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https://www.courtlistener.com/api/rest/v3/opinions/8488450/ | Case: 21-30742 Document: 00516552633 Page: 1 Date Filed: 11/21/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 21-30742 FILED
Summary Calendar November 21, 2022
Lyle W. Cayce
Clerk
United States of America,
Plaintiff—Appellee,
versus
Jason W. Harper,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Louisiana
USDC No. 3:13-CR-231-1
Before Davis, Duncan, and Engelhardt, Circuit Judges.
Per Curiam:*
Jason W. Harper, federal prisoner # 16667-035, appeals the district
court’s denial of his motion for compassionate release under 18 U.S.C.
§ 3582(c)(1)(A). He argues that the district court abused its discretion in
finding that he did not establish extraordinary and compelling reasons for
*
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opinion should not be published and is not precedent except under the limited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: 21-30742 Document: 00516552633 Page: 2 Date Filed: 11/21/2022
No. 21-30742
release and in alternatively concluding that the 18 U.S.C. § 3553(a) factors
weighed against a sentence reduction.
Harper has not shown that the district court abused its discretion in
denying relief. See United States v. Chambliss, 948 F.3d 691, 693 (5th Cir.
2020). His challenges to the district court’s balancing of the § 3553(a) factors
are unpersuasive. See id. at 694. Furthermore, because the district court’s
independent § 3553(a) analysis supports the denial of his motion, it is
unnecessary to consider Harper’s arguments challenging the district court’s
conclusion that he failed to show extraordinary and compelling reasons
warranting relief. See United States v. Jackson, 27 F.4th 1088, 1093 n.8 (5th
Cir. 2022); Ward v. United States, 11 F.4th 354, 360-62 (5th Cir. 2021).
Accordingly, the judgment of the district court is AFFIRMED.
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488470/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00651-CV
Lawrence Brandon Erlanson, Individually, and as Independent Executor of the Estate of
Freddie Lindsay Erlanson, Appellant
v.
Teresa Erlanson, Appellee
FROM THE COUNTY COURT AT LAW NO. 2 OF COMAL COUNTY
NO. 2021PC0278, THE HONORABLE CHARLES A. STEPHENS II, JUDGE PRESIDING
MEMORANDUM OPINION
PER CURIAM
Lawrence Brandon Erlanson, Individually, and as Independent Executor of the
Estate of Freddie Lindsay Erlanson, has filed an unopposed motion to abate this appeal while the
parties finalize a settlement reached through mediation. We grant the motion and abate this
appeal. On or before December 19, 2022, the parties shall submit either a motion to dismiss, a
joint status report concerning the status of settlement negotiations, or a motion to reinstate. This
appeal will remain abated until further other of this Court.
Before Chief Justice Byrne, Justices Triana and Smith
Abated
Filed: November 18, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488471/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-22-00433-CV
Katharine Ehresman, Appellant
v.
LF Technology Development Corporation Limited; TECX Academy Austin, Inc.;
Starstone Specialty Insurance Company; and, Individually, Alexander Greystoke; Patricio
Lebrija; John McLaughlin; Lyanne Millhouse; Eli Rabinowitz; Simon Holden; Michael
Culhane; Oscar Ramos; Susan Strasberg; Chris Nichols; Michael Casey; and John Doe(s)
1-20, Appellees
APPEAL FROM THE 345TH DISTRICT COURT OF TRAVIS COUNTY
BEFORE CHIEF JUSTICE BYRNE, JUSTICES TRIANA AND SMITH
DISMISSED FOR WANT OF JURISDICTION –
OPINION BY CHIEF JUSTICE BYRNE
This is an appeal from the judgment signed by the trial court on June 15, 2022. Having reviewed
the record, it appears that the Court lacks jurisdiction over the appeal. Therefore, the Court
dismisses the appeal for want of jurisdiction. The appellant shall pay all costs relating to this
appeal, both in this Court and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488472/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00433-CV
Katharine Ehresman, Appellant
v.
LF Technology Development Corporation Limited; TECX Academy Austin, Inc.;
Starstone Specialty Insurance Company; and, Individually, Alexander Greystoke; Patricio
Lebrija; John McLaughlin; Lyanne Millhouse; Eli Rabinowitz; Simon Holden; Michael
Culhane; Oscar Ramos; Susan Strasberg; Chris Nichols; Michael Casey; and John Doe(s)
1-20, Appellees
FROM THE 345TH DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-GN-20-001996, THE HONORABLE MADELEINE CONNOR, JUDGE PRESIDING
MEMORANDUM OPINION
Appellant Katharine Ehresman filed a notice of appeal from the trial court’s
June 15, 2022 “Order Granting Named Defendants’ No Evidence Motion for Summary
Judgment.” Upon initial review, the Clerk of this Court sent Ehresman a letter informing her that
this Court appears to lack jurisdiction over the appeal because our jurisdiction is limited to
appeals in which there exists a final or appealable judgment or order. See Tex. Civ. Prac. &
Rem. Code § 51.012; Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001) (explaining
that appeal generally may only be taken from final judgment that disposes of all pending parties
and claims in record unless statute provides for interlocutory appeal). In this case, the trial
court’s order only disposes of Ehresman’s claims against some, but not all, of the defendants,
and an order granting summary judgment in favor of only some of multiple defendants is not an
appealable interlocutory order. Stary v. DeBord, 967 S.W.2d 352, 352-53 (Tex. 1998)
(“Appellate courts have jurisdiction to consider immediate appeals of interlocutory orders only if
a statute explicitly provides appellate jurisdiction.”); see also Tex. Civ. Prac. & Rem. Code
§ 51.014 (specifically permitting appeal of various interlocutory orders but not permitting
appeal from grant of partial summary judgment). The Clerk requested a response on or before
October 28, 2022, informing this Court of any basis that exists for jurisdiction. Ehresman failed
to file any response.
Accordingly, for the reasons explained above, we dismiss the appeal for want of
jurisdiction. See Tex. R. App. P. 42.3(a).
__________________________________________
Darlene Byrne, Chief Justice
Before Chief Justice Byrne, Justices Triana and Smith
Dismissed for Want of Jurisdiction
Filed: November 18, 2022
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494595/ | MEMORANDUM OPINION
MARVIN ISGUR, Bankruptcy Judge.
Fire Safe moves for summary judgment and asks the Court to (i) award Fire Safe legal fees and court costs associated with the bankruptcy proceedings, and (ii) declare such fees, along with sums due and owing in accordance with a Texas state court judgment, nondischargeable in bankruptcy. For the reasons set forth below, the Court holds that:
• The sums owed under the state court judgment are excepted from discharge.
• The legal fees and costs associated with the bankruptcy proceedings are not excepted from discharge.
Background
Fire Safe alleges that on March 25, 2008, Mr. Ayesh, using the false name Jovan Mitch, signed a contract with Fire Safe to obtain fire safety equipment and services for his business, the Royal Beauty Salon. Fire Safe demanded payment of $2,354.44 on March 11, 2009, and Mr. Ay-esh never paid.
Fire Safe sued Mr. Ayesh in the Harris County Civil Court at Law on May 18, 2009, The matter went to trial on April 5, 2010, and the court entered judgment on April 8, 2010. (State Court Judgment, Doc. No. 1-5). The court awarded $2,354.44 in actual damages, $11,143.94 in legal fees, prejudgment and postjudgment interest, court costs, and conditional awards of legal fees for state court appeals. The court did not award any exemplary damages, stating:
The Court is not sure on the proof of the elements necessary for exemplary damages, i.e., an attempt to defraud at the time of making of the contract. Because the Court did not find that, the request for exemplary damages is denied. Evasion or putting up a defense is not a factor that gets exemplary damages. You have to prove an attempt to defraud at the time of the signing of the contract. The Court does not find that exists.
State Court Trial Tr., Doc. No. 9, at 57.
On August 10, 2010, Mr. Ayesh filed bankruptcy. Fire Safe filed this adversary *446proceeding on October 20, 2010, seeking to have the state court judgment excepted from discharge under § 523(a)(2)(A) of the Bankruptcy Code. Under § 523(a)(2)(A), debts for false pretenses, false representation, or actual fraud are excepted from discharge in bankruptcy. To have a claim excepted from discharge under § 523(a)(2)(A), the claimant must show an intent to deceive by the debtor. Gen. Elec. Capital Corp. v. Acosta (In re Acosta), 406 F.3d 367, 372 (5th Cir.2005).
Mr. Ayesh moved for summary judgment on January 13, 2011, asserting that the issue of intent to deceive had been fully litigated in state court. (ECF Doc. 11). Fire Safe filed a response on February 4, 2011. (ECF Doc. 2). Mr. Ayesh filed a reply on February 15, 2011. (ECF Doc. 14).
Mr. Ayesh argued the state court’s finding that Fire Safe did not prove “an attempt to defraud at the time of the signing of the contract” precluded relitigation of Mr. Ayesh’s intent. Fire Safe, Mr. Ayesh argued, was therefore collaterally estopped from litigating the dischargeability of the state court judgment. (ECF Doc. 11, at 4-5). The Court denied Mr. Ayesh’s Motion for Summary Judgment because, due to the heightened standard of proof in the state court proceedings, “[t]he issue of Ay-esh’s intent to deceive ha[d] not been fully and fairly litigated based on a preponderance of the evidence standard. Ayesh’s intent [was] an issue of material fact.” (ECF Doc. 15 at 6).
Mr. Ayesh’s attorney later moved to withdraw, alleging irreconcilable differences with his client. (ECF Doc. 26 at 2). The Court granted this motion on May 9, 2011. (ECF Doc. 27). On June 9, 2011, Fire Safe filed its Motion for Summary Judgment. (ECF Doc. 32). Mr. Ayesh, now representing himself, failed to timely file a response. The Court gave Mr. Ay-esh three additional weeks to file a response because of Mr. Ayesh’s status as a pro se defendant. Mr. Ayesh filed a general denial answer instead. (ECF Doc. 33). The general denial answer provided no evidence to rebut any of Fire Safe’s allegations.
Summary Judgment Standard
“The court shall grant summary judgment if the movant shows that there is no genuine dispute as to any material fact and that the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a). Fed. R. Bankr.P. 7056 incorporates Rule 56 in adversary proceedings.
A party seeking summary judgment must demonstrate: (i) an absence of evidence to support the non-moving party’s claims or (ii) an absence of a genuine dispute of material fact. Sossamon v. Lone Star State of Tex., 560 F.3d 316, 326 (5th Cir.2009); Warfield v. Byron, 436 F.3d 551, 557 (5th Cir.2006). A genuine dispute of material fact is one that could affect the outcome of the action or allow a reasonable fact finder to find in favor of the non-moving party. Brumfield v. Hollins, 551 F.3d 322, 326 (5th Cir.2008).
A court views the facts and evidence in the light most favorable to the non-moving party at all times. Campo v. Allstate Ins. Co., 562 F.3d 751, 754 (5th Cir.2009). Nevertheless, the Court is not obligated to search the record for the non-moving party’s evidence. Malacara v. Garber, 353 F.3d 393, 405 (5th Cir.2003). A party asserting that a fact cannot be or is genuinely disputed must support the assertion by citing to particular parts of materials in the record, showing that the materials cited do not establish the absence or presence of a genuine dispute, or showing that an adverse party cannot produce admissi*447ble evidence to support the fact.1 Fed.R.Civ.P. 56(c)(1). The Court need consider only the cited materials, but it may consider other materials in the record. Fed.R.Civ.P. 56(c)(3). The Court should not weigh the evidence. A credibility determination may not be part of the summary judgment analysis. Turner v. Baylor Richardson Med. Ctr., 476 F.3d 337, 343 (5th Cir.2007). However, a party may object that the material cited to support or dispute a fact cannot be presented in a form that would be admissible in evidence. Fed.R.Civ.P. 56(c)(2).
“The moving party bears the burden of establishing that there are no genuine issues of material fact.” Norwegian Bulk Transp. A/S v. Int’l Marine Terminals P’ship, 520 F.3d 409, 412 (5th Cir.2008). The evidentiary support needed to meet the initial summary judgment burden depends on whether the movant bears the ultimate burden of proof at trial.
If the movant bears the burden of proof on an issue, a successful motion must present evidence that would entitle the movant to judgment at trial. Malacara, 353 F.3d at 403. Upon an adequate showing, the burden shifts to the non-moving party to establish a genuine dispute of material fact. Sossamon, 560 F.3d at 326. The non-moving party must cite to specific evidence demonstrating a genuine dispute. Fed.R.Civ.P. 56(c)(1); Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). The non-moving party must also “articulate the manner in which that evidence supports that party’s claim.” Johnson v. Deep E. Tex. Reg’l Narcotics Trafficking Task Force, 379 F.3d 293, 301 (5th Cir.2004). Even if the movant meets the initial burden, the motion should be granted only if the non-movant cannot show a genuine dispute of material fact.
If the non-movant bears the burden of proof of an issue, the movant must show the absence of sufficient evidence to support an essential element of the non-mov-ant’s claim. Norwegian Bulk Transp. A/S, 520 F.3d at 412. Upon an adequate showing of insufficient evidence, the non-mov-ant must respond with sufficient evidence to support the challenged element of its case. Celotex, 477 U.S. at 324, 106 S.Ct. 2548. The motion should be granted only if the nonmovant cannot produce evidence to support an essential element of its claim. Condrey v. SunTrust Bank of Ga., 431 F.3d 191, 197 (5th Cir.2005).
Analysis
False Representation
In order “[f]or a debt to be non-dischargeable under section 523(a)(2)(A), the creditor must show (1) that the debtor made a representation; (2) that the debtor knew the representation was false; (3) that the representation was made with the intent to deceive the creditor; (4) that the creditor actually and justifiably relied on the representation; and (5) that the creditor sustained a loss as a proximate result.” In re Mercer, 246 F.3d 391, 403 (5th Cir.2001). The burden of proof is by a preponderance of the evidence. Id.
When an issue was previously litigated under state law, “a bankruptcy court will apply the law of collateral estop-pel of the relevant state.” Collier on Bankruptcy ¶ 523.06 (16th ed.) (citing Gayden v. Nourbakhsh (In re Nour-*448bakhsh), 67 F.3d 798, 800 (9th Cir.1995); St. Laurent v. Ambrose (In re St. Laurent), 991 F.2d 672, 676 (11th Cir.1993)). In Texas, collateral estoppel “applies when an issue decided in the first action is actually litigated, essential to the prior judgment, and identical to an issue in a pending action.” Texas Dep’t of Public Safety v. Petta, 44 S.W.3d 575 (Tex.2001).
The state court found Mr. Ayesh signed the contract with Fire Safe using the false name Jovan Mitch. (ECF Doc. 9 at 54-55). This issue was actually litigated, it was essential to the prior judgment, and it is identical to an issue in the pending action. Collateral estoppel therefore applies.2 Signing a contract using a false name is a misrepresentation the signee knows is false when made, thereby establishing the first two elements for nondis-chargeability under § 523(a)(2)(A).
There is no genuine issue of material fact that Mr. Ayesh made the false representation with the intent to deceive Fire Safe. Mr. Ayesh signed the contract using a false name. Mr. Ayesh offered the Court no explanation why he did so. Indeed, Mr. Ayesh continues to deny he signed the contract. (ECF Doc. 32-10). These facts are sufficient under a preponderance standard to shift the burden to Mr. Ayesh to establish a genuine issue of material fact that, even though he signed using a false name, he lacked the intent to deceive Fire Safe at the time he entered into the contract. Mr. Ayesh produced no evidence in this regard and failed to establish a genuine issue of material fact.
There is likewise no genuine issue of material fact that Fire Safe justifiably relied on the representation3 and suffered a loss as a proximate result.4
Actual Fraud
As the Court finds Mr. Ayesh’s false representation results in an exception from discharge of his debt to Fire Safe, the issue of actual fraud need not be addressed.
Overview of the Extent of the Debt Excepted from Discharge
As to damages, Fire Safe asks the Court to except from discharge the state court awards of $2,354.44 for fraudulently obtained services, $11,143.94 in legal fees, and interest and costs.5 Additionally, Fire *449Safe asks the Court to award and except from discharge at least $5,000 for legal fees incurred in the bankruptcy proceedings (along with conditional fee grants for appeals) and all court costs. The Court declares that the debts of $2,354.44 for the fraudulently obtained services, $11,143.94 for legal fees, and the awards of interest and court costs from the state court judgment are excepted from discharge. The Court will not award legal fees or court costs related to the bankruptcy proceedings.
Services Fraudulently Obtained
The Bankruptcy Code explicitly exempts from discharge Mr. Ayesh’s debt for the services fraudulently obtained from Fire Safe. 11 U.S.C. § 523(a)(2)(A).
State Court Award of Legal Fees, Interest, and Court Costs
The state court awarded legal fees, prejudgment and postjudgment interest, and court costs. (ECF Doc. 32-9). Legal fees and other damages arising from a state court fraud judgment are excepted from discharge when the damages judgment itself is excepted from discharge. See Cohen v. de la Cruz, 523 U.S. 213, 118 S.Ct. 1212, 140 L.Ed.2d 341 (1998) (“[T]he text of § 523(a)(2)(A) ... encompasses any liability arising from money, property, etc., that is fraudulently obtained, including treble damages, attorney’s fees, and other relief that may exceed the value obtained by the debtor.”) (emphasis added); Snook v. Popiel (In re Snook), 168 Fed.Appx. 577, 579 (5th Cir.2006).
This case is not as straightforward as Cohen or Snook. In Cohen and Snook, the underlying judgments were based on fraud. The underlying judgment in this case appears to be based on a breach of contract claim.6
The Court does find, based on the summary judgment record, that Mr. Ayesh committed fraud under § 523(a)(2)(A). The issue is whether the state court award for legal fees, interest, and other costs (awarded in a breach of contract context) “arise from” Mr. Ayesh’s fraud. While a close call, the Court believes these liabilities do “arise from” the fraud Mr. Ayesh perpetrated. They are therefore also excepted from discharge.
The Ninth Circuit dealt with this issue in In re Sabban, 600 F.3d 1219 (9th Cir.2010). Sabban, majority interest holder of a general partnership, falsely represented to a homeowner he was licensed by California’s Contractors State License Board. Id. at 1220. The homeowner relied on this false representation, entered into home remodeling contracts with Sabban, and sued Sabban when problems arose. Id. After dismissal or withdrawal of all other claims, the homeowner proceeded under §§ 7160 and 7031(b) of the California Business & *450Professions Code.7 Id. The state court awarded the homeowner a $500 penalty and reasonable attorneys’ fees under the § 7160 fraudulent inducement claim, but found no amount could be awarded to the homeowner in damages under § 7160.8 Id. Under § 7031(b), which is “in the nature of disgorgement of compensation [paid to unlicensed contractors],” the state court awarded the homeowner $123,000, representing the amount the homeowner paid to Sabban. Id. at 1221. The issue was whether the $123,000, to which the homeowner would have been entitled even if Sabban committed no fraud and to which the homeowner was entitled in spite of the fact the state court found no damages resulted from the fraudulent inducement, was nevertheless excepted from discharge under § 523(a)(2)(A) as “arising from” Sabban’s fraud. The Ninth Circuit held the $123,000 award did not “arise from” Sabban’s fraud and was thus discharged.
In reaching this conclusion, the Ninth Circuit rejected the homeowner’s broad interpretation of Cohen. The homeowner read Cohen’s “arising from” language to indicate nondischargeability under § 523(a)(2)(A) only requires “cause in fact” or “but for” causation. To use the facts from Sabban as an illustration, the homeowner’s theory was because the state court award of $123,000 would not exist but for Sabban’s false representation that he was a licensed contractor,9 the award was non-dischargeable under § 523(a)(2)(A). The homeowner argued that “under Cohen ‘it makes no difference that a debtor’s proven fraud exposes him to further liability for violation of laws that do not mention fraud.’ ” Id. at 1224. The Ninth Circuit disagreed, interpreting Cohen to require more than mere “but for” causation for a liability to “arise from” a debtor’s fraud.10 Id. The Court agrees with the Ninth Circuit’s analysis of Cohen and the result in Sabban, but finds the current case distinguishable.
Miller v. Lewis from the Eastern District of Texas is a good case to contrast with Sabban. 391 B.R. 380 (E.D.Tex.2008), aff'd, 307 Fed.Appx. 785 (5th Cir.2008). Miller committed fraud across the country. Id. at 382. In one scheme Miller, “[holding] himself out as an investment professional, allowed Lewis to invest varying amounts ... with limits purportedly set by large banks such as J.P. Morgan.” Id. Miller did not invest Lewis’s money and simply used it as his own. Id. Lewis *451sued Miller in Arizona state court and, after removal to federal court, the District Court for the District of Arizona entered a stipulated judgment which stated in part: “[Miller and his wife] are liable to plaintiffs for breach of contract, conversion, constructive trust, fraud and breach of fiduciary duty in the amount of $9,000,000.”11 Id The Millers subsequently filed bankruptcy and the United States Bankruptcy Court for the Eastern District of Texas held all $9,000,000 excepted from discharge under § 523(a)(2)(A).12 Miller appealed.
The district court affirmed. Id The district court stated that “[u]nder the Cohen analysis, the entirety of the Arizona judgment is an obvious outgrowth of Miller’s fraudulent scheme.”13 Id (emphasis added). Fraud was not a necessary predicate to the state court actions in Miller.14 This is not to say, however, that fraud was “irrelevant to” the state court judgment in Miller as it was in Sabban. The district court found the claims for breach of contract, conversion, and breach of fiduciary duty to be “obvious outgrowths” of a fraudulent scheme like Miller’s.15 Miller falsely represented himself as an investment professional to induce Lewis to enter into the contract — a contract Miller intended to breach, a contract creating a fiduciary duty Miller knew he would breach, and a contract which would provide Miller funds to convert. While not awarded under statutes premised on fraud, fraud was not “irrelevant” because the state court claims were an “obvious outgrowth” of Miller’s scheme.16 This link satisfied Cohen’s “arising under” test and the entire $9,000,000 was nondischargeable in bankruptcy.
The present case is more akin to Miller than Sabban. In the present case, (1) Mr. Ayesh signed the contract using the false name; (2) this, along with Mr. Ayesh’s assertion he was the owner of Royal Beauty Salon, induced Fire Safe to enter into the contract; (3) Mr. Ayesh refused to pay for the services obtained; (4) Mr. Ayesh continues to deny signing the contract even after state court findings to the contrary; and (5) Mr. Ayesh provided the Court with no explanation for the false representation. A state law claim for breach of contract is an “obvious out*452growth” of such a false representation. Under Miller and Cohen, all damages from the state court breach of contract claim also “arise from” Mr. Ayesh’s fraud and are excepted from discharge.
Legal Fees and Costs for Bankruptcy Proceedings
Fire Safe also asks the Court to both award legal fees and costs for the bankruptcy proceedings and to declare such fees excepted from discharge. The Bankruptcy Code, like other federal statutes, is governed by the “American Rule.” In re Nair, 320 B.R. 119, 125 (Bankr.S.D.Tex.2004) (citing Alyeska Pipeline Svc. Co. v. The Wilderness Soc., 421 U.S. 240, 261, 95 S.Ct. 1612, 44 L.Ed.2d 141 (1975)). The Supreme Court’s holding in Cohen does not indicate § 523(a)(2)(A) provides a possible exception to the normal rule. Creditors “are [only] entitled to recover attorneys’ fees in bankruptcy claims if they have a contractual right to them under state law....” Jordan v. Southeast Nat’l Bank (In re Jordan), 927 F.2d 221, 227 (5th Cir.1991) (quoting In re Martin, 761 F.2d 1163 (6th Cir.1985)). The contract submitted to the Court does not indicate Fire Safe is entitled to legal fees or court costs. (ECF Doc. 13-1, 32-2). Fire Safe did not demonstrate to the Court they are entitled to such fees as a matter of contract under applicable Texas law. Rule 56 “does not obligate this court to search for evidence to support a party’s motion for summary judgment.” Udoewa v. Plush Credit Union, 754 F.Supp.2d 850, 861 n. 17 (S.D.Tex.2010) (citing de la O v. Hous. Auth., 417 F.3d 495, 501 (5th Cir.2005)). Therefore, the Court may not award Fire Safe legal fees and court costs related to the bankruptcy proceedings, much less declare such debts excepted from discharge.
Conclusion
The Court will issue an Order in accordance with this Memorandum Opinion.
. If a party fails to support an assertion or to address another party’s assertion as required by Rule 56(c), the Court may (1) give an opportunity to properly support or address the fact; (2) consider the fact undisputed for purposes of the motion; (3) grant summary judgment if, taking the undisputed facts into account, the movant is entitled to it; or (4) issue any other appropriate order. Fed.R.Civ.P. 56(e).
. On this issue, the burdens of proof are identical on the state and federal issues. Collateral estoppel did not apply on the issue of intent to deceive because the standards of proof differed. Under applicable Texas law, the burden of proof is clear and convincing evidence, but for exceptions from discharge the burden is preponderance of the evidence. (ECF Doc. 15 at 5-6).
. Patrick Walker stated: "He [Ayesh as] (Jo-van Mitch) represented to me that he is the owner of Royal Beauty Salon, that he had the authority to execute the Agreement, and hat [sic] he would perform his obligations (to pay Fire Safe) according to the Agreement. Fire Safe relied on Ayesh’s representations in agreeing to the Agreement and in providing the services that are reflected in the Agreement.” (ECF Doc. 32-5). All evidence before the Court indicates Fire Safe justifiably relied on Mr. Ayesh's representations.
. A Fire Safe affidavit puts the cost of the fraudulently obtained services at $2,354.44. (ECF Doc. 32-1). Also, this issue was fully litigated in the state court proceedings and so both sides are collaterally estopped from arguing the amount differs from $2,354.44. (ECF Doc. 9 at 55).
. In addition to the amounts of $2,354.44 and $11,143.94, the state court awarded prejudgment interest on the $2,354.44 "at the rate of five percent per annum from May 18, 2009 through the date immediately proceeding the date hereof.” (ECF Doc. 32-9 at 1). The date immediately preceding the entry of final judgment in state court was April 7, 2010. (Id..). The prejudgment interest equals $104.50. The state court also awarded *449"[pjostjudgment interest at the rate of five percent (5%) per annum, compounded annually, on the total amount of this judgment; and ... All costs of court.” The total judgment, which included the prejudgment interest, equals $13,602.88. Postjudgment interest on this amount equals $1,004.94 as of September 21, 2001. The total amount excepted from discharge is $14,607.81. Fire Safe submitted no evidence as to the amount of court costs. Because of an absence of proof, no court costs are awarded.
. Fire Safe describes the state court action as one for a “breached agreement.” (ECF Doc. 1 at 4) ("On May 18, 2009, Plaintiff FIRE SAFE filed suit against 'Jovan Mitch' for the breached Agreement in Cause No. 940,363, Fire Safe Protection Services, L.P. v. Jovan Mitch; in the Harris County Civil Court at Law No. 1 (the 'State Lawsuit’), as ‘Jovan Mitch’ appeared to the be [sic] person who executed the Agreement.”) The transcript indicates this to be correct. (ECF Doc. 9). The copy of the actual judgment submitted does not state the cause of action. (ECF Doc. 32-9).
. Section 7160 "provides a cause of action to individuals induced to contract for home improvements in reliance on fraudulent statements.” Id. at 1220-21. Section 7031(b) "provides that a party who has used the services of an unlicensed contractor may recover all compensation paid to that contractor.” Id. at 1221. It is important to note that "[l]ia-bility under § 7031(b) requires only that compensation have been paid to an unlicensed contractor. Fraud and actual harm are irrelevant.” Id.
. The state court found Sabban’s false representation induced the homeowner to enter into the contract, the homeowner paid $123,000 to Sabban as general contractor, and then Sabban in turn paid $129,217.95 to licensed subcontractors who performed the remodeling work. Id. at 1220. The state court concluded that "[tjechnically there are no damages” under § 7160. Id. at 1221.
. This award would not exist because there would have been no contract, and therefore . the homeowner would not have had a cause of action under § 7031(b) because the homeowner would not have given money to an unlicensed contractor.
. In reaching its conclusion that Cohen does not extend so far, the Ninth Circuit distinguished the New Jersey statute at issue in Cohen from § 7301(b) in that the New Jersey statute "is not premised on either fraud or actual harm” and in fact that "[fjraud and actual harm are irrelevant.” Id. at 1224, 1221.
. There was a related settlement agreement under which Miller would pay $3,000,000 up front and $1,500,000 in annual $250,000 installments. Id.
. The District Court for the District of Arizona also included as part of its stipulated judgment that "this judgement [sic], in its entirety, is not dischargeable under any provision of the United States Bankruptcy Code.” Id.
. The district court also found the debt non-dischargeable under § 523(a)(2)(A) using alternative reasoning not relevant to this case.
. Unlike Cohen, there is no evidence the state court judgment in Miller was awarded under statutes premised on fraud.
. The District Court noted that "[a]t no point did Miller even entertain the idea of treating the funds as anything other than his personal petty cash.” Id.
.In one sense, of course, the § 7301(b) judgment is an "obvious outgrowth" of Sab-ban’s false representation: it induced the homeowner to enter into the contract and a § 7301(b) claim resulted from the simple existence of the contract with an unlicensed contractor. However, a § 7301(b) claim results from any contract with an unlicensed contractor. To put it another way, claims for breach of contract and conversion are "obvious outgrowths” of contracts related to schemes such as Miller's, but not “obvious outgrowths” of all contracts between an investment professional and an investor client. In contrast, § 7301(b) claims are “obvious outgrowths” of all contracts between an unlicensed contractor and a homeowner regardless of fraud. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494597/ | OPINION AFTER TRIAL
SCOTT W. DALES, Bankruptcy Judge.
I. INTRODUCTION
This case involves a tangled web of deception surrounding the sale of fashionable Pandora jewelry, and has more than its' share of plots, subplots, and Shakespearean overtones. While both parties to this dispute were busy deceiving the jeweler, one of them picked the other’s pocket. Although it is tempting in such a case to cry “a plague on both your houses,”1 after sifting through the evidence, especially the email trail that documents the deception with surprising candor, the court has concluded that the Plaintiff is entitled to judgment in its favor. This Opinion constitutes the court’s findings of fact and conclusions of law in accordance with Fed.R.Civ.P. 52, made applicable to this adversary proceeding by Fed. R. Bankr.P. 7052.
II. JURISDICTION
The court has jurisdiction over the Debtors’ bankruptcy case pursuant to 28 U.S.C. §§ 157(a) and 1334(a), and the United States District Court’s referral under LCivR 83.2(a). This adversary proceeding is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2)(I) in which the court may enter final judgment. The court also has ancillary jurisdiction to establish the amount of the debt at issue. Longo v. McLaren (In re McLaren), 3 F.3d 958, 965 (6th Cir.1993).
III.ANALYSIS
The following recitation comes from the trial testimony of Messrs. Davies and Hatch, and the exhibits admitted at trial, including the transcripts of the depositions of Matthew Davies (“Mr. Davies”) (Exh. J), Bartley Hatch (“Mr. Hatch”) (Exh. 24) and Diana Hatch (“Mrs. Hatch”) (Exh. 25).
A. Background
In May 2008, the Debtors, Bartley and Diana Hatch, opened a women’s clothing and accessories boutique called “Isabelle’s.” Mrs. Hatch, who had some limited experience working in a gift shop, ran and managed the store while Mr. Hatch, who was at one time a CPA, took care of the books in his spare time while working at Whirlpool Corporation.
One day in the summer of 2008, two sales representatives from Pandora Jewelry, LLC (“Pandora”), walked into Isabelle’s and spoke to Mrs. Hatch about carrying Pandora’s jewelry line. Exh. 25, 15:9-16:9. Pandora is primarily known for the glass beads it designs, manufactures and sells, but it also makes other products like readymade “mix and match” jewelry. Through the years, Pandora has developed a healthy demand for its beads that is closely identified with its brand and trademark.
Several months after the visit from the Pandora representative, the Hatches decided to sell the line. Mrs. Hatch performed an internet search and found a website that she thought was Pandora’s, but was in fact a website operated by Plaintiff Bello Paradiso, LLC (“Bello”). Exh. 25, 19:15-17. A representative at *483Bello named Molley disclosed that Bello was not Pandora or an authorized Pandora retailer, but she did offer Mrs. Hatch a loan to purchase the start-up inventory that Pandora required to begin carrying its line. Exh. 25, 19:23-20:3. As the relationship between the Hatches and Bello developed, it became clear that Bello’s willingness to make the startup loan depended upon the Hatches’ agreement to re-sell Pandora beads to Bello.
The reason Bello made this offer was that it could not purchase inventory for itself directly from Pandora because it had no retail store, and was not an authorized Pandora retailer. Evidently, Pandora wanted its customers to have an actual retail experience and did not want anyone to sell its product exclusively over the internet, as Bello did. Nevertheless, Bello sold Pandora beads by recruiting retailers to purchase more beads than they could sell in their respective stores, and purchasing the surplus beads at cost or slightly above cost, depending upon the agreement. This arrangement violated the Authorized Retailer Agreement that Pandora required of its retailers, including the Hatches. More specifically, Section 7(d) of the Agreement provides:
All sales of Pandora Jewelry Products must be at retail only. Authorized Retailer may not sell or ship Pandora Jewelry Products to any other retailer or wholesaler without prior written consent of Pandora, which consent may be withheld in Pandora’s sole discretion.
Exh. 1, p.3, Sec. 7(d). In other words, Bello’s business model was based on recruiting retailers who were willing to breach their contract with Pandora and ignore any possible trademark, copyright or other intellectual property protections that Pandora might enjoy.
In exchange, for a retailer’s cooperation, Bello would usually purchase its share of the beads for 10% above the authorized retailer’s cost. It would then re-sell the beads on the internet for less than Pandora’s authorized retailers.
At some point, Pandora became aware of Bello and its business model, and on December 19, 2008, it filed suit against Bello in the United States District Court for the Eastern District of California, alleging patent and trademark infringement, copyright violations, and unfair competition. Exh. B.
In February 2009, the Hatches, on behalf of Isabelle’s, signed the Authorized Retailer Agreement with Pandora even though they immediately planned to breach it. They were aware that Pandora was suing Bello for damages allegedly resulting from similar arrangements Bello made with other authorized retailers, but they nevertheless agreed to supply beads to Bello under the following conditions.
First, the parties decided that instead of Bello’s purchasing beads from the Hatches at 10% above cost, Bello would make a $16,000.00 interest free loan to the Hatches (the “Start^Up Loan”) to enable them to buy the initial Pandora inventory. When Isabelle’s ordered beads from Pandora, it would also order beads for Bello, of course while concealing Bello’s interest in the transaction. Bello would wire-transfer money into the Debtors’ personal bank account, which they were supposed to use to pay for Bello’s disguised purchase. The Debtors would then keep Isabelle’s portion of the order and ship Bello’s share using shipping labels that Bello supplied for this purpose.
The parties further agreed that the Debtors did not have to repay the loan in cash. Instead, for every dollar of Pandora inventory the Debtors re-sold to Bello, Bello would reduce the Start-Up Loan by 10% of the purchase. See Exh. 3. In addi*484tion, the parties would continue the arrangement for about one year, or until the Debtors re-sold $240,000.00 worth of beads to Bello. After that time, Bello would continue to order Pandora product through the Debtors at 10% over Isabelle’s cost, plus shipping. Finally, Bello, through its owner Mr. Davies, made it clear that Bello only wanted beads and nothing else. Bello especially did not want Pandora’s line of “mix and match” jewelry because it was difficult to sell.
This arrangement worked to the Hatches’ advantage, not only because it enabled Isabelle’s to become a Pandora retailer at no start-up cost and without a formal loan, but also because they were about to enter into a gross sales lease with a landlord under which the rent was determined, in part, on sales volume. By selling to Bello in this manner, the Hatches believed that they did not have to give a share of these sales to the landlord because the jewelry did not go “through the storefront.” Transcript of Trial held January 19, 2012 (hereinafter “Trial Tr.”) at 118: 13-119:1.
So, on February 13, 2009, Mr. Davies wired the Debtors $16,000.00 to fund the Stari>-Up Loan, plus $10,500.00 as an advance payment for its first order of beads. The Hatches placed the order, Pandora filled it, and shortly thereafter the Hatches shipped $10,500.00 worth of beads to Bello. On March 17, 2009, Mr. Davies placed another order with the Hatches and wired them $15,333.00. Due to several genuine family emergencies, however, the Debtors delayed placing the order, and instead they “dipped into” the wire transfer, using approximately $4,000.00 for family purposes.
In May, Mr. Hatch admitted this misappropriation to Mr. Davies and promised to replace the money as soon as possible. See Exh. 8, p.l. Even so, the Hatches postponed placing the order corresponding to the March 17, 2009 wire transfer for almost five additional weeks. To complicate accounting matters further, Pandora was often unable to fill an entire order, presumably because it did not have the merchandise in stock. The resulting bac-korders made it seem difficult to keep track of Bello’s share of the orders, which the Hatches apparently used to their advantage in keeping Mr. Davies in the dark about the status of the accounting.
Because Mr. Davies was losing confidence in the Debtors, and to avoid confusion, after the March wire-transfer Mr. Davies started wiring money for the orders only after the Debtors placed them and after Pandora indicated it was ready to ship. Trial Tr. at 38:13-18.
The following table2 summarizes the parties’ transactions beginning with the money Bello wired in March for product not ordered until May:
Date Order Was Date Money Was Amount of Money Merchandise Amount Debtors Placed by Transferred by Wired by Provided Prom Owed to Bello the Debtors Mr. Davies Mr. Davies Debtors to Bello Excluding Loan
5/4/2009_3/17/2009_$15,333.00_$ 9,634.35_$3,965.65
5/20/2009_5/28/2009$ 3,000.00$ 2,469.00$4,496.65
6/3/2009 6/5/2009 $ 6,500.00 $ 6,500.00 $4,496.65
*4856/26/2009_6/10/2009_$ 326.00_$ 1,198.00_$3,623.65
6/22/2009_6/23/2009_$11,436.00_$11,436.00_$3,623.65
7/29/2009 7/30/2009_$17,657.23_$17,645.00_$3,635.88
7/24/2009_8/3/2009_$ 1,962,00_$ 346.00_$5,251.88
10/1/2010_9/23/2009_$17,688.00_$15,649.00_$7,290.88
Multiple_10/13/2009_$15,803.00_$18,259.00_$4,834.88
10/28/2009 11/3/2009 $14,112.00 $14,071.00 $4,875.88
Regardless of their assurances to Bello, this table shows that the Debtors did indeed dip into the money again sometime in the month of July.
In the meantime, Pandora’s lawsuit against Bello was progressing to the point where the Honorable Dale A. Drozd ordered Bello to disclose to Pandora the names of all existing suppliers. See Exh. L (referring to the November 19, 2009 “Stipulated Protective Order”). The Protective Order, which was not included as an exhibit in this adversary proceeding, forbade Pandora from acting on the disclosure (for example by terminating Authorized Retailer Agreements) so long as the suppliers continued to do business with Bello. Trial Tr. at 66:8-18. It was therefore imperative to Bello and its suppliers that their relationships did not lapse because if they did, Pandora could then take action against the offending authorized retailers. See, e.g., Exh. I (order de-desig-nating suppliers).
In early September, before the Protective Order, Mrs. Hatch suggested to Mr. Davies that Pandora might not be suspicious of their subterfuge if they placed a larger order than usual in order to stock up for the Christmas season. Exh. 14. As a result, about a week after the Protective Order was issued, Mr. Davies wired the Debtors $16,508.42 on November 25, 2009, to order beads (the “November Wire”). The Debtors placed the order, but before filling it, Pandora (who now knew Isabelle’s was re-selling beads to Bello in violation of its Authorized Retailer Agreement) scheduled a visit purportedly to view Isabelle’s in-store inventory.
After Mr. Hatch informed Mr. Davies that Pandora was coming to visit the store, and after he shared his concern that Pandora had become suspicious about the large order, Mr. Davies told him to tell Pandora that the size of the order was a mix-up resulting from a lack of communication between the spouses. Exh. 19, p. 3. When the Pandora representatives arrived, Mr. Hatch explained just that, and therefore felt compelled to cancel the order, and submit a revised one conforming to Pandora’s suggestions. Most likely because it was aware that Isabelle’s was Bello’s cohort, Pandora then insisted that Isabelle’s become an advanced level retailer by purchasing larger amounts of product, including some “mix and match” jewelry. Mr. Hatch, who was not aware that Pandora by then knew of Isabelle’s improper re-sales to Bello, felt he had no choice because if he refused, Pandora might become aware of his complicity with Bello. He agreed to place the order and thereby become a higher level retailer. Id.
Pandora puts its retailers in one of three categories or levels, depending upon a retailer’s sales volume: White, Silver and Gold. The more volume a retailer sells, the higher the level it can attain. This generally means that a “Gold” retailer, for example, would have better access to the most popular beads, and presumably fewer bac-*486korder problems like those that dogged Isabelle’s (and Bello) in 2009. Also, as a higher level retailer, a shop would have access to other product lines, such as the “mix and match” line of higher-priced jewelry. However, according to Mr. Davies, Pandora’s “mix and match” items were not well-received by consumers who generally preferred the less expensive beads. Mr. Davies testified that no level of retailer wanted to carry Pandora’s “mix and match” jewelry because it was “dead inventory.” Tr. 47:2. Certainly, Bello was not interested in purchasing any “mix and match” items from Isabelle’s, and had made that clear from the outset.
Therefore, after the meeting with the Pandora representatives, Mr. Hatch emailed Mr. Davies to tell him that he had allayed Pandora’s suspicions, but was impelled to become a Silver level retailer. As such, he was going to use some or all of the money from the November Wire to purchase the required “mix and match” inventory. Exh. 19, p.3.
Mr. Davies vehemently objected, demanding that Mr. Hatch return the November Wire. Mr. Hatch refused, saying, “[w]ith or without your authorization, I will use your money to minimize the suspicion your ordering behavior has caused.” See Exh. 19, p.l.
As promised, Mr. Hatch ordered the “mix and match” jewelry, along with $4,319.00 in beads that he sent on to Bello on December 7, 2009. Exh. 21. After this, there was no further buying relationship between the parties. Eventually, because Isabelle’s ceased to be a current supplier to Bello, Isabelle’s lost the protection of the Protective Order, and Pandora terminated its Authorized Retailer Agreement. This meant that Isabelle’s had two weeks to rid itself of all Pandora jewelry inventory or risk legal action. Tr. 102:4-14.
Shortly thereafter, Pandora and Bello settled the trademark lawsuit, much to the delight of Mr. Davies who was “very happy” with the outcome. Exh. C. Isabelle’s, which had struggled from its inception, went out of business, Mr. Hatch left his job with Whirlpool Corporation, and the Debtors filed a voluntary bankruptcy petition under Chapter 7.
Bello filed this adversary proceeding alleging fraud under 11 U.S.C. § 523(a)(2)(B); embezzlement under 11 U.S.C. § 523(a)(4); and willful and malicious injury to property under 11 U.S.C. § 523(a)(6), and asked for damages in the amount of $21,576.82. None of this amount includes the Start-Up Loan, as Bello made clear at trial.
B. Exception to Discharge
1. Fraud (11 U.S.C. § 523(a)(2))
A debt is nondischargeable under 11 U.S.C. § 523(a)(2)(A) if it is for money “obtained by ... false pretenses, a false representation, or actual fraud ...” Bello, as the party invoking that statutory provision, must prove, by a preponderance of the evidence, that the Hatches “obtained money through a material misrepresentation that at the time [they] knew was false or made with gross recklessness as to its truth” and that they intended to deceive Bello. Atassi v. McLaren (In re McLaren), 990 F.2d 850, 852 (6th Cir.1993).
The evidence at trial in support of Bello’s fraud theory did not persuade the court. The fraud theory depended upon the supposition that the Hatches deceived Mr. Davies into believing that they were operating Isabelle’s during the months of January through May, 2009, when (according to Mr. Davies) they were not. Mr. Davies testified that he would not have advanced funds to the Hatches if he had *487known that Isabelle’s was not operating at the time.
First, the court is not persuaded that Isabelle’s was not operating. Rather, it is more likely than not, and the court finds, that Isabelle’s was operating sporadically during the time the Hatch family was recovering from the loss of Mrs. Hatch’s sister and brother-in-law. Other family members, such as Mrs. Hatch’s mother and daughter, pitched in to help the family business, off and on, during this period. Exh. 25, 8:24, 22:12-14.
Second, the court credits Mr. Hatch’s testimony that Mr. Davies (and therefore Bello) was aware of the business interruptions related to the family tragedies and the relocation of Isabelle’s from its old location to a new, larger store. On cross-examination, Mr. Hatch recalled that he may have spoken by telephone with Mr. Davies in January or February, 2009, about the status of the store and the relocation.
Third, Mr. Davies knew that he was providing a StarUJp Loan, at least with respect to the Hatches’ new Pandora jewelry business. Mr. Davies impressed the court as a shrewd operator who, more likely than not, would have inquired into the status of the retail operations because it was crucial to carrying out his scheme to dupe Pandora into selling product to Bello through Isabelle’s. To do so, Mr. Davies knew Pandora required its authorized retailers to display inventory. Mr. Davies was intimately acquainted with Pandora and its operations because Bello had been an authorized dealer at one time, and because of similar arrangements in which he persuaded other retailers to re-sell to Bel-lo. Therefore, if Isabelle’s was not displaying inventory, he knew Pandora would be suspicious.
Accordingly, Bello did not sustain its burden of proof under 11 U.S.C. § 523(a)(2)(A).
2. Embezzlement (11 U.S.C. § 523(a)(1))
For purposes of discharge litigation undpr 11 U.S.C. § 523(a)(4), the courts define embezzlement as follows:
“embezzlement” under section 523(a)(4) [is] “the fraudulent appropriation of property by a person to whom such property has been entrusted or into whose hands it has lawfully come.” Gribble v. Carlton (In re Carlton), 26 B.R. 202, 205 (Bankr.M.D.Tenn.1982) (quoting Moore v. United States, 160 U.S. 268, 269, 16 S.Ct. 294, 295, 40 L.Ed. 422 (1895)). A creditor proves embezzlement by showing that he entrusted his property to the debtor, the debtor appropriated the property for a use other than that for which it was entrusted, and the circumstances indicate fraud. Ball v. McDowell (In re McDowell), 162 B.R. 136, 140 (Bankr.N.D.Ohio 1993).
Brady v. McAllister (In re Brady), 101 F.3d 1165, 1172-73 (6th Cir.1996). Because embezzlement, by definition, involves a situation in which the debtor initially has lawful possession of the property at issue, it is not necessary for a creditor to prove that a debtor’s misrepresentations induced it to part with property. Rather, the creditor needs only to prove misappropriation and “circumstances indicating fraud,” such as circumstances suggesting that the debt- or intended to conceal the misappropriation. Cash America Financial Services, Inc. v. Fox (In re Fox), 370 B.R. 104, 117 (6th Cir.BAP2007); Powers v. Powers (In re Powers), 385 B.R. 173 (Bankr.S.D.Ohio 2008).
Based primarily upon the documentary evidence, specifically emails from Mr. Hatch and his summary of transactions *488included as part of Exhibit H, the court has no difficulty concluding that the Hatches misused some of the funds Bello wired to them for the express and limited purpose of purchasing Pandora beads for Bello, as its agent. Except for the Starb-Up Loan, every dollar Bello wired was for a specific purpose, and “earmarked” for purchasing Pandora beads. See also Exh. J (Transcript of December 8, 2011 Deposition of Matthew Davies at 30:1-10). To the extent the Hatches delivered Pandora product to Bello, they did not misappropriate the funds. But, to the extent the Hatches diverted the earmarked funds under circumstances indicating fraud, they must answer for it by shouldering a non-dischargeable debt in that amount.
Mr. Hatch, in an email dated June 9, 2009, clearly admitted that he and his wife “dipped into your money.” See Exh. 10. In that email, he indicated that the debtors misused the funds sometime between March 14 and March 24, 2009, while their brother-in-law remained in the hospital. Compare Exh. 5 (indicating that brother-in-law died on March 24, 2009, ten days after his initial head injury) with Exh. 10 (admitting that the Debtors took the money during the “15 day period we were paying to keep two families in a hotel near the hospital where my brother-in-law eventually passed away.”).
Although Mr. Hatch seemed relatively candid about the misappropriation in an email dated May 26, 2009 and again on June 9, 2009,3 significantly the March 31, 2009 email he sent while he was diverting the funds or immediately thereafter paints a different picture:
Matt — Your current order should be processed by Pandora within the next three days. Sorry for the delay but I neglected to transfer the money into the proper account and they cancelled the order. I just placed the order again after having been away from the office for the past two weeks.
Just after Christmas my wife’s sister passed away after a year long battle with cancer. She was survived by three children and their father. On March 14th, the father suffered a fall resulting in a series [sic] head injury. On March 24th, he passed away. Diana and I have assumed custody of their children and are working with our existing children to get through this difficult time. Thanks for understanding.
See Exh. 5. Though this March 31, 2009 email does mention a fund transferring error, significantly it fails to mention that the Hatches used the money to pay for their own personal expenses. This omission is consistent with concealment. Although other evidence suggests that Mr. Hatch reported the misappropriation to Mr. Davies sometime in April, see Exh. G, the court regards the omission in the March 31, 2009 email as significant, though not dispositive, evidence of circumstances indicating fraud. The Hatches had enough awareness of “the proper account” yet failed to mention the misappropriation.
The March 31, 2009 email is significant, however, in another way, also suggesting the Hatches’ duplicity and concealment. In that email, Mr. Hatch refers to “your current order” that Pandora supposedly cancelled for non-payment, and he specifically says that “I just placed the order again ...” See Exh. 5. Similarly, in his email dated April 9, 2009, Mr. Hatch offers another explanation for why Bello has not received the goods it paid for with the *489March 17, 2009 wire: “I think they attempted to deliver your order to our old store location.” See Exh. 6. The next week, he again states that he “placed the order as noted below,” all in response to Mr. Davies’s questions concerning why he has not received any inventory.
The summary of orders that Mr. Hatch prepared, however, shows no invoices for orders between February 26, 2009 and May 4, 2009. See Exh. H. The Hatches’ own summary, therefore, suggests that Mr. Hatch was prevaricating in the March and April emails about having placed orders and about possible explanations for the delays, perhaps to buy time and conceal the diversion until he could come up with a solution.
Indeed, reading the various emails, primarily but not exclusively from Mr. Hatch, gives the impression that the Debtors were creating a smokescreen of confusion with excuses for delays in ordering, delays in shipping, backorders, orders shipped to wrong addresses, miscommunication among themselves, and miscommunication with Pandora. It is significant that the Debtors and Mr. Davies used the same ruse aimed at Pandora in which to explain the unduly large order placed later in the year, by persuading Pandora that Mr. Hatch and Mrs. Hatch got their wires crossed. See Exh. 19 (explaining to Mr. Davies that Mr. Hatch thought he duped Pandora by blaming a suspicious order “on the lack of communication between Di[ana] and I (as you suggested).”). It is not a big stretch to infer, as the court does, that the Hatches earlier employed a similar form of obfuscation with Mr. Davies to conceal the fact that they had misappropriated approximately $4,000.00 in late March, and nearly $1,200.00 in the following months. See Exh. 10 (June 9, 2009 email telling Mr. Davies that “Diana and I miscalculated who had what money in the confusion.”).
It is difficult to accept Mr. Hatch’s suggestion that he miscalculated anything. First, and most generally, until he permitted his license to lapse sometime in 2007, he was a certified public accountant, and during the relevant period he held a responsible management position at the Whirlpool Corporation. According to his deposition testimony, he worked as an accountant or consultant for some of the country’s larger accounting firms before joining Whirlpool. He is a sophisticated actor, trained and licensed as a professional accountant. His supposed error seems most unlikely. Second, in an email dated February 12, 2009, before Bello had even wired any funds, he considered setting up a separate account in Isabelle’s name, but rejected the idea in favor of an existing personal account, with the caveat that it “will only be used for our business with you ...” See Exh. 3. The Hatches were well aware of the need to segregate the funds they received from Bello (beyond the $16,000.00 start-up loan), and gave Mr. Davies the impression that the funds would be separate, though deposited in a personal account. Again, it seems implausible that the Hatches mistakenly “dipped into” Bello’s money.
After they confessed that they diverted Bello’s money in Mr. Hatch’s June 9, 2009 email, and after Mr. Hatch apparently told Mr. Davies that the misappropriation “wouldn’t happen again,” the Hatches nevertheless misappropriated approximately $1,200.00 more. Compare Exh. 10 (June 9, 2009 admitting that the debt for the diverted funds was $4,000) with Exh. 15 (September 10, 2009 email admitting that the debt for the diverted funds is $5,176.00). If the initial misappropriation had been the product of mistake or inadvertence during the storm of financial needs following the two family members’ deaths and the resulting disruption in late *4902008 and early 2009, one would have expected the misappropriation to have ceased after the Hatches realized their supposed mistake. Instead, however, the misappropriation continued, along with the email obfuscation.
In addition to the admitted misappropriation, the record, taken as a whole, establishes other circumstances that “indicate fraud.” Although at the time their family life was remarkably tragic, the Hatches’ hardships establish a motive to embezzle, not an excuse.
At trial, Mr. Davies agreed that Mr. Hatch’s “reconciliation” included as Exhibit H accurately summarized the wire transfers his company made. In addition, except for the supposed November 17, 2009 delivery of goods in the amount of $6,818.00, Mr. Davies testified that Exhibit H accurately summarized the product that Bello received from the Hatches. Accordingly, in determining the extent of the Hatches’ embezzlement, the court relies heavily on Exhibit H.
First, the court credits Mr. Davies’s testimony that his company did not receive the $6,818.00 reflected in Exhibit H. The record contains no evidence to contradict his assertion. Second, Mr. Davies appeared to be well-versed in the numbers involved in his business and he clearly kept closer tabs on the Isabelle’s transactions than the Hatches, who consistently commingled funds and inventory. Accordingly, the court will not reduce the Hatches’ debt by the $6,818.00 as they propose in Exhibit H because Bello established that it never received that shipment.
Second, the reconciliation in Exhibit H is inaccurate in at least two other respects. The evidence established that Bello’s original wire transfer in the amount of $26,500.00 included the Start-Up Loan in the amount of $16,000.00 (which Bello does not attempt to recover through this adversary proceeding), and $10,500.00 advanced to purchase Pandora product. Accordingly, the court will deduct $16,000.00 from the bottom line that the Hatches believe remains due. This would result in a credit in the Hatches’ favor. However, on the debit side, the Hatches ask the court to reduce their debt by $12,057.74, representing the “10% Fee” that the parties agreed would reduce the $16,000.00 Start-Up Loan. Just as the court must exclude the Start-Up Loan from the bottom line of Exhibit H, so too must it exclude the payments applicable to that loan. The parties did not agree that the 10% reduction would apply to the Hatches’ tort liability. Accordingly, the court will add $12,057.74 back into the Hatches’ calculation of their debt.
Having reviewed the record and giving due weight to the demeanor and credibility of the two witnesses, the court finds that Mr. and Mrs. Hatch embezzled funds in the amount of $5,176.00, as summarized in Mr. Hatch’s September 9, 2009 email to Mr. Davies. See Exh. 15. Although that email technically constitutes an admission that they used only 95% of the $5,176.00 for family purposes, the other circumstances described persuade the court that, in fact, that figure measures 100% of the embezzlement. After that email, however, the court calculates that the Hatches paid down that debt, generally by delivering product, so that by October 13, 2009, the Hatches owed only $4,834.88 in embezzled funds.
It appears that their debt to Bello increased after October 13, 2009, but Bello did not persuade the court that the circumstances after that time indicated fraud against Bello, as much as they indicated fraud against Pandora to disguise the Hatches’ purposeful violation of Pandora’s Authorized Retailer Agreement. See Exh. 19 (emails from Mr. Hatch dated Decern-*491ber 3, 2009 and December 7, 2009 indicating that Pandora was “very suspicious coming in but by the end of the meeting they were thoroughly convinced we are ok!” and referring to use of “subterfuge [against Pandora] to a degree beyond my expectations.”); see also Exh. 18 (“anyone [from Pandora] taking a close look will know this can’t be right for our store. You said after our last order we would stay low for a while?”).
Based on a preponderance of the evidence, the court finds that the Hatches together embezzled $4,834.88.
3. Willful and Malicious Injury (11 U.S.C. § 528(a)(6))
Although the embezzlement seemed to have ceased by the Fall of 2009, the court finds that Mr. Hatch converted funds in December 2009, as Isabelle’s relationships with Bello and Pandora were deteriorating.
The documentary evidence establishes without controversy that Mr. Davies wired the November Wire to Mr. Hatch to purchase additional Pandora bead inventory. See Exh. H (Hatches’ transaction summary); Exh. 22, at p. S-12 (United Bank account statements). The record also establishes that Mr. Davies and the Hatches originally agreed to use these funds only for purchasing Pandora beads. Late in 2009, however, Messrs. Hatch and Davies disagreed about how to deal with Pandora, and therefore how to use the November Wire.
E-mail correspondence between Messrs. Davies and Hatch reveals that both initially regarded the upcoming Christmas retail season as a good opportunity to purchase larger quantities of product from Pandora without arousing Pandora’s suspicions that Isabelle’s was flouting the Authorized Retailer Agreement. See Exh. 14 (email from Mrs. Hatch to Mr. Davies dated September 9, 2009, stating that Pandora representatives “told me that we need to get are [sic] [C]hristmas orders in asap, so I dont [sic] think they will think anything if you want to place a large order.”); Exh. 18 (email from Mr. Davies to Mr. Hatch dated November 14, 2009, stating that “We are in the thick of Pandora’s busiest time so we can really place some big orders without anyone having any idea.”). Nevertheless, in late 2009, Mr. Hatch came to believe that Pandora was getting suspicious. In view of these fears, Mr. Hatch told Mr. Davies that he did not favor placing a large order. See Exh. 18, p.l. Regardless, Mr. Davies persuaded him to place a large bead order, against the latter’s “better judgment.” Id.
In Mr. Hatch’s view, his prediction came to pass when Pandora contacted him about the unusually large order.4 However, in a December 3, 2009 email congratulating himself on pulling the wool over the Pandora representatives’ eyes, he explained:
They were very suspicious coming in but by the end of the meeting they were thouroughly [sic] convinced that we are ok!
However, our success left us with no choice but to commit to the additional investment that will take us to the next level. Good news and bad ... The bad news is we had no choice but to invest an additional $20k in an order that they *492helped us develop. Unfortunately, we do not have these funds and will have to use your last transfer to fund this order. I had to blame our suspicious order on the lack of communication between Di and I (as you suggested) and hence did not have any choice but to go along with them helping us to cancel the order and develop a new one ... I realize this wasn’t in the plan but feel good about the outcome given the alternative of being out of business....
Exh. 19. In several related emails, Mr. Davies unequivocally told Mr. Hatch to return the November Wire but Mr. Hatch flatly ignored him, announcing his intention to use the money as he saw fit, contrary to Mr. Davies’s instructions: “With or without your authorization, I will use your money to minimize the suspicion your ordering behavior has caused.” Id. (email dated December 7, 2009).
In addition to other evidence, Exhibit 19 establishes that Mr. Hatch took no steps to conceal from Bello his intention to divert the November Wire from the original intended use. As concealment is the hallmark of embezzlement, the court cannot classify this misappropriation of the November Wire as fraud. It does qualify, however, as conversion that must be excepted from discharge under 11 U.S.C. § 523(a)(6). Compare Kasishke v. Frank (In re Frank), 425 B.R. 435 (Bankr.W.D.Mich.2010) (court finds intentional misappropriation amounting to non-dis-chargeable conversion under 11 U.S.C. § 523(a)(6)) with McCallum v. Pixley (In re Pixley), 456 B.R. 770 (Bankr.E.D.Mich.2011) (criticizing Kasishke for stating too broadly that all conversion is excepted from discharge).
To ensure that the discharge protects only the honest but unfortunate debtor, a discharge does not relieve a debtor of repaying a debt that results from a willful and malicious injury to a person or property. National Sign and Signal v. Livingston, 422 B.R. 645 (W.D.Mich.2009) (citing Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998)). Chief Judge Maloney recently summarized the proofs that a creditor must offer at trial:
In order to show the debt owed falls under § 523(a)(6), the creditor must prove, by a preponderance of the evidence that (1) the debtor’s conduct was willful and malicious, (2) it suffered an invasion of its legal rights or to the legal rights to its property, and (3) the invasion was caused by the debtor’s conduct.
Livingston, 422 B.R. at 648. The injury— here the diversion of the November Wire to the Hatches’ new order—must be “willful” and “malicious,” because these words both modify the word “injury.” Id. (citing Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir.1999)).
The admissions in the email included within Exhibit 19 clearly establish that Mr. Hatch acted willfully. Not only did he intend to act, but he intended that in doing so he would frustrate Bello’s instructions by depriving it of the use of the November Wire, after Mr. Davies repeatedly demanded its return. This was no mere technical conversion. See Pixley, supra.
Mr. Hatch also acted “maliciously” within the meaning of 11 U.S.C. § 523(a)(6) and the case law interpreting that statute. To find that a debtor acted “maliciously” the court must be convinced by a preponderance of the evidence that the debtor caused the injury which gave rise to the debt at issue “in conscious disregard of one’s duties or without just cause or excuse.” Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986). Here, Mr. Davies made clear, and Mr. Hatch apparently agreed, that the latter had a *493duty to use the November Wire as Bello directed. It was, after all, “earmarked” for a specific purpose. The evidence of a conscious disregard of Bello’s rights could not be clearer: “with or without your authorization I will use your money.” See Exh. 19.
As for the possibility that Mr. Hatch had a good excuse, the court easily concludes he did not. Certainly he felt that misappropriating the November Wire was necessary to save his business, but it was necessary to save his business from being terminated for violating Pandora’s rights under the Authorized Retailer Agreement. The desire to continue the fraud against Pandora cannot qualify as “just cause” and if it is an “excuse,” it is not one the court is willing to accept.
The court notes, however, that on or about December 21, 2009, after misappropriating the November Wire, the Hatches delivered $4,319.00 in product to Bello. See Exh. H; Exh. 19. The court will deduct this amount from the debt arising from the misappropriation of the November Wire, and fix that aspect of Bello’s claim at $12,189.42.
Finally, the preponderance of the evidence with respect to the November Wire implicates Mr. Hatch in the willful and malicious injury, but not Mrs. Hatch. Accordingly, the court will enter judgment against Mr. Hatch in the amount of $12,189.42.
C. Bello’s Unclean Hands
The Hatches urge the court to bar Bello’s claim under the “unclean hands” doctrine, based on Bello’s own misconduct.
Certainly, Bello is not a sympathetic plaintiff. Its business model is unseemly and parasitic. The record establishes that prior to the federal injunction against trademark infringement that Bello accepted as a condition of its settlement with Pandora, Bello’s success depended upon its ability to induce people such as the Hatches to intentionally breach contracts with Pandora, some before they were even made, and to use “subterfuge” to conceal its involvement. Without the deception upon which Bello built its business, it could not trade on Pandora’s brand and reap the 50% markup it enjoyed on its unauthorized re-sales of Pandora beads. It is tempting under these circumstances to invoke the unclean hands doctrine to bar Bello’s recovery. The court, however, will resist the temptation for a number of reasons.
First, the Hatches did not assert Bello’s modus operandi as the basis of their unclean hands defense. Instead, they asserted supposed usury and impossibility of performance after Bello informed Pandora about the Hatches’ contractual breaches, i.e., their resale of inventory. The court’s reliance on the Plaintiffs business model to support a finding of unclean hands at this point in the litigation would unfairly surprise the company.
Second, the record does not support the defense of usury. Because the Plaintiff is not seeking a ruling of nondischargeability with respect to the initial Start-Up Loan, the interest rate on that loan is irrelevant. Even if the Start-Up Loan were at issue, the parties agreed to an interest free loan. See Exh. A (February 10, 2009 email in which Mr. Davies informs Mr. Hatch that “[w]e will provide an interest free loan to you and your wife for one year”). The Hatches’ reliance on Mr. Davies’s deposition testimony is misplaced. His reference to the $2,000.00 monthly pay down simply referred to the rate at which the principal would be retired (based on anticipated purchases of beads for re-sale), but did not include any interest component. See Exh. J (Transcript of December 8, 2011 Deposition of Matthew Davies at 13:4-9). To the *494extent that he mentioned any “ROI” or return on investment, the court finds that he was referring to the 40-50% markup he was able to earn on the illicit re-sales, not to interest on the Start-Up Loan. In any event, the only debts at issue in this proceeding arise from the Hatches’ torts. It does not make sense to assert a usury defense to an embezzlement claim.
In asserting their defense of “impossibility,” the Debtors contend that by disclosing their re-sale activities to Pandora, Bel-lo precluded them from completing their agreement with Bello. As with the usury defense, however, it takes aim at a contract claim (which Bello does not assert in this action), and has no bearing on the tort claims of embezzlement and conversion.
At trial, the Hatches also suggested that Mr. Davies threatened to reveal their contract breaches to Pandora (and therefore doom their jewelry business). Because the threat postdated the creation of the debts at issue in this adversary proceeding, the Debtors cannot establish the nexus courts generally require before invoking the unclean hands doctrine. Hopper v. Everett (In re Everett), 364 B.R. 711 (Bankr.D.Ariz.2007). Moreover, the disclosure actually predated the supposed threat because it was part of the Stipulated Protective Order. See Exh. L (docket sheet for Pandora Jewelry, LLC v. Bello Paradiso, LLC, 2:08-cv-03108, E.D. Calif., DN 106).
More generally, the court has qualms about applying the unclean hands doctrine in dischargeability litigation because the relief that a plaintiff requests under 11 U.S.C. § 523 is statutory, not simply equitable. The statute makes no provision for invoking equitable doctrines, except perhaps inferentially by analogizing a discharge to “an injunction.” 11 U.S.C. 524(a)(2) and (a)(3). On the one hand, Congress clearly intended to limit the bankruptcy discharge to the honest but unfortunate; on the other hand, courts (including courts of equity) generally close their doors to plaintiffs with “unclean hands” or who have engaged in misconduct closely related to their claims for relief. The Hatches’ case, however, does not require the court to decide (as others have) that the unclean hands doctrine may preclude relief under section 523. Republic of Rwanda v. Uwimana (In re Uwimana), 274 F.3d 806 (4th Cir.2001); Adams v. Council Baradel, Kosmerl & Nolan (In re Adams), 254 B.R. 857 (Bankr.D.Md.2000).
The court notes the similar role that the unclean hands doctrine and the wrongful conduct rule play. See In re Robinson, 2000 WL 1800604 (Bankr.N.D.Ill.). Both are designed to protect the integrity of the court by preventing it from assisting litigants in carrying on improper activities. Michigan, however, reserves the wrongful conduct rule — a possible defense to tort claims — for only the most egregious conduct proscribed by criminal or penal statutes. Orzel by Orzel v. Scott Drug Co., 449 Mich. 550, 537 N.W.2d 208 (1995). Bello’s conduct in its dealings with the Debtors was shameful in many respects but not demonstrably criminal. The court declines to invoke the unclean hands doctrine on the present record.
IV. CONCLUSION
For the foregoing reasons, the court will enter judgment against the Hatches, jointly, in the amount of $4,834.88, and that debt shall be excepted from discharge under 11 U.S.C. § 523(a)(4). In addition, the court will enter judgment against Mr. Hatch alone in the amount of $12,189.42, and that debt shall be excepted from discharge under 11 U.S.C. § 523(a)(6). To clarify, Mr. Hatch’s total non-dischargea-ble debt to Bello will be $17,024.30 (embezzlement and conversion), while Mrs. *495Hatch’s non-dischargeable debt will be limited to $4,834.88 (embezzlement only).
The Clerk will enter a separate judgment conforming to this Opinion.
IT IS SO ORDERED.
. William Shakespeare, Romeo and Juliet, Act 3, Scene 1, 90-92.
. The court bases this table largely on Exh. H, modified to eliminate the debt allocable to the Start-Up Loan and any sales-related credits, and to remove a shipment that Bello contends it did not receive. Bello does not seek a ruling with respect to the Start-Up Loan, but only with respect to the debt related to the other wire transfers.
. See Exh. 6 (“[I] still have not been able to replace your money” to cover cost of a bac-korder.) and Exh. 10 ("I wish we were in a position to repay you the $4000 we owe you right now.”)
. Mr. Hatch assumed that the large order triggered Pandora’s suspicion but ironically, Pandora already knew that Isabelle’s was reselling to Bello because by then, the Magistrate Judge had entered the Protective Order in the trademark litigation requiring Bello to disclose the identity of its suppliers (including Isabelle’s), but prohibiting Pandora from using that information against current suppliers except in connection with that proceeding. See Tr. at 71:19-72:5; Exh. L (docket sheet). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494598/ | MEMORANDUM OPINION DENYING SHRINERS HOSPITAL’S MOTION TO VACATE SUMMARY JUDGMENT
JACK B. SCHMETTERER, Bankruptcy Judge.
I. INTRODUCTION
This adversary proceeding is related to the Chapter 7 Bankruptcy proceeding filed by Debtor-Defendant James George Bau-man (the “Defendant”). Plaintiff Shriners Hospital for Children (the “Plaintiff’) sued in this Adversary Proceeding asserting that its claim against the Defendant should not be discharged pursuant to sections 11 U.S.C. § 523(a)(4) and (a)(6). On December 23, 2011, summary judgment in favor of the Defendant was entered. The Plaintiff has moved to vacate that decision un*497der Rule 59 Fed.R.Civ.P. [made applicable by Rule 9034 Fed. R. Bank. P.]. The Plaintiffs motion was timely filed on January 6, 2012.
JURISDICTION
Jurisdiction lies under 28 U.S.C. § 1334(b) and Internal Operating Procedure 15(a) of the United States District Court for the Northern District of Illinois. This is a core proceeding under 28 U.S.C. § 157(b)(2)(I). Venue is proper pursuant to 28 U.S.C. § 1409(a).
II. BACKGROUND
All of the material facts in this case either are undisputed or have been deemed admitted pursuant to Local Bankruptcy Rule 7056-2(B). Those facts are as follows.
The Plaintiff is a charitable organization that provides medical care to ill and injured children. (Def. L.R. 7056-1 Stmt. ¶ 1; Compl. ¶ 2.) In 1964, Ms. Grace Ellis (“Ellis”) executed a will (the “1964 will”) naming her parents as the beneficiaries of her estate, and named the Plaintiff and her future descendants as contingent beneficiaries. (Def. L.R. 7056-1 Stmt. ¶ 3 & Ex. 5 to Ex. F; Comp. ¶ 8). In 1999, Ellis executed a new will (the “1999 will”) naming Defendant as the sole beneficiary and her surviving heirs as contingent beneficiaries. (Def. L.R. 7056-1 Stmt.; Compl. ¶ 12.) Ellis died in 2003, with an estate of almost $2 million. (Def. L.R. 7056-1 Stmt. ¶ 4). The 1999 Will was filed the following day with the Clerk of the Circuit Court of Cook County and admitted to probate on October 29, 2003. (Id.)
The Plaintiff first became aware of its possible interest in the 1964 Will in 2006 when the Defendant filed that earlier will with the Circuit Court as part of a will contest brought by some of Ellis’ heirs at law. (Id. ¶ 5.) Thereafter, on August 8, 2006, the Plaintiff filed a Petition to contest the 1999 Will in the Circuit Court. (Id. ¶ 6 & Ex. 4A.) Counts I and II of that Petition contested the validity of the 1999 Will based on theories of undue influence and mental incapacity, respectively. (Id. ¶ 7 & Ex. 4A.) Those counts requested both the vacation of the order admitting the 1999 Will to probate and the admission to probate of the 1964 Will. (Id.) Count III of the petition alleged a tort claim for intentional interference with an expectancy of inheritance. (Id., Ex. 4A.)
In addition to the Plaintiffs will contest, two groups of Ellis’ heirs filed separate will contests that were substantially similar to that of the Plaintiffs (Id. ¶ 11 & Exs. 4B & 4C), but they have not participated in this Adversary proceeding. During the probate litigation of all three will contests, testimony from Ellis’ attending physician, friends, and lawyers was taken in four depositions. (Id. ¶ 12 & Exs. D-G.) In all four depositions, the deponents testified that Ellis was of sound mind and memory and did not suffer from diminished mental capacity when the 1999 Will was executed. (See id. ¶¶ 13-17.)
In response to the Plaintiffs petition, the Defendant moved to have the entire state court Complaint dismissed for untimely filing, and this motion was granted by the Circuit Court. (Def. L.R. 7056-1 Stmt. ¶ 8, 9.) The Plaintiff appealed the tort claim only, and the Illinois Court of Appeals affirmed the judgment of the Circuit Court. (Id.) The Illinois Supreme Court reversed the judgment of the lower courts pertaining to the timeliness of the filing and remanded the issue of the tort claim to the Circuit Court. In re Estate of Ellis, 236 Ill.2d 45, 337 Ill.Dec. 678, 923 N.E.2d 237 (2009).
The Defendant filed his voluntary petition for relief under Chapter 7 of the *498Bankruptcy Code, and the Plaintiff filed this Adversary Complaint to bar dis-chargeability of its tort claim pursuant to § 523(a)(4) and (a)(6). (Def. L.R. 7056-1 Stmt. ¶2; Compl. ¶4.) Plaintiff alleged under § 523(a)(4) that the Defendant had a fiduciary duty to the Plaintiff because the Defendant was the executor of the 1999 will and the Plaintiff was Ellis’ rightful heir and that Defendant breached this duty by failing to alert the Plaintiff of Ellis’ death and distributing the assets of her estate to himself. (CompLIHI 21-24). The Plaintiff further alleged under § 523(a)(6) that the Defendant willfully and maliciously caused injury to the Plaintiff by depriving Plaintiff of the assets of Ellis’ estate. (Compl. ¶ 27.)
The Defendant moved to dismiss the case under Rule 12(b)(6) Fed.R.Civ.P. [made applicable by Rule 7012(b) Fed. R. Bankr.P.] or, in the alternative, for summary judgment under Rule 56(b) Fed. R.Civ.P. [made applicable by Rule 7056 Fed. R. Bankr.P.]. The Defendant submitted that motion with four depositions referred to earlier. The depositions were of the witnesses in the probate litigation that demonstrated Ellis’ sound mental state at the time of filing the 1999 will. (Exs. DG). According to that unanimous and un-contradicted deposition testimony from her attending physician, her friends, and her lawyers, Ellis was of sound mind and memory and did not suffer from diminished mental capacity at -the time of the execution of the 1999 Will.
Specifically, Ellis’ friend and one-time lawyer Donald W. Hoag (“Hoag”) testified that he played bridge with Ellis on a regular basis from 1985 until her death in 2003 and that she was “very, very with it.” (Def. L.R. 7056-1 Stmt. ¶ 13 & Ex. D at 53:3-5). Hoag described Ellis as a “very stubborn[,] ... very independent” woman with “a very strong personality.” (Id., Ex. D at 123:13-17.) According to Hoag, “there was absolutely nothing wrong with [Ellis] physically or mentally” such that she would not have been able “to make a free choice [regarding] what she wanted to do with her assets.” (Id., Ex. D at 106:18-21.)
Similarly, Ellis’ attending physician and friend William Wehrmacher (“Wehrmacher”) testified that Ellis was of “sound and disposing mind and memory” during the many years that he treated her, including shortly before her death (id., Ex. E at 37:15-38:9), that she was “clear and oriented” (id., Ex. E at 41:16), “pleasant and cooperative” (id., Ex. E at 45:14-15). Additionally, Wehrmacher stated that Ellis did not suffer from any kind of condition that would impair her memory or judgment or affect her ability to understand and make responsible decisions on August 12, 1999, just days after she executed the 1999 Will. (Id., Ex. E at 48:4-18.) In short, Wehrmacher testified, Ellis “knew precisely what she was doing.” (Id., Ex. E at 48:2-3.)
James M. Knox (“Knox”), Ellis’ friend and attorney, testified that he drafted both the 1999 Will and the power of attorney for property for Ellis. (Id., Ex. F at 10:2-5; 10:24-11:4.) According to Knox, Ellis was “a scrappy, smart, tough, independent lady.” (Id., Ex. F at 52:13-14.) She was “no pushover,” Knox said, but rather “a powerful, ... interesting, educated, sophisticated woman.” (Id., Ex. F at 52:14-16.) In order to assure himself that Ellis knew exactly what she was doing at the time of the execution of the 1999 Will, Knox testified that he observed the way Ellis looked, had her read the will, and asked her if she understood that she was leaving everything to the Defendant. (Id., Ex. F at 23:7-20; 56:18-21.) After observing and speaking to Ellis, Knox said, he was “convinced” that the disposition of her estate to *499the Defendant was “consistent” with what Ellis had wanted to do for “several years.” {Id., Ex. F at 24:3-7.)
Finally, Janine L. Knox (“Janine Knox”), Knox’s wife, office manager, and legal assistant, testified that she witnessed the execution of the 1999 Will. {Id., Ex. G at 5:23-24; 6:24-7:1; 10:7-9.) According to Janine Knox, Ellis then stated her understanding that the will would leave her entire estate to the Defendant. (Id., Ex. G at 11:13-16.) Janine Knox also testified that she believed that Ellis was “of sound mind and memory” on the day the 1999 Will was executed and had no reason to think that the Defendant had unduly influenced her to execute the will. (Id., Ex. G at 17:12-20.)
In its response to the Defendant’s Motion for Summary Judgment, the Plaintiff argued that the Motion was filed prematurely because discovery was not completed in the probate litigation. Specifically, the Plaintiff contended witnesses who had not been deposed would dispute the facts presented in the depositions offered by the Defendant. (Mem. In Opposition to the Def. Mot. In Favor of Summary Judgment ¶ 4.) Further, the Plaintiff maintained that both the Defendant’s failure to file an Answer to the Amended Complaint and the Illinois Supreme Court’s decision allowing the Plaintiff to proceed with its tort claim for intentional interference with an expectancy of inheritance created genuine issues of material fact precluding the entry of summary judgment in the Defendant’s favor. (Id.) The Plaintiff did not contend that it had any evidence or affidavits at the time to contradict the evidence presented by the Defendant and it offered none. Therefore, the Motion was allowed and Summary Judgment was entered in favor of Defendant.
As reasoned in the Memorandum Opinion supporting entry of Summary Judgment, a party seeking summary judgment “always bears the initial responsibility of informing the ... court of the basis for [his] motion, and identifying those portions of the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, which [he] believes demonstrate the absence of a genuine issue of material fact.” In re Jacobs, 448 B.R. 453, 462 (Bank.N.D.Ill.2011) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986)). Once a moving party meets his initial burden of production, the opposing party may not rest on the mere allegations or denials in its pleadings; rather, its response must provide specific facts showing there is a genuine issue for trial. See Anderson v. Liberty Lobby, 477 U.S. 242, 248, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Matsushita Electric Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986); Outlaw v. Newkirk, 259 F.3d 833 (7th Cir.2001). When the defendant is the party moving for summary judgment, his burden is “to point out the problems the plaintiff would face in proving its claims.” Maxwell v. Penn Media (In re marchFirst, Inc.) Nos. 01 B 24742, 03 A 1141, 2010 WL 4027723 (Bankr.N.D.Ill. Oct. 14, 2010). The plaintiff must then establish a prima facie case, adducing evidence on every element of its claim on which it will bear the burden of proof at trial. Celotex Cor., 477 U.S. at 322, 106 S.Ct. 2548. Failing that, summary judgment will be entered for the defendant. See. E.g., Brummett v. Sinclair Broad. Grp., Inc., 414 F.3d 686, 692-94 (7th Cir.2005).
The contention by the Plaintiff in its response that Defendant prematurely moved for summary judgment ignored the express language of Rule 56(b) Fed.R.Civ.P. That Rule provides that “a party may file a motion for summary judgment *500at any time until 30 days after the close of all discovery.” Fed.R.Civ.P. 56(b). No Answer to the Complaint need be filed before a defendant’s motion for summary judgment may be entertained. Grochocinski v. Rieger (In re KJK Constr. Co.), 414 B.R. 416, 426 (Bankr.N.D.Ill.2009). In this case, the Defendant filed his Motion for Summary Judgment on September 19, 2011, before close of discovery in both the probate litigation and this Adversary Proceeding.
Although discovery is strongly favored before summary judgment is granted, Bank of Am. v. Outboard Marine Corp. (In re Outboard Marine Corp.), 304 B.R. 844, 852 (Bankr.N.D.Ill.2004), the Plaintiff had ample time to conduct such discovery but failed to do so. When the Summary Judgment Motion was filed, the Plaintiff had known of its interest in the 1964 Will for over five years and had filed a petition to contest the 1999 Will in Circuit Court. During pendency of the probate litigation, the Plaintiff failed to depose the Defendant or any other witnesses who the Plaintiff contended could dispute the facts presented in the depositions offered by the Defendant. The Plaintiff also failed to examine the Defendant under Rule 2004 Fed. R. Bankr.P. after filing the related Chapter 7 bankruptcy petition more than a year ago or to take discovery in this Adversary Proceeding once it was filed. In consequence, the Plaintiff had neither taken discovery nor was able to produce any evidence in support of its position. This situation was not changed by the Illinois Supreme Court order allowing the Plaintiff to proceed with its tort claim, especially since that decision spoke to the timeliness of the Plaintiffs tort claim, not to its merits. Accordingly, the earlier Opinion here held that Defendant’s Motion for Summary Judgment was timely filed under Rule 56(b).
Local Bankruptcy Rules 7056-1 and 7056-2 set forth procedures required to be followed in a Summary Judgment Proceeding. Rule 7056-1 requires the moving party to supplement his motion and supporting memorandum with a statement of undisputed material facts (the “7056-1 Statement”). L.R. 7056-l(A). The 7056-1 Statement must consist of short, numbered paragraphs and include within each paragraph specific citations to evidentiary material in support of the facts in that paragraph. The party opposing a motion for summary judgment is required by Local Rule 7056-2 to submit a response (the “7056-2 Response”) to each numbered paragraph in the movant’s 7056-1 Statement and include, “in the case of any disagreement,” specific citations to supporting evidence. L.R. 7056-2(A)(2)(a). All facts not outright denied, as well as denials that are not supported in required form support, are admitted. L.R. 7056-2(B), marchFirst, 2010 WL 4027723.
During the summary judgment proceeding, the Plaintiff did not present any deposition, affidavit, or other matter evidence that contradicted the material presented by Defendant. In the Defendant’s Statement under Local Bankruptcy Rule 7056-1, he set out in numbered paragraphs the undisputed facts of the case. Every factual statement was supported with specific references to supporting evidentiary material, and as a result was compliant with the Local Bankruptcy Rules. (See Def. L.R. 7056-1 Statement). The Plaintiffs 7056-2 Response responded to the Defendant’s Statement by purporting to offer additional facts, clarifying or explaining its response, or denying some of the facts presented. However, Plaintiff did not support any of those responses with supporting material as required. (See. PI. L.R. 7056-2 Resp.) As a result, the facts as presented by the Defendant were deemed admitted. See L.R. 7056(b)(1), (2); see also Jacobs, *501448 B.R. at 463. Plaintiff set forth no additional facts in the required manner so as to show contested any issue as required to deny summary judgment under Bankruptcy Rule 7056(A)(2)(b).
If a party Plaintiff possesses evidence to support its suit, it need only present such evidence to oppose summary judgment by showing a relevant fact issue that supports its legal theories. That was not done earlier. As discussed below, that has not been ever attempted by the pending Motion to Vacate Summary Judgment.
In its Adversary Complaint, Plaintiff invoked two of the statutory exceptions to discharge under section 523(a) of the Bankruptcy Code. As the party seeking an exception to the discharge of a debt, the Plaintiff bore the burden of proof by a preponderance of the evidence. See Grogan v. Garner, 498 U.S. 279, 291, 111 S.Ct. 654, 112 L.Ed.2d 755, (1991); Jacobs, 448 B.R. at 470. Exceptions to discharge must be construed strictly against the Plaintiff and liberally in favor of the Defendant. See In re Morris, 223 F.3d 548, 552 (7th Cir.2000).
11 U.S.C. 8323(a)(1)
§ 523(a)(4) of the Code excepts from discharge any debt “for fraud or defalcation while acting in a fiduciary capacity, embezzlement, or larceny[.]” 11 U.S.C. § 523(a)(4). To demonstrate a claim under section 523(a)(4), the Plaintiff must prove that the Defendant committed: (1) fraud or defalcation while acting as a fiduciary; or (2) embezzlement; or (3) larceny. 11 U.S.C. § 523(a)(4). The Plaintiff invoked only the fraud or defalcation prong of that statutory exception.
In the Memorandum Opinion allowing Summary Judgment, the following legal reasoning was used to determine the proper outcome for these allegations. In order to prevail under the fraud or defalcation prong, the Plaintiff needed to establish the following elements by preponderance of the evidence: (1) an express trust or fiduciary relationship that existed between the Plaintiff and the Defendant; and (2) fraud or defalcation committed by the Defendant in the course of that relationship. See Follett Higher Educ. Grp., Inc. v. Berman (In re Berman), 629 F.3d 761, 765-66 (7th Cir.2011).
Under Seventh Circuit authority, a fiduciary relationship for purposes of section 523(a)(4) may arise .either when there is an express trust or when there is “a difference in knowledge or power between fiduciary and principal which ... gives the former a position of ascendancy over the latter.” In re Marchiando, 13 F.3d 1111, 1116 (7th Cir.1994); Jacobs, 448 B.R. at 477. Only those fiduciary relationships that “ ‘impose[ ] real duties in advance of the breach’ ” fall within the ambit of section 523(a)(4). In re Frain, 230 F.3d 1014, 1017 (7th Cir.2000) (quoting Marchiando, 13 F.3d at 1116; In re Hanson, 432 B.R. 758, 774 (Bankr.N.D.Ill.2010) (same)); see also Berman, 629 F.3d at 769.
“Fraud” for purposes of the statutory exception requires intentional deceit. In re Fairgrieves, 426 B.R. 748, 754 (2010). “Defalcation” means “the misappropriation of funds held in trust for another in any fiduciary capacity, and the failure to properly account for such funds.” Id. Although intent to misappropriate is not necessary, defalcation requires at least reckless conduct. Meyer v. Rigdon, 36 F.3d 1375, 1385 (7th Cir.1994).
Count I of the Amended Complaint asserted that an alleged debt should be excepted from discharge under the fraud or defalcation prong of section 523(a)(4) because, as the executor of the 1999 Will, the Defendant breached his fiduciary duty to the Plaintiff. Specifically the Plaintiff contended that the Defendant and Plaintiff *502had a fiduciary relationship because the Plaintiff was the “rightful heir and sole intended beneficiary of Ellis” (Compl. ¶¶ 21-24) and that the Defendant breached his fiduciary duty to the Plaintiff by failing to notify the Plaintiff of Ellis’ death and by distributing all of the assets of Ellis’ estate to himself.
The earlier Opinion held that the alleged facts did not support the Plaintiffs contentions. There was no evidence of a fiduciary relationship between the Plaintiff and the Defendant. The Defendant may have been the fiduciary of Ellis under her power of attorney, and of the heirs at law as the executor of her will. However, since the Plaintiff was not an heir under the 1999 will, the Defendant had no fiduciary duty to the Plaintiff. Furthermore, the Plaintiff presented no evidence that the Defendant committed fraud or defalcation. There was no evidence the Defendant failed to meet his obligations as his role as power of attorney or executor of the 1999 will, nor any evidence that he intentionally deceived anyone or misappropriated the funds of Ellis’ estate.
The Plaintiff suggested that the Defendant took advantage of Ellis, exercising some form of undue influence over her so that she would leave all of her assets to him. Under Illinois law, “undue influence” is “any improper ... urgency of persuasion whereby the will of a person is overpowered and he is induced to do or forbear an act which he would not do or would do if left to act freely.” In re Estate of Hoover, 155 Ill.2d 402, 185 Ill.Dec. 866, 615 N.E.2d 736, 740 (1993) (internal quotations omitted). “To constitute undue influence, the influence must be of such a nature as to destroy the testator’s freedom concerning the disposition of his estate and render his will that of another.” Id. (internal quotations omitted).
All of the evidence presented by the Defendant and uncontested by the Plaintiff contradicted the Plaintiffs assertion that the Defendant persuaded or overpowered Ellis or destroyed her freedom concerning the disposition of her estate in any way. Rather, the uncontested facts demonstrated that, despite Ellis’ advanced age, she did exactly what she wanted to do with her property, without being influenced by the Defendant or anyone else.
Based on the forgoing legal standards and uncontested facts in the Defendant’s 7056-1 Statement, based on testimony of the deponents, and the lack of any evidence whatsoever to suggest otherwise, it could not be found that the Defendant unduly influenced Ellis to leave all of her assets to him or that he committed fraud or defalcation in connection with the relevant events in this case. As a result of there being no triable issue of fact on that question, it was held and still appears that the Plaintiff could not bar dischargeability of its claim under § 523(a)(4).
11 U.S.C. § 523(a)(6)
The Plaintiff also attempted to bar dis-chargeability under Section 523(a)(6), which provides that a debtor cannot discharge any debt “for willful and malicious injury by the debtor to another entity or to the property of another entity[.]” 11 U.S.C. § 523(a)(6). The Memorandum Opinion discussed this standard, and held that to prevail on a claim under the statutory exception, the Plaintiff must demonstrate that the Defendant: (1) caused an injury; (2) acted willfully; and (3) acted maliciously. See Gen. Med., P.C. v. Monke (In re Monke), No. 10-CV-2273, 2011 WL 1790403 (C.D.Ill. May 10, 2011); Jacobs, 448 B.R. at 480; Fairgrieves, 426 B.R. at 756; Koplin v. Ginsberg (In re Ginsberg), Nos. 08 B 30836, 09 A 188, 2009 WL 4891815 (Bankr.N.D.Ill., 2009).
*503That Opinion noted that the United States Supreme Court has explained that “[t]he word ‘willful’ in [section 523](a)(6) modifies the word ‘injury,’ indicating that nondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury.” Kawaauhau v. Geiger, 523 U.S. 57, 61, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998). Under this exacting standard, the Plaintiff needed to show facts demonstrating that Defendant’s actions were harmful and the Defendant intended the harmful consequences of his actions. See Geiger, 523 U.S. at 61-62, 118 S.Ct. 974; see also Berkson v. Gulevsky (In re Gulevsky), 362 F.3d 961, 964 (7th Cir.2004). Injuries that are recklessly or negligently inflicted do not fall within the scope of § 523(a)(6). Geiger, 523 U.S. at 64, 118 S.Ct. 974.
The United States Supreme Court has not described what evidence of state of mind is needed to establish the intent to cause injury for purposes of the statutory exception under § 523(a)(6). Jacobs, 448 B.R. at 480; Fairgrieves, 426 B.R. at 757; Basel-Johnson, 366 B.R. 831 at 849 (Bankr.N.D.Ill.2007); In re Scarpello, 272 B.R. 691 at 704 (Bankr.N.D.Ill.2002). However, lower court decisions have generally found that a plaintiff can show the requisite intent by establishing that the defendant either subjectively intended to injure the plaintiff or knew that the injury was substantially certain to result from his actions. Jacobs, 448 B.R. at 480-81.
As to the malice element required under section 523(a)(6), conduct is “malicious” if it is undertaken “in conscious disregard of one’s duties or without just cause or excuse.” In re Thirtyacre, 36 F.3d 697, 700 (7th Cir.1994) (internal quotation omitted); Fairgrieves, 426 B.R. at 757; Basel-Johnson, 366 B.R. at 850. Therefore, to demonstrate malice under section 523(a)(6), the Plaintiff had to prove that the Defendant (1) intentionally committed a wrongful act, which (2) caused injury to the Plaintiff, and (3) was done without just cause or excuse. See Basel-Johnson, 366 B.R. at 850. In order for this Defendant’s conduct to be considered malicious, he need not have acted with ill will or a specific intent to injure the Plaintiff. See Jacobs, 448 B.R. at 481; Basel-Johnson, 366 B.R. at 850.
Count II of the Amended Complaint alleged that by “causing” Ellis to transfer property to him and to execute a new will, the Defendant willfully and maliciously interfered with the Plaintiffs expectancy of inheritance under the 1964 Will. (Id. ¶¶ 27, 28.) According to the Plaintiff, but for the Defendant’s “actions in causing Ellis to execute a new will and transfer property to the Defendant prior to her death,” the Plaintiff would have inherited estate assets valued at more than $2 million and the property that was transferred to the Defendant valued at over $1 million. (Id. ¶ 29.)
It was found in the earlier Opinion that the undisputed facts failed to support those contentions or to demonstrate any of the elements required to except the debt from discharge under section 523(a)(6). First, there is no evidence that the Defendant committed any acts — or did anything at all — to “cause” Ellis to transfer her property or execute a new will. Rather, as discussed above at length, the unconteste'd facts establish that Ellis was of sound mind and memory until her death in 2003 and that she disposed of her property exactly the way she wanted to, without being influenced, unduly or otherwise, by the Defendant. Other than baldly stating that the Defendant “caused” Ellis to transfer assets to the Defendant and execute a new will, the Plaintiff has simply offered no evidence to prove that the Defendant acted *504in any way to canse an injury to the Plaintiff.
Even if the Plaintiff had identified specific acts committed by the Defendant which resulted in injury to the Plaintiff, there has been nothing offered to show that the Defendant actually intended to harm the Plaintiff, knew that injury was substantially certain to result from his conduct, or intentionally committed a wrongful act without just cause or excuse. Because the Plaintiff failed to make any showing at all on any of the elements of its claim under section 523(a)(6), summary judgment was entered for the Defendant on Count II. That Judgment was properly entered.
The Plaintiff filed its Motion to Vacate on January 6, 2012.
III. LEGAL AND PROCEDURAL STANDARDS
The Plaintiff was not specific as to which part of Rule 59 it is relying on. The two parts most commonly applied in this situations are Rule 59(a), (allowing the judge to grant a new trial), or 59(e), (allowing the judge to alter or amend judgment). Since there was no trial in this case, only a summary judgment proceeding, it is inappropriate to consider the motion under Rule 59(a). See Schmude v. Sheahan, 00 C 4580, 2004 WL 887387 (N.D.Ill. Apr. 23, 2004). Patin v. Allied Signal, Inc., 77 F.3d 782, 785 n. 1 (5th Cir.1996). Therefore, the Motion will be assessed under the standards of Rule 59(e).
Motion to Alter or Amend Judgment Under Rule 59(e)
A Rule 59(e) Motion to alter or amend the judgment may be granted, “if the movant presents newly discovered evidence that was not available at the time of trial or if the movant points to evidence in the record that clearly establishes a manifest error of law or fact.” In re Prince, 85 F.3d 314, 324 (7th Cir.1996) (quoting FDIC v. Meyer, 781 F.2d 1260, 1268 (7th Cir.1986)). “The rule essentially enables a ... court to correct its own errors, sparing the parties and the appellate courts the burden of unnecessary appellate proceedings.” Russell v. Delco Remy Div. of Gen. Motors Corp., 51 F.3d 746, 749 (7th Cir.1995). The decision to grant or deny a Rule 59(e) motion is within the court’s discretion. Prince, 85 F.3d at 324.
A Rule 59(e) motion cannot be used to present matters that were available to the movant before the proceeding and should have been presented prior to the entry of final judgment. Retired Chicago Police Ass’n v. City of Chicago, 76 F.3d 856, 867 (7th Cir.1996). “Where a party is made aware that a particular issue will be relevant to its case but fails to produce readily available evidence pertaining to that issue, the party may not introduce the evidence to support a Rule 59(e) motion.” Green v. Whiteco Indus., Inc., 17 F.3d 199, 202 n. 5 (7th Cir.1994).
Rule 59(e) permits a party to bring to the attention of the judge “factual and legal errors that would have changed the outcome of the case.” Herbstein v. Bruetman (In re Bruetman), 259 B.R. 672, 673-74 (Bankr.N.D.Ill.), aff'd, 266 B.R. 676 (N.D.Ill.2001), aff'd, 32 Fed.Appx. 158 (7th Cir.2002). A manifest error of law is demonstrated if there is a “wholesale disregard, misapplication, or failure to recognize controlling precedent.” Oto v. Metro. Life Ins. Co., 224 F.3d 601, 606 (7th Cir.2000).
In a motion for summary judgment, once the moving party has met its initial burden, the opposing party must respond with specific facts showing there is a genuine issue of material fact. Anderson, 477 U.S. at 248, 106 S.Ct. 2505. Only a show*505ing that the opposing party has admissible evidence may be considered in assessing the summary judgment motion. Gunville v. Walker, 583 F.Sd 979, 985 (7th Cir.2009).
As discussed above, Local Bankruptcy Rule 7056-1 requires the moving party to “serve and file a supporting memorandum of law and a statement of material facts as to which the moving party contends there is no genuine issue and that entitles the moving party to judgment as a matter of law, and that also includes: (1) a description of the parties; (2) all facts supporting venue and jurisdiction in this court; and (3) any affidavits and other materials referred to in Fed.R.Civ.P. 56(e).” See Local Bankr.R. 7056-1. The non-moving party under Local Bankruptcy Rule 7056-2 is required to submit a similar memorandum of law, as well as a response to the moving party’s statement of facts. In the case of any disagreement with the moving party’s statement of facts, the non-moving party must respond with “specific references to the affidavits, parts of the record, and other supporting materials relied upon,” as well as a statement that lists any additional facts that would support the denial of summary judgment, which must also include references to affidavits, parts of the record, or other supporting material relied upon. See Local Bankr.R. 7056-2.
IV. DISCUSSION OF MOTION
In the Plaintiffs Motion, there is presented nothing that shows that a manifest error of law or fact were made. The Plaintiff did not point to a legal precedent or other controlling authority that contradicts the Opinion. Nor did it even discuss the legal issues with both Counts that alone sink its case here. Nor did it point to any error in fact that affected the Opinion. Therefore, the Plaintiff can only succeed in its motion if it has presented newly discovered evidence not available before the summary judgment was executed.
As noted above, during the Summary Judgment Proceeding, the Plaintiff presented no affidavits or other material in its Rule 7056-2 Response that refuted the facts as presented by the Defendant. Furthermore, the Plaintiff did not provide any evidence supporting any contention that additional facts should be considered. Plaintiff presented absolutely nothing to support its assertions that the Defendant had a fiduciary relationship with the Plaintiff, let alone that the Defendant committed any fraud or defalcation. Furthermore, no evidence was presented to demonstrate there were any acts committed by the Defendant that resulted in injury to the Plaintiff, let alone any evidence that the Defendant had an intent to harm. On the other hand, the Defendant earlier presented an impressive showing by affidavits to support all of the factual findings in his Rule 7056-1 Statement.
In its Motion to Vacate, the Plaintiff attached two matters that it relies on to demonstrate a genuine issue of material fact that should block judgment. The first is an affidavit by one of the Plaintiffs lawyers, Wayne Lofthouse, and the second is a copy of a purported medical record of Ms. Ellis assertedly kept by her doctor. The Plaintiff states that these materials create a genuine issue of material fact by contradicting the conclusion made in the earlier Opinion that Ms. Ellis was of sound mind when she drafted her will in 1999.
Mr. Lofthouse’s Affidavit
In his affidavit, Mr. Lofthouse reports on an interview he had with a Ms. Bonifiglia, a caretaker of Ms. Ellis. While the information contained in the affidavit might be potentially pertinent to the case, it only reports a hearsay conversation, not personal knowledge by the affiant Mr. Lofthouse. Assuming that the contents *506would be sufficient in order to block summary judgment, the Plaintiff would have needed to present an affidavit by Ms. Bon-ifiglia herself in opposition to Defendant’s Motion for Summary Judgment. In support of its Motion to Vacate Summary Judgment, the Plaintiff states that Ms. Bonifiglia is prepared to testify, yet the Plaintiff does not have her affidavit demonstrating what she would be testifying to. A summary judgment decision must be based on the showing that admissible evidence is available, not the unsubstantiated assertions of the Plaintiffs lawyers. See Gunville, Id., 583 F.3d at 985 (7th Cir.2009).
Even if Lofthouse’s affidavit met the standards required during a summary judgment proceeding, the interview Mr. Lofthouse reported in his affidavit took place in May of 2007. This means that the information conveyed in the affidavit is not newly discovered, and the Plaintiff has not provided any reason that it should be considered newly discovered. If the information from Ms. Bonifiglia’s would have been relevant to the case, Plaintiff has no excuse for not presenting this evidence both properly and timely during the earlier Summary Judgment proceedings. See Prince Id., 85 F.3d at 324.
In its Motion, Plaintiff argues that the Defendant did not depose the Plaintiffs witnesses, and seemed to imply this somehow prevented the Plaintiff from presenting its evidence. This is ludicrous. The Defendant was not required to depose the Plaintiffs witness. In a summary judgment proceeding, no one is required to depose a witness. An affidavit, as long as it presents facts known by the affiant that would be admissible in court, is sufficient. See Celotex, 477 U.S. at 324, 106 S.Ct. 2548. All that is required is a demonstration that the party opposing summary judgment has admissible evidence that contradicts evidence presented by the Defendant. The Plaintiff could have presented affidavits from witnesses such as Ms. Bonifiglia in opposing the motion for summary judgment, if indeed they were willing to testify as Plaintiff contends, and if they were not willing, Plaintiff could have obtained their testimony by deposition.
The Purported Medical Records
The second piece of material presented in the Plaintiffs motion is a purported record of the medical file of Grace Ellis kept by Dr. Wehrmacher, her physician. Again, the information contained in these purported medical records might have been pertinent to the case. However, the purported medical record is not authenticated.
Rule 56(e) Fed. R. Civ. P. requires all documents that might be used to oppose summary judgment, including medical records, to be authenticated with an affidavit. Wells v. Franzen, 777 F.2d 1258, 1262 (7th Cir.1985). The purported medical records put forward by the Plaintiff have not been authenticated, and therefore are also useless in a summary judgment proceeding. Furthermore, as with the affidavit, the purported medical record is said to be from records prepared in the year 1999, and Plaintiff has not shown that it was newly discovered, Therefore it was available to the Plaintiff during the summary judgment proceedings before Judgment was entered. The Plaintiff was well aware that this might be a relevant document, not only because it involved Ms. Ellis’ state of mind, but also because Dr. Wehrmacher was a witness by affidavit for the Defendant. But it was not timely tendered earlier and now is not authenticated.
Therefore, the medical record is neither authenticated nor newly discovered evidence as required under Rule 59(e), and does not support Plaintiffs Motion.
*507
CONCLUSION
A motion to vacate Summary Judgment under Rule 59(e) is an opportunity for a judge to correct previous errors. It is not an opportunity for the movant to correct its own errors by relitigating the case or presenting materials held back by it before judgment was entered. That is exactly what the Plaintiff is attempting to do with its Motion to Vacate. Merely repeating its earlier arguments and bringing forward materials that were available at the time of trial, as the Plaintiff did here, is not within the purpose of Rule 59.
Providing a hearsay affidavit and an unauthenticated exhibit is also insufficient. Materials presented must show that admissible evidence is available. Plaintiff has not even now offered any showing that it has any admissible evidence, and certainly no showing of newly discovered admissible evidence. It has shown no error of law or fact manifest or otherwise in the summary judgment proceeding.
The Motion to Vacate Judgment is therefore denied by separate order. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488453/ | Case: 21-20360 Document: 00516553001 Page: 1 Date Filed: 11/21/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 21-20360 FILED
Summary Calendar November 21, 2022
Lyle W. Cayce
Clerk
Freddie Robin Edwards,
Plaintiff—Appellant,
versus
Harris County,
Defendant—Appellee.
Appeal from the United States District Court
for the Southern District of Texas
USDC No. 4:21-CV-170
Before Smith, Dennis, and Southwick, Circuit Judges.
Per Curiam:*
Freddie Robin Edwards, now Texas prisoner # 02399127, appeals a
final judgment dismissing his 42 U.S.C. § 1983 complaint. He has also filed
a motion to supplement the record on appeal.
*
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: 21-20360 Document: 00516553001 Page: 2 Date Filed: 11/21/2022
No. 21-20360
At the time Edwards filed his notice of appeal and moved for leave to
proceed in forma pauperis (IFP) in this case, he was incarcerated and had on
at least three prior occasions while he was incarcerated, brought an action or
appeal in a court of the United States that was dismissed as frivolous,
malicious, or for failure to state a claim upon which relief could be granted.
See Edwards v. Rosenberg, No. H-08-0528, 2008 WL 636619, 1 (S.D. Tex.
Mar. 5, 2008) (unpublished); Edwards v. Texas, No. 1:00-cv-429 (W.D. Tex.
Aug. 30, 2000) (unpublished); Edwards v. Nuchia, No. 97-20033, 1997 WL
681246 (5th Cir. Oct. 22, 1997) (unpublished). Edwards is therefore barred
from proceeding IFP in any civil action or appeal filed while he is incarcerated
or detained in any facility unless he is under imminent danger of serious
physical injury. See 28 U.S.C. § 1915(g). There is no allegation, nor does the
record reflect, that Edwards was under imminent danger of serious physical
injury when he filed his notice of appeal or IFP motion. See id. Thus, the
district court improvidently granted him leave to proceed IFP on appeal.
Accordingly, Edwards’s IFP status is decertified and the appeal is
dismissed. Edwards has 30 days from the date of this opinion to pay the full
appellate filing fee to the clerk of the district court, should he wish to reinstate
his appeal. His motion to supplement the record on appeal is denied.
IFP DECERTIFIED; § 1915(g) BAR IMPOSED; MOTION
DENIED; APPEAL DISMISSED.
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488449/ | Case: 22-50498 Document: 00516552953 Page: 1 Date Filed: 11/21/2022
United States Court of Appeals
for the Fifth Circuit
United States Court of Appeals
Fifth Circuit
No. 22-50498
Summary Calendar FILED
November 21, 2022
Lyle W. Cayce
United States of America, Clerk
Plaintiff—Appellee,
versus
Marcos Juan Martin-Andres,
Defendant—Appellant.
Appeal from the United States District Court
for the Western District of Texas
USDC No. 4:22-CR-37-1
Before Jolly, Jones, and Ho, Circuit Judges.
Per Curiam:*
Marcos Juan Martin-Andres appeals his conviction for illegal reentry
and his sentence of 46 months of imprisonment and three years of supervised
release. He argues for the first time on appeal that his sentence exceeds the
*
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: 22-50498 Document: 00516552953 Page: 2 Date Filed: 11/21/2022
No. 22-50498
statutory maximum because the enhanced penalty provisions of 8 U.S.C.
§ 1326(b) are unconstitutional.
He has filed an unopposed motion for summary disposition and a
letter brief correctly conceding that this issue is foreclosed by Almendarez-
Torres v. United States, 523 U.S. 224 (1998). See United States v. Pervis, 937
F.3d 546, 553-54 (5th Cir. 2019). Martin-Andres states that he raised the
issue only to preserve it for possible further review. Because summary
disposition is appropriate, see Groendyke Transp., Inc. v. Davis, 406 F.2d 1158,
1162 (5th Cir. 1969), Martin-Andres’s motion is GRANTED, and the
district court’s judgment is AFFIRMED.
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488457/ | Nebraska Supreme Court Online Library
www.nebraska.gov/apps-courts-epub/
11/22/2022 01:05 AM CST
- 461 -
Nebraska Court of Appeals Advance Sheets
31 Nebraska Appellate Reports
SPARKS V. MACH
Cite as 31 Neb. App. 461
Kayleen Sparks, appellant, v. David Mach,
Special Administrator of the Estate
of Leo Mach, deceased, appellee.
___ N.W.2d ___
Filed November 15, 2022. No. A-21-1041.
1. Judgments: Appeal and Error. When reviewing questions of law, an
appellate court resolves the questions independently of the lower court’s
conclusion.
2. Summary Judgment: Appeal and Error. An appellate court will affirm
a lower court’s grant of summary judgment if the pleadings and admit-
ted evidence show that there is no genuine issue as to any material facts
or as to the ultimate inferences that may be drawn from the facts and
that the moving party is entitled to judgment as a matter of law.
3. ____: ____. In reviewing the grant of a motion for summary judgment,
an appellate court views the evidence in the light most favorable to the
party against whom the judgment was granted, giving that party the
benefit of all reasonable inferences deducible from the evidence.
4. Decedents’ Estates: Statutes. The Nebraska Probate Code provides the
procedure for bringing a claim against a decedent’s estate.
5. Decedents’ Estates: Claims. Under Neb. Rev. Stat. § 30-2404 (Reissue
2016), a claim against a decedent’s estate cannot be commenced before
the county court has appointed a personal representative.
6. Statutes: Appeal and Error. Statutory language is to be given its plain
and ordinary meaning, and an appellate court will not resort to inter-
pretation to ascertain the meaning of statutory words which are plain,
direct, and unambiguous.
7. Decedents’ Estates: Executors and Administrators: Statutes. Because
a personal representative is not a natural person, but, rather, an entity
created by statute through a court order of appointment, when an estate
is closed and the personal representative discharged, there is no viable
entity or person to sue.
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31 Nebraska Appellate Reports
SPARKS V. MACH
Cite as 31 Neb. App. 461
8. Limitations of Actions. Under certain situations as set forth in Neb.
Rev. Stat. § 25-201.02 (Reissue 2016), an amended complaint may
relate back to the commencement date of an earlier complaint.
Appeal from the District Court for Douglas County: Todd
O. Engleman, Judge. Affirmed.
William J. Pfeffer, of Pfeffer Law Offices, for appellant.
Kyle Wallor, of Lamson, Dugan & Murray, L.L.P., for
appellee.
Moore, Riedmann, and Welch, Judges.
Moore, Judge.
INTRODUCTION
Kayleen Sparks filed this negligence action against David
Mach, as special administrator of the estate of the decedent,
Leo Mach (Mach). At the time of Sparks’ original complaint,
Mach’s estate was closed and David had been discharged as
special administrator. Sparks’ motion to reopen the estate and
reappoint David was granted, and she subsequently filed an
amended complaint, which she sought to relate back to her
original pleadings. The district court found Sparks’ complaint
to be a legal nullity and granted David’s motion for summary
judgment. We affirm.
STATEMENT OF FACTS
Sparks and Mach were involved in a motor vehicle accident
in Douglas County, Nebraska, on March 3, 2017. Mach died
on September 6, apparently of causes unrelated to the accident
with Sparks.
Mach’s death prompted the opening of his estate. On
November 20, 2018, Mach’s son, David, was appointed special
administrator of the estate. The estate was closed on December
11, 2019, and David was discharged as special administrator.
On February 24, 2021, Sparks filed a complaint against
“DAVID MACH, Special Administrator for THE ESTATE OF
LEO MACH,” which alleged Mach’s negligence in the March
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Nebraska Court of Appeals Advance Sheets
31 Nebraska Appellate Reports
SPARKS V. MACH
Cite as 31 Neb. App. 461
3, 2017, accident. Upon learning that the estate had previously
closed, Sparks filed a motion on March 4, 2021, in Douglas
County Court to reopen the estate and reappoint David as spe-
cial administrator. The motion was granted the following day.
David was served with the original complaint on March 8.
On April 7, 2021, David filed a motion to dismiss, alleging
a lack of jurisdiction, insufficiency of process, and a failure by
Sparks to state a claim upon which relief could be granted.
Sparks filed an amended complaint on April 21, 2021. The
amended complaint added the assertion that although David
had been discharged as special administrator in December
2019, Mach’s estate had been reopened and David reappointed
as special administrator on March 5. The amended complaint
was again filed against David as the special administrator of
Mach’s estate. On April 23, Sparks filed a motion requesting
leave to again amend her complaint. David was served with the
amended complaint the same day.
A hearing on David’s motion to dismiss was held on May
14, 2021. Both parties agreed that David was not the special
administrator of Mach’s estate at the time Sparks filed her
original negligence complaint. However, Sparks argued that
because David was reappointed as special administrator of
Mach’s reopened estate between the filing and service of the
original complaint, and because Sparks’ amended complaint
related back to her original complaint, any alleged defect in
the original complaint was cured. David argued that based
on Nebraska case law, an estate must first be opened and a
personal representative or special administrator appointed in
order for there to be an entity to sue. Because David had been
discharged as the special administrator from Mach’s closed
estate at the time Sparks filed her original complaint, David
argued that the suit was a legal nullity and could not be related
back to the original complaint. The court took the matter
under advisement.
In a detailed order entered on May 27, 2021, the district
court denied David’s motion to dismiss. The court first noted
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Nebraska Court of Appeals Advance Sheets
31 Nebraska Appellate Reports
SPARKS V. MACH
Cite as 31 Neb. App. 461
that, because David had been reappointed as special adminis-
trator and was served by certified mail on March 8, the allega-
tions in his motion to dismiss related to jurisdiction and service
failed. Turning to David’s allegation that Sparks had failed to
state a claim upon which relief could be granted, the court
observed that Nebraska appellate courts have not previously
addressed whether a plaintiff may cure an improperly filed
claim against a former special administrator of a closed estate
or whether such a filing is a legal nullity and thus incurable.
The court distinguished the facts of the present case with those
cited by David. Because the court found the case involved
a novel question of law, it declined to decide it on a motion
to dismiss.
The court also granted Sparks’ motion for leave to amend
and assumed, without deciding, that Sparks’ amended com-
plaint stated a claim for relief.
On June 1, 2021, Sparks filed a second amended complaint.
The second amended complaint added a paragraph related to
Sparks’ age and life expectancy. David was served with the
second amended complaint on June 3.
On July 2, 2021, David filed an answer to Sparks’ second
amended complaint and a motion for summary judgment. In
his answer, David noted that he was not reappointed as special
administrator, and Mach’s estate not reopened, until March
5—2 days after the statute of limitations for negligence had
run. On July 15, Sparks filed responses to David’s affirmative
defenses and motion for summary judgment.
A hearing was held on David’s motion for summary judg-
ment on August 3, 2021. A bill of exceptions from this hear-
ing is not included in our record. In an order entered on
September 16, the district court granted David’s motion for
summary judgment and dismissed Spark’s complaint with
prejudice. Specifically, the court found that Spark’s origi-
nal complaint was an attempt to assert a claim against a
closed estate and its discharged representative, and thus was
a legal nullity. The court determined that neither the amended
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Cite as 31 Neb. App. 461
complaint nor the second amended complaint related back to
the original complaint to cure the alleged defects because the
original complaint was a nullity. The court further found that
because Sparks failed to properly commence her claim against
David as the special administrator of Mach’s estate, she there-
fore failed to comply with the applicable 4-year statute of
limitations, which ran on March 3.
On September 24, 2021, Sparks filed a motion to reconsider
and vacate. While that motion was pending, Sparks appealed
the district court’s grant of summary judgment to this court.
On October 25, we dismissed Sparks’ appeal in case No.
A-21-828 for lack of jurisdiction. On December 9, the district
court entered an order denying Sparks’ motion to reconsider
and vacate.
Sparks appeals.
ASSIGNMENTS OF ERROR
Sparks assigns, reordered, that the district court erred in (1)
finding that Sparks’ original complaint was a legal nullity, (2)
finding that Sparks’ amended complaint did not relate back
to the original complaint, and (3) granting Mach’s motion for
summary judgment.
STANDARD OF REVIEW
[1] When reviewing questions of law, an appellate court
resolves the questions independently of the lower court’s con-
clusion. Kozal v. Snyder, 312 Neb. 208, 978 N.W.2d 174
(2022).
[2] An appellate court will affirm a lower court’s grant of
summary judgment if the pleadings and admitted evidence
show that there is no genuine issue as to any material facts or
as to the ultimate inferences that may be drawn from the facts
and that the moving party is entitled to judgment as a matter
of law. Id.
[3] In reviewing the grant of a motion for summary judg-
ment, an appellate court views the evidence in the light
most favorable to the party against whom the judgment was
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granted, giving that party the benefit of all reasonable infer-
ences deducible from the evidence. Id.
ANALYSIS
The pertinent facts are undisputed, and we see this appeal as
purely a question of law.
Legal Nullity.
Sparks alleges that the district court erred in finding her
original complaint to be a legal nullity. She asserts that her
corrective actions, namely moving to reopen Mach’s estate and
reappoint David, are specifically addressed in Nebraska case
law, but were ignored by the court.
[4-6] The Nebraska Probate Code provides the procedure
for bringing a claim against a decedent’s estate. Babbitt v.
Hronik, 261 Neb. 513, 623 N.W.2d 700 (2001). Neb. Rev.
Stat. § 30-2404 (Reissue 2016) states in part that “[n]o pro-
ceeding to enforce a claim against the estate of a decedent
or his successors may be revived or commenced before the
appointment of a personal representative.” An action is com-
menced on the date the complaint is filed with the court. Neb.
Rev. Stat. § 25-217 (Cum. Supp. 2020). Statutory language is
to be given its plain and ordinary meaning, and an appellate
court will not resort to interpretation to ascertain the mean-
ing of statutory words which are plain, direct, and unam-
biguous. In re Estate of Severson, 310 Neb. 982, 970 N.W.2d
94 (2022).
[7] Nebraska appellate courts have long held that a per-
sonal representative is not a natural person, but, rather, an
entity created by statute through a court order of appoint-
ment. See Pilger v. State, 120 Neb. 584, 585, 234 N.W. 403,
404 (1931) (“[e]xecutors and administrators in Nebraska are
creatures of statute”). Thus, when an estate is closed and the
personal representative discharged, there is no viable entity
or person to sue. See, Correa v. Estate of Hascall, 288 Neb.
662, 850 N.W.2d 770 (2014); Estate of Hansen v. Bergmeier,
20 Neb. App. 458, 825 N.W.2d 224 (2013). We turn to the
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Cite as 31 Neb. App. 461
Nebraska appellate cases which discuss suits initiated against
closed estates.
Neb. Rev. Stat. § 30-2457 (Reissue 2016) permits a special
administrator to be appointed after notice when a personal
representative cannot or should not act and also permits the
appointment of a special administrator without notice when an
emergency exists. A special administrator appointed by order
of the court in any formal proceeding has the power of a per-
sonal representative except as limited in the appointment and
duties as prescribed in the order. Neb. Rev. Stat. § 30-2460
(Reissue 2016). In 2018, the county court appointed David as
special administrator of Mach’s estate for the purpose of exe-
cuting “any and all documents” and assisting creditors in their
claims against Mach’s estate “with the power of a Personal
Representative.” Thus, we find that the case law describing
the personal representative’s role in managing a claim against
a decedent’s estate to be applicable to David’s role as spe-
cial administrator.
Babbitt v. Hronik, 261 Neb. 515, 623 N.W.2d 700 (2001),
involved a suit by Barbara A. Babbitt against Blanche M.
Hronik for damages caused by a motor vehicle accident. The
action was filed after Hronik was deceased, her estate had been
closed, and her personal representative discharged. At Babbitt’s
request, the personal representative was reappointed for the
sole purpose of being served with process. The personal repre-
sentative was then served with the suit, which named Hronik
personally. The personal representative moved for summary
judgment. The district court granted summary judgment and
determined that the cause of action had not been properly com-
menced, because Babbitt had failed to file a petition against the
personal representative.
On appeal, Babbitt argued that she was unaware Hronik
was deceased until after she had filed her petition and the
summons was returned unserved. Once she received this infor-
mation, however, she complied with the correct statutory pro-
cedures for bringing a claim against a decedent. The Nebraska
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Supreme Court found that Babbitt’s claim against Hronik’s
estate could not have commenced before the county court
reappointed the personal representative. Id. Further, because
Babbitt’s suit was directed against Hronik individually, rather
than against the personal representative acting in her repre
sentative capacity, the action was a nullity. See id.
In Estate of Hansen v. Bergmeier, 20 Neb. App. 458, 825
N.W.2d 224 (2013), a claimant filed a negligence action related
to a motor vehicle accident against a discharged personal rep-
resentative of a closed estate. In his answer to the complaint,
the former personal representative alleged that the claimant
had failed to state a claim upon which relief could be granted
and filed a motion for summary judgment. The district court
granted summary judgment, finding that an action could not
be initiated against a former personal representative while the
estate remained closed.
This court affirmed the district court’s grant of summary
judgment. We reasoned that
a personal representative is not a natural person, but,
rather, an entity created by statute through a court order
of appointment. . . . Thus, it naturally follows that when
the estate is closed and the personal representative is
discharged, there is no viable entity or person to sue,
because the tort-feasor is deceased, his or her estate is
closed, and there is no longer a personal representative.
Id. at 466, 825 N.W.2d at 231. We further found that the
attempt to assert a claim against a closed estate and its dis-
charged representative constituted a legal nullity. Estate of
Hansen v. Bergmeier, supra.
Correa v. Estate of Hascall, 288 Neb. 662, 850 N.W.2d
770 (2014), involved a negligence action arising out of a
motor vehicle accident, filed against the estate and the estate’s
personal representative. Prior to Gloria Correa’s filing her
action, E. Dean Hascall’s estate had been closed and the per-
sonal representative discharged. Several months into the suit,
the estate and its former personal representative moved for
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summary judgment and Correa filed a motion for an emer-
gency order to reopen the estate, which was granted by the
probate court. The district court granted the estate’s motion
for summary judgment.
The Supreme Court, citing our reasoning in Estate of
Hansen v. Bergmeier, supra, affirmed the district court’s grant
of summary judgment and found that Correa had failed to
properly commence her suit against the estate or the personal
representative, because the estate had been closed and the
personal representative had been discharged. Correa v. Estate
of Hascall, supra. Although Correa argued on appeal that her
motion to reopen the estate related back to her original neg-
ligence action, the Supreme Court noted that Correa’s suit
had been dismissed by operation of law because the newly
appointed personal representative was not served within 6
months after the suit’s filing. Id.
Sparks points to Mach v. Schmer, 4 Neb. App. 819, 550
N.W.2d 385 (1996), in which a claimant filed an action against
a former personal representative for injuries sustained in a
motor vehicle accident. In that case, this court held that the
former personal representative was entitled to summary judg-
ment because she had been discharged and the estate remained
closed. See Mach v. Schmer, supra. Sparks argues that the
present case is distinguishable, because the claimant had not
at any time moved to reopen the estate and have the personal
representative reappointed. Id. We disagree that such distinc-
tion changes the outcome here.
We find that the plain and ordinary meaning of § 30-2404
prohibits the commencement of a claim against an estate prior
to the appointment of a special administrator. In this case,
Sparks’ original complaint failed to comply with § 30-2404,
because it was filed against David as special administrator
of Mach’s estate on February 24, 2021. On that date, David
had been discharged as special administrator and was not
reappointed until March 5. Although Sparks argues that she
“quickly rectified the fact that the estate had been closed,”
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brief for appellant at 17, the fact remains that there was no
estate open or special administrator appointed at the time
the complaint was filed. Nor are we persuaded by the fact
that David was served with the original complaint after he
was reappointed as special administrator. The controlling fact
remains that Sparks filed her original complaint, and thus com-
menced a proceeding to enforce a claim against Mach’s estate,
before the estate was reopened and David was reappointed.
Sparks’ actions to rectify the situation occurred after the statute
of limitations had run.
Sparks’ attempt to assert a claim against a closed estate and
its discharged special administrator was a nullity. See Estate
of Hansen v. Bergmeier, 20 Neb. App. 458, 825 N.W.2d 224
(2013). This assignment of error fails.
Relation-Back Doctrine.
Next, Sparks asserts that the district court erred in finding
that the relation-back doctrine did not apply. She argues that
her amended pleadings comply with the relevant statutory
language because she did not change the name of the party
against whom her original claim was asserted, nor the sub-
stance of the claim. Further, the claim asserted in all of Sparks’
pleadings was related to the same motor vehicle accident in
March 2017. Sparks contends that because she obtained an
order reappointing David special administrator before filing
her amended complaint, the relation-back doctrine applies and
allows her original complaint to reach Mach’s estate.
[9] Sparks is generally correct that her pleadings com-
ply with the relation-back doctrine found in Neb. Rev. Stat.
§ 25-201.02(1) (Reissue 2016). Under certain situations as
set forth in § 25-201.02, an amended complaint may relate
back to the commencement date of an earlier complaint.
Correa v. Estate of Hascall, 288 Neb. 662, 850 N.W.2d 770
(2014). However, the Nebraska Supreme Court has held that
an amended complaint does not relate back to the original
complaint under § 25-201.02 when the original complaint was
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a nullity. See, Kelly v. Saint Francis Med. Ctr., 295 Neb. 650,
889 N.W.2d 613 (2017); Reid v. Evans, 273 Neb. 714, 733
N.W.2d 186 (2007).
In Reid v. Evans, supra, Monica Reid filed a negligence
action related to a motor vehicle accident against Donald
Evans, who had died prior to the filing. A copy of the com-
plaint naming Evans as the sole defendant was served on
the personal representative of Evans’ estate. The personal
representative filed a motion to dismiss, and Reid sought to
amend her complaint to add the personal representative under
the relation-back doctrine. The county court determined that
because Reid’s complaint naming Evans as the sole defend
ant had not been served on the only-named party defendant
within the 6-month service of process period, Reid’s action
stood dismissed by operation of law. The county court also
denied relief to Reid on her motion to amend. On appeal, the
Supreme Court agreed that Reid’s complaint was properly
dismissed by operation of law and that once the case stood
dismissed, Reid’s subsequent motion to amend and relate back
was a nullity. As recognized in a concurrence, there must
be an action pending at the time in order for § 25-201.02 to
allow relation back. Reis v. Evans, supra (Miller-Lerman, J.,
concurring).
Kelly v. Saint Francis Med. Ctr., supra, involved a pro se
wrongful death action against a medical center, among other
defendants. Ann Kelly later filed, through counsel, a motion
for leave to file an amended complaint. The district court
concluded that an amended complaint could not relate back
to the date of the original filing and dismissed the action as
untimely.
On appeal, the Supreme Court found Kelly’s complaint
to be a legal nullity because Kelly was a nonattorney at the
time she filed her original complaint. Id. Relying on Reid v.
Evans, supra, the Supreme Court observed that the relation-
back doctrine was inapplicable when the original complaint is
a nullity. The court concluded that “a nonexistent complaint
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. . . cannot be corrected.” Kelly v. Saint Francis Med. Ctr.,
295 Neb. at 666, 889 N.W.2d at 624.
Based upon the foregoing authority, we conclude that
§ 25-201.02 does not allow for relation back to cure the defect
which rendered the original complaint in this action a legal
nullity. See Kelly v. Saint Francis Med. Ctr., supra. Because
Mach’s estate was closed and the special administrator dis-
charged, there was no action pending at the time of Sparks’
original complaint and nothing for the amended complaint to
relate back to. This assignment of error fails.
Summary Judgment.
Finally, Sparks asserts that the district court erred in grant-
ing David’s motion for summary judgment.
We determined above that Sparks’ original complaint was
a nullity and that the relation-back doctrine did not apply to
Sparks’ amended complaint. Thus, there is no genuine issue
as to any material facts and David is entitled to judgment as a
matter of law. See Kozal v. Snyder, 312 Neb. 208, 978 N.W.2d
174 (2022).
CONCLUSION
Because the estate was not reopened and David was not
reappointed as special administrator prior to Sparks’ filing
her original complaint, the complaint was a legal nullity. The
relation-back doctrine did not apply, and Sparks’ amended
complaint did not cure defects which rendered the original
complaint a nullity. Thus, no genuine issue of material fact
existed and David’s motion for summary judgment was prop-
erly granted by the district court.
Affirmed. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488461/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-22-00540-CV
Tzu-Chen Lin, Appellant
v.
Chuan-Ben Fu, Appellee
APPEAL FROM THE 353RD DISTRICT COURT OF TRAVIS COUNTY
BEFORE JUSTICES GOODWIN, BAKER, AND KELLY
DISMISSED FOR WANT OF JURISDICTION -- OPINION BY JUSTICE KELLY
This is an appeal from the interlocutory order signed by the trial court on August 16, 2022.
Having reviewed the record, it appears that the Court lacks jurisdiction over the appeal.
Therefore, the Court dismisses the appeal for want of jurisdiction. Appellant shall pay all costs
relating to this appeal, both in this Court and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488547/ | [Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as State
ex rel. Bowling v. DeWine, Slip Opinion No. 2022-Ohio-4122.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2022-OHIO-4122
THE STATE EX REL. BOWLING ET AL., APPELLEES, v. DEWINE, GOVERNOR,
ET AL., APPELLANTS.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as State ex rel. Bowling v. DeWine, Slip Opinion No.
2022-Ohio-4122.]
Appeal dismissed as moot.
(No. 2021-1062―Submitted May 25, 2022―Decided November 22, 2022.)
APPEAL from the Court of Appeals for Franklin County,
No. 21AP-380, 2021-Ohio-2902.
_________________
{¶ 1} This cause is dismissed, sua sponte, as moot.
O’CONNOR, C.J., and KENNEDY, FISCHER, GROVES, DONNELLY, STEWART,
and BRUNNER, JJ., concur.
EMANUELLA D. GROVES, J., of the Eighth District Court of Appeals, sitting
for DEWINE, J.
_________________
SUPREME COURT OF OHIO
DannLaw, Brian D. Flick, Marc E. Dann, and Emily White; and Advocate
Attorneys, L.L.P., and Andrew M. Engel, for appellees, Candy Bowling, Shawnee
Huff, and David Willis.
Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General,
Michael J. Hendershot, Chief Deputy Solicitor General, and Julie M. Pfeiffer,
Allison D. Daniel, and Eric A. Baum, Assistant Attorneys General, for appellants,
Governor Mike DeWine, and Matt Damschroder, director of the Ohio Department
of Job and Family Services.
Kristy A. Michel; Regina Campbell; Katherine B. Hollingsworth; Michelle
Wrona Fox; Kristen Finzel Lewis; Lori K. Elliott; Rebecca Steinhauser; Kevin
Mulder; Megan O’Dell; Hannah C. Halbert; and Christina Marie Royer, urging
affirmance for amici curiae Legal Aid Society of Columbus, Legal Aid Society of
Greater Cincinnati, Legal Aid Society of Cleveland, Community Legal Aid
Services, Inc., Southeastern Ohio Legal Services, Legal Aid Society of Southwest
Ohio, L.L.C., Advocates for Basic Legal Equality, Inc., Legal Aid of Western Ohio,
Ohio Poverty Law Center, Policy Matters Ohio, and Ohio Employment Lawyers
Association.
Vorys, Sater, Seymour and Pease L.L.P., Daniel E. Shuey, and Erica M.
Rodriguez; and Kevin D. Shimp, urging reversal for amici curiae Ohio Chamber of
Commerce, Ohio Business Roundtable, Ohio Restaurant Association, Ohio Hotel
and Lodging Association, Ohio Grocers Association, Ohio Trucking Association,
Ohio Manufacturers’ Association, Ohio Council of Retail Merchants, and Ohio
Farm Bureau Federation.
Shumaker, Loop & Kendrick, L.L.P., and Larry J. Obhof Jr.; and Jay R.
Carson and Robert Alt, urging reversal for amicus curiae Buckeye Institute.
_________________
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488462/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00653-CV
Susan Hostetter, Appellant
v.
The Estate of Kerstin Detenbeck, Deceased, Appellee
FROM THE 33RD DISTRICT COURT OF LLANO COUNTY
NO. 21515, THE HONORABLE J. ALLAN GARRETT, JUDGE PRESIDING
MEMORANDUM OPINION
Appellant Susan Hostetter has filed an unopposed motion to dismiss this appeal.
We grant appellant’s motion and dismiss the appeal. See Tex. R. App. P. 42.1(a).
__________________________________________
Gisela D. Triana, Justice
Before Chief Justice Byrne, Justices Triana and Smith
Dismissed on Appellant’s Motion
Filed: November 18, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488463/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-22-00653-CV
Susan Hostetter, Appellant
v.
The Estate of Kerstin Detenbeck, Deceased, Appellee
APPEAL FROM THE 33RD DISTRICT COURT OF LLANO COUNTY
BEFORE CHIEF JUSTICE BYRNE, JUSTICES TRIANA AND SMITH
DISMISSED ON APPELLANT’S MOTION -- OPINION BY JUSTICE TRIANA
This is an appeal from the order signed by the trial court on September 30, 2022. Susan
Hostetter has filed an unopposed motion to dismiss the appeal, and having considered the
motion, the Court agrees that the motion should be granted. Therefore, the Court grants the
motion and dismisses the appeal. The appellant shall pay all costs relating to this appeal, both in
this Court and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488464/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-21-00615-CV
Sarah Louise Smith and Javan Paul Smith, Appellants
v.
Richard D. Powell, Appellee
FROM THE 33RD DISTRICT COURT OF LLANO COUNTY
NO. 21376, THE HONORABLE EVAN C. STUBBS, JUDGE PRESIDING
MEMORANDUM OPINION
Appellants’ briefs were originally due on June 6, 2022. On July 18, 2022, this
Court sent a notice to appellant informing them that their briefs were overdue and that a failure
to file a satisfactory response by July 28, 2022, would result in the dismissal of this appeal for
want of prosecution. To date, appellants have not filed a brief or a motion for extension of time.
Accordingly, we dismiss this appeal for want of prosecution. See Tex. R. App. P. 42.3(b).
__________________________________________
Edward Smith, Justice
Before Chief Justice Byrne, Justices Triana and Smith
Dismissed for Want of Prosecution
Filed: November 18, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488465/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-21-00615-CV
Sarah Louise Smith and Javan Paul Smith, Appellants
v.
Richard D. Powell, Appellee
APPEAL FROM 33RD DISTRICT COURT OF LLANO COUNTY
BEFORE CHIEF JUSTICE BYRNE, JUSTICES TRIANA AND SMITH
DISMISSED FOR WANT OF PROSECUTION -- OPINION BY JUSTICE SMITH
This is an appeal from the judgment signed by the trial court on August 24, 2021. Having
reviewed the record, the Court holds that Sarah Louise Smith and Javan Paul Smith have not
prosecuted their appeal and did not comply with a notice from the Clerk of this Court.
Therefore, the Court dismisses the appeal for want of prosecution. The appellants shall pay all
costs relating to this appeal, both in this Court and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488546/ | State of New York MEMORANDUM
Court of Appeals This memorandum is uncorrected and subject to
revision before publication in the New York Reports.
No. 84
Federal National Mortgage
Association, &c.,
Appellant,
v.
Maxi Jeanty, &c. et al.,
Respondents,
et al.,
Defendants.
Adam M. Swanson, for appellant.
Brian McCaffrey, for respondents.
Legal Services NYC, et al., amici curiae.
MEMORANDUM:
The order of the Appellate Division should be reversed, with costs, plaintiff’s
motion for summary judgment on the complaint as against defendants Maxi Jeanty and
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-2- No. 84
Sherley Jeanty and for an order of reference granted, and the Jeanty defendants’ cross
motion for summary judgment denied.
In this mortgage foreclosure action, plaintiff contends that Supreme Court erred in
concluding that the complaint was untimely inasmuch as Maxi Jeanty (debtor) made four
payments between August 2009 and March 2010 on account of the mortgage debt which
were effective pursuant to General Obligations Law § 17-107 (1) to make the statute of
limitations begin running anew on the date of the last such payment. We agree. Plaintiff
met its prima facie burden on its motion, insofar as is relevant here, by submitting evidence
that, after entering a Home Affordable Modification Trial Payment Plan (the Plan), the
debtor made a total of seven payments from April 2009 through March 2010, each in an
amount exceeding that of the regular installment payments required under the loan
documents prior to the acceleration of the debt in August 2008. The first three payments
were required pursuant to the Plan, but the remaining four were not. Those four payments
established circumstances amounting to “an absolute and unqualified acknowledgment by
the debtor of more being due, from which a promise may be inferred to pay the remainder”
(Lew Morris Demolition Co. v Board of Educ. of City of N.Y., 40 NY2d 516, 521 [1976];
see General Obligations Law § 17-107 [1]). In response, the Jeanty defendants failed to
raise a triable issue of fact. Those defendants submitted no evidence which calls into
question whether such a promise may be inferred from the debtor’s acknowledgement of
the debt. Because the six-year statute of limitations began running anew in March 2010
(see § 17-107 [1]; CPLR 213 [4]), the action was timely commenced in March 2015.
In light of our determination, we do not address plaintiff’s remaining contentions.
-2-
-3- No. 84
Order reversed, with costs, plaintiff's motion for summary judgment on the complaint as
against defendants Maxi Jeanty and Sherley Jeanty and for an order of reference granted,
and the Jeanty defendants' cross motion for summary judgment denied, in a memorandum.
Acting Chief Judge Cannataro and Judges Rivera, Garcia, Wilson, Singas and Troutman
concur.
Decided November 17, 2022
-3- | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488542/ | State of New York OPINION
Court of Appeals This opinion is uncorrected and subject to revision
before publication in the New York Reports.
No. 90
William D. Maldovan, &c.,
Appellant,
v.
County of Erie et al.,
Respondents.
John T. Loss, for appellant.
Robert P. Goodwin, for respondents.
City of New York, amicus curiae.
TROUTMAN, J.:
Plaintiff alleges that failures on the part of various government agencies, including
two providing social services, caused grievous harm in this tragic case. Despite the
heartbreaking events involved, in which the victim’s mother and brother, now serving
-1-
-2- No. 90
lengthy prison terms for their actions, sexually assaulted, abused, and murdered her in her
home, we decline to expand this Court’s special duty doctrine. “A well settled rule of law
denies recovery in cases like this” (McLean v City of New York, 12 NY3d 194, 204 [2009]).
“The rationale for this rule is that the cost to municipalities of allowing recovery would be
excessive [and] the threat of liability might deter or paralyze useful activity,” endangering
the ability of government agencies to provide crucial services to the public (Laratro v City
of New York, 8 NY3d 79, 82 [2006]).
I.
Laura Cummings was a 23-year-old woman with developmental disabilities who
lived with her mother, Eva Cummings. In 2009, Laura’s brother, Richard, who lived out
of state, contacted a family friend with concerns about Laura’s well-being after another
family member informed Richard that Laura had sustained suspicious injuries. Mistakenly
believing that Laura was under 18 years old, the family friend contacted Child Protective
Services (CPS) about these concerns. A CPS caseworker visited the home, and both Eva
and Laura, when interviewed alone, provided the same benign explanation for Laura’s
injuries. CPS thereafter closed the case and informed the family friend that the report was
unfounded.
Months later, Richard heard again that Laura was injured, with facial bruising, and
contacted the same family friend, who in turn contacted Adult Protective Services (APS).
APS caseworkers visited the home, but Eva refused to allow them to speak with Laura
alone. In Eva’s presence, Laura gave the caseworkers the same explanation for her injuries,
and the caseworkers did not observe any facial bruising. After speaking with another
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-3- No. 90
family member, APS closed the case and told the family friend that the report was
unfounded. Richard subsequently called APS but was told that the report was investigated,
that caseworkers did not find anything of concern, and that he should call with any new
developments.
In November 2009, Laura ran away from home and was found at an abandoned Girl
Scout camp by two Erie County Sheriff’s deputies. Believing that Laura and Eva had a
verbal altercation, and learning nothing to suggest that Laura should not be brought home,
the deputies returned Laura to Eva’s care.
In January 2010, Eva and Laura’s brother, Luke Wright, tortured and murdered
Laura in her home. Eva and Wright were convicted of various crimes and sentenced to
lengthy prison terms (see People v Wright, 107 AD3d 1398 [4th Dept 2013], lv denied 23
NY3d 1026 [2014]). The public administrator of Laura’s estate commenced these actions
against the County of Erie and the Erie County Sheriff (defendants), alleging, among other
things, that the CPS and APS caseworkers, as well as the Sheriff’s deputies, were negligent
in the performance of their duties, leading to Laura’s death.
The parties moved for summary judgment, and Supreme Court denied both motions.
The Appellate Division affirmed the order denying plaintiff’s motion for summary
judgment but reversed the order denying defendants’ motion and granted summary
judgment to defendants, dismissing the complaints against them (see Maldovan v County
of Erie, 188 AD3d 1597 [4th Dept 2020]; Maldovan v County of Erie, 188 AD3d 1601 [4th
Dept 2020]). The Appellate Division concluded, as relevant here, that no special duty
existed as a matter of law because “the fourth element [necessary to show a special
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relationship with the municipality], justifiable reliance, cannot be met in this case”
(Maldovan, 188 AD3d at 1598-1599).
This Court granted plaintiff leave to appeal (37 NY3d 911 [2021]). We now affirm.
II.
When a negligence claim is asserted against a municipality acting in a governmental
capacity, as here, the plaintiff must prove the existence of a special duty (see Ferreira v
City of Binghamton, 38 NY3d 298, 308-310 [2022]; Turturro v City of New York, 28 NY3d
469, 477-478 [2016]). We have recognized that a special duty may arise in three situations:
where “(1) the plaintiff belonged to a class for whose benefit a statute was enacted; (2) the
government entity voluntarily assumed a duty to the plaintiff beyond what was owed to the
public generally; or (3) the municipality took positive control of a known and dangerous
safety condition” (Tara N.P. v Western Suffolk Bd. of Coop. Educ. Servs., 28 NY3d 709,
714 [2017] [internal quotation marks omitted]).
