed a motion for rehearing on October 13, 2022.
The motion for rehearing is denied.
It is so ORDERED.
Judge’s signature: ____Justice Richard Hightower_______________
Acting for the Court
Panel consists of Chief Justice Radack and Justices Landau and Hightower
Date: November 17, 2022 | 01-04-2023 | 11-21-2022 |
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