Although plaintiff raises an argument before this Court based on the first method
(statutory duty), that argument is unpreserved for appellate review. Plaintiff alleged in the
complaint that defendants voluntarily assumed a duty to Laura beyond that owed to the
public generally. It is true, as the dissent notes, that in the bill of particulars plaintiff alleged
a violation of Social Services Law § 473. Plaintiff does not assert, however, that he raised
the issue of statutory duty either in support of plaintiff’s own motion for summary
judgment or in opposition to defendants’ motion, and the Appellate Division did not
address the issue. We note that if, as the dissent concludes, this Court’s decision in Mark
G. v Sabol (93 NY2d 710, 721-722 [1999]) is distinguishable and the legislature had
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intended to create a private right of action in Social Services Law § 473 (3), the legislature
is of course free to make that intent clear (see dissenting op at 20-26).
Plaintiff also relies on the second method, which we have sometimes referred to as
a “special relationship” (see Tara N.P., 28 NY3d at 714; Valdez v City of New York, 18
NY3d 69, 80 [2011]). We conclude, however, that defendants met their prima facie burden
to demonstrate that they did not voluntarily assume a duty to Laura, and plaintiff failed to
raise a triable issue of material fact in opposition.
As we have often stated, to establish that the government voluntarily assumed a duty
to the plaintiff beyond what it generally owes to the public, the plaintiff must establish:
“ ‘(1) an assumption by the municipality, through promises or
actions, of an affirmative duty to act on behalf of the party who
was injured; (2) knowledge on the part of the municipality’s
agents that inaction could lead to harm; (3) some form of direct
contact between the municipality’s agents and the injured
party; and (4) that party’s justifiable reliance on the
municipality’s affirmative undertaking’ ” (Tara N.P., 28 NY3d
at 714-715, quoting Cuffy v City of New York, 69 NY2d 255,
260 [1987] [emphasis omitted]).
“[A]ll four elements must be present for a special duty to attach” (Tara N.P., 28 NY3d at
715).
We agree with the Appellate Division that under the circumstances presented here,
defendants established as a matter of law that the government employees took no action
that could have induced justifiable reliance, and plaintiff failed to raise a triable issue of
fact in opposition. As we explained in Cuffy, the justifiable reliance element
“provides the essential causative link between the ‘special
duty’ assumed by the municipality and the alleged injury.
Indeed, at the heart of most of these ‘special duty’ cases is the
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unfairness that the courts have perceived in precluding
recovery when a municipality’s voluntary undertaking has
lulled the injured party into a false sense of security and has
thereby induced [the injured party] either to relax [their] own
vigilance or to forego other available avenues of protection”
(Cuffy, 69 NY2d at 261).
Months before her death, both CPS and APS investigated the reports that Laura was
being abused, concluded that those reports were unfounded, closed their investigations, and
advised Richard that the investigations were closed and would not be reopened without
new information. As the Appellate Division noted, Richard “did not in fact relax his own
vigilance inasmuch as he made two follow-up calls to the APS caseworker asking her to
reopen the investigation, and he was not induced to forego other avenues of relief”
(Maldovan, 188 AD3d at 1599). Similarly, the Sheriff’s deputies took no action that could
have induced reliance.
Plaintiff asserts that the Cuffy factors for establishing a special duty assume that the
injured person is a competent adult who is reasonably capable of pursuing other avenues
of protection if government has failed to do its job. Plaintiff argues that it is unfair to apply
the Cuffy test when the injured party is a child or an adult of diminished capacity and urges
us to adopt the Appellate Division decision in Boland v State of New York (218 AD2d 235
[3d Dept 1996]) to address that deficiency. In Boland, the Appellate Division relied on the
existence of Social Services Law article 6, title 6, which established CPS, to satisfy the
elements of a voluntarily assumed duty. Specifically, the Court held that the existence of
that statutory scheme demonstrated that the State “affirmatively and voluntarily assumed a
duty to act” on behalf of abused children, that the legislature had acknowledged that
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inaction could lead to harm, and that “the extensive and detailed statutory scheme at issue,
which has as its avowed purpose the protection of a discrete class of individuals, i.e.,
abused and maltreated children . . . obviate[d] the need for claimant to independently
establish the requisite contact and reliance” (id. at 240-241). Plaintiff asks us to adopt that
reasoning here and hold that because Laura was part of the class of adults the legislature
sought to protect when it established APS, plaintiff should not be required to establish
justifiable reliance in this case. Our dissenting colleague similarly proposes that the special
duty rule may be satisfied whenever CPS or APS receives a report of abuse, opens an
investigation, and has contact with the injured party (see dissenting op at 26-27).
We decline plaintiff’s invitation. In an effort to acknowledge the difficulty
vulnerable victims may face in demonstrating these factors, we have previously relaxed the
requirements of the special duty rule to allow a competent family member of the injured
party to satisfy the elements of direct contact and justifiable reliance (see Applewhite v
Accuhealth, Inc., 21 NY3d 420, 431 [2013]; Sorichetti v City of New York, 65 NY2d 461,
469 [1985]). Such an approach, which requires the courts to construe the special
relationship analysis in the plaintiff’s favor, provides a pathway for vulnerable victims to
satisfy the special duty requirements where they may otherwise be unable to do so. Here,
the Appellate Division appropriately assessed whether Richard justifiably relied on
promises or actions by government employees that would have induced him to relax his
vigilance regarding Laura’s safety and concluded that he did not (see Maldovan, 188 AD3d
at 1599). We do not address whether or how the special duty rule should apply in a
different case where the injured party was a child or adult with developmental disabilities
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incapable of pursuing other avenues of protection and did not have a competent adult
family member advocating on their behalf.
III.
Contrary to the dissent’s suggestion, we do not blithely decline to amend the
common law rule in this case without reason. It is undeniable that plaintiff alleges that the
failure of government to do its job has caused immense harm under heartbreaking
circumstances; this is unfortunately not unusual in special duty cases (see Tara N.P., 28
NY3d at 716; McLean, 12 NY3d at 197). As we recognized in McLean, however, the
special duty rule is based on the rationale that exposing municipalities to tort liability may
“render them less, not more, effective in protecting their citizens” (McLean, 12 NY3d at
204).
McLean is another tragic case, involving the government’s failure to remove a
daycare program from the list of registered providers after substantiated complaints
regarding child safety, which resulted in the plaintiff’s placement of her child in that
program and the child’s subsequent serious injury (see id. at 197-199). The plaintiff argued,
in part, that “the helplessness of young children, and the State’s powerful interest in
protecting them from neglect or abuse, should lead [the Court] to announce the existence
of a special relationship between those who register child care providers and parents and
children who need child care” (id. at 204). The Court rejected that assertion:
“This is, in substance, an invitation to relax the special
relationship rule to accommodate an especially appealing class
of cases. We decline the invitation. A well settled rule of law
denies recovery in cases like this, and that rule, by its nature,
bars recovery even where a government blunder results in
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injury to people deserving of the government’s protection”
(id.).
We must again, as in McLean, decline the “invitation to relax the special relationship
rule to accommodate an especially appealing class of cases,” out of concern for the
possibility that “exposing municipalities to tort liability would be likely to render them
less, not more effective in protecting their citizens” (id.).1 Imposing liability here where
Laura’s family members did not justifiably rely on any promises by CPS or APS and relax
their vigilance as a result could impose a “crushing burden” on those agencies, which may
render them less effective in fulfilling their mission to protect vulnerable individuals (id.).
To the extent that CPS and APS caseworkers acted negligently in failing to protect Laura
from the abuse and death she suffered at the hands of her mother and brother, lawsuits “are
1
We are not persuaded by our dissenting colleague’s citation to a dissenting opinion that
this frequently cited rationale for the special duty rule is a “myth” (dissenting op at 18).
Although no one suggests that “allowing Laura’s claim to proceed would bankrupt Erie
County” (id. at 17), we must consider the impact of our decision beyond this case and these
parties. The potential for significant economic repercussions, and the resulting potential
decrease in beneficial services, have troubled our predecessors on this Court for decades
and contributed to the shaping of the special duty doctrine. If, as the dissent proposes, the
special duty rule may be satisfied whenever CPS or APS receives a report of abuse, opens
an investigation, and has contact with the injured party (see dissenting op at 26-27), it is
possible that the resulting, potentially “crushing” burden of liability might impel
government to “withdraw or reduce” these protective services (McLean, 12 NY3d at 204).
Furthermore, such a rule may cause CPS and APS to protectively remove children or
vulnerable adults from their homes when it is not warranted, in order to avoid the possibility
of subsequent liability, which may disproportionately impact families of color (see New
York State Bar Association, Committee on Families and the Law, Racial Justice and Child
Welfare, April 2022, available at https://nysba.org/app/uploads/2022/03/Committee-on-
Families-and-the-Law-April-2022-approved.pdf). Allowing such decisions regarding
allocation of resources and services to be made by the government, and not this Court, is
one of the primary reasons for the special duty rule (see Ferreira, 38 NY3d at 316).
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not the only way of dealing with government failure” (id.). The special duty rule “is
intended, in part, to ensure that municipalities do not become insurers for the injurious
conduct of third parties” (Ferreira, 38 NY3d at 316, citing Valdez, 18 NY3d at 75).2
Where, as here, the elements of a voluntarily assumed duty, including justifiable reliance,
were capable of being satisfied through Laura’s family members, but simply were not met,
the sound principles supporting the special duty rule require us to decline to amend that
rule here.
In light of our holding, we do not address plaintiff’s remaining contentions,
including whether the Appellate Division correctly concluded that a cause of action for
negligent investigation is not recognized in New York.
Accordingly, the orders of the Appellate Division should be affirmed, with costs.
2
We disagree with the dissent that Ferreira constituted a modification of the special duty
rule (see dissenting op at 16-17). Rather, in Ferreira, we concluded that the police planning
and execution of a no-knock warrant fits comfortably within the well-established third
category of special duty, i.e., where the municipality takes “positive control of a known
and dangerous safety condition” (see Ferreira, 38 NY3d at 317-318). That category of
special duty is not at issue in this case.
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WILSON, J. (dissenting in part):
Laura Cummings is dead. She was an intellectually disabled 23-year-old with the
mental age of an 8-year-old. Over at least the last six months of her short life, she was
continuously tortured, raped, sodomized and ultimately murdered. All of this happened in
her own home. All of this happened at the hands of her own mother and brother. All of
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this happened despite numerous complaints to, and visits by, caseworkers from Erie
County’s offices of Child Protective Services and Adult Protective Services.
I agree with the majority’s characterization of the circumstances as “tragic” and
“heartbreaking;” one should not mistakenly believe that what happened to Laura is rare.
In truth, the physical and psychological abuse of intellectually disabled children and adults,
especially women, is commonplace.1 When the State decided to deinstitutionalize many
such persons, it entrusted their safety to Adult Protective Services (APS) and Child
Protective Services (CPS) districts throughout the state. The majority’s holding immunizes
the very agencies bound by law to protect vulnerable adults, when the legislature has
clearly stated those agencies do not enjoy immunity from grotesque agency failures such
as those turning a blind eye to Laura’s horror.
While acknowledging Laura’s tragic and heartbreaking doom, the majority
forthrightly explains why it thinks Laura’s claims against Erie County fail: the majority
will not “expand this Court’s special duty doctrine” because “a well settled rule of law
denies recovery in cases like this. . . The rationale for this rule is that the cost to
1
(Danny Hakim, At State-Run Homes, Abuse and Impunity, NY Times, Mar 12, 2011
[https://www.nytimes.com/2011/03/13/nyregion/13homes.html] [detailing rampant abuse
of disabled people in state-run homes]; Erika Harrell, Crime Against Persons With
Disabilities, 2009-2015-Statistical Tables, Bureau of Justice Statistics, US DOJ, July
2017 at pg 1 [https://bjs.ojp.gov/content/pub/pdf/capd0915st.pdf] [“In every year from
2009 to 2015, the rate of violent victimization against persons with disabilities was at
least twice the age-adjusted rate for persons without disabilities”]; Joseph Shapiro, The
Sexual Assault Epidemic No One Talks About, NPR. org, Jan 8, 2018
[https://www.npr.org/2018/01/08/570224090/the-sexual-assault-epidemic-no-one-talks-
about] [“People with intellectual disabilities are sexually assaulted at a rate seven times
higher than those without disabilities.”]).
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municipalities . . . would be excessive [and] the threat of liability might deter or paralyze
useful activity” (majority opinion at 1-2).
Keep in mind the following points about the majority’s explanation: (1) the majority
recognizes that the “special duty” rule is a common-law rule created and periodically
modified by the courts; (2) the “special duty” rule allows some persons injured by
governmental actors to sue the government for its own negligence and recover money
damages from the government, despite the cost of damage awards and threat of
governmental paralysis; (3) the majority’s decision rests solely on its determination that
Laura did not reasonably rely on the government – not any other requirement of the “special
duty” test; and (4) there is no well settled rule in “cases like this” – cases in which the
legislature has told us that governmental employees lack immunity for their acts of gross
negligence in caring for a specified class of vulnerable persons.
I
Laura lived with her mother, Eva Cummings, and her brothers, among them, Luke
Wright. Eva and Luke were convicted of Laura’s murder and are now in prison. Because
Laura is dead and has no responsible relatives, the Erie County public administrator,
William Maldovan, brought this suit on behalf of her estate. Unquestionably, the precedent
and principle matter more than the profit.
Child Protective Services records show that the Cummings household had been
subject to numerous reports of abuse over the years, and CPS had found several allegations
of Eva abusing Laura as “indicated”, meaning that CPS found credible evidence to
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substantiate abuse. In the several months leading up to her death, Laura was often tied to
a chair, with a bag over her head, and subjected to repeated physical and sexual abuse by
her mother and her brother Luke, which included being violated with a broomstick.
Six months before Laura’s death, in July of 2009, Town Justice John Stevens, who
was a neighbor of the Cummings family, contacted the Statewide Central Register of Child
Abuse and Maltreatment to report that Richard Cummings, another one of Laura’s brothers
stationed outside the country on military duty, was concerned about Laura’s well-being.
Justice Stevens reported that Richard informed him that Eva had cut Laura’s arm with a
knife. Justice Stevens also advised the Statewide Register that Laura was “mentally
challenged”. Because he mistakenly thought Laura was 16, he reported the suspicion of
abuse to CPS instead of APS.2
CPS caseworker “LA”3 visited the Cummings home in response to Justice Stevens’
report of Laura’s possible abuse. CPS never made a referral to APS because LA, though
learning the Laura was an adult and therefore not within CPS’s jurisdiction, concluded
2
The record is unclear as to precisely when CPS determined Laura was an adult, and
therefore within APS’s jurisdiction instead of CPS’s. The initial report generated from
Justice Stevens’ call stated that the records of a previous abuse case concerning Laura
showed her age as 23. The CPS case worker assigned to Laura’s case testified that she
visited Laura’s home in response to Justice Stevens’ call even though she was unsure
whether Laura was a child or adult, deciding that, because her records showed that Laura’s
16-year-old sister, Crystal, lived in the house, Laura might be a child.
3
I have obscured the names of the caseworkers here because the standard of review
requires us to take the facts in the light most favorable to the party opposing summary
judgment. Because no factfinder was asked to determine any facts, it would be unfair to
the caseworkers involved should readers conclude the facts have been found to be as stated
herein.
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from her visit that the allegation of abuse was unfounded. During that visit, LA spoke
separately with both Laura and Eva. Laura denied any abuse by anyone, including her
mother, as did Eva. Both claimed that the cuts on Laura’s arms were a result of Laura
falling on the porch while carrying a glass. LA testified that she was not sure when, and
to what extent, she (or her supervisor at CPS) reviewed the extensive history of prior abuse
reports but, in any case—LA ultimately decided Laura’s story seemed credible and nothing
she observed signaled abuse. CPS sent a letter to Justice Stevens informing him the claims
were unfounded and that it was closing the case.
Four months before Laura’s death, in September 2009, Justice Stevens called again,
this time calling APS. He reported that Laura had facial bruising and would not respond
to questions about where the bruising came from. There was also a recent change in her
demeanor—she had become withdrawn and introverted. Justice Stevens again reported
that Laura, Eva, as well as the brothers Luke and Edward, were developmentally delayed.
The case was assigned to APS caseworker “HK”.
HK performed a home visit, accompanied by “MS”, a new caseworker there to
“shadow” HK for training purposes. HK described Eva’s demeanor when answering the
door as “brusque and standoffish”. She refused to let them into the house and refused to
let them speak with Laura alone. Eva said she had to be present during Laura’s interview
to make sure Laura did not “tell lies again”—Laura’s alleged “lies” were also the reason
Eva gave for taking Laura out of school. HK made no further effort to speak to Laura alone
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or to enter the home, despite internal APS policies stating that case workers should always
endeavor to interview clients alone and in their home environment.
HK did not recall observing any facial bruising except a friction burn mark on
Laura’s nose and chin. When asked, in the presence of her mother, Laura said she fell
coming up the porch steps. As they were leaving, MS noticed Laura’s feet were red and
swollen. HK did not recall whether she noticed Laura’s feet and did not remember at what
point that day she and MS discussed them. They did not go back to inquire about Laura’s
feet, but HK called later to ask Eva about Laura’s feet.
When HK called, a woman named Joyce Landle answered the phone. She identified
herself as Laura’s guardian and Eva’s cousin. During the visit, Eva had first said she herself
was Laura’s legal guardian, then corrected herself to say that Joyce, her sister, was the legal
guardian. Ms. Landle was aware of the referral and HK’s visit. HK asked about the
swollen feet—Joyce answered that the feet had been like that for a “long time.” Ms. Landle
told HK that the only doctor in town would not treat any of the family because of unpaid
bills, but later in the conversation agreed to take Laura to the doctor to have her feet looked
at. HK never followed up with Ms. Landle to ensure Laura had been taken to the doctor
and admitted during her deposition that Ms. Landle’s story about unpaid bills made no
sense because Medicaid covered Laura’s medical expenses. Instead, on the same day of
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the phone conversation with Ms. Landle, HK closed the case as unfounded and in
December 2009 sent a letter addressed to Laura informing her of the same determination.4
Richard Cummings called HK twice, after she closed the case. He insisted that
Laura was being abused (saying she had a black eye) and that she should be removed from
the home. HK responded that Laura did not have a black eye when she visited, and had
only the friction burn mark on her nose and chin. She instructed Richard to call back if he
had new information. She did not generate a new intake report for either of Richard’s calls.
In November of 2009, sheriff deputies Connolly and Barbaritz responded to a call
about a suspicious person. According to the report, a mentally disabled woman was living
in an old girl scout camp after an altercation with her mother. The woman was Laura.
When the deputies arrived, Laura was huddled in the comer with a blanket, quiet and
introverted, unable or unwilling to speak with them. Deputy Barbaritz could tell, however,
that Laura was intellectually disabled. The deputies did not know of or ask about the
altercation Laura had with her mother and did not find out whether anyone had hurt her.
The deputies returned Laura to her mother without making any inquiry or evaluating
whether she was a domestic abuse victim. Laura was murdered two months later.
Mr. Maldovan, on behalf of Laura, identified numerous APS policies violated by its
caseworkers (and some by CPS, to the extent it failed to refer Laura’s case to APS and
4
Running the text of the letter through a Flesh Kincaid reading level calculator shows its
complexity at the 11th grade level. The opening paragraph of my dissent produces a grade
level of 8.6. Laura had the mental age of a second or third grader.
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issued an “unsubstantiated” determination when it had no jurisdiction to do so). APS’s
subsequent disciplinary action against HK provides further evidence of APS’s gross
negligence.5 No extended discussion of the evidence demonstrating APS’s and CPS’s
negligence is required here, because the majority’s sole basis for rejecting Laura’s claim is
that “government employees took no action that could have induced justifiable reliance”
(majority op at 5).
II
A
The prospect that New York State (and its political subdivisions) should pay for
injuries it causes has been established for centuries. The Erie Canal Act of 1817 authorized
canal commissioners to pay for takings of land required for the construction of the canal
(L 1817, ch 262). In 1825, the commissioners were further empowered to assess and pay
claims for all types of damages caused by or connected with the work on the Erie or
Champlain canals (L 1825, ch 275), which was broadened in 1870 to include damages
5
The County’s disciplinary letter to HK listed numerous steps that “any reasonable
caseworker” should have taken, but which HK failed to do, including: returning for a
second visit to interview Laura in private or request the assistance of law enforcement to
speak with Laura alone, because access had been blocked by the very person suspected as
the perpetrator; assessing whether she should obtain a court order to access the home as
“environmental assessment is a critical element of the assessment process”; investigating
whether Laura’s needs could be best met in her home; verifying information provided to
her by collateral sources, in this case, Ms. Landle; following up on whether Laura was
receiving treatment for her red and swollen feet; and treating the two calls by Richard
Cummings, after APS closed the case, as new referrals and initiating an intake process for
each.
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sustained by the use or management of the canals arising from the negligence of any state
official (L 1870, ch 321).
Meanwhile, the “great mass of claims against the state were submitted to and passed
on directly by the legislature, which provided for their payment” (People ex rel. Swift v
Luce, 204 NY 478, 483-84 [1912]). However, the appropriations process for paying claims
against the state,
“became so unsatisfactory that the Constitution was amended in 1874 so as
to prohibit the Legislature from auditing or allowing any private claim or
account against the State. (Article 3, § 19.) This prohibition made it
necessary for the Legislature to provide some other means for auditing
private claims and for that purpose it created the Board of Audit, consisting
of the Comptroller, Secretary of State and State Treasurer, who were
authorized to hear all private claims and accounts against the State, except
such as were then heard by the canal appraisers.”
(Fifteenth Annual Report of the Court of Claims of the State of New York, April 12, 1916,
at 7-8). The Board of Audit was replaced by a Court of Claims in 1897 “with somewhat
enlarged jurisdiction,” which was in turn replaced, briefly, by a Board of Claims, which
was again replaced by the Court of Claims in 1915 (id. at 8). Throughout this time, the
State maintained sovereign immunity, so only those claims (or types of claims) specifically
allowed by statute could provide for recovery against the State. Thus, for example, in Smith
v State (227 NY 405, 410 [1920]), we held that a plaintiff injured because of the negligence
of State employees in placing a wire across a path on a State-owned walkway was barred
from recovering because the State had not made “an express waiver of the state’s immunity
from liability for the tortious acts of its officers and agents.”
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The sea change came in 1929, when New York enacted a blanket waiver of its
sovereign immunity for tort actions: “The state hereby waives its immunity from liability
for the torts of its officers and employees and consents to have its liability for such torts
determined in accordance with the same rules of law as apply to an action in the supreme
court against an individual or a corporation, and the state hereby assumes liability for such
acts” (L 1929, ch 467). Ten years later, the legislature broadened the waiver to reach all
causes of action, not just those sounding in tort (L 1939, ch 860). As we have explained:
“[T]he Smith Court's interpretation of the waiver provision of section 264
was at odds with the public policy which seeks to reduce rather than increase
the obstacles to recovery of damages, whether defendant is a private person
or a public body (see, Abbott v Page Airways, 23 NY2d 502, 507; see also,
Bing v Thunig, 2 NY2d 656, 666 [“(l)iability is the rule, immunity the
exception”], quoted with approval in Abbott, supra, at 507, n 2). Thus, the
Legislature subsequently enacted a new statute to overcome the ruling in
Smith. That revision, the substance of which was incorporated into the statute
now before us, “extended, supplemented and enlarged” the waiver to remove
the defense of sovereign immunity for tort actions” (Jackson v State of New
York, 261 NY 134, 138, rearg denied 261 NY 637) (Brown v State, 89 NY2d
172, 180 [1996]).
Following the legislature’s comprehensive waiver of sovereign immunity in 1939,
we understood that the State (and other governmental subdivisions) must be held liable just
as private parties would be. So, for example, we held that a child injured by other children
in a State-created school for delinquent children could recover damages from the State on
a theory of negligent supervision, distinguishing our prior contrary precedent on the basis
of the State’s waiver of sovereign immunity (Bloom v Jewish Bd. of Guardians, 286 NY
349 [1941]). In Robison v State (292 NY 631 [1944]), we affirmed a negligence award
against a State hospital brought by an attendant who slipped on cooked cereal on the dining
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room floor. In Bernardine v City of New York (294 NY 361 [1945]), we affirmed a damage
judgment for the city’s negligence where the plaintiff was injured by a runaway police
horse. The trial court granted judgment for the city “on the single ground that recovery
was barred by the City’s common-law immunity from liability for wrongful performance
of governmental duties;” the Appellate Division reversed, holding that the General
Municipal Law rendered the city liable for negligence “in the operation of a municipally
owned vehicle or other facility of transportation,” which included a police horse (id. at
364). We affirmed, noting that the statute was susceptible of the Appellate Division’s
interpretation, but added:
“Even so, there was no compelling reason why this plaintiff should have
taken his stand upon the above provision of the General Municipal
Law. Section 8 of the Court of Claims Act says: “The state hereby waives its
immunity from liability and action and hereby assumes liability and consents
to have the same determined in accordance with the same rules of law as
applied to actions in the supreme court against individuals or corporations”. .
. . None of the civil divisions of the State - its counties, cities, towns and
villages - has any independent sovereignty (see N.Y. Const., art. IX, § 9; City
of Chicago v. Sturges, 222 U.S. 313, 323; Keifer & Keifer v. R.F.C., 306
U.S. 381. Cf. Gaglio v. City of New York, 143 F. 2d 904). The legal
irresponsibility heretofore enjoyed by these governmental units was nothing
more than an extension of the exemption from liability which the State
possessed. (Murtha v. N.Y.H.M. Col. & Flower Hospital, 228 N.Y. 183,
185.) On the waiver by the State of its own sovereign dispensation, that
extension naturally was at an end and thus we were brought all the way round
to a point where the civil divisions of the State are answerable equally with
individuals and private corporations for wrongs of officers and employees, -
even if no separate statute sanctions that enlarged liability in a given
instance” (id.).
The effect of the waiver of sovereign immunity on tort claims based on
governmental negligence is illustrated by comparing two factually similar cases. In
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Hughes v Monroe County (147 NY 49 [1895]), we held that an employee of the Monroe
County Insane Asylum, severely injured by operating a steam mangle, could not recover
in tort from the County. We explained that because the County “shared with the state the
burden of caring for the insane,” the State’s sovereign immunity protected the County as
well. After the legislature waived the State’s sovereign immunity, we decided Paige v
State (269 NY 352 [1936]), in which a police court committed a girl to a privately-owned
reformatory authorized by statute to hold her until the age of majority. She was made to
operate dangerous machinery, which maimed her. The Court of Claims held that the
negligence of those in charge of the reformatory “was a tort of officers and employees of
the State,” so that the State was liable in tort for her injuries. The Appellate Division
increased the damage award and otherwise affirmed. We also affirmed, holding:
“The quasi-penal institution in which the claimant was confined was a
governmental agency to which the State had committed in part its function
to care for wayward minors. (Laws of 1902, ch. 603; Corbett v. St. Vincent's
Industrial School, 177 N. Y. 16.) But the institution did not thereby acquire
a status equivalent to that of the civil divisions of the
State. (See Murtha v. New York Homeopathic Medical College & Flower
Hospital, 228 N. Y. 183.) There is no misuse of language in saying that the
State employed the institution. (Cf. People ex rel. State Board of
Charities v. New York Society for Prevention of Cruelty to Children, 162 N.
Y. 429, 434.) If the word "agent" were found in section 12-a of the Court of
Claims Act would it be held that this case was outside the State's assumption
of liability? The terms "agent" and "employee" have been used
interchangeably in the cases that dealt with State immunity from liability for
tort. (Litchfield v. Bond, 186 N. Y. 66, 82, 83; Murtha Case, supra,
p.185.) In Jackson v. State (261 N. Y. 134, 138) it was said: "Section 12-a
constitutes a recognition and acknowledgment of a moral duty demanded by
the principles of equity and justice." In that spirit, we accept the construction
of the section here adopted by the courts below.” (Paige v State, 269 NY
352, 356 [1936]).
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The above history establishes two important propositions. First, New York State
and its municipalities have always been liable to pay damages for some types of injuries
arising from their own negligence. Initially, the process was a mix of specific legislative
appropriations and decisions of commissions or boards, which was subsequently
transferred to the Court of Claims. Second, in waiving sovereign immunity 93 years ago,
the legislature completely “remove[d] the defense of sovereign immunity for tort actions”
(Brown, 89 NY2d at 180) such that governmental actors would be subjected to the same
standards as private defendants. We further observed that “[i]nasmuch as there is no clear
definition by which wrongs are classified as torts . . . [i]t is much more likely that the term
was used generally to indicate a branch of the law broader than the then-existing categories
and subject to expansion as new wrongs supporting liability were recognized” (id. at 182).
B
Although the legislature waived its sovereign immunity and required that it be
treated no differently than any other defendant, the courts fashioned various immunities
that barred recovery in some cases even when the government acted negligently. Relevant
here is the doctrine of governmental function immunity. That doctrine is found in no
statute; it is part of the common law fully within our control to make, shape, bend or alter.
The doctrine makes use of a distinction created well before New York waived it sovereign
immunity: the distinction that municipal corporations “are possessed of dual powers; the
one governmental, legislative or public, and the other proprietary or private” (Missano v
Mayor of NY, 160 NY 123 [1899], citing Dillon, Municipal Corporations [fourth ed.] at
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§ 66).6 In Missano, we held that the city was liable in tort “for the death of a child, who
was run over and killed by a horse attached to an ash cart of the street cleaning department,”
because the city’s duty to keep the streets clean was proprietary, not public, even though
“the discharge of this duty might incidentally benefit the public health” (id. at 126, 129).
The distinction between the governmental (public) and proprietary (private) functions of
municipal corporations was imported from English common law (see Springfield Fire &
Mar. Ins. Co. v Keeseville, 148 NY 46, 52-53 [1895] (explaining that under English
common law, when a municipal corporation acted in its governmental capacity – for
“public purposes and is for the public good . . . the corporation is exempt from all liability”).
We noted that “the line of demarkation [between public and private] at times may be
difficult to ascertain” (id. at 52), which is well evidenced by our holdings that street
cleaning is private and water service is public.
That basic distinction, which provides an exemption from liability for municipalities
acting in their governmental capacity, is a creature of the common law, which we have
carried forward to the present day (see Turturro v City of N.Y., 28 NY3d 469, 478-79
[2016]). In carrying that doctrine forward over the past two centuries, we have altered it
many times, as is not just our right, but our duty. Cases in which our precedent has allowed
for governmental liability (and, thus, necessarily are ones in which the government bore a
6
That distinction arises from the legal status of municipal corporations. In theory, it should
be inapplicable to the state itself, which is not a corporation, but in more recent times that
distinction has been applied to all governmental actors without regard to its genesis in the
law of municipal corporations, which never had sovereign immunity to begin with.
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special duty to the plaintiff, breached that duty and failed to establish the defense of
governmental function immunity) , include, in addition to Bloom (negligent supervision of
delinquent children), Robison (slip on porridge), Bernadine (runaway police horse),
Missano (horse-drawn street cleaning cart) and Paige (negligently maintained laundry
equipment):
• Haddock v City of New York (75 NY2d 478 [1990]) (negligent screening of
candidates for employment);
• Brown v State of New York (31 NY3d 514 [2018]) (negligent maintenance of
highway);
• Florence v Goldberg (44 NY2d 189 [1978]) (negligence in failing to provide
crossing guard at school crosswalk);
• McCummings v NYC Transit Auth. (81 NY2d 923 [1993]) (police negligence in
shooting an unarmed fleeing suspect);
• Galvin v Mayor of New York (112 NY 223 [1888]) (negligently designed
courthouse grate crushed a delivery person);
• Garrett v Holiday Inns, Inc. (58 NY2d 253 [1983]) (negligent town inspection and
issuance of permits in violation of statutes);
• Flamer v City of Yonkers (309 NY 114 [1955]) (police negligence in shooting
intoxicated man who posed no threat);
• Mirand v City of New York (84 NY2d 44 [1994]) (negligent supervision of
students);
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• Meistinsky v City of New York (309 NY 998 [1956]) (police negligence in killing
an innocent bystander); and
• Martindale v State (269 NY 554 [1935]) (negligent supervision of mentally ill
patient in state-run hospital resulting in patient’s death)
Every one of those cases involved adjustments to the doctrines of special duty and
governmental function, even if only implicitly, to permit recovery of money damages
against the government in the circumstances described therein. Our court adapted the
common law in each of these cases by creating an exception from the basic common-law
proposition disallowing suit for negligent public acts by governmental entities acting in
their governmental capacity. Most recently in Ferreira, the United States Court of Appeals
for the Second Circuit spared us the effort of deciding whether Binghamton had met its
burden to establish governmental function immunity, but certified to us whether a plaintiff
needed to establish a special duty when the injurious governmental action was
nonproprietary. We once again adjusted our common-law doctrine of special duty, holding
that whenever the government owes a special duty to all persons within the premises at
which a no-knock warrant is executed, encompassing both the planning and execution of
the warrant.7
7
The majority explains Ferreira as fitting within the third prong of our established special
duty test: when a governmental actor takes control of a dangerous situation, and therefore
not an expansion or innovation in the common law (majority op at 10 n 2). That
characterization sells us short. The expansion of the common law comes in the holding
that, at least for the third prong of our special duty test, there is no need to establish the
special duty as to a particular known person, or even to an individual case: as a matter of
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In myriad examples where a governmental entity has been held liable in negligence,
the judgments have not caused the collapse of the government or paralyzed those
governments from trying to do better. Those concerns which form the basis for the
majority’s refusal to recognize a special duty here, would be weighty if, for example, we
were to impose tort liability whenever the police failed to stop a crime, or the fire
department failed to prevent a fire, making the government an insurer against all ills.
However, each of the above cases in which we have allowed an injured party to recover
tort damages from the government is far more constrained, almost always confined to
situations where the government had some reasonable ability to control the conduct,
whether that be mopping cereal from an institution’s floor, keeping a horse under control,
or screening candidates for employment. Here, nothing in the record suggests that allowing
Laura’s claim to proceed would bankrupt Erie County or cause APS or CPS to stop visiting
persons legally entitled to their support. Judge Keating addressed the fictional parade of
horribles thusly:
“The fear of financial disaster is a myth. The same argument was made a
generation ago in opposition to proposals that the State waive its defense of
“sovereign immunity”. The prophecy proved false then, and it would now.
The supposed astronomical financial burden does not and would not exist.
No municipality has gone bankrupt because it has had to respond in
damages when a policeman causes injury through carelessly driving a
police car or in the thousands of other situations where, by judicial fiat or
legislative enactment, the State and its subdivisions have been held liable
for the tortious conduct of their employees. . . . That Linda Riss should be
asked to bear the loss, which should properly fall on the city if we assume,
law, the special duty runs to all persons, known or unknown, in the case of all search
warrants. In every prior special duty case, we have examined the existence of a duty as to
that individual case, without setting out any broadly encompassing rule.
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as we must, in the present posture of the case, that her injuries resulted from
the city's failure to provide sufficient police to protect Linda is contrary to
the most elementary notions of justice” (Riss v New York, 22 NY2d 579,
585-586 [1968] [Keating, J., dissenting]).8
IV
The above discussion brings us to the following place: New York and its
municipalities have a long history of paying damages for their own negligence in a great
variety of circumstances, and the limits on such payments for nearly the past century arise
from judge-made doctrines that we have continually revised. Relevant here is the special
duty doctrine, which affords an avenue by which a plaintiff can recover for the
government’s negligence even when the government is acting in its public, nonproprietary
capacity.
8
Unimpressed by Judge Keating, the majority pursues the very slippery slope argument he
criticized. Recognizing a special duty would not lead to a damage award unless two other
conditions were met: (1) the agency acted with gross negligence or willful misconduct,
which are quite high standards (Food Pageant, Inc. v Consolidated Edison Co., 54 NY2d
167, 1972 [1981] [“gross negligence had been termed as the failure to exercise even slight
care”]; Colnaghi, USA. v Jewelers Protection Servs., Ltd., 81 NY2d 821, 823-24 [1993]
[“[gross negligence is] conduct that evinces a reckless disregard for the rights of others or
smacks of intentional wrongdoing” [internal citation and quotation marks omitted]); and
(2) the agency failed to demonstrate its entitlement to governmental function immunity,
which will completely immunize a governmental defendant even if a special duty has been
breached (Turturro v City of NY, 28 NY3d 469, 478-79 [2016]; Valdez v City of New York,
18 NY3d 69, 75 [2011]). Of course, a plaintiff would also have to prove the other elements
of a tort claim as well (proximate cause and damages). In any event, the short answer is
that the legislature already balanced the costs and benefits, by providing immunity for
ordinary negligence but not gross negligence (see infra at IV.A.).
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We have “recognized that a special duty can arise in three situations: (1) the plaintiff
belonged to a class for whose benefit a statute was enacted; (2) the government entity
voluntarily assumed a duty to the plaintiff beyond what was owed to the public generally;
or (3) the municipality took positive control of a known and dangerous safety condition”
(Ferreira, 38 NY3d at 334). I believe Laura can pursue her claim under the first and second
avenues by which a special duty may be established.
The majority contends that Laura’s argument under the first avenue, statutory duty,
is unpreserved. I conclude otherwise. The complaint avers that the County (that is, APS
and CPS) owed Laura a special duty, which is sufficient to encompass any arguments by
which a special duty may be established, including a special duty established by statute. In
any event, Plaintiff’s Verified Bill of Particulars states that Maldovan, on behalf of Laura’s
estate “will allege violations of statutes including, but not limited to, the applicable sections
of chapter 55 of New York Social Services Law and New York Social Services Law
§ 473”.9 Section 473 establishes APS’s statutory special duty to Laura.
9
Our preservation doctrine is not constitutionally compelled; it is of our own making, and
we can draw it as narrowly as we wish. Before the Court’s compulsory jurisdiction was
curtailed in 1894, we regularly heard argument in more than 800 cases a year. A stingy
preservation rule may have made sense then, purely as an ancillary means of docket
control; that justification is lacking now. In any event, we have held that:
“the general rule concerning questions raised neither at the trial nor at previous stages of
appeal is far less restrictive than some case language would indicate. Thus, it has been said:
"if a conclusive question is presented on appeal, it does not matter that the question is a
new one not previously suggested. No party should prevail on appeal, given an
unimpeachable showing that he had no case in the trial court." (Cohen & Karger, op.
cit. supra, pp. 627-628.) Of course, where new contentions could have been obviated or
cured by factual showings or legal countersteps, they may not be raised on appeal. But
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A
I turn first to the statutory duty argument. APS and CPS are governed by two
separate statutes that share similar purposes and impose similar responsibilities upon both
agencies. Social Services Law (“SSL”) § 473, governing APS, mandates the provision of
protective services, which includes investigation of alleged abuse and if necessary, removal
of the adult from their home, for all those who “because of mental or physical impairments,
are unable to manage their own resources, carry out the activities of daily living, or protect
themselves from physical abuse, sexual abuse, emotional abuse, active, passive or self-
neglect, financial exploitation or other hazardous situations without assistance from others
and have no one available who is willing and able to assist them responsibly” (Social
Services Law 473 [1] [emphasis added]). Similarly, Social Services Law, Title 6, which
established CPS, imposes several duties upon the agency including: receiving and
contentions which could not have been so obviated or cured below may be raised on appeal
for the first time (Telaro v Telaro, 25 NY2d 433, 439 [1969]; see also Richardson v Fiedler
Roofing, Inc., 67 NY2d 246, 251 [1986]; Wright v Wright, 226 NY 578 [1919]).
As we have explained, “In our review we are confined to the questions raised or argued at
the trial but not to the arguments there presented. Nor is it material whether the case was
well presented to the court below, in the arguments addressed to it. It was the duty of the
judges to ascertain and declare the whole law upon the undisputed facts spread before them;
and it is our duty now to give such judgment as they ought to have given’” (Persky v Bank
of Am. N.A., 261 NY 212, 218 [1933] [emphasis in original], quoting Oneida Bank v
Ontario Bank, 21 NY 490, 504 [1860]). We are presented here with a pure question of law
– common law, no less, which is our own special duty to develop – on a question that
matters greatly to highly vulnerable persons. The question turns on no factual showings
and cannot have been affected by legal countersteps: does SSL § 473 establish a statutory
special duty? By deferring that question to some unspecified day, we gain nothing, and
neither APS nor its clients are benefitted by that prolonged uncertainty.
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investigating reports of abuse through the Statewide Central Register of Child Abuse and
Mistreatment; making contact with the suspected abused child in his or her home within
24 hours of receiving a report; and, if denied access to the child or the home, seeking the
help of law enforcement and the courts to gain access to the home and child (Social
Services Law, Title 6, § 424).
Crucially, SSL § 473[3] facially contemplates that APS may be held liable in gross
negligence:
“Any social services official or his designee authorized or required to
determine the need for and/or provide or arrange for the provision of
protective services to adults in accordance with the provision of this section,
shall have immunity from any civil liability that might otherwise result by
reason of providing such services, provided such official or his designee was
acting in the discharge of his duties and within the scope of his employment,
and that such liability did not result from the willfull act or gross negligence
of such official or his designee” (emphasis added).
SSL § 419 (governing CPS) similarly provides child protective workers with “immunity
from any liability . . . provided that . . . such liability did not result from the willful
misconduct or gross negligence of such person, official or institution.”
The language of both statutes makes clear that the legislature immunized APS and
CPS from ordinary negligence only – not from their own gross negligence or willful
misconduct.
To establish a special duty through breach of a statutory duty, the governing statute
must satisfy our three-prong test applicable to implied causes of action (Pelaez v Seide, 2
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NY3d 186, 201 [2004]; Sheehy v Big Flats Community Day, Inc., 73 NY2d 629 [1989]).10
We articulated the implied cause of action test most recently in Ortiz v Ciox Health LLC,
37 NY3d 353, 360 [2021]: “(1) whether the plaintiff is one of the class for whose particular
benefit the statute was enacted; (2) whether recognition of a private right of action would
promote the legislative purpose; and (3) whether creation of such a right would be
consistent with the legislative scheme”.
It is undisputed that Laura is among the class of people for whom the statute was
enacted. Turning to the other two prongs, in Ortiz we explained that the second prong of
our implied cause of action test asks “what the Legislature was seeking to accomplish when
it enacted the statute, and then determine whether a private right of action would promote
that objective” (37 NY3d at 363). The third prong asks whether the legislature had
provided other methods of enforcement—which could make recognizing a private right of
action inconsistent with the scheme at large (id at 364).
The majority points out that in Mark G. v Sabol, 93 NY2d 710, 721-722 [1999], we
declined to find a private right of action from SSL § 419 (concerning CPS) (maj. op. at 4-
5) and so we should follow suit with regard to SSL § 473 and APS.11 However, this case
10
As set forth in a very long footnote in my dissenting opinion in Howell v City of New
York (decided today), I believe the test for implying a right of action should not be the same
as the test for determining whether a statutory special duty exists. I accept it here because
neither party has asked us to reconsider it and the choice of test is immaterial to my
analysis.
11
I pause to note the incongruity of the majority’s position that the statutory duty argument
is not preserved, and therefore cannot be addressed by us, and its substantive discussion of
its merits herein.
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is distinguishable from Mark G. in one key aspect: the legislative history of SSL § 473,
unlike the legislative history of § 419, fully supports the recognition of a private right of
action.
Both SSL § 473 and SSL § 419 facially limit the immunity of APS and CPS,
respectively, to ordinary negligence only. Of course, where the plain language of a statute
is clear, there is no need to look to the legislative history to construe it: we apply it as
written unless it produces an absurd result or irreconcilably conflicts with some other
statute, neither of which would apply to either SSL § 473 or § 419. However, in evaluating
the third prong of the implied right of action test, Mark G. relied on the legislative history
to overcome the plain language of SSL § 419 and conclude that allowing a private right of
action, even for gross negligence or willful misconduct, would compromise a statutory
scheme that provided for a different form of enforcement.
The third prong proved problematic for the plaintiff in Mark G. because the
legislative history showed that the CPS legislative plan “centered on improved monitoring
and on penalizing local social services districts with a loss of State reimbursement of funds
for their failure to provide services or meet the standards mandated by the statute” (93
NY2d at 720). In enacting SSL § 419, the legislature had provided an enforcement
mechanism—financial penalties for the offending districts.
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The legislative history of Section 473 is quite different. It contains none of the
factors we identified in Mark G.12 Instead, it shows that the legislature charged APS, and
APS alone, with the protection of those who had no one and could not take care of
themselves (Bill Jacket 1975 ch 841 at 22 [emphasis added]). The fact that the legislature
expected vulnerable adults to rely on APS to provide them with services and protection is
in line with larger national developments in the treatment of disabled and elderly adults at
the time that Section 473 was passed. Federal regulations due to become effective in
January of 1975 (SSL § 473 was introduced in March of 1975) included no federally
mandated services for vulnerable adults, hence the need to mandate services at the state
level (Bill Jacket 1975 ch 841 at 13-15). SSL § 473 allowed the State to continue to
12
Although it is not necessary to explain why the liability of APS and CPS workers might
be different, the difference may be explainable by the distinction in the State’s treatment
of vulnerable children as opposed to adults. Children most often reside with parents or
foster parents who are responsible for their care. Vulnerable adults often do not; the
legislative history of the Social Services Law governing vulnerable adults emphasizes that
many of them are completely on their own. In addition, before the wave of
deinstitutionalization spurred by changes in federal law and the passage of SSL § 473, the
State was held liable in ordinary negligence for failing to properly care for the mentally ill
or disabled adults under its supervision and care (see, e.g., Santana v State, 266 NYS2d
733, 738 [1966] [“On the evidence before it, the court finds that the failure of the State to
provide reasonably adequate care for its ward was the competent producing cause of his
death, and that the State must be held liable in damages for this unfortunate event.”]; Harris
v State, 117 AD2d 298, 306 [2d Dept 1986] [“The State’s duty herein was to provide
Adrienne with a reasonably safe environment given its knowledge of her known propensity
for seizures.”]; Patrick v. State of New York, 806 NYS2d 849, 867 [2005] [“Having
entrusted one’s child [who was a disabled adult] to the care of others, one hopes that those
entrusted do their utmost to earn and retain that trust. Unfortunately, through a series of
negligent omissions and acts, the State betrayed that faith”]). It therefore would make
sense that when vulnerable adults are removed from State institutions and relegated to the
care of APS, APS as the agent of the State that substituted institutional entities, bears some
duty towards them, even if not as great as it did while such persons were living in a state-
run facility.
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deinstitutionalize vulnerable adults (the new federal regulations sought to minimize
institutionalization), with APS taking on the mantle of protection previously held by
communal homes, hospitals and asylums (id. at 15-16). In the legislature’s judgment, it
was, and continues to be, the State’s responsibility to “care for those unable to care for
themselves” (id. at 7).
Most importantly, the legislative history of the immunity provision governing APS
shows that civil liability was the intended enforcement mechanism. The Governor’s
Approval Memorandum explains that the immunity from civil liability was designed to
“aid in the provision of services and to assure that services are provided in a professional
and effective manner” (Bill Jacket 1979 ch. 446 at 8). The Budget Report on Bills and the
memorandum from the Department of Social Services are to the same effect (id. at 9-12;
13-14). Thus, quite unlike the legislative history in Mark G., the legislative history of the
immunity provision governing APS demonstrates that the balance struck by that immunity
provision -- barring liability for ordinary negligence but preserving it for gross negligence
and willful misconduct -- was itself an integral part of the statutory scheme.
Therefore, implying a cause of action here would both promote the legislative
purpose and be fully consistent with the scheme. The legislative purpose clear on the
statute’s face was to immunize APS from claims of ordinary negligence but continue its
liability for gross negligence and willful misconduct – which itself is the enforcement
scheme contemplated by the legislature and Governor. Recognizing a claim would
promote the purpose of the statute: ensuring that APS is diligently providing services and
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investigating reports of abuse, and compensating those wronged by gross negligence or
willful misconduct while immunizing APS from ordinary negligence. A private right of
action is not just fully consistent with the legislature’s scheme, it is the scheme.
B
The creation of a statutory special duty as to APS is so clear here that it hardly seems
worth explaining why Laura can also succeed under the second avenue by which a statutory
duty can be established: voluntary assumption to a specific person. Keeping in mind the
first two of my introductory points – governmental function immunity and the special duty
test are common law inventions; and there are myriad situations in which we have held that
a plaintiff may prevail in a common-law negligence claim to recover money damages from
governmental entities acting in their public capacity – I turn to the reason given by the
majority for concluding that Laura cannot recover for the gross negligence of APS and
CPS: her failure to demonstrate justifiable reliance (majority op at 5).13
13
I concur in the majority’s judgment affirming the dismissal of Laura’s claims against the
Sheriff. Our precedents establish that the police are not held liable in tort when they fail
to protect the public at large (Cuffy v New York, 69 NY2d 255, 260 [1987]; Weiner v
Metropolitan Transp. Authority, 55 NY2d 175, 181 [1982]; Valdez v City of New York, 18
NY3d 69, 75 [2011]; see also H.R. Moch Co. v Rensselaer Water Co., 247 NY 160, 164
[1928]). The rationale underlying that proposition is that the police are unable to secure
the safety of all people at all times, must make discretionary choices about how to allocate
limited resources, and are not in the position of an insurer against all evil (see Cuffy, 69
NY2d at 75). Here, the Sheriff’s alleged liability is premised on a single incident: the
deputies were called to the location of runway disabled young woman and returned her
home. The Sheriff’s duty to protect Laura in that instance was little different from the duty
to protect any member of the public at large. Unlike CPS and APS, no statute imposes a
duty upon the Sheriff to, in this case, investigate the circumstances of Laura’s home life or
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Laura satisfies all the Cuffy factors: (1) an assumption by the municipality, through
promises or actions, of an affirmative duty to act on behalf of the party who was injured;
(2) knowledge on the part of the municipality’s agents that inaction could lead to harm;
(3) some form of direct contact between the municipality’s agents and the injured party;
and (4) that party’s justifiable reliance on the municipality’s affirmative undertaking.
CPS and APS assumed a duty to act on Laura’s behalf when both decided, after
receiving reports of abuse, to open an investigation into the family. Investigation is one of
the responsibilities imposed on both agencies in the Social Services Law. It is clear from
the record that the agencies understood that inaction on their part, if they were wrong, could
lead to harm: that is the very calculation these agencies make in deciding to close a case
or move to remove a child or adult from a home. They know that if they are wrong in their
assessment and close a case, the abuse could continue or worsen. Direct contact is easily
satisfied—both CPS and APS visited Laura’s home and spoke with her.
The majority’s decision to bar Laura’s recovery on grounds of insufficient reliance
defies both commonsense and caselaw. The majority acknowledges that, in both
Applewhite v Accuhealth, Inc. (21 NY3d 420, 431 [2013]) and Sorichetti v City of New
York (65 NY2d 461, 469 [1985]), we modified the common law to permit a relative of the
injured party to satisfy the reliance factor set out in Cuffy. The majority’s declination of
the “invitation” to relax the reliance standard for intellectually disabled persons comes with
attempt to remove her from an abusive home. There is no evidence that the deputies made
any promise or representation to Laura.
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only the following explanation: Laura’s brother Richard, stationed overseas in the military,
caused Justice Stevens to call APS twice, but nothing APS did caused either Richard or
Justice Stevens to rely on APS’s promises.
1
As to commonsense, “the juristic philosophy of the common law is at bottom the
philosophy of pragmatism” (Benjamin N. Cardozo, The Nature of the Judicial Process at
102). What sense does it make to apply a standard of reliance created for persons capable
of reliance to someone incapable of reliance? The legislature understood that it would
make no sense to do so, which is why its grant of immunity to those working with these
specific vulnerable populations – definitionally incapable of self-care – was carefully
limited.
The legislative history surrounding the 1979 amendments adding the immunity
provisions explain that some measure of immunity from liability was needed to make sure
that persons employed to protect these specialized, vulnerable populations be able to
perform their responsibilities “in a professional and effective manner”, and that institutions
hiring workers be able to attract caring and responsible employees (Bill Jacket 1979 ch.
446 at 8). Two important conclusions follow from the legislature’s decision that APS and
CPS should be liable for the gross negligence or willful misconduct of their employees.
First, the legislature understood that, without the immunity provided in the amendment,
the common law would allow for ordinary negligence actions when against APS and CPS.
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- 29 - No. 90
Second, the legislature chose to strike a balance between the need for quality services and
the need to redress wrongs by drawing the line at gross negligence.
Those two points are crucial, each for its own reason. As to the first, we assume the
legislature is familiar with our jurisprudence when it acts (see Transit Commn. v. Long Is.
R.R. Co., 253 NY 345, 355 [1930]). Whereas many persons with disabilities like Laura’s
had previously been housed in governmental institutions, the State’s policy in 1975,
spurred by federal legislation, was to reduce the number of such institutions and, instead,
provide protective services in noninstitutional settings (Bill Jacket 1975 ch 841 at 15-16).
Under the prior regime, as evidenced by several of our prior decisions referenced earlier
herein, such institutions would have been liable to their residents for acts of ordinary
negligence. The legislature’s conclusion that, but for the statutory grant of limited
immunity, APS and CPS would be liable for ordinary negligence, reinforces the
understanding that under the common law, the state bore a special duty to such persons,
whether physically housed in a state facility or, with the change in policy, supervised in
the community. Viewed against the many examples in which we have found negligence
claims against governmental actors viable, what does commonsense tell us about Laura’s
ability to recover for gross negligence, when compared, for example, to an employee of a
state institution who slips on cereal?
The second point is even more important: the legislature itself has indicated the way
in which the common law should draw the line as to governmental function immunity
concerning these vulnerable populations. The majority cannot point to any other
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- 30 - No. 90
circumstance in which the legislature has done so; none of our special duty cases involve
a situation in which the legislature has indicated its choice that a governmental entity be
liable under certain standards of care but not others. Had the legislature desired the
majority’s result here, it would have provided a blanket immunity. It chose not to. I can
find no other circumstance in which our Court has “declined the invitation” to render the
government liable where the invitation comes from the government itself, in the form of a
statute setting out the terms of the government’s own liability.
2
As to caselaw, the majority refuses to excuse Laura from the reliance element
despite her severe intellectual disability, even though adapting a standard to the
specificities of a particular type of plaintiff is a well-established practice in our common
law (see, e.g., Silverstein v Metropolitan Life Ins. Co., 254 NY 81, 85 [1930] [“If a man
with an abnormally thin skull be struck a blow which would not seriously injure a normal
man, but which causes his death, it is perfectly plain that the cause of death is not the
thinness of the skull, but the receipt of the blow”] [internal quotation marks and citation
removed]; Dimino v Burriesci, 125 AD2d 361, 362 [2d Dept 1986] [“In this instance, where
the infant plaintiff was 5 1/2 years old, the court improperly submitted this issue to the jury,
and exacerbated the error by charging an objective standard of care, i.e., what a
reasonably prudent child of the infant plaintiff's age would exercise, rather than the
subjective one correctly employed in evaluating whether a child's conduct constitutes a
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- 31 - No. 90
statutory violation, i.e., what the infant plaintiff is mentally capable of, based on his age,
experience, intelligence, and development” [emphasis added]).
Our function as a common law court is to adapt the law to particular circumstances
and current needs. Instead of attempting to fashion a standard suitable to plaintiffs like
Laura, the majority sidesteps that responsibility entirely and chooses, instead, to focus on
the reliance of Justice Stevens and Richard Cummings, holding that neither could have
relied on CPS/APS because they were told the investigation was closed. The majority
expresses its willingness to reconsider the question of reliance in another case, where the
vulnerable adult does not have a “competent adult family member advocating on their
behalf” (majority op at 7-8). That offer gets the reliance analysis backwards. In Applewhite
and Sorchetti, we modified the common law to allow mothers who sought to protect their
children to satisfy Cuffy’s reliance standard. In those cases, we did so as a way of
expanding liability. Here, the majority is using it the opposite way – as if Richard or Justice
Stevens had some legal responsibility for Laura or were acting as agents (unbeknownst to
her), so that their supposed lack of reliance on APS can be attributed to Laura to negate the
existence of a special duty.
For a moment, imagine that the majority would have been willing to eliminate
Cuffy’s reliance factor for Laura if she had no “competent adult family member advocating
on [her] behalf.” Neither Richard nor Justice Stevens had any legal responsibility for
Laura; Richard was overseas in the military and Justice Stevens is not a family member at
all. Yet, if we take the majority’s future willingness seriously, Laura’s claim fails solely
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because Richard and Justice Stevens bothered to call APS and CPS. Of course, had they
not suspected anything, APS and CPS would not have investigated at all, which also would
have spared those agencies liability.
In any event, the facts here present a triable issue as to whether Richard and Justice
Stevens relied on promises made by APS. Richard called APS twice, after it had closed
the investigation. He insisted that Laura was being abused and had to be taken out of the
home—the APS caseworker refused to generate a new intake after each of his calls and
told him she had found no evidence of abuse. Justice Stevens also called twice, first CPS,
then APS, before he was told the investigation had been closed. A trier of fact could
conclude that the findings of no abuse constituted representations on which Richard and/or
Justice Stevens could rely, and that APS’s instruction that Richard call back if he had new
information assured him that APS would investigate properly. If I take my car to an auto
mechanic because the brakes seem bad, and the mechanic assures me he has checked
thoroughly and the brakes are fine, but then it turns out he never checked the brakes and I
crash, haven’t I relied to my detriment on that representation?
Essentially, Justice Stevens and Richard may have justifiably trusted CPS and APS’
assurances that they found no evidence of abuse. Whether they did so is a triable issue of
fact. By bypassing Laura in its analysis and imputing the responsibility to rely to Justice
Stevens and Richard, the majority defeats the legislature’s intent in enacting Social
Services Law § 473—to create an agency, APS, which must help those adults who cannot
help themselves and who have no one to assist them. With its decision, the majority
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confirms for all adults like Laura what they fear most: they are alone. The legislature did
not intend so, and the common law does not require so.
Orders affirmed, with costs. Opinion by Judge Troutman. Acting Chief Judge Cannataro
and Judges Garcia and Singas concur. Judge Wilson dissents in part in an opinion.
Judge Rivera took no part.
Decided November 22, 2022
- 33 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488548/ | [Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
NASCAR Holdings, Inc. v. McClain, Slip Opinion No. 2022-Ohio-4131.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2022-OHIO-4131
NASCAR HOLDINGS, INC., APPELLANT, v. MCCLAIN, TAX COMMR.,
APPELLEE.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as NASCAR Holdings, Inc. v. McClain, Slip Opinion No.
2022-Ohio-4131.]
Taxation—Commercial Activity Tax, R.C. 5751.01 et seq.—R.C. 5751.033(F)—
Situsing—Ohio Tax Commissioner’s assessments as to company’s
broadcast revenue, media revenue, licensing fees, and sponsorship fees
reversed.
(No. 2021-0578—Submitted January 25, 2022—Decided November 22, 2022.)
APPEAL from the Board of Tax Appeals, No. 2015-263.
__________________
DEWINE, J.
{¶ 1} Millions of fans worldwide watched on television as rookie driver
Austin Cindric crossed the finish line to win the 2022 Daytona 500. Some of those
viewers were in Ohio. They were able to watch because NASCAR had sold the
SUPREME COURT OF OHIO
broadcast rights to FOX Broadcasting Company and FOX had licensed those rights
to local television stations, streaming services, and cable providers who made the
race available to Ohio viewers. Beyond television, the NASCAR brand reaches
Ohio in many ways. Ohioans buy NASCAR grill covers, they watch ads aired by
companies that brag of being NASCAR’s “official partner,” and they visit the
NASCAR.com website owned by Turner Broadcasting, to name just a few.
{¶ 2} In 2011, the Ohio Tax Commissioner suspected that NASCAR owed
monies under Ohio’s commercial-activity tax (“CAT”), R.C. 5751.01 et seq. The
Ohio Department of Taxation conducted an audit and determined that NASCAR
had improperly failed to pay the tax from 2005 to 2010 and owed the state over a
half-million dollars in back taxes and penalties.
{¶ 3} In this appeal, NASCAR’s holding company contests the bulk of that
assessment. The question is whether Ohio may apply its CAT to a portion of the
revenue NASCAR derived from nationwide contracts licensing the rights to use its
intellectual property. The relevant statute allows Ohio to tax NASCAR’s receipts
from the rights to use its intellectual property “to the extent the receipts are based
on the right to use the property in [Ohio].” R.C. 5751.033(F). Applying this
language to the contracts at issue, we conclude that most of the tax assessment was
unlawful.
I. Background
A. The commercial-activity tax
{¶ 4} The General Assembly enacted the CAT in 2005. Am.Sub.H.B. No.
66, 151 Ohio Laws, Part II, 2868. The idea was to make Ohio a more attractive
place to do business by replacing the existing business-tax regime with “a broad-
based, low rate business privilege tax measured by gross receipts.” Ohio
Department of Taxation, Ohio Budget Bill (Fiscal Years 2006-07): Major Ohio Tax
Law Changes (June 29, 2005), available at https://tax.ohio.gov/static
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/communications/information_releases/g200501.pdf#page=1 (accessed Aug. 10,
2022) [https://perma.cc/C9DG-DA4N].
{¶ 5} The CAT is imposed on “taxable gross receipts for the privilege of
doing business in this state.” R.C. 5751.02(A). “Gross receipts” are “the total
amount realized, * * * without deduction for cost of goods sold or expenses
incurred, that contributes to the production of gross income.” R.C. 5751.01(F). In
other words, instead of being imposed on a net income, the CAT is applied to all
funds received from business transactions. See R.C. 5751.03.1
{¶ 6} The CAT law defines as “taxable gross receipts” only those receipts
that are “gross receipts sitused to this state.” (Emphasis supplied.) R.C.
5751.01(G). The amount of “gross receipts sitused to this state” is important for
two reasons. First, gross receipts are used to determine whether a business is
subject to the CAT; those subject to the CAT include businesses with a “substantial
nexus” to Ohio. R.C. 5751.02. Among the ways a business can have a substantial
nexus to Ohio is to have $500,000 of annual taxable gross receipts. R.C.
5751.01(H)(3) and (I)(3); see Crutchfield Corp. v. Testa, 151 Ohio St.3d 278, 2016-
Ohio-7760, 88 N.E.3d 900, ¶ 5, 21. Second, gross receipts are used to determine
how much tax is owed; liability is calculated by applying the base tax rate to
“taxable gross receipts.” R.C. 5751.02. The dispute in front of us boils down to
whether certain receipts are properly sitused to Ohio.
{¶ 7} Receipts are sitused to Ohio according to taxable categories. See R.C.
5751.033. Relevant here, the situsing law provides that gross receipts from the
right to use intellectual property “shall be sitused to [Ohio] to the extent that the
receipts are based on the right to use the property in [Ohio].” R.C. 5751.033(F). A
separate, catchall provision provides that “all other gross receipts not otherwise
1. The earliest versions of R.C. 5751.03 and the other Revised Code provisions imposing the CAT
govern the audit period at issue. See, e.g., Am.Sub.H.B. No. 66, 151 Ohio Laws, Part III, 4143,
4707 (2005); 2009 Am.Sub.H.B. No. 1.
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sitused under this section, shall be sitused to [Ohio] in the proportion that the
purchaser’s benefit in [Ohio] with respect to what was purchased bears to the
purchaser’s benefit everywhere with respect to what was purchased.” R.C.
5751.033(I).
B. NASCAR’s presence in Ohio
{¶ 8} NASCAR is the preeminent sanctioning body of stock-car racing. Its
holding company, NASCAR Holdings, Inc., is headquartered in Daytona Beach,
Florida.
{¶ 9} NASCAR races are held at over 100 racetracks across 39 states and
Canada and are broadcast in over 150 countries. During the audit period, NASCAR
did not hold any of its premier Sprint Cup Series events in Ohio. It did hold seven
smaller events in Ohio—four Craftsman Truck Series races and three regional
events. NASCAR kept no permanent offices in Ohio, owned no property in Ohio,
and employed no permanent workers in Ohio. NASCAR was not registered for
Ohio’s commercial-activity tax. NASCAR pays taxes on its commercial activities
in Florida, except for some event-derived revenue that is taxed at the location of
the event.
{¶ 10} In 2011, the Ohio Department of Taxation decided to audit
NASCAR’s commercial activity in Ohio for the period of July 1, 2005, through
December 31, 2010 (“the audit period”). To conduct the audit, the department
reviewed NASCAR’s taxable gross receipts from the following revenue streams:
broadcast revenue, media revenue, licensing fees, sponsorship fees, sanction fees,
memberships, and competition. The parties stipulated to sample agreements to
serve as representative contracts for each category. See R.C. 5751.09(G); Ohio
Adm.Code 5703-29-03. The categories are explained below.
{¶ 11} Broadcast Revenue. NASCAR sold to FOX Broadcasting Company
the rights to a set number of races over eight years. FOX paid $1.664 billion for
the right to broadcast these races in the United States, its territories, and sometimes
4
January Term, 2022
in Mexico, the Caribbean basin, and Canada. FOX had complete editorial control
over the broadcasts. FOX entered into third-party agreements disseminating the
television rights to local markets and home-television screens. These third-party
agreements did not directly affect NASCAR’s contract revenue.
{¶ 12} The tax commissioner sitused the broadcast revenue under the
catchall provision. The commissioner determined that the provision requires gross
receipts to be sitused to Ohio based on the proportion of the television audience that
is located in Ohio. To approximate this number, the commissioner used Nielsen
data on the total number of cable-TV households, broken down by state. The
commissioner then apportioned receipts to Ohio based on the ratio of Ohio cable-
TV households to all United States cable-TV households. For example, Nielsen
reported that Ohioans made up 4.31254 percent of American cable-TV viewers in
2007, so the tax commissioner determined that the same percentage of NASCAR’s
broadcast revenue should be sitused to Ohio for that year.
{¶ 13} Media Revenue. NASCAR earned media revenue by licensing the
right to use its brand in marketing efforts and the right to operate NASCAR’s
website. The sample agreement for this category granted Turner Broadcasting
System, Inc., the exclusive right to operate the official NASCAR website and the
nonexclusive right to use NASCAR’s brand online. This included the right to
create an online store, NASCAR fantasy games, and NASCAR-branded nonracing
games. In consideration for those rights, which spanned the entire World Wide
Web, Turner paid $6 million over six years.
{¶ 14} The commissioner sitused gross media receipts under the
intellectual-property provision using the same methodology as for the broadcast
revenue: the ratio of Ohio cable-TV households to United States cable-TV
households. The final audit report lumped the broadcast and media revenues
together for a total of $139,470,294 in taxable gross receipts over the audit period.
5
SUPREME COURT OF OHIO
{¶ 15} Licensing fees. NASCAR earned fees by licensing the right to use
its trademark and trade name to manufacturers, insurance companies, banks, food
companies, and more. Under the sample agreement, the merchandising company,
BSI Products, Inc., obtained the right to use the NASCAR logo on various products,
including flags, barbeque sets, and keychains. BSI could sell its NASCAR-licensed
products anywhere in “the United States of America, its territories and possessions,
the Commonwealth of Puerto Rico, United States military bases abroad and
Canada.” BSI paid NASCAR an advance payment and royalties and provided a
minimum annual guarantee. Using United States census data—taking Ohio’s
population as a proportion of the national population—the commissioner
determined NASCAR’s taxable gross receipts from licensing to be $10,230,588
over the audit period.
{¶ 16} Sponsorship fees. NASCAR collected fees from corporate sponsors.
The sample agreement granted AFLAC, Inc., the exclusive right to advertise itself
as NASCAR’s supplemental-insurance partner in the United States. AFLAC
agreed to pay NASCAR nearly $5.5 million over 3.5 years for the sponsorship. The
commissioner again used Ohio’s population as a proportion of the national
population as a basis for the assessment, situsing to Ohio $26,123,178 of the
sponsorship revenue over the audit period.
{¶ 17} Sanction fees, memberships, and competition. NASCAR has not
challenged the assessment for the three remaining categories, which relate to the
races held in Ohio. They are (1) taxable gross receipts from sanction fees paid by
race promoters, totaling $341,470, (2) revenues sitused to Ohio from membership
fees paid by competitors, track officials, and promotors to participate in sanctioned
events, totaling $72,881, and (3) competition revenue from fees paid by participants
at events, totaling $85,058. Together, these three categories amounted to roughly
¼ of 1 percent of NASCAR’s purported taxable gross receipts over the audit period.
6
January Term, 2022
In contrast, according to NASCAR, broadcast revenue generated about 68 percent
of its receipts during the audit period.
{¶ 18} The tax commissioner added the revenue streams together for a total
of over $186,592,000 in taxable gross receipts over the audit period. The
commissioner applied the tax rate to determine that NASCAR owed taxes in the
amount of $328,739. Interest and penalties led to a final tax assessment of
$549,520.
C. NASCAR challenges the assessment
{¶ 19} After the tax commissioner issued a final determination affirming
the assessment, NASCAR sought review by the Board of Tax Appeals. The BTA
initially dismissed the appeal on jurisdictional grounds. See NASCAR Holdings,
Inc. v. Testa, 152 Ohio St.3d 405, 2017-Ohio-9118, 97 N.E.3d 414, ¶ 7. But this
court reversed and remanded to the BTA to assess the merits of NASCAR’s
arguments. Id. at ¶ 19.
{¶ 20} The BTA affirmed the assessment. BTA No. 2015-263, 2021 Ohio
Tax LEXIS 780 (Apr. 5, 2021). The BTA adopted NASCAR’s argument that
instead of the catchall provision, the intellectual-property provision should have
been applied to the broadcast revenue. Id. at *6-7. But it determined that the
assessment would have been the same under either situsing provision. Id. at *12-
13. For all four revenue streams under review—broadcast, media, licensing, and
sponsorship—the BTA determined that the receipts were properly sitused to Ohio
because NASCAR’s agreements conferred “the right to use the intellectual property
in this state.” Id. at *5-6, 8-9. The BTA rejected NASCAR’s proposed
methodology under which receipts from its agreements would be sitused to its
corporate domicile, Florida. Id. at *8-9. And the BTA affirmed the commissioner’s
decision to not abate the penalty portion of the assessment. Id. at *3-4, 14.
{¶ 21} We now take up NASCAR’s arguments on direct appeal. See R.C.
5717.04; S.Ct.Prac.R. 10.01.
7
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II. Analysis
{¶ 22} NASCAR challenges the bulk of the tax assessment, arguing that its
broadcast revenue, media revenue, licensing revenue, and sponsorship revenue are
not subject to the CAT. In its first proposition, NASCAR contends that the BTA
erred by affirming the broadcast-revenue assessment on a different basis than that
relied on by the tax commissioner. Second, NASCAR argues that the broadcast,
media, licensing, and sponsorship revenues may not be sitused to Ohio under the
CAT. Third, NASCAR maintains that the tax is unconstitutional as applied.
Fourth, NASCAR argues that the BTA should have granted various motions.
Finally, NASCAR challenges the penalties assessed.
{¶ 23} Our resolution of the first two propositions makes it unnecessary to
address the others.
A. The BTA may approve a tax assessment on alternative grounds
{¶ 24} NASCAR’s argument that the BTA erred by affirming the
assessment of broadcast revenue based on a different statutory provision than the
one originally relied on by the tax commissioner is a nonstarter.
{¶ 25} NASCAR’s argument is centered on R.C. 5703.05(H). That
provision states that “the [tax] commissioner shall not review, redetermine, or
correct any tax assessment * * * which the commissioner has made as to which an
appeal * * * has been filed with the board of tax appeals, unless such appeal * * *
is withdrawn by the appellant * * * or dismissed.” (Emphasis supplied.) R.C.
5703.05(H) prohibits the tax commissioner from modifying an assessment, not the
BTA. Indeed, when a taxpayer appeals a final determination of the tax
commissioner, the BTA has explicit statutory authority to “affirm, reverse, vacate,
modify, or remand.” (Emphasis supplied.) R.C. 5717.03(F). Thus, we have little
difficulty rejecting NASCAR’s argument.
{¶ 26} NASCAR’s fallback argument—that “the tax commissioner shall
not make or issue an assessment * * * after the expiration of ten years” from the
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January Term, 2022
date the tax report was due, R.C. 5703.58(A)—fares no better. That provision
limits the tax commissioner’s ability to modify an assessment, not the BTA’s. And
the tax commissioner’s assessment in this case was journalized in December
2012—well within the limitation period. We reject NASCAR’s first proposition.
B. Most of the tax assessment was based on receipts improperly sitused to Ohio
{¶ 27} We next consider NASCAR’s substantive challenges to the
assessment. On this front, one of NASCAR’s arguments is based on the tax code
and the other is based on what the United States Supreme Court has called the
“dormant” or “negative” part of the Interstate Commerce Clause of the United
States Constitution, Article I, Section 8, cl. 3, see Comptroller of the Treasury of
Maryland v. Wynne, 575 U.S. 542, 548-549, 135 S.Ct. 1787, 191 L.Ed.2d 813
(2015); id. at 572 (Scalia, J., dissenting). Prudence dictates that we consider the
statutory argument first and the constitutional one only if necessary. In doing so,
we give no deference to the BTA’s “construction and application” of the tax
statutes, Progressive Plastics, Inc. v. Testa, 133 Ohio St.3d 490, 2012-Ohio-4759,
979 N.E.2d 280, ¶ 15. Instead, we must independently interpret statutory
provisions.
{¶ 28} NASCAR’s gross receipts for broadcasting, media, licensing, and
sponsorships were sitused to Ohio under R.C. 5751.033(F), which provides:
Gross receipts from the sale, exchange, disposition, or other
grant of the right to use trademarks, trade names, patents,
copyrights, and similar intellectual property shall be sitused to this
state to the extent that the receipts are based on the amount of use of
the property in this state. If the receipts are not based on the amount
of use of the property, but rather on the right to use the property, and
the payor has the right to use the property in this state, then the
receipts from the sale, exchange, disposition, or other grant of the
9
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right to use such property shall be sitused to this state to the extent
the receipts are based on the right to use the property in this state.
{¶ 29} The BTA relied on the second sentence of this section in leveling the
CAT for “the right to use” NASCAR’s intellectual property in Ohio. BTA No.
2015-263, 2021 Ohio Tax LEXIS, at *6-9. That determination was correct. The
sample agreements provided for fixed payments for the right to use NASCAR’s
intellectual property. The payments were contingent not on the amount of use but,
rather, solely on the right to use the property. Thus, the tax commissioner properly
looked to the second sentence, instead of the first sentence, of R.C. 5751.033(F).
{¶ 30} Under that sentence, receipts may be sitused to Ohio only “to the
extent” that they “are based on the right to use the property in” Ohio. (Emphasis
supplied.) And therein lies the problem. None of the sample contracts tied
payments to the right to use property in Ohio. Ohio was not even mentioned in the
contracts. Rather, the agreements granted broad rights to use NASCAR’s
intellectual property over large geographic areas—most often the United States and
its territories—that include Ohio.
{¶ 31} Thus, there are no traceable receipts that are “based on” a right to
use NASCAR’s intellectual property “in this state.” Id. One thing is “based on”
another if the second thing is foundational to the first. “In common talk, the phrase
‘based on’ indicates a but-for causal relationship and thus a necessary logical
condition.” Safeco Ins. Co. of Am. v. Burr, 551 U.S. 47, 63, 127 S.Ct. 2201, 167
L.Ed.2d 1045 (2007). But nothing in the contracts before us shows any causal
connection between any of the receipts and the right to use NASCAR’s intellectual
property in Ohio.
{¶ 32} The phrase “to the extent that” is also problematic for the tax
commissioner. “Extent” means “the range * * * over which something extends.”
Webster’s Third New International Dictionary 805 (2002). So in saying that
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January Term, 2022
receipts shall be sitused to Ohio “to the extent” that the receipts are based on the
right to use property, the statute imposes a limit on the tax commissioner’s
authority. Intellectual-property receipts may be sitused to Ohio only in so much
as—or to the extent that—they are “based on” the right to use the property in this
state. But none of the contracts here bases payment to NASCAR on the right to use
its property in Ohio.
{¶ 33} A look at each category illuminates the problems with the
commissioner’s reading of the law.
1. The broadcast revenue is not based on the right to use NASCAR’s property
in Ohio
{¶ 34} NASCAR granted FOX the right to transmit an audiovisual signal of
its auto races to television screens anywhere in the United States and its territories
and sometimes in Mexico and Canada. As NASCAR points out, the existence of a
contractual right to use broadcast rights in a territory that includes Ohio does not
mean that the gross receipts—or any portion of them—are “based on” the right to
use them in Ohio. FOX paid NASCAR a fixed fee for the rights—a fee that is
unchanged regardless of whether any part of NASCAR’s intellectual property even
makes it to Ohio.
{¶ 35} In opposition, the tax commissioner argues that under the statute,
“receipts from the licensing of the right to use the intellectual property also were
subject to tax, whether those rights were actually used by the purchaser or not, and
the measure should reflect the value of the right to use them in Ohio.” Essentially,
the commissioner contends that even though the contract doesn’t base payment on
the right to use the property in Ohio, he can approximate what the Ohio portion of
the rights are worth and impose the CAT on that basis.
{¶ 36} We decline to stretch the statutory language so far. By its plain
terms, the CAT applies to the right to use intellectual property only to the extent
that receipts are “based on” the right to use the property in Ohio. The sample
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contract plainly does not base what NASCAR is paid on the right to use NASCAR’s
property in Ohio.
{¶ 37} In arguing otherwise, the tax commissioner focuses more on what he
contends is the general principle underlying the CAT—to source receipts based on
where the market for the sale is located—than on the actual statutory language. But
our job is to apply the plain language of the statute. To the extent that the
commissioner believes that the statutory language fails to adequately reflect the
policies underlying the CAT, he is free to take up that matter with the legislature.
{¶ 38} We reverse the tax assessment with respect to NASCAR’s gross
receipts for broadcast revenue.
2. The media revenue, licensing fees, and sponsorship fees sitused to Ohio are
not “based on the right to use” NASCAR’s property in Ohio
{¶ 39} The commissioner’s assessment for the remaining challenged
categories stalls out for similar reasons.
{¶ 40} Begin with media revenue. This category includes “receipts from
sponsors and other clients, including ESPN, FOX Sports, TNT, and Direct TV to
incorporate NASCAR intellectual property into marketing efforts,” revenue from
production and media services, and proceeds from the deal with Turner
Broadcasting to operate www.nascar.com. The representative contract is the
multiyear agreement with Turner, which licenses the use of the NASCAR URL and
other intellectual property on the Internet in return for a fixed annual fee. Nothing
in the contract ties payments to the amount of use of NASCAR’s intellectual
property or to any right to use the property in Ohio.
{¶ 41} The tax commissioner sitused these revenues the same way as for
the broadcast receipts, using the ratio of Ohio cable-TV households to United States
cable-TV households. But R.C. 5751.033(F) does not authorize that action. The
receipts at issue are fixed payments: they do not vary with the amount of use, and
they are not based on the right to use the property in Ohio as opposed to elsewhere.
12
January Term, 2022
{¶ 42} Next up are sponsorship fees. The representative contract is
NASCAR’s agreement with AFLAC that defines the territory as the United States
and requires AFLAC to pay fixed “annual rights fees.” Here, the tax commissioner
apportioned receipts based on the ratio of Ohio’s population to the United States’
population. But just as with the other categories, the sponsorship fees are fixed
sums that do not vary with the amount of use of the intellectual property, nor is any
payment tied to the right to use the property in Ohio as opposed to elsewhere.
{¶ 43} Finally, we come to the licensing fees. Under the representative
contract, BSI pays royalties to NASCAR equal to a percentage of net sales of
licensed products. BSI also commits to pay “minimum annual guarantees and
advances.” Neither the royalties nor the guarantees and advances are tied to the use
of NASCAR’s marks in any particular location. The tax commissioner sitused
these receipts using the same method he used for the sponsorship fees: the ratio of
Ohio’s population to the United States’ population.
{¶ 44} As we have seen with the other categories, the licensing-fee contract
does not designate any payment to NASCAR for the right to use the marks in Ohio
as opposed to elsewhere. Unlike the other categories of receipts, the licensing fees
vary based on BSI’s sales. Importantly, however, the tax commissioner predicates
the assessment of all the receipts at issue, including the licensing fees, exclusively
on the second sentence of R.C. 5751.033(F), not the first.
{¶ 45} The partial dissent maintains that the analysis should look different
for licensing fees. The royalty fees, it argues, subject NASCAR to the first sentence
of R.C. 5751.033(F), covering actual use. But the tax commissioner’s final audit
report emphasized that NASCAR’s sample agreement with BSI “is based on a
‘right to use’ the NASCAR logo on products.” (Emphasis in original.) Thus, as
with the rest of NASCAR’s revenue streams, the tax commissioner levied the CAT
for licensing fees based on BSI’s right to use NASCAR’s marks. The tax
commissioner did not attempt to justify the assessment based on actual use; indeed,
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he specifically distinguished actual use from the right to use. We will steer clear
of new theories for taxability that were neither relied on by the tax commissioner
nor argued by the parties.
{¶ 46} Accordingly, we conclude that the assessment for broadcast revenue,
media revenue, sponsorship fees, and licensing fees did not lie within the tax
commissioner’s authority under R.C. 5751.033(F). We therefore reverse the BTA’s
decision upholding those assessments.
C. We need not address NASCAR’s constitutional challenge or its requests to
amend its complaint and conduct additional discovery
{¶ 47} Our agreement with NASCAR’s statutory argument obviates any
need to address NASCAR’s constitutional challenge to the CAT. For the same
reason, we decline to address NASCAR’s proposition seeking additional discovery
and to amend its notice of appeal to raise additional constitutional arguments.
D. We defer consideration of NASCAR’s challenge to the penalties imposed
{¶ 48} NASCAR argues that even if the assessment was proper, the BTA
erred by failing to abate the penalties that were imposed. The penalties were based
on the total amount of tax owed, and our decision that most of the tax assessment
was unlawful means that the bulk of the penalties assessed against NASCAR must
be vacated by the commissioner on remand.
{¶ 49} In addition, our decision reduces NASCAR’s taxable gross receipts
from roughly $186,592,000 to $499,409 over the five-and-a-half-year period at
issue. Though the issue is not in front of us, and we issue no decision on the matter,
it is quite possible that the commissioner may determine on remand that NASCAR
has no CAT liability for some or all of the tax periods at issue and that, relatedly,
NASCAR had no duty to register and file returns for some or all of those periods.
See R.C. 5751.01(H) and (I)(3) (providing that one way an entity is subject to the
CAT is by having a “substantial nexus” to Ohio by way of a “bright-line presence”
that arises from taxable gross receipts in a calendar year of at least $500,000); see
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also R.C. 5751.03 (providing for various exclusions relating to the first $1 million
of taxable gross receipts). Thus, the issue of penalty abatement may well become
moot.
{¶ 50} In light of the uncertainty about what penalties, if any, NASCAR
might be assessed on remand, we see no need to address that matter at this juncture.
Instead, we remand to the tax commissioner to calculate, consistent with this
opinion, the remaining CAT assessment, if any, on NASCAR for sanction fees,
memberships, and competition during the audit period. See Epic Aviation, L.L.C.
v. Testa, 149 Ohio St.3d 203, 2016-Ohio-3392, 74 N.E.3d 358, ¶ 37. Should the
tax commissioner continue to assess taxes and penalties on remand, NASCAR may
pursue an appeal, if appropriate, at that time.
III. Conclusion
{¶ 51} We reverse the tax assessment as to NASCAR’s broadcast revenue,
media revenue, licensing fees, and sponsorship fees. We remand the matter to the
tax commissioner to calculate the amount of principal tax and penalty, if any, that
NASCAR owes after the amount of gross receipts subject to assessment is reduced
in accordance with this opinion.
Decision reversed
and cause remanded.
O’CONNOR, C.J., and KENNEDY and FISCHER, JJ., concur.
STEWART, J., concurs in part and dissents in part, with an opinion joined by
DONNELLY and BRUNNER, JJ.
_________________
STEWART, J., concurring in part and dissenting in part.
{¶ 52} I agree with the majority’s conclusions on most of the issues in this
tax appeal. I write separately, however, because I disagree with the majority’s
decision regarding the allocation of the licensing-fee receipts of appellant,
NASCAR Holdings, Inc. (“NASCAR”), for taxation purposes. I would affirm the
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Board of Tax Appeals’ (“BTA’s”) decision affirming appellee the Ohio Tax
Commissioner’s assessment and allocation as to those receipts. See BTA No. 2015-
263, 2021 Ohio Tax LEXIS 780 (Apr. 5, 2021).
{¶ 53} As the majority opinion notes, NASCAR contests the taxability of
its gross receipts under four of the seven revenue categories reviewed by the tax
commissioner: broadcast revenue, media revenue, licensing fees, and sponsorship
fees. Specifically, NASCAR argues that R.C. 5751.033(F) does not subject any
portion of those receipts to taxation under any methodology. NASCAR also argues
that even if R.C. 5751.033(F) authorizes the imposition of taxes for the receipts,
the provision does not authorize the methodologies employed by the tax
commissioner and sanctioned by the BTA in this case. I agree with the majority
opinion that R.C. 5751.033(F) does not apply to NASCAR’s receipts from
broadcast revenue, media revenue, and sponsorship fees. But in my view, the
licensing-fee receipts are taxable under R.C. 5751.033(F).
I. The evidence concerning the licensing-fee receipts
{¶ 54} Under the parties’ stipulations, NASCAR’s gross receipts for
“license fees” “include income NASCAR received from trademark and trade name
licenses issued to a wide range of companies that include, but are not limited to,
manufacturers, insurance companies, banks, and food/beverage companies.” A
multiyear contract between NASCAR and BSI Products, Inc., was submitted as a
stipulated exhibit that serves as an “exemplar agreement giving rise to
[NASCAR’s] License Fees receipts.”
{¶ 55} The contract provides that BSI may use specified “Marks” owned by
NASCAR in BSI’s marketing of specified products such as flags, mugs, grill
covers, key chains, hood ornaments, and fuzzy dice. Under the agreement, BSI
pays royalties to NASCAR equal to a percentage of BSI’s net sales of the licensed
products. The royalties are not explicitly tied to BSI’s use of that intellectual
property at any particular location. BSI also commits under the agreement to
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January Term, 2022
paying “minimum annual guarantees and advances” to the extent that the royalties
may not measure up. The guarantees and advances are also not tied to the use of
NASCAR’s marks at any particular location.
{¶ 56} Concerning payments under the contract with BSI, NASCAR’s
finance director testified that “there’s a minimum annual guarantee that the licensee
pays per dollar of the amount of sales, and then depending on the actual sales and
the actual royalties owed, there could be an additional payment above and beyond
the minimum guarantee.” In other words, the minimum annual guarantee is not a
flat payment that is conceptually divorced from actual sales but rather a minimum
royalty payment that may be increased depending on the sales.2 Notably, NASCAR
does not receive any records from BSI that identify where BSI sold the licensed
products that underlie the royalty payments.
{¶ 57} To situs these receipts, the tax commissioner used the ratio of Ohio’s
population to the United States’ population for the years at issue. The taxable gross
receipts from licensing fees over the audit period amounted to $10,230,588.
II. Statutory analysis regarding the licensing-fee receipts
A. R.C. 5751.033(F) does not authorize the allocation of NASCAR’s licensing-fee
receipts to its Florida domicile
{¶ 58} The starting point for determining the reasonableness and lawfulness
of the BTA’s decision affirming the tax commissioner’s allocation of the licensing-
fee receipts to Ohio is NASCAR’s own position concerning the proper situs of those
receipts. At the BTA hearing, NASCAR’s finance director testified that NASCAR
consistently sitused its intellectual-property receipts to NASCAR’s domicile of
Florida. The tax commissioner’s auditors’ remarks noted that NASCAR sitused
2. For purposes of determining situs, therefore, the minimum annual guarantee may properly be
treated as an allocable royalty payment; if, however, NASCAR proved that a particular receipt
consisted of a minimum payment not linked to any underlying sales, then the payment could be
treated as a fixed payment that may not be sitused to Ohio under R.C. 5751.033.
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“intangible income revenue streams * * * to Florida with the exception of the
‘Sanction Agreement’ receipts that are situsable to the location of the event.”
{¶ 59} When prosecuting its petition for reassessment before the tax
commissioner, NASCAR cited Goodyear Tire & Rubber Co. v. Tracy, 85 Ohio
St.3d 615, 619, 710 N.E.2d 686 (1999), in support of its position that its receipts
from intangible property should be sitused to its Florida domicile. In that case, this
court stated, “The general theory of the taxation of intangibles is that they are taxed
at the residence of the owner.” Here, the tax commissioner correctly pointed out in
his final determination that R.C. 5751.033 does not follow that rule. Because R.C.
5751.033(F) does not recognize a principle of situsing gross receipts to the
taxpayer’s domicile, NASCAR’s situsing method for the licensing-fee receipts was
not a lawful method of allocation for purposes of Ohio’s commercial-activity tax
(“CAT”), R.C. 5751.01 et seq.
{¶ 60} Here, it is useful to look at analogous provisions in other Ohio
taxation provisions. As explained below, with regard to both Ohio’s corporation
franchise tax,3 R.C. Chapter 5733, and Ohio’s income tax on individuals and
estates, R.C. Chapter 5747, at least some royalty income is allocated based on the
geographic location of the intangible property’s use—which means that, just like
R.C. 5751.033(F) in this case, those provisions put the burden on the taxpayer to
know where the licensee of intangible-property rights used those rights.
{¶ 61} This is especially true of the corporation franchise tax. R.C.
5733.051(G) provides that a corporation’s “[n]et rents, net royalties, and net
technical assistance fees from intangible property are allocable to this state to the
extent that the activity of the payor thereof giving rise to the payment takes place
3. Although the corporation franchise tax has been phased out of operation, see 2012 Am.Sub.H.B.
No. 510, the tax is still on the books. Indeed, R.C. 5751.033(H) refers to the corporation franchise
tax in the context of prescribing the CAT situs for gross receipts from “dividends, interest, and other
sources of income from financial instruments.”
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January Term, 2022
in this state” and that when “the location of a payor’s activity is not available to the
corporation, the net rents, net royalties, and net technical assistance fees are
allocable or apportionable under [R.C. 5733.051(I)].” R.C. 5733.051(I) provides
that such income “is allocated entirely to this state except to the extent the allocation
of such item * * * entirely to this state is not within the taxing power of this state
under the Constitution of the United States.” In other words, if no reasonable break-
out of royalty receipts can be determined for purposes of the corporation franchise
tax, Ohio taxes all the royalty income to the extent that doing so is constitutionally
permissible.
{¶ 62} Ohio’s individual income tax takes a more mixed approach. R.C.
5747.20(B)(4) allocates patent and copyright royalties to Ohio “to the extent the
patent or copyright was utilized by the payor in this state” and then defines more
specifically what constitutes use of a patent or copyright in Ohio. However, unlike
the corporation franchise tax and the CAT, the income tax allocates patent-royalty
income to the taxpayer’s domicile “[i]f the basis of receipts from [the patent or
copyright] royalties does not permit allocation to states or if the accounting
procedures do not reflect states of utilization,” id. Beyond that, income from
intangible property other than patents and copyrights—a category that would
encompass the marks at issue in this case—would be allocated to the individual
taxpayer’s domicile under R.C. 5747.20(B)(6), which is the very result NASCAR
seeks here.
{¶ 63} Viewed against this backdrop, the purpose of the first sentence of
R.C. 5751.033(F) is to require that gross receipts be sitused to Ohio to the extent
that the licensee/payor uses the licensed intangible-property rights in Ohio. And
R.C. 5751.033 provides no fallback that authorizes NASCAR’s approach of
allocating those receipts to its domicile of Florida.
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SUPREME COURT OF OHIO
B. By basing NASCAR’s receipts on a percentage of BSI’s net sales, the
licensing-fee contract triggers the first sentence of R.C. 5751.033(F)
{¶ 64} Under the first sentence of R.C. 5751.033(F), the initial prerequisite
for allocating any of the licensing-fee receipts to Ohio is a contractual tie between
BSI’s payment to NASCAR and the amount of BSI’s use of NASCAR’s marks.
Here, BSI pays and NASCAR receives royalties based on a percentage of BSI’s
sales of the licensed products. Indeed, even the minimum annual guarantee under
the contract is conceptually tied to a percentage of BSI’s net sales, although the
actual payment might not reflect the underlying sales if the net sales are too small.
{¶ 65} Although the tax commissioner did not specifically refer to the first
sentence of R.C. 5751.033(F) when he assessed the licensing-fee receipts, BSI’s
royalty payments trigger the first sentence of that provision by tying the licensing-
fee receipts to the amounts that BSI realizes by using NASCAR’s marks. R.C.
5751.033(F) thereby requires that the receipts be sitused to Ohio to the extent that
a reasonable allocation method can be found.
C. NASCAR errs by restrictively interpreting R.C. 5751.033(F) with respect to
receipts
{¶ 66} NASCAR advances two arguments against the allocation of the
receipts to Ohio—one that raises an issue of fact and one that raises an issue of
statutory construction.
{¶ 67} Regarding the factual matter, NASCAR maintains that its “licensees
did not ‘use’ any intellectual property in Ohio” and therefore its own receipts were
not “based on the amount of use of the property in” Ohio. (Boldface and italics
sic.) Although NASCAR makes these assertions primarily regarding the broadcast-
revenue assessment, its assertions are also directed at the other receipt categories.
But NASCAR has offered no evidence as to whether BSI used its marks in Ohio,
so it has failed to support its bare statement that the marks were not used in Ohio
by BSI or other licensees. And as the party challenging the assessment, NASCAR
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January Term, 2022
has the burden to prove the manner and extent of any error in the assessment.
{¶ 68} NASCAR also maintains that no portion of its receipts may be
allocated to Ohio because NASCAR “gets paid the same no matter if its intellectual
property even makes it to Ohio.” NASCAR asserts, “NASCAR could receive more
revenue based on BSI’s overall sales, but NASCAR’s revenue was not tied to sales
in any particular state, and NASCAR did not direct the location of sales.” In
essence, NASCAR argues that because it gets paid based on BSI’s net sales
regardless of where BSI uses NASCAR’s marks, the amount does not vary based
on the specific geographic location (e.g., Ohio) where the marks are used, and
accordingly, none of NASCAR’s receipts may be sitused to Ohio no matter how
much BSI actually used the marks in Ohio.
{¶ 69} That argument implicitly relies on a reading of the first sentence of
R.C. 5751.033(F) as requiring the contract between NASCAR and BSI to specify a
link between payment and receipt and the specific location where the marks are
used before the receipts may be sitused to Ohio. Put differently, under NASCAR’s
interpretation of R.C. 5751.033(F), the first sentence of the provision is not
triggered merely because the contract ties the receipts to the amount of use; instead,
the contract itself must explicitly tie the receipts to the amount of use in Ohio as
opposed to elsewhere.
{¶ 70} I conclude that the only contractual link necessary to trigger the first
sentence of R.C. 5751.033(F) is one that ties NASCAR’s receipts to BSI’s amount
of use of the marks generally. Under a proper reading of the first sentence of the
provision, whether the receipts should be allocated to Ohio becomes a factual issue
once the predicate contractual tie to the amount of use is satisfied. That is apparent
in the text of the statute. The second sentence of R.C. 5751.033(F) begins: “If the
receipts are not based on the amount of use of the property, but rather on the right
to use the property, [then] * * *.” By conditioning its own applicability on the
receipts not being based on the amount of use of the property, the second sentence
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SUPREME COURT OF OHIO
of R.C. 5751.033(F) confirms that its first sentence does apply whenever the
receipts are “based on the amount of use”—without any additional need for
contractual specificity about where the use occurs.
III. Whether the tax commissioner’s method of allocating the licensing-fee
receipts to Ohio was valid
A. BSI’s “net sales” may reasonably be construed to reflect BSI’s
use of NASCAR’s marks
{¶ 71} NASCAR challenges not only the propriety of situsing various
categories of receipts to Ohio, but the method that the tax commissioner used to
determine situs. With respect to the licensing-fee receipts, NASCAR contends,
“BSI has not been using NASCAR intellectual property in Ohio—it used the
content outside of Ohio to design and create products.” According to NASCAR,
the design and manufacture of the licensed items constitutes use, but the sale and
resale of those items to consumers does not.
{¶ 72} NASCAR points to no authority to support this position. R.C.
5751.033 does not define what constitutes “use” of intellectual property. In Ohio’s
individual-income-tax scheme, use of intellectual property is defined in terms of
where an item is manufactured rather than where the item is sold. See R.C.
5747.20(B)(4) (a patent is “utilized in a state to the extent that it is employed in
production, fabrication, manufacturing, or other processing in the state, or to the
extent that a patented product is produced in the state”; and a copyright is “utilized
in a state to the extent that printing or other publication originates in the state”).
{¶ 73} On the other hand, Ohio’s corporation franchise tax allocates “[n]et
rents, net royalties, and net technical assistance fees from intangible property” to
Ohio “to the extent that the activity of the payor thereof giving rise to the payment
takes place in this state.” R.C. 5733.051(G). In this case, royalties received by
NASCAR are tied to “net sales” by BSI. For CAT purposes, whenever a
contractual arrangement involving payment for the right to use intellectual property
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January Term, 2022
ties the amount of payment to a percentage of the payor’s activity, that activity
should be presumed to constitute use of the property for purposes of R.C.
5751.033(F). That presumption may then be subject to rebuttal by the taxpayer,
who is free to offer proof that the payor’s use of the property involves some other
activity in some other geographic location. Here, NASCAR has offered no proof
that BSI used NASCAR’s marks exclusively outside of Ohio.
B. The tax commissioner may assess taxes based on “information in his
possession,” and the assessment is subject to rebuttal
{¶ 74} NASCAR also places at issue the reasonableness of the method the
tax commissioner used to situs NASCAR’s receipts to Ohio: the proportion of
Ohio’s population to the United States’ population for the years at issue. This
method constitutes, at best, a crude approximation—the actual net-sales data from
BSI and other licensees would furnish the best basis for determining allocation.
{¶ 75} When auditing NASCAR’s receipts, the tax commissioner did not
disagree with the proposition that actual sales data would provide the best evidence
for allocation purposes, but he did not have BSI’s sales information. During the
audit, the tax commissioner’s auditors explained that NASCAR had not supplied
information concerning the locations of the licensees’ sales and that “[t]he ‘use of’
the license aids in the sale of the licensee’s product and the ‘use of’ or benefit is
received where the licensee’s product is sold.” Additionally, the auditors noted that
“[t]he taxpayer contends that they cannot know states where licensed products are
sold by the licensee to situs the receipts to any state,” but also observed that “the
agreements stipulate [that] NASCAR has the right to inspect the records of the
licensee to verify [that the] terms of the agreement are being upheld.” Accordingly,
because NASCAR failed to supply sufficiently specific evidence as to BSI’s sales,
the auditors sitused the receipts in the licensing-fees category to Ohio based on the
ratio of Ohio’s population to the total population of the United States.
{¶ 76} The population-ratio methodology used by the tax commissioner is
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SUPREME COURT OF OHIO
consistent with Ohio’s assessment statute, R.C. 5751.09, and caselaw applying
similar statutes. R.C. 5751.09 authorizes the tax commissioner to “make an
assessment, based on any information in the commissioner’s possession, against
any person that fails to file a return or pay any tax as required by this chapter.”
(Emphasis added.) In construing a similar statute, this court held that an assessment
by the tax commissioner based on information available to him at the time of the
assessment may be valid even when that information later proves to be unreliable
to some degree. See, e.g., Federated Dept. Stores, Inc., Rike-Kumler Div. v.
Lindley, 5 Ohio St.3d 213, 215-216, 450 N.E.2d 687 (1983). And the BTA properly
affirms an assessment that the tax commissioner based on a factual presumption to
the extent that the taxpayer did not supply required documentation that would rebut
the presumption. See Ohio Fast Freight, Inc. v. Porterfield, 29 Ohio St.2d 69, 71,
278 N.E.2d 361 (1972); see also Midwest Transfer Co. v. Porterfield, 13 Ohio St.2d
138, 141, 235 N.E.2d 511 (1968) (“by their own improper and erroneous reporting,”
the taxpayers “invited the commissioner’s investigation and audit, and, if his
findings and the assessments based thereon were faulty and incorrect, the burden
rested on the [taxpayers] to show in what manner and to what extent he was
wrong”). Accordingly, when a taxpayer appeals an assessment to the BTA, the
BTA must presume the tax commissioner’s findings to be valid and the taxpayer
has the burden to show the manner and extent of the tax commissioner’s error by a
preponderance of the evidence. See Accel, Inc. v. Testa, 152 Ohio St.3d 262, 2017-
Ohio-8798, 95 N.E.3d 345, ¶ 14, 16.
{¶ 77} In this case, NASCAR has consistently adhered to its position that
the proper situs of the licensing-fee receipts was Florida, but it failed to supply
information, both when the tax commissioner asked for it and when the case was
before the BTA, to make its case for allocating those receipts based on sales
information from its licensees. Because NASCAR has not rebutted the tax
commissioner’s findings supporting the assessment with necessary documentation,
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January Term, 2022
I would uphold the tax commissioner’s method of allocating the licensing-fee
receipts.
IV. Allocating licensing-fee receipts to Ohio based on net-sale
royalties does not constitute unlawful double taxation
{¶ 78} In its brief, NASCAR asserts that by taxing BSI when BSI sells
licensed items in Ohio and taxing NASCAR on the percentage-of-sales-based
royalty it receives from BSI for the same Ohio sales, “the Tax Commissioner is
double taxing the same transaction level rather than conducting the proper inquiry
on what NASCAR sold in order to receive its receipts at question.” NASCAR also
argues that similar taxation regarding the broadcast revenue constitutes unlawful
double taxation.
{¶ 79} NASCAR is incorrect. The CAT does tax BSI on its sales in Ohio,
see R.C. 5751.033(B), and it also taxes NASCAR on the royalties it receives as a
percentage of BSI’s sales in Ohio. The putative basis for NASCAR’s objection is
that the same underlying sales constitute the source of the revenue streams for both
taxes. But the objection goes too far. If a homeowner hires a plumber to fix his
sink and pays the plumber with earnings that Ohio has already taxed, Ohio is fully
justified in also taxing what the homeowner paid the plumber as part of the
plumber’s earnings. The tax on the plumber is not an unlawful “double tax.” Nor
is it correct to say that the tax on BSI and the tax on NASCAR are at “the same
transaction level.” BSI is taxed because it sold the licensed items in Ohio, which
is one transaction level; NASCAR is taxed because it sold BSI a license to use
NASCAR’s marks, which is a separate transaction level.
V. Conclusion
{¶ 80} For the reasons stated above, I concur in the majority opinion in part
and dissent in part.
DONNELLY and BRUNNER, JJ., concur in the foregoing opinion.
_________________
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SUPREME COURT OF OHIO
Taft, Stettinius & Hollister, L.L.P., Jeremy A. Hayden, Aaron M. Herzig,
and Brian A. Morris, for appellant.
Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General,
John L. Rockenbach, Deputy Solicitor General, and Christine T. Mesirow and
Raina Nahra Boulos, Assistant Attorneys General, for appellee, Tax Commissioner
Jeffrey McClain.
Kevin Shimp, urging reversal for amicus curiae, Ohio Chamber of
Commerce.
_________________
26 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488549/ | [Until this opinion appears in the Ohio Official Reports advance sheets, it may be cited as
Goudy v. Tuscarawas Cty. Pub. Defender, Slip Opinion No. 2022-Ohio-4121.]
NOTICE
This slip opinion is subject to formal revision before it is published in an
advance sheet of the Ohio Official Reports. Readers are requested to
promptly notify the Reporter of Decisions, Supreme Court of Ohio, 65
South Front Street, Columbus, Ohio 43215, of any typographical or other
formal errors in the opinion, in order that corrections may be made before
the opinion is published.
SLIP OPINION NO. 2022-OHIO-4121
GOUDY, APPELLANT, v. TUSCARAWAS COUNTY PUBLIC DEFENDER, APPELLEE.
[Until this opinion appears in the Ohio Official Reports advance sheets, it
may be cited as Goudy v. Tuscarawas Cty. Pub. Defender, Slip Opinion No.
2022-Ohio-4121.]
The phrase “adversely affected” as used in R.C. 119.12(I) imposes a prejudice
requirement—State Personnel Board of Review’s failure to timely certify a
complete record of its proceedings to the common pleas court within 30
days of receiving notice of appeal did not adversely affect the public
defender’s office—Court of appeals’ judgment reversed and cause
remanded.
(No. 2021-0831—Submitted May 10, 2022—Decided November 22, 2022.)
APPEAL from the Court of Appeals for Tuscarawas County,
No. 2020 AP 10 0023, 2021-Ohio-1754.
_________________
SUPREME COURT OF OHIO
DEWINE, J.
{¶ 1} Classified civil-service employees in Ohio who are fired from their
jobs have a right to challenge their terminations by appealing to the State Personnel
Board of Review. A party who loses before the personnel board may appeal to the
common pleas court. When that happens, the personnel board is required to certify
a complete record of its proceedings to the common pleas court within 30 days of
receiving notice of the appeal. If the personnel board misses that deadline, the
common pleas court is required to enter judgment in favor of the “adversely
affected” party. This case is about what it means to be an “adversely affected”
party.
{¶ 2} Here, the personnel board ordered that Kristy Goudy be reinstated to
her position at the Tuscarawas County Public Defender’s Office. But when the
public defender’s office appealed that decision to the court of common pleas, the
personnel board failed to certify a complete record within the time allotted. The
personnel board had inadvertently failed to include the transcript of the second day
of the hearing. It subsequently corrected its error and certified the remainder of the
record outside the time allotted. The court of common pleas concluded that the
delay in certifying the record did not cause any prejudice to the public defender’s
office and therefore it was not an adversely affected party. The court of appeals
disagreed: it determined that one need not be prejudiced to be an adversely affected
party and that even if the statute did impose a prejudice requirement, the
requirement was met in this case.
{¶ 3} We conclude that the phrase “adversely affected” as used in R.C.
119.12(I) imposes a prejudice requirement. We also conclude that that prejudice
has not been shown in this case. Therefore, we reverse the decision of the court of
appeals and remand the case to the court of appeals for it to consider the public
defender’s office’s remaining assignments of error.
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January Term, 2022
I. Goudy is fired and challenges her termination
{¶ 4} Goudy was a classified employee at the Tuscarawas County Public
Defender’s Office. Classified employees may be fired only for cause, that is, for
grounds enumerated in R.C. 124.34(A). A classified employee may challenge a
termination by appealing to the personnel board. R.C. 124.34(B). A party who
loses before the personnel board may appeal to the court of common pleas. Id.
{¶ 5} R.C. 119.12, part of Ohio’s Administrative Procedure Act, governs
appeals from administrative agencies, such as the personnel board, to the common
pleas court. When an appeal is taken, the appealing party must provide the agency
with a security deposit to cover the cost of transcribing the record. R.C. 119.12(J).
The agency then has 30 days to prepare and certify to the court a complete record
of the administrative proceedings. R.C. 119.12(I). If the agency fails to comply
with this 30-day requirement, the court “upon motion” is “to enter a finding in favor
of the party adversely affected.” Id.
{¶ 6} That remedy is a harsh one in a case like this. In many cases, the
agency that conducted the administrative hearing will also be a party to the case.
For example, a nurse might appeal a decision by the board of nursing to suspend
his license. If the board of nursing does not timely certify the record with the court,
it seems fair to penalize the board of nursing for its failure to do so. In other cases,
however, the agency adjudicating the action is not a litigant in the case—for
example, cases, like this one, involving the personnel board. In such cases, the
consequences of the agency’s failure fall on a party who had nothing to do with the
failure. Nonetheless, absent a finding that the statute violates the state or federal
constitutions—and no constitutional challenge has been developed here—we are
required to apply the statute as written.
A. Goudy is fired but prevails on appeal to the personnel board
{¶ 7} In 2018, the public defender’s office fired Goudy from her job as a
secretary on the basis that she had violated the office’s standards of conduct. The
3
SUPREME COURT OF OHIO
allegations against her ranged from transferring calls incorrectly and slamming
doors to making unwanted sexual comments while touching a coworker’s waist.
Goudy appealed her firing to the personnel board.
{¶ 8} Following a hearing before an administrative-law judge, the personnel
board determined that the public defender’s office proved only some of the
allegations against Goudy and modified the firing to a ten-day suspension.
B. The public defender’s office appeals,
and the personnel board certifies an incomplete record
{¶ 9} On October 2, 2019, the public defender’s office appealed the order
to the Tuscarawas County Court of Common Pleas. At the same time, the public
defender’s office provided the personnel board with notice of the appeal and a
security deposit. See R.C. 119.12(J). Twenty-eight days later, the personnel board
certified the record with the court of common pleas.
{¶ 10} Unbeknownst to the personnel board, the transcript for the second
day of the hearing was missing from the record. The omission initially went
undiscovered, and the case proceeded as normal. On January 8, 2020, the court
established a briefing schedule, and on January 9, it set a hearing date of April 27.
Then, on January 30, the personnel board discovered its mistake and notified the
parties and the court. Seven days later, it filed the rest of the record. In the
meantime, the public defender’s office moved for judgment in its favor based on
the personnel board’s failure to timely certify the complete record. The court put
merits briefing on hold to allow for briefing on the motion.
{¶ 11} The court held a hearing on the motion for judgment on March 9,
and on April 22, it vacated the April 27 merits-hearing date. On April 27, the court
denied the motion for judgment, finding that no prejudice had resulted from the
personnel board’s failure to timely file the complete record. The court opined that
to be entitled to judgment, the public defender’s office needed to have been
prejudiced by the late filing. It observed that the personnel board’s filing, albeit
4
January Term, 2022
late, came well before the case was set for a merits hearing. The court then found:
“[T]he late filing * * * may have resulted in a modified briefing schedule; however,
the late filing alone would not have necessitated a delay of the overall disposition
of this case.”
{¶ 12} The case proceeded to a hearing on the merits, and the court of
common pleas affirmed the personnel board’s order. The public defender’s office
then reinstated Goudy. It also appealed the decision to the Fifth District Court of
Appeals, challenging the common pleas court’s decisions on both the motion for
judgment and the merits of the case.
C. The court of appeals determines that the personnel board’s omission entitled
the public defender’s office to judgment in its favor
{¶ 13} The Fifth District agreed with the public defender’s office that the
common pleas court should have entered judgment in its favor. 2021-Ohio-1754,
¶ 25, 28, 40. In doing so, it interpreted this court’s precedent as establishing a two-
track method for applying R.C. 119.12(I). Id. at ¶ 39. In its view of our precedent,
when an agency fails to timely certify the complete record of the administrative
proceedings, the common pleas court is required to enter judgment in favor of the
appellant. Id. On the other hand, the Fifth District explained, when the agency’s
submission contains a mere “omission” in an otherwise complete record, an
additional showing of prejudice is required for the appellant to be entitled to
judgment. Id. The court of appeals categorized the personnel board’s error in this
case as going beyond a “mere omission,” thus eliminating any need for the public
defender’s office to show prejudice. Id. at ¶ 40, 45. Accordingly, it concluded that
the personnel board’s failure to file a complete record within 30 days of receiving
the notice of appeal entitled the public defender’s office to judgment in its favor.
Id. at ¶ 43, 45. Even so, the court went on to examine prejudice. Id. at ¶ 46.
{¶ 14} The court of appeals disagreed with the court of common pleas’
finding that no prejudice had occurred. It found that the personnel board’s failure
5
SUPREME COURT OF OHIO
to file the complete transcript led to a five-month delay in adjudication and that this
delay increased the amount of back pay that the public defender’s office would
potentially be responsible for paying Goudy. Id. at ¶ 48. In addition, it said that
the personnel board’s failure caused “a delay in the due process of law.” Id. at ¶ 49.
As a result, it opined in dicta that the public defender’s office would be entitled to
judgment even if the statute required a showing of prejudice. See id.
{¶ 15} Goudy appealed, and we accepted jurisdiction. 164 Ohio St.3d
1431, 2021-Ohio-3091, 173 N.E.3d 508. Her arguments on appeal are difficult to
follow, but she essentially contends (1) that R.C. 119.12(I) requires a showing of
prejudice and (2) that the personnel board did not suffer prejudice.1
II. Both the ordinary meaning of “adversely affected” and our precedent
establish that the statute requires a showing of prejudice
{¶ 16} The public defender’s office contends that the personnel board’s
failure to timely certify a complete record entitled it to a judgment in its favor.
Goudy disagrees and submits that a party is entitled to judgment only if the
personnel board’s untimely filing causes prejudice.
A. Under the plain language of the statute, judgment based on an untimely
certification is warranted only if the party was prejudiced by the delay
{¶ 17} R.C. 119.12(I) provides:
Within thirty days after receipt of a notice of appeal from an
order in any case in which a hearing is required * * *, the agency
shall prepare and certify to the court a complete record of the
1. Following Goudy’s arguments is made even more difficult because the propositions of law that
she sets forth in her merit brief do not match those over which we accepted jurisdiction. This court
did not grant Goudy leave to amend her propositions, nor did Goudy ask for leave. Because the
crux of Goudy’s propositions remains largely the same, we will proceed to the merits of the case.
But we caution that such conduct is improper. Any party that tries to amend his propositions of law
without leave does so at the risk of dismissal.
6
January Term, 2022
proceedings in the case. Failure of the agency to comply within the
time allowed, upon motion, shall cause the court to enter a finding
in favor of the party adversely affected.
{¶ 18} By its plain terms, the statute requires a showing of prejudice. No
great linguistic dexterity is necessary to understand the meaning of the phrase
“adversely affected.” In common parlance, one is adversely affected when he is
harmed. In legal parlance, we call this prejudice. Thus, under the plain language
of the statute, when an agency does not comply with the certification requirement,
the court must make a finding in favor of the party that has been harmed or
prejudiced by the agency’s failure.
{¶ 19} The public defender’s office pushes back on this plain reading and
contends that the phrase “party adversely affected” does not impose a prejudice
requirement but simply means the party that lost before the agency (that is, the
appellant in the court of common pleas). The phrase “party adversely affected,” it
claims, is simply the “term-of-art” that the Ohio Administrative Procedure Act uses
for the party that receives an unfavorable result from an agency’s adjudication. In
support of its argument, the public defender’s office points out that in other
subsections of the statute, the General Assembly uses the phrase when referring to
the party that lost before the agency. The public defender’s office asserts that the
phrase should be given the same meaning here.
{¶ 20} The problem with that argument is that the phrase is used differently
in the subsections to which the public defender’s office refers. The public
defender’s office relies on R.C. 119.12(A)(1) and (B). But in those subsections,
the statute refers to the “party adversely affected by any order of an agency.”
(Emphasis added.) Similarly, R.C. 119.092(C), the other statutory subsection cited
by the public defender’s office, refers to a party that “could have appealed the
adjudication order of the agency had the party been adversely affected by it.”
7
SUPREME COURT OF OHIO
{¶ 21} In each of the subsections cited by the public defender’s office, the
phrase “adversely affected” is paired with the phrase “order of an agency.” R.C.
119.12(A)(1) and (B); see also R.C. 119.092(C). In contrast, the subsection at issue
in this case, R.C. 119.12(I), pairs “party adversely affected” with “failure of the
agency” to comply with the 30-day deadline. Thus, we have little difficulty
rejecting the public defender’s office’s interpretation. We conclude that by its plain
terms, R.C. 119.12(I) imposes a prejudice requirement.
B. We realign our precedent with the plain language of the statute
{¶ 22} While the plain language of the statute makes clear that prejudice is
required, our caselaw is a good deal murkier. We first dealt with R.C. 119.12(I) in
Matash v. Ohio Dept. of Ins., 177 Ohio St. 55, 202 N.E.2d 305 (1964). That case
involved an appeal by an insurance agent whose license had been revoked by the
department of insurance. The department of insurance failed to timely certify the
record of its administrative proceedings to the common pleas court, and the
question we confronted was whether dismissal was mandatory. We held that it was,
explaining that the legislature had recently amended the statute to add the language
requiring dismissal. Those amendments, we explained, “clearly express a
legislative intention that a failure to certify such record within the time * * *
specified must, on motion of the appellant, result in a judgment for the party
adversely affected by the order appealed from.” Id. at 57. In Matash, the issue of
prejudice was not directly before the court. Rather, the issue was whether the
statute was mandatory or directory. The parties did not brief the prejudice issue,
and the court did not opine on the issue. Nonetheless, because the Matash court
stated that dismissal was mandatory, the case has often been cited for the
proposition that no showing of prejudice is required. See, e.g., In re Troiano, 33
Ohio App.3d 316, 317, 515 N.E.2d 985 (8th Dist.1986); Sinha v. Ohio Dept. of
Agriculture, 10th Dist. Franklin No. 95APE09-1239, 1996 WL 99753, *2.
8
January Term, 2022
{¶ 23} We again took up R.C. 119.12(I) in Lorms v. Ohio Dept. of
Commerce, Div. of Real Estate, 48 Ohio St.2d 153, 357 N.E.2d 1067 (1976). Like
the present case, that case involved an appeal from the personnel board. In Lorms,
the personnel board had timely certified the record but had inadvertently omitted
two letters that had been introduced as exhibits. There, we equated “adversely
affected” with prejudice. Id. at 155. We thus held that “[a]n agency’s omission of
items from the certified record * * * does not require a finding for the appellant
* * * when the omissions in no way prejudice him in the presentation of his appeal.”
Id. at syllabus.
{¶ 24} In arguing for dismissal, Lorms maintained that Matash made
dismissal mandatory. The court could have distinguished Matash simply by noting
that the prejudice issue was not raised in Matash. But instead, the court made a
distinction based on the fact that in Matash, no record was filed at all. In a footnote,
the court opined that “[s]ince the agency in Matash failed to certify any record
within 34 days after receipt of notice of appeal, that case did not raise the issue of
nonprejudicial omissions from a record under R.C. 119.12.” (Emphasis in
original.) Lorms at 155, fn. 1. The distinction drawn in that footnote—between a
complete failure to file a record and an omission—has created persistent confusion
in the lower courts. We hope to put an end to that confusion today.
{¶ 25} This court adhered to Lorms in a case involving a record that was
certified using an unintentionally erroneous case number. Arlow v. Ohio Rehab.
Servs. Comm., 24 Ohio St.3d 153, 155, 493 N.E.2d 1337 (1986). That case, like
the present one, involved the review of an employment-termination decision by the
personnel board. Id. at 154. We found that failing to include the proper case
number was similar to omitting part of the record in Lorms, and, therefore held that
prejudice must be shown for a party to be entitled to judgment based on that error.
See Arlow at 156. At the same time, we distinguished the failure to include the
correct case number on the record from a complete failure to file a record and
9
SUPREME COURT OF OHIO
suggested that a different result would be required when “no action has been taken
to certify an administrative record.” (Emphasis deleted.) Id.
{¶ 26} Drawing upon this line of cases, the court of appeals below held that
two different standards applied: no showing of prejudice is required when there is
a complete failure to file a record, and a showing of prejudice is required when
there is a mere unintentional error or omission from an otherwise complete record.
In so holding, it acted in accord with decisions by numerous other courts of appeals.
See, e.g., Gwinn v. Ohio Elections Comm., 187 Ohio App.3d 742, 2010-Ohio-1587,
933 N.E.2d 1112, ¶ 15-16 (10th Dist.); McClendon v. Ohio Dept. of Edn., No.
104292, 2017-Ohio-187, 77 N.E.3d 523, ¶ 55 (8th Dist.); Citizens for Akron v. Ohio
Elections Comm., No. 11AP-152, 2011-Ohio-6387, ¶ 20-21 (10th Dist.). Today, we
clarify that there is only one standard.
{¶ 27} The bifurcated test used by the Fifth District has no basis in the
statutory language. The statute simply says that when there is a failure to timely
file a “complete record,” the court shall, upon motion, “enter a finding in favor of
the party adversely affected.” R.C. 119.12(I). The statute doesn’t distinguish
“mere omissions” from more serious failures. And the “adversely affected”
language applies universally to all failures to timely file a complete record. So, the
statute either requires prejudice or it doesn’t. There is no room for a middle ground.
The judicially manufactured sometimes-prejudice-is-required, sometimes-it’s-not
approach cannot be reconciled with the statutory language.
{¶ 28} We make clear today that prejudice is always required. The plain
meaning of “party adversely affected” leaves no room for any other construction.
We do not view this holding as inconsistent with Matash; as we explained earlier,
the prejudice issue was not litigated in Matash. But nothing in Matash or the
subsequent reference to Matash in the Lorms footnote should be read as dispensing
with R.C. 119.12(I)’s prejudice requirement.
10
January Term, 2022
C. The public defender’s office has not shown that it was prejudiced
{¶ 29} The court of appeals opined that even if there was a prejudice
requirement, that requirement was met. The common pleas court had determined
that while the untimely filing caused a modification of the briefing schedule, it did
not result in any delay in the disposition of the case. But the court of appeals
apparently disagreed. It noted that after the trial court denied the motion for
judgment filed by the public defender’s office, the court set a new merits-briefing
and oral-argument schedule. Under the new schedule, oral argument was set for
August 24, 2020, rather than the original argument date of April 27, 2020. The
court of common pleas issued its opinion affirming the personnel board’s decision
on September 16, 2020. In concluding that the public defender’s office had been
prejudiced, the court of appeals said, “The five months delay from briefing to
judgment arguably increased [the public defender’s office’s] exposure for back pay
and postponed the enforcement of the Order reinstating Ms. Goudy’s employment.”
2021-Ohio-1754 at ¶ 48.
{¶ 30} The problem is that this conclusion is at odds with the trial court’s
statement that the late filing of the transcript did not cause an overall delay in the
proceedings. Here, the court of common pleas was obviously familiar with its
docket and its caseload. There is nothing in the record that provides any basis for
the court of appeals to question the trial court’s statement that the late filing of the
transcript did not delay the overall disposition of the case.
{¶ 31} The court of appeals apparently conflated the delay occasioned by
the public defender’s office’s motion for judgment with the delay caused by the late
filing of the transcript. The court of appeals focused on the five-month interval
between the original oral-argument date and the date the trial court’s decision was
issued. In doing so, it apparently assumed that the late filing of the transcript caused
the trial court to vacate the original hearing date. But the record does not support
the conclusion that the five-month interval was attributable to the late filing of the
11
SUPREME COURT OF OHIO
transcript. Rather, the record suggests that the reason that the original hearing date
was vacated was to allow the public defender’s office to go forward with its motion
for judgment. Indeed, as explained above, the court of common pleas explicitly
found that “the late filing alone would not have necessitated a delay of the overall
disposition of this case.”
{¶ 32} One might posit that the motion for judgment would not have been
filed but for the late filing of the transcript and therefore any delay attributable to
the motion for judgment can also be attributed to the late filing of the transcript.
But that makes little sense. As we explained earlier, to be entitled to judgment, the
public defender’s office was required to show that it was prejudiced by the late
filing. It is hardly reasonable to allow the public defender’s office to claim that the
delay occasioned by its own motion for judgment is itself the prejudice that entitles
it to judgment in its favor.
{¶ 33} There is nothing in the record that provides any basis to disregard
the trial court’s finding that the late filing of the transcript did not delay the overall
disposition of the case.
III. Conclusion
{¶ 34} The court of appeals erred in concluding that R.C. 119.12(I) does not
contain a prejudice requirement. Further, the record does not support a conclusion
that the late filing of the transcript delayed the overall disposition of the case.
Therefore, we reverse the judgment of the Fifth District Court of Appeals. Because
it concluded that the public defender’s office was entitled to judgment based on the
untimely filing of part of the transcript, the court of appeals did not consider the
assignments of error raised by the public defender’s office challenging the trial
court’s judgment on the merits. We remand the case to the court of appeals for
consideration of these unresolved assignments of error.
Judgment reversed
and cause remanded.
12
January Term, 2022
O’CONNOR, C.J., and KENNEDY, FISCHER, DONNELLY, STEWART, and
BRUNNER, JJ., concur.
_________________
Moses Law Offices, L.L.C., and Michael Moses, for appellant.
Zashin and Rich Co., L.P.A., Scott H. DeHart, Jonathan J. Downes, and
Drew C. Piersall, for appellee.
Betsy Rader Law, L.L.C., and Elizabeth A. Rader, urging reversal for
amicus curiae Ohio Employment Lawyers Association.
Dave Yost, Attorney General, Benjamin M. Flowers, Solicitor General, and
Diane R. Brey and Stephen P. Carney, Deputy Solicitors General, urging reversal
for amicus curiae Attorney General Dave Yost.
_________________
13 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488558/ | NOTICE
2022 IL App (5th) 210394-U
NOTICE
Decision filed 11/21/22. The
This order was filed under
text of this decision may be NO. 5-21-0394 Supreme Court Rule 23 and is
changed or corrected prior to
not precedent except in the
the filing of a Petition for
Rehearing or the disposition of
IN THE limited circumstances allowed
under Rule 23(e)(1).
the same.
APPELLATE COURT OF ILLINOIS
FIFTH DISTRICT
______________________________________________________________________________
MIDWEST NEUROSURGEONS, LLC, ) Appeal from the
) Circuit Court of
Plaintiff-Appellant, ) Williamson County.
)
v. ) No. 21-L-81
)
MARY ELLEN ABELL, ) Honorable
) Jeffrey A. Goffinet,
Defendant-Appellee. ) Judge, presiding.
______________________________________________________________________________
JUSTICE BARBERIS delivered the judgment of the court.
Justices Welch and Cates concurred in the judgment.
ORDER
¶1 Held: We affirm the circuit court’s dismissal of medical provider’s breach of contract
action, where medical provider was not a third-party beneficiary to a settlement
contract entered into by employer and employee pursuant to the Workers’
Compensation Act.
¶2 Plaintiff, Midwest Neurosurgeons, LLC (Midwest), filed a breach of contract action against
defendant, Mary Ellen Abell, seeking to recover the costs of medical services and treatment
Midwest provided to Abell’s employee, Cheryl Lyell. Midwest alleged that it was a third-party
beneficiary to a settlement contract entered into by Abell and Lyell, wherein Abell and Lyell
agreed to settle Lyell’s claim filed pursuant to the Workers’ Compensation Act (Act) (820 ILCS
305/1 et seq. (West 2020)). Abell filed a motion to dismiss pursuant to sections 2-615 and 2-619
of the Code of Civil Procedure (Code) (735 ILCS 5/2-615, 2-619 (West 2020)), arguing, inter alia,
1
that the Act prohibited medical providers from maintaining private causes of action against
employers for medical services provided to employees who filed claims pursuant to the Act. The
Williamson County circuit court granted Abell’s motion and dismissed Midwest’s action for
failure to state a claim. Midwest appeals, arguing that the court erred by granting the motion to
dismiss because it pled a recognized cause of action under Illinois law. We affirm.
¶3 I. Background
¶4 On February 25, 2011, Lyell sustained work-related injuries. Lyell filed a claim against
Abell pursuant to the Act seeking benefits for her injuries. While her claim remained pending,
Lyell received medical care and treatment for her injuries at Midwest on multiple dates in 2011.
¶5 On February 14, 2013, Abell and Lyell entered into a settlement contract, wherein they
agreed to settle Lyell’s claim arising under the Act. The Illinois Workers’ Compensation
Commission (Commission) approved the settlement contract on February 15, 2013. Neither Abell
nor Lyell filed a petition for review of the Commission’s approval of the settlement contract.
¶6 On July 2, 2021, Midwest filed a breach of contract claim against Abell seeking to recover
the costs of the medical services and treatment that it provided to Lyell in 2011. Midwest alleged
that it was an intended third-party beneficiary of the settlement contract, wherein Abell agreed to
“pay, directly to the providers, the causally-related medical expenses incurred up to 9/26/12.” In
support, Midwest attached to the complaint a redacted copy of the settlement contract, which
included the following provision:
“Respondent agrees to pay, directly to the providers, the causally-related medical expenses
incurred up to 9/26/12, [redacted]. Respondent also agrees to pay, directly to the provider,
the unpaid medical expense incurred prior to the date of settlement at Neurology of Southern
2
Illinois, Ltd. (Dr. Lori M. Guyton). All medical expenses will be paid pursuant to pre-
arranged cost-containment agreements or the Illinois Medical Fee Schedule.”
Midwest further alleged in the complaint that Abell breached the settlement contract by failing to
pay Lyell’s medical expenses and that, as a direct result of Abell’s breach, it incurred damages in
the amount of $67,438.97, “plus interest at the rate of 1% per month that began to accrue as set
forth in 820 ILCS 305/8.2.” Midwest alleged that the accrued interest on the unpaid medical bills
totaled $79,569.29 at the time the complaint was filed and, thus, requested that the circuit court
enter judgment against Abell for the sum of $147,053.26. In support, Midwest referenced and
attached a document that listed, inter alia, the following information: the service and billing dates
for the medical treatment Lyell received at Midwest; the total amount billed for the services; the
insurance payments Midwest received; and interest calculations.
¶7 On October 1, 2021, Abell filed a motion to dismiss pursuant to sections 2-615 and 2-619
of the Code arguing, inter alia, that the Act prohibited medical providers, such as Midwest, from
maintaining private causes of action against employers for medical services provided to employees
who filed claims pursuant to the Act. On October 12, 2021, Midwest filed a response arguing that
it adequately pled its status as an intended third-party beneficiary to the settlement contract and
that its breach of contract claim was a viable, recognized claim under Illinois law. On October 27,
2021, Abell filed a reply reiterating her argument that Midwest had no direct cause of action
against her as Lyell’s employer.
¶8 On October 29, 2021, the circuit court held a hearing on Abell’s motion to dismiss where
the parties presented arguments consistent with the previous filings. After considering the parties’
arguments, the court stated that it was unable to locate legal authority in support of Midwest’s
3
position that a medical provider was allowed to maintain a direct action against an employer for
medical services provided to an employee who filed a claim under the Act. The court permitted
Midwest to submit a memorandum to provide further law on the issue.
¶9 On November 5, 2021, Midwest submitted its memorandum arguing that Illinois law
recognized third-party breach of contract claims, and that no provision of the Act expressly
prohibited medical providers from recovering from employers amounts of medical services that
employers contractually agreed to pay. Midwest further argued that the settlement contract did not
violate public policy, and that dismissal of the claim would frustrate the purpose of the Act.
¶ 10 On November 8, 2021, the circuit court granted Abell’s motion and dismissed the matter
for failure to state a cause of action. The record on appeal does not include a written order but
contains a docketing entry setting forth the court’s ruling. In the docket entry, the court indicated
that it was unable to locate legal precedent that allowed a medical provider to maintain a direct
action against an employer for medical services provided to an employee who filed a claim under
the Act. The court acknowledged, but disagreed with, Midwest’s arguments that it was a third-
party beneficiary to the settlement contract and that there was no law prohibiting such cause of
action. The court declined to create a cause of action or make law that would allow a medical
provider, who was not expressly named in a settlement contract, to bring a direct action against an
employer as a third-party beneficiary. The court acknowledged that there may be policy reasons
for allowing such cause of action but concluded that such matters were better suited to the
legislature. Midwest timely appealed.
¶ 11 II. Analysis
¶ 12 “A motion to dismiss pursuant to section 2-615 attacks the sufficiency of the complaint
4
and raises the question of whether the complaint states a claim upon which relief can be granted.”
Tielke v. Auto Owners Insurance Co., 2019 IL App (1st) 181756, ¶ 22 (citing Burton v. Airborne
Express, Inc., 367 Ill. App. 3d 1026, 1029 (2006)). “A section 2-619 motion to dismiss admits the
legal sufficiency of the plaintiff’s complaint but raises defects, defenses, or other affirmative
matters that appear on the face of the complaint or that are established by external submissions
acting to defeat the complaint’s allegations.” Id. (citing Burton, 367 Ill. App. 3d at 1029).
¶ 13 The standard of review of motions to dismiss under either section 2-615 or section 2-619
is de novo. Neppl v. Murphy, 316 Ill. App. 3d 581, 583 (2000). In addition, because this court
reviews the circuit court’s judgment, not its rationale, we may affirm for any reason supported by
the record regardless of the basis cited by the circuit court. D’Attomo v. Baumbeck, 2015 IL App
(2d) 140865, ¶ 30.
¶ 14 “To establish a breach of contract, a plaintiff must show the existence of a valid and
enforceable contract, performance of the contract by the plaintiff, breach of the contract by the
defendant, and resulting injury to the plaintiff.” Barry v. St. Mary’s Hospital Decatur, 2016 IL
App (4th) 150961, ¶ 78 (citing Sherman v. Ryan, 392 Ill. App. 3d 712, 732 (2009)). An individual
not a party to a contract may only enforce the contract’s rights when the contract’s original parties
intentionally entered into the contract for the direct benefit of the individual. Swavely v. Freeway
Ford Truck Sales, Inc., 298 Ill. App. 3d 969, 973 (1998). There is a strong presumption that the
parties to a contract intend that the contract’s provisions apply only to them, and not to third parties.
Barney v. Unity Paving, Inc., 266 Ill. App. 3d 13, 19 (1994). That the contracting parties know,
expect, or even intend that others will benefit from their agreement is not enough to overcome the
presumption that the contract was intended for the direct benefit of the parties. Id.
5
¶ 15 Whether someone is a third-party beneficiary depends on the intent of the contracting
parties, as evidenced by the contract language. F.H. Paschen/S.N. Nielsen, Inc. v. Burnham Station,
L.L.C., 372 Ill. App. 3d 89, 96 (2007). It must appear from the language of the contract that the
contract was made for the direct, not merely incidental, benefit of the third person. Gallagher
Corp. v. Russ, 309 Ill. App. 3d 192, 200 (1999). Such an intention must be shown by an express
provision in the contract identifying the third-party beneficiary by name or by description of a
class to which the third party belongs. Holmes v. Federal Insurance Co., 353 Ill. App. 3d 1062,
1066 (2004).
¶ 16 Here, the settlement contract specifically referenced the medical bills incurred by Lyell for
treatment she received at Neurology of Southern Illinois, Ltd., but the contract did not specifically
reference the medical bills incurred by Lyell at Midwest. As such, Midwest was not specifically
identified in the contract by name as an intended beneficiary.
¶ 17 Midwest alleged in the complaint that it was an intended third-party beneficiary of the
settlement contract because Abell agreed to “pay, directly to the providers, the causally-related
medical expenses incurred up to 9/26/12.” Midwest further alleged that it provided medical
treatment to Lyell for her work-related injuries on multiple dates in 2011. Thus, at first glance, it
appears the allegations in Midwest’s complaint, taken as true, demonstrated that the settlement
contract identified Midwest by description of a class to which Midwest belongs—a medical
provider that provided treatment to Lyell prior to September 26, 2012.
¶ 18 We note, however, that Abell and Lyell entered into the contract at issue to settle Lyell’s
claim arising under the Act. See Kelsay v. Motorola, Inc., 74 Ill. 2d 172, 180-81 (1978) (the
fundamental purpose of the Act is “to afford protection to employees by providing them with
6
prompt and equitable compensation for their injuries”). The contractual provision providing for
payment of medical expenses directly to Lyell’s medical providers merely restates a provision of
the Act. Specifically, section 8.2(d) of the Act provides that “[t]he employer or its designee shall
make payment for treatment in accordance with the provisions of this Section directly to the
provider, except that, if a provider has designated a third-party billing entity to bill on its behalf,
payment shall be made directly to the billing entity.” 820 ILCS 305/8.2(d) (West 2020). The direct
payment obligation set forth in section 8.2(d) simply serves to further the fundamental purpose of
the Act and ensure that injured employees receive prompt payment of benefits owed to them for
work-related injuries. See Marque Medicos Farnsworth, LLC v. Liberty Mutual Insurance Co.,
2018 IL App (1st) 163351, ¶ 14 (citing Marque Medicos Fullerton, LLC v. Zurich American
Insurance Co., 2017 IL App (1st) 160756, ¶ 52). Thus, despite the inclusion of the general direct
payment language, we conclude that the contract at issue was made for the direct benefit of Lyell
and that any benefit to Midwest was incidental. Our interpretation of the contract is supported by
the fact that Abell specifically agreed to pay the medical expenses incurred at Neurology of
Southern Illinois, Ltd. without reference to the medical expenses incurred at Midwest.
¶ 19 This interpretation of the settlement contract is also consistent with other provisions of the
Act pertaining to the nonpayment of medical expenses. Section 8.2(e-20) of the Act provides as
follows:
“Upon a final award or judgment by an Arbitrator or the Commission, or a settlement agreed
to by the employer and the employee, a provider may resume any and all efforts to collect
payment from the employee for the services rendered to the employee and the employee shall
be responsible for payment of any outstanding bills for a procedure, treatment, or service
7
rendered by a provider as well as the interest awarded under subsection (d) of this Section.”
(Emphasis added.) 820 ILCS 305/8.2(e-20) (West 2020).
Our supreme court considered section 8.2(e-20) under slightly different circumstances in In re
Hernandez, 2020 IL 124661, ¶ 23. In doing so, our supreme court noted that section 8.2(e-20)
permits “health care providers to seek payment directly from an injured employee for outstanding
bills plus interest *** after a settlement agreement is reached between the employer and the
employee.” Id. Our supreme court noted, however, that “nothing in section 8.2(e-20) permits
health care providers to look to the workers’ compensation award, judgment, or settlement itself
as a source of payment.” Id.
¶ 20 Accordingly, section 8.2(e-20) allowed Midwest to resume efforts to collect payment from
Lyell for unpaid medical expenses following the settlement agreement. As Abell correctly notes,
Lyell could, in turn, file an action to enforce the settlement agreement pursuant to section 19(g) of
the Act (820 ILCS 305/19(g) (West 2020)). See Millennium Knickerbocker Hotel v. Illinois
Workers’ Compensation Comm’n, 2017 IL App (1st) 161027WC, ¶ 21 (noting that “the only
method to enforce a final award of the Commission is in the circuit court pursuant to section 19(g)
of the Act”); see also Ahlers v. Sears, Roebuck Co., 73 Ill. 2d 259, 265 (1978) (holding that
“Commission approval of a settlement agreement constitutes a decision of the Commission and is,
in legal effect, the equivalent of an award within the meaning of section 19(g)”). As our colleagues
in the First District recognized, the methods of enforcing an employer’s obligation to pay
outstanding medical bills are “somewhat circuitous”; however, the commonality to the available
courses of action “is that they must be undertaken by the employee for whose benefit these
provisions were enacted.” Marque Medicos Farnsworth, LLC, 2018 IL App (1st) 163351, ¶¶ 28-
8
32. Our colleagues in the First District suggested that counsel insist that any settlement agreement
contain specified dollar amounts for outstanding medical bills to provide a “less circuitous means
of avoiding this problem in the future.” Id. ¶ 32. Thus, the Act permits a medical provider to collect
unpaid medical expenses from an employee, not an employer, and sets forth various methods by
which an employee may enforce an employer’s obligation to pay such medical expenses.
¶ 21 Lastly, we note that Midwest’s complaint sought to recover “interest at the rate of 1% per
month that began to accrue as set forth in 820 ILCS 305/8.2.” Section 8.2(d)(3) of the Act requires
an employer who fails to pay a medical provider within 30 days of receipt of a bill containing
substantially all necessary requirements to pay interest in the amount of 1% per month to the
provider. 820 ILCS 305/8.2(d)(3) (West 2020). As Abell correctly notes, the Illinois legislature
amended the Act in 2018 to include section 8.2(d)(4), which provides as follows:
“If the employer or its insurer fails to pay interest within 30 days after payment of the bill
as required pursuant to paragraph (3), the provider may bring an action in circuit court for
the sole purpose of seeking payment of interest pursuant to paragraph (3) against the
employer or its insurer responsible for insuring the employer’s liability pursuant to item
(3) of subsection (a) of Section 4. The circuit court’s jurisdiction shall be limited to
enforcing payment of interest pursuant to paragraph (3). Interest under paragraph (3) is
only payable to the provider. An employee is not responsible for the payment of interest
under this Section. The right to interest under paragraph (3) shall not delay, diminish,
restrict, or alter in any way the benefits to which the employee or his or her dependents are
entitled under this Act.” Id. § 8.2(d)(4).
The legislature further provided that “[t]he changes made to this subsection (d) by this amendatory
9
Act of the 100th General Assembly apply to procedures, treatments, and services rendered on and
after the effective date of this amendatory Act of the 100th General Assembly.” Id.
¶ 22 Here, Midwest’s complaint sought to recover interest for services and treatment provided
to Lyell in 2011—well after the effective date of the amendatory Act. Thus, Midwest’s request to
recover interest in a breach of contract action directly conflicts with the express language of the
Act and the intent of the legislature.
¶ 23 In sum, Midwest failed to plead sufficient facts to show it was an intended third-party
beneficiary to the settlement contract, and its request for interest was not permissible under the
Act. Therefore, we conclude that the circuit court properly dismissed Midwest’s complaint against
Abell.
¶ 24 III. Conclusion
¶ 25 For the foregoing reasons, we affirm the judgment of the circuit court of Williamson
County dismissing the complaint.
¶ 26 Affirmed.
10 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488568/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In the Matter of Proceedings by the :
Redevelopment Authority of the City :
of Erie for the Condemnation of :
Property Commonly Known As: 2708 :
Downing Avenue, Erie, :
Pennsylvania :
:
Zac Associates, Owner(s) or :
Reputed Owner(s) :
: No. 1453 C.D. 2021
Appeal of: Zac Associates, LLC : Submitted: October 11, 2022
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE STACY WALLACE, Judge
HONORABLE MARY HANNAH LEAVITT, Senior Judge
OPINION
BY SENIOR JUDGE LEAVITT FILED: November 22, 2022
Zac Associates, LLC (Landowner) appeals an order of the Court of
Common Pleas of Erie County (trial court) that overruled Landowner’s preliminary
objections to the declaration of taking filed by the Redevelopment Authority of the
City of Erie (Redevelopment Authority). The Redevelopment Authority seeks to
condemn Landowner’s real property as blighted. Landowner asserts that the
Redevelopment Authority did not serve the Notice of Blight upon Landowner and,
further, acted in bad faith by pursuing a condemnation before it had formulated a
plan for the property subject to the condemnation. For the reasons to follow, we
affirm.
Background
On March 20, 2017, the City of Erie’s Blighted Property Review
Committee issued a Notice of Blight for Landowner’s property at 2708 Downing
Avenue (Property), which identified the items that led to the determination of blight:
1. Violation Notice sent 11/28/07 & 7/13/16[;] 2. Premises
remain vacant with repairs needed from fire in 2013[;] 3. Doors
must be repaired or replaced[;] 4. Windows must be repaired or
replaced[;] 5. Soffit & Fascia must be repaired[;] 6. Gutters &
downspouts must be repaired or replaced[;] 7. Roof must be
repaired[;] 8. Rear ramp must be repaired[;] 9. Garage must be
demolished or repaired[;] 10. Junk & debris must be removed &
property maintained[;] 11. Weeds must be cut & property
maintained[;] 12. Taxes must be made current[;] 13. All utilities
must be restored[; and] 14. MUST PASS PROPERTY
MAINTENANCE INSPECTION.
Reproduced Record at 56a (R.R. __) (emphasis in original). That same day, the
Notice of Blight was posted on the Property.
On June 14, 2021, the Redevelopment Authority approved a resolution
to secure the Property through eminent domain and authorized its counsel to initiate
eminent domain proceedings. See Declaration of Taking, Exhibit A; R.R. 10a-11a.
Thereafter, on June 30, 2021, the Redevelopment Authority filed a Notice of
Condemnation under Section 305 of the Eminent Domain Code, 26 Pa. C.S. §305,
and a Declaration of Taking under the Urban Redevelopment Law.1
In response, Landowner filed preliminary objections to the Declaration
of Taking, asserting that the Property was not blighted. Landowner challenged the
Redevelopment Authority’s power to condemn and the procedures it followed in its
condemnation of the Property.
1
Act of May 24, 1945, P.L. 991, as amended, 35 P.S. §§1701-1719.2.
2
On October 4, 2021, the trial court held an evidentiary hearing on
Landowner’s preliminary objections. At the hearing, Landowner, an LLC, presented
documentary evidence and the testimony of its managing member, Donald
Crenshaw. Crenshaw testified, inter alia, that there is an outstanding mortgage on
the Property of $40,000. On April 13, 2016, Landowner received a letter from the
Redevelopment Authority that it could be eligible to participate in the “Home
Program,” which provides “home ownership, rehabilitation, and [] training
program[s] for [] minority youth in [the] community.” Notes of Testimony,
10/4/2021, at 15-16, 19 (N.T. __); R.R. 77a-78a, 81a. After working “for about six
years” to receive Home Program funds, Landowner learned on August 1, 2020, that
funds from the program were available. N.T. 16; R.R. 78a. Home Program funds
provide “a reimbursement or really a down payment assistance, that goes to the
homebuyer so that the homebuyer can acquire the home[.]” N.T. 24-25; R.R. 86a-
87a. However, Landowner still had to “borrow the money, or somehow get the
money to fix up” the Property before its sale. N.T. 24; R.R. 86a. Crenshaw testified
that Landowner was able to secure a line of credit from Erie Bank to make the repairs
to the Property one week before the hearing and would be signing the documents on
October 6, 2021. Crenshaw did not present any documents about this line of credit.
Regarding the Notice of Blight, Crenshaw testified that he did not see
its posting on the Property in March of 2017 and did not recall receiving the Notice
of Blight in the mail. Crenshaw stated that Landowner did not receive the Notice
but confirmed that Landowner’s business address is 1854 East 26th Street, Erie.
Crenshaw testified that only in a meeting with Aaron Snippert, Executive Director
of the Redevelopment Authority, did he learn that the Property had been declared
“blighted.” N.T. 18-19; R.R. 80a-81a.
3
Crenshaw testified that since 2017, Landowner has addressed some of
the issues identified in the Notice of Blight, such as cleaning up garbage, replacing
boards kicked down by kids, and paying the real estate taxes. Landowner has not
done more repairs at the Property because the contract for the Home Program funds
was not signed with the City of Erie until August of 2020 and with COVID-19,
“there [was not] a whole lot happening.” N.T. 23; R.R. 85a. On cross-examination,
Crenshaw acknowledged that the Property was still vacant, the windows boarded,
the soffits and fascia not repaired, and the gutters and downspouts not fixed, and
there were no utility services to the Property.
On behalf of the Redevelopment Authority, its Executive Director,
Aaron Snippert, testified. He stated that on March 20, 2017, the Notice of Blight
was posted to the Property, and a copy was mailed to Landowner’s address of record:
1854 East 26th Street, Erie. The Notice was not returned as undeliverable.
Snippert testified that in July of 2021, he spoke with Crenshaw about
the condemnation. Snippert explained to Crenshaw that Landowner had to guarantee
that the items identified in the Notice of Blight would be rectified in order to have
the condemnation withdrawn. In his visit to the Property on July 6, 2021, Snippert
found the windows and doors boarded up, siding missing, open windows and trash
in the driveway. Also during the meeting with Crenshaw, Snippert informed
Crenshaw that the Property had been certified in March of 2017 as blighted, and “the
Redevelopment Authority had drafted a resolution in August of 2017 to follow
through with eminent domain on the [P]roperty, but [he] had no documentation as
to why that process stopped back in 2017, and that all [he] could assume . . . is that
there was a conversation had with the [then-]Executive Director[,]” to which he was
not privy. N.T. 33-34; R.R. 95a-96a.
4
On cross-examination, Snippert testified that he started working at the
Redevelopment Authority in May of 2011 but had not been involved in issuing blight
notices until December 1, 2020, when he became Executive Director. He testified
that the Redevelopment Authority was aware of the mortgage on the Property.
Snippert stated that although Crenshaw is a contractor, Crenshaw could not
guarantee that Landowner will “do whatever needed to repair the [P]roperty.” N.T.
39; R.R. 101a. Snippert told Crenshaw that the blight notice was issued in 2017 but
“nothing has been done with the [P]roperty since.” N.T. 39; R.R. 101a. Snippert
testified that at their meeting in July of 2021, Crenshaw did not deny knowing that
the Property had been declared blighted in 2017.
On November 23, 2021, the trial court overruled Landowner’s
preliminary objections. The trial court found that the determination of blight was
made by the City’s Blighted Property Review Committee on March 8, 2017.
Crenshaw, on behalf of Landowner, testified that he never saw the Notice of Blight
posted on the Property and that Landowner did not receive the notice in the mail.
However, Snippert testified that the mailed notice was never returned, and the
Redevelopment Authority presented photographs of the posting of the notice on the
Property. Further, the Redevelopment Authority’s records indicated that
condemnation proceedings had been authorized but then stalled in the summer of
2017, which suggested that a conversation between the Redevelopment Authority
and Landowner had taken place, which caused the condemnation to be arrested. The
trial court found, based upon circumstantial evidence, that such a conversation did
take place, which refuted Landowner’s claim that it did not know about the Notice
of Blight. The trial court found that Landowner had known for three years of the
need to remediate the Property.
5
As to the blighted nature of the Property, Crenshaw admitted that it was
vacant and garbage is often strewn on the premises, although he monitors the
Property and removes any garbage as necessary. The trial court found that the
Blighted Property Review Committee had a reasonable basis to make its
determination of blight.
The trial court rejected Landowner’s claim that the Redevelopment
Authority had acted in bad faith by allowing Crenshaw to believe he could repair the
Property and avoid condemnation. The trial court found these last-minute attempts
were too little and too late. Landowner had over three years to correct the problems
set forth in the Notice of Blight and did not do so.
Appeal
On appeal,2 Landowner raises two arguments. First, Landowner argues
that the Redevelopment Authority did not have the power to condemn the Property
because it did not properly serve the Notice of Blight upon Landowner. Second,
Landowner argues that the Redevelopment Authority acted in bad faith by not doing
a suitable investigation and not giving Landowner additional time to remediate the
2
This Court’s standard of review of a decision to condemn property and of the extent of the taking
is to determine whether the trial court’s decision evidences an abuse of discretion or an error of
law. Redevelopment Authority of City of York v. Bratic, 45 A.3d 1168, 1173 (Pa. Cmwlth. 2012).
The exercise of discretion over a determination that a property is blighted is solely within the
power of the redevelopment authority, and this Court has explained:
The only function of the courts in this matter is to see that the Authority has not
acted in bad faith; to see that the Authority has not acted arbitrarily; to see that the
Authority has followed the statutory procedures in making its determination; and
finally, to see that the actions of the Authority do not violate any of our
constitutional safeguards . . . . An authority’s exercise of its discretion should not
be disturbed “in the absence of fraud or palpable bad faith.”
Id. (quoting In re Condemnation of Urban Redevelopment Authority of Pittsburgh, 822 A.2d 135,
138 (Pa. Cmwlth. 2003)) (internal citations omitted).
6
Property upon learning that Landowner had secured the financing needed to make
the necessary repairs.
I. Redevelopment Procedures for Blight
Section 12.1 of the Urban Redevelopment Law,3 35 P.S. §1712.1,
governs the condemnation of individually blighted properties, regardless of their
location. Individual property condemnations must follow certain procedures, which
include: a review by a blighted property review committee; the committee’s
certification to the planning commission that the property is blighted; service of a
notice of blight determination upon the property owner; notice to the property owner
of the opportunity to correct the conditions; and notice that failure to correct the
blight conditions may subject the property to condemnation. Acquisition and
disposition of an individual blighted property does not require the approval of a
redevelopment area plan or redevelopment proposal. 35 P.S. §1712.1(f).4 Rather,
at least 30 days prior to acquisition of an individually blighted property,
the Redevelopment Authority shall transmit identification of the
property to the planning commission of the municipality and
shall request a recommendation as to the appropriate reuse of the
property. The Redevelopment Authority shall not acquire the
property where the planning commission certifies that
disposition for residential or related use would not be in accord
with the comprehensive plan of the municipality.
Id. In this matter, Landowner’s Property was 1 of 18 individual properties declared
blighted, which the Redevelopment Authority sought to acquire by eminent domain.
3
Added by the Act of June 23, 1978, P.L. 556.
4
It states, in pertinent part: “Acquisition and disposition of blighted property under this section
shall not require preparation, adoption or approval of a redevelopment area plan or redevelopment
proposal as set forth in section 10[.]” 35 P.S. §1712.1(f).
7
Landowner argues that the Redevelopment Authority did not aver in
either the Declaration of Taking or Notice of Condemnation that Landowner had
been served with “notice of the determination that the property is blighted, together
with an appropriate order to eliminate the conditions causing the blight and
notification that failure to do so may render the property subject to condemnation
under this act,” as required by Section 12.1(e)(2) of the Urban Redevelopment Law,
35 P.S. §1712.1(e)(2). Further, Landowner contends it was not served with the
Notice of Blight.
We begin with service. Section 12.1(e)(2) of the Urban Redevelopment
Law states as follows:
No property shall be certified to the Redevelopment Authority
unless the owner of the property or an agent designated by him
for receipt of service of notices within the municipality has been
served with notice of the determination that the property is
blighted, together with an appropriate order to eliminate the
conditions causing the blight and notification that failure to do so
may render the property subject to condemnation under this act.
The notice shall be served upon the owner or his agent in accord
with the provisions of a local ordinance pertaining to service of
notice of determination of a public nuisance. The owner or his
agent shall have the right of appeal from the determination in the
same manner as an appeal from the determination of public
nuisance.
35 P.S. §1712.1(e)(2) (emphasis added). Here, neither party identified a local
ordinance pertaining to service of a notice of determination of a public nuisance.
However, the Notice of Blight referred to the need to pass a City
maintenance inspection, and a property’s violation of the City’s Property
Maintenance Code can cause that property to be declared a public nuisance. See
8
City of Erie v. Stelmack, 780 A.2d 824 (Pa. Cmwlth. 2001).5 That ordinance requires
structures and vacant land to “be maintained in a clean, safe, secure and sanitary
condition as provided herein so as not to cause a blighting problem or adversely
affect the public health or safety.” PROPERTY MAINTENANCE CODE OF THE CITY OF
ERIE (Property Maintenance Code), §301.3 (2015) (emphasis in original).6 The
Property Maintenance Code also sets forth the method for service of a notice of
violation. It states:
Such notice shall be deemed to be properly served if a copy
thereof is:
1. Delivered personally;
2. Sent by certified or first-class mail addressed to the
last known address; or
3. If the notice is returned showing that the letter was
not delivered, a copy thereof shall be posted in a
conspicuous place in or about the structure affected
by such notice.
PROPERTY MAINTENANCE CODE, §107.3 (emphasis added).
Here, the Redevelopment Authority presented testimonial and
documentary evidence to show that the Notice of Blight, with the list of items to be
remediated, was posted on the Property on March 20, 2017. A photo of the Notice
5
In that case, a four-unit residential building became vacant and utility service to the property
ended in 1996. In 1996, the city notified the landowner about needed window repairs and cutting
of weeds. Thereafter, the city posted a repair or demolish order on the property, specifying
numerous violations of the city’s Property Maintenance Code and giving the landowner 30 days
to make repairs. The city posted an order to demolish and remove a public nuisance. The trial
court held a public nuisance hearing, at which the city’s code enforcement officer testified about
the numerous violations of the Property Maintenance Code. The trial court declared the building
a public nuisance and ordered the city to demolish it, and this Court affirmed. City of Erie, 780
A.2d at 826, 828.
6
The City of Erie has adopted the 2015 International Property Maintenance Code.
https://cityof.erie.pa.us/government/departments/code-enforcement/ (last visited November 22,
2022).
9
of Blight posted on the Property was entered into evidence. Snippert testified that
the Notice of Blight was sent by first-class mail to Landowner’s business address,
1854 East 26th Street in Erie, and not returned as undeliverable. This mailing to
Landowner’s business address comports with the service requirements of Section
107.3 of the Property Maintenance Code.
There was also evidence that Landowner knew of the Notice of Blight.
Records of the Redevelopment Authority indicated that condemnation proceedings
were stalled in the summer of 2017, and Snippert testified that this pause in the
condemnation process suggested that the Redevelopment Authority had conferred
with Crenshaw about the Property’s blight. Additionally, Snippert testified that in
their July 2021 meeting Crenshaw did not state that he had not received the Notice
of Blight in 2017.
Further, on August 24, 2018, the Redevelopment Authority provided
Landowner actual notice7 of the blight with a letter that notified Landowner of the
possibility of condemnation because of the Property’s blight. Any omission in 2017
was remedied by the Redevelopment Authority’s 2018 letter. At the hearing,
Crenshaw testified, “What I recall, that I actually received, was that it was part of
blight and that they were looking to take the property as a blighted piece of
property.” N.T. 18-19; R.R. 80a-81a. The trial court found that Crenshaw’s
testimony was consistent with the contents of the August 2018 letter to Landowner.
Trial Court PA. R.A.P. 1925(a) Op. at 4-5.
7
“[A]ctual notice is such notice as is positively proved to have been given to a party directly and
personally, or such as he is presumed to have received personally because the evidence within his
knowledge was sufficient to put him upon inquiry.” In re Consolidated Reports and Return by
Tax Claims Bureau of Northumberland County of Properties, 132 A.3d 637, 647 (Pa. Cmwlth.
2016).
10
Finally, contrary to Landowner’s argument, there is no requirement
under the Eminent Domain Code or the Urban Redevelopment Law that the
Redevelopment Authority must aver in the Declaration of Taking that the owner of
the condemned property had been served with a notice of blight. In sum, the
evidence supports the trial court’s finding that Landowner was served with the
Notice of Blight issued in 2017 and had actual notice by at least 2018. Trial Court
PA. R.A.P. 1925(a) Op. at 4.
II. Bad Faith Condemnation
Landowner argues that the Redevelopment Authority did not make an
intelligent and informed judgment on the condemnation of the Property because it
had no plans for the Property after its condemnation. Further, the Redevelopment
Authority did not know that the Property was encumbered by a mortgage with
Northwest Bank. For these reasons, Landowner argues that the Redevelopment
Authority acted in bad faith.
The Redevelopment Authority responds that it was aware of the
mortgage and notified the lienholder of the condemnation action. In any case, a lien
against the Property relates to damages, but that is a separate part of the
condemnation proceeding.
When the certification of blight is challenged by preliminary
objections, the burden of proving bad faith is on the landowner; it is a heavy one.
Redevelopment Authority of City of Scranton v. Kameroski, 616 A.2d 1102, 1105
(Pa. Cmwlth. 1992). The redevelopment authority is presumed to have acted in good
faith in making such a determination. Simco Stores v. Redevelopment Authority of
City of Philadelphia, 317 A.2d 610, 613 (Pa. 1974). “Bad faith must be described
by clear averments of fact in the pleadings and proved by clear, precise and
11
indubitable evidence.” In re Condemnation by Redevelopment Authority of City of
Lancaster of Real Estate in City of Lancaster, 682 A.2d 1369, 1372 (Pa. Cmwlth.
1996). Bad faith is not shown by bald assertions. Id.
Landowner asserted that the Redevelopment Authority “failed to do a
suitable investigation leading to an intelligent, informed judgment by the
[Redevelopment Authority].” Preliminary Objections at 3, ¶12; R.R. 33a.
Specifically, Landowner alleged that the Redevelopment Authority had not
“formulated definitive plans [on] use to be made of the Property; no specifications
have yet been formulated; no estimate of construction/repair is yet available; no final
development, architectural, or engineering plan has been completed; and no other
relevant due diligence measures have been completed.” Id.
The trial court explained, in a detailed and thorough opinion, that
Landowner did not overcome the presumption that the Redevelopment Authority
acted in good faith. The Urban Redevelopment Law authorizes a redevelopment
authority to condemn properties within a redevelopment area8 or to condemn
individual properties as blighted in accordance with Section 12.1. The Property was
8
Section 9(i) of the Urban Redevelopment Law conveys the power of eminent domain to condemn
property within a redevelopment area, and it states, in pertinent part:
An Authority shall constitute a public body, corporate and politic,
exercising public powers of the Commonwealth as an agency thereof, which
powers shall include all powers necessary or appropriate to carry out and
effectuate the purposes and provisions of this act, including the following
powers in addition to those herein otherwise granted:
****
(i) To acquire by eminent domain any real property, including
improvements and fixtures for the public purposes set forth in this act, in
the manner hereinafter provided, except real property located outside a
redevelopment area[.]
35 P.S. §1709(i).
12
not part of a redevelopment area; rather, it was designated as blighted pursuant to
Section 12.1 of the Urban Redevelopment Law. Under Section 12.1(f), the
Redevelopment Authority was not required to prepare a redevelopment proposal. 35
P.S. §1712.1(f).9 See also In re Condemnation by Redevelopment Authority of
Lawrence County, 962 A.2d 1257, 1262 (Pa. Cmwlth. 2008) (“Acquisition of
blighted property under Section 12.1 does not require the adoption of a
redevelopment plan as set forth in Section 10 [of the Urban Redevelopment Law, 35
P.S. §1710].”). In short, the Redevelopment Authority did not need to provide a site
plan, estimates to prepare the area for redevelopment, or a redevelopment contract
with a redeveloper, as Landowner argued. Bald assertions of bad faith do not suffice.
Redevelopment Authority of City of Lancaster, 682 A.2d at 1372.
As to the Redevelopment Authority’s so-called ignorance of the
mortgage on the Property, the trial court accepted Snippert’s testimony that the
Redevelopment Authority not only knew of the mortgage, but also notified the
lender of the condemnation action. The certificate of service attached to the Notice
of Condemnation shows service on Northwest Bank.
Landowner is incorrect that a Declaration of Taking must be filed
within one year of the issuance of the Notice of the Blight. The Eminent Domain
Code states:
(e) Filing.--The condemnor shall file within one year of the
action authorizing the declaration of taking a declaration of
taking covering all properties included in the authorization not
otherwise acquired by the condemnor within this time.
26 Pa. C.S. §302(e). Here, the Redevelopment Authority approved the initiation of
eminent domain proceedings against the Property on June 14, 2021, and it filed the
9
See supra at 7, note 4.
13
Declaration of Taking on June 30, 2021. Thus, the Declaration of Taking was filed
less than a year from the action authorizing the declaration.
Finally, the Redevelopment Authority was under no obligation to
abandon its condemnation action or to “provide owners of blighted properties an
opportunity to remediate.” Redevelopment Authority of City of York, 45 A.3d at
1174. Landowner had more than three years to make the necessary repairs to the
Property, but Landowner did not eliminate the conditions causing the blight
determination. The Redevelopment Authority did not abuse its discretion or act in
bad faith by not allowing Landowner more time to correct the problems at the
Property that triggered the Notice of Blight.
Conclusion
For the foregoing reasons, we conclude that the evidence supports the
trial court’s finding that Landowner was served with the Notice of Blight. Further,
Landowner did not establish that the Redevelopment Authority acted in bad faith.
Accordingly, the trial court’s order overruling Landowner’s preliminary objections
is affirmed.
____________________________________________
MARY HANNAH LEAVITT, President Judge Emerita
14
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
In the Matter of Proceedings by the :
Redevelopment Authority of the City :
of Erie for the Condemnation of :
Property Commonly Known As: 2708 :
Downing Avenue, Erie, :
Pennsylvania :
:
Zac Associates, Owner(s) or :
Reputed Owner(s) :
:
Appeal of: Zac Associates, LLC : No. 1453 C.D. 2021
ORDER
AND NOW this 22nd day of November, 2022, the order of the Court of
Common Pleas of Erie County, dated November 23, 2021, is AFFIRMED.
____________________________________________
MARY HANNAH LEAVITT, President Judge Emerita | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494599/ | MEMORANDUM ORDER AWARDING COSTS AND REASONABLE ATTORNEY’S FEES UNDER 11 U.S.C. § 523(d)
NANCY C. DREHER, Bankruptcy Judge.
The above entitled matter comes before me pursuant to paragraph 3 of my order dated January 13, 2012 in which I ordered the parties to file briefs on the issue of whether, given the procedural history of the case, the court should enter an award of costs and reasonable attorney’s fees to defendant pursuant to 11 U.S.C. § 523(d). Appearances were as noted in the record. Having presided over this case, and having studied the briefs that have been filed, I make the following Findings of Fact, Conclusions of Law, and Order.
Findings of Fact
The procedural history of this adversary proceeding is as follows. Plaintiff, a credit card company, filed this adversary proceeding seeking to except from discharge, pursuant to 11 U.S.C. § 523(a)(2)(A), $3,359 plus interest in credit card debt owed by debtor. Plaintiffs first complaint was a “cookie cutter” pleading, devoid of any actual substance. It was the type of complaint commonly used by collection firms to coerce defenseless debtors into paying rightfully dischargeable credit card debt. Defendant moved to dismiss the first complaint on the pleadings pursuant to Fed.R.Civ.P. 12(b)(6), as adopted by Fed. R. Bankr.P. 7012. I granted the motion to dismiss, but further granted plaintiff leave to amend. In response, plaintiff filed yet another complaint that did not survive defendant’s motion to dismiss on the pleadings. The amended complaint was replete with inaccuracies and misstatements, was no better than the first complaint, and, in fact, was worse in that, grasping for something to allege and without prudently using “on information and belief’ language, plaintiff made untrue and seriously misleading allegations. I granted the motion to dismiss and set down for further briefing the issue of whether costs and reasonable attorney’s fees should be awarded pursuant to 11 U.S.C. § 523(d).
*513Conclusions of Law
A. Section 523(d), Generally
Under § 523(d) of the Bankruptcy Code, if the court rules against the creditor on the creditor’s request to determine the dischargeability of a consumer debt under § 523(a)(2) and there are no special circumstances that would make such an award unjust, “the court shall grant judgment in favor of the debtor for the costs of, and a reasonable attorney’s fee for, the proceeding if the court finds that the position of the creditor was not substantially justified.” 11 U.S.C. § 523(d); see generally FIA Card Services v. Conant, (In re Conant), 464 B.R. 511, 516-19 (Bankr.D.Mass.2012) (granting an award of reasonable attorney’s fees under § 523(d)-against this same plaintiff represented by the same attorney that appears in this case) (citing Congressional Federal Credit Union v. Pusateri (In re Pusateri), 432 B.R. 181, 197 (Bankr.W.D.N.C.2010)); see also FIA Card Services v. Dunbar (In re Dunbar), No. 10-00106, 2011 WL 3438889, at *6-*7 (Bankr.D.Mont.2011) (also granting an award of reasonable attorney’s fees under § 523(d) against this same plaintiff represented by the same attorney). Congress added this cost-shifting provision to “reduce the pressure on the honest individual debtor to settle this type of nondis-chargeability claim for the sole purpose of avoiding attorney’s fees and costs of litigation.” See 2011-2 Hon. Nancy C. Dreher & Hon. Joan N. Feeney, Bankruptcy Law Manual § 8:7 (5th ed. 2011); see also Star Bank, N.A., v. Stearns (In re Stearns), 241 B.R. 611, 628 (Bankr.D.Minn.1999) (Congress enacted § 523(d) to “discourage creditors from commencing meritless dis-chargeability proceedings in the hope of coercing settlement from impecunious debtors who fear the costs of vindicating themselves through litigation on the merits.”) (internal citations omitted).
Under § 523(d), there are five elements that must be shown before an award of reasonable attorney’s fees is appropriate:
(1) The creditor filed a nondischarge-ability action under § 523(a)(2);
(2) The obligation must concern a consumer debt;
(3) The obligation must be found to be dischargeable;
(4) The complaint must not have been substantially justified; and
(5) The bankruptcy court must be satisfied that there are no special or unique circumstances, which would make the imposition of costs and attorneys’ fees unjust.
In re Pusateri, 432 B.R. at 197 (citing First Deposit Nat’l Bank v. Stahl (In re Stahl), 222 B.R. 497, 504 (Bankr.W.D.N.C.1998)); see also Conant, 2012 WL 177568, at *5.
B. Nondischargeability Action
There is no dispute as to this element. This adversary proceeding was commenced by plaintiff seeking to except defendant’s credit card debt from discharge under § 523(a)(2)(A).
C. Consumer Debt
Defendant, in a sworn affidavit, has declared that the debts were consumer in nature. Plaintiff has failed to provide any evidence showing that these debts were not consumer debts. In spite of defendant’s clear statement that this requirement of § 523(d) has been met, plaintiff continues to speculate that it has not. Plaintiff’s speculation to the contrary is of no evidentiary value whatsoever.
D. The Obligation Was Dischargeable
Defendant and her codebtor were granted a discharge by an order dated Novem*514ber 3, 2011. Defendant’s debt to plaintiff was determined by me not to be excepted from discharge and, accordingly, to be dis-chargeable in that I have dismissed plaintiffs exception to discharge case on the merits with prejudice. See 11 U.S.C. § 727(a) (“The court shall grant the debtor a discharge, unless ...”); § 727(b) (“Except as provided in section 523 of this title, a discharge under subsection (a) of this section discharges the debtor from all debts that arose before the date of the order for relief under this chapter....”).
E. Substantial Justification
For a complaint to be substantially justified, it must have a “reasonable basis in both law and fact.” Stearns, 241 B.R. at 628 (internal citations omitted). See also, e.g., Commercial Federal Bank v. Pappan (In re Pappan), 334 B.R. 678, 683-84 (10th Cir. BAP 2005) (in order for a complaint to be substantially justified, there must be a reasonable basis for the facts asserted in the complaint and a reasonable basis for the legal theory proposed); Bankruptcy Law Manual § 8:7. Here, the complaint did not have a reasonable basis in fact. At the onset, plaintiff did little to no legal or factual research and did not conduct discovery to substantiate the facts alleged in its complaint. Plaintiff did not attend the meeting of creditors and did not examine defendant using a Rule 2004 examination. Instead, plaintiff relied solely on its misinterpretation of defendant’s credit card statements, never seeking substantiation of its claims. The lack of investigation indicates that plaintiff did not have a reasonable basis for the facts asserted. Pappan, 334 B.R. at 684 (upholding bankruptcy court’s award of costs and reasonable attorney’s fees because “[creditor’s] total failure to investigate the § 523(a)(2) action prior to filing it shows that it did not have a reasonable basis for the facts that it asserted.”). Without facts to back up its suit, I conclude that plaintiffs suit was intended to coerce debtor into settling rather than litigating. These are the exact coercive tactics that Congress sought to prevent when it enacted § 523(d). Id., n. 20 (citing In re Sales, 228 B.R. 748, 753 (10th Cir. BAP 1999) (§ 523(d) “was meant to prevent ... abusive filings by creditors in order to obtain settlement or reaffirmation leverage.”)); Steams, 241 B.R. at 628 (“Congress enacted this provision to discourage creditors from commencing meritless dis-chargeability proceedings in the hope of coercing settlement from impecunious debtors who fear the costs of vindicating themselves through litigation on the merits”); People’s Bank v. Poirier (In re Poirier), 214 B.R. 53, 55-56 (Bankr.D.Conn.1997) (Congress enacted § 523(d) because it “recognized the usual wide disparity in litigation resources possessed by creditors and consumer debtors ... [unscrupulous] creditors may be tempted to bring or continue untenable dischargeability cases simply to ‘scare up’ an installment-type settlement from a cash-poor debtor.”).
In dismissing the first complaint, I warned plaintiff, on the record, that any further pleading would have to be much more substantial. Plaintiff had the opportunity to not pursue further action. Instead, plaintiff filed an only slightly amended complaint, which suffered from all of the same failings as the first complaint. Plaintiff had been provided with notice of its complaint’s deficiency, yet did little to correct it. Plaintiff should have known better than to pursue further action without a more solid basis for its claim. Eric D. Fein, P.C. & Assoc. v. Young (In Re Young), No. 09-4054, 2010 WL 795113, *2 (Bankr.E.D.Tex.2010) (the court did not need to find that plaintiff acted in bad faith or frivolously in order to award reasonable attorney’s fees and costs; “The court must *515only make the determination that the plaintiff proceeded past a point where it knew, or should have known, that it could not carry its burden of proof.”); Bankruptcy Law Manual 8:7, n. 78. Plaintiffs repeated failure to investigate and failure to bring a claim based on a reasonable basis in fact shows that its complaint was not substantially justified.
In addition to the complaint’s factual deficiencies, the complaint also lacked a reasonable basis in law. Plaintiffs complaint implied that defendant acted fraudulently by taking out credit without the ability to repay plaintiff. In plaintiffs responses to defendant’s motions to dismiss, plaintiff relied on Anastas v. American Savings Bank (In re Anastas), 94 F.3d 1280, 1285 (9th Cir.1996), for the proposition that such an argument could be used to show fraud. However, Anastas explicitly stands for the proposition that courts should not look to debtor’s ability to repay, but rather should look to debtor’s intent to repay a debt in order to establish fraud. Id. at 1285-86 (“[the] focus should not be on whether the debtor was hopelessly insolvent at the time he made the credit card charges.... Rather, the express focus must be solely on whether the debtor maliciously and in bad faith incurred credit card debt with the intention of petitioning for bankruptcy and avoiding the debt.”). In plaintiffs brief on the attorney’s fees issue, in addressing the justification for its suit, plaintiff continues to use this faulty argument. Further, plaintiff adds facts that are not in the record, relies on statements of law without providing any statutory or case citation, and fails to provide any remotely persuasive argument that its complaint was justified.
Plaintiffs repeated failures to provide a legal or factual basis for its claims suggest that costs and reasonable attorney’s fees should be awarded to defendant who was forced to defend and twice go to court on this frivolous suit.
F. Special Circumstances
Even though all of the other four elements have been clearly met, plaintiff could avoid responsibility for paying defendant’s costs and reasonable attorney’s fees if it could show that there were special circumstances that would make such an award unjust. 11 U.S.C. § 523(d); Bankruptcy Law Manual, § 8:7. Plaintiff, however, did not and cannot do that. Courts have used a totality of the circumstances approach, grounded in principles of equity, to determine if awarding costs and reasonable attorney’s fees would be unjust. See, e.g., Matter of Hingson, 954 F.2d 428, 429-30 (7th Cir.1992) (the special circumstances “exception should be interpreted with reference to ‘traditional equitable principles.’ ”) (internal citations omitted); Bridgewater Credit Union v. McCarthy (In re McCarthy), 243 B.R. 203, 210 (1st Cir. BAP 2000) (the “determination of ‘special circumstances’ is an exercise in equity. It is an undertaking that can be accomplished fluidly in the course of the § 523(d) totality of the circumstances review, with the court’s discretion constrained by traditional limitations on its equitable powers.”) (internal citations omitted); Bankruptcy Law Manual § 8:7. Although plaintiff complains about the amount of the attorney’s fees, it does not provide any argument as to why granting such fees would be unjust.
G. Conclusion as to Costs and Reasonable Attorney’s Fees
Based on the utter lack of justification for the complaints, the fact that plaintiff had been put on notice of the initial complaint’s deficiency, the substantial time and effort that defendant spent defending this case, and the lack of reasons why awarding *516costs and reasonable attorney’s fees would be unjust, defendant is entitled to the same. See, e.g., Pusateri, 432 B.R. at 204 (reasonable attorney’s fees granted when plaintiff only argued that the level of the fees was unjust).
H. Amount of Attorney’s Fees
Having determined that awarding reasonable attorney’s fees and costs is warranted, I turn now to the amount of the fees and costs. Despite plaintiffs concerns, my order implicitly called for the type of affidavit on costs and attorney’s fees that was filed with defendant’s brief on this issue: one that included all attorney’s fees and costs incurred, including those incurred preparing to argue the costs and attorney’s fees issue. The filing was entirely appropriate and, in spite of having only three days to respond, plaintiff has done a good job of raising questions regarding the amount of the attorney’s fees requested.
Section 523(d) provides that reasonable attorney’s fees and costs shall be granted if all five conditions have been met. In a § 523(d) action, the court has an independent obligation to review the fee application for reasonableness. Conant, 2012 WL 177568, at *6 (finding that awarding reasonable attorney’s fees was justified because of plaintiffs lack of research, but reducing the amount of attorney’s fees granted to an amount lower than what was requested). In general, the lodestar method—multiplying the number of hours reasonably expended by a reasonable hourly rate—is used to calculate reasonable attorney’s fees. First Card v. Hunt (In re Hunt), 238 F.3d 1098, 1105 (9th Cir.2001) (in a § 523(d) case, the Ninth Circuit found that “[t]he primary method used to determine a reasonable attorney fee in a bankruptcy case is to multiply the number of hours expended by an hourly rate.”) (internal citation omitted); John Deere Co. v. Deresinski (In re Deresinski), 250 B.R. 764, 768 (Bankr.M.D.Fla.2000) (applying lodestar in a § 523(d) case); Bankruptcy Law Manual § 4:38 (“Courts use a lodestar calculation to determine reasonableness of any fee application.”).
While plaintiff may be partially correct that the attorney’s fees requested are excessive, plaintiff is wrong about several of its assertions. Defendant’s counsel is entitled to payment for making a fee application (otherwise it would be unfair). See Sears Roebuck & Co., v. Dayton (In re Dayton), 306 B.R. 322, 327-28 (Bankr.N.D.Cal.2004) (in a § 523(d) action, reasonable attorney’s fees included time spent in preparing a fee application because such applications are statutorily mandated) (internal citations omitted). Defendant’s counsel is not block billing as plaintiff contends. Defense counsel is billing in 1/10 of an hour increments. While some of the descriptions are rather general, they are sufficient to determine what was done. Further, there is no obligation to mitigate costs, there is only an obligation to seek only reasonable attorney’s fees. Finally, it is disingenuous for plaintiff to argue that defendant should not have spent roughly $14,000 in attorney’s fees to defend a ease where the exposure was only $3,359, plus interest. Plaintiff filed this action and cannot in good conscience argue that the attorney’s fees expended to defend this case should be limited because the amount sought in the case is small. The blame is on plaintiff for frivolously initiating the suit and, if the attorney’s fees charged were reasonable, i.e., the fees were equal to a reasonable hourly rate multiplied by a reasonable number of hours needed to defend such a case, plaintiff will be required to pay those fees. Defendant has a right to defend against this suit, and under § 523(d), defendant is entitled to whatever *517is reasonable, no matter how costly it is. Concmt, 2012 WL 177568, at *6 (“It would be too much to suggest that every § 523(d) fee request be less than the original amount in controversy. Where the debt is small, (say $10,000 or less), this could make defense of the action untenable, and thereby thwart the purpose of § 523(d). Rather, the reasonableness determination must be made on a case-by-case basis.”) (quoting Pusateri, 432 B.R. at 208 (citations omitted)). Plaintiff caused the defendant’s costs by filing deficient pleadings. It is nonsense to argue that, having initiated this action, somehow defendant needs to defend it on a shoestring budget.
Nonetheless, I am uncertain whether the amount of time spent on this case was excessive. Reasonable attorney’s fees should be judged by what the fee would be if a seasoned lawyer had done the work. Bachman v. Pelofsky (In re Peterson), 251 B.R. 359, 364-65 (8th Cir. BAP 2000) aff'd, 13 Fed.Appx. 491 (8th Cir.2001) (a court may reduce the hourly rate and the number of hours worked in the fee application based on what was reasonable in a given case); First Deposit Nat’l Bank v. Cameron, (In re Cameron), 219 B.R. 531, 542 (Bankr.W.D.Mo.1998) (in determining the reasonableness of attorney’s fees in a § 523(d) context, “[t]he court can act as its own expert regarding the reasonableness of attorney fees.”) (internal citation omitted); Bankruptcy Law Manual § 4:38. So, I am setting down for hearing argument on the question of precisely how much attorney’s fees should be awarded, i.e. whether the amount sought (nearly $14,000) is too much for what was accomplished.
ACCORDINGLY, IT IS HEREBY ORDERED THAT:
1. Defendant’s request for an award of costs and reasonable attorney’s fees pursuant to 11 U.S.C. § 523(d) is GRANTED.
2. The parties shall appear at on April 11, 2012 at 10:30 a.m., in Courtroom No. 7 West, United States Courthouse, 300 South Fourth Street, Minneapolis, Minnesota, to argue the unresolved issue of the reasonableness of the award of the attorney’s fees requested. Plaintiffs attorney, Mr. Richard Ralston, shall appear in person, telephonic appearance privileges having been revoked. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494600/ | ORDER DENYING PLAN MODIFICATION
DENNIS D. O’BRIEN, Bankruptcy Judge.
This matter came before the Court on the Chapter 13 Trustee’s motion to dismiss *520or convert for failure of the debtor to make payments due as required by the confirmed plan in the case. The debtor countered with a motion to confirm a proposed modified plan, to which the Trustee objects. Margaret H. Culp appeared on behalf of the Chapter 13 Trustee, Jasmine Z. Keller. Jeffrey M. Bruzek appeared on behalf of the debtor, Scott T. Zellmer. At the conclusion of the hearing, the Court allowed the parties time to submit additional briefs on the central issue, and thereafter took the matter under advisement. Being now fully advised, the Court makes this Order pursuant to the Federal and Local Rules of Bankruptcy Procedure.
I. FACTS
The facts in this case are uncomplicated and not disputed. Scott Zellmer filed for Chapter 13 protection on January 20, 2010, as a married debtor, filing individually. Included in his income available for plan payments was his non-filing spouse’s income. Zellmer’s disposable income at the time of filing was less than the median income for a family of three in Minnesota. As a below median debtor, Zellmer properly filed and obtained confirmation of a Chapter 13 plan with a term of repayment of 36 months.
Post-confirmation, Zellmer failed to make plan payments for March through June 2011, due to garnishment of his non-filing spouse’s income and increased expenses. To remedy the situation and restore his continuing viability for relief under Chapter 13, Zellmer proposes a modified plan with a reduced monthly payment (from $716 to $500). However, the plan does not provide for payments missed during the default months and amounts to a final total of only 31 plan payments.
The Trustee does not object to the additional expenses or to the reduced monthly plan payment, but she objects to confirmation of the proposed modified plan because it does not provide creditors with a total of 36 monthly payments. It is the trustee’s position that the debtor must make at least 36 payments, not simply remain in Chapter 13 for 36 months, without regard for missed payments during the pendency of a 36-month plan. Zellmer argues that the Code does not permit a post-modification plan to exceed the original 36-months since the passage of time since the month that the first plan payment was due, and that the total number of payments is not controlling. For the reasons set forth below, the Court agrees with the Trustee, and, accordingly, confirmation of thq modified plan as presently proposed must be denied.
II. DISCUSSION
“A confirmed plan acts as a binding contract and an order of the bankruptcy court.” See In re Jenkins, 428 B.R. 845, 849 (8th Cir. BAP 2010), citing In re Dial Bus. Forms, Inc., 341 F.3d 738, 744 (8th Cir.2003). “At any time, there exists only one plan.” Jenkins, 428 B.R. at 849. “When a plan modification is approved, ‘[t]he plan as modified becomes the plan.’ ” Id., citing § 1329(b)(2), Forbes v. Forbes (In re Forbes), 215 B.R. 183, 188 (8th Cir. BAP 1997) (“the plan is a unitary constant”). “The provisions of a confirmed plan bind the debtor and each creditor.” Jenkins, 428 B.R. at 849, citing 11 U.S.C. § 1327(a).
Section 1325(a)(1) requires that a plan must comply with the provisions of Chapter 13 and other applicable provisions of Title 11. Section 1325(b)(1) provides:
(b)(1) If the trustee or the holder of an allowed unsecured claim objects to the confirmation of the plan, then the court may not approve the plan un*521less, as of the effective date of the plan—
(A) the value of the property to be distributed under the plan on account of such claim is not less than the amount of such claim; or
(B) the plan provides that all of the debtor’s projected disposable income to be received in the applicable commitment period beginning on the date that the first payment is due under the plan will be applied to make payments to unsecured creditors under the plan.
See 11 U.S.C. § 1325(b)(1) (2010) (emphasis added).
The language in § 1325(b)(1)(B) connecting the duration of the plan (the applicable commitment period) with the due date of the first payment arguably suggests that the number of payments is the core, defining element of plan length. A plan life of thirty-six months creates a schedule for thirty-six payments. The minimum term of a plan and the number of plan payments are the same number. In every Chapter 13 plan, the length of the plan, or the applicable commitment period, is typically defined by the same number of payments. Therefore, as a practical matter, the basic structure in a Chapter 13 plan is a number of payments to be made in as many months.1
The confusion here arises from the following language in § 1329, which provides in pertinent part:
(a)At any time after confirmation of the plan but before the completion of payments under such plan, the plan may be modified, upon request of the debtor, the trustee, or the holder of an allowed unsecured claim, to—
(1) increase or reduce the amount of payments on claims of a particular class provided for by the plan;
(2) extend or reduce the time for such payments; [ ... ]
(b) (1) Sections 1322(a), 1322(b), and 1323(c) of this title and the requirements of section 1325(a) of this title apply to any modification under subsection (a) of this section.
(2) The plan as modified becomes the plan unless, after notice and a hearing, such modification is disapproved.
(c) A plan modified under this section may not provide for payments over a period that expires after the applicable commitment period under section 1325(b)(1)(B) after the time that the first payment under the original confirmed plan was due, unless the court, for cause, approves a longer period, but the court may not approve a period that expires after five years after such time.
See 11 U.S.C. § 1329 (2005) (emphasis added).
The Court acknowledges the difficulty with § 1329(c). The language is not entirely clear, and the interpretations of it are not entirely consistent. Nevertheless, it makes more sense in terms of fundamental fairness, the interest in the binding strength of a confirmed plan, and the requirements of good faith underlying the Chapter 13 process, to understand the applicable commitment period as being in general necessarily equivalent to that certain number of expected actual payments of disposable income, not including months of nonpayment.
*522To conclude otherwise may create an opportunity, as in this case, for a “meltdown” of the percentage distribution ultimately paid to unsecured creditors reduced from the greater amount initially contemplated by the original confirmed plan based upon a certain number of monthly payments of projected disposable income. In this case, Zellmer’s proposed modified plan provides 31 payments instead of 36 payments as contemplated by the applicable commitment period of 36 months, without cause.
An interesting case out of Utah involved some bankruptcy courts allowing, in post-confirmation modification settings, all payments made up to that time under the original confirmed plan to be deemed one single first payment, thereby allowing the modified plan to essentially start counting the payments going forward all over again and extending the repayment term in some cases years beyond the maximum sixty month commitment period. See In re Black, 292 B.R. 693, 699-701 (10th Cir. BAP 2003). The BAP, without deciding when exactly the “five-year limit on plan duration” starts to run, the date the first payment was due following filing or the first date the payment is due following confirmation, held that in any event the “lump-sum-contribution fiction” constituted a violation of § 1329(c). Id. at 701.
“The legislative history of the Bankruptcy Code indicates that Congress was unhappy with practices that had developed in certain parts of the country under Chapter 13’s predecessor that had resulted in debtors remaining under court-supervised repayment plans for seven to ten years, which Congress characterized as being close to indentured servitude.” Black, 292 B.R. at 700, citing H.R.Rep. No. 95-595, at 117 (1977), U.S.Code Cong. & Admin. News 1978, pp. 5963, 6077, reprinted in Appendix C, Collier on Bankruptcy App. Pt. 4(d)(i), at 4-1208 (Alan N. Resnick & Henry J. Sommer eds.-in-chief, 15th ed. rev. 2002). “Clearly, these concerns inspired the plan-duration limits Congress included in §§ 1329 and 1322.” Black, 292 B.R. at 700.
Section 1329(c) “clearly demonstrate^] that Congress intended to limit to five years the total length of time that debtors can pay into Chapter 13 plans.” Black, 292 B.R. at 699 (emphasis added). Understanding the plan duration limits as based on a number of plan payments and not simply total months of an active Chapter 13 case does not offend the policy of protecting debtors from an enslaving Chapter 13 process of indefinite length; but it does not count months in which payments are not made, unless cause would require otherwise.2 Moreover, this conclusion is consistent with the Supreme Court’s rejection of the mechanical approach to determining projected disposable income under § 1325 in favor of a forward-looking approach based upon the number of months in a debtor’s applicable commitment period. See Hamilton v. Lanning, — U.S.-, 130 S.Ct. 2464, 177 L.Ed.2d 23 (2010).
In the Eighth Circuit, “applicable commitment period” is understood to be a “temporal” requirement when the debtor has actual projected disposable income:
[T]he “applicable commitment period” is logically a temporal requirement that does not lead to anomalous or absurd results. [FN6] See [In re] Nance, 371 B.R. [358] at 370 [ (Bankr.S.D.Ill.2007) ] (citing H.R.Rep. No. 109-31, pt. I (2005), as reprinted in 2005 U.S.C.C.A.N. p. 88, *523146, for the proposition that Congress intended the “applicable commitment period” to provide a certain duration length to Chapter 13 plans and noting that there is no evidence that Congress intended to change the minimum plan length requirement in the pre-BAPCPA version of 11 U.S.C. § 1325(b)(1)(B)); [In re] Slusher, 359 B.R. [290] at 301 [ (Bankr.D.Nev.2007) ] (defining the terms “applicable,” “commitment,” and “period,” and concluding that the phrase “applicable commitment period” indicates a minimum plan length); [In re] Casey, 356 B.R. [519] at 527-28 [ (Bankr.E.D.Wash.2006) ] (applying the “applicable commitment period” as a temporal requirement); In re Schanuth, 342 B.R. 601, 606-08 (Bankr.W.D.Mo.2006) (“applicable commitment period” is a temporal requirement which must be satisfied unless the plan provides for payment in full of all allowed unsecured claims).
See In re Frederickson, 545 F.3d 652, 660 (8th Cir.2008).
To allow Zellmer to confirm the amended plan as proposed presents the same problem occasioned by debtors who would, post-confirmation, seek to “pay off’ their Chapter 13 plans with proceeds realized post-confirmation as a result typically of an exempt asset. It would allow evasion of the minimum plan length mandated by the statutory applicable commitment period. “Congress specifically addressed the issue of early pay outs in § 1325(b)(4)(B) by expressly conditioning shorter plans on full repayment of all unsecured claims during that shorter time period.” See In re Kidd, 374 B.R. 277, 281 (Bankr.D.Kan.2007). “By its very terms ... § 1325(b) does not allow a debtor to propose a plan that will allow the debtor to pay off a plan early, and receive a discharge before the expiration of the applicable commitment period, unless all unsecured claims are paid in full.” Id.
“[T]he ‘applicable commitment period’ clearly defined by Congress in § 1325(b)(4)(A) is a temporal yard stick for Chapter 13 plans.” Id. “It does not provide that a finite dollar amount must be paid to creditors and then, once that amount is paid, debtors can complete their Chapter 13 plans and receive their discharge.” Id. “Instead, it clearly provides the time period over which payments must be made.” Id. (emphasis added).3 For Zellmer, the time period over which payments must be made is thirty-six months. The months during which the case was active but payments were not made do not run against the applicable commitment period.
The operative question, therefore, is cause. “It has long been recognized in this district that the proponent of a modification of a plan in a Chapter 13 case must demonstrate some form of ‘cause’ for the modification, in anticipation of objection from parties that would be adversely affected by the approval and administration of the modification.” See In re Savage, 426 B.R. 320, 324 (Bankr.D.Minn.2010), citing In re Guernsey, 189 B.R. 477, 481-482 (Bankr.D.Minn.1995). *524“Any modification that would reduce a debtor’s payment obligations and creditors’ distribution rights must be supported by a material, adverse change in the debtor’s financial circumstances, that took place after the confirmation of the original plan.” Savage, 426 B.R. at 324, citing In ve Nelson, 189 B.R. 748, 751 (Bankr.D.Minn.1995); In re Debing, 202 B.R. 291, 293 (Bankr.D.Minn.1996).
“Of necessity, the required change in financial circumstances should be directly resonant with the nature of the proposed modification.” Savage, 426 B.R. at 324, noting the “good faith” requirement of 11 U.S.C. § 1325(a)(3) made applicable to modification of a plan by § 1329(b)(1). “[T]he original confirmed plan is deemed to reflect the outside boundaries of the debtor’s most stable and predictable financial means.” Savage, 426 B.R. at 324. “[A] reduction in a debtor’s ability to make payment should, de facto, be of a sort to prevent him from following through with the established commitments under his confirmed plan, which otherwise would be binding for so long as he would be in Chapter 13.” Id.
“Maintaining the integrity of confirmed plans is an important part of the Chapter 13 process.” Guernsey, 189 B.R. at 482. “[E]ven more strongly post-BAPC-PA than before, to merit approval of a proposed modification, the characteristics of the changed circumstances must extend to the boundaries of the payment obligations established by the original, confirmed plan, including the mandated duration of the applicable commitment period.” Savage, 426 B.R. at 324. See also In re Grutsch, 453 B.R. 420, 427-428 (Bankr.D.Kansas 2011) (length of Chapter 13 plan is res judicata upon confirmation, subject to change only upon a significant change in circumstances of the debtor, and there was no evidence that the debtor would be unable to continue making the modified reduced payments for the full length of the original plan).
“[U]nder § 1329(b), a modified plan must still meet, inter alia, § 1325(a)(3)’s good faith test.” See In re Clevenger, 430 B.R. 539, 542 (Bankr.W.D.Mo.2009) (citations omitted). “In the Eighth Circuit, ‘good faith’ analysis under § 1325(a)(3) is focused on ‘whether the plan constitutes an abuse of the provisions, purpose or spirit of Chapter 13.’ ” Id. at 543. “This requires looking to the totality of the circumstances to discern whether good faith exists.” Id. “Following the enactment of § 1325(b), the Eighth Circuit concluded that [§ 1325(b)] ... narrowed the focus to one which depends on ‘whether the debtor has stated his debts and expenses accurately; whether he has made any fraudulent representation to mislead the bankruptcy court; or whether he has unfairly manipulated the Bankruptcy Code.’ ” Id.
“[I]t is contrary to the spirit of Chapter 13 to permit [debtors] to seize upon a ... change in circumstances to avoid § 1325(b)’s applicable commitment period, particularly given ‘the clear congressional intent of BAPCPA, which was enacted to ensure that debtors repay creditors the maximum they can afford.’ ” Id. (citations omitted). “A sincere effort to repay creditors is a hallmark of good faith, which is a requirement of plan modification by virtue of the incorporation of § 1325(a)(3) into § 1329.” Id., citing In re Gengenbach, 2008 WL 1767061 (Bankr.D.Neb.2008).
By his own admission, Zellmer has not suffered an ongoing substantial change in circumstances that precludes completion of the applicable commitment period of thirty-six months of payments. Indeed, the proposed plan is based upon his actual *525available projected disposable income, based upon the adjusted expenses resulting from a reasonable and unavoidable change of circumstances, to support the proposed reduced plan payments, to which the Trustee does not object.
But, the plan proposes to limit total payments to thirty-one months, thereby melting down the overall final percentage distribution to unsecured creditors. Proposing a meltdown post-confirmation modified plan, and exacerbating the decreased distribution by reducing the total number of plan payments to less than the original applicable commitment term, without cause, is an attempt to unfairly manipulate the provisions of the Bankruptcy Code.
While Zellmer has documented an unanticipated substantial change in circumstances affecting his ability to proceed with payments as required under the terms of the original Chapter 13 plan, that does not warrant a reduction in the plan’s duration. There is no cause why Zellmer cannot cure the default of the applicable commitment period by extending the post-confirmation modified plan by five additional months. While the reduction in the amount of each plan payment is reasonable, Zellmer’s good faith is called into question by his willingness to enjoy the benefits of Chapter 13 without contributing his projected disposable income by making the full thirty-six payments of the commitment term.
III. DISPOSITION
IT IS HEREBY ORDERED:
1. The Chapter 13 Trustee’s objection to confirmation is SUSTAINED;
2. Confirmation of the debtor’s proposed modified plan identified as “1st Post-Confirmation Chapter 13 Plan” filed on July 14, 2011, docket entry 26, is DENIED; and
3.The Chapter 13 Trustee’s motion to dismiss or convert shall be continued to the March 2012 confirmation calendar to allow the debtor an opportunity to file a confirmable second amended post-confirmation proposed Chapter 13 plan.
. Even if the section did not include “beginning on the date that the first payment is due,” the "applicable commitment period” is still inherently based upon a number of payments of disposable income as calculated at the beginning of the Chapter 13 process, not upon the length of an open Chapter 13 case.
. But see, In re Howell, 76 B.R. 793 (Bankr.D.Or.1986) (post-confirmation allowed even though, due to default in payments under original plan, amended plan would result in debtor making fewer than 36 payments).
. But see, Kidd, 374 B.R. at 282, citing In re Ewers, 366 B.R. 139, 143-144 (Bankr.D.Nev.2007): Section 1329 "does not prohibit a modified plan from providing for payment over a shorter period of time. Therefore, debtors are not precluded from seeking a good faith modification of a confirmed plan to shorten the amount of time the plan must run, provided they file a proper motion, under § 1329, showing that there has been a sufficient change in circumstances to warrant such a modification of the plan, and that the modification is filed in good faith.” In this case, there is no cause for Zellmer to avoid making a full 36 payments pursuant to the applicable commitment period. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494601/ | MEMORANDUM OF DECISION
RALPH B. KIRSCHER, Bankruptcy Judge.
Pending in this Chapter 13 case is the Debtors’ Objection (Docket No. 81) to the secured claim asserted on Proof of Claim No. 15 filed by Gail H. Goheen, P.C. (“Go-heen”) based on a statutory attorney’s lien claimed under MONT. CODE ANN. (“MCA”) § 37-61-420, and on confirmation 1 of Debtors’ Second Amended Chapter 13 Plan (“Plan”) (Dkt. 65). The Chapter 13 Trustee objects to confirmation on the grounds the Plan does not provide for Goheen’s secured claim as required under 11 U.S.C. § 1325(a)(5). Debtors’ Objection requests that the Court disallow Go-heen’s secured claim and allow Claim 15 as an unsecured nonpriority claim, without prejudice to Goheen’s ability to assert the lien against property awarded to Debtor Jody J. Haacke (“Jody”) which is not committed to the Plan. After a hearing on these matters and review of parties’ pleadings and applicable law, the Court overrules Debtors’ Objection to Goheen’s secured claim under 11 U.S.C. § 502(b), and on procedural grounds for Debtors’ failure to commence an adversary proceeding to determine the validity and extent of Go-heen’s lien under F.R.B.P. Rule 7001(2) which provides that an adversary proceeding is “a proceeding to determine the validity, priority, or extent of a lien.... ” Because Debtors’ Objection is overruled confirmation of their Plan must be denied, and Debtors are granted a limited period of time to file a further amended plan and other proceedings to bring this matter to a conclusion.
*566Hearing on these matters was held at Missoula on November 10, 2011. Debtors were represented at the hearing by attorney Harold V. Dye (“Dye”) of Missoula. Goheen appeared pro se. No testimony or exhibits were admitted. The Court heard argument of counsel, and at the conclusion of the argument the Court took the matter under advisement.
This Court has exclusive jurisdiction of this case under 28 U.S.C. § 1334(a). These contested matters are core proceedings concerning allowance or disallowance of claims against the estate and confirmation of a plan under 28 U.S.C. § 157(b)(2)(B) and (L).
FACTS
The facts are not in dispute, and the parties agree that the Objection to Go-heen’s secured claim is a matter of law. Goheen represented Debtor Jody J. Haacke (“Jody”) in the parties’ divorce case until Goheen withdrew. There has been no decree of dissolution entered in the divorce case, and thus there has been no division of marital property. Goheen claims an attorney’s charging lien against the marital property pursuant to MCA § 37-61-420(2). Although no division of marital property has occurred in the divorce case, Dye agreed with the Court at the hearing that Goheen may still be secured depending on the division of assets.
Debtors filed their joint Chapter 13 petition on December 14, 2010, and filed their Schedules and Statement of Financial Affairs on January 5, 2011. Debtors list two homes in Hamilton and Corvallis, Montana, both of which are jointly owned and both of which Debtors claim homestead exemptions. Personal property is mostly owned by one or the other of the Debtors. Goheen is listed on Schedule F as a creditor holding an unsecured nonpriority claim against Jody in the amount of $29,232.14.
Schedule I shows that both Debtors are employed and earn income for payment under a Chapter 13 plan. The Statement of Financial Affairs lists the parties divorce case in Ravalli County, Montana, Cause No. DR-08-18 which has been pending since 2008. The parties agreed at the hearing that no decree and property division has been entered in the divorce case, but otherwise no explanation was given regarding the status of the divorce and the delay.
Goheen filed Proof of Claim No. 15 on April 12, 2011. Claim 15 asserts a claim in the amount of $28,965.13 secured by a statutory attorney lien on property valued at $986,500.00. The attachment to Claim 15 provides an itemized accounting. Debtors filed their Objection to Goheen’s secured claim on August 9, 2011, on the grounds that Jody has not been awarded anything in the divorce, and that Claim 15 extends to Ricky Haacke’s interest in the marital property.
Debtors’ amended plan was confirmed, but the Chapter 13 Trustee filed a motion to vacate confirmation, in part because of Goheen’s secured claim which was not provided for as required by § 1325(a)(5). Confirmation was vacated with the Debtors’ consent. Debtors’ Second Amended Plan continues to omit any provision for Go-heen’s secured claim.
DISCUSSION
No contention arises that Goheen’s Proof of Claim No. 15 was not filed in accordance with F.R.B.P. Rules 3001 or 3002. Under Rule 3001(f), a proof of claim executed and filed in accordance with the rules “shall constitute prima facie evidence of the validity and amount of the claim.” The Ninth Circuit Bankruptcy Appellate Panel (“BAP”) in Litton Loan Servicing, LP v. Garvida (In re Garvida), 347 B.R. *567697, 706-07 (9th Cir. BAP 2006), discussed clarification provided by the United States Supreme Court decision Raleigh v. Ill. Dep’t of Revenue, 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000), regarding the “prima facie evidence” language in Rule 3001(f):
The Supreme Court has clarified that the Rule 3001(f) “prima facie evidence” language does not address the burden of proof in an objection to claim proceeding. Raleigh, 530 U.S. at 22 n. 2, 120 S.Ct. 1951.
It follows that, after Raleigh, Rule 3001(f) cannot be construed as allocating the burden of proof and, instead, operates merely as an evidentiary presumption that is rebuttable.
The evidentiary presumption of a pri-ma facie case operates to shift the burden of going forward but not the burden of proof. [Garner v. Shier (In re Garner), 246 B.R. 617, 622 (9th Cir. BAP 2000) ]; Diamant v. Rasparian (In re So. Cal. Plastics, Inc.), 165 F.3d 1243, 1248 (9th Cir.1999) (although the creditor bears the ultimate burden of persuasion, the debtor must come forward with evidence to rebut the presumption of validity); 9 [COLLIER ON BANKRUPTCY ¶ 3007.01[1] (Alan N. Resnick & Henry J. Sommer eds. 15th ed. rev. 2006) ] (“once this burden of going forward to overcome the presumption is met, the ultimate burden is on the claimant”). Hence, at best, Litton’s $33,435.46 proof of claim was entitled to the Rule 3001(f) evidentiary presumption, which is capable of being rebutted.
Assuming, without deciding, that the evidentiary presumption did apply, the mechanics of what it takes to rebut the Rule 3001(f) presumption are driven by the nature of the presumption as “prima facie” evidence of the claims validity and amount. Garner, 245 [246] B.R. at 621-22. The proof of claim is more than “some” evidence; it is, unless rebutted, “prima facie” evidence. Id. One rebuts evidence with counter-evidence. Id.
347 B.R. at 706-07.
The burden to overcome the prima facie presumption under Rule 3001(f) is on the Debtors. In Garvida the objecting debtors satisfied their burden of going forward by proferring evidence at a hearing proving they made payments, and as a result the burden shifted to the creditor to prove the validity and amount of its claim, which it failed when it failed to provide an accounting. 347 B.R. at 702, 707. In the instant case the Debtors offered no evidence at the hearing on their Objection to Goheen’s claim, other than the agreed fact that no decree has been interest in their divorce case, which commenced in 2008.
Debtors argue that since no decree has been entered no legal basis exists for Go-heen to claim an attorney lien on Ricky Haacke’s interest in marital property. Go-heen argues that her attorney lien claimed under MCA § 37-61-420(2) attached from the commencement of the Debtors’ divorce case, and that since they chose to file this joint Chapter 13 case her lien attaches to the entirety of their undivided interest in the estate property.
This Court does not decide the extent of Goheen’s lien in the instant contested matter because the Debtors have not followed proper procedure. Under Rule 7001(2), an adversary proceeding is required to determine the validity, priority or extent of a lien or other interest in property. Debtors’ Objection is not an adversary proceeding, and thus the validity and extent of Goheen’s attorney lien is not before the Court in the manner required by the Rule. Further, Debtor’s Objection states that it is filed pursuant to Rule 3007. Rule 3007(b), F.R.B.P., provides:
*568DEMAND FOR RELIEF REQUIRING AN ADVERSARY PROCEEDING. A party in interest shall not include a demand for relief of a kind specified in Rule 7001 in an objection to the allowance of a claim, but may include the objection in an adversary proceeding.
Because of this procedural defect, Debtors’ Objection is overruled to the extent it seeks a determination of the validity or extent of Goheen’s attorney lien.
Turning to the attorney lien statute, this Court In re O’Connell, 167 B.R. 928, 929-30 (Bankr.D.Mont.1994) construed Montana’s attorney charging lien statute:
Montana has provided under § 37-61-420 as follows:
Judgment Lien for Compensation. (1) the compensation of an attorney and counsel for his services is governed by agreement, express or implied, which is not restrained by law.
(2) from the commencement of an action or the service[s] of an answer containing a counterclaim, the attorney who appears for a party has a lien upon the client’s cause of action or counterclaim which attaches to a verdict, report, decision or judgment in his client’s favor and the proceeds thereof in whose hands they may come. Such lien cannot be affected by any settlement between the parties before or after judgment.
The language of [§ ] 37-61-420(2) was slightly amended in 2009 to read:
(2) from the commencement of an action or the service of an answer containing a counterclaim, the attorney who appears for a party has a lien upon the client’s cause of action or counterclaim which attaches to a verdict, report, decision or judgment in his client’s favor and the proceeds of the action or counterclaim. The lien cannot be affected by any settlement between the parties before or after judgment.
The Court surveyed case law in Montana and other jurisdictions construing similar attorney’s charging lien statutes. O’Connell, 167 B.R. at 929. The Court summarized the Montana cases interpreting § 37-61-420 as follows:
Section 37-61-420 is a codification of the common law attorney’s charging lien which operates as an equitable lien against the client’s cause of action, and attaches from the date of the action or counterclaim. The lien attaches to the results of the litigation, which in the present case is the real property awarded the Debtor by the divorce court.
167 B.R. at 930.
The instant case is distinguishable factually from O’Connell in that the Haackes’ divorce is not final, and no property division or final decree has been entered by the divorce court. On the other hand the instant case is similar in that Goheen and the attorney claiming the charging lien in O’Connell each invoked the provisions of § 37-61-420. O’Connell, 167 B.R. at 931. The Court concluded that § 37-61-420 creates a statutory lien which cannot be avoided as a judicial lien under 11 U.S.C. § 522(f)(1). Id. In footnote 6, the Court specified that it did not decide any issue as to the validity or amount of the attorney’s secured claim. Id., n. 6.
Allowance of Goheen’s claim is governed by 11 U.S.C. § 502. Section 502(a) provides that a proof of claim which is filed under section 501 is deemed allowed unless a party in interest objects. Section 502(a) provides that a “claim or interest, proof of which is filed under section 501 of this title, is deemed allowed, unless a party in interest, ..., objects.” Rein v. Providian Financial Corp., 270 F.3d 895, 900 n. 6 (9th Cir.2001). Section 502(b) provides in pertinent part:
*569[I]f such objection to a claim is made, the court, after notice and a hearing, shall determine the amount of such claim in lawful currency of the Unites States as of the date of the filing of the petition, and shall allow such claim in such amount, except to the extent that—
(1) such claim is unenforceable against the debtor and property of the debtor, under any agreement or applicable law for a reason other than because such claim is contingent or un-matured;
(2) such claim is for unmatured interest;
(3) if such claim is for a tax assessed against property of the estate, such claim exceeds the value of the interest of the estate in such property;
(4) is such claim is for services of an insider or attorney of the debtor, such claim exceeds the reasonable value of such services;
(5) such claim is for a debt that is unmatured on the date of the filing of the petition and that is excepted from discharge under section 523(a)(5) of this title;
(6) if such claim is the claim of a lessor for damages resulting from the termination of a lease of real property, such claim exceeds—
(A) the rent reserved by such lease, without acceleration, for the greater of one year, or 15 percent, not to exceed three years, of the remaining term of such lease, following the earlier of—
(i) the date of the filing of the petition; and
(ii) the date on which such lessor repossessed, or the lessee surrendered, the leased property; plus
(B) any unpaid rent due under such lease, without acceleration, on the earlier of such dates[J
In determining allowance of claims, the Court “must find a basis in section 502 to disallow a claim, and absent such basis, we must allow it.” In re SNTL Corp., 571 F.3d 826, 838 (2009); In re Rodriguez, 375 B.R. 535, 545 (9th Cir. BAP 2007), citing Travelers Cas. & Sur. Co. of America v. Pacific Gas & Elec. Co., 549 U.S. 443, 452, 127 S.Ct. 1199, 1206, 167 L.Ed.2d 178 (2007) (“we generally presume that claims enforceable under applicable state law will be allowed unless they are expressly disallowed. See 11 U.S.C. § 502(b).”)
The Debtor contends that Go-heen’s lien cannot attach because no decree has been entered in the divorce case awarding property to which Goheen’s lien may attach. Montana cases construing the attorney lien do not support the Debtors’ contention. Montana case law provides that the attorney lien fixes on a client’s cause of action “even though the cause of action is ‘an intangible, incorporeal something’....” O’Connell, 167 B.R. at 931, quoting Baker v. Tullock, 106 Mont. 375, 77 P.2d 1035, 1036 (1938). Goheen having invoked MCA § 37-61-420, it matters neither that no award of marital property has been made, nor that a divorce decree has not been entered in Haacke’s divorce. Id. An attorney may assert such a lien either prior to judgment or after a judgment has been obtained. St. Peter & Warren, P.C. v. Purdom, 2006 MT 172, ¶ 17, 333 Mont. 9, ¶ 17, 140 P.3d 478, ¶ 17; Bekkedahl v. McKittrick, 2002 MT 250, ¶ 16, 312 Mont. 156, ¶ 16, 58 P.3d 175, ¶ 16.
Since the divorce action has commenced, and Goheen has invoked her attorney lien under MCA § 37-61-420(2), and Debtors have not identified an express provision of 11 U.S.C. § 502(b) under which the Court may disallow Goheen’s claim, Goheen’s Claim 15 must be allowed under § 502(b). Rodriguez, 375 B.R. at 545; Travelers, 549 U.S. at 452, 127 S.Ct. at 1206.
*570Based upon Debtors’ failure to show that Goheen’s claim should be disallowed under 11 U.S.C. § 502(b), and improper procedure, the Court overrules Debtors’ Objection to Goheen’s Proof of Claim 15. With their Objection overruled, the Chapter 13 Trustee’s objection to confirmation of Debtors’ Second Amended Plan must be sustained and confirmation denied since that Plan makes no provision for Goheen’s secured claim as required by § 1325(a)(5).
Denial of confirmation of a plan under § 1325 and denial of a request by a debtor for additional time for filing another plan is a listed “cause” for dismissal of a case, or for conversion to a case under Chapter 7, whichever is in the best interests of creditors and the estate. 11 U.S.C. § 1307(c)(5). The Haackes’ divorce case has been pending since 2008, and this Chapter 13 case has been pending for more than a year, and no Plan has been confirmed. It is neither this Court’s job to propose a plan for the Debtors, nor its job to suggest the Debtors’ next step. However, Debtors’ failure to provide for Goheen’s allowed secured claim in their Plan, and the absence of any evidence or explanation of what steps they are taking towards completion of their divorce and division of marital property to which Goheen’s lien would attach, persuade this Court to impose a deadline to show progress. Otherwise the case will be dismissed or converted to Chapter 7 and a trustee appointed to administer this case.
CONCLUSIONS OF LAW
1. This Court has exclusive jurisdiction of this case under 28 U.S.C. § 1334(a).
2. This contested matter is a core proceeding concerning allowance or disallowance of claims against the estate and confirmation of a plan under 28 U.S.C. § 157(b)(2)(B) and (L).
3. A proceeding to determine the validity or extent of Goheen’s statutory lien requires an adversary proceeding. F.R.B.P. 7001(2).
4. Debtors failed to show Goheen’s claim is unenforceable under applicable law for a reason other than because her claim is contingent or unmatured, and therefore the Court “shall allow such claim” under 11 U.S.C. § 502(b).
5. Debtors’ Second Amended Plan fails to provide for Goheen’s Proof of Claim No. 15 as required for confirmation under 11 U.S.C. § 1325(a)(5).
IT IS ORDERED a separate Order shall be entered overruling Debtors’ Objection to Goheen’s Proof of Claim, and denying confirmation of Debtors’ Second Amended Chapter 13 Plan. Debtors will be granted a period of 14 days to file a further amended Plan or other appropriate pleading, or this case will be dismissed or converted to a case under Chapter 7 without further notice or hearing.
. Confirmation of Debtors’ Plan was vacated by Order entered on June 6, 2011, wn.ii the Debtors' consent. Debtors were granted time to file an amended Plan. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494602/ | MEMORANDUM OPINION
ELIZABETH PERRIS, Bankruptcy Judge.
Plaintiff, the trustee in this Chapter 71 bankruptcy ease, filed this complaint to recover as preferential transfers $19,885,728.12 that debtor Cascade Grain Products, LLC (“debtor”), paid to defendants 2 within 90 days before bankruptcy. Defendants move for summary judgment, arguing that all transfers were settlement payments on account of forward contracts *572and therefore not subject to recovery as preferences under § 546(e).3
FACTS
Before it filed bankruptcy, debtor, an ethanol producer, entered into a number of contracts with defendants for the shipment of corn to be used in the production of ethanol. Pursuant to those contracts, defendants shipped corn to debtor and issued invoices, which debtor paid. Overpay-ments and underpayments were netted out. Within the 90 days before bankruptcy, debtor made payments to defendants totaling $19,885,728.12.
The contracts called for shipment within a window of time. In four of the contracts, the shipment window commenced on the same date as the date of the contract. Each of those four contracts included a delivery term of “Del PNW,” which the parties agree means that the contracts are “delivered contracts” as that term is used in the National Feed and Grain Association’s Rule 6.
The trustee seeks to recover the payments made within 90 days before bankruptcy as preferences pursuant to § 547(b).
Defendants do not dispute that the payments fit the requirements for a preferential transfer under § 547(b).4 They argue, however, that they are entitled to summary judgment because they have a complete defense to recovery of the transfers under § 546(e).
DISCUSSION
The court shall grant summary judgment if there are no genuine disputes about material facts and the moving party is entitled to judgment as a matter of law. Fed. R. Bankr.P. 7056; Fed.R.Civ.P. 56(a). There are no disputes about material facts, therefore the question here is whether defendants are entitled to judgment as a matter of law.
Section 546(e) provides, as relevant, that the trustee may not avoid a transfer if it is a settlement payment made to a forward contract merchant in connection with a forward contract. The trustee does not dispute that the payments were settlement payments, that defendants are forward contract merchants, or that a number of the contracts were forward contracts. He does, however, dispute that four of the contracts were forward contracts that are protected by § 546(e).5
*573The Bankruptcy Code defines a “forward contract” as
a contract ... for the purchase, sale, or transfer of a commodity, ... with, a maturity date more than two days after the date the contract is entered intofj
§ 101(25)(A) (emphasis supplied). The trustee argues that the contracts at issue had a maturity date that is less than two days after the contract was entered into, and so are not forward contracts protected by § 546(e). He calculates the total payments made on those contracts to equal $10,543,628.72.
The trustee’s argument is based on the fact that each of the contracts at issue provides for shipment of corn within a window of time commencing on the same date as the date of the contract. For example, Contract No. 57234 is dated October 24, 2008, and calls for shipment of corn between October 24, 2008 and October 31, 2008. Because the shipment window commenced on the same date as the contracts, the trustee argues that the contracts matured less than two days after the contracts were entered into and therefore are not forward contracts. In other words, he views “maturity” as the date on which defendants’ performance could commence.
Defendants argue that the date of maturity is not the first date in the window for shipment, but instead is the last date on which performance can occur under the contract.6 The question is not, they argue, whether the contract could be performed within two days of the contract date, but instead whether performance is due within two days of the contract date.
The dispute distills to what is meant by “maturity date” in § 101(25)(A). Although the Bankruptcy Code defines “forward contract,” it does so in part by using the term “maturity date,” which it does not define.
In determining the meaning of “maturity date” as used in the definition of “forward contract” in § 101(25)(A), the court will look at the ordinary meaning of the term. See Ransom v. FIA Card Servs., N.A., — U.S.-, 131 S.Ct. 716, 724, 178 L.Ed.2d 603 (2011). In the context of commercial law, the date of maturity is “[t]he date when a debt falls due, such as a debt on a promissory note or bond.” Black’s Law Dictionary 452 (9th ed. 2009). An obligation is “due” when it is “[immediately enforceable” or “[o]wing and payable.” Id. at 574.
Courts that have looked at the question of “maturity date” for purposes of § 546(e) and § 101(25)(A) have come to different conclusions about the meaning of the term. In In re Mirant Corp., 310 B.R. 548, 565 n. 26 (Bankr.N.D.Tex.2004), for example, the court said that “[t]he term ‘maturity’ suggests a single date.” It concluded, however, “that ‘maturity’ means the due date for commencement of performance!,]” rejecting the Blade's Law Dictionary definition because it defines the term “solely in terms of a promissory note.” Id. Looking to the legislative history of § 101(25), the court noted that Congress contemplated a series of transactions, thereby supporting its conclusion that there could be numer*574ous maturity dates, or due dates for commencement of performance, for a single contract.
The most recent case to have addressed the issue is In re Renew Energy LLC, 2011 WL 3793157 (Bankr.W.D.Wis. Aug. 24, 2011), which was a preference action to recover payments made by an ethanol plant to a natural gas company. The payments related to three contracts, each of which, as in this case, provided a window of time for performance. The court noted that no court had, as yet, explicitly defined “maturity date.” Id. at *4. It rejected reliance on cases, such as Lightfoot v. MXEnergy, Inc., 2011 WL 1899764, *4 (E.D.La. May 19, 2011), that say that the date of the first delivery is the maturity date, because in Lightfoot there was no dispute that the first date of delivery was outside the two-day period. “In the absence of any helpful definition in the Bankruptcy Code or the Uniform Commercial Code,” the court said, the common sense or usage
definition of “maturity date” is the date that all other obligations under the contract have been performed, and nothing else need be done except tender payment. Common usage in the context of forward contracts suggests that it refers to the date on which delivery has occurred and payment to “settle” is due. The word “mature,” used in § 101(25A), suggests a single date and meant [sic] the “due date for commencement of performance,” but Congress did not intend to restrict the number of times a forward contract can mature.
Renew Energy, at 480.
In Renew Energy, the court looked at the actual delivery dates, and concluded that the contract under which delivery was actually made within two days of contracting was not a forward contract within the safe harbor of § 546(e).
In support of his argument that “maturity date” means the date on which performance could commence, the trustee relies on cases that say that a forward contract must require delivery more than two days after the date of the contract. See, e.g., In re Nat’l Gas Distribs., LLC, 556 F.3d 247 (4th Cir.2009); In re MBS Mgmt. Servs., Inc., 432 B.R. 570 (Bankr.E.D.La.2010), aff'd, 2011 WL 1899764 (E.D.La. May 19, 2011); In re Borden Chemicals and Plastics Operating Ltd. P’ship, 336 B.R. 214 (Bankr.D.Del.2006); Mirant Corp., 310 B.R. 548. Those authorities are not helpful, because in those cases there was no dispute that the initial delivery was due more than two days after the contract was entered into.
Therefore, I am not convinced by the trustee’s authorities that .“maturity date” means the earliest date on which performance may occur, in other words, that the seller could (but was not required to) perform within two days of the contract. Because the ordinary meaning of the term does not help in determining whether the contracts at issue here are forward contracts, I turn to the purpose behind the safe harbor provision, which is to protect the financial markets “from the destabilizing effects of bankruptcy proceedings for parties to specified commodities and financial contracts[.]” Nat’l Gas Distribs., 556 F.3d at 252. Relying on the legislative history, the court in Nat’l Gas Distribs. recognized that Congress was concerned that, “[b]ecause financial markets can change significantly in a matter of days, or even hours, a non-bankrupt party to ongoing securities and other financial transactions could face heavy losses unless the transactions are resolved promptly and with finality.” Id. at 253 (quoting H.R.Rep. No. 101-484, at 2 (1990), 1990 U.S.C.C.A.N. 223, 224).
*575The primary purpose of a forward contract is to hedge against possible fluctuations in the price of a commodity. This purpose is financial and risk-shifting in nature, as opposed to the primary purpose of an ordinary commodity contract, which is to arrange for the purchase and sale of the commodity.
H.R.Rep. No. 101-484, at 3 (1990), 1990 U.S.C.C.A.N. 223 at 226.
Given that Congress sought to protect payments under the type of price-hedging contracts that are known in the financial markets as forward contracts, the interpretation of “maturity date” as used in the definition of forward contracts in the Bankruptcy Code should conform with the usage of the term in the financial markets.
The common meaning of “forward contract” is “ ‘a privately negotiated investment contract in which a buyer commits to purchase something (as a quantity of a commodity, security, or currency) at a predetermined price on a set future date.’ ” Nat’l Gas Distribs., 556 F.3d at 260 (quoting Merriamr-Webster’s Dictionary of Law (contract)).
[A] forward commodity contract, in being “forward,” must require a payment for the commodity at a price fixed at the time of contracting for delivery more than two days after the date the contract is entered into. A maturity date in the future means that the benefit or detriment from the contract depends on future fluctuations in the market price of the commodity.
Id. (citations omitted).
The term “maturity date” is variously described in the financial markets as “[t]he future date at which the commodity must be bought or sold[,]” www.oneview.mercer. ie/pages/1390620 (last visited on Oct. 27, 2011); or the “[p]eriod within which a futures contract can be settled by delivery of the actual commodity,” www.cftc.gov/ ConsumerProteetion/EducationCenter/ CFTCGlossary/glossary_f.html (last visited on Oct. 26, 2011).7 One of the defining characteristics of forward contracts in the financial markets is that they are hedges against fluctuations in the price of commodities, in that they are contracts for a set price for delivery sometime in the future. See Commodity Futures Trading Comm’n v. Erskine, 512 F.3d 309, 324—25 (6th Cir.2008) (compiling definitions of “forward contract” from industry sources).
In light of the hedging component of forward contracts, I conclude that “maturity date,” as used in the definition of “forward contract” in § 101(25), means the future date at which the commodity must be bought or sold. That is the date on which the benefit or detriment will be realized, depending on the market price, which is the date when ownership and risk of loss passes to the buyer. That is the date on which the buyer’s obligation to pay matures, locking in the benefit or detriment of the contract.
The contracts in this case did not call for delivery on any particular date; they called for shipments within particular windows of time. The contracts at issue used the delivery term “Del PNW,” which the parties agree means that they were “delivered contracts” as that term is used in the National Feed and Grain Associa*576tion’s Rule 6. Rule 6 provides that, for delivered contracts transported by rail, title and the risk of loss pass to the buyer “when the conveyance is constructively placed or otherwise made available at the Buyer’s original destination.” www.ngfa. org/files//misc/2011_Grain_Trade_Rules_ for_web.pdf (last visited Oct. 28, 2011).
Only one of the shipments for which the disputed payments were made was made within two days of the contract. None of the shipments was delivered within two days of the date of the contract. Ownership and risk of loss did not pass to debtor until delivery was made. Therefore, none of the contracts matured within two days of the contract.
I conclude that the four contracts at issue were forward contracts, because the dates on which debtor received the corn, giving rise to its obligation to pay, was more than two days after the dates of the contracts. Although shipments could have been made within two days after the contracts were entered into, no deliveries actually occurred within two days of the contract dates. These contracts are similar in every way to the other contracts between debtor and defendants, which the trustee concedes were forward contracts, except for the fact that the period during which shipment could occur commenced on the date of the contracts.
CONCLUSION
The contracts did not mature until delivery was made, which was more than two days after the date of the contracts. Therefore, the contracts were forward contracts, and § 546(e) precludes the trustee from avoiding the payments made to settle those contracts. Defendants are entitled to summary judgment as to all of the payments included in the complaint except for the one payment of $101,486.07, made on January 23, 2009, which defendants did not include in their motion for summary judgment.
Mr. Conway should prepare and submit the order.
. All chapter and section references in this Memorandum Opinion are to the Bankruptcy Code, 11 U.S.C. § 101 etseq.
. Defendants argue that debtor’s contracts at issue in this proceeding were with defendant Gavilon Grain, LLC, not Gavilon, LLC. Because I conclude that defendants are entitled to summary judgment on their forward contract theory, I need not address the issue of whether Gavilon, LLC is properly a defendant in this proceeding. My reference in this Memorandum Opinion to defendants in the plural is not intended to indicate any conclusion with regard to Gavilon, LLC.
. Defendants also argue that one of the transfers at issue was actually a prepayment and that defendants gave new value after the payments were made. I understand that the prepayment issue has been resolved. Because I agree with defendants about their forward contract defense, I need not address the new value defense.
. Section 547(b) allows a trustee to avoid as a preference any transfer of an interest of the debtor in property within 90 days before bankruptcy if it was to or for the benefit of a creditor on account of an antecedent debt, made while the debtor was insolvent, and that enabled the creditor to receive more than it would have received in a chapter 7 case had the transfer not been made.
.Although the trustee said in his brief that there are five contracts, he identifies only four: 57234 (McKittrick Declaration, Exh. 1), 57285 (McKittrick Declaration, Exh. 4), 57302 (McKittrick Declaration, Exh. 5), and 57355 (McKittrick Declaration, Exh. 8). In footnote 6 of the trustee's brief, he says that defendants have not identified to which contract the January 23, 2009, payment of $101,486.07 refers, and so it may refer to a non-forward contract.
At the hearing on this motion, the parties advised the court that they believe the $101,486 payment was either a repayment for ethanol or a repayment for an earlier refund. In any event, defendants clarified that this payment is not included in their summary judgment motion.
*573Because the trustee does not dispute that the contracts other than the four in dispute are forward contracts, the payments made on account of those contracts are not recoverable as preferences, and defendants are entitled to summary judgment as to those payments.
. Defendants argue that it is the last date on which delivery can be made under the contracts. However, the contracts do not actually provide any delivery dates. They provide for dates of shipment. I understand their argument to be that the contracts do not mature until the last date for performance.
. The difference between futures contracts and forward contracts is that futures contracts are standardized and traded on the exchange. Forward contracts are individualized, private contracts. The two types of contracts have the same function: to "allow people to buy or sell a specific type of asset at a specific time at a given price.” www. investopedia.com/ask/answers/06/forwards andfutures.asp#axzzlc5wP4yJg (last visited on Oct. 28, 2011). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494604/ | MEMORANDUM DECISION
WILLIAM T. THURMAN, Chief Judge.
The matter before the Court is Hidden Valley Heights Owners Association’s (“Hidden Valley”) Motion for Relief from Stay or in the Alternative, Motion for a Determination that the Stay Does Not Apply to PosL-Petition [sic] Debt (the “Mo*659tion”) against Andrew Jackson Colon and Brianna Suzanne Colon (the “Debtors”).
The Court conducted a hearing on the Motion on August 25, 2011. Jeffrey C. Wilcox appeared for Hidden Valley and Geoffrey Chesnut appeared for the Debtors. At the conclusion of the hearing, the Court took this matter under advisement to determine: (1) whether Hidden Valley’s postpetition homeowner’s association (“HOA”) assessments are excepted from the Debtors’ chapter 13 discharge under § 1328(a) by § 523(a)(16)1 and (2) whether Provision 16.1 of Hidden Valley’s Declaration of Covenants, Conditions, and Restrictions (“CC & Rs”) entitles either party to attorney’s fees and costs incurred in this action.
After careful review of the statutory authority, the case law, and the parties’ briefs and arguments, the Court issues the following Memorandum Decision, which will constitute its findings of fact and conclusions of law.
I. Jurisdiction and Venue
This Court has jurisdiction over the subject matter pursuant to 28 U.S.C. §§ 157 and 1334. This is a core proceeding within the meaning of 28 U.S.C. § 157(b)(2). Venue is appropriate under 28 U.S.C. § 1408. Notice of the hearing on this Motion is found to be appropriate and adequate.
II. Facts and Background
The Debtors purchased a townhome in St. George, Utah, in 2005 located at 3155 S. Hidden Valley Dr. # 186 (the “Property”). The Property is subject to the CC & Rs of Hidden Valley that are recorded with the Washington County Recorder. Around March 2009, the Debtors vacated the Property — approximately one year pri- or to filing bankruptcy.
The Debtors filed a chapter 13 bankruptcy petition on April 29, 2010 and listed the Property as real property on schedule A. On the amended schedule F filed July 20, 2010, the Debtors listed “Access Property Management, LLC” as a creditor2 with a claim of $4,072.65 as an obligation from “2009 HOA dues.”
Hidden Valley filed a proof of claim, claim number 16, on May 4, 2010, in the amount of $8,013.47 for unsecured HOA assessments. The invoice attached to Hidden Valley’s proof of claim states a balance of $5,866.32 and interest, late fees, and dues owing through April 2010 of $2,147.15.
The Debtors filed an amended chapter 13 Plan (the “Plan”) on July 20, 2010. In paragraph 9, entitled “Collateral Surrendered and Relief from the Automatic Stay,” the Plan states that the Debtors surrendered the Property to the secured creditor, “Countrywide/BAC Home Loans Servicing.” On October 14, 2010, the Court signed a Confirmation Order confirming the Debtors’ Plan.
On October 28, 2010 the successor in interest to BAC Home Loans filed a Motion for Relief of the Automatic Stay. No objections were filed and on November 28, 2010 the Court signed the order granting the Motion for Relief of the Automatic Stay. Almost one year later, however, the *660successor in interest to BAC Home Loans has yet to take action on the Property.
On June 7, 2011 Hidden Valley filed the Motion at issue. On July 7, 2011 the Court held a preliminary hearing and denied the Motion without prejudice to be submitted again for a final hearing. The Court scheduled and Hidden Valley gave notice of a final hearing. The Court conducted an evidentiary hearing on the matter on August 25, 2011, which gave rise to this Memorandum Decision.
III. Discussion
A. Position of the Parties
Hidden Valley brought the Motion seeking relief from the automatic stay under § 362(d)3 to pursue HOA assessments that accrued postpetition against the Debtors. Recognizing the split of authority concerning whether the automatic stay applies to postpetition HOA assessments, the Motion also sought, in the alternative, a declaratory judgment that postpetition HOA assessments are not subject to the automatic stay, and thus nondischargeable, in a chapter 13 bankruptcy case.
The main issue to explore in determining whether postpetition HOA assessments can be discharged is whether postpetition HOA assessments can be “provided for” under § 1328(a) in a chapter 13 plan.4 Hidden Valley does not dispute that the prepetition HOA assessments were provided for in the Plan when the Debtors listed Access Property Management, LLC as a creditor and provided the amount of the prepetition claim. However, Hidden Valley argues that the Debtors did not, and could not, provide for postpetition HOA assessments in the Plan because the post-petition assessments did not exist at the time of filing. Hidden Valley contends that to hold that the Debtors can provide for postpetition HOA assessments in a chapter 13 plan would permit homeowners to “shirk postpetition Association dues while still enjoying, at other homeowners’ expense, all the benefits and services provided by the Association.”5
The Debtors argue, on the other hand, that postpetition HOA assessments meet the definition of “debt” under § 101(12) and “claim” under § 101(5) and thus can be provided for in a chapter 13 plan and discharged. The Debtors contend that holding otherwise would mean that any debt which continues to accrue or that cannot be reduced to a definite sum would be classified as non-dischargeable because such debts cannot be “provided for” in a chapter 13 plan.
As an alternative counter argument, Hidden Valley argues that postpetition HOA assessments are covenants running with the land and therefore not subject to the Bankruptcy Code. Hidden Valley cites no Utah state law on point, but instead *661relies upon the Ninth Circuit Bankruptcy Appellate Panel (“BAP”) decision of Foster v. Double R Ranch Ass’n (In re Foster)6 that applied Washington state law to determine that the covenant to pay HOA dues is one that runs with the land and therefore may not be discharged in bankruptcy.
Conversely, the Debtors argue that the current situation is different from that in Foster because, here, the Debtors vacated the Property prior to filing bankruptcy, surrendered the Property to the secured creditor, and the Court granted a relief from stay to the secured creditor who has yet to foreclose. As such, the Debtors analogize the situation to property tax assessments, and argue that, even if a covenant runs with the land, then, as an owner of a property interest, Hidden Valley may seek the remedy of foreclosure.
B. Postpetition HOA Assessments are Provided For in the Debtor’s Chapter 13 Plan
The first issue is whether Hidden Valley’s postpetition HOA assessments are provided for in the Debtors’ Plan under § 1328(a). Prior to the 1994 and 2005 congressional amendments to § 523(a)(16), this Court held in In re Turner that a Debtor’s personal liability for postpetition HOA assessments was discharged in a chapter 7 bankruptcy.7 The Turner court stated that the HOA’s “postpetition assessments were merely the periodic maturing of [the HOA]’s prepetition claim and debt- or’s prepetition obligation, resulting in common expenses becoming due and payable.” 8
In addition, the court in Turner explained that “federal bankruptcy law, not state law, governs when a debt or claim arises for purposes of determining whether or not a debt is discharged ....”9 As pointed out in Turner, § 101 defines the term “debt” as a “liability on a claim.”10 In turn, “claim” is defined as “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 The Turner court concluded that postpetition HOA assessments are claims under the Bankruptcy Code, despite the fact that at the time of the plan’s confirmation they are not yet “fixed” or “matured” and remain “contingent.” 12
Hidden Valley claims that Turner was overruled by the congressional amendments to § 523(a)(16) undertaken in 1994 and 2005. The congressional amendments to § 523(a)(16) did supersede Turner’s contention that in a chapter 7 case, HOA postpetition assessments are non-dis-chargeable under § 727. However, the amendments did not disturb Turner’s contention that HOA postpetition assessments are “claims” under the Bankruptcy Code and thus subject to discharge.
The Court finds and concludes that the Debtors provided for the postpetition HOA dues in the Plan because postpetition HOA assessments meet the definition of *662“claim” under § 101(5) and “claims” can be provided for in chapter 13 plans.
C. Section 523(a) (16) Does Not Apply to Discharge under Section 1328(a)
The next issue is whether Hidden Valley’s postpetition HOA assessments are excepted from the discharge under § 1328(a) by § 523(a)(16). The discharge available under § 1328(a) lists exceptions to discharge and even lists several sections of § 52313 but not § 523(a)(16).14 In addition, according to the plain language of § 523(a), § 523 does not apply to discharges granted under § 1328(a).15 In contrast, the discharge available under § 1328(b) is subject to all of the subsections of § 523, so HOA assessments that become due postpetition are not dischargeable if the discharge obtained is under § 1328(b).
Despite Hidden Valley’s reliance on Foster, the Court finds that case is factually distinguishable from the current situation. The debtor in Foster attempted to remain in his home postpetition while simultaneously seeking to discharge both pre- and postpetition HOA assessments.16 The BAP stated that the issue was “[w]hether the bankruptcy court erred as a matter of law in concluding that HOA dues assessed and owed after the order for relief were not dischargeable as long as debtor continued to reside on the property.”17 The BAP further stated, “In essence, the ‘running’ covenant rule in this case boils down to one of ‘you stay, you pay’ since debtor’s confirmed plan indicates he will stay in his home by curing his prepetition default on his mortgage and maintain on-going payments through his confirmed Chapter 13 plan.”18 In noting that a chapter 13 discharge is broader than a discharge under chapter 7, the BAP “doubt[ed] the omission of § 1328(a) in 523(a)(16) or vice versa evinces a legislative intent to discharge postpetition HOA dues under § 1328(a) when the debtor uses the cure and maintenance provisions under chapter 13 to stay in his or her property after the order for relief.”19 This Court agrees that Con*663gress’ intent should not be inferred from omissions or anything other than the plain reading of the statutes. This Court is limited to interpreting the language of the statutes according to their plain meaning and applying those principles to the case at hand, which is factually quite different from the case in Foster.
In this case, the Debtors vacated the Property more than one year prior to filing bankruptcy. They have surrendered all rights in the Property to the secured lienholder and the Court has granted relief from the automatic stay to that lienholder, as such they find themselves in a real quagmire as the mortgage holder has not foreclosed.20
The Court also understands Hidden Valley’s conundrum. Hidden Valley’s duties to maintain the neighborhood for the benefit of homeowners continue, yet it is saddled with an empty property that is not paying dues for such purposes. Further, the first lienholder’s lack of foreclosure has put the HOA in a difficult position. However, the Debtors are not enjoying the benefits of the HOA and to hold Debtors liable for postpetition HOA dues when they no longer live at the Property and indeed have surrendered the Property to the secured lienholder is not only inequitable, but in contrast to the plain language of § 1328(a).
The Court does not address the issue of whether CC & Rs run with the land under Utah state law. Despite the fact that the Debtors are listed on the title to the Property, the Court finds that the Debtors have no consequential interest in the Property that measures up to rights to exercise ownership interests and control. Because the Court finds that postpetition HOA assessments are dischargeable under § 1328(a), Hidden Valley cannot pursue the Debtors for collection of those assessments and the stay should not be modified to allow the same.
D. Attorney’s Fees are Not Awarded under Provision 16.1 of the Hidden Valley CC & Rs
The Debtors indicated at the hearing on the Motion held on August 25, 2011 that if they are the prevailing party that they would seek attorney’s fees and costs under Provision 16.1 of the CC & Rs. State law must be considered with respect to this issue.21 As such, the Court must determine whether Provision 16.1 of the Hidden Valley CC & Rs applies to the current situation, where Hidden Valley’s attempt to enforce the CC & Rs through a relief from the automatic stay was unsuccessful.
Provision 16.1 of the CC & Rs is entitled “Enforcement” states that:
The Association, Declarant or any Owner, shall have the right to enforce, by any proceeding at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter imposed by the provisions of this Declaration, or any rule of the Association, including but not limited to any proceeding at law or in equity against any person or persons violating or attempting to violate any covenant or re*664striction, either to restrain violation or to recover damages, and against the land to enforce any lien created by these covenants.... In the event action, with or without suit, is undertaken to enforce any provision hereof or any rule of the Association, the party against whom enforcement is sought shall pay to the Association or enforcing Owner the reasonable attorney fees incurred with respect to such enforcement.”
(emphasis added).22 Thus, in this Court’s plain reading of the provision, either a homeowner or the association can bring an action to enforce the CC & Rs and either party would be entitled to attorney’s fees if enforcement is successful. If unsuccessful, the parties are responsible for their respective attorney’s fees incurred.
In Utah, “where a contract provides for attorney fees, they are awardable only on the terms and to the extent authorized in the contract.”23 If a contract provision regarding attorney’s fees is not reciprocal, meaning that it provides for recovery to only one party, Utah Code Ann. § 78B-5-826, entitled “Reciprocal rights to recover attorney’s fees” applies. Utah Code Ann. § 78B-5-826 provides that “[a] court may award costs and attorney’s fees to either party that prevails in a civil action based upon any promissory note, written contract, or other writing ... when the provisions of the promissory note, written contract, or other writing allow at least one party to recover attorney fees.”24 The Utah Court of Appeals in Carr v. Enoch dealt with an attorney’s fees enforcement provision and although not the main issue, noted that the provision was reciprocal with respect to attorney’s fees:
[Although not comprehensive in scope, [the fee provision] is reciprocal in the sense that either buyer or seller would *665recover its fees if it successfully sued to enforce the contract, while both buyer and seller would be left to absorb their own fees if instead one party merely resisted successfully an action to enforce the contract brought by the other party.25
In this case, Provision 16.1 of the CC & Rs is reciprocal as either the owner or the association can recover attorney’s fees if it is successful in bringing an enforcement action under the CC & Rs. If such an enforcement action is not successful, both parties would be responsible for their own fees incurred. Thus, Utah Code Ann. § 78B-5-826 does not apply to Provision 16.1 of the CC & Rs.
Hidden Valley did not prevail in its enforcement action by seeking relief from the automatic stay and therefore is not entitled to attorney’s fees under Provision 16.1 of the CC & Rs. Additionally, because the provision is reciprocal in nature and the Debtors were merely defending enforcement, the Debtors are not entitled to an award of attorney’s fees. Further, the Court exercises its discretion not to award any fees to either party.
IV. Conclusion
Based on the foregoing, Hidden Valley’s Motion should be denied. A separate order will accompany this Memorandum Decision.
. All subsequent chapter and section references herein are contained in title 11 of the United States Code (2006) unless otherwise identified.
. The Debtors mistakenly listed Access Property Management, LLC, on schedule F because Access Property Management, LLC, was Hidden Valley’s management company to whom the Debtors made payments. The correct creditor is Hidden Valley.
.Section 362(d) states:
On request of a party in interest and after notice and a hearing, the court shall grant relief from the stay provided under subsection (a) of this section, such as by terminating, annulling, modifying, or conditioning such stay—
(1) for cause, including the lack of adequate protection of an interest in property of such party in interest;
(2) with respect to a stay of an act against property under subsection (a) of this section, if—
(A) the debtor does not have an equity in such property; and
(B) such property is not necessary to an effective reorganization....
. Section 1328(a) provides that "after completion by the debtor of all payments under the plan ... the court shall grant the debtor a discharge of all debts provided for by the plan....” (emphasis added).
. Hidden Valley Supp. Mem. 3, ECF No. 50.
. 435 B.R. 650 (9th Cir. BAP 2010).
. 101 B.R. 751 (Bankr.D.Utah 1989).
. Id. at 754.
. Id.
. Id. (applying the bankruptcy code as it was in effect at the time of its decision in 1989); § 101(12).
. § 101(5)(A); Turner, 101 B.R. at 754 (applying the bankruptcy code as it was in effect at the time of its decision in 1989).
.101 B.R. at 753-54.
. Section 1328(a)(2) excepts from discharge debts "of the kind specified in section 507(a)(8)(C) or in paragraph (1)(B), (1)(C), (2), (3), (4), (5), (8), or (9) of section 523(a)...."
. In 1994, in response to growing confusion regarding HOA assessments and discharge-ability, Congress amended § 523(a)(16) to except postpetition HOA assessments from discharge when a debtor still occupied a unit. See Foster, 435 B.R. 650, 658 (9th Cir. BAP 2010). In 2005, Congress again amended § 523(a)(16) to add language indicating specifically that assessments from HOAs were excepted from discharge. Id. (citing Old Bridge Estates Cmty. Ass’n, Inc. v. Lozada (In re Lozada), 214 B.R. 558, 563 (Bankr.E.D.Va.1997), aff’d, 176 F.3d 475 (4th Cir.1999)). Section 523(a)(16) now states:
[F]or a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case.
. Section 523(a) states that "[a] discharge under section 727, 1141, 1228(a), 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt....”
. 435 B.R. at 661.
. Id. at 655 (emphasis added).
. Id. at 661.
. Id. at 659 (citing In re Danastorg, 382 B.R. 585, 588 (Bankr.D.Mass.2008)).
. The Court notes and shares the concerns voiced by the court in Pigg v. BAC Home Loans Servicing, LP (In re Pigg):
With the real estate collapse, lenders, who otherwise have the right to do so, are choosing not to foreclose on their collateral leaving homeowners in limbo. In the case of a chapter 7 debtor who has surrendered her home in bankruptcy and been relieved of any personal liability on the mortgage, she cannot truly be given a fresh start because HOA fees are still accumulating until a lender chooses to foreclose.
453 B.R. 728, 733 (Bankr.M.D.Tenn.2011).
. Butner v. United States, 440 U.S. 48, 54-57, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979).
.Provision 16.1 "Enforcement” of the Hidden Valley CC & Rs reads in its entirety as follows:
The Association, Declarant or any Owner, shall have the right to enforce, by any proceeding at law or in equity, all restrictions, conditions, covenants, reservations, liens and charges now or hereafter imposed by the provisions of this Declaration, or any rule of the Association, including but not limited to any proceeding at law or in equity against any person or persons violating or attempting to violate any covenant or restriction, either to restrain violation or to recover damages, and against the land to enforce any lien created by these covenants. Failure of the Association or of any Owner to enforce any covenant or restriction herein contained or any rule of the Association shall in no event be deemed a waiver of the right of the Association or any Owner to do so thereafter. In the event action, with or without suit, is undertaken to enforce any provision hereof or any rule of the Association, the party against whom enforcement is sought shall pay to the Association or enforcing Owner the reasonable attorney fees incurred with respect to such enforcement. The Board may levy a fine or penalty not to exceed ten percent (10%) of the amount of the maximum annual assessment against any Owner who fails to refrain from violation of these covenants or a rule of the Association, provided the Board has given said Owner three (3) days written notice and an opportunity for a hearing. An Owner who cures his violation within the three (3) days of receiving notice may not be levied against.
. Scott v. Majors, 980 P.2d 214, 222 (Utah Ct.App.1999) (citing Carr v. Enoch Smith Co., 781 P.2d 1292, 1296 (Utah Ct.App.1989)).
. Utah Code Ann. § 78B-5-826 (2011) (emphasis added). The Court notes the word “may'' in the statute which gives the court discretion when awarding attorney's fees to the prevailing party. Thus, even if Utah Code Ann. § 78B-5-826 applied, this Court would decline to award attorney’s fees in its discretion given the nature of the Motion at issue. Giusti v. Sterling Wentworth Corp., 201 P.3d 966, 980-81 n. 57 (Utah 2009) (citing Bilanzich v. Lonetti, 160 P.3d 1041, 1046 (Utah 2007)).
. 781 P.2d 1292, 1295 n. 5 (Utah Ct.App.1989); Giusti, 201 P.3d at 979 (holding that Utah Code Ann. § 78B-5-826 did not apply where “neither party had a contractual advantage or assumed more contractual liability than the other”); Jones v. Riche, 216 P.3d 357, 359-60 (Utah Ct.App.2009) (holding that because the attorney fee provision at issue "cut both ways ... the trial court was required to strictly enforce the agreement's terms, and the court was not at liberty to rely on the Reciprocal Attorney Fees statute, Utah Code section 78B-5-826, to contradict the agreement's terms”). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488466/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00407-CV
Rock Engineering and Testing Laboratory, Inc., Appellant
v.
Epsilon Zeta Chapter of Alpha Delta Pi House Corporation, Appellee
FROM THE 274TH DISTRICT COURT OF HAYS COUNTY,
NO. 21-2684, THE HONORABLE SHERRI TIBBE, JUDGE PRESIDING
MEMORANDUM OPINION
PER CURIAM
The parties have filed a joint motion to abate this appeal, requesting that we abate
and permit proceedings in the trial court to effectuate the parties’ settlement agreement. See Tex. R.
App. P. 42.1(a)(2)(c). We grant the motion and abate the appeal. The parties shall submit either a
joint status report concerning the status of the settlement or a motion to dismiss on or before
January 17, 2023. The appeal will remain abated until further order of this Court.
It is so ordered on November 18, 2022.
Before Chief Justice Byrne, Justices Triana and Smith
Abated and Remanded
Filed: November 18, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350229/ | Matter of Koch v Gorecki (2022 NY Slip Op 07398)
Matter of Koch v Gorecki
2022 NY Slip Op 07398
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: WHALEN, P.J., SMITH, LINDLEY, BANNISTER, AND MONTOUR, JJ.
1006 CAF 21-00777
[*1]IN THE MATTER OF PATRICK A. KOCH, PETITIONER-RESPONDENT,
vSARA L. GORECKI, RESPONDENT-APPELLANT.
SARK LAW & PROFESSIONAL SERVICES, LLC, HORSEHEADS (SUJATA RAMAIAH OF COUNSEL), FOR RESPONDENT-APPELLANT.
BARBARA A. KILBRIDGE, BUFFALO, FOR PETITIONER-RESPONDENT.
SARAH L. FIFIELD, FAIRPORT, ATTORNEY FOR THE CHILD.
Appeal from an order of the Family Court, Monroe County (Thomas W. Polito, R.), entered April 28, 2021 in a proceeding pursuant to Family Court Act article 6. The order, inter alia, awarded petitioner sole legal and primary physical custody of the subject child.
It is hereby ORDERED that the order so appealed from is unanimously affirmed without costs.
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350373/ | Motion Granted, Appeal Dismissed and Memorandum Opinion filed
December 20, 2022.
In The
Fourteenth Court of Appeals
NO. 14-21-00719-CV
BUG STATE PEST CONTROL, INC., Appellant
V.
ACCUTROL EXTERMINATING & MOSQUITO SYSTEMS, LLC;
ACCUTROL PEST MANAGEMENT, LLC; AND BRYAN ZENTKOVICH,
Appellees
On Appeal from the 165th District Court
Harris County, Texas
Trial Court Cause No. 2015-51567
MEMORANDUM OPINION
This is an appeal from a final judgment signed August 30, 2021. On
November 30, 2022, appellant filed a motion to dismiss the appeal. See Tex. R.
App. P. 42.1(a). The motion is granted.
We dismiss the appeal.
PER CURIAM
Panel consists of Justices Wise, Jewell, and Poissant.
2 | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350386/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER ON MOTION FOR EN BANC RECONSIDERATION
Appellate case name: In re Carnell Louis Dodson
Appellate case number: 01-22-00614-CR
Trial court case number: 18-CR-0670
Trial court: 56th District Court of Galveston County
The en banc court has unanimously voted to deny relators’ motion for
reconsideration en banc. The motion for en banc reconsideration is ordered denied.
Judge’s signature: __/s/ Justice Richard Hightower_____________________
Acting for the En Banc Court*
* En banc court consists of Chief Justice Radack and Justices Kelly, Goodman, Landau,
Hightower, Countiss, Rivas-Molloy, Guerra, and Farris.
Date: _______December 22, 2022____________ | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350406/ | Opinion issued December 22, 2022
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-22-00215-CV
———————————
NORTHPOINTE LTC, LTD. D/B/A GRACE CARE CENTER AT
NORTHPOINTE, Appellant
V.
DEBBIE A. DURANT, Appellee
On Appeal from the 164th District Court
Harris County, Texas
Trial Court Case No. 2018-44284
MEMORANDUM OPINION
This is a wrongful termination and premises liability case arising from
Appellee’s alleged slip and fall at her workplace. In 2018, Appellee Debbie A.
Durant (“Durant”) sued her former employer, Appellant Northpointe LTC., Ltd.
d/b/a Grace Care Center at Northpointe (“Northpointe”), for negligence, gross
negligence, wrongful termination, breach of employment contract, and tortious
interference with contract. Over three years later, Northpointe moved to compel
arbitration. Following a hearing, the trial court denied Northpointe’s motion. This
appeal ensued.1
In two issues, Northpointe argues the trial court abused its discretion in
denying its motion to compel arbitration because (1) there is a valid arbitration
agreement between Durant and Northpointe, and (2) Durant failed to satisfy her
burden to prove Northpointe waived its right to arbitration.
We reverse and remand.
Background
Durant worked as a certified nurse aide at Northpointe, a nursing home
facility. She alleges that in July 2016, while acting in the course and scope of her
employment, she slipped and fell in a hallway where the floor “had been
excessively waxed” by a member of Northpointe’s staff causing her significant
injuries. Durant alleges she sought medical treatment and was diagnosed with
“several herniated discs in her back and torn ligament in her knee.” According to
Durant, Northpointe terminated her employment because her injuries prevented her
from returning to work. She alleges she is “totally disabled” and receives Social
Security disability payments.
1
See TEX. CIV. PRAC. & REM. CODE § 171.098(a)(1) (“A party may appeal . . . an
order . . . denying an application to compel arbitration . . .”).
2
Durant filed suit in July 2018 asserting several causes of action against
Northpointe. She alleged that Northpointe (1) negligently failed to inspect and
make its premises safe and failed to warn of the slippery floors, and was grossly
negligent, (2) tortiously interfered with her contract with her employee disability
insurance carrier by failing to complete a claim form, resulting in the insurer’s
denial of her claim for disability payments, and (3) breached its oral employment
agreement with her and retaliated against her by firing her while she was still under
her doctor’s care for her injuries.
Northpointe filed an answer in October 2018, generally denying Durant’s
allegations and asserting several affirmative defenses. Northpointe did not identify
or reference an arbitration agreement in its answer.
Over three years later, on January 27, 2022, Northpointe filed an Opposed
Motion to Compel Arbitration (“Motion to Compel”), asserting that as part of her
employment with Northpointe, Durant had entered into a “Mutual Agreement to
Arbitrate” (“Agreement”). The Agreement, which Northpointe attached as an
exhibit to its Motion to Compel, contained the following language:
Any matter covered under this Agreement or concerning the legality
or interpretation of this Agreement shall be heard and decided under
the provisions and authority of the Federal Arbitration Act, 9 U.S.C.
§ 1 as applicable. For purposes of this Agreement, an employment-
related dispute includes, but is not limited to, all disputes, including
statutory and common law claims, whether under state, federal or
local law, including, but not limited to, theories arising from breach of
implied or express contract, implied covenant of good faith and fair
3
dealing, constructive discharge, wrongful discharge, negligence, gross
negligence, false imprisonment, fraudulent concealment, worker’s
compensation, retaliation, intentional infliction of emotional distress,
misrepresentation, personal injury, claims arising from work-related
activities, unsafe workplace, unlawful discrimination, retaliation or
harassment, sexual harassment, violations of Title VII of the Civil
Rights Act of 1964, as amended, Age Discrimination in Employment
Act (ADEA), Americans with Disabilities Act (ADA), Family and
Medical Leave Act (FMLA), Fair Labor Standards Act, (FLSA),
whistle blowing, wrongful termination in violation of public policy,
and defamation. I acknowledge that any employment dispute directly
or indirectly affecting my Company shall be subject to binding
arbitration, including disputes against supervisors and managers that
involve my employment.
Northpointe argued that (1) the Agreement was governed by the Federal
Arbitration Act (“FAA”), (2) the Agreement was enforceable based on principles
of contract law, and (3) Durant’s claims fell within the scope of the Agreement.
Three weeks after filing its Motion to Compel, on February 16, 2022,
Northpointe filed a “Submission of Its Business Records Declaration to Support Its
Motion to Compel Arbitration” (“Submission”) attaching the Agreement and a
business records declaration from its custodian of records, Harold Hadley
(“Hadley”), authenticating the Agreement. Hadley averred that the Agreement
attached to his declaration was “the original or [an] exact duplicate[] of the
original.” Northpointe asserted in its Submission that by filing Hadley’s
declaration, the Agreement was self-authenticated as a business record under Texas
Rule of Evidence 902.
4
Durant filed a response to the Motion to Compel. She did not argue that
Northpointe had waived its right to arbitration. Instead, Durant argued that
because Northpointe had failed to present the Agreement to Durant before moving
to compel arbitration, Durant was “naturally . . . very concerned relative to the
authenticity of the purported document.” Durant argued that she needed “to see
the original to determine if in fact her lawful signature [was] properly affixed
thereto” or if the Agreement’s “existence [was] the result of some surreptitious
conduct by the Defendant . . . .” because she had only seen a photostatic copy of
the document and “[c]opies are easy to manipulate.”2 Durant argued she “did not
recognize the purported agreement” and that she had a “good-faith” belief she had
not actually signed the Agreement. She explained she wanted to inspect the
original Agreement to determine its authenticity. Durant did not submit evidence
in support of her response. Nor did she object to Northpointe’s filed Submission or
the attached Hadley declaration authenticating the Agreement.
The trial court held a hearing on Northpointe’s Motion to Compel on
February 16, 2022. During the hearing, the trial court asked Northpointe to explain
why it had waited over three years to file its Motion to Compel. Northpointe
explained that the case had been stagnant since early 2019 “as far as activity from
both parties,” and that it had gone into “quasi-abatement” in July 2019, when
2
Durant’s counsel clarified that she believed “in earnest [that Northpointe’s counsel
of record] would have nothing to do with such act.”
5
Durant’s counsel had, for medical reasons, asked for several continuances.3
Northpointe explained that it had not “really . . . started looking at records, asking
[] clients for records” until October 2021, and that it had just recently identified the
Agreement. Northpointe explained that Durant had not served discovery.4
In response, Durant’s counsel argued that her main concern was that it had
been “nearly four years” since inception of the lawsuit and her client had asked
whether the Agreement was “a real document.” While she conceded she had
experienced “health concerns,” Durant’s counsel argued that had she “known that
arbitration was mandatory . . . [she] wouldn’t have wasted all this time and money
in litigation.” Durant’s counsel did not explain what costs she had incurred or
elaborate further on her statement. Focusing instead on the authenticity of the
Agreement, she noted that Durant had yet to see the original of the Agreement, and
that Durant was concerned the copy of the Agreement “could be a forgery.”
Durant’s counsel argued she remained concerned with “the authenticity of the
document.” She stated:
We don’t believe that after four years [Durant] should lose her
constitutional right to a jury trial and be forced in front of someone
who can make a decision that is not appealable, that she’d be stuck
with. And that’s our only concern, that it is quite suspicious that at
3
The trial court granted agreed motions for continuance in August 2019, April
2020, and September 2021.
4
The record does not contain any discovery propounded by either party.
6
the 11th hour, there’s a document that takes away her constitutional
right to a trial[.]
Durant’s counsel stated her client could not recall the Agreement. She admitted
the signature looked like Durant’s signature, but she argued it could be a “cut and
paste.” Durant did not submit testimony or evidence in support of her allegations.
Northpointe responded that there was no evidence “beside Plaintiff’s
Counsel’s argument that this [Agreement] is not authentic.” Northpointe explained
that “[p]ursuant to the Rules of Evidence our Arbitration Agreement self-
authenticates because it’s accompanied with the business declaration.” Durant did
not respond to this argument. Nor did she object to Hadley’s declaration or seek a
ruling from the trial court on her authenticity objections.
At the conclusion of the hearing, the trial court judge stated that “[b]ased
upon what I have heard today, I am not ordering arbitration in this matter.”
Subsequently, on March 4, 2022, the trial court entered a written order denying
Northpointe’s Motion to Compel. The trial court did not make evidentiary findings
or state the grounds upon which it denied the motion. This appeal followed.
Discussion
Northpointe raises two issues on appeal. In its first issue, Northpointe
argues the trial court abused its discretion in denying its Motion to Compel because
the Agreement is enforceable and “Durant’s speculation that she may not have
signed the arbitration agreement is insufficient to defeat [its] enforcement.” In its
7
second point, Northpointe argues Durant failed to assert the affirmative defense of
waiver. Alternatively, Northpointe argues the trial court erred in denying its
Motion to Compel because Durant did not establish that (1) Northpointe
substantially invoked the judicial process, or (2) she suffered any prejudice as a
result.
Durant argues that the “only controlling issue of this appeal” is
Northpointe’s proffer of a copy, rather than the original, of the Agreement, which
according to Durant, does not satisfy Texas Rules of Evidence 1002, 1003, and
1004. She does not address Northpointe’s waiver argument. Instead, she argues
that “whether there has been a waiver” of Northpointe’s right to arbitration is
“irrelevant because there can be no waiver issue to discuss, unless and until the
burden of the Best Evidence Rule has been met.”
A. Standard of Review and Applicable Law
A party seeking to compel arbitration must establish that (1) a valid
arbitration agreement exists and (2) the claims fall within the scope of the
agreement.5 Bonsmara Nat. Beef Co. v. Hart of Tex. Cattle Feeders, LLC, 603
5
Neither party disputes that the FAA applies to the Agreement. See Henry v. Cash
Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018) (“The Federal Arbitration Act (FAA)
generally governs arbitration provisions in contracts involving interstate
commerce.”). The Agreement states that it is governed by the Federal Arbitration
Act (“FAA”), 9 U.S.C. § 1, et seq. Under the FAA, “state law generally governs
whether a litigant agreed to arbitrate, and federal law governs the scope of the
arbitration clause.” In re Labatt Food Serv., L.P., 279 S.W.3d 640, 643 (Tex.
2009) (orig. proceeding). The parties do not dispute that Durant’s claims fall
8
S.W.3d 385, 397 (Tex. 2020). If the party seeking arbitration satisfies its initial
burden, the burden then shifts to the party resisting arbitration to present evidence
supporting a defense to the enforcement of the arbitration provision. Henry v.
Cash Biz, LP, 551 S.W.3d 111, 115 (Tex. 2018). Once the burden shifts to the
nonmovant, a presumption exists in favor of arbitration. Garcia v. Huerta, 340
S.W.3d 864, 869 (Tex. App.—San Antonio 2011, pet. denied). Absent a valid
defense to arbitration, “the trial court has no discretion but to compel arbitration
and stay its proceedings once the existence and application of the [arbitration]
agreement has been shown.” In re Automatic Partners, Ltd. P’ship, 183 S.W.3d
532, 534 (Tex. App.—Houston [14th Dist.] 2006, no pet.).
We review a trial court’s order denying a motion to compel arbitration for
abuse of discretion. Henry, 551 S.W.3d at 115 (citing In re Labatt Food Serv.,
L.P., 279 S.W.3d 640, 642–43 (Tex. 2009)). A trial court abuses its discretion if it
acts in an arbitrary or unreasonable manner or without reference to any guiding
rules or principles. Downer v. Aquamarine Operators, Inc., 701 S.W.2d 238, 241–
42 (Tex. 1985). “We defer to the trial court’s factual determinations if they are
supported by evidence but review its legal determinations de novo.” Henry, 551
S.W.3d at 115. Whether an arbitration agreement is enforceable and whether a
within the scope of the Agreement. Instead, Durant appears to challenge the
existence of the Agreement, an issue we analyze under state law.
9
party waived its right to arbitration are questions of law that we review de novo.
Id.
A trial court cannot deny a motion to compel arbitration on a ground not
raised by the nonmoving party. Ridge Nat. Res., L.L.C. v. Double Eagle Royalty,
L.P., 564 S.W.3d 105, 118 (Tex. App.—El Paso 2018, no pet.). Thus, we can
affirm a trial court’s order denying a motion to compel arbitration “only if one of
the grounds presented by the resisting party is valid.” Id. When a trial court does
not issue findings of fact or conclusions of law to explain its reasons for denying a
motion to compel arbitration, we must “uphold the trial court’s decision on any
appropriate legal theory urged below.” F.T. James Constr., Inc. v. Hotel Sancho
Panza, LLC, No. 08-20-00096-CV, __ S.W.3d ___, ___, 2022 WL 4538870, at *3
(Tex. App.—El Paso Sept. 28, 2022, no pet. h.).
Arbitration cannot be ordered absent a valid agreement to arbitrate. Branch
Law Firm L.L.P. v. Osborn, 532 S.W.3d 1, 12 (Tex. App.—Houston [14th Dist.]
2016, pet. denied). If the party resisting arbitration raises a genuine issue of
material fact over the existence of a valid arbitration agreement, the trial court
must conduct an evidentiary hearing. Jack B. Anglin Co. Inc. v. Tipps, 842 S.W.2d
266, 269 (Tex. 1992) (orig. proceeding); Fitness Entm’t Ltd. v. Hurst, 527 S.W.3d
699, 705 (Tex. App.—El Paso 2017, pet. denied). “The court makes this summary
determination based on the parties’ affidavits, pleadings, discovery, and
10
stipulations.” Branch Law Firm L.L.P., 532 S.W.3d at 12 (citing Jack B. Anglin,
842 S.W.2d at 269). The procedure is subject to the same evidentiary standards as
a motion for summary judgment. Id. (citing In re Jebbia, 26 S.W.3d 753, 756–57
(Tex. App.—Houston [14th Dist.] 2000, orig. proceeding)).
B. Existence of Valid Arbitration Agreement
In its first issue, Northpointe argues the trial court abused its discretion in
denying its Motion to Compel because a valid arbitration agreement exists and
Durant’s assertion that she may not have signed the Agreement does not defeat its
enforcement. Northpointe argues it established a valid agreement to arbitrate by
producing the Agreement bearing Durant’s signature and authenticating the
Agreement with a declaration from Northpointe’s custodian of records.
Northpointe argues that a “mere denial” by Durant that she did not sign the
Agreement does not create a genuine issue of material fact sufficient to defeat its
Motion to Compel. Northpointe notes that Durant “did not rise to the level of
outright denying that she signed the arbitration agreement. She merely speculated
that the signature ‘could be’ inauthentic.”
During the hearing on Northpointe’s Motion to Compel, Durant’s counsel
argued that “her first question . . . was how can we know this is a real document.”
She stated that in response to her request to see the original, Northpointe’s counsel
had only shown her a “photostatic copy” of the Agreement which she argued
11
“could be a forgery.” Durant’s counsel argued that it “could be something
nefarious that was surreptitiously prepared . . . [b]y the Defendant who has not
been fair with this claimant, their employee. So that is the Plaintiff’s concern [sic]
the authenticity of the document.”6 According to Durant’s counsel, Durant told her
she did not recall the Agreement:
That’s why she asked if she could look at it. She did tell me it looks
like my signature but I cannot be sure this is not a cut and paste. I
don’t know how they arrived at this. Because she said she never
heard the term Arbitration Agreement before I mentioned it to her two
days ago.
Northpointe responded there was no evidence the Agreement was not authentic. It
further argued that under the Texas Rules of Evidence, the Agreement was self-
authenticating because Northpointe had filed a business record declaration from its
custodian of records authenticating the Agreement.
On appeal, Durant argues only that the Agreement was inadmissible under
the best evidence rule because the original of the Agreement was unavailable for
inspection by Durant or the trial court. See TEX. R. EVID. 1002. She also argues
that the Agreement is not covered by an exception to the best evidence rule. See
TEX. R. EVID. 1003, 1004. Durant does not cite any cases in her brief or cite to the
record in support of her argument.
6
Durant’s counsel clarified she was not accusing opposing counsel of “nefarious”
activity, “[n]ot by their firm at all.”
12
The burden of establishing the existence of an arbitration agreement “is
evidentiary and runs with the party seeking to compel arbitration.” DISH Network
L.L.C. v. Alexander, No. 13-20-00240-CV, 2021 WL 3085763, at *3 (Tex. App.—
Corpus Christi–Edinburg July 22, 2021, pet. denied) (mem. op.). A party can
satisfy its evidentiary burden by submitting a copy of an arbitration agreement
authenticated under Texas Rule of Evidence 901. Id. (citing TEX. R. EVID. 901(a)).
“A document is considered authentic if a sponsoring witness vouches for its
authenticity or if the document meets the requirement of self-authentication.” Id.
Rule 901 states in part:
To satisfy the requirement of authenticating or identifying an item of
evidence, the proponent must produce evidence sufficient to support a
finding that the item is what the proponent claims it is.
TEX. R. EVID. 901(a). Rule 902, which addresses evidence that is self-
authenticating, states that “business records accompanied by affidavit” are “self-
authenticating; they require no extrinsic evidence of authenticity in order to be
admitted.” TEX. R. EVID. 902(10) (enumerating requirements of business record
affidavit or unsworn declaration); see also Roland’s Roofing Co., Inc. v.
Nationwide Mut. Ins. Co., No. 13-19-00580-CV, 2020 WL 3478658, at *4 (Tex.
App.—Corpus Christi–Edinburg June 25, 2020, no pet.) (mem. op.) (stating
business records affidavit authenticated copy of arbitration agreement signed by
both parties).
13
Pursuant to Texas Rules of Evidence 901(a) and 902(10), Northpointe
authenticated the Agreement by submitting a business records declaration from its
custodian of records. Northpointe thus met its evidentiary burden to establish the
existence of an arbitration agreement. To the extent Durant attempted to challenge
the authenticity of the Agreement, Durant failed to put that issue properly before
the trial court.
When a party seeks to challenge the authenticity of a signature on a
document, Texas Rule of Civil Procedure 93(7) is implicated. Rule 93(7) states
that a party must file a verified pleading when asserting a
[d]enial of the execution by himself or by his authority of any
instrument in writing, upon which any pleading is founded, in whole
or in part and charged to have been executed by him or by his
authority, and not alleged to be lost or destroyed. . . . In the absence of
such a sworn plea, the instrument shall be received in evidence as
fully proved.
TEX. R. CIV. P. 93(7). “[A] mere denial by the nonmovant that [s]he did not sign
the [arbitration] agreement, without more, fails to create a genuine issue of
material fact.” Knox Waste Serv., LLC v. Sherman, No. 11-19-00407-CV, 2021
WL 4470876, *8 (Tex. App.—Eastland Sept. 20, 2021, no pet.) (mem. op.). The
same is true for statements that a party does not recall signing an arbitration
agreement. Such statements, without more, do not raise a fact issue as to the
authenticity of the agreement. In re December Nine Co., Ltd., 225 S.W.3d 693,
699 (Tex. App.—El Paso 2006) (orig. proceeding) (holding statements that parties
14
“did not recall” signing forms acknowledging arbitration agreement “[did] not
raise a fact issue as to the authenticity of the written instruments”).
Durant did not file a verified pleading in response to Northpointe’s Motion
to Compel or Hadley’s declaration authenticating the Agreement. Thus, she failed
to contest the authenticity of the Agreement before the trial court. The opinion in
Wright v. Hernandez, 469 S.W.3d 744 (Tex. App.—El Paso 2015, no pet.) is
instructive. In that case, Wright and his law firm were sued by Hernandez, a
paralegal, for wrongful termination. 469 S.W.3d at 747. Wright moved to compel
arbitration and Hernandez did not respond. Id. at 748. Hernandez argued during a
hearing that Wright did not authenticate the arbitration agreement or prove that
Hernandez’s signature on the agreement was genuine. Id. at 748-49.7 The trial
court denied the motion to compel. Id. at 750.
7
Wright, the employer and movant, had not signed the arbitration agreement,
causing the trial court to consider whether the agreement was a binding contract.
Wright v. Hernandez, 469 S.W.3d 744, 749 (Tex. App.—El Paso 2015, no pet.).
Wright argued that Texas law does not require an employer to sign an arbitration
agreement provided there is sufficient evidence to establish a meeting of the minds
and that both parties intended to be bound by the agreement. Id. The court held
Wright’s signature was not a condition precedent to the enforceability of the
arbitration agreement. Id. at 756-57. This issue is not relevant to Durant’s
arguments on appeal.
15
Noting that Hernandez had not challenged the “genuineness of her signature
on the document” under Rule 93(7), the court of appeals held that the two
submitted business records affidavits authenticated the agreement:
Despite being served with copies of these affidavits authenticating the
agreement, Hernandez did not attempt to present any countervailing
evidence disputing the truth or validity of any of the statements made
in Wayne Wright’s supplemental affidavits. Therefore, assuming the
affidavits were properly filed and considered by the court, we
conclude that they were sufficient, as a matter of law, to authenticate
the arbitration agreement.
Id. at 752–53. The court of appeals reversed and remanded for entry of an order
compelling arbitration. Id. at 762.
The decision in APC Home Health Services, Inc. v. Martinez, 600 S.W.3d
381 (Tex. App.—El Paso 2019, no pet.) also is illustrative, and its facts are
analogous. APC was a home health care provider and its employee, Martinez, was
injured while working at a patient’s home. Id. at 385. She sued APC, which then
moved to compel arbitration. Id. Martinez opposed the motion to compel
arbitration on several grounds, including the fact that the agreement “was only a
copy and Martinez questioned its authenticity.” Id. at 386. She filed an affidavit
in support of her opposition to the motion to compel that said, among other things,
that she did “not remember signing” the arbitration agreement and did not
“remember anything about the document.” Id. at 387. The court of appeals stated
that “[n]ot recalling executing a document is different from denial of execution.”
16
Id. at 390. The court held that the Texas Rules of Civil Procedure “require a party
challenging the authenticity of a signature on a document to file a verified pleading
as a prerequisite to contesting execution of the document.” Id. (citing TEX. R. CIV.
P. 93(7)).8 The appellate court reversed and remanded for the trial court to
consider a question not relevant here, after which time the case was to be abated or
dismissed while the parties pursued arbitration.9 Id. at 401.
Because Durant did not file a verified denial contesting the signature on the
Agreement, we hold she did not properly present the authenticity issue to the trial
court. See, e.g., Wheeler v. Sec. State Bank, N.A., 159 S.W.3d 754, 756-57 (Tex.
App.—Texarkana 2005, no pet.) (holding authenticity of challenged signature was
not before trial court in absence of verified pleading denying execution of
promissory note and, accordingly, was not before appellate court); Gutierrez v.
Rodriguez, 30 S.W.3d 558, 562 (Tex. App.—Texarkana 2000, no pet.) (holding
8
APC “was prepared to present at the hearing a witness who would confirm the
execution of the agreement by Martinez.” APC Home Health Services, Inc. v.
Martinez, 600 S.W.3d 381, 389 (Tex. App.—El Paso 2019, no pet.). The witness
did not testify because Martinez argued she could not recall signing the document,
not that she had not signed it. Id. In concluding that Martinez had signed the
arbitration agreement, the court of appeals observed that Martinez had neither filed
a verified pleading to contest the signature nor insisted on the testimony of the
witness who would have testified that Martinez had signed the agreement. Id. at
390.
9
The court of appeals ordered the trial court to consider on remand whether the
arbitration agreement’s one-year notice provision was unconscionable and should
be severed from the agreement, after which the parties were to arbitrate. APC
Home Health Services, Inc., 600 S.W.3d at 401.
17
parties did not need to prove authenticity of signatures on deeds where opposing
party failed to file verified pleading denying documents’ execution).
We further note that even had Durant filed a verified denial contesting the
signature on the Agreement, she would not prevail. Durant did not object to
Hadley’s declaration or seek a ruling from the trial court on her authenticity
concerns. Her failure to secure such a ruling from the trial court failed to preserve
the issue for our review.10 See Branch Law Firm L.L.P., 532 S.W.3d at 15
(“Osborn was required to obtain a ruling on his authentication objection to
preserve his appellate challenge”); Williams v. Bad-Dab, Inc., No. 01-11-00102-
CV, 2012 WL 3776347, at *6 (Tex. App.—Houston [1st Dist.] Aug. 30, 2012, no
pet.) (mem. op.) (“Objections to hearsay, improper authentication, or lack of
foundation are defects in form, which require a ruling for appellate review.”); B.
Gregg Price, P.C. v. Series 1 - Virage Master, LP, No. 01-20-00474-CV, 2021 WL
3204753, at *8 (Tex. App.—Houston [1st Dist.] July 29, 2021, pet. filed) (mem.
op.) (“[A] defect in the form of the authentication of a document, i.e., a defect in an
affidavit attempting to authenticate the attached document, is waived in the
absence of an objection and ruling in the trial court.”) (citing In re Longoria, 470
10
Because the summary judgment standard is applicable in this arbitration context,
copies of documents must be authenticated for them to constitute competent
evidence. Branch Law Firm L.L.P. v. Osborn, 532 S.W.3d 1, 14 (Tex. App.—
Houston [14th Dist.] 2016, pet. denied) (citing Republic Nat’l Leasing Corp. v.
Schindler, 717 S.W.2d 606, 607 (Tex. 1986)).
18
S.W.3d 616, 630 (Tex. App.—Houston [14th Dist.] 2015, orig. proceeding)); Segal
v. Bock, No. 01-10-00445-CV, 2011 WL 6306623, at *5 (Tex. App.—Houston [1st
Dist.] Dec. 15, 2011, no pet.) (mem. op.) (holding party who neither objected to
document’s authentication nor secured ruling from trial court on objection waived
any complaints on appeal regarding settlement agreement’s authenticity).11
During the hearing on Northpointe’s Motion to Compel, Durant’s counsel
merely argued, without submitting any evidence, that her client could not recall
signing the Agreement and that her signature could be a “cut and paste.” These
allegations, without more, are insufficient to raise a fact issue on the authenticity of
the Agreement. See In re December Nine Co., Ltd., 225 S.W.3d at 699; Knox
Waste Serv., LLC, 2021 WL 4470876 at *8.
We sustain Northpointe’s first issue.
C. Waiver of Arbitration
In its second issue, Northpointe argues that Durant failed to assert the
affirmative defense of waiver in the trial court. Alternatively, Northpointe argues
the trial court abused its discretion in denying its Motion to Compel because
11
But see In re Estate of Guerrero, 465 S.W.3d 693, 706–07 (Tex. App.—Houston
[14th Dist.] 2015, pet. denied) (holding objection to complete absence of
authentication is defect of substance and may be raised for first time on appeal).
Here, there was not an absence of authentication; rather, Hadley’s business records
declaration was attached to the Agreement.
19
Durant did not establish (1) Northpointe substantially invoked the judicial process,
and (2) that she suffered resulting prejudice.
1. Asserting Waiver as a Defense
Northpointe argues that Durant did not argue waiver of Northpointe’s right
to arbitration in her written response to the Motion to Compel or during the hearing
on the motion. Northpointe argues that during the hearing, Durant “did not
specifically discuss whether Appellant had substantially invoked the judicial
process, other than generally alleging delay.” Thus, according to Northpointe,
Durant did not present the issue of waiver to the trial court.
We agree with Northpointe that during the hearing on its Motion to Compel,
Durant focused primarily on the authenticity of the Agreement. Durant, however,
also argued that she was concerned Northpointe had waited almost four years to
move for arbitration, that had she known arbitration was mandatory she “wouldn’t
have wasted all this time and money in litigation,” and that “after four years she
should [not] lose her constitutional right to a jury trial and be forced in front of
someone who can make a decision that is not appealable, that she’d be stuck with.”
We hold that these arguments sufficiently raised the defense of waiver. As we
ultimately conclude, however, Durant failed to meet her burden to prove the
defense.
20
2. Waiver of Right to Arbitrate
There is a strong presumption against waiver, and any doubts are resolved in
favor of arbitration. In re D. Wilson Constr. Co., 196 S.W.3d 774, 783 (Tex.
2006); see also Kennedy Hodges, L.L.P. v. Gobellan, 433 S.W.3d 542, 543 (Tex.
2014) (“Proving waiver is a high hurdle due to the strong presumption against
waiver of arbitration.”); In re Bruce Terminix Co., 988 S.W.2d 702, 705 (Tex.
1998) (noting the “heavy burden of proof” required to establish waiver of the right
to arbitration). The waiver analysis involves two queries: whether the party
seeking arbitration substantially invoked the judicial process and, if so, whether the
resisting party was prejudiced as a result. Okorafor v. Uncle Sam & Assocs., Inc.,
295 S.W.3d 27, 39 (Tex. App.—Houston [1st Dist.] 2009, pet. denied). “Waiver
. . . asks whether a party has substantially invoked the judicial process to an
opponent’s detriment, the latter term meaning inherent unfairness caused by ‘a
party’s attempt to have it both ways by switching between litigation and arbitration
to its own advantage.’” In re Citigroup Global Mkts., 258 S.W.3d 623, 625 (Tex.
2008) (quoting Perry Homes v. Cull, 258 S.W.3d 580, 597 (Tex. 2008)). The party
opposing arbitration has the burden to establish waiver. Henry, 551 S.W.3d at 116.
a. Substantially Invoking the Judicial Process
The determination of whether a party has substantially invoked the judicial
process “depends on the totality of the circumstances.” G.T. Leach Builders, LLC
21
v. Sapphire V.P., LP, 458 S.W.3d 502, 512 (Tex. 2015) (citing Perry Homes, 258
S.W.3d at 590-91). The “wide variety” of factors courts consider in determining
whether the judicial process has been “substantially invoked” include:
(1) how long the party moving to compel arbitration waited to do so;
(2) the reasons for the movant’s delay; (3) whether and when the
movant knew of the arbitration agreement during the period of delay;
(4) how much discovery the movant conducted before moving to
compel arbitration, and whether that discovery related to the merits;
(5) whether the movant requested the court to dispose of claims on the
merits; (6) whether the movant asserted affirmative claims for relief in
court; (7) the extent of the movant’s engagement in pretrial matters
related to the merits (as opposed to matters related to arbitrability or
jurisdiction); (8) the amount of time and expense the parties have
committed to the litigation; (9) whether the discovery conducted
would be unavailable or useful in arbitration; (10) whether activity in
court would be duplicated in arbitration; and (11) when the case was
to be tried.
G.T. Leach, 458 S.W.3d at 512 (Tex. 2015) (citing Perry Homes, 258 S.W.3d at
590–91). No particular factor is dispositive. RSL Funding, LLC v. Pippins, 499
S.W.3d 423, 430 (Tex. 2016). Nor must all or most of these factors be present to
support waiver. Perry Homes, 258 S.W.3d at 591. “Courts look to the specifics of
each case.” Courtright v. Allied Custom Homes, Inc., 647 S.W.3d 504, 516 (Tex.
App.—Houston [1st Dist.] 2022, pet. denied).
(i) Delay
The information available to this Court pertains mostly to the first three
factors concerning delay. Durant filed suit on July 3, 2018. Northpointe did not
22
file its Motion to Compel until January 27, 2022, more than three years after
Durant filed suit.
During the hearing on Northpointe’s Motion to Compel, Northpointe
explained it had not moved to compel arbitration previously because it had only
recently found out about the Agreement. It further explained that although the case
had been on file for nearly four years, the case had remained largely stagnant for a
prolonged period of time. Northpointe explained:
[T]his case has went [sic] stagnant early on in 2019 as far as activity
from both parties. We went into quasi-abatement back in July, 2019,
when the Plaintiff’s Counsel herself asked for a continuance based on
a medical issue. Which we wholly respected. And, candidly, my
office, Your Honor, at that point, basically, put the case in abatement.
And this case didn’t really activate, Your Honor, I’d say until October
2020, plus or minus in relation to after we filed joint motions for
continuance because of Plaintiff’s health condition. It’s another
reason why we haven’t taken the Plaintiff’s deposition. I’m assuming
maybe that’s why Plaintiff hasn’t issued written any discovery.
...
[W]hat I’m trying to articulate is that in answering your questions
about why we didn’t know about the Arbitration Agreement is simply
because when we put the case in a continuance because of Plaintiff’s
medical condition –
...
So let’s fast forward to October 21 and not until that time is really
when our office started looking at records, asking our clients for
records. Because I didn’t even realize, Your Honor, that Plaintiff’s
[sic] had not issued written discovery.
23
In response, Durant’s counsel argued that her main concern was that it had
been “nearly four years” since inception of the lawsuit and her client had asked
whether the Agreement was “a real document.” She conceded she had experienced
“health concerns” but noted that she would not have “wasted all this time and
money in litigation” had she known arbitration was mandatory. Durant argued that
after four years, she should not lose “her constitution right to a jury trial.”
(ii) Discovery
During the hearing on Northpointe’s Motion to Compel, Northpointe stated
that Durant had not served written discovery and Durant did not correct him. The
parties did not discuss whether Northpointe had served discovery, and the record
lacks discovery from any party.12 Northpointe also explained that neither party’s
deposition had been taken.
(iii) Affirmative Relief and Pretrial Matters
The record is silent as to whether Northpointe filed any dispositive motions.
And the record does not reflect any affirmative claims for relief filed by
Northpointe. Northpointe argues in its brief that it did not assert affirmative claims
or file any dispositive motions, and Durant does not dispute that statement. And
12
The record contains a page from the “Trial Court Activity Inquiry Screen” that
reflects the March 24, 2021 denial of an order compelling discovery. There is no
information as to which party sought the discovery.
24
Durant did not argue or provide any information regarding pretrial activity, or
whether any such activity in the trial court would be duplicated in arbitration.
(iv) Time and Expense
There is no information in the record regarding the time and expense the
parties spent on the litigation until Northpointe moved to compel. Nor did Durant
refer to these matters during the hearing, except to state that had she “known that
arbitration was mandatory shortly after attempting to make [a] worker’s
compensation claim, [she] wouldn’t have wasted all this time and money in
litigation.” Durant did not elaborate on the amount of time or money spent.
(v) Trial Setting
Northpointe stated in a letter brief to the court that the parties had agreed to
three joint motions for continuance from 2019 to 2021 because of the COVID-19
pandemic, Durant’s counsel’s health issues, and “resulting discovery
complications.” The most recent trial setting in the appellate record is June 27,
2022. Durant did not argue she had prepared for trial in anticipation of this trial
setting or that she anticipated proceeding to trial on that date.
Considering all of the factors in this case, the most significant is undeniably
the first one: the period of delay in moving to compel arbitration. Northpointe did
not file its Motion to Compel until three and one-half years after suit was filed.
But delay in moving to compel is not the end of the analysis. “Generally, delay
25
alone does not establish waiver.” Turnbull Legal Group, PLLC v. Microsoft Corp.,
No. 01-20-00851-CV, 2022 WL 14980287, at *9 (Tex. App.—Houston [1st Dist.]
Oct. 27, 2022, no pet. h.) (mem. op.) (citing In re Vesta Ins. Grp., Inc., 192 S.W.3d
759, 763 (Tex. 2006) (orig. proceeding)); see also SEB, Inc. v. Campbell, No. 03-
10-00375-CV, 2011 WL 749292, at *6 (Tex. App.—Austin Mar. 2, 2011, no pet.)
(mem. op.) (“[D]elay alone is generally not sufficient to establish waiver.”)
(holding waiver did not occur when motion to compel arbitration was filed forty-
five months after suit was filed).13 Moreover, courts have found there to be no
13
Courts have found waiver when there were shorter periods of delay, but as noted,
waiver is generally not based on delay alone. See, e.g., Courtright v. Allied
Custom Homes, Inc., 647 S.W.3d 504, 517 (Tex. App.—Houston [1st Dist.] 2022,
pet. denied) (finding waiver when arbitration was sought twenty-six months after
filing suit and movants knew about arbitration “from the outset” and engaged in
“significant” discovery and motion practice before seeking to compel arbitration);
Perry Homes v. Cull, 258 S.W.3d 580, 596 (Tex. 2008) (finding waiver where
party delayed request for arbitration fourteen months after filing suit and after
“most of the discovery” had been completed when motion to compel was filed);
Menger v. Menger, No. 01-19-00921-CV, 2021 WL 2654137, at *5–6 (Tex.
App.—Houston [1st Dist.] June 29, 2021, no pet.) (mem. op.) (finding party’s six-
month delay before requesting arbitration supported finding of waiver when
movant knew of arbitration “long before” filing motion to compel and non-movant
had produced nearly 1,400 pages of documents in its discovery responses and had
incurred more than $77,000 in attorney fees); Read v. Sibo, No. 14-18-00106-CV,
2019 WL 2536573, at *5 (Tex. App.—Houston [14th Dist.] June 20, 2019, pet.
denied) (mem. op.) (finding party’s approximate twenty-three-month delay in
seeking arbitration supported finding of waiver because “much had happened in
the case,” including granting of dispositive motions and appeal of interlocutory
order); Adams v. StaxxRing, Inc., 344 S.W.3d 641, 649 (Tex. App.—Dallas 2011,
pet. denied) (finding party’s thirteen-month delay before invoking arbitration
supported finding of waiver where party seeking arbitration had propounded
nearly 200 discovery requests, moved to compel discovery responses, cross-
examined non-movant during at least three evidentiary hearings, and arbitration
motion was filed after discovery ended); In re Christus Spohn Health Sys. Corp.,
26
waiver when the parties engaged in significantly more pretrial activity than they
did here. See, e.g, Granite Const. Co. v. Beaty, 130 S.W.3d 362, 367 (Tex. App.—
Beaumont 2004, no pet.) (holding no waiver of arbitration right despite filing of
motion to transfer venue, propounding of written discovery, preparation of
discovery responses, presentation of two witnesses for deposition, and participation
in unsuccessful mediation).
In light of our review of the relevant factors and the facts of this case, we
conclude Durant failed to establish that Northpointe substantially invoked the
judicial process.
b. Prejudice
Even if there was evidence Northpointe substantially invoked the judicial
process, the analysis would not end there. The second prong of the waiver
analysis, prejudice, must also be established. “[T]he party opposing arbitration . . .
must prove that it has been prejudiced by establishing that the party seeking to
compel arbitration . . . has substantially invoked the litigation process to the
opposing party’s ‘detriment.’” Okorafor, 295 S.W.3d at 38; see also Prudential
Sec. Inc. v. Marshall, 909 S.W.2d 896, 898–99 (Tex. 1995) (orig. proceeding) (“A
231 S.W.3d 475, 480–81 (Tex. App.—Corpus Christi–Edinburg 2007, orig.
proceeding) (finding waiver after fourteen months of litigation, “voluminous”
discovery, at least seventeen depositions, and resetting of trial date three times).
27
party does not waive a right to arbitration merely by delay; instead, the party
urging waiver must establish that any delay resulted in prejudice.”)
In determining waiver of the right to arbitrate, detriment or prejudice to the
opponent means “inherent unfairness caused by ‘a party’s attempt to have it both
ways by switching between litigation and arbitration to its own advantage.’”
Okorafor, 295 S.W.3d at 38 (citing In re Fleetwood Homes, 257 S.W.3d 692, 694
(Tex. 2008) (orig. proceeding) (citing Perry Homes, 258 S.W.3d at 596)); see also
G.T. Leach, 458 S.W.3d at 515 (“Prejudice may result when a party seeking
arbitration first sought to use the judicial process to gain access to information that
would not have been available in arbitration . . . .”); Courtright, 647 S.W.3d at 516
(“Such inherent unfairness may be manifested ‘in terms of delay, expense, or
damage to a party’s legal position that occurs when the party’s opponent forces it
to litigate an issue and later seeks to arbitrate that same issue.’”) (quoting Perry
Homes, 258 S.W.3d at 597).
Durant did not address prejudice either at the trial court or in her appellate
brief. The vast majority of her arguments, below and on appeal, pertain to the
authenticity of the Agreement. At most, during the hearing on Northpointe’s
Motion to Compel, Durant argued that had she known arbitration was mandatory,
she would not have “wasted all this time and money in litigation.” This statement,
without more, is insufficient to establish prejudice or that Northpointe substantially
28
invoked the judicial process to her detriment. See Structured Capital Res. Corp. v.
Arctic Cold Storage, LLC, 237 S.W.3d 890, 896 (Tex. App.—Tyler 2007, no pet.)
(“Generalized complaints about delay and expense, absent explanations and
evidentiary support, will not establish prejudice.”); IBS Asset Liquidations LLC v.
Servicios Multiples Del Norte SA de CV, 419 S.W.3d 573, 575 (Tex. App.—San
Antonio 2013, pet. denied) (same); see also Williams Indus., Inc. v. Earth Dev. Sys.
Corp., 110 S.W.3d 131, 139 (Tex. App.—Houston [1st Dist.] 2003, no pet.)
(finding no showing of prejudice in absence of evidence showing “how the delay,
its fees and costs, the volume of discovery, or the information . . . obtained in
discovery had prejudiced” the party resisting arbitration); Texas Residential
Mortg., L.P. v. Portman, 152 S.W.3d 861, 864 (Tex. App.—Dallas 2005, no pet.)
(holding prejudice not established when party resisting arbitration showed
“absolutely no evidence” of prejudice when her counsel failed to identify work
done or costs incurred that would not have occurred in anticipation of arbitration);
Associated Glass, Ltd. v. Eye Ten Oaks Invs., Ltd., 147 S.W.3d 507, 514 (Tex.
App.—San Antonio 2004, orig. proceeding) (holding prejudice not established
when party resisting arbitration failed to submit evidence in support of general
allegations of prejudice by “increased and ‘destructive’ discovery expenses”).
“Showing prejudice is generally an evidentiary burden.” Williams Indus.,
110 S.W.3d at 135. Durant did not make any other argument that could be
29
construed as addressing prejudice in the trial court or in this Court, nor did she
adduce any evidence to establish she was prejudiced. See id. at 141 (holding party
resisting arbitration “failed to carry its heavy burden of showing actual prejudice
because it offered no evidence in support”).14 We thus hold Durant did not meet
her evidentiary burden to establish prejudice.
We sustain Northpointe’s second issue.
Conclusion
We reverse the trial court’s order denying Northpointe’s Motion to Compel.
We remand for the trial court to sign an order (1) compelling the parties to arbitrate
Durant’s claims and (2) staying the proceedings pending completion of the
arbitration.
Veronica Rivas-Molloy
Justice
Panel consists of Chief Justice Radack and Justices Countiss and Rivas-Molloy.
14
Durant declined to discuss waiver in her appellate brief, stating that “there can be
no waiver issue to discuss, unless and until the burden of the Best Evidence Rule
has been met.”
30 | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488468/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-22-00335-CV
Michael Kent, Appellant
v.
Kimberly Davis, Appellee
APPEAL FROM THE 98TH DISTRICT COURT OF TRAVIS COUNTY
BEFORE JUSTICES GOODWIN, BAKER, AND KELLY
DISMISSED FOR WANT OF PROSECUTION -- OPINION BY JUSTICE BAKER
This is an appeal from the order in a Suit Affecting the Parent Child Relationship signed by the
trial court on May 3, 2022. Having reviewed the record, the Court holds that appellant has not
prosecuted his appeal and did not comply with a notice from the Clerk of this Court. Therefore,
the Court dismisses the appeal for want of prosecution. Because appellant is indigent and unable
to pay costs, no adjudication of costs is made. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488473/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 18, 2022
NO. 03-22-00461-CV
Joshua Burch, Appellant
v.
Planview Delaware, LLC, Appellee
APPEAL FROM THE COUNTY COURT AT LAW NO. 1 OF TRAVIS COUNTY
BEFORE CHIEF JUSTICE BYRNE, JUSTICES TRIANA AND SMITH
DISMISSED FOR WANT OF PROSECUTION -- OPINION BY JUSTICE TRIANA
This is an appeal from the judgment signed by the trial court on April 27, 2022. Having
reviewed the record, the Court holds that Joshua Burch has not prosecuted his appeal and did not
comply with a notice from the Clerk of this Court. Therefore, the Court dismisses the appeal for
want of prosecution. The appellant shall pay all costs relating to this appeal, both in this Court
and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488477/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00521-CV
E. L., Appellant
v.
Texas Department of Family and Protective Services, Appellee
FROM THE 459TH DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-FM-19-006558, THE HONORABLE CLEVE WESTON DOTY, JUDGE PRESIDING
MEMORANDUM OPINION
E.L. appeals from the trial court’s order terminating her parental rights to her son
J.M. See Tex. Fam. Code § 161.001. After a jury trial, the trial court rendered judgment finding
by clear and convincing evidence that several statutory grounds existed for terminating E.L.’s
parental rights and that termination was in the child’s best interest. See id. § 161.001(b)(1) (E),
(M), (O), (P), (R), (b)(2).
E.L.’s court-appointed counsel has filed a brief concluding that the appeal is
frivolous and without merit. See Anders v. California, 386 U.S. 738, 744 (1967); In re P.M.,
520 S.W.3d 24, 27 & n.10 (Tex. 2016) (per curiam) (approving use of Anders procedure in
appeals from termination of parental rights because it “strikes an important balance between the
defendant’s constitutional right to counsel on appeal and counsel’s obligation not to prosecute
frivolous appeals” (citations omitted)). The brief meets the requirements of Anders by
presenting a professional evaluation of the record and demonstrating why there are no arguable
grounds to be advanced on appeal. See 386 U.S. at 744; Taylor v. Texas Dep’t of Protective &
Regulatory Servs., 160 S.W.3d 641, 646-47 (Tex. App.—Austin 2005, pet. denied) (applying
Anders procedure in parental-termination case). E.L.’s counsel has certified to this Court that he
has provided her with a copy of the Anders brief and informed her of her right to receive a copy
of the entire appellate record and file a pro se brief. The Department of Family and Protective
Services has filed a response to the Anders brief, waiving its right to file an appellee’s brief. To
date, E.L. has not filed a pro se brief.
We have conducted a full examination of all of the proceedings to determine
whether the appeal is wholly frivolous, as we must when presented with an Anders brief.
See Penson v. Ohio, 488 U.S. 75, 80 (1988). We have specifically reviewed the trial court’s
findings as to E.L. under part (E) of subsection 161.001(b)(1) of the Family Code, and we have
found no non-frivolous issues that could be raised on appeal with respect to that finding. See
In re N.G., 577 S.W.3d 230, 237 (Tex. 2019) (explaining due process and due course of law
considerations pertaining to terminations under section 161.001(b)(1)(D) or (E) of Family Code).
After reviewing the record and the Anders brief, we find nothing in the record that would
arguably support E.L.’s appeal. We agree with E.L.’s counsel that the appeal is frivolous and
without merit. Accordingly, we affirm the trial court’s order terminating E.L.’s parental rights.
We deny counsel’s motion to withdraw.1
1
The Texas Supreme Court has held that the right to counsel in suits seeking termination
of parental rights extends to “all proceedings [in the Texas Supreme Court], including the
filing of a petition for review.” In re P.M., 520 S.W.3d 24, 27-28 (Tex. 2016) (per curiam).
Accordingly, counsel’s obligations to E.L. have not yet been discharged. See id. If after
consulting with counsel E.L. desires to file a petition for review, her counsel should timely file
with the Texas Supreme Court “a petition for review that satisfies the standards for an Anders
brief.” See id.
2
__________________________________________
Thomas J. Baker, Justice
Before Justices Goodwin, Baker, and Kelly
Affirmed
Filed: November 18, 2022
3 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488543/ | State of New York
This memorandum is uncorrected and subject to
Court of Appeals revision before publication in the New York Reports.
No. 97
The People &c.,
Respondent,
v.
Lance Rodriguez,
Appellant.
Hannah Kon, for appellant.
Mariana Zelig, for respondent.
Alice Ristroph et al.; Transportation Alternatives et al., amici curiae.
Reargument ordered for a future Court session. Acting Chief Judge Cannataro and Judges
Rivera, Garcia, Wilson, Singas and Troutman concur.
Decided November 22, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488489/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00313-CV
In re Eureka Holdings Acquisitions, L.P.
ORIGINAL PROCEEDING FROM TRAVIS COUNTY
MEMORANDUM OPINION
We previously granted realtor’s motion for temporary relief and stayed portions
of the trial court’s April 27, 2022, order relating to the expunction of a lis pendens. The
temporary stay is lifted, and the petition for writ of mandamus is denied. See Tex. R. App.
P. 52.8(a).
__________________________________________
Edward Smith, Justice
Before Justices Chief Justice Byrne, Justices Triana and Smith
Filed: November 16, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488476/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-21-00464-CR
Jose Antonio Nasipak, Appellant
v.
The State of Texas, Appellee
FROM THE 453RD DISTRICT COURT OF HAYS COUNTY
NO. CR-19-2739-E, THE HONORABLE SHERRI TIBBE, JUDGE PRESIDING
MEMORANDUM OPINION
Jose Antonio Nasipak was charged with thirty counts of possession with intent
to promote child pornography. See Tex. Penal Code § 43.26. Before trial, the State abandoned
two of the counts. At the end of the guilt-innocence phase, the jury found Nasipak guilty of all
twenty-eight remaining counts. Nasipak elected to have the trial court assess his punishment,
and the trial court sentenced him to twenty years’ imprisonment for each count, divided the
convictions into four groups with the convictions in each group being served concurrently,
and ordered the punishments for the four groups to be served consecutively. See id. §§ 12.33,
43.26(g); Tex. Code Crim. Proc. art. 42.08. In two issues on appeal, Nasipak contends that the
trial court erred by admitting extraneous-offense evidence. We will affirm the trial court’s
judgments of conviction.
BACKGROUND
The National Center for Missing and Exploited Children (the “Center”) received a
tip from an internet-service provider that two known images of child pornography had been
uploaded. Like all digital images, the two images had a unique identifying number called a
hash value that could not be altered. After verifying that the flagged material contained child
pornography, the Center identified the IP address, name, and email for the individual who
allegedly uploaded the images, and the individual associated with the images was Nasipak. The
Center forwarded the information to a task force with the Attorney General. After verifying that
the images were child pornography, the task force sent the information to the Hays County
Sheriff’s Office for further investigation.
A Sheriff’s Office detective obtained a search warrant to search Nasipak’s home.
When the search warrant was executed, the investigating officers seized Nasipak’s cellphone.
While the search warrant was being executed, Nasipak told some of the officers that he would
like to talk to them. One of the officers drove Nasipak to the Sheriff’s Office, and two detectives
interviewed him. The interview was recorded and admitted into evidence at trial. During the
interview, Nasipak admitted that he started collecting and sharing child pornography two years
before the interview and that he viewed the images and videos on his cellphone. Nasipak stated
that the majority of his collected child pornography was stored on his account with Dropbox,
which is an online file-storage service. Nasipak sorted the images and videos into folders named
as follows: all, preteen 10, little little, young, and sexy. Nasipak told the officers that he
“received child pornography from individuals” and “distributed it to” others by using two social-
media applications.
2
Following the interview, the investigating officers searched Nasipak’s cellphone
and his Dropbox account and found child pornography in both. Nasipak was charged with
possessing with intent to promote twenty-eight images or videos of child pornography that were
in his Dropbox account. The indictment listed the unique hash value for each image or video.
During the trial, several law-enforcement officers from two law-enforcement
agencies testified regarding information that they received from the Center and regarding their
investigation in this case. In addition, the recording of Nasipak’s interview was admitted into
evidence and played for the jury. During a hearing held outside the presence of the jury, the
State explained that it was going to go through the images and videos serving as the basis for
the indictment but also explained that it wanted to introduce into evidence approximately 150
other images and several videos that were discovered on Nasipak’s Dropbox account and on his
cellphone. Although the State explained that it wanted to introduce these additional images and
videos, it related that it would only publish three items: one redacted image and two videos,
including one referred to as video record three. Nasipak objected and argued that the prejudicial
value of the evidence outweighed any probative value and that he had not received proper notice,
as requested, of the State’s intent to introduce the images and videos. After considering the
parties’ arguments, the trial court overruled Nasipak’s objections.
One of the investigating officers testified regarding the contents of Nasipak’s
cellphone and his Dropbox account and explained that some of the items were child pornography
and that others were not technically child pornography but depicted children in sexualized
manners. During the officer’s testimony, images and portions of ten videos serving as the basis
for the counts in the indictment were published for the jury. Next, the officer discussed how the
investigating officers discovered other images and videos of child pornography on Nasipak’s
3
Dropbox account and cell phone and also discovered images and videos that did not contain
child pornography but did depict children in sexualized manners. The officer explained that
the images and videos are on exhibits that were admitted into evidence. During the officer’s
testimony, the State published a redacted image in which a penis penetrated a child and
published two videos containing child pornography, including video record three. The officer
described video record three as an aggressive sexual assault of “a young female” and described
the other video as showing “an erect penis . . . sexually assaulting orally a four-year-old child.”
Nasipak did not testify or call any witnesses. After considering the evidence
presented, the jury found Nasipak guilty of all twenty-eight counts of possession with intent
to promote child pornography. Following the punishment phase, the trial court rendered its
judgments of convictions. Nasipak appeals the trial court’s judgments of conviction.
STANDARD OF REVIEW
On appeal, Nasipak challenges evidentiary rulings by the trial court. Appellate
courts review a trial court’s ruling regarding the admission or exclusion of evidence for an abuse
of discretion. See Tillman v. State, 354 S.W.3d 425, 435 (Tex. Crim. App. 2011). Under that
standard, a trial court’s ruling will only be deemed an abuse of discretion if it is so clearly wrong
as to lie outside “the zone of reasonable disagreement,” Lopez v. State, 86 S.W.3d 228, 230 (Tex.
Crim. App. 2002), or is “arbitrary or unreasonable,” State v. Mechler, 153 S.W.3d 435, 439 (Tex.
Crim. App. 2005). Moreover, the ruling will be upheld provided that the trial court’s decision
“is reasonably supported by the record and is correct under any theory of law applicable to the
case.” Carrasco v. State, 154 S.W.3d 127, 129 (Tex. Crim. App. 2005). In addition, an appellate
court reviews the trial court’s ruling in light of the record before the court “at the time the ruling
was made.” Khoshayand v. State, 179 S.W.3d 779, 784 (Tex. App.—Dallas 2005, no pet.).
4
DISCUSSION
In his two issues on appeal, Nasipak contends that the trial court erred by
overruling his Rule 403 and Rule 404 objections and admitting into evidence video record three,
which he describes as “much worse than any other evidence admitted.” See Tex. R. Evid. 403,
404. However, during trial, Nasipak objected to the admission of all of the images and videos
of child pornography that were not listed in the indictment, and the trial court ruled on the
admissibility of all of that evidence together without making any specific ruling regarding video
record three. In addressing Nasipak’s issues, we will address the arguments as they pertain to the
admission of all of the evidence but will address video record three separately where appropriate.
Cf. Clark v. State, 365 S.W.3d 333, 339 (Tex. Crim. App. 2012) (noting that “[t]he point of error
on appeal must comport with the objection made at trial”).
Rule 403
Regarding Rule 403, Nasipak contends in his first issue that the State did not
need video record three and that the video had “little, if any, probative value” because the trial
court allowed the State to introduce between 100 and 150 images and videos not listed in the
indictment to show his intent to promote child pornography. Additionally, Nasipak argues that
video record three was much worse than any of the images and videos listed in the indictment
because it is a recording of a violent sexual assault of a young girl and could do “nothing but
inflame the jury,” and he points to a comment by the trial court stating that Nasipak had made a
good argument regarding the prejudicial value of the video because “[i]t’s just really bad” and
“so horrific that it’s just going to horrify” the jury. Similarly, Nasipak asserts that because the
video depicting the violent sexual assault was played in an unredacted form, it had the potential
to cause the jury to make its decision on an improper emotional basis. Relatedly, Nasipak urges
5
that video record three was different from the other videos and images shown to the jury and
notes that the trial court commented that none of the other videos had the “exact kind” of content
present on video record three. Accordingly, Nasipak asserts that the jury could have given
additional weight to that video and been confused from the main issue. For these reasons,
Nasipak contends that the trial court erred by denying his Rule 403 objection and that the
admission harmed him by affecting his substantial rights.
Rule of Evidence 403 specifies that 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, or needlessly presenting
cumulative evidence.” Tex. R. Evid. 403. “Under Rule 403, it is presumed that the probative
value of relevant evidence exceeds any danger of unfair prejudice. The rule envisions exclusion
of evidence only when there is a clear disparity between the degree of prejudice of the offered
evidence and its probative value.” Hammer v. State, 296 S.W.3d 555, 568 (Tex. Crim. App.
2009) (footnotes and internal quotation marks omitted). Accordingly, “the plain language of
Rule 403 does not allow a trial court to exclude otherwise relevant evidence when that evidence
is merely prejudicial. Indeed, all evidence against a defendant is, by its very nature, designed
to be prejudicial.” Pawlak v. State, 420 S.W.3d 807, 811 (Tex. Crim. App. 2013) (internal
citation omitted).
Although this is not an exhaustive list, courts generally balance the following
factors when performing a Rule 403 analysis: “(1) how probative the evidence is; (2) the
potential of the evidence to impress the jury in some irrational, but nevertheless indelible way;
(3) the time the proponent needs to develop the evidence; and (4) the proponent’s need for the
evidence.” Colone v. State, 573 S.W.3d 249, 266 (Tex. Crim. App. 2019); see Gigliobianco v.
6
State, 210 S.W.3d 637, 641-42 (Tex. Crim. App. 2006). In this context, “probative value” refers
to how strongly evidence makes the existence of a “fact of consequence” “more or less probable”
and to how much the proponent needs the evidence, and “unfair prejudice” refers to how likely
it is that the evidence might result in a decision made on an “improper basis,” including “an
emotional one.” Davis v. State, 329 S.W.3d 798, 806 (Tex. Crim. App. 2010) (quoting Casey v.
State, 215 S.W.3d 870, 879 (Tex. Crim. App. 2007)). For Nasipak to be convicted of the
charged offenses, the evidence had to show that he “knowingly or intentionally promote[d] or
possesse[d] with intent to promote” “visual material that visually depicts a child younger than 18
years of age at the time the image of the child was made who is engaging in sexual conduct” and
that he knew “that the material depicts the child as described.” Tex. Penal Code § 43.26(a), (e).
In this context, “‘[p]romote’ means to procure, manufacture, issue, sell, give, provide, lend, mail,
deliver, transfer, transmit, publish, distribute, circulate, disseminate, present, exhibit, or advertise
or to offer or agree to do any of the above.” Id. § 43.25(a)(5).1 Making child pornography
available for others to access and download through peer-to-peer file-sharing software qualifies
as “dissemination” or “distribution” of child pornography. See Wenger v. State, 292 S.W.3d 191,
198-99 (Tex. App.—Fort Worth 2009, no pet.).
Probative Value
During the hearing addressing the admissibility of the evidence of videos and
images from Nasipak’s Dropbox account and cellphone, the State explained that it intended to
1
In its brief, the State suggests that Nasipak has waived this issue by failing to object to
testimony and other evidence covering topics that the State asserts are similar to the contents of
video record three. However, we note that Nasipak asked for and obtained a running objection to
the admission of all of the evidence from his Dropbox account and cellphone. See Ethington v.
State, 819 S.W.2d 854, 858 (Tex. Crim. App. 1991) (explaining that party does not have to
continue to object each time inadmissible evidence is offered if party obtains running objection).
7
show the jury the twenty-eight images and videos serving as the basis for the indictment, and the
State further explained that it wanted to introduce evidence regarding other images and videos,
including video record three, that were also in his Dropbox account and cellphone. Further, the
State noted that Nasipak suggested during the hearing that some of the images listed in the
indictment might not depict children, and the State argued that the additional child-pornography
files help to establish that the images and videos listed in the indictment depicted children and
that Nasipak knew that they were children. Next, the State explained that proving Nasipak’s
guilt required the State to show that Nasipak possessed the images and videos listed in the
indictment with the intent to promote them and that the evidence regarding additional images
and videos helped to establish the promotion element because possession of an even larger
collection of child pornography circumstantially indicated that he intended to promote the files
listed in the indictment.
Accordingly, the trial court could have reasonably concluded that the other
images and videos, including video record three, had probative value and could help establish
Nasipak’s guilt. See Gerron v. State, 524 S.W.3d 308, 321 (Tex. App.—Waco 2016, pet. ref’d)
(explaining that “the discovery of the approximately 11,000 photographs of children” had
significant probative force where “defensive theor[y] was the lack of proof of the very issue
these items tended to prove, that being that the girls depicted in the photographs for which he
was indicted were under the age of 18”); Cox v. State, 495 S.W.3d 898, 902, 904 (Tex. App.—
Houston [1st Dist.] 2016, pet. ref’d) (determining that defendant’s possession of “2,000 images
and videos” of “child pornography constitutes some proof that [he] intended to solicit more
child pornography”); see also Leita v. State, No. 13-14-00567-CR, 2016 WL 6541843, at *8
(Tex. App.—Corpus Christi-Edinburg Aug. 25, 2016, pet. ref’d) (mem. op., not designated for
8
publication) (explaining that evidence of defendant’s possession of large amount of child
pornography “made more probable [defendant]’s knowledge that the files on his computer were
being shared, which is a fact of consequence”).
Need for the Evidence
Before the hearing, a recording of Nasipak’s interview with the police was
played for the jury. On the recording, Nasipak admitted that he possessed child pornography
on his cellphone and in his Dropbox account, and he also admitted that he exchanged child
pornography through two social-media applications. However, Nasipak made no specific
admission regarding the images and videos listed in the indictment, and the State explained
during the hearing that it had no direct evidence that Nasipak intended to promote the twenty-
eight images and videos serving as a basis for the indictment and asserted that it needed the
evidence regarding other child pornography also found in Nasipak’s Dropbox account and
cellphone, including video record three, to help establish his intent to promote. Moreover, as set
out above, Nasipak argued that it was not clear that some of the images and videos alleged in the
indictment displayed a child, and the State argued that it needed the evidence of other images
and videos to help establish that the images and videos listed in the indictment displayed children
and that Nasipak knew they were children.2
For these reasons, the trial court could have reasonably determined that the State’s
need for this evidence weighed in favor of admission of the evidence of additional child
pornography, including video record three. Cf. Petruccelli v. State, 174 S.W.3d 761, 766 (Tex.
2
Although Nasipak asserts on appeal that the State did not need video record three
because it was allowed to introduce other images and videos not listed in the indictment, he
objected at trial to the admission of all of the images and videos not listed in the indictment, and
accordingly, the trial court ruled on the admissibility of all of the evidence together.
9
App.—Waco 2005, pet. ref’d) (determining that State’s need for photographs was clear where
they were “directly relevant and probative to counter the defense’s theory”); see also Leita,
2016 WL 6541843, at *8 (determining that “the State’s need for . . . evidence was strong” where
there was no “direct evidence of [the defendant] promoting child pornography”).
Time Needed to Develop the Evidence
During the hearing, the State explained that it would focus its presentation on the
images and videos forming the basis for the indictment and would not take an inordinate amount
of time to go through the other images and recordings. Further, although the State requested the
admission of several images and videos, it explained that it would publish only one image and
two videos. Moreover, we note that the guilt-innocence portion of the trial was held over three
days, that the record is hundreds of pages in length, and that the State played portions of ten
videos listed in the indictment. In contrast, the testimony concerning the other images and
videos discovered during the investigation was less than fifteen pages, and the testimony
regarding video record three was just a few pages in length. Moreover, as it indicated it would,
the State published only one additional image and two additional videos. The first video was
only published for thirty-nine seconds. Video record three was played in its entirety, but the
recording was less than a minute long.
Accordingly, the trial court could have reasonably determined that the time
needed to develop the other evidence, including video record three, heavily weighed in favor of
admission. See Brickley v. State, 623 S.W.3d 68, 82 (Tex. App.—Austin 2021, pet. ref’d)
(determining that time factor weighed in favor of admission where guilt-innocence phase was
held over three days, where record was hundreds of pages long, and where testimony regarding
extraneous offense was fewer than five pages); Robisheaux v. State, 483 S.W.3d 205, 221 (Tex.
10
App.—Austin 2016, pet. ref’d) (finding time factor weighed in favor of admission where
evidence regarding extraneous offense came in though one witness, where guilt-innocence phase
lasted three days, and where testimony about extraneous offense “was only eight pages long”).
Potential to Influence Jury
Unquestionably, the other images and videos and particularly video record three
were inflammatory. See Pawlak, 420 S.W.3d at 809 (explaining that “[e]vidence showing sexual
misconduct involving children is inherently inflammatory”). The trial court described video
record three as “really bad” and “horrific,” and the recording shows an aggressive sexual assault
of a young child. However, the State explained during the hearing that the jury would see the
images and videos of child pornography forming the basis for the indictment before seeing the
other images and videos and that its case would focus on the images and videos serving as the
basis for the indictment. Moreover, in order to minimize the amount of prejudice, the trial court
instructed the State to mute video record three and the other video when they were played
and agreed to provide a limiting instruction before the evidence was played and to include
another one in the jury charge. See Beam v. State, 447 S.W.3d 401, 405 (Tex. App.—Houston
[14th Dist.] 2014, no pet.) (noting that “the impermissible inference can be minimized through a
limiting instruction”); see also Thrift v. State, 176 S.W.3d 221, 224 (Tex. Crim. App. 2005)
(noting that courts presume that jury followed instructions absent evidence indicating otherwise).
Similarly, the only image not listed in the indictment that was published to the jury was
published in a redacted form. Further, the additional images and videos did not address a
complex subject matter that might distract the jury from determining whether Nasipak was guilty
of the charged offenses. See Brickley, 623 S.W.3d at 82; see also Gigliobianco, 210 S.W.3d
11
at 641 (explaining that scientific evidence is type of evidence that might mislead jury not
properly equipped to consider probative value).
In light of the preceding, the trial court could have reasonably determined that the
evidence of other images and videos, including video record three, would not impress the jury
in an irrational manner or, at least, that the potential was sufficiently minimized to warrant
admission given the probative value of the evidence, the State’s need for it, and the minimum
time needed to develop it. See Brickley, 623 S.W.3d at 82.
For these reasons, we conclude that the trial court did not abuse its discretion by
overruling Nasipak’s Rule 403 objection and admitting the other images and videos, including
video record three, into evidence and, therefore, overrule Nasipak’s first issue on appeal. See
Cox, 495 S.W.3d at 903-09 (concluding that trial court did not abuse its discretion by admitting
thousands of images of child pornography where potential to impress jury in irrational way
weighed in favor of exclusion but other factors weighed in favor of admission); see also Leita,
2016 WL 6541843, at *7-9 (determining that trial court did not abuse its discretion by admitting
50 extrinsic videos and 87 extrinsic images of child pornography in promotion-of-child-
pornography case where factors weighed in favor of admission).
Rule 404
In his second issue on appeal, Nasipak contends that the trial court erred by
overruling his Rule 404 objection. Although Nasipak acknowledges that Rule 404 allows for the
admission of evidence of extraneous offenses, he notes that the State did not provide reasonable
notice of its intent to introduce the evidence as required by Rule 404. See Tex. R. Evid. 404.
Further, Nasipak notes that the State argued during the hearing that Rule 404 does not require
notice when the evidence pertains to an extraneous offense arising in the same transaction as the
12
charged offense, but Nasipak contends that video record three is not same-transaction contextual
evidence because it is not so connected with the State’s proof for the charged offenses that
avoiding reference to the video would render the State’s case incomplete. More specifically,
Nasipak argues that video record three was not so connected with the charged offenses “as to
form an indivisible criminal transaction and was not needed to complete the State’s case or make
it understandable to the jury.” To the contrary, Nasipak urges that video record three “was more
apt to have confused the jury’s perception of the offenses alleged” due to its violent nature.
Rule 404 provides that extraneous-offense evidence “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” but may be admissible for other purposes, “such as proving motive,
opportunity, intent, preparation, plan, knowledge, identity, absence of mistake, or lack of
accident.” Id. If a defendant makes a timely request, the State “must provide reasonable notice
before trial that [it] intends to introduce such evidence” unless the extraneous-offense evidence
“aris[es] in the same transaction” as the charged offense. Id.
“Rule 404(b) . . . is a rule of inclusion rather than exclusion,” Chaparro v. State,
505 S.W.3d 111, 115-16 (Tex. App.—Amarillo 2016, no pet.), and the “enumerated exceptions”
listed under Rule 404(b) “are neither mutually exclusive nor collectively exhaustive,” Torres v.
State, 543 S.W.3d 404, 420 (Tex. App.—El Paso 2018, pet. ref’d). Also, “extraneous offense
evidence may be admissible as contextual evidence.” Swarb v. State, 125 S.W.3d 672, 681 (Tex.
App.—Houston [1st Dist.] 2003, pet. dism’d). There are two forms of contextual evidence:
“(1) ‘same transaction contextual evidence,’ which refers to other offenses connected with
the primary offense; and (2) ‘background contextual evidence’ which includes all other general
background evidence.” Blakeney v. State, 911 S.W.2d 508, 514 (Tex. App.—Austin 1995, no
13
pet.) (internal footnote omitted) (quoting Mayes v. State, 816 S.W.2d 79, 86-87 (Tex. Crim. App.
1991), superseded on other grounds by Tex. Code Crim. Proc. art. 38.37).
“[S]ame transaction contextual evidence may be admissible where ‘several crimes
are intermixed, or blended with one another, or connected so that they form an indivisible
criminal transaction, and full proof by testimony . . . of any one of them cannot be given without
showing the others.’” Wyatt v. State, 23 S.W.3d 18, 25 (Tex. Crim. App. 2000) (quoting Rogers
v. State, 853 S.W.2d 29, 33 (Tex. Crim. App. 1993)). “[S]ame-transaction contextual evidence is
admissible only when the offense would make little or no sense without also bringing in that
evidence.” Devoe v. State, 354 S.W.3d 457, 469 (Tex. Crim. App. 2011). “[T]he jury is entitled
to know all the relevant surrounding facts and circumstances of the charged offense; an offense
is not tried in a vacuum.” Moreno v. State, 721 S.W.2d 295, 301 (Tex. Crim. App. 1986). “It is
well settled that where one offense or transaction is one continuous episode, or another offense
or transaction is a part of the case on trial or blended or closely interwoven therewith, proof of all
the facts is proper.” Mitchell v. State, 650 S.W.2d 801, 811 (Tex. Crim. App. 1983).
In Wilson v. State, our sister court of appeals was confronted with a similar issue
to the one presented here. 419 S.W.3d 582 (Tex. App.—San Antonio 2013, no pet.). In that
case, the defendant was charged with ten counts of possessing child pornography in his
computer. Id. at 583, 584-85. During the trial, the trial court allowed the State to introduce
additional images of child pornography found on his computer beyond those specified in the
indictment and that were also found under his profile on the computer. Id. at 593. The
defendant argued that the trial court erred by admitting the additional images, but our sister court
reasoned that the admission was proper because “the additional photographs at issue were same
transaction contextual evidence.” Id. at 593-94.
14
We believe that a similar conclusion is warranted under the facts of this case.
Before the hearing, one of the investigating officers explained that Nasipak generally related the
process by which he would obtain and promote the child pornography in his possession by
admitting during his interview that he used his cellphone to view and obtain child pornography,
that he would store the child pornography on his cellphone and Dropbox account, and that he
used two social media applications to share the images and videos with others. Nasipak’s
recorded interview with the police contained similar information. Although Nasipak generally
admitted to possessing a large quantity of child pornography, he did not make admissions
regarding the twenty-eight images and videos forming the basis for the indictment. Moreover,
Nasipak admitted in the interview that he organized his collection of child pornography into
files on his Dropbox account. The investigating officer explained that during her review of
the contents of Nasipak’s cellphone and Dropbox account, she saw images and videos showing
child pornography. Another officer involved in the case testified that his department received
a report regarding the uploading of known images of child pornography that were associated
with Nasipak.
Based on this testimony and other evidence, the trial court could have reasonably
concluded that the images and videos of child pornography on Nasipak’s Dropbox account that
served as the basis for the indictment were so intermixed with the other child pornography on his
cellphone and Dropbox account, including video record three, as to form an indivisible criminal
transaction. See Wyatt, 23 S.W.3d at 25. Although the evidence may not have been “absolutely
necessary to the jury’s understanding of the charged offense,” it is not readily “divisible in the
way that evidence involving” different victims can be. See Worthy v. State, 312 S.W.3d 34,
40 (Tex. Crim. App. 2010). Accordingly, we conclude that the trial court did not abuse its
15
discretion by concluding that the other images and videos, including video record three, were
same-transaction contextual evidence and that the notice provision of Rule 404 did not apply and
by overruling Nasipak’s Rule 404 objection. See Wilson, 419 S.W.3d at 593-94.
For these reasons, we overrule Nasipak’s second issue on appeal.
CONCLUSION
Having overruled Nasipak’s two issues on appeal, we affirm the trial court’s
judgments of conviction.
__________________________________________
Thomas J. Baker, Justice
Before Justices Goodwin, Baker, and Kelly
Affirmed
Filed: November 18, 2022
Do Not Publish
16 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488490/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00324-CV
G. R., Appellant
v.
Texas Department of Family and Protective Services, Appellee
FROM THE 22ND DISTRICT COURT OF COMAL COUNTY
NO. C2021-0951A, THE HONORABLE MELISSA MCCLENAHAN, JUDGE PRESIDING
MEMORANDUM OPINION
G.R. (Father) appeals from the trial court’s decree terminating his parent rights to
his infant child (Infant), who was thirteen months old at the time of trial. 1 See Tex. Fam. Code
§ 161.001(b)(1), .002(c-1). Father challenges the legal and factual sufficiency of the evidence
supporting termination under the predicate statutory grounds. Father also contends that the
Texas Department of Family and Protective Services (Department) violated his due process
rights by failing to make reasonable efforts to make it possible to return the infant. We affirm
the trial court’s termination decree.
1 For the child’s privacy, we will refer to her by an alias and to her family members by
their relationships to her or by aliases. See Tex. R. App. P. 9.8.
BACKGROUND
Infant was born on May 11, 2021. Father was not listed on her birth certificate
and was arrested several days later on charges of possession of methamphetamine and
incarcerated. On June 9, 2021, the Department received a referral alleging neglectful supervision
of Infant by Mother, including that Infant “may not be safe in [Mother’s] care due to previous
drug use and termination history.” During that initial investigation, Mother stated that she did
not know who Infant’s father was and that “the baby is not [Father’s] baby.”
On June 14, 2021, the Department filed an original petition requesting termination
of parental rights and temporary orders for the protection of Infant. That original petition did not
reference Father by name, but instead listed “UNKNOWN” as the father of Infant. After the
Infant’s hair follicle test returned a positive result for methamphetamine, the Department moved
for aggravated circumstances against Mother. At the July 19, 2021, hearing on the motion,
Mother for the first time testified that Father was the father of Infant. 2
Father was thereafter named as the alleged father of Infant in the Department’s
First Amended Petition filed on July 28, 2021. Although the child protective services (CPS)
caseworker testified that a family service plan was filed for Father and a copy sent to him in
November 2021, the record does not reflect that any family service plan for Father was timely
filed with the trial court. 3 However, the court did order that “unknown father,” “pursuant to
Section 263.106, comply with each requirement set forth in the Department’s original, or any
2 The trial court found that Mother had subjected Infant to aggravating circumstances
pursuant to subsections 262.2015(b)(3)(I), (b)(5), and (b)(7), but did not make any aggravated
circumstances finding towards Father. See Tex. Fam. Code §§ 262.2015(b)(3)(I), (b)(5), (b)(7).
3Instead, Father’s family service plan was inadvertently filed in a prior termination case
involving Father’s other children and was not filed in this case until after the trial court had
rendered final judgment.
2
amended plan during the pendency of this suit.” Father was transferred to a Texas Department
of Criminal Justice substance abuse felony punishment facility (an in-prison therapeutic
community) in October 2021, where he remained in custody until May 15, 2022.
The bench trial on the merits began on May 23, 2022. Father’s counsel initially
announced not ready because counsel had only learned the day of trial of Father’s release and the
parties were still waiting for the results of a genetic test the trial court had previously ordered.
The CPS caseworker testified that the DNA testing was only completed the week before trial and
the results were not yet available. After discussions with Father, counsel stated “I know what my
client’s desires are and I’m ready to advocate for those, if need be,” and the trial proceeded.
The initial testimony by three officers focused on several traffic stops of Mother
that occurred in March and April 2022 contemporaneous with the pending termination
proceeding. The officers’ testimony included that a search of Mother’s vehicle during a March
2022 traffic stop found four bags of a white crystalline substance weighing approximately eight
grams (which tested presumptively positive for methamphetamine) and a search of Mother’s
purse found a meth pipe that appeared used with black residue. Mother was thereafter arrested
for felony possession of a controlled substance.
Vanessa Campanella, the CPS investigator, testified about her April 29, 2020
investigation of neglectful supervision due to family violence allegations relating to the five
older children of Father and Mother. According to Campanella, when she asked one of the
children whether the parents ever argued, the child acted out the fighting to show Campanella
“the hand moves that would happen and the choking moves” and “would punch at the stairwell
to show me that’s how the punching was occurring.” The child also explained that “his parents
were having sex while they were in the room.” When Campanella interviewed Mother, Mother
3
“admitted to the domestic violence, saying that it is an ongoing thing between them” and that she
and Father use “ice.” 4 Mother also had red marks on her neck consistent with being choked and
bruising on her arms, and she indicated that the children were present when the domestic
violence occurred. Campanella also interviewed Father, who admitted to choking and hitting
Mother on several occasions and that domestic violence occurred while the children were
present. 5 Father admitted to using methamphetamine twice a day and that he kept it on his
person “at all times.” During her investigation, Campanella also observed one child run into a
parking lot and almost get hit by a car while the parents “never reacted towards it.” After those
children were initially removed, Campanella documented that the children were “all pretty
filthy,” that some of the children had bruises and/or scratches, and that one child mentioned that
he “wanted to have sex like his parents.” Hair follicle drug tests were administered, and all the
children, as well as Father and Mother, tested positive for methamphetamine and amphetamines.
Ultimately, Father’s parental rights to those five children were terminated in November 2020 and
Mother’s parental rights were terminated in April 2021.
Sherry Godfrey, retired Department investigator, then testified regarding the
June 2021 investigation for abuse and neglect of Infant. According to Godfrey, Mother stated
that she did not know who the father was, that there were three possible fathers, but she did not
know their names. She also stated that no, “the baby is not [Father’s] baby.” Godfrey testified
that she had concerns because Mother was being arrested for theft, Mother was “continuing in a
manner of theft with the baby in her care,” and there were no relatives the baby could be placed
4“Ice” is slang for a form of methamphetamine. See In re A.N., No. 04-19-00584-CV,
2020 WL 354773, at *2 & n.3 (Tex. App.—San Antonio Jan. 22, 2020, no pet.) (mem. op.).
5 Father later testified that Mother assaulted him, but denied he assaulted Mother.
4
with. Godfrey also testified that she did not have any contact with Father. Godfrey stated that
she “had no reason at the time to not believe” Mother because she repeatedly denied that Father
was the father of Infant.
Venus Alvarez testified as the CPS caseworker assigned to Infant’s case. Infant
tested positive for methamphetamine metabolite and methamphetamine on June 15, 2021, shortly
after being removed, and Mother previously tested positive while pregnant with Infant. Alvarez
stated that she never spoke with Mother because Mother never returned her calls or emails.
Alvarez testified that she first became aware that Father may be the father of Infant based on
Mother’s testimony during an October 2021 hearing. Alvarez testified that she filed a service
plan for Father with the trial court in November 2021 and sent a copy by regular mail to his
treatment facility (although she did not know whether he received it). Alvarez stated that she
sent Father monthly letters while he was at the treatment facility, and that Father responded with
several letters back. Alvarez testified that as of the date of trial, Father had not been
acknowledged as the father of Infant, was not on the birth certificate, and had not yet provided
any proof on what he had done to improve himself while in custody except for a picture of a
certificate from his facility. She testified that Father was still on probation and that his probation
was transferred to Dallas. Alvarez testified that, as of the time of trial, Father had not verified
his Dallas address or his employment, and was “[n]ot to [her] knowledge” in a position to
receive Infant or provide for her.
Father testified that he was the father of Infant and wanted to accept responsibility
for being the father. Father testified that he arrived at the hospital ten minutes after the birth of
Infant but did not sign the birth certificate “because we were debating if it was mine or not.” He
saw Infant “a couple of times” after she was born when he took her to appointments and bought
5
diapers or formula. He also admitted that he previously used methamphetamine “twice a day”
for two years, and that his drug use continued until the day he was arrested in May 2021.
Father stated that he subsequently took “AA classes, I did Anger Management,
and I did Family Violence” courses during his treatment program. Although he admitted he had
a substance abuse problem, he testified that it was no longer a problem at the time of trial and
that he would “be clean” if drug tested. Father testified that he would be on probation for five
years, and that if probation were revoked he would go back into custody.
Father testified that he was now in a position to take Infant, that he had a room
with a crib at his other sister’s home in Dallas, and that the sister was willing to take in the child,
although he did not know whether that sister and her husband had a criminal history. Father also
testified that he had a job remodeling houses, that he worked from 6:00 a.m. until 7:00 p.m., and
that his sister would watch Infant during the day. Father stated that he did not have clothes for
Infant but had the funds to buy “whatever else she needs.”
At the end of trial, the trial court found that Father was the alleged father but
could not adjudicate him as the father because of contradictory evidence in the record. The trial
court, however, then terminated Father’s rights under Section 161.001(b)(1)(E) and found that
termination was in the best interest of Infant when “you-all get information that he is indeed the
biological father.” The trial court also found that, as the alleged father, Father had failed to
register with the paternity registry and then terminated his parental rights, if he had any, under
Section 161.002(c-1). 6 The trial court signed the final order of termination on June 1, 2022,
memorializing those findings and reiterated that clear and convincing evidence supported
6 The trial court also terminated Mother’s rights pursuant to Sections 161.001(b)(1)(E).
Mother has not joined in this appeal.
6
terminating Father’s parental rights pursuant to Section 161.001(b)(1)(E) should Father “be
confirmed through DNA testing to be the father.” The record on appeal shows that subsequent
genetic testing results filed with the trial court provided that there is a 99.99997% chance Father
is Infant’s father.
STANDARD OF REVIEW
To terminate the parent-child relationship, a court must find by clear and
convincing evidence that: (1) the parent has committed one of the enumerated statutory grounds
for termination and (2) it is in the child’s best interest to terminate the parent’s rights. Tex. Fam.
Code § 161.001(b). Clear and convincing evidence is “the measure or degree of proof that will
produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations
sought to be established.” Id. § 101.007.
“The distinction between legal and factual sufficiency lies in the extent to which
disputed evidence contrary to a finding may be considered.” In re A.C., 560 S.W.3d 624, 630
(Tex. 2018). When determining legal sufficiency, we consider whether “a reasonable factfinder
could form a firm belief or conviction that the finding was true” when the evidence is viewed in
the light most favorable to the factfinder’s determination and undisputed contrary evidence is
considered. Id. at 631. When determining factual sufficiency, we consider whether “in light of
the entire record, the disputed evidence a reasonable factfinder could not have credited in favor
of a finding is so significant that the factfinder could not have formed a firm belief or conviction
that the finding was true.” Id. We must “provide due deference to the decisions of the
factfinder, who, having full opportunity to observe witness testimony first-hand, is the sole
7
arbiter when assessing the credibility and demeanor of witnesses.” In re A.B., 437 S.W.3d 498,
503 (Tex. 2014); see also In re J.P.B., 180 S.W.3d 570, 573 (Tex. 2005).
DISCUSSION
Father challenges the legal and factual sufficiency of the evidence to support the
trial court’s findings under subsections (c-1) and (E). Father also contends that the Department
violated his constitutional due process rights by failing to make reasonable efforts to make it
possible to return the child. Because of the potential implications for future termination
proceedings, we first review the evidence supporting the trial court’s finding that subsection (E)
supports termination. See In re N.G., 577 S.W.3d 230, 232–33, 237 (Tex. 2019) (per curiam).
Statutory-Predicate Ground
The trial court may order termination of the parent-child relationship under
subsection (E) if clear and convincing evidence establishes that the parent “engaged in conduct
or knowingly placed the child with persons who engaged in conduct which endangers the
physical or emotional well-being of the child.” Tex. Fam. Code § 161.001(b)(1)(E). “Although
parental rights are of constitutional magnitude, it is also essential that emotional and physical
interests of the child not be sacrificed merely to preserve that right.” J.M. v. Texas Dep’t of Fam.
& Protective Servs., No. 03-21-00274-CV, 2021 WL 5225432, at *4 (Tex. App.—Austin
Nov. 10, 2021, pet. denied) (mem. op.) (quoting In re C.H., 89 S.W.3d 17, 23 (Tex. 2002))
(quotation marks omitted).
“Endangerment” in this context means exposing a child to loss or injury or
jeopardizing a child’s emotional or physical well-being. See Texas Dep’t of Human Servs.
v. Boyd, 727 S.W.2d 531, 533 (Tex. 1987); A.C. v. Texas Dep’t of Fam. & Protectives Servs.,
8
577 S.W.3d 689, 698–99 (Tex. App.—Austin 2019, pet. denied). “Although ‘endanger’ means
more than a threat of metaphysical injury or the possible ill effects of a less-than-ideal family
environment, it is not necessary that the conduct be directed at the child or that the child actually
suffers injury.” In re M.C., 917 S.W.2d 268, 269 (Tex. 1996) (quoting Boyd, 727 S.W.2d at
533). “Endangerment does not have to be established as an independent proposition but may
instead be inferred from the parental misconduct.” D.J. v. Texas Dep’t of Fam. & Protective
Servs., No. 03-20-00323-CV, 2020 WL 7395924, at *3 (Tex. App.—Austin Dec. 17, 2020, pet.
denied) (mem. op.).
Subsection (E) focuses on the parent’s conduct—including acts, omissions, or
failures to act—and whether the parent engaged in a voluntary, deliberate, and conscious course
of conduct that endangered the child's physical or emotional well-being. V.P. v. Texas Dep’t of
Fam. & Protective Servs., No. 03-19-00531-CV, 2020 WL 544797, at *4 (Tex. App.—Austin
Feb. 4, 2020, no pet.) (mem. op.) (citing In re M.D.M., 579 S.W.3d 744, 764 (Tex. App.—
Houston [1st Dist.] 2019, no pet.)). “Conduct that subjects a child to a life of uncertainty and
instability endangers the child’s physical and emotional well-being.” J.M., 2021 WL 5225432,
at *5 (quoting Pruitt v. Texas Dep’t of Fam. & Protective Servs., No. 03-10-00089-CV, 2010
WL 5463861, at *14 (Tex. App.—Austin Dec. 23, 2010, no pet.) (mem. op.)). In considering
whether a parent’s conduct amounts to endangerment under subsection (E), the factfinder may
consider conduct that occurred both before the child’s birth and after the Department removed
the child from the parent’s custody. Id.; In re S.R., 452 S.W.3d 351, 360 (Tex. App.—Houston
[14th Dist.] 2014, pet. denied). Drug use may support termination under subsection (E) because
it exposes the child to the possibility that the parent may be impaired or imprisoned. See D.J.,
9
2020 WL 7395924, at *4 (citing In re J.O.A., 283 S.W.3d 336, 345 (Tex. 2009)); A.C.,
577 S.W.3d at 699; In re M.C., 482 S.W.3d 675, 685 (Tex. App.—Texarkana 2016, pet. denied).
Reviewing the record under the applicable standards, we conclude that legally and
factually sufficient evidence supports the trial court’s finding that Father engaged in conduct or
knowingly placed Infant with persons who engaged in conduct which endangered the physical or
emotional well-being of Infant. See Tex. Fam. Code § 161.001(b)(1)(E). 7 Father testified that
he was previously convicted of possessing cocaine in 2011 and served time in prison, that he
used methamphetamine twice a day for the two years up until he was arrested in May 2021, that
he had a substance-abuse issue, and that he went into custody shortly after Infant was born. D.H.
v. Texas Dep’t of Fam. & Protective Servs., 652 S.W.3d 54, 61 (Tex. App.—Austin 2021, no
pet.) (“In some circumstances, a parent’s drug use might be so pervasive or serious that the
factfinder could reasonably infer that the drug use is endangering, despite a lack of evidence
showing that the drug use caused some other endangering activity or even that the drug use
7 Father contends that the evidence was legally insufficient to support termination under
that statutory predicate because the trial court declined to adjudicate that Father was the father of
Infant at the hearing, citing contradictory statements of Mother. However, based on the facts
before us, the trial court did not err in determining termination of Father’s rights under
subsection (E). See Tex. Fam. Code § 161.002(a) ( “[T]he procedural and substantive standards
for termination of parental rights apply to the termination of the rights of an alleged father”); see
also In re M.M., No. 07-19-00324-CV, 2020 WL 1265423, at *5 (Tex. App.—Amarillo
Mar. 16, 2020, pet. denied) (mem. op.) (concluding trial court could consider termination under
section 161.001 even though parent was not adjudicated as father); In re C.M.C.,
No. 14-12-00186-CV, 2012 WL 3871359, at *3 (Tex. App.—Houston [14th Dist.]
Aug. 30, 2012, pet. denied) (mem. op.) (“[T]he Department properly sought termination of
appellant’s parental rights under section 161.001(1)(O) even though his paternity had not yet
been finally adjudicated.”). Furthermore, Father admitted at trial and in his briefing on appeal
that he is Infant’s father, see Tex. Fam. Code § 160.623(a) (authorizing party to admit to
paternity of a child “by admitting paternity under penalty of perjury when making an appearance
or during a hearing”), and subsequent DNA testing demonstrated that there is a 99.99997%
probability Father is Infant’s father.
10
occurred while the children were in the parent’s direct care.”); see also J.G. v. Texas Dep’t of
Fam. & Protective Servs., 592 S.W.3d 515, 524 (Tex. App.—Austin 2019, no pet.) (“Evidence
of a parent’s criminal history, convictions, and resulting imprisonment may establish an
endangering course of conduct.”). Campanella also testified that Mother and Father had both
admitted to drug use during the removal investigation of their five older children. All the older
children tested positive for amphetamines and methamphetamine. Moreover, Infant tested
positive for amphetamines and methamphetamine approximately one month after birth, and
Alvarez testified that Mother had also tested positive while pregnant in March 2021. See D.H.,
652 S.W.3d at 62 (explaining that parent’s ongoing drug use “jeopardizes the parent-child
relationship and subjects the child to a life of uncertainty and instability”).
Campanella also testified that during her previous investigation, Mother admitted
that domestic violence was “an ongoing thing between them,” Mother presented with red marks
on her neck “consistent with being choked,” Father admitted to “choking and hitting” Mother,
and one of the children “acted out the fighting to show” Campanella “the choking moves” and
“would punch at the stairwell to show [her] that’s how the punching was occurring.” See J.G.,
592 S.W.3d at 524 (“Evidence of domestic violence is also relevant to endangerment, even if the
violence is not directed at the child.”). Campanella testified that neither Father nor Mother
reacted when one of their children ran out into the parking lot and “almost got hit by a car,” and
that the older children were “all pretty filthy” at removal.
Father contends that there was no testimony that he had ever abused or neglected
Infant prior to her removal and that evidence about his drug use and domestic violence
concerned older legal cases and the prior removal of his older children in April 2020. However,
the trier of fact is entitled to consider parental actions before and after his child’s birth when
11
determining endangerment. See J.G., 592 S.W.3d at 525. Father also admits he used
methamphetamine up until his May 2021 arrest, that he was arrested on drug-related charges
several days after Infant’s birth, and that prior to his arrest he only saw Infant “a couple of times”
while Infant remained in Mother’s care. See D.H., 652 S.W.3d at 62 (explaining that parent’s
ongoing drug use “jeopardizes the parent-child relationship and subjects the child to a life of
uncertainty and instability”); see also In re C.V.L., 591 S.W.3d 734, 751 (Tex. App.—Dallas
2019, pet. denied) (“[E]vidence that another parent allowed a child to be around a parent or other
persons using drugs, can qualify as a voluntary, deliberate, and conscious course of conduct
endangering the child’s well-being under subsection (E).”). Godfrey explained that Infant was
subsequently removed from Mother approximately a month later based on concerns that Mother
“was continuing to use drugs; that she was continuing in a manner of theft with the baby in her
care”; and was facing an impending arrest. See R.C.C. v. Texas Dep’t of Fam. & Protective
Servs., No. 03-21-00687-CV, 2022 WL 2231306, at *5 (Tex. App.—Austin June 22, 2022, pet.
struck) (mem. op.) (concluding legally sufficient evidence supported subsection (E) finding
based in part on “evidence that Father was aware of Mother’s drug use and should have known
that Child was being harmed and in danger of further harm in Mother’s care, but that he did not
protect Child”). 8
8 Father also complains that the Department failed to create a service plan or make any
reasonable effort to return Infant, but those are not requirements for finding sufficient evidence
supporting termination under subsection (E). See A.L. v. Texas Dep’t of Fam. & Protective
Servs., No. 03-13-00610-CV, 2014 WL 641456, at *5 (Tex. App.—Austin Feb. 13, 2014, no
pet.) (mem. op.) (“In the present case, however, the termination was ordered pursuant to section
161.001, not section 161.003, and the requirements for termination under 161.003 are
therefore not implicated in this case.”); Karl v. Texas Dep’t of Protective & Regulatory Servs.,
No. 03-03-00655–CV, 2004 WL 1573162, at *5 n. 3 (Tex. App.—Austin July 15, 2004, no pet.)
(mem. op.) (noting section 161.001(b)(1)(E) contains no requirement that Department make
reasonable efforts to return child to parent).
12
After considering all the evidence in the light most favorable to the district court’s
finding, along with any undisputed evidence contrary to the finding under subsection (E), we
conclude that a reasonable factfinder could have formed a firm belief or conviction that Father
engaged in a course of conduct or knowingly placed the child with persons who engaged in
conduct that endangered Infant’s physical or emotional well-being. See Tex. Fam. Code
§ 161.001(b)(1)(E); In re A.C., 560 S.W.3d at 631. In addition, in view of the entire record, we
conclude that the disputed evidence is not so significant that the district court, as factfinder,
could not have formed a firm belief or conviction that Father engaged in conduct or knowingly
placed the child with persons who engaged in conduct endangering Infant. See In re A.C.,
560 S.W.3d at 631. Consequently, the evidence is both legally and factually sufficient to support
the district court’s finding that termination of Father’s parental rights was warranted under
subsection (E). 9 We overrule Father’s second issue on appeal. 10
Reasonable Efforts to Return
Father also contends that the Department violated his constitutional due process
rights by failing to create a service plan for Father or to make reasonable efforts to make it
9 Father also challenges that there is legally and factually sufficient evidence supporting
termination pursuant to Section 161.002(c-1). See Tex. Fam. Code § 161.002(c-1). Because we
have determined that legally and factually sufficient evidence supports the trial court’s
termination order under subsection (E), we need not address Father’s challenge of
the trial court’s finding that termination is warranted under subsection (c-1). See D.J.,
2020 WL 7395924, at *5; see also Tex. R. App. P. 47.1.
10 Father did not submit any briefing or substantive arguments challenging the best
interest finding. See Tex. R. App. P. 38.1(i) (requiring briefs to contain “"clear and concise
argument for the contentions made, with appropriate citations to authorities and to the record”");
see also In re R.H.W. III, 542 S.W.3d 724, 742 (Tex. App.—Houston [14th Dist.] 2018, no pet.)
(“Father failed to adequately brief any argument in support of this issue, and so has waived the
complaint.”); Liberty Mut. Ins. v. Griesing, 150 S.W.3d 640, 648 (Tex. App.—Austin 2004, pet.
dism’d w.o.j.) (“Bare assertions of error without argument or authority waive error.”).
13
possible to return the child. See Tex. Fam. Code §§ 262.2015(a), 263.101. However, Father has
failed to preserve this issue for appellate review, which requires that the party “present[ed] to the
trial court a timely request, objection, or motion, and state the specific grounds for the ruling
sought.” In re A.N., No. 10-16-00394-CV, 2017 WL 4080100, at *2 (Tex. App.—Waco Sept.
13, 2017, no pet.) (mem. op.) (citing Tex. R. App. P. 33.1(a)(1)). The record on appeal does not
demonstrate that Father objected or otherwise raised a timely request regarding this issue so that
this specific ground was presented to the trial court. Tex. R. App. P. 33.1(a)(1). Accordingly,
assuming arguendo that failing to create a service plan is a constitutional error, Father has failed
to preserve this complaint for appellate review. See In re B.L.D., 113 S.W.3d 340, 350 (Tex.
2003) (complaint based on constitutional error must be preserved in the trial court); see also In re
L.C.L., 599 S.W.3d 79, 90 (Tex. App.—Houston [14th Dist.] 2020 pet. denied) (concluding
parent failed to preserve complaint that providing written service plan to parent in language
parent does not understand constitutes a constitutional due process error). 11
11 Assuming the Department had a duty to take reasonable efforts to make it possible to
return the child, but see Karl, 2004 WL 1573162, at *5 (noting that Section 161.001 “does not
require the Department to make any efforts to return the child to the parent”), Alvarez testified
that she created a service plan and mailed it to Father (although the record reflects that the plan
was initially inadvertently filed in the wrong termination proceeding). See In re M.R.J.M.,
280 S.W.3d 494, 505 (Tex. App.—Fort Worth 2009, no pet.) (“The State’s preparation and
administration of a service plan for the parent constitutes evidence that the State made reasonable
efforts to return the child to the parent.”). Moreover, Alvarez repeatedly sent letters to Father
after tracking down his location, and Godfrey separately testified that one of Father’s sisters was
considered for placement but that sister’s partner had a DUI, eliminating the possibility of
placement with that sister. See In re L.C.M., 645 S.W.3d 914, 921–22 (Tex. App.—El Paso
2022, no pet.) (concluding that Department “actively attempt[ing] to engage Father directly” and
efforts to place subject child with relatives supported finding that Department had “made
reasonable efforts to return the child”).
14
CONCLUSION
Having concluded there was legally and factually sufficient evidence supporting
the trial court’s termination under subsection (E) and overruling Father’s other issue, we affirm
the trial court’s final decree terminating Father’s parental rights to Infant.
__________________________________________
Darlene Byrne, Chief Justice
Before Chief Justice Byrne, Justices Triana and Smith
Affirmed
Filed: November 16, 2022
15 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488485/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 17, 2022
NO. 03-21-00225-CR
Daniel Wayne Bennett, Appellant
v.
The State of Texas, Appellee
APPEAL FROM THE 119TH DISTRICT COURT OF TOM GREEN COUNTY
BEFORE JUSTICES GOODWIN, BAKER, AND KELLY
MODIFIED AND, AS MODIFIED, AFFIRMED -- OPINION BY JUSTICE BAKER
This is an appeal from the judgments of conviction entered by the trial court. Having reviewed
the record and the parties’ arguments, the Court holds that there was no error in the court’s
judgment requiring reversal. However, there was error in the judgments that requires correction.
Therefore, the Court modifies the trial court’s judgments to reflect that appellant was convicted
in Tom Green County. The judgments, as modified, are affirmed. Appellant shall pay all costs
relating to this appeal, both in this Court and in the court below. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488486/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
JUDGMENT RENDERED NOVEMBER 17, 2022
NO. 03-21-00608-CV
Bradley Smith, Appellant
v.
Lorena Smith, Appellee
APPEAL FROM THE 459TH DISTRICT COURT OF TRAVIS COUNTY
BEFORE JUSTICES GOODWIN, BAKER, AND KELLY
DISMISSED FOR WANT OF PROSECUTION -- OPINION BY JUSTICE BAKER
Having reviewed the record, the Court holds that appellant has not prosecuted his appeal and did
not comply with a notice from the Clerk of this Court. Therefore, the Court dismisses the appeal
for want of prosecution. Because appellant is indigent and unable to pay costs, no adjudication
of costs is made. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488513/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00679-CV
Maria E. Esquivel DE AGUILERA,
Appellant
v.
CITY OF SAN ANTONIO,
Appellee
From the County Court at Law No. 3, Bexar County, Texas
Trial Court No. 2022CV00587
Honorable David J. Rodriguez, Judge Presiding
ORDER
On November 14, 2022, appellee the City of San Antonio filed a Motion to Substitute
Counsel in which appellee asks this court to substitute attorney Michael J. Urbis for Joshua
Longi—who is no longer employed by the City’s Litigation Division. Appellee further
represented lead appellate counsel, Jacqueline M. Stroh, will remain as lead appellate counsel for
the City. The motion complies with subsection (d) of Rule 6.5 and is granted. See TEX. R. APP.
P. 6.5.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
___________________________________
MICHAEL A. CRUZ, Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494605/ | ORDER ON DEBTOR’S MOTION TO SET APART AS EXEMPT LIFE INSURANCE PROCEEDS
WILLIAM S. SHULMAN, Bankruptcy Judge.
This matter came before the Court on the Debtor’s motion to set apart as exempt life insurance proceeds, and Parsons & Whittemore Enterprises Corporation’s (“P & W”) objection to the motion. The Court has jurisdiction to hear this matter pursuant to 28 U.S.C. §§ 157 and 1334 and the Order of Reference of the District Court. After due consideration of the pleadings, briefs, evidence and argument of counsel, the Court makes the following findings of fact and conclusions of law:
FINDINGS OF FACT
The Debtor, Lois Boykin, filed a chapter 11 petition on September 23, 2011. She was married to Jack W. Boykin, who passed away on August 25, 2011. Jack Boykin was the managing member of Cello Energy, LLC, the owner of research and production technology allegedly useful for manufacturing synthetic fuel from carbon-containing cellulosic material. Boykin Trust, LLC was the sole member of Cello. In 2007, P & W began negotiations with Cello, acting through Jack Boykin, for the use of Cello’s research and technology, and entered into a nondisclosure agreement in preparation for the construction and operation of a plant to manufacture cellulosic *667fuel. P & W paid to Cello a $2.5 million option payment for a one-third interest in Cello. On October 16, 2007, P & W filed a lawsuit against Cello, Jack Boykin and others alleging that Boykin had made a series of misrepresentations about Cello’s technology and its viability for manufacturing fuel, and that P & W had relied on these misrepresentations when paying the $2.5 million option payment. After a two week trial in June 2009, a jury returned a verdict in favor of P & W and against Jack Boykin, Cello, Boykin Trust, and Allen Boykin (Lois and Jack Boykin’s son). The U.S. District Court for the Southern District of Alabama (“the District Court”) entered a judgment based on the jury verdict and awarded damages of $10,481,560.50 for P & W and against Cello and Boykin Trust, and damages of $7,604,437.50 for P & W and against Jack and Allen Boykin on September 27, 2010.1 This judgment is presently on appeal.
After P & W paid Cello $2.5 million, Cello transferred $80,000 per month plus an additional $10,000 to Boykin Trust for a total of $700,000. Boykin Trust then transferred $20,000 per month to Lois Boykin for a total of $460,000 with an additional $30,000 in December 2007 and $20,000 in December 2008. In September 2009, P & W also filed suit in the District Court against Lois Boykin, Cello and others to avoid fraudulent transfers between Boykin Trust and Lois Boykin. After a bench trial in September 2010, the District Court found that Boykin Trust was formed for a fraudulent purpose, and that Lois, Jack and Allen Boykin used Boykin Trust as an instrumentality to fund their personal expenses. The Court entered a judgment for $10,431, 560.50 in favor of P & W and against Lois and Allen Boykin on February 3, 2011. The judgment was not appealed and. is now a final judgment. When P & W sought a marshal’s sale of Lois Boykin’s home, she filed the present chapter 11 petition on September 23, 2011.
Long before the Boykins’ dealings with P & W, Lois and Jack Boykin met with George Bryant, ap insurance agent, about purchasing life insurance. On October 12, 1987, Lois Boykin applied for a $1 million life insurance policy on Jack Boykin. Jack Boykin was the named insured on the policy, and Lois Boykin was listed at the beneficiary and the owner of the policy. The application states: “OWNER: The owner of the new policy will be the insured unless otherwise indicated below:”, and below this statement Lois Boykin is listed as the owner of the policy. Mrs. Boykin stated that she does not recall how Bryant was contacted about the insurance policies; however, Mr. Bryant was a friend and he probably initiated the meeting. At trial, Mrs. Boykin testified that she instructed Bryant to list her as the owner of the policy. In a 2004 exam done prior to the trial of this matter, Mrs. Boykin stated that she did not have a particular reason why she was named as the owner and the beneficiary of the policy on Mr. Boykin’s life, and that it may have been at Bryant’s suggestion. Mrs. Boykin received the annual reports and statements regarding the policy, and these reports listed her as the owner and beneficiary of the policy. The Boykins also had life insurance policies on Lois Boykin and each of their two children.
The $988.34 premiums for the life insurance policy at issue were paid from Lois Boykin’s operating account, located first at AmSouth Bank and then at the First National Bank of Baldwin County. This account was the same checking account that *668the $484,000 from P & W eventually were deposited. The money in Mrs. Boykin’s checking account came from her work buying and selling real estate. Mr. Boykin also put funds, like his Social Security checks and income tax refunds, into her account. Mrs. Boykin’s account was used to pay household bills. Mr. Boykin sometimes deposited his Social Security checks in his own checking account at First National Bank of Baldwin County. At the 2004 examination, Mrs. Boykin testified that Mr. Boykin placed all of his Social Security checks into her operating account; however, she testified at trial that she did not know that Mr. Boykin had a separate checking account at the time of the 2004 examination. She found the statement from Mr. Boykin’s account after the 2004 examination.
Jason Westbrook is a CPA and certified evaluation analyst who examined the Boy-kins’ financial and bank records in connection with the P & W litigation against Cello, Boykin Trust and the Boykins. Mrs. Boykin had two bank accounts at First National Bank of Baldwin County, a money market account and an operating account from which personal and household expenses were paid. Mr. Boykin’s Social Security checks, income tax refunds and transfers from the money market account were placed in the operating account. Boykin Trust deposited approximately $483,000 that it received from P & W into this account. Mr. Boykin deposited $63,000 in social security benefits into the operating account from February, 2007 to April, 2010. Payments for credit cards, groceries, insurance premiums and other household expenses were made from the operating account during this time period. The premiums for all of the Boykin life insurance policies equaled approximately $43,000 from March, 2007 to April, 2010; however, it is not clear how much of this amount is attributable to the policy at issue. Mrs. Boykin deposited $176,000 from a redeemed certificate of deposit, and $50,000 was transferred from her money market account between March 2007 and April 2010. Both Mr. and Mrs. Boykin’s funds were co-mingled along with the $483,000 from Boykin Trust in the operating account for household expenses between March 2007 and April 2010. West-brook’s review of the Boykins’ banking and financial records only encompassed 2007 through 2010. He did not examine records from before 2007.
Upon Mr. Boykin’s death, Mrs. Boykin received a check from Lincoln National Life Insurance Company for $969,610.24. The amount reflects the $1 million policy less a loan taken on the policy. She claimed these funds as exempt in her bankruptcy case. Mrs. Boykin put the funds in a separate account at BankTrust on advice of counsel and with permission from the Bankruptcy Administrator. The Court allowed her approximately $10,000 of the insurance proceeds for household expenses and chapter 11 bankruptcy fees for Cello and Boykin Trust.
CONCLUSIONS OF LAW
Mrs. Boykin claims the life insurance proceeds at issue to be exempt under the Code of Alabama (1975) § 27-14-29(b):
If a policy of insurance, whether heretofore or hereafter issued, is effected by any person on the life of another in favor of the person effecting the same or, except in cases of transfer with intent to defraud creditors, is made payable by assignment, change of beneficiary or otherwise to any such person, the latter shall be entitled to the proceeds and avails of the policy as against the creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts of the person insured. If the person effecting the insurance, or *669the assignee of such insurance, is the wife of the insured, she shall also be entitled to the proceeds and avails of the policy as against her own creditors, personal representatives, trustees in bankruptcy and receivers in state and federal courts. (Emphasis added.)
The issue before the Court is whether the Debtor qualifies as “the person effecting the insurance” under § 27-14-29(b). P & W claims that Mrs. Boykin did not take affirmative action in procuring the insurance for herself to qualify as “the person effecting the insurance”, and should the Court find that Boykin does qualify under the statute, she should not get the benefit of the exemption under the doctrine of unclean hands.
P & W asserts that Mrs. Boykin is not “the person effecting the insurance” under § 27-14-29(b) based on her testimony at the § 341 meeting and a 2004 examination. Mrs. Boykin testified that she did not remember why she is listed as the owner and beneficiary on the policy at issue, and proposed that the insurance agent may have suggested the arrangement. Boykin also testified that she did not remember if she or her husband initiated the purchase of the policy, and that it was probably a joint decision. According to P & W, this testimony does not meet the level of proof needed to “effect” an insurance policy as set out in Matter of Levine, 179 MisC. 241, 38 N.Y.S.2d 442, 444 (N.Y.S.1942), which describes the person effecting a policy to be “the one who is the ‘procuring cause’ of the insurance.” P & W also cites Matter of Bifulci 154 F.Supp. 629, 631 (S.D.N.Y.1957), which held that the exemption applies only when “the wife of her own initiative takes out insurance upon her husband, making application for the policy and receiving the policy.”
As the parties have noted, there is no Alabama case law defining what it means to effect an insurance policy, so the parties are left citing cases based on a New York statute with similar wording. See In re McWhorter, 312 B.R. 695, 698 (Bankr.N.D.Ala.2004). Both the Levine and the Bifulci cases involve fact situations where the husband applied for the policy and was named as owner of a policy of insurance with the debtor wife named as the beneficiary. Levine, 38 N.Y.S.2d at 443 (“we assume the case to be the ordinary one of a husband’s applying for and obtaining insurance upon his own life naming his wife as beneficiary, he paying the premiums.”); Bifulci 154 F.Supp. at 630 (the husband of the debtor made application for a life insurance policy on his own life with the policy issued and delivered to him; the debtor-wife paid the premiums from her own bank accounts). In both cases, the parties do not dispute the written application or the insurance contract. The debtors in both cases argue that they, as mere beneficiaries, are entitled to exempt the insurance proceeds as to their own creditors, even though they did not apply for the policies and were not named as owners. In Mrs. Boykin’s case, her name is clearly listed as the applicant and she signed the application as the owner of the policy. There is even a section of the application which says, “OWNER: The owner of the new policy will be the Insured unless otherwise indicated below:”, and Lois Boykin’s name is listed with her address and Social Security number. Unlike the wives in Levine and Bifulci Lois Boykin is listed from its inception as the owner and the beneficiary of the life insurance policy at issue. The written document naming the debtor as owner and applicant is the best evidence of who effected the insurance policy.
P & W makes much of the fact that Mrs. Boykin cannot remember the facts surrounding the purchase of the policy, that *670she conferred with her husband about the insurance and may have been counseled by her insurance agent about being named as owner of the policy. The Court agrees that her testimony at the hearing conflicts with previous testimony she has given, but is not surprised that Mrs. Boykin cannot remember the details of purchasing a life insurance policy almost twenty five years ago. Further, it is a common practice for married couples to discuss financial decisions such as life insurance, and for people not working in the insurance business to discuss insurance matters with their insurance agents. Even if Mrs. Boykin discussed the policy with her husband and sought advice from her agent, the end result is embodied in the application for insurance. She applied for the policy, was named as owner of the policy, and paid the premiums on the policy for almost 25 years. It would indeed be a narrow reading of § 2Y — 14—29(b) if the wife was forced to prove that she obtained a life insurance policy on her husband’s life without talking about it with him or seeking advice from an insurance agent. The Court is reluctant to ignore the plain language of the application for insurance without any binding precedence. Therefore, the Court finds that Mrs. Boykin is the person effecting the insurance under § 27-14-29(b) of the Code of Alabama.
P & W also maintains that Mrs. Boykin should not be allowed the benefit of the exemption based on the doctrine of unclean hands, referring to its judgment against Mrs. Boykin and her involvement in Cello’s action to defraud P & W. P & W maintains that the premiums for the policy on Mr. Boykin’s life were paid from funds that P & W transferred to Boykin Trust which were then transferred to Mrs. Boy-kin’s operating account. However, the evidence showed that Mrs. Boykin deposited $176,000 of her own money from a redeemed certificate of deposit, and $50,000 was transferred from her money market account to the operating account between March 2007 and April 2010. Mr. Boykin also deposited some of his Social Security checks into the account. While it is possible that some of P & W’s funds were used to pay the premiums for the life insurance policy at issue, the fact that P & W’s funds were co-mingled with the Boykins’ funds makes such a finding speculative. Based on this evidence, P & W has not proved that the funds obtained by Cello and Boy-kin Trust’s deception and transferred to Mrs. Boykin were the source of the premium payments for the insurance policy at issue, nor, if used, how much of P & W’s funds were actually spent toward premiums for this specific policy.
P & W cites Gossum v. Moore, 1991 WL 159893, *5-6, 1991 Tenn.App. LEXIS 648, *14 (Tenn.App. Aug. 22, 1991) and Comodity Futures Trading Comm’n v. Hudgins, 620 F.Supp.2d 790, 793 (E.D.Tex.2009) as the basis for denying the exemption due to unclean hands. Both cases are distinguishable from Boykin’s case. In Gossum, the court refused to allow the plaintiff to exempt funds from an automobile accident settlement from Blue Cross Blue Shield because the plaintiff failed to protect Blue Cross’s subrogation interest despite having direct knowledge of the interest. In Hudgins, the defendant operated a Ponzi scheme and used some of the proceeds to pay off the mortgage on a friend’s condominium. When a receiver sought to seize the condominium to compensate the victims of the Ponzi scheme, the court refused the friend’s assertion of a homestead exemption because the funds were fraudulently obtained; the court noted that there was no dispute that the funds used to pay off the mortgage came from the Ponzi scheme. In both cases cited by P & W, there was a direct connection between the exemption sought and the de*671ceptive action involved. There was also an identifiable source of funds related to the deception. Boykin refers to the Supreme Court’s holding in Keystone Driller Co. v. General Excavator Co., 290 U.S. 240, 245, 54 S.Ct. 146, 78 L.Ed. 298 (1933) that the doctrine of unclean hands can be applied only when the misconduct “has immediate and necessary relation to the equity” sought in the litigation. P & W claims that the funds paid to Boykin Trust as a result of Mr. Boykin’s deception were deposited in Mrs. Boykin’s operating account with her knowledge and cooperation, and that she used these funds to pay the premiums for the life insurance policy. However, P & W failed to show that the funds paid to Boykin Trust and then to Mrs. Boykin from March 2007 to April 2010 were used to pay the premiums. In addition, Boykin paid the premiums on the life insurance policy from 1987 to 2007, long before P & W became involved with Cello and Boykin Trust. Mrs. Boykin’s participation in Jack Boykin’s scheme to defraud P & W is reprehensible. The Court does not seek to condone or overlook the fact that Mrs. Boykin allowed Mr. Boykin to use her operating account to avoid P & W and other creditors. However, P & W has not provided sufficient legal precedent indicating that this Court can deny Mrs. Boykin’s statutory exemption based on fraudulent acts that are not directly related to the exemption. Therefore, the Court finds that Mrs. Boykin’s exemption under § 27-14-29(b) should not be denied under the doctrine of unclean hands.
Based on the foregoing, the Court finds that the Debtor’s motion to set apart as exempt life insurance proceeds should be granted, and Parsons & Whittemore Enterprises Corporation’s (“P & W”) objection to the motion should be overruled. It is hereby
ORDERED that the Debtor’s motion to set apart as exempt life insurance proceeds is GRANTED, and the funds received from the Lincoln National life insurance policy are exempt under the Code of Alabama (1975) § 27-14-29(b); and it further
ORDERED that Parsons & Whittemore Enterprises Corporation’s objection to said motion is OVERRULED.
. In October 2010, Jack Boykin, Cello, and Boykin Trust each filed chapter 11 bankruptcy petitions which are being jointly administered by Judge Margaret Mahoney of this Court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494606/ | ORDER AND MEMORANDUM OPINION ON STRIP OFF IN CHAPTER 20 CASES
MICHAEL G. WILLIAMSON, Bankruptcy Judge.
The Debtor in this chapter 201 case seeks to strip off wholly unsecured junior mortgages encumbering her principal residence. The creditor objects because the Debtor previously received a discharge of her debts in a chapter 7 case filed within four years of her chapter 13 case, and therefore, she is not eligible for a discharge. For the reasons set forth below, the Court overrules this objection and concludes that eligibility for a discharge is not a requirement to strip off of a wholly unsecured junior mortgage in a chapter 20 case.
Factual and Procedural Background
The Debtor moved to determine the secured status of second and third mortgages on her homestead.2 Those mortgages, currently held by Wells Fargo Bank, N.A., secure approximately $104,000 in debt. Wells Fargo also holds a first mortgage on the Debtor’s homestead. That mortgage secures approximately $122,000 in debt. According to the Debtor’s motion to determine secured status, the value of the her homestead is $118,000. That means Wells Fargo’s second and third mortgages are wholly unsecured, and as a consequence, the Debtor seeks to strip off those mortgages.
Wells Fargo, however, claims that the Debtor cannot strip its second and third mortgages because she is not eligible to receive a discharge in this case.3 Under Bankruptcy Code § 1328(f), a chapter 13 debtor is not eligible for a discharge if the debtor received a discharge in a chapter 7 case filed within four years of the chapter 13 case. Here, the Debtor filed a previous chapter 7 case on November 27, 2009 — less than fourteen months before she filed this case. The Debtor received a discharge in that case. So she is not eligible for a discharge in this case.
At the preliminary hearing on the Debt- or’s motion to determine secured status, the Court decided to bifurcate the final hearing on the Debtor’s motion so that it can first determine as a matter of law whether the Debtor can strip off Wells Fargo’s second and third mortgages. The sole issue before the Court, then, is whether a debtor can strip off a wholly unsecured junior mortgage in a chapter 20 case.4 Courts are currently split on this *674issue.5 And as of yet, the Eleventh Circuit has not addressed this specific issue.
Conclusions of Law
This Court has jurisdiction over this matter under 28 U.S.C. § 1834. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(B) and (L).
In analyzing whether a chapter 20 debtor can strip off a wholly unsecured junior mortgage, the Court first looks to Supreme Court and circuit court cases that have addressed either chapter 20 cases or lien stripping since the early-1990’s. Although none of those cases directly address the issue currently before the Court, they do provide certain principles to guide the Court’s analysis. The Court must then consider the applicable Bankruptcy Code provisions in light of those guiding principles. Finally, the Court must also consider the reasoning underlying the opinions by courts ruling that strip offs in chapter 20 cases are not permitted under the Bankruptcy Code. Based on this analysis, the Court concludes that a debtor may strip off a wholly unsecured junior mortgage in a chapter 20 case even though the debtor is not eligible for a discharge.
Supreme Court and Circuit Court Precedent Johnson v. Home State Bank
There are three Supreme Court cases that relate either to strip off or chapter 20 cases. The first case is Johnson v. Home State Bank.6 In Johnson, the Supreme Court considered whether a debtor can include a mortgage lien in a chapter 13 plan if the personal obligation secured by the mortgaged property had been discharged in a prior chapter 7 case. The Supreme Court concluded that such relief was available.
Johnson involved a mortgage on farm property owned by the debtor. When the debtor defaulted under a promissory note secured by the farm property, the bank sued to foreclose in state court. The debt- or then filed for chapter 7, and his personal liability on the promissory note was ultimately discharged. As is typical, the bank obtained stay relief to continue with the state court foreclosure proceeding. The bank eventually obtained an in rem foreclosure judgment against the debtor, but before the foreclosure sale took place, the debtor filed for chapter 13. The debt- or scheduled the bank’s mortgage as a claim and proposed to pay the bank over the five-year term of the plan.
In concluding that such relief was available to the debtor, the Supreme Court held that, “[s]o long as a debtor meets the eligibility requirements for relief under Chapter 13 ... he may submit for the bankruptcy court’s confirmation a plan that ‘modifies] the rights of holders of secured claims ... or ... unsecured claims,’ ... and that ‘provide[s] for the payment of all or any part of any [allowed] claim.’ ”7 Because the debtor’s personal *675liability under the note was extinguished in the prior chapter 7, what remained intact was whatever in rem rights continued to exist against the debtor’s property. It was these in rem rights that were subject to administration in the subsequent chapter 13 case.
The Johnson Court also dealt with the serial filing aspects of a chapter 20 case. The bank contended in Johnson that allowing successive filings would “evade the limits that Congress intended to place on these remedies.”8 In considering this argument, the Court noted that Congress expressly prohibited various forms of serial filings. For instance, Bankruptcy Code § 109(g) prohibits filings within 180 days of dismissal, and § 727 limits the right to a discharge in successive filings.9 “The absence of a like prohibition on serial filings of Chapter 7 and Chapter 13 petitions, combined with the evident care with which Congress fashioned these express prohibitions, convinces us that Congress did not intend categorically to foreclose the benefit of Chapter 13 reorganization to a debtor who previously has filed for Chapter 7 relief.”10 So Johnson recognized a debt- or’s right to file a chapter 20 case.
Dewsnup v. Timm
The second case is Dewsnup v. Timm.11 In Dewsnup, a chapter 7 debtor sought to strip down a creditor’s lien on real property to the value of the collateral. The debtor argued that this could be accomplished by valuing the collateral under § 506(a) and then voiding the lien under § 506(d). Bankruptcy Code § 506(d) provides that “[t]o the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void.” Section 506(a), of course, provides that a claim is secured only to the extent of the value of the collateral.
The Supreme Court rejected this approach because it was based solely on § 506(d). According to the Court, § 506(d), when read “term-by-term,” refers to any claim that is first “allowed” and second “secured.” Since there was no question that the claim in Dewsnup was allowed under § 502 and was secured by a lien on the underlying collateral, it did not come within the scope of § 506, which only voids liens securing claims that have “not been allowed.”12
Viewed in context, it appears that the debtor in Dewsnup was attempting to reorganize her secured debt in a chapter 7 case without the benefit of the reorganization provisions in chapters 11, 12, or 13.13 If the debtor were able to strip down a lien in a chapter 7 case to the value of the collateral without the ability to reorganize the remaining secured claim, the debtor would then either have to pay off the full amount of the claim or lose the collateral to the secured creditor in foreclosure. While not discussed in Dewsnup, this is, in effect, a similar result to that already provided for in Bankruptcy Code § 722, which allows a debtor to redeem tangible personal property. This provision — the onlypro-*676vision in chapter 7 that allows a debtor to retain collateral by simply paying the amount of the secured claim — is limited by its terms to personal property. Thus, Dewsnup recognized that § 506(d), by itself, is insufficient to strip a lien on a debtor’s homestead. Section 506(d) must operate in tandem with another Bankruptcy Code provision to strip a lien.
Nobelman v. American Savings Bank
The third ease is Nobelman v. American Savings Bank14 The question before the Supreme Court in that case was whether § 1322(b)(2) prohibits a chapter 13 debtor from relying on § 506(a) to reduce an un-dersecured homestead mortgage to the fair market value of the mortgaged residence. Bankruptcy Code § 1322(b)(2) provides that a chapter 13 plan may not modify the “rights of holders of secured claims ... secured only by a security interest in ... the debtor’s principal residence.” The debtor in Nobelman argued that § 1322(b)(2)’s anti-modification provision applies only to the extent the mortgagee holds a “secured claim” in the debt- or’s residence. Under this argument, the court would first look to § 506(a) to determine the value of the mortgagee’s “secured claim.” The secured claim would then be stripped down to the value of the collateral.
The Supreme Court rejected this interpretation because it failed to take into account § 1322(b)(2)’s focus on “rights.”15 Simply put, a mortgage holder’s rights, which are protected by § 1322(b)(2), are not limited by the value of its secured claim. Rather, the creditor’s rights, including the right to retain the lien until the debt is paid off, are derived from the creditor’s mortgage instruments. It is these rights, bargained for by the mortgagor and the mortgagee, that are protected from modification by § 1322(b)(2).16 And these rights are contained in a “unitary note” that applies to the bank’s overall claim, which includes its secured and unsecured components.17
In re Tanner
But Nobelman only dealt with a claim that was partially undersecured. In No-belman, it was the existence of some collateral for the bank’s claim that made the bank a “holder” of a “secured claim” that brought into play § 1322(b)(2)’s anti-modification provision protecting the “rights” of the holders of even partially secured claims.18 This left open the issue of whether Nobelman’s holding extends to wholly unsecured junior mortgages. While the Supreme Court has never addressed this precise issue, a number of circuit courts of appeal and bankruptcy appellate panels have weighed in since No-belman. These courts — including the Eleventh Circuit in In re Tanner — have held that § 1322(b)(2)’s anti-modification provision does not bar a chapter 13 debtor from stripping off a wholly unsecured lien on the debtor’s principal residence.19
*677These opinions recognize that where a junior mortgage is determined to be wholly unsecured under § 506(a) because the amount of the senior mortgage exceeds the value of the collateral, then the debtor has the right under § 1322(b)(2) to modify the “rights” of the holder of the secured claim by extinguishing the in rem lien rights that would otherwise exist under nonbank-ruptcy law. As discussed in Tanner,
[a]n analysis of the state law “rights” afforded a holder of an unsecured “lien,” if such a situation exists, indicates these rights are empty rights from a practical, if not a legal, standpoint. A forced sale of the property would not result in any financial return to the lienholder, even if a forced sale could be accomplished where the lien attaches to nothing.20
Summary of Relevant Precedent
So what guidance do these Supreme Court and circuit court cases provide in deciding the issue in this case? Those cases can be distilled down to four principles. First, Johnson instructs us that there is nothing in the Bankruptcy Code that prohibits a chapter 20 case. So long as the debtor meets the eligibility requirements for relief under chapter 13, the debtor may propose a plan that modifies the in rem rights of a holder of a secured claim, even after the debtor’s personal liability on that debt has been extinguished in a prior chapter 7.21 Second, under Dewsnup, the rights of holders of secured claims cannot be modified in a chapter 7 case because § 506(d) does not operate by itself to strip a lien; it must operate in tandem with another provision to strip a lien.22 Third, Nobelman makes clear that § 1322(b)(2) cannot be used to modify the rights of a holder of secured claim where any portion of the claim is secured by the debtor’s principal residence. Even one dollar of collateral value in excess of the superior mortgage debt brings into play the anti-modification provision prohibiting a debtor from modifying a claim secured by the debtor’s principal residence.23 Fourth, all of the circuit courts of appeal and bankruptcy appellate panels that have considered the issue, including the Eleventh Circuit in Tanner, have held that Nobelman’s holding does not extend to wholly unsecured homestead mortgages.24 Section 1322(b)(2) does allow a debtor to strip off a wholly unsecured hen on the debtor’s principal residence. While these four principles provide guidance, they do not specifically address the issue before the Court in this case. So the Court must now look to the applicable Bankruptcy Code provisions in light of these guiding principles.
Application of the Bankruptcy Code
As the circuit courts and bankruptcy appellate panels permitting lien stripping *678recognize, the right to lien strip arises out of—and, indeed, those courts focus exclusively on—the interplay between § 506(a) and § 1322(b)(2). Section 1322(b)(2) permits a debtor to modify the rights of the holder of a secured claim so long as the claim is not secured by the debtor’s principal residence. Under § 506(a), a wholly unsecured junior mortgage is not a claim secured by the debtor’s principal residence. Accordingly, a debtor can modify the rights of a wholly unsecured junior mortgage in a chapter 13 case. And the same ought to be true in a chapter 20 case absent some prohibition to the contrary.
Courts holding that a chapter 20 debtor may not strip off a wholly unsecured junior mortgage—such as In re Gerardin25 and In re Quiros-Amy26—believe they have identified such a prohibition: Bankruptcy Code § 1325(a)(5). That section requires, as is relevant to this case, that a chapter 13 plan provide that a secured creditor retain its lien until the earlier of the payment of the underlying debt under non-bankruptcy law or entry of a discharge. Because chapter 20 debtors are not eligible for a discharge, those courts reason that chapter 20 debtors cannot confirm a plan that strips off a wholly unsecured junior mortgage.27 But that reasoning is unpersuasive for two reasons: (i) strip off does not implicate § 1325; and (ii) relief under chapter 13 is not contingent on eligibility for a discharge.
Strip Off Does Not Implicate § 1325
Section 1325(a)(5), by its terms, only applies to “allowed secured claims.” And as Tanner and the other circuit courts have made clear, the holder of a wholly unsecured junior mortgage does not have a “secured claim.”28 A mortgage holder’s lien is extinguished under § 1322(b)(2). Courts refusing to permit lien stripping in chapter 20 cases, however, protest that § 1325(a)(5) must be applicable because, according to those courts, the holder of a wholly unsecured mortgage cannot have anything other than an “allowed secured claim.”29 After all, the chapter 20 debt- or’s personal liability on the mortgage was extinguished in the chapter 7 case.30
But that approach reflects a misunderstanding of the effect of a chapter 7 discharge. To be sure, the chapter 7 discharge does extinguish a debtor’s personal liability on a secured claim. But it does not extinguish the underlying debt.31 Rather, the effect of the discharge is to void any judgment on the debt to the extent the judgment is a determination of the debtor’s personal liability. The discharge also operates as an injunction— *679commonly called the “discharge injunction” — against the commencement or continuation of any action to collect on the debt.32 A creditor violating the discharge injunction may be subject to contempt sanctions.33
To the extent a debtor does not seek relief in bankruptcy court for violation of the discharge injunction, the debtor may raise the discharge as an affirmative defense to any asserted claim based on the discharged debt.34 In fact, state courts have concurrent jurisdiction to consider whether some types of debts were discharged in a prior bankruptcy.35 State courts, for example, have concurrent jurisdiction over claims by unscheduled creditors36 and claims for domestic support obligations.37 So the discharge does not extinguish the underlying debt.
Nor does the discharge affect the lien.38 A chapter 7 discharge, by itself, does not extinguish any liens securing the debt.39 Any lien rights survive bankruptcy and are unaffected by the discharge.40 In reality, the chapter 7 discharge “extin*680guishes only one mode of enforcing a claim—namely, an action against the debt- or in personam—-while leaving intact another—namely, an action against the debt- or in rem.”41 A secured creditor’s lien continues as an in rem claim against the debtor’s property.
And that leads to a second critical point: there is a difference between the term of art “secured claim,” on the one hand, and the notion that a creditor has a security interest or lien outside of bankruptcy, on the other hand.42 Having a security interest or lien outside of bankruptcy is translated under bankruptcy laws as having the “rights” of a secured creditor, not necessarily as being the holder of a secured claim.43 Once a determination has been made under § 506 that the remaining in rem claim is wholly unsecured and that the creditor holds no secured claim in the bankruptcy case, the creditor is left with its nonbankruptcy rights. The debtor may then modify those “rights” under § 1322(b)(2) by voiding the security interest.
This is the point that the courts in In re Gerardin and In re Quiros-Amy overlook. Those courts suggest that pro-lien stripping courts—such as the court in In re Fisette—are effectively resurrecting the unsecured claim that was discharged in the previous chapter 7 case.44 But that is not the case. Nor does the reasoning of the pro-lien stripping courts hinge on the existence of an unsecured claim. In fact, the pro-lien stripping courts recognize that upon confirmation of a plan in a chapter 20 case, the holder of a wholly unsecured junior mortgage lien holds neither a secured claim—by virtue of the § 506 valuation—nor an unsecured claim enforceable against the debtor—by virtue of the prior discharge. Confirmation of the plan in such cases, instead, implements the debt- or’s right under § 1322(b)(2) to modify— not the claim—-but the “rights” that the holder of the previously discharged claim has under applicable nonbankruptcy law. As noted in Nobelman, those “ ‘rights’ ... are reflected in the relevant mortgage instruments, which are enforceable under [state] law.”45 As described by the Supreme Court, those rights include “the right to retain the lien until the debt is paid off.”46 It is this right that can be modified by strip off in a chapter 20 case.
This is exactly what Tanner and the other circuit court cases recognized in holding that debtors may strip off wholly unsecured junior mortgages. Yet, Gerar-din disregards the holding in Tanner as “inapposite” even though Tanner is the sole Eleventh Circuit precedent for allowing a debtor to strip off of a wholly unsecured junior lien on a principal residence. Gerardin disregards Tanner because Tanner “did not consider how § 1325(a) and a prior bankruptcy discharge might impact the treatment of the lien.”47
Tanner, of course, did not deal with the issue the Court confronts in this case. And it is also true that the Bankruptcy *681Abuse Prevention and Consumer Protection Act (“BAPCPA”) did amend § 1325(a)(5) to require, at least as is relevant in this case, a chapter 13 plan to provide that a secured creditor retain its lien until discharge. BAPCPA also amended § 1328 to add subsection (f), which provides that the court shall not grant a discharge to a chapter 13 debtor who received a discharge in a chapter 7 case filed within four years of the chapter 13 case.
But neither of those additions in BAPC-PA did anything to affect the rationale of Tanner. After all, Congress added the new provision in § 1325(a)(5)(B) to secure the right to deferred payments under the chapter 13 plan to the extent of the amount of the allowed secured claim. There is nothing in BAPCPA’s legislative history to suggest — nor has any court ever held — that the new provision in § 1325(a)(5)(B) was intended to abrogate the court’s analysis in Tanner. Nor is there anything in BAPCPA’s legislative history that suggests Congress added § 1328(f) to limit a debtor’s right to strip off a wholly unsecured junior mortgage, as enunciated in Tanner and the other circuit court decisions. Given that, it is hard to see how Tanner is not pertinent.
To the contrary, Tanner is pertinent because it follows the same analysis employed by the Supreme Court in Nobel-man — albeit with respect to a wholly unsecured junior mortgage. For these reasons, the Court disagrees that Tanner is not pertinent here and that § 1325 is the operative provision.48 Section 1325 would only apply where the debtor was attempting to restructure the payment terms of an allowed secured claim. Section 1325 does not apply where the debtor is simply modifying the state law lien rights of a creditor that does not hold an allowed secured claim under § 506. The power to modify comes from § 1322(b)(2) — not § 1325.
Eligibility for a Discharge is not a Requirement for Relief Under Chapter 13
Section 1328(f)(1) merely precludes a chapter 13 debtor from receiving a discharge if the debtor received a discharge in a chapter 7 case filed within four years of the chapter 13 case. But that section in no way limits any other rights available to the debtor under the Bankruptcy Code, such as the right to strip off unsecured junior liens under § 506(a) and § 1322.49 In fact, nowhere in the Bankruptcy Code is eligibility for a discharge a condition for filing or maintaining a bankruptcy ease or receiving the various forms of relief that may flow from that case. Simply put, Congress provided no limitation on a debtor’s eligibility to be a chapter 13 debtor after receiving a chapter 7 discharge.50
To start with, Bankruptcy Code § 109— entitled “Who may be a debtor” — contains express limitations on eligibility for chapter 13 relief.51 Eligibility for a discharge is not included among those limitations. Similarly, the operation of the automatic stay under § 362 is not dependent upon *682the debtor’s eligibility for a discharge. And the limitations imposed under BAPC-PA for repetitive filers are based solely on the timing of a dismissal of a previously filed case within one year. And even in a case where the previous chapter 7 was filed within one year, courts routinely extend the automatic stay under § 362(c)(3) if the court finds that the subsequent case was filed in good faith.
A central purpose of chapter 13 is to save homes.52 It is not uncommon for a debtor, even after discharging various unsecured debts in a chapter 7, to suffer new financial problems leading the debtor to default on their home mortgage. Chapter 13 is available to allow the debtor to cure any such default within a reasonable time and reinstate payments to save the home.53 The ineligibility of the debtor for a discharge is not implicated in such cases. As succinctly described by the Fourth Circuit, in many chapter 13 cases, “it is the ability to reorganize one’s financial life and pay off debts, not the ability to receive a discharge, that is the debtor’s ‘holy grail.’ ”54
Good Faith Is Still a Requirement for Confirmation
But debtors do not enjoy an absolute right to strip off unsecured liens in a no-discharge chapter 13 case. Courts allowing chapter 20 strip offs have consistently noted that the bankruptcy court must still determine whether the chapter 13 plan was filed in good faith.55 Some courts have suggested that filing a chapter 13 case “solely for the purpose of the lien avoidance” suggests manipulation of the Bankruptcy Code and is evidence of bad faith. This Court is not prepared to make such a leap absent other evidence.56 This is an issue that must still be addressed in the context of plan confirmation.
Effectiveness of Strip off Requires Plan Completion
Importantly, courts that allow strip offs in chapter 20 cases typically still require that all plan payments be completed in the case as a condition to the strip off.57 While this could be required simply as a matter of satisfying the good-faith requirement for plan confirmation,58 the better rationale for this conclusion is that it is only after a debtor has successfully completed all plan payments required by the chapter 13 plan that the provisions of the plan — including any lien avoidance— become permanent.59 That rationale is supported by § 1327, which provides that the confirmed plan is binding on all creditors regardless of whether the creditor has accepted, rejected, or objected to the *683plan.60 And even more importantly, confirmation of the plan vests all property of the estate in the debtor free and clear of any claims of any creditor provided for by the plan.61 Accordingly, it is only appropriate to provide for a permanent lien avoidance if the debtor has fully performed under the plan.62
Conclusion
It is well established that a chapter 20 case is permitted under the Bankruptcy Code. Equally clear is that a debtor in a chapter 13 case may strip off a wholly unsecured mortgage on the debtor’s principal residence. This strip off is accomplished, first, through a determination under § 506(a) that the creditor does not hold a secured claim and, second, by modifying the creditor’s “rights” under § 1322(b)(2), by avoiding the hen that the creditor would otherwise be entitled to under nonbankruptcy law. As such § 1325(a)(5) does not come into play, and the debtor’s ineligibility for a discharge is irrelevant to a strip off in a chapter 20 case.
Accordingly, for these reasons, it is
ORDERED:
1. The objections to the Debtor’s motion to determine secured status and to confirmation of the Debtor’s chapter 13 plan are overruled to the extent they are based on the Debtor’s ineligibility for a discharge in this chapter 13 case.
2. The Court will consider any remaining issues with respect to the motion to determine secured status and confirmation of the chapter 13 plan at the confirmation hearing currently scheduled for April 2, 2012.
DONE and ORDERED.
. A "Chapter 20” is a chapter 13 case filed on the heels of a chapter 7 case in which the debtor obtained a discharge of all of the debt- or’s debts.
. Doc. No. 43.
. Doc. No. 45 at ¶ 2.
.The order following the preliminary hearing further provided that, if necessary, the Court would conduct an evidentiary hearing on any remaining factual issues, including the value of the subject property, resulting from the Court’s ruling in this Memorandum Opinion. Doc. No. 58 at ¶ 3.
. Even within this District, the bankruptcy courts are divided on the issue. For example, Judge Arthur B. Briskman, in In re Judd, 2011 WL 6010025 (Bankr.M.D.Fla. Dec. 1, 2011), held that a lien strip in a chapter 20 is not permitted. Id. at *4 (citing In re Gerardin, 447 B.R. 342 (Bankr.S.D.Fla.2011) and In re Quiros-Amy, 456 B.R. 140 (Bankr.S.D.Fla.2011)). Judge Catherine Peek McEwen has expressed the contrary view in tentative rulings made on December 14, 2011 and February 8, 2012, in the case of In re William & Susan Claburn, Case No. 8:11—bk—11381— CPM, citing Fisette v. Keller (In re Fisette), 455 B.R. 177 (8th Cir.BAP2011) in support of the proposition that a lien strip is permitted in a chapter 20-a view adopted in this Opinion.
. 501 U.S. 78, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).
. Id. at 82, 111 S.Ct. 2150 (citing 11 U.S.C. § 1322(b)(2) & (6)) (internal citations omitted) (alteration in original).
. Id. at 87, 111 S.Ct. 2150.
. Id.
. Id.
. Dewsnup v. Timm, 502 U.S. 410, 411-12, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992).
. Id. at 415, 112 S.Ct. 773 (emphasis in original).
.11 U.S.C. §§ 1322, 1325, 1222, 1225, 1123 & 1129; see also Dewsnup, 502 U.S. at 418-19, 112 S.Ct. 773 (“Apart from reorganization proceedings, no provision of the pre-code statute permitted involuntary reduction of the amount of a creditor's lien for any reason other than payment on the debt.”) (internal citations omitted).
. Nobelman v. Am. Sav. Bank, 508 U.S. 324, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993).
. Id. at 328, 113 S.Ct. 2106.
. Id. at 330, 113 S.Ct. 2106 (citing Dewsnup, 502 U.S. at 417, 112 S.Ct. 773).
. Id. at 331-32, 113 S.Ct. 2106.
. Id. at 329, 113 S.Ct. 2106.
.See, e.g., Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1222-23 (9th Cir.2002); Lane v. W. Interstate Bancorp (In re Lane), 280 F.3d 663, 669 (6th Cir.2002); Pond v. Farm Specialist Realty (In re Pond), 252 F.3d 122, 127 (2d Cir.2001); Tanner v. First-Plus Fin., Inc. (In re Tanner), 217 F.3d 1357, 1359-60 (11th Cir.2000); Bartee v. Tara Colony Homeowners Ass’n (In re Bartee), 212 F.3d 277, 288-91 (5th Cir.2000); McDonald v. Master Fin. Inc. (In re McDonald), 205 F.3d 606, 609-612 (3d Cir.2000); Griffey v. U.S. *677Bank (In re Griffey), 335 B.R. 166, 167-70 (10th Cir. BAP 2005); Domestic Bank v. Mann (In re Mann), 249 B.R. 831, 840 (1st Cir. BAP 2000); Fisette v. Keller (In re Fisette), 455 B.R. 177, 181-83 (8th Cir. BAP 2011).
. In re Tanner, 217 F.3d at 1360 (citing Lam v. Investors Thrift (In re Lam), 211 B.R. 36, 40 (9th Cir.BAP1997), appeal dismissed, 192 F.3d 1309 (9th Cir.1999)).
. Johnson v. Home State Bank, 501 U.S. 78, 87, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).
. Dewsnup v. Timm, 502 U.S. 410, 418-19, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992).
. Nobelman v. Am. Sav. Bank, 508 U.S. 324, 329-30, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993).
. See, e.g., In re Zimmer, 313 F.3d at 1222-23; In re Lane, 280 F.3d at 669; In re Pond, 252 F.3d at 127; In re Tanner, 217 F.3d at 1359-60; InreBartee, 212 F.3d at 288-91; In re McDonald, 205 F.3d at 609-612; In re Griffey, 335 B.R. at 167-70; In re Mann, 249 B.R. at 840; In re Fisette, 455 B.R. at 181-83.
. In re Gerardin, 447 B.R. 342, 349 (Bankr.S.D.Fla.2011).
. In re Quiros-Amy, 456 B.R. 140, 146-47 (Bankr.S.D.Fla.2011).
. In re Gerardin, 447 B.R. at 349; In re Quiros-Amy, 456 B.R. at 146-47.
. See, e.g., In re Zimmer, 313 F.3d at 1222-23; In re Lane, 280 F.3d at 669; In re Pond, 252 F.3d at 127; In re Tanner, 217 F.3d at 1359-60; In re Bartee, 212 F.3d at 288-91; In re McDonald, 205 F.3d at 609-612; In re Griffey, 335 B.R. at 167-70; In re Mann, 249 B.R. at 840; In re Fisette, 455 B.R. at 181-83.
. In re Quiros-Amy, 456 B.R. at 146-47.
. Id.
. In re Green, 310 B.R. 772 (Bankr.M.D.Fla.2004); see also In re RJ. Reynolds-Patrick Cnty. Mem’l Hosp., Inc., 305 B.R. 243, 248 (Bankr.W.D.Va.2003) (explaining that “[w]hile a discharge enjoins a creditor from attempting to collect the discharged debt as a personal liability of the debtor, it does not extinguish the debt”); In re Dabrowski, 257 B.R. 394, 413 (Bankr.S.D.N.Y.2001) (holding that landlord was entitled to pursue in rem remedies because chapter 7 discharge only limits enforceability but does not extinguish underlying debt).
. 11 U.S.C. § 524(a)(2).
. Espinosa v. United Student Aid Funds, Inc., 553 F.3d 1193, 1205 n. 7 (9th Cir.2008) (explaining that a “party who knowingly violates the discharge injunction can be held in contempt under section 105(a) of the Bankruptcy Code”) (quoting ZiLOG, Inc. v. Corning (In re ZiLOG, Inc.), 450 F.3d 996, 1007 (9th Cir.2006)); In re Nicholas, 457 B.R. 202, 224 (Bankr.E.D.N.Y.2011) (observing that " '[t]here is no serious question that a violation of the discharge provided in § 524(a)(2) is punishable by contempt’ ”) (quoting In re Nassoko, 405 B.R. 515, 520 (Bankr.S.D.N.Y.2009)).
. See, e.g., Rhodes Life Ins. Co. v. Mendy Props., LC, 2009 WL 1212476, at *3 n. 12 (E.D.La. Apr. 30, 2009) (explaining that a debtor may assert the discharge as an affirmative defense in a pending state court case); In re Hitt, 2008 WL 924528, at *1 (Bankr.E.D.N.C. Apr. 3, 2008) (explaining that after a case has been closed, the debtor can litigate the dischargeability of a debt by “asserting] the bankruptcy discharge as an affirmative defense in order for the court with jurisdiction over the lawsuit to determine discharge-ability"); In re Cheely, 280 B.R. 763, 765 (Bankr.M.D.Ga.2002) (explaining that if a "creditor pursues a lawsuit on the claim, the debtor can assert the bankruptcy discharge as an affirmative defense”).
. See, e.g., In re Hamilton, 540 F.3d 367, 373 (6th Cir.2008) (observing that “courts have interpreted 28 U.S.C. § 1334(b) as granting concurrent jurisdiction to state courts to determine the nondischargeability of debts”); Eden v. Robert A. Chapski, Ltd., 405 F.3d 582, 586 (7th Cir.2005) (explaining that “state courts have concurrent jurisdiction with the bankruptcy courts to determine whether or not a debt is dischargeable in bankruptcy”). On the other hand, bankruptcy courts have exclusive jurisdiction to determine the dis-chargeability of debts specified in paragraphs (2), (4), and (6) of 11 U.S.C. § 523(a). 11 U.S.C. § 523(c).
. See, e.g., In re McGhan, 288 F.3d 1172, 1181 (9th Cir.2002) (holding that "[sjtate and federal courts have concurrent jurisdiction over actions brought under § 523(a)(3)” to extend the discharge to creditors who were not scheduled but had actual notice of the bankruptcy); In re Christensen, 2011 WL 2185854, at *4 (Bankr.N.D.Ala. Feb. 18, 2011) (holding that “a determination of dis-chargeability under § 523(a)(3) may be made by state courts as well as bankruptcy courts— those courts have concurrent jurisdiction”).
. Swartling v. Swartling (In re Swartling), 337 B.R. 569, 572 (Bankr.E.D.Va.2005) (holding that state court had concurrent jurisdiction with bankruptcy court to determine whether chapter 7 debtor's obligations to his former wife were in nature of "support” and whether they were excepted from discharge.)
. Fisette v. Keller (In re Fisette), 455 B.R. 177, 184 (8th Cir. BAP 2011).
. See, e.g., Isom v. IRS (In re Isom), 901 F.2d 744, 745 (9th Cir.1990).
. Long v. Bullard, 117 U.S. 617, 620-21, 6 S.Ct. 917, 29 L.Ed. 1004 (1886).
. Johnson v. Home State Bank, 501 U.S. 78, 84, 111 S.Ct. 2150, 115 L.Ed.2d 66 (1991).
. In re Jennings, 454 B.R. 252, 254 (Bankr.N.D.Ga.2011) (citing In re Okosisi, 451 B.R. 90, 93 (Bankr.D.Nev.2011)).
. In re Jennings, 454 B.R. at 254.
. In re Quiros-Amy, 456 B.R. 140, 146-47 (Bankr.S.D.Fla.2011).
. Nobelman v. Am. Sav. Bank, 508 U.S. 324, 330, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993).
. Id. at 330, 113 S.Ct. 2106.
. In re Gerardin, 447 B.R. 342, 346 (Bankr.S.D.Fla.2011).
.The Court, however, does agree with Ger-ardin’s conclusion that § 506(d) is not a "miracle lien remover” and is not "self-executing.” As noted by Gerardin, if § 506 alone authorized a strip off in these circumstances, then it would be applicable in chapter 7. But Dewsnup makes clear that § 506 can only be effective when operating in tandem with another section of the Bankruptcy Code.
. See, e.g., In re Fair, 450 B.R. 853, 856-57 (Bankr.E.D.Wis.2011).
. In re Jennings, 454 B.R. 252, 258 (Bankr.N.D.Ga.2011).
. 11 U.S.C. § 109(e).
. In re Whitlock, 308 B.R. 917, 923 (Bankr.M.D.Ga.2004) (explaining that "[o]ne of the primary reasons why Congress created Chapter 13 of the Bankruptcy Code was to afford debtors an opportunity to save their residences”); In re Smith, 1999 WL 33582223, at *2 (Bankr.C.D.Ill. Oct. 5, 1999) (observing that the “primary purpose of Chapter 13 is to allow debtors to save their homes from foreclosure”).
. 11 U.S.C. § 1322(b)(5).
. In re Bateman, 515 F.3d 272, 283 (4th Cir.2008).
. 11 U.S.C. § 1325(a)(3).
. In re Fair, 450 B.R. 853, 858 (E.D.Wis.2011) (citing In re Hill, 440 B.R. 176, 183 (Bankr.S.D.Cal.2010)).
. See, e.g., In re Okosisi, 451 B.R. 90, 99 (Bankr.D.Nev.2011); In re Miller, 462 B.R. 421, 433 (Bankr.E.D.N.Y.2011).
. 11 U.S.C. § 1325(a)(3).
. In re Okosisi, 451 B.R. at 100.
. 11 U.S.C. § 1327(a); see also In re Okosisi, 451 B.R. at 100.
. 11 U.S.C. § 1327(b) & (c).
. In re Okosisi, 451 B.R. at 99. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488481/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00542-CV
In re Purity Thande Nash
ORIGINAL PROCEEDING FROM TRAVIS COUNTY
MEMORANDUM OPINION
The petition for writ of mandamus and motion for temporary stay are denied. See
Tex. R. App. P. 52.8(a), 52.10.
__________________________________________
Chari Kelly, Justice
Before Justices Goodwin, Baker, and Kelly
Filed: November 17, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488488/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00703-CV
In re Tina Hutcherson
ORIGINAL PROCEEDING FROM MILAM COUNTY
MEMORANDUM OPINION
The petition for writ of mandamus is denied, and the emergency motion to stay
the trial court’s declaratory judgment proceeding is dismissed as moot. See Tex. R. App.
P. 52.8(a).
__________________________________________
Edward Smith, Justice
Before Chief Justice Byrne, Justices Triana and Smith
Filed: November 16, 2022 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350258/ | Froebel v Froebel (2022 NY Slip Op 07365)
Froebel v Froebel
2022 NY Slip Op 07365
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: SMITH, J.P., PERADOTTO, CURRAN, WINSLOW, AND MONTOUR, JJ.
861 CA 21-01299
[*1]JENNIFER FROEBEL, PLAINTIFF-APPELLANT,
vWESLEY FROEBEL, DEFENDANT-RESPONDENT. (APPEAL NO. 2.)
BENNETT SCHECHTER ARCURI & WILL LLP, BUFFALO (KRISTIN L. ARCURI OF COUNSEL), FOR PLAINTIFF-APPELLANT.
JUSTIN S. WHITE, WILLIAMSVILLE, FOR DEFENDANT-RESPONDENT.
Appeal from an order of the Supreme Court, Erie County (E. Jeannette Ogden, J.), entered September 13, 2021. The order directed plaintiff to pay child support to the defendant.
It is hereby ORDERED that the order so appealed from is unanimously reversed on the law without costs, the award of child support is vacated, and the matter is remitted to Supreme Court, Erie County, for further proceedings in accordance with the same memorandum as in Froebel v Froebel ([appeal No. 1] — AD3d — [Dec. 23, 2022] [4th Dept 2022]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350379/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-93,712-01
EX PARTE ERIC MATSUMURA DUVALL, Applicant
ON APPLICATION FOR A WRIT OF HABEAS CORPUS
CAUSE NO. 20160D01661-DCR1-1 IN THE CRIMINAL DISTRICT COURT NO. 1
FROM EL PASO COUNTY
Per curiam.
ORDER
Applicant was convicted of capital murder and sentenced to life without parole years’
imprisonment. The Eighth Court of Appeals affirmed his conviction. Duvall v. State, No. 08-19-
00313-CR (Tex. App. – El Paso, Sept. 29, 2021). 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. Applicant has alleged facts that, if true, might entitle him to relief. Ex parte Wilson, 956
S.W.2d 25 (Tex. Crim. App. 1997); Ex parte Crow, 180 S.W.3d 135 (Tex. Crim. App. 2005).
2
Accordingly, the record should be developed. The trial court is the appropriate forum for findings
of fact. TEX . CODE CRIM . PROC. art. 11.07, § 3(d). The trial court shall order appellate counsel 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 appellate
counsel timely informed Applicant that his conviction had been affirmed and that he had a right to
file a pro se petition for discretionary review. The trial court shall also determine whether Applicant
would have timely filed a petition for discretionary review but for appellate counsel’s alleged
deficient performance. 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: December 21, 2022
Do not publish | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350380/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-89,188-01
EX PARTE PHILLIP TIMOTHY DENNIS
ON APPLICATION FOR WRIT OF HABEAS CORPUS
IN CAUSE NO. W14-33270-L(A)
IN CRIMINAL DISTRICT COURT NO. 5
FROM DALLAS COUNTY
NEWELL, J. delivered the opinion for a unanimous Court.
If a defendant files his application for post-conviction habeas
corpus relief alleging that he is physically confined pursuant to his
conviction, must he further allege collateral consequences that flow from
his conviction? No. We filed and set this application to determine the
appropriate disposition in light of Applicant’s pleadings. One possible
disposition is to dismiss the application pursuant to our decision in Ex
parte Harrington. This would afford Applicant leave to re-file so that
Applicant could allege in his writ application that he was not only
Dennis - 2
convicted and sentenced to a term of confinement, but that he also
suffered collateral consequences of his conviction. Another possible
disposition would be to treat Applicant’s pleadings as sufficient when
they were filed and consider the merits of Applicant’s claims.
We believe the latter approach is better. Applicant’s pleadings at
the time they were filed sufficiently alleged that Applicant was confined
(as that term is defined under Article 11.07 of the Code of Criminal
Procedure) by virtue of his serving the sentence on his felony conviction.
That his sentence discharged during the pendency of his writ did not
retrospectively render his pleadings insufficient. Consequently, we will
address the merits of his claims.
Background
In 2017, Applicant was convicted of felony driving while
intoxicated, and sentenced to three years’ imprisonment. In 2018, he
filed an application for writ of habeas corpus alleging that trial counsel
was ineffective for failing to investigate whether Applicant’s prior
Arkansas DWI conviction should have been used as a jurisdictional
enhancement in this case. Upon receiving the 2018 application we
remanded the case, but we did not receive the supplemental record with
findings of fact and conclusions of law from the habeas court until 2020.
Dennis - 3
Applicant’s sentence discharged in 2019 while his writ application was
pending.
Analysis
The writ of habeas corpus, which Sir William Blackstone called the
most celebrated writ in the English law, and others have named “the
great writ of liberty,” is ancient. 1 There are references to its use prior
to the signing of Magna Carta, and it was formally adopted in the Habeas
Corpus Act of 1679. 2 The writ was developed to protect against
executive detention; its function was to block imprisonment by royal fiat
without a judicial hearing. 3 The writ was not an appeal device after
conviction by a “legal,” competent tribunal, but rather an extraordinary
remedy against executive detention. 4 Today, the writ is available only
for relief from jurisdictional defects and violations of constitutional or
fundamental rights. 5
1
Ex parte Lawson, 966 S.W.2d 532, 533 (Tex. App.—San Antonio 1996, pet. ref’d),
superseded on other grounds.
2
Id.
3
Neil Douglas McFeeley, The Historical Development of Habeas Corpus, 30 SOUTHWESTERN
L.J. 585 (1976).
4
Id.
5
Ex parte McCain, 67 S.W.3d 204, 207 (Tex. Crim. App. 2002).
Dennis - 4
The Texas Code of Criminal Procedure sets forth the following
definition for the writ of habeas corpus:
“The writ of habeas corpus is the remedy to be used when any
person is restrained in his liberty. It is an order issued by a court
or judge of competent jurisdiction, directed to anyone having a
person in his custody, or under his restraint, commanding him to
produce such person, at a time and place named in the writ, and
show why he is held in custody or under restraint.” 6
Because of the unique nature of the remedy, habeas corpus relief is
underscored by elements of fairness and equity. 7 These elements of
fairness and equity are protected by the United States Constitution, 8
and the Texas Constitution commands that the privilege of the writ of
habeas corpus shall never be suspended. 9 Further, Article 11.04 of the
Texas Code of Criminal Procedure instructs that we are to construe
every provision relating to the writ of habeas corpus most favorably to
give effect to the remedy and protect the rights of the person seeking
relief under it. 10
Article 11.07 and Ex parte Harrington
6
TEX. CODE CRIM. PROC. art. 11.01.
7
Ex parte Drake, 883 S.W.2d 213, 215 (Tex. Crim. App. 1994).
8
U.S. CONST. art. I, § 9, cl. 2.
9
TEX. CONST. art. I, § 12.
10
TEX. CODE CRIM. PROC. art. 11.04.
Dennis - 5
For a court to consider an application for writ of habeas corpus,
the writ application must be complete on its face. Texas law has long
required all post-conviction applicants for writs of habeas corpus to
plead specific facts which, if proven to be true, might call for relief. 11
Post-conviction writ applicants must allege specific facts so that anyone
reading the writ application would understand precisely the factual basis
for the legal claim. 12 When an applicant fails to do so, all requested
relief is denied. 13
Article 11.07 of the Texas Code of Criminal Procedure sets forth
the procedures for an application for writ of habeas corpus in which the
applicant seeks relief from a felony judgment imposing a penalty other
than death. 14 Prior to 1995, Article 11.07 did not define “confinement,”
and this Court repeatedly held that the statute provided relief only for
11
See, e.g., Ex parte Maldonado, 688 S.W.2d 114, 116 (Tex. Crim. App. 1985) (“In a
postconviction collateral attack, the burden is on the applicant to allege and prove facts which,
if true, entitle him to relief.”).
12
See, e.g., Ex parte Tovar, 901 S.W.2d 484, 485-86 (Tex. Crim. App. 1995) (“In order to
be entitled to post conviction collateral relief the applicant must raise a question of
constitutional magnitude, alleged facts establishing the constitutional violation and, if
appropriate, prove he was harmed.”).
13
See, e.g., Ex parte Akhtab, 901 S.W.2d 488, 490 (Tex. Crim. App. 1995) (“Because
applicant does not allege or prove facts which, if true, would entitle him to relief, all requested
relief is denied.”)
14
TEX. CODE CRIM. PROC. art. 11.07(1)(c).
Dennis - 6
those in custody. 15 In 1995, the Legislature amended Article 11.07 to
explicitly include collateral consequences in the definition of
“confinement.” 16 As amended, Article 11.07 now defines “confinement”
as “confinement for any offense or any collateral consequence resulting
from the conviction . . . [.]” 17
In Ex parte Harrington, we considered the implications of this
amendment to Article 11.07. 18 After his sentence was discharged,
Harrington filed an application for writ of habeas corpus alleging an
involuntary plea due to ineffective assistance of counsel. Despite the
fact that the applicant was no longer in custody at the time he filed his
application, he claimed he was confined under Article 11.07 as a result
of present and future collateral consequences arising from his
challenged conviction. 19 There, we held that a person who has
discharged his sentence prior to filing an application, but who continues
to suffer collateral consequences arising from the challenged conviction,
15
Ex parte Renier, 734 S.W.2d 349 (Tex. Crim. App. 1987).
16
Acts of May 24, 1995, 74th Leg., R.S., ch. 319, § 5, sec. 3(c), 1995 Tex. Gen. Laws 2764,
2771 (eff. Sept. 1, 1995) (current version at TEX. CODE CRIM. PROC. art. 11.07, § 3(c)).
17
TEX. CODE CRIM. PROC. art. 11.07(3)(c).
18
Ex parte Harrington, 310 S.W.3d 452 (Tex. Crim. App. 2010).
19
Id at 458.
Dennis - 7
is entitled to seek post-conviction habeas relief under Article 11.07. 20
We came to this conclusion after we determined that the record
supported the trial judge's findings concerning adverse consequences to
the applicant's present and future employment opportunities. 21 And to
the extent that the trial court made findings regarding possible future
collateral consequences, those findings were unnecessary to our holding
given that Harrington had sufficiently alleged and proven adverse
present collateral consequences flowing from his conviction. 22
Applicant’s Pleadings Are Sufficient
As discussed above, Article 11.07 as it has been amended now
defines confinement as including both confinement pursuant to a
conviction and any collateral consequences that flow from a conviction.
Given this definition, an applicant need not plead a collateral
consequence of the conviction if, at the time of the pleading, the
defendant is seeking relief from a conviction for which he is confined.
Under those circumstances, the applicant has necessarily pleaded
specific facts regarding his confinement, that, if proven true, would
20
Id.
21
Id at 457–58.
22
Id. at 455–56 (listing five past or present collateral consequences and three future
collateral consequences).
Dennis - 8
entitle him to relief (assuming the applicant has also pleaded specific
facts to support a cognizable and meritorious claim).
In this case, Applicant was serving his sentence when he filed the
application, thus there was no need for him to plead collateral
consequences at the time he filed his application. By alleging that he
was confined pursuant to his conviction, Applicant alleged facts that, if
true, would establish confinement as defined in Article 11.07. Pleading
collateral consequences was unnecessary, and dismissal to give
Applicant an opportunity to correct the deficiency would be unnecessary.
Had Applicant filed his application after he had served his sentence,
Applicant would have been required under Ex parte Harrington to
specifically allege that he suffered collateral consequences from his
conviction.
Applicant’s Ineffective Assistance of Counsel Claim
In his application, Applicant contends that he received ineffective
assistance of trial counsel. Applicant claims that his trial counsel failed
to investigate whether Applicant’s prior Arkansas DWI conviction should
have been used as a jurisdictional enhancement in this case. Having
considered the habeas court’s findings, we agree and conclude that
Applicant’s claim is without merit.
Dennis - 9
In an ineffective assistance claim, the applicant must prove that
counsel erred and that the error prejudiced the defense. 23 An attorney's
deficient performance prejudices an accused when there is a reasonable
probability that the outcome of the trial would have been different but
for counsel's deficiency. 24 One necessary facet of professional
assistance is the investigation of the facts and law applicable to a case. 25
Under Strickland, counsel has a duty in every case to make a reasonable
investigation or a reasonable decision that an investigation is
unnecessary. 26 When an Applicant raises the claim that counsel was
ineffective for failing to investigate, he must show what a more in-depth
investigation would have shown. 27
The habeas court recommends denying relief. Applicant’s case
was straightforward, and the evidence against him was substantial.
According to trial counsel’s affidavit, trial counsel met with Applicant,
and Applicant did not like the legal opinion his trial counsel provided
him. Applicant’s trial counsel discussed with him in detail the
23
Strickland v. Washington, 466 U.S. 668, 687 (1984).
24
Cox v. State, 389 S.W.3d 817, 81 (Tex. Crim. App. 2012).
25
Ex parte LaHood, 401 S.W.3d 45, 50 (Tex. Crim. App. 2013).
26
Id. (citing Strickland, 466 U.S. at 691).
27
Mooney v. State, 817 S.W.2d 693, 697 (Tex. Crim. App. 1991).
Dennis - 10
jurisdictional paragraphs in the indictment that described Applicant’s
prior DWI convictions. At no point did Applicant take issue with either
jurisdictional paragraph. The trial court found trial counsel’s affidavit
credible.
Applicant signed a judicial confession stipulating to the evidence,
including the jurisdictional paragraphs alleging the previous Arkansas
DWI. Though Applicant claims in his writ application that he was never
previously convicted of a DWI in Arkansas, the record shows that
Applicant was sentenced to seven days in jail and a $750.00 fine in 2005
in the Benton County, Arkansas District Court after entering a plea of
guilty to DWI Second Offense. We agree with the habeas court’s
findings and conclusions. We deny relief.
Conclusion
When Applicant filed his application for writ of habeas corpus, he
was still actively serving his sentence. We will construe Article 11.07
favorably in order to protect the rights of the person seeking relief under
it as Article 11.04 instructs. Thus, we conclude that Applicant was not
required to plead collateral consequences because his pleadings were
sufficient at the time that he filed the application. Having reached the
merits of Applicant’s claim, we hold that Applicant has failed to satisfy
the first Strickland prong. We therefore deny relief.
Dennis - 11
Filed: December 21, 2022
Publish | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350387/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER ON MOTION FOR REHEARING
Appellate case name: In re Carnell Louis Dodson
Appellate case number: 01-22-00614-CR
Trial court case number: 18-CR-0670
Trial court: 56th District Court of Galveston County
The motion for rehearing is ordered denied.
Judge’s signature: ___/s/ Justice Richard Hightower______________________
Acting individually Acting for the Court
The panel consists of Chief Justice Radack and Justices Landau and Hightower.
Date: __December 22, 2022________ | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350409/ | Opinion issued December 22, 2022
In The
Court of Appeals
For The
First District of Texas
————————————
NO. 01-21-00072-CV
———————————
JAMES P. ARTHUR, MARY ARTHUR, LEGONITE, INC., PARADISE
LIVING, INC., AND ARTHUR HOLDINGS, L.P., Appellants
V.
JOHN MICHAEL RABORN, Appellee
On Appeal from the 11th District Court
Harris County, Texas
Trial Court Case No. 2020-13849
MEMORANDUM OPINION
Appellants James P. Arthur, Mary Arthur, Legonite, Inc., Paradise Living,
Inc., and Arthur Holdings, L.P. (collectively, “the Arthur parties”) own a parcel of
property that they use to operate an assisted living facility. The Arthur parties sued
their lender, Blackburne & Brown Mortgage Fund I, and appellee John Michael
Raborn, the substitute trustee named in the deed of trust securing the property, and
asserted claims for affirmative relief and injunctive relief. Raborn moved to dismiss
the claims against him under Property Code section 51.007(a), arguing that he had a
reasonable belief that he had been named as a party solely in his capacity as a trustee
under a deed of trust. The trial court granted the motion and dismissed the Arthur
parties’ claims against Raborn without prejudice.
On appeal, the Arthur parties argue that the trial court erred by (1) using an
unauthorized procedure to dismiss the claims against Raborn; (2) granting Raborn’s
motion to dismiss because the motion was substantively deficient and did not comply
with any applicable laws or rules; and (3) denying the Arthur parties’ motion to sever
the claims against Raborn after granting his motion to dismiss. We affirm.
Background
James and Mary Arthur purchased a parcel of property in southwest Houston
sometime before 2006. At the time of purchase, a sixteen-unit condominium
complex was located on the property. The Arthurs decided to renovate the building
and convert it to an assisted living facility. To accomplish this goal, the Arthurs
sought third-party financing and eventually entered into a loan agreement with
Blackburne & Brown Mortgage Fund I (“Blackburne”). Raborn was named
substitute trustee under the deed of trust securing the loan.
2
In late 2015, Raborn, as trustee and on behalf of Blackburne, sent letters to
the Arthur parties notifying them that they had not complied with their payment
obligations under the loan. Blackburne then initiated foreclosure proceedings. The
Arthur parties sued Blackburne in 2016 and asserted claims for wrongful
foreclosure. The trial court granted a temporary restraining order prohibiting
foreclosure of the property.
After a court-supervised mediation, the Arthur parties and Blackburne entered
into a Settlement Agreement in 2016. Among other rights and responsibilities, the
Settlement Agreement set out a schedule for the Arthur parties’ payment obligations
to Blackburne. The parties also drafted a conditional Agreed Final Judgment that
would only be filed with the court if the Arthur parties did not comply with the
payment obligations set out in the Settlement Agreement. The Agreed Final
Judgment authorized foreclosure of the property and provided different amounts of
liquidated damages to Blackburne depending on when the Agreed Final Judgment
was filed with the court.
The signing of the Settlement Agreement did not end the disputes between the
Arthur parties and Blackburne. The Arthur parties alleged that they repeatedly
requested an accounting and payoff balance statement from Blackburne so they
could pay off the entire remaining obligation, but Blackburne did not cooperate.
3
After the Arthur parties did not make a payment required by the Settlement
Agreement, Blackburne filed the Agreed Final Judgment with the trial court.
The Arthur parties filed additional lawsuits against Blackburne, including a
suit filed in 2018 and a suit filed in 2019. Raborn was not named as a defendant in
these lawsuits.
Blackburne initiated foreclosure proceedings against the property in
November 2019. The Arthur parties obtained a temporary restraining order
prohibiting sale of the property. They alleged that Blackburne disregarded this order
and foreclosed anyway.
The Arthur parties filed the underlying lawsuit against Blackburne and
Raborn in March 2020, after Blackburne initiated foreclosure proceedings against
other properties owned by the Arthur parties.1 In this lawsuit, the Arthur parties
alleged that Raborn was acting as trustee for Blackburne. The Arthur parties asserted
claims for breach of the Settlement Agreement, breach of the Agreed Final
1
In their answer, Raborn and Blackburne alleged that a federal bankruptcy court in a
prior proceeding involving Mary Arthur had ruled that her bankruptcy petition was
part of a scheme “to delay, hinder, and defraud Blackburne,” a secured creditor of
Arthur. The bankruptcy court also ruled that Blackburne was “permitted to pursue
its state law remedies” against several named properties in addition to the property
that secured the original loan, “including foreclosure and/or eviction.” The
properties named in the bankruptcy court’s order included the properties at issue in
the underlying lawsuit.
4
Judgment, fraud, and wrongful foreclosure. The Arthur parties also sought injunctive
relief enjoining the foreclosure sale of their other properties.
Raborn and Blackburne filed an answer.2 Raborn pleaded that he was not a
necessary party to the lawsuit because he was not a party to either the Settlement
Agreement or the Agreed Final Judgment. Instead, Raborn had a reasonable belief
that he had been sued solely in his capacity as substitute trustee under the deed of
trust securing the property. Although this pleading was not verified, Raborn
submitted an unsworn declaration in which he declared under penalty of perjury that
the facts stated in the answer were true and correct.
In May 2020, Raborn filed a motion to dismiss the Arthur parties’ claims
against him pursuant to Property Code section 51.007. This statute sets out a
dismissal procedure for trustees who are not necessary parties because they have
been sued solely in their capacity as trustee under a deed of trust. See TEX. PROP.
CODE § 51.007(a)–(d). Raborn argued that he properly alleged in his answer that he
had a reasonable belief he had been sued solely in his capacity as trustee, and the
Arthur parties failed to file a timely verified response rebutting that pleading. Raborn
requested that the trial court dismiss the claims against him without prejudice.
2
Blackburne also asserted affirmative claims for breach of contract and fraud against
the Arthur parties.
5
The trial court granted Raborn’s motion on July 13, 2020, and dismissed the
Arthur parties’ claims against him without prejudice.
The Arthur parties moved for reconsideration of the trial court’s dismissal
order. On December 8, 2020, the trial court denied the Arthur parties’ motion for
reconsideration.
Following the trial court’s denial of the motion for reconsideration, the Arthur
parties moved to sever their claims against Raborn into a separate lawsuit. At this
time, the underlying proceeding had been consolidated with the Arthur parties’
lawsuits against Blackburne filed in 2018 and 2019. The Arthur parties’ claims
against Blackburne in all three lawsuits, as well as Blackburne’s claims against the
Arthur parties in the underlying proceeding, all remained pending. Raborn opposed
severance of the claims against him.
The trial court denied the Arthur parties’ motion to sever on January 5, 2021.
The Arthur parties filed a notice of appeal from this order, and the case was assigned
appellate cause number 01-21-00072-CV. Raborn is the only appellee in this
appeal.3 Several months after this appeal was filed, the trial court signed a final
3
Because the trial court denied the Arthur parties’ motion to sever and did not sever
the claims against Raborn into a separate lawsuit, the July 13 dismissal order, the
December 8 order denying reconsideration, and the January 5 order denying
severance were not final judgments. See In re Guardianship of Jones, 629 S.W.3d
921, 924 (Tex. 2021) (per curiam) (stating that in cases in which judgment has been
rendered without conventional trial on merits, judgment is not final unless it
(1) actually disposes of all pending claims and parties, or (2) clearly and
6
judgment in the consolidated case. In the final judgment, the trial court dismissed
the Arthur parties’ claims against Blackburne and awarded Blackburne actual
damages and sanctions.
Dismissal of Claims Against Raborn
In their first issue, the Arthur parties argue that the trial court erred by
dismissing the claims against Raborn because the court did not use either of the
dismissal procedures authorized by the Rules of Civil Procedure: dismissal pursuant
to Rule 91a or dismissal on a motion for summary judgment. In their second issue,
the Arthur parties argue that Raborn’s motion to dismiss was substantively defective
and “did not comply with the applicable laws and rules.”
unequivocally states that it finally disposes of all claims and parties, even if it does
not actually do so). Generally, with a few mostly statutory exceptions, a party may
take an appeal only from a final judgment. Elec. Reliability Council of Tex., Inc. v.
Panda Power Generation Infrastructure Fund, LLC, 619 S.W.3d 628, 632 (Tex.
2021). When we receive a notice of appeal in a civil case before the trial court
renders a final judgment, we may treat the case as a prematurely filed appeal and
permit the defect to be cured. Fusion Indus., LLC v. Edgardo Madrid & Assocs.,
LLC, 624 S.W.3d 843, 849 (Tex. App.—El Paso 2021, no pet.); TEX. R. APP. P.
27.1(a). If the trial court renders a final judgment before we dismiss a prematurely
filed notice of appeal, the jurisdictional defect is cured, and we treat the notice of
appeal “as having been filed on the day of the trial court’s final judgment.” Fusion
Indus., 624 S.W.3d at 849. Here, the Arthur parties filed a notice of appeal from an
interlocutory order. While this appeal has been pending, however, the trial court
signed a final judgment on May 15, 2021, that disposes of all claims and all parties.
We therefore deem the Arthur parties’ premature notice of appeal as filed on the
date of the final judgment, and we conclude that we have appellate jurisdiction over
this appeal. See id. (“To the extent Fusion’s notice of appeal was premature, the
later rendition of a final judgment in the trial court cured any defect.”); Espalin v.
Child.’s Med. Ctr. of Dallas, 27 S.W.3d 675, 681 (Tex. App.—Dallas 2000, no pet.)
(“[A] document filed in an attempt to appeal an interlocutory order that later
becomes final serves to appeal the final judgment.”).
7
A. Standard of Review and Governing Law
Property Code section 51.007(a) provides a procedural mechanism for a
trustee under a deed of trust to seek dismissal from a lawsuit. Cantor v. Wachovia
Mortg., FSB, 641 F. Supp. 2d 602, 611 (N.D. Tex. 2009). Pursuant to that section, a
trustee named in a lawsuit “may plead in the answer that the trustee is not a necessary
party by a verified denial stating the basis for the trustee’s reasonable belief that the
trustee was named as a party solely in the capacity as a trustee under a deed of trust,
contract lien, or security instrument.” TEX. PROP. CODE § 51.007(a); Freezia v. IS
Storage Venture, LLC, 474 S.W.3d 379, 384 n.1 (Tex. App.—Houston [14th Dist.]
2015, no pet.).
Within 30 days after the trustee files the verified denial, a verified response is
due from “all parties” to the lawsuit “setting forth all matters, whether in law or fact,
that rebut the trustee’s verified denial.” TEX. PROP. CODE § 51.007(b); Freezia, 474
S.W.3d at 384 n.1. If a party does not have an objection or fails to file a timely
verified response to the trustee’s verified denial, “the trustee shall be dismissed from
the suit or proceeding without prejudice.” TEX. PROP. CODE § 51.007(c); Freezia,
474 S.W.3d at 384 n.1; see WAMCO XXVIII, Ltd. v. Casa Grande Cotton Fin. Co.,
314 F. Supp. 2d 655, 657 (N.D. Tex. 2004) (dismissing claims against substitute
trustee under section 51.007 after plaintiff failed to file verified response to trustee’s
answer containing verified denial).
8
If a party files a timely verified response to the trustee’s verified denial, the
trial court shall set the matter for hearing. TEX. PROP. CODE § 51.007(d). “The court
shall dismiss the trustee from the suit or proceeding without prejudice if the court
determines that the trustee is not a necessary party.” Id.
Whether a defendant is entitled to dismissal under the facts alleged is a legal
question that we review de novo. See In re Farmers Tex. Cnty. Mut. Ins. Co., 621
S.W.3d 261, 266 (Tex. 2021) (orig. proceeding) (considering dismissal under Rule
of Civil Procedure 91a); see also City of Dallas v. Sanchez, 494 S.W.3d 722, 724
(Tex. 2016) (per curiam) (stating that rulings pursuant to Rule 91a are reviewed de
novo “because the availability of a remedy under the facts alleged is a question of
law”); Marsh USA Inc. v. Cook, 354 S.W.3d 764, 768 (Tex. 2011) (stating that courts
review de novo issues of statutory construction and “application of the law to
undisputed facts in summary judgments”).
B. Analysis
1. Whether Raborn Used an Authorized Dismissal Procedure
In this case, the Arthur parties filed suit against Blackburne and Raborn on
March 2, 2020, and asserted claims relating to foreclosure proceedings. The Arthur
parties alleged in their original petition that Raborn represented Blackburne as its
attorney and that Raborn was a trustee under a deed of trust. The allegations
9
described the Arthur parties’ relationship with Blackburne, which dated back at least
to 2006 and concerned a property in southwest Houston.
Specifically with respect to Raborn, the Arthur parties alleged that
Blackburne, beginning in December 2015, “caused its co-Defendant Attorney John
M. Raborn to start sending to Arthurs a series of letters alleging non-payment or late
payment of mortgage and taxes to Harris County Tax Office.” During a prior lawsuit
that the Arthur parties initiated against Blackburne in 2016 related to attempts to
foreclose on the property, Raborn represented Blackburne at court-ordered
mediation. A later court-supervised mediation resulted in the Settlement Agreement
and the conditional Agreed Final Judgment. The Arthur parties also alleged that after
they obtained a temporary restraining order enjoining Blackburne from foreclosing
on the property in 2019, Raborn informed the Arthur parties’ counsel that “he would
still proceed with the Restrained Foreclosure” and he did foreclose on the property.
The Arthur parties asserted four claims for affirmative relief: breach of the
Settlement Agreement; breach of the Agreed Final Judgment; fraud or
misrepresentation; and wrongful foreclosure of the property. The Arthur parties also
sought injunctive relief to prohibit Blackburne and Raborn from foreclosing upon
other properties owned by the Arthur parties.
On March 23, 2020, Blackburne and Raborn filed an answer and asserted
counterclaims. In this filing, they alleged:
10
To the extent there is dispute between the Arthur Parties and
Blackburne that is not precluded by law and/or asserted defenses,
Raborn is not a necessary party to this lawsuit. Raborn is not a party to
the Settlement Agreement or Agreed Final Judgment. Raborn has a
reasonable belief that he is named in this lawsuit solely in his capacity
as a substitute trustee under the deed of trust dated February 16, 2016
that secured the promissory note dated February 16, 2016 that
memorialized a loan by Blackburne to Arthur P. Holding, LP in the
original principal amount of $1,225,000.00. That deed of trust gave
Blackburne a security interest in the Beechnut Property. Upon Arthur
P. Holdings, LP’s failure to satisfy its obligations pursuant to the deed
of trust and promissory note, Blackburne appointed Raborn as
substitute trustee and directed him to foreclose the Beechnut Property.
Ultimately, such foreclosure did not occur but the Beechnut Property
was subsequently sold via a constable’s sale pursuant to the Agreed
Final Judgment. In addition, pursuant to section 51.007 of the Texas
Property Code, a trustee shall not be liable for any good faith error
resulting from reliance on any information in law or fact provided by
the mortgagor or mortgagee. Similarly, a trustee may not be held to the
obligations of a fiduciary of the mortgagor or mortgagee.
Although this denial was not verified, the answer was accompanied by an unsworn
declaration from Raborn. Raborn declared, under penalty of perjury, that the facts
stated in the answer were true and correct.
On May 15, 2020, more than 30 days after Raborn filed the denial contained
in his answer, he moved to dismiss the Arthur parties’ claims against him under
Property Code section 51.007. Raborn argued that he was not a necessary party to
the lawsuit and that he had been sued solely in his capacity as substitute trustee under
the deed of trust securing the loan in favor of Blackburne. He further argued that the
Arthur parties were required to file a verified response by April 22, 2020, but they
failed to do so. He requested that the trial court dismiss the claims against him
11
without prejudice. The trial court granted Raborn’s motion to dismiss, finding that
the Arthur parties failed to file a timely verified response and that Raborn was named
as a party to the lawsuit solely in his capacity as a trustee under a deed of trust.
On appeal, the Arthur parties argue that the trial court’s dismissal of the claims
against Raborn was improper in part because the court did not use a dismissal
procedure authorized by the Rules of Civil Procedure, such as dismissal pursuant to
Rule 91a or the summary judgment procedure. See TEX. R. CIV. P. 91a (setting out
procedure for dismissal of claims on grounds that claims have no basis in law or
fact); TEX. R. CIV. P. 166a (setting out procedure for traditional and no-evidence
motions for summary judgment). The Arthur parties are correct that Raborn’s motion
to dismiss does not meet the procedural requirements of either Rule 91a or Rule
166a. However, Property Code section 51.007 sets out a procedure by which a
trustee under a deed of trust may move for dismissal of certain claims asserted
against him. See TEX. PROP. CODE § 51.007(a)–(d); Cantor, 641 F. Supp. 2d at 611;
Freezia, 474 S.W.3d at 384 n.1.
The Arthur parties do not address section 51.007 in their brief or argue that
Raborn’s motion to dismiss does not meet the requirements of section 51.007. We
therefore conclude that although Raborn did not move for dismissal of the claims
against him pursuant to Rule 91a or the summary judgment procedure, he utilized a
dismissal mechanism that is authorized under Texas law. See TEX. PROP. CODE
12
§ 51.007(a)–(d). The trial court, therefore, did not use an unauthorized procedure to
dismiss the claims against Raborn.4
The Arthur parties also argue in their first issue that the motion to dismiss
“was not properly before the trial court when the order to dismiss was signed by the
trial judge.” They point out that, in late June 2020, their counsel had filed a notice
with the trial court that he would not be available for court proceedings until early
August 2020 due to health reasons. They also point to an email from the trial court’s
coordinator stating that a hearing scheduled for July 13 had “been passed” and that
the Arthur parties’ counsel “will need to be present for the hearing.” The trial court
signed the order dismissing the claims against Raborn on July 13.
We first note that the email from the court coordinator, which was part of an
exchange between the coordinator and Raborn, reflects the cause number for the
2019 case between the Arthur parties and Blackburne, not the 2020 case that also
involved Raborn. At the time of this email exchange, the 2019 and 2020 cases had
not been consolidated yet. Later emails reflected that the passed hearing was a status
conference hearing for the 2019 case, a hearing which required the presence of the
4
The Arthur parties also argue that although Blackburne and Raborn’s answer
contained special exceptions, the trial court did not follow the procedure for granting
special exceptions and instead dismissed Raborn from the lawsuit. The Arthur
parties cite no authority requiring the trial court to rule on the special exceptions
before ruling on Raborn’s motion to dismiss. We further note that dismissal pursuant
to section 51.007 is specifically required to be without prejudice. See TEX. PROP.
CODE § 51.007(c)–(d).
13
Arthur parties’ counsel. The hearing would be rescheduled once counsel was
available.
Additionally, we note that section 51.007 only requires a hearing if the
respondent “files a timely verified response to the trustee’s verified denial.” See id.
§ 51.007(d) (providing that under such circumstances “the matter shall be set for
hearing”). The statute is silent about the necessity of a hearing when the respondent
does not file a timely verified response. Id. § 51.007(c) (“If a party has no objection
or fails to file a timely verified response to the trustee’s verified denial, the trustee
shall be dismissed from the suit or proceeding without prejudice.”); see Cadena
Comercial USA Corp. v. Tex. Alcoholic Beverage Comm’n, 518 S.W.3d 318, 325–
26 (Tex. 2017) (“We presume the Legislature chooses a statute’s language with care,
including each word chosen for a purpose, while purposefully omitting words not
chosen. In that vein, we take statutes as we find them and refrain from rewriting the
Legislature’s text.”) (internal quotations and citations omitted). The Arthur parties
did not file a timely verified response to Raborn’s denial pleaded in his answer.
Because the Arthur parties did not file a verified response to Raborn’s denial,
the trial court was not statutorily required to hold a hearing on Raborn’s motion to
dismiss. We hold that the trial court did not use an unauthorized procedure when it
dismissed the claims against Raborn pursuant to Property Code section 51.007.
We overrule the Arthur parties’ first issue.
14
2. Whether Raborn’s Motion to Dismiss Was Substantively Deficient
The Arthur parties argue that Raborn’s motion to dismiss was substantively
deficient because it was based on Raborn’s “beliefs,” which is not a sufficient basis
to grant a dispositive motion. Section 51.007(a), however, specifically provides that
a trustee may plead in his answer that he is not a necessary party to the lawsuit by a
verified denial “stating the basis for the trustee’s reasonable belief that the trustee
was named as a party solely in the capacity as a trustee under a deed of trust, contract
lien, or security instrument.” TEX. PROP. CODE § 51.007(a) (emphasis added). The
statute allows the plaintiff to file a verified response and set “forth all matters,
whether in law or fact, that rebut the trustee’s verified denial.” Id. § 51.007(b). If, as
here, the plaintiff does not timely respond, “the trustee shall be dismissed from the
suit or proceeding without prejudice.” Id. § 51.007(c).
Here, Raborn pleaded in his answer that he was not a necessary party to the
lawsuit, noting that he was not a party to either the Settlement Agreement or the
Agreed Final Judgment. Instead, he reasonably believed that he was named as a party
solely in his capacity as substitute trustee under the deed of trust securing the
property. He pleaded that Blackburne named him as substitute trustee and directed
him to initiate foreclosure proceedings on the property after the Arthur parties
allegedly breached their obligations under the Settlement Agreement and Agreed
Final Judgment. The statutory language requires only that the trustee, in his verified
15
denial, state the basis for his reasonable belief that he was named as a party solely
in his capacity as trustee.5 Id. § 51.007(a). Raborn did so here. Under this particular
statutory scheme, Raborn’s denial was not deficient because it was based on his
“belief.”
The Arthur parties also contend that Raborn’s presence in the lawsuit was
required to afford them complete relief, arguing that “[i]t was [Raborn’s] churning
of legal work and bills beginning in 2014 which precipitated these lawsuits.” The
Arthur parties, however, made no allegations concerning Raborn’s attorney’s fees
or billing practices in their original petition. Their petition contains few references
to Raborn by name, and those references make clear that Raborn was acting in his
5
To the extent the Arthur parties argue that Raborn’s denial was substantively
deficient because it was not verified, we note that Raborn supported the pleading in
the answer with his unsworn declaration. He declared under penalty of perjury that
the facts contained in the answer were true and correct. An unsworn declaration may
be used “in lieu of a written sworn declaration, verification, certification, oath, or
affidavit required by statute or required by a rule, order, or requirement adopted as
provided by law.” TEX. CIV. PRAC. & REM. CODE § 132.001(a); Gillis v. Harris
Cnty., 554 S.W.3d 188, 192 (Tex. App.—Houston [14th Dist.] 2018, no pet.). Such
a declaration must be in writing and must be subscribed as true under penalty of
perjury. Baylor Scott & White v. Project Rose MSO, LLC, 633 S.W.3d 263, 291
(Tex. App.—Tyler 2021, pet. denied); Gillis, 554 S.W.3d at 193 (stating that “key”
to unsworn declaration is that it is signed under penalty of perjury); TEX. CIV. PRAC.
& REM. CODE § 132.001(c) (requiring unsworn declaration to be in writing and
subscribed as true under penalty of perjury), (d) (requiring unsworn declaration to
contain jurat in substantially same form as shown in statute). Raborn’s unsworn
declaration was in writing, signed, and made under penalty of perjury. This
declaration complies with section 132.001 and may therefore be used in lieu of a
verification. See TEX. CIV. PRAC. & REM. CODE § 132.001(a), (c), (d).
16
capacity as trustee under the deed of trust. The Arthur parties do not assert any claims
against Raborn that are independent from his actions as trustee.
Moreover, all the Arthur parties’ claims stem from the alleged wrongful
foreclosure of the property and their attempts to prevent Blackburne from
foreclosing on other properties that they own. Federal district courts interpreting
section 51.007 have held that trustees are “nominal” parties in suits for wrongful
foreclosure and that a trustee named solely in that capacity is not a necessary party
in a suit to prevent foreclosure. See Fairport Ventures, LLC v. Long as Tr. for U.S.
Bank Nat’l Ass’n, No. H-21-2347, 2021 WL 4267175, at *2 (S.D. Tex. Sept. 20,
2021); Eisenberg v. Deutsche Bank Tr. Co. Ams., No. SA-11-CV-384-XR, 2011 WL
2636135, at *4 (W.D. Tex. July 5, 2011); see also TEX. PROP. CODE § 51.007(e) (“A
dismissal of the trustee pursuant to Subsections (c) and (d) shall not prejudice a
party’s right to seek injunctive relief to prevent the trustee from proceeding with a
foreclosure sale.”).
Finally, the Arthur parties argue that dismissal based on their failure to file a
verified response to Raborn’s denial was improper because at the time their response
was due, a Texas Supreme Court Emergency Order relating to the COVID-19
pandemic was in effect that suspended filing deadlines. We disagree that the trial
court’s order granting Raborn’s motion to dismiss violated the applicable
Emergency Order.
17
Section 51.007(b) provides that “[w]ithin 30 days after the filing of the
trustee’s verified denial, a verified response is due from all parties to the suit or
proceeding setting forth all matters, whether in law or fact, that rebut the trustee’s
verified denial.” TEX. PROP. CODE § 51.007(b). If the respondent does not file a
timely verified response, “the trustee shall be dismissed from the suit or proceeding
without prejudice.” Id. § 51.007(c). Raborn filed his denial on March 23, 2020. The
Arthur parties’ response was therefore due thirty days later, or by April 22, 2020.
In response to the COVID-19 pandemic, the Texas Supreme Court has issued
a series of Emergency Orders relating to the conduct of court proceedings. The
court’s First Emergency Order Regarding the COVID-19 State of Disaster, signed
on March 13, 2020, provided, in relevant part:
2. Subject only to constitutional limitations, all courts in Texas may
in any case, civil or criminal—and must to avoid risk to court
staff, parties, attorneys, jurors, and the public—without a
participant’s consent:
a. Modify or suspend any and all deadlines and procedures,
whether prescribed by statute, rule, or order, for a stated
period ending no later than 30 days after the Governor’s
state of disaster has been lifted; . . . .
See 596 S.W.3d 265, 265 (Tex. 2020) (Order) (effective March 13, 2020) (emphasis
added). In the First Emergency Order, the Texas Supreme Court did not, as the
Arthur parties appear to argue, automatically suspend all deadlines in all cases.
Instead, this Emergency Order gave trial courts broad discretion to modify or
18
suspend any deadlines and procedures prescribed by statute, rule, or order. See Kim
v. Ramos, 632 S.W.3d 258, 269–70 (Tex. App.—Houston [1st Dist.] 2021, no pet.)
(construing similar language in Texas Supreme Court’s Twenty-Ninth Emergency
Order).
The First Emergency Order was in effect at the time Raborn filed his answer,
which contained his pleading that the Arthur parties had sued him solely in his
capacity as trustee under the deed of trust. The trial court therefore had the authority
to modify or suspend the Arthur parties’ 30-day response deadline. However, the
Arthur parties point to no evidence in the appellate record that the trial court did so.
The Arthur parties argue that the trial court issued an abatement order on March 20,
2020, but there is no indication that this abatement order was issued in the underlying
proceeding. The appellate record does not contain an abatement order. The trial
court’s docket sheet for this proceeding contains no entry on March 20, 2020, and
does not reference the entry of an abatement order at any point during the pendency
of the proceeding. Instead, the email exchange between the trial court coordinator
and Raborn, discussed above, indicates that the abatement order was issued in the
2019 case between the Arthur parties and Blackburne.
We conclude that the Arthur parties have not demonstrated that the trial court,
by granting Raborn’s motion to dismiss in part because the Arthur parties did not
timely file a verified response, violated any order of the Texas Supreme Court or
19
another order of the trial court. We further conclude that Raborn’s motion to dismiss
pursuant to Property Code section 51.007 was not substantively deficient.
We overrule the Arthur parties’ second issue.
Denial of Motion to Sever
In their third issue, the Arthur parties argue that the trial court abused its
discretion by denying the motion to sever their claims against Raborn into a separate
cause number, which would have made the trial court’s order dismissing those
claims a final judgment.
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 severance divides
the lawsuit into two or more separate and independent causes.” In re United Fire
Lloyds, 327 S.W.3d 250, 254 (Tex. App.—San Antonio 2010, orig. proceeding); see
Van Dyke v. Boswell, O’Toole, Davis & Pickering, 697 S.W.2d 381, 383 (Tex. 1985)
(“A severance splits a single suit into two or more independent actions, each action
resulting in an appealable final judgment.”).
A claim is properly severable if (1) the controversy involves more than one
cause of action; (2) the severed claim 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. In re State, 355 S.W.3d
611, 614 (Tex. 2011) (orig. proceeding); F.F.P. Operating Partners, L.P. v. Duenez,
20
237 S.W.3d 680, 693 (Tex. 2007) (quoting Guar. Fed. Sav. Bank v. Horseshoe
Operating Co., 793 S.W.2d 652, 658 (Tex. 1990)). We review a trial court’s order
on a motion to sever for an abuse of discretion. F.F.P. Operating Partners, 237
S.W.3d at 693; Liberty Nat’l Fire Ins. Co. v. Akin, 927 S.W.2d 627, 629 (Tex. 1996)
(orig. proceeding) (“Severance of claims under the Texas Rules of Civil Procedure
rests within the sound discretion of the trial court.”).
The trial court granted Raborn’s motion to dismiss on July 13, 2020. This
ruling dismissed the claims against Raborn without prejudice, but the Arthur parties’
claims against Blackburne remained pending. The Arthur parties filed a motion for
reconsideration of the court’s dismissal order.
While the Arthur parties’ motion for reconsideration was pending, the trial
court granted Blackburne’s motion to consolidate the underlying suit with the two
previous suits that the Arthur parties had filed against Blackburne. These lawsuits
did not contain any claims asserted against Raborn. Thus, at the time the trial court
consolidated the three cases, the only claims asserted against Raborn had been
dismissed.
On December 8, 2020, the trial court denied the Arthur parties’ motion for
reconsideration. Ten days later, the Arthur parties moved to sever the claims against
Raborn into a separate cause number. The Arthur parties argued that the order
denying reconsideration was a final order or judgment with respect to Raborn, and a
21
severance would “permit\allow the removal of Defendant Raborn from the case.”
Raborn responded to this motion and opposed severance.
The trial court denied the Arthur parties’ motion to sever on January 5, 2021.
The Arthur parties filed a notice of appeal from this order on February 5, 2021. On
May 15, 2021, while this appeal against Raborn was pending, the trial court signed
a final judgment disposing of the remaining claims between the Arthur parties and
Blackburne in the three consolidated cases.
Texas courts have held that severing a claim after a dispositive ruling on that
claim to expedite appellate review is not an abuse of discretion. See Cherokee Water
Co. v. Forderhause, 641 S.W.2d 522, 525–26 (Tex. 1982) (concluding that
severance of deed-reformation claim after trial court granted summary judgment on
declaratory judgment claim, “apparently in an effort to expedite appellate review of
the declaratory judgment action,” did not constitute abuse of discretion); Dorsey v.
Raval, 480 S.W.3d 10, 15 (Tex. App.—Corpus Christi–Edinburg 2015, no pet.)
(holding that trial court did not abuse its discretion by severing claims against
particular defendant because, at time severance occurred, all claims against
defendant had been dismissed by summary judgment).
Conversely, this Court has held that no authority limits a trial court’s
discretion and requires it to sever a claim after the trial court issues an interlocutory
dispositive ruling on the claim. Marshall v. Harris, 764 S.W.3d 34, 35 (Tex. App.—
22
Houston [1st Dist.] 1989, orig. proceeding) (per curiam) (concluding that relator did
not demonstrate he was entitled to mandamus relief when trial court denied motion
to sever claims asserted by relator after court granted interlocutory summary
judgment in favor of defendant on relator’s claims); In re De La Cerda, No. 12-12-
00149-CV, 2013 WL 451830, at *3 (Tex. App.—Tyler Feb. 6, 2013, orig.
proceeding [mand. denied]) (mem. op.) (declining to grant mandamus relief when
trial court refused to sever claims resolved by interlocutory default judgment). We
further stated that no authority holds that a trial court abuses its discretion by denying
a motion to sever claims “resolved by an interlocutory summary judgment that
delays the movant’s appeal.” Marshall, 764 S.W.2d at 35.
Even if the trial court erred by denying the Arthur parties’ motion to sever the
claims against Raborn, we conclude that this ruling does not constitute reversible
error. The trial court disposed of the claims against Raborn when it granted Raborn’s
motion to dismiss in July 2020, and it reaffirmed that dismissal when it denied the
Arthur parties’ motion for reconsideration in December 2020.
Denying the motion to sever—and keeping the claims against Raborn in the
consolidated case even though no further actions needed to be taken with respect to
those claims—could have potentially delayed the Arthur parties’ seeking of
appellate remedies against Raborn. However, the Arthur parties filed a notice of
appeal from the order denying the motion to sever—resulting in this appeal—even
23
though the order denying the motion to sever was interlocutory and not appealable.
The Arthur parties thus began the appellate process on their claims against Raborn,
albeit prematurely. The trial court then signed a final judgment disposing of all
claims and all parties in the case approximately three months after the Arthur parties
filed their notice of appeal. The signing of the final judgment cured the jurisdictional
defect arising from the prematurely filed notice of appeal. See Fusion Indus., LLC v.
Edgardo Madrid & Assocs., LLC, 624 S.W.3d 843, 849 (Tex. App.—El Paso 2021,
no pet.); TEX. R. APP. P. 27.1(a).
The trial court’s denial of the Arthur parties’ motion to sever did not probably
cause the rendition of an improper judgment, nor did it prevent the Arthur parties
from properly presenting their case to this Court. See TEX. R. APP. P. 44.1(a) (stating
standard for reversible error in civil cases). Moreover, the only parties to this appeal
are the Arthur parties as appellants and Raborn as the sole appellee. The only other
issues in this appeal are whether the trial court properly dismissed the claims against
Raborn; the merits of the trial court’s dismissal of the Arthur parties’ claims against
Blackburne are not at issue in this appeal. Thus, even if the trial court erred by
denying the Arthur parties’ motion to sever, remanding the case to the trial court and
ordering the court to grant the motion to sever would serve no practical effect. See
Meeker v. Tarrant Cnty. Coll. Dist., 317 S.W.3d 754, 759 (Tex. App.—Fort Worth
2010, pet. denied) (“An issue may become moot when a party seeks a ruling on some
24
matter that, when rendered, would not have any practical legal effect on a then-
existing controversy.”). We therefore hold that the trial court’s denial of the Arthur
parties’ motion to sever did not constitute reversible error.
We overrule the Arthur parties’ third issue.
Conclusion
We affirm the judgment of the trial court.
April L. Farris
Justice
Panel consists of Justices Goodman, Countiss, and Farris.
25 | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488484/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-21-00225-CR
Daniel Wayne Bennett, Appellant
v.
The State of Texas, Appellee
FROM THE 119TH DISTRICT COURT OF TOM GREEN COUNTY
NO. DIS-18-01982, THE HONORABLE MIKE FREEMAN, JUDGE PRESIDING
MEMORANDUM OPINION
Daniel Wayne Bennett was convicted of continuous sexual abuse of a child and
two counts of sexual assault of a child and was sentenced to forty-five years’ imprisonment for
the sexual-abuse count and ten years’ imprisonment for each sexual-assault count. See Tex.
Penal Code §§ 12.33, 21.02(b), (h), 22.011(a)(2). In six issues on appeal, Bennett argues that
precautionary measures used during the pandemic caused structural error and that the trial court
erred by granting the State’s request for a change of venue, denying his motion to suppress,
excluding defensive evidence, denying his motion for a directed verdict, and admitting
extraneous-offense evidence. We will modify the trial court’s judgments of conviction to correct
clerical errors and affirm the judgments as modified.
BACKGROUND
V.W. was born in October 1997 and lived in Paint Rock, Texas, with her mother,
stepfather, brothers, and stepsisters. Stepfather worked for a construction company owned by
Bennett, who was a family friend. In addition to owning a construction company, Bennett
maintained and cleaned several homes in or near the town. Bennett and others referred to two of
the homes as the highway house and the river house because of their locations. When V.W. was
twelve years old and in middle school, Bennett hired her to help clean the houses.
Bennett had a cell phone that he used for personal and business purposes, but he
also purchased several other cell phones that he gave to family members, friends, and employees
for them to use. The cell phones all had service through the same service provider. When V.W.
first met Bennett, he was married and living with his wife and three stepdaughters, but he
eventually divorced his wife after becoming involved with one of V.W.’s adult stepsisters.
In 2016, after turning eighteen years old, V.W. went to the police station to report
that Bennett sexually abused her from age twelve to age seventeen at various locations, including
the river house and the highway house. During a recorded interview with investigating officers,
Bennett denied having any sexual contact with V.W. but admitted that she would clean houses
for him. Bennett agreed to provide a DNA sample and stated that his DNA would be present in
those houses because he had sex with V.W.’s stepsister in the houses. When V.W. reported the
abuse, she described the inside of a bedroom in the river house, including the bedding, where she
said abuse would occur. The investigating officers searched the river house and the highway
house and seized the bedding in the river house and submitted it for forensic testing.
As part of their investigation, the police obtained Bennett’s cell phone records
pursuant to a warrant from 2009 to 2016 and records for another phone owned by Bennett that
V.W. told the police she used and a phone that V.W. acquired later. The police reviewed the text
messages exchanged between Bennett and V.W. obtained from these cell phone records.
2
During the investigation, the officers attempted to ascertain whether there were
any other victims, and one of the individuals they interviewed told the officers to talk with
P.M., who was then twenty years old and is Bennett’s former wife’s niece. The police then
interviewed P.M., who described incidents where Bennett sexually abused her at his house when
she was eight years old.
Bennett was arrested and charged with continuous sexual abuse of a child and
with two counts of sexual assault of a child for incidents involving V.W. Before trial, the State
moved to change venue, and Bennett filed a motion to suppress evidence, including evidence
concerning the text exchanges described above. The trial court granted the motion to change
venue, ordering that the case be transferred from Concho County to Tom Green County. The
trial court denied Bennett’s motion to suppress.
During the trial, the investigating officers described the efforts they undertook
while investigating the allegations, and the recorded interview of Bennett was admitted into
evidence during one officer’s testimony. Further, one of the investigating officers related that
Bennett confirmed the phone number for the phone that he used.
In addition, V.W. testified that Bennett sexually abused her from ages twelve to
seventeen and that the incidents occurred in Bennett’s house, in his workshop, in his truck, at
the highway house, and at the river house. V.W. also identified the phone number belonging
to Bennett and those for the phones that she said she used. During her testimony, the text
exchanges between Bennett and V.W. were admitted into evidence. V.W. explained that she
recognized most of the text exchanges and that the text messages were authored by Bennett and
her. V.W. went through many of those exchanges during her testimony and explained how they
showed that they would engage in sexual activity during those years.
3
Following V.W.’s testimony, a forensic scientist testified that he performed DNA
testing on cuttings from the comforter collected from the river house that contained evidence of
Bennett’s DNA and V.W.’s DNA. More specifically, regarding one test, he explained that the
DNA profile was a mixture from three individuals; that “[o]btaining this profile is 1.19 billion
times more likely that the DNA came from suspect Bennett and two unknown individuals than if
the DNA came from three unrelated, unknown individuals”; that “[o]btaining this profile is 238
quintillion times more likely that the DNA came from [V.W.] and two unknown individuals than
if the DNA came from three unrelated, unknown individuals”; that V.W. and Bennett could not
be excluded as contributors; and that V.W. was the primary contributor. Regarding another test,
the forensic scientist testified that the DNA profile was a mixture from three individuals; that
“[o]btaining this profile is 14.8 billion times more likely that the DNA came from suspect
Bennett and two unknown individuals than if the DNA came from three unrelated, unknown
individuals”; that “[o]btaining this profile is 81.3 billion times more [likely] if the DNA came
from [V.W.] and two unknown individuals than if the DNA came from three unrelated, unknown
individuals”; and that Bennett and V.W. could not be excluded as possible contributors.
Next, P.M. was called as a witness and testified that she went to Bennett’s house
regularly when she was young because he was married to her aunt. P.M. explained that Bennett
inserted his penis into her vagina on two different days when she was eight years old and was
swimming in the pool at his house. During her cross-examination, P.M. admitted that she later
moved into Bennett’s house with Bennett’s stepdaughter who was her cousin after P.M. had a
falling out with her parents. P.M. also admitted that when she was first questioned by the police,
she initially denied that anything sexual happened.
4
The custodian of records for the cell-service provider for the three phones
investigated in this case testified that the subscriber for Bennett’s phone was Bennett. The
custodian also explained that the subscriber for the first phone that V.W. said she used was
Bennett but that there is an invoice record with V.W.’s name on it. Further, the custodian said
that V.W. was the subscriber for the second phone that V.W. used.
During the trial, Bennett called several witnesses who testified that he had a good
reputation for being honest and law-abiding. Next, Bennett’s business partner was called to
the stand and testified that Bennett had several phones and lent them to family, friends, and
employees and that the first phone that V.W. testified that she used could have been used by
several people. The business partner also identified Bennett’s phone number but stated that
Bennett did not text very often. The business partner also explained that he believed that he
could identify who the authors of the texts were in the exhibit admitted during V.W.’s testimony
and prepared a chart identifying whom he believed authored the text messages. Bennett sought
to have the chart admitted, but the trial court sustained the State’s objection.
One of Bennett’s stepdaughters testified that Bennett never sexually abused her,
that she never saw Bennett sexually abuse V.W. or P.M., and that Bennett could not have
sexually abused P.M. in the pool without someone noticing. Bennett’s stepdaughter also
mentioned that P.M. moved into Bennett’s house later. When asked about an assault that V.W.
said occurred at Bennett’s house, Bennett’s stepdaughter explained that the incident could not
have happened because Bennett was not there that day. Moreover, she stated that before the
allegations were made, V.W.’s family became angry with Bennett because he threatened to
evict one of V.W.’s stepsisters, who was leasing a house from him. Bennett’s stepdaughter also
identified Bennett’s phone number and explained that he has used that phone for a long time
5
and for personal and business purposes. Another of Bennett’s stepdaughters later testified that it
would not have been possible for Bennett to sexually abuse P.M. at the pool without her seeing.
One of Bennett’s stepsons testified that he would borrow Bennett’s phone when
he was in Paint Rock because his cell phone did not work in that town. He explained that he
used to date one of V.W.’s stepsisters and that after reviewing some of the text messages from
the State’s exhibit, he believed those text messages were consistent with the types of text
exchanges that he had with V.W.’s stepsister.
One of Bennett’s former employees testified that he worked for Bennett when he
was fourteen years old and then later rented a house from Bennett when he turned eighteen. He
also stated that he had a romantic relationship with V.W. when they were in school together, that
he would borrow Bennett’s phone while at work, and that he would send V.W. text messages
from Bennett’s phone. The former employee said that he worked late with Bennett, which is
why some of the text messages were sent late in the evening. During his cross-examination, the
employee admitted that Bennett helped him and his family financially and that his father still
works for Bennett.
V.W.’s stepsister who became romantically involved with Bennett testified that
she had sex with him at the highway house and the river house. Further, the stepsister explained
that several people used and traded the phones that Bennett provided, but she also identified the
phone number that Bennett used. During her cross-examination, the stepsister stated that V.W.
did work for Bennett at the river house.
Bennett elected to testify and denied having any sexual contact with V.W. or P.M.
Bennett did admit that he hired people, including V.W., to help him maintain the river house, but
he explained that V.W. was only at the river house a few times while her family was there and
6
that he was never alone with her. Further, Bennett testified that he owned several phones that he
allowed others to use. During his cross-examination, Bennett identified his phone number and
said that he used the phone for personal and business calls, but he also stated that he lent to
multiple individuals the phone V.W. claimed as her first phone. Bennett admitted to having
sex with V.W.’s stepsister at the river house and the highway house. In his testimony, Bennett
related that he did not send any of the texts in the State’s exhibit and did not know who could
have been sending those messages from his phone.
At the conclusion of the trial, Bennett was convicted of all the charged offenses.
Bennett appeals his convictions.
DISCUSSION
In his first five issues on appeal, Bennett contends that the trial court erred by
granting the State’s motion to change venue, denying his motion to suppress, excluding a chart
that he sought to admit into evidence, denying his motion for a directed verdict, and admitting
extraneous-offense evidence. In his final issue, Bennett asserts that structural error occurred
during the trial. Because the fourth issue could result “in greater relief than his other issue[s],”
we address that issue first. See Medina v. State, 565 S.W.3d 868, 873 (Tex. App.—Houston
[14th Dist.] 2018, pet. ref’d).
Directed Verdict
In his fourth issue on appeal, Bennett argues that the trial court erred by denying
his motion for a directed verdict regarding all three offenses because the evidence was
insufficient to support his convictions.
7
An appellate issue challenging the denial of a motion for a directed verdict is
a challenge to the sufficiency of the evidence supporting the conviction and is reviewed under
the sufficiency standard. See Williams v. State, 582 S.W.3d 692, 700 (Tex. App.—Houston
[1st Dist.] 2019, pet. ref’d). “Evidence is sufficient to support a criminal conviction if a rational
jury could find each essential element of the offense beyond a reasonable doubt.” Stahmann v.
State, 602 S.W.3d 573, 577 (Tex. Crim. App. 2020) (citing Jackson v. Virginia, 443 U.S. 307,
319 (1979)). In making this determination, “[w]e view the evidence in the light most favorable
to the verdict and consider all of the admitted evidence, regardless of whether it was properly
admitted.” Id. “The jury is the sole judge of credibility and weight to be attached to the
testimony of the witnesses.” Id. “Juries can draw reasonable inferences from the evidence so
long as each inference is supported by the evidence produced at trial,” id., and are “free to apply
common sense, knowledge, and experience gained in the ordinary affairs of life in drawing
reasonable inferences from the evidence,” Eustis v. State, 191 S.W.3d 879, 884 (Tex. App.—
Houston [14th Dist.] 2006, pet. ref’d). “When the record supports conflicting inferences,
we presume that the jury resolved the conflicts in favor of the verdict and defer to that
determination.” Merritt v. State, 368 S.W.3d 516, 525-26 (Tex. Crim. App. 2012).
Appellate courts must “determine whether the necessary inferences are reasonable
based upon the combined and cumulative force of all the evidence when viewed in the light most
favorable to the verdict.” Hooper v. State, 214 S.W.3d 9, 16-17 (Tex. Crim. App. 2007).
Appellate courts also must bear in mind that “direct and circumstantial evidence are treated
equally” and that “[c]ircumstantial evidence is as probative as direct evidence in establishing
the guilt of an actor” and “can be sufficient” on its own “to establish guilt.” Kiffe v. State,
361 S.W.3d 104, 108 (Tex. App.—Houston [1st Dist.] 2011, pet. ref’d). The evidence is legally
8
insufficient if “the record contains no evidence, or merely a ‘modicum’ of evidence, probative of
an element of the offense” or if “the evidence conclusively establishes a reasonable doubt.” Id.
at 107 (quoting Jackson, 443 U.S. at 320).
Continuous Sexual Abuse
Under the Penal Code, a person commits the offense of continuous sexual abuse
of a child if the following occurs:
(1) during a period that is 30 or more days in duration, the person commits two or
more acts of sexual abuse, regardless of whether the acts of sexual abuse are
committed against one or more victims; and
(2) at the time of the commission of each of the acts of sexual abuse, the actor is
17 years of age or older and the victim is:
(A) a child younger than 14 years of age, regardless of whether the
actor knows the age of the victim at the time of the offense . . . .
Tex. Penal Code § 21.02(b). The term “act of sexual abuse” includes aggravated sexual assault,
which occurs when an actor causes “the sexual organ of a child” younger than fourteen years old
“to contact or penetrate the mouth, anus, or sexual organ of another person, including the actor.”
See id. §§ 21.02(c)(4), 22.021(a)(1)(B)(iii), (a)(2)(B). “[M]embers of the jury are not required to
agree unanimously on which specific acts of sexual abuse were committed by the defendant or
the exact date when those acts were committed” but “must agree unanimously that the defendant,
during a period that is 30 or more days in duration, committed two or more acts of sexual abuse.”
Id. § 21.02(d).
The indictment in this case alleged that from August 2009 through October 2011,
Bennett committed two or more acts of sexual abuse against V.W. during a period that was 30
days or more in duration while she was younger than fourteen years old. Regarding the acts of
9
sexual abuse, the indictment alleged that Bennett committed aggravated sexual assault by
intentionally and knowingly causing V.W.’s sexual organ to contact his sexual organ or by
intentionally and knowingly causing her sexual organ to contact his mouth.
On appeal, Bennett contends that the evidence was insufficient to establish that
any contact between V.W.’s genitals and his mouth occurred before she turned fourteen years
old. Although Bennett acknowledges that V.W. testified about an incident in which Bennett “put
his mouth down on [her] vagina,” he notes that she testified that she did not remember whether
the incident occurred before she turned fourteen. Moreover, although Bennett recognizes that
V.W. did testify regarding two incidents that occurred before she turned fourteen—one at his
shop and one at his house before a cheerleading camp—he emphasizes that portions of her
testimony regarding those incidents were contradicted by other witnesses. Specifically, Bennett
highlights that V.W. testified that there was running water at the shop at the time of the incident
but that other witnesses testified that the shop did not have running water until years later, and
Bennett also contends that V.W.’s testimony regarding the town in which the other offense
occurred was inconsistent with the testimony of one of the investigating officers. Further,
Bennett asserts that V.W. stated that she could not remember whether thirty days had passed
between those incidents. Finally, Bennett argues that neither of those two incidents involved
contact between his mouth and V.W.’s vagina “as alleged in the indictment” and, therefore,
cannot support his conviction for continuous sexual abuse of a child.
As discussed above, Bennett contends that V.W.’s testimony discussing particular
incidents occurring when she was younger than fourteen years old could not provide sufficient
evidence because portions of her testimony were contradicted by other witnesses; however,
we note that “[a] jur[y] can choose to believe or disbelieve all, some, or none of the evidence
10
presented” and that we must “presume that the fact finder resolved” conflicts in the evidence “in
favor of the verdict and defer to that determination.” Edward v. State, 635 S.W.3d 649, 655, 656
(Tex. Crim. App. 2021). Further, although Bennett correctly points out that the indictment listed
one of the types of sexual abuse as oral-genital contact, the State’s decision to list this type of
sexual abuse as one of the manners and means by which he allegedly committed the offense of
continuous sexual abuse does not require that there be evidence of this particular manner and
means to warrant a conviction provided that there is evidence of two or more acts of sexual
abuse of the other types of abuse alleged in the indictment within the relevant time frame. See
Tex. Penal Code § 21.02(b)-(d); see also Casey v. State, 349 S.W.3d 825, 829 (Tex. App.—
El Paso 2011, pet. ref’d) (explaining that jury “need not unanimously agree on which specific
acts of sexual abuse the defendant committed, because those acts are merely the manner and
means by which the ‘series’ element was accomplished”). Accordingly, even if the evidence is
insufficient to establish that oral-genital contact occurred during the relevant time, the evidence
supporting Bennett’s conviction is not insufficient if there is evidence that two or more acts of
some type of sexual abuse alleged in the indictment—here, causing V.W.’s sexual organ to
contact Bennett’s sexual organ—occurred within the applicable time frame.
V.W. explained during her testimony that she was born in October 1997, and the
jury could have determined that she turned fourteen in October 2011. Further, V.W. described
three specific incidents that occurred prior to her turning fourteen. First, she testified that when
she was eleven years old, she spent the night at Bennett’s house because she had a cheerleading
event in town. When describing the incident, she explained that when she was on the couch
sleeping, Bennett removed her clothes, pinned her arms down, and inserted his penis into her
vagina. Second, she related that the next incident occurred at the river house when she went
11
there to clean. Regarding that incident, she stated that Bennett pushed her on the bed and had
vaginal intercourse with her. When describing the timing of this event, she testified that more
than thirty days had passed between the incidents at Bennett’s house and the river house. Third,
V.W. discussed a later assault at Bennett’s shop on September 11, 2011, in which she cleaned for
a while before Bennett grabbed her, threw her on the bed, removed her underwear, and inserted
his penis into her vagina.1
Moreover, V.W. testified regarding the cell-phone records showing the exchanges
between Bennett’s phone and the first phone that she said she used and between his phone
and the phone that she later acquired, and she identified text messages authored by Bennett and
her, including ones sent before she turned fourteen. Although other witnesses testified that other
people used Bennett’s phone and the first number associated with V.W., we must presume that
the jury resolved the conflicts in the evidence in favor of conviction and a determination that
Bennett and V.W. authored the text messages in question. An exhibit containing the text
exchanges between Bennett’s phone and the first phone that V.W. said she used was admitted
into evidence and included the following exchanges occurring before V.W. turned fourteen:
October 29, 2010: Bennett asks V.W. why she was ignoring him, which he
described as “messed up” and says he “won[’]t ask again.” V.W. says she was
tired of her stepsister being jealous of the time they spend together.
December 31, 2010: Bennett and V.W. say that they love each other.
August 10, 2011: Bennett tells V.W. to walk to the school so that he could pick
her up and take her to one of the houses to work.
September 11, 2011: Bennett tells V.W., “Thank u for cleaning the shop.”
1
In her testimony, V.W. discussed other incidents that occurred at the river house, at the
highway house, and in Bennett’s truck. However, she did not testify whether those events
occurred before or after she turned fourteen years old.
12
September 24, 2011: Bennett asks V.W. if she is mad at him and if she wants “to
work sometime.”
From V.W.’s testimony and other evidence, the jury could reasonably infer that
Bennett committed two or more acts of sexual abuse—here, causing her sexual organ to contact
his sexual organ—during a period that is thirty or more days in duration while she was younger
than fourteen years old. See Tex. Penal Code § 21.02; see also Tex. Code Crim. Proc. art. 38.07
(providing that testimony from witness who was child at time of offense is sufficient to support
conviction in sexual-offense case). Accordingly, we must conclude that the evidence is legally
sufficient to support Bennett’s conviction for continuous sexual abuse.
Sexual Assault of a Child
In this issue, Bennett also asserts that the evidence is legally insufficient to
support his two convictions for sexual assault of a child.
Under the Penal Code, an individual commits the offense of sexual assault of a
child if “the person intentionally or knowingly: . . . (C) causes the sexual organ of a child to
contact or penetrate the mouth, anus, or sexual organ of another person, including the actor,”
“regardless of whether the person knows the age of the child at the time of the offense.” Tex.
Penal Code § 22.011(a)(2)(C). Moreover, the Penal Code defines a child as “a person younger
than 17 years of age.” Id. § 22.011(c)(1). The indictment in this case alleged that Bennett “did
then and there intentionally and knowingly cause the sexual organ of [V.W.], a child who was
then and there younger than 17 years of age, to contact” his sexual organ “on or about” May 29,
2013, and July 15, 2013.
On appeal, Bennett contends that although the State introduced a text exchange in
which he asked V.W. to go to the river house with him on May 29, 2013, V.W. did not testify
13
whether she went to the house on that date. Next, Bennett notes that V.W. did testify that she
met Bennett at the highway house on July 15, 2013, but asserts that she did not testify whether
any sexual activity occurred on that date. Further, Bennett contends that V.W.’s testimony was
insufficient because she could not remember when the last sexual incident occurred other than to
say it was close to when she graduated and could not remember details regarding other incidents.
Moreover, Bennett urges that V.W. admitted that some incidents occurred after she turned
seventeen and that without evidence indicating that any incidents occurred before she turned
seventeen, “the evidence is insufficient to permit conviction” for the two counts of sexual assault
of a child.
As set out above, V.W. testified that that she was born in October 1997, meaning
that she turned seventeen in October 2014. During her testimony, she did provide a date for an
incident occurring after she turned fourteen and before she turned seventeen. Specifically, she
testified that Bennett had sex with her in his shop on her fourteenth birthday. Similarly, although
she did not specify her age, she explained that Bennett had sex with her on another occasion
while she was in eighth grade. Moreover, she provided general testimony describing the sexual
nature of their encounters when she explained that Bennett had sex with her in the highway
house and in his truck, had sex with her more than twice at the river house, and had sex with her
more than twenty times from when she was eleven until she turned seventeen.
During her testimony, V.W. also discussed text exchanges between Bennett and
herself that she received on and sent from the first phone that she used after she turned fourteen
and before she turned seventeen. Further, V.W. discussed how when Bennett would text her to
ask her to “go with [him]” or to meet him somewhere, that meant that he wanted to have sex with
her. In her testimony, V.W. discussed the following text exchanges:
14
November 2, 2011: Bennett asks V.W. to come to his house or the river house.
She responds by saying “I don’t want to do that anymore.” He asks, “Will u if I
take u to town.” In response, she says that she does not know if she would, and
he then asks if she is mad at him.
December 26, 2011: Bennett asks, “r u going to river with me some time.” V.W.
replies, “Why,” and he responds, “Really.”
May 18, 2012: Bennett asks, “U w[ant] to make some money.” V.W. replies,
“Well I need some for cheerleading,” and “Is there anyway u can get me the rest
of my cheerleading money today?” Bennett responds, “R u going to go with me.”
April 19, 2013: Bennett asks V.W. what she was doing and “Can y go with me
sometime.” She responds, “Nope.” When Bennett asks why, she answers, “Cuz I
dont want to.”
May 29, 2013: V.W. asks if there is anyway she could “work cuz i need 26 dollars
by friday so I can pay for my letterman jacket.” Bennett responds, “Can u go to
river with me.” She agrees to meet up with him and asks him to pick her up.
Bennett instructs her to “Walk down road by school.” She agrees and then asks
Bennett where he is after she arrives at the school.
June 9, 2013: V.W. asks Bennett if she is getting her iPod. Bennett replies,
“When can you go,” and “Can u go now.”
June 29, 2013: Bennett asks, “Can u go with me soon.”
July 11, 2013: V.W. says, “I dont wanna do that anymore.” Bennett asks, “What
did I do wrong.” She replies, “I will clean but nothing else.”
July 15, 2013: Bennett asks V.W. to meet him at the highway house; tells her, “I
need u get over there”; explains that he has time before a meeting; and tells her to
tell her brother that she is cleaning. She agrees to go to the house and later
responds, “Im here.”
July 22, 2013: V.W. asks Bennett to tell her mother that he is taking her out of
town to work because she wanted to go somewhere else and not tell her mother
where she was going. Bennett responds by asking “Can y go with me tonight.”
She replies, “Ill go wit u wednesday if u say I have to work outta town so I can
use moms truck . . . .”
August 1, 2013: Bennett asks, “U w[a]nt to go with me sometime.” V.W. replies,
“Do you have any work for me today?” and explains that she “wanna actually
work i need some money to get school clothes.” Bennett answers, “Dont be
mean. Get over here.”
15
August 14, 2013: In response to a text from Bennett asking her to “just go with
me,” V.W. replies, “I dont wanna do anything.” Bennett responds, “Come on.
Pretty plz.”
August 26, 2013: V.W. asks Bennett to check on a car that she was interested in.
Bennett replies, “U never w[a]nt to go with me.” She answers, “Well I will if we
go look at the car.” Bennett responds, “Go with me now, and then I will start
looking.”
December 12, 2013: Bennett asks, “Cant u com over here for a little bit.” V.W.
answers, “Not right now,” and explains that she cannot leave. Bennett responds,
“Then send me a good picture off u” and later tells her to “just send it” after she
says no. Bennett states, “But u never do[] nothing I ask.” She responds, “Cuz I
don’t wanna fuck all the time just to be able to get something.” Later Bennett
asks, “Just come over here plz.” She replies, “Do u want me to tell mom
everything.” Bennett asks, “Y r u being this way.”
January 26, 2014: Bennett asks, “Will u go with me.” V.W. answers, “Not right
now.” Bennett replies, “Plz.”
March 12, 2014: V.W. asks Bennett for some money because she is going
shopping. Bennett responds, “U going to go with me.”
March 13, 2014: V.W. again requests money to go shopping. Bennett asks, “Can
U go with me this morning real fast.” She states that she cannot then but “I’ll go
tomorrow or Saturday.”
September 19, 2014: Bennett asks, “Can u go with me.” V.W. replies that she
cannot because she is working.
September 20, 2014: V.W. asks, “If I go with you after work can you do me a
favor?” and then asks Bennett to tell her mother that she has to clean houses so
that she can go see her boyfriend. Bennett agrees to tell her mother that story.
V.W. explains that she would head to the river house to meet him after work and
later states, “I just got off on my way.” Bennett responds, “Ok.”
V.W. also discussed other text exchanges between Bennett and herself that were
in the State’s exhibit and that she received on and sent from the second phone that she used after
turning seventeen. In several of those text messages, Bennett asks V.W. to “go with him.” In
other exchanges, V.W. tells Bennett that she is going to tell her mother what has been happening.
16
From the subject matter of the text messages, V.W.’s description of the meaning
behind the words, the continuation of similar dialogue occurring between Bennett’s phone and
her second phone for which she was the subscriber, and her description of sexual events
occurring between Bennett and herself, the jury could reasonably infer that Bennett had sexual
intercourse with her and, therefore, caused her sexual organ to contact his sexual organ on
May 29, 2013, and July 15, 2013, as alleged in the indictment, where the text messages show that
V.W. agreed to meet him and indicated that she did meet up with him.
Even if that evidence was insufficient to establish the assaults on the dates
alleged in the indictment, other evidence would have allowed the jury to reasonably conclude
that Bennett had sexual intercourse with V.W. and committed the acts alleged in the indictment
in March 2014 and September 2014. Although those are not the dates mentioned in the
indictment, “[i]t is well settled that the ‘on or about’ language of an indictment allows the State
to prove a date other than the one alleged in the indictment as long as the date is anterior to the
presentment of the indictment and within the statutory limitation period.” See Sanchez v. State,
400 S.W.3d 595, 600 (Tex. Crim. App. 2013) (quoting Sledge v. State, 953 S.W.2d 253, 256
(Tex. Crim. App. 1997)). The March 2014 and September 2014 events occurred before the
indictment was presented in January 2018, and there is no statute of limitations for the offense of
sexual assault of a child. See Tex. Code Crim. Proc. art. 12.01(1)(B). In addition to V.W.’s
testimony regarding the sexual nature of their encounters, the text exchanges from those months
used the coded language that V.W. described in her testimony and indicated that V.W. met up
with Bennett.
For these reasons, we conclude that the evidence is legally sufficient to support
Bennett’s convictions for sexual assault of a child and, therefore, that the trial court did not
17
err by denying Bennett’s motion for a directed verdict. Accordingly, we overrule his fourth issue
on appeal.
Change of Venue Motion
In his first issue on appeal, Bennett contends that the trial court erred when it
granted the State’s motion to change venue from Concho County to Tom Green County. When
making this argument, Bennett concedes that “it is likely that within the community of Paint
Rock there would be” biased individuals, but he argues that the evidence presented during the
hearing established that most of the county’s population lived in other towns and that potential
jurors from those other communities could have been selected. Further, Bennett asserts that the
relatively small size of the county would not have prohibited the gathering of a sufficient jury
pool. Next, Bennett contends that any potential prejudice stemming from the initial outcry
would have been significantly reduced by the time the trial was originally set to begin four years
later, and he notes that the initial trial setting was set back even further due to delays stemming
from health issues, the unavailability of a witness, and the pandemic.
Article 31.02 of the Code of Criminal Procedure governs venue changes requested
by the State. See Tex. Code Crim. Proc. art. 31.02. In particular, the statute provides as follows:
Whenever the district or county attorney shall represent in writing to the court
before which any felony or misdemeanor case punishable by confinement, is
pending, that, by reason of existing combinations or influences in favor of the
accused, . . . a fair and impartial trial as between the accused and the State cannot
be safely and speedily had . . . the judge shall hear proof in relation thereto, and if
satisfied that such representation is well-founded and that the ends of public
justice will be subserved thereby, he shall order a change of venue to any county
in the judicial district in which such county is located or in an adjoining district.
Id.
18
Appellate courts review rulings on motions to change venue for an abuse of
discretion. Gonzalez v. State, 222 S.W.3d 446, 449 (Tex. Crim. App. 2007). “This is a
deferential standard of review that requires appellate courts to view the evidence in the light
most favorable to the trial court’s ruling.” Burch v. State, 541 S.W.3d 816, 820 (Tex. Crim. App.
2017). “The trial judge is in a better position than we are to resolve such issues as a result of his
ability to observe the demeanor of witnesses and scrutinize their veracity face to face.” Hathorn
v. State, 848 S.W.2d 101, 109 (Tex. Crim. App. 1992). Accordingly, “an appellate court must
not substitute its own judgment for that of the trial court, and it must uphold the trial court’s
ruling if it is within the zone of reasonable disagreement.” Burch, 541 S.W.3d at 820. A “trial
court’s ruling is within the ‘zone of reasonable disagreement’ when there are two reasonable
views of the evidence.” Id. (quoting Riley v. State, 378 S.W.3d 453, 457 (Tex. Crim. App.
2012), overruled on other grounds by Miller v. State, 548 S.W.3d 497 (Tex. Crim. App. 2018)).
“Generally, a court’s decision regarding change of venue will not be considered an abuse of
discretion when there is conflicting evidence on that issue.” Cook v. State, 667 S.W.2d 520, 522
(Tex. Crim. App. 1984).
When the State filed its motion to change venue, it included two affidavits in
support of its motion. The first was from the Chief Sheriff’s Deputy for the county who averred
that the investigation has divided the community and become a topic of interest among the
residents. Further, the Chief Deputy explained that Bennett is an elected official serving on the
Paint Rock School Board and a business owner with “substantial contacts and extended family in
the community.” Next, he mentioned that there have been competing petitions in the community
regarding whether Bennett should continue in his role as a school-board member before trial, that
one of the petitions had been placed in a local grocery store, that there are 1,925 potential jury
19
members in the county, and that more than 130 residents have signed one of those petitions.
In light of the preceding, the Chief Deputy asserted that “a fair and impartial trial between the
accused and the State cannot be safely and speedily had.”
The Chief Deputy later testified at a hearing on the motion to change venue.
Regarding the petitions, he testified that the one in favor of Bennett had over 100 signatures and
that the other one had 37 signatures. In addition, he explained that the local newspaper ran a
story about the allegations, that he has overheard on multiple occasions conversations about the
case in restaurants throughout the county, and that the case has been discussed in a neighboring
county where Bennett has done construction work. The Chief Deputy also testified that Bennett
is one of the few contractors in the county, that his company performs work throughout the
county, and that he has helped almost everyone “in Paint Rock at some point” and extends
“every courtesy . . . to the whole community.” During his cross-examination, the Chief Deputy
related that although only 130 of the 1,925 potential jurors signed one of the petitions, he
believes more individuals have a leaning one way or another because “everybody’s talked about”
the case. He also stated that although he has overheard multiple conversations about the case, he
has heard only one conversation expressing partiality.
In the second affidavit, a Texas Ranger noted that the community has been
divided by the case and mentioned that Bennett is a voting member of the Concho County
Appraisal Board, giving him “limited countywide authority.” Regarding the competing petitions,
the Ranger stated that the school superintendent explained that the petition seeking to keep
Bennett on the school board has three times more signatures than the opposing petition, that
witnesses told him that they are “being harassed and threatened by persons close to . . . Bennett,”
20
and that members of the community have been attending school board meetings wearing shirts
with “the name Bennett Construction on them.”
During the hearing on the motion, the Ranger testified that Bennett’s construction
company has significant ties to the community because the company performs work at the school
and for surrounding counties. The Ranger also stated that Bennett has extended family in the
community. Further, the Ranger related that there were influences in the community that would
prevent a fair and impartial trial from occurring. In his cross-examination, he acknowledged that
there are other communities in Concho County besides Paint Rock, that he has only seen one of
the petitions, and that he has not attended school board meetings or personally seen people
wearing shirts with Bennett’s name on them.
Bennett submitted two affidavits controverting the State’s motion to change
venue. A Concho County resident of more than 25 years made the first affidavit and explained
“that the residents and citizens of Concho County are so diverse within their own individual
communities that the vast majority . . . from which a jury panel would be chosen have not ever
heard of . . . Bennett or his case” and that both the State and Bennett would receive a fair trial in
Concho County. In a second affidavit, the chairperson of the Republican Party in Concho
County averred that other communities in Concho County had larger populations than Paint
Rock had and that rumors regarding Paint Rock citizens “are consistently of no concern” to the
population living in the other communities, “which make up more than 90% of the potential jury
panelists in the case.” Further, she explained that she believed the State and Bennett would
receive a fair trial in Concho County.
At the hearing, Bennett called as a witness a local businessman, who testified that
although people talked about the allegations when they were first made, he has not heard anyone
21
in the community recently talking about the case or expressing any partiality concerning the
allegations. He also expressed his belief that a fair trial could be held in Concho County. During
his cross-examination, he admitted that he has worked with Bennett before, that his daughter
used to date Bennett’s stepson, and that he signed one of the petitions concerning Bennett at a
school board meeting.
After reviewing the evidence, the trial court granted the motion to change venue
and transferred the case to Tom Green County.
Although Bennett presented evidence and elicited testimony indicating that a
fair trial could occur in Concho County, the State presented evidence that there were existing
combinations or influences in favor of Bennett indicating that a fair and impartial trial could
not be held there. See Tex. Code Crim. Proc. art. 31.02; see also Cook, 667 S.W.2d at 522
(noting that there generally is no abuse of discretion in ruling on issue where there is conflicting
evidence on issue). For example, the State presented evidence showing that Bennett held two
positions of power in the community, that he had extensive contacts in Paint Rock and other
communities, that he was one of the only contractors in the county and had performed work
throughout the county, that he had helped out a large segment of the population from which the
jury would be pulled, that a large subset of the population and potential jury pool had expressed a
favorable opinion of Bennett by signing a petition supportive of his position on the school board,
that many more people signed the petition in favor of Bennett than the other petition, that the
petition in favor of Bennett was displayed in a local grocery store and at a school board meeting,
that individuals supporting Bennett had been harassing and threatening potential witnesses, that a
law-enforcement officer overheard multiple conversations in the community regarding the case,
22
and that a law-enforcement officer believed that a fair and impartial trial could not be held in
Concho County.
Based on this record, we cannot conclude that the trial court abused its discretion
by granting the State’s motion to change venue. See Crawford v. State, 685 S.W.2d 343, 348-49
(Tex. App.—Amarillo 1984) (noting that trial court was entitled to believe State’s evidence
regarding motion to change venue even though it was disputed and concluding that trial court
did not abuse its discretion by granting State’s motion to change venue where State alleged
defendant was attorney and “a prominent citizen” of county, had “served as county attorney,”
and had relative who worked for district attorney’s office and where witnesses testified that
climate in the community would not allow State to have fair trial and that there were influences
or combinations of individuals in community who if seated on jury could not be fair), aff’d on
other grounds by Crawford v. State, 696 S.W.2d 903, 908 (Tex. Crim. App. 1985).
For these reasons, we overrule Bennett’s first issue on appeal.
Motion to Suppress
In his second issue on appeal, Bennett asserts that the trial court erred by denying
his pretrial motion to suppress. In his motion, Bennett sought to suppress, among other items,
the cell-phone record showing text exchanges between his phone and the phones associated with
V.W. Bennett argued that the text messages were seized without probable cause and in violation
of state and federal law, that the data the State turned over to him was incomplete and had
been manipulated by agents of the State, and that the information disclosed failed to include
contextual information vital to his defense. For those reasons, Bennett asserted that all of the
text exchanges should be suppressed. During a hearing on the motion, Bennett acknowledged
that the State had disclosed the record but argued that there was information missing from
23
what the State handed over to the defense. Specifically, Bennett asserted that the State had a
duty to disclose information regarding other text messages that were sent from those phones to
other people around the same times as the messages on which the State is relying. Bennett
contended that the phones were used by several people and that this additional information
would help establish the identity of the individuals sending the text messages at issue. After the
hearing, the trial court denied the motion to suppress without issuing any findings of fact or
conclusions of law.
Appellate courts review a trial court’s ruling on a motion to suppress for an abuse
of discretion. Arguellez v. State, 409 S.W.3d 657, 662 (Tex. Crim. App. 2013). Appellate courts
will sustain the trial court’s ruling on the motion if it is correct under any applicable theory of
law. State v. Cortez, 543 S.W.3d 198, 203 (Tex. Crim. App. 2018). In general, appellate courts
apply “a bifurcated standard, giving almost total deference to the historical facts found by the
trial court and analyzing de novo the trial court’s application of the law.” See State v. Cuong
Phu Le, 463 S.W.3d 872, 876 (Tex. Crim. App. 2015); see also Arguellez, 409 S.W.3d at 662
(explaining that appellate courts afford “almost complete deference . . . to [a trial court’s]
determination of historical facts, especially if those are based on an assessment of credibility
and demeanor”). “When the trial court does not make explicit findings of fact, as in the case
before us, we view the evidence in the light most favorable to the trial court’s ruling and
assume the trial court made implicit findings of fact supported by the record.” Lerma v. State,
543 S.W.3d 184, 190 (Tex. Crim. App. 2018).
On appeal, Bennett presents several interrelated arguments regarding the trial
court’s suppression ruling. First, Bennett acknowledges that the State provided him the series
of text messages containing conversations between his phone and the two phones associated
24
with V.W., but he contends that “there were other text messages, sent at or near the time of
the ones reflected” in the State’s exhibit “that would have shown that other persons besides”
Bennett and V.W. “were using the phones at the time.” Further, Bennett argues that he did not
have the ability to obtain those records because under federal law only prosecutors and other
governmental entities may obtain from cell-service providers records showing the content of text
messages. See 18 U.S.C. § 2703(b)(1); see also id. § 2702 (authorizing provider to divulge
contents of communication to various individuals including subscribers).
Relatedly, Bennett urges that because it had the authority to request those records,
the State “was in constructive possession of the records.” In light of this constructive possession,
Bennett contends that the State failed to comply with its obligations under the Michael
Morton Act and Brady v. Maryland by failing to look at and disclose those records in its
constructive possession. Along those lines, Bennett notes that the Michael Morton Act “codifies
and ‘supplements’ prosecutors’ constitutional” due-process “obligations under Brady,” by
requiring the production of items that were not previously discoverable, see Hillman v. Nueces
Cnty., 579 S.W.3d 354, 360 (Tex. 2019), and asserts that those obligations required the State to
disclose the records that he requested.
Given the expansion of discovery created by the Michael Morton Act, Bennett
asserts that this Court should conclude that if the State is not in possession of evidence but has
some means to obtain it, “the State has an expanded obligation to disclose that information” and
should have done so in this case. Further, Bennett asserts that the State’s inaction impacted his
Sixth Amendment right to present a complete defense and his right to due process under the
Fourteenth Amendment. For these reasons, Bennett contends that this Court should reverse his
conviction and render a judgment of acquittal due to the State’s violations of the Michael Morton
25
Act or conclude that the suppression motion should have been granted, reverse his convictions,
and remand for a new trial.
The legislature’s enactment of the Michael Morton Act was “an overhaul of
discovery in Texas.” Watkins v. State, 619 S.W.3d 265, 277 (Tex. Crim. App. 2021). For
example, the Act imposes on the State a “free-standing duty to disclose all ‘exculpatory,
impeaching, and mitigating’ evidence to the defense that tends to negate guilt or reduce
punishment.” Id. (quoting Tex. Code Crim. Proc. art. 39.14(h)). The Act also imposes a duty
to disclose that “is much broader than the prosecutor’s duty to disclose as a matter of due
process under Brady v. Maryland,” by not limiting certain disclosures “to ‘material’ evidence.”
Id. (quoting Brady v. Maryland, 373 U.S. 83, 87 (1963)). However, the Act specifies that the
State is obligated to disclose these types of information when they “are in the possession,
custody, or control of the state or any person under contract with the state.” See Tex. Code Crim.
Proc. art. 39.14(a), (h).
During the hearing, the State explained, and Bennett did not disagree, that it had
disclosed to him all of the information that it received from the cell-service provider by giving
him a copy of the PDF that it received from the provider and giving him an excel spreadsheet
with the information. Further, the State explained that it had not sought and had not been given
the additional information that Bennett was seeking. Although Bennett contends that the
information that he requested was necessary to present his defense, “‘[t]here is no general
constitutional right to discovery in a criminal case,’ the United States Supreme Court has
concluded, and ‘the Due Process Clause has little to say regarding the amount of discovery
which the parties must be afforded.’” In re State ex rel. Best, 616 S.W.3d 594, 600 (Tex. Crim.
App. 2021) (quoting Weatherford v. Bursey, 429 U.S. 545, 559 (1977)). “In discovery matters,
26
the State’s attorney is answerable only for evidence in his direct possession or in the possession
of law enforcement agencies.” Valdez v. State, 116 S.W.3d 94, 100 (Tex. App.—Houston
[14th Dist.] 2002, pet. ref’d). For that reason, an “appellant cannot predicate error on the trial
court’s refusal to order the State to turn over information it did not possess.” Id.; see also Turpin
v. State, 606 S.W.2d 907, 915 (Tex. Crim. App. 1980) (noting that where there is no showing
that State possessed items sought, “the defendant is not entitled to relief on appeal”). Further,
although the duty to disclose may extend to items in the State’s “constructive possession,” see
State v. Heath, 642 S.W.3d 591, 597 (Tex. App.—Waco 2022, pet. granted), we have not been
pointed to any case law standing for the proposition that the State can constructively possess
information belonging to a company with which the State has no relationship.
Accordingly, on this record, we must conclude that the trial court did not abuse its
discretion by determining that the Michael Morton Act did not require the State to obtain from
the cell-service provider and disclose to Bennett records of text exchanges that Bennett wanted
disclosed but which were not in the possession, custody, or control of the State or someone
under contract with the State. See Tex. Code Crim. Proc. art. 39.14; see also In re Harris,
491 S.W.3d 332, 336 (Tex. Crim. App. 2016) (orig. proceeding) (noting that appellate courts
have “held that trial judges have overstepped their authority to order pretrial discovery in
situations where they have required a party to create a document that did not exist at the time
of the discovery order”); In re Stormer, No. WR–66865–01, 2007 WL 1783853, at *2 (Tex.
Crim. App. June 20, 2007) (not designated for publication) (holding that former Article 39.14
does not give trial court authority to order State to create and produce document that did not
already exist).
27
Moreover, because the duty to disclose under the Michael Morton Act is broader
than the due-process obligation set out in Brady, see Watkins, 619 S.W.3d at 275, we must also
conclude that the trial court did not abuse its discretion by failing to conclude that the State was
obligated under the due process directives of Brady to obtain and disclose the text messages that
Bennett wanted, see Pena v. State, 353 S.W.3d 797, 810 (Tex. Crim. App. 2011) (providing that
Brady does not obligate State to disclose exculpatory evidence that is not in its possession and
that it does not know exists).
For these reasons, we conclude that the trial court did not abuse its discretion by
denying Bennett’s motion to suppress and, therefore, overrule his second issue on appeal.
Exclusion of Defensive Exhibit
In his third issue on appeal, Bennett contends that the trial court erred by
excluding a chart as an exhibit. Bennett sought to have the chart admitted during the testimony
of his business partner. In his testimony, Bennett’s partner identified Bennett’s phone number,
explained that Bennett had other phones in his possession that he loaned out to other people,
and stated that the phone V.W. identified as her first phone was used by multiple individuals.
Additionally, Bennett’s partner testified that because of his relationship with Bennett and
Bennett’s family, friends, and employees, he was familiar with their texting patterns and could
recognize their text messages based on the language used and the idiosyncrasies of the
individuals’ personalities. Moreover, Bennett’s partner stated that he made a chart showing
whom he believed made the text messages that the State relied on when making its case and that
were in the State’s exhibit previously admitted. In his testimony, Bennett’s partner admitted that
the contents of the chart were based on information he learned when interviewing or talking with
individuals whom he believes authored the text messages.
28
Bennett moved to have the exhibit admitted for demonstrative purposes. The
State objected to the admission of the chart on grounds that Bennett’s partner was not an expert
in recognizing language patterns of different people and that the chart was based on speculation,
was not based on his personal knowledge, was substantially more prejudicial than probative,
and was not relevant. The trial court sustained the objection and then later specified that it also
sustained the objection because the chart contained hearsay.
On appeal, Bennett contends that the trial court abused its discretion by not
admitting the chart because his partner could provide lay opinion testimony regarding the authors
of the various text messages and, therefore, because the chart constituted a summary of his
partner’s lay testimony and would have aided the jury in making their determination. See
Tex. R. Evid. 701. Further, Bennett contends that lay opinion testimony is admissible for
identification purposes such as handwriting and voice identification, see Denham v. State,
574 S.W.2d 129, 131 (Tex. Crim. App. 1978); Molina v. State, No. 08-16-00318-CR, 2018 WL
4346820, at *3 (Tex. App.—El Paso Sept. 12, 2018, no pet.) (op., not designated for
publication), and argues that evidence concerning text-message patterns should not be treated
any differently from evidence “identifying the peculiarities of a person’s handwriting or voice.”
Additionally, Bennett notes that courts have permitted identification of the author of text
messages through nonexpert witnesses. See Butler v. State, 459 S.W.3d 595, 605 (Tex. Crim.
App. 2015); Cain v. State, 621 S.W.3d 75, 80-82 (Tex. App.—Fort Worth 2021, pet. ref’d). For
these reasons, Bennett contends that the trial court erred by excluding the chart.
Appellate courts review a trial court’s ruling regarding the admission or exclusion
of evidence for an abuse of discretion. See Tillman v. State, 354 S.W.3d 425, 435 (Tex. Crim.
App. 2011). Under that standard, an appellate court reviews the trial court’s ruling in light of
29
the record before the court “at the time the ruling was made.” Khoshayand v. State, 179 S.W.3d
779, 784 (Tex. App.—Dallas 2005, no pet.).
“‘Hearsay’ means a statement that . . . the declarant does not make while
testifying at the current trial or hearing; and . . . a party offers in evidence to prove the truth of
the matter asserted in the statement.” Tex. R. Evid. 801(d). “Hearsay is not admissible unless”
provided otherwise by a statute, the Rules of Evidence, or “other rules prescribed under statutory
authority.” Id. R. 802. “If a witness is not testifying as an expert, testimony in the form of an
opinion is limited to one that is: (a) rationally based on the witness’s perception; and (b) helpful
to clearly understanding the witness’s testimony or to determining a fact in issue.” Id. R. 701.
“Perceptions refer to a witness’s interpretation of information acquired through his or her own
senses or experiences at the time of the event (i.e., things the witness saw, heard, smelled,
touched, felt, or tasted).” Osbourn v. State, 92 S.W.3d 531, 535 (Tex. Crim. App. 2002). “Since
Rule 701 requires the testimony to be based on the witness’s perception, it is necessary that the
witness personally observed or experienced the events about which he or she is testifying.” Id.
“Thus, the witness’s testimony can include opinions, beliefs, or inferences as long as they are
drawn from his or her own experiences or observations.” Id. “A witness may testify to a matter
only if evidence is introduced sufficient to support a finding that the witness has personal
knowledge of the matter.” Tex. R. Evid. 602. In the absence of a basis upon which the lay
opinion was formed, the opinion is “a factually unsupported inference or presumption.” Curlee
v. State, 620 S.W.3d 767, 785 (Tex. Crim. App. 2021). “[J]uries are not permitted to come to
conclusions based on ‘mere speculation or factually unsupported inferences or presumptions.’”
Braughton v. State, 569 S.W.3d 592, 608 (Tex. Crim. App. 2018) (quoting Hooper, 214 S.W.3d
at 15).
30
Although Bennett highlights cases in which nonexpert witnesses authenticated
text exchanges, the circumstances of those cases differ significantly from those present here. In
Butler and in Cain, the defendants objected that text messages allegedly exchanged between the
victims and the defendants had not been properly authenticated, and the reviewing courts
determined that the victims who participated in text exchanges with the defendants could
authenticate the text exchanges under Rule of Evidence 901 where the contents of the text
messages and other factors indicated that the texts were authored by the defendants. See Butler,
459 S.W.3d at 599-600, 601-03, 606; Cain, 621 S.W.3d at 78-80, 82-87; see also Tex. R.
Evid. 901 (requiring proponent of evidence to “produce evidence sufficient to support a finding
that the item is what the proponent claims it is” and listing non-exhaustive types of evidence that
may be used to meet that burden).
In this case, the trial court made its ruling on several grounds other than
authentication, including hearsay and speculation grounds. Bennett’s partner testified that the
chart he prepared identified whom he believed authored the text messages in the State’s exhibit.
However, he did not testify that he was a participant in any of the text threads or that he observed
anyone write or receive any of the text messages for which he sought to provide an opinion
regarding whom he believed authored the messages. Instead, he explained that he was able to
identify the authors of the messages through the language that was used and through his
familiarity of the texting patterns of Bennett and his relatives, friends, and employees. However,
Bennett’s partner did not further elaborate on any idiosyncratic phrasing or other patterns that
helped him to determine whom he thought authored the messages. Further, he did not testify
regarding how the content of any of the text messages established that anyone other than Bennett
and V.W. wrote them. Moreover, rather than relying only on his own personal perceptions,
31
Bennett’s partner admitted that his opinion was also based on information that he gathered when
questioning people whom he suspected might have had access to and used the cell phones, in
other words hearsay. Cf. Molina, 2018 WL 4346820, at *3 (determining that officer could testify
as lay witness regarding defendant’s voice where officer’s opinion was “based on his perception
from having experienced many encounters with” defendant).
In light of the preceding, we must conclude that the trial court did not abuse its
discretion by excluding the evidence. The chart could have been excluded based on inadmissible
hearsay and speculation. See Tex. R. Evid. 802; Braughton, 569 S.W.3d at 608. The cases
relied on by Bennett are inapplicable to those rulings. See Butler, 459 S.W.3d at 599 (addressing
authentication of text messages); Denham, 574 S.W.2d at 131 (discussing whether lay witness
could testify that knife was deadly weapon after observing and receiving wound and listing
other types of permissible lay witness testimony); Cain, 621 S.W.3d at 80-82 (discussing
authentication of text messages); Molina, 2018 WL 4346820, at *3 (addressing lay witness
testimony regarding voice recognition where witness testified that he recognized defendant’s
voice from previous encounters). Accordingly, we conclude that the trial court did not abuse its
discretion by excluding from evidence the chart and overrule Bennett’s third issue on appeal.
Extraneous Offense Evidence
In his fifth issue on appeal, Bennett contends that the trial court erred by allowing
P.M. to testify regarding two extraneous sexual assaults that he allegedly committed against her
when she was eight or nine years old. When presenting this issue, Bennett recognizes that article
38.37 of the Code of Criminal Procedure authorizes the admission of extraneous sexual offenses
involving children during trials for sexual offenses involving children, but he asserts that the trial
court failed to perform its gatekeeping function under article 38.37 before allowing P.M. to
32
testify. Specifically, Bennett notes that P.M. testified regarding the allegations during an in-
camera hearing before testifying at trial, that during the hearing she said that the two incidents
happened on the same day, that the State questioned her about whether she told the police that
the incidents occurred on separate days, and that P.M. stated that her description of the incidents
at the hearing was the same as what she told the officers. Further, Bennett highlights that
P.M. testified at trial that the two incidents happened on two separate days and argues that the
trial court should have excluded her testimony based on the inconsistency of her testimony at
the hearing from what she told the police. Bennett also contends that the testimony was
inherently inflammatory and prejudicial to his case and should have been excluded under Rule of
Evidence 403. As in the prior issue, we review the trial court’s ruling for an abuse of discretion.
See Tillman, 354 S.W.3d at 435.
Admissibility Under Article 38.37
Section 2 of article 38.37 lists certain sexual offenses involving children,
including continuous sexual abuse of a child, aggravated sexual assault of a child, and sexual
assault of a child, and explains that in trials for those types of crimes, “evidence that the
defendant has committed a separate offense” included in that list “may be admitted in the trial
. . . for any bearing the evidence has on relevant matters, including the character of the defendant
and acts performed in conformity with the character of the defendant” “[n]otwithstanding
Rules 404 and 405, Texas Rules of Evidence.” Tex. Code Crim. Proc. art. 38.37, § 2. That
directive is subject to the requirement that the trial court first conduct a hearing outside the
presence of the jury to determine whether “the evidence likely to be admitted at trial will be
adequate to support a finding by the jury that the defendant committed the separate offense
beyond a reasonable doubt.” Id. art. 38.37, § 2-a.
33
A person commits the offense of aggravated sexual assault of a child if he “causes
the penetration of the anus or sexual organ of a child by any means” and if “the victim is younger
than 14 years of age, regardless of whether the person knows the age of the victim at the time of
the offense.” Tex. Penal Code § 22.021(a)(1)(B)(i), (a)(2)(B). During the in-camera hearing,
P.M. testified that Bennett grabbed her, pulled her bathing suit to the side, and inserted his penis
into her vagina. A conviction for sexual assault of a child “is supportable on the uncorroborated
testimony of the victim of the sexual offense.” Tex. Code Crim. Proc. art. 38.07; see Tear v.
State, 74 S.W.3d 555, 560 (Tex. App.—Dallas 2002, pet. ref’d).
As set out above, Bennett contends that the trial court did not properly perform its
gatekeeping function because it should have excluded P.M.’s testimony after she testified at the
hearing that the two assaults occurred on the same day even though she told the police that they
happened on different days. Even if there was an inconsistency regarding when the two events
occurred, P.M.’s testimony at the hearing indicates that the number of events and the nature of
the assaults to which she testified were consistent with the statement she made to the police.
Further, the record reveals that P.M. was emotional during the hearing, and the trial court could
have reasonably concluded that the alleged difference between her testimony and her statement
to the police could be attributed to her mental state and the fact that she was having to discuss the
personal violations in a public setting. See Deggs v. State, 646 S.W.3d 916, 924 (Tex. App.—
Waco 2022, pet. ref’d) (explaining that in 38.37 hearing trial court is sole arbiter of credibility of
witnesses and weight to give their testimony and can resolve conflicts in evidence and “draw
reasonable inferences” from evidence); see also Melder v. State, No. 12-12-00400-CR, 2014 WL
1922570, at *6 (Tex. App.—Tyler May 14, 2014, pet. ref’d) (mem. op., not designated for
publication) (noting that victim of sexual abuse varied “minor details of the abuse” when
34
recounting abuse but that victim was “clear” regarding defendant’s role in abuse). Moreover,
although we look to the record that was before the trial court when it made its ruling,
Khoshayand, 179 S.W.3d at 784, we do note that P.M. testified at trial that the incidents occurred
on different days, which is consistent with the statement that she allegedly provided to the police.
Accordingly, we conclude that the trial court did not abuse its discretion by
admitting P.M.’s testimony under article 38.37. See Tex. Code Crim. Proc. art. 38.37, §§ 2, 2-a.
Admissibility Under Rule 403
In this issue, Bennett also argues that the trial court should have excluded P.M.’s
testimony under Rule of Evidence 403. That rule provides that a “[trial] court may exclude
relevant evidence 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, or needlessly presenting cumulative evidence.” Tex. R. Evid. 403. “When evidence of a
defendant’s extraneous acts is relevant under Article 38.37, the trial court still is required to
conduct a Rule 403 balancing test upon proper objection or request.” Distefano v. State,
532 S.W.3d 25, 31 (Tex. App.—Houston [14th Dist.] 2016, pet. ref’d) (emphasis added). In
other words, “even when the trial court admits extraneous offenses pursuant to article 38.37, an
appellant must object at trial that the probative value of the extraneous offense is substantially
outweighed by the risk of undue prejudice to preserve a Rule 403 complaint on appeal.” Keller
v. State, 604 S.W.3d 214, 228 (Tex. App.—Dallas 2020, pet. ref’d). Generally, for a complaint
to be preserved for appellate review, “the record must show that . . . the complaint was made to
the trial court by a timely request, objection, or motion” and that “the trial court . . . ruled on the
request, objection, or motion, either expressly or implicitly” or “refused to rule on the request,
35
objection, or motion, and the complaining party objected to the refusal.” See Tex. R. App.
P. 33.1(a).
At the hearing, Bennett did not assert that P.M.’s testimony should be excluded
under Rule 403 or otherwise assert that the probative value of her testimony was substantially
outweighed by the danger of unfair prejudice. Instead, Bennett argued that article 38.37 was
unconstitutional and, therefore, failed to preserve any complaint regarding Rule 403. See Darcy
v. State, 488 S.W.3d 325, 327 (Tex. Crim. App. 2016) (noting that preservation of error is
systemic requirement on appeal); Blackshear v. State, 385 S.W.3d 589, 591 (Tex. Crim. App.
2012) (observing that reviewing courts should not address merits of issue that has not been
preserved for appeal); see also Alvarado v. State, No. 04-14-00027-CR, 2014 WL 6475370, at *2
(Tex. App.—San Antonio Nov. 19, 2014, no pet.) (mem. op., not designated for publication)
(determining that defendant waived objection under Rule 403 to evidence admitted under article
38.37 where defendant did not make objection under Rule 403).
For these reasons, we overrule Bennett’s fifth issue on appeal.
Structural Error
In his final issue on appeal, Bennett contends that precautionary measures taken
during the trial to prevent the spread of COVID-19 by requiring witnesses to wear face shields
violated his rights to due process and due course of law and resulted in error warranting a new
trial. See U.S. Const. amend. XIV; Tex. Const. art. I, § 19. As support for this proposition,
Bennett points to a statement from the trial court during V.W.’s testimony in which the court
explained to the jury that it had been informed “that the shield is causing some problems. I
talked to the attorneys. We all agree there’s nothing we can do about that. I’m sorry. There’s
just a period of time getting over Covid. We’ll just have to bear with it.” Although Bennett
36
acknowledges that he did not make an objection, ask for a mistrial, or request a continuance to a
time when the procedures would no longer be used, he urges that this type of error is structural
error not requiring error preservation because the procedures hindered the jurors’ ability to
understand the witnesses and evaluate their credibility.
“A ‘structural’ error ‘affect[s] the framework within which the trial proceeds,
rather than simply an error in the trial process itself,’” is not amenable to a harm analysis,
Jordan v. State, 256 S.W.3d 286, 290 (Tex. Crim. App. 2008) (quoting Arizona v. Fulminante,
499 U.S. 279, 310 (1991)), and “may be raised for the first time on appeal barring an express
waiver of the right,” Munguia v. State, 636 S.W.3d 750, 753 n.1 (Tex. App.—Houston [14th
Dist.] 2021, pet. ref’d). Structural errors constitute a “highly exceptional category” of errors.
U.S. v. Davila, 569 U.S. 597, 611 (2013). Only federal constitutional errors can be considered
structural ones, but most federal constitutional errors are not structural. See Schmutz v. State,
440 S.W.3d 29, 35 (Tex. Crim. App. 2014). Appellate courts treat errors as structural only if the
United States Supreme Court has labeled them as structural. Lake v. State, 532 S.W.3d 408, 411
(Tex. Crim. App. 2017).
The United States Supreme Court has not labeled the type of error alleged here as
structural error, and we must therefore conclude that it is not structural. See Lake, 532 S.W.3d
at 417; see also Davila, 569 U.S. at 611 (providing list of structural errors). Accordingly, we
overrule Bennett’s sixth issue on appeal. See Tex. R. App. P. 33.1; see also Clark v. State,
365 S.W.3d 333, 339,340 (Tex. Crim. App. 2012) (explaining that constitutional errors “can be
forfeited” by failure to object and concluding that defendant forfeited due-process claim “by not
properly preserving error at trial”); Broxton v. State, 909 S.W.2d 912, 918 (Tex. Crim. App.
37
1995) (concluding that defendant failed to preserve complaint that he was denied constitutional
rights to due process and due course of law).
Clerical Error in the Judgments
Although not raised as an issue on appeal, we note that there are clerical errors
in the trial court’s judgments of conviction. Although the record reflects that the case was
transferred from Concho County to Tom Green County, see Tex. Code Crim. Proc. art. 31.02,
the judgments of conviction all list Concho County as the county of conviction. This Court has
the authority to modify incorrect judgments when it has the information necessary to do so.
See Tex. R. App. P. 43.2(b); Bigley v. State, 865 S.W.2d 26, 27-28 (Tex. Crim. App. 1993).
Accordingly, we modify the judgments of conviction to reflect that Bennett was convicted in
Tom Green County.
CONCLUSION
Having modified the trial court’s judgments of conviction to reflect that Bennett
was convicted in Tom Green County and having overruled all of Bennett’s issues on appeal, we
affirm the trial court’s judgments of conviction as modified.
__________________________________________
Thomas J. Baker, Justice
Before Justices Goodwin, Baker, and Kelly
Modified and, as Modified, Affirmed
Filed: November 17, 2022
Do Not Publish
38 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488493/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00662-CV
M. F. R.-E., Appellant
v.
Texas Department of Family and Protective Services, Appellee
FROM THE 21ST DISTRICT COURT OF BASTROP COUNTY
NO. 21-20677, THE HONORABLE BENTON ESKEW, JUDGE PRESIDING
ORDER
PER CURIAM
Appellant M. F. R.-E. filed her notice of appeal on September 16, 2022. The
appellate record was complete on October 25, 2022, making appellant’s brief due on
November 14, 2022. On November 9, 2022, counsel for appellant filed a motion for extension of
time to file appellant’s brief.
The rules of judicial administration accelerate the final disposition of appeals
from suits for termination of parental rights. See Tex. R. Jud. Admin. 6.2(a) (providing 180 days
for court’s final disposition). The accelerated schedule constrains this Court’s leeway in granting
extensions. In this instance, we will grant the motion and order Jacob W. Dannen to file
appellant’s brief no later than November 28, 2022. If the brief is not filed by that date, counsel
may be required to show cause why he should not be held in contempt of court.
It is ordered on November 15, 2022.
Before Chief Justice Byrne, Justices Triana and Smith | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488494/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00283-CR
James Douglas Jones, Appellant
v.
The State of Texas, Appellee
FROM THE 421ST DISTRICT COURT OF CALDWELL COUNTY
NO. 21-257, THE HONORABLE DANIEL H. MILLS, JUDGE PRESIDING
ORDER
PER CURIAM
Appellant’s brief on appeal was originally due August 22, 2022. On counsel’s
motion(s), the time for filing was extended to October 21, 2022. Appellant’s counsel has now
filed a third motion, requesting that the Court extend the time for filing appellant’s brief.
We grant the motion for extension of time and order appellant to file a brief no later than
December 20, 2022. No further extension of time will be granted and failure to comply with this
order will result in the referral of this case to the trial court for a hearing under Rule 38.8(b) of
the Texas Rules of Appellate Procedure.
It is ordered on November 15, 2022.
Before Justices Goodwin, Baker, and Kelly
Do Not Publish | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488505/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00755-CV
IN THE INTEREST OF I.F.E.-G., MINOR CHILD
From the 218th Judicial District Court, Atascosa County, Texas
Trial Court No. 21-06-0508-CVA
Honorable Melissa Uram-Degerolami, Judge Presiding
ORDER
The trial court signed a final appealable order on October 3, 2022. Because this is an
accelerated appeal, the notice of appeal was due by October 24, 2020. See TEX. R. APP. P.
26.1(b). A motion for extension of time to file the notice of appeal was due by November 7,
2022. See TEX. R. APP. P. 26.3. Appellant filed a notice of appeal and a motion for extension of
time to file the notice of appeal on October 26, 2022— within the time allowed for filing the
motion for an extension of time to file the notice of appeal. After consideration, appellant’s
motion for extension of time to file the notice of appeal is granted.
It is so ORDERED on November 18, 2022.
PER CURIAM
ATTESTED TO: ________________________
MICHAEL A. CRUZ,
CLERK OF COURT | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494607/ | ORDER
JAMES R. SACCA, Bankruptcy Judge.
The issue before the Court in this Chapter 13 case is whether it is the responsibility of the Chapter 13 trustee, the debtor or special counsel to file the application to retain special counsel under 11 U.S.C. § 327(e) to prosecute a state law cause of action in which the Chapter 13 debtor is in possession of the claim.1
The confirmation hearing on Debtors’ Chapter 13 plan was held on December 1, 2011. At the § 341 Meeting of Creditors, the Debtors testified that they had retained an attorney, Jeffrey Flynn, Esq. (“Flynn”), to represent them in connection with a pre-petition workers’ compensation claim, which claim had been denied and which denial was on appeal. The Chapter 13 Trustee objected to Debtors’ Plan because (a) the Debtors had neither filed an application nor obtained an order approving the retention of Flynn as special counsel and (b) the failure to obtain an order approving retention of special counsel should preclude confirmation. At the confirmation hearing, the Court concluded that (1) there was no per se rule requiring approval by the Court of the retention of special counsel as a condition of confirmation and (2) under the facts of this case, including that the claim had already been denied, the entry of an order approving the retention of special counsel was not required for confirmation of the plan, although a different result may be appropriate depending on the facts of the case and the terms of the plan.2 The Debtors’ bankruptcy attorney also filed what was styled as a “Notice of Action Potentially Required Pursuant to 11 U.S.C. Sec. 327(e)” (the “Notice”), advising Flynn that, inter alia, he either needed to personally prepare and file the application to be retained or contact the Chapter 13 Trustee to be retained. The Court took the issue under advisement because the parties requested the opportunity to brief the issue.
Section 327(e) provides the following:
*706The trustee, with the court’s approval, may employ, for a specified special purpose, other than to represent the trustee in conducting the case, an attorney that has represented the debtor, if in the best interest of the estate, and if such attorney does not represent or hold any interest adverse to the debtor or to the estate with respect to the matter on which such attorney is to be employed.
The Debtors argue that under the plain meaning of § 327(e), it is the responsibility of the Chapter 13 Trustee to file the application to retain special counsel regardless of who is controlling the litigation because a Chapter 13 debtor is not a trustee for the purposes of § 327. This Court disagrees.
Based on a review of the applicable statutes and case law, the Court concludes that the word “trustee” in § 327(e) includes a Chapter 13 debtor-in-possession. In other words, the Chapter 13 debtor, if he is in possession of a non-bankruptcy cause of action, has the authority and duty to file an application to employ special counsel, as opposed to the Chapter 13 trustee or special counsel. Envtl. Litig. Grp., P.C. v. Crawford (In re Price), No. 07-00017, 2007 WL 1125639, at *4 n. 11 (April 16, 2007 Bankr.N.D.Ala.) (discussing In re Griner, 240 B.R. 432, 436 (Bankr.S.D.Ala.1999)) (“[E]ven though section 327(e) does not use the word ‘debtor,’ should it not be assumed that the word debtor is interchangeable with trustee given this line of cases?”); In re Jenkins, 406 B.R. 817, 819 (Bankr.N.D.Ind.2009).
Property of the estate includes claims that may be prosecuted for the benefit of the estate. 11 U.S.C. § 1306; 11 U.S.C. § 541; Cable v. Ivy Tech State Coll, 200 F.3d 467, 473 (7th Cir.1999). Section 1306(b) provides that “the debtor shall remain in possession of all property of the estate except as provided in a confirmed plan or order confirming a plan.” 11 U.S.C. § 1306(b). The order confirming the plan in this case, like all uniform plans in the Northern District of Georgia, provides that property remains vested in the estate upon confirmation, but that does not mean that the debtor does not remain in possession of that property.
Many courts have recognized that “the Chapter 13 debtor has been considered analogous to [a] Chapter 11 [debt- or-in-possession], ... [and Chapter 11] grants the debtor full authority as representative of the estate typical of a trustee.” Cable, 200 F.3d at 472 (citation omitted). Further, “[u]nder the reorganization chapters [including Chapter 13], the debtor-in-possession steps into the role of trustee and exercises concurrent authority to sue and be sued on behalf of the estate.” Id. at 473. Consequently, Chapter 13 debtors have standing to pursue claims and conduct litigation in their own name on behalf of the bankruptcy estate. Crosby v. Monroe Cnty., 394 F.3d 1328, 1331 n. 2 (11th Cir.2004); Smith v. Rockett, 522 F.3d 1080, 1081 (10th Cir.2008); Cable, 200 F.3d at 472-73; Olick v. Parker & Parsley Petroleum Co., 145 F.3d 513, 515 (2d Cir.1998); Maritime Elec. Co. v. United Jersey Bank, 959 F.2d 1194, 1209 n. 2 (3d Cir.1992); In re Bowker, 245 B.R. 192 (2000).
Federal Rule of Bankruptcy Procedure 6009 provides:
With or without court approval, the trustee or debtor in possession may prosecute or may enter an appearance and defend any pending action or proceeding by or against the debtor, or commence and prosecute any action or proceeding in behalf of the estate before any tribunal.
Fed. R. Bankr.P. 6009. Rule 6009 applies to Chapters 7, 11 and 13. Cable, 200 F.3d at 472. “In this context, ‘trustee’ or ‘debt- *707or in possession’ includes a Chapter 13 debtor.” In re Stewart, 373 B.R. 801, 805 (Bankr.S.D.Ga.2007) (citing Crosby, 394 F.3d at 1331 n. 2; Cable, 200 F.3d at 472).
Not only do Chapter 13 debtors have standing to pursue such claims, they are the ones who actually control the litigation. “In Chapter 13 cases where the debtor is the party plaintiff, courts recognize that the Chapter 13 debtor may sue and be sued, and that the debtor controls the litigation as well as the terms of the settlement.” Crosby, 394 F.3d at 1331 n. 2 (quoting In re Mosley, 260 B.R. 590, 595 (Bankr.S.D.Ga.2000)) (internal quotation marks omitted).
The statutory scheme would make no sense if the Chapter 13 debtor had the authority to pursue, control, litigate and settle pre-petition claims, but the duty to file the application to employ special counsel under § 327 was on the Chapter 13 trustee. For example, under Federal Rule of Bankruptcy Procedure 2014, an applicant seeking to employ an attorney under § 327 must make several specific factual statements:
The application shall state the specific facts showing the necessity for the employment, the name of the person to be employed, the reasons for the selection, the professional services to be rendered, any proposed arrangement for compensation, and, to the best of the applicant’s knowledge, all of the person’s connections with the debtor, creditors, any other party in interest, their respective attorneys and accountants, the United States trustee, or any person employed in the office of the United States trustee.
Fed. R. Bankr.P. 2014. The most appropriate person to make these specific factual statements, and the person in the best position to do so, is the debtor, not the Chapter 13 trustee.
An applicant making the specific factual statements under Rule 2014 must make them subject to the good faith requirement set forth in Federal Rule of Bankruptcy Procedure 9011, and failure to do so subjects the applicant to sanctions.3 Consequently, to properly make the specific factual statements required by Rule 2014, the applicant must do his or her own investigation into whether the employment is necessary, whether the attorney to be employed is qualified, what the appropriate scope of the attorney’s employment should be, and what connections the attorney to be employed has with various parties in the bankruptcy case.
If the Chapter 13 trustee was required to file the application, the trustee would need to conduct his or her own investigation concerning the merits of the claim and special counsel’s employment. Ultimately the trustee’s view of the merits of the claim and the necessity of the employment or competency of the proposed attorney could at times conflict with that of the debtor. If the trustee were the only person who could file an application to retain special counsel, the trustee would effec*708tively have veto power over whether the debtor could employ an attorney and, therefore, affect the conduct of the litigation.4 If this were the case, the trustee’s powers would impermissibly infringe upon the debtor’s right to possession of property of the estate and the right to control litigation. “It would frustrate the essential purpose of § 1306 to grant the debtor possession of the chose in action yet prohibit him from pursuing it for the benefit of the estate.” Cable, 200 F.3d at 473.
Furthermore, requiring the Chapter 13 trustee to file the application to employ special counsel for a lawsuit in which the debtor was in possession would expand the trustee’s duties beyond those provided for in 11 U.S.C. § 1302. Section 1302(b)(4) states that the trustee shall “advise, other than on legal matters, and assist the debt- or in performance under the plan.” 11 U.S.C. § 1302(b)(4). This subsection basically provides that the trustee acts as “adviser and administrator to facilitate the repayment of debts according to the plan.” Cable, 200 F.3d at 472; see 11 U.S.C. § 1302. Pursuant to § 1302(b)(1), the Chapter 13 trustee must fulfill several duties listed in 11 U.S.C. § 704(a),5 but those duties do not include the duty to “collect and reduce to money the property of the estate” found in § 704(a)(1) or the retention of special counsel under § 327(e) to represent a debtor who is in possession of a claim.
It is also not appropriate for special counsel to be responsible for filing the application to be retained under § 327(e). Rule 2014 requires specific factual statements from both the “applicant” and the professional to be employed. Rule 2014 states that an order approving “the employment of attorneys ... or other professionals pursuant to § 327 ... of the Code shall be made only on application of the trustee or committee.” Fed. R. Bankr.P. 2014. The “applicant” is the one who seeks to retain the attorney, not the attorney whose retention is sought. The debt- or-in-possession, whether in Chapter 11 or 13, is the equivalent of a trustee for purposes of this Rule and may file the application referenced therein. Nowhere in the Rule does it state that the person to be employed may file the application. To the contrary, the Rule implies that the person to be employed is separate from the applicant because it requires that the application be “accompanied by a verified statement of the person to be employed” supporting the specific factual statements made in the application itself by the applicant, which in this instance must be the Debtors. Fed. R. Bankr.P.2014. Accordingly, the attorney to be employed may not file his or her own application to be employed. The duty to file the application to employ special counsel rests on the party who is retaining the lawyer and conducting the litigation, which in this case, are the Debtors.
*709This Court will enter a separate order correcting the Notice directing Flynn to either file his own application to be employed or to contact the Chapter 13 Trustee to do so and therein provide that Flynn should contact Debtors’ counsel to be retained by this Court.
. The parties do not contest that the Debtors have standing to bring and control the litigation at issue, including deciding which lawyer should be retained to represent the Debtors in the litigation, so the Court will not be addressing that issue or the issue of whether a debtor and the Chapter 13 trustee have concurrent standing to bring certain types of claims. In addition, if a Chapter 13 trustee were to prosecute a claim on behalf of the estate, it would be the Chapter 13 trustee’s responsibility to file the application to retain special counsel under § 327(e).
. The Court did note, however, that the better practice is to have retention of special counsel approved by the Court prior to the confirmation of a plan.
. Rule 9011 states:
Every petition, pleading, written motion, and other paper ... shall be signed by at least one attorney of record in the attorney's individual name.... By presenting to the court ... by signing ... a petition, pleading, written motion, or other paper, an attorney ... is certifying that to the best of the person’s knowledge, information, and belief, formed after an inquiry reasonable under the circumstances ... [that] (1) it is not being presented for any improper purpose .... (2) the claims, defenses, and other legal contentions therein are warranted.... (3) the allegations and other factual contentions have evidentiary support ... and (4) the denials of factual contentions are warranted on the evidence.
Fed. R. Bankr.P. 9011.
. The Chapter 13 trustee does retain the right to object to an application to retain special counsel filed by a debtor.
. Section 1302(b)(1) includes among the Chapter 13 trustee’s duties those listed in the following subsections of § 704(a): (2) “be accountable for all property received,” (3) "ensure that the debtor shall perform his intention as specified in section 521(a)(2)(B) of this title,” (4) "investigate the financial affairs of the debtor,” (5) "if a purpose would be served, examine proofs of claims and object to the allowance of any claim that is improper,” (6) "if advisable, oppose the discharge of the debtor,” (7) "unless the court orders otherwise, furnish such information concerning the estate and the estate’s administration as is requested by a party in interest,” and (9) "make a final report and file a final account of the administration of the estate with the court and with the United States trustee.” 11 U.S.C. § 704(a). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488460/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-22-00540-CV
Tzu-Chen Lin, Appellant
v.
Chuan-Ben Fu, Appellee
FROM THE 353RD DISTRICT COURT OF TRAVIS COUNTY
NO. D-1-FM-21-002853, THE HONORABLE JAN SOIFER, JUDGE PRESIDING
MEMORANDUM OPINION
Appellant Tzu-Chen Lin seeks to appeal the trial court’s denial of her plea to the
jurisdiction, which she filed in response to appellee Chuan-Ben Fu’s suit for divorce.
This Court’s appellate jurisdiction is limited to appeals of final judgments and
certain interlocutory orders made appealable by statute. See Tex. Civ. Prac. & Rem. Code
§§ 51.012, .014; Lehmann v. Har-Con Corp., 39 S.W.3d 191, 195 (Tex. 2001). There is no
statutory authority generally permitting an interlocutory appeal from a trial court order denying
a plea to the jurisdiction. Great Sw. Reg’l Ctr., LLC v. ACSWD, LP, No. 03-17-000359-CV,
2017 Tex. App. LEXIS 8156, at *2 (Tex. App.—Austin Aug. 25, 2017, no pet.) (mem. op.).
Although Section 51.014 of the Texas Civil Practice and Remedies Code expressly authorizes an
interlocutory appeal from a trial court order that “grants or denies a plea to the jurisdiction by a
governmental unit,” nothing in the record suggests that appellant is a “governmental unit.” See
Tex. Civ. Prac. & Rem. Code § 51.014(a)(8); HWY 3 MHP, LLC v. Electric Reliability Council
of Tex., 462 S.W.3d 204, 212 (Tex. App.—Austin 2015, no pet.) (concluding that ERCOT is not
“governmental unit” and dismissing interlocutory appeal for lack of jurisdiction).
On September 27, 2022, the Clerk of this Court advised appellant that it appears
this Court lacks appellate jurisdiction over this matter because the clerk’s record does not contain
a final judgment or appealable order. The Clerk requested that appellant file a response by
October 21, 2022, demonstrating how we may exercise jurisdiction over this appeal. To date,
no response has been filed.
Because no final judgment has been signed and because the trial court’s denial of
appellant’s plea to the jurisdiction is a non-appealable interlocutory order, we do not have
jurisdiction to consider the merits of this appeal. Accordingly, we dismiss this appeal for want of
jurisdiction. See Tex. R. App. P. 42.3(a).
__________________________________________
Chari L. Kelly, Justice
Before Justices Goodwin, Baker, and Kelly
Dismissed for Want of Jurisdiction
Filed: November 18, 2022
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488469/ | TEXAS COURT OF APPEALS, THIRD DISTRICT, AT AUSTIN
NO. 03-21-00534-CR
Matthew Glenn Hopkins, Appellant
v.
The State of Texas, Appellee
FROM THE 424TH DISTRICT COURT OF BURNET COUNTY
NO. 49873, THE HONORABLE EVAN C. STUBBS, JUDGE PRESIDING
ORDER FOR CLERK TO PROVIDE
A P P E L L A T E R E C O R D TO A P P E L L A N T
PER CURIAM
Appellant’s court-appointed counsel has filed a motion to withdraw supported by
a brief concluding that the instant appeal is frivolous and without merit. See Anders
v. California, 386 U.S. 738, 744 (1967). Appellant’s counsel has certified to the Court that he
provided copies of the motion and brief to appellant, advised appellant of his right to examine
the appellate record and file a pro se response, and supplied appellant with a form motion for
pro se access to the appellate record. See Kelly v. State, 436 S.W.3d 313, 319–20 (Tex. Crim.
App. 2014). Appellant has timely filed the motion requesting access to the appellate record with
this Court.
Appellant’s pro se motion is granted. We hereby direct the clerk of the trial
court to provide a copy of the reporter’s record and clerk’s record to appellant, and to provide
written verification to this Court of the date and manner in which the appellate record was
provided, on or before December 2, 2022. See id. at 321.
It is so ordered on November 18, 2022.
Before Chief Justice Byrne, Justices Triana and Smith
Do Not Publish
2 | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488495/ | Fourth Court of Appeals
San Antonio, Texas
November 21, 2022
No. 04-22-00357-CV
IN THE INTEREST OF L.R.R. AND A.P.R., Children
From the 37th Judicial District Court, Bexar County, Texas
Trial Court No. 2021-PA-00430
Honorable Linda A. Rodriguez, Judge Presiding
ORDER
The Department’s brief was due on November 17, 2022. See TEX. R. APP. P. 38.6(b).
After the due date, the Department moved for a twenty-day extension of time to file its brief.
The deadline to issue this opinion is December 12, 2022. The last regular issue date for
this court before then is December 7, 2022.
The Department’s motion is granted in part. The brief is due on November 30, 2022.
It is so ORDERED on this 21st day of November, 2022.
PER CURIAM
ATTESTED TO: ______________________________
MICHAEL A. CRUZ, Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488496/ | Fourth Court of Appeals
San Antonio, Texas
November 21, 2022
No. 04-22-00681-CV
IN THE INTEREST OF E.G.K., a Child
From the 166th Judicial District Court, Bexar County, Texas
Trial Court No. 2021-PA-01021
Honorable Kimberly Burley, Judge Presiding
ORDER
Appellant’s first motion for an extension of time to file her brief is GRANTED.
Appellant’s brief is due on or before December 2, 2022.
It is so ORDERED November 21, 2022.
PER CURIAM
ATTESTED TO:__________________________
MICHAEL A. CRUZ,
CLERK OF COURT | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488499/ | Fourth Court of Appeals
San Antonio, Texas
November 21, 2022
No. 04-22-00329-CR
John Anthony GARCIA,
Appellant
v.
The STATE of Texas,
Appellee
From the 290th Judicial District Court, Bexar County, Texas
Trial Court No. 2021CR2058
Honorable Jennifer Pena, Judge Presiding
ORDER
Appellant’s motion to amend his brief is GRANTED. Appellant’s First Amended Brief
is accepted in lieu of the brief filed on November 16, 2022.
_________________________________
Liza A. Rodriguez, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 21st day of November, 2022.
___________________________________
MICHAEL A. CRUZ, Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488503/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00551-CV
THE CITY OF CASTLE HILLS,
Appellant
v.
Jenifer Ashley Andrea ROBINSON, et al,
Appellees
From the 37th Judicial District Court, Bexar County, Texas
Trial Court No. 2017-CI-22569
Honorable Angelica Jimenez, Judge Presiding
ORDER
Appellees brief was originally due on November 8, 2022. On November 2, 2022,
appellees filed a motion for a thirty-day extension of time to file a brief. We granted the motion
in part and ordered appellees’ brief filed by November 28, 2022. We advised appellees that
because of the time constraints governing the disposition of this appeal, further requests for
extensions of time would be disfavored.
On November 16, 2022, the parties filed a “Joint Second Motion for Extension of Time
for Appellees to File Merits Brief.” In the motion, the parties explain the extension is sought
because the parties have entered into settlement discussions and believe the extension may allow
for a final resolution of the dispute.
We grant the motion and order appellees’ brief filed by December 28, 2022. Counsel to
appellees is advised that no further extensions of time will be granted absent a motion, filed
before the brief is due, that (1) demonstrates extraordinary circumstances justifying further delay,
(2) advises the court of the efforts counsel has expended in preparing the brief, and (3) provides
the court reasonable assurance that the brief will be completed and filed by the requested
extended deadline. The court does not generally consider a heavy work schedule to be an
extraordinary circumstance.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494608/ | ORDER
SUSAN D. BARRETT, Chief Judge.
Before the Court is a Motion to Incur Debt filed by Ronald F. Key, Jr. and Leah Henneman Key (collectively, the “Debtors”, with Ronald F. Key, Jr. referred to as “Key”). The issues in this case are: 1) whether four pieces of real estate inherited by Key from his mother more than 180 days after the Debtors filed their chapter *71013 petition are property of the bankruptcy estate; and 2) whether Debtors’ motion for Key to incur debt should be approved. This Court has jurisdiction over this matter under 28 U.S.C. § 1334(b) and this is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) and (D). For the following reasons, I find the properties are not property of the estate and deny Debtors’ motion to incur debt.
FINDINGS OF FACT
Key inherited four properties from his mother more than 180 days after he filed his chapter 13 bankruptcy petition. One of the properties (“Hammond Avenue”) is valued at $39,294.00 according to the taxing authorities. At the time of his mother’s death this property was encumbered by a balloon loan with First Bank of Georgia that matured November 2011. This property is scheduled to be foreclosed upon in five days and is the subject of the Motion to Incur Debt.
Debtors filed a joint motion for Key to be allowed to incur debt and they amended their Schedules A, I and J to disclose the properties and evidence Debtors’ purported ability to pay the loan and fund their chapter 13 plan. The motion to incur debt requests approval for Key to incur debt not to exceed $21,445.77 with monthly payments of no more than $338.28 for 35 months at 7.5% interest. Upon approval of the motion, Debtors plan to put in the necessary sweat equity to attempt to make the property habitable in order to rent the property.
At the hearing, Key testified even if he does the work himself, the repairs to Hammond Avenue will cost at least $10,000.00 and take about a year to complete. He also testified that all four properties need major repairs. Some of the properties may even need to be demolished. In addition to the Hammond Avenue property, one of the other properties is encumbered by a loan with another lender.
Key provided candid testimony as to the properties’ disrepair. Notwithstanding the tax valuations of approximately $154,000.00, Key said a realtor recently valued the Hammond Avenue property along with the two adjoining tracts at approximately $22,000.00. The other property is fully encumbered by a loan to a third party. Key thinks the combined value of all four properties is less than the debt owed.
CONCLUSIONS OF LAW
Property of the bankruptcy estate is defined in 11 U.S.C. § 541(a)(5) as follows:
(a) The commencement of a case under section 301, 302, or 303 of this title creates an estate. Such estate is comprised of all the following property, wherever located and by whomever held:
(5) Any interest in property that would have been property of the estate if such interest had been an interest of the debtor on the date of the filing of the petition, and that the debtor acquires or becomes entitled to acquire within 180 days after such date—
(A) by bequest, devise, or inheritance;
(B) as a result of a property settlement agreement with the debtor’s spouse, or of an interlocutory or final divorce decree; or
(C) as a beneficiary of a life insurance policy or of a death benefit plan.
11 U.S.C. § 541(a)(5).
Furthermore, in a chapter 13 bankruptcy, § 1306 of the Bankruptcy Code provides in pertinent part:
(a) Property of the estate includes, in addition to the property specified in section 541 of this title—
(1) all property of the kind specified in such section that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or *711converted to a case under chapter 7, 11, or 12 of this title, whichever occurs first....
11 U.S.C. § 1306.
The Chapter 13 Trustee (“Trustee”) notes in the context of a chapter 13 bankruptcy, “property of the estate is expanded and includes in addition to the property specified in section 541 of this title ... all property of the kind specified in such section that the debtor acquires after the commencement of the case, but before the case is closed, dismissed, or converted.... ” 11 U.S.C. § 1306(a)(1). The Trustee argues § 1306(a)(1) results in the chapter 13 bankruptcy estate including these post-petition inheritances regardless of when Key became entitled to receive the bequest, devise or inheritance. I disagree. The Trustee’s interpretation overlooks the express time limitation set forth in § 541(a)(5) and the portions of § 1306(a)(1) that provide that the estate includes the property specified in § 541 and all property “of the kind specified in such section” that the debtor acquires after the commencement of the chapter 13. Id.
Section 541(a)(5) expressly excludes inheritances that a debtor becomes entitled to receive more than 180 days after the petition date. I find the general language of § 1306(a)(1) does not pull property expressly excluded by § 541(a)(5) into the property of the estate. “It is fair to conclude that if the provisions of Section 541 apply to define property of the estate the exclusions also apply as set forth in Section 541(a)(5).” In re Schlottman, 319 B.R. 23, 25 (Bankr.M.D.Fla.2004) (interpreting § 1306(a)(1) and § 541(a)(5)(C) and holding proceeds from a life insurance policy are not property of the chapter 13 estate where debtor became entitled to acquire such proceeds more than 180 days after the petition date).
In an analogous case involving § 1306 and the exclusions of § 541(b), the bankruptcy court noted:
Not only does this Court find no textual basis to hold that § 1306 does not incorporate on a prospective basis the exclusions provided by § 541(b), this Court finds this reading to be at odds with the nature of chapter 13 cases. Unlike cases commenced under chapters 7 and 11, the petition date in chapter 13 proceedings is not determinative of the scope of a chapter 13 estate. Section 1306(a)(1) incorporates into a chapter 13 estate ‘all property of the kind specified in [§ 541] that the debtor acquires after the commencement of the case but before the case is closed, dismissed, or convert-ed_’ll U.S.C. § 1306(a)(1) (emphasis added). This language makes clear that property of the type specified by § 541 that is acquired post-petition by a chapter 13 debtor ... becomes part of that debtor’s chapter 13 estate.... Based on the reference in § 1306 to the entirety of § 541, this Court finds a reading of § 1306 that incorporates on an ongoing basis the exclusions of § 541(b), inclusive of § 541(b)(7), to be more consistent with the dynamic nature of chapter 13 cases.
In re Egan, 458 B.R. 836, 846 (Bankr.E.D.Pa.2011)(alterations in original). Like the exclusions of § 541(b), § 541(a)(5) specifically excludes certain property that a debtor becomes entitled to receive more than 180 days after the filing of the petition. The Trustee argues § 1306 includes all the property described in § 541, despite the exclusory language of § 541(a)(5). Since § 1306(a)(1) is not limited to the property in § 541(a), such a broad reading would also arguably bring into the estate all the property excluded by § 541(b) and (c)(2). I find the Trustee’s construction too broad. “The preamble of § 1306 and subsection (a)(1) both make *712reference to the entirety of § 541, not just § 541(a). The text provides no basis to read the references in § 1306 to § 541 to incorporate only the inclusions provided under § 541(a) and not the exclusions provided under § 541(b).” Id. at 845.
The Trustee argues that applying the express temporal elements of § 541(a)(5) to § 1306(a)(1) renders portions of § 1306(a) superfluous. However, as Judge Dalis recently pointed out:
the Trustee’s interpretation renders the time limitations included in § 541(a)(5) void.... [A] proper construction of the provisions incorporates the time limitation of § 541(a)(5) into § 1306(a)(1). In this way, ‘of the kind specified’ draws in all of the specifications set forth in § 541(a)(5) rather than discarding a time limitation—a defining clause—absent evidence that Congress had intended that result....
In addition, principles of statutory construction advise that general provisions within a statute should not, as a rule, be read to supersede specific substantive provisions. Morales v. Trans World Airlines, Inc., 504 U.S. 374, 385, 112 S.Ct. 2031, 119 L.Ed.2d 157 (1992); In re Bateman, 331 F.3d 821, 825 (11th Cir.2003). Here, the more specific date restriction that helps define the kind of property included in the estate pursuant to § 541(a)(5) controls and is not superseded by conflicting temporal elements of § 1306(a)(1).
In re Walsh, 2011 WL 2621018 at *2 (Bankr.S.D.Ga. June 15, 2011). Section 1306(a)(1) clearly alters § 541(a)(1). The language of § 1306(a)(1) tracks almost exactly the language of § 541(a)(1) and it specifically incorporates into the chapter 13 estate all the § 541(a)(1) interests of the debtor in such property “as of the commencement of the case” and all such property the “debtor acquires after the commencement of the case”; however, it does not alter the specific defining time clause of § 541(a)(5). 11 U.S.C. § 541(a)(1) and § 1306(a)(1); In re Walsh, 2011 WL 2621018 at *2.
Under the Trustee’s broad interpretation of § 1306(a)(1), there arguably would have been no need for Congress to enact § 1306(a)(2). By the provisions of § 1306(a)(2), which pulls post-petition wages into the chapter 13 estate, Congress specifically addressed the express exclusion in § 541(a)(6) of post-petition earnings from property of the estate. Congress did not take such steps to include the property excluded in § 541(a)(5). For these reasons, I find applying the time limitation of § 541(a)(5) to chapter 13 cases does not render § 1306 superfluous.
The Trustee cites In re Wetzel, 381 B.R. 247, 254 (Bankr.E.D.Wis.2008), In re Drew, 325 B.R. 765, 770 (Bankr.N.D.Ill.2005), In re Nott, 269 B.R. 250 (Bankr.M.D.Fla.2000), In re Tworek, 107 B.R. 666, 668 (Bankr.D.Neb.1989) and In re Euerle, 70 B.R. 72 (Bankr.D.N.H.1987) as persuasive authority that an inheritance received by a chapter 13 debtor more than 180 days post-petition is property of the estate. After reviewing these cases, I do not find them persuasive. These cases do not provide much analysis on the interplay of § 541(a)(5) with § 1306(a) nor do they analyze the seeming conflict of § 541(a)(5) and § 541(b) expressly excluding property from the bankruptcy estate and § 1306(a)(l)’s use of general language to include certain property in the estate.
After concluding that the inheritance is not property of the estate, I must turn to the issue of whether Key should be allowed to incur debt in order to renew the mortgage and place it in his name. Allowing Key to incur this debt would result in Debtors using property of the estate, as defined in § 1306(a)(2), to pay this debt *713with the hope of ultimately renting the property to generate income. The Trustee opposes the motion, arguing the property is not necessary for fulfillment of Debtors’ plan and incurring the debt will deplete the money available to pay creditors. Debtors cannot afford to hire someone to do this work and Key would do the work himself. He estimates it would take a minimum of a year to complete the work. The costs of completing the renovations would exceed $10,000.00. Under the terms of the confirmed plan, Debtors have approximately two months remaining in their 36 month plan. Statutorily, chapter 13 plans may not exceed five years so, at most Debtors have 26 months remaining in their case. See 11 U.S.C. § 1322(d) and § 1325.
General Order 2010-2 of the Southern District of Georgia sets forth the procedure for a chapter 13 debtor seeking to incur debt post-petition.1 The General Order states that for approval, the need to incur consumer debt should be “necessary to the debtor’s performance under a chapter 13 plan.” Bankr. S.D. Ga. Gen. Order 2010-2. Based upon the evidence presented, I find the motion to incur debt should be denied. Debtors have not shown the need to take on this additional mortgage while paying their unsecured creditors nothing. Debtors do not reside at this property and it is not necessary for their reorganization. The expenses are significant given the value of the property. There is no prospective tenant and there is a significant likelihood the property will never be habitable. The $338.28/month necessary to service the debt will deplete the sums Debtors have available to fund their chapter 13 plan. This does not even include the sums necessary to conduct the renovations nor does it include taxes and insurance. Key acknowledges his case is already a tight case. Given that the properties are not property of the estate, the fact that any rental income is extremely speculative, and the feasibility concerns, I do not find this debt is necessary for the Debtors’ performance of their chapter 13 plan and therefore I deny the motion. See e.g. In re Nesser, 206 B.R. 357, 371 (Bankr.W.D.Pa., 1997) (denying chapter 13 debt- or’s motion to incur debt to open a pub where the likelihood of success was too speculative).
For the foregoing reasons, I find the properties are not property of the estate and the Debtors’ Motion to Incur Debt is ORDERED DENIED.
. General Order 2010-2 states in pertinent part:
The Court recognizes that after the filing of a petition under chapter 13 of the bankruptcy code it may be necessary for a debtor to enter into agreements with creditors to modify security interests in real property of the debtor or to incur consumer debt to obtain goods or services necessary to the debtor’s performance under a chapter 13 plan. As set forth in 11 U.S.C. § 1305(c), where prior approval of the trustee is practicable to obtain,
IT IS HEREBY ORDERED that the case trustee is authorized, without further order of this Court, to grant permission to the debtor to enter into agreements to modify a security interest in the debtor's real property or to incur debt as set forth in 11 U.S.C. § 1305. Nothing in this General Order is to prevent the trustee from denying a request from the debtor to so modify or to incur debt, or prevent the debtor from filing a motion seeking Court approval of a debt- or's request to so modify or to incur debt. Applications depicting the approval of the chapter 13 trustee to so modify or to incur debt may be filed with the Clerk’s office in accordance with the Court's filing procedures.
Bankr. S.D. Ga. Gen. Order 2010-2 (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494609/ | ORDER
SUSAN D. BARRETT, Chief Judge.
Before the Court is a Motion for Confirmation of Foreclosure Sales and for Additional Or Alternative Relief filed by First Bank of Georgia (“First Bank”). In its motion, First Bank seeks to remove several pending state court confirmation proceedings to this Court, or in the alternative, nunc pro tunc relief from the automatic stay. A hearing was held on First Bank’s motion and the Court denied the request to remove the pending confirmation proceedings to the bankruptcy court, but granted prospective relief from stay consent orders allowing all but one of the pending state confirmation hearings to proceed. As to the remaining matter, the Court took under advisement whether to issue relief from the stay nunc pro tunc to First Bank in regards to its confirmation proceeding involving the Anderson Mill Tract. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(G) and the Court has jurisdiction under 28 U.S.C. § 1334. As set forth herein, First Bank is granted relief from the stay nunc pro tunc.
FINDINGS OF FACT
On August 5, 2011, BLJ, LLC (“BLJ”) filed a chapter 7 bankruptcy petition. BLJ’s bankruptcy schedules valued the Anderson Mill Tract at $900,000.00, and showed it encumbered by a $1,615,514.40 secured claim in favor of First Bank. Chap. 7 Case No. 11-11524, Dckt. No. 1. On August 5, 2011, W.T. Lamb and Marian R. Lamb (“the Lambs”) filed a voluntary chapter 11 petition. According to BLJ’s statement of financial affairs, Marian R. Lamb and a non-debtor each own a 50% interest in BLJ. Chap. 7 Case No. 11-11524, Dckt. No. 1. The Lambs along with this third party non-debtor are guarantors on First Bank’s note with BLJ. Id. In the *716BLJ case, First Bank and BLJ filed a consent motion to lift the stay as to the Anderson Mill Tract, praying “the Court enter an Order modifying and lifting the automatic stay as to Collateral.” Chap. 7 Case No. 11-11524, Dckt. No. 8. The collateral was defined as “Anderson Mill Tract — 705 acres, Wilkes County, GA.” Chap. 7 Case No. 11-11524, Dckt. No. 13. In response to the consent motion, a consent order was duly entered in the BLJ case granting relief from the stay as to the Anderson Mill Tract. Chap. 7 Case No. 11-11524, Dckt. No. 13. No further lift of stay motion as to the Anderson Mill Tract was filed or granted in BLJ’s case nor in the Lambs’ case.
On November 2, 2011, First Bank foreclosed on the Anderson Mill Tract. Thereafter, it undertook to confirm the foreclosure sale; however, it initially failed to name the guarantors in its confirmation proceeding, so it voluntarily dismissed, without prejudice, the first confirmation hearing. Thereafter, First Bank commenced a second confirmation hearing where it named: BLJ, the Lambs and the third party guarantor. At the commencement of the confirmation hearing, the Lambs asserted the hearing was being held in violation of the automatic stay as no lift of stay order was ever obtained in the Lambs’ chapter 11 bankruptcy case. With notice, First Bank opted to proceed with the confirmation hearing and various witnesses provided testimony. Now, the Lambs contend because witnesses were called, First Bank is unable to unilaterally dismiss the confirmation hearing and file a new one; rather, First Bank is required to obtain leave from the state court judge to dismiss the action. With this background, the state court requested briefs • on the issues presented. According to First Bank’s attorney, the state court action is stayed pending a ruling by this Court.
CONCLUSIONS OF LAW
The automatic stay provides broad protection for all debtors against acts to collect or enforce a debt. 11 U.S.C. § 362(a)(1). Particularly § 362(a)(1) and (6) stay:
(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 title, or to recover a claim against the debtor that arose before the commencement of the case under this title;
6) any act to collect, assess, or recover a claim against the debtor that arose before the commencement of the case under this title;
11 U.S.C. § 362(a)(1) and (6). First Bank argues that under Georgia law, a confirmation hearing is not in personam and therefore does not implicate 11 U.S.C. § 362. See Wall v. Federal Land Bank of Columbia, 240 Ga. 236, 240 S.E.2d 76, 78 (1977) (no judgment is rendered against the debt- or in a confirmation hearing). However, several federal courts interpreting the federal § 362 automatic stay have concluded that because confirmation of a foreclosure sale is necessary before a creditor may seek to hold a debtor personally liable for a deficiency claim, the language of § 362(a) is broad enough to prohibit confirmation proceedings. See In re McDaniel, 2008 WL 6858458 *2 (Bankr.M.D.Ga. May 15, 2008) (“A confirmation proceeding ... is a separate in personam proceeding against the debtor, requiring stay relief.”); In re Everchanged, Inc., 230 B.R. 891, 894 (Bankr.S.D.Ga.1999)(“[A]n attempt to confirm the foreclosure and enforce a deficiency judgment against the Debtor would fall *717within the broad sweep of Section 362(a)(1) or (6) because those sections prohibit in personam actions against the Debtor.”); In re Virginia Hill Partners I, 110 B.R. 84 (Bankr.N.D.Ga.1989) (“confirmation is an action or proceeding in the nature of a civil suit to obtain a judicial determination of legal rights or remedies to enable the creditor to pursue recovery or collection of a claim for a deficiency against the debtor. Thus, it is an action or proceeding as contemplated by 11 U.S.C. § 362(a).”); In re Russell Corp., 156 B.R. 347 (Bankr.N.D.Ga.1993) (same); see also Weems v. McCloud, 619 F.2d 1081, 1087 (5th Cir.1980).1 I agree. The commencement and continuation of a state court confirmation action without first obtaining relief from the stay is in violation of the automatic stay. As the Russell court stated:
If a creditor intends to seek a deficiency judgment against a debtor in the event the foreclosure sale brings less than the amount of the debt, it is not unreasonable to require specific language in the relief from stay order to the effect that, in addition to conducting a foreclosure sale, the stay is also lifted to allow the creditor to file a confirmation action and seek a deficiency judgment against the debtor.
In re Russell Corp., 156 B.R. at 350. While First Bank obtained relief from the stay in BLJ’s case to “foreclose against the collateral”, it did not obtain relief from the stay to have the sale confirmed in order to assert its deficiency claim. Thus, I find the relief from stay order only authorizes foreclosure on the Anderson Mill Tract, not confirmation of the foreclosure. “[U]nless the stay relief order clearly provides otherwise, the determination and allowance of claims, deficiency or otherwise, against the debtor or its estate in the pending bankruptcy case remain within the exclusive jurisdiction of the bankruptcy court.” Id. at 349-50 quoting Virginia Hill Partners I, 110 B.R. at 87. Therefore, I find the automatic stay prevented First Bank from proceeding with the confirmation hearing against BLJ. See In re Virginia Hill Partners I, 110 B.R. at 87; In re Russell Corp., 156 B.R. at 350.
The same is true in the Lambs’ case. First Bank failed to obtain relief from the stay in the Lambs’ bankruptcy case before proceeding with the confirmation hearing. Relief from stay was not necessary before foreclosing on the Anderson Mill Tract in the Lambs’ case because foreclosure is an in rem action and therefore stay relief is only needed against the owner of the property, BLJ. See In re Everchanged, Inc., 230 B.R. at 894. However, as discussed above, First Bank was required to obtain relief from the stay before commencing a confirmation hearing.
“Actions taken in violation of the automatic stay are void and without effect.” U.S. v. White, 466 F.3d 1241, 1244 (11th Cir.2006) quoting Borg-Warner Acceptance Corp. v. Hall, 685 F.2d 1306, 1308 (11th Cir.1982). Thus, the confirmation hearing against BLJ and the Lambs is a nullity. See South Dallas Water Auth. v. Guarantee Co. of N. Am., USA, 767 F.Supp.2d 1284, 1297 n. 10 (S.D.Ala.2011)(stating actions taken in violation of the stay are void ab initio).
First Bank has asked the Court to grant it relief from stay nunc pro tunc to rectify the procedural conundrum facing First Bank. Since evidence was taken at the confirmation hearing, First Bank is concerned it may not be able to add the Lambs to the confirmation proceeding or *718to unilaterally dismiss the confirmation proceeding and start anew. The Eleventh Circuit has held that § 362(d) expressly grants the bankruptcy court in “limited circumstances” the ability to annul the stay which could operate retroactively to the date of the petition. In re Albany Partners, Ltd,., 749 F.2d 670, 675 (11th Cir.1984). The Eleventh Circuit acknowledged that “the important congressional policy behind the automatic stay demands that courts be especially hesitant to validate acts committed during the pendency of the stay.” Id. In addition to proving “cause” exists to annul the stay pursuant to § 362(d), First Bank must meet some minimum requirements before the Court considers annulling the automatic stay:
First, the creditor must demonstrate that it ‘justifiably believed its action did not violate the automatic stay.’ In other words, the violation must not have been willful. Second, the creditor must prove that it ‘did not violate the policies underlying the automatic stay’ by showing that its actions ‘did not interfere with the ‘breathing spell’ created by the stay and that ‘its foreclosure had no negative impact on other creditors.’
In re Thomas, 319 B.R. 910, 912 (Bankr.M.D.Ga.2004) (internal citations omitted); In re Dye, 2007 WL 7143406 (Bankr.N.D.Ga. July 12, 2007). In this case, there is no doubt First Bank was aware of the filing of the bankruptcy petitions. Furthermore, before the confirmation hearing commenced, First Bank was made aware of the Lambs’ contention that the proceeding violated the Lambs’ automatic stay. However, First Bank argues it justifiably believed its action did not violate the automatic stay. First Bank argues it thought since it had a prior relief from the stay in the BLJ case it could continue. First Bank mistakenly believed the consent order granting relief from the stay as to the collateral was sufficient to proceed to confirmation of foreclosure. While ignorance of the law is no excuse for a stay violation, I note the split between state and federal eases addressing the in rem versus in personam issue. Compare Wall v. Federal Land Bank of Columbia, 240 Ga. 236, 240 S.E.2d 76, 77 (1977)(confirmation hearing is not in personam as no personal judgment is recovered) with In re Everchanged, Inc., 230 B.R. 891, 894 (Bankr.S.D.Ga.1999)(“[A]n attempt to confirm the foreclosure and enforce a deficiency judgment against the Debtor would fall within the broad sweep of Section 362(a)(1) or (6) because those sections prohibit in person-am actions against the Debtor.”). Given the facts and circumstances of these bankruptcy cases, I find First Bank justifiably believed its action was not stayed by the provisions of 11 U.S.C. § 362. See In re Albany Partners, Ltd., 749 F.2d at 675-76 (holding that bankruptcy court did not abuse its discretion by granting retroactive relief from automatic stay, notwithstanding that creditors were aware of debtor’s bankruptcy filing when they conducted foreclosure sale).
Furthermore, other factors and equities favor nunc pro tunc relief. Relief from stay had already been granted in the BLJ case to foreclose on the property, so there is no need for First Bank to prove “its foreclosure had no negative impact on other creditors.” See In re Brown, 251 B.R. 916 (Bankr.M.D.Ga.2000)(discussing impact on a junior creditor in foreclosure if retroactive relief from stay was granted). The Lambs’ chapter 11 case is a liquidating plan, contemplating foreclosures, confirmations and deficiency claims and proposing to pay all claims in full. The confirmation hearing did not interfere with the “breathing spell” provided for by the automatic stay as the property had already been foreclosed upon. Granting re*719lief nunc pro tunc in this case would not violate the purpose of the stay.2 The Lambs were represented in the prior confirmation hearing and were able to raise all their defenses to confirmation of the foreclosure sale. Furthermore, BLJ is not asserting any defense of the automatic stay. In fact BLJ argues the confirmation proceeding is valid as to it. Dckt. No. 102, p. 13 n. 6. Evidence has been taken in the state court and the state court is poised to rule. For the reasons previously discussed, without the nunc pro tunc relief, the confirmation proceeding as a whole is void ab initio as to both BLJ and the Lambs. For these reasons, I find the posture of the state court proceedings lends further support to granting nunc pro tunc relief. Based upon the facts of this case, I find cause exists to grant relief from the stay and to grant it retroactively.
Furthermore, there have been several hearings between the parties in these cases, and the parties have always intended and contemplated relief being granted to First Bank to foreclose and confirm its sales.
For the foregoing reasons, relief from the stay is granted nunc pro tunc to the date the second foreclosure confirmation action was filed in state court as to the Anderson Mill Tract in both the BLJ and the Lamb cases.
. Fifth Circuit decisions issued prior to October 1, 1981, are binding precedent upon this Court. See Bonner v. City of Prichard, 661 F.2d 1206, 1210 (11th Cir.1981).
. "The automatic stay is one of the fundamental debtor protections provided by the bankruptcy laws. It gives the debtor a breathing spell from his creditors. It stops all collection efforts, all harassment, and all foreclosure actions. It permits the debtor to attempt a repayment or reorganization plan, or simply to be relieved of the financial pressures that drove him into bankruptcy...." In re Albany Partners, Ltd.., 749 F.2d at 676, n. 9 quoting H.R. Report No. 595, 95th Cong., 1st Session 340-42 (1977), U.S.Code Cong. & Admin.News 1978, pp. 6296-97. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494610/ | TESTER, Bankruptcy Judge.
The debtors, Damon Massey and Marie Massey (“the Masseys” or “the Debtors”), appeal from the bankruptcy court order (“the Order”) sustaining the objection of the chapter 13 trustee, Denise Pappalardo (“the Trustee”), to their claimed exemptions of “100% of FMV” in their residence and car. For the reasons set forth below, we AFFIRM the Order.
BACKGROUND
The Masseys are chapter 13 debtors, who filed a joint petition for relief, schedules, a statement of financial affairs, and a plan of reorganization in March 2011. On Schedule A, they indicated that they each owned a one-third interest, with a right of survivorship, in a single family home in Billerica, Massachusetts (“the residence”),1 which they valued at $92,000.00. They reported on Schedule B that they jointly owned,, inter alia, a 1995 Saturn (“the car”), which they valued at $1,455.00. On Schedule C, they indicated that they were electing their federal exemptions under § 522(d).2 At the heart of this appeal is their further disclosure on Schedule C that the amount of their claimed exemptions in both the residence and the car was “100% of FMV,” pursuant to § 522(d). The Mas-seys’ Schedule D reflected that the residence was subject to a mortgage in the amount of $127,555.43, and that $35,555.43 of the claim was unsecured. The Masseys did not list any liens on the car on Schedule D.
In May 2011, the Trustee objected both to confirmation of the Debtors’ chapter 13 plan and their exemptions (“the Objection”). Relying on Schwab v. Reilly, — U.S.-, 130 S.Ct. 2652, 177 L.Ed.2d 234 (2010), the Trustee challenged the claimed exemption in the residence primarily on the grounds that it exceeded statutory limits. She also argued that the exemptions constituted an improper attempt to capture post-petition appreciation in the residence and the car, and suggested that the *722Masseys were acting in bad faith. Accordingly, the Trustee argued that because the Masseys’ exemptions were improper, their plan might fail the liquidation test of § 1325(a)(4), and, therefore, confirmation should be denied.
In their response to the Objection (“the Response”), the Masseys countered with the argument that resounds throughout this appeal: “The idea that one has no statutory right to claim an in-kind exemption to property whose value is plainly within the statutory exemption limits is anathema to a consumer debtor.” They rejected the Trustee’s arguments that their challenged exemptions exceeded statutory limits, and that they were acting in bad faith. They further contended that the phrase, “100% of FMV,” was merely a “phrase of art” authorized by the Supreme Court in Schwab to claim in-kind exemptions. Specifically, they pointed to the following language from Schwab:
Where, as here, it is important to the debtor to exempt the full market value of the asset or the asset itself, our decision will encourage the debtor to declare the value of her claimed exemption in a manner that makes the scope of the exemption clear, for example, by listing the exempt value as “full fair market value (FMV)” or “100% of FMV.” Such a declaration will encourage the trustee to object promptly to the exemption if he wishes to challenge it and preserve for the estate any value in the asset beyond relevant statutory limits. If the trustee fails to object, or if the trustee objects and the objection is overruled, the debt- or will be entitled to exclude the full value of the asset. If the trustee objects and the objection is sustained, the debt- or will be required either to forfeit the portion of the exemption that exceeds the statutory allowance, or to revise other exemptions or arrangements with her creditors to permit the exemption. See Fed. R. Bankr.P. 1009(a). Either result will facilitate the expeditious and final disposition of assets, and thus enable the debtor (and the debtor’s creditors) to achieve a fresh start free of the finality and clouded-title concerns [the debtor] describes.
At the hearing on the Objection, the Trustee argued that neither Schwab nor the Code permit in-kind exemptions. She again argued that the Debtors were attempting to shield potential appreciation in the real estate, which was actually property of the estate pursuant to Barbosa v. Solomon, 235 F.3d 31 (1st Cir.2000).
The Masseys countered:
The key point here is that the phrase “100[%] of FMV” doesn’t mean what it seems to mean. If the Supreme Court had said, “Use the word ‘Rumpelstiltskin’ when you want to claim an in-kind exemption,’ ” that’s what we would have done, and it would have meant no more nor less than the phrase that we did pick, which is the one that’s mentioned in Justice Thomas’s opinion.
When the bankruptcy court asked counsel for the Masseys, “How is anybody supposed to know what ‘FMV’ means,” counsel replied: “Well, the Supreme Court told us ... [in Schwab ].”
The bankruptcy court entered an order overruling the Objection based on the misapprehension that it was untimely. In the order granting the Trustee’s motion to reconsider, the court wrote:
Upon reconsideration, I will vacate my July 25th order and enter the following order on the [T]rustee’s objection. The [T]rustee’s objection to the [DJebtors’ claim of exemption of “100% of FMV” in [the residence and the car] is sustained. “Most of the § 522(d) exemption categories define the property a debtor may claim as exempt as the *723debtor’s interest — up to a specified dollar amount — in the assets described in the category, not as the assets themselves. §§ 522(d)(5) — (6); see also §§ 522(d)(l)-(4), (8)....” Schwab v. Reilly, — U.S. -, 130 S.Ct. 2652, 2661-62, 177 L.Ed.2d 234 (2010) (Internal quotation marks omitted). Accordingly, the debtors’ exemptions are deemed limited to the maximum statutory exemption amount available- to them as of the date of the filing of their [c]hapter 13 petition (i.e., $40,400[.00] for the [residence] and $3,225[.00] for the [car]). To the extent either item appreciates in value after the [c]hapter 13 filing date, the [D]ebtors would be entitled to exempt such appreciation up to the maximum exemption amount. Any appreciation in excess of the exemption amounts, however, would be property of the estate potentially available for creditors. Barbosa v. Solomon, 243 B.R. 562, 568 (D.Mass.2000), aff'd [ ] 235 F.3d 31 (1st Cir.2000). Subject to the foregoing, the [T]rustee’s objection to plan confirmation is overruled. The [T]rustee may incorporate the relevant terms of this order in her proposed order confirming the plan.
The Masseys appealed that portion of the court’s ruling sustaining the Trustee’s objection to their “claim of exemption of ’100% of FMV’ in their home and automobile.”
JURISDICTION
A bankruptcy appellate panel is “duty-bound” to determine its jurisdiction before proceeding to the merits even if the litigants do not raise the issue. See Boylan v. George E. Bumpus, Jr. Constr. Co. (In re George E. Bumpus, Jr. Constr. Co.), 226 B.R. 724, 725 (1st Cir. BAP 1998). A panel may hear appeals from “final judgments, orders and decrees [pursuant to 28 U.S.C. § 158(a)(1) ] or with leave of the court, from interlocutory orders and decrees [pursuant to 28 U.S.C. § 158(a)(3) ].” Fleet Data Processing Corp v. Branch (In re Bank of New England Corp.), 218 B.R. 643, 645 (1st Cir. BAP 1998). The Panel has previously ruled that “[a]n order sustaining an objection to exemption is a reviewable final order.” Fracasso v. Reder (In re Fracasso), 222 B.R. 400 (1st Cir. BAP 1998) (citation omitted), aff'd, 187 F.3d 621 (1st Cir.1999); see also Howe v. Richardson (In re Howe), 232 B.R. 534 (1st Cir. BAP 1999), aff'd, 193 F.3d 60 (1st Cir.1999). Accordingly, the Panel has jurisdiction to hear this appeal.
STANDARD OF REVIEW
A bankruptcy court’s findings of fact are reviewed for clear error and its conclusions of law are reviewed de novo. See Lessard v. Wilton-Lyndeborough Coop. School Dist., 592 F.3d 267, 269 (1st Cir.2010). The Panel reviews orders regarding a debtor’s claimed exemptions de novo, especially where, as here, there are no disputed issues of fact. In re Howe, 232 B.R. at 535; In re Fracasso, 222 B.R. at 400.
POSITION OF THE PARTIES
The following excerpt from the Masseys’ Amended Brief best summarizes their argument:
The [Supreme] Court [in Schwab ] is not saying that a debtor can’t keep assets subject to a capped exemption. It is saying instead that the Code does not give the debtor the right to exempt property in kind if the property’s value exceeds the cap. The Bankruptcy Judge misinterpreted the distinction as implying the former, and that was error.
On appeal, the Masseys maintain that they have employed the phrase, “100% of FMV,” for precisely the purpose author*724ized by the Supreme Court in Schwab— that is, to indicate their intent to exempt the residence and the car in-kind, and “not simply the liquidation value of those assets.” They also reject the notion that they are attempting to exempt future appreciation in their home and car and assert that “Barbosa is a red herring.”
In addition to their reliance on Schwab, the Masseys invoke the legislative history of bankruptcy exemptions, arguing that the historical purpose of exemption laws has been to protect a debtor from his creditors and provide him with the basic necessities of life. They also argue that pre-Schwab case law, such as Barroso-Herrans v. Lugo-Mender (In re Barroso-Herrans), 524 F.3d 341, 344 (1st Cir.2008), supports a debtor’s retention of “exempt property regardless of whether the relevant exemption statute includes a monetary cap or not.” Lastly, the Masseys point to proposed changes to Official Form C, which would allow a debtor to state the value of the claimed exemption as “the full fair market value of the exempted property.”3
As in the proceedings below, the Trustee maintains on appeal that the Masseys’ claimed exemptions in the residence and the car are problematic because, in failing to claim a specific dollar amount under §§ 522(d)(1) and (2), they are facially defective. In addition, she contends that the exemption in the residence exceeds the statutory limit. She further argues that the Masseys’ exemptions must fail because they are ambiguous and hinder the administration of the estate.
DISCUSSION
This appeal arises out of the parties’ diverging interpretations of the effect of Schwab on a debtor’s ability to claim exemptions in-kind under § 522.
I. Section 522
“When a debtor files a bankruptcy petition, all of his property becomes property of the bankruptcy estate.” Taylor v. Freeland & Kronz, 503 U.S. 638, 642, 112 S.Ct. 1644, 118 L.Ed.2d 280 (1992) (citing 11 U.S.C. § 541). However, the Code “allows a debtor to prevent the distribution of certain property by claiming it as exempt.” Id. “In Massachusetts, a debtor can choose between the federal exemptions — those listed in § 522(d) — or the exemptions enumerated in state law.” Garran v. SMS Financial V, LLC (In re Garran), 338 F.3d 1, 4 (1st Cir.2003) (citation omitted). Since the Masseys elected the federal exemptions, § 522(d) governs this dispute.
Section 522(d) “lists 12 categories of property that a debtor may claim as exempt.” Schwab, 130 S.Ct. at 2655. “Most of these categories ... define ‘property’ as the debtor’s ‘interest’ — up to a specified dollar amount — in the assets described in the category, not as the assets themselves.” Id. (emphasis in the original). Section 522(d)(1) permits a debtor to ex*725empt its “aggregate interest, not to exceed $21,625[.00] in value, in real property or personal property that the debtor or a dependent of the debtor uses as a residence. ...” 11 U.S.C. § 522(d)(1). Section 522(d)(2) authorizes the exemption of “[t]he debtor’s interest, not to exceed $3,450[.00] in value, in one motor vehicle.” 11 U.S.C. § 522(d)(2).
A trustee or creditor may object to the debtor’s claimed exemptions. Fed. R. Bankr.P. 4003(b)(1) provides, in pertinent part, that “a party in interest may file an objection to the list of property claimed as exempt within 30 days after the meeting of creditors held under § 341(a) is concluded or within 30 days after any amendment to the list or supplemental schedules is filed, whichever is later.” In Taylor, supra, the Supreme Court held that if an interested party fails to object to a claimed exemption within the time allowed, the subject property will be excluded from the bankruptcy estate even if the exemption’s value exceeds the statutory limits. 503 U.S. at 643-44, 112 S.Ct. 1644.
II. Schwab
Taylor, supra, provided the foundation for Schwab, which addressed “the consequences of a trustee’s failure to object to a claimed exemption within Rule 4003’s time period....” Schwab, 130 S.Ct. at 2655. However, in Schwab the Supreme Court discussed the limited issue of what happens when the trustee’s failure to object timely to a debtor’s claimed exemptions is the result of his/her reliance on the debt- or’s facially valid description of his/her claimed exemptions on Schedule C.
Specifically, in Schwab, the chapter 7 debtor exempted certain kitchen equipment when her catering business failed. On her Schedule B, she assigned an estimated market value of $10,718.00 to the equipment, and on Schedule C, she claimed “a ‘tool[s] of the trade’ exemption for the statutory-maximum ‘$1,850[.00] in value’” pursuant to § 522(d)(6), and another “$8,868[.00] under the statutory provisions allowing miscellaneous, or ‘wildcard,’ exemptions up to $10,225[.00] in value.” Schwab, 130 S.Ct. at 2654. Hence, in Schwab, the total value of the debtor’s claimed exemptions, $10,718.00, equaled her estimate of the fair market value of the equipment. Id. Although the trustee had an appraisal indicating that the value of the equipment was actually higher than the statutory, allowed exemption amount, he did not object within the 30-day period prescribed by Fed. R. Bankr.P. 4003(c) because the claimed exemptions ostensibly fell within the prescribed limits of §§ 522(d)(5) and (d)(6). Id. When the trustee sought the bankruptcy court’s permission to auction the equipment, the debtor objected, arguing that she had announced her intent to exempt “the equipment’s full value” by “equating on Schedule C the total value of her claimed exemptions in the equipment with the equipment’s estimated market value ... even if it turned out to be more than the amounts she declared and that the Code allowed.” Id.
Relying on Taylor, supra, the bankruptcy court sided with the debtor, and held that the trustee’s failure to object timely to the debtor’s claimed exemptions entitled the debtor to exempt the full value of her equipment. Id. The district court and the court of appeals agreed, rejecting the trustee’s argument that “neither the Code nor Rule 4003(b) requires a trustee to object to a claimed exemption where the amount the debtor declares as the exemption’s value is within the limits the Code prescribes.” Id. However, the Supreme Court reversed, holding that the lower courts had misread its holding in Taylor, and concluded: “[W]e take [the debtorj’s exemptions at *726face value and find them unobjectionable under the Code, so the objection deadline we enforced in Taylor is inapplicable here.” Id. at 2667.
In Schwab, the Supreme Court explained that Taylor simply “establishes and applies the straightforward proposition that an interested party must object to a claimed exemption if the amount the debtor lists as the ‘value claimed exempt’ is not within statutory limits, a test the value ($ unknown) in Taylor failed, and the values ($8,868[.00] and $1,850[.00]) in this case pass.” Id. at 2666 (emphasis in the original).
The Supreme Court suggested that the impact of its decision in Schwab was limited, stating: “[T]he only burdens our conclusion imposes are burdens the Code itself prescribes, specifically, the burdens the Code places on debtors to state their claimed exemptions accurately and to conform such claims to statutory limits.” Id. at 2667 n. 17. Where the Code provisions cited in support of a debtor’s claimed exemptions are not at issue, the trustee’s duty to object “turns solely on whether the value of the property claimed as exempt exceeds statutory limits ...” Id. at 2662 n. 7.
Just as Taylor stands for the narrow proposition that a trustee must object timely to a facially invalid exemption, Schwab similarly stands for the equally limited proposition that the time limits for objecting to an exemption do not apply if the claimed exemption is valid on its face. The Supreme Court instructed that when deciding whether to object to an exemption, trustees should look at “three, and only three, entries” on Schedule C: the description of the property, the Code provisions governing the claimed exemptions, and the amounts listed in the column titled “value of claimed exemption.” Id. at 2663.
The Court offered the following procedure for a debtor to declare its intent to claim an exemption in-kind, in an apparent effort to ease a trustee’s burden when evaluating whether or not to object:
Where, as here, it is important to the debtor to exempt the full market value of the asset or the asset itself, our decision will encourage the debtor to declare the value of her claimed exemption in a manner that makes the scope of exemption clear, for example, by listing the exempt value as “full fair market value (FMV)” or “100% of FMV.” Such a declaration will encourage the trustee to object promptly to the exemption if he wishes to challenge it and preserve for the estate any value in the asset beyond relevant statutory limits. If the trustee fails to object, or if the trustee objects and the objection is sustained, the debt- or will be required either to forfeit the portion of the exemption that exceeds the statutory allowance, or to revise other exemptions or arrangements with her creditors to permit the exemption. See [Fed. R. Bankr.P.] 1009(a). Either result will facilitate the expeditious and final disposition of assets, and thus enable the debtor (and the debtor’s creditors) to achieve a fresh start free of the finality and clouded-title concerns Reilly describes.
Schwab, 130 S.Ct. at 2668.
The instant dispute arises out of the perceived tension between Schwab’s suggested use of the language, “100% of FMV,” and the doubt the Supreme Court cast on the merits of in-kind exemptions, expressed in the following footnote:
[The debtor’s] argument assumes that a claim to exempt the full value of the equipment would, if unopposed, entitle her to the equipment itself as opposed to a payment equal to the equipment’s full value. That assumption is at least ques*727tionable. Section 541 is clear that title to the equipment passed to Reilly’s estate at the commencement of her case, and § 522(d)(5) and (6) are equally clear that her reclamation right is limited to exempting an interest in the equipment, not the equipment itself. Accordingly, it is far from obvious that the Code would “entitle” Reilly to clear title in the equipment even if she claimed as exempt a “full” or “100%” interest in it (which she did not). Of course, it is likely that a trustee who fails to object to such a claim would have little incentive to do anything but pass title in the asset to the debtor. But that does not establish the statutory entitlement Reilly claims.
130 S.Ct. at 2668 n. 21.
III. Schwab’s Impact: Cases Post-Schwab
Since Schwab, courts have wrestled with its impact on consumer bankruptcy practice. As one court stated:
[Cjourts and lawyers are still trying to fit Schwab’s pronouncements into an operating framework. It has only been a year, after all. E.g. [Gebhart v. Gaughan, (In re Gebhart) ], 621 F.3d 1206, 1211-1213 (9th Cir.2010); In re Messina, 386 Fed.Appx. 152, 154 (3d Cir.2010); In re OBrien, 443 B.R. 117, 135— 136 (Bankr.W.D.Mich.2011); In re Moore, 442 B.R. 865, 866-868 (Bankr.N.D.Tex.2010). (Just based on these decisions, one might say that the full import of Schwab — procedural, evidentia-ry, and even substantive — is quite unsettled.)
In re Wiczek, 452 B.R. 762, 766 n. 10 (Bankr.D.Minn.2011).
Even if we accept the premise that the import of Schwab remains unclear, one thing is certain: most, if not all, courts which have specifically addressed exemptions of “100% of FMV” in the wake of Schwab have found such exemptions impermissible. No court has interpreted the Supreme Court’s holding as either unfettered authorization for debtors to exempt assets in-kind, or as a mandate for courts to allow such exemptions. As aptly stated by one bankruptcy court:
Although Schwab may encourage debt- or’s counsel to exempt the actual value of the asset if the debtor has a legal basis for an intent to claim the actual value of the asset as exempt, it clearly does not mandate it. Nor does it mandate that this court overrule any trustee objection when, on the face of Schedule C, it appears that the debtor’s amount claimed exempt exceeds the amount that which is statutorily provided. It is clear that Schwab is limited in its application.
In re Winchell, No. 10-05827-PCW 13, 2010 WL 5338054, at *2 (Bankr.E.D.Wash. Dec. 20, 2010). Another court succinctly ruled: “[Ijt is a misreading of Schwab to conclude that the Court has blessed the use of a designation such as ’100% of FMV’ as a valid and unobjectionable scheduling of a claimed exemption value where the relevant, exempting statute ... expressly limits the exemption to a maximum cash value.” In re Stoney, 445 B.R. 543, 552 (Bankr.E.D.Va.2011).
At least one court within this circuit agrees. A Massachusetts bankruptcy court recently ruled:
The Court’s discussion [in Schwab ] has nothing to do with the “proper” way to claim a particular exemption under a particular exemption statute. The Court was merely demonstrating the type of language that may be used to show the world that the debtor is attempting to exempt an asset in its entirety, regardless of its actual value.... The Schwab Court was not, as the Debtors have argued, outlining a procedure by which an exemption claimed under a *728limited-interest exemption statute could be legitimately converted into an exemption in-kind.
In re Luckham, No. 10-32633, 2012 WL 115386, at *6 (Bankr.D.Mass. Jan. 13, 2012).
The foregoing interpretations of Schwab are supported by the Supreme Court’s own admonition that “the only burdens [its] conclusion imposes are burdens the Code itself prescribes, specifically, the burdens the Code places on debtors to state their claimed exemptions accurately and to conform such claims to statutory limits.” 130 S.Ct. at 2667 n. 17. Even Moore, supra, which the Masseys describe in their Amended Brief as having reached a “sensible result,” declined to interpret Schwab as broad license to exempt an asset in-kind where the authorizing statute caps the exemption. Instead, in ruling on an objection to a “100% of FMV” exemption, the court concluded that the trustee was entitled to an evidentiary hearing regarding the value of the debtor’s exemptions. In re Moore, 442 B.R. at 868. At such a hearing, the debtor would have the burden of showing a “plausible basis for the claim that ’100% of FMV’ of an asset falls within the statutory limit on the amount that may be exempted.” Id. The Moore court properly viewed Schwab simply as a suggestion for “debtors seeking to force the issue of whether exemption of an interest in an asset covered the entire asset.” Id.
IV. Schwab Applied
The facts before us diverge from both Schwab and Taylor. Unlike Taylor, the Trustee’s objection was timely. Unlike Schwab, the claimed exemptions were facially problematic in their failure to specify an amount. As one bankruptcy court recently stated when confronted with the same situation, “[w]hat then?” In re Salazar, 449 B.R. 890, 897 (Bankr.N.D.Tex.2011). In resolving this issue, the court in Salazar acknowledged Moore’s approach— an evidentiary hearing wherein the debtor must demonstrate a plausible basis for the claim of 100% of FMV — and then offered another tack:
Another approach is for the Court to simply declare that an objection to an exemption of “100% of FMV” is a facially valid objection because the debtor has failed to claim a set amount as contemplated by the exemption statute allowing the exemption. The Court then sustains the objection unless the debtor amends his exemptions to claim a dollar amount for his exempt interest in the property. The Court believes the latter approach best recognizes the reasoning in Schwab and therefore obviously departs somewhat from the Moore approach. The Court also takes a somewhat different view than the Moore conclusion that, if upon evidentiary hearing the objection is overruled, the asset claimed will no longer be part of the estate.
Id. at 897-88 (internal and external citations omitted).
One appellate court recently followed the Salazar analysis when considering an exemption of certain business interests stated simply as “FMV.” Hefel v. Schnittjer (In re Hefel), No. 11-CV-1010LRR, 2011 WL 3292929 (N.D.Iowa July 29, 2011). That court adopted the “facially valid objection standard set forth in Salazar,” agreeing that such an approach “best recognize[d] the reasoning in Schwab.” Id. at *4. The court in Hefei explained as follows:
[T]he reasoning of Schwab supports the facially valid objection standard set forth in Salazar. As explained in Schwab, an exemption claim of “FMV” will encourage the trustee to object. The trustee meets the burden of proof under Rule 4003(c) by filing the objection and point*729ing to the applicable statutory limit. Schwab did not indicate that any further showing is necessary....
Id. (citation omitted). In arriving at this conclusion, the court relied not only on Salazar, but also on In re Winchell, 2010 WL 5338054, at *2, where the court ruled as follows:
It is inevitable that should debtor’s counsel list “FMV” in the “Value of Claimed Exemption” column, and Schedule C reflects that the current value exceeds the statutory exemption allowance, the trustee will object. This court is duty bound to sustain such [an] objection.
See In re Hefel, 2011 WL 3292929, at *4 (emphasis added).
Most recently, in Luckham, supra, the court sustained a trustee’s objection to an analogous, proposed exemption of “100% of Equity” in the debtors’ residence. There, the court held:
[Wjhere the statutory basis for a debt- or’s claim of exemption provides only for an exemption of an interest in certain property up to a specific dollar amount, the “value of claimed exemption” must be identified as a monetary value. Nothing in Schwab ... dictates otherwise; indeed, Schwab itself establishes the very principles which compel this conclusion.
In re Luckham, 464 B.R. at 77. Accordingly, the bankruptcy court in Luckham agreed with the majority of courts in concluding that under the circumstances, an evidentiary hearing on valuation was unnecessary, because the basis of the objection was the manner in which the debtor had claimed the exemption. Id. at 77 (citing In re Salazar, 449 B.R. at 899).
We agree with the consensus which has emerged from the foregoing cases that the Debtors’ exemption claim of “100% of FMV” was facially invalid, and therefore, a hearing unnecessary. The Masseys’ arguments are unpersuasive. We note with approval the Luckham court’s rejection of the argument that proposed changes to Official Form C support in-kind exemptions which exceed the statutory limits. See id. at 74 n. 14. Like Luckham, we do not “see the proposed amended Schedule C as inconsistent” with this decision. Id. Furthermore, the Supreme Court already precluded such a form-based argument, when it declared:
Basing the definition of the “property claimed as exempt,” and thus an interested party’s obligation to object under § 522(Z), on inferences that party must draw from evolving forms, rather than on the facial validity of the value the debtor assigns the “property claimed as exempt” as defined by the Code, would undermine the predictability the statute is designed to provide.
Schwab, 130 S.Ct. at 2666. Lastly, Schwab has also rejected the Masseys’ policy-based argument which asserts, basically, that exemptions in-kind are necessary to give meaning and effect to a debtor’s “fresh start.” Addressing a similar argument in Schwab, the Supreme Court stated:
Although none of Reilly’s policy arguments can overcome the Code provisions or aspects of Taylor that govern this case, our decision fully accords with all of the policies she identifies. We agree that “exemptions in bankruptcy cases are part and parcel of the fundamental bankruptcy concept of a ‘fresh start’ .... We disagree that this policy required Schwab to object to a facially valid claim of exemption on pain of forfeiting his ability to preserve for the estate any value in Reilly’s business equipment beyond the value of the interest she declared exempt.” This approach threatens to convert a fresh start *730into a free pass.... Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors, and it is not for us to alter this balance by requiring trustees to object to claimed exemptions based on form entries beyond those that govern an exemption’s validity under the Code.
Id. at 2667 (citations omitted).
Based on all of the foregoing, we do not reach the parties’ concerns regarding post-petition equity, as this issue does not impact our decision. We conclude that there is no legitimate reason for the Debtors to ignore the burdens imposed by the Code, and reiterated by Schwab, to state their exemptions accurately and in conformance with statutory limits, by identifying the value of the claimed exemption up to or in a specific dollar amount. Thus, the bankruptcy court did not err when it sustained the Trustee’s objection to the Masseys’ facially invalid exemptions of “100% of FMV” in the residence and the car.
CONCLUSION
Accordingly, the Order is AFFIRMED.
. On their Schedule A, the Debtors also indicated that Marie Massey’s mother owned the remaining third.
. Unless otherwise indicated, the terms "Bankruptcy Code,” "section” and "§ ” refer to Title 11 of the United States 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.
. We recognize that the Administrative Office of the United States Courts has submitted for public comment a preliminary draft of a proposed amended Form C, which would permit debtors to check a box under "value of claimed exemption” indicating "full fair market value of the exempted property.” See Preliminary Draft of Proposed Amendments to the Federal Rules of Practice and Procedure (August 2011), available at: http://www. uscourts.gov/uscourts/RulesandPolicies/rules/ PublicalionAug.20, 2011/Brochure.pdf (last visited Feb. 13, 2012). The proposed amended form, however, has "not been submitted to or considered by the Judicial Conference or the Supreme Court.” See Memorandum to the Bench, Bar and Public (Aug. 12, 2011), available at: http://www.uscourts.gov/ uscourts/RulesAndPolicies/rules/Publication Aug.20,201 l/Memo_to_Bench_Bar_2.pdf (last visited Feb. 13, 2012). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488529/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-22-00585-CR
Doug CORONADO,
Appellant
v.
The STATE of Texas,
Appellee
From the 81st Judicial District Court, Wilson County, Texas
Trial Court No. CRW2107139
Honorable Russell Wilson, Judge Presiding
ORDER
The Appellant’s Motion for Extension of Time is hereby GRANTED. The appellant’s
brief is due on or before January 9, 2023. Further requests for extension of time will be
disfavored.
_________________________________
Beth Watkins, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 17th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350381/ | In the Court of Criminal
Appeals of Texas
══════════
No. PD-0257-21
══════════
DANNA PRESLEY CYR,
Appellant
v.
THE STATE OF TEXAS
═══════════════════════════════════════
On State’s Petition for Discretionary Review
From the Eleventh Court of Appeals
Gaines County
═══════════════════════════════════════
YEARY, J., filed a dissenting opinion.
In its petition for discretionary review in this case, the State
Prosecuting Attorney (SPA) urges the Court to hold that the “concurrent
cause” provision of Section 6.04(a) of the Texas Penal Code simply has
CYR – 2
no application to an offense that is committed by omission rather than
by commission. TEX. PENAL CODE § 6.04(a). 1 As I understand the Court’s
opinion today, it implicitly rejects that categorical approach, but it
concludes that Appellant has failed to point to any evidence in the case
that would have justified the trial court in submitting a “concurrent
cause” instruction to the jury in any event. I disagree with both the SPA
and the Court, and so I respectfully dissent.
I. INJURY TO A CHILD BY OMISSION
According to the Penal Code, “[e]lement of offense means: (A) the
forbidden conduct; (B) the required culpability; (C) any required result;
and (D) the negation of any exception to the offense.” TEX. PENAL CODE
§ 1.07(22). 2 As for “conduct,” that “means an act or omission and its
accompanying mental state.” Id. § 1.07(10). “‘Omission[,]’” in turn,
“means failure to act.” Id. § 1.07(34). “Conduct” is not an offense unless
it is defined to be so by statute or otherwise. TEX. PENAL CODE § 1.03(a).
So, “conduct” that constitutes a failure to act is only an offense when it
is defined as such by, e.g., statute; indeed, the law must “provide[] that
the omission is an offense or otherwise provide[] that [the actor] has a
duty to preform the [omitted] act.” TEX. PENAL CODE § 6.01(c).
Section 22.04(1)(a) of the Penal Code defines one such offense. It
1 In its entirety, Section 6.04(a) reads: “A person is criminally
responsible if the result would not have occurred but for his conduct, operating
either alone or concurrently with another cause, unless the concurrent cause
was clearly sufficient to produce the result and the conduct of the actor clearly
insufficient.” TEX. PENAL CODE § 6.04(a).
2All emphases to the quoted materials are added by the author of this
opinion unless otherwise specified.
CYR – 3
authorizes prosecution of an offender when she “. . . intentionally,
knowingly, or recklessly by omission, causes to a child . . . serious bodily
injury[.]” TEX. PENAL CODE § 22.04(a)(1). “An omission that causes”
serious bodily injury “is conduct constituting an offense under this
section if . . . the actor has a legal or statutory duty to act; or . . . the
actor has assumed care, custody, or control of a child[.]” Id. § 22.04(b).
In this way, Section 22.04 of the Penal Code clearly regards the “failure
to act” to be “conduct” that can actually “cause” a child serious bodily
injury⸻at least so long as the actor has a duty to act, or if the actor has
“care custody, or control” of that child, and the actor’s “failure to act” is
in dereliction of that duty.
In this case, Appellant was the child’s mother. The “failure to act”
that caused her child serious bodily injury, as alleged in the indictment,
was two-fold: (1) her failure to protect the child from attack by her
husband, the child’s father; and (2) her failure to obtain timely medical
intervention for the child following the brutal attack. 3
At trial, Appellant argued that the “conduct” on her part⸻her
“failure to act”⸻by which she is alleged to have “caused” her child
serious bodily injury, also had a “concurrent cause” consistent with
Section 6.04(a) of the Penal Code; namely, her husband’s wholly
independent “conduct” in viciously assaulting their child. Absent her
3 Without objection from the State, the jury charge limited the jury’s
consideration to the first paragraph of a one-count, two paragraph indictment
alleging that, on June 29, 2013, Appellant “recklessly, by omission, cause[d]
serious bodily injury . . . to [J.D.], a child 14 years of age or younger, by failing
to protect [J.D.] from being grabbed, squeezed, or shaken by Justin Clark Cyr,
or by failing to seek reasonable medical attention for the said child, when [she]
had a legal or statutory duty to act as the parent of the said child, or [she] had
assumed care, custody, or control of the child[.]”
CYR – 4
husband’s act of commission, of course, the child would have suffered no
injury at all. Appellant argues that there was evidence presented at her
trial to support a jury finding that her husband’s assaultive conduct was
“clearly sufficient” to “cause” their child serious bodily injury while also
supporting a finding that her own “conduct” in “failing to act” was
“clearly insufficient” to “cause” that injury. Based on this evidence, she
claimed on appeal, the trial court should have granted her requested
instruction under Section 6.04(a). With such an instruction, she
maintained, she would have been equipped to argue to the jury that,
because her own “conduct” was independently “clearly insufficient” to
“cause” the child’s injury, the jury was authorized to reject the State’s
attempt to hold her “criminally responsible” for the “result” that her
husband’s “conduct” was independently “clearly sufficient” to “cause.” 4
The court of appeals agreed, and reversed Appellant’s conviction. Cyr v.
State, 630 S.W.3d 380, 387, 389 (Tex. App.⸻Eastland 2021).
We granted the SPA’s petition for discretionary review to try to
4 Section 6.04(a)’s “unless” clause does not explicitly say that the
concurrent cause must be independently “sufficient,” while the actor’s conduct,
independently “clearly insufficient,” to cause the proscribed result. But this
Court has concluded in construing the statute that “[i]f the additional cause,
other than the defendant’s conduct, is clearly sufficient, by itself, to produce
the result and the defendant’s conduct, by itself, is clearly insufficient, then the
defendant cannot be convicted.” Robbins v. State, 717 S.W.2d 348, 351 (Tex.
Crim. App. 1986) (italicized “and” in the original). And I agree that this
conclusion necessarily derives from the word “sufficient” itself. After all, unless
conduct is “sufficient” by itself to cause a result, then it is not really “sufficient”
at all. Any contrary reading of the “unless” clause would seem to render it self-
nullifying. If, in deciding whether the actor’s conduct is “clearly insufficient” to
produce the proscribed result, a court would be entitled to consider the “clearly
sufficient” concurrent cause, the actor’s conduct will, by definition, always be
likewise “sufficient” (indeed, “clearly sufficient”). The clause would entirely
cancel itself out.
CYR – 5
shed some light on the admittedly bizarre interface between the law
authorizing criminal responsibility for “conduct” by “omission”⸻that is,
the “failure to act”⸻and the law with respect to “causation,” and, more
particularly, “concurrent causation” as set out in Section 6.04(a). The
SPA urges the Court to simply hold⸻as an absolute matter⸻that
Section 6.04(a) has no application where criminal responsibility by
omission is concerned, because the kind of “causation” contemplated by
the “failure to act” upon a duty to do so is wholly removed from the sort
of “causation” the Legislature had in mind in passing Section 6.04(a).
The idea seems to be that, with an offense of omission, it is the
dereliction of duty more than actually causing the proscribed “result”
that is the sine qua non of the offense. 5 The Court today does not adopt
the SPA’s categorical approach, but it seems to me that it might as well
have. For my part, I would affirm the judgment of the court of appeals
and put the onus of clarification on the Legislature itself, if what it
plainly said in Section 6.04(a) was somehow not what it believed it was
saying.
II. THE SPA’S ARGUMENT
I do not think the text of the applicable statutes will bear the
5In the conclusion of that part of its brief that makes this argument,
the SPA asserts:
When a parent has a legal duty to protect a child from
injury but recklessly fails to do so, she is responsible for the
result regardless of what or who the risk of injury was. If
[A]ppellant is guilty of failure to protect, concurrent causation is
inapplicable as a matter of law. That is what Section 22.04
effectively says. That is what this Court should explicitly say.
State’s Brief on the Merits at 20.
CYR – 6
construction the SPA would have us impose upon them. Section 22.04(a)
explicitly regards an “omission”⸻a “failure to act”⸻as “conduct” that
can “cause” serious bodily injury. There is no reason to suppose that such
a “cause” would not be subject to the express provisions of Section
6.04(a), subject to that section’s provision with respect to “criminal
responsibility” for a result that would not have occurred “but for” that
cause, even if there existed “another” “but for” “cause.” TEX. PENAL CODE
§ 6.04(a).
It occurs to me that it will be the State, not a defendant, who will
more often seek to invoke this opening clause of Section 6.04(a), in any
case involving a “concurrent cause”⸻if only to foreclose a defensive
argument that the defendant cannot be found “criminally responsible”
because his was not the only “conduct” or “cause” “but for” which the
proscribed “result” “would not have occurred[.]” Id. Nothing in the text
of Section 6.04(a) suggests that it would regard conduct constituting an
omission any differently than conduct constituting commission. 6 And
6 The SPA likens criminal responsibility by concurrent cause involving
omission to criminal responsibility as a party under Chapter 7 of the Penal
Code, in which context Section 6.04(a) has been held not to apply. State’s Brief
on the Merits at 17; TEX. PENAL CODE Chapter 7; Hanson v. State, 55 S.W.3d
681, 699–700 (Tex. App.⸻Austin 2001, pet. ref’d). But criminal responsibility
as a party under Chapter 7 of the Penal Code does not implicate “another
cause” for a proscribed result. When an actor is found guilty as a party under
Chapter 7, there is still (at least ordinarily) only one cause of the result as
perpetrated by the conduct of the principal actor. The defendant is then
criminally responsible for that cause by virtue of his independent behavior in,
e.g., soliciting, aiding, encouraging, etc., the conduct of the principal actor that
caused the result. TEX. PENAL CODE § 7.03(a)(2). In contrast, when a defendant
is criminally liable by virtue of his failure to act under Section 22.04(a), the
defendant is criminally responsible for his own conduct, and the statute itself
regards his “omission” as a “cause” of the proscribed result. So long as there is
“another cause” as well, Section 6.04(a) is implicated.
CYR – 7
there is no more reason to suppose conduct that constitutes an omission
would not be equally subject to the section’s “unless” clause: “unless the
concurrent cause was clearly sufficient to produce the result and the
conduct of the actor clearly insufficient.” Id.
The SPA objects to such an application of Section 6.04(a) because
it would thwart what the SPA deems the legislative intent of Section
22.04(a) to punish an actor for failure to adhere to her parental duties,
which the SPA regards as the gist of the “omission” offense. 7 But this
Court has consistently pronounced that the “gravamen” of injury to a
child is the required “result,” and this is true no less for a violation of
the statute by omission than by commission. See Villanueva v. State, 227
S.W.3d 744, 748 (Tex. Crim. App. 2007) (“As we explained in Jefferson
[v. State, 189 S.W.3d 305, 312 (Tex. Crim. App. 2006)], the ‘gravamen’ of
the offense is the same [whether the conduct is “omission” or
“commission”]; the statute focuses on the result caused, without
criminalizing any particularized conduct by which that result may have
been caused.”); Nawaz v. State, ___ S.W.3d ___, No. PD-0408-21, 2022
WL 2233864, at *6 (Tex. Crim. App. June 22, 2022) (noting that in
7 See State’s Petition for Discretionary Review at 4 (“Whatever the
mechanism of injury, a defendant is criminally responsible for it if it would not
have occurred but for her failure to act on her duty. That’s the point.”); id. at 5
(“The jury convicted [A]ppellant of recklessly causing serious bodily injury to
her child in part because she failed to protect her from [her husband]. The
evidence on that point has been found to be sufficient. That should make
[A]ppellant responsible for the injury even if it occurred entirely at [her
husband’s] hands. * * * Concurrent causation should not apply to cases like
this.”); State’s Brief on the Merits at 20 (“If [A]pellant is guilty of failure to
protect, concurrent cause is inapplicable as a matter of law. That is what
Section 22.04 effectively says. That is what this Court should explicitly say.”).
CYR – 8
Jefferson, “the Court expressly held that the ‘focus’ of the injury to a
child statute was the result of conduct, not whether any of the specified
results are caused by act or omission”). Would the SPA prosecute a
defendant who fails to protect her child or seek medical attention, as is
her parental duty, in the face of the mere threat of an injurious result?
Section 22.04(a) does not authorize that. On its face, it requires a finding
that the omission actually “caused” an injurious “result.” 8 And, as I have
said, nothing in the text of Section 6.04(a) would exempt an omission
that causes injury from its purview.
Finally, the SPA argues that for the Court to declare that Section
6.04(a) applies to omission offenses would perpetrate an absurdity,
resulting in an inability on the State’s part to ever prosecute omission
offenses with any hope of success. 9 The SPA’s concern in this regard is,
in my view, exaggerated. As the Court’s opinion today seems to
recognize, Majority Opinion at 21–24, Appellant might still be
8 Nor am I inclined to believe that Appellant could be successfully
prosecuted for attempted injury to a child on these hypothetical facts, under
Section 15.01(a) of the Penal Code. TEX. PENAL CODE § 15.01(a). To commit a
criminal attempt under this provision, the actor must commit an “act” (not an
“omission”) that amounts to more than preparation that tends but ultimately
fails to “effect” the commission of the offense intended. Id. She must also do so
“with specific intent to commit” the offense. Id. This Appellant was charged
only with recklessly causing serious bodily injury by omission. It is hard to
imagine how she could be found guilty of harboring the specific intent to
recklessly cause serious bodily injury. It would have to have been her “conscious
objective or desire” to be “aware of but consciously disregard a substantial and
unjustifiable risk that” “the result will occur.” TEX. PENAL CODE § 6.03(a), (c).
9 State’s Brief on the Merits at 17 (“If failing to protect [Appellant’s
child] from [her husband] recklessly caused [the child’s] injuries, [A]ppellant
cannot be innocent because [her husband] caused [the child’s] injuries. A
contrary rule would be absurd. It would swallow the offense whole.”).
CYR – 9
prosecuted successfully, without triggering Section 6.04(a)’s “unless”
clause, if her failure to obtain medical treatment for her child resulted
in additional or incrementally greater injury to the child than her
husband’s conduct originally caused. See Villanueva, 227 S.W.2d at 749
(failing to obtain medical treatment for injury caused by another may
result in a “separate and discrete” injury than that which was originally
caused, which may be punished separately from causing the original
injury consistent with double jeopardy principles); Nawaz, 2022 WL
2233864 at *6 n.7 (omission may result in a separately prosecutable
offense if it results in a “separate and discrete, or at least incrementally
greater injury”) (quoting Villanueva). If her “failure to act” was not, by
itself, “clearly insufficient” to cause that separate, greater injury, her
omission will not be insulated from prosecution by Section 6.04(a), and
she may still be convicted based on her omission.
III. THE COURT’S OPINION
The Court divides its analysis into two parts. It first addresses
whether Appellant was entitled to a concurrent causation instruction
with respect to the State’s first theory of prosecution, that Appellant
failed in her duty to protect her child from her husband’s assault.
Majority Opinion at 15–21. It then separately analyzes whether she was
entitled to a concurrent causation instruction regarding the State’s
second theory, that she failed in her duty to seek medical attention to
treat the injury that her husband caused. Id. at 21–24. The Court
concludes that, for different reasons, Appellant was not entitled to the
instruction under either of the State’s theories of omission. In my view,
however, Appellant was entitled to the instruction as it relates to both
CYR – 10
theories of omission.
A. Failure to Protect
The Court asserts that evidence with respect to Appellant’s
failure-to-protect omission is really just an “alternative-cause”
argument in disguise. See Majority Opinion at 16 (“Thus, we find
Appellant is not arguing concurrent causation, but only alternative
causation under the guise of concurrent causation.”). Because the case
does not even implicate a “concurrent cause,” the Court seems to reason,
it need not address the text of Section 6.04(a) at all to resolve whether
an instruction was required. I could not disagree more strenuously with
this approach.
This case clearly involves a concurrent cause, not a mere
“alternative cause.” An “alternative cause” is just what it suggests: a
different causal agent for the result than that alleged in the State’s
charging instrument. See Barnette v. State, 709 S.W.2d 650, 651 (Tex.
Crim. App. 1986) (“Appellant’s theory was that she left the baby alone
and he caused his own injury.”). Here, Appellant is plainly invoking not
an alternative cause, but “another cause”⸻a cause in addition to her
own conduct⸻and one that she claims, with justification, operated
“concurrently” with her omission to cause the child’s initial injury as
alleged in the indictment. 10 The question therefore plainly devolves into
one of whether that concurrent cause was “clearly sufficient” to cause
the injury while her omission was “clearly insufficient.” TEX. PENAL
10 It is admittedly odd to speak of the failure to prevent a result as a
“cause” of that result. But, as already pointed out, it is Section 22.04(a) itself
that has identified “omission” as a “cause” for the proscribed injury.
CYR – 11
CODE § 6.04(a). The Court does at one point purport to invoke Section
6.04’s “plain meaning,” Majority Opinion at 17, but if anything, the
Court simply ignores the actual language of Section 6.04(a) itself, never
once directly referring to the “unless” clause in its analysis.
It seems to me that the “unless” clause could hardly have any
plainer application than it does to the facts of this case. If Appellant’s
husband had not assaulted the child, the child would have suffered no
injury at all. His commission of the offense was therefore “clearly
sufficient” to cause the whole extent of the initial injury the child
suffered. 11 On the other hand, Appellant’s omission could not, by itself,
have caused the child’s initial injury. Failing to protect the child cannot
cause an injury that no other causal agent ever inflicts. The jury could
have rationally concluded that her omission was “clearly insufficient,”
by itself, to cause the injury. It should have been equipped, therefore, to
acquit her on that basis. Robbins v. State, 717 S.W.2d 348, 351 (Tex.
Crim. App. 1986).
The Court seems (as best I understand) to justify simply ignoring
the plain, literal language of Section 6.04(a) by invoking some vague
alternative notion of “foreseeability,” as gleaned from this Court’s
opinion in Williams v. State, 235 S.W.3d 742, 764 (Tex. Crim. App.
2007). Majority Opinion at 17–18. It further cites to sources such as (1)
a treatise, (2) the Model Penal Code, and (3) civil law notions of
11 One might argue that, had Appellant only satisfied her duty to protect
the child, her husband’s conduct in assaulting the child would not have been
“clearly sufficient” to cause the injury. But this fails to regard her husband’s
conduct “by itself” in applying Section 6.04(a)’s “unless” clause. See note 4, ante.
His conduct “by itself” was clearly sufficient to cause the injury.
CYR – 12
“proximate causation” as apparent justification for transposing the plain
terms of Section 6.04(a), including its “unless” clause, into an inquiry
about culpable mental states. See id. at 18−19 (“Foreseeability is an
implicit requirement for causation that criminal law addresses through
culpability.”); see also id. at 21 (“Appellant’s arguments contest
culpability, rather than allege concurrent causes.”). Ultimately, the
Court seems to conclude that, because the jury was already equipped to
acquit Appellant if it should find that she lacked the requisite culpable
mental state of recklessness, there was no need for a concurrent
causation instruction⸻indeed, that such an instruction would only have
served to confuse the jury. Id. at 16, 20. This is all purest judicial
invention, finding no origin whatsoever in the literal text of the statute.
I cannot subscribe to it.
B. Failure to Seek Medical Attention
In addressing the State’s second theory of omission (failure to
seek timely medical attention), the Court observes that “any causal
dispute regarding the source of [the child’s] initial injury necessarily
would not apply to the subsequent failure to provide reasonable medical
care.” Majority Opinion at 22. I agree with that in part. Here is where I
think I agree with the Court: Under the “unless” clause of Section
6.04(a), Appellant would have to show that her omission in failing to
seek medical attention was “clearly insufficient” to cause whatever
greater, incremental injury that may have occurred, beyond that which
was caused by her husband in the initial assault.
But here, Appellant’s husband’s initial assault was also an
obvious “but-for” cause of the separate, greater injury. So, for Appellant
CYR – 13
to obtain the concurrent causation instruction, she must have been able
to point to evidence in the record that would permit the jury to rationally
conclude that her husband’s initial assaultive conduct would inevitably
have caused the incrementally greater injury regardless of any medical
intervention—and thus, that her omission in failing to obtain such
medical care was “clearly insufficient” to cause that greater injury.
Otherwise, she would not be entitled to a Section 6.04(a) instruction.
This was the same theory of omission that the court of appeals
focused on in its opinion. Cyr, 630 S.W.3d at 386–87. It held that,
because the most the medical experts could say was that it was
“possible” that timely medical intervention “could” have mitigated the
child’s injuries, a rational jury might still have found that Appellant’s
failure to seek medical attention was “clearly insufficient” to cause the
greater incremental injury, while her husband’s conduct was “clearly
sufficient.” Id. at 387, 391. Under those circumstances, the concurrent
cause provision Section 6.04(a), including the “unless” clause, would be
invoked. I see no reason to second-guess that assessment. I therefore
agree with the court of appeals that Appellant was entitled to a
concurrent cause instruction on that theory of omission as well. 12
12 Indeed, Appellant may well have been entitled to separate application
paragraphs to apply concurrent causation to the two discrete injuries that the
Court today has identified: (1) the injury Appellant “caused” by failing to
protect her child from the initial assault, and (2) the incrementally greater
injury caused by her failing to seek medical attention. Moreover, that separate
injuries are involved raises certain other potential anomalies as well⸻albeit
anomalies that have not been raised by the parties in this case and are not
before us in our present review. I do not, therefore, advocate that the case
should be reversed on these bases, but only mention them in passing.
First, if the injury that is the object of the failure-to-protect allegation
is different than the injury that is the object of the failure-to-seek-medical-
CYR – 14
IV. CONCLUSION
I would affirm the court of appeals’ judgment. A plain reading of
the statute dictates as much. If the Legislature is dissatisfied with its
handiwork, it is up to the Legislature to modify the statutory scheme. It
is not this Court’s job to ignore or tweak plain statutory language to suit
its own sensibilities. I respectfully dissent.
FILED: December 21, 2022
PUBLISH
attention allegation, then the State may well have drafted an indictment that
suffers from duplicity. See George E. Dix & John M. Schmolesky, 42 TEXAS
PRACTICE: CRIMINAL PRACTICE AND PROCEDURE § 25:207, at 338 (11th ed.
2011) (“Duplicity also occurs if one count alleges several violations of the same
penal statute. Whether a count is duplicitous under this rule may depend upon
precisely what constitutes a single violation of one underlying penal statute.”).
Because injury to a child is a result-of-conduct offense, the allowable unit of
prosecution is a function of how many injuries occurred. Nawaz, 2022 WL
2233864 at *6. The first paragraph of Appellant’s indictment, which combines
both theories of omission, apparently alleges two discrete injuries, and
therefore two offenses, at once. Such an indictment could arguably be subject
to a motion to quash. See TEX. CODE CRIM. PROC. art. 21.24(b) (“A count may
contain as many separate paragraphs charging the same offense as necessary,
but no paragraph may charge more than one offense.”).
Second, while it is true that jurors do not ordinarily have to attain
unanimity with respect to the manner and means by which offenses are
committed, here, the two manners and means (“failure-to-protect” and “failure-
to-seek-medical-attention”) would seem to pertain to discrete offenses: the
initial injury, and the incrementally greater injury resulting from not
obtaining medical treatment, respectively. Arguably, Appellant may have been
entitled to an instruction to the jury that it could not convict her on either
theory without first reaching unanimous agreement. Cf. Stuhler v. State, 218
S.W.3d 706, 719 (Tex. Crim. App. 2007) (requiring jury unanimity with respect
to separate statutorily defined results under the injury to a child statute). | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488514/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00717-CV
Jose Richard GONZALEZ and Elda E. Gonzalez,
Appellants
v.
CITY OF PREMONT, TEXAS,
Appellee
From the 79th Judicial District Court, Jim Wells County, Texas
Trial Court No. 20-09-60606-CV
Honorable Richard C. Terrell, Judge Presiding
ORDER
On August 22, 2022, Appellants Elda E. Gonzalez and Jose R. Gonzalez filed a notice of
appeal. When they filed the notice of appeal, this court notified appellants in writing that their
notice of appeal had been conditionally filed because the $205.00 filing fee had not been paid.
We instructed appellants to pay the fee by November 7, 2022 and cautioned if the fee was not
paid, the appeal was subject to being stricken by this court. Appellants have not paid the fee.
We therefore order appellants to show cause in writing by December 5, 2022 stating
either: (1) the filing fee has been paid; or (2) they are entitled to appeal without paying the
$205.00 filing fee. If appellants fail to respond within the time provided, this appeal will be
dismissed for failure to pay the filing fee. See TEX. R. APP. P. 5, 42.3(c). All other appellate
deadlines are suspended pending the payment of the filing fee.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
___________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488517/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00626-CR
EX PARTE Abraham VASQUEZ-MARQUEZ
From the County Court, Webb County, Texas
Trial Court No. 2022CRB000721L1
Honorable Leticia Martinez, Judge Presiding
ORDER
Appellant’s brief was due on November 17, 2022. On November 9, 2022, appellant filed
a motion requesting a forty-five-day extension of time to file the brief. After consideration, we
grant the motion and order appellant to file his brief by January 2, 2023. Further requests for
extensions of time will be disfavored.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
___________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488521/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-21-00430-CV
TEXAS DEPARTMENT OF TRANSPORTATION and James M. Bass,
Appellants
v.
ROBERT DIXON TIPS PROPERTIES, LLC,
Appellee
From the 285th Judicial District Court, Bexar County, Texas
Trial Court No. 2018CI10003
Honorable Tina Torres, Judge Presiding
ORDER
Sitting: Rebeca C. Martinez, Chief Justice
Luz Elena D. Chapa, Justice
Irene Rios, Justice
Appellants the Texas Department of Transportation and Marc. B. Williams’s motion for
rehearing is pending before the court. The court believes a serious question concerning the relief
sought requires further consideration. The court hereby requests a response to appellants’
motion from appellee Robert Dixon Tips Properties, LLC. See TEX. R. APP. P. 49.2. Appellee’s
response, if any, must be filed in this court by December 1, 2022.
_________________________________
Rebeca C. Martinez, Chief Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 17th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350164/ | People v Works (2022 NY Slip Op 07363)
People v Works
2022 NY Slip Op 07363
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
SUPREME COURT OF THE STATE OF NEW YORK
Appellate Division, Fourth Judicial Department
PRESENT: SMITH, J.P., PERADOTTO, CURRAN, WINSLOW, AND MONTOUR, JJ.
857 KA 19-01937
[*1]THE PEOPLE OF THE STATE OF NEW YORK, RESPONDENT,
vJAMELL WORKS, DEFENDANT-APPELLANT. (APPEAL NO. 4.)
D.J. & J.A. CIRANDO, PLLC, SYRACUSE (JOHN A. CIRANDO OF COUNSEL), FOR DEFENDANT-APPELLANT.
WILLIAM J. FITZPATRICK, DISTRICT ATTORNEY, SYRACUSE (BRADLEY W. OASTLER OF COUNSEL), FOR RESPONDENT.
Appeal from a judgment of the Supreme Court, Onondaga County (Gordon J. Cuffy, A.J.), rendered November 8, 2018. The judgment convicted defendant upon his plea of guilty of aggravated unlicensed operation of a motor vehicle in the first degree.
It is hereby ORDERED that the judgment so appealed from is unanimously affirmed.
Same memorandum as in People v Works ([appeal No. 1] — AD3d — [Dec. 23, 2022] [4th Dept 2022]).
Entered: December 23, 2022
Ann Dillon Flynn
Clerk of the Court | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488507/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00579-CV
IN THE INTEREST OF D.J.R., A CHILD
From the 45th Judicial District Court, Bexar County, Texas
Trial Court No. 2020PA02365
Honorable Nicole Garza, Judge Presiding
ORDER
This is an accelerated appeal of an order terminating appellant’s parental rights which
must be disposed of by this court within 180 days of the date the notice of appeal is filed. TEX. R.
JUD. ADMIN. 6.2. The reporter’s record was originally due September 19, 2022, but was not filed.
On October 3, 2022, we ordered the court reporter, David J. Laurel, to file the reporter’s record
by October 13, 2022, but it was not filed. On October 18, 2022, we ordered Mr. Laurel to file the
reporter’s record by October 28, 2022. On October 27, 2022, Mr. Laurel notified this court that
the reporter’s record was not filed because appellant failed to pay or make arrangements to pay
the fee for preparing the record and appellant is not entitled to appeal without paying the fee for
preparation of the reporter’s record.
On October 28, 2022, we advised Mr. Laurel that appellant is entitled to appeal without
paying the fee for preparation of the reporter’s record and we ordered Mr. Laurel to file the
reporter’s record by November 7, 2022. Again, the reporter’s record was not filed.
On November 16, 2022, Mr. Laurel filed a second notice of late record explaining
“Notice of appeal was delivered to me within the past month; it remains unpaid.” Appellant is
entitled to appeal without paying the fee for preparation of the reporter’s record.
It is ORDERED that David J. Laurel file the reporter’s record in this court no later than
November 28, 2022. See TEX. R. APP. P. 35.3(c). If the record is not received by such date, an
order will be issued directing Mr. Laurel to appear before this court in person and show cause
why he should not be held in contempt for failing to file the record. The clerk of this court shall
cause a copy of this order to be served on Mr. Laurel by certified mail, return receipt requested,
or give other personal notice of this order with proof of delivery. Because “[t]he trial and
appellate courts are jointly responsible for ensuring that the appellate record is timely filed,”
TEX. R. APP. P. 35.3(c), the clerk of the court is directed to serve a copy of this order on the
Honorable Nicole Garza, Judge of the 37th Judicial District Court.
It is so ORDERED on November 2022.
PER CURIAM
ATTESTED TO: ________________________
MICHAEL A. CRUZ,
CLERK OF COURT | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488512/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00707-CV
Ricardo MONTELONGO,
Appellant
v.
THE FROST NATIONAL BANK,
Appellee
From the 225th Judicial District Court, Bexar County, Texas
Trial Court No. 2009-CI-01143
Honorable Tina Torres, Judge Presiding
ORDER
The clerk’s record has been filed in this appeal. However, it does not contain the
October 4, 2022 “Order for Turnover Relief” being appealed in this case. Accordingly, we order
the trial court clerk to file a supplemental clerk’s record containing the October 4, 2022 “Order
for Turnover Relief” from Cause No. 2009-CI-01143 in this court on or before December 23,
2022. TEX. R. APP. P. 34.5(c)(1).
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
___________________________________
MICHAEL A. CRUZ, Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488509/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-21-00465-CR
Ted Allen WRIGHT,
Appellant
v.
The STATE of Texas,
Appellee
From the 437th Judicial District Court, Bexar County, Texas
Trial Court No. 2019CR12275
Honorable Melisa C. Skinner, Judge Presiding
ORDER
Appellant’s court-appointed attorney has filed a brief pursuant to Anders v. California,
386 U.S. 738 (1967), in which he asserts there are no meritorious issues to raise on appeal.
Counsel certifies he has served copies of the brief on appellant and has informed appellant of his
right to review the record and file his own brief. See Kelly v. State, 436 S.W.3d 313, 320 (Tex.
Crim. App. 2014); Nichols v. State, 954 S.W.2d 83, 85 (Tex. App.—San Antonio 1997, no pet.);
Bruns v. State, 924 S.W.2d 176, 177 n.1 (Tex. App.—San Antonio 1996, no pet.). Appellant may
obtain a copy of the appellate record by filing a motion for pro se access to the record in this
court on or before November 30, 2022. If appellant desires to file a pro se brief, he must do so
on or before December 21, 2022. See Bruns, 924 S.W.2d at 177 n.1.
If appellant files a timely pro se brief, the State may file a responsive brief no later than
thirty days after appellant’s pro se brief is filed in this court. Alternatively, if appellant does not
file a timely pro se brief, the State may file a brief in response to counsel’s brief no later than
thirty days after the pro se brief is due.
Counsel’s brief contains a motion to withdraw. We ORDER the motion to withdraw to be
HELD IN ABEYANCE pending further order of the court. We further ORDER the Clerk of this
Court to serve a copy of this order on appellant, his counsel, the attorney for the State, and the
clerk of the trial court.
_________________________________
Liza A. Rodriguez, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
__________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488560/ | IN THE NEBRASKA COURT OF APPEALS
MEMORANDUM OPINION AND JUDGMENT ON APPEAL
(Memorandum Web Opinion)
STATE ON BEHALF OF SAMANTHA P. V. ZACHARY R.
NOTICE: THIS OPINION IS NOT DESIGNATED FOR PERMANENT PUBLICATION
AND MAY NOT BE CITED EXCEPT AS PROVIDED BY NEB. CT. R. APP. P. § 2-102(E).
STATE OF NEBRASKA ON BEHALF OF SAMANTHA P., APPELLEE AND CROSS-APPELLANT,
V.
ZACHARY R., APPELLANT AND CROSS-APPELLEE.
Filed November 22, 2022. No. A-22-222.
Appeal from the District Court for Buffalo County: JOHN H. MARSH, Judge. Affirmed as
modified.
Nathan P. Husak, of Bruner Frank, for appellant.
Nicole M. Mailahn and Allison R. Seiler, of Jacobsen, Orr, Lindstrom & Holbrook, P.C.,
L.L.O., for appellee.
MOORE, RIEDMANN, and BISHOP, Judges.
MOORE, Judge.
INTRODUCTION
Zachary R. appeals from an order of the district court for Buffalo County, which awarded
Samantha P. primary physical custody of the parties’ children. The court also set a parenting time
schedule and modified a previous award of child support to Samantha. On appeal, Zachary asserts
that the court abused its discretion by not awarding the parties joint physical custody of the
children, not awarding him reasonable parenting time, and not adopting a joint custody child
support calculation. Samantha has cross-appealed, asserting that the court erred in not applying the
child support modification retroactively. For the reasons set forth herein, we affirm as modified.
-1-
STATEMENT OF FACTS
The parties have never been married to each other. Lua P. was born to the parties in 2010.
This paternity action was initiated in March 2012 when the State of Nebraska filed a complaint to
establish child support for Lua. In June, the district court entered an order for support, finding that
Zachary was Lua’s father and ordering him to pay child support to Samantha of $250 per month.
Subsequently, Parker P. was born to the parties in 2013. After the State filed a complaint to modify,
the court entered an order in March 2017, finding that Zachary was Parker’s father and increasing
Zachary’s child support obligation to $618 per month. The court’s calculation was based on “the
historical earnings of the [parties]” and assigned a total monthly income of $2,426.67 to each of
the parties. Zachary’s child support obligation was suspended on April 11, 2017 (the parties lived
together with the children in Texas at that point), and then support was reinstated on September
28, 2020 (after the parties separated and were no longer residing together).
On March 5, 2021, Zachary filed a third party complaint against Samantha, seeking to
establish custody and parenting time. He asked the court to grant him both temporary and
permanent legal and physical custody of the children, or alternatively, to grant the parties joint
custody. He also asked the court to revise, modify, and reallocate child support, nonreimbursed
health care expenses, and childcare expenses.
On April 5, 2021, Samantha filed a third party answer and counterclaim, seeking
modification of Zachary’s child support on a temporary and permanent basis, along with temporary
and permanent custody of the children. She filed an amended third party answer and counterclaim
on April 15, in which she specifically alleged that, since entry of the March 2017 child support
order, there had been a material change in circumstances in that Zachary’s income had increased.
She again asked the court for temporary and permanent custody and child support and other
equitable relief.
The district court entered a temporary order on April 19, 2021. The court granted Samantha
temporary legal and physical custody of the children subject to Zachary’s parenting time based on
“what appears to have been the prior practice of the parties.” Zachary’s temporary parenting time
was to occur on Monday, Wednesday, and Thursday from 3:30 p.m. to 5:30 p.m.; on Tuesday from
3:30 p.m. to 6:30 p.m.; on alternating weekends from 5:30 p.m. Friday until 6:30 p.m. Sunday;
and on alternating holidays. The court also granted Zachary 3 weeks of summer parenting time.
The court found that a recalculation of child support was more appropriate for final hearing, and
it observed that modification of child support may be made retroactive to the time of filing.
On June 21, 2021, Samantha filed a motion for temporary orders, asking the district court
to address the parties’ responsibilities for health insurance, nonreimbursed health care and
childcare expenses, as well as the issue of parental communication, none of which had been
addressed by the court’s April 19 temporary order. On July 29, the court entered an order approving
the parties’ stipulation that Zachary was to provide health insurance for the children, pay half of
childcare expenses, and pay half of nonreimbursed medical expenses for the children after
Samantha covered the first $250. The stipulation approved by the court also set forth provisions
addressing parenting communication, including that the primary form of communication between
the parties was to be by email, except in the event of an emergency, in which case they were to
call by phone.
-2-
Trial was held before the district court on December 16, 2021. The court heard testimony
from the parties, Samantha’s boyfriend, and certain other witnesses, and the court received various
exhibits into evidence.
The parties began dating in 2007, and they temporarily broke up several times before their
final separation in February 2020. Samantha has been the primary caretaker for the children at
most points since their birth. Between 2007 and 2015, the parties lived in Nebraska, sometimes
together and sometimes separately, and had various employments. Zachary was also in a band, and
the band performance schedule required him to be away from home some evenings and late nights
and to take occasional trips out of town. By the time of the trial, however, Zachary was only
involved in band activity about four times per year.
At some point, Zachary suggested a move to Texas and Samantha agreed since she had
family there. The parties lived in Texas between August 2015 and September 2017. After the move
to Texas, Samantha worked part time for a short period, while Zachary had full-time employment.
His job, which increased from 40 hours per week to between 75 and 80 hours per week, also
required occasional out-of-state travel. Samantha continued to be the primary caregiver for the
children while the parties were in Texas. The parties returned to Nebraska in September 2017 after
a hurricane destroyed their home and belongings.
Upon returning to Nebraska, the parties lived with Zachary’s mother in Kearney until
March 2018 and then lived in their own residence until their separation. With respect to parenting
roles, Samantha testified that Zachary had “a little more time with [her] and the kids” during this
period.
Samantha ended the parties’ relationship on February 28, 2020. Since March of that year,
Samantha has lived in an apartment in Kearney. Her boyfriend, Matthew Zavela, resided with her
there at the time of trial. Samantha has worked at a medical office for more than 2 years. Her
schedule is Monday through Friday from 8 a.m. to 5 p.m. Her paystubs reflect a pay rate of $14
per hour (with occasional overtime at $21 per hour). Her 2020 income tax returns and W-2 show
wages of $25,352. Samantha has health insurance coverage for herself.
When the parties separated and at the time of the temporary order, Zachary was employed
at Eaton Corporation in Kearney, working from 10 p.m. to 7 a.m. Monday through Saturday and
every other Sunday. His rate of pay was $25 per hour. In May, 2021, Zachary began employment
at Parker Hannifin in Kearney. He initially had an overnight schedule, but at the time of trial, he
was working Friday, Saturday, and Sunday from 6:30 a.m. to 6:30 p.m. and earning $27 per hour.
The district court received, for demonstrative purposes, Zachary’s proposed joint custody child
support calculation (based on monthly income of $4,680 for him and $2,426.67 for Samantha).
Zachary’s W-2 earnings from Eaton were $56,106 for 2019 and $63,393 for 2020. The court also
received a compensation summary, pay stubs, and benefit information from Zachary’s current
employment at Parker Hannifin. According to this information, Zachary’s annual salary is $56,106
($4,680 per month). His paystubs also show that he is working some overtime hours, for which he
is paid $40.50 per hour. The parties agreed upon the income figures used in their respective
proposed child support calculations.
Zachary’s current residence in Kearney is a three-bedroom, two-bathroom apartment with
a garage. Each child has their own bedroom in the apartment, and Zachary gave Lua the master
-3-
bedroom, which has its own bathroom, to help ensure her privacy. Zachary testified that the
apartment is safe and located in a safe neighborhood.
Zachary testified at length about the children, their personalities and interests, and his
relationship and activities with them. From this testimony, it is clear that Zachary is a good parent,
has a good relationship with the children, and is actively involved in their lives. Zachary testified
that one of the reasons he was seeking a parenting time schedule with more overnights was so that
he could have more time to engage in an active relationship with the children. According to
Zachary, he ensures that the children’s needs with respect to food, clothing, and hygiene are always
met when they are in his care.
Zachary testified about his involvement in the children’s education, including his
communication with the children’s teachers and his attendance at parent-teacher conferences when
they do not conflict with his work schedule. He noted that when Lua was struggling in math, he
found a tutor for her over Samantha’s objections. He did acknowledge not working with the
children on their homework every day after school because of the limited time he has with them.
He also testified about his involvement in meeting their medical needs. Until recently, Zachary
had been the one to pick the children up when they are sent home sick from school. While
Samantha usually sets up medical and dental appointments, he is usually the one who takes the
children to the appointments.
Zachary presented testimony from several other witnesses about his parenting. Parker’s
current teacher (a former teacher of Lua’s) confirmed that Zachary communicates with her,
informs her of “updates” with respect to him and the children, and is generally involved in Parker’s
education. According to the teacher, she has not had any academic issues with Parker, and there
has been only one behavioral incident with Parker that the teacher communicated to the parties.
The teacher also testified about her communications with Samantha and about the efforts made by
the parties and the school to assist Lua when she was struggling in math. Zachary also presented
testimony from his father, mother, and sister, who all testified that he is a good father and actively
involved in the children’s lives.
Zachary believed he could coparent with Samantha on a joint custodial basis because he
had done so for the previous year and a half. Specifically, he testified that he was able to
communicate appropriately, and was willing to share time. Zachary testified to accommodations
he had made based on Samantha’s request, such as changing their method of communication from
text messaging to emails and changing the parenting time drop-off location. However, he
expressed concern that “communication from [Samantha’s] end is almost nonexistent” and that
Samantha sometimes communicates through the party’s daughter. Zachary testified about ways in
which he tries to foster the children’s relationship with Samantha, including helping the children
pick Mother’s Day cards, purchasing Samantha and Matthew concert tickets, and giving Samantha
extra time with the children. He also stated that he does not say anything disparaging or negative
about her in front of the children. Similarly, he denied making disparaging comments about
Matthew in front of the children. He did testify that he had no interest in meeting Matthew.
Zachary asked the district court to award him joint custody of the children, and the court
received his proposed parenting plan. Zachary’s proposal with respect to parenting time was that
the parties would each have two overnights a week (Monday and Tuesday for Zachary and
Wednesday and Thursday for Samantha) and alternating weekends from Friday evening to
-4-
Monday morning. His proposal also included alternating holidays, up to 3 weeks of summer
vacation time, and a right of first refusal to keep the children any time the children would be in
childcare for periods in excess of 4 hours. Zachary believed his proposed parenting plan was in
the children’s best interests as it would be beneficial for their physical, emotional, and mental
needs. He also testified that the children would benefit from having equal time with both parents
and that his plan would not disrupt the children’s current schedules. Zachary was willing to ensure
a consistent routine for the children in both homes. He expressed concern that an award of sole
custody to Samantha would not be in the children’s best interests. He again referenced a lack of
communication from Samantha and testified that he felt the children were not her priority, based
on her spending the evening out on Parker’s birthday that year.
Samantha also testified about the children and their personalities. She noted that Zachary
had signed both children up for scouting groups but that she was the one who took them to most
of these activities. Samantha also testified about her involvement with the children’s education
and contact with their teachers. She indicated that Parker is doing well in school, although he had
a recent incident of bullying which Samantha addressed with him upon learning of it. Samantha
acknowledged resisting getting a tutor for Lua in math, testifying that she did not think a tutor was
necessary as Lua had other educational assistance in place at school. Samantha felt that Lua’s
improvement in math was due to the other assistance she was receiving, rather than the tutor. The
parties both testified about Lua’s struggles with anxiety in social settings, which increased after
the parties’ separation, and their efforts to help Lua with her anxiety. Both children were receiving
counseling at the time of trial.
Samantha testified about the parties’ parenting time since their separation. When the parties
separated, they arranged a schedule with alternating weekends and holidays. They followed this
schedule until the temporary order. Samantha also testified about the effects of the COVID-19
pandemic on the parties’ employment and parenting arrangements. Due to her employment in a
medical office, Samantha has continued to work throughout the pandemic, but in March 2020,
Zachary was laid off for a period, and the children’s school went remote. At that point, the parties
agreed that Zachary could come to Samantha’s residence, use her internet and computer for the
children’s school “Zoom meetings,” and have lunch with the children. According to Samantha,
problems with this arrangement included coming home to a dirty house, homework not getting
done, and the children not being fed properly. After that, Samantha would drop the children off
and pick them up from Zachary’s residence daily.
Samantha asked the district court to keep parenting time as it was at the time of trial, and
the court received her proposed parenting plan. She felt that Zachary’s proposed schedule would
be more stressful for the children, noting that “they already have a hard time with the little bit of
time that they have coming home, trying to get their homework and their food and their bath time
done.” She indicated that communicating appropriately and coparenting under the current
arrangement was “already stressful” and that it would “be worse” under a joint physical custody
arrangement. She did agree that Zachary’s proposed plan involved fewer parenting time
transitions. She testified that if joint custody were awarded, a better parenting time schedule would
be “one week on, one week off to give them some sort of stability.” Samantha testified about her
request to change the parties’ communications from text messaging to email, stating that Zachary
was “being harassing over text messaging.” She indicated that the multiple text messages sent by
-5-
Zachary on a daily basis caused her “stress everywhere in [her] life” and that while communicating
by email was an improvement, Zachary “still does not speak in the most civil or cordial manner.”
Samantha denied using Lua to communicate with Zachary, stating that if she ever did so, it was
when Samantha had already spoken with Zachary or Lua was “doing that on her own accord.”
Matthew and Samantha began dating in June 2020, have lived together since about April
2021, and planned to get married on April 30, 2022. Matthew’s name was added to the lease before
he moved into Samantha’s apartment. Samantha testified that the children get along really well
with Matthew. She described his role with the children as “[her] partner, [her] teammate with
them.” Matthew confirmed that he gets along great with the children and that he assists Samantha
with parental duties and daily routines. He describes Samantha as an engaged and dynamic parent
with a “very straightforward personality” and as a caring and empathetic mother. He testified that
Samantha has provided structure and stability for the children, which includes a schedule, rules,
and chores. Samantha’s testimony about her parenting and the rules and structure in her residence
for her children was consistent with Matthew’s.
Matthew confirmed that he has not formally met Zachary, but rather, only had contact
during parenting time exchanges which are sometimes tense and on one occasion in 2021 involved
Matthew calling the police. Samantha testified further about this particular incident, which she
said was prompted by her confusion about the details of Zachary’s next block of summer parenting
time at that point. She indicated that Zachary became upset by the parties’ interaction when he
returned the children to her care and then stayed outside of Samantha’s apartment for 30 to 45
minutes, not leaving until after police arrived. Zachary indicated that he also called the police on
this occasion, and that he had been waiting for them to arrive “so that [he] could have the police
document the situation that [Samantha] would not give [him] the children, even though [he] had a
court order saying this.” He testified that the police explained that they could not resolve a civil
dispute. He denied verbally abusing or harassing Samantha during their encounter. He left after
his contact with the police.
Zachary, his mother, and his sister all raised a concern in their testimony about Matthew’s
driving habits (driving fast and peeling out) after picking up the children or on other occasions. In
particular, Zachary’s sister observed this behavior following a parenting time exchange that
occurred at the apartment complex where both Zachary’s sister and Samantha reside. Matthew
denied that he had driven inappropriately on this occasion. Samantha’s testimony about the
incident was consistent with Matthew’s.
Matthew acknowledged having a pending DUI charge at the time of trial, but he denied
ever drinking and driving or having driven inappropriately with the children in his vehicle.
Samantha and Matthew both expressed concern about the cleanliness of the children and
their clothing upon returning from Zachary’s care. They also indicated that the children have
trouble readjusting to their routines after returning from parenting time with Zachary. Samantha
testified that she has tried to work outside the parenting plan with Zachary, but that has also been
a struggle. And, Samantha expressed frustration that, despite her requests, Zachary does not
usually assist the children with their homework after picking them up from school and before
taking them to Samantha’s residence.
On January 25, 2022, the district court entered an order, denying Zachary’s request for
joint physical custody and adopting Samantha’s proposed parenting plan (giving the parties joint
-6-
legal custody and Samantha primary physical custody) with certain modifications as to parenting
time. The court expressed “some concerns,” reasoning as follows:
Despite [Zachary] having obtained different hours that would accommodate more
parenting time[,] the parties have been unable to facilitate expanded parenting time. There
was testimony regarding an unnecessary call to police. While there is no credible evidence
of violence between the parties, they have agreed to meet a neutral location despite both
living in the same town. [Zachary] expresses no interest in meeting [Samantha’s]
significant other, despite the fact that that significant other is spending significant time with
the parties’ children.
The court also observed that Zachary’s proposed parenting plan would require frequent transitions
and stated that it could not find such a plan to be in the children’s best interests. With respect to
parenting time, the district court ordered that Zachary was to pick the children up from school at
3:30 p.m. on Wednesdays (or from Samantha’s home if there was no school) and return them to
school on Thursday mornings (or to Samantha’s home by 9 a.m. Thursday if there was no school).
The court also awarded Zachary parenting time on alternating weekends from 6:30 p.m. Friday
until 6:30 p.m. Sunday, alternating holidays, and for 3 weeks of vacation during the summer.
Finally, the court increased Zachary’s child support for two children to $720 beginning February
1, 2022, ordered him to pay for 62 percent of Samantha’s work-related childcare expenses and of
the children’s nonreimbursed health care expenses in excess of $250.
The parties both filed motions for new trial. In her motion, Samantha asked the district
court to address the issue of the tax exemptions and/or credits that had not been addressed in the
modification order. She also asserted that the court should have awarded child support
retroactively. In his motion, Zachary alleged that the court should have awarded the parties joint
physical custody, adopted either his proposed parenting plan or a week-on-week-off parenting time
schedule, and adopted his child support calculation. Zachary also alleged that the changes made
by the court to his parenting time were not clearly stated and observed that the modification order
had not allocated the tax credits.
At the hearing on the parties’ motions, the district court granted Samantha’s request that
the parties split the tax exemptions for the children and took the remaining issues under
advisement. On March 10, 2022, the court entered an order memorializing its ruling with respect
to the tax exemptions and denying the parties’ remaining requests.
ASSIGNMENTS OF ERROR
Zachary asserts that the district court abused its discretion in (1) not awarding the parties
joint physical custody, (2) not awarding him reasonable parenting time, and (3) not adopting a
joint custody child support.
On cross-appeal, Samantha asserts that the district court abused its discretion in not
applying the child support modification retroactively.
STANDARD OF REVIEW
In a filiation proceeding, questions concerning child custody determinations are reviewed
on appeal de novo on the record to determine whether there has been an abuse of discretion by the
-7-
trial court, whose judgment will be upheld in the absence of an abuse of discretion. Franklin M. v.
Lauren C., 310 Neb. 927, 969 Neb. 882 (2022). A judicial abuse of discretion exists if the reasons
or rulings of a trial judge are clearly untenable, unfairly depriving a litigant of a substantial right
and denying just results in matters submitted for disposition. Simons v. Simons, 312 Neb. 136, 978
N.W.2d 121 (2022).
Parenting time determinations are also matters initially entrusted to the discretion of the
trial court, and although reviewed de novo on the record, the trial court’s determination will
normally be affirmed absent an abuse of discretion. State on behalf of Carter W. v. Anthony W.,
24 Neb. App. 47, 879 N.W.2d 402 (2016).
Modification of a judgment or decree relating to child custody, visitation, or support is a
matter entrusted to the discretion of the trial court, whose order is reviewed de novo on the record,
and will be affirmed absent an abuse of discretion. State on behalf of Daphnie F. v. Christina C.,
310 Neb. 638, 967 N.W.2d 690 (2021).
In a review de novo on the record, an appellate court is required to make independent
factual determinations based upon the record, and the court reaches its own independent
conclusions with respect to the matters at issue. Kauk v. Kauk, 310 Neb. 329, 966 N.W.2d 45
(2021). When evidence is in conflict, the appellate court considers and may give weight to the fact
that the trial judge heard and observed the witnesses and accepted one version of the facts rather
than another. Id.
ANALYSIS
Joint Physical Custody.
Zachary asserts that the district court abused its discretion in not awarding the parties joint
physical custody. He argues that the evidence showed he was a fit parent and that an award of joint
physical custody was in the children’s best interests.
Neb. Rev. Stat. § 43-2923(6) (Reissue 2016) provides:
In determining custody and parenting arrangements, the court shall consider the
best interests of the minor child, which shall include, but not be limited to, consideration
of the foregoing factors and:
(a) The relationship of the minor child to each parent prior to the commencement
of the action or any subsequent hearing;
(b) The desires and wishes of the minor child, if of an age of comprehension but
regardless of chronological age, when such desires and wishes are based on sound
reasoning;
(c) The general health, welfare, and social behavior of the minor child;
(d) Credible evidence of abuse inflicted on any family or household member . . . ;
and
(e) Credible evidence of child abuse or neglect or domestic intimate partner abuse.
For purposes of this subdivision, the definitions in section 43-2922 shall be used.
In addition to the “best interests” factors listed in § 43-2923, a court making a child custody
determination may consider matters such as the moral fitness of the child’s parents, including the
parents’ sexual conduct; respective environments offered by each parent; the emotional
-8-
relationship between child and parents; the age, sex, and health of the child and parents; the effect
on the child as the result of continuing or disrupting an existing relationship; the attitude and
stability of each parent’s character; and the parental capacity to provide physical care and satisfy
the educational needs of the child. Schrag v. Spear, 290 Neb. 98, 858 N.W.2d 865 (2015).
“Joint physical custody means mutual authority and responsibility of the parents regarding
the child’s place of residence and the exertion of continuous blocks of parenting time by both
parents over the child for significant periods of time.” Neb. Rev. Stat. § 43-2922(12) (Cum. Supp.
2022). However, Nebraska statutes do not require the district court to grant equal parenting time
or joint custody to the parents if such is not in their children’s best interests. See Kamal v. Imroz,
277 Neb. 116, 759 N.W.2d 914 (2009). Neb. Rev. Stat. § 42-364(3) (Cum. Supp. 2022) provides:
Custody of a minor child may be placed with both parents on a . . . joint physical custody
basis . . . (a) when both parents agree to such an arrangement in the parenting plan and the
court determines that such an arrangement is in the best interests of the child or (b) if the
court specifically finds, after a hearing in open court, that joint physical custody . . . is in
the best interests of the minor child regardless of any parental agreement or consent.
Joint physical custody is neither favored nor disfavored under Nebraska law. State on
behalf of Kaaden S. v. Jeffery T., 303 Neb. 933, 932 N.W.2d 692 (2019). In fact, no custody or
parenting time arrangement is either favored or disfavored as a matter of law. Id.
The record shows that Samantha has been the primary caretaker for the children during
much of their lives and the children are well cared for. On the other hand, it is clear that Zachary
is a good parent and is actively involved in the children’s lives. Since their separation, the parties
have had some difficulties with effective communication and parenting exchanges, which has
negatively impacted the children at times.
In its modification order, in addressing the parties’ respective physical custody request and
proposed parenting time plans, the district court expressed certain concerns. The court noted that
despite a change in Zachary’s work schedule, the parties had been unable to facilitate expanded
parenting time. The court also noted “an unnecessary call to the police,” the parties’ agreement to
meet in a neutral location, and Zachary’s lack of interest in meeting Samantha’s significant other.
The court expressed concern that Zachary’s proposed parenting plan would require frequent
transitions. The court concluded that Samantha’s parenting plan which proposed that she have sole
physical custody was in the children’s best interests. Upon our de novo review, we find no abuse
of discretion in the district court’s award of sole physical custody of the parties’ children to
Samantha.
Parenting Time.
Zachary asserts that the district court abused its discretion in not awarding him reasonable
parenting time. The court adopted a modified version of the parenting plan proposed by Samantha.
Under the parenting plan adopted by the court, Zachary was awarded regular parenting time
overnight each Wednesday, picking them up from school Wednesday at 3:30 p.m. (or from
Samantha’s if no school) and returning them to school Thursday morning (or to Samantha’s by 9
a.m. if no school), and every other weekend from 6:30 p.m. Friday through 6:30 p.m. Sunday. He
was also awarded alternating holidays and 3 weeks of summer parenting time. Zachary’s proposed
-9-
parenting plan included two overnights each week (Monday and Tuesday for Zachary, Wednesday
and Thursday for Samantha) and extended the weekend parenting time through Monday morning.
Zachary argues that the parenting time schedule awarded to him was unreasonable, given that he
is a fit parent and that he had more parenting time under the temporary schedule leading up to the
trial.
The trial court has discretion to set a reasonable parenting time schedule. Thompson v.
Thompson, 24 Neb. App. 349, 887 N.W.2d 52 (2016). The determination of reasonableness of a
parenting plan is to be made on a case-by-case basis. Wolter v. Fortuna, 27 Neb. App. 166, 928
N.W.2d 416 (2019). Parenting time relates to continuing and fostering the normal parental
relationship of the noncustodial parent. Anderson v. Anderson, 27 Neb. App. 547, 934 N.W.2d 497
(2019). The best interests of the children are the primary and paramount considerations in
determining and modifying parenting time. Winkler v. Winkler, 31 Neb. App. 162, 978 N.W.2d
346 (2022).
The Parenting Act does not require any particular parenting time schedule to accompany
an award of either sole or joint physical custody, and there exists a broad continuum of possible
parenting time schedules that can be in a child’s best interests. State on behalf of Kaaden S. v.
Jeffery T., 303 Neb. 933, 932 N.W.2d 692 (2019).
Zachary’s proposed parenting time plan set up a joint physical custody arrangement. We
have already addressed his arguments with respect to the district court’s award of physical custody.
The court expressed concern, among other things, about the number of parenting time transitions
required by Zachary’s proposed plan. We note that Samantha’s proposed plan (varying hours of
parenting time for Zachary on Monday, Tuesday, Wednesday, and Thursday evenings during the
school year, and a schedule of day time parenting on those days during the summer) also involved
multiple transitions. While both proposed parenting plans contained multiple parenting time
transitions in each 2-week period, the plan adopted by the court (a modified version of Samantha’s
proposed plan) contained fewer transitions than the temporary parenting time schedule or either of
the plans proposed at trial. Upon our de novo review, we find no abuse of discretion in the court’s
adoption of the modified version of Samantha’s plan.
Amount of Child Support Award.
Zachary asserts that the district court abused its discretion in not adopting a joint custody
child support. Zachary’s arguments in support of this assignment of error are premised on his
assertion that the court should have awarded the parties joint physical custody. Given our
resolution of his first assignment of error, we need not address this assignment of error further. An
appellate court is not obligated to engage in an analysis that is not needed to adjudicate the
controversy before it. Kozal v. Snyder, 312 Neb. 208, 978 N.W.2d 174 (2022).
Retroactive Application of Child Support Modification.
On cross-appeal, Samantha asserts that the district court abused its discretion in not
applying the child support modification retroactively, and she argues that the modification should
have been made retroactive to May 1, 2021.
Absent equities to the contrary, modification of a child support order should be applied
retroactively to the first day of the month following the filing date of the application for
- 10 -
modification. Johnson v. Johnson, 290 Neb. 838, 862 N.W.2d 740 (2015). In the absence of a
showing of bad faith, it is an abuse of discretion for a court to award retroactive support when the
evidence shows the obligated parent does not have the ability to pay the retroactive support and
still meet current obligations. Freeman v. Groskopf, 286 Neb. 713, 838 N.W.2d 300 (2013). In
modification of child support proceedings, the children and the custodial parent should not be
penalized by delay in the legal process, nor should the noncustodial parent gratuitously benefit
from such delay. Johnson v. Johnson, supra.
Samantha filed her initial third party answer and counterclaim asking the court to modify
child support and establish custody and parenting time on April 5, 2021. Absent equities to the
contrary, the modification in this case should be applied retroactively to May 1, 2021, the first the
first day of the month following the filing date of Samantha’s counterclaim. In its January 2022
modification order, the district court ordered Zachary to pay child support of $720 per month
beginning February 1. The court did not provide a reason for not making the modification
retroactive. In her motion for new trial or to alter or amend, Samantha asked the court to make the
modification of the child support award retroactive, but this portion of her motion was overruled
without further explanation.
Zachary argues that awarding retroactive support would have been inequitable because at
the time of trial he was working a different job than he was when the modification case started. He
also argues that there was no evidence at trial that he could pay the arrearage amount of $918
(increase of $102 × 9 months) if the modification had been made retroactive.
In response, Samantha observes that at the time she requested a modification in April 2021,
Zachary’s child support obligation had been set based on a monthly income of $2,426.67. She
observes further that at all times from when the parties separated in February 2020 through the
date of the trial in December 2021, Zachary earned significantly more than $2,426.67 per month.
She argues that the evidence did not show that a retroactive child support award would create an
undue financial hardship for Zachary and that the district court could have fashioned a payment
plan to cover the amount of such an award. See Henke v. Guerrero, 13 Neb. App. 337, 692 N.W.2d
762 (2005) (because child support modification is equity matter, court can also order payment plan
for retroactive support). Finally, she observed that Zachary did not have a court-ordered obligation
to reimburse her for childcare or nonreimbursed health care expenses until the end of July 2021.
She argues that Zachary’s refusal to voluntarily reimburse her for those things prior to the court’s
order increased her financial hardship during the course of this modification action.
The district court did not explain its decision not to award retroactive child support, and in
our de novo review of the record, we cannot find any equities that would support a decision not to
apply the child support obligation retroactively. See, Roberts v. Roberts, 25 Neb. App. 192, 903
N.W.2d 267 (2017)(finding abuse of discretion in failing to order retroactive award where trial
court did not state reason for denying retroactive award and record did not show it would create
financial hardship for father); Gartner v. Hume, 12 Neb. App. 741, 686 N.W2d 58 (2004) (finding
abuse of discretion in failing to order retroactive award where father had been steadily employed,
trial court did not explain decision, and de novo review of record did not show equities to support
decision not to apply child support obligation retroactively). Zachary was clearly earning greater
income than when the child support was last established ($4,680 versus $2,426), and we do not
see that working a different schedule for a different employer is relevant to the determination of
- 11 -
retroactivity. The amount of retroactive support due, $918, is not a significant amount and there is
nothing in the record to show that Zachary does not have the ability to pay the retroactive support.
We find that the court abused its discretion in failing to make the increase in child support
retroactive and we determine that the increase in Zachary’s child support obligation should be
retroactive to May 1, 2021. We modify the order accordingly.
CONCLUSION
The district court did not abuse it discretion in its awards of custody, parenting time, and
child support. However, we conclude that the court abused its discretion in failing to order
Zachary’s modified child support obligation be retroactive to May 1, 2021. We modify this portion
of the order.
AFFIRMED AS MODIFIED.
- 12 - | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488550/ | In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 21-2701
UNITED STATES OF AMERICA,
Plaintiff-Appellee,
v.
JEFFREY M. WEST,
Defendant-Appellant.
____________________
Appeal from the United States District Court for the
Central District of Illinois.
No. 2:19-cr-20060-MMM-EIL-1 — Michael M. Mihm, Judge.
____________________
ARGUED SEPTEMBER 20, 2022 — DECIDED NOVEMBER 22, 2022
____________________
Before EASTERBROOK, HAMILTON, and BRENNAN, Circuit
Judges.
HAMILTON, Circuit Judge. Appellant Jeffrey West was con-
victed of possessing child pornography and other sexual of-
fenses against children. At trial, the district court admitted
photographs and videos containing child pornography that
were discovered on electronic devices seized from West’s
home and business. Sixteen of those exhibits were shown to
the jury. On appeal, West argues that the admission and
2 No. 21-2701
display of two exhibits were unfairly prejudicial and need-
lessly cumulative, in violation of Federal Rule of Evidence 403
and his broad reading of Old Chief v. United States, 519 U.S.
172 (1997). We affirm.
I. Factual and Procedural History
Police investigated a young boy’s report that West mo-
lested him and paid him for a nude photograph. Police
searched West’s home and business and found a laptop com-
puter and multiple flash drives. A detective searched the
seized devices and discovered a total of roughly one thousand
still photographs and videos of child pornography.
West was charged with one count of possessing child por-
nography in violation of 18 U.S.C. § 2252A(a)(5)(B) and (b)(2),
two counts of sexual exploitation of a minor in violation of 18
U.S.C. § 2251(a) and (e), two counts of receiving child pornog-
raphy in violation of 18 U.S.C. § 2252A(a)(2)(A) and (b)(1),
and two counts of commission of an offense by a registered
sex offender in violation of 18 U.S.C. § 2260A.
Before trial, West stipulated that certain images found on
his devices—specifically, Government Exhibits 1F, 1G, 2B, 5C,
and 6D—were part of known child pornography series iden-
tified by the National Center for Missing and Exploited Chil-
dren. West stipulated that, if called to testify, an FBI agent
would say that the agent participated in the investigation
identifying the images in question, that the children por-
trayed were minors, that the images were produced outside
Illinois, and that they were distributed widely on the internet.
On the first day of trial, the court admitted dozens of ex-
hibits offered by the government, including several photo-
graphs and videos containing child pornography that were
No. 21-2701 3
found on West’s devices. The exhibits at issue in this appeal
(Government Exhibits 5E and 6E) were among those admit-
ted. Defense counsel did not object.
Over the course of the trial, the government briefly
showed images from West’s devices to the jury. In total, the
government displayed sixteen of the roughly one thousand
photographs and videos containing child pornography that
were stored on West’s devices.
The defense did not object to the government’s publication
of the images until the end of the government’s case in chief.
The government’s final witness, an FBI agent, testified that six
images found on West’s devices were from a child pornogra-
phy series he had investigated. During direct examination of
the agent, the government briefly published Exhibits 3B, 3C,
3D, and 3E. For each exhibit, the prosecutor asked the agent
to identify the child by first initial and to state the child’s age
when the image was created. Defense counsel did not object.
As the prosecutor began asking the agent about a fifth exhibit
(5E), West objected. His counsel asserted that the images and
facts were stipulated to and so there was no need to continue
displaying the exhibits. The government countered that these
facts were not stipulated. The court overruled the objection,
and the government displayed two more exhibits (5E and 6E)
before resting its case. The jury convicted West on all counts.
West renews his objection on appeal, arguing that the ad-
mission and publication of child pornography images at his
trial violated Federal Rule of Evidence 403 on the theory that
the content of the images was not in dispute, so the exhibits’
admission was needlessly cumulative and unfairly prejudi-
cial. He also argues that because he had stipulated that child
pornography was found on the devices recovered from his
4 No. 21-2701
home and business, their admission at trial violated Old
Chief v. United States, 519 U.S. 172 (1997).
II. Analysis
A. Admission of the Exhibits
We review a trial court’s evidentiary rulings for an abuse
of discretion. United States v. Resnick, 823 F.3d 888, 894 (7th
Cir. 2016). We will reverse these rulings “only if no reasonable
person could take the judge’s view of the matter.” United
States v. Pulliam, 973 F.3d 775, 782 (7th Cir. 2020), quoting
United States v. Brown, 871 F.3d 532, 536 (7th Cir. 2017).
First, West’s challenge to the exhibits’ admission is
waived. On the first day of trial, the government moved to
admit into evidence dozens of exhibits, including those that
are the subject of this appeal. When asked whether West had
any objection to the government’s motion, defense counsel re-
sponded, “No, Your Honor.” Because West affirmatively
stated at trial that he had no objection to the admission of the
exhibits, he cannot challenge their admission on appeal.
United States v. Redditt, 381 F.3d 597, 602 (7th Cir. 2004)
(“When trial counsel affirmatively represents that he has no
objection to the admission of certain evidence, he has inten-
tionally waived any argument to the contrary.”).
Even if West’s challenge were not deemed waived, we
would reject it on the merits. West asks this Court to extend
Old Chief and find that the trial court violated Federal Rule of
Evidence 403 by admitting child pornography images at trial
when he supposedly stipulated that the images contained
child pornography. There are several problems with this the-
ory.
No. 21-2701 5
Most generally, in Old Chief, the Supreme Court affirmed
the general principle that “a criminal defendant may not stip-
ulate or admit his way out of the full evidentiary force of the
case as the Government chooses to present it.” 519 U.S. at 186‒
87. Old Chief actually held, narrowly, that that general rule has
“virtually no application” where the issue in dispute is the
defendant’s status as a felon. Id. at 190. In such cases, it vio-
lates Rule 403 to admit the record of conviction to prove the
defendant’s status when the defendant is willing to stipulate.
Id. at 191. 1
The Court limited its holding in Old Chief to cases where
the defendant’s felon status is at issue. 519 U.S. at 183 n.7; see
also United States v. Phillippi, 442 F.3d 1061, 1064 (7th Cir.
2006), citing Old Chief on this point. We consequently find
West’s arguments for extending Old Chief unconvincing.
West’s argument also fails for a reason more specific to this
case. The exhibits at issue in this appeal were not actually sub-
ject to any stipulation. Before trial, West stipulated that Exhib-
its 1F, 1G, 2B, 5C, and 6D were part of known child pornogra-
phy series, that the children depicted were minors, and that
the images were produced outside Illinois and were widely
distributed on the internet. On appeal, West argues that the
district court was incorrect to overrule his objection to the in-
troduction of Exhibits 5E and 6E shortly after the government
displayed Exhibits 3B, 3C, 3D, and 3E. Because those exhibits
1 The Court’s later decision in Rehaif v. United States, 139 S. Ct. 2191
(2019), has added a wrinkle to Old Chief stipulations in felon-in-possession
cases. Under Rehaif, the government must also prove that the defendant
knew, at the time of the possession, that he was a felon or had some other
prohibited status under 18 U.S.C. § 922(g), so an Old Chief stipulation now
may need to extend to such knowledge.
6 No. 21-2701
were not subject to any stipulation, their admission did not
offend even defendant’s overly broad reading of Old Chief. It
certainly did not run counter to the actual reasoning and hold-
ing of Old Chief.
Nor did the admission of the challenged exhibits run
counter to Rule 403 more generally. In relevant part, Rule 403
provides that relevant evidence may be excluded “if its pro-
bative value is substantially outweighed by a danger of … un-
fair prejudice” or “needlessly presenting cumulative evi-
dence.” Fed. R. Evid. 403. “Because all probative evidence is
to some extent prejudicial, we have consistently emphasized
that Rule 403 balancing turns on whether the prejudice is un-
fair.” United States v. Eads, 729 F.3d 769, 777 (7th Cir. 2013),
quoting United States v. McKibbins, 656 F.3d 707, 712 (7th Cir.
2011). To determine whether an exhibit is unfairly prejudicial,
we use a “sliding scale approach: as the probative value in-
creases, so does our tolerance of the risk of prejudice.” United
States v. Earls, 704 F.3d 466, 471 (7th Cir. 2012), quoting White-
head v. Bond, 680 F.3d 919, 930 (7th Cir. 2012). Evidence should
not be excluded as unfairly prejudicial simply because it is
“graphic or disturbing.” United States v. Kapp, 419 F.3d 666,
677 (7th Cir. 2005). Depending on the nature of the offense,
graphic or disturbing evidence may be central to the govern-
ment’s case.
Evidence may be deemed needlessly cumulative “when it
adds very little to the probative force of the other evidence in
the case,” such that its “contribution to the determination of
truth would be outweighed by its contribution to the length
of the trial.” United States v. Gardner, 211 F.3d 1049, 1055 (7th
Cir. 2000), quoting United States v. Williams, 81 F.3d 1434, 1443
(7th Cir. 1996); see also United States v. Hicks, 368 F.3d 801, 808
No. 21-2701 7
(7th Cir. 2004) (evidence was not needlessly cumulative
where it was important to the government’s case and its
presentation took up a “comparatively small amount of time”
at trial).
The exhibits at issue here were neither unfairly prejudicial
nor needlessly cumulative, considering their probative value.
At trial, West argued that he did not know the child pornog-
raphy files were on his devices. The government refuted this
argument in two ways. First, it presented evidence showing
that child pornography images were found on multiple de-
vices recovered from West’s home and business. The fact that
child pornography images were found on not just one but six
devices made it more likely that West knew of their existence.
To establish that child pornography was found on all of those
devices, the government offered and the court admitted a
small number of photographs or videos from each device. Ex-
hibit 5E was one of three child pornography files shown to the
jury from a red thumb drive, and Exhibit 6E was one of two
files displayed from a SanDisk Cruzer thumb drive.
Second, the government also presented evidence showing
that West’s personal files—for example, medical bills and files
related to his business—were saved on the same devices that
contained child pornography. The SanDisk Cruzer thumb
drive, on which investigators found Exhibit 6E, contained sev-
eral files related to West’s business. A video containing child
pornography was downloaded onto the thumb drive on the
same day that files relating to West’s business were accessed.
Thus, even if West had stipulated that the exhibits contained
child pornography, their brief publication to the jury helped
the government prove that a person accessing the images
would be immediately aware of their illicit nature. See Eads,
8 No. 21-2701
729 F.3d at 777‒78 (explaining that showing child pornogra-
phy images at trial “served a valid, non-cumulative, purpose”
where the defendant stipulated that the images contained
child pornography but argued that he did not know the im-
ages were in his possession).
The government and the district judge also took care to
limit jurors’ exposure to child pornography images at trial,
which had the effect of minimizing any risk of unfair preju-
dice and preventing their presentation from becoming cumu-
lative. Over the course of the trial, the government showed
only sixteen of the child pornography files found on West’s
devices. When it presented the exhibits, it showed still photo-
graphs “briefly” and played only a “few seconds” of videos.
Moreover, the government asked only two or three questions
about Exhibits 5E and 6E. Their introduction did not need-
lessly lengthen West’s trial.
To carry its burden in a child pornography case, the gov-
ernment ordinarily needs to present images containing child
pornography to the jury, and it is ordinarily entitled to pre-
sent them so that the jury understands the crimes. We recog-
nize that this evidence can be disturbing—even traumatiz-
ing—for jurors and that there can be a risk of unfair prejudice
to the defendant. District courts must use common sense to
strike a balance between allowing the government to make its
case and protecting jurors and the defendant’s right to a fair
trial. Judge Mihm struck a balance here that was fair and
sound.
B. Publication of the Admitted Exhibits
To the extent that West challenges the display—as distinct
from the admission—of Exhibits 5E and 6E at his trial, his
No. 21-2701 9
argument fails. Jurors are “generally entitled to examine ex-
hibits that are properly admitted into evidence.” United States
v. Loughry, 738 F.3d 166, 170 (7th Cir. 2013). The district court
may, however, prevent jurors from viewing exhibits that are
“cumulative, prejudicial, confusing, or misleading.” Id., quot-
ing Deicher v. City of Evansville, 545 F.3d 537, 542 (7th Cir.
2008). We review the district court’s handling of properly ad-
mitted exhibits for a clear abuse of discretion. Id. at 169‒70.
For the reasons set forth above, the district court also did
not abuse its discretion when it allowed the government to
show Exhibits 5E and 6E to the jury. The probative value of
the exhibits outweighed their prejudicial effect, and, consid-
ering that the government showed only sixteen of the roughly
one thousand images found on West’s devices, we could not
conclude that the publication of Exhibits 5E and 6E was need-
lessly cumulative.
The judgment of the district court is AFFIRMED. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488570/ | IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of New Castle, :
Appellant :
:
v. : No. 242 C.D. 2022
: Argued: October 11, 2022
International Association of :
Firefighters, Local 160 :
BEFORE: HONORABLE MICHAEL H. WOJCIK, Judge
HONORABLE STACY WALLACE, Judge
HONORABLE MARY HANNAH LEAVITT, Senior Judge
OPINION
BY SENIOR JUDGE LEAVITT FILED: November 22, 2022
The City of New Castle (City) has appealed an order of the Court of
Common Pleas of Lawrence County (trial court) that denied the City’s petition to
vacate an arbitration award. The arbitration arose from a grievance filed by the
International Association of Firefighters, Local 160 (Union) that the City had
violated the parties’ collective bargaining agreement (CBA). The arbitrator agreed,
holding that the applicable CBA required the City to pay a survivor pension benefit
equal to that paid to the retired firefighter prior to his death. The City contends that
the trial court erred because the arbitration award ordered the City to do an illegal
act. Discerning no merit to this contention, we affirm the trial court.
Background
Dennis Stone began employment with the City as a full-time firefighter
on April 1, 1967, and he retired on December 31, 2006, after 39 years of service. At
the time of his death on June 26, 2020, Stone was receiving a retirement pension at
the rate of 75% of his final average compensation in accordance with the CBA in
effect at the time of his retirement. After Stone died, the City paid a survivor benefit
to his widow at the rate of 50% of Stone’s final average compensation. The Union
filed a grievance, asserting that under the CBA, Mrs. Stone was entitled to a survivor
pension benefit equal to that paid to Stone during his lifetime.
Prior to 1998, firefighter pension benefits were governed by the Third
Class City Code1 and set at 50% of the firefighter’s final average compensation.
With regard to surviving spouses, Section 14321(d) of the Third Class City Code
states, in pertinent part, as follows:
(d) Payments to surviving spouse. -- Upon the death of a member
who retires on pension or is killed in service on or after January
1, 1960, or who dies in the service on or after January 1, 1968,
payments as provided under this subchapter shall be made to the
member’s surviving spouse during the life of the spouse.
11 Pa. C.S. §14321(d) (emphasis added). In short, Section 14321(d) entitles
surviving spouses to a continued payment of the member’s pension “during the life
of the spouse.” Id.
In 1997, relying on the authority provided under the Optional Third
Class City Charter Law,2 the City opted to negotiate with the Union on pension
benefits rather than be bound by pension provisions of the Third Class City Code.
On September 23, 1997, the City and the Union entered into a four-year agreement
that, inter alia, increased the firefighter’s pension benefit and became effective on
January 1, 1998. The 1998 CBA states that “[t]he monthly amount of the normal
retirement benefit for those who retire on or after January 1, 1998 shall be equal to
seventy-five percent (75%) of the participant’s average compensation.” Article X(2)
of the 1998 CBA; Reproduced Record at 216a (R.R. __) (emphasis added).
1
11 Pa. C.S. §§10101-14702.
2
Act of July 15, 1957, P.L. 901, as amended, 53 P.S. §§41101-41625.
2
Although the 1998 CBA was silent on survivor benefits, it addressed “existing
benefits” as follows:
The purpose of this Agreement is to codify and incorporate all
existing benefits, terms and conditions of employment into an
all-inclusive Agreement. The Parties hereto agree that all
existing benefits, terms and conditions of employment currently
enjoyed by all members of the City of New Castle Fire
Department, but omitted from this Agreement are hereby
retained as if the same had been specifically set forth herein.
Article XVI of the 1998 CBA; R.R. 224a (emphasis added).3 The 1998 CBA has
been followed by successive agreements, but Article X and Article XVI (now Article
XVIII), as quoted above, have remained the same in each agreement.
On December 11, 1997, prior to the effective date of the 1998 CBA, the
City enacted Ordinance 7343. NEW CASTLE CITY ORDINANCE NO. 7343 (1997). It
set the survivor benefit in the City’s Firemen’s Pension Plan for firefighters retiring
after January 1, 1998, at 50% of the deceased firefighter’s average compensation at
the time of his or her retirement. Id. The Ordinance states, in relevant part, as
follows:
For any Firefighter retiring after January 1, 1998, the monthly
amount of the Survivor Benefit shall be equal to fifty percent
(50%) of the Participant’s Average Compensation at the time of
his/her retirement.
Id.
In 2007, the City was designated financially “distressed,” by the
Secretary of Community and Economic Development under the Municipalities
Financial Recovery Act.4 The City’s coordinator developed a recovery plan to
3
The same provision appears at Article XVIII in the current CBA. See R.R. 409a.
4
Act of July 10, 1987, P.L. 246, No. 47, as amended, 53 P.S. §§11701.101-11701.712 (Act 47).
3
address its financial issues. Section 221 of Act 47, 53 P.S. §11701.221; see also
Wilkinsburg Police Officers Association v. Pennsylvania Department of Community
Affairs and the Borough of Wilkinsburg, 636 A.2d 134, 135 (Pa. 1993). Notably,
“Act 47 does not allow for a plan to supersede an existing labor agreement, but once
a contract has expired, Act 47 prohibits any new contract from impairing the
implementation of the plan.” Fraternal Order of Police, Fort Pitt Lodge No. 1 v.
Yablonsky, 867 A.2d 658, 660 (Pa. Cmwlth. 2005); see also Section 252 of Act 47,
53 P.S. §11701.252.
On July 15, 2020, the Union filed a grievance, which stated as follows:
Recently, New Castle Firefighters Local 160 was made
aware that the Survivor’s Benefit for Dennis Stone’s widow was
reduced. According to SECTION 4322 of the Third Class City
Code:[5]
“Payments to surviving spouses of members retired on
pension or killed in the service on or after January 1, 1960 or
who die in the service on or after January 1, 1968 shall be the
amount payable to the member, or which would have been
payable had he retired at the time of his death.”
The Union contends this is a violation of Article III
Section 3 of the Collective Bargaining Agreement, and therefore
we are duly grieved.
5
Former Act of June 23, 1931, P.L. 932, as amended, 53 P.S. §39322; Section 4322 was repealed
by the Act of November 24, 2015, P.L. 242.
The language of former Section 4322 now appears at Section 14322(a)(3) of the Third
Class City Code and states, in relevant part, as follows: “Payments to surviving spouses of
members retired on pension or killed in service on or after January 1, 1960[,] or who die in service
on or after January 1, 1968, shall be the amount payable to the member, or which would have been
payable had the member been retired at the time of the member’s death.” 11 Pa. C.S. §14322(a)(3).
4
R.R. 416a (emphasis, including capitalization, in original). Thereafter, the grievance
was submitted to Act 1116 arbitration in accordance with Article XI of the CBA.7
On May 5, 2021, the arbitrator held a hearing during which the parties presented
testimonial and documentary evidence, including the testimony of individuals who
participated in the negotiation of the 1998 CBA.
The arbitrator found that the parties did not agree to change the survivor
benefit in the 1998 CBA from what it had been in 1997; the Union was not aware
that Ordinance 7343 had been enacted in December of 1997; and the Union never
agreed to reduce the survivor benefit to 50% as provided in Ordinance 7343. The
arbitrator found that with the enactment of Ordinance 7343, the City unilaterally
changed the survivor pension benefit from that bargained for in the 1998 CBA.
Based on these findings, the arbitrator awarded Mrs. Stone a survivor benefit equal
to the pension Stone had been receiving prior to his death, i.e., 75% of Stone’s final
average compensation.
On September 9, 2021, the City filed a petition to vacate the arbitration
award, asserting that the arbitrator exceeded his authority and that the award required
the City to perform an illegal act or acts. Specifically, the award required the City
to violate the Municipal Pension Plan Funding Standard and Recovery Act,8 which
requires an actuarial study be done before revising a municipal pension, and Act 47,
which governs financially distressed cities, such as New Castle.
6
The Policemen and Firemen Collective Bargaining Act, Act of June 24, 1968, P.L. 237, No. 111,
as amended, 43 P.S. §§217.1-217.12, commonly referred to as Act 111. Act 111 specifically
authorizes collective bargaining between police and firefighters and their public employers.
7
Article XI of the CBA states, in pertinent part, “[i]f the grievance is not settled at the fourth step,
the Union may within [21] days submit the matter to arbitration . . . .” R.R. 406a.
8
Act of December 18, 1984, P.L. 1005, No. 205, as amended, 53 P.S. §§895.101-895.1131 (Act
205).
5
The trial court denied the petition to vacate. It found no merit in the
City’s contentions.
In so holding, the trial court relied upon the arbitrator’s findings. The
arbitrator found that approximately one year before the inception of the 1998 CBA,
the City had undertaken an actuarial study of the impact of increasing survivor
benefits, as required by Act 205.9 Specifically, the arbitrator found, in pertinent part,
as follows:
In preparation for the 1997 labor negotiations for a successor
Collective Bargaining Agreement to the 1995-1997 Collective
Bargaining Agreement the City was concerned about the
excessive cost . . . of providing Firefighters an unlimited right to
accumulate and sell back sick days. With this concern in mind
the City had its actuary study the effect of improving the monthly
amount of the Normal Retirement Benefit for those Firefighters
who retire on or after January 1, 1998[,] from 50% of the
Participant’s Average Compensation to 75%. The actuary
looked at two (2) alternative proposals. The first proposal
involved changing the Survivor Benefit for any Firefighter
retiring after January 1, 1998[,] to a monthly amount equal to
50% of the Participant’s Average Compensation at the time of
retirement. The second proposal maintained the Survivor Benefit
at 100% of the amount payable to the retired Participant at the
time of retirement.
9
Section 301(a) of Act 205 states:
Notwithstanding any provision of law, municipal ordinance, municipal resolution,
municipal charter, pension plan agreement or pension plan contract to the contrary,
the applicable provisions of this chapter shall apply to any municipality which has
established and maintains, directly or indirectly, a pension plan for the benefit of
its employees, irrespective of the manner in which the pension plan is administered,
and to the respective pension plan.
53 P.S. §895.301(a). Section 305 of Act 205, 53 P.S. §895.305, requires an actuarial cost estimate
for any benefit plan modification.
6
Arbitration Award at 12; R.R. 663a (emphasis added). Given the actuarial study that
preceded the increase in the firefighter pension, the trial court held that the
arbitration award did not require the City to do an illegal act under Act 205. Because
the arbitration award construed the 1998 CBA, which predated the City’s Act 47
Recovery Plan by approximately 10 years, the arbitration award did not violate the
City’s recovery plan or Act 47.
On February 17, 2022, the trial court denied the City’s petition to
vacate, and the City appealed to this Court.
Appeal
On appeal, the City raises two issues.10 First, it contends that the
arbitrator exceeded his powers because the award orders the City to perform an
illegal act. The City will be required to pay a pension enhancement without a timely
Act 205 study and in contravention of the City’s Act 47 recovery plan. Second, it
contends that the arbitrator exceeded his jurisdiction by usurping the role of the
Pennsylvania Labor Relations Board (PLRB) in holding “that the City allegedly
failed to bargain over the enactment of a pension ordinance in 1997.” City Brief at
56.
In response, the Union argues that the trial court did not err because the
arbitration award does not require the City to perform an illegal act under either Act
205 or Act 47. The arbitrator determined that the 1998 CBA left “existing benefits,”
including those paid to surviving spouses, unchanged from the prior CBA, which
10
Our review in cases arising under Act 111 is narrow certiorari. We consider questions relative
to four issues, i.e., “(1) the jurisdiction of the arbitrator, (2) the regularity of the proceedings, (3)
whether the arbitrator exceeded his powers, and (4) whether there has been deprivation of
constitutional rights.” Town of McCandless v. McCandless Police Officers Association, 901 A.2d
991, 995 (Pa. 2006).
7
had awarded a surviving spouse a continued payment of the firefighter’s pension.
Further, the award is based solely on the language of the CBA and not upon a failure
to bargain.
Analysis
An arbitration award is subject to a deferential standard of review.
Nevertheless, an arbitrator may not order a public employer to do an illegal act.
Rather, a public employer can be ordered to do only what the employer can do
voluntarily. Pennsylvania State Police v. Pennsylvania State Troopers’ Association
(Betancourt), 656 A.2d 83, 90 (Pa. 1995). An arbitration award must bear a rational
relationship to the terms or conditions of employment, defined in Act 111 as
“compensation, hours, working conditions, retirement, pensions and other benefits.”
Section 1 of Act 111, 43 P.S. §217.1.
Merely because a court differs in its interpretation of the collective
bargaining agreement is “insufficient justification for vacating an award.” State
System of Higher Education (Cheyney University) v. State College University
Professional Association (PSEA-NEA), 743 A.2d 405, 411 (Pa. 1999) (Cheyney
University). Under the so-called “essence test,”
there is a strong presumption that the Legislature and the parties
intended for an arbitrator to be the judge of disputes under a
collective bargaining agreement. That being the case, courts
must accord great deference to the award of the arbitrator chosen
by the parties. A fortiori, in the vast majority of cases, the
decision of the arbitrator shall be final and binding upon the
parties. However, there exists an exception to this finality
doctrine. The arbitrator’s award must draw its essence from the
collective bargaining agreement. Pursuant to the essence test . . .
a reviewing court will conduct a two-prong analysis. First, the
court shall determine if the issue as properly defined is within the
terms of the collective bargaining agreement. Second, if the
issue is embraced by the agreement, and thus, appropriately
8
before the arbitrator, the arbitrator’s award will be upheld if the
arbitrator’s interpretation can rationally be derived from the
collective bargaining agreement. That is to say, a court will only
vacate an arbitrator’s award where the award indisputably and
genuinely is without foundation in, or fails to logically flow
from, the collective bargaining agreement.[]
Id. at 413 (footnotes omitted). If the interpretation of the CBA can in any rational
way be derived from the agreement, it must be respected. Westmoreland
Intermediate Unit #7 v. Westmoreland Intermediate Unit #7 Classroom Assistants
Educational Support Personnel Association (PSEA/NEA), 939 A.2d 855, 862 (Pa.
2007).
The City argues that the arbitration award requires it to do what it
cannot do voluntarily. City Brief at 21. Specifically, it argues that the survivor
benefit ordered by the arbitrator is an enhancement that violates two statutes: Act
205 and Act 47.
Under Act 205, a municipality must undertake an actuarial study before
making a benefit plan modification to ensure the pension is sound. See, e.g., City of
Erie v. International Association of Firefighters Local 293, 836 A.2d 1047, 1051
(Pa. Cmwlth. 2003). Section 305 of Act 205 states, in pertinent part, as follows:
(a) Presentation of cost estimate.--Prior to the adoption
of any benefit plan modification by the governing
body of the municipality, the chief administrative
officer of each pension plan shall provide to the
governing body of the municipality a cost estimate
of the effect of the proposed benefit plan
modification.
****
(e) Contents of cost estimate.--Any cost estimate of the
effect of the proposed benefit plan modification
shall be complete and accurate and shall be
presented in a way reasonably calculated to disclose
9
to the average person comprising the membership
of the governing body of the municipality, the
impact of the proposed benefit plan, the
modification on the future financial requirements of
the pension plan and the future minimum obligation
of the municipality with respect to the pension plan.
53 P.S. §895.305(a), (e). The City argues that without “an actuarial cost estimate
conducted in accordance with Section 305 of Act 205,” the City cannot lawfully
provide a benefit enhancement to surviving spouses. City Brief at 14-15. Further,
the arbitration award’s benefit enhancement violates the City’s Act 47 recovery plan,
which “continues to prohibit increases to the pension or retiree medical benefits for
current, future or retired employees.” Actuarial Valuation Report for City of New
Castle at 59; R.R. 371a. In support, the City cites Section 252 of Act 47, 53 P.S.
§11701.252 (stating CBAs executed after the adoption of a plan cannot violate,
expand or diminish the plan’s provisions).
The City’s argument is based on the premise that the award directed an
“enhancement” to survivor benefits. The 1998 CBA increased the firefighter
pension benefit from 50% to 75%, but it was silent on the level of the survivor
benefit. The CBA stated that “existing benefits” that were “omitted from this
Agreement are hereby retained[.]” Article XVI of the 1998 CBA; R.R. 224a. There
are two ways to read this clause: it retained the survivor benefit at 50% of the
firefighter’s final average compensation while raising the firefighter’s pension
benefit to 75%, or it retained a survivor benefit equal to that of the retired firefighter.
The arbitrator read Article XVI to mean that the survivor was entitled
to a continued payment of the firefighter’s pension, resolving the ambiguity in favor
of the Union. Our Supreme Court has directed that “[t]he arbitrator’s award must
be ‘respected by the judiciary if the interpretation can in any rational way be derived
10
from the agreement.’” Westmoreland Intermediate Unit #7, 939 A.2d at 862
(quoting Community College of Beaver County v. Community College of Beaver
County, Society of Faculty (PSEA/NEA), 375 A.2d 1267, 1275 (Pa. 1977)) (emphasis
added). That this Court may have construed the existing benefit clause differently
is of no moment. So long as the award draws its essence from the language of the
1998 CBA, it must be affirmed. Here, the award draws its essence from Article XVI
of the 1998 CBA.
In any case, the arbitration award does not compel the City to do illegal
acts. With respect to Act 205, the study of November 18, 1996, considered the
impact of an increase in retirement benefits for firefighters from 50% of average
final compensation to 75%, as well as survivor benefits at both the 50% and 75%
rates. See Trial Court Op., 2/17/2022, at 7; R.R. 132a. With respect to Act 47, the
arbitrator explained that “[t]here was no mention of the [s]urvivor [b]enefit in the
1998-2002 [CBA]. Nor [has] there ever been any mention of the [s]urvivor [b]enefit
in any of the [] subsequent agreements.” Arbitration Award at 13; R.R. 664a. “Act
47 prohibits any new contract from impairing the implementation of the plan,” but
it does not permit a recovery plan “to supersede an existing labor agreement.”
Yablonsky, 867 A.2d at 660. Here, because the existing labor agreement has
remained unchanged since 1998, it did not impair the City’s Act 47 recovery plan.
Simply, the award did not enhance the survivor benefit, and the trial court did not
err in refusing the City’s petition to vacate.
We next consider the City’s argument that the arbitrator exceeded his
jurisdiction by ruling that the City did not bargain over Ordinance 7343. The City
contends that failing to bargain is not an issue that can be resolved through an
interpretation of the CBA. In this regard, the City maintains that a failure to bargain
11
over Ordinance 7343 would constitute an unfair labor practice and, thus, falls within
the exclusive jurisdiction of the PLRB. City Brief at 51. Our Supreme Court has
explained that if a party seeks redress of an arguably unfair labor practice,
“jurisdiction to determine whether an unfair labor practice has indeed occurred and,
if so, to prevent a party from continuing the practice is in the PLRB, and nowhere
else.” Hollinger v. Department of Public Welfare, 365 A.2d 1245, 1249 (Pa. 1976).
Here, the arbitrator found “the City unilaterally changed the [s]urvivor
[b]enefit in violation of the [CBA]” based on the issue put before him by the parties.
Arbitration Award at 20; R.R. 671a. The arbitration award was not a ruling on
Ordinance 7343 or a failure to negotiate. In considering the parties’ competing
interpretations of the 1998 CBA, the arbitrator considered whether Ordinance 7343
could be used to resolve the ambiguity in the CBA. The arbitrator concluded that
the contract language, not Ordinance 7343, was dispositive. The arbitrator did not
exceed his jurisdiction by holding Ordinance 7343 irrelevant to his construction of
the 1998 CBA.
The arbitrator arrived at a reasoned interpretation of the 1998 CBA,
concluding that the City violated the parties’ agreement by paying Stone’s surviving
spouse a pension lower than what Stone had received in his lifetime. As our
Supreme Court stated in Cheyney University:
[A] reviewing court will conduct a two-prong analysis. First, the
court shall determine if the issue as properly defined is within the
terms of the collective bargaining agreement. Second, if the
issue is embraced by the agreement, and thus, appropriately
before the arbitrator, the arbitrator’s award will be upheld if the
arbitrator’s interpretation can rationally be derived from the
collective bargaining agreement.
12
Cheyney University, 743 A.2d at 413 (emphasis added). Firefighter pensions, and
accompanying benefits, are plainly embraced within Sections X and XVI of the 1998
CBA. While several considerations factored into the arbitrator’s interpretation of
the CBA, the award was rationally derived from it.
Conclusion
For the foregoing reasons, we affirm the order of the trial court, which
affirmed the award of the arbitrator.
____________________________________________
MARY HANNAH LEAVITT, President Judge Emerita
13
IN THE COMMONWEALTH COURT OF PENNSYLVANIA
City of New Castle, :
Appellant :
:
v. : No. 242 C.D. 2022
:
International Association of :
Firefighters, Local 160 :
ORDER
AND NOW, this 22nd day of November, 2022, the February 17, 2022,
order of the Court of Common Pleas of Lawrence County, in the above-captioned
matter, is AFFIRMED.
____________________________________________
MARY HANNAH LEAVITT, President Judge Emerita | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494611/ | MEMORANDUM DECISION AND ORDER
DOROTHY T. EISENBERG, Bankruptcy Judge.
Before this Court is the Plaintiff Debt- or’s motion for summary judgment (the “Motion”) and the cross motion for summary judgment by Wachovia Mortgage, the Defendant (the “Cross Motion”). At issue is whether the Defendant’s second mortgage lien upon the Debtor’s primary residence located at 115-58 238th Street, Elmont, New York 11003 (the “Property”) can be declared wholly unsecured and therefore void pursuant to 11 U.S.C. § 502. This Court has jurisdiction of this adversary proceeding pursuant to 28 U.S.C. §§ 157 and 1334, and venue is proper pursuant to 28 U.S.C. § 1409. This action is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (K) and (O) and 11 U.S.C. § 506. The following constitutes the Court’s findings of fact and conclusions of law as mandated by Rule 7052 of the Federal Rules of Bankruptcy Procedure.
FACTS
The parties have stipulated to the following undisputed facts. On September 20, 2006, the Debtor took out two loans from World Savings Bank, the Defendant’s predecessor, in exchange for (1) a first mortgage in the original principal amount of $349,800.00, and (2) second mortgage with respect to a home equity line of credit (“HELOC”) in the original principal amount of up to $69,960.00 (the “Credit Line Mortgage”). The HELOC is evidenced by an Equity Line of Credit Agreement and Disclosure Statement (“LOC Agreement”). The Debtor used the funds to purchase the subject Property for $466,400.00. Both the first mortgage and the Credit Line Mortgage gave the Defendant security interests in the Property and such mortgages were recorded with the Nassau County Clerk’s Office.
The Debtor filed a petition for bankruptcy relief under Chapter 7 on August 30, 2010 (the “Petition Date”) and commenced this adversary proceeding to avoid the second mortgage lien on November 5, 2010. On the Petition Date, the total balance due on the first mortgage was $370,601.02 and the total balance due on the HELOC was $70,749.67. The Plaintiffs appraisal of the Property valued it at $340,000.00, while the Defendant’s appraisal valued the Property at $325,000.00. The Debtor obtained her chapter 7 discharge on November 24, 2010.
DISCUSSION
It is appropriate for a Court to grant a motion for summary judgment if there are no genuine triable issues of material fact. See e.g., Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Knight v. U.S. Fire Ins. Co., 804 F.2d 9, 11 (2d Cir.1986). The factual ques*732tion before this Court is the value of the Property. Regardless of which appraisal value is adopted by this Court, it is undisputed that the amount outstanding on the first mortgage exceeds the value of the Property and the second mortgage lien is wholly unsecured by the value of the Property. Accordingly, there is no genuine triable issue of material fact. The only inquiry is whether the Credit Line Mortgage can be voided and “stripped off’ pursuant to 11 U.S.C. § 506. Therefore, the Motion and Cross Motion are appropriate for summary judgment.
In the first instance, the Court needs to determine whether a credit line mortgage based upon a home equity line of credit is treated the same as a mortgage. The Court looks to New York state law as such “property interests are created and defined by state law.” Butner v. United States, 440 U.S. 48, 54-55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Pursuant to New York Real Property Law § 281, a “credit line mortgage” means:
any mortgage or deed of trust ... which states that it secures indebtedness under a note, credit agreement or other financing agreement that reflects the fact that the parties reasonably contemplate entering into a series of advances, payments and readvances, and that limits the aggregate amount at any time outstanding to a maximum amount specified in such mortgage or deed of trust....
N.Y. Real Prop. Law § 281(l)(a).
The Credit Line Mortgage at issue and the HELOC provide that in exchange for the ability of the Debtor to borrow up to a maximum amount of $69,960.00, the Debt- or acknowledges that she would repay the sums that were advanced to her, and that she would mortgage, grant and convey to the lender and lender’s successors the Property in order to secure the repayment of the funds advanced and any future advances. In addition, the United States Supreme Court has defined a “mortgage” as being “an interest in real property that secures a creditor’s right to repayment,” Johnson v. Home State Bank, 501 U.S. 78, 82, 111 S.Ct. 2150, 115 L.Ed.2d 66 (U.S.1991), which was the purpose of the Credit Line Mortgage that securitized the HE-LOC at issue. While a home equity line of credit is not a traditional mortgage in that future advances, and not just the original amount advanced are secured by the same instrument, it nevertheless does give rise to a securitized lien against real property. Accordingly, the Credit Line Mortgage with respect to the HELOC is treated the same as any other mortgage lien.
In order to determine whether a subordinate mortgage lien can be “stripped off’, the Court looks to section 506 of the Bankruptcy Code, which provides in pertinent part:
(a) (1) An allowed claim of a creditor secured by a lien on property in which the estate has an interest, or that is subject to setoff under section 553 of this title, is a secured claim to the extent of the value of such creditor’s interest in the estate’s interest in such property, or to the extent of the amount subject to setoff, as the case may be, and is an unsecured claim to the extent that the value of such creditor’s interest or the amount so subject to set off 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, and in conjunction with any hearing on such disposition or use or on a plan affecting such creditor’s interest.
*733(d) To the extent that a lien secures a claim against the debtor that is not an allowed secured claim, such lien is void, unless—
(1) such claim was disallowed only under section 502(b)(5) or 502(e) of this title; or
(2) such claim is not an allowed secured claim due only to the failure of any entity to file a proof of such claim under section 501 of this title.
11 U.S.C. § 506(a) and (d). In this case, neither exception under section 506(d)(1) and (d)(2) is applicable. Therefore, a lien that secures a claim that is not an allowed secured claim shall be void under section 506(d).
Defendant argues that the U.S. Supreme Court’s decision in Dewsnup v. Timm, 502 U.S. 410, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), precludes this Court from “stripping off’ the Credit Line Mortgage. Dewsnup held that section 506(d) does not allow a debtor petitioner to “strip down” a hen held by respondent creditors, because such creditors’ claim is secured by some value in the petitioner’s real property. Dewsnup, 502 U.S. at 417, 112 S.Ct. 773. Similarly, in Nobelman v. American Sav. Bank, 508 U.S. 324, 328-31, 113 S.Ct. 2106, 124 L.Ed.2d 228 (1993), the Supreme Court held that as long as some portion of a creditor’s lien was secured by the debt- or’s residence in a chapter 13 case, the creditor would be considered a holder of a “claim secured only by ... the debtor’s principal residence,” and the creditor’s rights in the entire lien were protected under the anti-modification exception of 11 U.S.C. § 1322(b)(2). The facts in Dewsn-up and Nobelman are similar in that each of the debtors sought to “strip down” a hen that was secured by some value in the debtor’s property. The cases differ in that the former is a chapter 7 case while the latter is a chapter 13 case. However, both decisions were limited to its specific facts and thus, these cases should be narrowly construed. Neither of these cases dealt with the “strip off’ of a subordinate hen that is wholly unsecured by any value in the debtor’s real property.
Some courts have held that the Supreme Court’s reasoning in Dewsnup applied to a “strip off” as well as a “strip down”, including a few in this district. Talbert v. City Mortgage Services (In re Talbert), 344 F.3d 555 (6th Cir.2003); Ryan v. Homecomings Financial Network (In re Ryan), 253 F.3d 778 (4th Cir.2001); Laskin v. First Nat. Bank of Keystone (In re Laskin), 222 B.R. 872 (9th Cir. BAP 1998); Pomilio v. MERS (In re Pomilio), 425 B.R. 11 (Bankr.E.D.N.Y.2010); In re Caliguri, 431 B.R. 324 (Bankr.E.D.N.Y.2010). However, in the Second Circuit, the present controlling precedent for a debtor’s ability to “strip off” a subordinate mortgage hen that is wholly unsecured is the Court of Appeals’ decision in In re Pond, 252 F.3d 122 (2d Cir.2001). In light of Pond, the decisions of the other circuit courts and the bankruptcy courts in this circuit are persuasive but not controlling authority. Jones v. Pilgrim’s Pride, Inc., 741 F.Supp.2d 1272, 1277 (N.D.Ala.2010) (noting that to the extent any bankruptcy courts, district courts or any other circuit courts have held otherwise, such decisions are only persuasive as the court must adhere to the circuit court decision in which it sits); In re Finley, Kumble, Wagner, Heine, Underberg, Manley, Myerson & Casey, 160 B.R. 882, 898 (Bankr.S.D.N.Y.1993).
In Pond, the Court of Appeals for the Second Circuit analyzed the Nobelman decision and noted that it is “correct to look to § 506(a) for a judicial valuation of the collateral to determine the status of a creditor’s secured claim.” Id., 252 F.3d at *734126 (quoting Nobelman, 508 U.S. at 328, 113 S.Ct. 2106). The Second Circuit then concluded that in a chapter 13 case, a wholly unsecured claim pursuant to section 506(a) is not protected by the anti-modification exception of section 1322(b) and thus, a wholly unsecured subordinate mortgage lien can be declared void under section 506(d). Pond, 252 F.3d at 127. Other courts have dealt with wholly unsecured mortgage liens in chapter 13 cases in a similar fashion. See e.g., Zimmer v. PSB Lending Corp. (In re Zimmer), 313 F.3d 1220, 1221 (9th Cir.2002); McDonald v. Master Fin., Inc. (In re McDonald), 205 F.3d 606, 615 (3d Cir.2000) (holding that wholly unsecured subordinate home equity mortgages are not subject to the anti-modification provision of section 1322 and can be voided). These courts have held that a wholly unsecured lien is not “secured” within the meaning of section 506(a) of the Bankruptcy Code, and thus open to being voided under section 506(d) and section 1322(b)(2).
Some courts have held that Pond cannot be applied to a chapter 7 case because section 506(d) of the Bankruptcy Code serves the function of voiding a lien whenever the claim securing such lien has been disallowed. Talbert, 344 F.3d at 559; Pomilio, 425 B.R. at 16. In a no asset chapter 7 case, it is argued that the claims adjudicative process would not be invoked because claims need not be filed and thus the subordinate mortgagee’s claim is deemed allowed pursuant to 11 U.S.C. § 502(a). In a chapter 13 case, the plan provides for the allowance and disallowance of claims. Caliguri, 431 B.R. at 327-28.
Section 502(a) of the Bankruptcy code provides that “[a] claim or interest ... is deemed allowed, unless a party in interest ... objects.” 11 U.S.C. § 502(a). Regardless of whether there are assets available for distribution in a chapter 7 case, where a debtor, a “party in interest”, commences an adversary proceeding pursuant to Fed. R. Bankr.P. 7001(2) to “determine the validity, priority, or extent of a lien or other interest in property” there is a formal objection to such creditor’s lien or interest in property. There need not be a filed proof of claim in order to determine whether the claim or interest against the Debtor’s property should be allowed or removed. The determination of whether a lien or interest against property is unsecured and thus disallowed as a secured claim is made independently of whether there are any assets available for distribution to general unsecured creditors.
There is no separate provision in the Bankruptcy Code for determining whether a lien or interest is secured for a no asset chapter 7 case as opposed to one with assets for distribution. Nor is there any statutory prohibition in the application of sections 506(a) and (d) to chapter 7 cases.
As the Court of Appeals in Pond noted, in making a judicial valuation of the collateral at issue to determine the status of a creditor’s secured claim, it is proper to look to section 506. As this Court previously stated in In re Lavelle, No. 09-72389, 2009 WL 4043089, 2009 Bankr.LEXIS 3795 (Bankr.E.D.N.Y. Nov. 25, 2009), “[t]he plain meaning is applied to Chapter 13 section 1322(b)(2) analysis where the lien is wholly unsecured, and there is no logical reason to read the text differently when applied to chapter 7 wholly unsecured hens.” Lavelle, 2009 WL 4043089, *6, 2009 Bankr.LEXIS 3795, *16. Indeed, if sections 506(a) and (d) were intended only for the organizational chapters of the Bankruptcy Code, then Congress could have simply limited the language in sections 506(a) and (d) to exclude chapter 7.
*735Some argue that a bankruptcy discharge only extinguishes a creditor’s ability to enforce a claim against a debtor in person-am but leaves intact the creditor’s rights against the debtor in rem and that a discharge of a wholly unsecured mortgage lien would result in a windfall to the debtor at the expense of the creditor. Talbert, 344 F.3d at 559-60; Ryan, 253 F.3d at 781-82; Pomilio, 425 B.R. at 15-16; Caliguri, 431 B.R. at 328. Again, this Court looks to the Second Circuit decision in Pond and finds that the effect of a discharge on a creditor whose wholly unsecured mortgage lien is “stripped off’ should not be different whether the debtor files a chapter 7 or chapter 13. Moreover, Chapter 7 debtors often do not have sufficient disposable income that would enable them to make regular payments under a chapter 13 plan. A chapter 7 creditor with a wholly unsecured mortgage claim may receive some distribution on its claim if there are assets for distribution to general unsecured creditors. Yet any windfall to a chapter 7 debtor as a result of avoidance of a wholly unsecured mortgage lien would not be greater than the debtor would have received if the debtor had filed for chapter 13 relief instead. Under Pond, chapter 13 debtors are permitted to void a wholly unsecured mortgage lien and often they only need to make payments under a plan on the recharacterized unsecured claim at a discount of the amount of the claim. However, as a chapter 13 debtor continues to make payments on the senior secured mortgage lien, the debtor is building up equity in the property that would never benefit the subordinate mortgagee whose claim had been recharacterized as wholly unsecured. If courts in this Circuit have to determine whether a wholly unsecured mortgage lien should be voided under sections 506(a) and (d) based upon whether the debtor files for chapter 7 or chapter 13 bankruptcy relief, then this would result in the treatment of a creditor’s claim being subject to the whims of the debtor. While a subordinate mortgage lien is consensual and “bargained for”, it is questionable that such mortgage lien holder bargained for different treatment of its lien under different chapters of the Bankruptcy Code with the debtor having control of the type of bankruptcy relief sought.
The Court recognizes that the economic climate may change in the future which would result in some equity in excess of the first mortgage lien that would benefit the subordinate mortgagee. However, in the present economic environment, even if a wholly unsecured, subordinate mortgage lien is not voided, a debtor who is unable to make payments on the senior mortgage and/or the subordinate mortgage would have the automatic stay modified upon application of a mortgagee and the real property would be subject to a foreclosure sale that would not result in any recovery to the subordinate mortgagee. To the extent there is some value in the property securing a subordinate mortgagee’s lien at the time a bankruptcy case is filed, Dewsnup and Nobelman would apply and whether the subordinate mortgage can be stripped off would not even be an issue.
Moreover, in analyzing the scope of the anti-modification clause under section 1322(b), the Third Circuit reasoned that, inter alia, second mortgages are similar to other general creditors and should not be entitled to the same protections given to a first mortgage on real property. The court stressed that:
as Justice Stevens noted in his concurrence [in Nobelman ], the antimodification clause’s legislative history shows that the provision’s “favorable treatment of residential mortgagees was intended to encourage the flow of capital into the home lending market.” 508 U.S. at 332, 113 S.Ct. at 2112. Because second *736mortgages are rarely used to purchase a home, making wholly unsecured second mortgages subject to the antimodification clause would have at best a minimal impact in encouraging home building and buying. The holder of a second mortgage is apt to be very much like other general creditors, and therefore it seems reasonable that a wholly unsecured second mortgage will be subject to the same rules that apply to other secured claims — i.e., a claim not secured by any current value in the specified collateral is deemed an unsecured claim.
In re McDonald, 205 F.3d at 613. See also, In re Zimmer, 313 F.3d at 1227 (finding no evidence of any congressional policy in favor of promoting subsequent mortgages that are entirely unsecured due to a lack of equity in property). Given that wholly unsecured subordinate mortgage liens are treated like any other unsecured claims in a chapter 13, there is no reason why they should be given special protection in the context of a chapter 7. In light of this Circuit’s decision in Pond and the reasons set forth in the foregoing, the Court finds no significant differences between a chapter 7 and a chapter 13 that would warrant different treatment of a wholly subordinated mortgage lien under the same section of the Bankruptcy Code and there is no reason why the holding in Pond cannot be extended to chapter 7 cases. Until there is superceding authority in this Circuit that holds otherwise, this Court finds that the application of Pond to a chapter 7 case, and in particular, the adversary proceeding before it, is appropriate.
Here, the Debtor has commenced this adversary proceeding as an objection to the Defendant’s subordinate mortgage claim against his Property. As discussed above, where the amount outstanding on the first mortgage is greater than the value of the Property, the Defendant’s subordinate Credit Line Mortgage is wholly unsecured pursuant to section 506(a). Because such Credit Line Mortgage is wholly unsecured, such mortgage lien held by the Defendant is null and void pursuant to section 506(d) and the mortgage claim shall be recharacterized as a general unsecured claim against the Debtor’s bankruptcy estate.
CONCLUSION
Based upon the foregoing, Plaintiffs Motion seeking a determination that (1) the Defendant’s subordinate mortgage lien is wholly unsecured pursuant to 11 U.S.C. § 506(a) and (2) such lien be deemed null and void pursuant to 11 U.S.C. § 506(d) is granted, and the Defendant’s Cross-Motion is denied.
So Ordered. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494612/ | OPINION
DAVID W. HOUSTON, III, Bankruptcy Judge.
On consideration before the court is a motion for summary judgment filed by the Mississippi Department of Revenue, f/k/a Mississippi State Tax Commission, (“MDR”); response to said motion having been filed by the plaintiffs, Timothy R. Brown and Karon J. Brown, (“debtors”), along with their cross-motion for summary judgment to which MDR has filed its response; both motions address the primary issue in this adversary proceeding which is whether the debtors’ tax liabilities to MDR for 2001 and 2003 are dischargeable in their bankruptcy case; and the court, having heard and considered same, hereby finds as follows, to-wit:
I.
The court has jurisdiction of the parties to and the subject matter of this proceeding pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157. This is a core proceeding as defined in 28 U.S.C. § 157(b)(2)(i).
II.
MDR and the debtors submitted the following agreed statement of undisputed facts, [Dkt. # 22] to-wit:
1. Timothy and Karon Brown filed a 2001 Mississippi Income Tax Return.
2. Timothy and Karon Brown filed a 2003 Mississippi Income Tax Return.
3. Timothy and Karon Brown requested an extension of time to file their 2001 Income Tax Return through August 15, 2002.
4. Timothy and Karon Brown requested an extension of time to file their 2003 Income Tax Return through October 15, 2004.
5. Timothy and Karon Brown’s 2001 unsigned Mississippi Income Tax Return shows a print/preparation date of October 13, 2002.
6. The Mississippi Department of Revenue processed Timothy and Karon Brown’s 2001 Mississippi Income Tax Return on or about October 30, 2002.
7. Timothy and Karon Brown filed their 2003 Mississippi Income Tax Return on or about November 1, 2004.
8. Timothy and Karon Brown filed their 2001 Federal Income Tax Return on November 25, 2002.
9. Timothy and Karon Brown filed their 2003 Federal Income Tax Return on November 22, 2004.
*780III.
Summary judgment is properly granted when pleadings, depositions, answers to interrogatories, and admissions on file, together with affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law. Bankruptcy Rule 7056; Uniform Local Bankruptcy Rule 18. The court must examine each issue in a light most favorable to the nonmoving party. Anderson v. Liberty Lobby, 477 U.S. 242, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986); Phillips v. OKC Corp., 812 F.2d 265 (5th Cir.1987); Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D.Miss.1987). The moving party must demonstrate to the court the basis on which it believes that summary judgment is justified. The non-moving party must then show that a genuine issue of material fact arises as to that issue. Celotex Corporation v. Catrett, 477 U.S. 317, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986); Leonard v. Dixie Well Service & Supply, Inc., 828 F.2d 291 (5th Cir.1987), Putman v. Insurance Co. of North America, 673 F.Supp. 171 (N.D.Miss.1987). An issue is genuine if “there is sufficient evidence favoring the nonmoving party for a fact finder to find for that party.” Phillips, 812 F.2d at 273. A fact is material if it would “affect the outcome of the lawsuit under the governing substantive law.” Phillips, 812 F.2d at 272.
IV.
On February 3, 2003, and again on January 13, 2010, MDR enrolled and re-enrolled Lien No. 000415582 on the Judgment Roll of Tate County, Mississippi, against the debtors for their 2001 income tax liability in the amount of $1,796.28. On October 18, 2005, MDR enrolled Lien No. 0490726-1 against the debtors for their 2003 income tax liability in the amount of $1,619.19. The debtors outstanding tax debt as of the petition date was $3,017.82, including interest at 12% per year.
The debtors had requested earlier an extension through August 15, 2002, to file their 2001 tax return. The return, which was unsigned when filed, reflected a print/preparation date of October 13, 2002. As set forth in the affidavit of Lisa Chism, the MDR Individual Income Tax Director, MDR processed the debtors’ 2001 income tax return on October 30, 2002. According to the Internal Revenue Service’s (IRS) tax transcript, the debtors filed their 2001 federal income tax return on November 25, 2002, and were assessed a late fee penalty because of their tardiness.
The debtors requested an initial extension through August 15, 2004, to file their 2003 tax return, and, following a second extension request, were granted until October 15, 2004 to file this return. According to Chism’s affidavit, this return was not actually filed until November 1, 2004. The IRS’s tax transcript reflects that the debtors filed their 2003 federal income tax return on November 22, 2004.
In their responses to MDR’s interrogatories, the debtors stated they were not sure when they filed their 2001 and 2003 state returns, but “they would show that they were filed simultaneously with their 2001 and 2003 Federal Income Tax Returns.” This confirms that the returns were filed late after both extension dates had expired.
V.
Primarily, four applicable provisions of law apply to this adversary proceeding. Two are found in the United States Bankruptcy Code, and two are found in the tax laws of the State of Mississippi.
Section 523(a)(1)(B) of the Bankruptcy Code provides as follows:
*781(a) A discharge under section 727, 1141, 1228(a) 1228(b), or 1328(b) of this title does not discharge an individual debtor from any debt—
(1) for a tax or a customs duty—
(B) with respect to which a return, or equivalent report or notice, if required—
(i) was not filed or given; or
(ii) was filed or given after the date on which such return, report, or notice was last due, under applicable law or under any extension, and after two years before the date of the filing of the petition; or
As a part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), § 523(a) of the Bankruptcy Code was amended, effective October 17, 2005, to specifically add the following definition of “return” in an unnumbered paragraph inserted immediately after § 523(a)(19), to-wit:
For the purposes of this subsection, the term ‘return’ means a return that satisfies the requirements of applicable non-bankruptcy law (including applicable filing requirements). Such term includes a return prepared pursuant to § 6020(a) of the Internal Revenue Code of 1986, or a similar State or local law, or a written stipulation to a judgement or a final order entered by a non-bankruptcy tribunal, but does not include a return made pursuant to § 6020(b) of the Internal Revenue Code of 1986, or a similar State or local law.
Mississippi Code Annotated § 27-7-41 (1980) states as follows:
Returns of individuals, estates, trusts and partnerships shall be filed on or before the fifteenth day of the fourth month following the close of the fiscal year; or if the return is filed on the basis of a calendar year, it shall be filed on or before April 15th of each year.
Miss.Code Ann. § 27-7-50 (1982) states as follows:
[t]he commissioner may grant a reasonable extension of time beyond the statutory due date within which to file any return required by this chapter when it is shown to the satisfaction of the commissioner that good cause for such extension exists. The commissioner may, in his discretion, automatically recognize extensions of time authorized and granted by the Internal Revenue Service for the filing of annual income tax returns.
Considering the extensions that were permitted, the debtors’ 2001 and 2003 income tax returns were due on August 15, 2002, and October 15, 2004, respectively. As acknowledged in the statement of undisputed facts, these two returns were not timely filed pursuant to applicable non-bankruptcy law, including applicable filing requirements. As such, they are not considered as returns and the underlying tax liabilities are non-dischargeable pursuant to 11 U.S.C. § 523(a)(1)(B). See this court’s decision in Creekmore v. Internal Revenue Service, 401 B.R. 748 (Bankr.N.D.Miss.2008), and Weiland v. State of Miss. Department of Revenue (In re Weiland), 465 B.R. 108 (Bankr.N.D.Miss.2011). See also, McCoy v. Miss. State Tax Comm. (In re McCoy), 2009 WL 2835258 (Bankr.S.D.Miss.2009).
The debtors argued in their cross-motion for summary judgment that pursuant to the Eighth Circuit decision of In re Colsen, 446 F.3d 836, 839 (8th Cir.2006), a “return” is a tax return if it “... contains sufficient information to permit a tax to be calculated” and “purports to be a return, is sworn to as such, and evinces an honest and genuine endeavor to satisfy the law.” Colsen, 446 F.3d at 839. The Colsen deci*782sion applied sections of the Bankruptcy Code that existed prior to the enactment of BAPCPA, which primarily became effective to cases filed on and after October 17, 2005. Colsen, also followed the minority view “that a taxpayer’s filing a Form 1040 after an assessment by the IRS constituted a ‘return.’” Creekmore, 401 B.R. at 751. Colsen is simply not applicable to the subject case which was filed subsequent to the amendment to § 523(a), i.e., the unnumbered paragraph following § 523(a)(19). “The definition of ‘return’ in amended § 523(a) apparently means that a late filed income tax return, unless it was filed pursuant to § 6020(a) of the Internal Revenue Code, can never qualify as a return for dischargeability purposes because it does not comply with the ‘applicable filing requirements’ set forth in the Internal Revenue Code.” Creekmore, 401 B.R. at 751.
Counsel for the debtors pointed out that a late filed return can be discharged after BAPCPA if the return is prepared by the Secretary of the Treasury and is signed by the tax payer pursuant to 26 U.S.C. § 6020(a), contending that this section should apply to state income tax returns. This court has previously addressed this “safe harbor” provision. See, Creekmore, supra. However, not only did the Secretary not prepare the debtors’ returns, but the State of Mississippi’s tax laws do not have a “safe harbor” provision that is analogous to § 6020(a). As such, § 6020(a) applies only to federal income tax returns, not to Mississippi’s state income tax returns.
VI.
Based upon the foregoing, the court is of the opinion that there are no genuine issues of material fact remaining in dispute with regard to MDR’s complaint against the debtors. MDR, therefore, is entitled to a judgment as a matter of law that its tax claims against the debtors are non-dischargeable pursuant to 11 U.S.C. § 523(a)(l)(B)(i) and the unnumbered paragraph following § 523(a)(19). The debtors’ motion for summary judgment is not well taken and must be overruled. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494805/ | MEMORANDUM DECISION GRANTING PLAINTIFF’S MOTION FOR SUMMARY JUDGMENT
CECELIA G. MORRIS, Chief Judge.
The Plaintiff brings this adversary proceeding against the Debtor in order to have her sexual harassment judgment in the amount of $200,000 excepted from discharge as a willful and malicious injury, pursuant to 11 U.S.C. § 523(a)(6). This Court holds that the debt should be excepted from discharge under section 523(a)(6), as it was incurred as a result of the Debtor willfully and maliciously causing injury to the Plaintiff.
Background
On April 29, 2012, Debtor filed a Voluntary Petition for Relief under Chapter 13 of the Bankruptcy Code. Prior to the bankruptcy filing, Plaintiff commenced a sexual harassment lawsuit against Debtor in the United States District Court for the Southern District of New York. See PL’s Mot. Summ. J. Ex. B (Complaint in District Court action). The basis of her claim was that Debtor created a “sexually hostile or abusive work environment,” a form of gender discrimination under federal law. PL’s Mot. Summ. J. Ex. C, at 499, 518 (District Court Trial Transcript).
On June 21, 2007, a Southern District of New York jury awarded the Plaintiff $150,000 in compensatory damages and $50,000 in punitive damages. Id. at 518-23. The jury found that the Plaintiffs right to Equal Protection under the 14th Amendment was violated when the Debtor engaged in conduct that created a hostile work environment during Plaintiffs employment with the New York State Thruway Authority. Id. at 518.
In order to find liability for the Debtor, the Plaintiff had to prove three elements:
First, Mr. Spagnola intentionally discriminated against Ms. Basile in the terms and conditions of her employment based on Ms. Basile’s sex through the creation and maintenance of a sexually hostile or abusive work environment.
Second, Mr. Spagnola committed such act or acts of discrimination under the color of state law or authority.
And, third, that Mr. Spagnola’s act or acts were the proximate cause of the damages sustained by Ms. Basile.
Id. at 499. In proving the first element, Plaintiff also had to show Debtor “intentionally, as opposed to recklessly or negligently, created a hostile work environment on the basis of her gender.” Id. at 501. In determining whether the work environment was hostile or abusive, the jury was required to determine if Debtor’s intentional “acts or statements resulted in a work environment that was so permeated with discriminatory intimidation, ridicule or insult of sufficient severity or pervasiveness that it materially altered the conditions of [the Plaintiffs] employment.” Id. at 500. The jury found that all three elements had been met, and awarded Plaintiff compensatory and punitive damages. Id. at 502, 518-20. The court instructed the jury that it was permitted to award punitive damages if it determined the Debtor needed to be punished for “extraordinary misconduct,” and to set an example or warning for others not to engage in similar conduct. Id. at 506.
The Debtor appealed the jury verdict and the Second Circuit affirmed it on September 22, 2009. PL’s Mot. Summ. J. Ex. D (Second Circuit’s Summary Order dated *521September 22, 2009). In its Order affirming the jury verdict, the Second Circuit noted that the witnesses at trial “detailed inappropriate behavior by Spagnola, including touching [Plaintiffs] thighs and breasts, offering her job security in return for sex, and showing up uninvited at [her] residence.” Id. at 3. The Second Circuit concluded that “[b]ased on the offensive behavior described, the jury’s conclusion was reasonable. The evidence was sufficient to find that there was a hostile work environment because such conduct was hostile, severe, and abusive.” Id.
On August 1, 2011, the Plaintiff, a listed creditor of Debtor on the bankruptcy petition, brought this adversary proceeding seeking to except from discharge the judgment she obtained against Debtor in the District Court. See Pl.’s Compl. ¶ 14. The Plaintiff now seeks summary judgment on the grounds that the Debtor should be collaterally estopped from challenging the facts found by the jury and that those facts are sufficient to prove nondischargeability under section 523(a)(6). See Pl.’s Mem. Law.
In response, the Debtor argues that the Plaintiff is not entitled to summary judgment because there exists a genuine issue of material fact — whether the Debtor’s conduct was intentional. See Def.’s Mem. Law 2-10. While not disputing the facts underlying the District Court judgment, the Debtor argues that his subjective intent was not litigated. See id. at 9. Alternatively, the Debtor argues that even if the Court finds no genuine issue of material fact exists, then summary judgment should be granted in his favor because the District Court judgment is insufficient to show that his conduct was willful and malicious under section 523(a)(6). See id. at 10-13.
Statement of Jurisdiction
This Court has subject matter jurisdiction pursuant to 28 U.S.C. § 1334(a), 28 U.S.C. § 157(a) and the Amended Standing Order of Reference signed by Chief Judge Loretta A. Preska dated January 31, 2012. This is a “core proceeding” under 28 U.S.C. § 157(b)(2)(I) (determinations as to the dischargeability of particular debts).
Summary of the Law
Summary judgment should be granted, “where there are no genuine issues of material fact and the movant is entitled to judgment as a matter of law.” Jacobowitz v. The Cadle Co., 309 B.R. 429, 435 (S.D.N.Y.2004); Fed.R.Civ.P. 56(a). The moving party has the initial burden of establishing the absence of any genuine issue of material fact. Celotex Corp. v. Catrett, 477 U.S. 317, 322-23, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). “[T]he court resolves all ambiguities and draws all permissible factual inferences against the movant.” Jacobowitz, 309 B.R. at 435.
The nonmoving party should oppose the motion for summary judgment with evidence that is admissible at trial. See Fed. R.Civ.P. 56(e)(1); Crawford v. Dep’t of Investigation, 324 Fed.Appx. 139, No. 07-4793, 2009 LEXIS 10256 (2d Cir. May 13, 2009) (affirming award of summary judgment in favor of the defendant, where a plaintiff presented testimony from uncorroborated source, as well as “speculation, hearsay and other inadmissible rumor, and conclusory allegations”); Raskin v. The Wyatt Co., 125 F.3d 55 (2d Cir.1997) (affirming award of summary judgment in favor of the defendant after finding an expert report inadmissible, noting “only admissible evidence need be considered by the trial court in ruling on a motion for summary judgment”).
*522
Exception from Discharge Pursuant to Section 523(a)(6)
In Gelb v. Royal Globe Insurance, 798 F.2d 38, 45 (2d Cir.1986), the Second Circuit provided the following factors for determining whether or not collateral es-toppel bars an action:
1. The issues in both proceedings must be identical;
2. The issue in the prior proceeding must have been actually litigated and actually decided;
3. There must have been a full and fair opportunity for litigation in the prior proceeding; and
4. The issue previously litigated must have been necessary to support a valid and final judgment on the merits.
See also Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir.2006) (“Federal principles of collateral estoppel, which we apply to establish the preclusive effect of a prior federal judgment, require that ‘(1) the identical issue was raised in a previous proceeding; (2) the issue was actually litigated and decided in the previous proceeding; (3) the party had a full and fair opportunity to litigate the issue; and (4) the resolution of the issue was necessary to support a valid and final judgment on the merits.’ ”).
To establish nondischargeability under 11 U.S.C. § 523, a creditor may invoke collateral estoppel to preclude relit-igating the elements necessary to meet one of the exceptions provided for in that section. Grogan v. Garner, 498 U.S. 279, 285 n. 11, 111 S.Ct. 654, 112 L.Ed.2d 755 (1991) (“We now clarify that collateral estoppel principles do indeed apply in discharge exception proceedings pursuant to § 523(a).”).
Pursuant to section 523(a)(6), an individual debtor may not receive a discharge from any debt “for willful and malicious injury by the debtor to another entity.” Willful means a “deliberate or intentional injury,” and malicious means “wrongful and without just cause or excuse, even in the absence of personal hatred, spite, or ill-will.” Ball v. A.O. Smith Corp., 451 F.3d 66, 69 (2d Cir. 2006) (citation omitted). “Malice may be implied by the acts and conduct of the debtor in the context of the surrounding circumstances.” Id. (internal quotation omitted).
Whether the Act was Willful?
In Kawaauhau v. Geiger, 523 U.S. 57, 118 S.Ct. 974, 140 L.Ed.2d 90 (1998), the Supreme Court defined the term “willful” in the context of section 523(a)(6). The Court held that:
[N]ondischargeability takes a deliberate or intentional injury, not merely a deliberate or intentional act that leads to injury. Had Congress meant to exempt debts resulting from unintentionally inflicted injuries, it might have described instead ‘willful acts that cause injury.’ Or, Congress might have selected an additional word or words, i.e., ‘reckless’ or ‘negligent,’ to modify ‘injury.’
Geiger, 523 U.S. at 61-62, 118 S.Ct. 974. The Debtor cites the Supreme Court’s decision in Geiger in support of his argument that he did not have a full and fair opportunity to litigate his subjective intent. He argues that Geiger stands for the premise that the defendant must have intended the consequences of his act — not just the act itself.
In support of his argument, Debtor cites the case of Sanger v. Busch (In re Busch), 311 B.R. 657 (Bankr.N.D.N.Y.2004). In Busch, the plaintiff won a default sexual harassment judgment against the debtor and then sought to have it excepted as a nondischargeable debt under 11 U.S.C. *523§ 523(a)(6). Id. at 659-60. The court stated that it was following Geiger in holding that for the debt to be nondischargeable under section 523(a)(6), a plaintiff must prove that: “(1) the Debtor deliberately and intentionally caused the resulting injuries to the [pjlaintiff; and (2) the Debtor acted maliciously.” Id. at 666.
In support of its holding that there is “no authority for treating sexual harassment as an intentional tort sufficient to operate as a basis for nondischargeability under § 523(a)(6),” the court in Busch stated that it “[could] not find that the Debtor intended to harm the [p]laintiff in any manner” because he “ ‘acted with specific intent to advance his own prurient interests at the expense of [the plaintiffs] right to be free from sexual attack and harassment.’ ” Id. at 670. This Court questions the reasoning of Busch. Stating that a debtor’s intent to “advance his own prurient interest” was not the same as intent to “harm” a sexual harassment victim is parsing the Supreme Court’s holding in Geiger too thin. In Geiger, the Supreme Court was concerned with a medical malpractice judgment attributable to negligent or reckless conduct and not a sexual harassment verdict where specific intent was an element of the claim proven at trial. Geiger, 523 U.S. at 59, 118 S.Ct. 974. This Court believes that exposure to unwelcome sexual conduct, like an advancing of one’s prurient interests to the point of harassment, is the injury that a sexual harassment victim suffers and that a judgment finding an individual intentionally caused that injury is enough to meet the prong of willfulness under § 523(a)(6). This Court declines to follow Busch.
In coming to the opposite conclusion, the court in Busch relied, in part, on a law review article entitled The Treatment of Employment Discrimination Claims in Bankruptcy: Priority Status, Stay Relief, Dischargeability, and Exemptions. The Busch court used that article as support for its assertion that “sexual harassment under Title VII ... does not require that the employer intend to injure the plaintiff.” Busch, 311 B.R. at 669 (emphasis added). However, reliance on the law review article for that premise is improper. The portion of the law review article cited by the court in Busch focuses on the specific intent of an employer who is found vicariously liable for sexual harassment, not the intent of the individual harasser. See Joanne Gelfand, Esq., The Treatment of Employment Discrimination Claims in Bankruptcy: Priority Status, Stay Relief, Dischargeability, and Exemptions, 56 U. Miami L.Rev. 601, 635-37 (2001). In fact, that article goes on to state that
[e]ertainly, where the individual harasser is the debtor, a stronger showing for excepting the debt from discharge can be made. Often, the issues of malice and willfulness are determined in the state court and are entitled to preclusive effect in a subsequent bankruptcy case. Although the application of the doctrine of collateral estoppel is not unique in bankruptcy, the doctrine has significant import in actions to determine dis-chargeability since the findings of the state court may preclude a subsequent inquiry into willfulness or malice by the bankruptcy court.
Id. at 638.
The Plaintiff, in this case, has met her burden by demonstrating that the Debtor acted willfully. The District Court expressly charged the jury with a definition of willfulness that is almost identical to the one provided by the Supreme Court in Geiger. In order to find the Debtor liable, the jury was required to find that he “intentionally, as opposed to recklessly or negligently, created a hostile work environment on the basis of her gender. An *524action is intentional if it is done knowingly, that is, if it is done voluntarily and deliberately and not because of mistake, accident, negligence, or other innocent reason.” PL’s Mot. Summ. J. Ex. C, at 501.
The special verdict returned by the jury found the Debtor liable for “intentionally discriminating] against [Plaintiff] in the terms or conditions of her employment based on her gender through the creation and maintenance of a sexually hostile or abusive work environment.” Id. at 518. The jury awarded the Plaintiff $150,000 in compensatory damages for such intentional discrimination, and an additional $50,000 in punitive damages in order to punish the Debtor for “extraordinary misconduct.” Id. at 506.
The Court is persuaded by the many bankruptcy courts that have found that sexual harassment discrimination is inherently an intentional tort and allowed it to be excepted from discharge as a willful and malicious injury. See, e.g., Voss v. Tompkins (In re Tompkins), 290 B.R. 194, 199 (Bankr.W.D.N.Y.2003); McDonough v. Smith (In re Smith), 270 B.R. 544 (Bankr. D.Mass.2001); Thompson v. Kelly (In re Kelly), 238 B.R. 156 (Bankr.E.D.Mo.1999) (“Malice, or intent to harm, in a sexual intentional tort is self-evident, either because the tortfeasor knows his conduct is certain or almost certain to cause harm, or because he should know and therefore the intent is inferred as a matter of law.”).
In McDonough, a plaintiff obtained a sexual harassment judgment against defendant in Massachusetts state court, which was subsequently affirmed by the state appellate court. 270 B.R. at 546-47. When defendant filed for bankruptcy, the plaintiff sought to have the judgment declared nondischargeable. Id. at 546. The bankruptcy court held the defendant’s actions to be willful, according to the Supreme Court’s definition in Geiger. Id. at 549. After considering the state court’s findings in the sexual harassment case, the court found the defendant intended his actions and knew the consequences of such actions. Id. The court also found the jury’s award of punitive damages to weigh heavily in favor of finding willfulness, since they are only “awarded when a defendant’s conduct is egregious and outrageous.” Id. (citing McMillan v. Mass. Soc. For the Prevention of Cruelty to Animals, 140 F.3d 288, 306-07 (1st Cir.1998)).
In this case, the determination of intent was an element of a district court action that was fully and fairly litigated in a jury trial. Its outcome was affirmed on appeal to the Second Circuit. Accordingly, the findings in the sexual harassment action and the jury’s award of punitive damages necessitates this Court to hold that the Debtor’s actions were willful pursuant to section 523(a)(6).
Whether the Debtor’s Conduct was Malicious?
Plaintiff also successfully established that the injury was malicious. To establish that an injury was malicious, Plaintiff must demonstrate that the injury was “wrongful and without just cause or excuse.” A.O. Smith Corp., 451 F.3d at 69 (2d Cir.2006) (quoting Navistar Fin. Corp. v. Stelluti (In re Stelluti), 94 F.3d 84, 87 (2d Cir.1996)). As a matter of law, malice is inherent in finding a debtor liable for sexual harassment. See, e.g., Busch, 311 B.R. at 668; Voss, 290 B.R. at 199; McDonough, 270 B.R. at 549. Sexual harassment is not only illegal, but so morally reprehensible and degrading to one’s personal dignity that the harasser’s conduct cannot possibly be considered anything other than “wrongful and without just cause or excuse.” See Busch, 311 B.R. at 668; McDonough, 270 B.R. at 549.
Here, the jury concluded that the injury was wrongful by finding liability for the *525Debtor. Pl.’s Mot. Summ. J. Ex. C, at 518-19. Moreover, on appeal, the Second Circuit affirmed the District Court decision, determining that there was evidence of “detailed inappropriate behavior” and “hostile, severe, and abusive” conduct by the Debtor. Pl.’s Mot. Summ. J. Ex. D, at 3. This determination was made after a full jury trial where the Debtor had a full and fair opportunity to litigate the issue.
Accordingly, the Plaintiff is entitled to a finding of maliciousness.
Conclusion
Summary judgment should be granted in favor of the Plaintiff. The debt should be excepted from discharge pursuant to section 523(a)(6) of the Bankruptcy Code because the Debtor caused the Plaintiff “willful and malicious” injury. Plaintiff should submit an order consistent with this decision. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494807/ | OPINION
KATHRYN C. FERGUSON, Bankruptcy Judge.
Procedural history
Patricia Kopec filed a Chapter 13 petition on June 7, 2011. After confirmation, the Debtor filed a motion to modify the claim filed by Richard Pisciotta.1 The court held a status conference on March 21, 2012, and the parties agreed that the court should rule on the motion to modify the claim rather than await further guidance on this issue from the Third Circuit Court of Appeals.2
Factual background
In May 2001, Richard Pisciotta purchased a Certificate of Sale for Unpaid Municipal Liens for the Debtor’s property located at 27 Tuttle Avenue, Hamilton, NJ 08629. Mr. Pisciotta paid subsequent municipal liens on the property. The Debt- or’s Chapter 13 plan proposed to pay Mr. Pisciotta $72,050.36 at an interest rate of 4%. Mr. Pisciotta filed a proof of claim in the amount $83,027.40 with interest rates of 14 and 18%.3 The court confirmed the plan by order dated September 2, 2011.
The parties have agreed that the amount due as of the petition date was $64,457.59. With the amount of the claim no longer disputed, the sole issue before the court is *599the appropriate interest rate over the life of the plan.
Discussion
In support of proposing an interest rate of 4% rather than the statutory rate of 18%, the Debtor relies on the decision in In re Princeton Office Park, L.P.4, which holds that under New Jersey law, a tax-sale certificate holder does not have a “tax claim” within the meaning of § 511(a); therefore, the interest rate may be modified. Mr. Pisciotta counters that the Princeton Office Park decision is incorrect because it fails to take into account N.J.S.A. 54:4-67, N.J.S.A. 54:5-43, and N.J.S.A. 54:5-57.
Analysis of this issue must begin with the controlling Bankruptcy Code provision. As part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, Congress added a new provision to the Bankruptcy Code to address the appropriate interest rate to apply to the payment of tax claims. Section 511 now provides:
[i]f any provision of this title requires the payment of interest on a tax claim or on an administrative expense tax, or the payment of interest to enable a creditor to receive the present value of the allowed amount of a tax claim, the rate of interest shall be the rate determined under applicable nonbankruptcy law.5
The legislative history explains that the provision was deemed necessary because under “current law, there is no uniform rate of interest applicable to tax claims. As a result, varying standards have been used to determine the applicable rate.” The stated goal of § 511 was to simplify the interest rate calculation.6 As can be seen in this matter, however, the new provision merely shifted the focus of the debate from the appropriate interest rate to what constitutes a “tax claim”. The term “tax claim” is not defined in the Bankruptcy Code, so the court must look elsewhere for guidance.
Other reported decisions
Because § 511 is a relatively new addition to the Bankruptcy Code, there are a limited number of cases interpreting it. The sole decision from a Circuit Court of Appeals is Tax Ease Funding, L.P. v. Thompson (In re Kizzee-Jordan).7 The Kizzee court held that a tax lien holder has a “tax claim” for purposes of § 511. Although that case interpreted Texas law, which provides that the transferee of a tax lien is subrogated to the rights of the taxing unit, many of the court’s observations are of general application.
The debtor in Kizzee, like the Debtor here, argued that the tax claim was extinguished upon the payment of the taxes and replaced with a new obligation. The court disagreed, noting that the only thing that changed was the entity to which the taxes were owed, not the nature of the underlying debt.8 The court expressed doubt that the tax lien could be properly transferred if the tax debt were extinguished.9 This court has the same concern. It is uniformly accepted that a lien, whether equitable or legal, is nothing more than a means of satisfying a claim for the recovery of money.10 If there is no debt, there is no lien. As one court explained:
*600A lien can only legally attach if there is an underlying debt secured by the lien. A lien is a charge upon property for the payment or discharge of a debt. It is therefore dependent upon the existence, the amount of, and the provability of the debt. If the debt has been paid ..., the lien is extinguished.11
That logic is equally applicable in the context of municipal tax sale certificates. If the tax debt is extinguished when the municipality receives its payment from the third-party purchaser, then it calls into question the validity of the tax sale certificate because there is no debt to support it.
In In re Cortner,12 the court also held that the holder of a tax sale certifícate has a “tax claim” for purposes of § 511. That case applied Ohio law, which differs significantly from New Jersey law, but as with Kizzee, there are some universally applicable observations in the decision. The most compelling observation is that in enacting § 511, Congress chose to use the broad term “creditor”, rather than the narrower term “governmental units” used in other Code sections.13 That choice of language lends textual support to the conclusion that the term “tax claim” in § 511 was intended to be broader than a debt owed to a taxing authority for unpaid taxes, and thus can encompass a third-party holder of a tax sale certificate.
The court in In re Meyhoeffer, reached the same conclusion applying New York law.14 The Meyhoeffer court was unpersuaded by the argument that the holder of a tax certificate does not have a “tax claim” because the rights of the holder are not coextensive with the rights of the municipality. Similarly, the Fifth Circuit Court of Appeals in Kizzee rejected the argument that a tax lien holder does not have a § 511 “tax claim” because it has a different bundle of rights than the taxing authority. That reasoning is significant for this court’s analysis because under New Jersey law, a municipality enjoys more expansive rights than the holder of a tax sale certificate.
New Jersey law
State law governs the substance of claims in bankruptcy,15 therefore, it is instructive to look to state law to elucidate the meaning of the phrase “tax claim”. In New Jersey, the authority to sell tax liens derives from the Tax Sale Law.16 The Tax Sale Law provides that when municipal taxes are delinquent for the period stated by statute, a lien arises on the land on which the taxes are assessed.17 The municipality may enforce the lien by selling the property as prescribed by statute.18 The purchaser pays the amount of the taxes owed plus interest and costs of the sale in exchange for a certificate of sale.19 The transaction is not an outright conveyance of the property; the property owner may redeem the certificate for two years after the tax sale.20 The New Jersey Su*601preme Court has commented that it is the public policy of the state, as expressed by the Legislature in the Tax Sale Law, to encourage tax sales to assist municipalities in the collection of delinquent taxes.21 The Supreme Court has also noted that the tax sale law is remedial legislation that should be liberally construed.22
There are two decisions applying New Jersey law to this issue. In Princeton Office Park, the court proffered a variety of reasons for its holding (including that the rights accorded to a tax lien certificate holder under New Jersey law differ from those of the municipality) but the linchpin of the decision was that the underlying taxes had been paid. Judge Kaplan reasoned that “there is no transfer of a tax claim, as the taxes are paid in full at the conclusion of the tax sale.”23 The court conceded that had the municipality assigned or subrogated its rights to the creditor, the court would have found that the tax sale certificate holder had a “tax claim”, but “[ajbsent such proof of assignment or subrogation, the Court is constrained to find that, in New Jersey, the purchaser of a tax sale certifícate acquires a statutory lien claim, not a tax claim, and is therefore not entitled to the protection of § 511(a).”24
In In re Burch,25 Judge Wizmur adopted the reasoning in Princeton Office Park and, after reviewing some state court opinions, opined that “[t]he conclusion is inescapable that upon the purchase of a tax sale certificate, the municipality’s tax claim is extinguished, leaving only a redeemable debt due from the property owner to the purchaser, which is secured by a lien on the property.”26 So, the fulcrum of both decisions is that under New Jersey law, a tax sale extinguishes the debt and a new debt comes into existence.
Analysis
Three primary concerns compel this court to reach a different result: 1) statutory provisions that indicate that a municipality’s tax claim is not extinguished upon the sale of the certificate; 2) the conundrum of having a lien without any concomitant debt; and 3) principles of statutory interpretation.
On the first issue, there are two New Jersey statutory provisions that neither Princeton Office Park nor Burch addresses. The first is N.J.S.A. § 54:5-43, which governs refunds to purchasers when a tax sale is set aside. The statute provides that: “If the sale shall be set aside, the municipality shall refund to the purchaser the price paid by him on the sale, with lawful interest, upon his assigning to the municipality the certificate of sale and all his interest in the tax, assessment or other charges and in the municipal lien therefore....”27 That language strongly suggests that the claim of the holder of a tax sale certificate is based on the underlying tax. The other provision in the Tax Sale Law that supports the conclusion that the tax debt is not fully extinguished is N.J.S.A. § 54:4-67(c), which defines delinquency. It states:
“Delinquency” means the sum of all taxes and municipal charges due on a given parcel of property covering any number of quarters or years. The property *602shall remain delinquent, as defined herein, until such time as all unpaid taxes, including subsequent taxes and hens, together with interest thereon shall have been fully paid and satisfied. The delinquency shall remain notwithstanding the issuance of a certificate of sale pursuant to R.S. 54:5-32 and R.S. 54:5-46, the payment of delinquent tax by the purchaser of the total property tax levy pursuant to section 16 of P.L. 1997, c. 99 (C. 54:5-113.5) and for the purposes of satisfying the requirements for filing any tax appeal with the county board of taxation or the State tax court.28
Those two statutory provisions read together compel this court to conclude that the tax debt is not fully extinguished upon the sale of the tax certificate.
That leads to the second issue. If, as Princeton Office Park and Burch held, the tax debt is fully extinguished, the court is unable to discern the source of the new debt. This court is uncomfortable with the contrived position that a brand new debt, completely divorced from the underlying tax debt, arises upon the purchase of the tax sale certificate. The lien itself arises by virtue of the Tax Sale Law, but, as previously discussed, a lien and the underlying debt are distinct.29 What is the genesis of the debt that supports this new statutory lien?
The distinction between the lien and the debt is the crucial piece of the puzzle that this court finds is insufficiently addressed in other opinions. The Burch opinion observes that the “lien secures the obligation of the property owner to repay the purchaser, but the tax debt has been satisfied.” 30 Respectfully, that is a faulty premise because the property owner is not obligated to repay the purchaser of the tax sale certificate. The property owner may choose to redeem the tax sale certificate to save the home from a foreclosure sale, but the property owner is not statutorily obligated to redeem. Unlike a foreclosure sale resulting from the failure to pay a mortgage, no deficiency claim arises if the property owner fails to redeem. So, it is inaccurate to state that the debt underlying the lien represented by the municipal tax sale certificate is “the obligation of the property owner to repay the purchaser”. That begs the question: if the debt is not the redemption amount, then what is it? The logical answer is that the debt is the original tax debt.31 As explained by the Appellate Division, a “tax sale certificate is not an outright conveyance. It creates only a lien on the premises and conveys the lien interest of the taxing authority.”32 The “lien interest of the taxing authority” would certainly appear to be a “tax claim”.
Third, the court finds that principles of statutory construction support a finding that the holder of a tax sale certificate has a “tax claim”. It is a bedrock principle of statutory interpretation that analysis begins with the language of the statute.33 Although the focus of the debate in the decisions on this issue has been on Congress’ use of the term “tax claim” in § 511, *603this court finds it significant that § 511 also contains the phrase “administrative expense tax”. The most logical conclusion to be drawn from the use of different terms is that a “tax claim” and a “tax” are different things; otherwise, Congress would have been consistent and used the term “administrative expense tax claim”. Because courts are instructed to try to give meaning to each word in a statute, the court must conclude that the scope of a “tax claim” and a “tax” are different, and that the former term is more inclusive than the latter. As previously discussed, this conclusion is buttressed by the use of the term “creditor” in § 511, rather than “governmental unit”. If Congress desired the term “tax claim” to be limited to a claim for taxes owed to a taxing authority (or those subrogated to those rights), then there is no reason to use the term “creditor”.
Finally, the court notes that this ruling is consistent with the New Jersey legislature’s directive that the Tax Sale Law is remedial legislation that is to “be liberally construed to effectuate the remedial objectives thereof.”34 An interpretation of the Tax Sale Law that discourages parties from purchasing tax sale certificates runs counter to the objective of “transforming] a non-performing asset into cash without raising taxes.”35
Conclusion
The court finds that the holder of a tax sale certificate has a “tax claim” for purposes of § 511, and the interest rate in a Chapter 13 plan must be determined under New Jersey law.36 The Debtor’s motion to modify the claim of Richard Pisciot-ta is denied. The Debtor should amend his plan in accordance with this opinion within 14 days.
. D.N.J. LBR 3015 — 6(b) provides that the "right of the debtor to file an objection to the allowance of a claim pursuant to D.N.J. LBR 3007-1 is preserved, without the need for oral or written reservation at confirmation.”
. The Debtor's Chapter 13 plan proposed to modify the interest rate on Mr. Pisciotta’s claim based on the holding in In re Princeton Office Park, L.P., 423 B.R. 795 (Bankr.D.N.J. 2010). The Princeton Office Park decision was affirmed by the District Court and is currently on appeal to the Third Circuit Court of Appeals, which has certified the question to the New Jersey Supreme Court.
.D.N.J. LBR 3015-6(b) provides that "a proof of claim filed that asserts a claim that is greater than, either the scheduled amount of the claim or the amount of the claim as designated in the plan serves as an objection to confirmation as to the amount of the claim, without appearance by the creditor at the confirmation hearing ... The plan may be confirmed using the amount asserted in the proof of claim.”
. 423 B.R. 795 (Bankr.D.NJ.2010).
. 11 U.S.C. § 511(a).
. See, H.R.Rep. No. 109-31 at 101 (2005), 2005 U.S.C.C.A.N. 88, 165.
. 626 F.3d 239 (5th Cir.2010).
. Kizzee, at 244.
. Kizzee, at 244-45.
. Dept. of the Army v. Blue Fox, Inc., 525 U.S. 255, 262-63, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999).
. Satsky v. United States, 993 F.Supp. 1027, 1029 (S.D.Tex.1998).
. 400 B.R. 608 (Bankr.S.D.Ohio 2009)
. Id. at 613 (citing In re Davis, 352 B.R. 651 (Bankr.N.D.Tex.2006)).
. 459 B.R. 167 (Bankr.N.D.N.Y.2011), but see, In re Duffy, 452 B.R. 13 (Bankr.N.D.N.Y. 2011) (reaching opposite conclusion).
. Raleigh v. Illinois Dep’t of Revenue, 530 U.S. 15, 120 S.Ct. 1951, 147 L.Ed.2d 13 (2000).
. N.J.S.A. 54:5-1, et seq.
. N.J.S.A. 54:5-6.
. N.J.S.A. 54:5-19.
. N.J.S.A. 54:5-46.
. N.J.S.A. 54:5-58.
. Varsolona v. Breen Capital Services Corp., 180 N.J. 605, 853 A.2d 865 (2004).
. Id.; see also, N.J.S.A. 54:5-3.
. Id. at 804.
. Mat 805-06.
. 2010 WL 2889520 (Bankr.D.N.J. July 15, 2010).
. Mat *5.
. N.J.S.A. § 54:5-43 (emphasis added).
. N.J.S.A. § 54:4-67(c) (emphasis added).
. Dept. of the Army v. Blue Fox, Inc., 525 U.S. 255, 262-63, 119 S.Ct. 687, 142 L.Ed.2d 718 (1999).
. 2010 WL 2889520 at *4.
. The District Court in Kizzee noted that "a tax claim is a debt originally owed directly to a governmental unit for unpaid ad-valorem property taxes.” 2009 WL 3186727 *1 (S.D.Tx. Sept. 28, 2009).
. Savage v. Weissman, 355 N.J.Super. 429, 810 A.2d 1077 (App.Div.2002).
. In re Philadelphia Newspapers, LLC, 418 B.R. 548 (Bankr.E.D.Pa.2009).
. N.J.S.A. § 54:5-3.
. Varsolona v. Breen Capital Services Corp., 180 N.J. 605, 609, 853 A.2d 865 (2004).
. As far as New Jersey law is concerned, this court agrees with the views expressed by Judge Kaplan that this might be an opportune time for the New Jersey legislature to address the oppressive interest rates allowed under the Tax Sale Law. See, Princeton Office Park at 806, n. 10. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494808/ | MEMORANDUM OPINION
JEFFERY A. DELLER, Bankruptcy Judge.
The primary matter before the Court is Defendant JPMorgan Chase Bank, N.A.’s *617Motion to Dismiss Plaintiffs’ Complaint (the “Motion to Dismiss”), seeking dismissal of all but two Counts asserted in the adversary complaint filed on December 24, 2010 (the “Complaint”). Also before the Court is a Motion to Request Derivative Standing to Exercise Trustee’s Powers Under §§ 5H, 517, cmd 518 Nunc Pro Tunc (the “Motion for Derivative Standing ”) filed by Douglas and Christine Stewart (the “Debtors” or “Plaintiffs”) in support of Count IV alleged in the Complaint, and motion to strike filed in response thereto by the chapter 13 trustee (the “Trustee”). For the reasons set forth below this Court will grant the Motion to Dismiss in its entirety. The Court will also grant the Trustee’s motion to strike the Motion for Derivative Standing in the adversary proceeding, and deny the relief requested by the Debtors therein.
I. Facts Alleged
For the purpose of evaluating the Motion to Dismiss, the Court will take the following allegations as true. The Debtors reside at 102 Magnolia Drive, Greensburg, Pennsylvania (the “Property”). In response to a flyer, the Debtors contacted Ace Mortgage Holdings LLC, (“Ace”) and completed a telephone application for mortgage refinancing. (Adv. No. 10-2654, Doc. # 1, Complaint, ¶¶ 18, 27).1 Upon contacting Ace, the Debtors were allegedly promised a monthly payment which excluded escrow amounts for taxes and homeowners insurance. (Id. ¶ 28).
In connection with the refinancing, Ace retained Arthur Trexler d/b/a Norwin Appraisal Services (“Trexler”) to complete an appraisal of the Property. (Id. ¶¶ 19, 35, 37). The original appraisal figure was $345,000. (Id. ¶ 38). The refinancing could not be completed based on this appraisal figure, so the agents and employees of Ace allegedly pressured Trexler to increase the appraisal figure to $363,000. (Id. ¶¶ 39-41).
As a result of the Debtors’ application and the revised appraisal figure, the Debtors and Ace closed on a refinancing of the Debtors’ existing mortgage on or about October 26, 2007 (the “Refinancing”). (Id. ¶¶ 21, 29, 42). The Refinancing provided the Debtors with the funds intended to satisfy their prior mortgage obligation on the Property (the “Loan”). (Id. ¶ 21). A promissory note evidencing the Loan amount of $352,110 and mortgage were issued on the Property. (See id. ¶44, Exhibits “E” and “AF”). Washington Mutual Bank (“WaMu”) was the named originator of the Loan. (Id. ¶ 44, Exhibit “E”). The Debtors protested to Ace that they could not afford the contemplated repayment amount, but were allegedly assured that they would be permitted to refinance again in the future. (Id. ¶ 30).
Archer Land Settlement Services (“Archer”) then prepared a HUD-1 Settlement Statement. (Id. ¶¶ 20, 43). This HUD-1 included a yield spread premium of $10,563.13 as part of the amount financed, and failed to disclose the cost of the private mortgage insurance. (Id. ¶¶ 46-49). Additionally, WaMu allegedly provided a “kickback” to Ace in the form of the yield spread premium in connection with the Refinancing. (Id. at ¶ 58). Ace subsequently shared the proceeds of this kickback with other entities listed on the HUD-1 form. (Id.). The HUD-1 provided to the Debtors was allegedly not the same HUD-1 provided to WaMu to consummate the Refinancing. (Id. ¶¶ 56-58, 100).
*618On September 25, 2008, the Office of Thrift Supervision appointed the Federal Deposit Insurance Corporation (“FDIC”) as receiver for WaMu.2 (Id. ¶¶ 12-13). That same day, JPMorgan Chase Bank, N.A. (“JPMorgan”) acquired certain assets from WaMu via a Purchase and Assumption Agreement (the “Purchase Agreement”), including the note and deed of trust evidencing and securing the Debtors’ Loan.3 (See Doc. # 40, Brief in Opposition to Motion to Dismiss, p. 3 and Audio Recording- of Hearing Held in Courtroom D, July 29, 2011 (12:21-12:23 PM)).
At some point the Debtors defaulted on their mortgage obligation to JPMorgan. (Doe. # 40, p. 3). As a result, JPMorgan obtained a default judgment in mortgage foreclosure against the Debtors on August 6, 2010 in the Court of Common Pleas of Westmoreland County.4 (See id.; see also Doc. # 18, Exhibit “A”). Shortly thereafter, the Debtors sent a rescission request to JPMorgan on or about August 8, 2010. (Doc. # 40, p. 4). The Debtors allege that this rescission request also constituted a “qualified written request” (“QWR”) under 12 U.S.C. § 2605(e). (Complaint, ¶ 64). In a letter dated August 18, 2010, JPMor-gan refused to accept the Debtors rescission request and returned several documents to the Debtors in response to the alleged QWR. (Complaint, ¶ 6 1, Exhibit “AI”).
The Debtors filed a voluntary petition for chapter 13 bankruptcy relief on September 29, 2010. (Case No. 10-26939, Doc. # 1). The Debtors’ claim the value of the Property is $225,000 and as a result of their “rescission request” list JPMorgan as the holder of a “contingent” and “disputed” unsecured claim in the amount of $347,496. (Id. at Schedules “A” and “F”). JPMorgan filed a proof of claim in the amount of $404,123.53. (See Case. No. 10-26939, Claim # 19). On December 24, 2010, the Debtors filed the instant Complaint against JPMorgan, Archer, and “other unknown Entities or persons.” (Case No. 10-26939, Doc. #39, Adv. No. 10-2654, Doc. # 1).
The Complaint is comprised of a dizzying array of factual allegations and legal *619conclusions in support of various claims against entities linked to the Refinancing. At its core, the Complaint alleges eight counts against JPMorgan and the other defendants.
• Count I is asserted against JPMorgan and “Other Unknown Entities or Parties” for various alleged violations of the Truth in Lending Act, 15 U.S.C. § 1601 et seq. (“TILA”). (Complaint, ¶¶ 45-62).
• Count II is asserted against JPMor-gan only for various alleged violations of the Real Estate Settlement Procedures Act, 12 U.S.C. § 2601 et seq. (“RESPA”). (Id. ¶¶ 63-73).
• Count III is asserted against JPMor-gan for various alleged violations of the Fair Debt Collection Practices Act (“FDCPA”). (Id. ¶¶ 74-82).
• Count IV is asserted against JPMor-gan for an alleged “544(A)(3) PREFERENCE” and seeks to exercise the avoidance powers of the Trustee to somehow avoid JPMorgan’s allegedly unperfected security interest in the Property. (Id. ¶¶ 83-87).
• Count V is asserted against JPMorgan and alleges that through various acts JPMorgan “violated the catch-all provision of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law....” (the “UTPCPL”). (Id. ¶ 91).
• Count VI is the final count alleged solely against JPMorgan and is for an alleged “breach of the implied covenant of fair dealing.” (Id. ¶¶ 93-98).
• Count VII is asserted against JPMor-gan and Archer for “civil conspiracy/fraud.” 5 (Id. ¶¶ 99-102).
• Finally, Count VIII (incorrectly identified as a second “Count VII”), is asserted against Archer and alleges that through various acts, Archer “violated the catch-all provision of Pennsylvania’s Unfair Trade Practices and Consumer Protection Law....” (Id. ¶ 105).
In response to the Complaint, JPMor-gan moves to dismiss all counts with the exception of Count III6 and Count VIII, which is asserted against Archer only. (See Doc. # 17). The remaining claims against JPMorgan can be split into four categories: (1) non-bankruptcy claims asserted under Counts I, II, V, VI and VII seeking damages for the acts and/or omissions of WaMu (and affiliated entities) occurring prior to the execution of the Purchase Agreement; (2) a claim for rescission or “annulment” of JPMorgan’s security interest in the Property pursuant to TILA provisions alleged in Count I; (3) non-bankruptcy claims for the alleged malfeasance of JPMorgan in its capacity as a servicer of the Loan; and (4) a bankruptcy avoidance and/or preference claim against JPMorgan seeking avoid JPMorgan’s allegedly unperfected security interest in the Property.
JPMorgan alleges that the first three categories of counts in the Complaint should be dismissed pursuant to Federal Rule of Civil Procedure 12(b)(1) and/or 12(b)(6), applicable in this adversary proceeding through Federal Rule of Bank*620ruptcy Procedure 7012. Specifically, JPMorgan argues that this Court is barred from exercising subject-matter jurisdiction over the first category of claims asserted under Counts I, II, V, VI and VII, because the Debtors have failed to comply with the administrative claims resolution process required by the Financial Institutions Reform Recovery and Enforcement Act of 1989, Pub.L. No. 101-73, 103 Stat. 183 (“FIRREA”).7 JPMorgan also alleges that this Court lacks subject-matter jurisdiction over the Debtors’ attempt to rescind the Loan (the second category of claims) as a result of the Rooker-Feldman doctrine.8
As to the remaining claims under Counts I, II, V, VI and VII, JPMorgan argues that this third category of claims should also be dismissed for failure to state a claim as to each of these Counts pursuant to Fed.R.Civ.P. 12(b)(6) because the Debtors have not sufficiently alleged any wrongdoing by JPMorgan.
Finally, with respect to Count IV, both JPMorgan and the Trustee assert that the Debtors lack standing to pursue an avoidance action alleged under Chapter 5 of the Bankruptcy Code. In support, both parties assert that in a chapter 13 case the plain language of the Bankruptcy Code prohibits any party other than the Trustee from exercising the various “strong arm” powers outline in Chapter 5. The Trustee also argues that the Debtors have failed to articulate a cause of action for avoidance under either §§ 544, 547 or 548 of the Bankruptcy Code.
II. Jurisdiction
To the extent this Court has jurisdiction over this adversary proceeding, it has such jurisdiction pursuant to 28 U.S.C. §§ 157(a) and 1334. This matter is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A), (K) and (O).
III. Standards and Order of Evaluation
A. Motion to Dismiss Under 12(b)(1)
A motion to dismiss under Fed.R.Civ.P. 12(b)(1) “may present either a facial or a factual challenge to the court’s jurisdiction.” PennEnvironment v. RRI Energy Northeast Management Co., 744 F.Supp.2d 466, 469 (W.D.Pa.2010) (citing Petruska v. Gannon University, 462 F.3d 294, 302 n. 3 (3d Cir.2006)). When a mov-ant presents a facial attack based on the allegations in the complaint, courts must accept those allegations as true and construe them in the light most favorable to the plaintiff. Id. Where, however, the movant presents a factual challenge based on the failure of the plaintiffs claims to comport with a jurisdictional requirement, the plaintiff bears the burden of proof as to all facts underlying the jurisdictional allegations subject to the dispute. Id. (citations omitted).
*621In this matter JPMorgan presents a factual attack by alleging that FIRREA bars this Court from adjudicating the majority of the claims asserted by the Debtors. See Fiorello v. WAMU, Civ. Action No. 10-0273(FLW), 2010 WL 5392923, *4 (D.N.J. Dec. 22, 2010) (unpublished, opinion). Similarly, JPMorgan’s assertion that the Rooker-Feldman doctrine bars this Court from asserting subject-matter jurisdiction because of a default judgment in mortgage foreclosure is also a factual attack. See Brock v. Thomas, 782 F.Supp.2d 133, 139 (E.D.Pa.2011) (citations omitted). As a result of these factual attacks to subject-matter jurisdiction, this Court is permitted to consider and weigh evidence outside of the pleadings in deciding JPMorgan’s Motion to Dismiss. See Fiorello, 2010 WL 5392923, at *4.
B. Motion to Dismiss Under 12(b)(6)
The Supreme Court has recently clarified the pleading standard for evaluating a motion to dismiss under Fed.R.Civ.P. 12(b)(6). See Ashcroft v. Iqbal, 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009); see also Fowler v. UPMC Shadyside, 578 F.3d 203, 210 (3d Cir.2009)(dis-eussing the pleading standard). Under this test, a complaint will only survive dismissal under Fed.R.Civ.P. 12(b)(6) if the complaint contains “sufficient factual matter, accepted as true, to ‘state a claim for relief that is plausible on its face.’ ” Ashcroft v. Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Bell Atl. Corp. v. Twombly, 550 U.S. 544, 570, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007)). Pleadings that solely offer “ ‘labels and conclusions’ or ‘a formulaic recitation of the elements of a cause of action will not do.’ ” Id. (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
The United States Court of Appeals for the Third Circuit has instructed district courts to incorporate two “working principles” when presented with a motion to dismiss pursuant to Fed.R.Civ.P. 12(b)(6). Fowler v. UPMC Shadyside, 578 F.3d 203, 210-11 (3d Cir.2009). First, while courts must accept all allegations of fact contained in the complaint as true, courts “are not bound to accept as true a legal conclusion couched as a factual allegation.” Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955). Second, courts must engage in the “context-specific task” of determining whether a complaint “states a plausible claim for relief....” Id. at 679, 129 S.Ct. 1937 (citing Iqbal v. Hasty, 490 F.3d 143, 157-58 (2d Cir.2007)). When deciding a motion to dismiss under Fed.R.Civ.P. 12(b)(6), courts may consider the complaint, exhibits attached to the complaint and matters of public record including judicial proceedings. Sands v. McCormick, 502 F.3d 263, 268 (3d Cir.2007).
C. Order of Evaluation
At the July 29, 2011 hearing on the Motion to Dismiss, the arguments of the parties closely echoed their briefs and primarily concerned whether this Court had subject-matter jurisdiction over the majority of the claims alleged in the Complaint. This also marked the start of the evolution of the Debtors’ arguments concerning Count IV and the order in which this Court should consider the counts alleged in the Complaint. In essence, the Debtors’ contend that the Court should consider the merits of the Debtors’ Complaint, specifically Count IV of the Complaint, first before any consideration should be had of the subject-matter jurisdiction of this Court. The Court, however, declines the Debtors’ invitation and instead determines that it must consider its subject-matter jurisdiction as a threshold determination before it can consider the merit of the allegations contained within the Complaint.
*622Count IV of the Complaint is asserted against JPMorgan as a “544(a)(3) PREFERENCE.” No such preference cause of action exists in this section of the Bankruptcy Code. Thus, it is unclear what type action the Debtors are actually alleging. The Debtors insisted at the July 29, 2011 hearing that their “544(a)(3)” cause of action was one in the same with their TILA claim for rescission of the Loan. (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (12:21-12:23 PM)). By the time of the September 7, 2011 hearing on the Motion for Derivative Standing, the Debtors’ position as to Count TV had substantially evolved. At this hearing the Debtors appeared to argue that instead of, or in addition to, a § 544 action, Count IV is a cause of action for a “preference” (presumably asserted under 11 U.S.C. § 547).9 (See Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:05-11:07 AM) (11:24-11:30 AM)). The Debtor’s newly alleged preference theory appeared to be that the “foreclosure of the Debtors’ equity of redemption,” allegedly occurring as a result of the State court judgment in mortgage foreclosure, constituted a “transfer” that could be avoided if the Debtors were permitted to utilize the Chapter 5 powers of the Trustee. (See id. 11:04-11:07 AM). This argument was a position that the Debtors had expressly rejected at the July 29th hearing and had alleged to be the product of “an incorrect legal analysis.” (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (12:23-12:25 PM)).
Further confusing the Debtors’ position as to Count IV, was the Debtors’ new-found insistence that the only way they could get “back to” the merits of the other counts in the Complaint, would be if they were successful in avoiding the foreclosure judgment under Count IV. (See Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:05-11:07)). Implicitly here, the Debtors’ concede that absent a successful preference claim under 11 U.S.C. § 547, the Debtors’ other claims are without merit. Once again, this contradicted the Debtors’ argument proffered at the July 29 hearing that Count IV was “essentially inseparable” from their argument that the Loan was effectively rescinded under TILA. (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (12:23-12:25 PM)). While the Debtors’ position as to what they were alleging in Count IV continued to evolve, the Trustee and JPMorgan were steadfast in their opposition to the Debtors’ attempt to exercise the avoidance powers of the Trustee. (See Doc. #49; see also Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:08-11:10 AM)).
As the Debtors were unclear regarding the level of interdependency between Count IV and the other counts alleged in the Complaint, the Court provided the parties with the opportunity to brief, inter alia, the issue as to what order this Court should consider the allegations in the Complaint. (See Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:33-11:35 AM)). In the supplemental briefing filed by the Trustee and JPMor-gan on the issue of derivative standing, neither party addressed this issue. (See Doc. ## 57, 58, 60). The Debtors also did not address this issue in their -reply to the supplemental briefing filed in the main case on February 19, 2012. (See Case No. 10-26939, Debtors’ Brief in Reply to the Trustee’s Supplemental Brief Opposing *623Derivative Standing, Doc. 84). Thus the Court will follow a well established order for evaluating a motion to dismiss. That is, this Court must generally first consider whether it maintains subject-matter jurisdiction over the claims asserted by the Debtors prior to reaching the merits of the Complaint. Goldstein v. Eby-Brown, Inc. (In re Universal Mktg.), 459 B.R. 573, 575 (Bankr.E.D.Pa.2011) (citations omitted). If this Court lacks subject-matter jurisdiction it would not be appropriate to dismiss the claims asserted pursuant to Fed. R.Civ.P. 12(b)(6); rather dismissal without prejudice pursuant to Fed.R.Civ.P. 12(b)(1) would be appropriate. See id.
IV. FIRREA Jurisdictional Bar
JPMorgan alleges that the mandatory administrative claims process outlined in FIRREA bars this Court from exercising subject-matter jurisdiction over the first category of claims asserted in Counts I, II, V, VI and VII. FIRREA is a statute that creates a procedure for administering claims filed against failed depository institutions. See Praxis Properties, Inc. v. Colonial Sav. Bank, S.L.A., 947 F.2d 49, 62-63 (3d Cir.1991) (citations omitted). The purpose of FIRREA is to facilitate Congress’ goal to “efficiently and expeditiously resolve claims against a failed institution without recourse to litigation.” Centennial Assocs. v. FDIC, 927 F.Supp. 806, 810 (D.N.J.1996) (citing H.R.Rep. No. 101-54(1), 101st Cong., 1st Sess. 418-419, reprinted in 1989 U.S.Code Cong. & Admin. News 86, 214-215).
Pursuant to FIRREA, when the FDIC is appointed as receiver of a closed depository institution, it succeeds to “all rights, titles, powers and privileges of the insured depository institution.... ” 12 U.S.C. § 1821 (d)(2)(A)(i). The FDIC may subsequently “transfer any asset or liability of the institution....” 12 U.S.C. § 182 1 (d) (2) (G) (i) (II).
To create an efficient process for the handling of claims against a failed lending institution, FIRREA requires the FDIC to provide notice of the institution’s failure to the creditors of the institution and such notice directs those creditors to present their claims by a bar date specified on the notice. 12 U.S.C. § 1821(d)(3)(B). Claims that are not filed with the FDIC by the bar date are generally disallowed. 12 U.S.C. § 1821(d)(5)(C)®. As to timely filed claims, the FDIC has 180 days from the date a claim is filed to either allow or disallow it. 12 U.S.C. § 1821(d)(5)(A). If the claim is not ruled upon within this time frame, or is denied, the claimant has 60 days to seek an administrative review or file an action in the district court. 12 U.S.C. § 1821(d)(6)(A). If the claimant fails to exercise either option, the “claimant shall have no further rights or remedies with respect to such claim.” 12 U.S.C. § 1821(d)(6)(B).
As the result of the availability of this administrative process, FIRREA bars any court from exercising jurisdiction over:
(i) any claim or action for payment from, or any action seeking a determination of rights with respect to, the assets of any depository institution for which the Corporation has been appointed receiver, including assets which the Corporation may acquire from itself as such receiver; or
(ii) any claim relating to any act or omission of such institution or the Corporation as receiver.
12 U.S.C. § 1821(d)(13)(D).10 Section 1821(d)(6), provides that courts only have jurisdiction “over claims that have first *624been presented to the FDIC under its administrative review process.” Tri-State Hotels, Inc. v. Fed. Deposit Ins. Corp., 79 F.3d 707, 712 (8th Cir.1996). Taking these statutory provisions together, the United States Court of Appeals for the Third Circuit has characterized the jurisdictional bar in 12 U.S.C. § 1821(d)(13)(D) as “a statutory exhaustion requirement....” National Union Fire Ins. Co. v. City Sav., F.S.B., 28 F.3d 376, 383 (3d Cir.1994). In other words, “in order to obtain jurisdiction to bring a claim in federal court, one must exhaust administrative remedies by submitting the claim to the receiver in accordance with the administrative scheme for adjudicating claims detailed in § 1821(d).” Id. (citing Rosa v. RTC, 938 F.2d 383, 391 (3d Cir.1991), cert. denied, 502 U.S. 981, 112 S.Ct. 582, 116 L.Ed.2d 608 (1991)).
A
By and large, Counts I, II, V, VI and VII of the Complaint, are based solely on the conduct of WaMu and its alleged affiliates during the Refinancing. As the bulk of allegations in each of the respective counts relate to “any act of omission of [WaMu] or the Corporation as a receiver ...” they are subject to the jurisdictional bar imposed by FIRREA. See 12 U.S.C. § 1821(d)(13)(D). Because FIRREA prohibits all courts from hearing any such claims, JPMorgan’s Motion to Dismiss pursuant to Fed.R.Civ.P. 12(b)(1) will be granted as to the first category of claims alleged.
Count I avers that WaMu violated various provisions of TILA by calculating a yield spread premium as part of the “amount financed” rather than as a finance charge, and by failing to disclose the cost of private mortgage insurance as part of the HUD-1. (Complaint, ¶¶ 48-52). The Debtors also aver through Count I that ‘WAMU or other unknown parties or entities” violated RE SPA by allegedly providing a “kickback” to Ace in the form of the yield-spread premium in question. (Id. ¶ 58). Finally, the Debtors allege that through the Refinancing, WaMu and Ace engaged in a “churning” of the Debtors’ account “to secure unnecessary and spurious brokerage fees and interest charges.” (Id. ¶ 54).
Even if the allegations in Count I were sufficiently plead, they only relate to the alleged “act[s] or omissionfs]” of WaMu and other parties to the Refinancing. It is undisputed that the Refinancing was concluded prior to the time that JPMorgan acquired the assets of WaMu from the FDIC. (See, e.g., Complaint, ¶¶ 13, 21; Doc. # 40, p. 3). Therefore, the claims for damages asserted in Count I may only be resolved through the administrative claims procedure required by FIRREA.
Count II alleges that, among other things, the yield spread premium was used as a “kickback” to fund the loan and pay closing costs. (See Complaint, ¶ 67). Count II also alleges that the Debtor’s were required to purchase title insurance from WaMu’s alleged title insurer in violation of RESPA. (Id. ¶¶ 67-73). Once again, these allegations concern only the acts of WaMu and its alleged affiliates in connection with the Refinancing. Thus this Court lacks subject-matter jurisdiction to hear these claims pursuant to FIRREA. See 12 U.S.C. § 1821(d)(18)(D).
In Count V the Debtors allege that the UTPCPL was violated because of inaccurate disclosures in the HUD-1, RESPA was not complied with, a “kickback” was paid, and JPMorgan “as the successor to WAMU” was “lying to the [Debtors] for its own material benefit ...” in relation to the Refinancing. (Complaint, ¶ 91). Count VI alleges that in addition to all of the acts alleged in Count V, JPMorgan breached *625its “duty of good faith and fair dealing” because it was “willfully blind” to the alleged fact that the HUD-1 was not signed, and, thus, loaned money without regard to the Debtors’ ability to repay. (Id. ¶¶ 96-97). Finally, to the best of this Court’s understanding, Count VII appears to assert that “WAMU and its successor” along with their respective “employees and agents” engaged in “civil conspiracy/fraud” by allegedly using either a false and/or unsigned HUD-1 to consummate the Refinancing. (Id. ¶ 100).
As with the great majority of the claims alleged in Counts I and II, the claims in Counts V, VI and VII concern acts that occurred during the Refinancing. As a result, the alleged “act[s] and omissionfs]” complained of could have only occurred at the behest of WaMu and/or its alleged affiliates and not JPMorgan. Thus, these claims fall squarely into the jurisdictional bar imposed by FIRREA in § 1821(d)(13)(D), and must be asserted through FIRREA’s administrative claims process.
Throughout the Complaint, the Debtors refer to JPMorgan as the “successor” to WaMu (Id. ¶¶ 96, 100), “successor in interest” to WaMu (Id. ¶ 67), WaMu’s “alter-ego” (Id. ¶¶ 92), and use WaMu and JPMorgan interchangeably because JPMorgan acquired the WaMu assets. (Id. ¶¶ 60, 97). These characterizations are not enough to foist liability upon JPMorgan outside of the claims process set forth in FIRREA. The fact remains that the jurisdictional bar outlined by FIR-REA applies not only to the receiver of a failed institution’s assets, but also to third-party purchasers of the assets of the failed institution. See Aber-Shukofsky v. JPMorgan Chase & Co., 755 F.Supp.2d 441, 447 (E.D.N.Y.2010) (“[Pjlaintiffs cannot evade FIRREA’s mandatory exhaustion requirement simply by asserting claims against defendants, as third-party purchasers of the failed bank’s assets, for acts or omissions that relate to [the failed bank].”). Allowing the Debtors to avoid the jurisdictional bar imposed by FIRREA simply by asserted their claims against JPMorgan as the assuming bank “would encourage the very litigation that FIR-REA aimed to avoid.” Shirk v. JPMorgan Chase Bank, N.A. (In re Shirk), 437 B.R. 592, 601 (Bankr.S.D.Ohio 2010) (citing Village of Oakwood v. State Bank & Trust Co., 539 F.3d 373, 386 (6th Cir.2008)).
B.
Though the Debtors admit that “the Administrative Courts of the FDIC have broad powers to determine the liabilities of the failed bank, WAMU,” they proffer two arguments in support of their position that this Court maintains subject-matter jurisdiction over the first category of claims in Counts I, II, V, VI and VII. (Doc. # 40, p. 7). First, the Debtors allege that this Court may adjudicate the first category of claims because JPMorgan “waived” its FIRREA jurisdictional protections by filing a proof of claim in the Debtors’ bankruptcy case. (See id. at pp. 8-10). Second, the Debtors argue that because JPMorgan “never asserted that FIRREA applied to the [Debtors’] mortgage” prior to filing its Motion to Dismiss, JPMorgan is collaterally and/or equitably estopped from asserting FIRREA jurisdictional provisions.11 (See id. at p. 11). In the alternative, the Debtors argue that even if this Court were to conclude that it did not have *626subject-matter jurisdiction over the counts in question, it should “transfer the matter to the Administrative Court of the Federal Deposit Insurance Corporation” pursuant to 28 U.S.C. § 1406(a), rather than dismissing the Complaint. (Id. at p. 12).
1.
As an initial matter, this Court must deny the alternate relief sought by the Debtors. Generally, courts that do not maintain subject-matter jurisdiction over an action do not have the authority to transfer that action pursuant to 28 U.S.C. § 1406. Atlantic Ship Rigging Co. v. McLellan, 288 F.2d 589, 591 (3d Cir.1961) (per curiam). Indeed, § 1406 only concerns the ability of district courts to cure “venue” defects not a defect involving lack of subject-matter jurisdiction. See 28 U.S.C. § 1406(a).
This Court does recognize, however, that courts lacking jurisdiction maintain the ability to transfer an “action or appeal to any other such court in which the action or appeal could have been brought ...” if such a transfer is in the interest of justice. 28 U.S.C. § 1631. Nevertheless, even if the Debtors sought relief under this seemingly more appropriate statutory provision, a transfer would not be available under these circumstances. Section 1631 of title 28 only enables a transfer to “courts,” and administrative bodies such as the FDIC are not “courts” under the applicable statutory definition. Schafer v. DOI, 88 F.3d 981, 987 (Fed.Cir.1996) (citing 28 U.S.C. § 610 (1994)). Thus, this Court finds that a transfer of the first category of claims alleged in the Complaint would be inappropriate, and the Debtors have not asserted any authority to the contrary.
2.
The Debtors’ second argument, averring that JPMorgan is “estopped” from asserting a lack of subject-matter jurisdiction, is equally without merit. The Debtors assert that by not raising FIR-REA while rejecting the Debtors’ request to rescind the Loan, JPMorgan is somehow estopped from relying on the FIR-REA jurisdictional bar. (Doc. # 40, p. 11). The Debtors do not cite, and the Court cannot find, any authority to support this theory. To the contrary, it is well-settled that subject-matter jurisdiction may be challenged at any time.12 Int’l Fin. Corp. v. Kaiser Group Int’l Inc. (In re Kaiser Group Int’l Inc.), 399 F.3d 558, 565 (3d Cir.2005) (citations omitted). Therefore, this Court rejects the Debtors’ assertion that JPMorgan is estopped from asserting the FIRREA exhaustion of remedies requirement as a bar to this Court’s subject-matter jurisdiction over the first category of claims alleged in the Complaint.
3.
Finally, the Debtors’ waiver argument, based upon JPMorgan’s filing of a proof of claim, must also be rejected. Specifically, the Debtors assert that by filing a proof of claim in the Debtors’ bankruptcy case, JPMorgan waived “its FIRREA protections” thereby allowing this bankruptcy court to exercise subject-matter jurisdiction over the Debtors’ “counterclaims” to the proof of claim filed by JPMorgan. (See Doc. #40, pp. 8-10). In support of this proposition the Debtors cite three case from the Supreme Court: Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990), Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966), and Stern v. Marshall, — U.S. *627-, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011).
As an initial matter, the Debtors’ position that the cases cited concern the waiver of a bar to the exercise of subject-matter jurisdiction is misguided. Each of the cases cited concerns limitations contained in Article III of the United States Constitution regarding the ability of bankruptcy courts to finally adjudicate certain cases and controversies. See Katchen v. Landy, 382 U.S. 323, 86 S.Ct. 467, 15 L.Ed.2d 391 (1966) (holding that a bankruptcy referee maintained summary jurisdiction to order the surrender of a voidable preference) and Langenkamp v. Culp, 498 U.S. 42, 111 S.Ct. 330, 112 L.Ed.2d 343 (1990) (holding a creditor that filed a claim against the estate was not entitled to a jury trial on a preference claim asserted by a bankruptcy trustee). The ability of the bankruptcy courts to adjudicate a case or controversy in the face of a statutory bar to the exercise of subject-matter jurisdiction was not at issue in either case.
This Court has previously held that parties may consent (or waive their ability to object) to the final adjudication of certain cases or controversies by the bankruptcy court. See Ardi Limited P’ship v. The Buncher Co. (In re River Entertainment Co.), Bankr.No. 07-024515, Adv. No. 10-2495, 2012 WL 1098570, *12 (Bankr.W.D.Pa. March 30, 2012). Attempting to extend subject-matter jurisdiction through consent is entirely different. The Supreme Court has consistently held that parties cannot consent to create subject-matter jurisdiction where it does not otherwise exist. See, e.g., Am. Fire & Cas. Co. v. Finn, 341 U.S. 6, 17-18, 71 S.Ct. 534, 95 L.Ed. 702 (1951) (holding that an extension of federal jurisdiction through consent of the parties is not permitted) (citations omitted), People’s Bank v. Calhoun, 102 U.S. 256, 260-61, 26 L.Ed. 101 (1880) (“[T]he mere consent of parties cannot confer upon a court of the United States the jurisdiction to hear and decide a case.”).
Moreover, the Supreme Court’s holding in Stem directly contradicts the premise for which the Debtors appear to cite the case. Stem held that bankruptcy courts lack the constitutional authority to enter a final judgment on a state-law tort counterclaim, when the adjudication of that counterclaim would not “necessarily be resolved in the claims allowances process.” Stem, 131 S.Ct. at 2618. As part of this holding, the Supreme Court concluded that by merely filing a defamation claim against a debtor in bankruptcy, a creditor had not consented to the adjudication of state-law counterclaims brought by that debtor for tortious interference. Id. at 2617. Thus, the Stem opinion actually seeks to correct the over-broad reading of its prior decisions in Katchen and Langenkamp that the Debtors seek to employ in the instant matter.
Just because JPMorgan has filed a proof of claim in the Debtors’ bankruptcy does not mean it has consented to resolution of all matters between itself and the Debtors in this Court. Nor does it mean that JPMorgan has, or could have, waived the jurisdictional bar imposed by the FIRREA exhaustion requirement. As noted in Stem, to infer consent from the mere filing of a claim would be inappropriate, as those parties holding claims against a debtor in bankruptcy do not have a forum outside of the bankruptcy court where they may seek to recover from the debtor’s estate. Id. at 2614. Concluding otherwise would leave JPMorgan with the Hobson’s choice of either: (1) forgoing the FIRREA’s statutory procedure for resolving disputes, or (2) abandoning its claim against the Debtors entirely. This Court simply does not believe that Congress intended such a result *628at the intersection of the Bankruptcy Code and FIRREA. See Sunshine Dev. v. FDIC, 33 F.3d 106, 116 (1st Cir.1994).
In sum, the claims for damages in Counts I, II, V, VI and VII, concern only the “act[s] or omission[s]” of WaMu and other entities allegedly involved in the Refinancing prior to the execution of the Purchase Agreement. As a result, 12 U.S.C. § 1821(d)(13)(D) bars any court from exercising jurisdiction over these claims until the Debtors have exhausted the FIRREA administrative process. The Debtors’ contentions that JPMorgan has somehow created subject-matter jurisdiction in the bankruptcy court through waiver or estoppel are without merit. Additionally, the Debtors have failed to establish a right to have the claims transferred to an administrative body. As the Debtors do not allege that they have exhausted their administrative remedies as required by FIRREA, this Court does not have subject-matter jurisdiction over the first category of claims asserted.
Being that this Court does not maintain subject-matter jurisdiction over the first category of claims alleged in the Complaint, there is no need to address the other grounds for dismissal put forward in the Motion to Dismiss. Therefore, this Court will enter an order dismissing the claims for damages alleged in Count I, II, V, VI and VII, without prejudice to the Debtors’ ability to re-file the claims in a proper forum.
C.
Though the majority of the Debtors’ claims in Counts I, II, V, VI and VII are subject the FIRREA jurisdictional bar, FIRREA does not preclude this Court from exercising subject-matter jurisdiction over claims that are “true” defenses to the proof of claim asserted by JPMorgan in the Debtors’ case.13 See National Union, *62928 F.3d at 393 (“We believe that the plain meaning of the language contained in § 1821(d)(13)(D) indicates that the statute does not create a jurisdictional bar to defenses or affirmative defenses which a party seeks to raise in defending against a claim.”).
The United States Court of Appeals for the Third Circuit was careful to stress that the defenses asserted must be “true” defenses and not just counterclaims camouflaged as defenses for the purpose of skirting the FIRREA jurisdictional bar. Id. at 394. In distinguishing between a “claim” and a “defense” the Third Circuit Court of Appeals states that a “defense” is a “response to the claims of the other party setting forth reasons why the claims should not be granted” and an “affirmative defense” “attacks the plaintiffs [legal] right to bring an action.... ” Id. at 393 (citing Black’s Law Dictionary 419, 60 (6th ed. 1990)). Alternatively, the Court defined a “claim” as “essentially an action which asserts a right to payment.” Id. at 394.
It is clear that the first category of claims asserted by the Debtors are not affirmative defenses but are “claims” subject the FIRREA jurisdictional bar. See Rundgren v. Washington Mut. Bank, F.A., No. 09-00495, 2010 WL 4960513, *5 (D.Haw. Nov. 30, 2010) (citing cases). Indeed, the bulk of the relief sought in Counts I, II, V, VI and VII, is for monetary damages, attorneys fees and costs, and “judgment” against JPMorgan. (Complaint, ¶¶ 62, 73, 92, 98, 102). Further, these claims are based on the “act[s] or omission[s]” of WaMu prior to the initiation of the FDIC receivership and the subsequent acquisition of WaMu’s assets by JPMorgan. As a result, none of these requests for relief can be considered “defenses” and are, thus, barred by the FIR-REA provisions.
The Debtors’ have inaccurately characterized all of the claims in the Complaint as “counterclaim[s] against [JPMor-gan’s] proof of claim_” (See Doc. # 40, p. 10). This characterization is contrary to the Debtors’ own interests as “counterclaims” are expressly barred by FIRREA. See National Union, 28 F.3d at 394. Nevertheless, this Court has taken it upon itself to separate what appear to be “true” defenses from the claims (or “counterclaims”) alleged in the Complaint. As a result of this process the Court is able to identify one item that could properly be characterized as a “defense” in the Debtors’ Complaint. That item is the remedy of rescission14 (or stated another way, the *630request for an “annulment” of JPMorgan’s security interest in the Property sought in Count I.15).
The United States Court of Appeals for the Third Circuit has identified rescission as an “affirmative defense” and not a claim. See id. Additionally, without reaching the substantive issue of what affect the Purchase Agreement between the FDIC and JPMorgan might have on the validity of the Debtors claim, a TILA claim for rescission may be lodged against “any assignee of the obligation.” See 15 U.S.C. § 1641(c). Therefore, as JPMorgan remains the assignee of the Debtors’ mortgage, rescission under TILA is a defense that the Debtors may assert against JPMorgan’s claim filed in the Debtors’ bankruptcy case. See Rundgren, 2010 WL 4960513, at *5 (citing King v. Long Beach Mortg. Co., 672 F.Supp.2d 238, 246 (D.Mass.2009)). But, as set forth more fully below, this defense is without merit.
V. Rooker-Feldman Doctrine
As described above, FIRREA does not bar this Court from exercising jurisdiction over the Debtors’ TILA claim for rescission. However, review is barred by the Rooker-Feldman doctrine.
A.
The Rooker-Feldman doctrine states that federal courts, other than the U.S. Supreme Court, are prohibited “from exercising appellate jurisdiction over final state-court judgments.” Lance v. Dennis, 546 U.S. 459, 463, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006). The jurisdictional limitations imposed by Rooker-Feldman apply not only to state court judgments entered following a trial on the merits, but also to default judgments. See, e.g., Knapper v. Bankers Trust Co., 407 F.3d 573 (3d Cir.2005); Stuart v. Decision One Mortgage Co., LLC (In re Stuart), 367 B.R. 541 (Bankr.E.D.Pa.2007); Holler v. Fairbanks Capital Corp. Serv. Ctr. (In re Holler), 342 B.R. 212 (Bankr.W.D.Pa.2006).
According to the United States Court of Appeals for the Third Circuit, there are now four elements that must be satisfied for the Rooker-Feldman doctrine to apply: “(1) the federal plaintiff lost in state court; (2) the plaintiff ‘complaints] of injuries caused by [the] state-court judgments’; (3) those judgments were rendered before the federal suit was filed; and (4) the plaintiff is inviting the district court to review and reject the state judgments.” Great Western Mining & Mineral Co. v. Fox Rothschild LLP, 615 F.3d 159, 166 (3d Cir.2010) (quoting Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005)). Each of these elements apply with regard to the rescission defense asserted by the Debtors as to the second category of “claims” alleged in the Complaint.
The Debtors concede that both the first and third elements of the Great Western test are satisfied. (See Doc. # 40, p. 15). The Court reaches this conclusion because the Debtors admit that they “lost” at the state court level as a result of the foreclosure judgment entered against them on August 6, 2010. (See id.). The Debtors also admit that the judgment in mortgage *631foreclosure was entered before their bankruptcy case was commenced on September 29,2010. (See id.).
The Debtors, however, insist that they are not complaining of any injury caused by the state court judgment and are not inviting this court to review or reject the judgment. (See id. pp. 15-16). Instead, the Debtors insist that they are only complaining of the actions of WaMu in consummating the Refinancing and JPMorgan’s alleged failure to respect the Debtors’ rescission request. (See id. at p. 15). Additionally, the Debtors insist that they are only challenging the validity of JPMorgan’s claim, not seeking a review or rejection of the state court judgment. (See id.). This Court is not persuaded.
It would be impossible for this Court to hold that JPMorgan does not have a claim secured by the Property or that the Debtors have a right to rescind the Loan, without reviewing or rejecting the state court foreclosure judgment. This Court has previously concluded that actions in mortgage foreclosure in Pennsylvania depend upon the existence of a valid mortgage. Calabria v. CIT Consumer Group (In re Calabria), 418 B.R. 862, 866 (Bankr. W.D.Pa.2009) (citing Randall v. Bank One Nat’l Ass’n (In re Randall), 358 B.R. 145, 158 (Bankr.E.D.Pa.2006)). A finding that the Debtors’ mortgage is invalid, would be tantamount to a finding that the state court foreclosure judgment was not valid and, thus, would result in this Court reviewing the judgment entered by the State court.
This Court recently arrived at the same conclusion in a similar case involving Debt- or’s counsel, In re Washington, Bankr.No. 08-24389, Adv. No. 11-2460, 2012 WL 767863 (Bankr.W.D.Pa. March 7, 2012). In Washington, the Court held that the Rooker-Feldman doctrine prevented a debtor from challenging the standing of a mortgagee to file a proof of claim, when the state court had already entered a foreclosure judgment in favor of that mortgagee. Id. at *7. In so holding, the Court rejected this same argument that the second and fourth elements of the Great Western test were not satisfied because the debtor was only complaining of injuries resulting from the actions of the mortgagee and was only asking the bankruptcy court to consider whether the mortgagee had a valid claim. Id. As is the case here, the Court in Washington found that a ruling which held that the mortgagee did not have a valid claim “would clearly invalidate the state court judgment.” Id.
The Debtors also appear to allege that the TILA provision concerning the expiration of a debtor’s right to rescind a transaction, somehow trumps the bar to this Court’s review of a state-court judgment imposed by the Rooker-Feldman doctrine. (Doc. #40, pp. 12-14).16 The Debtors, however, are unable to cite any authority for this proposition. (See Audio Recording of Hearing Held in Courtroom D, July 29, 2012 (12:12-12:14 PM)).
Furthermore, the Debtors’ argument has repeatedly been considered and rejected within the Third Circuit in other cases. See, e.g., In re Cooley, 365 B.R. 464 (Bankr.E.D.Pa.2007), and Stuart, 367 B.R. at 550 (“[T]he bankruptcy court lacks jurisdiction to consider a claim to enforce TILA rescission rights if a judgment in foreclosure has been entered prior to exer*632cising rescission rights under TILA.”) (citation omitted).
For example, in Cooley, the United States Bankruptcy Court for the Eastern District of Pennsylvania explained that the Rooker-Feldman analysis did not “hinge” on a debtor’s alleged an “independent” right to rescission. Cooley, 365 B.R. at 470-473. Rather, the Cooley court held that review of the debtor’s TILA rescission claims was barred by the Rooker-Feldman doctrine because “granting rescission would negate the foreclosure judgment.” Id. at 470. As explained by the court in Stuart, the rescission process “affects more than the existence and validity of the mortgage....” Stuart, 367 B.R. at 552. The TILA rescission process essentially requires a complete adjustment on the liability between the debtor and creditor because of the statutory liabilities of the parties based on their conduct. See id. To enforce a rescission requires that the court must determine that the debtor’s liability on the mortgage would be different from the amount of the state court foreclosure judgment; thus any rescission determination necessarily reviews and alters that state court judgment. Id. at 552-53.
In addition to Cooley and Stuart there exists substantial precedent within the Third Circuit that the Rooker-Feldman doctrine prevents federal courts from granting rescission after the entry of a state-court judgment in mortgage foreclosure has been entered. See, e.g., Madera v. Ameriquest Mortg. Co. (In re Madera), 586 F.3d 228 (3d Cir.2009) (finding that a grant of rescission would negate a foreclosure judgment because it would amount to a finding that no valid mortgage existed), Dougal v. Saxon Mortg. (In re Dougal), 395 B.R. 880, 891 (Bankr.W.D.Pa.2008) (“[Pjursuant to the Rooker-Feldman doctrine the state foreclosure judgment [entered before the alleged notice of rescission was sent] effectively ties the Court’s hands and prevents it from granting a rescission.”), Randall, 358 B.R. at 159 (“[T]he Rooker-Feldman doctrine bars a federal court from exercising jurisdiction over a TILA rescission claim first asserted after the entry of a state court foreclosure judgment.”).
In the instant matter the mortgage foreclosure was entered on August 6, 2010 and the Debtors admit that the alleged rescission request was drafted and submitted on or around August 8, 2010.17 (See Doc. # 40, pp. 3-4). Thus, despite their alleged “independent” right to rescind the Loan under TILA, the Debtors cannot seek review of the state court judgment in mortgage foreclosure in this Court.
The Debtors also argue that the standard articulated in Great Western supports their right to rescission by rejecting a broad application of the “inextricably intertwined” prong of Rooker-Feldman. (See Doc. #40, pp. 14-17). Though each of the precedential decisions listed above were decided under the “inextricably inter*633twined” prong of the Rooker-Feldman analysis, this does not alter this Court’s conclusion with regard to the Debtors’ attempt to rescind.
In Great Western the Third Circuit Court of Appeals cautioned that reliance on the “inextricably intertwined” prong “has caused lower federal courts to apply Rooker-Feldman too broadly.” Great Western, 615 F.3d at 169-170. In its analysis of the Rooker-Feldman doctrine, the Court in Great Western explained that the phrase “inextricably intertwined” has is only “a descriptive label attached to claims that meet the requirements outlined in Exxon Mobil.” Id. at 170 (citing Hoblock v. Albany County Board of Elections, 422 F.3d 77 (2d Cir.2005)). The Court then explained that the phrase “does not create an additional legal test or expand the scope of Rooker-Feldman beyond challenges to state-court judgments.” Id. As a result, the court exchanged the “inextricably intertwined” language associated with Rooker-Feldman in favor of the four part test described above.
In seeking rescission of the Loan through the Complaint, it is clear that the Debtors are challenging the effect of a state court judgment and seeking its reversal regardless of the verbiage used to describe their attempt. This Court has already described how all four elements outlined in Great Western have been satisfied. Moreover, the United States District Court for the Western District of Pennsylvania has reached the identical conclusion under a similar set of facts when applying the same four factors from Great Western. See In re Iannini, No. 10-55, 2010 WL 2104244, *8 (W.D.Pa. May 24, 2010) (holding that the debtor’s attempt to void a sheriffs’ sale pursuant to 11 U.S.C. §§ 544, 547 or 548 was barred by Rooker-Feldman under the four-part test articulated by the United States Court of Appeals for the Second Circuit in Hoblock v. Albany County Board of Elections, 422 F.3d 77 (2d Cir.2005)). The United States District Court for the Eastern District of Pennsylvania also concluded after the entry of the Great Western opinion that the “great weight of authority” continues to support the holding that Rooker-Feldman bars lower federal courts from exercising jurisdiction over a plaintiffs claim for rescission under TILA when such claim is asserted after the entry of a default judgment in mortgage foreclosure. Perkins v. Beltway Capital, LLC, 773 F.Supp.2d 553, 559 (E.D.Pa. 2011).
Thus, the second category of claims seeking rescission of the Loan fit squarely within the type of actions barred by Rook-er-Feldman. This Court is barred from exercising jurisdiction over the Debtors’ request to unwind the default judgment in mortgage foreclosure entered in the State court. As a result, the Debtors’ cause of action for rescission of the Loan must be dismissed.
VI. Failure to State a Claim Under Rule 12(b)(6)
This Court does maintain subject-matter jurisdiction over the third category of claims asserted in Counts I, II, Y, VI and VII. This category consists of claims asserted against JPMorgan for the alleged acts of JPMorgan occurring after the execution of the Purchase Agreement. As a result of the terms of the Purchase Agreement, JPMorgan is the assignee of WaMu’s mortgage obligations and is thus responsible for the servicing of the mortgage loan created by the Refinancing. (See Doc. # 19, Exhibit “B”, Article II, Section 2.1) (“the Assuming Bank [JPMor-gan] specifically assumes all mortgage servicing rights and obligation of the Failed Bank [WaMu].”). This category of claims is not barred by the FIRREA exhaustion *634requirement and is not barred by Rooker-Feldman because the claims appear to complain of the alleged acts of JPMorgan in its capacity as a servicer of the Loan. Nevertheless, because each of these “claims” are not sufficiently plead, they must be dismissed pursuant to Fed. R.Civ.P. 12(b)(6).
As a result of the convoluted nature of the Debtors’ Complaint, it was originally difficult for this Court to discern exactly what claims are being asserted against JPMorgan directly. From a fair reading of the Complaint, however, it appears that in Count I, the Debtors are alleging they suffered harm based on JPMorgan’s failure to recognize and/or respect their rescission request. (See Complaint, ¶¶ GO-62). In Count II, the Debtors appear to allege that JPMorgan violated RE SPA by failing “to provide proper corrections to the [Debtors’] mortgage” and by failing to produce eleven requested documents in response to their alleged QWR.18 (See id. ¶¶ 65-66). Even taking all of the allegations in the Complaint as true, the Debtors have failed to adequately plead a claim for relief in this third category.
The Debtors’ have failed to state a claim based on JPMorgan’s alleged failure to respect the Debtor’s rescission request under TILA. The TILA provisions clearly provide that a mortgagor’s right to rescind a loan is not impacted by the assignment of the loan. See 15 U.S.C. § 1641(c). Conversely, TILA does not provide for an award of damages against an assignee for failing to honor a mortgagor’s rescission request. See, e.g., Dougal, 395 B.R. at 891 (citing Brodo v. Bankers Trust, 847 F.Supp. 353, (E.D.Pa.1994)); Sherzer v. Homestar Mortgage Services, Civ. O. 07-5040, 2010 WL 1947042, *12 (E.D.Pa. May 7, 2010). As stated by the United States District Court for the Eastern District of Pennsylvania in Brodo v. Bankers Trust:
While § 1641(c) [of TILA] provides that the right to rescind exists even against a creditor’s assignee, § 1640(a) permits only a “creditor” to be held hable for a monetary penalty or an award of attorney’s fees for a TILA violation. Neither § 1641 nor any other section provides for a statutory penalty or an award of attorney’s fees to a plaintiff should an *635assignee fail to respond to a valid rescission notice.
Brodo, 847 F.Supp. at 359. Thus, because there is no plausible theory of recovery based on JPMorgan’s alleged failure to recognize the Debtors’ rescission request, they have failed to state a claim under Fed.R.Civ.P. 12(b)(6).
Under RESPA (Count II), the Debtors claim that they suffered harm because JPMorgan intentionally “failed to provide proper corrections to the [Debtors’] mortgage” and failed to produce eleven documents requested the Debtors’ alleged QWR. (Complaint, ¶¶ 64, 66). Akin to the Debtors’ third category claims asserted in Count I, the Debtors have failed to state a claim for relief as to the alleged RESPA violations. Though the Complaint generally alleges that the Debtors “lost an ascertainable amount of money” as a result of WaMu’s conduct during the Refinancing, the Debtor’s do not allege any pecuniary loss as a result of JPMorgan’s conduct. This omission is fatal because to state a claim under RE SPA, the Debtors must allege that JPMorgan’s breach resulted in actual damages. See Jobe v. Bank of America, N.A., No. 10-cv-1710, 2011 WL 4738225, *5 M.D. Pa. Oct. 6, 2011 (“[A]lleging a breach of RESPA duties alone does not state a claim under RESPA. Plaintiffs must, at a minimum also allege that the breach resulted in actual damages.”) (quoting Hutchinson v. Delaware Sav. Bank FSB, 410 F.Supp.2d 374, 383 (D.N.J.2006)). Accordingly, the Debtors’ second claim under RESPA must be dismissed pursuant to Fed.R.Civ.P. 12(b)(6).19
VII. Derivative Standing to Assert Avoidance Actions
As previously discussed, the Debtors appear to argue two distinct theories of recovery in Count IV. At the July 29, 2011 hearing on the Motion to Dismiss, the Debtors argued that their “544” claim was simply an alternate way of describing their right to avoid JPMorgan’s security interest in the Property if they were successful in rescinding the Loan under TILA. (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (12:21-12:24 PM)). In a later argument (only fully developed at the hearing on the Motion for Derivative Standing), the Debtors insisted that in the event that their TILA request for rescission was not successful, the avoidance action(s) alleged in Count IV would allow them to get “back to” the merits of the other counts in the Complaint. (See Audio Recording of Hearing Held in Courtroom D September 7, 2011 (11:05-11:07 AM)). Stated differently, the Debtors’ revised theory appears to propose that if the Debtors are permitted to “step into the shoes” of the Trustee, they may be able to avoid the foreclosure judgment based on the cause of action alleged in Count IV (either §§ 544, 547 or 548), and once the foreclosure judgment avoided, the Debtors may pursue their non-bankruptcy causes of action.
*636As a result of this evolving argument and the sloppy drafting of the Complaint, it is unclear to the Court whether the Debtors are seeking to exercise the avoidance powers of the Trustee to avoid JPMorgan’s allegedly unperfected security interest in the Property pursuant to § 544(a)(3) or are pursuing a preference action against JPMorgan pursuant to § 547. In any event, the Debtors insist that they are permitted to step into the shoes of the Trustee to exercise the avoidance powers set forth in Chapter 5 of the bankruptcy Code. (Complaint, ¶¶ 83-87). JPMorgan and the Trustee disagree, however, insisting that only a trustee may exercise avoidance powers under Chapter 5 of the Bankruptcy Code. {See Doc. # 18, pp. 15-16 and Doc. # 57).
The Trustee and JPMorgan argue that the plain language of the Bankruptcy Code limits the ability to chapter 13 debtors to exercise the trustee’s “strong arm” powers. Specifically, both parties argue that 11 U.S.C. §§ 544, 547 and 548 permit only the trustee to exercise avoidance powers. {See Doc. #18, p. 16, Doc. #57, p. 7). The Trustee and JPMorgan further argue that in contrast to similar provisions governing cases filed under chapter 11 and chapter 12, 11 U.S.C. § 1303 does not confer the chapter 13 trustee’s avoidance powers on the debtor. {See id.). Both JPMorgan and the Trustee also explain that no courts within the Third Circuit have ever recognized the ability of a chapter 13 debtor to exercise the trustee’s “strong-arm” powers under 11 U.S.C. § 544. {See Doc. # 57, p. 3; Doc. # 58, pp. 2-3).
In her Supplemental Brief in Support of the Trustee’s Response to Debtors’ Motion to Request Derivative Standing to Exercise Trustee’s Powers, the Trustee further insists that in a prior case involving Debt- or’s Counsel, In re Weyandt, the United States District Court for the Western District of Pennsylvania ruled “that previous Third Circuit precedent foreclosed the debtor’s attempt to use the Trustee’s avoidance power.” (Doc. # 60, unnumbered pp. 2-3).
A.
This Court stops short of the concluding that there exists a per se rule in chapter 13 cases against any party other than a trustee from exercising the Chapter 5 avoidance powers on a derivative basis. The Court reaches this conclusion because the Third Circuit in In re Knapper, 407 F.3d 573 (3d Cir.2005) did not squarely address the issue of derivative standing in bankruptcy. Rather, in Knapper the Third Circuit Court of Appeals stated that a chapter 13 debtor does not have standing in his or her oum right to bring avoidance actions in bankruptcy. Knapper, 407 F.3d at 583. The Third Circuit’s decision was particularly acute under the facts of that case because the cause of action would result in no demonstrable benefit to the creditors of the bankruptcy estate. Id.
The Third Circuit Court of Appeals has had the occasion to weigh-in on the issue of derivative standing in bankruptcy. In Official Comm. of Unsecured Creditors of Cybergenics Corp. ex rel. Cybergenics Corp. v. Chinery (In re Cybergenics), 330 F.3d 548 (3d Cir.2003), the United States Court of Appeals for the Third Circuit held that, upon appropriate application to the court, bankruptcy courts have the equitable power to imbue a creditors’ committee in a chapter 11 bankruptcy case with standing to sue to avoid a fraudulent transfer for the benefit of the bankruptcy estate. Cybergenics, 330 F.3d at 580. While Cybergenics was a chapter 11 case and involved a creditor’s committee, this Court sees no reason why it should not apply equally as well to debtors in the *637chapter 13 context. Stated in other words, if as a legal matter a Chapter 5 cause of action would inure to the benefit of the bankruptcy estate, and if the chapter 13 trustee doesn’t pursue it, why should a party-in-interest like the debtor be precluded from pursuing the cause of action on a derivative basis? The Court really has not received a satisfactory answer to this question.
Because Knapper did not address the concept of derivative standing, this Court concludes that the Third Circuit’s opinion in Cybergenics, and not Knapper, governs the analysis of whether or not the Debtors in the instant matter should be able to pursue Chapter 5 claims on behalf of the estate when the Trustee refuses to do so.
Based on the theory that Cybergenics can be applied in the chapter 13 context, the Debtors encourage this Court to apply a three part test from Official Comm. of Unsecured Creditors v. Clark (In re National Forge Co.), 326 B.R. 532 (W.D.Pa. 2005), to determine that a grant of derivative standing is appropriate in the instant matter. In National Forge, the United States District Court for the Western District of Pennsylvania found that a party could obtain derivative standing to bring a cause of action under § 544 of the Bankruptcy Code if three conditions are present: (i) the movant has alleged a colorable claim that would benefit the estate (ii) the trustee has unjustifiably refused to pursue the claim itself; and (iii) the movant has obtained permission from the bankruptcy court to initiate the action on behalf of the estate. Id. at 543 (citations omitted).
In the instant matter, it appears to the Court that the Debtors have failed at the first element set forth in National Forge. Even accepting as true the averments of the Debtors in support of their § 544(a)(3) and/or “preference” action, the Debtors have not asserted a “colorable claim,” let alone demonstrated how such claim would benefit the creditors of the estate as a whole.20
1.
Section 544(a)(3) of the Bankruptcy Code provides that a trustee “may avoid any transfer of property of the debtor” that would be avoidable by a “bona fide purchaser of real property ... at the time of the commencement of the case....” 11 U.S.C. § 544. A generous reading of the Complaint reveals that the Debtors allege they may avoid JPMorgan’s claim against the estate because JPMorgan “does not hold any interest in either the [Debtors’] note or the [Debtors’] mortgage.” (Complaint, ¶ 84). Beyond the fact that the Complaint does not make it clear what, if any, “transfer” the Debtors are seeking to avoid, the allegations in Count IV do not *638give rise to a “colorable claim.” The bald assertion in the Complaint that JPMorgan does not hold any interest in the note or mortgage is simply a legal conclusion that this Court need not accept. See Iqbal, 556 U.S. at 678, 129 S.Ct. 1937 (courts “are not bound to accept as true a legal conclusion couched as a factual allegation.”) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
Moreover, this allegation is directly contradicted by judicially noticed exhibits and the statements of Debtors’ Counsel at the hearing in the Motion to Dismiss. The Debtors’ repeated acknowledgment that the state court judgment in mortgage foreclosure was entered in favor of JPMorgan prior to the filing of their bankruptcy case is uncontroverted evidence that JPMorgan absolutely had an “interest” in the Property “as of the commencement of the case....” 11 U.S.C. § 544. (See also Doc. #18, Exhibit “A”, Doc. #40, pp. 3-4).
Additionally, Counsel for the Debtors expressly stated at the July 29, 2011 hearing on the Motion to Dismiss that “we’re not debating whether, for example, JPMorgan is the holder of the Debtors’ note [and presumably the mortgage as well], ... we’re not debating that. That’s, there is no allegations here that JPMorgan does not hold the Debtors’ note because they purchased it and the Purchase Agreement speaks for itself.” (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (12:21-12:23 PM)). Aside from directly contracting the allegations in the Debtors’ Complaint>21 this statement leaves the Debtors without any basis for asserting a § 544 action absent rescission of the Loan under TILA. In sum, it is clear that JPMorgan’s interest in the Property was conclusively established pri- or to the “commencement of the case” and, therefore, the Debtors have not asserted a colorable claim under § 544(a)(3).
2.
While titled as a 544(a)(3) action, the Debtors later appear to assert that the judgement in mortgage foreclosure can be avoided as a “preference.” (See Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:06-11:08 AM)). Pursuant to § 547 of the Bankruptcy Code the trustee may avoid a transfer of an interest of the debtor in property: (1) made to or for the benefit of a creditor, (2) on account of an antecedent debt, (3) made while the debtors was insolvent, (4) within ninety (90) days prior to the filing, (5) that enabled the alleged recipient of the preferential transfer to receive more than it would have received in a hypothetical chapter 7 liquidation. See 11 U.S.C. § 547(b). Looking only at the language in the Complaint, the Debtors have failed to allege any of the elements of a “preference” action and, therefore, the Debtors have failed to state a colorable claim under 11 U.S.C. § 547.22 Even assuming that Debtors were to successfully amend the Complaint, the “preference” action would fail because there does not appear to be a “transfer” that has occurred within the preference period.23
*639The Debtors nonetheless argue that there was a preferential “transfer” because included in the definition of a transfer under the Bankruptcy Code is “the foreclosure of the debtor’s equity of redemption.” 11 U.S.C. § 101(54)(c). However, under Pennsylvania law, “the foreclosure of the debtor’s equity of redemption” does not occur until the “the hammer falls” at the foreclosure sale.24 See In re Brown, 311 B.R. 721, 724 (Bankr. W.D.Pa.2004) (citing Davis v. SunTrust Mortg. (In re Davis), 281 B.R. 626, 633 (Bankr.W.D.Pa.2002)). Therefore, the only “transfer” with regard to the Debtors’ interest in the Property occurred when the Debtors secured refinancing on October 26, 2007, creating the lien in favor of WaMu. See Funches v. Household Fin. Consumer Disc. Co. (In re Funches), 381 B.R. 471, 497 (Bankr.E.D.Pa.2008); see also 11 U.S.C. § 101(54)(A) (the definition of “transfer” includes “the creation of a lien”). As such, the entry of the judgment in mortgage foreclosure would not somehow effect a further transfer of the Debtors’ interest in the Property. Funches, 381 B.R. at 497. Thus, the Debtors’ have failed to alleged a colorable claim for a preference as the only material transfer of the Property took place well outside the ninety day preference period.
As the Debtors’ “544(A)(3) PREFERENCE” claim appears to be entirely void of merit, this Court cannot find that the Trustee has “unjustifiably refused” to pursue the claim.25 As a result, the Court will not give permission for the Debtors to initiate an action on behalf of the Debtors’ estate. Thus, even absent a per se bar to a chapter 13 debtor’s attempt to exercise the avoidance powers of the trustee under §§ 544, 547 and/or 548, the Debtors have failed to demonstrate they are entitled to derivative standing because they have not put forth a colorable claim.
B.
As a final matter, in the Supplemental Brief in Support of Trustee’s Response to Debtors’ Motion to Request Derivative Standing to Exercise Trustee’s Powers, the Trustee requests that Counsel to the Debtors be found to be in violation of Pennsylvania Rule of Professional Conduct 3.3. (See Doc. # 60, unnumbered p. 6). This rule states, in pertinent part, that a lawyer shall not knowingly “fail to disclose to the tribunal legal authority in the controlling jurisdiction known to the lawyer to be directly adverse to the position of the client and not disclosed by opposing counsel.... ” Rules of Prof. Conduct, Rule 3.3(a)(2), 42 Pa.C.S.A.
In support of its request, the Trustee points to Counsel’s failure to disclose legal authority contrary to his position with regard to the derivative standing issue. (See id. at unnumbered pp. 2-5). *640Specifically, the Trustee cites In re Knapper, 407 F.3d 573 (3d Cir.2005), In re Iannini, No. 10-55, 2010 WL 2104244 (W.D.Pa. May 24, 2010), and an unpublished opinion from a case in which Counsel for the Debtors participated as counsel for the debtor, Weyandt v. Federal Home Loan Mortgage Corporation, No. 2:11-cv-00957, Doc. # 11. The Court notes that of these cases, only Weyandt squarely rejects the concept of derivative standing for chapter 13 debtors.
A review of the record, however, reveals that both Knapper and Iannini were cited by JPMorgan and the Trustee (see Doc. # 18 p. 5; Doc. # 57, pp. 4-6; Doc. # 58, pp. 2-5), and were therefore known to opposing counsel. In addition, the chapter 13 trustee was well aware of Weyandt as she was the chapter 13 trustee in that case, and that case was decided by the District Court after the instant case was briefed by the parties. These circumstances militate against sanctioning Debtors’ counsel at this time. The Court nonetheless reminds Counsel of his duty to supplement the record and disclose potentially adverse authority. The Court also cautions Counsel to be more candid in the future or sanctions may be imposed.
In addition to raising Rule 3.3(a)(2) issues, the Trustee’s remaining concerns regarding Counsel’s quixotic pursuit of this adversary proceeding are well taken. As stated by the Untied States Court of Appeals for the Third Circuit in Cybergenics, the policy reason for channeling avoidance actions through the trustee is so that the trustee may act as a “gatekeeper” to prevent “independent avoidance actions ... that might prejudice the estate.... ” Cy-bergenics, 330 F.3d at 568. The instant adversary proceeding is an example of when a certain amount of gatekeeping, by either the Trustee or the Bankruptcy Court is necessary, to prevent misguided adversary actions from progressing to the point where large amounts of fees are incurred without any reasonable expectation of benefit to the bankruptcy estate.
This Court is also concerned about several other issues arising from Counsel’s prosecution of the instant adversary proceeding. For example, Counsel advanced several theories in both the Complaint and during subsequent hearings that do not appear to have any adequate basis. The Court is also troubled by Counsel’s shifting theories of recovery, which have resulted in conflicting averments from Counsel concerning the action plead in Count IV — that is, the “544(a)(3) PREFERENCE” cause of action. The Complaint itself generally reflects a “shotgun” approach to pleading which, as set forth above in this Memorandum Opinion, made it extremely difficult for the named defendants (and this Court) to decipher the allegations contained therein. Finally, another deficiency by Counsel was his decision to omit from the Complaint the fact that a default judgment in mortgage foreclosure had been entered prior to the filing of the Debtors’ chapter 13 case. Certainly this is a fact that is very germane and dispositive to the outcome of this lawsuit.
This Court cautions Counsel against repeating some of the behaviors and habits displayed thus far in this adversary proceeding. The Court reminds Counsel of his continuing ethical obligations under Fed. R. Bankr.P. 9011(b) and of the penalties under 28 U.S.C. § 1927 for “unreasonably” and “vexatiously” multiplying proceedings in a case. See In re Anctil Plumbing & Mech. Contrs., Inc., 416 B.R. 333 (Bankr. D.Mass.2009) (sanctioning debtor-in-possession attorney for continuing to raise the same argument contrary to established precedent). While no sanctions are being imposed at this time, the Court expects *641Counsel to govern himself accordingly in the future.
VIII. Conclusion
The Debtors’ claims for damages in Counts I, II, V, VI and VII against JPMorgan for the acts and/or omissions of WaMu or other entities occurring prior to the execution of the Purchase Agreement are subject to the FIRREA exhaustion requirement. As the Debtors have not exhausted the administrative remedies under FIRREA, this Court does not have subject-matter jurisdiction over this first group of claims. Similarly, pursuant to the Rooker-Feldman doctrine, this Court may not exercise subject-matter jurisdiction over the Debtors’ TILA claim of rescission following the entry of the judgment in mortgage foreclosure by the state court.
This Court does maintain subject-matter jurisdiction over the remaining claims under Counts I, II, V and VI for the alleged acts of JPMorgan in its capacity as a servicer of the Debtors’ mortgage. However, the Debtors have failed to state a viable cause of action for each of the claims alleged, and, thus, these claims will be dismissed pursuant to Fed.R.Civ.P. 12(b)(6) (applicable in adversary proceedings though Fed. R. Bankr.P. 7012). Finally, as the Debtors lack standing to exercise the avoidance powers of the Trustee, Count IV of the Complaint must also be dismissed.
As a result, this Court will enter an order granting Defendant JPMorgan Chase Bank, N.A.’s Motion to Dismiss Plaintiffs’ Complaint. The Court will also enter an order granting Defendant JP Morgan Chase Bank, N.A.’s Request for Judicial Notice in Support of Motion to Dismiss Plaintiff’s Complaint.
The Court will also deny the Debtors’ Motion to Request Derivative Standing to Exercise Trustee’s Powers Under §§ 544, 547, and 548 Nunc Pro Tunc filed at Doc. # 65 in the main case, and grant the Trustee’s Motion to Strike Debtors’ Motion to Request Derivative Standing to Exercise Trustee’s Powers Under §§ 544, 547, 548 Nunc Pro Tunc as the Debtors’ incorrectly filed a duplicate copy of their Motion for Derivative Standing in the Adversary Proceeding at Doc. # 39.
. All future docket citations refer to Adversary Number 10-02654-JAD, unless otherwise specifically noted.
. The Debtors Complaint states that WaMu "was taken over by the FDIC on September 28, 2008 and its assets sold through an insolvency proceeding.” (Complaint, ¶ 13). Because this Court will take judicial notice of the documents relating the FDIC receivership of WaMu and the subsequent purchase of WaMu's assets by JPMorgan Chase Bank, N.A., this Court relates the accurate as opposed to alleged version of the events described. See infra, p. 4, note 3.
. The Debtors have consented to this Court taking judicial notice of: (a) the Office of Thrift Supervision Order directing the Federal Deposit Insurance Corporation to act as Receiver of Washington Mutual Bank; and (b) the Purchase and Assumption Agreement between the FDIC and JPMorgan pursuant to Fed.R.Evid. 201. (See Audio Recording of Hearing Held in Courtroom D, July 29, 2011 (11:36-11:38 AM)). See also Javaheri v. JPMorgan Chase Bank, N.A., Civ. No. 10-08185 ODW (FFMx), 2011 WL 97684, *2 (C.D.Cal. Jan. 11, 2011) (finding judicial notice is appropriate as to both documents). As a result, the Court will enter a separate Order granting Defendant JPMorgan Chase Bank N.A. 's Request for Judicial Notice in Support of Motion to Dismiss Plaintiffs Complaint filed at Adv. No. 10-2654, Doc. # 19.
.The Debtor's Complaint makes no mention of the Debtors’ default or the judgment in mortgage foreclosure. However, the Debtors admit that both of these events occurred in their Brief in Opposition to Motion to Dismiss. (See Doc. # 40, p. 3). The Debtors have also consented to this Court taking judicial notice of the documents evidencing the entry of a judgment in mortgage foreclosure attached as Exhibit "A” to Defendant JPMorgan Chase Bank, N.A.’s Brief in Support of Motion to Dismiss Plaintiff s Complaint. (See Audio Recording of Hearing Held in Courtroom Do, July 29, 2012 (11:37-11:38 AM)).
. While paragraph 102 of the Complaint states that "Plaintiffs demand judgment against the Plaintiffs ...” this Court will assume that the Debtors are seeking judgment against the named defendants in Count VII.
. JPMorgan has not addressed Count III in its Motion to Dismiss. This fact is acknowledged in footnote number 3 of Defendant JPMorgan Chase Bank, N.A.'s Brief in Support of Motion to Dismiss Plaintiffs’ Complaint. (See Doc. #18, p. 2 n. 3). Thus, Count III shall go forward and this Court will order JPMorgan to file an Answer to Count III of the Complaint.
. JPMorgan argues in the alternative that all of the Debtors’ claims under Counts I, II, V, VI and VII, should be dismissed because the Debtors have not sufficiently alleged any wrongdoing by JPMorgan. (See Doc. #18, pp. 10-12, 14, 17-21). JPMorgan also alleges that the Debtors’ claims for damages linked to the Refinancing under TILA (Count I) and RESPA (Count II) are barred by each applicable statute of limitations (see id. at pp. 12-13, 15), and the Debtors' claims asserted under the "catch-all” provision of the UTPCPL (Count V) alleging fraud or deceit are defective as they fail to allege fraud with particularity as required by Fed.R.Civ.P. 9(b). (See id. at pp. 18-19). It is not necessary for this Court to reach the merits of these arguments because, as set forth above, this Court finds that FIRREA bars this Court from exercising subject-matter jurisdiction over all of the Debtors' claims for damages alleged in Counts I, II, V, VI and VII.
. JPMorgan argues in the alternative that the Debtors’ rescission claim is barred by res judi-cata. (Doc. #18, pp. 5-7).
. This revised characterization is further complicated by the Debtors' initial insistence at the September 7 hearing that the “TILA claims stand on their own.” (See Audio Recording of Hearing Held in Courtroom D, September 7, 2011 (11:06-11:07 AM)).
. In FIRREA's statutory provisions, "Corporation” is used to refer to the Federal Deposit Insurance Corporation, or "FDIC.” See 12 U.S.C. § 1811(a).
. It is not entirely clear what theory of es-toppel the Debtors are asserting. While the Complaint recites the elements of equitable estoppel, the Debtors’ conclude their estoppel discussion by referring to the preclusive doctrine of "collateral estoppel.” (See Doc. # 40, p. 11).
. Moreover, equitable estoppel cannot be used to confer subject-matter jurisdiction on a federal court. See Doe v. FDIC, No. 11 Civ. 307(BSJ)(RLE), 2012 WL 612461, *4, n. 8 (S.D.N.Y. Feb. 27, 2012).
. The ability of debtors to assert defenses to claims of the FDIC (and acquiring entities) is an essential component of why there is no "debtor in bankruptcy” exception to the FIR-REA exhaustion requirement. Though several Circuit courts have concluded that FIRREA applies to debtors as well as creditors, these courts have stopped just short of holding that FIRREA applies to debtors in bankruptcy. See e.g., Tri-State Hotels, 79 F.3d at 714 n. 11; Freeman v. FDIC, 56 F.3d 1394, 1401-02 (D.C.Cir.1995). See also McCarthy v. FDIC, 348 F.3d 1075, 1079-1080 (9th Cir.2003) (collecting cases). Courts holding that debtors in bankruptcy may be exempt from the FIRREA exhaustion requirement often cite two reasons for their conclusion. First, courts surmise that FIRREA applies only to "creditors” of failed lending institutions, and not "debtors” based on the fact the neither the statutory language nor the legislative history of FIR-REA contains any reference to "debtors.” See In re Continental Financial Resources, Inc., 154 B.R. 385, 388 (D.Mass.1993) (collecting cases). Second, courts surmise that by ousting the bankruptcy courts of jurisdiction over actions between debtors and the FDIC, "the unity of the bankruptcy process might be fractured.” Freeman, 56 F.3d at 1401 (citing In re Parker North American Corp., 24 F.3d 1145, 1152-53 (9th Cir.1994)). This Court rejects the first reason based on binding precedent from the United States Court of Appeals for the Third Circuit holding that the FIRREA provisions apply not only to "creditors” of failed lending institutions, but also to their "debtors.” National Union, 28 F.3d at 392 (3d Cir.1994). This Court also finds that the concerns over a "fractionalization” of the bankruptcy process are amply mitigated by allowing debtors to assert "true” defenses to claims filed by the FDIC as part of the claims adjudication process. This protects the due process rights of the debtor and causes no disruption in the claims adjudication process. Similarly, preventing debtors from using the bankruptcy forum to assert claims for damages against the FDIC to augment their bankruptcy estate protects the integrity of the FIRREA administrative claims process. Thus, subject to the understanding that parties may assert defenses to the proof of claims filed by the FDIC or an acquiring entity, this Court finds that whether or not a party is in bankruptcy is not relevant to whether that party is required to exhaust its administrative remedies under FIRREA. See *629Jacobs v. PT Holdings, Inc., No. 8:11CV106, 2012 WL 458418, *9 (D.Neb. Feb. 13, 2012).
. Some courts have concluded that “rescission” is an equitable remedy barred by the section 1821 (j) of FIRREA. See, Shirk v. JPMorgan Chase Bank, N.A. (In re Shirk), 437 B.R. 592, 601 (Bankr.S.D.Ohio 2010) (citing cases). To prevent interference with the FDIC’s management and disposition of the assets of failed institutions, Congress drafted an additional measure preventing courts from entering orders that affect the FDIC's exercise of its statutory powers:
(j) Limitation on court action Except as provided in this section, no court may take any action, except at the request of the Board of Directors by regulation or order, to restrain or affect the exercise of powers or functions of the Corporation as a conservator or a receiver.
12 U.S.C. § 1821 (j). Several courts have found that requests for injunctions, rescission and declaratory relief are among the various types of equitable relief barred under § 1821 (j). See Radian Ins., Inc. v. Deutsche Bank Nat’l Trust Co., Civ. No. 08-2993, 2009 WL 3163557, *5 (E.D.Pa. Oct. 1, 2009) (collecting cases). However, the United States Court of Appeals for the Third Circuit has categorized "rescission” as an "affirmative defense” and this Court will follow suit. National Union, 28 F.3d at 394 (3d Cir.1994).
. While averred as a separate form of relief, the Debtors' attempt to "annul" the security interest maintained by JPMorgan in the Debtors' Property appears to be just a simple consequence of rescission under TILA. See 12 C.F.R. § 226.23(d)(1) ("When a consumer rescinds a transaction, the security interest giving rise to the right of rescission becomes void and the consumer shall not be liable for any amount, including any finance charge.”). Thus, the "defenses” asserted shall be collectively referred to as "rescission” for the remainder of this Memorandum Opinion.
. The provision in question states that assuming the material disclosure requirements of the TILA are not satisfied, the "right of rescission shall expire three years after the date of consummation of the transaction or upon the sale of the property, whichever occurs first....” 15 U.S.C. § 1635(f).
. In their Complaint the Debtors alleged that they “wrote both Chase and WAMU and attempted to rescind the obligation.’’ (Complaint, V 60). In support, the Debtors allege that "[a] true and correct copy of the rescission letter is attached and incorporated herein as Exhibit AH.” (id. ¶ 60). However, upon examining Exhibit "AH”, the Court finds an unsigned rescission request dated December 21, 2010. (See Complaint, Exhibit “AH”). This letter is dated more than four months after the judgment in mortgage foreclosure was entered against the Debtors in State court. The Court assumes the date on this letter must be in error as JPMorgan sent a response dated August 19, 2010, recognizing receipt of some correspondence from Counsel for the Debtors on August 16, 2010. In any event there is no indication that the Debtors’ alleged rescission request was drafted or submitted prior to the August 6, 2010 entry of a judgment in mortgage foreclosure.
. The Debtors also allege that they are entitled to recover for the alleged TILA and RES-PA violations under the UTPCPL (Count 5) and that these alleged violations constitute a "breach of the implied covenant of fair dealing” (Count VI). (See Complaint, ¶¶ 91, 95). Both of the Debtors' allegation in Count V and Count VI are entirely without merit. The United States Court of Appeals for the Third Circuit has held that assignees, who have not committed any direct wrongdoing, cannot be held liable under the UTPCPL. Murphy v. FDIC, 408 Fed.Appx. 609, 611 (3d Cir.2010) (unpublished opinion). In the instant matter, the Debtors have failed to allege any direct wrongdoing by JPMorgan at the time of the Refinancing. Additionally, the Debtors have failed to allege any “fraudulent or deceptive conduct” by JPMorgan regarding its response to the alleged QWR. 73 P.S. § 201-2(4)(xxi). Similarly, to the extent such a cause of action is recognized in Pennsylvania, a plaintiff alleging a breach of the covenant of good faith must aver that they incurred damages based on a breach of specific provisions contained in a note and mortgage. See Lorah v. Sun-Trust Mortgage., Inc., 2010 WL 5342738, *6 (E.D.Pa. Dec. 17, 2010) (citing Benchmark Group, Inc. v. Penn. Tank Lines, Inc., No. 07-2630, 2009 WL 943515 (E.D.Pa. Apr. 8, 2009)). In the, instant matter, the Debtors have neither referenced any specific provisions of the documents associated with the Refinancing, nor indicated how JPMorgan allegedly breached any such provision. Thus, the Debtors’ mere assertion that they are permitted damages under these alternate legal theories must be dismissed for failure to state a claim pursuant to Fed.R.Civ.P. 12(b)(6). See 556 U.S. at 678, 129 S.Ct. 1937 (Courts "are not bound to accept as true a legal conclusion couched as a factual allegation.”) (quoting Twombly, 550 U.S. at 555, 127 S.Ct. 1955).
. Moreover, the alleged QWR may not actually be a “qualified written request” pursuant to 12 U.S.C. § 2605(e), as the alleged QWR does not identify any purported errors regarding JPMorgan's servicing of the Loan. (See Complaint, Exhibit "AH”). See also Ward v. Security Atlantic Mortgage Electronic Registration Systems, Inc., No. 5:10-CV-119-F, 2012 WL 871119, *10 (E.D.N.C. March 14, 2012) (citing cases). This Court need not accept as true any allegations in the Debtors’ Complaint that are contradicted by the exhibits attached to the Complaint. Sunquest Info. Sys. v. Dean Witter Reynolds, Inc., 40 F.Supp.2d 644, 649 (W.D.Pa.1999) ("[I]n the event of a factual discrepancy between the pleading and the attached exhibit, the exhibit controls.”) (citing ALA, Inc. v. CCAIR, Inc., 29 F.3d 855, 859 n. 8 (3d Cir.1994)).
. This Court is also not convinced that the pursuit of Count IV would benefit the bankruptcy estate. Even if the Debtor were permitted to use the trustee’s powers to avoid the judgment in mortgage foreclosure, JPMorgan would still have a lien on the Property. Therefore, the Debtors would need to pursue their TILA claim for rescission. The Debtors claim that "avoiding” their mortgage in this manner would allow for substantial repayment to unsecured creditors because of the requirements of the liquidation alternative test, or through the creation of an unencumbered asset (the Property) that could be liquidated for the benefit of creditors. (See Doc. #39, ¶21). Each of these contemplated "benefits” hinges on the assumption that the Debtors would hold the Property free and clear following rescission of the Loan under TILA. Contrary to the Debtors’ stated belief, TILA would require that the Debtors either tender the Property or the "reasonable value” of the Property to JPMorgan following a successful request to rescind. See 15 U.S.C. § 1635(b). Thus, even ignoring litigation costs, this Court does not see how pursuit for the avoidance action with the ultimate objective of rescinding the Loan would benefit the bankruptcy estate.
.Paragraphs 84 and 85 of the Debtors' Complaint expressly state in pertinent part: "Chase is not a true party in interest as Chase does not hold any interest in either the Plaintiffs’ note or the Plaintiffs’ mortgage. Because Chase does not own the Debtor's [sic] note it cannot hold a perfected security interest in the Debtors' property and it may not have a claim against the Debtors’ estate.” (Complaint, ¶¶ 84-85).
. Similarly, the Complaint does not allege a "fraudulent transfer” pursuant to 11 U.S.C. § 548.
. The Debtors' preference claim also appears to fail because the Debtors’ cannot allege that JPMorgan has received more than it would have under a hypothetical chapter 7 liquidation. Indeed, it appears that JPMor-gan has not yet received any assets in satisfaction of its lien solely as the result of the *639mortgage foreclosure. Once the foreclosure is complete JPMorgan could be repaid by taking title to the Property or by selling title to the Property; however, neither of these events has yet occurred. Thus, as the Debtors cannot allege that JPMorgan has received any value in excess of the amount it would have received in a hypothetical chapter 7 liquidation, the Debtors’ have failed to state a colorable claim for a preference under 11 U.S.C. § 547. Electra Lighting & Elec. Co. v. S & T Bank (In re Free), 449 B.R. 461, 466 (Bankr.W.D.Pa.2011).
. In other words, the Debtors retain their "right to redeem” pursuant to 41 P.S. § 404 until a sheriffs sale of the Property occurs. See, e.g., In re Townsville, 268 B.R. 95, 118 (Bankr.E.D.Pa.2001), Marx Realty & Improv. Co. v. Boulevard Center, Inc., 398 Pa. 1, 156 A.2d 827, 829 (1959).
. Additionally, the Debtors admit that they never made any formal request that the Trustee pursue this cause of action. (See Doc. # 40, pp. 26-28). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494809/ | MEMORANDUM OPINION
CARLOTA M. BOHM, Bankruptcy Judge.
The matters before the Court are (1) the Notice of Removal commencing the above-captioned adversary proceeding, (2) the Emergency Joint Motion to Remand and Request for Expedited Hearing (“Motion to Remand”), (3) the Emergency Joint Motion to Dismiss the Chapter 11 Voluntary Petition Filed by Laurel Highlands Foundation, Inc. and Request for Expedited Hearing (“Motion to Dismiss”), and (4) the Emergency Joint Motion for Relief from the Automatic Stay Pursuant to Section 862(d)(1) of the Bankruptcy Code and Request for Expedited Hearing (“Motion for Relief from Stay”). Upon consideration of the motions filed, the responses thereto, the arguments and evidence presented at the hearings, the parties’ briefs, and for the reasons expressed herein, the Court finds that due to the extraordinary circumstances presented in this case, dismissal is appropriate pursuant to 11 U.S.C. § 305(a), or in the alternative pursuant to § 1112(b). Furthermore, even if this Court were to permit the bankruptcy case to proceed, the claims asserted by the debtor, Laurel Highlands Foundation, Inc. (“Laurel”), in the state court action, which Laurel removed to this Court, are non-core. Based on this and other factors, the Westmoreland County Court of Common Pleas is the appropriate forum for the removed action to continue based upon the principles of mandatory abstention or, in the alternative, permissive abstention or equitable remand. In addition, relief from stay is warranted based upon the totality of the circumstances to permit the litigation to continue in that forum.
I. Background
Laurel, a nonprofit corporation with “members” as opposed to “shareholders”, offers a variety of services to individuals with intellectual disabilities, mental health needs, and behavioral issues. Defendant Passavant Memorial Homes (hereinafter, together with Defendant Passavant Memorial Homes Foundation, “Passavant”) is another Pennsylvania Nonprofit Corpora*647tion that cares for similar individuals as Laurel in group home settings.
In the spring of 2011, Laurel approached Passavant about a possible affiliation, and Passavant expressed interest in acquiring Laurel. In consideration of an affiliation, Laurel’s board of directors and Passavant commenced due diligence. Certain members of Laurel (the “Petitioning Members”1) supported the acquisition by Passavant. Ultimately, however, Laurel’s board of directors chose to terminate due diligence with Passavant. Nonetheless, the Petitioning Members held a meeting and voted to approve Passavant’s acquisition of Laurel. Thus, the board of directors and the Petitioning Members were at odds and were taking inconsistent action, apparently both on behalf of Laurel. Litigation was clearly imminent.
On July 25, 2011, approximately nine months prior to filing for relief under the Bankruptcy Code, Laurel commenced an action in the Court of Common Pleas of Westmoreland County pursuant to Pennsylvania’s Declaratory Judgments Act. In its Complaint, Laurel sought a declaratory judgment regarding whether the acts taken by the Petitioning Members constituted official and authorized actions of the members such that they must be followed and obeyed by Laurel’s board of directors and which individuals comprised Laurel’s membership for purposes of entitlement to vote at meetings. Through Counterclaims, the Petitioning Members and Passavant sought, inter alia, a declaratory judgment providing that the members’ votes to approve the asset purchase agreement at their meetings were valid and enforceable and, accordingly, directing an officer to execute the agreement. After the eom-mencement of the state court litigation, on September 6, 2011, the Petitioning Members held another meeting regarding the acquisition of Laurel by Passavant and to consider removal of certain board members, appointment of other individuals as board members, and approval of a new set of by-laws. Therefore, the control of Laurel is central to the pending dispute.
The state court action was pending before the Honorable Anthony G. Marsili. By order dated September 16, 2011, in light of the continued power struggle between the members and the board, the parties were directed to maintain the status quo while the case proceeded. The September 16 Order (Passavant’s Exhibit 16) provided, in part, as follows:
(A) Until further order of court, the parties shall maintain the status quo in this proceeding and shall take no actions or steps which will alter, affect or change the positions or status of the parties, their relationship to one another or the status of the employees, staff, consumers, board members, or members of Laurel; including but not limited to: (i) noticing or holding any special meetings of the Board of Directors or the membership; (ii) removing any Directors from Laurel’s Board; (in) taking any action to change the Membership of Laurel; and/or (iv) taking any action to disenfranchise the current Members of Laurel.
(B) Notice of all regularly scheduled meetings of the Board of Directors of Laurel will be provided to all Current Board Members and all Current Board Members shall have the right to attend, and shall not be *648barred from, any such meetings of the Board of the Directors. For purposes of this Order, the term “Current Board Members” shall mean those members of Board of Directors of Laurel who were elected or appointed prior to the initiation of this lawsuit.
On March 12, 2012, after an evidentiary hearing held November 30, 2011, Judge Marsili issued a detailed decision and order denying the parties’ cross-requests for preliminary injunctive relief. In the March 12 Order (Laurel’s Exhibit 60), the parties were directed once again to maintain the status quo until further order of court. In addition to reiterating the above-cited directives, Judge Marsili defined “maintain the status quo” to mean “only to conduct normal or usual business activities, as defined in the ordinary course of business. Therefore, no extraordinary actions, outside of the ordinary course of business, shall be taken by any of the parties.” Trial on the request for permanent injunction was scheduled for August 13, 2012 through August 16, 2012.
A number of motions were filed and pending in the state court action on May 11, 2012. Judge Marsili indicated that, due to the urgency of the situation, he would be issuing his decision on said motions on May 14, 2012. Among the issues before him was a renewed request by Pas-savant and the Petitioning Members to enter a preliminary injunction. In the renewed motion for preliminary injunction, Passavant and the Petitioning Members alleged that actions were being taken in violation of status quo orders and further indicated that there was an urgent need for an injunction due to Laurel’s decision to terminate health insurance benefits for certain employees, risking the departure of those employees, and ultimately threatening the level of care provided by Laurel. Thus, Judge Marsili expressed his intent to rule expeditiously.
Before the state court was able to issue its decision as intended, and on the date the judge stated he would rule, Laurel commenced this bankruptcy case by filing a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. The state court litigation was stayed by the commencement of the bankruptcy case. Also, on the same date, Laurel filed its Notice of Removal, removing the case of Laurel Highlands Foundation, Inc. v. Karl E. Frankenstein, et al. to this Court.
Passavant and the Petitioning Members oppose the removal and wish to proceed with the litigation in state court. They assert a number of grounds in support of their request. After a status conference at which this Court indicated its concern that the removed action was non-core and questioned the motivation of the bankruptcy filing, Laurel filed a response to the Motion for Remand and Motion for Relief from Stay, wherein it did not object to the continuation of the action in state court provided that this Court continue to exercise jurisdiction- over the assets of the bankruptcy estate. However, as to the bankruptcy case as a whole, Passavant and the Petitioning Members contend that the bankruptcy filing was without proper authorization and in bad faith and, accordingly, seek dismissal. After the conclusion of the evidentiary hearings held May 31, 2012, and June 4, 2012, and review of the entire record, the Motion to Dismiss, Notice of Removal, Motion for Remand, and Motion for Relief from Stay are ripe for decision.
II. Standing
As a preliminary matter, Laurel challenged Passavant’s standing to seek dismissal of this bankruptcy case. However, the motion to dismiss was filed jointly by *649Passavant and the Petitioning Members, whose standing is not challenged; therefore, the Court need not address Passa-vant’s standing and the Motion to Dismiss will be addressed herein.
III. Findings of Fact
At the outset, this Court notes that numerous objections were made to testimony regarding the current membership of Laurel and the version of the by-laws currently in effect. These matters are at the heart of the state court action and those are not the matters presently before this Court. The issues currently before this Court are (1) whether Laurel filed its bankruptcy petition in good faith with proper authority and (2) whether the state court is the appropriate forum for the removed action to proceed. As Laurel has consented, albeit with qualification, to the resolution of the removed action by the state court, the primary focus of the evi-dentiary hearing was whether the bankruptcy petition was filed in good faith.
At the evidentiary hearing, Laurel called two witnesses: John Gera and Cher Mos-er. Passavant and the Petitioning Members also called two witnesses: William Krieger and W. Harrison Vail. By way of background, Gera and Vail are members of the current board of directors of Laurel pursuant to the status quo orders. Vail, a Petitioning Member, also identifies himself as a member of the reconstituted board as allegedly established through membership meetings. Moser remains the executive director of Laurel pursuant to the status quo orders despite the decision of the reconstituted board to remove her. The issues of who constitutes Laurel’s membership, board of directors, and management are among the issues to be resolved in the underlying litigation. Therefore, this Court makes no findings as to those issues herein and identifies the witnesses as they identified themselves at the hearing.
Testimony of Gera
Gera identified himself as the President of Laurel’s Board of Directors and a member of Laurel. Much of Gera’s testimony did not focus on the purpose of the bankruptcy filing. From his testimony, however, it is clear that he did not consider Laurel to be in financial distress, he believed the state court’s status quo orders were a hindrance to Laurel’s ability to conduct business, and the potential of an adverse ruling by Judge Marsili on the emergency motion for preliminary injunction prompted the filing of the petition.
As to the effect of the state court’s status quo orders on Laurel, with the exception of Laurel’s motion regarding its intention to terminate certain employees’ health insurance benefits, Gera did not have knowledge of any other motion by Laurel seeking permission to take actions that he characterized as prohibited by the status quo order. As to the disruption caused by the litigation, Gera did not provide testimony of any extreme hardship to Laurel but rather described the typical burdens.
Gera testified to the events immediately preceding the filing of the bankruptcy petition. According to Gera, after the hearing on the renewed motion for preliminary injunction in the state court proceedings, Cher Moser, who attended the hearing, reported to Gera the concern that Judge Marsili may place Passavant in control of Laurel or that Laurel may be put into receivership. Counsel was contacted and the bankruptcy petition was commenced with the approval of seven of the nine board members. The testimony was clear that neither Vail nor Theodore Belajac (both board members and Petitioning Members) were invited to participate in the meeting. According to Gera, their in-*650elusion was unnecessary as they were in conflict pursuant to the by-laws. Thus, the resolution to file the bankruptcy petition (.Laurel’s Exhibit 70) was signed by only seven board members.
As to Laurel’s financial strength, Gera testified that Laurel has money in the bank, approximately $1,269 million. The fiscal report presented at the May 23, 2012 board meeting (Passavant’s Exhibit 36) indicated Laurel had a net income of approximately $360,000 as of March 31, 2012, and Laurel was anticipated to finish the year with a surplus.
Based on Gera’s testimony, this Court finds that the purpose of filing the bankruptcy petition was not due to financial distress, but rather due to the purported burden of complying with the state court orders and, primarily, the concern that Judge Marsili would place Passavant in control of Laurel or place Laurel in receivership after the May hearing. Thus, the bankruptcy filing was a means by which to keep Laurel’s current management in control and to evade the state court’s status quo orders.
Testimony of Moser
Moser, who identified herself as serving in a dual role as the controller and executive director of Laurel, testified as to the disruption caused by the litigation, the perceived reduction in funding that Laurel was facing, and the increase in premiums for employees’ health insurance.
Moser contends that the litigation caused distraction and disruption from operation of the business. However, this Court finds that Moser did not establish a severe disruption to Laurel due to the litigation.
Furthermore, Moser testified that the status quo orders prohibit her from taking certain actions. Due to the orders, she is to seek the court’s permission prior to taking certain action and this, she contends, interferes with Laurel’s ability to accept new clients and obtain new properties as needed. However, Moser acknowledged that Laurel has not sought permission from the judge to act on these stated needs and to obtain relief from the status quo orders.
Moser also expressed concerns regarding potential reductions in public funding, particularly waiver funding from the state. Any predictions regarding the proposed, funding are highly speculative. However, when presented with credible evidence, including the proposed state budget, which at this time indicates an increase in funding, this Court concludes that the reduction anticipated by Moser is not a realistic threat to Laurel.
In addition, Moser expressed concerns regarding the increased cost of providing health insurance benefits for employees. Although this cost will increase by forty-three percent, that increase is consistent with previous years. According to Moser, the decision to terminate health insurance benefits for certain employees resulted from the combined considerations of the increased premiums and the threat of a budget reduction. As the evidence establishes that Laurel will not experience the budget reduction that Moser anticipated, the increased health insurance premiums do not present a budget crisis given the current financial state of Laurel.
The credible evidence establishes that, as of the fiscal report provided at the May 23, 2012 board meeting, Laurel is financially healthy. Laurel had a surplus and Mos-er projected that Laurel will end the year with a surplus. Laurel had positive net assets of $3.8 million, and $1,269 million in the bank. Laurel pays its bills as they come due. Furthermore, Laurel was able to obtain a $750,000 line of credit dated May 11, 2012 (Passavant’s Exhibit 37), *651just days before the bankruptcy filing, through PNC Bank.2 It is also noteworthy that Laurel’s line of credit with PNC Bank had not been used for nearly two years as it simply had not been needed. Furthermore, to remove all doubt as to Laurel’s financial condition, Moser released a memo dated May 15, 2012 (Passavant’s Exhibit 26) to Laurel’s employees reassuring them that, despite the filing of the bankruptcy petition, Laurel’s “finances remain strong”. The memo further provided an alternative motive for the bankruptcy filing: “In order to finally bring to an end Passavant’s attempts to take over [Laurel], [Laurel] has determined to afford itself of rights granted it under Chapter 11 of the United States Bankruptcy Code.” In other words, the precise issue pending before Judge Marsili, control of Laurel, led to the commencement of the bankruptcy case.
Thus, this Court finds that the motivation for filing the bankruptcy petition was the pending ruling of the state court on the emergency motion for preliminary injunction. Moser testified as to her impressions upon attending the May 11, 2012 hearing. At that hearing, Moser recalled that Judge Marsili was considering installing Passavant as interim management or possibly appointing a receiver. She was very concerned after the hearing and reported her concerns to Gera that the court planned to rule in just a few days. She stated that if Passavant was placed in charge, then Laurel would no longer be able to continue its litigation with Passa-vant. As these were the circumstances immediately preceding the filing of the bankruptcy petition, the Court finds that the bankruptcy case was primarily a means to avoid a ruling which would have threatened the control of the current management and directors of Laurel.
Laurel now contends that, after the filing of the bankruptcy petition, a new threat to its continued operation has become apparent. Moser testified in response to representations made by counsel for the Pennsylvania Department of Public Welfare (“DPW”) at the May 23, 2012 status conference before this Court. The DPW licenses Laurel and provides the overwhelming bulk of its funding. Moser testified that, without the continued funding from DPW, Laurel would be out of business. At the status conference, counsel for the DPW represented as follows:
As I said, I’m saying here for the debt- or’s understanding because this bankruptcy can go nowhere, it can go nowhere. We’re done with these folks. We were done with these folks before they had the bankruptcy when we saw what was in the papers and we saw the $650,000 that had been diverted to an internal corporate war. We’re done. We’re done.
Now, we will do nothing to precipitate a crisis. We have not issued them their license. We don’t know if we are going to issue them a license. We’re not going to revoke their license, withhold it, until this Court rules. But, I can tell you that as far as from a bankruptcy organization standpoint, when you have a mon-opsony situation, where there’s really only one person who is buying your goods and that person does not want to do business with you anymore, it’s done. It’s done. So, I would urge this Court to move very expeditiously.
See Transcript of 05/23/12, Doc. No. 70, at 18-19. Counsel specifically represented, “I can tell you that the Department’s position is that we have lost confidence in the management of this debtor. That the De*652partment’s position is that this debtor needs to be transitioned to what appears to be the only adult in the room, which is Passavant.” Id. at 17. As of the May 23, 2012 status conference, counsel for the DPW clearly did not support Laurel’s current management. This Court finds that, if the DPW were to terminate providing funds to Laurel, then Laurel would not be able to remain in business.
Testimony of Krieger
William Krieger was called as an expert witness regarding his analysis of Laurel’s finances in conjunction with the proposed budget and to determine whether Laurel is solvent. He is a certified public accountant licensed to practice in Pennsylvania and possesses numerous other qualifications. Among other positions held by Krieger, he served as chief financial officer of Western Psychiatric Institute and Clinic and spent some time between 2005 and 2006 as the interim finance director of Mainstay Life Services, which he described as an agency very similar to Passa-vant and Laurel.
Although what will ultimately be provided in the state budget is pure speculation, Krieger concluded, based upon credible evidence, that there was no basis whatsoever to conclude that Laurel was facing a reduction of funding to the extent stated by Moser. Krieger noted that while county funding, which represents a small portion of Laurel’s overall funding, faced a reduction of twenty percent, the state waiver funding, which comprises the majority of Laurel’s budget, was proposed to increase.3 Even if the proposed increase is not ultimately a part of the final budget, Krieger testified that it was difficult to foresee a decrease of any magnitude. Krieger also consulted with the deputy director of the Department of Public Welfare to confirm that his analysis was correct.
As to the solvency of Laurel, Krieger determined that Laurel is solvent and able to pay its debts as they come due. He further determined that Laurel has enough funds to absorb the increased costs of employee health benefits.
Based upon the credible testimony of Krieger, this Court finds that the proposed state budget does not present a threat to Laurel’s funding. To the extent the county funding may decrease, the impact is minimal. Furthermore, as a financially healthy organization, Laurel is able to absorb the increased health insurance costs and is not facing a financial crisis.
Testimony of Vail
W. Harrison Vail identified himself as a member, director, and officer of Laurel. Vail’s daughter is a consumer of Laurel’s services. Vail was a member of the board of directors prior to the state court litigation, and thus he is a member of the “Current Board” pursuant to the terms of the status quo order. He was also voted to be a member of the reconstituted board at the September 6, 2011 membership meeting and will be a member of that newly created board if the action taken by the membership at that meeting is ultimately determined to be valid in the underlying litigation. He is named as a defendant in the state court action, and he and the other Petitioning Members filed counterclaims in that action. The only relevant point of Vail’s testimony for the purposes of this proceeding is that he, as a board member, was not contacted with respect to the decision to file the bankruptcy petition and never approved the decision. This point is undisputed and consistent with the testimony of Gera, who acknowledged that Vail, and one other *653board member, were intentionally not included in the vote. Accordingly, we find that the full board of directors did not unanimously approve the bankruptcy filing.
In light of these facts, the Court now turns to the relief requested.
IV. Discussion
Passavant and the Petitioning Members contend that this bankruptcy case should be dismissed as it was filed in bad faith and without appropriate authority. In the alternative to dismissal, Passavant and the Petitioning Members assert, pursuant to the principles of mandatory abstention, permissive abstention, equitable remand, and/or relief from the automatic stay, that the removed action should return to state court for resolution. Thus, aside from the request for dismissal, this Court is faced with a series of questions as to the removed action.
As an initial matter, the Court must determine whether the removed action is “related to” the instant bankruptcy case, such that removal is proper pursuant to 28 U.S.C. § 1452(a). If the removed action is related, then the Court must determine whether the removed action is a “core” proceeding. If it is determined to be “non-core”, the Court must address whether the proceeding is subject to mandatory abstention pursuant to 28 U.S.C. § 1334(c)(2). If the elements of mandatory abstention are not met, the Court must next evaluate whether either permissive abstention under 28 U.S.C. § 1334(c)(1) or equitable remand pursuant to 28 U.S.C. § 1452(b) is appropriate. Finally, the Court will address whether relief from stay pursuant to 11 U.S.C. § 362(d) should be granted to permit the action to proceed in state court. Although this Court finds that dismissal is appropriate, the issues relating to the removed action are addressed as it is clear that the removed action should proceed in state court even if the bankruptcy case were to continue.
Dismissal
Passavant and the Petitioning Members assert that the bankruptcy petition was not filed with appropriate authority. That is, they contend that the full board of directors (referring to those nine individuals in place pursuant to the status quo orders) did not vote to authorize the filing of the bankruptcy petition. It is undisputed that neither Vail nor Belajac were notified of any such vote and, in fact, did not vote to approve the action. Laurel contends that, pursuant to its by-laws, these individuals were not entitled to vote due to conflict of interest. As the interpretation of the by-laws is one matter at the core of the underlying litigation, a fact which has been repeatedly noted by the parties throughout the hearings, this Court will not resolve dismissal on the basis of authority to file the petition but rather holds that alternative justification warranting dismissal exists as discussed at length herein.4
In addition to the question of whether the petition was filed with appropriate authority of the board of directors, Passavant and the Petitioning Members assert two statutory bases upon which this Court should dismiss this bankruptcy case: 11 U.S.C. § 305(a) and § 1112(b).
*654Pursuant to § 305(a)(1), “The court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if the interests of creditors and the debtor would be better served by such dismissal or suspension[.]” Abstention under this provision is considered to be “an extraordinary remedy that is appropriate only where the court finds that both creditors and the debtor would be better served by a dismissal.” RHTC Liquidating Co. v. Union Pac. R.R. (In re RHTC Liquidating Co.), 424 B.R. 714, 720 (Bankr.W.D.Pa.2010). When litigation has been commenced in another forum and that forum is available to determine the parties’ interests, dismissal is especially appropriate. See Monsour Medical Ctr, Inc. v. Stein (In re Monsour Medical Center, Inc.), 154 B.R. 201, 207 (Bankr. W.D.Pa.1993). The burden is on Passa-vant and the Petitioning Members to establish that egregious circumstances exist, such that dismissal is warranted pursuant to § 305(a).
In this case, Passavant and the Petitioning Members met their burden. Laurel acknowledges that it has no unsecured creditors. Thus, the bankruptcy proceeding provides no apparent benefit to creditors. The true benefit of the continuation of the bankruptcy case is not to Laurel either, but rather appears to be to the benefit of one of the factions claiming control of Laurel, i.e., the management and board of directors in place pursuant to the status quo orders. Furthermore, the filing of the bankruptcy case, with no clear bankruptcy related purpose, appears only to increase litigation costs for Laurel. What would be in the best interest of all parties, especially the consumers of Laurel’s services, is the expeditious resolution of the state court matter. Judge Marsili was achieving precisely that. He has done extensive work on this case and is extremely familiar with the parties, the underlying facts, and the intricate legal issues presented.5
As argued by Laurel, this bankruptcy case was filed “defensively” due to the posture of the state court action after the May 11, 2012 hearing. That is, Judge Marsili was considering, among other options, placing either Passavant in a management role over Laurel or placing Laurel in a receivership. Laurel ultimately conceded, with qualification, to remand and relief from stay, but contended that the bankruptcy case would provide a mechanism to maintain the status quo in the meantime and preserve Laurel as an organization. The status quo orders entered by Judge Marsili were designed for precisely that purpose. However, Laurel comes to this Court complaining of the burdens of the status quo orders on its operations. The need for the status quo orders in this matter, however, is clear. To permit the current board to remain in place when it has not yet been determined whether it is properly in control of Laurel requires some restraint on its actions. If Laurel is not complying with those orders, as the Petitioning Members and Passavant contend, then clearly Judge Marsili is forced into the position of choosing another option, i.e., different management, pending the resolution of the underlying claims. Furthermore, it is not clear that Judge Marsili intended to appoint Passa-vant as management of Laurel on an interim basis. It is apparent that Laurel, as an *655organization, may benefit from the appointment of a neutral management that holds the interests of the organization and its consumers as the paramount concern.6 This Court will not permit the continuation of a bankruptcy case which appears to have been filed with the intent of tying Judge Marsili’s hands and second-guessing his orders. Judge Marsili is clearly very capable and competent to handle the case to its conclusion.
The filing of the bankruptcy case appears to be nothing more than an attempt by the current management of Laurel to remain in control when faced with the threat that Judge Marsili may grant the renewed request for preliminary injunction. Thus, based upon the testimony and argument, this Court finds that the filing was a litigation tactic to avoid an imminent, potentially adverse decision in state court. As there is no doubt that appropriate relief can be fashioned by the learned state court judge, such that operations are continued for the benefit of the consumers until this internal power struggle is resolved, dismissal and abstention by this Court is appropriate pursuant to § 305(a).
As an alternative basis for dismissal, Passavant and the Petitioning Members cite to 11 U.S.C. § 1112(b), which provides that a court may dismiss a Chapter 11 case for cause if it is in the best interest of the creditors and the estate. See Official Comm. Of Unsecured Debtors v. Nucor Corp. (In re SGL Carbon Corp.), 200 F.3d 154, 159 (3d Cir.1999). Chapter 11 bankruptcy petitions are subject to dismissal for cause unless filed in good faith. Id. at 162. “Once at issue, the burden falls upon the bankruptcy petitioner to establish that the petition has been filed in ‘good faith.’ ” Id. at 162, n. 10.
In In re Integrated Telecom Express, Inc., the debtor’s landlord contended that the bankruptcy petition should be dismissed for lack of good faith as the debtor was never in financial distress and the purpose of the petition was for nothing more than to frustrate the landlord’s claims and increase the distribution of the debtor’s estate to its shareholders at the landlord’s expense. See NMSBPCSLDHB, L.P. v. Integrated Telecom Express, Inc. (In re Integrated Telecom Express, Inc.), 384 F.3d 108, 112 (3d Cir.2004). The Third Circuit Court of Appeals agreed, holding that the petition was not a good faith filing, as it was filed by a financially healthy debtor, with no intention of reorganizing or liquidating as a going concern, with no reasonable expectation of maximizing the value of the estate for creditors, and solely to benefit from a provision of the Bankruptcy Code with respect to its lease. Id.
“At its most fundamental level, the good faith requirement ensures that the Bankruptcy Code’s careful balancing of interests is not undermined by petitioners whose aims are antithetical to the basic purposes of bankruptcy!.]” Id. at 119. The good faith analysis focuses on two inquiries: (1) whether the petition serves a valid bankruptcy purpose and (2) whether the petition was filed merely as a tactic to *656obtain a litigation advantage. Id. at 119— 20. Two valid purposes of Chapter 11 bankruptcy petitions are (1) “preserving going concerns” and (2) “maximizing property available to satisfy creditors.” Id. at 119. Whether a liquidation plan or a reorganization plan, either must serve a valid bankruptcy purpose. Id. at 120, n. 4. As Laurel has identified no unsecured creditors, this Court will focus on “preserving going concerns” as a potential purpose for this bankruptcy petition.
In In re SGL Carbon Corp., the district court found the petition to have been filed in good faith for two reasons: (1) distractions caused by litigation posed a serious threat to the debtor’s continued successful operations and (2) the litigation may result in a judgment that could cause financial and operational ruin. See 200 F.3d at 162. On appeal, the Third Circuit found each of these findings to be clearly erroneous. Id. First, while the litigation was taking up time, there was no serious threat to the company. Id. Second, the debtor was financially healthy and the filing was premature. Id. at 163-64. Debtor’s ability to meet its debts was one factor considered in determining that the petition was not filed with a valid reorganizational purpose. Id. at 164. Although courts have permitted companies to file valid Chapter 11 petitions when pending litigation poses a serious threat to the companies’ long term viability, in those cases the debtors were facing serious financial and/or managerial difficulties at the time of filing. Id.
In this case, Moser and Gera testified that the litigation is causing distraction and impacting operation of the business. Neither offered testimony establishing that the distraction of litigation poses a serious threat to Laurel’s operational well-being. Furthermore, it should be noted that the litigation was commenced by Laurel. Although Laurel contends that the status quo orders in the underlying litigation interfere with operations, the testimony revealed that as to a number of actions which Laurel alleges it is prevented from taking, permission to act was not sought. The status quo orders are intended to maintain a delicate balance pending the outcome of the litigation. Although it may be an inconvenience to the current board of directors and management to seek court permission, it is a necessary inconvenience until control is finally resolved. Furthermore, to the extent that Laurel believes that by filing the bankruptcy petition the disruption of litigation will cease, that is an incorrect assumption. The underlying litigation must be resolved and the burdens of that litigation will continue. Furthermore, in addition to those burdens, new obligations will be imposed on Laurel as a debtor in a bankruptcy case.
As to a valid bankruptcy purpose, Laurel made feeble attempts to establish financial distress.7 However, the testimony *657of Moser, Gera, and Krieger all support the conclusion that, at least as of the time of filing, Laurel was financially healthy. The company was solvent and projected ending the year with a profit. Although Moser testified that Laurel was facing a significant reduction in state waiver funding, the credible evidence, including the proposed budget, established that Moser had no valid basis for perceiving such a threat. In addition, Laurel was capable of absorbing the increased health insurance costs.
Furthermore, the state court litigation did not impose the threat of a massive judgment against Laurel. Rather, the litigation will determine who has the authority to act on behalf of Laurel. While it is true that, if the Petitioning Members are determined to have authority, they intend to proceed with the acquisition of Laurel by Passavant, that is not a financial threat to Laurel’s survival, but rather would simply be a business decision to affiliate with Passavant by those with authority to do so.
The one very real threat to Laurel’s finances is the possibility that the DPW will terminate its funding as suggested at the May 23, 2012 status conference. Laurel contends that even if it is viewed as financially healthy at this time, a decision by the DPW to discontinue its funding would pose an imminent threat to its continued operation, as the DPW licenses Laurel and provides the overwhelming bulk of its funding. The discontinuation of DPW funding of Laurel will force Laurel out of business as Moser testified. Laurel seeks the opportunity to attempt to deal with the issues it has with the DPW while remaining in bankruptcy.
This Court finds that the possibility that the DPW will terminate funding is insufficient to warrant the filing of this case at this time. First, the DPW is apparently completely unwilling to deal with Laurel’s current management. There is no reason to believe that this bankruptcy case will change the department’s mind. Second, the bankruptcy court may not be able to force the DPW to license or provide funding to Laurel. Thus, as the alleged purpose of the filing is to maintain Laurel as a going concern, that goal appears impossible if the primary funding is lost. This is precisely the point made by DPW’s counsel when he stated that this bankruptcy case can go nowhere if DPW terminates funding to Laurel. Third, it is not apparent why management cannot attempt to negotiate with the DPW regarding funding outside of the bankruptcy case. Fourth, based upon the representations made by DPW’s counsel, the department’s frustration is with the current management of Laurel. The department supports an affiliation with Passavant. Counsel for the DPW was cautious to state that the department would not take any action to precipitate a crisis and that it was awaiting Judge Marsili’s ruling. Without any further elaboration on the statements made at the status conference, it appears that the DPW is awaiting a decision as to who is in control of Laurel before determining what steps to take regarding funding. If the Petitioning Members had the authority to act as they did and reconstitute the board, then the DPW supports the Petitioning Members’ decision to affiliate with Passavant. If it is determined that the current board of Laurel maintains control and had the right to terminate negotiations with Passavant, then the termination of funding by the DPW may occur. The DPW’s decision to continue funding appears to be one more issue tied up in the underlying litigation. Thus, the argument that the potential termination of funding by the DPW creates a financial threat justifying the filing of the bankruptcy case at this time for an otherwise financially *658healthy organization with no unsecured creditors appears to be nothing more than another attempt by one faction of Laurel’s board to maintain control. Furthermore, as stated in SGL Carbon, “The mere possibility of a future need to file, without more, does not establish that a petition was filed in ‘good faith.’ ” 200 F.3d at 164. For the foregoing reasons, this Court finds that the bankruptcy case was not filed in good faith and is dismissed without prejudice.
As stated supra, the filing of the bankruptcy petition was a litigation tactic to avoid a potentially adverse ruling in state court. Although it is not this Court’s intention to discourage bankruptcy filings with a legitimate purpose, the extraordinary circumstances of this case justify dismissal. Furthermore, even if the bankruptcy proceeding were permitted to continue, the removed action would have returned to state court for resolution as this Court would have ruled in favor of abstention, remand, and relief from stay. Although dismissal of the bankruptcy case will necessarily remove any impediment the state court had in proceeding with the litigation, in the interest of thoroughly addressing the issues raised by the parties, the Court turns to the Notice of Removal, Motion for Remand, and Motion for Relief from Stay.
Notice of Removal
Pursuant to 28 U.S.C. § 1452(a), “[a] party may remove any claim or cause of action in a civil action ... to the district court for the district where such civil action is pending, if such district court has jurisdiction of such claim or cause of action under section 1334 of this title.” In addition to possessing subject matter jurisdiction over the bankruptcy case, “the district courts ... have original but not exclusive jurisdiction of all civil proceedings arising under title 11, or arising in or related to cases under title 11.” See 28 U.S.C. § 1334(b). Pursuant to 28 U.S.C. § 157(a), bankruptcy cases and the proceedings arising under, arising in, or related thereto may be, and are, in fact, referred by the district court to bankruptcy judges.
At the very least, in order for removal to be appropriate, the proceeding must be “related to” the bankruptcy case for purposes of establishing jurisdiction. “A proceeding is considered to be ‘related to’ a bankruptcy case ... if the ‘outcome of the proceeding could conceivably have any effect on the estate being administered in bankruptcy.’ ” See Lichtenfels v. Electro-Motive Diesel, Inc., No. 09-1590, 2010 WL 653859, at *2, 2010 U.S. Dist. LEXIS 15079, at *7 (W.D.Pa. Feb. 22, 2010) (quoting Pacor v. Higgins, 743 F.2d 984, 994 (3d Cir.1984), overruled on other grounds by Things Remembered, Inc. v. Petrarca, 516 U.S. 124, 116 S.Ct. 494, 133 L.Ed.2d 461 (1995)). “‘Conceivable’ does not simply mean that a proceeding will have a certain or likely impact upon a bankruptcy estate, but that ‘it is possible that a proceeding may impact the debtor’s rights, liabilities, options, or freedom of action, or the handling and administration of the bankrupt estate.” See Lichtenfels, 2010 WL 658859, at *3, 2010 U.S. Dist. LEXIS 15079, at *10 (quoting Halper v. Halper, 164 F.3d 830, 837 (3d Cir.1999)).
In this case, the removed action is undeniably related to the instant bankruptcy case. At issue in the removed action is a determination of which individuals are properly in control of Laurel. Therefore, this Court has jurisdiction pursuant to 28 U.S.C. §§ 1334 and 157. Thus, removal was proper, and the next matter to consider is whether the action is entitled to remain here.
Before addressing abstention, remand, and relief from stay, it is noteworthy that *659Laurel consented to the continuation of the litigation in state court with the qualification that this Court continue to exercise jurisdiction over the assets of the bankruptcy estate. Laurel raises a significant point that, if the bankruptcy case remains pending, there should be no disposition of estate assets without this Court’s approval. However, under the circumstances, this appears to be an attempt by Laurel’s current board to restrict the ability of the Petitioning Members to proceed with the affiliation with Passavant if they are successful in state court. If the Petitioning Members succeed in state court, then this bankruptcy case was not filed with appropriate authority in the first place.8 Furthermore, it is not apparent that any potential disposition of Laurel’s assets was before Judge Marsili other than in the event of the Petitioning Members’ success. Thus, Laurel has not established any realistic threat to the disposition of estate assets in the underlying litigation. As a practical matter, any qualification imposed on remand would too severely restrict Judge Marsili’s ability to manage and rule in this case. This Court now turns to the factors which overwhelmingly support abstention, remand, and relief from stay.
Mandatory Abstention
“Upon motion by a party, a district court is required to abstain from hearing proceedings that are non-core and are based solely on a state law claim or cause of action (i.e. ‘mandatory abstention’).” See Lichtenfels v. Electro-Motive Diesel, Inc., No. 09-1590, 2010 WL 653859, at *3, 2010 U.S. Dist. LEXIS 15079, at *8 (W-D.Pa. Feb. 22, 2010). Abstention is required when the following five requirements are met:
(1) the proceeding is based on a state law claim or cause of action;
(2) the claim or cause of action is “related to” a case under title 11, but does not “arise under” title 11 and does not “arise in” a case under title 11,
(3) federal courts would not have jurisdiction over the claim but for its relation to a bankruptcy case;
(4) an action “is commenced” in a state forum of appropriate jurisdiction; and
(5) the action can be “timely adjudicated” in a state forum of appropriate jurisdiction.
Stoe v. Flaherty, 436 F.3d 209, 213 (3d Cir.2006). With these requirements in mind, the Court examines the removed action.
As to the first element, the proceeding is based on a state law cause of action. The removed action involves Laurel’s request for declaratory relief pursuant to Pennsylvania law, and primarily requires application of Pennsylvania’s Nonprofit Corporate Law of 1988. Thus, the first element is met.
The second element requires a determination of whether the proceeding is *660core or non-core. The Third Circuit Court of Appeals set forth a two-part analysis for guidance in determining whether a proceeding is core or non-core. See Halper v. Halper, 164 F.3d 830, 836 (3d Cir.1999). First, courts are directed to consult 28 U.S.C. § 157(b) for an illustrative list of proceedings which may be “core”. Id. Second, courts are to consider whether a proceeding invokes a substantive right provided by title 11 (i.e. “arises under” title 11), or one that could only arise in the context of a bankruptcy case (i.e. “arises in” a title 11 case). Id. “All other proceedings that are ‘related to’ a bankruptcy case are considered non-core.” See Lichtenfels, 2010 WL 653859, at *3, 2010 U.S. Dist. LEXIS 15079, at *8.
Laurel asserts that the removed action constitutes a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(A) & (E). That is, Laurel contends that the removed action is a matter concerning the administration of the estate and involves an order to turn over property of the estate. Pas-savant, however, contends that the removed action is non-core and does not consent to the entry of final orders and judgment by this Court. To resolve the dispute, the Court looks to the substance of the removed action.
The Complaint involves purely issues of Pennsylvania law. In fact, the removed action proceeded in state court for over nine months prior to the bankruptcy case. The Complaint neither invokes a substantive right provided by the Bankruptcy Code nor arises solely in the context of a bankruptcy case.
As to the third element, there is no alternative basis for jurisdiction in this Court other than the relation to the bankruptcy case. Thus, the third element is satisfied.
This action was commenced in the West-moreland County Court of Common Pleas where it had been pending for nearly nine months prior to the bankruptcy case. The state court was an appropriate forum and the fourth element for mandatory abstention is satisfied.
The final consideration is whether the matter can be timely adjudicated in the state forum. The state court had been addressing various matters involved in the proceeding for some time, was prepared to rule on some motions if not for the bankruptcy filing, and a trial was scheduled to be held in August. Furthermore, the state court is extremely familiar with the facts of the case and has already issued a decision and order with respect to initial requests for preliminary injunctions. Therefore, the fifth and final element is met under the facts of this case. Accordingly, abstention is mandatory.
As this Court has considered all issues raised by the parties and finds that all factors strongly support the return of this litigation to the state court, permissive abstention, equitable remand, and relief from stay will also be addressed herein as alternatives to mandatory abstention.
Permissive Abstention
“Under 28 U.S.C. § 1334(c)(1), a district court may also abstain from hearing a core proceeding ... ‘in the interest of justice, or in the interest of comity with State courts or respect for State lav/ (i.e. ‘permissive abstention’).” See Lichtenfels, 2010 WL 653859, at *3, 2010 U.S. Dist. LEXIS 15079, at *8. Permissive remand, however, is noted to be an extremely narrow exception. Id. Thus, when a federal court is determined to have proper jurisdiction, “it has a ‘virtually unflagging obligation’ to exercise the jurisdiction conferred upon it by the Constitution or Congress.” See Lichtenfels, 2010 WL 653859, at *3, 2010 U.S. Dist. LEXIS 15079, at *9. A number of factors are *661relevant to determining whether- permissive abstention is appropriate:
(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, under 28 U.S.C. § 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 with enforcement left to 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. See Lichtenfels, 2010 WL 653859, at *9, 2010 U.S. Dist. LEXIS 15079, at *26-27.
Some of these items have been addressed in connection with the analysis of dismissal and mandatory abstention. Factors two, four, five, and seven have been addressed, and favor abstention.
As to the difficulty or unsettled nature of the Pennsylvania law at issue, Passavant and the Petitioning Members contend that the litigation involves unique questions of state law. Based upon the record, this Court agrees.
As to factor nine, this Court does not consider retaining the adversary proceeding on its docket to be a burden. However, as Judge Marsili has addressed these matters for some time and is prepared to rule on pending motions, it is inefficient to retain the removed action in this Court. In the interest of judicial economy, the litigation should continue in state court.
As to alleged forum shopping, the timing of the bankruptcy filing is highly suspect as previously discussed and is indicative of bad faith. Therefore, consideration of factor ten weighs in favor of abstention.
As to factor eleven, Passavant and the Petitioning Members have asserted a right to a jury trial, providing additional reasons for the court to abstain.
As to the final factor, Passavant and the Petitioning Members are non-debtor parties. Laurel chose the forum when it commenced the state court action. The parties litigated for approximately nine months in that forum until Laurel asserted that the court’s orders created an inconvenience and removed the action to this Court. In light of these facts, the non-debtor parties should be permitted to continue the litigation in state court.
In sum, although permissive abstention is only granted in limited circumstances, the factors overwhelmingly favor abstention in this case.
Equitable Remand,
When a claim or cause of action is removed, a court “may remand such claim or cause of action on any equitable ground.” See 28 U.S.C. § 1452(b). If there is any doubt as to whether remand is appropriate, courts should resolve the matter in favor of remand. See Lichtenfels, 2010 WL 653859, at *3, 2010 U.S. Dist. LEXIS 15079, at *9. “The considerations used to determine permissive remand under Section 1334(c)(1) and equitable re*662mand under Section 1452(b) are essentially the same.” GSL of Ill, LLC v. Pitt Penn Oil Co., LLC, No. 09CV0571, 2009 WL 1691815, at *4, 2009 U.S. Dist. LEXIS 51428, at *10 (W.D.Pa. June 17, 2009). As this Court has addressed those factors at length, it is clear that in this case equitable remand is appropriate, and the case would have been remanded.9
Relief from Stay
Pursuant to 11 U.S.C. § 362(d)(1), “[o]n request of a party in interest and after notice and a hearing, the court shall grant relief from stay ... such as by terminating, annulling, modifying, or conditioning such stay for cause.... ” As “cause” is not defined, bankruptcy courts determine what constitutes “cause” based on the totality of the circumstances. See Baldino v. Wilson (In re Wilson), 116 F.3d 87, 90 (3d Cir.1997). In a case where non-bankruptcy litigation was commenced in another forum, relief from stay may be appropriate to permit that litigation to conclude, especially when multiple parties are involved or when trial is ready to proceed. See Maintainco, Inc. v. Mitsubishi Caterpillar Forklift Am., Inc. (In re Mid-Atlantic Handling Sys., LLC), 304 B.R. 111, 130 (Bankr.D.N.J.2003).
In this case, determination of who controls Laurel is of paramount concern. The decisions regarding Laurel’s continued operation or its affiliation with Passavant depend upon resolution of the state court action. Furthermore, whether Laurel will continue to receive funding from the DPW will also likely be determined upon resolution of the litigation. Judge Marsili’s experience and knowledge of this case and the fact that he is prepared to rule on an important matter at this time lead this Court to conclude that the interests of judicial economy and the expeditious and economical resolution of litigation are best served by granting relief from stay.
V. Conclusion
For the foregoing reasons, this Court finds that the bankruptcy petition was filed in bad faith as a litigation tactic and dismissal without prejudice is appropriate based upon these extraordinary circumstances pursuant to 11 U.S.C. § 305(a) or, in the alternative § 1112(b). Had the bankruptcy case been permitted to proceed, abstention and/or remand of the removed action would have been appropriate and relief from stay to proceed with that action would have been granted. However, as dismissal of the bankruptcy case is appropriate, the Court need not take any additional action as to the removed action, which shall proceed in state court as it had been prior to the filing of the bankruptcy petition. Therefore, the Notice of Removal, the Motion to Remand, and the Motion for Relief from Stay are moot. An appropriate order will be entered.
ORDER
AND NOW, this 12th day of June, 2012, for the reasons expressed in the Memorandum Opinion entered this date,
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED THAT:
1. The Emergency Joint Motion to Dismiss the Chapter 11 Voluntary Petition Filed by Laurel Highlands Foundation, Inc. and Request for Expedited Hearing is GRANTED as *663provided in the Memorandum Opinion and herein.
2. The bankruptcy case is DISMISSED WITHOUT PREJUDICE.
3. The Notice of Removal, the Emergency Joint Motion to Remand and Request for Expedited Hearing, and the Emergency Joint Motion for Relief from the Automatic Stay Pursuant to Section 362(d)(1) of the Bankruptcy Code and Request for Expedited Hearing are MOOT.
. Defendants Karl E. Frankenstein, W. Harrison Vail, Christina Vail, Darlene Belajac, Theodore R. Belajac, Lawrence R. Perret, Frank V. Roberti, Sandra Roberti, Ellen Wilf, Charles Wilf, Virginia Sullivan, Gene R. Sullivan, David Bartczak, and Debra Bartczak are referred to herein as the "Petitioning Members”.
. At the June 4, 2012 hearing, Moser testified that, after the bankruptcy case was filed, the fine of credit was canceled. The status of the line of credit was not clarified on the record.
. This Court notes that Moser's testimony did not credibly contradict this conclusion.
. Not presently before this Court is another issue regarding the authority to file the bankruptcy petition, which can only be resolved after the state court action is concluded. The question remains whether the board of directors in place pursuant to the status quo order or the board of directors selected by the Petitioning Members is the true board of directors authorized to act on behalf of Laurel. Passavant and the Petitioning Members raise this issue but acknowledge that it cannot be determined at this time.
. In fact, in a thorough, twenty-eight page Decision and Order (Laurel’s Exhibit 60) issued after an evidentiary hearing, Judge Marsili not only ruled on the pending matter but detailed the factual background leading to the dispute and analyzed the intricate issue of the membership of Laurel.
. There is no doubt that the current board of Laurel does not wish to see Passavant installed as interim management pending the resolution of the litigation just as it is equally clear that Passavant and the Petitioning Members are troubled by the current management remaining in place while the parties await a determination by the court. From the perspective of the current board and management of Laurel, placing Passavant in the position of interim management may be akin to putting the fox in the hen house so to speak. It is apparent that having a neutral party installed as interim management of Laurel is a viable option, and it is noteworthy that, if this case were to continue in bankruptcy court, it presents facts which would suggest the appointment of a trustee.
. Laurel contends that Passavant and the Petitioning Members have taken inconsistent positions regarding Laurel's finances by representing to the state court that Laurel was in financial distress and subsequently representing to this Court that Laurel is financially strong. Thus, Laurel contends that judicial estoppel is applicable and Passavant and the Petitioning Members should be prohibited from taking any contrary position. However, this Court is not basing its decision on arguments, but rather on evidence. As this Court finds that the petition was not filed in good faith, it would be inappropriate to permit the bankruptcy case to proceed simply because another party also allegedly acted in bad faith. Furthermore, as the litigation will return to state court, Passavant and the Petitioning Members have now produced evidence and argued extensively as to Laurel’s financial health and are unlikely able to escape that position upon the return of the action to state court.
. Passavant's characterization at the May 31, 2012 hearing is correct:
The bottom line of the State Court case will be a resolution of the question of who controls Laurel and ultimately therefore who gets the directed disposition of its assets. If Laurel wins then it gets to control the disposition of Laurel's assets. If the petitioning members win then the petitioning members get to control the disposition of those assets including terminating a bankruptcy case that never should have been brought in the first place. In other words the State Court action is determinative. Laurel is trying to establish this Court, I believe, as some sort of Appellate Court in violation of the Rooker-Feldman Doctrine because the only way that this Court would ever be asked to exercise its jurisdiction over the assets is if Laurel loses in the State Court.
See 05/31/12 Transcript, Doc. No. 100, at 19.
. The Court notes that, within their Motion for Remand, Passavant and the Petitioning Members request an award of their costs and expenses, including attorneys' fees, resulting from or consequent to the removal of the state court litigation. As the Motion for Remand is moot due to dismissal of the bankruptcy case, the Court does not reach the issue. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494811/ | MEMORANDUM OPINION
CARLOTA M. BOHM, Bankruptcy Judge.
The matter before the Court is the Chapter 7 Trustee’s Complaint to Determine Secured Status Pursuant to 11 U.S.C. § 506 and to Avoid a Preference Pursuant to 11 U.S.C. § 547 (“Complaint”).1 The Defendant, Oxford Development Company/Grant Street, L.P. (“Oxford”), is a creditor of the Debtor and was the Debtor’s landlord. The Trustee (“Plaintiff’) contends that Oxford’s security agreement did not include the Debtor’s ownership of a Pennsylvania Liquor Control Board Restaurant Liquor License *671(“Liquor License”), because the Liquor License was not specifically named as collateral in the security agreement. While the Plaintiff contends that failure to identify the Liquor License specifically by license number is a fatal flaw to creation of a valid hen, Oxford alleges that the Liquor License is adequately identified as it falls within the category of “general intangibles.” In addition, the Plaintiff alleges that an execution lien obtained by Oxford within the ninety-day period prepetition is avoidable as a preference. Oxford contends that the Plaintiff is unable to establish the requisite elements of a preferential transfer. For the reasons expressed herein, this Court finds that (1) the language of the security agreement is sufficient to include the Liquor License within the category of “general intangibles” and (2) the Plaintiff has not met her burden of establishing the elements of a preferential transfer.
I.Stipulated Facts
The facts are undisputed. The parties to this proceeding filed a Stipulation of Facts on January 30, 2012. Accordingly, the facts as stipulated are incorporated herein as follows:
1. This case was commenced on April 8, 2011, by the filing of a voluntary petition under Chapter 7 of the Bankruptcy Code.
2. The Court has jurisdiction over this matter under 28 U.S.C. § 1334.
3. An Adversary Action was commenced by the filing of a Complaint to Determine Secured Status Pursuant to 11 U.S.C. § 506 and to Avoid Preference Pursuant to 11 U.S.C. § 547 on November 8, 2011.
4. Oxford Development Company/Grant Street, L.P. (“Oxford”) is a creditor of Debtor, Ciprian Ltd. (“Debtor”).
5. On or about September 12, 2006, the parties executed a Lease (hereinafter the “Lease”) whereby Oxford leased to Debtor the premises known as Unit No. R-320-325 consisting of approximately 7331 square feet of rentable area located on the 3rd Level of the Oxford Centre Building and Unit No. R-40 consisting of approximately 300 square feet of rentable area in the Plaza Level of the Oxford Centre Building (the “Premises”).
6. Pursuant to Article 30 of the Lease, Debtor granted Oxford a security interest in, inter alia, all inventory; all items of machinery, equipment, parts, accessories and attachments; all fixtures, trade fixtures and furniture; all leasehold improvements; and all books, records, invoices, contract rights, chattel paper, documents, instruments, and general intangibles, now owned or hereafter acquired (the “Secured Property”) by Debtor.
7. Oxford filed a UCC Financing Statement (the “Financing Statement”) with the Pennsylvania Department of State on September 27, 2010, at Number 2010092802407, covering collateral of the Debtor, including, inter alia, all inventory; all items of machinery, equipment, parts, accessories and attachments; all fixtures, trade fixtures and furniture; all leasehold improvements; and all books, records, invoices, contract rights, chattel paper, documents, instruments, and general intangibles, now owned or hereafter acquired, including but not limited to Pennsylvania Liquor Control Board Restaurant Liquor License No. Rlllll and the proceeds thereof.
*6728. On September 16, 2011, judgment was entered by confession in favor of Oxford and against Debtor in the amount of $157,144.85 in the Court of Common Pleas of Allegheny County, Pennsylvania at case number GD-10-017459 (the “Judgment”).
9. On March 3, 2011, Oxford caused a writ of execution to be issued on the Judgment, and pursuant to such writ of execution the Sheriff of Allegheny County, on March 23, 2011, levied upon the License, and equipment, furniture and fixtures located on the Premises and scheduled a sheriffs sale thereof.
10. On April 8, 2011 Debtor filed the above-captioned case under Chapter 7 of the Bankruptcy Code.
11. On or about May 13, 2011, Oxford filed a Motion for Relief from Automatic Stay in order to enforce its security interest in the Secured Property, including the License.
12. On or about May 31, 2011, this Honorable Court granted Oxford relief from stay, permitted Oxford to execute on the License, and directed Oxford to hold the proceeds from the sale of the License in escrow pending further Order of Court.
13. Oxford sold the License for $43,000.00 on October 10, 2011[.]
14. Oxford incurred costs in the amount of $1,234.54 to sell the License.
15. The net proceeds of $41,765.46 are being held in escrow by Pittsburgh Settlement Company, as directed by this Honorable Court’s May 31, 2011, Order.
In light of the above-enumerated facts, the Court considers the Complaint, Oxford’s Answer, and the briefs filed. The matter is ripe for decision.
II. Conclusions of Law
The Complaint is comprised of two counts. The first count sets forth the Plaintiffs claim that Oxford does not have a security interest in the Liquor License by virtue of its security agreement2 and financing statement. The second count sets forth the Plaintiffs claim that the execution lien obtained by Oxford was a preferential transfer pursuant to 11 U.S.C. § 547. The Court will address each count in turn.
Count I
The issue before the Court is whether the security agreement, which encumbers, inter alia, “general intangibles,” includes the Liquor License notwithstanding the fact that it does not specifically refer to the license or identify it by number. The Plaintiff contends that the only method to encumber a liquor license through a security agreement is to specifically identify the license by number. In this case, Oxford did identify the liquor license by number in the financing statement but failed to do so in the security agreement. The Plaintiff contends that failure to precisely identify the license in the security agreement is a fatal flaw to the creation of a valid lien. For the reasons that follow, this Court concludes that the language used, specifically the term “general intangibles,” did create an enforceable security interest in the Liquor License. Furthermore, the security interest was perfected through the filing of the financing state*673ment dated September 27, 2010. Although that financing statement also included the specific description of the Liquor License by license number, the use of the term “general intangibles” without more was sufficient to create a perfected security interest in the license.
As a preliminary matter, this Court examines whether a security interest can be created in a liquor license under Pennsylvania law. Pursuant to the Uniform Commercial Code (U.C.C.), as adopted in Pennsylvania, a “security interest” is defined as “[a]n interest in personal property or fixtures which secures payment or performance of an obligation.” See 13 Pa. C.S.A. § 1201(b)(35). As a liquor license is clearly not a fixture, the question becomes whether it constitutes “personal property.” Although previously identified as a privilege, the Pennsylvania Liquor Code now characterizes a liquor license as “a privilege between the board and the licensee. As between the licensee and third parties, the license shall constitute property.” 47 P.S. § 4 — 468(d). Therefore, as the license constitutes property, a security interest can be created. See Pennbank v. GRF, Inc. (In re GRF, Inc.), 119 B.R. 68, 70 (Bankr.W.D.Pa.1990).
As a security interest in a liquor license is permitted, the Court must next consider whether a liquor license is properly characterized as a general intangible. “General intangibles” are defined as “[a]ny personal property, including things in action, other than accounts, chattel paper, commercial tort claims, deposit accounts, documents, goods, instruments, investment property, letter-of-credit rights, letters of credit, money and oil, gas or other minerals before extraction. The term includes payment intangibles and software.” 13 Pa.C.S.A. § 9102(a). This Court looks to Pennsylvania law to determine whether the Liquor License is a general intangible.
Pennsylvania case law suggests that a liquor license is properly characterized as a general intangible. In Tomb v. Lavalle, the Superior Court of Pennsylvania addressed whether a liquor license constitutes “goods” within article 2 of the U.C.C. and the applicability of the statute of frauds regarding a sale of such a license. See 298 Pa.Super. 75, 444 A.2d 666, 668 (1981). In holding that the liquor license did not qualify as “goods,” the court noted that “it appears that whenever, it has been necessary to characterize a liquor license under the Uniform Commercial Code, the license has been held to be a general intangible.” Id. at 667-68. In the case of City of Harrisburg v. Kanoff (In re Kanoff), the bankruptcy court relied upon this statement of the Superior Court in Tomb v. Lavalle to conclude that a liquor license is a general intangible. See Kanojf, 408 B.R. 53, 58-59 (Bankr.M.D.Pa.2009). As in Kanojf, this Court is unconvinced that the Pennsylvania Supreme Court would come to a different conclusion than that of the Superior Court in Tomb v. Lavalle. See Kanoff, 408 B.R. at 58-59. Thus, this Court finds that, under Pennsylvania law, a liquor license is included within the category of general intangibles.3
*674As a security interest in a liquor license is permitted and a liquor license is a general intangible, the Court must consider whether the use of the description “general intangibles” alone in a security agreement is sufficiently specific to encompass a liquor license. Among the requirements for the creation of an enforceable security interest against the Debtor and third parties with respect to the collateral, the Debtor must have authenticated a security agreement which describes the collateral. See 13 Pa.C.S.A. § 9203(b)(3)(i). The description of the collateral is the issue at the heart of this proceeding.
It is noteworthy that no controlling law on point has been identified regarding the issue presented. Generally, however, “a description of personal ... property is sufficient, whether or not it is specific, if it reasonably identifies what is described.” See 13 Pa.C.S.A. § 9108(a) (emphasis added). A reasonable identification can be accomplished by identifying the collateral by, inter alia, category. See 13 Pa.C.S.A. § 9108(b)(2). As stated in the U.C.C. comments to this section, “ ‘General intangible’ is the residual category of personal property, including things in action, that is not included in the other defined types of collateral.” See Comment 5(d). Although a liquor license is a general intangible, the category of general intangibles is a catchall category creating some doubt as to the sufficiency of the category alone as a description. However, it is noteworthy that while the statute sets forth (1) the types of “supergeneric” descriptions that are insufficient and (2) descriptions by “type” which are insufficient, no qualification regarding the general intangibles category is stated. See 13 Pa.C.S.A. § 9108(c),(e). Furthermore, the U.C.C. comments provide, “This section rejects any requirement that a description is insufficient unless it is exact and detailed (the so-called ‘serial number’ test).” See Comment 2. As the license itself, i.e. the privilege granted, is the property subject to the security interest and is a “general intangible,” the inclusion of the license number is simply another identifier.4 Requiring the inclusion of the license number appears to be more in line with the rejected “serial number” test. The Plaintiff has cited to no case Pennsylvania ease law requiring the level of specificity she urges this Court to require in this ease.
Also, the analysis in First Pennsylvania Bank, N.A. v. Wildwood Clam Co., 535 F.Supp. 266 (E.D.Pa.1982), is persuasive. In that ease, the court was presented with the question of whether a creditor had an enforceable security interest in a clamming license and its proceeds where the creditor possessed “a security interest in, among other items, general intangibles “whether now owned or hereafter acquired, together with all replacements therefor or proceeds.’ ” Id. at 267. As no Pennsylvania case law addressing commercial clamming licenses was offered by the parties or discovered by the court, the court compared the clamming license to a liquor license, which it noted has been classified as a *675general intangible. Id. at 268 (citing to Tomb v. Lavalle, 298 Pa.Super. 75, 444 A.2d 666 (1981)). Applying the comparison, the court held that the clamming license was a general intangible subject to the security interest. Wildwood, 535 F.Supp. at 268.
Although this Court finds that the reference to “general intangibles” in the security agreement is sufficient to encompass the Liquor License, the Plaintiff raises strong public policy arguments in support of requiring a more detailed description. This Court notes that it is clearly in the best interest of creditors to specifically identify liquor licenses by number in security agreements and financing statements where it is their intent that such licenses are to be included as collateral and to remove any doubt and need for future litigation. Nonetheless, this Court must resolve this action as it predicts the Pennsylvania Supreme Court would rule on these facts. Therefore, notwithstanding policy considerations to the contrary, the description in the security agreement was adequate.
In addition the Court notes that the security interest was perfected pursuant to 13 Pa.C.S.A. §§ 9310(a) and 9502 through the filing of the financing statement dated September 27, 2010, which described the collateral. Pursuant to 13 Pa. C.S.A. § 9504, as the sufficiency of the description of collateral in a financing statement is analyzed by the same standards set forth in § 9108, discussed supra, the same analysis applied by this Court to the security agreement applies to the financing statement. Although the financing statement did specifically identify the Liquor License by number, the inclusion of the term “general intangibles” without more in both the security agreement and the financing statement sufficiently encompassed the license. Accordingly, Oxford possessed a perfected security interest in the license.
Count II
As to the second count of the Complaint, the Court can quickly dispense with the allegation of a preferential transfer. The Plaintiff asserts that, to the extent Oxford claims a lien in the Liquor License by virtue of the execution, the claim fails under the § 547 avoidance power. The second count of the Complaint is only of significance if the Court had concluded that Oxford did not have a secured claim pursuant to the security agreement. In other words, by asserting that a preferential transfer occurred, the Plaintiff sought to avoid a result where Oxford was determined not to have a security interest in the Liquor License by way of the security agreement but Oxford nonetheless was determined to have obtained a lien by virtue of the execution prior to the filing of the bankruptcy case. That is, the Plaintiff sought a determination by this Court of whether the execution provided Oxford with an alternative theory to assert a lien on the license.
The Court has now determined that Oxford held a valid perfected security interest in the Liquor License at the time the case was filed. Of the requisite elements to establish a preferential transfer pursuant to 11 U.S.C. § 547, the Plaintiff did not establish that the execution lien was a “transfer of an interest of the debtor in property (5) that enables such creditor to receive more than such creditor would receive if (A) the case were a case under chapter 7 of this title; (B) the transfer had not been made; and (C) such creditor received payment of such debt to the extent provided by the provisions of this title.” See 11 U.S.C. § 547(b)(5). Thus, the Plaintiff has failed to establish a preferential transfer.
*676
Proceeds from the Sale of the Liquor License
As a final matter, the Court previously granted Oxford’s motion for relief from stay, permitting Oxford to execute on the Liquor License with the qualification that Oxford was to hold the proceeds of the sale in escrow pending further Order of Court. As the Court has now determined that Oxford held a perfected security interest in the Liquor License, it is entitled to the net proceeds in the amount of $41,765.46, which are currently being held by the Pittsburgh Settlement Company pending further Order of this Court.
III. Conclusion
For the foregoing reasons, this Court finds that the Liquor License is properly characterized as a “general intangible” and use of that category as a description is sufficient to create an enforceable security interest in said license. The security interest was perfected through the filing of a financing statement. Furthermore, the Plaintiff has not established the elements of a preferential transfer as to the execution lien obtained by Oxford. Therefore, Oxford is entitled to the net proceeds from the sale of said license in the amount of $41,765.46. An appropriate order will be entered.
. The Court has jurisdiction pursuant to 28 U.S.C. §§ 157 and 1334. This is a core matter pursuant to 28 U.S.C. § 157(b)(2)(F), (K), and the Court will enter final judgment in this adversary proceeding. However, if the United States District Court determines pursuant to the rationale set forth in Stern v. Marshall, - U.S. -, 131 S.Ct. 2594, 180 L.Ed.2d 475 (2011), that this Court does not have the authority to enter final judgment, then the Memorandum Opinion and Order entered shall constitute the Court's proposed findings of fact and conclusions of law and recommendation to the District Court.
. Throughout this Opinion, the Court will refer to Article 30 of the Lease, in which the Debtor granted Oxford a security interest in certain collateral as set forth therein, as the "security agreement.”
. The Plaintiff contends that a liquor license is not a “general intangible” and cites to In re Chris-Don, Inc., 367 F.Supp.2d 696 (D.N.J. 2005), in support of this contention. However, Chris-Don is distinguishable as the court’s determination in that case was based upon the application of New Jersey state law. Id. at 699-701. Unlike Pennsylvania, which characterizes a liquor license as property as between the licensee and third parties, New Jersey does not characterize a liquor license as property and expressly prevents by statute the use of a liquor license as collateral for a loan. Id. at 698-701. In order for a liquor license to be a "general intangible,” it must first be found to be personal property. Id. at 699. This distinction makes the conclusion in Chris-Don inapplicable to this case.
. Although addressing taxicab licenses, the reasoning of the court in Standard Acceptance Co. v. Lewis Cab Co., is instructive and particularly persuasive. See Standard Acceptance, No. 92 C 7072, 1995 U.S. Dist. LEXIS 2273, 1995 WL 86593 (N.D.Ill. Feb. 27, 1995). In that case, the court distinguished between the license itself, i.e. the permission to take certain action, and the written documentation evidencing the permission granted. See 1995 U.S. Dist. LEXIS 2273 at *12, 1995 WL 86593 at *4. The court noted that the license was the right granted by the city to operate a taxicab as opposed to the physical evidence of the right, which in that case were a medallion and “hard card.” See 1995 U.S. Dist. LEXIS 2273 at *14, 1995 WL 86593 at *4. Although the court was not faced with determining the sufficiency of the description, the logic is applicable to the facts presented in this case. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494813/ | OPINION
SHEA-STONUM, Bankruptcy Judge.
The Debtor, Thomas J. Cottingham, appeals from an order excepting a debt owed to plaintiff, Spaces, Inc., from discharge pursuant to 11 U.S.C. § 523(a)(6). The bankruptcy court found that the Debtor, Thomas Cottingham, conspired with Co-Debtor Patricia Cottingham to convert embezzled funds and other property from Spaces, Inc. The Debtor argues that the bankruptcy court erred when it found the Debtor conspired with his wife and acted willfully and maliciously.
I. ISSUES ON APPEAL
Is the bankruptcy court’s finding that the Debtor Thomas Cottingham conspired with his wife to convert funds she embezzled from her prior employer Spaces, Inc. clearly erroneous?
Did the bankruptcy court clearly err when it found Debtor Thomas Cottingham caused willful and malicious injury to Plaintiff?
II. JURISDICTION AND STANDARD OF REVIEW
The Bankruptcy Appellate Panel of the Sixth Circuit has jurisdiction to decide this appeal. The United States Bankruptcy Court for the Eastern District of Kentucky has authorized appeals to the Panel, and neither 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, 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 (1989) (citations and internal quotations omitted). “A bankruptcy court’s judgment determining discharge-ability is a final and appealable order.” Cash Am. Fin. Servs., Inc. v. Fox (In re Fox), 370 B.R. 104, 109 (6th Cir. BAP 2007) (quoting Hertzel v. Educ. Credit Mgmt. Corp. (In re Hertzel), 329 B.R. 221, 224-25 (6th Cir. BAP 2005)).
Determinations of dischargeability under 11 U.S.C. § 523 are conclusions of law reviewed de novo. In re Fox, 370 B.R. at 109 (citing Bailey v. Bailey (In re Bailey), 254 B.R. 901, 903 (6th Cir. BAP 2000)). De novo review requires the “appellate court [to determine] the law independently of the trial court’s determination.” Id. (quoting O'Brien v. Ravenswood Apartments, Ltd. (In re Ravenswood Apartments, Ltd.), 338 B.R. 307, 310 (6th Cir. BAP 2006)).
However, “[t]he factual findings underlying the bankruptcy court’s dis-chargeability ruling are upheld on appeal unless they are clearly erroneous.” Id. (citing In re Hertzel, 329 B.R. at 225 and Van Aken v. Van Aken (In re Van Aken), 320 B.R. 620, 622 (6th Cir. BAP 2005) (dischargeability determinations present mixed questions of law and fact; the bankruptcy court’s conclusions of law are re*706viewed de novo, while findings of fact are reviewed for clear error)). A bankruptcy court’s findings of fact should not be disturbed simply because another trier of fact might construe the facts differently or reach a different conclusion. See Anderson v. City of Bessemer City, N.C., 470 U.S. 564, 574, 105 S.Ct. 1504, 84 L.Ed.2d 518 (1985). A factual determination should be upheld unless “although there is evidence to support it, the reviewing court on the entire evidence is left with the definite and firm conviction that a mistake has been committed.” In re Bailey, 254 B.R. at 903. (citation omitted).
III. FACTS
Thomas and Patricia Cottingham (together, the “Debtors”) are married and until 2010, upon Patricia Cottingham’s incarceration, lived together. They have two adult sons who lived with them through June 2006. From the early 1990’s through June 2006, Debtors lived at 22 St. Nicholas Place, Ft. Thomas, Kentucky. They leased the St. Nicholas Place residence for $750 per month in rent.
Thomas Cottingham is a construction superintendent with 32 years of experience. He has held himself out as skilled in construction supervision and cost estimating. In the 1990’s, the Debtors owned and operated a construction company called Cottingham Construction. The company failed and as a result the Debtors incurred substantial personal tax liabilities arising from the company’s unpaid tax liabilities. In addition, the Debtors did not pay then-personal income taxes in 2000 and 2001. The Debtors had a monthly payment obligation to the IRS as a result of these unpaid taxes. Thomas Cottingham was aware of the monthly payment obligation. The Debtors were at that time unable to meet all of their financial obligations.
After the failure of Cottingham Construction, Thomas Cottingham became employed by Performance Construction Company. From 2003 to 2009, his yearly gross income at Performance Construction Company was between $53,000 and $59,000 and his weekly take home pay was approximately $750. In addition, Thomas Cot-tingham receives $1,300 per month as part of a lifetime annuity as a result of a personal injury/death settlement.
Patricia Cottingham was employed by Cardiology Associates as a bookkeeper prior to February 1999. Her employment was terminated in 1999. In 2000, she was indicted and pled guilty to felony embezzlement of funds from her former employer Cardiology Associates. She was sentenced to five years of probation and required to pay $44,613.49 in restitution at the rate of $800 per month. By the time she was sentenced, Thomas Cotting-ham was aware of his wife’s criminal activity and of the $800 per month restitution obligation.
In between the time she was terminated as a bookkeeper at Cardiology Associates and her indictment, Patricia Cottingham was hired by Spaces, Inc. as an “administrative assistant full charge bookkeeper.” Plaintiff Jerome Ewers is the owner of Spaces, Inc. She was responsible for all of the accounting and in charge of the record keeping for the day to day operations of Spaces, Inc. She, however, did not have check signing authority for the bank accounts of Spaces, Inc. Her salary ranged from approximately $30,000 to $38,000 during her employment with Spaces, Inc. Her weekly take home pay was between $600-650 per week.
The Debtors paid their living expenses using a joint checking account with the Bank of Kentucky. Both Debtors had authority to sign checks drawn on this account, and both Debtors in fact wrote *707checks drawn on this account. In addition the Debtors had a joint account at Guardian Savings Bank. The Debtors used this account to pay certain bills, including the restitution payments.
The Debtors sometimes deposited their paychecks into these accounts. Often the Debtors would take large sums of cash back from these deposits, or the Debtors would cash their paychecks without an intervening deposit.
In 2001, Patricia Cottingham began embezzling funds and property from Spaces, Inc. Each successive year the amount she embezzled grew. In 2001 and 2002, Patricia Cottingham embezzled $16,765.27 from Spaces, Inc. The embezzled funds were deposited into the Debtors’ joint bank accounts. In 2003, Patricia Cottingham embezzled $64,328.30. All of the embezzled funds were deposited into the Debtors’ joint bank account at Bank of Kentucky. In 2004, she embezzled $88,244.60 from Spaces, Inc. She deposited a little more than half of that money directly into the Debtors’ joint account at Bank of Kentucky. The other half of the money was deposited first into a bank account Patricia Cottingham opened in her own name at Fifth Third Bank. In 2005, she embezzled $213,544.61 in cash. The money was initially placed in the Fifth Third Bank account and was moved from there to the Debtors’ joint accounts or to pay the Debtors’ expenses. In addition, Patricia Cot-tingham created a forged credit card account with Fifth Third Bank in the name of Spaces, Inc. The bills for the forged credit card were sent to the Debtors’ residence. Patricia Cottingham paid those bills using embezzled funds. The total amount of those forged credit card purchases was $1,892.59. In 2006, the total cash embezzled was $283,391.88, and the total of the forged credit card purchases was $2,821.43. In 2007, she embezzled $328,516.10. In 2008, she embezzled $11,230.21.
Just as the amount she embezzled grew with each successive year, the Debtors’ spending grew each successive year, at a rate that far exceeded any salary increase they might have received from an employer. Patricia Cottingham was not the only one to spend the embezzled funds. For instance, in June 2003, Thomas Cotting-ham paid off a $3,133.73 loan just 3 days after Patricia Cottingham deposited a check embezzled from Spaces, Inc. into the joint bank account. In December 2003, the Debtors paid another loan in the amount of $4,860.05 just two days after a check embezzled from Spaces, Inc. was deposited into the joint account at Bank of Kentucky. Similar events took place in 2004 when the Debtors purchased a computer, paid past due taxes and purchased a Jeep Wrangler.
The evidence presented at trial showed that in 2005, the Debtors deposited into their bank account a total of $32,539.49 from their paychecks. Contemporaneously with those deposits, the Debtors withdrew cash in the amount of $31,074.39 (by cash withdrawal, writing a check to cash or making an ATM withdrawal). Notwithstanding that the Debtors’ net deposit of earned income in 2005 was only $1,465.10 in that same year, the Debtors spent $274,573.22 from their various bank accounts on “living expenses.” Some of those expenses were the significant interi- or and exterior renovations to their rental home in 2005 and early 2006, which included landscaping, construction of a multi-tiered deck, and the installation of a spa. The Court found that based on Thomas Cottingham’s 32 years of experience in the construction industry, he must have known the cost of these renovations was significant.
*708Similarly in 2006, the Debtors spent far more than their earned income. Cash withdrawals from their bank account alone exceeded their earned income. In total, Patricia Cottingham embezzled $286,213.31 and the Debtors spent $391,731.16 from their bank accounts in 2006. The funds were used in part to purchase a new Jeep Commander. Thomas Cottingham was present at the time this purchase was made. Although he denied being aware of which bank accounts the down payment for the Commander was drawn on, the Court found his testimony was not credible and found that he knew that part of it came from the Fifth Third Account, just days after an embezzled check was deposited therein. In addition, he knew that, as a result of the purchase of the Commander, the Debtors incurred an ongoing monthly payment obligation of $666.72 per month. Further, in mid-2006, the Debtors decided to purchase a house. With her husband’s knowledge, Patricia Cottingham approached Ewers, the owner of Spaces, Inc., to borrow $30,000 of the money for the purchase of the house from Ewers. In the documents prepared as a part of that home purchase, the Debtors included a letter indicating the $30,000 was a gift from their brother. In addition, Thomas Cottingham wrote a letter explaining the family’s recent financial history and difficulties. As a part of the loan process, Thomas Cotting-ham signed a statement that showed their income was exceeded by their liabilities.
After buying the house the Debtors’ spending continued. There were additional moving expenses, repayment of the $30,000 loan, home improvement expenses, including kitchen flooring, counter tops, new appliances, new heating, venting and air conditioning systems. The Debtors also spent over $60,000 on their adult children.
In 2007, the pace and amount of the Debtors’ spending continued to increase. The Debtors spent money on a golf vacation ($2,632.76), a new swimming pool, patio, and pool house addition, driveway, and other exterior improvements to the home ($71,285.17), down payments on four new vehicles ($19,595.93); interior renovations and improvements ($37,979.20); wedding expenses for their son ($12,230.50), plus an additional approximately $30,000 on their sons. In total, the Debtors spent in excess of $460,366.24 in 2007.
In addition to money, Patricia Cotting-ham also stole household goods with a wholesale value of $127,156 from Spaces, Inc. Most of those stolen items are on display or in use in the Debtors’ home. The bankruptcy court concluded that Thomas Cottingham must have known of his wife’s embezzlement and subsequent conversion of funds. The bankruptcy court found Thomas Cottingham’s assertion of ignorance to be incredible. The bankruptcy court pointed out the significant amount by which their annual expenditures exceeded their combined yearly salary. The court agreed with Debtors’ counsel that this is often the hallmark of debtors spending. The disparity in this case, however, was so outrageous, the court found that Thomas Cottingham had to have been aware that Debtors’ spending exceeded their earned income. “Most certainly [it] put Thomas on notice as to the excessive and unusual amounts of funds flowing in and out of the Debtors’ bank accounts.” Thomas Cottingham had access to the joint accounts. The court noted that with relative ease he could determine precisely what money was flowing in and out of those accounts. He wrote checks and made deposits into those accounts. The bankruptcy court found that he could not “cry innocent because he chose to keep himself in the dark about the specifics.” Furthermore, he participated *709in purchases the Debtors could not have afforded on their salary alone, and he signed paperwork (tax returns and loan documents) detailing the Debtors’ financial situation.
Specifically, the bankruptcy court considered “(1) the significant disparity between the Debtors’ income and expenses, a disparity that continued to increase over the course of the embezzlement; (2) Thomas’ access to and participation in the family’s finances; (3) the cost of the home improvements; and (4) Thomas’ knowledge that Patricia had recently pled guilty to embezzling funds from her prior employer.” The court concluded, “Thomas cannot conveniently stick his head in the sand and say that he did not have knowledge of Patricia’s activities until the day she admitted her guilt. His proffered ignorance is not credible.” “He was an active participant in the conversion of the stolen funds and property.”
IV. DISCUSSION
Based on the evidence in the record regarding Thomas Cottingham’s access to and involvement in the family finances, the bankruptcy court’s finding that Thomas Cottingham was an active participant in the conversion of Plaintiffs assets, is adequately supported. The question is not whether the Panel would have found otherwise were it the initial fact finder in this case, but whether, upon a review of the record the Panel is left a definite and firm conviction that a mistake has been made. On the record in this case, the Panel is not left with such a conviction. The bankruptcy court’s findings of fact are not clearly erroneous.
While the bankruptcy court’s findings of fact are not disturbed unless clearly erroneous, the bankruptcy court’s conclusions of law are reviewed de novo. Section 523(a)(6) of the Bankruptcy Code excludes from the debtor’s discharge, debts for “willful and malicious injury by the debtor to another entity or to the property of another entity.” 11 U.S.C. § 523(a)(6). A willful injury is one “where the [debtor] ‘desires to cause consequences of his act, or ... believes that the consequences are substantially certain to result from it.’ ” Markowitz v. Campbell (In re Markowitz), 190 F.3d 455, 464 (6th Cir. 1999) (quoting Restatement (Second) of Torts § 8A, at 15 (1964)); Gonzalez v. Moffitt (In re Moffitt), 252 B.R. 916, 921-22 (6th Cir. BAP 2000). Malicious injury means an injury caused in “conscious disregard of one’s duties or without just cause or excuse.” Wheeler v. Laudani, 783 F.2d 610, 615 (6th Cir.1986). There is no requirement that the debtor acted with ill-will or a specific intent to cause harm. Id.
In this ease, the Plaintiff has alleged that Thomas Cottingham is liable because he conspired with his wife and participated in the scheme that injured Spaces, Inc. In cases where similar allegations have been made and proven, courts have denied the self-proclaimed “innocent spouse” a discharge of the debt under § 523(a)(6). See Haemonetics Corp. v. Dupre (In re Dupre), 238 B.R. 224 (D.Mass.1999), aff'd, 229 F.3d 1133, 2000 WL 1160447 (1st Cir.2000) (unpublished); Synod of S. Atl. Presbyterian Church v. Magpusao (In re Magpusao), 265 B.R. 492, 498-500 (Bankr.M.D.Fla.2001); Navistar Fin. Corp. v. Stelluti (In re Stelluti), 167 B.R. 29, 34 (Bankr.S.D.N.Y.1994).
In In re Dupre, the debtor’s husband embezzled money from his employer. He was indicted and pled guilty on 14 charges of wire fraud. His former employers also filed civil actions against the debtor and her husband alleging civil conspiracy. The debtor filed her bankruptcy petition in the midst of the civil litigation. The husband’s *710former employers commenced an adversary proceeding against the debtor alleging the debt should not be discharged pursuant to § 523(a)(6).
The bankruptcy judge found that embezzled funds were placed in the debtor’s joint bank accounts, that the debtor was aware that her husband was providing funds for the accounts far in excess of his earnings, and that the debtor knew the amount of cash and expenditures far exceeded their earned income. The bankruptcy court also found that she signed yearly tax returns and that she was intimately familiar with the amount of funds coming in and out of the household. He found her claim of ignorance to be incredible. The former employers argued before the bankruptcy court that their claims against the debtor arose from the civil conspiracy between her and her husband. Despite his factual findings, the bankruptcy court found the conspiracy claims dischargeable, writing, “[tjhere is not an iota of evidence that Theresa acted in concert with Paul in the act of converting Plaintiffs’ funds.... I have reviewed the evidence and can find neither direct evidence of Theresa’s knowledge of the source of the funds, nor circumstantial evidence from which I could make a determination by a preponderance of the evidence.” Id. at 227.
The district court reversed the bankruptcy court and found that the evidence did show knowledge of and participation in the scheme to convert the employers’ funds. “The scheme alleged involved not one, but two conversions of the pilfered funds. The first conversion was the embezzlement itself for which appellants concede Paul bears sole responsibility. The second conversion, and the one appellants seek to pin on Theresa, was the use of the money to support their extravagant lifestyle.” Id. at 229. The district court found that her willful participation in the conversion of the funds to bankroll her lifestyle satisfied the exception to discharge under § 523(a)(6). Id. at 230.
Similarly, the bankruptcy court in In re Magpusao noted,
Courts have generally held that fraudulent intent may not be imputed from one spouse to another based simply on the marital relationship of the parties. See First Tex. Sav. v. Reed (In re Reed), 700 F.2d 986, 993 (5th Cir.1983); In re Maltais, 202 B.R. 807, 811-12 (Bankr. D.Mass.1996); First USA v. Savage (In re Savage), 176 B.R. 614, 615 (Bankr. M.D.Fla.1994); First Alliance Bank v. Crider (In re Crider), 171 B.R. 909, 911— 12 (Bankr.N.D.Ga.1994); Chicago Title Ins. Co. v. Mart (In re Mart), 75 B.R. 808, 810 (Bankr.S.D.Fla.1987). Even knowledge of a spouse’s misconduct is insufficient to confer liability. Haemonetics v. Dupre, 238 B.R. 224, 228 (D.Mass.1999); Mart, 75 B.R. at 810. Rather, knowledge must be concurrent with participation in the use or enjoyment of the stolen property in order for liability to attach.
In re Magpusao, 265 B.R. at 498. (footnote omitted). The court in Magpusao found the debtor had knowledge concurrent with participation in the use or enjoyment of at least some of the property his spouse had stolen. Therefore, the court excepted a certain amount of the debt from discharge.
To prevail in this case, the Plaintiff had to show Thomas Cottingham’s knowledge of and participation in the conversion of Plaintiffs assets. A civil conspiracy is derived from concerted action of one or more persons whereby liability is imposed on one for the tort of another and properly found that a defendant’s knowledge of and participation in a conspiracy can be inferred from the evidence presented to the court. The bankruptcy court found that Thomas Cottingham had knowledge of and *711participated in the scheme to convert the pilfered funds for his own benefit. Thomas Cottingham spent the money from the joint bank accounts to buy things like computers and cars, and was aware of the cost of the household improvements and the debtor’s outstanding financial obligations. He could not reasonably have believed that their lifestyle was supported by their earned income. The bankruptcy court’s inference, based on the evidence, that Thomas Cottingham knew his wife was embezzling from her new employer, is not clearly erroneous.
Based on the evidence, the bankruptcy • court properly concluded that Thomas Cottingham is liable for all amounts arising from Patricia Cotting-ham’s willful and malicious injury. See United States v. Barker Steel Co., Inc., 985 F.2d 1123, 1128-29 (1st Cir.1993) (“It is well settled that members of a conspiracy are legally responsible for the actions of a co-conspirator taken in furtherance of the scheme.”) (citing Pinkerton v. United States, 328 U.S. 640, 66 S.Ct. 1180, 90 L.Ed. 1489 (1946); United States v. Baines, 812 F.2d 41, 42 (1st Cir.1987); United States v. Fusaro, 708 F.2d 17, 21 (1st Cir.1983)). “Once it is determined that a conspiracy had been formed, all parties to the conspiracy are civilly liable for injuries caused by acts pursuant to or in furtherance of the conspiracy. ‘A conspirator need not participate actively in or benefit from the wrongful action in order to be found liable. He need not even have planned or known about the injurious action ... so long as the purpose of the tortious action was to advance the overall object of the conspiracy.’ ” Int’l Telecomms. Satellite Org. v. Colino, 1992 WL 93129 (D.D.C.1992); accord Rivet v. State Farm Mut. Auto. Ins. Co., 316 Fed.Appx. 440 (6th Cir.2009) (evidence that parties acted in collusion with each other makes each responsible for the acts of the other); United States v. Elson, 577 F.3d 713, 723 (6th Cir.2009) (applying a similar rule in the context of criminal conspiracy). Patricia Cottingham embezzled the funds, but the Debtors jointly conspired to convert those funds to serve their own purposes. Thomas Cottingham, therefore, is responsible for all of the injury caused by or in furtherance of the conspiracy.
V. CONCLUSION
The bankruptcy court did not err in finding that Thomas Cottingham conspired with Patricia Cottingham to convert embezzled funds and other property from Spaces, Inc. Thomas Cottingham’s conspiracy in the conversion of Plaintiffs assets constitutes willful and malicious injury to Plaintiff and the entire debt is nondis-chargeable pursuant to 11 U.S.C. § 523(a)(6). The Panel AFFIRMS the decision of the bankruptcy court. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494814/ | OPINION REGARDING KFC NATIONAL COUNCIL AND ADVERTISING COOPERATIVE, INC.’S MOTION FOR ALLOWANCE AND PAYMENT OF ADMINISTRATIVE EXPENSE CLAIM
(Jointly Administered)1
THOMAS J. TUCKER, Bankruptcy Judge.
These jointly-administered Chapter 11 cases came before the Court for an expedited hearing on February 28, 2012, on a motion filed on February 23, 2012 by the creditor, KFC National Council and Advertising Cooperative, Inc. (“NACA”), enti-*714tied “Motion for Allowance and Payment of Administrative Expense Claim by KFC National Council and Advertising Cooperative, Inc.” (Docket # 663, the “Motion”). The Debtors filed an objection to the Motion on February 27, 2012 (Docket # 664), and at Debtors’ request, the Court held an expedited hearing the next day.
1. Background
The Debtor Kazi Foods of Michigan, Inc. (“Kazi Michigan”) operates numerous KFC (Kentucky Fried Chicken) brand fast-food restaurants in Michigan. The February 28 hearing on NACA’s Motion focused on the Debtors’ objection to one particular part of the relief that NACA seeks. The disputed relief in question is NACA’s request for allowance and prompt payment of an administrative expense in the amount of $394,672.88. This sum is the amount that NACA alleges it is owed by the Debtor Kazi Foods of Michigan, Inc. (“Kazi Michigan”), for national advertising that NACA provided, which NACA says benefitted Kazi Michigan.2 The advertising in question is for the months of August 2011 through January 2012.
NACA had a contract with Kazi Michigan, called the “Advertising Agreement,” that was entered before Kazi Michigan filed its Chapter 11 case on February 17, 2011. Under this agreement, and ones like it with numerous other KFC franchisees, NACA was to provide national advertising services for KFC franchises across the United States.3 NACA says that this pre-petition contract has remained effective post-petition, and obligates Kazi Michigan to pay NACA a percentage of its sales each month — 2.5% of sales for each of the months in 2011, and 4.5% of sales beginning in January 2012. The parties agree that Kazi Michigan paid NACA the sums that NACA claimed were due under the contract for the post-petition months through July 2011, with the last payment having been made in September 2011. The parties also agree that Kazi Michigan has not paid NACA any sums allegedly due for the months August 2011 through the present.
Kazi Michigan objects to this aspect of NACA’s Motion, and argues that it does not owe NACA any of the $394,672.88 amount claimed, as an administrative claim or otherwise, on several grounds. The Court scheduled NACA’s Motion for an expedited hearing on very short notice because it was filed at a very critical time in these Chapter 11 eases. Over the last several months, the Debtors, including Kazi Michigan, and their major creditors have been pursuing a complex and time-consuming process of attempting to sell all or substantially all of their assets, on a going-concern basis, under 11 U.S.C. § 363. That process included an extensive marketing effort, and solicitation of bids in a competitive bidding process. The process is just now culminating in the Court’s approval of a sale of substantially all of the Debtors’ assets to a prospective purchaser, in exchange for consideration of approximately $56 million. The Court held a hearing on February 22, 2012, and approved the sale, subject to some revisions to be made to the purchase agreement and the proposed sale order. These documents have now been finalized and filed,4 and late in the afternoon of February 28, *715the Court has entered an order approving the sale.5
For reasons discussed in detail at the February 22 hearing, which NACA attended through its counsel, and further discussed during the February 28 hearing on NACA’s Motion, the proposed sale must close no later than February 29, 2012, or there is a risk that the sale may fall apart. This likely would be severely detrimental to the creditors of the Debtor’s estates in these cases.
Against this backdrop, which NACA has been fully aware of at all times, NACA waited until the morning after the February 22 sale hearing to file its Motion, even though NACA had not been paid anything by Kazi Michigan for many months. The dispute over the administrative claim that NACA now asserts against Kazi Michigan has a significant impact on the prospects for the sale. For one thing, the purchase agreement gives the Debtors the right to refuse to close the sale if they conclude that to do so would leave their cases administratively insolvent.6 And Debtors contend that the allowance of NACA’s $394,672.88 administrative claim against Kazi Michigan would push Debtors into administrative insolvency, and if that happens, they would refuse to close the sale. NACA, for its part, says that it wants the sale to go forward, and to close on February 29, but it also wants its administrative claim allowed and paid. Each side — Debtors and NACA — seem to be engaging in brinkmanship here. But the Court concludes that, for the best interest of all the parties in these Chapter 11 cases, the Court must decide this dispute immediately, before February 29.
After hearing oral argument from counsel on February 28, the Court decided that an evidentiary hearing was necessary, and the Court held the evidentiary hearing the same day. NACA’s counsel objected to the Court holding an evidentiary hearing the same day, on such short notice, and cited Fed.R.Bankr.P. 9014(e). The Court decided to hold the evidentiary hearing, but reserve decision until after the conclusion of today’s evidentiary hearing session, on whether to allow a continuation of the evidentiary hearing at a later date, for the benefit of NACA.
After concluding the hearing, the Court took these matters under advisement, and stated that it would issue a written decision very quickly. This is that decision. This opinion states the Court’s findings of fact and conclusions of law.
II. Jurisdiction
This Court has subject matter jurisdiction over these bankruptcy cases under 28 U.S.C. §§ 1334(b), 157(a) and 157(b)(1), and Local Rule 83.50(a) (E.D. Mich.). This matter is a core proceeding under 28 U.S.C. § 157(b)(2)(B).
III. Discussion
A. NACA’s objection to the Court holding and concluding an evidentiary hearing on February 28.
The Court concludes that it has committed no abuse of discretion in holding the evidentiary hearing today, and that exigent circumstances require the Court to deem the evidentiary hearing to be completed.
Under normal circumstances, of course, the Court would not have held an eviden-*716tiary hearing on such short notice as occurred today. And Fed.R.Bankr.P. 9014(e) states:
(e) Attendance of Witnesses. The court shall provide procedures that enable parties to ascertain at a reasonable time before any scheduled hearing whether the hearing will be an eviden-tiary hearing at which witnesses may testify.
And NACA’s counsel argued that he had been unable to obtain the presence of one or more of his witnesses, who are located out of town, on such short notice. He did not identify who the witnesses were.
When the Court began the evidentiary hearing later in the day, however, NACA’s counsel was able to present a witness, Alan Forsythe, who testified by telephone. Mr. Forsythe is NACA’s Executive Director. NACA’s counsel did not argue that there were any other specific witnesses that he would want to call, but could not call, due to the timing of the evidentiary hearing.
The Court concludes that it was appropriate to conduct the evidentiary hearing when it did, and to now deem the evidentiary hearing to be concluded. Rule 9014(e) requires only “reasonable” prior notice that a hearing will be an evidentiary hearing. Before the Court began the evi-dentiary hearing today, it gave prior notice that it would hold an evidentiary hearing today. It gave such notice in court, earlier in the day, after the parties presented oral argument on the Motion, and after NACA argued why an evidentiary hearing should not be held that day.
Such prior notice was “reasonable” under the exigent circumstances presented here. And the Court has discretion to shorten the notice that was given to NACA of the evidentiary hearing — here to the same day — if that is “appropriate in the particular circumstances.” See 11 U.S.C. § 102(1)(A); see also 11 U.S.C. § 105(a); Fed.R.Bankr.P. 9006(c)(1).
What happened here was reasonable and appropriate in the particular circumstances, for the following reasons. First, as described earlier in this opinion, it was necessary under the circumstances to hold and conclude an evidentiary hearing on the disputed part of NACA’s Motion on February 28.
Second, the timing that NACA chose for filing its Motion is what created the emergency conditions in the first place, which required an extremely prompt ruling by the Court.
Third, NACA had every reason to know, and did know, that filing its Motion on February 23, the day after the sale hearing, would create the very kind of crisis that it did. NACA knew from attending the February 22 sale hearing (and perhaps sooner than that) that the sale in question most likely had to close no later than February 29. The timing of the Motion was obviously designed, at least in part, to create maximum negotiating leverage for NACA with respect to the allowance and payment of its administrative claim.
Fourth, NACA could have filed its Motion at least as early as September 2011, which is when (1) the Debtor Kazi Michigan made its last payment to NACA; and (2) Kazi Michigan informed NACA that it would make no further payments to NACA. Instead, NACA chose not to file the Motion at any time during the five months from September 2011 until February 23, 2012. If NACA had filed the Motion earlier, of course, expedited proceedings would not have been necessary.
Fifth, NACA was informed by the Debtors months ago, early in the § 363 sale, process, that the Debtors felt that they could not afford to pay, and did not intend *717to pay, NACA’s fees for Kazi Michigan as part of a sale process.
Sixth, NACA is not prejudiced by the Court’s holding and concluding the eviden-tiary hearing when it did. NACA’s counsel was able to call its Executive Director to testify, and NACA’s counsel did not identify any other witness that it wanted to call, or might have called, if the eviden-tiary hearing had been held on a later date. Nor did NACA’s counsel identify any additional documentary evidence that it might have presented, if given more time to do so. And NACA’s counsel had a full opportunity to cross-examine the Debtors’ witness, Laura Marcero (the Debtors’ Chief Restructuring Officer).
For these reasons, the Court is justified in holding and concluding the evidentiary hearing when it has, and in now making a decision on the merits.
B. The merits of NACA’s disputed administrative claim
NACA seeks allowance and prompt payment by Kazi Michigan of a $394,672.88 administrative expense. Section 503 of the Bankruptcy Code governs the allowance of administrative expenses and provides, in relevant part:
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including— (1)(A) the actual, necessary costs and expenses of preserving the estate....
11 U.S.C. § 503(b)(1)(A). As the United States Court of Appeals for the Sixth Circuit has held,
The [Bankruptcy [C]ode provides that administrative expenses, “the actual, necessary costs and expenses of preserving the estate,” 11 U.S.C. § 503(b)(1)(A), “are, as a rule, entitled to priority over prepetition unsecured claims,” Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A., 530 U.S. 1, 5, 120 S.Ct. 1942, 147 L.Ed.2d 1 (2000) (citing 11 U.S.C. §§ 507(a)(1), 726(a)(1), 1129(a)(9)(A)). “The purpose of [this priority] is to facilitate the rehabilitation of insolvent businesses by encouraging third parties to provide those businesses with necessary goods and services.” In re United Trucking Service, Inc., 851 F.2d 159, 161 (6th Cir.1988) (citing In re Mammoth Mart, Inc., 536 F.2d 950, 954 (1st Cir.1976)). However, “[c]Iaims for administrative expenses under § 503(b) are strictly construed because priority claims reduce the funds available for creditors and other claimants.” In re Federated Dept. Stores, Inc., 270 F.3d 994, 1000 (6th Cir.2001). “ ‘[A] debt qualifies as an ‘actual, necessary’ administrative expense only if (1) it arose from a transaction with the bankruptcy estate and (2) directly and substantially benefitted the estate.’ ” In re Eagle-Picher Industries, Inc., 447 F.3d 461, 464 (6th Cir.2006) (quoting Pension Benefit Guar. Corp. v. Sunarhauserman, Inc. (In re Sunarhauserman, Inc.), 126 F.3d 811, 816 (6th Cir.1997)). The party seeking the priority “has the burden of proving that his claim constitutes an administrative expense.” McMillan v. LTV Steel, Inc., 555 F.3d 218, 226 (6th Cir.2009) (citing In re White Motor Corp., 831 F.2d 106, 110 (6th Cir.1987)).
Nat’l Union Fire Ins. Co. v. VP Bldgs., Inc., 606 F.3d 835, 837-38 (6th Cir.2010) (emphasis added).
The Court concludes, based on the following findings and conclusions, that NACA has not met its burden of proving, by a preponderance of the evidence, that it is entitled to an allowed administrative expense claim against Kazi Michigan, in any amount.
*718First, the pre-petition Advertising Agreement on which NACA relies, for both its entitlement to payments by Kazi Michigan and the amount of such payments, was no longer in effect between NACA and Kazi Michigan during the relevant post-petition time period. The undisputed evidence is that KFC Corporation terminated its franchise agreement with Kazi Michigan on December 14, 2009, more than a year before Kazi Michigan filed its bankruptcy case.7 This automatically made the Advertising Agreement no longer effective between NACA and Kazi Michigan. Paragraph 4 of that agreement means this, unambiguously, where it states that:
The term of this Agreement shall commence upon the date hereof and shall continue in effect for such period as the franchise agreement for any Controlled Outlet shall remain effective and for all renewals and extensions thereof agreed to by Franchisor ... 8
As a result, NACA has had no right to any payments from Kazi Michigan during the postpetition period, based on any express contract between the parties.
Second, NACA has failed to prove that it has any right to payment from Kazi Michigan based on any contract that can be deemed implied, based on the conduct of the parties. The undisputed evidence (Laura Marcero’s testimony) was that for the relevant period, Kazi Michigan never requested NACA to provide any national advertising, or assistance with local advertising, or any other services. This fact, and the other facts described below, in the Court’s discussion of unjust enrichment, shows that there was no implied contract between the parties.
Third, NACA has failed to prove that it has any right to payment from Kazi Michigan based on a theory of unjust enrichment. As this Court recently explained in another case, under Michigan law,
“Unjust enrichment is defined as the unjust retention of money or benefits which in justice and equity belong to another. No person is unjustly enriched unless the retention of the benefit would be unjust.” Tkachik v. Mandeville, 487 Mich. 38, 790 N.W.2d 260, 266 (2010) (internal quotation marks and citations omitted).
Even though no contract may exist between two parties, under the equitable doctrine of unjust enrichment, “[a] person who has been unjustly enriched at the expense of another is required to make restitution to the other.” The remedy is one by which the law sometimes indulges in the fiction of a quasi or constructive contract, with an implied obligation to pay for benefits received to ensure that exact justice is obtained.
The essential elements of a quasi contractual obligation, upon which recovery may be had, are [1] the receipt of a benefit by a defendant from a plaintiff, [2] which benefit it is inequitable that the defendant retain.
Michigan Educ. Employees Mut. Ins. Co. v. Morris, 460 Mich. 180, 596 N.W.2d 142, 151 (1999) (internal quotation marks and citations omitted). “The process of imposing a ‘contract-in-law’ or a quasi contract to prevent unjust enrichment ... should be approached with some caution.” B & M Die Co. v. Ford *719Motor Co., 167 Mich.App. 176, 421 N.W.2d 620, 622 (1988).
Shapiro v. Harajli (In re Harajli), 469 B.R. 274, 282 (Bankr.E.D.Mich.2012).
NACA has failed to prove either of the elements of an unjust enrichment claim. NACA has not proven that Kazi Michigan actually received a benefit from the national advertising services that NACA provided during the months of August 2011 through January 2012. Nor has NACA proven that it would be inequitable for Kazi Michigan to retain any such benefit, without payment, if it had received a benefit.
With respect to a benefit, NACA’s only evidence of this, the testimony of its Executive Director Mr. Forsythe, was unpersuasive, and insufficient to meet the preponderance-of-the-evidence standard of proof. And NACA’s evidence was likewise insufficient to prove by a preponderance of the evidence that any claimed benefit to Kazi Michigan was worth anything approaching the $394,672.88 claimed, or worth any particular amount.
The Court further finds that it would not be inequitable for Kazi Michigan to retain the alleged benefit of NACA’s national advertising, without payment, even if NACA had proven a benefit. This is because (1) the Advertising Agreement was no longer in effect between NACA and Kazi Michigan, and NACA knew this or should have known it, so NACA knew or should have known long before the relevant period that it had no contractual obligation to provide any services to Kazi Michigan; (2) Kazi Michigan stopped paying NACA and informed NACA in September 2011 that it would not make any further payments; and (3) the reason NACA did not cut off all national advertising services to Kazi Michigan, for nonpayment, during the relevant period was because of the fact, as NACA’s Alan For-sythe testified, “it would be prohibitively expensive” to block the nationwide advertising for KFC restaurants in particular areas of the country, such as those served by Kazi Michigan’s restaurants. Thus, NACA could have elected to no longer provide national advertising services to Kazi Michigan, but did not do because that would be more expensive for NACA. NACA thereby saved itself money by continuing to provide the national advertising in Kazi Michigan’s areas in Michigan, rather than cutting it off to those areas.
Based on the findings, conclusions, and reasons stated above, the Court finds and concludes that NACA has failed to meet its burden of proving that it provided services that “directly and substantially” benefitted the Kazi Michigan bankruptcy estate, in order to qualify for an administrative expense claim under the Sixth Circuit case law quoted above. And NACA failed to meet its burden of proving what the value was of the benefit it allegedly provided to the Kazi Michigan bankruptcy estate, let alone that the value was anywhere near as high as the $394,672.88 amount claimed.
IV. Conclusion
For the reasons stated in this opinion, the Court will enter an order denying NACA’s Motion to the extent it seeks allowance or payment of an administrative expense against the Kazi Michigan bankruptcy estate. The Court will schedule a further hearing date regarding the balance of the relief sought by NACA’s Motion, on a non-expedited basis.
. The Debtors are Kazi Foods of Michigan, Inc., Case No. 11-43971; Kazi Foods of Florida, Inc., Case No. 11-43986; Kazi Foods of New York, Inc., Case No. 11-47551; and Kazi Foods of Annapolis, Inc., Case No. 11-47556.
. Other relief requested by the Motion may not be in dispute, but it is not addressed in this opinion, because a ruling on the other relief does not have any of the urgency that requires an expedited ruling on the relief addressed in this opinion.
. Advertising Agreement (Creditor’s Exhibit 1).
. Docket ##671, 672.
. Docket # 673.
. Debtors' counsel stated this, without contradiction, in the February 28 hearing. And this is confirmed by Section 6.1(e) of the Asset Purchase Agreement (Docket # 672, Exhibit B, at p. 20).
. See KFC's termination letter to Kazi Michigan and others, which was admitted into evidence as Debtor’s Exhibit A.
. Advertising Agreement (Creditor's Exhibit 1) at p. 2 (emphasis added). | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488518/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-22-00620-CR
Carlton Leroy ZIMMERMAN,
Appellant
v.
The STATE of Texas,
Appellee
From the County Court at Law No. 8, Bexar County, Texas
Trial Court No. CC678082
Honorable Brenda Chapman, Judge Presiding
ORDER
The reporter’s record was originally due November 14, 2022. On October 4, 2022, the
court reporter filed a notification of late record stating that appellant had not requested the
record. On October 5, 2022, we issued an order instructing appellant to provide written proof to
this court of such a request by October 17, 2022. On November 3, 2022, the court reporter filed a
second notification of late record asking for an extension of unknown duration and stating that
the appellant had requested the record but had not paid for it. On November 8, 2022, the court
reporter filed the reporter’s record. We therefore WITHDRAW our request for written proof of a
request from appellant, and we DENY the court reporter’s request as MOOT.
_________________________________
Beth Watkins, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
___________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488525/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-22-00509-CR
Raul Anthony ORTIZ,
Appellant
v.
The STATE of Texas,
Appellee
From the 81st Judicial District Court, Wilson County, Texas
Trial Court No. 19-04-088-CRW
Honorable Lynn Ellison, Judge Presiding
ORDER
The Appellant’s Motion for Extension of Time is hereby GRANTED. The appellant’s
brief is due on before December 23, 2022. Further requests for extension of time will be
disfavored.
_________________________________
Beth Watkins, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 17th day of November, 2022.
__________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488519/ | Fourth Court of Appeals
San Antonio, Texas
November 18, 2022
No. 04-21-00285-CV
Alma Maldonado GONZALEZ,
Appellant
v.
VANTAGE BANK TEXAS,
Appellee
From the 45th Judicial District Court, Bexar County, Texas
Trial Court No. 2020-CI-23070
Honorable Sid L. Harle, Judge Presiding
ORDER
Sitting: Patricia O. Alvarez, Justice
Liza A. Rodriguez, Justice
Lori I. Valenzuela, Justice
The panel has considered appellant’s motion for rehearing. The motion is DENIED.
_________________________________
Liza A. Rodriguez, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 18th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488520/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-22-00038-CV
IN THE ESTATE OF EMILY D. PRIETO, Deceased
From the County Court At Law No 1, Webb County, Texas
Trial Court No. 2008-PB7-000086L1
Honorable Hugo Martinez, Judge Presiding
ORDER
Sitting: Luz Elena D. Chapa, Justice
Irene Rios, Justice
Beth Watkins, Justice
Appellee’s brief was originally due by August 8, 2022, and when it was not filed, we
notified appellee’s attorney of record of the deficiency on August 18, 2022. We instructed
appellee’s attorney to file a response by August 28, 2022 with a reasonable explanation for
failing to timely file the brief. On August 26, 2022, appellee’s attorney, Ryan Solis, filed a
response, stating he did not represent appellee on appeal. Accordingly, on September 6, 2022,
we advised appellee if he wished to file a brief, he must file his brief by October 6, 2022. It later
came to our attention our September 6, 2022 order was not addressed to appellee’s last known
address, and on October 26, 2022, we notified appellee at his last known address of his past due
briefing deadline. On November 4, 2022, appellee filed an “Appearance of Counsel, Response
to Notice of Failure to Timely File Brief and First Motion for Extension of time to File Brief.”
Counsel explained appellee had been confused regarding his briefing deadline and requested a
120-day extension to file a brief. Appellant filed a response opposing the extension. After
consideration, we grant in part appellee’s request for an extension and order appellee to file his
brief by January 17, 2023.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 17th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488522/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-22-00333-CR
Steven James ELSIK,
Appellant
v.
The STATE of Texas,
Appellee
From the 156th Judicial District Court, McMullen County, Texas
Trial Court No. M-21-0009-CR-B
Honorable Starr Boldrick Bauer, Judge Presiding
ORDER
Appellant’s co-counsel, Danice Obregon, moved to withdraw as appellate co-counsel.
We GRANT co-counsel Obregon’s motion. See TEX. R. APP. P. 6.5. Eric Flores remains as lead
appellate counsel for appellant.
It is so ORDERED on November 17, 2022.
PER CURIAM
ATTESTED TO: _______________________
MICHAEL A. CRUZ,
CLERK OF COURT | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488523/ | Fourth Court of Appeals
San Antonio, Texas
November 17, 2022
No. 04-22-00687-CV
SEA WORLD OF TEXAS, LLC,
Appellant
v.
Renada MATHIS, Perreal Woods and Joe Boston,
Appellees
From the 150th Judicial District Court, Bexar County, Texas
Trial Court No. 2019-CI-17204
Honorable Rosie Alvarado, Judge Presiding
ORDER
The reporter’s record was due on October 24, 2022. On November 2, 2022, the court
reporter filed a notice of late record indicating the reporter’s record was not filed because
appellant had failed to pay or make arrangements to pay the reporter’s fee for preparing the
record and that appellant was not entitled to appeal without paying the fee. On November 3,
2022, this court ordered appellant to provide written proof that the fee has been paid. On
November 11, 2022, appellant did so. The court reporter is ORDERED to file the reporter’s
record with this court no later than November 28, 2022.
_________________________________
Lori I. Valenzuela, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 17th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8494669/ | MEMORANDUM OF DECISION
HENRY J. BOROFF, Bankruptcy Judge.
Before the Court are the parties’ cross-motions for summary judgment on the debtor’s claim that the defendant’s prepetition foreclosure of her residence was void under Massachusetts law because the defendant did not provide proper notice of the foreclosure and did not hold the mortgage on the property at either the time it sent notice of the foreclosure or at the time of the foreclosure sale. Although many of the discrete arguments raised in the motions are determinable on summary judgment, for the reasons that follow, remaining issues of material fact preclude the entry of summary judgment for either party.
I. FACTS AND POSITIONS OF THE PARTIES
Most of the facts relevant to this case are not disputed.1 In 1992, the Debtor *467obtained a loan from Shawmut Mortgage Company (“Shawmut Mortgage”) in the amount of $104,000, secured by a mortgage (the “Mortgage”) on her condominium located in Hudson, Massachusetts (the “Property”).2 In 2008, the Debtor fell behind on her mortgage payments, and Wells Fargo Bank, NA (‘Wells Fargo”), representing itself as the holder of the Mortgage, commenced its foreclosure process against the Property by filing a petition under the Servicemembers Civil Relief Act with the Land Court Department of the Massachusetts Trial Court (the “Land Court”) on August 26, 2009. See Bailey I, 437 B.R. at 724.3
On September 22, 2009, Harmon Law Offices, P.C. (“Harmon”), the law office retained by Wells Fargo to foreclose on the Mortgage, mailed both a Notice of Foreclosure Sale and a Notice of Intention to Foreclose Mortgage and of Deficiency After Foreclosure of Mortgage (the “Foreclosure Notices”) to the Debtor by both certified mail, return receipt requested, and by first class mail. Aff. of Kristin A. Hedvig in Supp. of Wells Fargo Bank, NAs Mot. for Summ. J. 2 ¶¶ 9, 10 & Exs. A, B, Oct. 6, 2011, ECF No. 63. The certified mailings were returned to Harmon as “unclaimed,” but the first class mailings were not returned as undeliverable. Id. at 2 ¶¶ 9,10.
The Debtor says that she received none of the Foreclosure Notices until well after the foreclosure sale was concluded. She did not find the slip left by the post office indicating that a certified letter was waiting to be claimed until some weeks after the sale, as the notice had been attached to her seldom-used front door and not left in the condominium complex’s common mailbox area. Pl.’s Aff. in Supp. of Cross-Mot. for Summ. J. 1-2 ¶¶ 3, 4, 6, Nov. 7, 2011, ECF No. 68. She claims not to have received the first class mailings due to an illness that prevented her from walking to the common mailbox area. Id. at 2 ¶ 7.
On October 23, 2009, Wells Fargo conducted a foreclosure sale at which the Property was sold to a third-party buyer (the “Foreclosure Sale”). Prior to the recording of the foreclosure deed, however, the Debtor filed a petition under Chapter 13 of the Bankruptcy Code.4 And on November 23, 2009, the Debtor filed this adversary proceeding, seeking, inter alia, a declaratory judgment that the Foreclosure Sale is void. Id. The Court has previously disposed of several other claims contained in the complaint, see Bailey I, 437 B.R. 721, and the only issue remaining is the validity of the Foreclosure Sale.
A. Notice of the Foreclosure Sale
The Debtor argues that the Foreclosure Sale should be declared void because she *468did not receive notice of the Foreclosure Sale as required by Massachusetts General Laws (“MGL”) ch. 244, § 14.5 The Debtor does not dispute Wells Fargo’s contention that the required notices were sent to the Debtor’s address by both certified and first-class mail.6 Rather, the Debtor says she did not receive the certified mailings because the postal worker left the notice of certified mail at her rarely-used front door instead of at the common mailbox station. According to the Debtor, due to the importance of the rights lost through foreclosure, Wells Fargo simply should have done a better job of insuring that the Debtor actually received the notices.
In response, Wells Fargo argues that Massachusetts law requires only that advance notice of a foreclosure sale be properly mailed, and that the foreclosing entity is not required to prove actual receipt of the notice. It was the Debtor’s responsibility, says Wells Fargo, to provide an address where certified mailings and other notices could be received, and her failure to do so cannot now invalidate the foreclosure.
B. Whether Wells Fargo Held the Mortgage at the Time of the Foreclosure Sale
1. Travel of the Mortgage
With one notable exception discussed below, the parties are substantially in agreement as to the travel of the Mortgage through various entities from execution through foreclosure. On February 24, 1992, the Debtor granted the Mortgage to Shawmut ■ Mortgage. Sherri E. Russell Aff. in Supp. of Wells Fargo’s Mot. for Summ. J. Ex. B, Oct. 6, 2011, EOF No. 61. The Mortgage then passed to Fleet Mortgage Corp. (“Fleet Mortgage”) when Fleet Mortgage merged with Shawmut Mortgage on May 31, 1996, as confirmed by an assignment of the Mortgage from “Fleet Mortgage Corp. Successor by Merger to Shawmut Mortgage Co.” to “Fleet Mortgage Corp.” dated May 31, 1996. Russell Aff. Exs. C, D. On June 1, 2001, the Mortgage became an asset of Washington Mutual Home Loans, Inc. (“WaMu HLI”), when Fleet Mortgage and WaMu HLI merged. Russell Aff. Ex. F.
What happened next is the subject of some dispute between the parties, although that dispute turns largely on their different legal interpretations of the events, rather than a true factual dispute. After the merger between Fleet Mortgage and WaMu HLI, Washington Mutual Bank, FA (“WaMu FA”) and one of its wholly-owned subsidiaries,7 Washington Mutual Mortgage Securities Corp. (‘WaMu Securities”), formed WMHLI Transfer Interim LP (the “Limited Partnership”), a limited partnership organized under the laws of Ohio. WaMu FA was the *469sole general partner and WaMu Securities the sole limited partner of the partnership. WaMu HLI (the holder of the Mortgage) then merged with and into the Limited Partnership, and the Mortgage presumably became an asset of the Limited Partnership. WaMu FA (the general partner) thereafter purchased all of WaMu Securities’ (the limited partner) interest in the Limited Partnership, and the Limited Partnership was canceled. WaMu FA then changed its name to “Washington Mutual Bank,” Russell Aff. Ex. H, which in turn assigned the Mortgage to Wells Fargo through an “Assignment of Mortgage” dated March 22, 2007 (the “Assignment”), Russell Aff. Ex. E.
2. Standing
The Debtor argues that Wells Fargo is not the holder of the Mortgage, because WaMu FA did not acquire the assets of the Limited Partnership, which assets included the Mortgage, and thus had no rights in the Mortgage to assign to Wells Fargo. Wells Fargo maintains that this Court need not consider the Debtor’s argument, because the Debtor does not have standing to pursue it.8 Characterizing the Debtor’s argument as “based upon the premise that the foreclosure sale is void because the assignment to Wells Fargo was invalid,” Wells Fargo argues that the Debtor “does not have standing to ehallenge an assignment,” and that only “Shawmut Mortgage, or its -assigns, have standing to challenge the assignment.” Wells Fargo Mem. 8. Wells Fargo further contends that the “injury”—i.e., the Foreclosure Sale—did not result from the Assignment, but occurred as a consequence of the Debtor’s default, and therefore the Debtor’s challenge to the Assignment is not directed at the cause of her injury. Finally, Wells Fargo argues, the Debtor cannot attack the Assignment because, under the Mortgage contract, the “mortgagee has the right ... to assign the mortgage to whomever it chooses. The assignment merely affects to whom the borrower owes the obligation.” Wells Fargo’s Post-Hr’g Mem. in Supp. of Mot. for Summ. J. 4, Dec. 16, 2011, ECF No. 79.9
The Debtor first asserts that Wells Fargo mischaracterizes the nature of her injury and its causes. According to the Debt- or, “[i]t is not the foreclosure -per se that caused harm.... It is the fact that Wells Fargo lacked record title as the holder of the mortgage and thereby lacked authority to foreclose.” Pl.’s Mem. in Opp’n to Def.’s Mot. for Summ. J. 5, Nov. 7, 2011, ECF No. 67. Thus, the Debtor concludes that she has standing to challenge Wells Fargo’s right to foreclose. Furthermore, *470the Debtor contends, the Debtor’s position as a Chapter 18 debtor gives her standing as the estate’s representative to seek a determination of her property rights, to object to claims, and to pursue causes of action that would benefit the estate.
3. The Land Court Order
Even if the Debtor were found to have standing to prosecute the declaratory judgment claim, Wells Fargo maintains that it held the Mortgage at the time it initiated foreclosure proceedings and thus the Foreclosure Sale was valid. While Wells Fargo generally asserts that WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership caused the assets of the Limited Partnership (including the Mortgage) to become assets of WaMu FA, Wells Fargo does not rely on documentary evidence of these various transactions to support its contention that the Mortgage traveled from WaMu HLI to Washington Mutual (and ultimately to Wells Fargo). Instead, Wells Fargo relies on an order issued by the Land Court dated June 28, 2002, see Russell Aff. Ex. G, as establishing Washington Mutual’s title to the assets of the Limited Partnership, and thus its ownership of the Mortgage at the time the Assignment to Wells Fargo was executed. In its order, the Land Court stated that:
After due proceedings, it is ORDERED: that that [sic] all assets (including without limitation all instruments of record) standing in the name of Washington Mutual Home Loans, Inc. be deemed assigned to and stand in the name of Washington Mutual Bank, FA, effective as of March 1, 2002, the date of the sale and assignment of Limited Partner Interest.
Russell Aff. Ex. G.10
The Land Court Order was issued after WaMu FA filed an Ex-Parte Subsequent Petition (the “S-Petition”) in the Massachusetts Land Court on June 2, 2002. According to Wells Fargo, the S-Petition, filed pursuant to MGL ch. 185, § 114, was not limited to any specific piece of property, and Wells Fargo places emphasis on the order’s reference to “all” assets of WaMu HLI, which assets would have included the Debtor’s Mortgage. Additionally, Wells Fargo says that a search at the Plymouth Registry District of the Land Court shows that the Land Court Order was assigned an individual document number not associated with a particular property address, thus supporting its argument that the order is effective against all property, registered or unregistered, and including the Debtor’s Property.
Wells Fargo therefore contends that the Land Court Order effectively “assigned” all of WaMu HLI’s assets, including the Mortgage, to WaMu FA, even if the assets of WaMu HLI failed to otherwise become assets of WaMu FA by operation of law. According to Wells Fargo, this Court has no jurisdiction to “invalidate” the Land Court Order, because, under the Rooker-Feldman doctrine, the Court is “precluded ‘from exercising subject matter jurisdiction where the issues in the case are “inextricably intertwined” with questions previously adjudicated by a state court, such that a federal district [or bankruptcy] court would be in the unseemly position of reviewing a state court decision for error.’ ” Wells Fargo Post-Hr’g Mem. 5 (quoting *471Mills v. Harmon Law Offices, P.C., 344 F.3d 42, 44 (1st Cir.2003)).
The Debtor maintains, however, that the Land Court Order is not binding on either the Debtor or this Court. The Debtor characterizes the S-Petition as an action to correct the certificate of title on a particular piece of registered land (not the Property at issue in this case). Arguing that the S-Petition was essentially an in rem proceeding, the Debtor says that the Land Court Order has no preclusive effect here.
4. The Limited Partnership
Because Wells Fargo relies on its standing argument and its assertion that the Land Court Order precludes further litigation regarding whether the Mortgage was transferred from WaMu HLI to WaMu FA, it has not provided further documentation or legal argument to support its contention that WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership transferred all the partnership assets to WaMu FA.
The Debtor argues, however, that the Mortgage, as an asset of the Limited Partnership, was never transferred to WaMu FA and instead remains an asset of the Limited Partnership.11 According to the Debtor, under Ohio’s limited partnership law, the dissolution of the Limited Partnership did not terminate the legal existence of the partnership. Instead, the Debtor argues that the Limited Partnership remains in existence (and in possession of its assets) until the completion of the winding up of the partnership’s affairs (which winding up would include the distribution of partnership assets). Because no evidence relative to the winding up process or distribution of the partnership assets has been provided, the Debtor says Wells Fargo has failed to demonstrate that title to the Mortgage ever passed from the Limited Partnership to WaMu FA. Accordingly, the Debtor argues, the Assignment could not have transferred the Mortgage to Wells Fargo.
II. DISCUSSION
A. Summary Judgment Standard
Summary Judgment should be granted “if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law.” Fed.R.Civ.P. 56(a), made applicable to this proceeding by Fed. R. Bank. P. 7056. “[Wjhile the absence of a genuine dispute as to a material fact is a *472necessary prerequisite to a finding of summary judgment in favor of the movant,” the moving party must still “show that it is entitled to judgment as a matter of law.” Tomsic v. Sales Consultants of Boston, Inc. (In re Salience Assoc., Inc.), 371 B.R. 578, 585 (Bankr.D.Mass.2007) (citing Desmond v. Varrasso (In re Varrasso), 37 F.3d 760, 764 (1st Cir.1994)). In resolving cross motions for summary judgment, the court “must resolve all genuine factual disputes in favor of the party opposing each such motion and draw all reasonable inferences derived from the facts in that party’s favor.” Atlantic Fish Spotters Ass’n v. Evans, 321 F.3d 220, 224 (1st Cir.2003); see also E.E.O.C. v. Steamship Clerks Union, Local 1066, 48 F.3d 594, 603 n. 8 (1st Cir.1995) (the “court must consider each motion separately, drawing inferences against each movant in turn”).
B. Foreclosure by Power of Sale in Massachusetts
In Massachusetts, foreclosure of a mortgage may be undertaken without judicial authorization. Ibanez, 941 N.E.2d at 49. “With the exception of the limited judicial procedure aimed at certifying that the mortgagor is not a beneficiary of the Servieemembers Act, a mortgage holder can foreclose on a property ... by exercise of the statutory power of sale, if such a power is granted by the mortgage itself.” Id. The Mortgage here did grant that power, thus “includfing] by reference the power of sale set out in G.L. c. 183, § 21, and further regulated by G.L. c. 244, §§ 11-17C.” Id. “Under Massachusetts General Laws chapter 183, section 21, after a mortgagor defaults in the performance of the underlying note, the mortgagee may sell the property at a public auction, conveying the property to the purchaser in fee simpie.” Culhane v. Aurora Loan Servs. of Neb., 826 F.Supp.2d 352, 360-61 (D.Mass. 2011) (citing Ibanez, 941 N.E.2d at 49). Because the statutory power of sale allows a mortgage holder to foreclose on property “without immediate judicial oversight,” the Massachusetts Supreme Judicial Court (the “SJC”) has ruled that “one who sells under a power [of sale] must follow strictly its terms. If he fails to do so there is no valid execution of the power, and the sale is wholly void.” Ibanez, 941 N.E.2d at 49-50 (quoting Moore v. Dick, 187 Mass. 207, 72 N.E. 967, 968 (1905)).
C. Sufficiency of Notice
A mortgage holder who forecloses by power of sale must comply with the notice requirements set forth in MGL ch. 244, § 14. “Advance notice of the foreclosure sale must be provided to the mortgagor by registered mail and other interested parties by publication in a newspaper published or generally circulating in the town where the mortgaged property lies.”12 Culhane, 826 F.Supp.2d at 362; Mass. Gen. Laws ch. 244, § 14. The Debt- or has challenged neither the content of the Foreclosure Notices nor the fact that the notices were mailed to the Debtor by registered mail. See Mass. Gen. Laws eh. 4, § 7 (“ ‘Registered mail,’ when used with reference to the sending of notice ... shall include certified mail.”); see also Town of Andover v. State Fin. Servs., Inc., 432 Mass. 571, 736 N.E.2d 837, 840 (2000); Carmel Credit Union v. Bondeson, 55 Mass.App.Ct. 557, 772 N.E.2d 1089, 1091 & n. 4 (2002) (quoting Durkin v. Siegel, 340 Mass. 445, 165 N.E.2d 81, 83 n. 3 (1960)).
The law in Massachusetts is clear; the requirement that the notice be mailed *473to the owner of the relevant property “is satisfied by mailing and nonreceipt is irrelevant.” Hull v. Attleboro Sav. Bank, 33 Mass.App.Ct. 18, 596 N.E.2d 358, 362 (1992) (emphasis supplied); see also Lindsey v. First Horizon Home Loans, Civil Action No. 11-10408-FDS, 2012 WL 689745, *3 (D.Mass. March 1, 2012). Wells Fargo has submitted copies of the Foreclosure Notices sent to the Debtor bearing certified mailing stamps. See Hedvig Aff. Ex. A. Wells Fargo admits that the certified mail was returned unclaimed, but there is no dispute that the Foreclosure Notices were sent. Accordingly, there being no material issue of fact in dispute, the Court must rule as a matter of law that Wells Fargo complied with the notice requirement under MGL ch. 244, § 14, and summary judgment should be entered in favor of Wells Fargo on the Debtor’s claim that notice of the Foreclosure Sale was insufficient.
D. Debtor’s Standing to Challenge the Foreclosure Sale
Even if the notice of the Foreclosure Sale were proper, the Debtor also argues that the sale should be declared void, as Wells Fargo is not (and was not) the holder of the Mortgage and thus had no authority to exercise the statutory power of sale. The Debtor is correct in her general assertion that, absent Wells Fargo’s status as holder of the Mortgage, the Foreclosure Sale is void; as the SJC has explained:
One of the terms of the power of sale that must be strictly adhered to is the restriction on who is entitled to foreclose. The “statutory power of sale” can be exercised by “the mortgagee or his executors, administrators, successors or assigns.” G.L. c. 183, § 21. Under G.L. c. 244, § 14, “[t]he mortgagee or person having his estate in the land mortgaged, or a person authorized by the power of sale, or the attorney duly authorized by a writing under seal, or the legal guardian or conservator of such mortgagee or person acting in the name of such mortgagee or person” is empowered to exercise the statutory power of sale. Any effort to foreclose by a party lacking “jurisdiction and authority” to carry out a foreclosure under these statutes is void.
Ibanez, 941 N.E.2d at 50.13
Despite the SJC’s clear admonition that failure to hold the mortgage at the time of foreclosure renders a foreclosure sale void, Wells Fargo argues that the Debtor cannot challenge the Foreclosure Sale through her request for declaratory judgment, because the Debtor lacks standing to challenge the Assignment of the Mortgage. This argument is unpersuasive for several reasons.
First, the thrust of the Debtor’s argument is not an attack on the Assignment itself, but instead a challenge to Wells Fargo’s assertion that Washington Mutual held the Mortgage at the time it executed the Assignment. The Debtor’s claim that Washington Mutual did not own the Mortgage at the time it purported to assign it is not a “claim[ ] that the assignment ... is defective,” but rather a claim that, as a stranger to the Mortgage, Washington Mutual could not have passed any ownership rights in the Mortgage to Wells Fargo.14
*474This case is thus distinguishable from those where the courts have concluded that borrowers lacked standing to challenge assignments of mortgages on grounds that assignments failed to comply with the terms of underlying Pooling and Servicing Agreements (“PSAs”). In such cases, the courts have found that the borrowers lacked standing to challenge a mortgage assignment based on an alleged breach of an underlying PSA, because the borrowers were neither parties to nor third-party beneficiaries under those agreements. See, e.g., Juarez v. U.S. Bank Nat’l Ass’n, Civil Action No. 11-10318, 2011 WL 5330465, *4 (D.Mass. Nov. 4, 2011); In re Correia, 452 B.R. at 324 (citing In re Almeida, 417 B.R. 140, 149 n. 4 (Bankr.D.Mass.2009)). The Debtor’s argument here is not based on the breach of an underlying contract to which she was not a party; instead, her argument is aimed at the ownership of the Mortgage at the time it was purportedly assigned.
The Court also finds the two cases relied on by Wells Fargo to be inapposite here. In In re Lopez, Judge Hillman discussed standing only in the context of a debtor’s allegation that a bank’s denial of his request for a loan modification was actionable under the Home Affordable Modification Program (“HAMP”). 446 B.R. 12, 21 (Bankr.D.Mass.2011). Noting his agreement with the “nearly unanimous” conclusion that HAMP “affords no private right of action and that borrowers lack standing as third-party beneficiaries to enforce the HAMP guidelines under a breach of contract theory,” Judge Hillman ultimately concluded that the debtor had failed to adequately plead his standing under HAMP. Id. at 21-22.15 Because the issue in Lopez was the Debtor’s standing under HAMP, it has no relevance to the Debtor’s standing to question Wells Fargo’s status as holder of the Mortgage in this case.
In Kiah v. Aurora Loan Servs., LLC, Civil Action No. 10-40161-FDS, 2011 WL 841282 (D.Mass. March 4, 2011), the borrower filed an action seeking “a declaratory judgment that ‘the mortgage on record [was] legally null and void.’” Id. at *1 (emphasis supplied). Among the various allegations raised in the complaint was the borrower’s assertion that the mortgage assignment was invalid because it was given for no consideration. Id. at *6. In rejecting that argument, Judge Saylor noted that the allegation was not only speculative, but that the borrower’s standing to contest the assignment on the basis of lack of consideration was, questionable—since it *475was doubtful whether the plaintiff could demonstrate a “compensable injury if the consideration was not paid.” Id. The Debt- or here is not seeking a declaration that the Mortgage is void, nor is she contesting the consideration given for the Assignment. Accordingly, the Court finds Judge Saylor’s discussion of standing in Kiah to be irrelevant to the issues raised here.
And while recent cases have contained somewhat broader language to the effect that a borrower has no standing to challenge a mortgage assignment, as the borrower is neither a party to, nor a third-party beneficiary of, the assignment, see, e.g., Oum v. Wells Fargo, N.A., — F.Supp.2d -(D.Mass.2012); Wenzel v. Sand Canyon Corp., — F.Supp.2d - (D.Mass.2012); Peterson, 2011 WL 5075613, the Debtor is not, as previously discussed, challenging the Assignment per se. Instead, the Debtor questions only whether the assignor had any rights in the Mortgage to transfer to the assignee.16
The Debtor has standing to challenge the validity of the Foreclosure Sale because she has demonstrated “a concrete and particularized injury in fact, a causal connection that permits tracing the claimed injury to the defendant’s actions, and a likelihood that prevailing in the action will afford some redress for the injury.” Antilles Cement Corp. v. Fortuno, 670 F.3d 310, 317 (1st Cir.2012) (quoting Weaver’s Cove Energy, LLC v. R.I. Coastal Res. Mgmt. Council, 589 F.3d 458, 467 (1st Cir.2009)). The injury to the Debtor is the purported termination of her equity of redemption in the Property by a party who had no authority to foreclose that equity of redemption.17 If Wells Fargo did not hold the Mortgage at the time it foreclosed, then the injury is traceable directly to Wells Fargo, as it is the allegedly invalid foreclosure by Wells Fargo that constitutes the Debtor’s claimed injury. Should the Court determine that the Foreclosure Sale is void, the Debtor will retain the equity of redemption—an interest in the *476Property that cannot be lightly disregarded.
Also of paramount importance is the Debtor’s status as a Chapter 13 debtor. By dint of § 1322(b)(5), Congress has promised such debtors the opportunity to propose a Chapter 13 Plan that “provide[s] for the curing of any default within a reasonable time and maintenance of payments while the case is pending,” thereby allowing a debtor to “restore and maintain his currency on a longterm debt.” In re Euliano, 442 B.R. 177, 186 (Bankr.D.Mass. 2010) (quoting 11 U.S.C. § 1322(b)(5); Grubbs v. Houston First Am. Sav. Ass’n, 730 F.2d 236, 245 (5th Cir.1984)).
But under § 1322(c)(1) of the Bankruptcy Code, a Chapter 13 debtor’s ability to cure a default on a mortgage note through a Chapter 13 Plan is only available “until such residence is sold at a foreclosure sale that is conducted in accordance with applicable nonbankruptcy law.” 11 U.S.C. § 1322(c)(1); see also In re Mellino, 333 B.R. 578, 584 (Bankr.D.Mass.2005) (“Section 1322(c)(1) of the Bankruptcy Code allows a debtor to cure his or her default under a mortgage unless the property has been sold at a foreclosure sale which was conducted in accordance with applicable state law.”) (citing In re Crichlow, 322 B.R. 229, 234 (Bankr.D.Mass.2004)).
And, as previously noted, in Massachusetts, a foreclosure sale is “conducted in accordance with applicable nonbankruptcy law” only if the foreclosing party held the mortgage at the time the notice of foreclosure was sent and the foreclosure sale conducted. The Debtor’s ability to cure the default and reinstate the Mortgage through a Chapter 13 plan thus turns on whether or not the Foreclosure Sale was validly conducted under Massachusetts law by an entity holding the Mortgage. For these reasons, the Court determines that the Debtor has standing to seek a ruling on the validity of the Foreclosure Sale.18
E. Effect of the Land Court Order
Wells Fargo next argues that the substance of the underlying transactions affecting the Mortgage should not be reexamined, because the Land Court Order established WaMu FA’s ownership of WaMu HLI’s assets (including the Mortgage), and the Assignment therefore validly conveyed ownership to Wells Fargo prior to the Foreclosure Sale. But Wells Fargo fails to adequately articulate any legal theory supporting its contention that both the Debtor and the Court are bound by the Land Court Order. Wells Fargo refers only briefly to the Rooker-Feldman doctrine as preventing this Court from deciding questions regarding the ownership of the Mortgage, maintaining that this Court has no jurisdiction to “invalidate” the Land Court Order.
The Rooker-Feldman doctrine is not applicable here, because the Debtor was not a party to the Land Court action. See Lance v. Dennis, 546 U.S. 459, 465, 126 S.Ct. 1198, 163 L.Ed.2d 1059 (2006) (Rooker-Feldman does not apply where *477party was not party to the state court proceeding); Exxon Mobil Corp. v. Saudi Basic Indus. Corp., 544 U.S. 280, 284, 125 S.Ct. 1517, 161 L.Ed.2d 454 (2005) (The Rooker-Feldman Doctrine has been limited to “cases brought by state-court losers complaining of injuries caused by state-court judgments rendered before the district court proceedings commenced and inviting district court review and rejection of those judgments.”). Similarly, although this Court is bound by 28 U.S.C. § 1738 (the Full Faith and Credit Statute) to “give the same preclusive effect” to the Land Court Order that the order “would be given in the courts of [Massachusetts],” In re Ellis, 345 B.R. 11, 17 (Bankr.D.Mass. 2006) (quoting Migra v. Warren City Bd. of Educ., 465 U.S. 75, 81, 104 S.Ct. 892, 79 L.Ed.2d 56 (1984)), Wells Fargo has provided no reason why Massachusetts courts would give preclusive effect to the Land Court Order in an unrelated case involving non-parties to the Land Court action.
As Wells Fargo itself notes, “[t]he purpose of an S-Petition, filed pursuant to G.L. c. 185, § 114, et seq., is to alter certificates of title on registered land.” Wells Fargo Post-Hr’g Mem. 2 (emphasis supplied).19 There is no indication, despite its broad language, that the Land Court Order applied to any property other than the property affected by the registered certificate of title at issue in that case. The Property here, in fact, is not registered land. Although the Land Court may, in some cases, exercise jurisdiction over recorded land, see MGL ch. 185, § 1, the evidence produced by Wells Fargo indicates that the Land Court Order was issued pursuant to its jurisdiction over a particular certificate of title in registered land, and thus has no preclusive effect here. Similarly, even if this Court were to reach a conclusion different than that reached by the Land Court and find that WaMu HLI’s assets were not transferred to WaMu FA, such a ruling would in no way “invalidate” the Land Court’s Order. Just as that order has no preclusive effect in the case before this Court, the decision reached in this case would not affect the parties involved in the case before the Land Court.
In sum, because the Land Court Order was issued in a case unrelated to the one before this Court, and involved neither the Debtor nor the Property at issue here, and because Wells Fargo has not articulated any other reason why the order has preclusive effect in this case, the Court concludes that the Land Court Order is insufficient to establish, for purposes of this case, that Washington Mutual held the Mortgage when it executed the Assignment to Wells Fargo.
F. So Who Holds the Mortgage?
To re-cap: the parties agree that the Mortgage was originally given to Shawmut Mortgage. Shawmut Mortgage merged with Fleet Mortgage, which in *478turn merged with WaMu HLI. WaMu HLI then merged with the Limited Partnership (created in Ohio), and the Mortgage thus became an asset of the Limited Partnership. The sole general partner (WaMu FA) then purchased the sole limited partner’s (WaMu Securities) interest in the Limited Partnership and the partnership was “canceled” pursuant to Ohio law. See Sale & Assignment of Limited Partner Interest and “Washington Mutual bank, FA Secretary’s Certificate,” both attached as exhibits to Pl.’s Post-Hr’g Mem. and Wells Fargo’s Post-Hr’g Mem; see also Ohio Rev.Code § 1782.10(A) (“A certifícate of limited partnership shall be canceled ... at any other time there are no limited partners.”).
But neither party has provided evidence demonstrating what happened to the assets of the Limited Partnership. Under Ohio law, “a partnership interest is personal property.” Ohio Rev.Code § 1782.39. The assignment of a partnership interest transfers only the interest in the partnership and the right to receive distributions as a partner; it does not transfer the underlying partnership assets themselves. Ohio Rev. C. § 1782.40. Thus, WaMu FA’s purchase of WaMu Securities’ interest in the Limited Partnership did not necessarily transfer the assets of the Limited Partnership (which included the Mortgage) to WaMu FA.
The Debtor assumes that the Limited Partnership was merely “dissolved,” and therefore would have the Court conclude that, consistent with Ohio law, the assets of the Limited Partnership remain with the Limited Partnership until otherwise distributed through the “winding up process.” While the Debtor is correct that, under Ohio law, the assets of a Limited Partnership do not vest in the partners as a matter of law and must be appropriately distributed, see Ohio Rev.Code § 1782.46, it is possible that the Limited Partnership assets vested in WaMu FA pursuant to the underlying partnership agreement or as a result of distribution during the winding-up process. See id. (“Except as otherwise provided in the partnership agreement, the general partners.... may wind up the affairs of a limited partnership ... [and] may do any or all of the following ...: (3) Dispose of and convey the property of the limited partnership; ... (5) Distribute to the partners any remaining assets of the limited partnership.”). Simply put, there is insufficient evidence on the summary judgment record to conclude either that the Mortgage remains an asset of the Limited Partnership (as the Debtor argues) or became property of WaMu FA (as Wells Fargo argues). Accordingly, the Court cannot determine whether Washington Mutual owned the Mortgage at the time it executed the Assignment to Wells Fargo and both parties’ motions for summary judgment must be denied.
III. CONCLUSION
For the foregoing reasons, the Court will deny both the Debtor’s and Wells Fargo’s motions for summary judgment. However, in accordance with the conclusions of law reached herein, a further evidentiary hearing is necessary only to resolve the limited issue of whether the Mortgage, as an asset of the Limited Partnership, ultimately became an asset of Washington Mutual, allowing the assignment of the Mortgage from Washington Mutual to Wells Fargo. An order in conformity with this memorandum shall issue forthwith.
. Many of the relevant facts were also detailed in this Court’s earlier memorandum regarding the defendant’s motion to dismiss. See Bailey v. Wells Fargo Bank, NA (In re *467Bailey), 437 B.R. 721 (Bankr.D.Mass.2010) ("Bailey I”).
. The Property was originally purchased by the Debtor and her former husband in 1984. The mortgage loan at issue here was incurred by the Debtor to purchase her former husband's interest in the Property pursuant to a judgment of divorce and modification agreement. Bailey I, 437 B.R. at 724 n. 1.
. The Servicemembers Civil Relief Act (the "Servicemembers Act”), 50 U.S.C.App. §§ 501-591, prevents the foreclosure of a mortgage where the owner of the property is an armed servicemember and the mortgage was entered into prior to the start of military service; the act “restricts foreclosures against active duty members of the uniformed services.” Akar v. Fed. Nat’l Mortg. Ass’n, - F.Supp.2d -, 2012 WL 661458, *12 (D.Mass. Feb. 8, 2012). In Massachusetts, a special legislative act created a “court procedure to determine that no one interested in the property is in the military service.” See Bailey I, 437 B.R. at 724 n. 2 (quoting 28 Mass. Prac. § 10.4).
. See 11 U.S.C. § 101 et seq. (the "Bankruptcy Code” or the “Code”).
. In order to validly foreclose on property under power of sale, "advance notice of the foreclosure sale [must be] provided to the mortgagor, to other interested parties, and by publication in a newspaper published in the town where the mortgaged land lies or of general circulation in that town.” U.S. Bank Nat’l Ass’n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40, 50 (2011). The Debtor has not argued that Wells Fargo failed to appropriately publish notice of the Foreclosure Sale in the relevant newspaper, and her arguments are targeted only at the adequacy of the notice provided directly to the Debtor.
. According to Wells Fargo, identical copies of the Foreclosure Notices were sent by certified and first class mail to two different versions of the Debtor’s address (one identifying the building and unit of the condominium complex in which the Property is located and the other identifying the address by the unit number only). Hedvig Aff. 2 ¶ 8. The Debtor has not argued that either form of address was incorrect or incomplete.
. WaMu HLI was also a wholly-owned subsidiary of WaMu FA.
. In its original brief submitted in support of the summary judgment motion, Wells Fargo supported this argument with a citation to an order from the Land Court, cited as JP Morgan Mortg. Acquisition Corp. v. Lord, Land Court Case No. 10 MISC 427846, Memorandum and Order Denying Defendant’s Motion to Vacate Judgment and Dismiss Plaintiffs’ Complaint (Nov. 29, 2010) (Long, J.). See Wells Fargo Mem. in Supp. of Mot. for Summ. J. 8, Oct. 6, 2011, ECF No. 60. This citation is, at least so far as the Court was able to discern, insufficient to allow easy access to a copy of the referenced order in a publicly-available database, and Wells Fargo failed to attach a copy of the order to its brief. As such, the Court is unable to lend any persuasive value to the quote from that order provided by Wells Fargo.
. At the hearing on the parties’ motions for summary judgment, counsel for Wells Fargo also directed the Court’s attention to two additional cases (which were not, as represented by counsel, cited in Wells Fargo's brief). Those cases, Kiah v. Aurora Loan Servs., LLC, Slip Copy, Civil Action No. 10-40161-FDS, 2011 WL 841282 (D.Mass. March 4, 2011), and In re Lopez, 446 B.R. 12 (Bankr.D.Mass. 2011), are discussed later in this memorandum.
. Viewing both parties' arguments relative to the Land Court Order to be somewhat sparse, at the conclusion of the hearing on the summary judgment motions, the Court asked the parties to provide further briefing on the preclusive effect, if any, of the Land Court Order. Both parties have done so.
. The Debtor raises additional arguments premised on the fact that many of the documents relied on by Wells Fargo to demonstrate how ownership of the Mortgage changed, through various corporate mergers and name changes, were not recorded in the relevant Registry of Deeds. The Debtor has asserted, with no citation to relevant case law or statute, that those documents should have been recorded because the various corporations were foreign to Massachusetts and were not registered to do business in Massachusetts. Because they were not recorded, the Debtor says a title examiner would not be able to ascertain how title ultimately vested in Wells Fargo. In Bailey I, however, the Court specifically rejected the Debtor’s assertion that the documents on record at the time of the foreclosure had to demonstrate an unbroken chain of ownership of the Mortgage from Shawmut Mortgage to Wells Fargo. 437 B.R. at 728-29. And the SJC has subsequently agreed, holding that although a foreclosing party must have evidence that they hold the Mortgage at the time the foreclosure notice is sent, recording of those documents prior to the sending of the foreclosure notice, while perhaps the best practice, is not required. See U.S. Bank Nat'l Ass'n v. Ibanez, 458 Mass. 637, 941 N.E.2d 40, 53 (2011); Bailey I, 437 B. R. at 728-29 (citing U.S. Bank Nat'l Ass’n v. Ibanez, Nos. 384283(KCL), 386018(KCL), 386755(KCL), 2009 WL 795201 (Mass.Land Ct. March 26, 2009); U.S. Bank Nat'l Ass'n v. Ibanez, Nos. 08 Misc. 384283(KCL), 08 Misc. 386755(KCL), 2009 WL 3297551 (Mass. Land Ct. Oct. 14, 2009), aff'd 458 Mass. 637, 941 N.E.2d 40).
. As noted earlier, there is no assertion or evidence that notice of the Foreclosure Sale was not published in a relevant newspaper as required by MGL ch. 244, § 14.
. And, as the SJC explained further in Ibanez, if the foreclosing entity was not the holder of the mortgage at the time it sent notice of the foreclosure and claimed status as holder of the mortgage, "the failure to identify the [correct] holder of the mortgage in the notice of sale may render the notice defective and the foreclosure sale void." Id.
. In her post-hearing brief, the Debtor raises an additional scattershot attack on the Assign*474ment directly, arguing that the individual who executed the Assignment has been the subject of "widespread national scrutiny.” Pl.’s Post-Hr'g Mem. in Supp. of PL's Mot. for Summ. J. 20, Jan. 5, 2012, ECF No. 81. Based on allegations raised in other (unrelated) cases, the Debtor maintains that the “Assignment was prepared ... years after the events recited therein, and signed by someone who had no personal knowledge of the facts or events,” and is "nothing short of outright fraud.” Id. at 21. While the Court could simply ignore this untimely argument to which Wells Fargo has had no opportunity to respond, see Correia v. Deutsche Bank Nat’l Trust Co. (In re Correia), 452 B.R. 319, 323 (1st Cir. BAP 2011), the Court feels compelled to note its lack of merit based on extant case law, see, e.g., Id. at 323-24; Culhane, 826 F.Supp.2d at 373-78; Peterson v. GMAC Mortg., Civil Action No. 11-11115-RWZ, 2011 WL 5075613, *4-5 (D.Mass. Oct. 25, 2011); Rosa v. Mortg. Elec. Sys., Inc., 821 F.Supp.2d 423, 429-31 (D.Mass.2011); In re Marron, 455 B.R. 1, 8 (Bankr.D.Mass.2011); Kiah, 2011 WL 841282, at *7.
. While Judge Hillman did address the debt- or's additional attacks on an assignment of the mortgage, those claims were found deficient not because the debtor lacked standing to challenge the assignment of his mortgage, but because the Debtor had failed to articulate any affirmative objection to the allegedly defective assignment in that case. Id. at 19.
. The Court expresses no opinion here on whether it would agree with those courts that have rejected challenges to foreclosures based on the borrowers’ lack of standing to challenge an assignment and have concluded that the SJC, in Ibanez, “did not intend to 'give [] Massachusetts mortgagors a legally protected interest in assignments to which they are not a party....’” Oum,-F.Supp.2d-, 2012 WL 390271, at *6 (quoting Peterson, 2011 WL 5075613, at *3). The Court notes, however, that other courts in this district have assumed jurisdiction and recognized a borrower's standing to bring such actions based on the SJC’s conclusion that foreclosures conducted by non-mortgage holders are void. See, e.g., Rosa, 821 F.Supp.2d at 429 n. 5 (“Under Massachusetts law, 'any effort to foreclose by a party lacking "jurisdiction and authority” to carry out a foreclosure ... is void.’ The Plaintiffs appear to have standing under this principle, because the allegations, if proven, would render the foreclosure sale void, under Massachusetts law.”); see also Culhane, 826 F.Supp.2d at 367-68 (possible cloud on title that may reduce value of property at foreclosure and thus increase deficiency claim was sufficient to give borrower standing to challenge authority of assignor to assign mortgage); cf. Bevilacqua v. Rodriguez, 460 Mass. 762, 955 N.E.2d 884, (2011) (mortgagor retains an interest in the property by holding the equity of redemption until a valid foreclosure sale is conducted).
. “In Massachusetts, a 'mortgage splits the title in two parts: the legal title, which becomes the mortgagee’s, and the equitable title, which the mortgagor retains.' ” Bevilacqua, 955 N.E.2d at 895 (quoting Maglione v. BancBoston Mortg. Corp., 29 Mass.App.Ct. 88, 557 N.E.2d 756, 757 (1990)). The equitable title, or "equity of redemption,” retained by the mortgagor "[is] the basic and historic right of a debtor to redeem the mortgage obligation after its due date, and ultimately to insist on foreclosure as the means of terminating the mortgagor’s interest in the mortgaged real estate.” Id. (quoting Restatement (Third) of Property (Mortgages) c.3, Introductory note at 97 (1996)).
. In its post-hearing brief, Wells Fargo argues, as an additional ground for affirming the validity of the Foreclosure Sale, that any defect in the Assignment could, in accordance with the SJC's statements in Ibanez, be resolved by the recording of a "confirmatory assignment.” While the SJC indicated that a post-foreclosure "confirmatory assignment” may be used in cases where a valid preforeclosure assignment of mortgage was made but "is not in recordable form or bears some defect,” the court also stressed that such a confirmatory assignment "cannot confirm an assignment that was not validly made earlier.” Ibanez, 941 N.E.2d at 55. If the Court finds that Washington Mutual did not hold the Mortgage at the time the Assignment was executed, then there is no "valid” assignment to which a confirmatory assignment could refer.
. In Massachusetts, real property may be either registered or unregistered (recorded) land. Real estate in Massachusetts primarily consists of unregistered land, which is conveyed by the delivery of a deed. 28 Mass. Prac., Real Estate Law § 4.59. Registered land is not recorded in the same manner as other real estate, but is governed by Massachusetts statutes codifying a version of what is commonly referred to as a "Torrens System” for the registration of land titles. See, e.g. The Torrens System, 25 Law. & Banker. Cent. L.J. 226 (1932). Registered land has gone through an adjudication process in order to quiet title, and "the Commonwealth guarantees and insures the title to land that is registered.” 28 Mass. Prac., Real Estate Law § 22.1. A certificate of title in registered property is stored on the "registered land side of the registry of deeds,” 28 Mass, frac., Real Estate Law § 31A.1, and may be altered only through an action (like the S-Petition referred to here) brought in the Land Court, see MGL ch. 185 § 114. | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350212/ | Matter of Williamsviile Residents Opposed To Blocher Redevelopment, LLC v Village of Williamsville Planning & Architectural Review Bd. (2022 NY Slip Op 07421)
Matter of Williamsviile Residents Opposed To Blocher Redevelopment, LLC v Village of Williamsville Planning & Architectural Review Bd.
2022 NY Slip Op 07421
Decided on December 23, 2022
Appellate Division, Fourth Department
Published by New York State Law Reporting Bureau pursuant to Judiciary Law § 431.
This opinion is uncorrected and subject to revision before publication in the Official Reports.
Decided on December 23, 2022
PRESENT: SMITH, J.P., LINDLEY, CURRAN, AND WINSLOW, JJ. (Filed Dec. 23, 2022.)
MOTION NO. (634/22) CA 21-01052.
[*1]IN THE MATTER OF WILLIAMSVIILE RESIDENTS OPPOSED TO BLOCHER REDEVELOPMENT, LLC, CHRISTINE HUNT, DANIEL HUNT, RICHARD CUMMINGS, KATHLEEN CUMMINGS, REBECCA WALSER, RUDOLPH HEIN, WILLIAM HEIN, DIANE HEIN AND VICTORIA D'ANGELO, PETITIONERS-APPELLANTS,
vVILLAGE OF WILLIAMSVILLE PLANNING AND ARCHITECTURAL REVIEW BOARD, VILLAGE OF WILLIAMSVILLE, NEW YORK, THE BLOCHER HOMES, INC., AND PEOPLE, INC., RESPONDENTS-RESPONDENTS.
MEMORANDUM AND ORDER
Motion for leave to appeal to the Court of Appeals denied. | 01-04-2023 | 12-23-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350384/ | IN THE COURT OF CRIMINAL APPEALS
OF TEXAS
NO. WR-31,536-07
EX PARTE ROBERT ALAN FRATTA, Applicant
ON APPLICATION FOR POST-CONVICTION WRIT OF HABEAS CORPUS
AND MOTION TO STAY THE EXECUTION IN CAUSE NO. 1195044
IN THE 230TH JUDICIAL DISTRICT COURT
HARRIS COUNTY
Per curiam.
ORDER
This is a subsequent application for a writ of habeas corpus filed pursuant to the
provisions of Texas Code of Criminal Procedure Article 11.071 § 5 and a motion to stay
Applicant’s execution.1
In June 2009, a jury convicted Applicant of the offense of capital murder for the
death of his estranged wife. See TEX. PENAL CODE ANN. § 19.03(a). The jury answered
1
Unless otherwise indicated all references to Articles in this order refer to the Code of
Criminal Procedure.
Fratta - 2
the special issues submitted under Article 37.071 and the trial court, accordingly, set
Applicant’s punishment at death.
This Court affirmed Applicant’s conviction and sentence on direct appeal, denied
habeas relief on his initial Article 11.071 writ application, and dismissed his first and
second subsequent Article 11.071 applications as abuses of the writ. Fratta v. State, No.
AP-76,188 (Tex. Crim. App. Oct. 5, 2011) (not designated for publication); Ex parte
Fratta, No. WR-31,536-04 (Tex. Crim. App. Feb. 12, 2014) (not designated for
publication); Ex parte Fratta, No. WR-31,536-05 (Tex. Crim. App. June 30, 2021) (not
designated for publication); Ex parte Fratta, No. WR-31,536-06 (Tex. Crim. App. May
25, 2022) (not designated for publication).
This Court received this, Applicant’s third subsequent Article 11.071 application
for a writ of habeas corpus, on December 15, 2022. However, the pleading does not
comply with the rules. Effective August 1, 2022, this Court amended Texas Rule of
Appellate Procedure 9.4(i) (length of documents) to limit an Article 11.071 subsequent
application to “37,500 words if computer-generated, and 125 pages if not.” Applicant’s
writ application is 251 pages long – more than double the allowed length.
Therefore, Applicant has until December 27, 2022, to file an amended application
with the convicting court in a form that complies with the rules or to show good cause to
this Court why he should be allowed to file a longer pleading.
IT IS SO ORDERED THIS THE 20th DAY OF DECEMBER, 2022.
Fratta - 3
Do Not Publish | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350388/ | COURT OF APPEALS FOR THE
FIRST DISTRICT OF TEXAS AT HOUSTON
ORDER
Appellate case name: Reynaldo Morales v. Travelers Indemnity Co. of Connecticut
Appellate case number: 01-21-00549-CV
Trial court case number: 2013-54065
Trial court: 165th District Court of Harris County
After dismissing this appeal, the Court denied appellant’s motions for rehearing and for en
banc reconsideration on June 21, 2022. Mandate issued on September 2, 2022.
Appellant filed a motion to reinstate on September 2, 2022. Two other documents were
received from appellant on September 21, 2022 and October 14, 2022.
An appellate court’s plenary power expires 30 days after it overrules all timely filed
motions for rehearing and for en banc reconsideration. See TEX. R. APP. P. 19.1(b). After plenary
power expires, an appellate court may not vacate or modify its judgment, but it may correct a
clerical error in its judgment or opinion, issue and its recall mandate as provided by the rules,
enforce or suspend enforcement of its judgment as provided by law, order or modify the amount
and type of security required to suspend a judgment, decide sufficiency of the sureties under rule
24, and order its opinion published. See TEX. R. APP. P. 19.3.
Because our mandate issued on September 2, 2022, the Court lacks plenary power to take
any further action in this case on the motion filed on September 2, 2022. Future filings, if any,
will be marked as filed, but no action will be taken.
It is so ORDERED.
Judge’s signature: ____/s/ Justice Richard Hightower______
Acting individually Acting for the Court
Date: ___December 22, 2022_____ | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/9350368/ | Petition for Writ of Mandamus Denied and Memorandum Opinion filed
December 20, 2022.
In The
Fourteenth Court of Appeals
NO. 14-22-00845-CV
IN RE ELAINE T. MARSHALL, AS TRUSTEE OF THE MARSHALL
GRANDCHILDREN’S TRUST, Relator
ORIGINAL PROCEEDING
WRIT OF MANDAMUS
Probate Court No. 4
Harris County, Texas
Trial Court Cause No. 443,778
MEMORANDUM OPINION
On November 15, 2022, relator Elaine T. Marshall, as Trustee of the
Marshall Grandchildren’s Trust filed in this Court a petition for writ of mandamus
as well as a motion to stay the underlying trial. See Tex. Gov’t Code Ann.
§ 22.221; see also Tex. R. App. P. 52. In the petition, relator asks this Court to
compel the Honorable James Horwitz, presiding judge of the Probate Court No. 4
of Harris County, to vacate portions of the trial court’s November 1, 2022 order
that pre-admitted two trial exhibits in favor of the real party in interest.
On November 17, 2022, this Court denied relator’s motion to stay the
underlying trial, which was set to commence on November 28, 2022.
On December 14, 2022, counsel for the real party in interest notified this
Court by letter that the underlying case had proceeded to trial, resulting in a jury
verdict on December 9, 2022. The real party in interest attached a copy of the jury
verdict to his letter as an exhibit. The real party in interest maintains that this
development renders moot the relief sought in relator’s mandamus petition as well
as any request for response from the real party in interest. This Court agrees.
Relator has not established that she is entitled to mandamus relief.
Accordingly, we deny relator’s petition for writ of mandamus.
PER CURIAM
Panel consists of Justices Wise, Jewell, and Poissant.
2 | 01-04-2023 | 12-26-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488531/ | Fourth Court of Appeals
San Antonio, Texas
November 16, 2022
No. 04-22-00680-CV
IN THE INTEREST OF A.N.C., E.L.G., I.C.C.-G., AND O.N.C.-G., CHILDREN
From the 288th Judicial District Court, Bexar County, Texas
Trial Court No. 2020-PA-01192
Honorable Martha Tanner, Judge Presiding
ORDER
This is an accelerated appeal of an order terminating appellant’s parental rights which
must be disposed of by this court within 180 days of the date the notice of appeal is filed. TEX.
R. JUD. ADMIN. 6.2. Appellant’s brief was originally due on November 14, 2022. On that date,
appellant filed a motion requesting a twenty-day extension of time and asking the exhibits
admitted into evidence, and indexed in volume 4 of the Reporter’s Record, be filed with the
Court. On November 16, 2022, the court reporter filed those exhibits.
After consideration, we GRANT the motion and ORDER appellant to file his brief by
December 5, 2022. Appellant is advised that further extensions of time will be disfavored.
It is so ORDERED on November 16, 2022.
PER CURIAM
ATTESTED TO: ________________________
MICHAEL A. CRUZ,
CLERK OF COURT | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488534/ | Fourth Court of Appeals
San Antonio, Texas
November 16, 2022
No. 04-22-00721-CR
Joshua SCHULZ,
Appellant
v.
The STATE of Texas,
Appellee
From the County Court, Wilson County, Texas
Trial Court No. CC22050187
Richard L. Jackson, Judge Presiding
ORDER
On October 28, 2022, appellant filed a Motion to Extend Deadline for Filing Notice of
Appeal. On that same day, appellant filed a timely Notice of Appeal. We therefore DENY the
motion as MOOT.
_________________________________
Beth Watkins, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 16th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
https://www.courtlistener.com/api/rest/v3/opinions/8488533/ | Fourth Court of Appeals
San Antonio, Texas
November 16, 2022
No. 04-22-00412-CR
Paul YBARRA,
Appellant
v.
The STATE of Texas,
Appellee
From the 226th Judicial District Court, Bexar County, Texas
Trial Court No. 2020CR6360
Honorable Laura Lee Parker, Judge Presiding
ORDER
On November 7, 2022, appellant’s court-appointed attorney filed a brief and motion to
withdraw pursuant to Anders v. California, 386 U.S. 738 (1967), in which counsel asserts there
are no meritorious issues to raise on appeal. Counsel sent copies of the brief and motion to
withdraw to appellant and explained appellant’s rights to review the record, file a pro se brief,
and file a pro se petition for discretionary review if this court determines the appeal is frivolous.
See Kelly v. State, 436 S.W.3d 313 (Tex. Crim. App. 2014). In addition, counsel’s letter
explained how to obtain the record and enclosed a motion for this purpose. See id. As of the date
of this order, appellant has not filed the record-request motion provided to him by his counsel. If
appellant desires to file a pro se brief, we order he do so by December 16, 2022.
At this time, the State has filed a notice waiving its right to file a brief in this case unless
appellant files a pro se brief. If appellant files a timely pro se brief, the State may file a
responsive brief no later than thirty days after appellant’s pro se brief is filed in this court.
We further ORDER the motion to withdraw filed by appellant’s counsel held in
abeyance pending further order of the court. See Penson v. Ohio, 488 U.S. 75, 80–82 (1988)
(holding motion to withdraw should not be ruled on before appellate court independently reviews
record to determine whether counsel’s evaluation that appeal is frivolous is sound); Schulman v.
State, 252 S.W.3d 403, 410–11 (Tex. Crim. App. 2008) (same); see also Kelly, 436 S.W.3d at
319 (appointed counsel’s duties of representation do not cease when he files a motion to
withdraw; counsel must continue to “act with competence, commitment and dedication to the
interest of the client” until the court of appeals grants the motion). Accordingly, no new attorney
will be appointed for appellant at this time.
_________________________________
Luz Elena D. Chapa, Justice
IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the said
court on this 16th day of November, 2022.
_________________________________
Michael A. Cruz,
Clerk of Court | 01-04-2023 | 11-22-2022 |
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